UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-09785
TRI CITY BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1158740
------------------------ -----------------
(State or other jurisdiction of (IRS Employer Identification No.)
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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
YES NO
----- -----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ___ Accelerated filer ___ Non-accelerated filer (Do not
check if a smaller reporting company) _____
Smaller reporting company X
-----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES NO X
----- -----
The number of shares outstanding of the registrant's $1.00 par value common
stock as of August 11, 2009: 8,904,915 shares.
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
June 30, 2009 (Unaudited) and December 31, 2008 3
Unaudited Consolidated Statements of Income
for the Three Months ended June 30, 2009 and 2008 4
Unaudited Consolidated Statements of Income
For the Six Months Ended June 30, 2009 and 2008 5
Unaudited Consolidated Statements of Cash Flows
For the Six Months ended June 30, 2009 and 2008 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3 Quantitative and Qualitative Disclosures About Market Risk 22
Item 4 Controls and Procedures 22
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 23
Item 1A Risk Factors 23
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3 Defaults Upon Senior Securities 23
Item 4 Submission of Matters to a Vote of Security Holders 23
Item 5 Other Information 25
Item 6 Exhibits 25
Signatures 26
Exhibit Index 27
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
ASSETS
June 30,
2009 December 31,
(Unaudited) 2008
----------- ------------
Cash and due from banks $ 22,843,896 $ 41,504,793
Federal funds sold 15,938,586 11,457,040
------------- -------------
Cash and cash equivalents 38,782,482 52,961,833
Held to maturity securities, fair value of $106,471,787 and
$108,274,692 as of 2009 and 2008 respectively 105,809,940 106,650,798
Loans, less allowance for loan losses of $5,995,499 and
$5,945,162 as of 2009 and 2008, respectively 588,217,228 593,700,921
Premises and equipment - net 20,631,299 21,104,762
Cash surrender value of life insurance 11,298,804 11,047,591
Accrued interest receivable and other assets 10,694,483 7,467,039
------------- -------------
TOTAL ASSETS $ 775,434,236 $ 792,932,944
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
COMMITMENTS AND CONTINGENCIES
LIABILITIES
Deposits
Demand $ 126,154,924 $ 125,556,485
Savings and NOW 390,841,535 408,931,613
Other time 145,556,405 143,190,064
------------- -------------
Total Deposits 662,552,864 677,678,162
Other borrowings 1,049,717 3,911,054
Accrued interest payable and other liabilities 2,635,125 2,407,462
------------- -------------
Total Liabilities 666,237,706 683,996,678
------------- -------------
STOCKHOLDERS' EQUITY
Cumulative preferred stock, $1 par value, 200,000 shares
authorized, no shares issued - -
Common stock, $1 par value,
15,000,000 shares authorized, 8,904,915 shares issued and
outstanding as of 2009 and 2008 8,904,915 8,904,915
Additional paid-in capital 26,543,470 26,543,470
Retained earnings 73,748,145 73,487,881
------------- -------------
Total Stockholders' Equity 109,196,530 108,936,266
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 775,434,236 $ 792,932,944
============= =============
See notes to unaudited consolidated financial statements.
3
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 2009 and 2008
(Unaudited)
- --------------------------------------------------------------------------------
2009 2008
---- ----
INTEREST INCOME
Loans $ 9,061,202 $ 9,631,031
Investment securities
Taxable 686,445 758,467
Exempt from federal income taxes 344,720 366,975
Federal funds sold 4,315 31,298
Other 9,663 9,663
------------ ------------
Total Interest Income 10,106,345 10,797,434
------------ ------------
INTEREST EXPENSE
Deposits 1,691,274 2,218,637
Federal funds purchased 309 15,476
Other borrowings - 7,221
------------ ------------
Total Interest Expense 1,691,583 2,241,334
------------ ------------
Net interest income before provision for loan losses 8,414,762 8,556,100
Provision for loan losses 530,000 200,000
------------ ------------
Net interest income after provision for loan losses 7,884,762 8,356,100
------------ ------------
NON-INTEREST INCOME
Service charges on deposits 2,505,391 2,392,443
Net gain on sale of loans 1,060,047 160,965
Increase in cash surrender value of life insurance 124,221 109,168
Other 310,105 401,516
------------ ------------
Total Non-interest Income 3,999,764 3,064,092
------------ ------------
NON-INTEREST EXPENSE
Salaries and employee benefits 4,189,859 4,116,633
Net occupancy costs 735,319 684,404
Furniture and equipment expenses 367,911 363,599
Computer services 692,277 660,822
Advertising and promotional 270,022 316,455
Regulatory agency assessments 487,709 64,026
Other 1,164,070 1,158,182
------------ ------------
Total Non-interest Expense 7,907,167 7,364,121
------------ ------------
Income before income taxes 3,977,359 4,056,071
Less: Income tax expense 1,400,500 1,387,500
------------ ------------
NET INCOME $ 2,576,859 $ 2,668,571
============ ============
Basic and fully diluted earnings per share $ 0.29 $ 0.30
Dividends per share $ 0.27 $ 0.26
Weighted average shares outstanding 8,904,915 8,904,915
See notes to unaudited consolidated financial statements.
4
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Six Months Ended June 30, 2009 and 2008
(Unaudited)
- --------------------------------------------------------------------------------
2009 2008
---- ----
INTEREST INCOME
Loans $ 18,036,937 $ 19,865,700
Investment securities
Taxable 1,399,582 1,512,908
Exempt from federal income taxes 699,298 710,262
Federal funds sold 4,678 56,996
Other 9,663 9,663
------------ ------------
Total Interest Income 20,150,158 22,155,529
------------ ------------
INTEREST EXPENSE
Deposits 3,466,106 5,146,272
Federal funds purchased 29,765 81,380
Other borrowings - 14,932
------------ ------------
Total Interest Expense 3,495,871 5,242,584
------------ ------------
Net interest income before provision for loan losses 16,654,287 16,912,945
Provision for loan losses 718,000 385,000
------------ ------------
Net interest income after provision for loan losses 15,936,287 16,527,945
------------ ------------
NON-INTEREST INCOME
Service charges on deposits 4,818,126 4,592,477
Net gain on sale of loans 1,713,984 280,306
Increase in cash surrender value of life insurance 251,213 234,410
Life insurance death benefit - 606,584
Other 536,836 864,279
------------ ------------
Total Non-interest Income 7,320,159 6,578,056
------------ ------------
NON-INTEREST EXPENSE
Salaries and employee benefits 8,357,679 8,385,721
Net occupancy costs 1,604,494 1,490,476
Furniture and equipment expenses 747,856 742,401
Computer services 1,370,568 1,286,116
Advertising and promotional 494,565 560,493
Regulatory agency assessments 585,710 125,566
Other 2,292,550 2,213,957
------------ ------------
Total Non-interest Expense 15,453,422 14,804,730
------------ ------------
Income before income taxes 7,803,024 8,301,271
Less: Income tax expense 2,734,000 2,607,500
------------ ------------
NET INCOME $ 5,069,024 $ 5,693,771
============ ============
Basic and fully diluted earnings per share $ 0.57 $ 0.64
Dividends per share $ 0.54 $ 0.52
Weighted average shares outstanding 8,904,915 8,901,700
See notes to unaudited consolidated financial statements.
5
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Six Months Ended June 30, 2009 and 2008
(Unaudited)
- --------------------------------------------------------------------------------
2009 2008
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,069,024 $ 5,693,771
Adjustments to reconcile net income to net cash flows provided by operating
activities:
Depreciation 1,032,830 1,054,542
Amortization of servicing rights, premiums and discounts -net 492,727 226,439
Gain on sale of loans (1,713,984) (280,306)
Provision for loan losses 718,000 385,000
Proceeds from sales of loans held for sale 90,098,908 11,076,629
Originations of loans held for sale (89,055,971) (10,949,177)
Increase in cash surrender value of life insurance (251,213) (234,410)
Loss on sale of other real estate owned 30,712 --
Gain on death benefits of insurance policy -- (606,584)
Net change in:
Accrued interest receivable and other assets (3,072,072) (305,584)
Accrued interest payable and other liabilities 227,663 160,116
------------ ------------
Net Cash Flows Provided by Operating Activities 3,576,624 6,220,436
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES Activity in held to maturity securities:
Maturities, prepayments and calls 42,615,249 66,236,962
Purchases (41,860,996) (62,511,241)
Net decrease in loans 4,765,693 5,949,036
Purchases of premises and equipment - net (559,367) (1,933,361)
Proceeds from sale of other real estate owned 78,841 475,000
Proceeds of life insurance death benefit -- 1,646,154
------------ ------------
Net Cash Flows Provided by Investing Activities 5,039,420 9,862,550
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (15,125,298) (24,618,265)
Net decrease in federal funds purchased -- (12,851,264)
Net increase/(decrease) in other borrowings (2,861,337) 964,758
Dividends paid (4,808,760) (4,628,712)
Common stock issued -- 403,835
------------ ------------
Net Cash Flows Used in Financing Activities (22,795,395) (40,729,648)
------------ ------------
Net Change in Cash and Cash Equivalents (14,179,351) (24,646,662)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 52,961,833 60,079,747
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 38,782,482 $ 35,433,085
============ ============
Non Cash Transactions:
Loans Receivable Transferred to Other Real Estate Owned $ 2,806,098 $ 475,000
Mortgage Servicing Rights Resulting from Sale of Loans $ 671,047 $ 152,854
Supplemental Cash Flow Disclosures:
Cash paid for interest $ 3,534,542 $ 5,245,538
Cash paid for income taxes $ 3,256,525 $ 3,038,125
See notes to unaudited consolidated financial
statements.
6
TRI CITY BANKSHARES CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Tri City
Bankshares Corporation ("Tri City" or the "Corporation") have been prepared in
accordance with accounting principles generally accepted in the United States
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by GAAP for complete financial
statements. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2008 (the "2008 Form 10-K"). The December 31, 2008 financial information
included herein is derived from the December 31, 2008 Consolidated Balance Sheet
of Tri City which is included in the 2008 Form 10-K.
The Company's business is conducted primarily through its wholly owned
banking subsidiary, Tri City National Bank ("Bank").
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
accruals, necessary to present fairly Tri City's consolidated financial position
as of June 30, 2009 and the results of its operations and cash flows for the
three and six month periods ended June 30, 2009 and 2008. 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 six months of 2009 are not necessarily
indicative of the results that may be expected for the entire 2009 fiscal year.
We have evaluated the consolidated financial statements for subsequent events
through the date of the filing of Form 10-Q.
7
(B) RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 160, Noncontrolling
Interests in Consolidated Financial Statements ("SFAS 160"). SFAS 160 amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements ("ARB
51"), to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. The
Corporation adopted SFAS 160 on January 1, 2009. The adoption of this statement
had no impact on the Corporation's consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161 Disclosures about Derivative
Instruments and Hedging Activities - an amendment of FASB Statement No. 133
("SFAS 161"). SFAS 161 requires enhanced disclosures about an entity's
derivative and hedging activities and thereby improves on the transparency of
financial reporting. In adopting SFAS 161, entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity's financial
positions, financial performance and cash flows. Because this pronouncement
affects only disclosures, it will not have an impact on the Corporation's
consolidated financial statements. The adoption of SFAS 161 is effective for
fiscal year beginning after October 1, 2009, with early adoption permitted.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles ("SFAS 162"). This statement identifies the
sources of accounting principles and the framework for selecting the principles
that are presented in conformity with generally accepted accounting principles
in the United States of America. This statement became effective during November
2008. The adoption of SFAS 162 did not have any effect on the Corporation's
results of operations, financial position or cash flows.
In April 2009, the FASB issued Financial Staff Position ("FSP") 115-2,
Financial Accounting Standards ("FAS") 124-2 and Emerging Issues Task Force
("EITF") 99-20-b ("EITF 99-20-b"), Recognition and Presentation of
Other-Than-Temporary Impairments. FSP 115-2, FAS 124-2 and EITF 99-20-b amend
the other-than-temporary guidance to make the guidance more operational and to
improve the presentation of other-than-temporary impairments in the financial
statements. The guidance modifies the current indicator that, to avoid
considering an impairment to be other-than temporary, management must assert
that it has both the intent and ability to hold an impaired security for a
period of time sufficient to allow for any anticipated recovery in fair value.
The new guidance requires management to assert that (a) it does not have the
intent to sell the security and (b) it is more likely than not that it will not
have to sell the security before its recovery. The guidance changes the total
amount recognized in earnings when there are credit losses associated with an
impairment of a debt security. The impairment is separated into impairments
related to credit losses and impairments related to all other factors. The FSP,
FAS and EITF were effective beginning with the interim period ending June 30,
2009. The adoption of the FSP, FAS and EITF did not have an impact on the
Corporation's consolidated financial statements as there was no other-than
temporary impairment recorded at June 30, 2009.
8
In April 2009, FASB issued FSP FAS 157-4, Determining Whether a Market Is
Not Active and a Transaction Is Not Distressed. FSP FAS 157-4 provides
additional guidance on determining whether a market for a financial asset is not
active and a transaction is not distressed for fair value measurements under FAS
157 Fair Value Measurements. FSP FAS 157-4 was effective beginning with the
interim period ending June 30, 2009. The adoption of FSP FAS 157-4 did not have
a material impact on the Corporation's consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1 and Accounting Principles
Board ("APB") 28-1 - Interim Disclosures about Fair Value of Financial
Instruments ("FSP FAS 107-1" and "APB 28-1"). FSP FAS 107-1 and APB 28-1 require
disclosures about fair value of financial instruments in interim reporting
periods of publicly traded companies that were previously only required to be
disclosed in annual financial statements. The provisions of FSP FAS 107-1 and
APB 28-1 were effective for the Corporation's interim period ending June 30,
2009. As FSP FAS 107-1 and APB 28-1 amend only the disclosure requirements about
fair value of financial instruments in interim periods, the adoption of FSP FAS
107-1 and APB 28-1 did not impact the Corporation's consolidated financial
statements.
In May 2009, the FASB issued SFAS 165, Subsequent Events ("SFAS 165"). SFAS
165 establishes general standards of accounting for and disclosure of subsequent
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. In particular, SFAS 165 sets forth the
period after the balance sheet date during which management should evaluate
events and transactions that may occur for potential recognition or disclosure
in the financial statements; the circumstances under which events or
transactions should be recognized occurring after the balance sheet date and
disclosures that should be made about events or transactions that occurred after
the balance sheet date. The adoption of this statement was effective for interim
and annual periods ending after June 15, 2009. The adoption of SFAS 165 did not
affect the Corporation's consolidated financial statements.
In June 2009, the FASB issued SFAS 166, Accounting for Transfers of
Financial Assets - an amendment of FASB Statement No. 140 ("SFAS 166"). SFAS 166
amends the accounting for transfers of financial assets. SFAS 166 modifies the
financial-components approach used in SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities and limits the
circumstances in which a financial asset, or a portion of a financial asset,
should be derecognized when the transferor has not transferred the entire
original financial asset to an entity that is not consolidated with the
transferor in the financial statements being presented and/or when the
transferor has continuing involvement with the transferred financial asset. The
statement also required that a transferor recognize and initially measure at
fair value, all assets obtained including beneficial interests and liabilities
incurred as a result of the transfer of financial assets accounted for as a
sale. SFAS 166 will become effective for a company's first fiscal year beginning
after November 15, 2009. The Corporation is currently evaluating the effect the
adoption of SFAS 166 will have on its consolidated financial statements.
In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46(R) ("SFAS 167"). SFAS 167 changes how a company determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. SFAS 167 will become effective for a
company's first fiscal year beginning after November 15, 2009. The Company is
9
currently evaluating the effect the adoption of SFAS 167 will have on its
consolidated financial statements.
In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
("SFAS 168"). SFAS 168 will become the single source of authoritative
nongovernmental U.S. GAAP, superseding existing FASB, American Institute of
Certified Public Accountants ("AICPA"), EITF and related accounting literature.
SFAS 168 reorganizes the thousands of GAAP pronouncements into roughly 90
accounting topics and displays them using a consistent structure. Also included
is relevant Securities and Exchange Commission guidance organized using the same
topical structure in separate sections. SFAS 168 will be effective for financial
statements issued for reporting periods that end after September 15, 2009. This
will have an impact on the Corporation's disclosures in its consolidated
financial statements since all future references to authoritative accounting
literature will be referenced in accordance with SFAS 168.
(C) FAIR VALUE ACCOUNTING
On January 1, 2008, the Corporation adopted SFAS No. 157 Fair Value
Measurements ("SFAS 157"), which, among other things, requires enhanced
disclosures about assets and liabilities carried at fair value. As defined in
SFAS 157, fair value is the price that would be received in the sale of an asset
or paid in the transfer of a liability in an orderly transaction between market
participants at the measurement date (exit price). The Corporation uses market
data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Corporation is able to classify
fair value balances based on the observability of those inputs. SFAS 157
establishes a fair value hierarchy that prioritizes the inputs used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and
the lowest priority to unobservable inputs (Level 3 measurement). The three
levels of the fair value hierarchy defined by SFAS 157 are as follows:
o Level 1 - Fair value is based upon quoted prices (unadjusted) for
identical assets or liabilities in active markets in which the
Corporation can participate. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency
and volume to provide pricing information on an ongoing basis. Level 1
primarily consists of financial instruments such as listed equities
and U.S. government treasury securities.
o Level 2 - Pricing inputs are other than quoted prices in active
markets included in Level 1, which are either directly or indirectly
observable as of the reporting date. Level 2 includes those financial
instruments that are valued using models or other valuation
methodologies.
o Level 3 - Pricing inputs include significant inputs that are generally
less observable from objective sources. These inputs may be used with
10
internally developed methodologies that result in management's best
estimate of fair value. At each balance sheet date, the Corporation
performs an analysis of all instruments subject to SFAS 157 and
includes in Level 3 all of those whose fair value is based on
significant unobservable inputs.
ASSETS
Loans held for investment. The Bank does not record loans held for
investment at fair value on a recurring basis. However, from time to time, a
particular loan may be considered impaired and an allowance for loan loss
established. Loans for which it is probable that payment of interest and
principal will not be made in accordance with the contractual terms of the loan
agreement are considered impaired. Once a loan is identified as individually
impaired, management measures impairment in accordance with SFAS 114, Accounting
by Creditors for Impairment of a Loan. The fair value of impaired loans is
estimated using one of several methods, including collateral value, market value
of similar debt, enterprise value, liquidation value or discounted cash flows.
Those impaired loans not requiring an allowance represent loans for which the
fair value of the expected repayments or collateral exceed the recorded
investments in such loans. In accordance with SFAS 157, impaired loans where an
allowance is established based on the fair value of collateral require
classification in the fair value hierarchy. When the fair value of the
collateral is based on an observable market price or a current appraised value,
the Bank records the impaired loan as a nonrecurring Level 2 valuation. At June
30, 2009, substantially all of the impaired loans were evaluated based on the
fair value of the collateral.
Repossessed assets. Loans on which the underlying collateral has been
repossessed are accounted for at the lower of carrying amount or fair value less
costs to sell upon transfer to repossessed assets. Fair value is based upon
independent market prices, appraised values of the collateral or management's
estimation of the value of the collateral. When the fair value of the collateral
is based on an observable market price or a current appraised value, the Bank
records the repossessed asset as a nonrecurring Level 2 valuation.
Mortgage Servicing Rights. The Bank does not record Mortgage Servicing
Rights ("MSRs") at fair value on a recurring basis. However, from time to time,
MSRs may be considered impaired and a valuation allowance established. The fair
value of MSRs is estimated using the Office of Thrift Supervision selected asset
price tables for servicing cost and servicing fees applied to the Bank's
portfolio of serviced loans. If the fair value of the MSRs is less than the MSRs
amortized value, then MSRs are considered impaired. At June 30, 2009, MSRs were
evaluated based on their fair value and no valuation allowance was deemed
necessary. In accordance with SFAS 157, impaired MSRs where a valuation
allowance is established based on the fair value of collateral require
classification in the fair value hierarchy. When the fair value of the
collateral is based on pricing inputs indirectly observed, the Bank records the
impaired MSRs as a nonrecurring Level 2 valuation.
As of June 30, 2009, the Bank does not carry any assets that are measured
at fair value on a recurring basis or use significant unobservable inputs.
11
ASSETS MEASURED AT FAIR VALUE ON A NONRECURRING BASIS
The Bank has assets that under certain conditions are subject to measurement at
fair value on a non-recurring basis. These include assets that are measured at
the lower of cost or market and had a fair value below cost at the end of the
period as summarized below.
Balance at
06/30/09 Level 1 Level 2 Level 3
------- ------- -------
Loans held for investment $10,692,600 $ - $10,692,600 $ -
Repossessed Assets $ 2,806,098 $ - $ 2,806,098 $ -
----------- ----------- ----------- ----------
Totals $13,498,698 $ - $13,498,698 $ -
=========== =========== =========== ==========
FINANCIAL DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS REQUIRED BY FSP
FAS 107-1
FSP FAS 107-1 and APB 28-1 require disclosures of the estimated fair value of
certain financial instruments and the methods and significant assumptions used
to estimate their fair values. Certain financial instruments and all
nonfinancial instruments are excluded from the scope of FSP FAS 107-1 and APB
28-1. Accordingly, the fair value disclosures required by FSP FAS 107-1 and APB
28-1 are only indicative of the value of individual financial instruments, as of
the dates indicated and should not be considered an indication of the fair value
of the Corporation.
The following table presents the carrying amount and estimated fair value of
certain financial instruments as required by FSP FAS 107-1 and APB 28-1:
June 30, 2009 December 31, 2008
----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- ------------- ------------- -------------
FINANCIAL ASSETS
Cash and due from banks $ 22,843,896 $ 22,843,896 $ 41,504,793 $ 41,504,793
Federal funds sold $ 15,938,586 $ 15,938,586 $ 11,457,040 $ 11,457,040
Held to maturity securities $ 105,809,940 $ 106,471,787 $ 106,650,798 $ 108,274,692
Non marketable equity securities $ 322,100 $ 322,100 $ 322,100 $ 322,100
Loans - net $ 588,217,228 $ 597,336,121 $ 593,700,921 $ 598,859,959
Cash surrender value of life insurance $ 11,298,804 $ 11,298,804 $ 11,047,591 $ 11,047,591
Mortgage servicing rights $ 855,149 $ 1,148,061 $ 590,224 $ 735,048
Accrued interest receivable $ 3,427,963 $ 3,427,963 $ 3,776,247 $ 3,776,247
FINANCIAL LIABILITIES
Deposits $ 662,552,864 $ 664,501,714 $ 677,678,162 $ 678,571,780
Other borrowings $ 1,049,717 $ 1,049,717 $ 3,911,054 $ 3,911,054
Accrued interest payable $ 535,311 $ 535,311 $ 573,982 $ 573,982
12
(D) HELD TO MATURITY SECURITIES
Amortized costs and fair values of held to maturity securities as of June 30,
2009 and December 31, 2008 are summarized as follows:
June 30, 2009
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Obligations of: ------------- ----------- ----------- -------------
States and political subdivisions $ 38,503,841 $ 594,714 $ (147,891) $ 38,950,664
U.S. government sponsored
entities and Corporations 67,306,099 1,058,460 (843,436) 67,521,123
------------- ----------- ---------- -------------
Totals $ 105,809,940 $ 1,653,174 $ (991,327) $ 106,471,787
============= =========== =========== =============
December 31, 2008
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Obligations of: ------------- ----------- ----------- -------------
States and political subdivisions $ 43,564,260 $ 476,736 $ (88,503) $ 43,952,493
U.S. government sponsored
entities and Corporations 63,086,538 1,346,181 (110,520) 64,322,199
------------- ----------- ----------- -------------
Totals $ 106,650,798 $ 1,822,917 $ (199,023) $ 108,274,692
Obligations of U.S. government sponsored entities consist of securities issued
by the Federal Home Loan Mortgage Corporation and Federal National Mortgage
Association.
The amortized cost and fair value of held to maturity securities at June 30,
2009, by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers or issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
------------- -------------
Due in one year or less $ 3,078,262 $ 3,080,851
Due after one year less than 5 years 74,107,910 75,408,340
Due after 5 years less than 10 years 24,618,702 24,010,596
Due in more than 10 years 4,005,066 3,975,000
------------- -------------
Totals $ 106,650,940 $ 108,274,692
============= =============
13
The following tables summarize the portion of the Bank's held to maturity
securities portfolio which has gross unrealized losses, reflecting the length of
time that individual securities have been in a continuous unrealized loss
position at June 30, 2009.
Continuous unrealized Continuous unrealized
losses existing for less losses existing for
than 12 Months greater than 12 months Total
------------ ----------- ----------- ----------- ------------ -----------
Unrealized Unrealized Unrealized
Fair Value Losses Fair Value Losses Fair Value Losses
------------ ----------- ----------- ----------- ------------ -----------
Obligations of:
States and political
subdivisions $ 10,162,321 $ 147,891 $ - $ - $ 10,162,321 $ 147,891
U.S. government
sponsored entities and
Corporations 40,360,424 843,436 - - 40,360,424 843,436
------------ ----------- ----------- ----------- ------------ -----------
$ 50,522,745 $ 991,327 $ - $ - $ 50,522,745 $ 991,327
============ =========== =========== =========== ============ ===========
Management does not believe any individual unrealized losses as of June 30, 2009
represents other than temporary impairment. The Bank held no investment
securities at June 30, 2009 that had unrealized losses existing for greater than
12 months. The Bank held twenty-six securities at June 30, 2009 that had
unrealized losses existing for less than 12 months. The securities consisted of
nineteen obligations of states and political subdivisions and seven obligation
of other U.S. government agencies/corporations. Management believes the
unrealized losses were caused by a lack of market liquidity and fluctuations in
interest rates and not by a deterioration in credit quality of the underlying
portfolio of securities. Since securities are held to maturity, management does
not believe that the Bank will experience any losses on these investments.
14
ITEM 2
TRI CITY BANKSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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. Forward
looking statements are identified generally by statements containing words and
phrases such as "may," "project," "are confident," "should be," "predict,"
"believe," "plan," "expect," "estimate," "anticipate" and similar expressions.
Future filings by the Corporation with the Securities and Exchange Commission,
and statements other than historical facts contained in this Quarterly Report on
Form 10-Q and in any 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 Item 1A of
the Corporation's Annual Report on Form 10-K for the year ended December 31,
2008, which item is incorporated herein by reference, and any other risks
identified in this Report.
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.
CRITICAL ACCOUNTING POLICIES
A number of accounting policies require the use of management's judgment.
Management considers the most significant accounting policy to be the
determination of the amount of the allowance for loan losses. The Bank evaluates
its loan portfolio at least quarterly to determine the adequacy of the allowance
for loan losses. Included in the review are three components: 1) historic losses
and allowance coverage based on peak and average loss volume; (2) qualitative
factors such as portfolio trends in volume and composition with attention to
possible concentrations, delinquency trends and loan performance compared to our
peer group and local and national economic conditions; and (3) quality review
analysis of non-performing loans identifying charge-offs, potential loss after
collateral liquidation and credit weaknesses requiring above-normal supervision.
Since the allowance for loan losses is an estimate, there is a risk that actual
results will differ from expectations and that additional losses and a
corresponding reduction in earnings could result. Financial Condition
15
FINANCIAL CONDITION
The Corporation's total assets decreased $17.5 million (2.2%) during the
first six months of 2009. Cash and cash equivalents decreased $14.2 million
(26.8%) during that period, associated with activity normally experienced after
year end. The Bank typically 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 typically run off during the
first quarter as excess deposits are transferred into alternative investment
vehicles.
Investment securities decreased $0.8 million (0.8%) during the first half
of 2009. Approximately $42.7 million of the Bank's investment portfolio was
redeemed through normal maturities or scheduled calls and $41.9 million of new
securities were purchased. Management continues to follow its practice of
holding the securities in its investment portfolio to maturity.
Loans decreased $5.4 million (0.9%) during the first six months of 2009.
New commercial loan volume reflected the sluggish nature of the economy during
the first half of the year. New loan originations were less than the
amortization of portfolio loans resulting in a decrease in total loans to $594.2
million at June 30, 2009 compared to $599.6 million at December 31, 2008.
Management also allowed a portion of the commercial portfolio to refinance
elsewhere if it was determined that the credit had the potential to deteriorate
significantly in a prolonged recession. Conversely, management continues to
emphasize selective marketing and requires extra scrutiny of equity, cash flow
and borrower character for loan opportunities created as borrowers refinance
their credits out of competitor banks. The Corporation does not make "subprime"
or so-called "Alt-A" loans (alternative documentation loans with lower approval
standards) and does not hold any of such loans in its portfolio.
The allowance for loan losses ("ALL") increased $50,000 (0.8%) during the
first six months of 2009. A $718,000 provision for loan loss ("PLL") was
recorded in and charged to earnings for the six months ending June 30, 2009 and
recoveries of $69,000 were received during the same period on loans which had
been previously charged off. A total of $737,000 in loans were charged-off
during the first two quarters of 2009. The Bank's charge offs and the
corresponding provision for loan losses reflect the adverse effects of the
recession on the economy and, despite the increased provision management
believes the Bank's portfolio remains strong. The Bank had 30 borrowers in
foreclosure at June 30, 2009 and, although the actions involve some different
relationships, the number is similar to the 29 borrowers in foreclosure on March
31, 2008 and is lower than the 32 borrowers in foreclosure at December 31, 2008.
As of March 31, 2009 the Bank had a base of over 4,000 collateralized real
estate loans in its portfolio. The PLL recorded for the three months ending June
30, 2009 totaled $530,000, consisting primarily of $500,000 necessary to write
down the balances of two loans after the Bank accepted deeds to the collateral
properties in lieu of foreclosure and placed the properties in Other Real Estate
Owned ("OREO"). The market value of this OREO is $2.3 million. In addition, the
Bank acquired two properties through sheriff's sale adding another $0.5 million
to OREO for the quarter ending June 30, 2009. As a result, OREO balances were
$2.8 million at June 30, 2009. One of these properties has been sold, however
the closing did not take place until July 2009. The Bank made a full recovery on
the property sold in July and expects no loss beyond the charges already taken
on remaining OREO.
16
Non-performing loans were $10.1 million at June 30, 2009 compared to $8.9
million at December 31, 2008 and $5.3 million at June 30, 2008. The increase was
attributable to changes in the economy and real estate markets in general
experienced over the past year. The following table shows the composition of the
loan portfolio on those dates. Management does not believe that the change in
non-performing loans or the composition of the loan portfolio reflects any
significant trends or changes other than attributable to changes in the economy
and real estate markets in general experienced over the past year.
COMPOSITION OF LOAN PORTFOLIO
June 30, 2009 December 31, 2008 June 30, 2008
------------- ----------------- -------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Loan each loan each Loan each
Balance applicable to: Balance Category Balance Category Balance Category
------- -------- ------- -------- ------- --------
Commercial, financial,
agricultural $ 23,082,591 3.88% $ 23,551,986 3.93% $ 27,071,485 4.67%
Real estate-construction 47,145,618 7.93% 47,726,345 7.96% 44,629,484 7.70%
Real estate-commercial
mortgage 248,120,374 41.76% 246,660,373 41.13% 235,269,053 40.59%
Real estate-residential
mortgage 262,615,187 44.20% 267,735,203 44.65% 258,601,058 44.61%
Installment loans to
individuals 13,248,957 2.23% 13,972,225 2.33% 14,118,569 2.44%
------------- ------- ------------- --------- ------------- -------
TOTAL $ 594,212,727 100.00% $ 599,646,132 100.00% $ 579,689,649 100.00%
------------- ------- ------------- ------- ------------- -------
The ALL represents management's estimate of the amount necessary to provide
for probable credit losses inherent in the loan portfolio. To assess the
adequacy of the ALL management uses significant judgment focusing on changes in
the size and the character of the loan portfolio, changes in levels of
nonperforming loans, risks identified within specific credits, existing economic
conditions, underlying collateral, historic losses within the loan portfolio, as
well as other factors that could affect probable credit losses. Management
continues to monitor the quality of new loans that the Bank originates each year
as well as to review the Bank's existing loan performance.
Deposits at the Bank decreased $15.1 million (2.2%) during the first six
months of 2009. As noted above, there is typically a short-term increase in
commercial and municipal deposits in December of each year. These deposits tend
to be transferred to corporate funds management programs or, in the case of
municipal deposits, to the State of Wisconsin investment fund after the first of
the year.
The Corporation's total borrowings decreased $2.9 million (73.2%) during
the first six months of 2009. The Bank 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 met through the Bank's federal funds facility through its primary
correspondent bank.
The Corporation's equity increased $0.3 million (0.2%) during the first six
months of 2009. The Corporation posted net income of $5.1 million and paid $4.8
million in dividends during the first six months of 2009.
17
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 encourages depositors to invest their funds in the Bank's
products. Management believes that these efforts will help the Bank to not only
retain these deposits, but also encourage continued growth. The Bank has the
ability to borrow up to $45.0 million in federal funds purchased, and has an
additional $27.8 million available for short-term liquidity through the Federal
Reserve Bank Discount window.
CAPITAL EXPENDITURES
The Bank has two capital projects currently in place for the remainder of
2009, the relocation of its Good Hope Road in-store banking facility
(necessitated by a move of the retailer to a new building) and a new in-store
facility on Mayfair Road in Wauwatosa, Wisconsin. The projected capital
expenditures will be less than $0.3 million. The Corporation has sufficient
liquidity to internally fund the expenditures.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2009 AND 2008
The Corporation's net income for the second quarter of 2009 was $2.6
million, a decrease of $0.1 million (3.4%) compared to the second quarter of
2008.
The decrease was the net result of the following:
o a decrease of $0.1 million (1.7%) in net interest income;
o an increase of $0.3 million (165.0%) in the provision for loan losses;
o an increase in other income of $0.9 million (30.5%) as a result of
increases to mortgage production income ("MPI"); and
o an increase in other expenses of $0.5 million (7.4%) as a result of
increased FDIC premiums and including a $0.3 million special
assessment levied by the FDIC.
Total interest income on loans decreased $0.6 million (5.9%) during the
second quarter of 2009 compared to the second quarter of 2008. The decrease was
the net effect of declining rates throughout 2008, which more than offset
interest income increases due to loan growth from year to year. Loan yields
declined 79 basis points to 6.08% for the 2009 second quarter compared to 6.87%
for the second quarter of 2008, which resulted in a $1.8 million decrease in
interest income for the 2009 second quarter compared to the second quarter of
2008. This decline was partially offset by an increase of $1.2 million in
interest income for the second quarter of 2009 compared to the second quarter of
2008 resulting from increased volume as average loans increased by $17.7 million
18
from $581.1 million for the quarter ended June 30, 2008 to $598.8 million for
the quarter ended June 30, 2009.
Investment security interest income decreased $0.1 million (8.3%) during
the second quarter of 2009 compared to the second quarter of 2008. This change
is partly the result of a decrease in the amount of investments, with a $1.0
million decrease (0.9%) in U. S. government-sponsored agency and municipal
securities and partly due to a decrease of 28 basis points in the average tax
equivalent year-to-date yield derived from all investments to 4.51% as of June
30, 2009 compared to 4.79% as of June 30, 2008.
Despite an increase in average interest bearing deposits from $508.4
million for the quarter ended June 30, 2008 to $533.1 million for the quarter
ended June 30, 2009, declining interest rates caused an $0.5 million (24.5%)
decline in interest expense between the two periods. Multiple reductions to the
target rate established by the Federal Open Market Committee reduced interest
paid in 2008 on the Bank's variable rate deposit products. Annualized yields on
interest-bearing deposits declined 51 basis points to 1.27% for the second
quarter of 2009 from 1.78% for the second quarter of 2008.
Non-interest income increased $0.9 million (30.5%) during the second
quarter of 2009 compared to the same period of 2008. This increase is the result
of mortgage production income. Record volumes of mortgage refinancing during the
second quarter of 2009 resulted in additional fees associated with the
transaction closing, gains on sale of the loans in the secondary market and
increases to Mortgage Servicing Rights ("MSRs") held by the Bank.
A summary of the change in income for the quarters ended June 30, 2009 and
2008 appears below:
Three Months Ended June 30, June 30, 2009
2009 2008 Over(Under)
(Unaudited) (Unaudited) 2008
-------- -------- ---------
Revenue and Expenses: (000's)
Interest income $ 10,106 $ 10,797 $ (691)
Interest expense (1,692) (2,241) 549
-------- -------- --------
Net interest income before
provision for loan losses 8,414 8,556 (142)
Provision for loan losses (530) (200) (330)
-------- -------- --------
Net interest income after
provision for loan losses 7,884 8,356 (472)
Non-interest income 4,000 3,064 936
Non-interest expenses (7,907) (7,364) (543)
-------- -------- --------
Income from Operations 3,977 4,056 (79)
Tax Provision 1,401 1,388 13
-------- -------- --------
Net income $ 2,576 $ 2,668 $ (92)
======== ======== ========
19
SIX MONTHS ENDED JUNE 30, 2009 AND 2008
Net income for the six months ended June 30, 2009 decreased $0.6 million
(11.0%) compared to the six months ended June 30, 2008. The decrease was the net
result of the following:
o a decrease of $0.3 million in net interest income;
o an increase of $0.3 million in the provision for loan losses;
o an increase of $0.7 million in non-interest income, which resulted
from a $1.2 million increase in MPI for the six months ended June 30,
2009 compared to the same period in 2008, whereas non-interest income
of $0.6 million realized in 2008 resulted from the receipt of
non-taxable Bank Owned Life Insurance (BOLI) death benefit proceeds;
and
o an increase of $0.6 million in non-interest expense primarily as a
result of increased FDIC premiums, including a $0.3 million special
assessment levied by the FDIC.
Interest income on loans for the first half of 2009 decreased $1.8 million
(9.2%) from the first half of 2008. Average loans increased $17.1 million for
the six-month period ended June 30, 2009 compared to the prior year, providing a
$0.6 million increase to interest income, which was more than offset by the
effect of lower interest rates which cause interest income to decrease by $2.4
million as loan yields declined 80 basis points (from 6.86% to 6.06%) from the
prior year.
Interest income on investment securities decreased $0.1 million (5.6%)
during the first six months of 2009 compared to the same period in 2008. The
investment portfolio was reduced $0.8 million as $42.7 million of investment
securities were redeemed through normal maturities and calls, while $41.9
million of investments were purchased, during the period. The decreased interest
income on investment securities is also the result of a shift to municipal
securities and lower yields on tax-exempt investments.
Interest expense on deposits for the first six months of 2009 decreased
$1.7 million (32.6%) from the first six months of 2008. The decrease is the net
result of a $2.0 million decrease in interest expense due to a 69 basis point
decrease in the yield on interest bearing deposits (from 2.04% to 1.35%) and a
$0.3 million increase due to a growth in the average balance of interest-bearing
deposits from the first six months of 2008 to the first six months of 2009.
New deposits between June 30, 2008 and June 30, 2009 were primarily
short-term, low yielding liabilities due to the growth in personal checking and
municipal deposits. This trend has helped the Bank maintain a strong net
interest margin compared to other banks in its peer group as determined from
information published by the Federal Financial Institutions Examination Council
("FFIEC") in its December 31, 2008 peer analysis, the Uniform Bank Performance
Report ("UBPR"). Information in the UBPR is compiled by the FFIEC and while
management believes such information to be accurate, the Corporation assumes no
responsibility for any inaccuracies in such information.
20
Non-interest income increased $0.7 million (11.3%) for the first six months
of 2009 versus the comparable period in 2008. This increase is attributable to
the increase in MPI for the six months ending June 30, 2009 compared to
non-recurring income realized in the six months ending June 30, 2008. MPI
increases are the result of record high volumes of refinancing which occurred on
residential real estate loans in the second quarter as a result of low rates.
The $1.2 million increase in MPI included $0.2 million in closing fees, $0.3
million in mortgage servicing rights and $0.7 million on the gain on the sale of
the loans over par. Non-recurring income in 2008 included $0.1 million from VISA
stock redeemed in conjunction with that company's initial public offering and
non-taxable Bank Owned Life Insurance death benefit proceeds of $1.6 million
which resulted in a gain of $0.6 million.
Non-interest expense increased $0.6 million (4.4%) during the six months
ending June 30, 2009 compared to the same period in 2008. The largest single
component of the increase was FDIC insurance. The increase included a one time
assessment of $0.3 million and regular FDIC premium increases of $0.2 million,
totaling $0.5 million of the $0.6 million increase to non-interest expense.
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 comprise Tier 1
capital. A minimum risk-based ratio of 10% is required to be considered "well
capitalized". The Bank's risk-based capital ratio is 18.54% as of June 30, 2009,
exceeding the 10.0% requirement for classification as "well-capitalized" by more
than 8.5%
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 Tier 1 capital
to total assets of at least 3.0%, while lower rated banking organizations must
maintain an average ratio of at least 4.0%. The Bank's leverage ratio as of June
30, 2009 was 14.24%.
OFF-BALANCE SHEET ARRANGEMENTS
The Bank's obligations also include off-balance sheet arrangements
consisting of loan-related commitments, of which only a portion are expected to
be funded. At June 30, 2009, the Bank's loan-related commitments, including
standby letters of credit and financial guarantees, totaled $94.6 million. The
Bank manages its overall liquidity, taking into consideration funded and
unfunded commitments as a percentage of its liquidity sources. The Bank's
liquidity sources have been and are expected to be sufficient to meet the cash
requirements of its lending activities.
21
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------------------
The Corporation's Annual Report on Form 10-K for the year ended December
31, 2008 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
("Exchange Act"), is recorded and processed, summarized and reported within the
time periods specified in the SEC's rules and forms. At June 30, 2009 the
Corporation carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and 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-15(e) and 15d-15(e) of the Exchange Act. Based on that evaluation, the
Chief Executive Officer and 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 quarter ended June 30, 2009 that have materially
affected, or are reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
22
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
There have been no material changes to the discussion in response to Item 3 of
Part I of the 2008 Form 10-K.
ITEM 1A RISK FACTORS
There have been no material changes to the risk factors previously disclosed in
response to Item 1A to Part I of the Corporation's 2008 Annual Report on Form
10-K.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2009 the Corporation did not sell any equity
securities which were not registered under the Securities Act or repurchase any
of its equity securities.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 10, 2009 the Corporation held its annual shareholders' meeting. The only
item submitted to a vote of the shareholders was the election of Directors for
the ensuing year. No other matters were voted on at the annual meeting. The
number of shares of common stock represented by proxy and in person was
7,558,527 which represented approximately 84.88% of the total outstanding shares
entitled to vote for directors. There was no solicitation in opposition to
management's nominees for directors and all such nominees were elected pursuant
to the vote summarized below.
Director's Name: Frank Bauer
For 7,519,476
Against 0
Withheld, Abstain and Broker Non-Vote 39,051
Director's Name: William Beres
For 7,531,360
Against 0
Withheld, Abstain and Broker Non-Vote 27,167
Director's Name: Sanford Fedderly
For 7,528,577
Against 0
Withheld, Abstain and Broker Non-Vote 29,950
23
Director's Name: Scott Gerardin
For 7,523,469
Against 0
Withheld, Abstain and Broker Non-Vote 35,058
Director's Name: William Gravitter
For 7,520,023
Against 0
Withheld, Abstain and Broker Non-Vote 38,504
Director's Name: Christ Krantz
For 7,512,680
Against 0
Withheld, Abstain and Broker Non-Vote 45,847
Director's Name: Brian McGarry
For 7,523,586
Against 0
Withheld, Abstain and Broker Non-Vote 34,941
Director's Name: Robert Orth
For 7,523,469
Against 0
Withheld, Abstain and Broker Non-Vote 35,058
Director's Name: Ronald K. Puetz
For 7,523,659
Against 0
Withheld, Abstain and Broker Non-Vote 34,868
Director's Name: Agatha T. Ulrich
For 7,523,586
Against 0
Withheld, Abstain and Broker Non-Vote 34,941
Director's Name: David Ulrich, Jr.
For 7,522,926
Against 0
Withheld, Abstain and Broker Non-Vote 35,601
Director's Name: William Werry
For 7,520,946
Against 0
Withheld, Abstain and Broker Non-Vote 37,581
24
Director's Name: Scott A. Wilson
For 7,523,459
Against 0
Withheld, Abstain and Broker Non-Vote 35,068
ITEM 5 OTHER INFORMATION
Not applicable
ITEM 6 EXHIBITS
31.1 Certification of Ronald K. Puetz, Chief Executive Officer, under Rule
13a-14(a)/15d-14(a)
31.2 Certification of Scott A. Wilson, Chief Financial Officer, under Rule
13a-14(a)/15d-14(a)
32.1 Certification of Ronald K. Puetz, Chief Executive Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Scott A. Wilson, Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
25
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: August 10, 2009 /s/Ronald K. Puetz
-------------------------------- -----------------------------------
Ronald K. Puetz
President, Chief Executive Officer
(Principal Executive Officer)
DATE: August 10, 2009 /s/Scott A. Wilson
-------------------------------- -----------------------------------
Scott A. Wilson
Executive Vice President, Treasurer
(Chief Financial Officer)
26
Tri City Bankshares Corporation
Index of Exhibits
Exhibit No.
31.1 Certification of Ronald K. Puetz, Chief Executive Officer,
under Rule 13a-14(a)/15d-14(a)
31.2 Certification of Scott A. Wilson, Chief Financial Officer,
under Rule 13a-14(a)/15d-14(a)
32.1 Certification of Ronald K. Puetz, Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Scott A. Wilson, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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