Tri City Bankshares : 2021 Annual Report

2021

Annual Report

Photo taken at Lake Vista Park in the city of Oak Creek - a proud Tri City customer.

Learn more at www.tcnb.com | 414.325.1140

Learn more at www.tcnb.com | 414.325.1140

Dear Shareholders,

On behalf of the Board of Directors and Executive Management, I want to thank everyone throughout our Bank for their dedication, perseverance, and leadership during these challenging times. Our Bankers' continued efforts to strengthen our Bank have also added many benefits to our community.

At the onset of the pandemic more than two years ago, when most banks closed and limited their services, we remained opento remain accessible to our valued Customers. Unsurprisingly, our Bankers quickly adapted to the new environment, allowing our Bank to evolve and prosper. We are fortunate to have a very talented team across our entire Bank. We will continue to invest in them along with new technology to effectively compete in an ever-changing marketplace.

I would like to highlight some of our Bankers' accomplishments through the pandemic:

• Through the leadership of our Human Resources Department, we effectively implemented procedures to protect our Bankers and Customers while keeping our Bank lobbies open and all departments fully staffed.
• We refined and improved our mobile and online banking products so that our Customers had more (and more varied) opportunities to interact with our Bank.
• We continued to improve our full-service customer relationship banking, our generation of leads, and our cross selling of products and services for personal and business customers alike. This has proven to be very effective, as we are now the fastest growing bank in Southeastern Wisconsin.
• The Bank has continued its development of personal loan products to increase branch profitability.
• We have continued to renew our Administration and Operations Departments with new sales-focused initiatives.
• We have completely remodeled our West Allis Loan and Deposit Operations facilities for growth and efficiencies. We are currently in the process of remodeling our Oak Creek Administration headquarters.
• Our Data Science Department has been effectively analyzing our products and services for efficiencies and profitability.
• We have improved our Asset Liability Modeling with more loan pricing targets and guidelines.
• Our Loan Underwriting Department continues to evolve to enhance risk management and efficiency of our loan production Officers.
• We have introduced additional Mortgage and Business Loan Products and Services.
• Our Senior Loan Committee has added new members for succession planning.

• We have improved marketing strategies to enhance emotional branding (our "Lovemark") through social and traditional media.

• With departmental input on budgets and a collaborative strategic planning process, our whole-bank strategic plan was written with a focus on profitability, efficiency, and a vision for future growth and success.
• Pathways for Success for our Bankers have focused training opportunities for individual initiatives.
• We have continued to make significant progress with our succession planning for our Administration team. We now have depth of coverage for all key administrators, having taken into consideration employee longevity and successor leadership for the next generation. This focus on administration and leadership succession planning has the benefit of allowing us to accomplish many initiatives simultaneously and efficiently.

We are very optimistic about the future. Because of these efforts and many others, we have been able to adapt our Products and Services for marketplace strategic opportunities to increase profitability. Investments in our Bankers and leaders drive the prospects of our Bank and position us to grow and prosper for years to come.

As we did with Administration and our Senior Loan Committee, we also developed a succession plan for our Board of Directors. At present, our Board comprises primarily first- generation founding Directors and second-generation Directors. This strong team of Board members has been effective in passing on our wisdom and knowledge of unique and successful community banking to our newest generation of Directors. The new Board candidates are poised to strengthen our second-generation mentors and increase the ratio of third-generation Directors, which is needed for effective succession planning. I ask that you please review the qualifications of each candidate nominated for Board appointment. Every candidate has uniquely specific knowledge and skills alongside a proven record of success in benefitting our Bank. This Board of Directors will ensure that our Shareholders' investments are Always and All Ways managed for profitability, diversity, safety, and soundness.

I hope our Shareholders are as pleased as I am with our many successes. Competent, ethical, and strong leadership is always critical, but none of this would be possible without our dedicated Bankers, to whom we owe our sincere gratitude.

Thank you for your continued support.

Sincerely,

Brian T. McGarry

Chairman of the Board and Chief Executive Officer

Tri City Bankshares Corporation

2021 Management Discussion and Analysis

2021 was a year of progress for the Corporation. While the economy was recovering from a worldwide pandemic that resulted in steep job losses and economic slowdowns in key industries, the Corporation held steady and remained open and ready to serve its customers. It advanced several key initiatives that are discussed in this report. However, progress doesn't come without its challenges. Interest rates were low, the labor market for customer service employees was tight, and the fight for top-level talent was as intense as ever. Consumer expectations of retail services, including financial institutions, are continuing to evolve. The Corporation saw its customer base increase digital transactions and decrease in-branch transactions as competition from fintech-focused companies created a shift in consumer behavior.

In this report, Management provides a review of the financial statements as well as insight into what drove the Corporation's performance and plans. Management also provides context around its ongoing investments into the Corporation's future, ensuring a bright tomorrow for its shareholders, employees, customers, and communities.

Balance Sheet

The balance sheet grew significantly in 2021 after a year of substantial growth in 2020. The Corporation now holds more than $2 billion in assets, compared to $1.47 billion as of 12/31/2019. This growth was driven primarily by an increase in deposits. Of the $572 million in deposit increases over the last two years, 38% of the growth in balance came from new accounts opened during that time period. The remaining 62% of the balance growth came from legacy accounts opened before 2020. Of the new accounts opened in 2020 and 2021, 68% were personal accounts and 32% were business accounts. The growth in legacy account balances comprised 59% personal accounts and 41% business accounts. The Corporation also saw average balances in accounts increase. Average balances of personal accounts increased by 42% over the last two years and average balances of business accounts increased by 56%. Increased saving rates, stimulus payments, and Paycheck Protection Plan (PPP) loans funded into business accounts contributed to the increase in average balances per account. Continued effects of the pandemic recovery will influence these balances. However, Management believes that the broad composition of the increases in deposit balances across many different account types will result in a majority of these deposit increases remaining at the bank. In contrast to other local financial institutions, the Corporation also kept its locations open for the vast majority of the pandemic and continued to serve customers in person in its lobbies and grocery store locations. Management believes this was a strategy that paid off and resulted in many of the new accounts that were opened during the past two years.

The robust growth in deposits has led to a large increase in the Corporation's security investment portfolio and increased emphasis on loan growth. The Corporation has always focused on well-collateralized, local commercial real estate loans. Its commercial lending department has done an excellent job increasing net loans during the pandemic, surpassing $1 billion in total loans. After adjusting for PPP loan forgiveness, there was

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