Back to GetFilings.com
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-9785
TRI CITY BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1158740
- --------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
6400 S. 27th Street, Oak Creek, WI
-----------------------------------
(Address of principal executive offices)
53154
--------
Zip Code
(414) 761-1610
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES NO X
----- -----
The number of shares outstanding of $1.00 par value common stock, as of April
30, 2005: 8,517,100 shares.
FORM 10-Q
TRI CITY BANKSHARES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page #
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 2005 and December 31, 2004 3
Condensed Consolidated Statements of Income
for the Three Months ended March 31, 2005
and 2004 4
Condensed Consolidated Statements of Cash Flows
For the Three Months ended March 31, 2005
and 2004 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 15
Item 4 Controls and Procedures 15
PART II - OTHER INFORMATION
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 6 17
Signatures 18
2
TRI CITY BANKSHARES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 December 31
2005 2004
---- ----
Assets
Cash and due from banks $ 22,948,299 $ 35,425,012
Federal funds sold 3,709,097 -
------------ ------------
Cash and cash equivalents
Investment securities held to maturity
(fair value of
$156,694,165 - 2005 and
$159,585,976 - 2004) 158,300,225 159,451,575
Loans, less allowance for loan losses of
$5,632,051 - 2005 and
$5,641,593 - 2004 471,256,165 465,603,614
Premises and equipment 20,741,481 20,541,600
Cash surrender value of life insurance 10,460,418 10,361,935
Mortgage servicing rights 955,842 957,565
Accrued interest receivable and other assets 4,766,388 4,276,731
------------ ------------
TOTAL ASSETS $693,137,915 $696,618,032
============ ============
Liabilities and Stockholders' Equity
Deposits
Demand $153,527,596 $161,574,101
Savings and NOW 318,889,727 340,020,788
Other time 92,407,790 88,810,037
------------ ------------
Total Deposits 564,825,113 590,404,926
Federal funds purchased and securities sold
under repurchase agreements 29,589,461 9,485,945
Other borrowings 1,921,131 2,748,441
Accrued interest payable and other liabilities 2,272,589 1,430,182
------------ ------------
Total liabilities 598,608,294 604,069,494
------------ ------------
Stockholders' equity:
Common stock, $1 par value:
15,000,000 shares authorized,
Issued and outstanding:
2005 - 8,468,525 shares;
2004 - 8,413,621 shares 8,468,525 8,413,621
Additional paid in capital 18,523,586 17,507,720
Retained earnings 67,537,510 66,627,197
------------ ------------
Total stockholders' equity 94,529,621 92,548,538
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $693,137,915 $696,618,032
============ ============
See Notes to Unaudited Condensed Consolidated Financial Statements.
3
TRI CITY BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Interest income
Interest and fees on loans $7,735,908 $6,701,572
Interest on investment securities:
Taxable 910,581 668,089
Tax Exempt 483,947 703,744
Interest on federal funds sold 1,341 385
---------- ----------
Total interest income 9,131,777 8,073,790
---------- ----------
Interest expense
Deposits 1,367,771 1,130,388
Other borrowings 185,178 56,522
---------- ----------
Total interest expense 1,552,949 1,186,910
---------- ----------
NET INTEREST INCOME 7,578,828 6,886,880
Provision for loan losses - 105,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,578,828 6,781,880
---------- ----------
NON-INTEREST INCOME
Service charges and fees 1,167,529 1,264,098
Loan related fees and mortgage banking
revenue 9,006 39,525
Increase in cash surrender value of life
insurance 98,483 90,484
Other income 839,957 180,615
---------- ----------
Total non-interest income 2,114,975 1,574,722
---------- ----------
NON-INTEREST EXPENSES
Salaries and employee benefits 3,402,682 3,426,066
Net occupancy costs 547,065 524,505
Furniture and equipment expenses 400,296 374,285
Computer services 438,081 424,328
Advertising and promotional 276,727 172,119
Regulatory agency assessments 60,407 57,815
Office supplies 119,379 126,378
Other expenses 644,200 649,370
---------- ----------
Total non-interest expense 5,888,837 5,754,866
---------- ----------
Income before income taxes 3,804,966 2,601,736
Provision for income taxes 1,254,000 700,000
---------- ----------
NET INCOME $2,550,966 $1,901,736
========== ==========
Basic earnings per share $ 0.30 $ 0.23
Weighted average shares outstanding 8,455,462 8,268,658
See Notes to Unaudited Condensed Consolidated Financial Statements.
4
TRI CITY BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
OPERATING ACTIVITIES
Net income $ 2,550,966 $ 1,901,736
Adjustments to reconcile net income
to net cash flows from operating
activities
Depreciation 542,766 539,724
Amortization of premiums and accretion of
discounts on investment securities - net 29,593 119,423
Gain on sale of loans (60,357) (130,363)
Provision for loan losses - 105,000
Proceeds from sales of loans held for sale 6,617,054 12,595,205
Originations of loans held for sale (6,556,697) (12,464,842)
Increase in cash surrender value of life
insurance (98,483) (90,484)
Net change in accrued interest receivable
and other assets (487,934) (471,408)
Net change in accrued interest payable and
other liabilities 842,408 (48,096)
------------ ------------
Net cash flows from operating activities 3,379,316 2,055,895
------------ ------------
INVESTING ACTIVITIES
Maturities, prepayments, and calls in held to
maturity securities 3,644,927 29,030,526
Purchases of held to maturity securities (2,523,170) (14,873,000)
Net increase in loans (5,652,551) (17,039,795)
Purchases of premises and equipment - net (742,647) (227,995)
------------ ------------
Net cash flows from investing activities (5,273,441) (3,110,264)
------------ ------------
FINANCING ACTIVITIES
Net decrease in deposits (25,579,813) (10,064,698)
Net change in federal funds purchased
and securities sold under repurchase
agreements 20,103,516 (3,258,353)
Net change in other borrowings (827,310) (765,409)
Dividends paid (1,640,654) (1,439,123)
Common stock issued - net 1,070,770 1,167,353
------------ ------------
Net cash flows from operating activities (6,873,491) (14,360,230)
------------ ------------
Net change in cash and cash equivalents (8,767,616) (15,414,599)
Cash and cash equivalents at the beginning of year 35,425,012 40,849,479
------------ ------------
Cash and cash equivalents at the end of period $ 26,657,396 $ 25,434,880
============ ============
See Notes to Unaudited Condensed Consolidated Financial Statements.
5
TRI CITY BANKSHARES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
These financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Annual Report on Form
10-K of Tri City Bankshares Corporation ("Tri City" or the "Corporation") for
the year ended December 31, 2004. The December 31, 2004 financial information
included herein is derived from the December 31, 2004 Consolidated Balance Sheet
of Tri City which is included in the aforesaid Annual Report on Form 10-K.
In the opinion of Tri City's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments, consisting
of normal recurring accruals, necessary to present fairly Tri City's
consolidated financial position as of March 31, 2005 and the results of its
operations and cash flows for the three month periods ended March 31, 2005 and
2004. The preparation of consolidated financial statements requires management
to make estimates and assumptions that affect the recorded amounts of assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. The operating results for the first three months of 2005 are
not necessarily indicative of the results which may be expected for the entire
2005 fiscal year.
6
(B) Recent Accounting Developments
On December 15, 2004, the Financial Accounting Standards Board ("FASB")
issued Statement No. 123R, "Share-Based Payment" ("SFAS 123R"), which requires
compensation costs related to share-based payment transactions to be recognized
in the financial statements. With limited exceptions, the amount of the
compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will be
re-measured each reporting period. Compensation cost will be recognized over the
period that an employee provides service in exchange for the award. SFAS 123R
replaces FASB Statement no. 123, "Accounting for Stock Issued to Employees."
SFAS 123R is effective for the Corporation's three month reporting period ending
March 31, 2006. Early adoption is encouraged and retroactive application of the
provisions of SFAS 123R to the beginning of the fiscal year that includes the
effective date is permitted, but not required. The Corporation has not adopted
this pronouncement and is currently evaluating the impact that the adoption of
SFAS 123R will have on its consolidated financial statements.
7
ITEM 2
TRI CITY BANKSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
This report contains statements that may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, such as statements other than historical facts contained or incorporated
by reference in this report. These statements speak of the Corporation's plans,
goals, beliefs or expectations, refer to estimates or use similar terms. Future
filings by the Corporation with the Securities and Exchange Commission, and
statements other than historical facts contained in written material, press
releases and oral statements issued by, or on behalf of the Corporation may also
constitute forward-looking statements.
Forward-looking statements are subject to significant risks and
uncertainties and the Corporation's actual results may differ materially from
the results discussed in such forward-looking statements. Factors that might
cause actual results to differ from the results discussed in forward-looking
statements include, but are not limited to, the factors set forth in Exhibit
99.1 of the Corporation's Annual Report on Form 10-K for the year ended December
31, 2004, which exhibit is incorporated herein by reference.
All forward-looking statements contained in this report or which may be
contained in future statements made for or on behalf of the Corporation are
based upon information available at the time the statement is made and the
Corporation assumes no obligation to update any forward-looking statement.
8
CRITICAL ACCOUNTING POLICIES
A number of accounting policies require us to use our judgment. Three of
the more significant policies are:
o Establishing the amount of the provision and allowance for loan
losses. We evaluate our loan portfolio at least quarterly to determine
the adequacy of the allowance for loan losses. Included in the review
are five components: (1) An historic review of losses and allowance
coverage based on peak and average loss volume; (2) A review of
portfolio trends in volume and composition with attention to possible
concentrations; (3) A review of delinquency trends and loan
performance compared to our peer group; (4) A review of local and
national economic conditions; and (5) A quality analysis review of
non-performing loans identifying charge-offs, potential loss after
collateral liquidation and credit weaknesses requiring above normal
supervision. If we misjudge the adequacy of the allowance and
experience additional losses, a charge to earnings may result.
o Establishing the value of mortgage servicing rights. Mortgage
servicing rights ("MSRs") are established on loans (primarily mortgage
loans) that we originate and sell, but continue to service as we
collect the payments and tax escrows. Generally accepted accounting
principles require that we recognize as income the estimated fair
market value of the asset when originated, even though management does
not intend to sell these rights. The estimated value of MSRs is the
present value of future net cash flows from the servicing relationship
using current market assumptions for factors such as prepayments and
servicing costs. As the loans are repaid and the servicing revenue is
earned, MSRs are amortized. Net servicing revenues and newly
originated MSRs generally exceed this amortization expense. However,
if actual prepayment experience is greater than anticipated and new
loan volume declines, net servicing revenues may be less than expected
and a charge to earnings may result.
9
o Determining the amount of current and deferred income taxes. The
determination of current and deferred income taxes is based on complex
analyses of many factors including interpretation of federal and state
income tax laws, the difference between tax and financial reporting of
reversals of temporary differences and current accounting standards.
The federal and state taxing authorities who make assessments based on
their determination of tax laws periodically review the Corporation's
interpretation of federal and state tax laws. This assessment may
result in an adjustment to amounts previously provided for.
FINANCIAL CONDITION
The Corporation's total assets have decreased $3.5 million (0.5%) during
the first quarter of 2005. Cash and cash equivalents decreased $8.8 million
(24.7%) during that period, associated with activity normally seen during the
first quarter. Typically the Corporation's banking subsidiary experiences a
short-term increase in deposits at year-end associated with municipal deposits
of property taxes and commercial deposits resulting from holiday spending, which
return to normal levels by the end of the first quarter.
Investment securities decreased $1.2 million (0.7%) during the first
quarter of 2005. During the first quarter, approximately $4.2 million of the
banking subsidiary's investment portfolio was redeemed through normal maturities
or scheduled calls. Management continues to replace these investments by seeking
investments with maturities of three to five years while maintaining quality.
Management continues to follow its practice of holding to maturity its
investment portfolio.
Net loans increased $5.7 million (1.2%) during the first quarter of 2005.
Commercial loan growth was good in 2004 with total loans increasing $59.0
million or 14.3% from year-end 2003 to 2004. Loan growth slowed however, in the
last two quarters of 2004, and continued to slow during the first quarter of
2005. Management remains optimistic that the pace of growth of the loan
portfolio will increase despite significant pressure from increased rates and
the competitive market.
10
The allowance for loan losses decreased $9,500 (0.2%) to $5.6 million
during the first three months of 2005. The continued high quality of the assets
in the banking subsidiary's commercial, real estate and installment loan
portfolios have resulted in no additions to the loan loss allowance for the
first quarter. The nominal decrease represents the net difference of charge-offs
versus loan recoveries since December 31, 2004.
The allowance reflects management's best estimate of probable and
estimatable losses in the current loan portfolio that may occur in the ordinary
course of business, taking into consideration past loan loss experience; the
level of nonperforming and classified assets; current economic conditions;
volume, growth and composition of the loan portfolio; adverse situations that
may affect the borrower's ability to repay; the estimated value of any
underlying collateral; peer group comparisons; regulatory guidance and other
relevant factors. Management continues to monitor the quality of new loans that
the Corporation originates each year as well as review existing loan
performance.
Deposits at the Corporation decreased $25.6 million (4.3%) during the first
quarter of 2005. As noted above, there is typically a short-term increase in
municipal and commercial deposits in December of each year. These deposits tend
to be transferred to other financial institutions for investment opportunity or
funds management programs.
Total borrowings of the Corporation increased $19.3 million (157.6%) during
the first three months of 2005. The Corporation's banking subsidiary adjusts its
level of daily borrowing or short term daily investment depending upon its needs
each day. Excess funds or funding requirements are addressed at the close of
each business day. Funding needs are available through the banking subsidiary's
federal funds facility through its primary correspondent bank.
11
The Corporation's equity increased $2.0 million (2.1%) during the first
quarter of 2005. The Corporation received proceeds of $1.1 million from the sale
of common stock primarily through the Dividend Reinvestment Plan offered to
shareholders and paid $1.6 million in dividends.
LIQUIDITY
The ability to provide the necessary funds for the day-to-day operations of
the Corporation depends on a sound liquidity position. Management has continued
to monitor the Corporation's liquidity by reviewing the maturity distribution
between interest earning assets and interest bearing liabilities. Fluctuations
in interest rates can be the primary cause for the flow of funds into or out of
a financial institution. The Corporation continues to offer products that are
competitive and encourage depositors to invest their funds in the Corporation's
banking subsidiary. Management believes that their efforts will help the
Corporation to not only retain these deposits, but also encourage continued
growth. The banking subsidiary of the Corporation has the ability to borrow up
to $45.0 million in federal funds purchased, and an additional $37.3 million is
available for short-term liquidity through reverse repurchase agreements
available through its correspondent banking relationships.
CAPITAL EXPENDITURES
The banking subsidiary is currently upgrading 200 employee PC workstations
at a cost of $0.8 million. In addition, the Office of the Comptroller of the
Currency approved three new branch applications of the banking subsidiary during
12
the first quarter of 2005. These locations are all in-store branches in new
Pick'n Save grocery stores in the Milwaukee area scheduled to open during the
year.
There are no other major projects currently in place for 2005, however, if
a project is identified or an upgrade in equipment becomes necessary, the
Corporation has sufficient liquidity to internally fund any such expenditure.
RESULTS OF OPERATIONS
The Corporation's net income increased $649,200 (34.1%) during the first
quarter of 2005 compared to the same period in 2004. Net interest income
increased $692,000 (10%) to $7.6 million for the first quarter of 2005 compared
to $6.9 million for the first quarter last year as described below. The net
interest margin was further improved by $105,000 resulting from a decrease in
the provision for loan losses during the first quarter of 2005 as compared to
the comparable period in 2004.
Total interest income and fees on loans increased $1.1 million (13.1%) in
the first three months of 2005 compared to the first three months of 2004.
Year-to-date 2005 loan yields are up slightly to 5.84% from 5.81% in 2004. In
addition, the Board of Governors of the Federal Reserve increased the prime rate
by an additional 25 basis points on March 22, 2005 to 5.75%. However, portfolio
growth of $47.3 million over the comparable period last year is the primary
reason for the increase in interest earnings.
Investment security interest income increased $22,700 (1.7%) during the
first quarter of 2005 compared to the first quarter of 2004. The average tax
equivalent year-to-date yield derived from all investments increased modestly by
5 basis points during the first quarter of 2005 compared to the first quarter of
2004.
Approximately $33.4 million in investment securities are scheduled to
mature during the next nine months. In addition, approximately $91.5 million of
13
other securities are subject to calls during the same period. Such calls are
unlikely, however, given the current rising rate environment.
Interest expense increased $366,000 (30.8%) during the first quarter of
2005 compared to the first quarter of 2004. An increase in the year-to-date
yield of 25 basis points (from 1.16% to 1.41%) accounted for $274,000 of this
variance. The remaining $92,000 variance resulted from the increase in volume of
average interest bearing deposits and average borrowed funds of $32 million
during the first quarter of 2005 as compared to the first quarter of 2004.
Non-interest income increased $540,000 (34.3%) during the first quarter of
2005 compared to the same period of 2004. Non-interest income increased
primarily due to a $677,000 gain from the sale of the Corporation's interest in
Pulse, Inc., upon a switch in the Corporation's ATM network provider.
A summary of the change in income for the quarters ended March 31, 2005 and
2004 appears below:
Three Months Ended March 31, March 31, 2005
2005 2004 Over(Under)
(UNAUDITED) (UNAUDITED) 2004
----------- ----------- -----------
Revenue and Expenses: (000's)
Interest Income $ 9,132 $ 8,074 $ 1,058
Less: Interest Expense 1,553 1,187 366
------- ------- -------
Net Interest Income 7,579 6,887 692
Less: Provision for loan losses 0 105 (105)
------- ------- -------
Net interest income after
provision for loan losses 7,579 6,782 797
Non-interest Income 2,115 1,575 540
Non-interest Expenses 5,889 5,755 134
------- ------- -------
Income from Operations 3,805 2,602 1,203
Tax Provision 1,254 700 554
------- ------- -------
NET INCOME $ 2,551 $ 1,902 $ 649
======= ======= =======
14
CAPITAL ADEQUACY
Federal banking regulatory agencies have established capital adequacy
rules, which take into account risk attributable to balance sheet assets and
off-balance-sheet activities. All banks and bank holding companies must meet a
minimum risk-based capital ratio of 8.0%, of which 4.0% must be comprised of
Tier 1 capital.
The federal banking agencies also have adopted leverage capital guidelines
which banking organizations must meet. Under these guidelines, the most highly
rated banking organizations must meet a minimum leverage ratio of at least 3.0%
Tier 1 capital to total assets, while lower rated banking organizations must
maintain a ratio of at least 4.0% to 5.0% Tier 1 capital to total assets. The
risk-based capital ratio for the Corporation is 20.29% and its leverage ratio is
13.70% as of March 31, 2005.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's Annual Report on Form 10-K for the year ended December
31, 2004 contains certain disclosures about market risks affecting the
Corporation. There have been no material changes to the information provided
which would require additional disclosures as of the date of this filing.
ITEM 4 - CONTROLS AND PROCEDURES
The Corporation maintains a set of disclosure controls and procedures that
are designed to ensure that information required to be disclosed by it in the
reports filed by it under the Securities Exchange Act of 1934, as amended, is
recorded and processed, summarized and reported within the time periods
specified in the SEC's rules and forms. At the end of the last fiscal quarter,
the Corporation carried out an evaluation, under the supervision and with the
15
participation of management, including the Chief Executive Officer and President
who is also the Chief Financial Officer of the Corporation, of the effectiveness
of the design and operation of the Corporation's disclosure controls and
procedures pursuant to Rule 13a-(15e) and 15d - 15(e) of the Exchange Act. Based
on that evaluation, the Chief Executive Officer and President who is also the
Chief Financial Officer of the Corporation concluded that the Corporation's
disclosure controls and procedures are effective as of the end of the period
covered by this report.
There have been no changes in the Corporation's internal control over
financial reporting identified in connection with the evaluation discussed above
that occurred during the Corporation's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
16
PART II - OTHER INFORMATION
Item 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended March 31, 2005, the Corporation did not sell any
equity securities which were not registered under the Securities Act or
repurchase any of its equity securities.
Item 6 EXHIBITS
10.1 Summary of Compensation Arrangements with Mr. Gerardin
31 Rule 13a-14(a) Certification
32 Section 1350 Certification
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRI CITY BANKSHARES CORPORATION
DATE: May 13, 2005 /s/Henry Karbiner ,Jr.
--------------------- ---------------------------------------
Henry Karbiner, Jr.
President, Chief Executive Officer and
Treasurer (Principal Executive Officer)
DATE: May 13, 2005 /s/Thomas W. Vierthaler
--------------------- --------------------------------------
Thomas W. Vierthaler
Vice President and Comptroller
(Chief Accounting Officer)
18