Item 1. BUSINESS
General
Tri City Bankshares Corporation (Registrant), a registered bank holding company, is a Wisconsin corporation organized in 1970 which provides commercial banking services in the metropolitan Milwaukee area, through its wholly-owned subsidiary Tri City National Bank (the Bank).
On a consolidated basis at December 31, 2000, Registrant had assets of $563,074,933, net loans of $357,249,682, deposits of $470,141,136 and stockholders' equity of $68,896,442. Registrant's primary function is to coordinate the banking policies and operations of Tri City National Bank in order to improve and expand its banking services in its operation by joint efforts in certain areas such as auditing, regulatory compliance, training of personnel, advertising, proof and bookkeeping, and business development. Registrant's services are furnished through officers of Registrant who are also officers of Tri City National Bank. Registrant's primary sources of revenues are (1) dividends paid on the shares of the subsidiary banks' stock which it owns and (2) management fees in payment for the services it provides to Tri City National Bank. In 2000 the Registrant also realized proceeds from the sale of it's investment in another subsidiary bank.
Registrant is engaged in only one business segment, namely commercial banking.
The Registrant's banking business is principally conducted by one commercial bank bearing the "Tri City" name. Tri City National Bank is supervised by the Comptroller of the Currency and its deposits are insured by the Federal Deposit Insurance Corporation. Tri City National Bank provides full-service banking to individuals and businesses, including checking and savings accounts, commercial and consumer loans, installment loans, real estate and mortgage loans, mobile home loans, Master Charge cards, and personal reserve accounts. Tri City National Bank maintains an investment portfolio consisting primarily of U.S. Agency and state and political subdivision securities. Certain bank locations have drive-in banking facilities. A separate department provides centralized proof and bookkeeping services to all Tri City National Bank locations.
The following table sets forth certain information regarding Tri City National Bank:
Supervision and Regulation
As a bank holding company, Registrant is registered under the Bank Holding Company Act of 1956, as amended, and files periodic reports with, and is subject to the supervision of, the Federal Reserve Board (the Board). The Board has the power to make examinations of the Registrant and must give its approval prior to the Registrant's acquiring substantially all of the assets of a bank or direct or indirect ownership or control of any voting shares of any bank if, after such acquisition, Registrant would control more than 5% of the voting shares of such bank. The Board expects bank holding companies, such as Registrant, to be a source of financial strength for their subsidiary banks and, accordingly, the Board may condition approvals of bank acquisitions on the injection of additional capital into existing banks if capital-to-asset ratios do not meet the Board's standards. The Bank Holding Company Act restricts Registrant's ability to engage only in those activities which are found by the Board to be so closely related to banking as to be a proper incident thereto.
Tri City National Bank is regularly examined by the Comptroller of the Currency and is subject to examination by the Federal Deposit Insurance Corporation. Areas subject to regulation by these two federal agencies include capital, allowance for loan loss, investments, loans, mergers, issuance of securities, payment of dividends, establishment of branches and other aspects of operations.
The banking industry is very heavily regulated at both the state and federal levels. Since 1979, Congress has enacted major pieces of legislation affecting the banking industry: the Community Reinvestment Act (to encourage banks to make loans to individuals and businesses in their immediate service areas, particularly to low- and middle-income borrowers); the Financial Institutions Regulatory and Interest Rate Control Act (to add restrictions dealing with loans to officers, directors, and principal stockholders of banks and their affiliates); the Financial Institutions Deregulation and Monetary Control Act (to permit both banks and thrift institutions to pay interest on checking accounts and phase out prior ceilings on interest rates); the Competitive Equality Banking Act (to expand the definition of "bank" under the Bank Holding Company Act to include all institutions insured by the Federal Deposit Insurance Corporation and thereby restrict the ability of bank holding companies and certain commercial and other nonbanking firms to acquire "non-bank banks"); and the Financial Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA (comprehensive legislation to reform the very nature of regulation in the financial institutions industry) and the Federal
Deposit Insurance Corporation Improvement Act (FDICIA) and the Gramm-Leach-Bliley Act (the Act).
FDICIA, which was enacted in 1991, affects all federally insured banks, savings banks and thrifts. FDICIA contains a $70 billion recapitalization of the Bank Insurance Fund (BIF) by significantly increasing the amount that the FDIC can borrow from the Treasury. The FDIC must assess premiums that are sufficient to give the BIF reserves of $1.25 for each $100 of insured deposits. Additional significant provisions of FDICIA include requiring prompt corrective action by regulators if minimum capital standards are not met; establishing early intervention procedures for "significantly" undercapitalized institutions; limiting FDIC reimbursement of uninsured deposits when large banks fail; requiring an annual regulatory examination; and imposing new auditing and accounting requirements, effective for fiscal years beginning on or after January 1, 1993, including management and auditor reporting on internal controls over financial reporting and on compliance with laws and regulations for banks with assets in excess of $500 million. Additionally, a number of legislative and regulatory mandates have been enacted that are designed to strengthen the federal deposit insurance system and to improve the overall financial stability of the U.S. banking system. It is uncertain what form future proposals may take and, if adopted, what their effect will be on Registrant and its principal bank subsidiary.
The Gramm-Leach-Bliley Act (the Act), was passed in 1999 to overturn Depression-era restrictions on affiliations by banking organizations. The Act eliminates certain barriers to and restrictions on affiliations between banks and securities firms, insurance companies and other financial services organizations by providing for a new type of "financial holding company" structure under which affiliations among these entities may occur, subject to the regulation of the Board and regulation of affiliates by the functional regulators, including the Securities and Exchange Commission (the SEC) and state insurance regulators. In addition, the Act permits certain non-banking financial and financially related activities to be conducted by operating subsidiaries of a national bank. Under the Act, a bank holding company may become certified as a financial holding company by filing a notice with the Board, together with a certification that the bank holding company meets certain criteria, including capital, management and Community Reinvestment Act requirements. The Act contains a number of provisions allocating regulatory authority among the Board, other banking regulators, the SEC and state insurance regulators. In addition, the Act imposes strict new privacy disclosure and "opt out" requirements regarding the ability of financial institutions to share personal non-public customer information with third parties.
Other important provisions of the Act permit merchant banking and venture capital activities, and insurance underwriting, to be conducted by a subsidiary of a financial holding company, and municipal securities underwriting activities to be conducted directly by a national bank or by its subsidiary. Under the Act, the financial holding company may engage in a broad list of "financial activities," and any non-financial activity that the Board determines is "complementary" to a financial activity and poses no substantial risk to the safety and soundness of depository institutions or the financial system.
While certain provisions of the Act became effective on November 12, 1999, other provisions are subject to delayed effective dates, and in some cases, will be implemented only upon the adoption by federal regulatory agencies of rules prescribed by the Act.
On June 1, 2000, the federal bank regulatory agencies issued final regulations implementing the Act's consumer privacy protections. Among other things, the new privacy regulations give customers the right to "opt out" of having their nonpublic, personal information shared by a financial institution with nonaffiliated third parties. The Act also bars financial institutions from disclosing customer account numbers or other such access codes to nonaffiliated third parties for direct marketing purposes and requires annual disclosure by financial institutions of their policies and procedures for protecting customers' nonpublic, personal information. Full compliance with the new privacy regulations is mandatory as of July 1, 2001.
Capital Requirements
See footnote 8 to the audited financial statements for a discussion of the capital requirements of the Registrant and the Bank.
Monetary Policy
Registrant's operations and earnings are affected by the credit policies of monetary authorities, including the Federal Reserve System, which regulates the national supply of bank credit. Such regulation influences overall growth of bank loans, investments, and deposits, and may also affect interest rates charged on loans and paid on deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of bank holding companies and commercial banks in the past and are expected to continue to do so in the future.
Competition
All of the Registrant's banking facilities are located in Milwaukee, Waukesha, Racine and Ozaukee Counties. Accordingly, 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. The banking industry in this area is highly competitive and the Registrant's bank faces vigorous competition not only from the many banks in the area, but from other financial institutions such as savings and loan associations, credit unions, and finance companies.
Employees
At December 31, 2000, Registrant employed 89 officers and 337 employees in total. Employees are provided a variety of employment benefits, and Registrant considers its employee relations to be excellent.
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, 2000, 1999 and 1998.
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL (Continued) (Dollars in Thousands)
(1) For purposes of these computations, nonaccrual loans are included in the daily average loan amounts outstanding. Interest income includes $1,836, $1,736 and $1,747 of loan fees in 2000, 1999 and 1998, 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 $1,755, $1,949 and $1,598 in 2000, 1999 and 1998, 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:
(1) The change in interest due to both rate and volume has been allocated to rate changes.
INVESTMENT PORTFOLIO (Dollars in Thousands)
The book value of investment securities at the dates indicated is:
The following table sets forth the maturities of investment securities at December 31, 2000, 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.
Note: The weighted average yields on tax-exempt obligations have been computed on a fully tax-equivalent basis assuming a tax rate of 34%.
LOAN PORTFOLIO (Dollars in Thousands)
The amounts of loans outstanding at the indicated dates are shown in the following table according to type of loan:
The maturity distribution of all loans at December 31, 2000, are:
Interest rate sensitivity of all loans with maturities greater than one year at December 31, 2000, are:
LOAN PORTFOLIO (Continued) (Dollars in Thousands)
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.
Interest income of $4 was recognized during 2000 on loans which were accounted for on a nonaccrual basis. An additional $23 of interest income would have been recorded in 2000 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, 2000 or 1999 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.
*Data not meaningful
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 known 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 reviews a summary of the loan portfolio classified into one of the following five 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 81.88% of loans outstanding at December 31, 2000. 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 losses to be expected in the immediate future.
The remainder of the loan portfolio consists of loans classified as commercial. 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 and are generally more difficult to predict.
Losses in 2001 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:
The maturity distribution of deposits in amounts of $100,000 and over at December 31, 2000, is:
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:
SHORT-TERM BORROWINGS (Dollars in Thousands)
Information relating to short-term borrowings follows:
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.
Item 2. PROPERTIES
The following table summarizes the properties in which the Registrant's bank conducts its business:
(1) The Bank leases space from an affiliated entity. See Note 11 to consolidated financial statements, incorporated herein by reference, for further information.
Tri City National Bank owns buildings at thirteen locations in Oak Creek, Milwaukee, Brookfield, Menomonee Falls, West Allis, Hales Corners, Wauwatosa, Cedarburg and Sturtevant. Approximately 85,392 square feet is leased to third parties; such square footage is not shown above.
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. Fifteen full-service banking centers are located in metropolitan Milwaukee food discount centers.
Item 3.
Item 3. LEGAL PROCEEDINGS
There are currently no material legal proceedings pending against Registrant or its subsidiary bank; however, the bank is involved from time to time in routine litigation incident to the conduct of its business.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2000 to a vote of security holders through the solicitation of proxies or otherwise.
PART II
Item 5.
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 2000 Annual Report to Stockholders under the captions entitled "Market for Corporation's Common Stock and Related Stockholder Matters" (Page 14) and "Selected Financial Data" (Page 13) as to cash dividends paid.
Item 6.
Item 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to Registrant's 2000 Annual Report to Stockholders under the caption entitled "Selected Financial Data" (Page 13).
Item 7.
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 2000 Annual Report to Stockholders under the caption entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" (Pages 4 to 10).
Item 7A.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is incorporated herein by reference to Registrant's 2000 Annual Report to Stockholders under the caption entitled "Quantitative and Qualitative Disclosures About Market Risk" (Pages 11 to 12).
Item 8.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to Registrant's 2000 Annual Report to Stockholders (Pages 16 to 38).
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10.
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 13, 2000, under the caption entitled "Election of Directors" which definitive Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b).
Item 11.
Item 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to Registrant's definitive Proxy Statement for its annual meeting of stockholders on June 13, 2000, under the caption entitled "Executive Compensation" which definitive Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b).
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to Registrant's definitive Proxy Statement for its annual meeting of stockholders on June 13, 2000, under the caption entitled "Stock Ownership of Certain Beneficial Owners and Management" which definitive Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b).
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to Registrant's definitive Proxy Statement for its annual meeting of stockholders on June 13, 2000, under the captions entitled "Election of Directors" and "Loans and Other Transactions with Management" which definitive Proxy Statement will be filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b).
PART IV
Item 14.
Item 14. 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 14 is submitted as a separate section of this report.
(3) Listing of Exhibits
Exhibit 3.1 -- Restated Articles of incorporation.
Exhibit 3.2 -- By-Laws, as amended.
Exhibit 13 -- Annual Report to Stockholders for the year ended December 31, 2000.
With the exception of the information incorporated by reference into Items 5, 6, 7, and 8 of this Form 10-K, the 2000 Annual Report to Stockholders is not deemed filed as part of this report.
Exhibit 21 -- Subsidiary of Registrant.
Exhibit 23 -- Consent of Independent Auditors
(b) Reports on Form 8-K
None
(c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report.
(d) Financial Statement Schedules--None
PART IV
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1), (2) and (c)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
CERTAIN EXHIBITS
Year Ended December 31, 2000
TRI CITY BANKSHARES CORPORATION
OAK CREEK, WISCONSIN
FORM 10-K--ITEM 14(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, 2000, are incorporated by reference in Item 8:
Consolidated balance sheets--December 31, 2000 and 1999
Consolidated statements of income--Years ended December 31, 2000, 1999 and
Consolidated statements of stockholders' equity--Years ended December 31, 2000, 1999 and 1998
Consolidated statements of cash flows--Years ended December 31, 2000, 1999 and 1998
Notes to consolidated financial statements--December 31, 2000
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
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. 3/14/01 - ------------------------- ------------ Henry Karbiner, Jr. Chairman of the Board and Chief Executive Officer
/s/ Ronald K. Puetz 3/14/01 - ------------------------- ------------ Ronald K. Puetz Executive Vice-President and Director
/s/ Scott A. Wilson 3/14/01 - ------------------------- ------------ Scott A. Wilson Secretary and Director
/s/ Robert W. Orth 3/14/01 - ------------------------- ------------ Robert W. Orth Senior Vice-President and Director
/s/ Thomas W. Vierthaler 3/14/01 - ------------------------- ------------ Thomas W. Vierthaler Vice President and Comptroller (Principal Accounting Officer)
/s/ Frank J. Bauer 3/14/01 - ------------------------- ------------ Frank J. Bauer Director
- ------------------------- ------------ Sanford Fedderly Director
- ------------------------- ------------ William Gravitter Director
/s/ Christ Krantz 3/14/01 - ------------------------- ------------ Christ Krantz Director
/s/ William L. Komisar 3/14/01 - ------------------------- ------------ William L. Komisar Director
/s/ William P. McGovern 3/14/01 - ------------------------- ------------ William P. McGovern Director
- ------------------------- ------------ John M. Rupcich Director
- ------------------------- ------------ Agatha T. Ulrich Director
/s/ David A. Ulrich, Jr. 3/14/01 - ------------------------- ------------ David A. Ulrich, Jr. Director
/s/ William J. Werry 3/14/01 - ------------------------- ------------ William J. Werry Director