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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
---------------------------------------------
Commission File Number: 0-25290
--------------------------------
Twin City Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1582947
- ----------------------- -----------------
(State of incorporation) (I.R.S. Employer
Identification No.)
310 State Street, Bristol Tennessee 37620
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(423) 989-4400
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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 require
ments for the past ninety days: Yes __x__ No ___
As of May 11, 1998, there are 1,249,427 shares of the
registrant's Common Stock, par value $1.00 per share, issued and
outstanding.
Transitional small business disclosure format (check one):
Yes _____ No __x__
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TWIN CITY BANCORP, INC. AND SUBSIDIARIES
----------------------------------------
Bristol, Tennessee
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INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (Unaudited) as of December
31, 1997 and March 31, 1998
Consolidated Statements of Comprehensive Income -
(Unaudited) for the three month periods ended March 31,
1997 and 1998
Consolidated Statements of Cash Flows- (Unaudited) for
the three month periods ended March 31, 1997 and 1998
Notes to (Unaudited) Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 1,283 $ 2,308
Interest-earning deposits 5,317 4,508
Investment securities (amortized cost -
$4,000 and $3,003) 4,004 3,010
Loans receivable, net 77,171 77,726
Loans held for sale 509 768
Mortgage-backed securities (amortized cost -
$15,149 and $16,499) 15,248 16,511
Premises and equipment, net 3,049 3,319
Real estate, net 89 89
Federal Home Loan Bank stock 720 733
Interest receivable 288 286
Other 1,009 1,108
-------- --------
Total Assets $108,687 $110,366
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</TABLE>
(continued on next page)
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
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<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $ 92,320 $ 91,972
Federal Home Loan Bank advances 1,000 2,500
Advance payments by borrowers for taxes
and insurance 187 554
Accrued expenses and other liabilities 288 396
Income taxes payable:
Current 256 280
Deferred 625 593
-------- --------
Total Liabilities 94,676 96,295
-------- --------
Stockholders' Equity
Common stock ($1 par value, 8,000,000
shares authorized; 1,268,527 shares issued
and outstanding at December 31, 1997 and
1,260,127 shares issued and outstanding at
March 31, 1998) 1,269 1,260
Paid-in capital 7,133 7,105
Retained earnings, substantially restricted 6,356 6,456
Unearned compensation:
Employee stock ownership plan (503) (485)
Management recognition plan (307) (277)
Accumulated other comprehensive income 63 12
-------- --------
Total Stockholders' Equity 14,011 14,071
-------- --------
Total Liabilities and Stockholders'
Equity $108,687 $110,366
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1998
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<S> <C> <C>
Interest income:
Loans $1,634 $1,762
Mortgage-backed securities 206 271
Investment securities 116 55
Interest-earning deposits 22 63
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Total interest income 1,978 2,151
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Interest expense:
Deposits 966 1,069
Federal Home Loan Bank advances 56 14
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Total interest expense 1,022 1,083
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Net interest income 956 1,068
Provision for loan losses 22 45
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Net interest income after
provision for loan losses 934 1,023
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Non-interest income:
Loan fees and service charges 83 62
Insurance commission and fees 9 17
Gain on sale of securities - 13
Gain on sale of loans 80 77
Income from rental of real estate 32 2
Other 12 9
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Total non-interest income 216 180
------ ------
Non-interest expense:
Compensation and employee benefits 415 452
Net occupancy expense 65 81
Deposit insurance premiums 14 14
Data processing 56 63
Provision for real estate losses 10 -
Other 176 124
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Total non-interest expense 736 734
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</TABLE>
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1998
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<S> <C> <C>
Income before income taxes 414 469
Income tax expense 163 185
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Net income 251 284
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Other comprehensive income:
Net unrealized gains (losses) on securities
available for sale, net of tax benefit of
$44 and tax benefit of $31, respectively (72) (51)
----- -----
Comprehensive income $ 179 $ 233
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Dividends paid per share $0.11 $0.10
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1998
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<S> <C> <C>
Net cash provided (used) by
operating activities $ 411 $ 394
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Cash flows from investing activities:
Purchase of investment securities
classified as available-for-sale (995) -
Maturities of investment securities 1,025 1,000
Proceeds from sale of mortgage-backed
securities - 1,788
Principal payments on mortgage-backed
securities 461 955
Purchase of mortgage-backed securities
classified as available-for-sale - (4,091)
Increase in cash surrender value of
life insurance (1) (2)
Net decrease (increase) in loans originated 1,267 589
Purchase of loans (1,601) (1,372)
Purchase of premises and equipment (95) (321)
Proceeds from sale of real estate 317 -
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Net cash provided (used) by
investing activities 378 (1,454)
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Cash flows from financing activities:
Net increase (decrease) in deposits (207) (348)
Increase in advance payments by borrowers
for taxes and insurance 368 367
Repayment of FHLB advances (9,700) -
Proceeds from FHLB advance 8,600 1,500
Dividends paid (128) (120)
Acquisition of treasury stock - (123)
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Net cash provided (used) by
financing activities (1,067) 1,276
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Net increase (decrease) in cash (278) 216
Cash at beginning of period 2,923 6,600
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Cash at end of the period $ 2,645 $ 6,816
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</TABLE>
(continued on next page)
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1997 1998
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<S> <C> <C>
Supplemental disclosures:
Noncash investing and financing activities:
Loans sold in exchange for mortgage-backed
security $ 1,501 $ -
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Unrealized loss on securities
available-for-sale net of income taxes $ 72 $ 51
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Capitalized mortgage servicing rights $ 85 $ 125
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Cash paid during the period for:
Interest $ 1,019 $ 1,055
Income taxes $ - $ 162
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
Note 1. - Basis of Presentation and Principals of Consolidation
-----------------------------------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and in
accordance with the instructions to Form 10-QSB. Accordingly,
they do not include all of the disclosures required by generally
accepted accounting principles for complete financial
statements. These consolidated financial statements include the
accounts of Twin City Bancorp, Inc. and its subsidiary, Twin
City Federal Savings Bank, and the Bank's wholly owned
subsidiaries, TCF Investors, Inc. and Magnolia Investment, Inc.,
and in consolidation all significant intercompany items are
eliminated. In the opinion of management, all adjustments
necessary for a fair presentation of the results of operations
for the interim periods presented have been made. Such
adjustments were of a normal recurring nature. The results of
operations for the interim periods are not necessarily
indicative of the results that may be expected for the entire
fiscal year.
Note 2. - Cash Flow Information
---------------------
As presented in the consolidated statements of cash flows, cash
and cash equivalents include cash on hand, interest-earning
deposits in other banks, and federal funds sold. The Company
considers all highly liquid instruments with original maturities
of three months or less to be cash equivalents.
Note 3. - Retained Earnings, Substantially Restricted
-------------------------------------------
Retained earnings represents the accumulated net income of the
Company since its origination date. In connection with the
insurance of savings accounts for the Bank, the Federal Deposit
Insurance Corporation (FDIC) requires that certain minimum
amounts be restricted to absorb certain losses as specified in
the insurance of accounts regulations. Because restricted
retained earnings is not related to amounts of losses actually
anticipated, the appropriations thereto have not been charged to
income in the accompanying consolidated financial statements.
Furthermore, the use of retained earnings by the Bank is
restricted by certain requirements of the Internal Revenue Code.
There are further restrictions on retained earnings directed by
the Office of Thrift Supervision where by the Bank is subject to
maintain a minimum amount of regulatory capital as well as a
liquidation account for the benefit of eligible account holders
who continue to maintain their accounts at the Bank after the
conversion.
Note 4. - New Accounting Standards
------------------------
The Company adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" (SFAS 130) in 1998. All
periods presented are in accordance with SFAS 130. SFAS 130
established standards for reporting and displaying comprehensive
income and its components. Comprehensive income consists of net
income and other changes in stockholders' equity from nonowner
sources. These nonowner sources consist of unrealized gains and
losses on certain investments in debt and equity securities.
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TWIN CITY BANCORP, INC.
AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
Note 5. - Stock Option Plan
-----------------
In 1995, the Company adopted a stock option plan for the benefit
of directors, officers, and other key employees of the Company.
The number of shares of common stock reserved for issuance under
the stock option plan was equal to 10% of the total number of
common shares issued pursuant to the Company's offering. The
plan provides for incentive options for officers and employees
and non-incentive options for directors. The plan is
administered by a committee of at least three directors of the
Company. The option exercise price cannot be less than the fair
value of the underlying common stock as of the date of the
option grant, and the maximum option term cannot exceed ten
years. The number of shares of common stock authorized under
the stock option and incentive plan was 134,760. As of March
31, 1998, 33,690 non-incentive stock options have been granted
to directors and are exercisable on a cumulative basis in equal
installments over a five year period. The incentive stock
options awarded to officers and other key employees totalled
97,782 at March 31, 1998 with 94,332 exercisable on a cumulative
basis in equal installments over a five year period, and 3,450
exercisable upon the date of option grant. As of March 31,
1998, 131,472 options have been granted, of which none have been
exercised. Options totaling 128,022 were granted with an
exercise price of $9.33 per share, 2,250 were granted with an
exercise price of $11.25 per share, 900 were granted with an
exercise price of $11.67 per share and the remaining 300 at $14
per share. As of March 31, 1998, 54,659 options are exercisable.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ---------------------------------------------------------
The Company's total consolidated assets increased $1.7
million, or 1.5% to $110.4 million at March 31, 1998 from
$108.7 million at December 31, 1997. Cash and due from banks and
interest-earning deposits increased $216,000 from $6.6 million
at December 31, 1997 to $6.8 million at March 31, 1998. Net
loans receivable increased $555,000 or 0.7% from $77.2 million
at December 31, 1997 to $77.7 million at March 31, 1998. The
Company originated 137 mortgage loans during the quarter ended
March 31, 1998, as compared to 49 originations during the
quarter ended March 31, 1997. The increase in originations in
1998 over 1997 was due to a general decrease in the prevailing
market rates for the Company's mortgage products causing a
number of customers to refinance existing mortgages. The
Company has sold a majority of its fixed-rate originations
during the first quarter of 1998 to the Federal Home Loan
Mortgage Corporation, servicing retained without recourse. Total
real estate loans amounted to $53.1 million at March 31, 1998 as
compared to $52.2 million at December 31, 1997.
Consumer/commercial lending increased by $185,000 or 0.7%, from
$27.2 million at December 31, 1997 to $27.3 million at March 31,
1998. The Company's portfolio of investment securities
decreased $994,000 from $4.0 million at December 31, 1997 to
$3.0 million at March 31, 1998 as these maturities have been
invested into mortgage-backed securities which currently bear a
greater yield. Accordingly, the Company's portfolio of
mortgage-backed securities increased $1.3 million or 8.3%, from
$15.2 million at December 31, 1997 to $16.5 million at March
31, 1998.
Deposits decreased $348,000, or 0.4% from $92.3 million at
December 31, 1997 to $92.0 million at March 31, 1998. Federal
Home Loan Bank advances increased $1.5 million at March 31, 1998
from December 31, 1997.
Total stockholders' equity has increased $60,000 or 0.4%,
from $14.0 million at December 31, 1997 to $14.1 million at
March 31, 1998. The Company posted comprehensive income of
$233,000 for the quarter ended March 31, 1998 while paying a
dividend of $0.10 per share of common stock, or $120,000. During
the three months ended March 31, 1998, the Company recognized
compensation earned in the amount of $70,000 from the Employee
Stock Ownership Plan and the Management Recognition Plan. In
addition, the Company has continued to repurchase some of its
outstanding shares of common stock and as of March 31, 1998, had
repurchased 8,400 shares at an average purchase price of $14.72
per share.
Net interest income for the three months ended March 31,
1998 increased $112,000 over the three months ended March 31,
1997 from $956,000 to $1.1 million. The increase was primarily
attributable to an increase in the interest rate spread which
increased from 3.38% for the three months ended March 31, 1997
to 3.74% for the three months ended March 31, 1998. The net
interest margin increased from 3.85% for the three months ended
March 31, 1997 to 4.17% for the three months ended March 31,
1998. The average yield on interest-earning assets increased 43
basis points from 7.96% for the three months ended March 31,
1997 to 8.39% for the three months ended March 31, 1998, while
the average cost on interest-bearing liabilities only increased
7 basis points from 4.58% for the three months ended March 31,
1997 to 4.65% for the three months ended March 31, 1998. The
average balance of interest-earning assets increased $3.2
million from $99.4 million at March 31, 1997 to $102.6 million
at March 31, 1998, while the average balance of interest-bearing
liabilities increased $3.9 million from $89.3 million at March
31, 1997 to $93.2 million at March 31, 1998.
The provisions for loan losses amounted to $22,000 and
$45,000 for the three months ended March 31, 1997 and 1998,
respectively. At March 31, 1998, management reviewed the
allowance for loan losses in relation to the Company's
performance with past collections and charge offs, management's
experience with the loan portfolio, and observations of the
general economic climate and loan loss expections. From this
review and analysis and based on management's experience and
judgement in managing the loan portfolio, it was determined that
the allowance for loan losses needed to be $109,000 and
therefore a $45,000 provision was recorded in the quarter ending
March 31, 1998. At March 31, 1998, the allowance represented
454% of total loans past due more than ninety days.
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ---------------------------------------------------------
Non-interest income decreased $36,000 from $216,000 for
three months ended March 31, 1997 to $180,000 for the three
months ended March 31, 1998. Loan fees and service charges
decreased $21,000 from $83,000 for the three months ended March
31, 1997 to $62,000 for the three months ended March 31, 1998.
Gains on the sale of fixed-rate mortgage loans to the FHLMC
recognized in the three months ended March 31, 1998 was $77,000
as compared to $80,000 for the three months ended March 31,
1997. Insurance commission and fees increased $8,000 from $9,000
for the three months ended March 31, 1997 to $17,000 for the
three months ended March 31, 1998. Income from rental of real
estate amounted to $2,000 for the three months ended March 31,
1998 as compared to $32,000 for the three months ended March 31,
1997.
Non-interest expense for the three months ended March 31,
1998 was 2.69% of average assets as compared to 2.82% for the
three months ended March 31, 1997. Non-interest expense
decreased $2,000 from $736,000 for the three months ended March
31, 1997 to $734,000 for the three months ended March 31, 1998.
Compensation and employee benefits increased $37,000 or 8.9%
from $415,000 for the three months ended March 31, 1997 to
$452,000 for the three months ended March 31, 1998. Net
occupancy expense increased $16,000 from $65,000 for the three
months ended March 31, 1997 to $81,000 for the three months
ended March 31, 1998. Other expenses decreased $52,000 from
$176,000 for the three months ending March 31, 1997 to $124,000
for the three months ending March 31, 1998.
Income tax expense amounted to $163,000 and $185,000 for the
quarter ending March 31, 1997 and 1998, respectively. Income tax
for the periods is affected by the amount of pre-tax income at
the then effective tax rates.
Other comprehensive income is composed of net unrealized
gains and losses on securities classified as available-for-sale
in accordance with SFAS No. 115. For the quarters ending March
31, 1997 and 1998, the Company reported net unrealized losses on
securities, net of tax benefits, of $72,000 and $51,000,
respectively.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company and any subsidiaries may be a
party to various legal proceedings incident to its or their
business. At March 31, 1998, there were no legal proceedings to
which the Company or any subsidiary was a party, or to which of
any of their property was subject, which were expected by
management to result in a material loss.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The following exhibits are filed as a part of this
report:
3.1(1) Charter of Twin City Bancorp, Inc.
3.2(1) Bylaws of Twin City Bancorp, Inc.
4(1) Form of Common Stock Certificate
10.1(1),(2) Twin City Bancorp, Inc. Incentive Compensation
Plan, as amended
10.2(1) Twin City Bancorp, Inc. Deffered Compensation
Plan
10.3(3) Employment Agreements between Twin City
Bancorp, Inc. and Twin City Federal Savings
Bank and Thad R. Bowers
10.4(3) Severance Agreements between Twin City Bancorp,
Inc. and Twin City Federal Savings Bank and
Brenda N. Baer, Judith O. Bowers, Robert C.
Glover, Michael H. Phipps, Joyce C. Rouse and
John M. Wolford
10.5(1) Twin City Federal Savings Bank Supplemental
Executive Retirement Agreement
10.6(3) Twin City Bancorp, Inc. 1995 Stock Option and
Incentive Plan
10.7(3) Twin City Bancorp, Inc. Management Recognition
Plan
27 Financial Data Schedule
______________
(1) Incorporated by reference to Company's Registration
Statement on Form S-1 No. 33-84196
(2) Incorporated by reference to Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended September 30,
1995
(3) Incorporated by reference to Company's Quarterly Report on
Form 10-QSB for the fiscal quarter ended March 31, 1995
The Corporation did not file a current report on Form 8-K during
the quarter covered by this report.
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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.
Date: May 13, 1998 By /s/ Thad R. Bowers
-----------------------------
Thad R. Bowers
President and Chief Executive Officer
(Principal Executive and Financial
Officer)
Date: May 13, 1998 By /s/ Albert Joseph Vance, II
-----------------------------
Albert Joseph Vance, II
Assistant Treasurer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated financial statements of Twin City Bancorp,
Inc. and Subsidiaries in the filing to which this schedule is an
exhibit and is qualified in its entirety by reference to such
financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,308
<INT-BEARING-DEPOSITS> 4,508
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,521
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 78,603
<ALLOWANCE> 109
<TOTAL-ASSETS> 110,366
<DEPOSITS> 91,972
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,823
<LONG-TERM> 2,500
<COMMON> 1,260
0
0
<OTHER-SE> 12,811
<TOTAL-LIABILITIES-AND-EQUITY> 110,366
<INTEREST-LOAN> 1,762
<INTEREST-INVEST> 326
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 2,151
<INTEREST-DEPOSIT> 1,069
<INTEREST-EXPENSE> 1,083
<INTEREST-INCOME-NET> 1,068
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 734
<INCOME-PRETAX> 469
<INCOME-PRE-EXTRAORDINARY> 284
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 284
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
