FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ]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 ID 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
The number of shares outstanding of $1.00 par value common stock, as of June 30,
1999: 2,529,328
<PAGE>
FORM 10-Q
TRI CITY BANKSHARES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page #
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income
for the Three Months ended June 30, 1999
and 1998 4
Consolidated Statements of Income
for the Six Months ended June 30, 1999
and 1998 5
Consolidated Statements of Cash Flows
for the Six Months ended June 30, 1999
and 1998 6
Notes to Unaudited Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 18
PART II - OTHER INFORMATION
Item 4 Submi18ion of Matters to a Vote of Security Holders 18
Item 6 Exhib21s and Reports on Form 8-K 21
Signatures 22
<PAGE>
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS June 30, December 31,
1999 1998
Cash and due from banks $ 35,577,390 $ 44,001,647
Federal funds sold 5,000,000 32,200,000
------------ ------------
Cash and cash equivalents 40,577,390 76,201,647
Investment securities:
Held-to-maturity (fair
value 1999 - $148,459,473
1998 - $136,420,200) 149,586,432 134,537,963
Loans 293,792,976 277,184,364
Allowance for loan losses (4,293,385) (4,244,745)
------------ ------------
Net Loans 289,499,591 272,939,619
Premises and equipment 21,095,003 19,864,590
Other assets 7,016,196 6,708,412
------------ ------------
TOTAL ASSETS $ 507,774,612 $ 510,252,231
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 125,212,390 $ 133,120,719
Interest bearing (over $100,000) 32,954,000 28,247,266
Interest bearing 282,254,421 288,167,417
------------ ------------
Total Deposits 440,420,811 449,535,402
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 999,900 0
Other 4,038,474 827,355
------------ ------------
5,038,374 827,355
Other Liabilities 1,665,562 1,371,614
------------ ------------
TOTAL LIABILITIES 447,124,747 451,734,371
Stockholders' equity:
Cumulative Preferred stock, par value -$1 per share authorized - 200,000
shares; issued and outstanding-none
Common stock,
par value-$1 per share
authorized-5,000,000 shares;
Issued and outstanding:1999 - 2,529,328 shares;
1998 - 2,520,205 shares 2,529,328 2,520,205
Additional paid in capital 10,026,844 9,726,974
Retained earnings 48,093,693 46,270,681
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 60,649,865 58,517,860
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 507,774,612 $ 510,252,231
============ ============
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
Interest income:
Loans, including fees $ 6,335,821 $ 6,492,921
Investment securities:
Taxable 999,071 883,117
Exempt from federal income tax 961,261 761,372
Federal funds sold 29,610 191,221
---------- ----------
TOTAL INTEREST INCOME 8,325,763 8,328,631
Interest expense:
Deposits 2,606,068 2,726,529
Short-term borrowings 55,700 20,186
---------- ----------
TOTAL INTEREST EXPENSE 2,661,768 2,746,715
---------- ----------
NET INTEREST INCOME 5,663,995 5,581,916
Provision for loan losses (75,000) (150,000)
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,588,995 5,431,916
Other income:
Service charge income 818,225 862,701
Rental income 239,977 243,434
Other 745,271 556,169
---------- ----------
TOTAL OTHER INCOME 1,803,473 1,662,304
Other expense:
Salaries and employee benefits 2,705,857 2,677,229
Net occupancy 688,240 614,952
Equipment 356,363 315,383
Data processing 287,599 155,844
Advertising 161,255 107,970
Regulatory agency assessments 40,601 37,723
Office supplies 199,098 138,637
Other 693,926 571,567
---------- ----------
TOTAL OTHER EXPENSE 5,132,939 4,619,305
Income before income taxes 2,259,529 2,474,915
Provision for income taxes 522,000 658,700
---------- ----------
NET INCOME $ 1,737,529 $ 1,816,215
========== ==========
Per share data:
Net income $ 0.69 $ 0.72
Dividends .30 .25
Average shares outstanding 2,528,037 2,511,079
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
Interest income:
Loans, including fees $ 12,483,851 $ 12,841,371
Investment securities:
Taxable 1,966,084 1,709,152
Exempt from federal income tax 1,855,402 1,601,374
Federal funds sold 174,620 228,582
----------- -----------
TOTAL INTEREST INCOME 16,479,957 16,380,479
Interest expense:
Deposits 5,220,411 5,327,114
Short-term borrowings 77,513 132,610
----------- -----------
TOTAL INTEREST EXPENSE 5,297,924 5,459,724
NET INTEREST INCOME 11,182,033 10,920,755
Provision for loan losses (150,000) (300,000)
----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 11,032,033 10,620,755
Other income:
Service charge income 1,587,508 1,690,865
Rental income 485,538 480,834
Other 1,340,471 1,160,058
----------- -----------
TOTAL OTHER INCOME 3,413,517 3,331,757
Other expense:
Salaries and employee benefits 5,417,220 5,400,571
Net occupancy 1,371,046 1,251,664
Equipment 721,666 645,687
Data processing 535,060 300,652
Advertising 284,555 213,735
Regulatory Agency Assessments 80,764 75,072
Office Supplies 358,537 274,881
Other 1,376,178 1,207,730
----------- -----------
TOTAL OTHER EXPENSE 10,145,026 9,369,992
Income before income taxes 4,300,524 4,582,520
Provision for income taxes 964,000 1,170,000
----------- -----------
NET INCOME $ 3,336,524 $ 3,412,520
=========== ===========
Per share data:
Net income $ 1.32 $ 1.36
Common stock investment $ 24.01 $ 22.30
Dividends $ 0.600 $ 0.500
Average shares outstanding 2,525,873 2,508,810
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
TRI CITY BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
OPERATING ACTIVITIES
Net income $ 3,336,524 $ 3,412,520
Adjustments to reconcile net income to
net cash provided by operating
activities:
Proceeds from sale of loans
held for sale 11,441,915 12,645,847
Origination of loans held
for sale (11,441,915) (12,645,847)
Amortization of investment
securities premiums and
accretion of discounts 94,584 57,088
Provision for loan losses 150,000 300,000
Provision for depreciation 967,996 878,451
Decrease in interest receivable (242,427) (52,251)
Increase in interest payable (60,726) 51,976
Other 289,319 83,493
------------ -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 4,535,270 4,731,277
INVESTING ACTIVITIES
Investment Securities Held to Maturity:
Proceeds from maturities and redemptions
of investment securities 13,306,743 14,634,908
Purchase of investment
securities (29,461,638) (10,000,000)
Net increase in loans (15,698,132) (8,779,047)
Purchases of premises and equipment (2,198,409) (490,096)
------------ -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (34,051,436) (4,634,235)
FINANCING ACTIVITIES
Net increase (decrease) in deposits (9,114,591) 7,150,246
Net increase (decrease) in short-term
borrowings 4,211,019 (379,326)
Sale of Common Stock 308,993 277,352
Cash dividends (1,513,512) (1,252,699)
------------ -----------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (6,108,091) 5,795,573
------------ -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (35,624,257) 5,892,615
Cash and cash equivalents at the
beginning of the period 76,201,647 44,707,888
------------ -----------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 40,577,390 $ 50,600,503
============ ===========
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
TRI CITY BANKSHARES CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(A) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 Generally Accepted Accounting
Principles for complete financial statements. These financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Annual Report on Form 10-K of Tri City Bankshares Corporation
("Tri City") for the year ended December 31, 1998. The December 31, 1998
financial information included herein is derived from the December 31, 1998
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 consolidated financial statements contain all adjustments, consisting
of normal recurring accruals, necessary to present fairly Tri City's financial
position as of June 30, 1999 and the results of its operations and cash flows
for the three month and six month periods ended June 30, 1999 and 1998. The
operating results for the first six months of 1999 are not necessarily
indicative of the results which may be expected for the entire 1999 fiscal year.
<PAGE>
TRI CITY BANKSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The following discussion contains certain "forward-looking statements,"
including statements concerning objectives and future events of performance, and
other statements which are other than historical fact. Factors which may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, but are not limited to, the following
possibilities: (i) lower than anticipated loan and deposit growth due to a
variety of factors, including changes in the interest rate environment and an
increase in competitive pressures in the banking and financial services
industry; (ii) insufficient reserves for loan losses; (iii) poorer than expected
general economic conditions; (iv) legislation or regulatory changes which
adversely affect the banking industry; and (v) other unanticipated occurrences.
CHANGES IN FINANCIAL POSITION
Assets of Tri City Bankshares Corporation (the "Corporation") have decreased
$2.5 million (0.5%) during the first six months of 1999 compared to an increase
of $9.4 million (2.0%) during the first six months of 1998. During the first
quarter of 1999, the Corporation's assets were down $12.6 million due to normal
seasonal variances. The Corporation, however, was able to add $10 million in
growth to its asset base during the second quarter of 1999.
<PAGE>
Cash and cash equivalents were down $35.6 million (46.7%) in the first six
months of 1999 compared to an increase of $5.9 million in the first six months
of 1998. The Corporation placed excess funds into investment securities as well
as new loans, which provide a higher yield than the Federal Funds. Management
has continued to strive to obtain the best yield they can for the Corporation
without jeopardizing its portfolios and subjecting it to undue risk. Investment
securities have increased $15.0 million (11.2%) during the first half of 1999
compared to a decrease of $4.7 million (3.8%) during the first half of 1998.
Management is not content to leave funds sit idle in cash or Federal Funds sold
when they can invest them in Agency and Municipal securities or loans which tend
to pay a higher rate. Therefore, loan balances have also increased $16.6 million
(6.0%) during 1999 compared to an increase of $8.8 million (3.3%) in 1998. The
Corporation"s loan review committee is very diligent in their review of all
loans presented to them. Since the Corporation's experience rate for past due
and non-accrual loans has been low over the past several years, management has
reduced its provision for loan losses in order to maintain an allowance for
losses which is approximately 1.25% to 1.5% of outstanding loans.
Premises and Equipment have increased $1.2 million (6.2%) during the first six
months of 1999 due to the new building which houses the Corporation's operations
center and additional equipment that was needed to complete Year 2000
preparedness.
Total deposits of the Corporation decreased $9.1 million (2.0%) during the first
six months of 1999 compared to an increase of $7.2 million (1.8%) during the
same period in 1998. Borrowings have increased $4.2 million in the first six
months of 1999 compared to a decrease of $379,000 in the first six months of
1998. Other borrowings consist of federal payments of taxes. This amount
constantly changes since it is
<PAGE>
collected by the Corporation on behalf of its customers but is only remitted to
the Federal Reserve Bank when it is called for.
LIQUIDITY
Historically the Corporation's liquidity position has been very favorable.
Management continues to monitor the maturity distribution between interest
earning assets and interest bearing liabilities. Fluctuations in interest rates
can be the main cause for the flow of funds into or out of a financial
institution. Since interest rates have remained low, it is important to track
the maturity of loans and investments and match them to the maturity terms of
new time deposits. A sudden rapid rise in rates could trigger a flow of funds
into higher yielding investments that may be offered within or outside the
Corporation. Management strives to offer products that are competitive or better
within the banking community in order to retain these funds.
CAPITAL RESOURCES
During the first quarter of 1999, the Corporation completed construction of a
new facility for its growing operations center. The cost of this building was
$2.2 million and was funded internally. This facility has enabled the
Corporation to better serve its customers and provide enough room for future
expansion in the years to come.
During the second quarter of 1999, the Oak Creek branch of the Corporation"s
banking subsidiary was also remodeled to enhance its appearance and better serve
the customers with an improved design. A new branch location was opened during
the second quarter of 1999 in Sturtevant, Wisconsin. An existing building was
purchased and renovated for this purpose. All costs were funded internally.
At the end of June, new equipment was installed to update the current proof area
of the Corporations' operations center. This equipment was necessary for Year
2000 compliance. Testing was done during the
<PAGE>
last week of June and the equipment was fully operational by July 15, 1999. The
cost of this equipment was considered minimal and was funded internally.
There are no other major projects scheduled at present, however management is
continually looking for new ways to better serve the Corporation's customers and
expand its operations.
RESULTS OF OPERATIONS
Net income of the Corporation for the second quarter of 1999 decreased
$78,700(4.3%) compared to an increase of $237,500(15.0%) for the second quarter
of 1998. There are several areas that account for this decrease, primarily, the
change in data system providers and the related upgrade in equipment for Year
2000 readiness.
During the second quarter of 1999 interest income and fees on loans decreased
$157,000(2.4%) compared to an increase of $267,300(4.3%) during the second
quarter of 1998. While loan balances increased significantly during the quarter
the average yield on loans decreased more than one half of one percent.
Interest income on Agency and Municipal securities has increased $315,800(19.2%)
during the three month period ending June 30, 1999 compared to a decrease of
$131,500(7.4%) during the same period in 1998. Although investment security
balances decreased $3.9 million during the second quarter of 1999, average
yields on investments only decreased one third of one percent. Management is
continually trying to seek investments that will provide the Corporation with
the best yield possible. Since rates have remained low, it is increasingly
difficult to find quality securities which will generate a high yield and not
expose the Corporation to undue risk. Interest on Federal Funds sold decreased
$161,600 in the second quarter of 1999 compared to an increase of $184,500
during the second quarter of 1998. Since the Corporation invested funds in
agency and municipal securities and loans, balances in Federal Funds sold were
down.
Interest expense on deposits for the second quarter of 1999 decreased
$120,500(4.4%) compared to an
<PAGE>
increase of $202,900(8.0%) in the second quarter of 1998. Lower interest rates
and decreased balances have kept interest expense down. Management continues to
look for new methods of not only attracting new deposits but also providing
incentives to maintain existing deposits. Low interest rates have kept expense
down but have hindered management's efforts to increase the Corporation's
deposit base. Interest expense on borrowed funds has increased due to the need
to obtain funds in the interim to cover the loss of deposits. Since management
believes that the allowance for loan loss is adequate to cover any losses in the
loan portfolio, they have decreased the provision to $75,000 per quarter for
1999 compared to $150,000 per quarter in 1998.
Other income during the second quarter of 1999 increased $141,200(8.5%) compared
to an increase of $108,700(7.0%) in the second quarter of 1998. This was
primarily due to the sale of a portion of land owned by the Oak Creek banking
subsidiary located on Ryan Road. Other expenses increased $513,600(11.1%) in the
second quarter of 1999 compared to an increase of $35,300(0.8%) in the three
months ended June 30, 1998. Expenses related to data processing have increased
in the second quarter of 1999 to $131,800 compared to a decrease of $12,000 in
the second quarter of 1998. Occupancy and equipment expenses have also increased
due to the new buildings, which became operational in 1999 and the additional
equipment, which was installed late in the fourth quarter of 1998.
<PAGE>
A summarized change in income for the quarters appears below:
Three Months Ended
June 30, June 30, 1999
1999 1998 Over(Under)
(Unaudited) (Unaudited) 1998
------- ------- -------
Revenue and Expenses:(000's)
Interest Income $ 8,326 $ 8,329 $ (3)
Less: Interest Expense 2,662 2,747 (85)
------- ------- -------
Net Interest Income 5,664 5,582 82
Provision for Loan Loss 75 150 (75)
Other Operating Expense
Net of Other Operating Revenues 3,329 2,957 372
------- ------- -------
Income Before Income Taxes 2,260 2,475 (215)
Tax Provision 522 659 (137)
------- ------- -------
NET INCOME $ 1,738 $ 1,816 $ (78)
======= ======= =======
The Corporation's net income for the six months ended June 30, 1999 decreased
$76,000(2.2%) compared to an increase of $327,200(10.6%) during the six-month
period ended June 30, 1998. During the first six months of 1999 interest income
and fees on loans decreased $357,500(2.8%) compared to an increase of
$512,700(4.2%) for the same period in 1998. Although loan balances have
substantially increased during the second quarter of 1999, the average yield
earned has been reduced due to low rates that have remained steady over the past
several months. Investment security income has increased $511,000(15.4%) during
the first half of 1999 compared to a decrease of $244,100(6.9%) in the first
half of 1998. Management has invested new deposit moneys into investments which
will earn a higher yield than that received in the Federal Funds market, thus,
interest on Federal Funds sold decreased $54,000(23.6%) during this period.
<PAGE>
Although lower rates have adversely affected interest income on loans, they have
also helped to lower interest paid on deposits. Interest expense on deposits
decreased $106,700(2.0%) during the first six months of 1999 compared to an
increase of $320,300(6.4%) paid in the first six months of 1998. Interest
expense on short-term borrowings has also decreased $55,100(41.5%) compared to a
decrease of $165,100(55.5%) in 1999 and 1998, respectively.
The primary reason for the decrease in net income comes from non-interest
expenses. During the six months ended June 30, 1999, occupancy expense increased
$119,400(9.5%), equipment expense increased $76,000(11.8%), and data processing
expense increased $234,400(78.0%) compared to a decrease of $41,000(3.2%), an
increase of $21,100(3.4%), and a decrease of $9,900(3.2%), respectively, in the
six months ended June 30, 1998. These expenses are directly related to the
conversion of the Corporation's data processing systems in November of 1998.
Higher data processing costs, depreciation on new equipment for the new systems,
and depreciation on a new building for the Corporation's operations center have
all contributed to this increase. Management is pleased that despite these
additional expenses the Corporation's performance for the first six months of
1999 has been above their expectations.
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
<PAGE>
maintain a ratio of at least 4.0% to 5.0%.
As of June 30, 1999, the risk-based capital ratio for the Corporation is 19.45%
and its leverage ratio is 11.68%.
YEAR 2000 PROBLEM
At midnight on December 31, 1999, unless the proper modifications have been
made, the program logic in many computer systems may produce erroneous results
because, among other things, the systems will incorrectly read the date
"01/01/00" as being January 1 of the year 1900 or another incorrect date. In
addition, certain systems may fail to detect that the year 2000 is a leap year.
Problems can also arise earlier than January 1, 2000 as dates in the next
millennium are entered into non-Year 2000 compliant programs. Like most
financial service providers, the Corporation may be significantly affected by
the Year 2000 Problem due to the nature of financial information.
COMPLIANCE PROGRAM
In order to address the Year 2000 Problem and to minimize its potential adverse
impact, in 1997 the Corporation initiated a corporate wide project to address
the impact of the Year 2000 Problem on its computer application systems,
information technology (IT) related equipment, system software, building
controls, and non-IT embedded systems found in such equipment as security
systems, currency counters, and elevators. The evaluation of Year 2000 issues
included an assessment of the potential impact of the Year 2000 Problem on the
Corporation including monitoring significant customers, service suppliers and
other parties material to the Corporation's operations; testing changes provided
by these suppliers; and developing contingency plans for any critical systems
that are not effectively reprogrammed. In the course of this evaluation, the
Corporation has sought written assurances from such third parties as to their
state of Year
<PAGE>
2000 readiness. The Corporation's Year 2000 Compliance Program is divided into
five phases: (1) awareness; (2) assessment; (3) renovation; (4) validation; and
(5) implementation.
THE CORPORATION'S STATE OF READINESS
Work on the Year 2000 project has been prioritized in accordance with risk. The
highest priority has been assigned to activities that would disrupt the accuracy
and delivery of the Corporation's banking services to its customers. Next is an
assessment of the potential credit risk to the Corporation resulting from its
credit customers' state of Year 2000 readiness, or lack thereof, and the
potential impact of those efforts on the customers' ability to meet contractual
payment obligations. The lowest priority has been assigned to activities that
would cause inconvenience or productivity loss in normal business operations
such as issues related to internal office machinery, heating and air
conditioning systems and elevators.
The Corporation has completed all phases of the plan. Because the Corporation
outsources its data processing, a significant component of the Year 2000
Compliance Program is working with external vendors to test and certify
that their systems are Year 2000 compliant. During the week of November 16,
1998, the Corporation converted to a new primary Data Service provider, which
has also completed its remediation and testing. The Corporation is performing
a variety of tests to determine the proper functionality of the new platform
and monitor the proxy testing being performed by the primary Data Service
provider. The Corporation's other external vendors have surveyed their
programs and made the necessary changes. The Corporation has completed its
timetable for carrying out its plans to address Year 2000 issues.
<PAGE>
The Corporation has also conducted an evaluation of its significant credit
customers to determine their state of Year 2000 readiness. Evaluations were
completed for all customers whose outstanding loan balance or loan commitment
exceeded $250,000. In addition, as part of its ongoing credit underwriting
practices, all new and renewed loans must have a Year 2000 risk assessment
completed and reported as part of the loan approval process. Based upon the
information received from these surveys, the Corporation does not expect to
experience any material collection problems resulting from its customers' Year
2000 readiness or lack thereof.
COST TO ADDRESS YEAR 2000 COMPLIANCE ISSUES
Managing the Year 2000 Project will result in additional direct and indirect
costs to the Corporation. The Corporation estimated the total direct cost of
remediating the issues discovered in its assessment of the Year 2000 problem to
be $600,000 and $800,000. During the review of the Corporation's operation,
a decision was made to upgrade hardware and much of the Corporation's dated
technology, which had been in use for 8 - 12 years. The upgrades are
expected to result in greater employee efficiencies and enhanced products
for the Corporation's customers. The total cost of upgrades was $2.0 million.
Any remaining costs related to resolving the Year 2000 Problem are expected to
be expended in 1999. The Corporation funded these expenditures through
internal sources.
The estimated costs of, and timetable for, becoming Year 2000 compliant
constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such estimates are
based on numerous assumptions by management, including assumptions regarding the
<PAGE>
continued availability of certain resources, the accuracy of representations
made by third parties concerning their compliance with Year 2000 issues, and
other factors.
RISK OF NONCOMPLIANCE AND CONTINGENCY PLANS
The major applications which pose the greatest Year 2000 risks to the
Corporation if the Year 2000 implementation of the Year 2000 Project is not
successful, are the Corporation's data services systems supported by third-party
vendors, loan customers' ability to meet contractual payment obligations in the
event the Year 2000 Problem has a significant negative impact to their business,
internal computer networks, and item processing equipment which renders
customers' bank statements and banking transactions. The potential problems
which could result from the inability of these applications to correctly process
the Year 2000 are the inaccurate calculation of interest income and expense,
service delivery interruptions to the Corporation's banking customers, credit
losses resulting from the Corporation's loan customers' inability to make
contractual credit obligations, interrupted financial data gathering, and poor
customer relations resulting from inaccurate or delayed transaction processing.
Although the Corporation has completed substantially all Year 2000 remediation
and testing activities as of June 30, 1999, and although the Corporation has
initiated Year 2000 communications with significant customers, key vendors,
service providers, and other parties material to the Corporation's operations
and is diligently monitoring the progress of such third parties in their Year
2000 compliance, such third parties nonetheless represent a risk that cannot be
assessed with precision or controlled with certainty. For that reason, the
Corporation has developed contingency plans to address alternatives in the
event that Year 2000 failures of automatic systems and equipment occur.
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's Annual Report on Form 10-K for the year ended December 31,
1998, 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.
<PAGE>
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
On June 9, 1999, Tri City Bankshares Corporation held its annual stockholders
meeting. The only item held for a vote of stockholders was for the election of
Directors for the ensuing year. The number of shares of common stock represented
by proxy and in person was 2,220,316, which represented approximately 87.9% 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 following vote:
Director's Name: Frank Bauer
For 2,220,316
Against 0
Withheld 0
Abstain 0
Broker Non-Vote 0
Director's Name: Sanford Fedderly
For 2,220,316
Against 0
Withheld 0
Abstain 0
Broker Non-Vote 0
Director's Name: William Gravitter
For 2,220,016
Against 0
Withheld 300
Abstain 0
Broker Non-Vote 0
Director's Name: Henry Karbiner, Jr.
For 2,220,316
Against 0
Withheld 0
Abstain 0
Broker Non-Vote 0
<PAGE>
Director's Name: Christ Krantz
For 2,220,316
Against 0
Withheld 0
Abstain 0
Broker Non-Vote 0
Director's Name: Rudie Lauterbach
For 2,217,842
Against 0
Withheld 2,474
Abstain 0
Broker Non-Vote 0
Director's Name: William McGovern
For 2,217,842
Against 0
Withheld 2,474
Abstain 0
Broker Non-Vote 0
Director's Name: Robert Orth
For 2,220,316
Against 0
Withheld 0
Abstain 0
Broker Non-Vote 0
Director's Name: Ronald K. Puetz
For 2,220,316
Against 0
Withheld 0
Abstain 0
Broker Non-Vote 0
<PAGE>
Director's Name: John Rupcich
For 2,197,567
Against 0
Withheld 22,749
Abstain 0
Broker Non-Vote 0
Director's Name: David Ulrich, Jr.
For 2,220,016
Against 0
Withheld 300
Abstain 0
Broker Non-Vote 0
Director's Name: William Werry
For 2,220,316
Against 0
Withheld 0
Abstain 0
Broker Non-Vote 0
Director's Name: Scott A. Wilson
For 2,219,941
Against 0
Withheld 375
Abstain 0
Broker Non-Vote 0
No other matters were voted on at the annual meeting.
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description
27 27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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 11,1999 /s/Henry Karbiner, Jr.
Henry Karbiner, Jr.
President, Chief Executive Officer,
And Treasurer
DATE: August 11, 1999 /s/Thomas W. Vierthaler
Thomas W. Vierthaler
Vice President and Comptroller
(Chief Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000313337
<NAME> TRI CITY BANKSHARES CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 35,577
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 149,586
<INVESTMENTS-MARKET> 148,459
<LOANS> 293,793
<ALLOWANCE> 4,293
<TOTAL-ASSETS> 507,775
<DEPOSITS> 440,421
<SHORT-TERM> 5,038
<LIABILITIES-OTHER> 1,666
<LONG-TERM> 0
0
0
<COMMON> 2,529
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 507,775
<INTEREST-LOAN> 12,484
<INTEREST-INVEST> 3,821
<INTEREST-OTHER> 175
<INTEREST-TOTAL> 16,480
<INTEREST-DEPOSIT> 5,220
<INTEREST-EXPENSE> 5,298
<INTEREST-INCOME-NET> 11,182
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,145
<INCOME-PRETAX> 4,301
<INCOME-PRE-EXTRAORDINARY> 3,337
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,337
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 5.12
<LOANS-NON> 426
<LOANS-PAST> 1,351
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,245
<CHARGE-OFFS> 134
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 4,293
<ALLOWANCE-DOMESTIC> 4,293
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
