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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934: For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-9785
TRI CITY BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1158740
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6400 South 27th Street
Oak Creek, Wisconsin 53154
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (414) 761-1610
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
$1.00 Par Value Common Stock
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) (2) and has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes [ ] No [X]
As of June 30, 2002, the aggregate market value of the shares held by
non-affiliates was approximately $44,087,000. As of March 3, 2003, 8,105,128
shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated in
Annual report to shareholders for fiscal year ended
December 31, 2002 Parts II and IV
Proxy statement for annual meeting of shareholders to be
held on June 11, 2003 Part III
Form 10-K Table of Contents
- -------------------------------------------------------------------------------
PART I
Item 1 Business 3
Item 2 Properties 22
Item 3 Legal Proceedings 22
Item 4 Submission of Matters to a Vote of Security Holders 22
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters 23
Item 6 Selected Financial Data 23
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 23
Item 7A Quantitative and Qualitative Disclosures About Market Risk 23
Item 8 Consolidated Financial Statements and Supplementary Data 23
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 23
PART III
Item 10 Directors and Executive Officers of the Registrant 24
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 24
Item 13 Certain Relationships and Related Transactions 24
Item 14 Controls and Procedures 24
PART IV
Item 15 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 25
Signatures 28
PART I
Item 1. DESCRIPTION OF BUSINESS.
THE REGISTRANT
Tri City Bankshares Corporation (the "Registrant"), a Wisconsin
corporation, was formed November 20, 1970 for the purpose of acquiring the
outstanding shares of Tri City National Bank (the "Bank"). The Bank is a wholly
owned subsidiary of the Registrant.
As of December 31, 2002, the Registrant had total consolidated
assets of $632.7 million and total stockholders' equity of $79.8 million.
THE BANK
The Bank was chartered by the Wisconsin Banking Department (now the
Wisconsin Department of Financial Institutions ("DFI")) on October 28, 1963, and
converted to a National Banking Association on June 25, 1969. The Bank is
supervised by the Office of the Comptroller of the Currency ("OCC") and its
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The
Bank conducts business out of its Main Office located at 6400 South 27th Street,
Oak Creek, Wisconsin. In addition, the Bank maintains 30 other offices in
Wisconsin throughout Milwaukee, Ozaukee, Racine and Waukesha Counties.
The Bank provides a full range of consumer and commercial banking
services to individuals and businesses. The basic services offered include:
demand deposit accounts, money market deposit accounts, NOW accounts, time
deposits, safe deposit services, credit cards, direct deposits, notary services,
money orders, night depository, travelers' checks, cashier's checks, savings
bonds, secured and unsecured consumer, commercial, installment, real estate and
mortgage loans. The Bank offers automated teller machine cards. In addition, the
Bank maintains an investment portfolio consisting primarily of U.S. agency and
state and political subdivision securities.
As is the case with banking institutions generally, the Bank derives
its revenues from interest on the loan and investment portfolios and fee income
related to loans and deposits. Income derived from the sale of alternative
investment products provides additional fee income. The source of funds for the
lending activities are deposits, repayment of loans, sale and maturity of
investment securities and short-term borrowing through a correspondent banking
relationship and the Federal Reserve Bank of Chicago. Principal expenses are the
interest paid on deposits and borrowings and operating and general
administrative expenses.
LENDING ACTIVITIES
The Bank offers a range of lending services including real estate,
commercial and consumer, to individuals, small business and other organizations
that are located in or conduct a substantial portion of their business in the
Bank's market area. The Bank's total loans as of December 31, 2002 were $392.7
million, or approximately 62% of total consolidated assets. Interest rates
charged on loans vary with the degree of risk, maturity and amount of the loan,
and are further subject to competitive pressures, cost and availability of funds
and government regulations.
The Bank maintains a comprehensive loan policy that establishes
guidelines with respect to all categories of lending activity. The policy
establishes lending authority for each individual loan officer, officer
committee and board lending authority. All loans to directors and executive
officers are approved by the Board of Directors. The loans are concentrated in
three major areas: real estate loans, commercial loans and consumer loans. The
lending strategy is the development of a high quality loan portfolio.
The Bank's real estate loans are secured by mortgages and consist
primarily of loans to individuals for the purchase and improvement of real
estate and for the purchase of residential lots and construction of
single-family residential units. The Bank's residential real estate loans
generally are repayable in monthly installments based on up to a thirty-year
amortization schedule.
Commercial loans include loans to individuals and small businesses
including loans for working capital, machinery and equipment purchases, premise
and equipment acquisitions, purchase, improvement and investment in real estate
development and other business needs. Commercial lines of credit are typically
for a one-year term. Other commercial loans with terms or amortization schedules
of longer than one year will normally carry interest rates which vary based on
the term and will become payable in full and are generally refinanced in two to
four years. Commercial loans typically entail a thorough analysis of the
borrower, its industry, current and projected economic conditions and other
factors. The Bank typically requires commercial borrowers to have annual
financial statements and requires appraisals or evaluations in connection with
the loans secured by real estate. The Bank typically requires personal
guarantees from principals involved with closely held corporate borrowers.
The Bank's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes payable on an installment basis. The
loans are generally for terms of five years or less and are secured by liens on
various personal assets of the borrower.
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investment activities. The Bank considers the majority of its regular savings,
investors choice, demand, NOW and money market deposit accounts to be core
deposits. These accounts comprised approximately 77.9% of the Bank's total
deposits at December 31, 2002. Approximately 22.1% of the Bank's deposits at
December 31, 2002 were certificates of deposit. Generally, the Bank attempts to
maintain the rates paid on its deposits at a competitive level. Deposits of
$100,000 and over made up approximately 36.3% of the Bank's total deposits at
December 31, 2002. The majority of the deposits of the Bank are generated from
Milwaukee, Ozaukee, Racine and Waukesha Counties. For additional information
regarding the Bank's deposit accounts, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Interest Rate
Sensitivity Management" and Note 10 of Notes to Consolidated Financial
Statements, incorporated by reference in Item 8 below.
INVESTMENTS
The Bank invests a portion of its assets in U.S. Treasury and U.S.
Governmental agency obligations, FHLMC, FNMA and FHLB securities, state, county
and municipal obligations, collateralized mortgage obligations ("CMO's") and
federal funds sold. The investments are managed in relation to the loan demand
and deposit growth and are generally used to provide for the investment of
excess funds at reduced yields and risks relative to yields and risks of the
loan portfolio, while providing liquidity to fund increases in loan demand or to
offset fluctuations in deposits. For further information regarding the
Registrant's investment portfolio, see Note 3 of Notes to Consolidated Financial
Statements, incorporated by reference in Item 8 below.
SUPERVISION AND REGULATION
As a registered bank holding company, the Registrant is
subject to regulation and examination by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act,
as amended (the "BHCA"). The Bank is subject to regulation and examination by
the OCC and the FDIC.
Under the BHCA, the Registrant is subject to periodic examination by
the Federal Reserve Board, and is required to file with the Federal Reserve
Board periodic reports of its operations and such additional information as the
Federal Reserve Board may require. In accordance with Federal Reserve Board
policy, the Registrant is expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances where the
Registrant might not do so absent such policy. In addition, there are numerous
federal and state laws and regulations, which regulate the activities of the
Registrant and the Bank. They include requirements and limitations relating to
capital and reserve requirements, permissible investments and lines of business,
transactions with affiliates, loan limits, mergers and acquisitions, issuance of
securities, dividend payments, inter-affiliate liabilities, extensions of credit
and branch banking.
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 total risk-based capital ratio of 8%, of which at least one-half must be
comprised of core capital elements defined as Tier 1 capital (which consists
principally of shareholders' equity). 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% Tier 1 capital to total assets, while
lower rated banking organizations must maintain a ratio of at least 4% to 5%.
Failure to meet minimum capital requirements can initiate certain mandatory -
and possible additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the consolidated financial
statements. The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. The Federal Reserve Board has not advised the
Registrant of any specific minimum Tier 1 capital leverage ratio applicable to
it.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. In addition, a bank holding company's controlled insured
depository institutions are liable for any loss incurred by the FDIC in
connection with the default of, or any FDIC-assisted transaction involving, an
affiliated insured bank or savings association. The extent of the regulators'
power depends on whether the institution in question is "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
or "critically undercapitalized." To be well capitalized under the regulatory
framework, the Tier 1 capital ratio must meet or exceed 6%, the total capital
ratio must meet or exceed 10% and the leverage ratio must meet or exceed 5%. At
December 31, 2002, the most recent notification from the Federal Reserve, the
Registrant was categorized as well capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Registrant's category. As
of December 31, 2002, the Bank had a total risk-based capital ratio of 18.91%, a
Tier I risk-based capital ratio of 17.70% and a leverage ratio of 12.15%. The
Bank was deemed well capitalized as of December 31, 2002 and 2001.
Current federal law provides that adequately capitalized and managed
bank holding companies from any state may acquire banks and bank holding
companies located in any other state, subject to certain conditions. Banks are
permitted to create interstate branching networks in states that do not "opt
out" of interstate branching.
The laws and regulations to which the Registrant is subject are
constantly under review by Congress, regulatory agencies and state legislatures.
In 1999, Congress enacted the Gramm-Leach-Bliley Act ("the Act"), which
eliminated certain barriers to and restrictions on affiliations between banks
and securities firms, insurance companies and other financial services
organizations. Among other things, the Act repealed certain Glass-Steagall Act
restrictions on affiliations between banks and securities firms, and amended the
BHCA to permit bank holding companies that qualify as "financial holding
companies" to engage in a broad list of "financial activities," and any
non-financial activity that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines is "complementary" to a financial activity
and poses no substantial risk to the safety and soundness of depository
institutions or the financial system. The Act treats various lending, insurance
underwriting, insurance company portfolio investment, financial advisory,
securities underwriting, dealing and market-making, and merchant banking
activities as financial in nature for this purpose.
Under the Act, a bank holding company may become certified as a
financial holding company by filing a notice with the Federal Reserve Board,
together with a certification that the bank holding company meets certain
criteria, including capital, management, and Community Reinvestment Act
requirements. The Registrant has determined not to become certified as a
financial holding company at this time. The Registrant may reconsider this
determination in the future.
In 2001, Congress enacted the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (the "USA PATRIOT Act"). The USA PATRIOT Act is designed to deny terrorists
and criminals the ability to obtain access to the United States financial
system, and has significant implications for depository institutions, brokers,
dealers, and other businesses involved in the transfer of money. The USA PATRIOT
Act mandates or will require financial services companies to implement
additional policies and procedures with respect to, or additional measures
designed to address, any or all of the following matters, among others: money
laundering, terrorist financing, identifying and reporting suspicious activities
and currency transactions, and currency crimes.
The earnings and business of the Registrant and the Bank are also
affected by the general economic and political conditions in the United States
and abroad and by the monetary and fiscal policies of various federal agencies.
The Federal Reserve Board impacts the competitive conditions under which the
Registrant operates by determining the cost of funds obtained from money market
sources for lending and investing and by exerting influence on interest rates
and credit conditions. In addition, legislative and economic factors can be
expected to have an ongoing impact on the competitive environment within the
financial services industry. The impact of fluctuating economic conditions and
federal regulatory policies on the future profitability of the Registrant and
its subsidiary cannot be predicted with certainty.
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has been undergoing a
restructuring process which is anticipated to continue. The restructuring has
been caused by product and technological innovations in the financial services
industry, deregulation of interest rates, and increased competition from foreign
and nontraditional banking competitors, and has been characterized principally
by the gradual erosion of geographic barriers to intrastate and interstate
banking and the gradual expansion of investment and lending authorities for bank
institutions.
COMPETITION
The Bank's service area includes portions of Milwaukee, Ozaukee, Racine
and Waukesha Counties. In Milwaukee County, the Bank competes with all the major
banks and bank holding companies located in metropolitan Milwaukee, most of whom
are far larger in terms of assets and deposits. Ozaukee County, with a
population of approximately 83,555 residents, has twelve banks with twenty-nine
offices and four saving banks with nine offices. Racine County, with a
population of approximately 189,613 residents has twelve banks with fifty-three
offices and five savings banks with eleven offices. Waukesha County, with a
population of approximately 367,065 residents, has twenty-six banks with one
hundred thirty offices and thirteen savings banks with forty offices. In
addition to banks and savings banks, significant competition comes from credit
unions, security and brokerage firms, mortgage companies, insurance companies
and other providers of financial services in the area.
EMPLOYEES
As of December 31, 2002, the Registrant employed 274 full-time
employees and 111 part-time employees. The employees are not represented by a
collective bargaining unit. The Registrant considers relations with employees to
be good.
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
The following pages set forth the statistical data required by Guide 3
of the Securities and Exchange Commission Guides for Preparation and Filing of
Reports and Registration Statements and Reports.
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
(Dollars in Thousands)
The following table shows average assets, liabilities and stockholders' equity;
the interest earned and average yield on interest-earning assets; the interest
paid and average rate on interest-bearing liabilities, the net interest
earnings, the net interest rate spread and the net yield on interest-earning
assets for the years ended December 31, 2002, 2001 and 2000.
Year Ended December 31
2002 2001 2000
---- ---- ----
Average Yield Average Yield Average Yield
Balance Interest or Rate Balance Interest or Rate Balance Interest or Rate
-------- -------- -------- -------- -------- -------- -------- -------- --------
ASSETS
Interest-earning assets:
Loans (1) $388,566 $29,923 7.70% $371,031 $31,966 8.62% $342,806 $30,592 8.92%
Taxable investment securities 74,230 3,595 4.84 48,280 2,834 5.87 57,411 3,481 6.06
Nontaxable investment securities(2) 75,146 4,897 6.52 73,031 4,892 6.70 80,328 5,350 6.66
Federal funds sold 14,388 245 1.70 25,820 846 3.28 14,285 895 6.27
-------- -------- -------- -------- -------- --------
Total interest-earning assets 552,330 38,660 7.00 518,162 40,538 7.82% 494,830 40,318 8.15%
Noninterest-earning assets:
Other Assets 47,784 51,744 51,353
-------- -------- --------
$600,114 $569,906 $546,183
======== ======== ========
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
(Dollars in Thousands)
Year Ended December 31
2002 2001 2000
---- ---- ----
Average Yield Average Yield Average Yield
Balance Interest or Rate Balance Interest or Rate Balance Interest or Rate
-------- -------- ------- -------- -------- ------- -------- -------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $251,971 $3,002 1.19% $201,210 $3,869 1.92% $197,085 $5,022 2.55%
Other time deposits 128,114 4,759 3.71 146,331 7,992 5.46 116,603 6,361 5.46
Short-term borrowings 6,099 79 1.29 19,705 748 3.80 37,187 2,258 6.07
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 386,184 7,840 2.03 367,246 12,609 3.43 350,875 13,641 3.89
Noninterest-bearing liabilities:
Demand deposits 135,254 128,623 126,933
Other 2,713 2,960 2,948
Stockholders' equity 75,963 71,077 65,427
-------- -------- --------
$ 600,114 $ 569,906 $ 546,183
========= ========= =========
Net interest earnings and interest rate spread $30,820 4.97% $27,929 4.39% $26,677 4.26%
======== ===== ======== ===== ======== =====
Net yield on interest-earning assets 5.58% 5.39% 5.39%
===== ===== =====
(1) For purposes of these computations, nonaccrual loans are included in the
daily average loan amounts outstanding. Interest income includes $2,360,
$2,154 and $1,836 of loan fees in 2002, 2001 and 2000, respectively.
(2) Nontaxable investment securities income has been stated on a fully taxable
equivalent basis using a 34% adjusting rate. The related tax equivalent
adjustment for calculations of yield was $1,806, $1,622 and $1,755 in 2002,
2001 and 2000, respectively.
INTEREST INCOME AND EXPENSE VOLUME AND RATE CHANGE
(Dollars in Thousands)
The following table sets forth, for the periods indicated, a summary of the
changes in interest earned (on a fully taxable equivalent basis) and interest
paid resulting from changes in volume and changes in rates:
2002 Compared to 2001 2001 Compared to 2000
--------------------- ---------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate(1) Net Volume Rate(1) Net
Interest earned on:
Loans $ 1,511 $(3,554) $(2,043) $ 2,518 $(1,144) $ 1,374
Taxable investment securities 1,523 (762) 761 (553) (94) (647)
Nontaxable investment securities 142 (137) 5 (486) 28 (458)
Federal funds sold (375) (226) (601) 723 (772) (49)
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 2,801 $(4,679) $(1,878) $ 2,202 $(1,982) $ 220
======= ======= ======= ======= ======= =======
Interest paid on:
Savings deposits 976 (1,843) (867) $ 105 $(1,258) $(1,153)
Other time deposits (995) (2,238) (3,233) 1,622 9 1,631
Short-term borrowings (516) (153) (669) (1,061) (449) (1,510)
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities $ (535) $(4,234) $(4,769) $ 666 $(1,698) $(1,032)
======= ======= ======= ======= ======= =======
Increase in net interest income $ 2,891 $ 1,252
======= =======
(1) The change in interest due to both rate and volume has been allocated to
rate changes.
INVESTMENT PORTFOLIO
(Dollars in Thousands)
The following table sets forth the maturities of investment securities at
December 31, 2002, the weighted average yields of such securities (calculated on
the basis of the cost and effective yields weighted for the scheduled maturity
of each security) and the tax-equivalent adjustment used in calculating the
yields.
Maturity
After One But After Five But
Within One Year Within Five Years Within Ten Years
Amount Yield Amount Yield Amount Yield
U.S. Treasury and government agencies $ 4,000 5.94% $ 63,810 4.30% $ 0 0%
States and political subdivisions 19,688 4.12 74,032 5.47 1,092 6.28
------- ------- -------
$ 23,635 4.43% $137,843 4.93% $ 1,092 6.28%
======= ======= =======
Tax equivalent adjustment for
Calculation of yield $ 374 $ 1,411 $ 21
======= ======= =======
Note: The weighted average yields on tax-exempt obligations have been computed
on a fully tax-equivalent basis assuming a tax rate of 34%.
The table below sets forth information regarding the amortized cost and fair
values of the Corporation's investment securities at the dates indicated.
December 31
2002 2001 2000
-------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
Held-to-maturity:
U.S. Treasury securities and
obligations of U.S. government
agencies $ 67,810,172 $ 69,476,310 $ 71,000,000 $ 71,774,134 $ 53,954,624 $ 53,593,108
Obligations of states and political
subdivisions 94,812,043 97,270,973 72,753,829 74,023,441 80,332,445 80,571,485
----------- ----------- ----------- ----------- ----------- -----------
Total investment securities $162,622,215 $166,747,283 $143,753,829 $145,797,575 $134,287,069 $134,164,593
=========== =========== =========== =========== =========== ===========
LOAN PORTFOLIO
(Dollars in Thousands)
The maturity distribution of all loans at December 31, 2002, are:
Maturity
--------
After One
One Year Through After
or Less Five Years Five Years Total
-------- ---------- ---------- --------
Commercial $ 15,478 $ 13,109 $ -0- $ 28,587
Real estate construction 28,688 9,056 381 38,125
Real estate mortgage 94,265 204,418 3,670 302,354
Installment Loans 5,459 18,653 4,606 28,718
-------- --------- ---------- --------
$143,890 $245,236 $ 8,657 $397,784
======== ======== ========== ========
Interest rate sensitivity of all loans with maturities greater than one year
at December 31, 2002, are:
Interest Sensitivity
--------------------
Fixed Rate Variable Rate
---------- -------------
Due after one, but within five years $ 240,556 $ 4,680
Due after five years 8,657 -0-
---------- -------------
$ 249,213 $ 4,680
========== =============
LOAN PORTFOLIO COMPOSITION
The following table presents information concerning the composition of the
Bank's consolidated loans held for investment at the dates indicated.
December 31
-----------
2002 2001 2000 1999 1998
----------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
----------------------------------------------------------------------------------------------------------
Commercial $ 28,587,008 7.19% $ 42,094,372 11.29% $ 38,012,480 10.51% $ 26,954,000 8.45% $ 13,730,000 4.95%
Real Estate:
Real estate-
construction 38,125,221 9.58 28,262,912 7.08 19,733,919 5.45 16,503,000 5.17 16,358,000 5.90
Real estate-mortgage:
Single family 158,722,569 39.90 145,899,261 39.13 144,825,860 40.03 131,902,000 41.36 114,570,000 41.33
Multi-family 10,489,662 2.64 7,791,092 2.09 10,347,366 2.86 10,971,000 3.44 9,136,000 3.30
Nonresidential 133,141,297 33.47 119,374,209 32.02 121,312,459 33.53 105,084,000 32.95 91,675,000 33.07
------------------ ------------------ ------------------ ------------------ ------------------
Total Real Estate 340,478,749 85.59 301,327,474 80.82 296,219,604 81.88 264,460,000 82.93 231,739,000 83.60
------------------ ------------------ ------------------ ------------------ ------------------
Installment 28,717,942 7.22 29,416,266 7.89 27,540,063 7.61 27,485,000 8.62 31,715,000 11.44
------------------ ------------------ ------------------ ------------------ ------------------
$397,783,699 100.00% $372,838,112 100.00% $361,772,147 100.00% $318,899,000 100.00% $277,184,000 100.00%
================== ================== ================== ================== ==================
LOAN PORTFOLIO (Continued)
The following table presents information concerning the aggregate amount of
nonperforming loans. Nonperforming loans are comprised of (a) loans accounted
for on a nonaccrual basis and (b) loans contractually past due 90 days or more
as to interest or principal payments, for which interest continues to be
accrued.
(Dollars in Thousands)
December 31
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Loans accounted for on a nonaccrual basis $ 337 $ 128 $ 214 $ 595 $ 334
Loans contractually past due 90
days or more as to interest or principal
payments 2,361 2,511 1,669 1,372 1,848
----- ----- ----- ----- -----
Total nonperforming loans $2,698 $2,639 $1,883 $1,967 $2,182
===== ===== ===== ===== =====
Ratio of nonaccrual loans to total loans .08% .03% .06% .19% .12%
Ratio of nonperforming loans to total loans .68% .71% .52% .62% .79%
Interest income of $4,050 was recognized during 2002 on loans, which were
accounted for on a nonaccrual basis. An additional $63,280 of interest income
would have been recorded in 2002 under the original loan terms had these loans
not been assigned nonaccrual status.
The accrual of interest income is generally discontinued when a loan becomes 90
days past due as to principal or interest. Registrant's management may continue
the accrual of interest when the estimated net realizable value of collateral is
sufficient to cover the principal balance and accrued interest.
There were no other loans at December 31, 2002 or 2001 whose terms had been
renegotiated to provide a reduction or deferral of interest or principal because
of a deterioration in the financial position of the borrower, and there are no
current loans where, in the opinion of management, there are serious doubts as
to the ability of the borrower to comply with present loan repayment terms.
Loans defined as impaired by Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," if any, are included in
nonaccrual loans above.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
The following table summarizes loan loss allowance balances at the beginning and
end of each year; changes in the allowance for loan losses arising from loans
charged off and recoveries on loans previously charged-off, by loan category;
additions to the allowance which have been charged to expense; and selected
performance ratios.
Year Ended December 31
----------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Balance of allowance for loan
losses at beginning of period $4,827 $4,521 $4,340 $4,245 $3,500
Loans charged-off:
Commercial 27 0 130 116 0
Real estate 86 38 62 9 0
Installment 115 128 9 61 154
----- ----- ----- ----- -----
TOTAL LOANS CHARGED-OFF 228 166 201 186 154
Recoveries of loans previously
charged-off:
Commercial 2 11 37 12 0
Real estate 53 21 0 0 244
Installment 45 20 45 44 55
----- ----- ----- ----- -----
TOTAL RECOVERIES 100 52 82 56 299
----- ----- ----- ----- -----
Net loans charged-off(recovered) 128 114 119 130 (145)
Additions to allowance charged
to expense 420 420 300 225 600
----- ----- ----- ----- -----
Balance at end of period $5,119 $4,827 $4,521 $4,340 $4,245
===== ===== ===== ===== =====
Ratio of net loans charge-off
(recoveries) during the period
to average loans outstanding .03% .03% .03% .04% (.05%)
==== ==== ==== ==== =====
Ratio of allowance at end of
year to total loans 1.29% 1.29% 1.25% 1.36% 1.53%
===== ===== ===== ===== =====
Ratio of allowance at end of
year to nonaccrual loans 1,518.99% 3,771.33% 2,112.83% 729.41% 1,270.96%
======== ======== ======== ====== ========
The additions to the allowance charged to operating expense is the amount
necessary to bring the allowance for loan losses to a level which will provide
for probable and estimable losses in the loan portfolio. The adequacy of the
allowance is based principally upon continuing management review for potential
losses in the portfolio, actual charge-offs during the year, historical loss
experience, current and anticipated economic conditions, estimated value of
collateral and industry guidelines.
Management evaluates the adequacy of the allowance for loan losses on an overall
basis as opposed to allocating the allowance to specific categories of loans.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in Thousands)
The Bank has a loan committee which meets periodically. Its function is to
review new loan applications and to ensure adherence to the written loan and
credit policies of the Bank. The Committee also reviews a summary of the loan
portfolio by risk categories monthly. Loans are reviewed quarterly or as
necessary as to proper classification.
1. Absence of any significant credit risk.
2. Presence of normal, but not undue, credit risk.
3. Presence of greater than normal credit risk.
4. Excess credit risk requiring continuous monitoring.
5. Doubtful and loss.
The balance in each of the aforementioned categories serves as a guideline in
determining the adequacy of the allowance for loan losses and the provision
required to bring this balance to a level necessary to absorb the present and
potential risk characteristics of the loan portfolio.
The Bank's loan committee also considers collection problems which may exist.
Loans with contractual payments more than 90 days past due are reviewed. If
collection possibilities are considered to be remote, the loan is charged-off to
the allowance for loan losses. Should any special circumstances exist, such as a
reasonable belief that the loan may ultimately be paid or be sufficiently
secured by collateral having established marketability, the loan may be
rewritten, carried in a nonaccrual of interest status or charged-off to the
level of expected recovery.
Real estate loans comprise the largest portion of the loan portfolio with 85.48%
of loans outstanding at December 31, 2002. The majority of the real estate loan
portfolio consists of residential mortgage loans, an area in which the
Registrant has had few losses in past years.
In the installment loan category, which includes auto loans, home improvement
loans, and credit card loans, among others, management considers the historical
net loss experience to be the best indicator of future losses.
The remainder of the loan portfolio consists of commercial loans. While these
loans carry the greatest exposure to risk of loss, that exposure is limited to
problems associated with particular companies, rather than to specific
industries, which are generally more difficult to predict.
Losses in 2003 are not expected to vary significantly from net losses
experienced over the last two years.
DEPOSITS
(Dollars in Thousands)
The average daily balance of deposits and the average rate paid on deposits is
summarized for the periods indicated in the following table:
Year Ended December 31
----------------------
2002 2001 2000
Amount Rate Amount Rate Amount Rate
-------- ----- -------- ----- -------- -----
Noninterest-bearing demand deposits $135,254 0% $128,623 0% $126,933 0%
Interest bearing transaction deposits 129,873 1.37% 91,384 2.24% 88,022 2.94%
Savings 122,097 1.00% 109,826 1.66% 109,063 2.23%
Time deposits (excluding time certificates
of deposit of $100,000 or more)
87,139 3.72% 98,184 5.29% 87,184 5.46%
Time certificates of deposits of $100,000
or more 40,976 3.70% 48,147 5.81% 29,419 5.44%
-------- -------- -------- --------
$515,339 $476,164 $440,621
======== ======== ========
The maturity distribution of deposits in amounts of $100,000 and over at
December 31, 2002, is:
Three months or less $ 11,950
After 3 through 6 months 8,748
After 6 through 12 months 7,459
After 1 year through 2 years 2,400
After 2 years through 3 years 4,619
After 3 years through 4 years 4,765
After 4 years through 6 years 1,035
-------
$ 40,976
RETURN ON EQUITY AND ASSETS AND SELECTED CAPITAL RATIOS
The following table shows consolidated operating and capital ratios of the
Registrant for each of the last three years:
Year Ended December 31
----------------------
2002 2001 2000 1999 1998
------ ------ ------ ------ ------
Percentage of net income to:
Average stockholders equity 9.02% 10.72% 12.04% 11.66% 12.65%
Average total assets 1.14 1.34 1.44 1.38 1.50
Percentage of dividends declared per
common share to net income per
common share 66.93 52.05 45.45 43.32 36.10
Percentage of average stockholders'
equity to daily average total assets 12.66 12.47 11.98 11.86 11.84
SHORT-TERM BORROWINGS
(Dollars in Thousands)
Information relating to short-term borrowings follows:
Federal Funds Purchased
and Securities Sold Under Other Short-Term
Agreements to Repurchase Borrowings
------------------------- ----------------
Balance at December 31:
2002 $ 1,500 $ 6,000
2001 3,250 1,429
2000 19,787 2,233
Weighted average interest rate at year end:
2002 0.41% 1.06%
2001 1.32 1.71
2000 6.29 6.32
Maximum amount outstanding at any month's end:
2002 $ 17,178 $ 6,000
2001 22,526 5,479
2000 76,891 5,347
Average amount outstanding during the year:
2002 $ 4,140 $ 1,959
2001 17,621 2,084
2000 35,148 2,038
Average interest rate during the year:
2002 1.24% 1.41%
2001 3.83 3.51
2000 6.05 6.48
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days of the transaction date. Notes payable
mature in one year and are renewable for a like term. Other short-term
borrowings generally mature within 90 days.
Item 2. PROPERTIES
Tri City National Bank has thirty-one locations in the Metropolitan Milwaukee
area including Oak Creek, Milwaukee, Brookfield, Menomonee Falls, West Allis,
Hales Corners, Wauwatosa, Cedarburg, Sturtevant and South Milwaukee. The Bank
owns thirteen of its locations and leases eighteen locations, including fifteen
full service-banking centers located in food discount centers.
Registrant believes that its bank locations are in buildings that are attractive
and efficient, and adequate for their operations, with sufficient space for
parking and drive-in facilities.
Item 3. LEGAL PROCEEDINGS
The Registrant is not party to any material legal proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted during the fourth quarter of 2002 to a vote of
security holders.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The information required by Item 5 is incorporated herein by reference to
Registrant's 2002 Annual Report to Stockholders under the captions entitled
"Market for Corporation's Common Stock and Related Stockholder Matters" (Page
19).
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information required by Item 6 is incorporated herein by reference to
Registrant's 2002 Annual Report to Stockholders under the caption entitled
"Selected Financial Data" (Page 18).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The information required by Item 7 is incorporated herein by reference to
Registrant's 2002 Annual Report to Stockholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (Pages 5 to 12).
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by Item 7A is incorporated herein by reference to
Registrant's 2002 Annual Report to Stockholders under the caption entitled
"Quantitative and Qualitative Disclosures About Market Risk" (Pages 14 to 17).
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
The information required by Item 8 is incorporated herein by reference to
Registrant's 2002 Annual Report to Stockholders (Pages 21 to 46).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
----------------------------------------------
The information required by Item 10 is incorporated herein by reference to
Registrant's definitive Proxy Statement for its annual meeting of stockholders
on June 11, 2003 ("The 2003 Proxy Statement") under the captions entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance".
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
2003 Proxy Statement under the caption entitled "Executive Compensation".
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
The information required by Item 12 is incorporated herein by reference to the
2003 Proxy Statement under the caption entitled "Security Ownership of Certain
Beneficial Owners and Management" and "Equity Compensation Plan Information".
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Item 13 is incorporated herein by reference to the
2003 Proxy Statement under the caption entitled "Loans and Other Transactions
with Management".
Item 14. CONTROLS AND PROCEDURES
-----------------------
The Registrant maintains a set of disclosure controls and procedures that are
designed to ensure that information required to be disclosed by it in the
reports filed by it under the Securities Exchange Act of 1934, as amended, is
recorded and processed, summarized and reported within the time periods
specified in the SEC's rules and forms. Within the 90 days prior to the date of
this report, the Registrant carried out an evaluation, under the supervision and
with the participation of management, including the Chief Executive Officer and
President who is also the Chief Financial Officer of the Registrant, of the
effectiveness of the design and operation of the Registrant's disclosure
controls and procedures pursuant to Rule 13a-14 of the Exchange Act. Based on
that evaluation, the Chief Executive Officer and President who is also the Chief
Financial Officer of the Registrant concluded that the Registrant's disclosure
controls and procedures are effective.
There have been no significant changes in the Registrant's internal controls or
other factors that could significantly affect those controls subsequent to the
conclusion of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) (1) and (2) Financial statements and financial statement schedules
------------------------------------------------------------------
The response to this portion of Item 15 is submitted as a separate
section of this report.
(3) Listing of Exhibits
Exhibit 3.1 - Restated Articles of incorporation (incorporated
herein by reference to Exhibit 3.2 to
Registrant's current report on Form 8-K filed
February 12, 2003.
Exhibit 3.2 - By-Laws (incorporated herein by reference to
Exhibit 3.2 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 2000).
Exhibit 13 - Annual Report to Stockholders for the year ended
December 31, 2002.
With the exception of the information
incorporated by reference into Items 5,
6, 7, 7A, and 8 of this Form 10-K, the
2002 Annual Report to Stockholders is
not deemed filed as part of this
report.
Exhibit 21 - Subsidiaries of Registrant.
Exhibit 23 - Consent of Independent Auditors
Exhibit 99.1 -Certification of Mr. Karbiner
Exhibit 99.2 -Cautionary Statements
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of
fiscal 2002.
PART IV
ANNUAL REPORT ON FORM 10-K
ITEM 15(a)(1), (2) and (c)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
CERTAIN EXHIBITS
Year Ended December 31, 2002
TRI CITY BANKSHARES CORPORATION
OAK CREEK, WISCONSIN
FORM 10-K-ITEM 15(a)(1) and (2)
TRI CITY BANKSHARES CORPORATION
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and report of independent
auditors of Tri City Bankshares Corporation, included in the annual report of
the Registrant to its stockholders for the year ended December 31, 2002, are
incorporated by reference in Item 8:
Consolidated balance sheets-December 31, 2002 and 2001
Consolidated statements of income-Years ended December 31, 2002, 2001 and 2000
Consolidated statements of stockholders' equity-Years ended December 31, 2002,
2001 and 2000.
Consolidated statements of cash flows-Years ended December 31, 2002, 2001
and 2000
Notes to consolidated financial statements-December 31, 2002
Report of independent auditors
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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
BY: /s/ Henry Karbiner, Jr.
-----------------------
Henry Karbiner, Jr., President
Date: March 12, 2003
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Capacity Date
/s/ Henry Karbiner, Jr. Chairman of the Board and 3/12/03
- ----------------------- Chief Executive Officer -------
Henry Karbiner, Jr. (Principal Executive and
/s/ Ronald K. Puetz Executive Vice-President 3/12/03
- ------------------- and Director -------
Ronald K. Puetz
/s/ Scott A Wilson Senior Vice President and 3/12/03
- ------------------ Secretary and Director -------
Scott A. Wilson
/s/ Robert W. Orth Senior Vice-President and 3/12/03
- ------------------- Director -------
Robert W. Orth
/s/ Thomas W. Vierthaler Vice President and Comptroller 3/12/03
- ------------------------ (Principal Accounting Officer) -------
Thomas W. Vierthaler
/s/ Frank J. Bauer Director 3/12/03
- ------------------ -------
Frank J. Bauer
/s/ William Beres Director 3/12/03
- ----------------- -------
William Beres
/s/ Sanford Fedderly Director 3/12/03
- --------------------- -------
Sanford Fedderly
/s/ Scott D. Gerardin Director 3/12/03
- --------------------- -------
Scott D. Gerardin
Director
- --------------------- -------
William Gravitter
/s/ Christ Krantz Director 3/12/03
- ------------------ -------
Christ Krantz
/s/ William L. Komisar Director 3/12/03
- ---------------------- -------
William L. Komisar
Director
- ---------------------- -------
Agatha T. Ulrich
/s/ David A. Ulrich, Jr. Director 3/12/03
- ------------------------- -------
David A. Ulrich, Jr.
/s/ William J. Werry Director 3/12/03
- -------------------- -------
William J. Werry
CERTIFICATIONS STATEMENT
I, Henry Karbiner, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Tri City Bankshares
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 12, 2003
/s/ Henry Karbiner, Jr.
-----------------------
Henry Karbiner, Jr.
President/CEO/CFO