UNITED STATES
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, 2003
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), and (2) 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 (ss.229.405 of this chapter) 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, 2003, the aggregate market value of the shares held by
non-affiliates was approximately $59,930,000. As of March 25, 2004, 8,283,731
shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated in
Annual report to shareholders for
fiscal year ended December 31, 2003 Parts II and IV
Proxy statement for annual meeting of
shareholders to be held on June 9, 2004 Part III
Form 10-K Table of Contents
- -------------------------------------------------------------------------------
PART I
Item 1 Business 3
Item 2 Properties 21
Item 3 Legal Proceedings 21
Item 4 Submission of Matters to a Vote of Security Holders 21
PART II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 22
Item 6 Selected Financial Data 22
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 22
Item 7A Quantitative and Qualitative Disclosures
About Market Risk 22
Item 8 Consolidated Financial Statements and
Supplementary Data 22
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
Item 9A Controls and Procedures 22
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 Principal Accountant Fees and Services 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, 2003, the Registrant had total consolidated assets of
$654.8 million and total stockholders' equity of $86.3 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 31 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, 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, 2003 were $407.0
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 82.9% of the Bank's total
deposits at December 31, 2003. Approximately 17.1% of the Bank's deposits at
December 31, 2003 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 38.5% of the Bank's total deposits at
December 31, 2003. 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 8 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, 2003, 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, 2003, the Bank had a total risk-based capital ratio of 19.98% a
Tier I risk-based capital ratio of 18.76% and a leverage ratio of 12.80%. The
Bank was deemed well capitalized as of December 31, 2003 and 2002.
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 83,900 residents, has twelve banks with thirty-one
offices and four savings banks with nine offices. Racine County, with a
population of approximately 191,000 residents has twelve banks with fifty-eight
offices and five savings banks with eleven offices. Waukesha County, with a
population of approximately 370,600 residents, has twenty-five banks with one
hundred twenty-six offices and eleven savings banks with thirty-six 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, 2003, the Registrant employed 287 full-time employees
and 112 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, 2003, 2002 and 2001.
Year Ended December 31
2003 2002 2001
---- ---- ----
Average Yield Average Yield Average Yield
Balance Interest or Rate Balance Interest or Rate Balance Interest or Rate
-------- -------- ------- -------- -------- ------- -------- -------- -------
ASSETS
Interest-earning assets:
Loans (1) $396,427 $ 27,363 6.90% $388,566 $ 29,923 7.70% $371,031 $ 31,966 8.62%
Taxable investment securities 72,877 2,895 3.97 74,230 3,595 4.84 48,280 2,834 5.87
Nontaxable investment securities ( 86,433 4,565 5.28 75,146 4,682 6.23 73,031 4,955 6.78
Federal funds sold 17,735 185 1.04 14,388 245 1.70 25,820 846 3.28
-------- -------- ------- -------- -------- ------- -------- -------- -------
Total interest-earning assets 573,472 35,008 6.10% 552,330 38,445 6.96% 518,162 40,601 7.84%
Noninterest-earning assets:
Other assets 46,815 47,784 51,744
-------- -------- --------
$620,287 $600,114 $569,906
======== ======== ========
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
(Dollars in Thousands)
Year Ended December 31
2003 2002 2001
---- ---- ----
Average Average Average
Balance Interest Yield Balance Interest Yield Balance Interest Yield
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $279,609 $ 2,218 0.79% $251,971 $ 3,002 1.19% $201,210 $ 3,869 1.92%
Other time deposits 105,741 2,838 2.68 128,114 4,759 3.71 146,331 7,992 5.46
Short-term borrowings 2,625 27 1.03 6,099 79 1.29 19,705 748 3.80
-------- -------- ----- --------- -------- ----- -------- -------- ------
Total interest-bearing liabilities 387,975 5,083 1.31 386,184 7,840 2.03 367,246 12,609 3.43
Noninterest-bearing liabilities:
Demand deposits 146,385 135,254 128,623
Other 3,404 2,713 2,960
Stockholders' equity 82,523 75,963 71,077
-------- -------- --------
$620,287 $600,114 $569,906
======== ======== ========
Net interest earnings and
interest rate spread $ 29,925 4.79% $ 30,605 4.93% $ 27,992 4.41%
======== ===== ======== ===== ======== =====
Net yield on interest-earning assets 5.22% 5.54% 5.40%
===== ===== =====
(1) For purposes of these computations, nonaccrual loans are included in the
daily average loan amounts outstanding. Interest income includes $2,478,
$2,360 and $2,154 of loan fees in 2003, 2002 and 2001, 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 $1,552, $1,592 and $1,685 in 2003,
2002 and 2001, 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:
2003 Compared to 2002 2002 Compared to 2001
--------------------- ---------------------
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate(1) Net Volume Rate(1) Net
Interest earned on:
Loans $ 605 $(3,165) $(2,560) $ 1,512 $(3,555) $(2,043)
Taxable investment securities (65) (635) (700) 1,523 (762) 761
Nontaxable investment securities 736 (853) (117) 143 (416) (273)
Federal funds sold 57 (117) (60) (375) (226) (601)
-------- -------- -------- -------- -------- --------
Total interest-earning assets $ 1,333 $(4,770) $(3,437) $ 2,803 $(4,959) $(2,156)
======= ======= ======= ======= ======= =======
Interest paid on:
Savings deposits 329 (1,113) (784) 975 (1,842) (867)
Other time deposits (830) (1,091) (1,921) (995) (2,238) (3,233)
Short-term borrowings (45) (7) (52) (517) (152) (669)
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilitie $ (546) $(2,211) $(2,757) $ (537) $(4,232) $(4,769)
======= ======= ======= ======= ======= =======
Increase (decrease) in net intere $ (680) $ 2,613
======= =======
(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, 2003, 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 $ 15,900 6.07% $ 69,191 3.04% $ 0 0%
States and political subdivisions 24,772 5.44 60,509 4.98 169 6.52
-------- -------- --------
$ 40,672 $129,700 $ 169
======== ======== ========
Tax equivalent adjustment for
Calculation of yield $ 491 $ 1,229 $ 3
======== ======== ========
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
2003 2002 2001
---------------------------------------------------------------------------------------
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 $ 85,090,838 $ 85,851,769 $ 67,810,172 $ 69,476,310 $ 71,000,000 $ 71,774,134
Obligations of states and
political Subdivisions 85,450,285 87,022,158 94,812,043 97,270,973 72,753,829 74,023,441
------------
Total investment securities $170,541,123 $172,873,927 $162,622,215 $166,747,283 $143,753,829 $145,797,575
============
LOAN PORTFOLIO
(Dollars in Thousands)
The maturity distribution of all loans at December 31, 2003, are:
Maturity
After One
One Year Through After
or Less Five Years Five Years Total
Commercial $ 11,212 $ 16,289 $ 157 $ 27,658
Real estate construction 23,879 14,731 0 38,610
Real estate mortgage 101,599 215,392 1,788 318,779
Installment loans 8,804 14,815 3,609 27,228
-------- --------- --------- --------
$145,494 $261,227 $ 5,554 $412,275
======== ======== ========= ========
Interest rate sensitivity of all loans with maturities greater than one year
at December 31, 2003, are:
Interest Sensitivity
Fixed Rate Variable Rate
Due after one, but within five years $ 257,890 $ 3,337
Due after five years 5,554 -0-
--------- ---------
$ 263,444 $ 3,337
========= =========
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
2003 2002 2001 2000 1999
------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
------------------------------------------------------------------------------------------------------------------
Commercial $ 27,657,550 6.71% $ 28,587,008 7.19% $ 42,094,372 11.29% $ 38,012,480 10.51% $ 26,954,000 8.45%
Real Estate:
Construction 38,609,564 9.37 38,125,221 9.58 28,262,912 7.08 19,733,919 5.45 16,503,000 5.17
Mortgage:
Single family 160,933,661 39.03 158,722,569 39.90 145,899,261 39.13 144,825,860 40.03 131,902,000 41.36
Multi-family 8,271,068 2.01 10,489,662 2.64 7,791,092 2.09 10,347,366 2.86 10,971,000 3.44
Nonresidential 150,270,011 36.45 133,141,297 33.47 119,374,209 32.02 121,312,459 33.53 105,084,000 32.95
------------------------------------------------------------------------------------------------------------------
Total Real Estate 358,084,304 86.86 340,478,749 85.59 301,327,474 80.82 296,219,604 81.88 264,460,000 82.93
Installment 26,533,074 6.43 28,717,942 7.22 29,416,266 7.89 27,540,063 7.61 27,485,000 8.62
-------------------- -------------------- --------------------- --------------------- --------------------
$412,274,928 100.00% $397,783,699 100.00% $372,838,112 100.00% $361,772,147 100.00% $318,899,000 100.00%
==================== ==================== ===================== ===================== ====================
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
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Loans accounted for
on a nonaccrual basis $ 181 $ 337 $ 128 $ 214 $ 595
Loans contractually
past due 90 days or
more as to interest
or principal payments 1,280 2,361 2,511 1,669 1,372
------ ------ ------ ------ ------
Total nonperforming loans $1,461 $2,698 $2,639 $1,883 $1,967
====== ====== ====== ====== ======
Ratio of nonaccrual loans
to total loans .04% .08% .03% .06% .19%
Ratio of nonperforming loans
to total loans .35% .68% .71% .52% .62%
Interest income of $3,678 was recognized during 2003 on loans that were
accounted for on a nonaccrual basis. An additional $4,416 of interest income
would have been recorded in 2003 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, 2003 or 2002 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
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Balance of allowance for
loan losses at beginning
of period $5,119 $4,827 $4,521 $4,340 $4,245
Loans charged-off:
Commercial 9 27 0 130 116
Real estate 135 86 38 62 9
Installment 195 115 128 9 61
------ ------ ------ ------ ------
TOTAL LOANS CHARGED-OFF 339 228 166 201 186
Recoveries of loans previously
charged-off:
Commercial 2 2 11 37 12
Real estate 35 53 21 0 0
Installment 52 45 20 45 44
------ ------ ------ ------ ------
TOTAL RECOVERIES 89 100 52 82 56
------ ------ ------ ------ ------
Net loans charged-off
(recovered) 250 128 114 119 130
Additions to allowance
charged to expense 420 420 420 300 225
------ ------ ------ ------ ------
Balance at end of period $5,289 $5,119 $4,827 $4,521 $4,340
====== ====== ====== ====== ======
Ratio of net loans charge
-off (recoveries) during
the period to average
loans outstanding .06% .03% .03% .03% .04%
==== ==== ==== ==== ====
Ratio of allowance at end
of year to total loans 1.28% 1.29% 1.29% 1.25% 1.36%
===== ===== ===== ===== =====
Ratio of allowance at
end of year to
nonaccrual loans 2,922.36% 1,518.99% 3,771.33% 2,112.83% 729.41%
========= ========= ========= ========= =======
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 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 activity 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 in the following categories:
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 for
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 86.86%
of loans outstanding at December 31, 2003. 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 and home improvement
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 2004 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
2003 2002 2001
Amount Rate Amount Rate Amount Rate
Noninterest-bearing
demand deposits $146,385 $135,254 $128,623
Interest bearing
transaction deposits 143,495 1.00 129,873 1.37 91,384 2.24%
Savings 136,114 0.57 122,097 1.00 109,826 1.66%
Time deposits(excluding
time Certificates of
deposit of $100,000 or
more) 74,949 2.50 87,139 3.72 98,184 5.29%
Time certificates of deposit
of $100,000 or more 30,792 3.13 40,976 3.70 48,147 5.81%
-------- -------- --------
$531,735 $515,339 $476,164
======== ======== ========
The maturity distribution of deposits in amounts of $100,000 and over at
December 31, 2003 is:
Three months or less $ 6,466
After 3 through 6 months 3,889
After 6 through 12 months 4,477
After 1 year through 2 years 10,287
After 2 years through 3 years 2,255
After 3 years through 4 years 1,066
After 4 years through 6 years 2,353
-------
$30,793
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
2003 2002 2001 2000 1999
------ ------ ------ ------ ------
Percentage of net income to:
Average stockholders equity 10.56% 9.02% 10.72% 12.04% 11.66%
Average total assets 1.41 1.14 1.34 1.44 1.38
Percentage of dividends
declared per
common share to net income
per common share 59.65 66.56 51.77 45.28 43.24
Percentage of average
stockholders' equity to
daily average total assets 13.30 12.66 12.47 11.98 11.86
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:
2003 $ 9,014 $ 1,534
2002 1,500 6,000
2001 3,250 1,429
Weighted average interest
rate at year end:
2003 1.20 % 0.78 %
2002 0.41 1.06
2001 1.32 1.71
Maximum amount outstanding
at any month's end
2003 $ 9,014 $ 4,636
2002 17,178 6,000
2001 22,526 5,479
Average amount outstanding
during the year:
2003 $ 1,682 $ 1,753
2002 4,140 1,959
2001 17,621 2,084
Average interest rate during
the year:
2003 1.16 % 0.94 %
2002 1.24 1.41
2001 3.83 3.51
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-two 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 fourteen 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, 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 2003 to a vote of
security holders.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The information required by Item 5 is incorporated herein by reference to
Registrant's 2003 Annual Report to Stockholders under the caption entitled
"Market for Corporation's Common Stock and Related Stockholder Matters" (Page
16).
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information required by Item 6 is incorporated herein by reference to
Registrant's 2003 Annual Report to Stockholders under the caption entitled
"Selected Financial Data" (Page 15).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
----------------------------------------------------------------------
The information required by Item 7 is incorporated herein by reference to
Registrant's 2003 Annual Report to Stockholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" (Pages 4 to 14).
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by Item 7A is incorporated herein by reference to
Registrant's 2003 Annual Report to Stockholders under the caption entitled
"Quantitative and Qualitative Disclosures About Market Risk" (Pages 10 to 12).
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
The information required by Item 8 is incorporated herein by reference to
Registrant's 2003 Annual Report to Stockholders (Pages 18 to 41).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
-----------------------------------------------------------
Effective August 13, 2003, the Registrant dismissed its independent accounting
firm, Ernst & Young LLP ("Ernst & Young"), and hired the firm of Virchow, Krause
& Company, LLP ("Virchow Krause"). The change was made based upon the
recommendation of the Audit Committee of the Board of Directors, after
soliciting bids from Ernst & Young, Virchow Krause and other accounting firms.
The reports of Ernst & Young for the years ended December 31, 2001 and 2002 did
not contain an adverse opinion or disclaimer of opinion, nor were they qualified
or modified as to uncertainty, audit scope, or accounting principles. There were
no disagreements on any matter of accounting principles or practices, financial
statements disclosure, or auditing scope or procedure with Ernst & Young during
the years ended December 31, 2001 and 2002.
Item 9A. 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. At the end of the last fiscal quarter,
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-15 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 as of the end of the period covered by
this report.
There have been no changes in the Registrant's internal control over financial
reporting identified in connection with the evaluation discussed above that
occurred during the Registrant's last fiscal quarter that have materially
affected, or are reasonable likely to materially affect, the Registrant's
internal control over financial reporting.
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 9, 2004 ("The 2004 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
2004 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
2004 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
2004 Proxy Statement under the caption entitled "Loans and Other Transactions
with Management".
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------
The information required by Item 14 is incorporated herein by reference to the
2004 Proxy Statement under the caption entitled "Principal Accountant Fees and
Services."
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 10.1* Tri City Bankshares Corporation 2003 Stock
Purchase Plan, incorporated herein by reference
to Exhibit 99 of the Registrant's Registration
Statement on Form S-8 (Reg. No. 333-111617) filed
on December 30, 2003.
Exhibit 13 - Annual Report to Stockholders for the year ended
December 31, 2003.
With the exception of the information
incorporated by reference into Items 5, 6, 7, 7A,
and 8 of this Form 10-K, the 2003 Annual Report
to Stockholders is not deemed filed as part of
this report.
Exhibit 16 - Letter regarding Change in Certifying
Accountant, incorporated herein by reference
to Exhibit 16 of the Registrant's current
report on Form 8-K filed on August 20, 2003.
Exhibit 21 - Subsidiaries of Registrant.
Exhibit 23.1 - Consent of Virchow, Krause & Company LLP
Exhibit 23.2 - Consent of Ernst & Young LLP
Exhibit 31 - Rule 13a -14(a) or 15d-14(a) Under the Securities
and Exchange Act of 1934, as amended,
Certification
Exhibit 32 - 18 U.S.C. Section 1350 Certification
Exhibit 99.1 - Cautionary Statements
*A Management contract or compensation plan or arrangement
(b) Reports on Form 8-K
On October 17, 2003, the Corporation furnished Items 7, 9 and 12
in a Current Report on Form 8-K relating to the release of
quarterly financial information to shareholders for the period ended
September 30, 2003.
(c) Exhibits - The response to this portion of Item 15 is submitted
as a separate section of this report.
(d) Financial Statement Schedules - none
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, 2003
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 reports 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, 2003, are
incorporated by reference in Item 8:
Consolidated balance sheets-December 31, 2003 and 2002
Consolidated statements of income-Years ended December 31, 2003, 2002 and 2001
Consolidated statements of stockholders' equity-Years ended December 31,
2003, 2002 and 2001.
Consolidated statements of cash flows-Years ended December 31, 2003, 2002 and
2001
Notes to consolidated financial statements years ended -December 31, 2003,
2002 and 2001
Independent auditor's report
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 29, 2004
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 3/29/04
- ------------------------------ ----------
Henry Karbiner, Jr Chairman of the Board and
Chief Executive Officer
(Principal Executive and
Financial Officer)
/s/ Ronald K. Puetz 3/29/04
- ------------------------------ ---------
Ronald K. Puetz Executive Vice-President
and Director
/s/ Scott A. Wilson 3/29/04
- ------------------------------ ---------
Scott A. Wilson Senior Vice President and
Secretary and Director
/s/ Robert W. Orth 3/29/04
- ------------------------------ ---------
Robert W. Orth Senior Vice-President and
Director
/s/ Thomas W. Vierthaler 3/29/04
- ------------------------------ ---------
Thomas W. Vierthaler Vice President and Comptroller
(Principal Accounting Officer)
/s/ Frank J. Bauer 3/29/04
- ------------------------------ ---------
Frank J. Bauer Director
/s/ William Beres 3/29/04
- ------------------------------ ---------
William Beres Director
/s/ Sanford Fedderly 3/29/04
- ------------------------------ ---------
Sanford Fedderly Director
/s/ Scott D. Gerardin 3/29/04
- ------------------------------ ---------
Scott D. Gerardin Director
/s/ William Gravitter 3/29/04
- ------------------------------ ---------
William Gravitter Director
/s/ Christ Krantz 3/29/04
- ------------------------------ ---------
Christ Krantz Director
/s/ William L. Komisar 3/29/04
- ------------------------------ ---------
William L. Komisar Director
- ------------------------------ ---------
Agatha T. Ulrich Director
/s/David A. Ulrich, Jr 3/29/04
- ------------------------------ ----------
David A. Ulrich, Jr Director
/s/William J. Werry 3/29/04
- ------------------------------ ----------
William J. Werry Director
EXHIBIT 13
EXHIBIT 21
EXHIBIT 23.1
EXHIBIT 23.2
EXHIBIT 31
EXHIBIT 32
Exhibit 99.1