UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934: For the fiscal year ended December 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 000-09785
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
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ____ Accelerated filer ___ Non-accelerated filer ___
Smaller reporting Company X
---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
As of June 30, 2007, the aggregate market value of the shares held by
non-affiliates was approximately $62,476,784. As of March 28, 2008, 8,904,915
shares of common stock were outstanding.
1
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated in
Annual report to shareholders for fiscal year
ended December 31, 2007 Parts II and IV
Proxy statement for annual meeting of shareholders
to be held on June 11, 2008 Part III
Form 10-K Table of Contents
- --------------------------------------------------------------------------------
PART I PAGE #
Item 1 Business 3
Item 1A Risk Factors 9
Item 1B Unresolved Staff Comments 12
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
Item 5 Market for the Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases
of Equity Securitites 13
Item Selected Financial Data 15
6
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A Quantitative and Qualitative Disclosures About Market Risk 15
Item 8 Consolidated Financial Statements and Supplementary Data 15
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 15
Item 9A(T) Controls and Procedures 15
Item 9B Other Information 17
PART III
Item 10 Directors and Executive Officers of the Registrant 17
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 17
Item 13 Certain Relationships and Related Transactions 17
Item 14 Principal Accountant Fees and Services 17
PART IV
Item 15 Exhibits and Financial Statement Schedules 18
Signatures 21
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PART I
Item 1. BUSINESS
THE REGISTRANT
Tri City Bankshares Corporation (the "Registrant"), a Wisconsin
corporation, was formed November 20, 1970 for the purpose of acquiring the
outstanding shares of Tri City National Bank (the "Bank"). The Bank is a wholly
owned subsidiary of the Registrant.
As of December 31, 2007, the Registrant had total assets of $790.0 million
and total stockholders' equity of $106.8 million.
THE BANK
The Bank was chartered by the Wisconsin Banking Department (now the
Wisconsin Department of Financial Institutions ("DFI")) on October 28, 1963, and
converted to a national banking association charter on June 25, 1969. The Bank
is supervised by the Office of the Comptroller of the Currency ("OCC") and its
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The
Bank conducts business out of its main office located at 6400 South 27th Street,
Oak Creek, Wisconsin. In addition, the Bank maintains 37 other offices in
Wisconsin throughout Milwaukee, Ozaukee, Racine and Waukesha Counties.
The Bank provides a full range of consumer and commercial banking services
to individuals and businesses. The basic services offered include: demand
deposit accounts, money market deposit accounts, NOW accounts, time deposits,
safe deposit services, direct deposits, notary services, money orders, night
depository, travelers' checks, cashier's checks, savings bonds, secured and
unsecured consumer, commercial, installment, real estate and mortgage loans. The
Bank offers automated teller machine ("ATM") and debit cards. In addition, the
Bank maintains an investment portfolio consisting primarily of U.S. agency and
state and political subdivision securities.
As is the case with banking institutions generally, the Bank derives its
revenues from interest on the loan and investment portfolios and fee income
related to loans and deposits. Income derived from the sale of alternative
investment products provides additional fee income. The source of funds for the
lending activities are deposits, repayment of loans, maturity of investment
securities and short-term borrowing through correspondent banking relationships
and the Federal Reserve Bank of Chicago. Principal expenses are the interest
paid on deposits and borrowings, and operating and general administrative
expenses.
LENDING ACTIVITIES
The Bank offers a range of lending services including secured and unsecured
consumer, commercial, installment, real estate and mortgage loans to
individuals, small business and other organizations that are located in or
conduct a substantial portion of their business in the Bank's market area. The
Bank's total loans as of December 31, 2007 were $586.3 million, or approximately
74% of total assets. Interest rates charged on loans vary with the degree of
risk, maturity and amount of the loan, and are further subject to competitive
pressures, cost and availability of funds and government regulations.
The Bank maintains a comprehensive loan policy that establishes guidelines
with respect to all categories of lending activity. The policy establishes
lending authority for each individual loan officer, the officer loan committee
and the Board of Directors. All loans to directors and executive officers are
approved by the Board of Directors with the interested Director abstaining. The
loans are concentrated in three major areas: real estate loans, commercial loans
and consumer loans. The lending strategy is the development of a high quality
loan portfolio.
The Bank's real estate loans are collateralized by mortgages and consist
primarily of loans to individuals for the purchase and improvement of real
estate and for the purchase of residential lots and construction of
single-family residential units. The Bank's residential real estate loans
generally are repayable in monthly installments based on up to a thirty-year
amortization schedule.
Commercial loans include loans to individuals and small businesses
including loans for working capital, machinery and equipment purchases, premise
and equipment acquisitions, purchase, improvement and investment in real estate
development and other business needs. Commercial lines of credit are typically
for a one-year term. Other commercial loans with terms or amortization schedules
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of longer than one year will normally carry interest rates which vary based on
the term and will become payable in full and are generally refinanced in two to
four years. Commercial loans typically entail a thorough analysis of the
borrower, its industry, current and projected economic conditions and other
factors. The Bank typically requires commercial borrowers to have annual
financial statements and requires appraisals or evaluations in connection with
the loans collateralized by real estate. The Bank typically requires personal
guarantees from principals involved with closely held corporate borrowers.
The Bank's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes payable on an installment basis. The
loans are generally for terms of five years or less and are collateralized by
liens on various personal assets of the borrower.
DEPOSIT ACTIVITIES
Deposits are the major source of the Bank's funds for lending and other
investment activities. The Bank considers the majority of its regular savings,
investors choice, demand, NOW and money market deposit accounts to be core
deposits. These accounts comprised approximately 82.5% of the Bank's total
deposits at December 31, 2007. Approximately 17.5% of the Bank's deposits at
December 31, 2007 were certificates of deposit. Generally, the Bank attempts to
maintain the rates paid on its deposits at a competitive level. Time deposits of
$100,000 and over made up approximately 35.4% of the Bank's total time deposits
at December 31, 2007. The majority of the deposits of the Bank are generated
from Milwaukee, Ozaukee, Racine and Waukesha Counties. For additional
information regarding the Bank's deposit accounts, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Interest Rate Sensitivity Management" and Note 9 of Notes to Consolidated
Financial Statements, incorporated by reference in Item 8 below.
INVESTMENTS
The Bank invests a portion of its assets in obligations of U.S. government
sponsored entities, (Federal Home Loan Mortgage Corporation and Federal National
Mortgage Association), state, county and municipal obligations, collateralized
mortgage obligations ("CMO's") and federal funds sold. The investments are
managed in relation to the loan demand and deposit growth and are generally used
to provide for the investment of excess funds at reduced yields and risks
relative to yields and risks of the loan portfolio, while providing liquidity to
fund increases in loan demand or to offset fluctuations in deposits. For further
information regarding the Registrant's investment portfolio, see Note 3 of Notes
to Consolidated Financial Statements, incorporated by reference in Item 8 below.
SUPERVISION AND REGULATION
As a registered bank holding company, the Registrant is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956,
as amended (the "BHCA"). The Bank is subject to regulation and examination by
the OCC and the FDIC.
Under the BHCA, the Registrant is subject to periodic examination by the
Federal Reserve Board, and is required to file with the Federal Reserve Board
periodic reports of its operations and such additional information as the
Federal Reserve Board may require. In accordance with Federal Reserve Board
policy, the Registrant is expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances where the
Registrant might not do so absent such policy. In addition, there are numerous
federal and state laws and regulations, which regulate the activities of the
Registrant and the Bank. They include requirements and limitations relating to
capital and reserve requirements, permissible investments and lines of business,
transactions with affiliates, loan limits, mergers and acquisitions, issuance of
securities, dividend payments, inter-affiliate liabilities, extensions of credit
and branch banking.
Federal banking regulatory agencies have established capital adequacy rules
which take into account risk attributable to balance sheet assets and
off-balance sheet activities. All banks and bank holding companies must meet a
minimum total risk-based capital ratio of 8%, of which at least one-half must be
comprised of core capital elements defined as Tier 1 capital (which consists
principally of stockholders' equity). The federal banking agencies also have
adopted leverage capital guidelines which banking organizations must meet. Under
these guidelines, the most highly rated banking organizations must meet a
minimum leverage ratio of at least 3% Tier 1 capital to total assets, while
lower rated banking organizations must maintain a ratio of at least 4% to 5%.
Failure to meet minimum capital requirements can initiate certain mandatory and
possible additional discretionary actions by regulators that, if undertaken,
could have a direct material negative effect on the consolidated financial
statements. The risk-based and leverage standards presently used by the Federal
Reserve Board are minimum requirements, and higher capital levels will be
required if warranted by the particular circumstances or risk profiles of
individual banking organizations. The Federal Reserve Board has not advised the
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Registrant of any specific minimum Tier 1 capital leverage ratio applicable to
it.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. In addition, a bank holding company's controlled insured
depository institutions are liable for any loss incurred by the FDIC in
connection with the default of, or any FDIC-assisted transaction involving, an
affiliated insured bank or savings association. The extent of the regulators'
power depends on whether the institution in question is "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
or "critically undercapitalized." To be well capitalized under the regulatory
framework, the Tier 1 capital ratio must meet or exceed 6%, the total capital
ratio must meet or exceed 10% and the leverage ratio must meet or exceed 5%. At
December 31, 2007, the most recent notification from the Federal Reserve Board,
the Registrant was categorized as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the Registrant's
category. As of December 31, 2007, the Registrant had a total risk-based capital
ratio of 18.95% a Tier I risk-based capital ratio of 17.98% and a leverage ratio
of 14.26%. The Registrant and the Bank were deemed well capitalized as of
December 31, 2007 and 2006.
Current federal law provides that adequately capitalized and managed bank
holding companies from any state may acquire banks and bank holding companies
located in any other state, subject to certain conditions. Banks are permitted
to create interstate branching networks in states that do not "opt out" of
interstate branching.
The laws and regulations to which the Registrant is subject are constantly
under review by Congress, regulatory agencies and state legislatures. In 1999,
Congress enacted the Gramm-Leach-Bliley Act ("the Act"), which eliminated
certain barriers to and restrictions on affiliations between banks and
securities firms, insurance companies and other financial services
organizations. Among other things, the Act repealed certain Glass-Steagall Act
restrictions on affiliations between banks and securities firms, and amended the
BHCA to permit bank holding companies that qualify as "financial holding
companies" to engage in a broad list of "financial activities," and any
non-financial activity that the Federal Reserve Board, in consultation with the
Secretary of the Treasury, determines is "complementary" to a financial activity
and poses no substantial risk to the safety and soundness of depository
institutions or the financial system. The Act treats various lending, insurance
underwriting, insurance company portfolio investment, financial advisory,
securities underwriting, dealing and market-making, and merchant banking
activities as financial in nature for this purpose. Under the Act, a bank
holding company may become certified as a financial holding company by filing a
notice with the Federal Reserve Board, together with a certification that the
bank holding company meets certain criteria, including capital, management, and
Community Reinvestment Act requirements. The Registrant has determined not to
become certified as a financial holding company at this time. The Registrant may
reconsider this determination in the future.
In 2001, Congress enacted the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (the "USA PATRIOT Act"). The USA PATRIOT Act is designed to deny terrorists
and criminals the ability to obtain access to the United States financial
system, and has significant implications for depository institutions, brokers,
dealers, and other businesses involved in the transfer of money. The USA PATRIOT
Act requires financial services companies to implement additional policies and
procedures with respect to, or additional measures designed to address, any or
all of the following matters, among others: money laundering, terrorist
financing, identifying and reporting suspicious activities and currency
transactions, and currency crimes.
The earnings and business of the Registrant and the Bank are also affected
by the general economic and political conditions in the United States and abroad
and by the monetary and fiscal policies of various federal agencies. The Federal
Reserve Board impacts the competitive conditions under which the Registrant
operates by determining the cost of funds obtained from money market sources for
lending and investing and by exerting influence on interest rates and credit
conditions. In addition, legislative and economic factors can be expected to
have an ongoing impact on the competitive environment within the financial
services industry. The impact of fluctuating economic conditions and federal
regulatory policies on the future profitability of the Registrant and its
subsidiary cannot be predicted with certainty.
INDUSTRY RESTRUCTURING
For well over a decade, the banking industry has been undergoing a
restructuring process which is anticipated to continue. The restructuring has
been caused by product and technological innovations in the financial services
industry, deregulation of interest rates, and increased competition from foreign
and nontraditional banking competitors, and has been characterized principally
by the gradual erosion of geographic barriers to intrastate and interstate
banking and the gradual expansion of investment and lending authorities for bank
institutions.
5
COMPETITION
The Bank's service area includes portions of Milwaukee, Ozaukee, Racine and
Waukesha Counties. In Milwaukee County, the Bank competes with all the major
banks and bank holding companies located in metropolitan Milwaukee, most of whom
are far larger in terms of assets and deposits. Ozaukee County, with a
population of approximately 86,000 residents, has eleven banks with thirty-five
offices and five savings banks with eleven offices. Racine County, with a
population of approximately 196,000 residents has thirteen banks with
fifty-eight offices and five savings banks with fourteen offices. Waukesha
County, with a population of approximately 379,000 residents, has twenty-six
banks with one hundred forty-five offices and thirteen savings banks with
fifty-three offices. In addition to banks and savings banks, significant
competition comes from credit unions, security and brokerage firms, mortgage
companies, insurance companies and other providers of financial services in the
area.
EMPLOYEES
As of December 31, 2007, the Registrant employed 342 full-time employees
and 96 part-time employees. The employees are not represented by a collective
bargaining unit. The Registrant considers relations with employees to be good.
STATISTICAL PROFILE AND OTHER FINANCIAL DATA
Statistical information relating to the Registrant and its subsidiaries on
a consolidated basis, as required by Guide 3 of the Securities and Exchange
Commission Guides for Preparation and Filing of Reports and Registration
Statements and Reports, is set forth as follows:
(1) Average Balances and Interest Rates for each of the last three fiscal
years is included in Item 7, Management's Discussion and Analysis of Financial
Position and Results of Operations, incorporated herein by reference to
Registrant's 2007 Annual Report to Stockholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operation."
(2) Interest Income and Expense Volume and Rate Change for each of the last
two years is included in Item 7, Management's Discussion and Analysis of
Financial Position and Results of Operations, incorporated herein by reference
to Registrant's 2007 Annual Report to Stockholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operation."
(3) Investment Securities Portfolio Maturity Distribution at December 31,
2007 is included in Item 7, Management's Discussion and Analysis of Financial
Position and Results of Operations, incorporated herein by reference to
Registrant's 2007 Annual Report to Stockholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operation."
(4) Investment Securities Portfolio for each of the last three years is
included in Item 7, Management's Discussion and Analysis of Financial Position
and Results of Operations, incorporated herein by reference to Registrant's 2007
Annual Report to Stockholders under the caption entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
(5) Loan Portfolio Composition for each of the last five years is included
in Item 7, Management's Discussion and Analysis of Financial Position and
Results of Operations, incorporated herein by reference to Registrant's 2007
Annual Report to Stockholders under the caption entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
(6) Summary of Loan Loss Experience for each of the last five years is
included in Item 7, Management's Discussion and Analysis of Financial Position
and Results of Operations, incorporated herein by reference to Registrant's 2007
Annual Report to Stockholders under the caption entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
(7) Average Daily Balance of Deposits and Average Rate Paid on Deposits for
each of the last three years is included in Item 7, Management's Discussion and
Analysis of Financial Position and Results of Operations, incorporated herein by
reference to Registrant's 2007 Annual Report to Stockholders under the caption
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operation."
6
The following additional tables set forth certain statistical information
relating to the Registrant and its subsidiaries on a consolidated basis.
LOAN PORTFOLIO
The following table presents information concerning the aggregate amount of
nonperforming loans. Nonperforming loans are comprised of (a) loans accounted
for on a nonaccrual basis and (b) loans contractually past due 90 days or more
as to interest or principal payments, for which interest continues to be
accrued. (Dollars in Thousands) December 31,
2007 2006 2005 2004 2003
---- ---- ---- ---- ----
Nonaccrual loans $ 2,024 $ 0 $ 1,905 $ 275 $ 181
Loans past due 90 days or more 3,703 3,417 1,005 1,688 1,280
------------ ------------ ------------ ----------- -----------
Total nonperforming loans $ 5,727 $ 3,417 $ 2,910 $ 1,963 $ 1,461
============ ============ ============ =========== ===========
Ratio of nonaccrual loans to total loans 0.35% -% 0.36% 0.06% 0.04%
Ratio of nonperforming loans to total loans 0.98% 0.64% 0.56% 0.42% 0.35%
Interest income of $15,047 was recognized during 2007 on loans that were
accounted for on a nonaccrual basis. No additional interest income was
recognized during 2007 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, 2007 or 2006 whose terms had been
renegotiated to provide a reduction or deferral of interest or principal because
of a deterioration in the financial position of the borrower, and there are no
current loans where, in the opinion of management, there are serious doubts as
to the ability of the borrower to comply with present loan repayment terms.
Loans defined as impaired by Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan," if any, are included in
nonaccrual loans above.
RETURN ON EQUITY AND ASSETS AND SELECTED CAPITAL RATIOS
The following table shows consolidated operating and capital ratios of the
Registrant for each of the last three years:
Year Ended December 31,
2007 2006 2005
Percentage of net income to:
Average stockholders' equity 9.49% 9.23% 9.41%
Average total assets 1.36% 1.31% 1.28%
Percentage of dividends declared per
common share to net income per
common share 88.54% 82.48% 74.29%
Percentage of average stockholders'
equity to daily average total assets 14.36% 14.16% 13.31%
7
SHORT-TERM BORROWINGS
(Dollars in Thousands)
Information relating to short-term borrowings follows:
Federal Funds Purchased
And Securities Sold Under Other Short-Term
Agreements to Repurchase Borrowings
------------------------- ----------------
Balance at December 31:
2007 $ 12,851 $ 2,171
2006 $ - $ 3,470
2005 $ - $ 2,432
Weighted average interest rate
at year end:
2007 4.49% 4.13%
2006 -% 3.14%
2005 -% 2.67%
Maximum amount outstanding at
any month's end
2007 $ 38,083 $ 5,229
2006 $ 10,741 $ 3,470
2005 $ 39,787 $ 3,100
Average amount outstanding
during the year:
2007 $ 12,489 $ 1,494
2006 $ 3,022 $ 1,342
2005 $ 27,345 $ 1,550
Average interest rate during
the year:
2007 5.12% 4.84%
2006 5.40% 4.72%
2005 3.27% 3.03%
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days of the transaction date. Other
short-term borrowings generally mature within 90 days.
AVAILABLE INFORMATION
The Registrant maintains a website at www.tcnb.com. The Registrant makes
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available through that website, free of charge, copies of its Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8K, and
amendments to the reports, as soon as reasonably practicable after the
Registrant electronically files those materials with, or furnishes them to, the
Securities and Exchange Commission (the "SEC"). The Registrant's SEC reports can
be accessed through the "About TCNB" link of its website.
8
Item 1A. RISK FACTORS
CAUTIONARY STATEMENTS RELATING TO FORWARD-LOOKING INFORMATION AND RISK FACTORS.
The Registrant and its representatives may, from time to time, make written or
verbal forward-looking statements. Those statements relate to developments,
results, conditions or other events the Registrant expects or anticipates will
occur in the future. The Registrant intends words such as "believes,"
"anticipates," " plans," "expects" and similar expressions to identify
forward-looking statements. Without limiting the foregoing, those statements may
relate to future economic or interest rate conditions, loan losses and
allowances, loan and deposit growth, new branches and the competitive
environment. Forward-looking statements are based on management's then current
views and assumptions and, as a result, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Any such forward-looking statements are qualified by the following
important risk factors that could cause actual results to differ materially from
those predicted by the forward-looking statements.
An investment in the Registrant's common stock or other securities carries
certain risks. Investors should carefully consider the risks described below and
other risks, which may be disclosed from time to time in the Registrant's
filings with the SEC before investing in the Registrant's securities.
FLUCTUATING INTEREST RATES IMPACT OUR RESULTS OF OPERATIONS AND OUR EQUITY.
The results of operations for financial institutions may be materially and
adversely affected by changes in prevailing economic conditions, including rapid
changes in interest rates, changes in local market conditions, changes in the
habits of the public, declines in real estate market values, increases in tax
rates and other operating expenses, and the policies of regulatory authorities,
including the monetary and fiscal policies of the Federal Reserve. Changes in
the economic environment may influence the growth rate of loans and deposits,
the quality of the loan portfolio and loan and deposit pricing. While the Bank
has taken measures intended to manage the risks of operating in a changing
interest rate environment, there can be no assurance that such measures will be
effective in avoiding undue interest rate risk. The Bank is unable to predict
fluctuations of market interest rates, which are affected by many factors,
including inflation, recession, a rise in unemployment, tightening money supply,
and domestic and international disorder and instability in domestic and foreign
financial markets.
The Bank's profitability depends to a large extent upon its net interest income,
which is the difference (or "spread") between interest income received on
interest earning assets, such as loans and investments, and interest expense
paid on interest-bearing liabilities, such as deposits and borrowings. Most of
the Bank's loans are to businesses and individuals in Wisconsin (and, more
specifically, Milwaukee, Ozaukee, Racine and Waukesha Counties), and any general
adverse change in the economic conditions prevailing in these areas could reduce
the Bank's growth rate, impair its ability to collect loans or attract deposits,
and generally have an adverse impact on the results of operations and financial
condition of the Bank. If these areas experience adverse economic, political or
business conditions, the Bank would likely experience higher rates of loss and
delinquency on its loans than if its loans were more geographically diverse.
The Bank's net interest spread and margin will be affected by general economic
conditions and other factors that influence market interest rates and the Bank's
ability to respond to changes in such rates. At any given time, the Bank's
assets and liabilities will be such that they are affected differently by a
given change in interest rates. As a result, an increase or decrease in rates
could have a positive or negative effect on the Bank's net income, capital and
liquidity.
The mismatch between maturities and interest rate sensitivities of balance sheet
items (i.e., interest-earning assets and interest-bearing liabilities) results
in interest rate risk, which risk will change as the level of interest rates
changes. The Bank's liabilities consist primarily of deposits, which are either
of a short-term maturity or have no stated maturity. These latter deposits
consist of NOW accounts, demand accounts, savings accounts, and money market
accounts. These accounts typically can react more quickly to changes in market
interest rates than the Bank's assets because of the shorter maturity (or lack
of maturity) and repricing characteristics of these deposits. Consequently,
sharp increases or decreases in market interest rates may impact the Bank's
earnings negatively or positively, respectively.
To manage vulnerability to interest rate changes, the Bank's management monitors
the Bank's interest rate risks. The Bank's officers have established investment
policies and procedures, which ultimately are reported to the Board of
Directors. Management and the Board of Directors generally meet quarterly and
review the Bank's interest rate risk position, loan and securities repricing,
current interest rates and programs for raising deposit-based maturity gaps,
including retail and non-brokered deposits, and loan origination pipeline. The
Bank's assets and liabilities maturing and repricing within one year generally
result in a negative one-year gap, which occurs when the level of liabilities
estimated to mature and reprice within one year are greater than the level of
9
assets estimated to mature and reprice within that same time frame. If interest
rates were to rise significantly, and for a prolonged period, the Bank's
operating results could be adversely affected. Gap analysis attempts to estimate
the Bank's earnings sensitivity based on many assumptions, including, but not
limited to, the impact of contractual repricing and maturity characteristics for
rate-sensitive assets and liabilities.
Changes in interest rates will also affect the level of voluntary prepayments on
the Bank's loans and the receipt of payments on the Bank's mortgage-backed
securities, resulting in the receipt of proceeds that the Bank may have to
reinvest at a lower rate than the loan or mortgage-backed security being
prepaid. Finally, changes in interest rates can result in the flow of funds away
from the banking institutions into investments in U.S. government and corporate
securities, and other investment vehicles which, because of the absence of
federal insurance premiums and reserve requirements, among other reasons,
generally can pay higher rates of return than banking institutions.
A SIGNIFICANT PORTION OF OUR BUSINESS IS CONCENTRATED ON SMALL TO MEDIUM
BUSINESS CUSTOMERS, WHICH MAKES US MORE VULNERABLE TO THAT INDUSTRY SEGMENT.
One of the primary focal points of the Bank's business strategy is serving the
banking and financial services needs of small to medium-sized businesses in the
Bank's geographic region. Small to medium-sized businesses generally have fewer
financial resources in terms of capital or borrowing capacity than larger
entities. If general economic conditions deteriorate in the Milwaukee, Ozaukee,
Racine and Waukesha County regions of Wisconsin, the businesses of the Bank's
lending clients and their ability to repay outstanding loans may be negatively
affected. As a consequence, the Bank's results of operations and financial
condition may be adversely affected.
THE REGISTRANT AND THE BANK OPERATE IN A HIGHLY REGULATED ENVIRONMENT, WHICH
COULD INCREASE OUR COST STRUCTURE OR HAVE ANOTHER NEGATIVE IMPACT ON OUR
OPERATIONS.
The Registrant and the Bank are subject to extensive state and federal
government supervision, regulation and control. Existing state and federal
banking laws subject the Registrant and the Bank to substantial limitations with
respect to loans, purchase of securities, payment of dividends and many other
aspects of the Bank's banking business. There can be no assurance that future
legislation or government policy will not adversely affect the banking industry
or the operations of the Bank, to the advantage of the Bank's non-bank
competitors. In addition, economic and monetary policy of the Federal Reserve
may increase the Bank's cost of doing business and affect its ability to attract
deposits and make loans. The techniques used by the Federal Reserve include
setting the reserve requirements of banks and establishing the discount rate on
bank borrowings. The policies of the Federal Reserve have a direct effect on the
amount of bank loans and deposits, and the interest rates charged and paid there
on.
IF WE HAVE SIGNIFICANT LOAN LOSSES, WE WOULD NEED TO FURTHER INCREASE OUR
ALLOWANCE FOR LOAN LOSSES AND OUR EARNINGS WOULD DECREASE.
The Bank's loan customers may not repay their loans according to their terms,
and the collateral securing the repayment of these loans may be insufficient to
assure repayment. The risk of nonpayment of loans is inherent in commercial
banking, and such nonpayment, if it occurs, may have a material adverse effect
on the Bank's results of operations and overall financial condition. The Bank's
management attempts to minimize the Bank's credit exposure by carefully
monitoring the concentration of its loans within specific industries and through
prudent loan application and approval procedures, including a determination of
the creditworthiness of borrowers and the value of the assets serving as
collateral for repayment of certain loans. However, there can be no assurance
that such monitoring and procedures will reduce such lending risks.
IF WE HAVE UNDERESTIMATED OUR ALLOWANCE FOR LOAN LOSSES, WE MAY HAVE TO TAKE
ADDITIONAL CHARGES TO OUR INCOME TO RESTORE THE BALANCE IN ALLOWANCE.
The Bank makes various assumptions and judgments about the collectability of its
loan portfolio and provides an allowance for loan losses based on a number of
factors. The Bank's allowance for loan losses is established by management and
is maintained at a level considered adequate by management to absorb loan losses
that are inherent in the Bank's portfolio. The amount of future losses is
susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond the Bank's control, and such
losses may exceed current estimates. Although the Bank's management believes
that the allowance for loan losses as of the end of each fiscal quarter is
adequate to absorb probable and estimatible losses in its portfolio of loans,
there can be no assurance that the allowance will prove sufficient to cover
actual loan losses in the future.
10
In addition, federal and state regulators periodically review the Bank's
allowance for loan losses and may require the Bank to increase its provision for
loan losses or recognize further loan charge-offs, based on judgments different
than those of the Bank's management. Any increase in the Bank's allowance for
loan losses or loan charge-offs as required by these regulatory agencies would
have a negative effect on the operating results of the Bank.
Non-performing loans at December 31, 2007 were $5.7 million compared to $3.4
million at December 31, 2006. Management believes that the recent increase in
non-performing loans is a result of normal business fluctuations and the recent
downturn in the real estate loan market. No assurance can be given that
non-performing loans will not increase in the future.
A SIGNIFICANT PORTION OF THE BANK'S LENDING IS CONCENTRATED IN MORTGAGES AND
CONSTRUCTION LOANS, WHICH MAKES THE BANK MORE AT RISK FOR DOWNTURNS IN THOSE
AREAS.
The Bank offers fixed and adjustable interest rates on loans, with terms of up
to 30 years. Although the majority of the residential mortgage loans that the
Bank originates are fixed-rate, adjustable rate mortgage ("ARM") loans increase
the responsiveness of the Bank's loan portfolios to changes in market interest
rates. However, because ARM loans are more responsive to changes in market
interest rates than fixed-rate loans, ARM loans also increase the possibility of
delinquencies in periods of high interest rates.
The Bank also originates loans collateralized by mortgages on commercial real
estate and multi-family residential real estate. Since these loans usually are
larger than one-to-four family residential mortgage loans, they generally
involve greater risks than one-to-four family residential mortgage loans. In
addition, since customers' ability to repay these loans often is dependent on
operating and managing those properties successfully, adverse conditions in the
real estate market or the economy generally can impact repayment more severely
than loans collateralized by one-to-four family residential properties.
Moreover, the commercial real estate business is subject to downturns,
overbuilding and local economic conditions.
The Bank also makes construction loans for residences and commercial buildings,
as well as on unimproved property. While these loans enable the Bank to increase
the interest rate sensitivity of its loan portfolios and receive higher yields
than those obtainable on permanent residential mortgage loans, the higher yields
correspond to higher risk perceived to be associated with construction lending.
These include risks associated generally with loans on the type of property
collateralizing the loan. Moreover, commercial construction lending often
involves disbursing substantial funds with repayment dependent largely on the
success of the ultimate project instead of the borrower's or guarantor's ability
to repay. Again, adverse conditions in the real estate market or the economy
generally can impact repayment more severely than loans collateralized by
one-to-four family residential properties.
AN INCREASE IN THE COMPETITION IN MARKETS THE BANK SERVE COULD NEGATIVELY IMPACT
OUR RESULTS.
The financial services industry is highly competitive. The Bank faces intense
competition from financial institutions in Milwaukee, Ozaukee, Racine and
Waukesha Counties and surrounding markets, and from non-bank financial
institutions, such as mutual funds, brokerage firms and insurance companies that
are aggressively expanding into markets traditionally served by banks. Many of
the Bank's non-bank competitors are not subject to the same degree of regulation
as are imposed on bank holding companies, federally insured banks and
Wisconsin-chartered state banks. As a result, such non-bank competitors may have
advantages over the Bank in providing certain services. The Bank also competes
indirectly with regional and national financial institutions, many of which have
greater liquidity, lending limits, access to capital and market recognition and
resources than the Bank. Expanded interstate banking may increase competition
from out-of-state banking organizations and other financial institutions. As a
relatively small bank, the Bank may lack the resources to compete effectively in
the financial services market.
THE BANK MAY NOT BE ABLE TO EFFECTIVELY IMPLEMENT NEW TECHNOLOGY, WHICH COULD
PUT IT AT A COMPETITIVE DISADVANTAGE AND NEGATIVELY IMPACT ITS RESULTS.
The banking industry is undergoing rapid technological changes with frequent
introductions of new technology-driven products and services. In addition to
better serving customers, the effective use of technology increases efficiency
and enables financial institutions to reduce costs. The Bank's future success
will depend in part on its ability to address the needs of its customers by
using technology to provide products and services that will satisfy customer
demands for convenience as well as create additional efficiencies in the Bank's
operations. A number of the Bank's competitors may have substantially greater
resources to invest in technological improvements. There can be no assurance
that the Bank will be able to effectively implement new technology-driven
products and services or be successful in marketing such products and services
to its customers.
11
UNAUTHORIZED DISCLOSURE OF SENSITIVE OR CONFIDENTIAL CUSTOMER INFORMATION,
WHETHER THROUGH A BREACH OF THE BANK'S COMPUTER SYSTEM OR OTHERWISE, COULD
SEVERELY HARM THE BANK'S BUSINESS.
As part of the Bank's normal course of business, it collects, processes and
retains sensitive and confidential customer information. Despite the security
measures the Bank has in place, its facilities and systems, and those if its
third party service providers, may be vulnerable to security breaches, acts of
vandalism, computer viruses, misplaced or lost data, programming and/or human
errors, or other similar events. Any security breach involving the
misappropriation, loss or other unauthorized disclosure of confidential
information, whether by the Bank or its vendors, could severely damage its
reputation, expose it to the risk of litigation and liability, disrupt its
operations and harm its business.
THE REGISTRANT'S SHAREHOLDERS MAY NOT BE ABLE TO LIQUIDATE THIS COMMON STOCK
WHEN NEEDED.
Shares of the Registrant's stock are thinly traded. While the stock is quoted on
the Over-the-Counter Bulletin Board.Shareholders may be unable to resell their
stock quickly or on favorable terms.
Item 1B. UNRESOLVED STAFF COMMENTS
-------------------------
None.
Item 2. PROPERTIES
----------
Tri City National Bank has thirty-seven locations in the Metropolitan Milwaukee
area, including Oak Creek, Milwaukee, Brookfield, Menomonee Falls, West Allis,
Hales Corners, Wauwatosa, Cedarburg, Sturtevant and South Milwaukee. The Bank
owns thirteen of its locations and leases twenty-four locations, including
twenty-one full service banking centers located in grocery stores.
Registrant believes that its bank locations are in buildings that are
attractive, efficient and adequate for their operations, with sufficient space
for parking and drive-in facilities.
Item 3. LEGAL PROCEEDINGS
-----------------
The Registrant is not party to any material legal proceedings other than
routine, immaterial litigation arising in the ordinary course of conducting the
Registrant's and the Bank's business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted during the fourth quarter of 2007 to a vote of
security holders.
12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITTIES
------------------------------------------------------------------------
MARKET PRICE FOR AND DIVIDENDS ON COMMON STOCK. Information pertaining to
the Market Price of and Dividends on the Registrant's Common Equity and Related
Stockholder Matters specified in Item 201 of Regulation S-K and required under
Item 5(a) of Form 10-K is incorporated herein by reference to Registrant's 2007
Annual Report to Stockholders under the caption entitled "Market for
Corporation's Common Stock and Related Stockholder Matters" (Page 30).
RECENT SALES OF UNREGISTERED SECURITIES. Information pertaining to Recent
Sales of Unregistered Securities specified in Item 701 (a) through (e) of
Regulation S-K and required under Item 5(a) of Form 10-K is as follows:
The Registrant established a Dividend Reinvestment Plan ("DRIP") in January
1993. As previously announced, the Board of Directors terminated the DRIP
effective with the dividend paid in January 2008. In January 1993, the
Registrant filed a registration statement under the Securities Act of 1933 to
register 250,000 shares of its common stock for issuance to shareholders who
elected to reinvest their quarterly dividends through the DRIP.
In late 2002, the Registrant incorrectly believed that approximately
125,000 shares had been issued pursuant to the DRIP and therefore concluded that
approximately 125,000 shares remained available for issuance, which amount it
believed would be sufficient to allow the Registrant to continue issuing
registered shares through the DRIP for the next several years. However, in fact,
as of the dividend paid in October 2002, the number of shares issued through the
DRIP had already exceeded 250,000.
In February 2003 the Registrant effected a 3-for-1 stock split.
Consistent with its understanding that there was a sufficient number of
shares registered for issuance pursuant to the DRIP, the Registrant continued to
issue shares quarterly under the DRIP through January, 2008 when the DRIP was
terminated. It was in connection with the termination of the DRIP that the
Registrant discovered that it had issued more shares than it had registered. The
Registrant's decision to terminate the DRIP was made before this error was
discovered and was not related to the error.
During the three-year period ended December 31, 2007, together with the
first quarter of 2008, the Registrant sold a total of approximately 480,300
unregistered shares of its common stock under the DRIP for aggregate
consideration of approximately $9,313,000. The aggregate number of unregistered
shares sold under the DRIP (from October, 2002 through January, 2008) was
approximately 797,437 for aggregate consideration of approximately $16,187,000.
All of these shares were sold to persons who were shareholders of the Registrant
as of the respective dividend record dates who had elected to and participated
in the DRIP from time to time. As of the most recent dividend declaration date
(January 2008) there were approximately 390 shareholders of the Registrant who
were participants in the DRIP. The shares were sold for cash in that they were
issued in lieu of cash dividends that would otherwise have been paid to the
participants.
13
A detailed schedule of the dates and amounts of the unregistered shares
sold pursuant to the DRIP since October 2002 is as follows:
Number of
Unregistered Shares
Issued Pursuant to Aggregate Proceeds
Dividend Paid in the DRIP (1), (2) Price per Share to the Registrant (3)
- ---------------- ----------------- --------------- ------------------
October, 2002 12,417.459 $ 48.90 $ 607,214
January, 2003 14,200.792 $ 51.00 724,240
April, 2003 40,937.634 $ 17.50 716,409
July, 2003 39,059,086 $ 19.20 749,934
October, 2003 38,442.028 $ 19.20 738,087
January, 2004 42,174.611 $ 19.40 818,187
April, 2004 42,732.544 $ 19.40 829,011
July, 2004 43,501.582 $ 19.40 843,931
October, 2004 43,665,607 $ 19.40 847,113
January, 2005 48,417.950 $ 19.50 944,150
April, 2005 48,573,324 $ 19.60 952,037
July, 2005 49,162,437 $ 19.35 951,293
October, 2005 49,253,240 $ 19.35 953,050
January, 2006 55,132,135 $ 19.35 1,066,807
April, 2006 54,927,832 $ 19.35 1,062,854
July, 2006 53,929,186 $ 19.35 1,043,530
October, 2006 17,994,947 $ 19.35 348,202
January, 2007 21,131,642 $ 19.35 408,897
April, 2007 20,649,723 $ 19.35 399,572
July, 2007 20,803.065 $ 19.35 402,539
October, 2007 19,645,343 $ 19.35 380,137
January, 2008 20,685.000 $ 19.35 400,255
----------- ---------------
797,437.167 $ 16,187,450
=========== ===============
14
(1) The number of shares and per-share price for October 2002 and
January 2003 and the price per share have not been adjusted for the
Registrant's 3-for-1 stock split effected in February, 2003.
(2) The October 2002 figure represents the 12,417 shares that exceed the
250,000 registered shares, although a greater number of shares was
issued in October 2002.
(3) Rounded.
All the shares issued under the DRIP, in excess of the original 250,000
registered shares, were offered and sold without registration under the
Securities Act of 1933 ("Securities Act") and no exemption from the registration
requirements of the Securities Act may have been available to the Registrant in
respect thereof. If these offerings were held to be in violation of the
Securities Act of 1933, the Registrant could be required to repurchase the
shares sold to purchasers in these offerings at the original purchase price,
plus statutory interest from the date of purchase less dividends received by
purchasers on the shares, for a period of one year following the date of the
violation.] The Registrant believes that any liability that may arise out of its
sale of securities without registration will not be material, although there can
be no assurance to such effect.
Although the shares listed above were issued and sold without registration
under the Securities Act of 1933, they were nevertheless validly issued under
the Wisconsin Business Corporation Law and the Registrant's Articles of
Incorporation and are issued and outstanding for all purposes with all rights
(such as voting, dividend and liquidation rights) as all other issued and
outstanding shares of the Registrant's common stock. All shares issued in
October 2002 and January 2003 were adjusted for the Registrant's 3-for-1 stock
split effected in February 2003.
Item 6. SELECTED FINANCIAL DATA
-----------------------
The information required by Item 6 is incorporated herein by reference to
Registrant's 2007 Annual Report to Stockholders under the caption entitled
"Selected Financial Data" (Page 26).
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
-----------------------------------------------------------------------
The information required by Item 7 is incorporated herein by reference to
Registrant's 2007 Annual Report to Stockholders under the caption entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" (Pages 4 to 26).
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information required by Item 7A is incorporated herein by reference to
Registrant's 2007 Annual Report to Stockholders under the caption entitled
"Quantitative and Qualitative Disclosures About Market Risk" (Pages 23 to 25).
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
--------------------------------------------------------
The information required by Item 8 is incorporated herein by reference to
Registrant's 2007 Annual Report to Stockholders (Pages 30 to 59).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
-----------------------------------------------------------------------
None
Item 9A(T). CONTROLS AND PROCEDURES
-----------------------
The Registrant maintains a set of disclosure controls and procedures that are
designed to ensure that information required to be disclosed by it in the
reports filed by it under the Securities Exchange Act of 1934, as amended, is
recorded and processed, summarized and reported within the time periods
specified in the SEC's rules and forms. At the end of the last fiscal quarter,
the Registrant carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive Officer and President
15
who was also the Chief Financial Officer of the Registrant, of the effectiveness
of the design and operation of the Registrant's disclosure controls and
procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that
evaluation, the Chief Executive Officer and President who was also the Chief
Financial Officer of the Registrant concluded that the Registrant's disclosure
controls and procedures were effective as of the end of the period covered by
this report.
The Registrant's management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in 13a-15(f) and
15d-15(f) under the Exchange Act. A company's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Registrant, (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Registrant are being made only in accordance
with authorizations of management and directors of the Registrant; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Registrant's assets that
could have a material effect on interim or annual consolidated financial
statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
The Registrant's management, with the participation of its CEO who was also its
CFO, conducted an evaluation of the effectiveness of the Registrant's internal
controls over financial reporting as of December 31, 2007 based on the framework
and criteria established in Internal Controls - Integrated Framework, issued by
the Committee of Sponsoring Organizations of the Treadway Commission. This
evaluation included review of the documentation of controls, evaluation of the
design effectiveness of controls, testing of the operating effectiveness of
controls and a conclusion on this evaluation. Based on this evaluation,
management concluded that the Registrant's internal control over financial
reporting is effective as of December 31, 2007.
This annual report on Form 10-K does not include an attestation of the
Registrant's independent registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by the Registrant's independent registered public accounting firm
pursuant to temporary rules of the SEC that permit the Registrant to provide
only management's report in this annual report on Form 10-K.
There have been no changes in the Registrant's internal control over financial
reporting identified in connection with the evaluation discussed above that
occurred during the Registrant's last fiscal quarter that have materially
affected, or are reasonable likely to materially affect, the Registrant's
internal control over financial reporting.
16
Item 9B. OTHER INFORMATION
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
----------------------------------------------
The information required by Item 10 is incorporated herein by reference to
Registrant's definitive Proxy Statement for its annual meeting of stockholders
on June 11, 2008 ("The 2008 Proxy Statement") under the captions entitled
"Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance".
The Registrant has a Code of Ethics that applies to its principal executive
officer, principal financial officer and principal accounting officer. Copies of
our Code of Ethics are available upon request, free of charge, by contacting the
Registrant at 6400 South 27th Street, Oak Creek, Wisconsin, 53154.
Item 11. EXECUTIVE COMPENSATION
----------------------
The information required by Item 11 is incorporated herein by reference to the
2008 Proxy Statement under the caption entitled "Executive Compensation".
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------------
The information required by Item 12 is incorporated herein by reference to the
2008 Proxy Statement under the caption entitled "Security Ownership of Certain
Beneficial Owners and Management" and "Equity Compensation Plan Information".
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by Item 13 is incorporated herein by reference to the
2008 Proxy Statement under the caption entitled "Loans and Other Transactions
with Management".
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------
The information required by Item 14 is incorporated herein by reference to the
2008 Proxy Statement under the caption entitled "Principal Accountant Fees and
Services".
17
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
-------------------------------------------
(a) (1) and (2) Financial statements and financial statement schedules
-----------------------------------------------------------------
The response to this portion of Item 15 is submitted as a separate
section of this report.
(3) Listing of Exhibits
Exhibit 3.1 - Restated Articles of Incorporation (incorporated
herein by reference to Exhibit3.2 to Registrant's
current report on Form 8-K filed February 12,
2003).
Exhibit 3.2 - By-Laws (incorporated herein by reference to
Exhibit 3.2 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 2000).
Exhibit 10.1* - Summary of compensation arrangements
with certain persons
Exhibit 10.2* - Summary of director compensation
Exhibit 10.3* - Description of consulting arrangements between
Registrant and Mr. William J. Werry.
Exhibit 10.4* - Summary of executive bonus arrangements
Exhibit 13 - Annual Report to Stockholders for the year ended
December 31, 2007.
With the exception of the information incorporated
by reference into Items 5, 6, 7, 7A, and 8 of this
Form 10-K, the 2007 Annual Report to Stockholders
is not deemed filed as part of this report.
Exhibit 21 - Subsidiaries of Registrant.
Exhibit 23 - Consent of Virchow, Krause & Company, LLP
Exhibit 31 - Rule 13a -14(a) or 15d-14(a) Under the Securities
and Exchange Act of 1934, as amended,
Certification
Exhibit 32 - 18 U.S.C. Section 1350 Certification
*A Management contract or compensation plan or arrangement
(b) Exhibits
See Item 15(a)(3)
(c) Financial Statement Schedules
See Item 15(a)(2)
18
PART IV
ANNUAL REPORT ON FORM 10-K
ITEM 15(a)(1), (2) and (b)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
CERTAIN EXHIBITS
Year Ended December 31, 2007
TRI CITY BANKSHARES CORPORATION
OAK CREEK, WISCONSIN
19
FORM 10-K-ITEM 15(a)(1) and (2)
TRI CITY BANKSHARES CORPORATION
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements and reports of independent
auditors of Tri City Bankshares Corporation, included in the annual report of
the Registrant to its stockholders for the year ended December 31, 2007, are
incorporated by reference in Item 8:
Consolidated Balance Sheets-December 31, 2007 and 2006
Consolidated Statements of Income-Years ended December 31,2007, 2006 and 2005
Consolidated Statements of Stockholders' Equity-Years ended December 31,
2007, 2006 and 2005.
Consolidated Statements of Cash Flows-Years ended December 31, 2007, 2006 and
2005.
Notes to Consolidated Financial Statements-Years ended December 31, 2007,
2006 and 2005.
Report of Independent Registered Public Accounting Firm
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
nonapplicable and, therefore, have been omitted.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRI CITY BANKSHARES CORPORATION
BY: /s/ Ronald K. Puetz.
---------------------------------
Ronald K. Puetz, Acting President
Date: March 28, 2008
-------------------------
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
---- -------- ----
Acting Chief Executive Officer,
/s/ Ronald K. Puetz Chief Financial Officer, 03/28/08
------------------------- Executive Vice-President and --------
Ronald K. Puetz Director (Principal Executive
Officer and Principal Financial
Officer)
/s/ Scott A. Wilson Senior Vice President and 03/28/08
------------------------- Secretary and Director --------
Scott A. Wilson
/s/ Robert W. Orth Senior Vice President and 03/28/08
- -------------------------- Director --------
Robert W. Orth
/s/ Scott D. Gerardin Senior Vice President, General 03/28/08
------------------------- Counsel and Director --------
Scott D. Gerardin
/s/ Thomas W. Vierthlaer Vice President and Comptroller 03/28/08
- -------------------------- (Principal Accounting Officer) --------
Thomas W. Vierthaler
21
/s/ Frank J. Bauer Director 03/28/08
- -------------------------- --------
Frank J. Bauer
/s/ William N. Beres Director 03/28/08
------------------------- --------
William N. Beres
/s/ Sanford Fedderly Director 03/28/08
- -------------------------- --------
Sanford Fedderly
/s/ William Gravitter Director 03/28/08
- -------------------------- --------
William Gravitter
/s/ Christ Krantz Director 03/28/08
- -------------------------- --------
Christ Krantz
/s/ Brian T. McGarry Director 03/28/08
------------------------- --------
Brian T. McGarry
/s/ Agatha T. Ulrich Director 03/28/08
------------------------- --------
Agatha T. Ulrich
/s/ David A. Ulrich, Jr. Director 03/28/08
------------------------- --------
David A. Ulrich, Jr.
/s/ William J. Werry Director 03/28/08
- -------------------------- --------
William J. Werry
22