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FORM 10-Q
U. S. 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 September 30, 2003
[ ] 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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
YES NO X
----- -----
The number of shares outstanding of $1.00 par value common stock, as of
September 30, 2003: 8,185,117
FORM 10-Q
TRI CITY BANKSHARES CORPORATION
INDEX
PART 1 - FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited) Page #
Condensed Consolidated Balance Sheets as of
September 30, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Income
for the Three Months ended
September 30, 2003 and 2002 4
Condensed Consolidated Statements of Income
for the Nine Months ended
September 30, 2003 and 2002 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended
September 30, 2003 and 2002 6
Notes to Unaudited Condensed 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 16
Item 4 Controls and Procedures 16
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
TRI CITY BANKSHARES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
ASSETS 2003 2002
---- ----
Cash and due from banks $ 22,906,106 $ 38,804,170
Federal funds sold 35,725,271 11,504,760
------------ ------------
Cash and cash equivalents 58,631,377 50,308,930
Investment securities:
Held-to-maturity
(fair value of
2003 - $149,771,100
2002 - $166,747,283) 146,760,569 162,622,215
Loans 396,341,751 397,783,699
Allowance for loan losses (5,220,920) (5,118,705)
------------ ------------
Net loans 391,120,831 392,664,994
Premises and equipment 21,948,874 22,188,798
Mortgage servicing rights 1,032,593 789,903
Other assets 4,303,108 4,116,888
------------ ------------
TOTAL ASSETS $ 623,797,352 $ 632,691,728
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 535,849,077 $ 543,184,250
Reverse repurchase agreements 0 1,500,000
Short-term borrowings 615,240 6,000,000
Other liabilities 2,219,244 2,169,212
------------ ------------
TOTAL LIABILITIES 538,683,561 552,853,462
------------ ------------
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 - 15,000,000 shares;
issued and outstanding:
2003 - 8,185,117 shares;
2002 - 8,062,536 shares 8,185,117 8,062,536
Additional paid in capital 13,311,037 11,243,343
Retained earnings 63,617,637 60,532,387
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 85,113,791 79,838,266
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 623,797,352 $ 632,691,728
============ ============
See Notes to Unaudited Condensed Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
2003 2002
---- ----
Interest income:
Loans, including fees $ 6,752,922 $ 7,548,671
Investment securities:
Taxable 601,174 878,833
Exempt from federal income tax 776,946 777,069
Federal funds sold 70,917 108,892
------------ ------------
TOTAL INTEREST INCOME 8,201,959 9,313,465
------------ ------------
Interest expense:
Deposits 1,195,475 1,944,553
Short-term borrowings 5,332 10,465
------------ ------------
TOTAL INTEREST EXPENSE 1,200,807 1,955,018
------------ ------------
NET INTEREST INCOME 7,001,152 7,358,447
Provision for loan losses 105,000 105,000
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 6,896,152 7,253,447
------------ ------------
Other income:
Service charge income 782,503 726,178
Rental income 282,000 305,871
Gain on sale of loans
and servicing fees 438,069 223,405
Other 807,938 819,928
------------ ------------
TOTAL OTHER INCOME
Other expense:
Salaries and employee benefits 3,474,369 3,365,096
Occupancy 804,211 772,601
Equipment 446,594 440,839
Data processing 405,930 355,878
Advertising and promotional 207,039 200,817
Regulatory agency assessments 56,238 55,631
Office supplies 145,065 143,562
Other 659,829 635,011
------------ ------------
TOTAL OTHER EXPENSE 6,199,275 5,969,435
------------ ------------
Income before income taxes 3,007,387 3,359,394
Provision for income taxes 853,000 921,000
------------ ------------
NET INCOME $ 2,154,387 $ 2,438,394
============ ============
Per share data:
Net income $ 0.26 $ 0.30
Dividends $ 0.160 $ 0.143
Average shares outstanding 8,177,477 8,013,594
See Notes to Unaudited Condensed Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)
2003 2002
---- ----
Interest income:
Loans, including fees $ 20,686,264 $ 22,449,381
Investment securities:
Taxable 2,202,102 2,672,175
Exempt from federal income tax 2,320,878 2,307,746
Federal funds sold 118,757 211,591
------------ ------------
TOTAL INTEREST INCOME 25,328,001 27,640,893
------------ ------------
Interest expense:
Deposits 3,863,937 6,064,032
Short-term borrowings 23,501 69,417
------------ ------------
TOTAL INTEREST EXPENSE 3,887,438 6,133,449
------------ ------------
NET INTEREST INCOME 21,440,563 21,507,444
Provision for loan losses 315,000 315,000
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 21,125,563 21,192,444
------------ ------------
Other income:
Service charge income 2,242,895 2,142,795
Rental income 853,394 889,042
Gain on sale of loans
and servicing fees 1,409,507 429,159
Other 2,514,162 2,475,756
------------ ------------
TOTAL OTHER INCOME 7,019,958 5,936,752
------------ ------------
Other expense:
Salaries and employee benefits 10,412,853 9,973,022
Net occupancy 2,362,760 2,290,353
Equipment 1,301,818 1,309,313
Data processing 1,173,251 1,006,701
Advertising and promotional 553,466 532,308
Regulatory agency assessments 172,412 168,133
Office supplies 415,089 398,605
Litigation settlements 0 4,250,000
Other 1,917,432 2,000,661
------------ ------------
TOTAL OTHER EXPENSE
Income before income taxes 9,836,440 5,200,100
Provision for income taxes 2,861,000 893,000
------------ ------------
NET INCOME $ 6,975,440 $ 4,307,100
============ ============
Per share data:
Net income $ .86 $ .54
Dividends $ 0.480 $ 0.429
Average shares outstanding 8,137,804 7,970,427
See Notes to Unaudited Condensed Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
---- ----
OPERATING ACTIVITIES
Net income $ 6,975,440 $ 4,307,100
Adjustments to reconcile net
income to net cash provided
by operating activities:
Proceeds from sale of loans
held for sale 107,000,446 46,069,988
Origination of loans held
for sale (105,000,313) (45,498,664)
Gain on sale of loans (2,000,133) (571,324)
Amortization of investment
securities premiums and
accretion of discounts 158,723 124,873
Provision for loan losses 315,000 315,000
Provision for depreciation 1,460,793 1,508,526
Decrease (increase) in
interest receivable 274,751 (332,317)
Decrease in interest payable (205,563) (309,476)
Other (448,063) 303,487
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 8,531,081 5,917,193
------------ ------------
INVESTING ACTIVITIES
Investment securities held
to maturity:
Proceeds from maturities
and redemptions of
investment securities 57,642,585 46,838,138
Purchase of investment
securities (41,939,660) (62,690,115)
Net decrease (increase)
in loans 1,229,163 (23,038,659)
Purchases of premises
and equipment (1,220,869) (1,048,007)
------------ ------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 15,711,219 (39,938,643)
------------ ------------
FINANCING ACTIVITIES
Sale of common stock 2,190,275 2,015,073
Net (decrease) increase in deposits (7,335,173) 22,530,543
Net (decrease) increase in short-
term borrowings (6,884,760) 1,729,614
Cash dividends paid (3,890,195) (3,411,933)
------------ ------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (15,919,853) 22,863,297
------------ -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 8,322,447 (11,158,153)
Cash and cash equivalents at the
beginning of the period 50,308,930 63,737,151
------------ ------------
CASH AND CASH EQUIVALENTS
AT THE END OF THE PERIOD $ 58,631,377 $ 52,578,998
============ ============
See Notes to Unaudited Condensed Consolidated Financial Statements.
TRI CITY BANKSHARES CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States 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" or the "Corporation") for the year ended December 31,
2002. The December 31, 2002 financial information included herein is derived
from the December 31, 2002 Consolidated Balance Sheet of Tri City which is
included in the aforesaid Annual Report on Form 10-K.
In the opinion of Tri City's management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly Tri City's financial position as
of September 30, 2003 and the results of its operations for the three month and
nine month periods ended September 30, 2003 and 2002 and cash flows for the nine
month periods ended September 30, 2003 and 2002. The operating results for the
first nine months of 2003 are not necessarily indicative of the results which
may be expected for the entire 2003 fiscal year.
ITEM 2
TRI CITY BANKSHARES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
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 Tri City Bankshares' (the
"Corporation") plans, goals, beliefs or expectations, refer to estimates or use
similar terms. Future filings by the Corporation with the Securities and
Exchange Commission, and statements other than historical facts contained in
written material, press releases and oral statements issued by, or on behalf of
the Corporation may also constitute forward-looking statements.
Forward-looking statements are subject to significant risks and uncertainties;
and the Corporation's actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause actual
results to differ from the results discussed in forward-looking statements
include, but are not limited to the factors set forth in Exhibit 99.2 of the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2002,
which exhibit is incorporated herein by reference.
All forward-looking statements contained in this report or which may be
contained in future statements made for or on behalf of the Corporation are
based upon information available at the time the statement is made and the
Corporation assumes no obligation to update any forward-looking statement.
CRITICAL ACCOUNTING POLICIES
A number of accounting policies require us to use our judgment. Two of the more
significant policies are:
Establishing the amount of the provision for loan losses. We evaluate
our loan portfolio at least quarterly to determine the adequacy of the
allowance for loan losses. Included in the review are 5 components: 1) An
historic review of losses and allowance coverage based on peak and average
loss volume; 2) A review of portfolio trends in volume and composition with
attention to possible concentrations; 3) A review of delinquency trends and
loan performance compared to our peer group; 4) A review of local and
national economic conditions and 5) A quality analysis review of
non-performing loans identifying charge-offs, potential loss after
collateral liquidation and credit weaknesses requiring above normal
supervision. If we misjudge the adequacy of the allowance and experience
additional losses, a charge to earnings may result.
Establishing the value of mortgage servicing rights. Mortgage servicing rights
(MSR's) are established on loans ( primarily mortgage loans ) that we
originate and sell, but continue to service as we collect the payments and
tax escrows. Generally Accepted Accounting Principles require that we
recognize, as income, the estimated fair market value of the asset when
originated, even though management does not intend to sell these rights.
The estimated value of MSR's is the present value of future net cash flows
from the servicing relationship using current market assumptions for
factors such as prepayments and servicing costs. As the loans are repaid
and the servicing revenue is earned MSR's are amortized. Net servicing
revenues and newly originated MSR's generally exceed this amortization
expense. However, if actual prepayment experience is greater than
anticipated, and new loan volume declines, net servicing revenues may be
less than expected and a net charge to earnings may result.
CHANGES IN FINANCIAL POSITION
During the first nine months of 2003, total assets of Tri City Bankshares
Corporation (the "Corporation") decreased $8.9 million. Cash and due from banks
decreased $15.9 million while federal funds sold increased $24.2 million. Cash
and due from banks reduced from seasonally high levels of municipal, commercial
and retail activity at year end. The increase in the federal funds sold levels
is a reflection of Corporation's ongoing efforts to invest the excess cash into
interest earning assets.
Investment securities for the first nine months of 2003 have decreased $15.9
million. Management is continually looking for quality securities to replace
maturing investments while maintaining an acceptable rate of return without
undue risk to the Corporation's entire portfolio. Significant levels of maturing
securities as well as securities being called prior to scheduled maturity has
made it challenging to find quality investment securities to replace runoff.
Management will continue to look for high quality investment securities, which
will enhance the overall portfolio while working within the Corporation's
investment portfolio policies and guidelines. For the reinvestment of these
called assets as well as normal growth in the portfolio, management has been
willing to accept lower yields in its effort to maintain high quality while
reducing the overall average maturity of portfolio assets. Management wants to
have the ability to react to the current unstable market conditions and its
desire to maintain a higher than normal level of liquidity at this time.
Loan balances have decreased $1.4 million during the first nine months of 2003.
Although the economy is showing signs of improvement, there is typically a lag
which precedes the return to significant loan growth. This, coupled with
prepayments by a significant number of residential mortgages and existing
business customers, has resulted in the Corporation's lack of loan growth.
Commercial loan prepayments result from aggressive pricing and terms offered by
some of the Corporation's competitors. The Corporation does not believe it is
prudent to offer today's low rates for extended terms. Fixed residential
mortgage interest rates at a fifty year low have prompted many of the bank's
residential mortgage customers to lock into long term fixed rate mortgages. The
Corporation's banking subsidiary has been very active in originating and selling
fixed rate mortgage loans in the secondary market.
The Corporation has provided for loan losses at an amount needed to maintain the
allowance for loan losses at levels deemed necessary by management after taking
into consideration charge-offs and recoveries.
The Corporation's fixed assets have decreased $240,000 resulting from normal
depreciation. There have been no significant fixed asset additions during the
first nine months of 2003.
The Corporation's banking subsidiary continues to be very active in fixed rate
secondary market mortgage lending. As a result, the subsidiary's level of
mortgage servicing and the rights associated with that servicing has increased
$243,000 from December 31, 2002.
During the first nine months of 2003, total deposits for the Corporation have
decreased $7.3 million. The decline in deposits is the result of a normal
downward adjustment from seasonally high year-end municipal, commercial and
retail holiday deposit growth at the Corporation's banking subsidiary. With weak
loan demand and limited investment opportunities the Corporation has not been
aggressive in the rates it pays on deposits. The Corporation continues to remain
competitive in the current economic climate, offering rates in the upper
quartile of those offered by its competition. The strength of the Corporation
lies in its reputation and business practices with its established customers.
In the nine months ended September 30, 2003 borrowings of the Corporation have
decreased $6.8 million. The decline is associated with normal draw-downs by the
Federal Reserve Bank of Chicago for Treasury Tax and Loan payments by the
banking subsidiary's depositors.
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 position 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
deposit products that management believes are competitive and will encourage
depositors to retain their funds in the Corporation's banking subsidiary.
Management believes that their efforts will help the Corporation to not only
retain these deposits, but also encourage continued growth. In the event the
Corporation's primary source of liquidity, the core deposits of its banking
subsidiary, is insufficient to meet liquidity needs, the banking subsidiary had
available to meet demand, at September 30, 2003, a $30.0 million in federal
funds purchased facility as well as $15.5 million available in reverse
repurchase agreements through its correspondent bank relationship.
CAPITAL EXPENDITURES
There are no major capital projects currently planned for 2003.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Net income for the Corporation has decreased $284,000 (11.6%) during the third
quarter of 2003 compared to the third quarter of 2002. This is primarily the
result of the compression in the Corporation's banking subsidiary's net interest
margin. Expected improvement in loan demand and the resulting growth in the
subsidiary bank's loan portfolio is the most direct tactic to offset margin
compression .
The Corporation's interest income and fees on loans decreased $795,700 (10.5%)
during the three months ended September 30, 2003 compared to the third quarter
of 2002. Interest rates have continued to decline throughout 2003, and loan
balances have been flat during the past twelve months. The average yield earned
on all loans during the quarter decreased from 7.67% in 2002 to an average yield
of 6.53% in 2003. Despite the significant decrease, the banking subsidiary's
year to date net interest income (tax equivalent) as a percentage of average
earning assets is 5.08% This net margin ranks in the upper quartile of the
banking subsidiary's peer group as reported in the most recent Uniform Bank
Performance Report prepared by the Federal Financial Institutions Examination
Council.
Interest income on investment securities decreased $277,800 (16.8%) during the
third quarter of 2003 compared to the third quarter of 2002. The decline in
interest rates for the portfolio and the decrease in volume have resulted in
this reduction of income. The current tax equivalent yield of the portfolio of
4.77% during the quarter is down significantly from the tax equivalent yield one
year ago of 6.72% Management places excess funds of the Corporation in
instruments which they believe will earn the maximum yield. They primarily try
to channel these funds into the loan portfolio which generally produces a higher
yield. If available funds exceed loan demand, management will purchase suitable
investment securities to achieve a greater yield than federal funds sold will
produce. Management follows a strict guideline as provided in the Corporation's
investment policy adopted by the Board of Directors.
Interest expense paid on deposits decreased $749,100 (38.5%) for the three
months ended September 30, 2003 compared to the same period in 2002. As
discussed above, deposits declined during the first three quarters of 2003, and
rates paid for deposits declined to historical lows. The Corporation's
subsidiary pays competitive rates, yielding 1.06% on average for the three
months ended September 30, 2003 compared to 1.74% for the same period in 2002.
Other income has increased $235,100 (11.3%) during the quarter ended September
30, 2003 compared to the quarter ended September 30, 2002. For the quarter
ending September 30, 2003, the primary reason for the improved performance is
the result of gain on the sale of fixed rate loans in the subsidiary's secondary
market mortgage loan program.
A summary of the change in income for the quarters ended September 30, 2003 and
2002 appears below:
Three Months Ended September 30, September 30, 2003
2003 2002 Over (Under)
(Unaudited) (Unaudited) 2002
------- ------- -------
Revenue and Expenses: (000's)
Interest Income $ 8,202 $ 9,313 $(1,111)
Less: Interest Expense 1,201 1,955 (754)
------- ------- -------
Net Interest Income 7,001 7,358 (357)
Less: Provision for Loan Losses 105 105 --
Other Expense
Net of Other Income 3,889 3,894 (5)
------- ------- -------
Income Before Income Taxes 3,007 3,359 (352)
Tax Provision 853 921 (68)
------- ------- -------
NET INCOME $ 2,154 $ 2,438 $ (284)
======= ======= =======
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
Net income for the first nine months of 2003 increased $2.7 million (62.0%)
compared to the first nine months of 2002.
During the first half of 2002 the Corporation was involved with two lawsuits
which were settled. The amounts of the settlements were expensed and explained
in two separate letters to shareholders filed under Forms 8-K on March 25 and
May 9 of 2002. This resulted in an adverse affect on net income in 2002 of
approximately $2.6 million (after tax) or $1.50 per share.
During the first nine months of 2003, interest income and fees on loans
decreased $1.8 million (7.9%) compared to the same period in 2002. Interest
rates have continued to decline throughout 2003, and loan balances outstanding
have not increased appreciably. The average yield on loans decreased almost 114
basis points since September 30, 2002. Management has been carefully monitoring
the liquidity position of the Corporation to make sure that maturities of
earning assets will be sufficient to balance the maturities of interest bearing
liabilities in the short term.
Interest income on investment securities has decreased $456,900 (9.2%) during
the first nine months of 2003 compared to the same period in 2002. Interest
rates have declined, while the balance in the investment securities portfolio
has declined $15.9 million (9.8%) during the past nine months. Management seeks
to ensure that the yields on earning assets of the Corporation are maximized and
contributing proportionately to net income.
Interest expense on deposits has also been affected by lower interest rates and
has decreased $2.2 million (36.3%) during the first nine months of 2003 compared
to the first nine months of 2002. The average yield on deposits decreased almost
70 basis points during the twelve month period ended September 30, 2003.
Management is pleased that, although rates have remained low, the Corporation's
depositors have remained loyal .
Other income has increased $1.1 million (18.2%) during the first nine months of
2003 compared to the same period in 2002. This increase primarily results from
the gain realized on the sale of Freddie-Mac loans, which increased by $980,000
in 2003 because of the demand for loan refinancing due to the low rates offered
in the secondary market. Other expenses decreased $3.6 million (16.5%) in the
first nine months of 2003 compared to the first nine months of 2002. The major
source of this decrease is the $4.3 million ($2.6 million after tax) litigation
settlement which was paid during the first half of 2002.
The Corporation's effective income tax provision for the nine months ended
September 30, 2003 was 29.1% compared to 17.2% for the nine months ended
September 30, 2002. The increase in the tax rate was due primarily to litigation
settlements in 2002 which provided a tax benefit.
CAPITAL ADEQUACY
Federal banking regulatory agencies have established capital adequacy rules,
which take into account risk attributable to balance sheet assets and
off-balance-sheet activities. All banks and bank holding companies must meet a
minimum risk-based capital ratio of 8.0%, of which 4.0% must be comprised of
Tier 1 capital.
The federal banking agencies also have adopted leverage capital guidelines which
banking organizations must meet. Under these guidelines, the most highly rated
banking organizations must meet a minimum leverage ratio of at least 3.0% tier 1
capital to total assets, while lower rated banking organizations must maintain a
ratio of at least 4.0% to 5.0%.
The risk-based capital ratio for the Corporation is 21.47% and its leverage
ratio is 13.66%.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation's Annual Report on Form 10-K for the year ended December 31,
2002 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
Based on his evaluation of the Corporation's disclosure controls and procedures
as of September 30, 2003, the Corporation's President, Chief Executive Officer
and Treasurer has determined that the disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Corporation
is recorded, processed, summarized and reported by the filing date of this
report, and that information required to be disclosed in the report is
communicated to management, as appropriate, to allow timely decisions regarding
required disclosure.
There were no significant changes in the Corporation's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation, and there were no corrective actions with regard to
significant deficiencies or material weaknesses.
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
31 Rule 13a - 14(a) Certification
32 Section 1350 Certification
(b) Reports on Form 8-K
The Corporation furnished or filed two Form 8-K reports during
the quarter covered by this report as follows:
(1) Form 8-K dated July 18, 2003 (furnished) under Item 12
regarding unaudited Financial Information and related
management discussion mailed to shareholders.
(2) Form 8-K dated August 13, 2003 (filed) under Item 4 and 7
regarding changes in Registrant's Certifying Accountant.
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
(registrant)
DATE: November 13, 2003 /s/Henry Karbiner, Jr.
------------------------- ----------------------------------
Henry Karbiner, Jr., President and
Chief Executive Officer
(Principal Executive Officer)
DATE: November 13, 2003 /s/Thomas W. Vierthaler
------------------------- ----------------------------------
Thomas W. Vierthaler
Vice President and Comptroller
(Chief Accounting Officer)
INDEX TO EXHIBITS
Exhibit 31 Rule 13a - 14(a) Certification
Exhibit 32 Section 1350 Certification