SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2000 Commission file number 0-10661
- ------------------------------- ------------------------------
TRICO BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2792841
- ------------------------------ -------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
63 Constitution Drive, Chico, California 95973
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 530/898-0300
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Class: Common stock, no par value
Outstanding shares as of July 25, 2000: 7,200,251
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, December 31,
------------------ ------------------
2000 1999
Assets:
Cash and due from banks $ 56,778 $ 51,236
Federal funds sold and repurchase agreements 1,000 8,400
------------------ ------------------
Cash and cash equivalents 57,778 59,636
Interest-bearing deposits in banks 800 800
Securities available-for-sale 217,287 231,708
Loans, net of allowance for loan losses
of $12,592 and $11,037, respectively 626,978 576,942
Premises and equipment, net 17,136 16,043
Other real estate owned 1,040 760
Accrued interest receivable 6,599 6,076
Other assets 33,449 32,831
------------------ ------------------
Total assets $ 961,067 $ 924,796
================== ==================
Liabilities:
Deposits:
Noninterest-bearing demand $ 153,903 $ 155,937
Interest-bearing demand 147,202 143,923
Savings 212,274 222,615
Time certificates 274,188 271,635
------------------ ------------------
Total deposits 787,567 794,110
Federal funds purchased 17,000 -
Repurchase agreements 4,900 -
Accrued interest payable and other liabilities 13,004 12,058
Long term borrowings 60,494 45,505
------------------ ------------------
Total liabilities 882,965 851,673
Shareholders' equity:
Common stock 50,554 50,043
Retained earnings 32,798 28,613
Accumulated other comprehensive loss (5,250) (5,533)
------------------ ------------------
Total shareholders' equity 78,102 73,123
------------------ ------------------
Total liabilities and shareholders' equity $ 961,067 $ 924,796
================== ==================
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands except earnings per common share)
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
Interest and fees on loans $ 15,385 $ 12,889 $ 29,448 $ 25,273
Interest on investment
securities-taxable 2,957 3,108 6,026 6,513
Interest on investment
securities-tax exempt 556 562 1,114 1,110
Interest on federal funds sold 50 35 243 43
Interest on deposits in banks 12 - 23 -
----------- ----------- ---------- ----------
Total interest income 18,960 16,594 36,854 32,939
----------- ----------- ---------- ----------
Interest expense:
Interest on deposits 5,933 5,066 11,702 10,175
Interest on federal funds purchased 208 94 217 295
Interest on repurchase agreements 84 21 85 28
Interest on other borrowings 685 672 1,314 1,193
----------- ----------- ---------- ----------
Total interest expense 6,910 5,853 13,318 11,691
----------- ----------- ---------- ----------
Net interest income 12,050 10,741 23,536 21,248
Provision for loan losses 900 870 1,700 1,710
----------- ----------- ---------- ----------
Net interest income after
provision for loan losses 11,150 9,871 21,836 19,538
Noninterest income:
Service charges and fees 1,886 1,780 3,693 3,487
Other income 1,354 1,588 4,173 2,843
----------- ----------- ---------- ----------
Total noninterest income 3,240 3,368 7,866 6,330
----------- ----------- ---------- ----------
Noninterest expenses:
Salaries and related expenses 4,948 4,480 9,782 8,913
Other, net 4,502 4,407 8,692 8,460
----------- ----------- ---------- ----------
Total noninterest expenses 9,450 8,887 18,474 17,373
----------- ----------- ---------- ----------
Net income before income taxes 4,940 4,352 11,228 8,495
Income taxes 1,796 1,601 4,156 3,110
----------- ----------- ---------- ----------
Net income 3,144 2,751 7,072 5,385
=========== =========== ========== ==========
Basic earnings per common share $ 0.44 $ 0.39 $ 0.99 $ 0.76
=========== =========== ========== ==========
Diluted earnings per common share $ 0.43 $ 0.38 $ 0.96 $ 0.74
=========== =========== ========== ==========
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except number of shares)
Common stock Accumulated
Other
Number Retained Comprehensive Comprehensive
of shares Amount earnings Loss Total Income
----------- ---------- ---------- -------------- --------- ---------------
Balance, December 31, 1999 7,152,329 $50,043 $28,613 ($5,533) $73,123
Exercise of Common Stock options,
net of tax 57,650 510 510
Repurchase of Common Stock (9,728) (68) (86) (154)
Common stock cash dividends (2,801) (2,801)
Stock option amortization 69 69
Comprehensive income:
Net income 7,072 7,072 $7,072
Other comprehensive income:
Change in unrealized loss
on securities, net of tax 283
--------------
Other comprehensive income 283 283 283
--------------
Comprehensive income 7,355
----------- --------- --------- ---------- --------- --------------
Balance, June 30, 2000 7,200,251 $50,554 $32,798 ($5,250) $78,102
=========== ========= ========= ========== =========
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the six months
ended June 30,
2000 1999
Operating activities:
Net income $ 7,072 $ 5,385
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,700 1,710
Provision for losses on other real estate owned 10 10
Depreciation and amortization 1,256 1,309
Amortization of intangible assets 482 568
Accretion and amortization of investment
securities discounts and premiums, net 141 345
Deferred income taxes (173) (106)
Investment security (gains) losses, net - (24)
Gain on sale of OREO (50) (170)
Gain on sale of loans (179) (553)
(Gain) loss on sale of fixed assets 44 (7)
Amortization of stock options 69 82
Decrease (increase) in interest receivable (523) 155
Increase (decrease) in interest payable 454 (379)
Decrease in other assets and liabilities (474) (1,532)
-------------- --------------
Net cash provided by operating activities 9,829 6,793
Investing activities:
Proceeds from maturities of securities available-for-sale 23,596 48,956
Proceeds from sales of securities available-for-sale - 14,137
Purchases of securities available-for-sale (8,955) (28,083)
Proceeds from sale of fixed asset 30 28
Net increase in loans (52,101) (32,627)
Purchases of premises and equipment (2,253) (1,228)
Proceeds from sale of OREO 304 952
-------------- --------------
Net cash provided (used) by investing activities (39,379) 2,135
Financing activities:
Net decrease in deposits (6,543) (23,078)
Net increase (decrease) in Fed funds purchased 17,000 (10,400)
Net increase in repurchase agreements 4,900 -
Borrowings under long-term debt agreements 35,000 21,000
Payments of principal on long-term debt agreements (20,011) (3,409)
Repurchase of common stock (154) (49)
Cash dividends - Common (2,801) (2,280)
Exercise of common stock options 301 403
-------------- --------------
Net cash provided (used) by financing activities 27,692 (17,813)
-------------- --------------
(Decrease) in cash and cash equivalents (1,858) (8,885)
Cash and cash equivalents at beginning of period 59,636 50,483
-------------- --------------
Cash and cash equivalents at end of period $ 57,778 $ 41,598
============== ==============
Supplemental information
Cash paid for taxes $ 3,961 $ 3,680
Cash paid for interest expense $ 12,864 $ 12,070
Item 1. Notes to Condensed Consolidated
Financial Statements
Note A - Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) and in Management's opinion, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results for
such interim periods. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to SEC rules or regulations;
however, the Company believes that the disclosures made are adequate to make the
information presented not misleading.
The interim results for the six months ended June 30, 2000 and 1999 are not
necessarily indicative of results for the full year. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes included in the Company's Annual Report for the year ended December
31, 1999.
Note B - Comprehensive Income
For the Company, comprehensive income includes net income reported on the
statement of income and changes in the fair value of its available-for-sale
investments reported as other comprehensive income. The following table presents
net income adjusted by the change in unrealized gains or losses on the
available-for-sale investments as a component of comprehensive income (in
thousands).
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
Net income $ 3,144 $ 2,751 $ 7,072 $ 5,385
Net change in unrealized gains
(losses)on securities available-for-sale 815 (3,598) 283 (4,375)
------- ------- ------- -------
Comprehensive income (loss) $ 3,959 $ (847) $ 7,355 $ 1,010
======= ======== ======= =======
Note C - Earnings per Share
The Company's basic and diluted earnings per share are as follows
(in thousands except per share data):
Three Months Ended June 30, 2000
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $3,144 7,188,003 $0.44
Common stock options outstanding -- 152,309
Diluted Earnings per Share
Net income available to common shareholders $3,144 7,340,312 $0.43
====== =========
Three Months Ended June 30, 1999
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,751 7,124,366 $0.39
Common stock options outstanding -- 187,514
Diluted Earnings per Share
Net income available to common shareholders $2,751 7,311,880 $0.38
====== =========
Six Months Ended June 30, 2000
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $7,072 7,179,853 $0.99
Common stock options outstanding -- 159,388
Diluted Earnings per Share
Net income available to common shareholders $7,072 7,339,241 $0.96
====== =========
Six Months Ended June 30, 1999
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $5,385 7,115,024 $0.76
Common stock options outstanding -- 189,689
Diluted Earnings per Share
Net income available to common shareholders $5,385 7,304,713 $0.74
====== =========
Note D - Business Segments
The Company is principally engaged in traditional community banking activities
provided through its twenty-nine branches and eight in-store branches located
throughout Northern California. Community banking activities include the Bank's
commercial and retail lending, deposit gathering and investment and liquidity
management activities. In addition to its community banking services, the Bank
offers investment brokerage and leasing services. The Company held investments
in real estate through its wholly-owned subsidiary, TCB Real Estate. During
1998, TCB Real Estate divested all investment properties, and in April 1999, TCB
Real Estate was dissolved. These activities were monitored and reported by Bank
management as separate operating segments.
As permitted under the Statement, the results of the separate branches have been
aggregated into a single reportable segment, Community Banking. The Company's
leasing, investment brokerage and real estate segments do not meet the
prescribed aggregation or materiality criteria and therefore are reported as
"Other" in the following table.
Summarized financial information concerning the Bank's reportable segments is as
follows (in thousands):
Community
Banking Other Total
Three Months Ended June 30, 2000
Net interest income $ 11,825 $ 225 $ 12,050
Noninterest income 2,404 836 3,240
Noninterest expense 8,904 546 9,450
Net income 2,858 286 3,144
Assets $ 947,383 $13,684 $ 961,067
Three Months Ended June 30, 1999
Net interest income $ 10,667 $ 74 $ 10,741
Noninterest income 2,708 660 3,368
Noninterest expense 8,523 364 8,887
Net income 2,524 227 2,751
Assets $ 883,374 $ 5,051 $ 888,425
Six Months Ended June 30, 2000
Net interest income $ 23,131 $ 405 $ 23,536
Noninterest income 6,330 1,536 7,866
Noninterest expense 17,503 971 18,474
Net income 6,536 536 7,072
Assets $ 947,383 $13,684 $ 961,067
Six Months Ended June 30, 1999
Net interest income $ 21,157 $ 91 $ 21,248
Noninterest income 5,060 1,270 6,330
Noninterest expense 16,707 666 17,373
Net income 4,954 431 5,385
Assets $ 883,374 $ 5,051 $ 888,425
Note E - Other Income
Included in the results for the three months ended March 31, 2000 was a one-time
pre-tax income item of $1,510,000. This one-time item represents the initial
value of 88,796 common shares of John Hancock Financial Services, Inc. (JHF)
which the Bank received as a consequence of its ownership of certain insurance
policies through John Hancock Mutual Life Insurance Company and John Hancock's
conversion from a mutual company to a stock company.
Note F - Stock Repurchase Plan
On July 20, 2000, the Company announced that its Board of Directors approved a
plan to repurchase, as conditions warrant, up to 150,000 shares of the company's
stock on the open market or in privately negotiated transactions. The timing of
purchases and the exact number of shares to be purchased will depend on market
conditions. The repurchase plan represents approximately 2.1% of the Company's
currently outstanding common stock and is open-ended.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As TriCo Bancshares (the "Company") has not commenced any business operations
independent of Tri Counties Bank (the "Bank"), the following discussion pertains
primarily to the Bank. Average balances, including such balances used in
calculating certain financial ratios, are generally comprised of average daily
balances for the Company. Except within the "overview" section, interest income
and net interest income are presented on a tax equivalent basis.
In addition to the historical information contained herein, this Quarterly
Report contains certain forward-looking statements. The reader of this Quarterly
Report should understand that all such forward-looking statements are subject to
various uncertainties and risks that could affect their outcome. The Company's
actual results could differ materially from those suggested by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on securities investments, rates paid on deposits,
competition effects, fee and other noninterest income earned as well as other
factors. This entire Quarterly Report should be read to put such forward-looking
statements in context and to gain a more complete understanding of the
uncertainties and risks involved in the Company's business.
Overview
The Company had quarterly earnings of $3,144,000 for the quarter ended June 30,
2000. The quarterly earnings represented a 14.3% increase over the $2,751,000
reported for the same period of 1999. Diluted earnings per share for the second
quarter of 2000 were $0.43 versus $0.38 in the year earlier period. Earnings for
the six months ended June 30, 2000 were $7,072,000 versus year ago results of
$5,385,000, and represented a 31.3% increase. The diluted earnings per share
were $0.96 and $0.74 for the respective six-month periods. Included in the
results for the six months ended June 30, 2000 was a one-time pre-tax income
item of $1,510,000. This one-time item represents the initial value of 88,796
common shares of John Hancock Financial Services, Inc. (JHF) which the Bank
received in the first quarter of 2000 as a consequence of its ownership of
certain insurance policies through John Hancock Mutual Life Insurance Company
and John Hancock's conversion from a mutual company to a stock company.
Excluding the receipt of the JHF shares, net income for the six months ended
June 30, 2000 would have been $6,183,000 and diluted earnings per share would
have been $0.84, which would have represented 14.8% and 13.5% increases over the
same period in the prior year, respectively.
Factors contributing to the improved operating results included continued loan
growth, and an increase in net interest margin.
Pretax earnings for the second quarter of 2000 were $4,940,000 versus $4,352,000
for the same period in 1999. Net interest income reflected growth of $1,309,000
(12.2%) to $12,050,000. The interest income component was up $2,366,000 (14.3%)
to $18,960,000 due to higher quarter-over-quarter volume of earning assets
($843,675,000 versus $807,687,000) and a 76 basis point increase in yield on
average earning assets. Interest expense increased $1,057,000 (18.1%) to
$6,910,000 as a result of higher quarter-over-quarter volume of paying
liabilities ($698,786,000 versus $668,647,000) and a 46 basis point increase in
the average rate paid on interest bearing liabilities. Net interest margin was
5.85% for the second quarter of 2000 versus 5.46% in the same quarter of the
prior year. The provision for loan losses of $900,000 for the second quarter of
2000 was $30,000 higher than the $870,000 recorded in the same quarter of 1999.
Noninterest income for the second quarter of 2000 decreased $128,000 (3.8%) to
$3,240,000 from $3,368,000 during the same period in 1999. Income from service
charges and fees increased $106,000 (6.0%) to $1,886,000, primarily due to
increased ATM fees. Other income decreased $234,000 (14.7%) to $1,354,000 in the
second quarter of 2000 versus the same quarter in 1999. Accounting for the
decrease in other income was a $135,000 decrease in gain on sale of other real
estate owned from $156,000 to $21,000, a $91,000 decrease in gain on sale of
loans from $195,000 to $104,000, and a recovery of $124,000 made in the second
quarter of 1999 that was related to the Bank's credit card portfolio which was
sold in May of 1998. These decreases in other income were partially offset by an
increase in commissions on the sale of insurance, mutual funds and annuities,
which were up $139,000 (20.9%) to $804,000 for the quarter ended June 30, 2000.
Excluding the effect of the gain on sale of other real estate owned and the
credit card related recovery made in the second quarter of 1999, noninterest
income would have increased 4.2% in the second quarter of 2000 versus the same
period in 1999.
Noninterest expense increased $563,000 (6.3%) in the second quarter 2000 versus
1999. Salary and benefit expense increased $468,000 (10.5%) on a quarter over
quarter basis to $4,948,000. The salary expense was higher due to a 2.9%
increase in average full-time equivalent employees to 390, higher commissions
and other incentives that are tied to the increased profitability of the
Company, and annual salary increases. Other noninterest expenses increased
$95,000 (2.2%) to $4,502,000 in the second quarter of 2000.
Assets of the Company totaled $961,067,000 at June 30, 2000 and represented
increases of $36,271,000 (3.9%) and $72,642,000 (8.2%) from December 31, 1999
and June 30, 1999 ending balances, respectively. Changes in earning assets from
the prior year quarter end balances included an increase in loans of $74,928,000
(13.3%) to $639,570,000 and a decrease in securities of $20,148,000 (8.5%) to
$217,287,000. From year-end 1999 balances, nonperforming assets have increased
$2,936,000 and total $6,377,000 at June 30, 2000.
Nonperforming assets were 0.66% of total assets at quarter end.
Year to date 2000, on an annualized basis, the Company realized a return on
assets of 1.54% and a return on equity of 18.78% versus 1.21% and 14.68% in the
first half of 1999. Excluding the one-time income event that occurred in the
first quarter of 2000, the Company would have had an annualized return on assets
of 1.35% and a return on equity of 16.42%. TriCo Bancshares ended the quarter
with a Tier 1 capital ratio of 10.7% and a total risk-based capital ratio of
11.9%.
The following tables provide a summary of the major elements of income and
expense for the second quarter of 2000 compared with the second quarter of 1999
and for the first six months of 2000 compared with the first six months of 1999.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended June 30, Percentage
2000 1999 Change
increase
(decrease)
Interest income $ 19,241 $ 16,886 13.9%
Interest expense 6,910 5,853 18.1%
-------------- --------------
Net interest income 12,331 11,033 11.8%
Provision for loan losses 900 870 3.4%
-------------- --------------
Net interest income after 11,431 10,163 12.5%
provision for loan losses
Noninterest income 3,240 3,368 -3.8%
Noninterest expenses 9,450 8,887 6.3%
-------------- --------------
Net income before income taxes 5,221 4,644 12.4%
Income taxes 1,796 1,601 12.2%
Tax equivalent adjustment1 281 292 -3.8%
-------------- --------------
Net income $ 3,144 $ 2,751 14.3%
============== ==============
Diluted earnings per common share $ 0.43 $ 0.38 13.2%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for June 30, 2000 and 1999.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Six months
ended June 30, Percentage
2000 1999 Change
increase
(decrease)
Interest income $ 37,422 $ 33,516 11.7%
Interest expense 13,318 11,691 13.9%
-------------- --------------
Net interest income 24,104 21,825 10.4%
Provision for loan losses 1,700 1,710 (0.6%)
-------------- --------------
Net interest income after 22,404 20,115 11.4%
provision for loan losses
Noninterest income 7,866 6,330 24.3%
Noninterest expenses 18,474 17,373 6.3%
-------------- --------------
Net income before income taxes 11,796 9,072 30.0%
Income taxes 4,156 3,110 33.6%
Tax equivalent adjustment1 568 577 -1.6%
-------------- --------------
Net income $ 7,072 $ 5,385 31.3%
============== ==============
Diluted earnings per common share $ 0.96 $ 0.74 29.7%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for June 30, 2000 and 1999.
Net Interest Income / Net Interest Margin
Net interest income represents the excess of interest and fees earned on
interest-earning assets (loans, securities and Federal Funds sold) over the
interest paid on deposits and borrowed funds. Net interest margin is net
interest income expressed as a percentage of average earning assets. Net
interest income comprises the major portion of the Bank's income.
For the three months ended June 30, 2000, interest income increased $2,355,000
(14.0%) over the same period in 1999. The average balance of total earning
assets was higher by $35,988,000 (4.5%). Average loan balances were up
$67,614,000 (12.2%) while average security balances were down $32,697,000
(13.0%). The average yield on loans, securities and Fed funds sold were higher
by 60, 63 and 146 basis points respectively. The overall yield on average
earning assets increased 76 basis points to 9.12%.
For the second quarter of 2000, interest expense increased $1,057,000 (18.1%)
over the year earlier period. Average balances of interest-bearing liabilities
were up $30,139,000 (4.5%). The average rate paid on time deposits and all
borrowings increased 87 and 67 basis points, respectively, and accounted for
$583,000 and $118,000 of the increase in interest expense, respectively. The
average rate paid on interest bearing liabilities increased 46 basis points to
3.96%.
The combined effect of the increases in interest income and interest expense for
the second quarter of 2000 versus 1999 resulted in an increase of $1,298,000
(11.8%) in net interest income. Net interest margin was up 39 basis points to
5.85% from 5.46% for the same periods in 2000 and 1999.
The six-month period ending June 30, 2000, reflects an interest income increase
of $3,906,000 (11.7%) over the same period in 1999. An increase of $60,056,000
(11.1%) in average balances on loans accounted for a $2,792,000 increase in
interest income. The average yield received on all earning assets for the
six-month period ended June 30, 2000 was up 66 basis points to 8.96%, and
contributed $2,193,000 to the increase in interest income.
Interest expense for the six-month period increased $1,627,000 (13.9%) from that
for the same period in 1999. Rate increases in deposits and borrowings added
$1,097,000 to interest expense.
The combined effect of the increase in interest income and increase in interest
expense for the first six months of 2000 versus 1999 resulted in an increase of
$2,279,000 (10.4%) in net interest income. Net interest margin rose 37 basis
points to 5.77% from 5.40%.
The following four tables provide summaries of the components of the interest
income, interest expense and net interest margins on earning assets for the
quarter and six month periods ended June 30, 2000 versus the same periods in
1999.
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Three Months Ended
June 30, 2000 June 30, 1999
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
Assets
Earning Assets
Loan 2,3 $620,643 $ 15,385 9.92% $553,029 $ 12,889 9.32%
Securities 219,017 3,794 6.93% 251,714 $ 3,962 6.30%
Federal funds sold 3,215 50 6.22% 2,944 35 4.76%
Deposits in banks 800 12 6.00% - -
------------- ------------ ----------- ------------- ------------- -----------
Total earning assets 843,675 19,241 9.12% 807,687 16,886 8.36%
------------ -------------
Cash and due from bank 37,092 35,110
Premises and equipment 16,131 16,323
Other assets,net 42,507 33,957
Less: allowance
for loan losses (12,056) (9,223)
------------- -------------
Total $927,349 $883,854
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $148,609 584 1.57% $143,329 561 1.57%
Savings deposits 215,533 1,640 3.04% 222,717 1,681 3.02%
Time deposits 269,765 3,709 5.50% 243,713 2,824 4.63%
Fed funds purchased 12,556 208 6.63% 7,538 94 4.99%
Repurchase agreements 5,179 84 6.49% 1,701 21 4.94%
Long-term debt 47,144 685 5.81% 49,649 672 5.41%
------------- ------------ ----------- ------------- ------------- -----------
Total interest-bearing
liabilities 698,786 6,910 3.96% 668,647 5,853 3.50%
------------ -------------
Noninterest-bearing deposits 138,409 129,864
Other liabilities 13,410 11,942
Shareholders' equity 76,744 73,401
------------- -------------
Total liabilities
and shareholders' equity $927,349 $883,854
============= =============
Net interest rate spread5 5.16% 4.86%
Net interest income/net $ 12,331 $ 11,033
============ =============
interest margin6 5.85% 5.46%
============ =============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included. 3Interest income on loans includes fees on loans
of $715,000 in 2000 and $751,000 in 1999. 4Interest income is stated on a tax
equivalent basis of 1.52 at June 30, 2000 and 1999.
5Net interest rate spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities. 6Net interest margin is computed by dividing net interest income by
total average earning assets.
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Six Months Ended
June 30, 2000 June 30, 1999
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
Assets
Earning Assets
Loan 2,3 $ 603,651 $29,448 9.76% $ 543,595 $25,273 9.30%
Securities 222,446 7,708 6.93% 262,671 8,200 6.24%
Federal funds sold 8,439 243 5.76% 1,839 43 4.68%
Deposits in banks 800 23 5.75% - -
------------- ------------ ----------- ------------- ------------- -----------
Total earning assets 835,336 37,422 8.96% 808,105 33,516 8.30%
------------ -------------
Cash and due from bank 36,827 35,351
Premises and equipment 16,078 16,215
Other assets,net 41,717 34,629
Less: allowance
for loan losses (11,730) (8,847)
------------- -------------
Total $ 918,228 $ 885,453
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 147,924 1,162 1.57% $ 144,318 1,125 1.56%
Savings deposits 219,719 3,335 3.04% 223,609 3,360 3.01%
Time deposits 269,272 7,205 5.35% 244,209 5,690 4.66%
Fed funds purchased 6,570 217 6.61% 11,909 295 4.95%
Repurchase agreements 2,629 85 6.47% 1,128 28 4.96%
Long-term debt 46,323 1,314 5.67% 43,705 1,193 5.46%
------------- ------------ ----------- ------------- ------------- -----------
Total interest-bearing
liabilities 692,437 13,318 3.85% 668,878 11,691 3.50%
------------ -------------
Noninterest-bearing deposits 137,262 131,111
Other liabilities 13,202 12,092
Shareholders' equity 75,327 73,372
------------- -------------
Total liabilities
and shareholders' equity $ 918,228 $ 885,453
============= =============
Net interest rate spread5 5.11% 4.80%
Net interest income/net $24,104 $21,825
============ =============
interest margin6 5.77% 5.40%
============ =============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included. 3Interest income on loans includes fees on loans
of $1,321,000 in 2000 and $1,488,000 in 1999. 4Interest income is stated on a
tax equivalent basis of 1.52 at June 30, 2000 and 1999.
5Net interest rate spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities. 6Net interest margin is computed by dividing net interest income by
total average earning assets.
TRICO BANCSHARES
ANALYSIS OF VOLUME AND RATE CHANGES
ON NET INTEREST INCOME AND EXPENSE
(in thousand)
For the three months ended June 30,
2000 over 1999
Yield/
Volume Rate4 Total
----------- ---------- ----------
Increase (decrease) in
interest income:
Loans 1,2 $ 1,576 $ 920 $ 2,496
Investment securities3 (515) 347 (168)
Federal funds sold 3 12 15
Deposits in banks 12 0 12
----------- ---------- ----------
Total 1,076 1,279 2,355
----------- ---------- ----------
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 21 2 23
Savings deposits (54) 13 (41)
Time deposits 302 583 885
Federal funds purchased 63 51 114
Repurchase agreements 43 20 63
Long-term debt (34) 47 13
----------- ---------- ----------
Total 341 716 1,057
----------- ---------- ----------
Increase in net interest income $ 735 $ 563 $ 1,298
=========== ========== ==========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $715,000 in 2000 and
$751,000 in 1999. 3Interest income is stated on a tax equivalent basis of 1.52
for June 30, 2000 and 1999 respectively.
4The rate/volume variance has been included in the rate variance.
TRICO BANCSHARES
ANALYSIS OF VOLUME AND RATE CHANGES
ON NET INTEREST INCOME AND EXPENSE
(in thousand)
For the six months ended June 30,
2000 over 1999
Yield/
Volume Rate4 Total
----------- ---------- ----------
Increase (decrease) in
interest income:
Loans 1,2 $ 2,792 $ 1,383 $ 4,175
Investment securities3 (1,256) 764 (492)
Federal funds sold 154 46 200
Deposits in banks 23 0 23
----------- ---------- ----------
Total 1,713 2,193 3,906
----------- ---------- ----------
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 28 9 37
Savings deposits (58) 33 (25)
Time deposits 584 931 1,515
Federal funds purchased (132) 54 (78)
Repurchase agreements 37 20 57
Long-term debt 71 50 121
----------- ---------- ----------
Total 530 1,097 1,627
----------- ---------- ----------
Increase in net interest income $ 1,183 $ 1,096 $ 2,279
=========== ========== ==========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $1,321,000 in 2000 and
$1,488,000 in 1999. 3Interest income is stated on a tax equivalent basis of 1.52
for June 30, 2000 and 1999.
4The rate/volume variance has been included in the rate variance.
Provision for Loan Losses
The Bank provided $900,000 for loan losses in the second quarter of 2000 versus
$870,000 in 1999. Net charge-offs for all loans in the second quarter of 2000
totaled $222,000 versus $140,000 in the year earlier period.
Noninterest Income
Noninterest income for the second quarter of 2000 decreased $128,000 (3.8%) to
$3,240,000 from $3,368,000 during the same period in 1999. Income from service
charges and fees increased $106,000 (6.0%) to $1,886,000, primarily due to
increased ATM fees. Other income decreased $234,000 (14.7%) to $1,354,000 in the
second quarter of 2000 versus the same quarter in 1999. Accounting for the
decrease in other income was a $135,000 decrease in gain on sale of other real
estate owned from $156,000 to $21,000, a $91,000 decrease in gain on sale of
loans from $195,000 to $104,000, and a recovery of $124,000 made in the second
quarter of 1999 that was related to the Bank's credit card portfolio which was
sold in May of 1998. These decreases in other income were partially offset by an
increase in commissions on the sale of insurance, mutual funds and annuities,
which were up $139,000 (20.9%) to $804,000 for the quarter ended June 30, 2000.
Excluding the effect of the gain on sale of other real estate owned and the
credit card related recovery made in the second quarter of 1999, noninterest
income would have increased 4.2% in the second quarter of 2000 versus the same
period in 1999.
For the six months ended June 30, 2000, noninterest income was up $1,536,000
(24.3%) over the same period for 1999. As described above, during the quarter
ended March 31, 2000 the Company recorded a one-time pre-tax income item of
$1,510,000 from the receipt of common stock. Excluding this one-time event,
noninterest income for the six months ended June 30, 2000 would have increased
$26,000 (0.4%) to $6,356,000. Service charges and fee income was up $206,000
(5.9%) to 3,693,000 mainly due to increased ATM fees. Other income increased
$1,330,000 (46.8%) to $4,173,000. Significant changes in the following items
contributed to the net increase: $1,510,000 from the receipt of common stock
noted above, commissions on insurance, mutual fund and annuity sales increased
$283,000 to $1,484,000, gain on sale of loans decreased $374,000 to $179,000,
and gain on sale of other real estate owned decreased $120,000 to $50,000.
Noninterest Expense
Noninterest expense increased $563,000 (6.3%) to $9,450,000 in the second
quarter of 2000 versus 1999. Salary and benefit expense increased $468,000
(10.5%) on a quarter over quarter basis to $4,948,000. The salary expense was
higher due to a 2.9% increase in average full-time equivalent employees to 390,
higher commissions and other incentives that are tied to the increased
profitability of the Company, and annual salary increases. The net addition of
approximately 11 FTE between June 30, 1999 and June 30, 2000 was the result of
the opening of branches at Beale AFB, Modesto, and Visalia, the pending opening
of a branch in Paradise, the addition of several commercial lenders in various
regions, and the reduction of approximately 8 backroom FTE during this period.
Other noninterest expenses increased $95,000 (2.2%) to $4,502,000 in the second
quarter of 2000.
For the first six months noninterest expenses increased $1,101,000 (6.3%) to
$18,474,000 in 2000 compared to 1999. Salary and benefit expense increased
$869,000 (9.8%) to $9,782,000. The salary expense was higher due to a 2.9%
increase in average full-time equivalent employees to 386, higher commissions
and other incentives that are tied to the increased profitability of the
Company, and annual salary increases. Other expenses increased $232,000 (2.7%).
Provision for Income Taxes
The effective tax rate for the six months ended June 30, 2000 is 37.0% and
reflects an increase from 36.6% in the year earlier period. The tax rate is
lower than the statutory rate of 40.4% due to nontaxable earnings from municipal
bonds.
Loans
At June 30, 2000, loan balances were $74,928,000 (13.3%) higher than the ending
balances at June 30, 1999 and $50,714,000 (8.6%) higher than the ending balances
at December 31, 1999. On a year over year basis at June 30, commercial,
consumer, and real estate mortgage loan balances were higher by $50,427,000
(20.1%), $13,167,000 (17.8%), and $12,695,000 (6.2%), respectively. Real estate
construction loan balances were lower by $1,361,000 (3.8%).
Securities
At June 30, 2000, securities available-for-sale had a fair value of $217,287,000
and an amortized cost of $225,643,000. This portfolio contained mortgage-backed
securities with an amortized cost of $127,520,000 of which $16,848,000 were
CMOs.
Nonperforming Loans
As shown in the following table, total nonperforming assets have increased 85.3%
to $6,377,000 in the first six months of 2000. Nonperforming assets represent
0.66% of total assets. All nonaccrual loans are considered to be impaired when
determining the valuation allowance under SFAS 114. The Collections Department
personnel continue to make a concerted effort to work problem and potential
problem loans to reduce risk of loss.
June 30, December 31,
2000 1999
Nonaccrual loans $ 4,292 $ 1,758
Accruing loans past due 90 days or more 1,045 923
Restructured loans (in compliance with
modified terms) 0 0
------------- --------------
Total nonperforming loans 5,337 2,681
Other real estate owned 1,040 760
------------- --------------
Total nonperforming assets $ 6,377 $ 3,441
============= ==============
Nonperforming loans to total loans 0.83% 0.46%
Allowance for loan losses to
nonperforming loans 236% 412%
Nonperforming assets to total assets 0.66% 0.37%
Allowance for loan losses to
nonperforming assets 197% 321%
Allowance for Loan Loss
Credit risk is inherent in the business of lending. As a result, the Company
maintains an Allowance for Loan and Leases Losses to absorb losses inherent in
the Company's loan and lease portfolio. This is maintained through periodic
charges to earnings. These charges are shown in the Consolidated Income
Statements as provision for loan losses. All specifically identifiable and
quantifiable losses are immediately charged off against the allowance. However,
for a variety of reasons, not all losses are immediately known to the Company
and, of those that are known, the full extent of the loss may not be
quantifiable at that point in time. The balance of the Company's Allowance for
Loan and Lease Losses is meant to be an estimate of these unknown but probable
losses inherent in the portfolio. For the remainder of this discussion, "loans"
shall include all loans and lease contracts, which are a part of the Bank's
portfolio.
The Company formally assesses the adequacy of the allowance on a quarterly
basis. Determination of the adequacy is based on ongoing assessments of the
probable risk in the outstanding loan and lease portfolio, and to a lesser
extent the Company's loan and lease commitments. These assessments include the
periodic re-grading of credits based on changes in their individual credit
characteristics including delinquency, seasoning, recent financial performance
of the borrower, economic factors, changes in the interest rate environment,
growth of the portfolio as a whole or by segment, and other factors as
warranted. Loans are initially graded when originated. They are re-graded as
they are renewed, when there is a new loan to the same borrower, when identified
facts demonstrate heightened risk of nonpayment, or if they become delinquent.
Re-grading of larger problem loans occur at least quarterly. Confirmation of the
quality of the grading process is obtained by independent credit reviews
conducted by consultants specifically hired for this purpose and by various bank
regulatory agencies.
The Company's method for assessing the appropriateness of the allowance includes
specific allowances for identified problem loans and leases as determined by
FASB 114, formula allowance factors for pools of credits, and allowances for
changing environmental factors (e.g., interest rates, growth, economic
conditions, etc.). Allowance factors for loan pools are based on the previous 5
years historical loss experience by product type. Allowances for specific loans
are based on FASB 114 analysis of individual credits. Allowances for changing
environmental factors are Management's best estimate of the probable impact
these changes have had on the loan portfolio as a whole. This process is
explained in detail in the notes to the Company's Consolidated Financial
Statements in its Annual Report on Form 10-K for the year ended December 31,
1999.
The following table presents information concerning the allowance and provision
for loan losses.
June 30, June 30,
2000 1999
(in thousands)
Balance, beginning of period $ 11,037 $ 8,206
Provision charged to operations 1,700 1,710
Loans charged off (424) (270)
Recoveries of loans previously
charged off 279 70
---------------- ---------------
Balance, end of period $ 12,592 $ 9,716
================ ===============
Ending loan portfolio $ 639,570 $ 564,642
================ ===============
Allowance to loans as a
percentage of ending loan portfolio 1.97% 1.72%
================ ===============
Equity
The following table indicates the amounts of regulatory capital of the Company.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2000:
Total Capital to Risk Weighted Assets:
Consolidated $86,482 11.91% =>$58,087 =>8.0% =>$72,609 =>10.0%
Tri Counties Bank $84,947 11.72% =>$57,985 =>8.0% =>$72,481 =>10.0%
Tier I Capital to Risk Weighted Assets:
Consolidated $77,406 10.66% =>$29,044 =>4.0% =>$43,565 => 6.0%
Tri Counties Bank $75,843 10.46% =>$28,992 =>4.0% =>$43,488 => 6.0%
Tier I Capital to Average Assets:
Consolidated $77,406 8.40% =>$36,857 =>4.0% =>$46,072 => 5.0%
Tri Counties Bank $75,843 8.24% =>$36,808 =>4.0% =>$46,010 => 5.0%
Year 2000
The Company previously recognized the material nature of the business issues
surrounding computer processing of dates into and beyond the Year 2000 and began
taking corrective action as required pursuant to the interagency statements
issued by the Federal Financial Institutions Examination Council.
Management believes the Company has completed all the activities within its
control to ensure that the Company's systems are Year 2000 compliant. The
Company has not experienced and interruptions to normal operations due to the
start of the Year 2000. The Company's Year 2000 readiness costs were
approximately $103,000. The Company does not currently expect to apply any
further funds to address the Year 2000 issues.
As of June 30, 2000, the Company has not experienced any material disruptions of
its internal computer systems or software applications and has not experienced
any problems with the computer systems or software applications of its third
party vendors, suppliers or service providers. The Company will continue to
monitor these third parties to determine the impact, if any, on its business and
the actions it must take, if any, in the event of non-compliance by any of these
third parties. Based upon the Company's assessment of compliance by third
parties, there appears to be no material business risk posed by any such
non-compliance.
Although the Company's Year 2000 rollover did not present any material business
disruption, there are some remaining Year 2000 related risks. Management
believes that appropriate actions have been taken to address these remaining
Year 2000 issues and contingency plans are in place to minimize the financial
impact to the Company. Management, however, cannot be certain that Year 2000
issues affecting its customers, suppliers or service providers will not have a
material adverse impact on the Company.
Item 3. MARKET RISK MANAGEMENT
There have not been any significant changes in the market risk profile of the
Bank since December 31, 1999.
PART II
Other Information
(a) Item 4. Submission of Matters to a Vote of Security Holders
(a.) Annual Meeting held May 9, 2000. Number of shares represented
in person or by proxy and constituting a quorum: 6,081,507 85%
(c.) Election of directors VOTES FOR
---------
Everett B. Beich 6,053,251
---------
William J. Casey 6,053,858
---------
Craig S. Compton 6,053,858
---------
Douglas F. Hignell 6,053,656
---------
Brian D. Leidig 6,053,108
---------
Wendell J. Lundberg 6,053,108
---------
Donald E. Murphy 6,053,108
---------
Richard P. Smith 6,053,758
---------
Robert H. Steveson 5,908,842
---------
Carroll Taresh 6,049,525
---------
Alex A. Vereschagin, Jr. 6,053,108
---------
Ratify the appointment of Arthur Andersen LLP as independent
public accountants of the Company for 2000.
Votes: FOR 6,021,563, AGAINST 2,626, ABSTAIN 57,318
(b) Item 6. Exhibits Filed Herewith
Exhibit No. Exhibits
3.1 Articles of Incorporation, as amended to date, filed as
Exhibit 3.1 to Registrant's Report on Form 10-K, filed for
the year ended December 31, 1989, are incorporated herein
by reference.
3.2 Bylaws, as amended to 1992, filed as Exhibit 3.2 to
Registrant's Report on Form 10-K, filed for the year ended
December 31, 1992, are incorporated herein by reference.
4.2 Certificate of Determination of Preferences of Series B
Preferred Stock, filed as Appendix A to Registrant's
Registration Statement on Form S-1 (No. 33-22738), is
incorporated herein by reference.
10.1 Lease for Park Plaza Branch premises entered into as of
September 29, 1978, by and between Park Plaza Limited
Partnership as lessor and Tri Counties Bank as lessee,
filed as Exhibit 10.9 to the TriCo Bancshares Registration
Statement on Form S-14 (Registration No. 2-74796) is
incorporated herein by reference.
10.2 Lease for Administration Headquarters premises entered into
as of April 25, 1986, by and between Fortress-Independence
Partnership (A California Limited Partnership) as lessor
and Tri Counties Bank as lessee, filed as Exhibit 10.6 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1986, is incorporated herein by reference.
10.3 Lease for Data Processing premises entered into as of April
25, 1986, by and between Fortress-Independence Partnership
(A California Limited Partnership) as lessor and Tri
Counties Bank as lessee, filed as Exhibit 10.7 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1986, is incorporated herein by reference.
10.4 Lease for Chico Mall premises entered into as of March 11,
1988, by and between Chico Mall Associates as lessor and
Tri Counties Bank as lessee, filed as Exhibit 10.4 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1988, is incorporated by reference.
10.5 First amendment to lease entered into as of May 31, 1988 by
and between Chico Mall Associates and Tri Counties Bank,
filed as Exhibit 10.5 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1988, is incorporated
by reference.
10.9 Employment Agreement of Robert H. Steveson, dated December
12, 1989 between Tri Counties Bank and Robert H. Steveson,
filed as Exhibit 10.9 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1989, is incorporated
by reference.
10.11 Lease for Purchasing and Printing Department premises
entered into as of February 1, 1990, by and between Dennis
M. Casagrande as lessor and Tri Counties Bank as lessee,
filed as Exhibit 10.11 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1991, is incorporated
herein by reference.
10.12 Addendum to Employment Agreement of Robert H. Steveson,
dated April 9, 1991, filed as Exhibit 10.12 to Registrant's
Report on Form 10-K filed for the year ended December 31,
1991, is incorporated herein by reference.
21.1 Tri Counties Bank, a California banking corporation, is the only
subsidiary of Registrant.
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements 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.
TRICO BANCSHARES
Date July 25, 2000 /s/ Richard P. Smith
-------------------- -----------------------
President and
Chief Executive Officer
Date July 25, 2000 /s/ Thomas J. Reddish
-------------------- -----------------------
Vice President and
Chief Financial Officer