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, 1995
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
The registrant 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 and
has been subject to such filing requirements for the past 90 days.
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. [ ]
As of March 1, 1996, 2,474,549 shares of common stock were outstanding and the
aggregate market value of the shares held by nonaffiliates was approximately
$21,570,450.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated in
Annual report to shareholders for fiscal year ended
December 31, 1995 Parts II and IV
Proxy statement for annual meeting of shareholders to be held on
June 12, 1996. Part III
<PAGE>
FORM 10-K TABLE OF CONTENTS
Page
PART I
Item 1 Business 1
Item 2 Properties 17
Item 3 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Security Holders 19
PART II
Item 5 Market for the Registrant's Common Stock and Related Stockholder
Matters 20
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 20
Item 8 Consolidated Financial Statements and Supplementary Data 20
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 20
PART III
Item 10 Directors and Executive Officers of the Registrant 21
Item 11 Executive Compensation 21
Item 12 Security Ownership of Certain Beneficial Owners and Management 21
Item 13 Certain Relationships and Related Transactions 21
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22
Signature's 25
<PAGE>
PART I
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. On August 15, 1990, the
Registrant's six bank subsidiaries (Tri City National Bank of Oak Creek,
Tri City National Bank of Hales Corners, Tri City National Bank of West Allis,
Tri City National Bank of Brown Deer, Tri City National Bank of Brookfield, Tri
City National Bank of Menomonee Falls), and Tri City Service Corporation, a
centralized proof and bookkeeping operation, merged to form Tri City National
Bank (the Bank). The merging of the subsidiaries enabled the surviving bank to
experience cost savings through the elimination of duplicate cash requirements
and allows customers the ability to access their accounts at any Tri City
National Bank location. Registrant owns 100% of the stock of Tri City National
Bank.
In addition to Tri City National Bank, the Registrant owns 23.5% of the
outstanding shares in First National Bank of Eagle River, Eagle River, Wisconsin
(First National). The Registrant's investment in First National is accounted
for by the equity method of accounting.
On a consolidated basis at December 31, 1995, Registrant had assets of
$397,648,924, net loans of $228,846,491, deposits of $350,219,520 and
stockholders' equity of $44,314,731. 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 and effect economies 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 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.
Registrant is engaged in only one line of business and industry segment, namely
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.
Treasury, 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.
1
<PAGE>
The following table sets forth certain information regarding Tri City National
Bank:
Assets as of
Name of Bank and Location Year Organized December 31, 1995
Tri City National Bank
6400 South 27th Street
Oak Creek, Wisconsin 1963 $395,806,886
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 approved Registrant's acquisition of the shares of First
National by order dated October 2, 1981. 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 reserves,
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 shareholders 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
2
<PAGE>
of regulation in the financial institutions industry) and the Federal Deposit
Insurance Corporation Improvement Act (FDICIA). 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. 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.
Capital Requirements
The Board established risk-based capital guidelines for banks effective
March 15, 1989. The guidelines define Tier 1 Capital and Total Capital. Tier 1
Capital consists of common and qualifying preferred stockholders' equity, and
minority interests less goodwill. Total Capital consists of, in addition to
Tier 1 Capital, preferred stock not qualifying as Tier 1 Capital, subordinated
and other qualifying term debt and the allowance for loan losses. The Tier 1
Capital component must comprise at least 50% of qualifying Total Capital.
Risk-based capital ratios are calculated with reference to risk-weighted assets
which include both on- and off-balance-sheet exposures. As of December 31, 1995,
the minimum required ratio under the guidelines for qualifying Total Capital is
8.00%, of which 4.00% must be Tier 1 Capital. As of December 31, 1995, Tri City
National Bank's Tier 1 and Total Capital risk-based ratios were 16.79% and
17.91%, respectively.
Effective September 7, 1990, the Board implemented regulations that establish a
minimum leverage capital ratio of 3% Tier 1 capital to total assets less
goodwill. For most banks, including Tri City National Bank, the minimum Tier 1
ratio is to be 3% plus an additional cushion of at least 100 to 200 basis points
depending upon risk profiles and other factors. As of December 31, 1995, Tri
City National Bank's leverage ratio was 11.72%. Future regulations are
anticipated which would establish capital standards to reflect the level of
interest rate risk inherent in the financial institutions operations. The Bank
now exceeds all current or proposed capital requirements.
3
<PAGE>
The following tables present Tri City National Bank's regulatory capital
position at December 31, 1995:
RISK-BASED CAPITAL RATIOS
As of December 31, 1995
Amount Ratio
(Dollars in Thousands)
Tier 1 capital $ 43,586 16.79%
Tier 1 capital minimum requirement 10,381 4.00
Excess $ 33,205 12.79%
Total capital $ 46,483 17.91%
Total capital minimum requirement 20,762 8.00
Excess $ 25,721 9.91%
Risk-adjusted assets, net of goodwill and
excess allowances $ 259,330
LEVERAGE RATIO
As of December 31, 1995
Amount Ratio
(Dollars in Thousands)
Tier 1 capital to adjusted total assets
(leverage ratio) $ 43,586 11.72%
Minimum leverage ratio requirement 11,153 3.00
Excess $ 32,433 8.72%
Average total assets, net of goodwill $371,779
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.
4
<PAGE>
Competition
All of the Registrant's banking facilities are located on the perimeter of
Milwaukee County. Accordingly, the bank competes with all the major banks and
bank holding companies located in Milwaukee, most of whom are far larger in
terms of assets and deposits. The banking industry in metropolitan Milwaukee 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, 1995, Registrant employed 77 officers and 319 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
Guides for Preparation and Filing of Reports and Registration Statements and
Reports.
5
<PAGE>
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,
1995, 1994 and 1993.
<TABLE>
Year Ended December 31
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<-------- 1995 --------> <-------- 1994 --------> <-------- 1993 ------->
Average Yield Average Yield Average Yield
Balance Interest or Rate Balance Interest or Rate Balance Interest or Rate
ASSETS
Interest-earning assets:
Loans (1) $224,219 $21,280 9.49% $201,000 $18,362 9.14% $199,069 $18,952 9.52%
Taxable investment
securities 66,238 4,306 6.50 68,007 4,463 6.56 51,443 3,753 7.30
Nontaxable investment
securities (2) 30,460 2,452 8.05 28,803 2,420 8.40 22,803 2,124 9.31
Federal funds sold 9,326 520 5.58 2,233 81 3.63 3,539 100 2.83
Total interest-earning
assets 330,243 28,558 8.65% 300,043 25,326 8.44% 276,854 24,929 9.00%
Noninterest-earning
assets:
Cash and due from banks 20,421 18,162 17,053
Premises and equipment,
net 19,608 19,645 20,158
Other assets 1,523 2,652 3,366
$371,795 $340,502 $317,431
</TABLE>
6
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES & STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL (Continued)
(Dollars in Thousands)
<TABLE>
Year Ended December 31
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<-------- 1995 --------> <-------- 1994 --------> <-------- 1993 -------->
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 $158,557 $ 4,428 2.79% $165,224 $ 4,123 2.50% $154,813 $ 4,211 2.72%
Other time
deposits 84,419 4,829 5.72 58,417 2,345 4.01 59,555 2,372 3.98
Short-term
borrowings 3,964 211 5.32 7,898 391 4.95 7,131 263 3.69
Total interest
-bearing
liabilities 246,940 9,468 3.83% 231,539 6,859 2.96% 221,499 6,846 3.09%
----- ----- -----
Noninterest-bearing
liabilities:
Demand deposits 81,492 70,928 61,759
Other 1,831 1,984 2,846
Stockholders' equity 41,532 36,051 31,327
-------- -------- --------
$371,795 $340,502 $317,431
======== ======== ========
Net interest earnings
and interest rate
spread $19,090 4.82% $18,467 5.48% $18,083 5.91%
================ =============== ===============
Net yield on interest
-earning assets 5.78% 6.15% 6.53%
===== ===== =====
</TABLE>
(1) For purposes of these computations, nonaccruing loans are included in the
daily average loan amounts outstanding. Interest income includes $1,258, $1,331
and $1,266 of loan fees in 1995, 1994 and 1993, 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 $834, $823 and $722 in 1995, 1994 and
1993, respectively.
7
<PAGE>
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate(1) Net Volume Rate(1) Net
Interest earned on:
Loans $2,122 $ 796 $2,918 $ 184 $ (774) $(590)
Taxable investment
securities (116) (41) (157) 1,209 (499) 710
Nontaxable investment
securities 139 (107) 32 558 (262) 296
Federal funds sold 257 182 439 (37) 18 (19)
Total interest-earning assets $2,402 $ 830 3,232 $1,914 $(1,517) 397
===================---------- ===================----------
Interest paid on:
Savings deposits $ (167) $ 472 305 $ 283 $ (371) (88)
Other time deposits 1,043 1,441 2,484 (45) 18 (27)
Short-term borrowings (194) 14 (180) 28 100 128
-----------------------------------------------------------
Total interest-bearing
liabilities $ 682 $1,927 2,609 $ 266 $ (253) 13
===================---------- ====================---------
Increase in net interest income $ 623 $ 384
======= ======
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
rate changes.
8
<PAGE>
INVESTMENT PORTFOLIO
(Dollars in Thousands)
The book value of investment securities at the dates indicated is:
December 31
1995 1994 1993
U.S. Treasury and government agencies $ 65,616 $ 62,011 $ 66,973
States and political subdivisions 43,622 31,067 31,282
Industrial revenue bonds 153 200 243
------------------------------------
Total investment securities $ 109,391 $ 93,278 $ 98,498
====================================
The following table sets forth the maturities of investment securities at
December 31, 1995, 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.
<TABLE>
Maturity
<CAPTION>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and
government agencies $ - -% $28,900 6.19% $36,716 6.67% $ - -%
States and political
subdivisions 3,622 8.45 15,769 7.38 22,979 7.37 1,252 8.69
Industrial revenue bonds - - 153 14.39 - - - -
------- ------- ------- -------
$ 3,622 8.45 $44,822 6.64 $59,695 6.94 $ 1,252 8.69
======= ======= ======= =======
Tax equivalent
adjustment for
calculation of yield $ 104 $ 387 $ 532 $ 37
======= ======= ======= =======
</TABLE>
Note: The weighted average yields on tax-exempt obligations have been computed
on a fully tax-equivalent basis assuming a tax rate of 34%.
9
<PAGE>
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:
December 31
1995 1994 1993 1992 1991
------------------------------------------------
Commercial and financial $ 11,058 $ 10,447 $ 12,598 $ 19,544 $ 27,666
Real estate-construction 21,692 16,811 7,231 7,943 7,386
Real estate-mortgage 167,945 157,859 150,469 147,524 131,073
Installment 31,777 28,171 31,627 23,851 18,923
-------- -------- -------- -------- --------
$232,472 $213,288 $201,925 $198,862 $185,048
======== ======== ======== ======== ========
The maturity distribution and interest rate sensitivity of all loans at
December 31, 1995, are:
Maturity
--------------------------------------------
After One
One Year Through After
or Less Five Years Five Years Total
--------------------------------------------
Commercial and financial $ 5,679 $ 5,258 $ 121 $ 11,058
Real estate construction 21,692 - - 21,692
Real estate mortgage and
installment 70,501 127,558 1,663 199,722
------- -------- ------ --------
$97,872 $132,816 $1,784 $232,472
======= ======== ====== ========
Interest Sensitivity
Fixed Rate Variable Rate
---------- -------------
Due after one, but within five years $ 124,882 $ 7,934
Due after five years 176 1,608
--------- -----------
$ 125,058 $ 9,542
========= ===========
10
<PAGE>
LOAN PORTFOLIO (Continued)
(Dollars in Thousands)
The following table presents information concerning the aggregate amount of
nonperforming loans. Nonperforming loans comprise (a) loans accounted for on a
nonaccrual basis and (b) loans contractually past due 90 days or more as to
interest or principal payments, but not included in the nonaccrual loans.
December 31
1995 1994 1993 1992 1991
--------------------------------------------------
Loans accounted for on a
nonaccrual basis $ 1,033 $ 1,932 $ 4,362 $ 3,580 $ 1,897
Loans contractually past
due 90 days or more as to
interest or principal
payments 630 490 826 3,560 1,977
Ratio of nonaccrual loans
to total loans .44% .90% 2.16% 1.80% 1.02%
$33 thousand of interest income was recognized during 1995 on loans which were
accounted for on a nonaccrual basis. An additional $379 thousand of 1995
interest income would have been recorded 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, 1995 or 1994, 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," 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 the ratio of
net charge-offs to the daily average balance of loans outstanding.
Year Ended December 31
1995 1994 1993 1992 1991
Balance of allowance for
loan losses at beginning
of period $ 3,395 $ 3,164 $ 2,740 $ 2,254 $ 1,942
Loans charged off:
Commercial and financial - 87 8 76 48
Real estate - 32 - 82 71
Installment 21 41 49 93 39
------- ------- ------- ------- -------
TOTAL LOANS CHARGED OFF 21 160 57 251 158
Recoveries of loans
previously charged off:
Commercial and financial - 3 - - -
Real estate - - 22 - -
Installment 4 13 19 7 27
------- ------- ------- ------- -------
TOTAL RECOVERIES 4 16 41 7 27
Net loans charged off 17 144 16 244 131
Additions to allowance
charged to expense 248 375 440 730 443
------- ------- ------- ------- -------
Balance at end of period $ 3,626 $ 3,395 $ 3,164 $ 2,740 $ 2,254
Ratio of net charge-offs
during the period to
average loans outstanding .01% .07% .01% .13% .07%
Ratio of allowance at end
of year to total loans 1.56% 1.59% 1.57% 1.38% 1.22%
Ratio of allowance at end
of year to nonaccrual loans 351.02% 175.91% 72.54% 76.54% 118.82%
The amount of the addition 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 potential 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.
12
<PAGE>
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 policy of the Bank. Each month, this committee reviews a summary of the
loan portfolio classified into the risk categories described below. 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
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 or carried in a nonaccrual of interest status.
At December 31, 1995, there were no unusual risks in the loan portfolio. For
management's purposes, the loan portfolio consists of real estate loans,
consumer installment loans, and commercial business loans.
Real estate loans comprise the largest portion of the loan portfolio with 72.2%
of loans outstanding at December 31, 1995. The majority of these consist of
residential mortgage loans, an area in which the Registrant has had few losses
in past years.
In the consumer 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.
All other loans are classified as commercial, including loans to financial
institutions. 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. Currently, the Registrant has no unusual or
significant problems in the commercial loan portfolio.
Losses in 1996 are not expected to vary significantly from net losses
experienced over the last two years.
13
<PAGE>
DEPOSITS
(Dollars in Thousands)
The average daily amount of deposits is summarized for the periods indicated in
the following table:
Year Ended December 31
1995 1994 1993
-------------------------------------------------------
Amount Rate Amount Rate Amount Rate
-------------------------------------------------------
Noninterest-bearing
demand deposits $ 81,492 -% $ 70,927 -% $ 61,759 -%
Savings 158,557 2.79 165,224 2.50 154,813 2.72
Time deposits
(excluding time
certificates of
deposit of
$100,000 or more) 73,216 5.81 48,770 4.10 51,340 4.11
Time certificates of
deposits of $100,000
or more 11,204 5.16 9,647 3.58 8,215 3.19
-------- -------- --------
$324,469 $294,568 $276,127
======== ======== ========
The maturity distribution of time certificates of deposit issued in amounts of
one hundred thousand dollars and over and outstanding at December 31, 1995, is:
Three months or less $ 3,779
After 3 through 6 months 2,212
After 6 through 12 months 6,476
After 12 months 2,049
-------
$ 14,516
========
14
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of the
Registrant for each of the last three years:
Year Ended December 31
1995 1994 1993
---- ---- ----
Percentage of net income to:
Average stockholders' equity 12.88% 13.53% 14.81%
Average total assets 1.44 1.43 1.46
Percentage of dividends
declared per common share to
net income per common share 23.26 19.61 15.99
Percentage of average stockholders'
equity to daily average total
assets 11.17 10.59 9.87
15
<PAGE>
SHORT-TERM BORROWINGS
(Dollars in Thousands)
Information relating to short-term borrowings follows:
Federal Funds Purchased
and Securities Sold Under Notes Other Short-Term
Agreements to Repurchase Payable Borrowings
------------------------- ------- ----------------
Balance at December 31:
1995 $ - $ - $ 1,915
1994 13,900 - 2,407
1993 9,925 2,000 6,000
Weighted average interest
rate at year end:
1995 -% -% 6.36%
1994 5.82 - 5.12
1993 3.41 6.00 2.75
Maximum amount outstanding
at any month's end:
1995 $ 9,100 $ - $ 5,877
1994 13,900 2,000 5,095
1993 9,925 2,000 6,000
Average amount outstanding
during the year:
1995 $ 1,269 $ - $ 2,438
1994 4,129 1,667 2,272
1993 2,395 2,000 2,736
Average interest rate
during the year:
1995 4.93% -% 5.61%
1994 4.56 6.90 3.81
1993 2.73 6.00 2.74
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
The following table summarizes the properties in which the Registrant's bank
conducts its business:
Approximate
Location Floor Area in Square Feet Owned or Leased
6400 South 27th Street
Oak Creek, Wisconsin 16,000 Leased (1)
3701 South 27th Street
Milwaukee, Wisconsin 570 Leased (1)
6312 South 27th Street
Oak Creek, Wisconsin 500 Leased (1)
2555 West Ryan Road
Franklin, Wisconsin 2,000 Owned
5555 South 108th Street
Hales Corners, Wisconsin 20,000 Owned
5455 South 108th Street
Hales Corners, Wisconsin 1,600 Owned
10909 West Greenfield Avenue
West Allis, Wisconsin 9,000 Owned
10200 West Bluemound Road
Wauwatosa, Wisconsin 200 Leased
10859 West Bluemound Road
Wauwatosa, Wisconsin 3,500 Owned
2625 South 108th Street
West Allis, Wisconsin 470 Leased (1)
4455 West Bradley Road
Brown Deer, Wisconsin 6,600 Leased
7213 North Teutonia
Milwaukee, Wisconsin 2,000 Owned
17100 West Bluemound Road
Brookfield, Wisconsin 5,700 Owned
17
<PAGE>
Approximate
Location Floor Area in Square Feet Owned or Leased
12745 West Capitol Drive
Brookfield, Wisconsin 6,500 Owned
12735 West Capitol Drive
Brookfield, Wisconsin 720 Leased (1)
N96 W18221 County Line Road
Menomonee Falls, Wisconsin 4,100 Owned
7525 West Oklahoma Avenue
Milwaukee, Wisconsin 6,400 Leased (1)
3378 South 27th Street
Milwaukee, Wisconsin 1,900 Owned
6767 West Greenfield Avenue
West Allis, Wisconsin 5,200 Owned
6760 West National Avenue
West Allis, Wisconsin 460 Leased (1)
9200 North Green Bay Road
Brown Deer, Wisconsin 386 Leased
220 East Sunset Drive
Waukesha, Wisconsin 412 Leased
1827 Wisconsin Avenue
Grafton, Wisconsin 361 Leased
W61 N529 Washington Avenue
Cedarburg, Wisconsin 7,800 Owned
4200 South 76th St.
Greenfield, Wisconsin 572 Leased (1)
150 West Holt Avenue
Milwaukee, Wisconsin 590 Leased (1)
6201 N. Teutonia Avenue
Milwaukee, Wisconsin 618 Leased (1)
18
<PAGE>
Approximate
Location Floor Area in Square Feet Owned or Leased
3770 S. Howell Avenue
Milwaukee, Wisconsin 1,052 Leased (1)
4689 S. Whitnall Avenue
Milwaukee, Wisconsin 1,159 Leased (1)
7830 W. Good Hope Road
Milwaukee, Wisconsin 523 Leased
(1) The Bank leases space from an affiliated entity. See Note 12 to consolidated
financial statements, incorporated herein by reference, for further
information.
Tri City National Bank owns buildings at twelve locations in Oak Creek,
Milwaukee, Brookfield, Menomonee Falls, West Allis, Hales Corners, Wauwatosa
and Cedarburg. Approximately 60,098 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. Eight full-service banking centers are located
in metropolitan Milwaukee food discount centers.
Item 3. LEGAL PROCEEDINGS
There are 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 respective businesses.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1995 to a vote of
security holders through the solicitation of proxies or otherwise.
19
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The information required by Item 5 is incorporated herein by reference to
Registrant's 1995 Annual Report to Shareholders under the captions entitled
"Market for Corporation's Common Stock and Related Stockholder Matters"
(Page 13) and "Selected Financial Data" (Page 12) as to cash dividends paid.
Item 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference to
Registrant's 1995 Annual Report to Shareholders under the caption entitled
"Selected Financial Data" (Page 12).
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 1995 Annual Report to Shareholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (Pages 6 to 11).
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference to
Registrant's 1995 Annual Report to Shareholders (Pages 14 to 35).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE>
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 shareholders
on June 12, 1996, 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(c).
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 shareholders
on June 12, 1996, under the caption entitled "Executive Compensation" which
definitive Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(c).
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 shareholders
on June 12, 1996, 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(c).
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 shareholders
on June 12, 1996, 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(c).
21
<PAGE>
PART IV
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 - Articles of incorporation and bylaws incorporated
herein by reference to Exhibit 3a and Exhibit 3b
to Registrant's Registration Statement
No. 2-65616 on Form S-1.
Exhibit 13 - Annual Report to Shareholders for the year ended
December 31, 1995.
With the exception of the information
incorporated by reference into Items 5, 6, 7,
and 8 of this Form 10-K, the 1995 Annual Report
to Shareholders is not deemed filed as part of
this report.
Exhibit 22 - Subsidiary of Registrant.
Exhibit 24 - 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
22
<PAGE>
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, 1995
TRI CITY BANKSHARES CORPORATION
OAK CREEK, WISCONSIN
23
<PAGE>
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, 1995,
are incorporated by reference in Item 8:
Consolidated balance sheets--December 31, 1995 and 1994
Consolidated statements of income--Years ended December 31, 1995, 1994 and
1993
Consolidated statements of stockholders' equity--Years ended December 31,
1995, 1994 and 1993
Consolidated statements of cash flows--Years ended December 31, 1995, 1994
and 1993
Notes to consolidated financial statements--December 31, 1995
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.
24
<PAGE>
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/ David A. Ulrich
----------------------------
David A. Ulrich, 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/ David A. Ulrich 3/13/96
- ------------------------ ---------
David A. Ulrich Principal Executive Officer
/s/ Henry Karbiner, Jr. 3/13/96
- ------------------------ ---------
Henry Karbiner, Jr. Principal Financial and Accounting Officer
/s/ Thomas W. Vierthaler 3/13/96
- ------------------------ ---------
Thomas W. Vierthaler Vice-President and Comptroller
/s/ Frank J. Bauer 3/13/96
- ------------------------ ---------
Frank J. Bauer Director
/s/ Sanford Fedderly 3/13/96
- ------------------------ ---------
Sanford Fedderly Director
/s/ Richard J. Fitzgerald 3/13/96
- ------------------------ ---------
Richard J. Fitzgerald Director
/s/ William Gravitter 3/13/96
- ------------------------ ---------
William Gravitter Director
25
<PAGE>
- ------------------------ ---------
Christ Krantz Director
/s/ Rudie L. Lauterbach 3/13/96
- ------------------------ ---------
Rudie L. Lauterbach Director
/s/ William P. McGovern 3/13/96
- ------------------------ ---------
William P. McGovern Director
/s/ Ronald K. Puetz 3/13/96
- ------------------------ ---------
Ronald K. Puetz Director
/s/ John M. Rupcich 3/13/96
- ------------------------ ---------
John M. Rupcich Director
- ------------------------ ---------
Marilyn T. Ulrich-Graves Director
/s/ William J. Werry 3/13/96
- ------------------------ ---------
William J. Werry Director
/s/ Scott A. Wilson 3/13/96
- ------------------------ ---------
Scott A. Wilson Director
26
<PAGE>
EXHIBIT 3
EXHIBIT 22
SUBSIDIARY OF REGISTRANT
Name Percentage of Shares Owned
Tri City National Bank 100.0%
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Tri City Bankshares Corporation of our report dated February 9, 1996, with
respect to the consolidated financial statements of Tri City Bankshares
Corporation, included in the Annual Report to Shareholders of Tri City
Bankshares Corporation for the year ended December 31, 1995.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3) of Tri City Bankshares Corporation pertaining to the Automatic
Dividend Reinvestment Plan of Tri City Bankshares Corporation and in the
related Prospectus of our report dated February 9, 1996, with respect to the
consolidated financial statements of Tri City Bankshares Corporation
incorporated by reference in this Annual Report (Form 10-K) for the year ended
December 31, 1995.
/s/ Ernst & Young
- ---------------------------
Milwaukee, Wisconsin
March 25, 1996
Tri City Bankshares Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
FINANCIAL CONDITION
Total assets of Tri City Bankshares Corporation (the Corporation) increased
$40.3 million (11.3%) during 1995 compared to a $12.3 million (3.6%)
increase during 1994. The Corporation's management team has been able to
improve the Corporation's asset base by attracting new deposits and investing
funds into the local community through new loans. Excess funds were invested
primarily in municipal securities.
Cash and cash equivalents increased $6.7 million (23.8%) during 1995 compared to
an increase of $5.9 million (26.3%) during 1994. The Corporation's conservative
guidelines for investments will sometimes result in cash buildup when deposits
flow in faster than the Corporation's ability to purchase suitable investments
or loan demand is less than expected. In addition, the Federal Reserve Bank
imposes reserve balance requirements which need to be maintained to handle the
normal transaction activity of the increased balances in both demand and
interest-bearing deposits. It is management's intention to sell any excess
funds in the federal funds market in the short term until they can be invested
in a longer-term security investment or loan.
Investment securities, including available for sale and held-to-maturity, have
increased $16.1 million (17.3%) during 1995 compared to a decrease of $5.2
million (5.3%) in 1994. With extraordinary deposit growth of $50 million
outpacing loan demand, the Corporation's management diligently made decisions
regarding security investments to ensure that the Corporation is receiving the
highest return it can while continuing to maintain the quality of the portfolio.
During 1995, loans increased $19.1 million (9.0%) compared to an increase of
$11.4 million (5.6%) in 1994. The Corporation's loan portfolio has grown
through the hard work of its lending officers and the dedication of management
to provide competitive rates and terms for all loans while continuing to employ
sound underwriting standards. In a very competitive market, management believes
that the Corporation has developed a good reputation within the communities
serviced. Management has reduced the Corporation's investment in other real
estate owned and continues to maintain a very low percentage of nonperforming
loans to total loans (0.4% and 0.9% for 1995 and 1994, respectively).
6
<PAGE>
Deposit growth for the Corporation during 1995 was outstanding with a $50.1
million (16.7%) increase compared to a $7.9 million (2.7%) increase during 1994.
Interest rates during 1995 fluctuated but ended with a slight increase for the
year. Management has continued to spur deposit growth through various promotions
and by offering competitive rates in order to attract new money. During the
first quarter of 1995, the Corporation offered a special rate for eighteen-
month certificates of deposit which accounted for approximately $25.0 million in
new deposits.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
Liquidity is defined as the Corporation's ability to generate adequate amounts
of cash to meet both current and future needs to pay obligations as they mature,
to maintain lending capacity, to provide for planned growth, and to provide a
competitive return on investment.
The Corporation, through management's efforts, has been able to continue deposit
growth which is the primary source of funds for its lending and investment
functions. The Corporation has endeavored to maintain an adequate matching of
maturities between its deposit base and its investment and loan portfolios so as
not to expose the Corporation to unacceptable levels of interest rate risk while
maintaining liquidity at levels which do not unduly impact earnings.
The banking subsidiary of the Corporation has the ability to borrow up to $17.0
million in federal funds from two banks and an additional $58.0 million under
reverse repurchase agreements. These arrangements are further discussed in Note
13 of the consolidated financial statements.
Federal law restricts extensions of credit by a bank to its parent bank holding
company and, with certain exceptions, to other affiliates. Federal law also
restricts the amount of dividends the Corporation's subsidiary may pay to the
parent bank holding company. Note 14 to the consolidated financial statements
discusses the application of these limitations to the Corporation and its
subsidiary bank. Cash needs of the Corporation can be met through borrowings
from other lenders, if needed. The terms of the Corporation's existing line of
credit arrangement are described in Note 13 of the consolidated financial
statements.
In addition to cash and due from banks and federal funds sold, the repayment of
loans and scheduled maturities of marketable investment securities are the
principal sources of liquidity. Securities maturing in one year or less amounted
of $3.6 million at December 31, 1995, representing 3.3% of total investment
securities. Management believes it has maintained a liquidity position to meet
everyday monetary demands. The Corporation has not, in the past, relied on sales
of investment securities to meet its liquidity needs, and management does not
intend to do so in the future.
7
<PAGE>
CAPITAL RESOURCES
During 1995, the Corporation opened four new branch locations inside Pick 'n
Save food stores. One is located in Oak Creek and three more are located in
Milwaukee, Wisconsin. Funding for these locations was generated internally and
(based on prior costs for similar locations) cost approximately $1.1 million
combined.
Management has plans for opening at least one new location inside a Pick 'n Save
food store located at Clarke Square in Milwaukee, Wisconsin, during 1996.
Funding for this location, which will approximate similar locations, will also
be generated internally.
Federal banking regulatory agencies have established capital adequacy rules
which take into account risk attributable to balance sheet assets and off-
balance-sheet activities. All banks and bank holding companies must meet a
minimum risk-based capital ratio of 8.0% of which 4.0% must be comprised of
Tier 1 Capital.
The federal banking agencies also have adopted leverage capital guidelines which
banking organizations must meet. Under these guidelines, the most highly rated
banking organizations must meet a minimum leverage ratio of at least 3.0% Tier 1
Capital to total assets, while lower rated banking organizations must maintain a
ratio of at least 4.0% to 5.0%. The Corporation's banking subsidiary's risk-
based capital and leverage ratios are further discussed in Note 9 to the
consolidated financial statements.
At December 31, 1995, the leverage and risk-based capital positions are as
follows:
Regulatory
Minimum Bank's Actual
Required Ratio
----------------------------------
Leverage ratio 3.00% 11.72%
Risk-based capital 8.00 17.91
It is the Corporation's philosophy to avoid those categories of assets
classified by the capital requirements as having higher credit risk, as well as
highly leveraged or certain foreign loans. The Corporation's banking subsidiary
believes it will continue to exceed these "risk-based" capital requirements and
continue to meet regulatory definitions of "well capitalized."
8
<PAGE>
RESULTS OF OPERATIONS
1995 vs. 1994
During 1995, net income increased $473.7 thousand (9.7%) compared to an increase
of $236.7 thousand (5.1%) during 1994. A gain on the sale of other real estate
owned and a decrease in regulatory agency assessments were the primary reasons
for this increase.
Net interest income increased $612.6 thousand (3.47%) during 1995 compared to an
increase of $282.5 thousand (1.6%) during 1994. Interest income and fees on
loans increased $2.9 million (16.0%) in 1995 compared to a decrease of $590.1
thousand (3.1%) in 1994. The influx of over $19 million in net new loans
contributed to this substantial increase in loan income during 1995. Lending
officers, through the guidance of management, have been able to attract new
loan customers while maintaining and servicing the needs of established loan
customers. Investment security interest income decreased $136.1 thousand (2.0%)
during 1995 compared to an increase of $906.1 thousand (17.6%) during 1994.
Income derived from the increase in municipal securities was not adequate to
replace the yield obtained from the older municipal securities which matured
during 1995. Total interest expense in 1995 increased $2.6 million (38.0%)
compared with an increase of $13.6 thousand (0.2%) in 1994 as a result of
deposit balances increasing $50.1 million and rates increasing slightly.
Interest expense on short-term borrowings declined $180.2 thousand (46.1%) from
1994 to 1995 due to a reduction in borrowed funds for the year.
Since the ratio of nonperforming loans to total loans remained low for 1995, the
provision for loan losses decreased $126.9 thousand (33.8%) in 1995 compared to
a decrease of $65.0 thousand (14.8%) during 1994. Management has been diligent
in its efforts to maintain a loan portfolio which not only provides the
Corporation with a satisfactory yield but also a good sound base on which to
build and grow. Through their experience and careful monitoring of the loan
portfolio they have determined that the reserve for loan loss is adequate to
absorb losses which may occur due to the default and consequential charge-off of
a bad loan.
Total other income increased $748.4 thousand (14.3%) in 1995 compared to a
decrease of $37.4 thousand (.7%) during 1994 primarily due to the $465 thousand
gain received from the sale of other real estate owned. Total other expenses
increased $747.9 thousand (4.8%) during 1995 compared to an increase of $8.4
thousand (0.1%) during 1994. Increases in salaries and employee benefits,
advertising, postage and other miscellaneous expenses all contributed to this
increase.
Income tax expense increased $266.2 thousand (14.1%) in 1995 compared to an
increase of $64.9 thousand (3.6%) in 1994. Tax-exempt interest income decreased
$168.3 thousand (10.5%) and income before income taxes had increased $740.0
thousand (11.0%) during 1995 which accounted for this increase in tax expense.
The effective tax rates for the Corporation were 28.8% and 27.9% in 1995 and
1994, respectively, and are less than the statutory rates, largely as a result
of tax-exempt interest income earned on municipal securities.
9
<PAGE>
1994 vs. 1993
During 1994, net interest income increased $282.5 thousand (1.6%) compared to an
increase of $1.6 million (10.3%) during 1993. The Corporation retained a net
interest margin of approximately 5.8% during 1994 as compared to a high of 6.2%
during 1993. Loan income decreased $590.1 thousand (3.1%) compared to a decrease
of $456.0 thousand (2.3%) during 1993 due to the drop in loan balances during
the first half of 1994. Management endeavored to replace these loans as well as
to obtain additional new loans. An increase in investment security income of
$906.1 thousand (17.6%) in 1994 compared to an increase of $108 thousand in 1993
more than offset the decline in loan income. Since rates paid on savings and
time deposits remained steady during 1994, there was a relatively small increase
in interest expense of $13.6 thousand (17.6%) in 1994 compared with a decrease
of $1.9 million (21.8%) in 1993, due to interest-bearing deposit growth.
The provision for loan losses decreased $65.0 thousand (14.8%) during 1994
compared to a decrease of $290.0 thousand (39.7%) during 1993. Since the ratio
of nonperforming loans to total loans continued to remain low, management
determined that the loan loss provision was adequate to absorb losses that
occurred due to the charge-off of bad loans. Management continually monitored
the loan portfolio for collectibility and any indications of problem situations.
Total other income decreased $37.4 thousand (0.7%) during 1994 compared to an
increase of $1.0 million (23.9%) during 1993. The primary reason for the
decrease was decreased mortgage loan fee income caused by rising interest rates
and decreased mortgage loan originations.
uring 1994, total other expense increased only slightly, $8.4 thousand (0.1%),
compared to an increase of $1.8 million (13.2%) during 1993. In 1993, the
Corporation terminated its defined benefit pension plan and instituted a 401(k)
plan during 1994. The defined benefit pension plan was underfunded and
additional contributions totaling $450,000 were made in order to dissolve the
plan.
The effective tax rates for the Corporation were 27.9% and 28.3% in 1994 and
1993, respectively, and were less than the statutory rates, largely as a result
of tax-exempt interest income earned on municipal securities.
10
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The majority of assets and liabilities of a financial institution, including the
Corporation, are monetary in nature. Therefore, the effects of inflation on
financial institutions differ greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories. The
growth of total assets in the banking industry caused by inflation results in
the need to increase equity capital at higher than normal rates in order to
maintain an appropriate equity-to-assets ratio. The Corporation's management
recognizes the need to both control asset growth and maintain a reasonable
dividend policy in order to promote the adequate internal growth of capital.
Another significant effect of inflation is on other expenses, which tend to rise
during periods of general inflation.
Management believes that the Corporation's ability to react to changes in
interest rates has the most impact on inflation and changing prices. Management
attempts to maintain a reasonably balanced position between interest-sensitive
assets and liabilities in order to protect against wide interest rate
fluctuations.
11
<PAGE>
Tri City Bankshares Corporation
Selected Financial Data
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Total interest
income $27,724,625 $24,503,080 $24,206,977 $24,498,827 $24,744,048
Total interest
expense 9,468,149 6,859,209 6,845,644 8,752,164 12,046,005
Net interest
income 18,256,476 17,643,871 17,361,333 15,746,663 12,698,043
Provision for
loan losses 248,139 375,000 440,000 730,000 443,000
Net interest
income after
provision for
loan losses 18,008,337 17,268,871 16,921,333 15,016,663 12,255,043
Income before
income taxes 7,509,719 6,769,767 6,468,118 5,376,706 2,792,285
Net income 5,350,578 4,876,814 4,640,068 3,909,981 2,055,685
Net income
per share 2.17 2.04 1.97 1.66 .87
Cash dividends
declared
per share .500 .400 .315 .225 .225
Average daily
balances: (In Thousands)
Total assets $ 371,795 $ 340,502 $ 317,431 $ 297,136 $ 275,083
Total net loans 220,969 197,540 195,984 187,341 180,892
Total investment
securities 105,758 96,810 74,246 65,002 54,282
Total deposits 324,469 294,568 276,127 256,394 239,659
Total stockholders'
equity 41,532 36,051 31,327 27,686 25,518
12
<PAGE>
The Corporation's common stock is not traded on any exchange or in the over-the-
counter market. The price ranges reflected in the following table show sales
prices in isolated sales of which the Corporation has knowledge.
1995 1994
--------------------- -----------------------
High Low High Low
--------------------- ----------------------
Price range:
First quarter $22.50 $22.00 $19.95 $19.55
Second quarter 23.10 22.70 20.50 20.10
Third quarter 23.65 23.25 21.10 20.70
Fourth quarter 24.35 23.90 21.75 21.35
As of December 31, 1995, the number of holders of record of the Corporation's
common stock was 712.
The Corporation declared four quarterly cash dividends in 1995 in the amount of
$0.125 per share. Quarterly dividends of $0.10 per share were declared during
each of the four quarters of 1994.
The Corporation is not party to any loan agreement, indenture or other agreement
which restricts its ability to pay dividends; however, the Wisconsin Business
Corporation Law authorizes directors to declare and pay cash dividends only out
of the Corporation's unreserved and unrestricted earned surplus. See Note 14 to
the consolidated financial statements for restrictions imposed by regulatory
agencies upon the subsidiary bank's ability to transfer funds to the parent
corporation.
13
<PAGE>
Tri City Bankshares Corporation
Consolidated Balance Sheets
December 31
1995 1994
-------------------------------------
Assets:
Cash and cash equivalents $ 34,725,066 $ 28,042,066
Investment securities:
Available-for-sale (at fair value) 12,763,844 -
Held-to-maturity (fair value of
$96,883,742-1995 and $87,698,918-1994) 96,627,721 93,277,595
Loans 232,472,708 213,287,740
Less allowance for loan losses (3,626,217) (3,395,101)
-------------------------------------
Net loans 228,846,491 209,892,639
Premises and equipment 19,550,437 19,857,706
Other assets 5,135,365 6,259,987
-------------------------------------
$ 397,648,924 $ 357,329,993
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing $ 90,745,057 $ 83,072,574
Interest-bearing--over $100,000 14,516,000 9,691,000
Interest-bearing--other 244,958,463 207,312,921
-------------------------------------
Total deposits 350,219,520 300,076,495
Short-term borrowings:
Federal funds purchased - 10,000,000
Securities sold under agreements
to repurchase - 3,900,000
Other 1,914,521 2,406,970
-------------------------------------
Total short-term borrowings 1,914,521 16,306,970
Other liabilities 1,200,152 1,153,632
-------------------------------------
Total liabilities 353,334,193 317,537,097
Stockholders' equity:
Common stock, $1 par value:
Authorized--5,000,000 shares
Issued and outstanding (1995--
2,470,449 shares; 1994--
2,457,489 shares) 2,470,449 2,457,489
Additional paid-in capital 8,372,997 8,091,712
Retained earnings 33,363,037 29,243,695
Net unrealized gains on
investment securities
available-for-sale 108,248 -
-------------------------------------
Total stockholders' equity 44,314,731 39,792,896
-------------------------------------
$ 397,648,924 $ 357,329,993
=====================================
See accompanying notes
14
<PAGE>
Tri City Bankshares Corporation
Consolidated Statements of Income
Year ended December 31
1995 1994 1993
----------------------------------------
Interest income:
Loans, including fees $21,279,637 $18,361,828 $18,951,951
Investment securities:
Taxable 4,305,969 4,463,267 3,752,779
Exempt from federal income tax 1,618,576 1,597,422 1,401,833
Federal funds sold 520,443 80,563 100,414
----------------------------------------
Total interest income 27,724,625 24,503,080 24,206,977
Interest expense:
Deposits 9,257,091 6,467,870 6,582,833
Short-term borrowings 211,058 391,339 262,811
----------------------------------------
Total interest expense 9,468,149 6,859,209 6,845,644
----------------------------------------
Net interest income 18,256,476 17,643,871 17,361,333
Provision for loan losses 248,139 375,000 440,000
----------------------------------------
Net interest income after
provision for loan losses 18,008,337 17,268,871 16,921,333
Other income:
Service charges 3,201,320 2,856,165 2,693,113
Rental income 773,573 797,611 841,713
Gain on sale of loans 41,979 54,553 362,647
Investment securities gains - 3,017 2,340
Other 1,962,967 1,520,124 1,369,096
----------------------------------------
Total other income 5,979,839 5,231,470 5,268,909
Other expenses:
Salaries and employee benefits 8,608,117 8,017,745 7,447,550
Occupancy 2,244,481 2,288,081 2,197,662
Equipment 1,189,597 1,099,037 1,176,552
Data processing 496,950 613,811 612,539
Advertising and promotional 498,280 397,293 361,020
Regulatory agency assessments 433,345 732,209 678,398
Office supplies 458,247 387,211 370,058
Curtailment of pension plan - - 450,000
Other 2,549,440 2,195,187 2,428,345
----------------------------------------
Total other expenses 16,478,457 15,730,574 15,722,124
----------------------------------------
Income before income taxes 7,509,719 6,769,767 6,468,118
Income taxes 2,159,141 1,892,953 1,828,050
----------------------------------------
Net income $ 5,350,578 $ 4,876,814 $ 4,640,068
========================================
Net income per common share $ 2.17 $ 2.04 $ 1.97
========================================
Average shares outstanding 2,464,770 2,392,121 2,357,569
========================================
See accompanying notes.
15
<PAGE>
Tri City Bankshares Corporation
Consolidated Statements of Stockholders' Equity
Additional Net Unrealized Gain
Common Paid-In on Securities Retained
Stock Capital Available-for-Sale Earnings
--------------------------------------------------------
Balances at
January 1, 1993 $ 2,355,971 $ 6,100,134 $ - $21,418,056
Net income - - - 4,640,068
Cash dividends
declared-$.315
per share - - - (742,217)
Common stock
issued under
dividend
reinvestment
plan-6,514 shares 6,574 114,868 - -
--------------------------------------------------------
Balances at
December 31, 1993 2,362,545 6,215,002 - 25,315,907
Net income - - - 4,876,814
Cash dividends
declared-$.40
per share - - - (949,026)
Common stock
issued under
dividend
reinvestment
plan-25,709
shares 25,709 492,010 - -
Common stock
issued upon
termination of
pension plan--
69,235 shares
(Note 10) 69,235 1,384,700 - -
--------------------------------------------------------
Balances at
December 31, 1994 2,457,489 8,091,712 - 29,243,695
Net income - - - 5,350,578
Cash dividends
declared-$.50
per share - - - (1,231,236)
Common stock
issued under
dividend
reinvestment
plan-12,975 shares 12,975 281,447 - -
Common stock
fractional shares
redeemed (15) (162) - -
Net unrealized gain
on investment
securities
available-for-sale
(net of tax) - - 108,248 -
--------------------------------------------------------
Balances at
December 31, 1995 $ 2,470,449 $ 8,372,997 $ 108,248 $33,363,037
========================================================
See accompanying notes.
16
<PAGE>
Tri City Bankshares Corporation
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994 1993
---------------------------------------------
Operating activities:
Net income $ 5,350,578 $ 4,876,814 $ 4,640,068
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Proceeds from sale of
loans held for sale 5,554,152 6,315,354 46,401,617
Origination of loans
held for sale (5,554,152) (6,315,354) (46,401,617)
Provision for loan losses 248,139 375,000 440,000
Provision for depreciation 1,515,475 1,505,145 1,420,919
Amortization of investment
securities premiums and
accretion of discounts 328,945 436,708 282,153
Realized investment
securities gains - (3,017) (2,340)
Undistributed earnings of
affiliate (91,786) (83,134) (81,933)
Decrease (increase) in
interest receivable (538,039) 174,718 (125,779)
Increase (decrease) in
interest payable 320,642 6,426 (41,990)
Other 1,346,776 (598,784) 193,262
---------------------------------------------
Net cash provided by
operating activities 8,480,730 6,689,876 6,724,360
Investing activities:
Proceeds from repayment,
calls and maturities of
investment securities
held to maturity 35,117,130 18,333,240 26,529,352
Purchases of investment
securities held to
maturity (51,373,597) (13,546,716) (57,488,249)
Net increase in loans (19,201,991) (11,506,246) (3,079,077)
Purchases of premises
and equipment (1,152,857) (1,463,776) (824,046)
------------------------------------------------
Net cash used by
investing activities (36,611,315) (8,183,498) (34,862,020)
Financing activities:
Sale of common stock 294,245 1,971,654 121,442
Net increase in deposits 50,143,025 7,941,711 19,042,723
Net increase (decrease)
in short-term borrowings (14,392,449) (1,618,445) 7,828,059
Cash dividends (1,231,236) (949,026) (742,217)
------------------------------------------------
Net cash provided by
financing activities 34,813,585 7,345,894 26,250,007
------------------------------------------------
Increase (decrease) in cash
and cash equivalents 6,683,000 5,852,272 (1,887,653)
Cash and cash equivalents
at beginning of year 28,042,066 22,189,794 24,077,447
------------------------------------------------
Cash and cash equivalents
at end of year $ 34,725,066 $28,042,066 $22,189,794
================================================
Supplementary information:
Interest paid $ 9,147,507 $ 6,852,783 $ 6,887,634
Income taxes paid 2,080,000 1,823,000 1,980,000
Investment securities
transferred to available
for sale (at amortized cost) 12,577,396 - -
See accompanying notes.
17
<PAGE>
Tri City Bankshares Corporation
Notes to Consolidated Financial Statements
1. Accounting Policies
Business
Tri City Bankshares Corporation (the Corporation) and its wholly owned
subsidiary, Tri City National Bank (the Bank), provide banking services to
domestic markets, primarily in the metropolitan Milwaukee, Wisconsin, area. The
Corporation and its subsidiary are subject to competition from other financial
institutions. The Corporation and its subsidiary are also subject to the
regulations of certain federal agencies and undergo periodic examinations by
these regulatory authorities.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and include the accounts of the
Corporation and its subsidiary. All significant intercompany balances and
transactions have been eliminated. The Corporation's investment in an
unconsolidated affiliate bank (see Note 4) is recorded using the equity method
of accounting.
In preparing the consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Material estimates that are particularly susceptible to change in the
near term relate to the determination of the allowance for losses and the
valuation of investment securities.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, interest-bearing deposits and federal
funds sold.
Investment Securities
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Under SFAS No. 115, debt securities are classified
as held-to-maturity and are carried at amortized cost when the Corporation has
both the positive intent and ability to hold them to maturity. Debt securities
that the Corporation does not have the positive intent and ability to hold to
maturity are classified as available-for-sale and carried at fair
18
<PAGE>
1. Accounting Policies (continued)
value. Unrealized holding gains and losses on securities classified as available
for sale, net of related tax effects, are recorded as a separate component of
stockholders' equity. As a result of adopting SFAS No. 115, the December 31,
1994, balance of stockholders' equity was not affected.
In October 1995, the Financial Accounting Standards Board (FASB) approved a
modification of SFAS No. 115, wherein from November 15, 1995 through
December 31, 1995, the Corporation had the opportunity to reconsider its
classification of investment securities as held-to-maturity, trading or
available-for-sale. Accordingly, on December 28, 1995, the Corporation chose to
reclassify certain investment securities from. At the date of transfer, the
amortized cost of the investment securities was $12,577,000. The net unrealized
gain on those securities was $186,000, which is included in stockholders'
equity, net of the income tax effect of $78,000.
For all years presented, the amortized cost of investment securities classified
as held-to-maturity or available-for-sale is adjusted for amortization of
premiums and accretion of discounts computed by the straight-line method
(which approximates the level-yield method). Such amortization is included in
interest income from the security. The amortized cost of the specific security
sold or called is used to compute gain or loss on the sale or call of investment
securities.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation. The
cost of premises and equipment is depreciated using the straight-line method
over the estimated useful lives of the assets. t due as to principal or
interest. Management may elect to continue the accrual of interest when the
estimated fair value of collateral is sufficient to cover the principal balance
and accrued interest.
19
<PAGE>
1. Accounting Policies (continued)
Loan Fees
Loan origination and commitment fees and certain direct loan origination costs
are being deferred and the net amounts are being amortized as an adjustment of
the related loan's yield. The Corporation is amortizing these amounts using the
level-yield method over the contractual life of the related loans. The net
deferred amounts related to loans sold are recognized as income at the time of
sale.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth, estimated collateral value and other relevant factors. The allowance is
increased by provisions for loan losses charged to earnings and reduced by
charge-offs, net of recoveries.
Income Taxes
The Corporation and its subsidiary file a consolidated federal income tax
return. The subsidiary provides for income taxes on a separate-return basis and
remits to the Corporation amounts determined to be currently payable.
The Corporation accounts for income taxes using the liability method. Deferred
income tax assets and liabilities are adjusted regularly to amounts estimated to
be receivable or payable based on current tax law and the Corporation's tax
status. Consequently, tax expense in future years may be impacted by changes in
tax rates and tax return limitations.
Per Share Data
Earnings per share are computed based on the weighted average number of shares
outstanding during the year.
Interim Financial Data
The interim financial data (see Note 18) is unaudited; however, in management's
opinion, the interim data includes all adjustments, consisting only of normal,
recurring adjustments necessary for a fair presentation of results for the
interim periods.
20
<PAGE>
1. Accounting Policies (continued)
Accounting Changes
Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114, which was amended by SFAS No.
118, requires that impaired loans be measured at the present value of expected
future cash flows discounted at the loan's effective rate, or as a practical
expedient, at the loan's observable market price or at the fair value of the
collateral if the loan is collateral dependent. Homogenous loans, such as
single-family mortgage loans and most categories of consumer loans, are excluded
from this requirement. The adoption of SFAS No. 114 and No. 118 had no effect on
the Corporation's financial condition or results of operations.
2. Restrictions on Cash and Due From Bank Accounts
The subsidiary bank is required to maintain noninterest-earning reserve balances
with the Federal Reserve Bank or in vault cash. The amount of the reserve
requirement as of December 31, 1995 was approximately $6,751,000.
3. Investment Securities
The amortized cost and estimated fair values of investments in debt securities
were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------------------------------------------------
At December 31, 1995:
Available-for-sale-
U.S. Treasury
securities and
obligations of U.S.
government agencies $12,577,396 $ 262,623 $ 76,175 $12,763,844
=======================================================
Held-to-maturity:
U.S. Treasury
securities and
obligations of U.S.
government agencies $52,852,341 $ 552,907 $ 733,588 $52,671,660
Obligations of
states and
political
subdivisions 43,621,699 593,381 156,679 44,058,401
Industrial revenue
bonds 153,681 - - 153,681
-------------------------------------------------------
$96,627,721 $1,146,288 $ 890,267 $96,883,742
21
<PAGE>
3. Investment Securities (continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------
At December 31, 1994:
Held-to-maturity:
U.S. Treasury
securities and
obligations of U.S.
government agencies $62,011,254 $ 41,652 $4,323,284 $57,729,622
Obligations of
states and
political
subdivisions 31,065,977 110,989 1,408,034 29,768,932
Industrial revenue
bonds 200,364 - - 200,364
-------------------------------------------------------
$93,277,595 $ 152,641 $5,731,318 $87,698,918
The amortized cost and fair value of debt securities at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers or issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Held-to-Maturity Available-for-Sale
---------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------------------------------------------------------
Due in one
year or less $ 3,621,793 $ 3,626,459 $ - $ -
Due after one
year through
five years 42,313,447 42,612,625 2,500,000 2,508,594
Due after five
years through
ten years 49,440,879 49,353,784 10,077,396 10,255,250
Due after ten
years 1,251,602 1,290,874 - -
---------------------------------------------------------
$ 96,627,721 $ 96,883,742 $ 12,577,396 $ 12,763,844
============================ ==========================
Gross gains of $3,017 and $2,340 in 1994 and 1993, respectively, were realized
on the early redemption of securities; there were no gains on early redemption
of securities in 1995 nor were there any sales of securities in 1995, 1994 or
1993.
4. Investment in Affiliated Bank
The Corporation owns 23.54% of the common stock of the First National Bank of
Eagle River (First National Bank). This investment is included in other assets
and is accounted for using the equity method.
22
<PAGE>
4. Investment in Affiliated Bank (continued)
Summarized unaudited financial information for First National Bank was as
follows:
December 31
1995 1994
-----------------------------------------
Total assets $ 78,458,000 $ 73,153,000
Total deposits 69,920,000 62,531,000
Stockholders' equity 6,206,000 5,727,000
Net income 583,000 534,000
5. Loans
Loan balances classified by type were as follows:
December 31
1995 1994
-----------------------------------------
Commercial $ 11,058,000 $ 10,447,000
Real estate--construction 21,692,000 16,811,000
Real estate--mortgage:
Single family 80,551,708 77,995,740
Multi family 5,553,000 2,557,000
Nonresidential 81,841,000 77,306,000
Installment 31,777,000 28,171,000
-----------------------------------------
$ 232,472,708 $213,287,740
=========================================
In the ordinary course of business, the Bank grants loans to related parties,
which include certain directors and officers of the Corporation, and entities
in which such persons are principal shareholders. These loans are made at terms
which do not vary from terms that would have been obtained if the transactions
had been with unrelated parties and do not involve more than normal risk of
collectibility. Loans outstanding at December 31, 1995 and 1994, to such related
parties approximated $2,050,000 and $1,878,000, respectively. During 1995,
$872,000 of new loans were made and repayments totaled $700,000.
23
<PAGE>
6. Allowance for Loan Losses, Nonaccrual Loans and Other Real Estate Owned
Changes in the allowance for loans losses for each of the three years in the
period ending December 31, 1995, were as follows:
1995 1994 1993
---------------------------------------------
Balance at beginning of year $ 3,395,101 $ 3,163,931 $ 2,739,960
Provision for loan losses 248,139 375,000 440,000
Loans charged off (21,084) (159,877) (57,017)
Recoveries on loans charged off 4,061 16,047 40,988
---------------------------------------------
Balance at end of year $ 3,626,217 $ 3,395,101 $ 3,163,931
=============================================
Nonaccrual loans totaled approximately $1,033,434 and $1,929,734 at December 31,
1995 and 1994, respectively.
Other real estate ($1,670,232 at December 31, 1994) is comprised of properties
acquired through a foreclosure proceeding. These properties are carried at the
lower of cost or fair value. Losses from the acquisition of such property are
charged against the allowance for loan losses at the time of foreclosure.
There were no such properties at December 31, 1995.
7. Premises and Equipment
December 31
1995 1994
----------------------------------------
Land $ 3,965,073 $ 3,959,277
Buildings and leasehold improvements 17,863,311 17,386,101
Furniture and equipment 7,379,900 7,140,129
----------------------------------------
29,208,284 28,485,507
Less accumulated depreciation (9,657,847) (8,627,801)
----------------------------------------
$ 19,550,437 $ 19,857,706
========================================
24
<PAGE>
8. Deposits
Deposits consisted of the following:
December 31
1995 1994
-------------------------------------------
Demand deposit accounts $ 90,745,057 $ 83,072,574
Time and savings accounts 259,474,463 217,003,921
-------------------------------------------
$ 350,219,520 $ 300,076,495
===========================================
9. Regulatory Capital
The Bank is required to meet certain minimum leverage ratio and risk-based
capital requirements. The leverage ratio generally consists of stockholders'
equity as a percentage of total assets. The risk-based requirements presently
address credit risk related to both recorded assets and off-balance-sheet
commitments and obligations.
The following table summarizes the Bank's capital position (based upon
regulatory reporting requirements) as compared to the existing regulatory
minimums at December 31, 1995:
Regulatory
Minimum Bank's
Required Actual Ratio
--------------------------------------
Leverage ratio 3.00% 11.72%
Risk-based capital 8.00 17.91
10. Pension Plan
Prior to November 15, 1993, the Corporation had a noncontributory defined
benefit pension plan covering employees meeting certain minimum age and service
requirements. Benefits were based on the employee's compensation during years of
service. The Corporation funded annually the amount that could be deducted for
federal income tax purposes.
On September 14, 1993, the Board of Directors authorized the termination of the
Corporation's noncontributory defined benefit pension plan. The termination was
effective November 15, 1993, and participants in the plan became fully vested on
that date. In connection with the termination, the Corporation recorded a pretax
curtailment expense of $450,000 in 1993. The effect of this expense was to
decrease 1993 net income by approximately $293,000 or $0.12 per share. The
settlement of the vested accumulated benefit obligation by lump-sum payments to
each covered employee was completed in 1994. This action resulted in a final
curtailment expense of $45,884.
25
<PAGE>
10. Pension Plan (continued)
In addition, when the plan was terminated, certain officers were given the
option of purchasing shares of the Corporation's stock at its market price with
the cash received from the proceeds of their vested accumulated benefit
obligation. Accordingly, 69,235 shares of stock were issued at $21 per share.
The Corporation replaced the terminated defined benefit plan with a contributory
defined contribution 401(k) plan. This plan covers all employees who have
attained the age of 21 and completed one year of service. Participants may
contribute a portion of their compensation (up to IRS limits) to the plan. The
Corporation may make regular and matching contributions to the plan each year.
Participants direct the investment of their contributions into one or more
investment options. The Corporation recorded expense of $206,349 and $199,802
for 1995 and 1994, respectively.
11. Income Taxes
The components of income tax expense for each of the three years in the period
ending December 31, 1995, were:
1995 1994 1993
-------------------------------------------
Federal $1,948,500 $1,721,953 $1,612,000
State 210,641 171,000 216,050
-------------------------------------------
$2,159,141 $1,892,953 $1,828,050
===========================================
Current $2,162,141 $2,526,387 $1,955,050
Deferred benefit (3,000) (633,434) (127,000)
-------------------------------------------
$2,159,141 $1,892,953 $1,828,050
===========================================
Differences between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate to income before income taxes for
each of the three years in the period ending December 31, 1995, are as follows:
1995 1994 1993
-------------------------------------------
Income tax at statutory rate $2,553,305 $2,301,721 $2,199,160
Increase (reduction) resulting
from:
Tax-exempt interest income (496,749) (503,227) (442,799)
State income taxes, net of
federal tax benefit 130,674 120,320 149,227
Other (28,089) (25,861) (77,538)
-------------------------------------------
$2,159,141 $1,892,953 $1,828,050
===========================================
26
<PAGE>
11. Income Taxes (continued)
The components of the Corporation's net deferred income tax asset was as
follows:
1995 1994
------------------------------------
Deferred tax assets:
Loan loss reserves $ 1,138,000 $ 1,110,000
Excess servicing gains 90,000 107,000
State net operating loss carryforwards 178,000 211,000
Other 141,000 207,000
------------------------------------
1,547,000 1,635,000
------------------------------------
Deferred tax liabilities:
Excess tax depreciation (573,000) (637,000)
Safe harbor lease (213,000) (236,000)
Net unrealized gains on investment
securities available-for-sale (69,000) -
Other (157,000) (121,000)
------------------------------------
(1,012,000) (994,000)
------------------------------------
Net deferred tax asset before
valuation allowance 535,000 641,000
Valuation allowance (167,000) (202,000)
------------------------------------
Net deferred tax asset $ 368,000 $ 439,000
====================================
12. Leases
The Corporation leases various banking facilities under operating lease
agreements from companies owned by a director and major shareholder of the
Corporation. All of the agreements include renewal options and one agreement
requires the Bank to pay insurance, real estate taxes and maintenance costs
associated with the lease. Rental amounts are subject to annual escalation based
upon increases in the Consumer Price Index. Aggreg
Future minimum rentals, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more consisted
of the following at December 31, 1995:
Year ended December 31:
1996 $ 358,068
1997 325,238
1998 323,628
1999 321,052
2000 208,209
2001 and thereafter 766,560
------------
Total minimum future rentals $ 2,302,755
============
27
<PAGE>
13. Short-Term Borrowings
The Corporation has a $5,000,000 line of credit with an unrelated bank. The line
bears interest at the Bank's prime rate (8.5% at December 31, 1995 and 1994) and
is payable on demand. No amounts were outstanding on the line at December 31,
1995 and 1994.
Borrowings under reverse repurchase agreements bore an average interest rate of
6.31% at December 31, 1994, and matured within 5 days of year end. Assets
collateralizing such agreements, consisting of U.S. government and agency
obligations, are held by the lender bank. At December 31, 1995, under existing
arrangements, the Bank could borrow up to $58,000,000 under reverse repurchase
agreements. No amounts were outstanding at December 31, 1995.
At December 31, 1995, the Bank has the ability to borrow federal funds of up to
$17,000,000 under a revolving line of credit agreement with lenders. Such
borrowings bear interest at the Bank's announced daily federal funds rate and
mature daily. There were no federal funds borrowings outstanding at December 31,
1995. There were $10,000,000 in federal funds borrowings outstanding at
December 31, 1994. Other short-term borrowings represent treasury, tax and loan
accounts due to the Federal Reserve Bank. Such amounts are secured by a pledge
of investment securities in the amount of $7,000,000 at December 31, 1995. Such
amounts are due to the Federal Reserve Bank under a $6,000,000 line of credit
and are secured by investment securities that bear interest at 8.21% at
December 31, 1995 and 1994.
14. Stockholders' Equity
Certain regulatory restrictions exist regarding the ability of the Bank to
transfer funds to the Corporation in the form of cash dividends, loans or
advances. As of December 31, 1995, retained earnings of the Bank in the amount
of $12,633,064 were available for distribution to the Corporation as dividends
without prior approval of regulatory agencies.
Under Federal Reserve regulation, the Bank also is limited as to the amount it
may lend to its affiliates, including the Corporation. Such loans are required
to be collateralized by investments defined in the regulations. In addition, the
maximum amount available for transfer from the Bank to the Corporation in the
form of loans is limited to 10% of the Bank's stockholders' equity in the case
of any one affiliate or 20% in the case of all affiliates.
28
<PAGE>
15. Loan Commitments and Standby Letters of Credit
Loan commitments are made to accommodate the financial needs of the
Corporation's customers. Standby letters of credit commit the Corporation to
make payments on behalf of customers when certain specified future events
occur. Both arrangements have credit risk essentially the same as that involved
in extending loans to customers and are subject to the Corporation's normal
credit policies. Collateral (largely real estate) is required based on
management's credit assessment of the customer.
The Corporation's maximum credit exposure for loan commitments (unfunded loans
and unused lines of credit) and standby letters of credit outstanding at
December 31, 1995, was $19,091,000 and $1,249,000, respectively. All such
arrangements expire in fiscal 1996.
16. Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Corporation.
The Corporation does not routinely measure the market value of financial
instruments such as is required by SFAS No. 107, because such measurements
represent point-in-time estimates of value. It is not the intent of the
Corporation to liquidate and therefore realize the difference between market
value and carrying value and even if it were, there is no assurance that the
estimated market values could be realized. Thus, the information presented is
not relevant to predicting the Corporation's future earnings or cash flows.
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
29
<PAGE>
16. Fair Value of Financial Instruments (continued)
Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and cash equivalents
approximate those assets' fair values.
Investment Securities
Fair values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Loans Receivable
For variable-rate loans that reprice frequently (within the twelve-month period
following the date of measurement), and with no significant credit risk, fair
values are based on carrying values. The fair values for all other loans are
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. The carrying amount of accrued interest approximates its fair value.
Off-Balance-Sheet Instruments
Fair values for the Corporation's off-balance-sheet instruments (lending
commitments and standby letters of credit) are based on fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing. The fair value of such
instruments at December 31, 1995 and 1994, is not material.
Deposits
The fair values disclosed for demand deposits (e.g., interest and noninterest
checking, passbook savings and certain types of money market accounts) are,
equal to the amount payable on demand at the reporting date (i.e., their
carrying amounts). The carrying amounts for variable-rate fixed-term money
market accounts and certificates of deposit and fixed-rate certificates of
deposit scheduled to mature or reprice within the twelve-month period following
the date of measurement approximates their fair value at the reporting date.
Fair values for fixed-rate certificates of deposit scheduled to mature or
reprice after twelve months from the date of measurement are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on similar certificates to a schedule of aggregated expected monthly
maturities of the time deposits. The carrying amount of accrued interest
approximates its fair value.
30
<PAGE>
16. Fair Value of Financial Instruments (continued)
Short-Term Borrowings
The carrying amount of short-term borrowings and related accrued interest,
approximates their fair values at the reporting date.
The carrying amounts and fair values of the Corporation's financial instruments
consisted of the following at December 31, 1995 and 1994:
1995 1994
-------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------
(In Thousands)
Cash and cash equivalents $ 34,725 $ 34,725 $ 28,042 $ 28,042
==================================================
Investment securities $ 109,392 $ 109,648 $ 93,278 $ 87,699
==================================================
Loans receivable $ 232,473 $ 234,096 $ 213,288 $ 210,718
==================================================
Deposits:
Withdrawable on demand $ 249,412 $ 249,412 $ 245,061 $ 245,061
Certificates of deposit 100,808 100,913 55,015 54,963
--------------------------------------------------
$ 350,220 $ 350,325 $ 300,076 $ 300,024
==================================================
Short-term borrowings $ 1,914 $ 1,914 $ 16,307 $ 16,307
31
<PAGE>
17. Tri City Bankshares Corporation (Parent Company Only) Financial
Information
Balance Sheets
December 31
1995 1994
-------------------------------------------
Assets:
Cash on deposit with
subsidiary bank $ 267,598 $ 24,999
Investment in subsidiary 40,238,480 35,915,045
Investment in affiliated bank 1,457,466 1,397,777
Bank premises and equipment 2,085,127 2,174,884
Other net assets 266,060 280,191
-------------------------------------------
Total assets $44,314,731 $39,792,896
===========================================
Stockholders' equity:
Common stock $ 2,470,449 $ 2,457,489
Additional paid-in capital 8,372,997 8,091,712
Net unrealized gain on
investment securities
available-for-sale 108,248 -
Retained earnings 33,363,037 29,243,695
-------------------------------------------
Total liabilities and
stockholders' equity $44,314,731 $39,792,896
===========================================
32
<PAGE>
17. Tri City Bankshares Corporation (Parent Company Only) Financial
Information (continued)
Statements of Income
Year ended December 31
1995 1994 1993
----------------------------------------------
Income from subsidiary bank:
Dividends $ 1,150,000 $ 1,000,000 $ 975,000
Management fees 510,000 507,600 561,600
Rental income 178,913 161,227 128,052
----------------------------------------------
1,838,913 1,668,827 1,664,652
Other income 148,927 51,338 45,729
Expenses:
Administrative and general 839,970 839,575 830,134
Interest - 116,583 121,667
----------------------------------------------
839,970 956,158 951,801
Income before income taxes
and equity in undistributed
net income of subsidiary and
affiliated bank 1,147,870 764,007 758,580
Income tax expense (benefit) 5,141 (33,200) (83,950)
----------------------------------------------
Income before equity in
undistributed net income of
subsidiary and affiliated
bank 1,142,729 797,207 842,530
Equity in undistributed net
income of subsidiary and
affiliated bank 4,207,849 4,079,607 3,797,538
----------------------------------------------
Net income $ 5,350,578 $ 4,876,814 $ 4,640,068
==============================================
33
<PAGE>
17. Tri City Bankshares Corporation (Parent Company Only) Financial
Information (continued)
Statements of Cash Flows
Year ended December 31
1995 1994 1993
----------------------------------------------
Operating activities:
Net income $ 5,350,578 $ 4,876,814 $ 4,640,068
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation 87,377 78,758 70,752
Deferred income taxes - - 542
Equity in undistributed net
income of subsidiary and
affiliated bank (4,207,849) (4,079,607) (3,797,538)
Other (52,896) (64,125) (45,265)
---------------------------------------------
Net cash provided by
operating activities 1,177,210 811,840 868,559
Investing activities:
Net sales (purchases) of
premises and equipment 2,380 (56,980) (162,605)
---------------------------------------------
Net cash provided by (used in)
investing activities 2,380 (56,980) (162,605)
Financing activities:
Decrease in short-term borrowings - (2,000,000) -
Decrease in other liabilities - - (28,718)
Sale of common stock 294,245 1,971,654 121,442
Cash dividends (1,231,236) (949,026) (742,217)
---------------------------------------------
Net cash used in financing
activities (936,991) (977,372) (649,493)
---------------------------------------------
Increase (decrease) in cash 242,599 (222,512) 56,461
Cash at beginning of year 24,999 247,511 191,050
---------------------------------------------
Cash at end of year $ 267,598 $ 24,999 $ 247,511
=============================================
34
<PAGE>
18. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1995 and 1994.
Three Months Ended
December 31 September 30 June 30 March 31
------------------------------------------------------
(In Thousands, Except for Per Share Data)
1995:
Interest income $7,318 $7,097 $6,771 $6,538
Interest expense 2,579 2,486 2,336 2,067
Net interest income 4,739 4,611 4,435 4,471
Provision for loan
losses 75 75 23 75
Other income 1,474 1,422 1,315 1,769
Other expense 4,129 4,095 4,172 4,082
Income before income
taxes 2,009 1,863 1,555 2,083
Income tax expense 550 530 437 642
Net income 1,459 1,333 1,118 1,441
Per common share:
Net income .59 .54 .45 .59
1994:
Interest income $6,285 $6,204 $6,043 $5,971
Interest expense 1,764 1,759 1,670 1,666
Net interest income 4,521 4,445 4,373 4,305
Provision for loan losses - 75 150 150
Other income 1,403 1,326 1,244 1,258
Other expense 3,899 3,949 3,931 3,951
Income before income taxes 2,025 1,747 1,536 1,462
Income tax expense 594 522 413 364
Net income 1,431 1,225 1,123 1,098
Per common share:
Net income .60 .51 .47 .46
35
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000313337
<NAME> TRI CITY BANKSHARES CORP
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 32,535
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,190
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,764
<INVESTMENTS-CARRYING> 96,628
<INVESTMENTS-MARKET> 96,884
<LOANS> 232,473
<ALLOWANCE> 3,626
<TOTAL-ASSETS> 397,649
<DEPOSITS> 350,220
<SHORT-TERM> 1,915
<LIABILITIES-OTHER> 1,200
<LONG-TERM> 0
0
0
<COMMON> 2,470
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 397,649
<INTEREST-LOAN> 21,280
<INTEREST-INVEST> 5,924
<INTEREST-OTHER> 521
<INTEREST-TOTAL> 27,725
<INTEREST-DEPOSIT> 9,257
<INTEREST-EXPENSE> 9,468
<INTEREST-INCOME-NET> 18,256
<LOAN-LOSSES> 248
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,478
<INCOME-PRETAX> 7,510
<INCOME-PRE-EXTRAORDINARY> 5,351
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,351
<EPS-PRIMARY> 2.170
<EPS-DILUTED> 2.170
<YIELD-ACTUAL> 5.528
<LOANS-NON> 1,033
<LOANS-PAST> 630
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,395
<CHARGE-OFFS> 21
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 3,626
<ALLOWANCE-DOMESTIC> 3,626
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
