SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year Commission File Number 0-10661
ended December 31, 2000
TriCo Bancshares
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(Exact name of registrant as specified in its charter)
California 94-2792841
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
63 Constitution Drive, Chico, California 95973
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(530) 898-0300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
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(Title of Class)
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 periods 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
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of February 13, 2001, was approximately $85,522,000. This
computation excludes a total of 1,914,352 shares which are beneficially owned by
the officers and directors of Registrant who may be deemed to be the affiliates
of Registrant under applicable rules of the Securities and Exchange Commission.
The number of shares outstanding of Registrant's classes of common stock, as of
February 13, 2001, was 7,177,226 shares of Common Stock, without par value.
The following documents are incorporated herein by reference into the parts of
Form 10-K indicated: Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 2000, for Item 7, and Registrant's Proxy Statement for
use in connection with its 2001 Annual Meeting of Shareholders, for Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X
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PART I
1. BUSINESS
Formation of Bank Holding Company.
TriCo Bancshares (hereinafter the "Company") was incorporated under the
laws of the State of California on October 13, 1981. It was organized at the
direction of the Board of Directors of Tri Counties Bank (the "Bank") for the
purpose of forming a bank holding company. On September 7, 1982, a wholly-owned
subsidiary of the Company was merged with and into the Bank resulting in the
shareholders of the Bank becoming the shareholders of the Company and the Bank
becoming the wholly-owned subsidiary of the Company. (The merger of the
wholly-owned subsidiary of the Company with and into the Bank is hereafter
referred to as the "Reorganization.") At the time of the Reorganization, the
Company became a bank holding company subject to the supervision of the Board of
Governors of the Federal Reserve System (the "Board") in accordance with the
Bank Holding Company Act of 1956, as amended. The Bank remains subject to the
supervision of the State of California Department of Financial Institutions and
the Federal Deposit Insurance Corporation (the "FDIC"). The Bank currently is
the only subsidiary of the Company and the Company has not yet commenced any
business operations independent of the Bank.
Provision of Banking Services.
The Bank was incorporated as a California banking corporation on June 26,
1974, and received its Certificate of Authority to begin banking operations on
March 11, 1975.
The Bank engages in the general commercial banking business in the
California counties of Butte, Del Norte, Glenn, Kern, Lake, Lassen, Madera,
Mendocino, Merced, Nevada, Sacramento, Shasta, Siskiyou, Stanislaus, Sutter,
Tehama, Tulare, and Yuba. The Bank currently has 30 traditional branches, and 7
in-store branches. It opened its first banking office in Chico, California in
1975, followed by branch offices in Willows, Durham and Orland, California. The
Bank opened its fifth banking office at an additional location in Chico in 1980.
On March 27, 1981, the Bank acquired the assets of Shasta County Bank and
thereby acquired six additional offices. These offices are located in the
communities of Bieber, Burney, Cottonwood, Fall River Mills, Palo Cedro and
Redding, California. On November 7, 1987, the Bank purchased the deposits and
premises of the Yreka Branch of Wells Fargo Bank, thereby acquiring an
additional branch office. On August 1, 1988, the Bank opened a new office in
Chico at East 20th Street and Forest Avenue. The Bank opened a branch office in
Yuba City on September 10, 1990. The Bank opened four supermarket branches in
1994. These supermarket branches were opened on March 7, March 28, June 6 and
June 13, 1994 in Red Bluff, Yuba City, and two in Redding, respectively. The
Bank added one conventional branch in Redding through its acquisition of Country
National Bank on July 21, 1994. On November 7, 1995, the Bank opened a
supermarket branch in Chico. In March 1996 the Bank opened its sixth supermarket
branch in Grass Valley. The acquisition of Sutter Buttes Savings Bank in October
1996 added a branch in Marysville. Loan production offices were established in
Bakersfield and Sacramento in 1996. On February 21, 1997, the Bank purchased
nine branches from Wells Fargo Bank, N.A. The acquired branches are located in
Crescent City, Weed, Mt. Shasta, Susanville, Covelo, Middletown, Patterson,
Gustine and Chowchilla. This acquisition expanded the Bank's market area from
the Sacramento Valley and intermountain areas to include parts of the northern
coastal region and the northern San Joaquin Valley. In November 1998 the Bank
converted its Bakersfield and Sacramento loan production offices to full service
branches. In July 1999, the Bank opened a supermarket branch at Beale Air Force
Base. The Bank opened branch offices in Visalia and Modesto, during August 1999
and January 2000, respectively. In August of 2000, the Bank opened its most
recent branch in Paradise.
General Banking Services.
The Bank conducts a commercial banking business including accepting demand,
savings and time deposits and making commercial, real estate, and consumer
loans. It also offers installment note collection, issues cashier's checks and
money orders, sells travelers checks and provides safe deposit boxes and other
customary banking services. Brokerage services are provided at the Bank's
offices by the Bank's association with Raymond James Financial Services, Inc.
The Bank does not offer trust services or international banking services.
The Bank's operating policy since its inception has emphasized retail
banking. Most of the Bank's customers are retail customers and small to
medium-sized businesses. The business of the Bank emphasizes serving the needs
of local businesses, farmers and ranchers, retired individuals and wage earners.
The majority of the Bank's loans are direct loans made to individuals and
businesses in the regions of California where its branches are located. At
December 31, 2000, the total of the Bank's consumer installment loans
outstanding was $101,548,000 (15.9%), the total of commercial loans outstanding
was $277,935,000 (43.4%), and the total of real estate loans including
construction loans of $37,999,000 was $260,908,000 (40.7%). The Bank takes real
estate, listed and unlisted securities, savings and time deposits, automobiles,
machinery, equipment, inventory, accounts receivable and notes receivable
secured by property as collateral for loans.
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Most of the Bank's deposits are attracted from individuals and
business-related sources. No single person or group of persons provides a
material portion of the Bank's deposits, the loss of any one or more of which
would have a materially adverse effect on the business of the Bank, nor is a
material portion of the Bank's loans concentrated within a single industry or
group of related industries.
In order to attract loan and deposit business from individuals and small to
medium-sized businesses, branches of the Bank set lobby hours to accommodate
local demands. In general, lobby hours are from 9:00 a.m. to 5:00 p.m. Monday
through Thursday, and from 9:00 a.m. to 6:00 p.m. on Friday. Certain branches
with less activity open later and close earlier. Some Bank offices also utilize
drive-up facilities operating from 9:00 a.m. to 7:00 p.m. The supermarket
branches are open from 9:00 a.m. to 7:00 p.m. Monday through Saturday and 11:00
a.m. to 5:00 p.m. on Sunday.
The Bank offers 24-hour ATMs at almost all branch locations. The ATMs are
linked to several national and regional networks such as CIRRUS and STAR. In
addition, banking by telephone on a 24-hour toll-free number is available to all
customers. This service allows a customer to obtain account balances and most
recent transactions, transfer moneys between accounts, make loan payments, and
obtain interest rate information.
In February 1998, the Bank became the first bank in the Northern Sacramento
Valley to offer banking services on the Internet. This banking service provides
customers one more tool for anywhere, anytime access to their accounts.
Other activities.
In addition to the banking services referred to above, pursuant to
California law, TCB Real Estate Corporation, a wholly-owned subsidiary of the
Bank, was engaged in limited real estate investments until December 1998. At
that time, TCB Real Estate Corporation divested its remaining real estate
investments. Such investments consisted of holding certain real property for the
purpose of development or as income earning assets. The amount of the Bank's
assets committed to such investment did not exceed the total of the Bank's
capital and surplus. In 1996 the FDIC directed the Bank to divest the properties
held by TCB Real Estate Corporation and to terminate its operations. The Bank
and the FDIC agreed to a plan that called for the divestiture by June 30, 1999.
TCB Real Estate Corporation was dissolved on April 27, 1999.
The Bank may in the future engage in other businesses either directly or
indirectly through subsidiaries acquired or formed by the Bank subject to
regulatory constraints. See "Regulation and Supervision."
Employees.
At December 31, 2000, the Company and the Bank employed 473 persons,
including five executive officers. Full time equivalent employees were 392. No
employees of the Company or the Bank are presently represented by a union or
covered under a collective bargaining agreement. Management believes that its
employee relations are excellent.
Competition.
The banking business in California generally, and in the Bank's primary
service area specifically, is highly competitive with respect to both loans and
deposits. It is dominated by a relatively small number of major banks with many
offices operating over a wide geographic area. Among the advantages such major
banks have over the Bank are their ability to finance wide ranging advertising
campaigns and to allocate their investment assets to regions of high yield and
demand. By virtue of their greater total capitalization such institutions have
substantially higher lending limits than does the Bank.
In addition to competing with savings institutions, commercial banks
compete with other financial markets for funds. Yields on corporate and
government debt securities and other commercial paper may be higher than on
deposits, and therefore affect the ability of commercial banks to attract and
hold deposits. Commercial banks also compete for available funds with money
market instruments and mutual funds. During past periods of high interest rates,
money market funds have provided substantial competition to banks for deposits
and they may continue to do so in the future. In today's high growth stock
market environment mutual funds have become a major source of competition for
savings dollars.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company and its subsidiary
are particularly susceptible to being affected by enactment of federal and state
legislation which may have the effect of increasing or decreasing the cost of
doing business, modifying permissible activities or enhancing the competitive
position of other financial institutions.
The Bank relies substantially on local promotional activity, personal
contacts by its officers, directors, employees and shareholders, extended hours,
personalized service and its reputation in the communities it services to
compete effectively.
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Regulation and Supervision.
As a registered bank holding company under the Bank Holding Company Act of
1956 (the "BHC Act"), the Company is subject to the regulation and supervision
of the Board of Governors of the Federal Reserve System ("FRB"). The BHC Act
requires the Company to file reports with the FRB and provide additional
information requested by the FRB. The Company must receive the approval of the
FRB before it may acquire all or substantially all of the assets of any bank, or
ownership or control of the voting shares of any bank if, after giving effect to
such acquisition of shares, the Company would own or control more than 5 percent
of the voting shares of such bank.
The Company and any subsidiaries it may acquire or organize will be deemed
to be affiliates of the Bank within the Federal Reserve Act. That Act
establishes certain restrictions, which limit the extent to which the Bank can
supply its funds to the Company and other affiliates. The Company is also
subject to restrictions on the underwriting and the public sale and distribution
of securities. It is prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, sale or lease of property, or
furnishing of services.
The Company is prohibited from engaging in, or acquiring direct or indirect
control of any company engaged in non-banking activities, unless the FRB by
order or regulation has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Notwithstanding this prohibition, under the Financial Services
Modernization Act of 1999, the Company may engage in any activity, and may
acquire and retain the shares of any company engaged in any activity, that the
FRB, in coordination with the Secretary of the Treasury, determines (by
regulation or order) to be financial in nature or incidental to such financial
activities. Furthermore, such law dictates several activities that are
considered to be financial in nature, and therefore are not subject to FRB
approval.
Under California law, dividends and other distributions by the Company are
subject to declaration by the Board of Directors at its discretion out of net
assets. Dividends cannot be declared and paid when such payment would make the
Company insolvent.
FRB policy prohibits a bank holding company from declaring or paying a cash
dividend which would impose undue pressure on the capital of subsidiary banks or
would be funded only through borrowings or other arrangements that might
adversely affect the holding company's financial position. The policy further
declares that a bank holding company should not continue its existing rate of
cash dividends on its common stock unless its net income is sufficient to fully
fund each dividend and its prospective rate of earnings retention appears
consistent with its capital needs, asset quality and overall financial
condition. Other FRB policies forbid the payment by bank subsidiaries to their
parent companies of management fees, which are unreasonable in amount or exceed
a fair market value of the services rendered (or, if no market exists, actual
costs plus a reasonable profit).
In addition, the FRB has authority to prohibit banks that it regulates from
engaging in practices, which in the opinion of the FRB are unsafe or unsound.
Such practices may include the payment of dividends under some circumstances.
Moreover, the payment of dividends may be inconsistent with capital adequacy
guidelines. The Company may be subject to assessment to restore the capital of
the Bank should it become impaired.
The Company is subject to the minimum capital requirements of the FRB. As a
result of these requirements, the growth in assets of the Company is limited by
the amount of its capital accounts as defined by the FRB. Capital requirements
may have an affect on profitability and the payment of distributions by the
Company. If the Company is unable to increase its assets without violating the
minimum capital requirements, or is forced to reduce assets, its ability to
generate earnings would be reduced. Furthermore, earnings may need to be
retained rather than paid as distributions to shareholders.
The FRB has adopted guidelines utilizing a risk-based capital structure.
These guidelines apply on a consolidated basis to bank holding companies with
consolidated assets of $150 million or more. For bank holding companies with
less than $150 million in consolidated assets, the guidelines apply on a
bank-only basis unless the holding company is engaged in non-bank activity
involving significant leverage or has a significant amount of outstanding debt
that is held by the general public. The Company currently has consolidated
assets of more than $150 million; accordingly, the risk-based capital guidelines
apply to the Company on a consolidated basis.
-4-
Qualifying capital is divided into two tiers. Tier 1 capital consists
generally of common stockholders' equity, qualifying noncumulative perpetual
preferred stock, qualifying cumulative perpetual preferred stock (up to 25
percent of total Tier 1 capital) and minority interests in the equity accounts
of consolidated subsidiaries, less goodwill and certain other intangible assets.
Tier 2 capital consists of, among other things, allowance for loan and lease
losses up to 1.25 percent of weighted risk assets, perpetual preferred stock,
hybrid capital instruments, perpetual debt, mandatory convertible debt
securities, subordinated debt and intermediate-term preferred stock. Tier 2
capital qualifies as part of total capital up to a maximum of 100 percent of
Tier 1 capital. Amounts in excess of these limits may be issued but are not
included in the calculation of risk-based capital ratios. As of December 31,
2000, the Company must have a minimum ratio of qualifying total capital to
weighted risk assets of 8 percent, of which at least 4 percent must be in the
form of Tier 1 capital.
The Federal regulatory agencies have adopted a minimum Tier 1 leverage
ratio which is intended to supplement risk-based capital requirements and to
ensure that all financial institutions, even those that invest predominantly in
low-risk assets, continue to maintain a minimum level of Tier 1 capital. These
regulations provide that a banking organization's minimum Tier 1 leverage ratio
be determined by dividing its Tier 1 capital by its quarterly average total
assets, less goodwill and certain other intangible assets. Under the current
rules, the Company is required to maintain a minimum Tier 1 leverage ratio of 4
percent.
Insurance of Deposits.
The Bank's deposit accounts are insured up to a maximum of $100,000 per
depositor by the FDIC. The FDIC issues regulations and generally supervises the
operations of its insured banks. This supervision and regulation is intended
primarily for the protection of depositors, not shareholders.
As of December 31, 2000, the deposit insurance premium rate was $0.0208 per
$100.00 in deposits. In November 1990, federal legislation was passed which
removed the cap on the amount of deposit insurance premiums that can be charged
by the FDIC. Under this legislation, the FDIC is able to increase deposit
insurance premiums as it sees fit. This could result in a significant increase
in the cost of doing business for the Bank in the future. The FDIC now has
authority to adjust deposit insurance premiums paid by insured banks every six
months.
The Bank's Risk-Based Capital Requirements.
The Bank is subject to the minimum capital requirements of the FDIC. As a
result of these requirements, the growth in assets of the Bank is limited by the
amount of its capital accounts as defined by the FRB. Capital requirements may
have an effect on profitability and the payment of dividends on the common stock
of the Bank. If the Bank is unable to increase its assets without violating the
minimum capital requirements or is forced to reduce assets, its ability to
generate earnings would be reduced. Further, earnings may need to be retained
rather than paid as dividends to the Company.
Federal banking law requires the federal banking regulators to take "prompt
corrective action" with respect to banks that do not meet minimum capital
requirements. In response to this requirement, the FDIC adopted final rules
based upon the five capital tiers defined by the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA): well capitalized, adequately
capitalized, under capitalized, significantly under capitalized and critically
under capitalized. For example, the FDIC's rules provide that an institution is
"well-capitalized" if its total risk-based capital ratio is 10 percent or
greater, its Tier 1 risk-based capital ratio is 6 percent or greater, its
leverage ratio is 5 percent or greater, and the institution is not subject to a
capital directive or an enforceable written agreement or order. A bank is
"adequately capitalized" if its total risk-based capital ratio is 8 percent or
greater, its Tier 1 risk-based capital ratio is 4 percent or greater, and its
leverage ratio is 4 percent or greater (3 percent or greater for certain of the
highest-rated institutions). An institution is "significantly undercapitalized"
if its risk-based capital ratio is less than 6 percent, its Tier 1 risk-based
capital ratio is less than 3 percent, or its tangible equity (Tier 1 capital) to
total assets is equal to or less than 2 percent. An institution may be deemed to
be in a capitalization category that is lower than is indicated by its actual
capital position if it engages in unsafe or unsound banking practices.
No sanctions apply to institutions which are "well" or "adequately"
capitalized under the prompt corrective action requirements. Undercapitalized
institutions are required to submit a capital restoration plan for improving
capital. In order to be accepted, such plan must include a financial guaranty
from the institution's holding company that the institution will return to
capital compliance. If such a guarantee were deemed to be a commitment to
maintain capital under the federal Bankruptcy Code, a claim for a subsequent
breach of the obligations under such guarantee in a bankruptcy proceeding
involving the holding company would be entitled to a priority over third-party
general unsecured creditors of the holding company. Undercapitalized
institutions are prohibited from making capital distributions or paying
management fees to controlling persons; may be subject to growth limitations;
and acquisitions, branching and entering into new lines of business are
restricted. Finally, the institution's regulatory agency has discretion to
impose certain of the restrictions generally applicable to significantly
undercapitalized institutions.
In the event an institution is deemed to be significantly undercapitalized,
it may be required to: sell stock, merge or be acquired, restrict transactions
with affiliates, restrict interest rates paid on deposits, divest a subsidiary,
or dismiss specified directors or officers. If the institution is a bank holding
company, it may be prohibited from making any capital distributions without
prior approval of the FRB and may be required to divest a subsidiary. A
critically undercapitalized institution is generally prohibited from making
payments on subordinated debt and may not, without the approval of the FDIC,
enter into a material transaction other than in the ordinary course of business,
engage in any covered transaction, or pay excessive compensation or bonuses.
Critically undercapitalized institutions are subject to appointment of a
receiver or conservator.
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Bank Regulation.
The federal regulatory agencies are required to adopt regulations, which
will establish safety and soundness standards that apply to banks and bank
holding companies. These standards must address bank operations, management,
asset quality, earnings, stock valuation and employee compensation. A bank
holding company or bank failing to meet established standards will face
mandatory regulatory enforcement action.
The grounds upon which a conservator or receiver of a bank can be appointed
have been expanded. For example, a conservator or receiver can be appointed for
a bank that fails to maintain minimum capital levels and has no reasonable
prospect of becoming adequately capitalized.
Federal law also requires, with some exception, that each bank have an
annual examination performed by its primary federal regulatory agency, and an
outside independent audit. The outside audit must consider bank regulatory
compliance in addition to financial statement reporting.
Federal law also restricts the acceptance of brokered deposits by insured
depository institutions and contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
Governmental Monetary Policies and Economic Conditions.
The principal sources of funds essential to the business of banks and bank
holding companies are deposits, stockholders' equity and borrowed funds. The
availability of these various sources of funds and other potential sources, such
as preferred stock or commercial paper, and the extent to which they are
utilized, depends on many factors, the most important of which are the FRB's
monetary policies and the relative costs of different types of funds. An
important function of the FRB is to regulate the national supply of bank credit
in order to combat recession and curb inflationary pressure. Among the
instruments of monetary policy used by the Federal Reserve Board to implement
these objections are open market operations in United States Government
securities, changes in the discount rate on bank borrowings, and changes in
reserve requirements against bank deposits. The monetary policies of the FRB
have had a significant effect on the operating results of commercial banks in
the past and are expected to continue to do so in the future. In view of the
recent changes in regulations affecting commercial banks and other actions and
proposed actions by the federal government and its monetary and fiscal
authorities, including proposed changes in the structure of banking in the
United States, no prediction can be made as to future changes in interest rates,
credit availability, deposit levels, the overall performance of banks generally
or the Company and its subsidiaries in particular.
General.
The Company conducts all of its business operations within a single
geographic area. The Company is principally engaged in traditional community
banking activities provided through its thirty branches and seven in-store
branches located throughout Northern and Central 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. In
1998 and prior, the Company held investments in real estate through its
wholly-owned subsidiary, TCB Real Estate. These activities were monitored and
reported by Bank management as separate operating segments.
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2. PROPERTIES
As the Company has not yet acquired any properties independent of the Bank,
its only subsidiary, the properties of the Bank and the Bank's subsidiaries
comprise all of the properties of the Company.
Bank Properties
The Bank owns and leases properties that house administrative and data
processing functions and 33 banking offices. Major owned and leased facilities
are listed below.
Park Plaza Branch Pillsbury Branch
780 Mangrove Avenue 2171 Pillsbury Road
Chico, CA 95926 Chico, CA 95926
10,000 square feet 5,705 square feet
Leased - term expires 2010 Owned
Visalia Branch Hilltop Branch
2914 W. Main Street 1250 Hilltop Drive
Visalia, CA 93291 Redding, CA 96049
2,400 square feet 6,252 square feet
Leased Owned
Burney Branch Cottonwood Branch
37093 Main Street 3349 Main Street
Burney, CA 96013 Cottonwood, CA 96022
3,500 square feet 4,900 square feet
Owned Owned
Willows Branch Fall River Mills Branch
210 North Tehama Street 43308 Highway 299 East
Willows, CA 95988 Fall River Mills, CA 96028
4,800 square feet 2,200 square feet
Owned Owned
Orland Branch Durham Branch
100 E. Walker Street 9411 Midway
Orland, CA 95963 Durham, CA 95938
3,000 square feet 2,150 square feet
Owned Owned
Palo Cedro Branch Yuba City Branch
9125 Deschutes Road 1441 Colusa Avenue
Palo Cedro, CA 96073 Yuba City, CA 95993
3,400 square feet 6,900 square feet
Owned Owned
Chowchilla Branch Covelo Branch
305 Trinity Street 76405 Covelo Road
Chowchilla, CA 93610 Covelo, CA 95428
6,000 square feet 3,000 square feet
Leased - term expires 2009 Leased - month to month
-7-
Crescent City Branch Gustine Branch
936 Third Street 319 Fifth Street
Crescent City, CA 95531 Gustine, CA 95322
4,700 square feet 5,100 square feet
Owned Owned
Marysville Branch Middletown Branch
729 E Street 21097 Calistoga Street
Marysville, CA 95901 Middletown, CA 95461
1,600 square feet 2,600 square feet
Leased - term expires 2001 Leased - term expires 2002
Mt. Shasta Branch Patterson Branch
204 Chestnut Street 17 Plaza
Mt. Shasta, CA 96067 Patterson, CA 95363
6,500 square feet 4,000 square feet
Leased - term expires 2007 Owned
Susanville Branch Weed Branch
1605 Main Street 303 Main Street
Susanville, CA 96130 Weed, CA 96094
7,200 square feet 6,200 square feet
Leased - term expires 2002 Owned
TriCo Offices1 Yreka Branch
15 Independence Circle 165 South Broadway
Chico, CA 95973 Yreka, CA 96097
7,000 square feet 6,000 square feet
Leased - term expires 2011 Owned
Redding Branch2 Data Processing Center
1810 Market Street 1103 Fortress
Redding, CA 96001 Chico, CA 95926
14,000 square feet 13,600 square feet
Owned Leased - term expires 2011
Bakersfield Branch Sacramento Branch
5201 California Ave., Suite 102 1760 Challenge Way, Suite 100
Bakersfield, CA 93309 Sacramento, CA 95815
3,200 square feet 3,005 square feet
Leased - term expires 2000 Leased - term expires 2000
Headquarters Building Redding Downtown Branch
63 Constitution Drive 1845 California Street
Chico, CA 95973 Redding, CA 96001
30,000 square feet 3,265 square feet
Owned Owned
Modesto Branch Paradise Branch
3320 Tully Road, Suite 3 6848 "Q" Skyway
Modesto, CA 95350 Paradise, CA 95969
3,850 square feet 6,600 square feet
Leased Leased
1This leased building was vacated in 1998 and is being subleased.
2This building was vacated in 1997 and is currently being leased.
-8-
3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material legal
proceedings, other than ordinary routine litigation incidental to the business
of the Company and the Bank, nor is any of their property the subject of any
such proceedings.
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
-9-
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Common Stock of the Company trades on the NASDAQ National Market under
the symbol "TCBK." The shares were first listed in the NASDAQ Stock Market in
April 1993.
The following table summarizes the Common Stock high and low trading prices
and volume of shares traded by quarter as reported by NASDAQ.
Prices of the Approximate
Company's Common Trading
Stock Volume
Quarter Ended:1 High Low (in shares)
March 31, 1999 $ 18.25 $ 15.44 401,800
June 30, 1999 18.75 15.81 680,100
September 30, 1999 20.00 16.75 417,900
December 31, 1999 20.50 17.00 363,800
March 31, 2000 19.25 14.75 563,400
June 30, 2000 17.00 15.44 446,100
September 30, 2000 17.50 15.69 620,900
December 31, 2000 17.00 14.75 232,700
1Quarterly trading activity has been compiled from NASDAQ trading reports.
Holders
As of February 13, 2001, there were approximately 1,808 holders of record
of the Company's Common Stock.
Dividends
The Company has paid quarterly dividends since March 1990. The Company paid
quarterly dividends of $0.20 per share in the second, third and fourth quarters
of 2000, $0.19 per share in the first quarter of 2000 as well as the final two
quarters in 1999, and $0.16 per share in the first and second quarters of 1999.
The holders of Common Stock of the Company are entitled to receive cash
dividends when and as declared by the Board of Directors, out of funds legally
available therefore, subject to the restrictions set forth in the California
General Corporation Law (the "Corporation Law"). The Corporation Law provides
that a corporation may make a distribution to its shareholders if the
corporation's retained earnings equal at least the amount of the proposed
distribution.
The Company, as sole shareholder of the Bank, is entitled to receive
dividends when and as declared by the Bank's Board of Directors, out of funds
legally available therefore, subject to the powers of the FDIC and the
restrictions set forth in the California Financial Code (the "Financial Code").
The Financial Code provides that a bank may not make any distributions in excess
of the lesser of: (i) the bank's retained earnings, or (ii) the bank's net
income for the last three fiscal years, less the amount of any distributions
made by the bank to its shareholders during such period. However, a bank may,
with the prior approval of the California Superintendent of Banks (the
"Superintendent"), make a distribution to its shareholders of up to the greater
of (A) the bank's retained earnings, (B) the bank's net income for its last
fiscal year, or (C) the bank's net income for its current fiscal year. If the
Superintendent determines that the shareholders' equity of a bank is inadequate
or that a distribution by the bank to its shareholders would be unsafe or
unsound, the Superintendent may order a bank to refrain from making a proposed
distribution. The FDIC may also order a bank to refrain from making a proposed
distribution when, in its opinion, the payment of such would be an unsafe or
unsound practice. The Bank paid dividends totaling $7,117,500 to the Company in
2000. As of December 31, 2000 and subject to the limitations and restrictions
under applicable law, the Bank had funds available for dividends in the amount
of $17,867,000.
The Federal Reserve Act limits the loans and advances that the Bank may
make to its affiliates. For purposes of such Act, the Company is an affiliate of
the Bank. The Bank may not make any loans, extensions of credit or advances to
the Company if the aggregate amount of such loans, extensions of credit,
advances and any repurchase agreements and investments exceeds 10% of the
capital stock and surplus of the Bank. Any such permitted loan or advance by the
Bank must be secured by collateral of a type and value set forth in the Federal
Reserve Act.
-10-
6. FIVE YEAR SELECTED FINANCIAL DATA (in thousands, except share data)
2000 1999 1998 1997 1996
Statement of Operations Data:1
Interest income $76,653 $68,589 $65,138 $59,877 $49,148
Interest expense 28,543 24,370 25,296 23,935 19,179
Net interest income 48,110 44,219 39,842 35,942 29,969
Provision for loan losses 5,000 3,550 4,200 3,000 777
Net interest income after
provision for loan losses 43,110 40,669 35,642 32,942 29,192
Noninterest income 14,645 12,101 12,869 9,566 6,636
Noninterest expense 37,895 34,833 34,692 32,932 23,485
Income before income taxes 19,860 17,937 13,819 9,576 12,343
Provision for income taxes 7,237 6,534 5,049 3,707 5,037
Net income $12,623 $11,403 $8,770 $5,869 $7,306
Share Data:2
Diluted earnings per share $1.72 $1.56 $1.21 $0.81 $1.04
Cash dividend paid per share 0.79 0.70 0.49 0.43 0.39
Common shareholders' equity
at year end 11.87 10.22 10.22 9.31 8.73
Balance Sheet Data at year end4:
Total loans, gross $640,391 $587,979 $532,433 $448,967 $439,218
Total assets 972,071 924,796 904,599 826,165 694,859
Total deposits 837,832 794,110 769,173 724,094 595,621
Total shareholders' equity 85,233 73,123 72,029 65,124 60,777
Total long-term debt 33,983 45,505 37,924 11,440 24,281
Selected Financial Ratios:
Return on average assets 1.35% 1.26% 1.03% 0.75% 1.18%
Return on average common
shareholders' equity 16.03% 15.59% 12.80% 9.34% 13.03%
Total risk-based capital ratio 12.22% 11.77% 11.83% 11.90% 13.58%
Net interest margin3 5.73% 5.49% 5.28% 5.16% 5.37%
Allowance for loan losses to total
loans outstanding at end of year 1.82% 1.88% 1.54% 1.44% 1.39%
1 Tax-exempt securities are presented on an actual yield basis.
2 Retroactively adjusted to reflect 3-for-2 stock split effected in 1998.
3 Calculated on a tax equivalent basis.
4 The 1996 data reflects changes due to the purchase of Sutter Buttes Savings Bank.
-11-
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included in Registrant's 2000 Annual Report to Shareholders, (pages
__ through __ of Exhibit 13.1 as electronically filed) is incorporated herein by
reference.
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Discussion is included in Management's Discussion and Analysis (pages __
through __ of Exhibit 13.1 as electronically filed) and is incorporated herein
by reference.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and independent auditor's report,
included in Registrant's 2000 Annual Report to Shareholders, are incorporated
herein by reference:
Pages of Exhibit 13.1
as Electronically Filed
Report of Independent Public Accountants 27
Consolidated Balance Sheets as of
December 31, 2000 and 1999 1
Consolidated Statements of Income
for the years ended December 31,
2000, 1999 and 1998 2
Consolidated Statements of Changes in
Shareholders' Equity for the
years ended December 31, 2000,
1999 and 1998 3
Consolidated Statements of Cash Flows
for the years ended December 31,
2000, 1999 and 1998 4
Notes to Consolidated Financial
Statements 6
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
-12-
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Registrant's directors and executive officers will be
set forth under the caption, "Proposal No. 1 - Election of Directors of the
Company" in Registrant's Proxy Statement for use in connection with the Annual
Meeting of Shareholders to be held on or about May 8, 2001. Said information is
incorporated herein by reference.
11. EXECUTIVE COMPENSATION
Information regarding compensation of Registrant's directors and executive
officers will be set forth under the caption, "Proposal No. 1 - Election of
Directors of the Company" in Registrant's Proxy Statement for use in connection
with the Annual Meeting of Shareholders to be held on or about May 8, 2001. Said
information is incorporated herein by reference.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners,
directors and executive officers of Registrant will be set forth under the
caption, "Information Concerning the Solicitation" in Registrant's Proxy
Statement for use in connection with the Annual Meeting of Shareholders to be
held on or about May 8, 2001. Said information is incorporated herein by
reference.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth under the caption, "Proposal No. 1 - Election of Directors of the Company"
in Registrant's Proxy Statement for use in connection with the Annual Meeting of
Shareholders to be held on or about May 8, 2001. Said information is
incorporated herein by reference.
-13-
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements:
A list of the consolidated financial statements of
Registrant incorporated herein is included in Item 8 of this Report.
2. Financial Statement Schedules:
Schedules have been omitted because they are not
applicable or are not required under the instructions contained in Regulation
S-X or because the information required to be set forth therein is included in
the consolidated financial statements or notes thereto.
3. 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 date, 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.
-14-
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.
10.13 The 1993 Non-Qualified Stock Option Plan filed as Exhibit
4.1, the Non-Qualified Stock Option Plan filed as Exhibit
4.2 and the Incentive Stock Option Plan filed as Exhibit
4.3 to Registrant's Form S-8 Registration No. 33-88704
dated January 19, 1995 and the 1995 Incentive Stock Option
Plan filed as Exhibit 4.1 to Registrant's Form S-8,
Registration No. 33-62063 dated August 23, 1995, are
incorporated herein by reference.
11.1 Computation of earnings per share.
13.1 TriCo Bancshares 2000 Annual Report to Shareholders.*
21.1 Tri Counties Bank, a California banking corporation, is the
only subsidiary of Registrant.
23.1 Report of Arthur Andersen LLP
27.1 Financial Data Schedule
* Deemed filed only with respect to those portions thereof incorporated herein
by reference.
(b) Reports on Form 8-K:
None
-15-
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.
Date: February 13, 2001 TRICO BANCSHARES
By: /s/ Richard P. Smith
Richard P. Smith, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the registrant and in the capacities and on the
dates indicated have signed this report below.
Date: February 13, 2001 /s/ Richard P. Smith
Richard P. Smith, President, Chief Executive
Officer and Director (Principal Executive Officer)
Date: February 13, 2001 /s/ Thomas J. Reddish
Thomas J. Reddish, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Date: February 13, 2001 /s/ Everett B. Beich
Everett B. Beich, Director
Date: February 13, 2001 /s/ William J. Casey
William J. Casey, Director and Vice Chairman
of the Board
Date: February 13, 2001 /s/ Craig S. Compton
Craig S. Compton, Director
Date: February 13, 2001 /s/ Brian D. Leidig
Brian D. Leidig, Director
Date: February 13, 2001 /s/ Wendell J. Lundberg
Wendell J. Lundberg, Director
Date: February 13, 2001 /s/ Donald E. Murphy
Donald E. Murphy, Director
Date: February 13, 2001 /s/ Robert H. Steveson
Robert H. Steveson, Director and
Co-Chairman of the Board
-16-
Date: February 13, 2001 /s/ Carroll R. Taresh
Carroll R. Taresh, Director
Date: February 13, 2001 /s/ Alex A. Vereschagin, Jr.
Alex A. Vereschagin, Jr., Director and
Chairman of the Board
-17-
EXHIBIT 11.1
COMPUTATIONS OF EARNINGS PER SHARE
Years ended December 31
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Shares used in the computation
of earnings per share1
Weighted daily average
of shares outstanding 7,191,790 7,129,560 7,017,306 6,978,089 6,769,735
Shares used in the computation
of diluted earnings per share 7,340,729 7,318,520 7,267,602 7,246,011 7,034,627
========= ========= ========= ========= =========
Net income used in the computation
of earnings per common stock $12,623 $11,403 $8,770 $5,869 $7,306
======= ======= ====== ====== ======
Basic earnings per share $ 1.76 $ 1.60 $ 1.25 $ 0.84 $ 1.08
======= ======= ======= ======= =======
Diluted earnings per share $ 1.72 $ 1.56 $ 1.21 $ 0.81 $ 1.04
======= ======= ======= ======= =======
1Retroactively adjusted for stock dividends and stock splits.
-1-
EXHIBIT 13.1
TRICO BANCSHARES CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts) December 31,
2000 1999
Assets
Cash and due from banks $ 58,190 $ 52,036
Federal funds sold -- 8,400
------------------------------
Cash and cash equivalents 58,190 60,436
Securities available-for-sale 229,110 231,708
Loans:
Commercial 277,935 262,916
Consumer 101,548 79,589
Real estate mortgages 222,909 207,197
Real estate construction 37,999 38,277
------------------------------
640,391 587,979
Less: Allowance for loan losses 11,670 11,037
------------------------------
Net loans 628,721 576,942
Premises and equipment, net 16,772 16,043
Cash value of life insurance 13,753 12,258
Other real estate owned 1,441 760
Accrued interest receivable 6,935 6,076
Deferred income taxes 8,418 10,764
Intangible assets 5,464 6,429
Other assets 3,267 3,380
------------------------------
Total assets $ 972,071 $ 924,796
==============================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand $ 168,542 $ 155,937
Interest-bearing demand 150,749 143,923
Savings 214,158 222,615
Time certificates, $100,000 and over 93,342 73,462
Other time certificates 211,041 198,173
------------------------------
Total deposits 837,832 794,110
Federal funds purchased 500 --
Accrued interest payable 5,245 4,193
Other liabilities 9,278 7,865
Long-term debt and other borrowings 33,983 45,505
------------------------------
Total liabilities 886,838 851,673
Commitments and contingencies (Note H)
Shareholders' equity:
Common stock, no par value: Authorized 20,000,000 shares;
issued and outstanding 7,181,226 and 7,152,329 shares, respectively 50,428 50,043
Retained earnings 35,129 28,613
Accumulated other comprehensive income (loss) (324) (5,533)
-------------------------------
Total shareholders' equity 85,233 73,123
-------------------------------
Total liabilities and shareholders' equity $ 972,071 $ 924,796
===============================
See Notes to Consolidated Financial Statements
-1-
Exhibit 13.1
TRICO BANCSHARES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
Years Ended December 31,
2000 1999 1998
Interest Income:
Interest and fees on loans $ 62,161 $ 53,395 $ 48,506
Interest on investment securities-taxable 11,704 12,500 14,622
Interest on investment securities-tax exempt 2,250 2,229 1,860
Interest on federal funds sold 538 465 150
------------------------------------------------
Total interest income 76,653 68,589 65,138
Interest expense:
Interest on interest-bearing demand deposits 2,360 2,287 2,932
Interest on savings 6,837 6,811 6,473
Interest on time certificates of deposit 13,324 8,970 11,685
Interest on time certificates of deposit, $100,000 and over 2,482 3,209 1,775
Interest on short-term borrowing 623 386 816
Interest on long-term debt 2,917 2,707 1,615
------------------------------------------------
Total interest expense 28,543 24,370 25,296
------------------------------------------------
Net interest income 48,110 44,219 39,842
Provision for loan losses 5,000 3,550 4,200
------------------------------------------------
Net interest income after provision for loan losses 43,110 40,669 35,642
Noninterest income:
Service charges and fees 7,484 7,127 7,387
Gain on sale of investments -- 24 316
Other income 7,161 4,950 5,166
Total noninterest income 14,645 12,101 12,869
------------------------------------------------
Noninterest expense:
Salaries and related expenses 19,912 17,837 16,803
Other, net 17,983 16,996 17,889
------------------------------------------------
Total noninterest expense 37,895 34,833 34,692
------------------------------------------------
Income before income taxes 19,860 17,937 13,819
Income taxes 7,237 6,534 5,049
------------------------------------------------
Net income $12,623 $11,403 $ 8,770
================================================
Basic earnings per common share $ 1.76 $ 1.60 $ 1.25
Diluted earnings per common share $ 1.72 $ 1.56 $ 1.21
See Notes to Consolidated Financial Statements
-2-
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2000, 1999 and 1998 (in thousands, except share amounts)
Common Stock Accumulated
Number Other
of Retained Comprehensive Comprehensive
Shares Amount Earnings Income (Loss) Total Income
------------------------------------------------------------------
Balance, December 31, 1997 4,662,649 $48,161 $16,956 $7 $65,124
Exercise of Common Stock options 60,125 532 532
3-for-2 Common Stock split 2,330,271
Repurchase of Common Stock (2,055) (21) (39) (60)
Common Stock cash dividends (3,430) (3,430)
Stock option amortization 166 166
Comprehensive income:
Net income 8,770 8,770 $8,770
Other comprehensive income, net of tax:
Cumulative effect of change in accounting principle 337 337 337
Change in unrealized loss on securities, net of tax
and reclassification adjustments (Note A): 590 590 590
---------------
Comprehensive income $9,697
---------------------------------------------------===============
Balance, December 31, 1998 7,050,990 48,838 22,257 934 72,029
Exercise of Common Stock options 106,440 1,074 1,074
Repurchase of Common Stock (5,101) (35) (51) (86)
Common Stock cash dividends (4,996) (4,996)
Stock option amortization 166 166
Comprehensive income:
Net income 11,403 11,403 $11,403
Other comprehensive income, net of tax:
Change in unrealized gain on securities, net of tax
and reclassification adjustments (Note A): (6,467) (6,467) (6,467)
---------------
Comprehensive income $4,936
---------------------------------------------------===============
Balance, December 31, 1999 7,152,329 50,043 28,613 (5,533) 73,123
Exercise of Common Stock options 78,625 665 665
Repurchase of Common Stock (49,728) (349) (427) (776)
Common Stock cash dividends (5,680) (5,680)
Stock option amortization 69 69
Comprehensive income:
Net income 12,623 12,623 $12,623
Other comprehensive income, net of tax:
Change in unrealized gain on securities, net of tax
and reclassification adjustments (Note A): 5,209 5,209 5,209
---------------
Comprehensive income $17,832
---------------------------------------------------===============
Balance, December 31, 2000 7,181,226 $50,428 $35,129 ($324) $85,233
==================================================
See Notes to Consolidated Financial Statements
-3-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
2000 1999 1998
Operating activities:
Net income $12,623 $ 11,403 $ 8,770
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 5,000 3,550 4,200
Provision for losses on other real estate owned 25 10 377
Provision for premises impairment and lease loss -- -- 175
Depreciation and amortization 2,641 2,615 2,611
Amortization of intangible assets 965 1,135 1,338
(Accretion) amortization of investment
security (discounts) premiums, net 217 538 128
Deferred income taxes (650) (410) (2,084)
Investment security gains, net -- (24) (316)
Gain on receipt of insurance company stock (1,510) -- --
Gain on sale of loans (525) (800) (497)
(Gain) loss on sale of other real estate owned, net (83) (178) 96
Amortization of stock options 69 166 166
Change in assets and liabilities:
Increase in interest receivable (859) (255) (120)
Increase (decrease) in interest payable 1,052 330 (176)
(Increase) decrease in other assets and liabilities (127) (2,481) 678
------------------------------------------
Net cash provided by operating activities 18,838 15,599 15,346
Investing activities :
Proceeds from maturities of securities held-to-maturity -- -- 18,523
Proceeds from maturities of securities available-for-sale 39,663 64,496 82,214
Proceeds from sales of securities available-for-sale -- 14,137 87,094
Purchases of securities available-for-sale (27,567) (41,372) (199,335)
Net increase in loans (57,805) (56,138) (86,066)
Purchases of premises and equipment (2,998) (2,058) (1,225)
Proceeds from sale of other real estate owned 928 1,268 1,711
Proceeds from sale of premises and equipment 40 44 1,110
Proceeds from sale of real estate properties -- -- 554
------------------------------------------
Net cash used by investing activities (47,739) (19,623) (95,420)
Financing activities:
Net increase in deposits 43,722 24,937 45,079
Net increase (decrease) in federal funds borrowed 500 (14,000) (1,300)
Borrowings under long-term debt agreements 35,000 21,000 31,500
Payments of principal on long-term debt agreements (46,522) (13,419) (5,016)
Repurchase of Common Stock (776) (86) (60)
Cash dividends - Common (5,680) (4,996) (3,430)
Issuance of Common Stock 411 541 308
------------------------------------------
Net cash provided by financing activities 26,655 13,977 67,081
------------------------------------------
Increase (decrease) in cash and cash equivalents (2,246) 9,953 (12,993)
Cash and cash equivalents at beginning of year 60,436 50,483 63,476
------------------------------------------
Cash and cash equivalents at end of year $ 58,190 $ 60,436 $ 50,483
==========================================
-4-
Supplemental information:
Cash paid for taxes $ 7,573 $ 7,240 $ 6,965
Cash paid for interest expense $ 27,491 $ 24,040 $ 25,472
Non-cash assets acquired through foreclosure $ 1,551 $ 673 $ 644
Supplemental schedule of non-cash investing and financing activities: On October
1, 1998, the Company adopted Statement of Financial Accounting Standards No. 133
(see Note A) and in connection with the adoption, elected to transfer investment
securities carried at $78,901,000 from the held-to-maturity classification to
the available-for-sale classification.
See Notes to Consolidated Financial Statements
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000, 1999 and1998
Note A - General Summary of Significant Accounting Policies
The accounting and reporting policies of TriCo Bancshares (the "Company")
conform to generally accepted accounting principles and general practices within
the banking industry. The following are descriptions of the more significant
accounting and reporting policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary, Tri Counties Bank (the "Bank"), and the
wholly-owned subsidiaries of the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Nature of Operations
The Company operates 30 branch offices and 7 in-store branch offices in the
California counties of Butte, Del Norte, Glenn, Kern, Lake, Lassen, Madera,
Mendocino, Merced, Nevada, Sacramento, Shasta, Siskiyou, Stanislaus, Sutter,
Tehama, Tulare and Yuba. The Company's operating policy since its inception has
emphasized retail banking. Most of the Company's customers are retail customers
and small to medium sized businesses.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires Management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Securities
The Company classifies its debt and marketable equity securities into one
of three categories: trading, available-for-sale or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling in the
near term. Held-to-maturity securities are those securities which the Company
has the ability and intent to hold until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale. In
2000 and 1999, the Company did not have any securities classified as trading.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of the
related tax effect, on available-for-sale securities are reported as a separate
component of other comprehensive income in shareholders' equity until realized.
Premiums and discounts are amortized or accreted over the life of the
related investment security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned.
Realized gains and losses for securities are included in earnings and are
derived using the specific identification method for determining the cost of
securities sold.
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
The adoption of SFAS 133 did not materially impact the financial position
or results of operations of the Company as the Company does not utilize
derivative instruments in its operations or engage in any hedging activities. As
allowed by the Statement, in connection with the adoption of SFAS 133, the Bank
reclassified investment securities carried at $78,901,000 from the
held-to-maturity classification to the available-for-sale classification. As a
result of this transfer, an unrealized gain of $337,000, net of tax, was
recognized in other comprehensive income as a cumulative effect of change in
accounting principle.
-6-
Loans
Loans are reported at the principal amount outstanding, net of unearned
income and the allowance for loan losses.
Loan origination and commitment fees and certain direct loan origination
costs are deferred, and the net amount is amortized as an adjustment of the
related loan's yield over the estimated life of the loan.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is generally discontinued
either when reasonable doubt exists as to the full, timely collection of
interest or principal or when a loan becomes contractually past due by 90 days
or more with respect to interest or principal. When loans are 90 days past due,
but in Management's judgment are well secured and in the process of collection,
they may not be classified as nonaccrual. When a loan is placed on nonaccrual
status, all interest previously accrued but not collected is reversed. Income on
such loans is then recognized only to the extent that cash is received and where
the future collection of principal is probable. Interest accruals are resumed on
such loans only when they are brought fully current with respect to interest and
principal and when, in the judgment of Management, the loans are estimated to be
fully collectible as to both principal and interest.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when Management believes that the collectibility of the principal is
unlikely or, with respect to consumer installment loans, according to an
established delinquency schedule. The allowance is an amount that Management
believes will be adequate to absorb probable losses inherent in existing loans,
leases and commitments to extend credit, based on evaluations of the
collectibility, impairment and prior loss experience of loans, leases and
commitments to extend credit. The evaluations take into consideration such
factors as changes in the nature and size of the portfolio, overall portfolio
quality, loan concentrations, specific problem loans, commitments, and current
economic conditions that may affect the borrower's ability to pay.
The Company defines a loan as impaired when it is probable the Company will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. Certain impaired loans are measured based on the present value
of expected future cash flows discounted at the loan's original effective
interest rate. As a practical expedient, impairment may be measured based on the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance.
Mortgage Operations
The Company sold substantially all of its conforming long-term residential
mortgage loans originated during 2000, 1999, and 1998 for cash proceeds equal to
the fair value of the loans. The Company records originated mortgage servicing
rights as assets by allocating the total cost basis between the loan and the
servicing right based on their relative fair values.
The recorded value of mortgage servicing rights is amortized in proportion
to, and over the period of, estimated net servicing revenues. The Company
assesses capitalized mortgage servicing rights for impairment based upon the
fair value of those rights at each reporting date. For purposes of measuring
impairment, the rights are stratified based upon the product type, term and
interest rates. Fair value is determined by discounting estimated net future
cash flows from mortgage servicing activities using discount rates that
approximate current market rates and estimated prepayment rates, among other
assumptions. The amount of impairment recognized, if any, is the amount by which
the capitalized mortgage servicing rights for a stratum exceeds their fair
value. Impairment, if any, is recognized through a valuation allowance for each
individual stratum.
At December 31, 2000, the Company had no mortgage loans held for sale. At
December 31, 2000 and 1999, the Company serviced real estate mortgage loans for
others of $149 million and $149 million, respectively.
Premises and Equipment
Premises and equipment, including those acquired under capital lease, are
stated at cost less accumulated depreciation and amortization. Depreciation and
amortization expenses are computed using the straight-line method over the
estimated useful lives of the related assets or lease terms. Asset lives range
from 3-10 years for furniture and equipment and 15-40 years for land
improvements and buildings.
-7-
Other Real Estate Owned
Real estate acquired by foreclosure is carried at the lower of the recorded
investment in the property or its fair value less estimated disposition costs.
Prior to foreclosure, the value of the underlying loan is written down to the
fair value of the real estate to be acquired less estimated disposition costs by
a charge to the allowance for loan losses, when necessary. Any subsequent
write-downs are recorded as a valuation allowance with a charge to other
expenses in the income statement. Expenses related to such properties, net of
related income, and gains and losses on their disposition, are included in other
expenses.
Identifiable Intangible Assets
Identifiable intangible assets are included in other assets and are
amortized using an accelerated method over a period of ten years.
Income Taxes
The Company's accounting for income taxes is based on an asset and
liability approach. The Company recognizes the amount of taxes payable or
refundable for the current year, and deferred tax assets and liabilities for the
future tax consequences that have been recognized in its financial statements or
tax returns. The measurement of tax assets and liabilities is based on the
provisions of enacted tax laws.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and federal funds sold.
Stock-Based Compensation
The Company uses the intrinsic value method to account for its stock option
plans (in accordance with the provisions of Accounting Principles Board Opinion
No. 25). Under this method, compensation expense is recognized for awards of
options to purchase shares of common stock to employees under compensatory plans
only if the fair market value of the stock at the option grant date (or other
measurement date, if later) is greater than the amount the employee must pay to
acquire the stock. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123) permits companies to continue
using the intrinsic value method or to adopt a fair value based method to
account for stock option plans. The fair value based method results in
recognizing as expense over the vesting period the fair value of all stock-based
awards on the date of grant. The Company has elected to continue to use the
intrinsic value method and the pro forma disclosures required by SFAS 123 are
included in Note J.
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 a component of shareholders' equity.
The changes in the components of other comprehensive income for the years ended
December 31, 2000, 1999, and 1998 are reported as follows:
2000 1999 1998
(in thousands)
Unrealized gain (loss) arising during the period, net of tax $5,209 $(6,452) $1,128
Reclassification adjustment for net realized gains
on securities available for sale included in net
income during the year, net of tax of $0 , $9 and
$115, respectively -- (15) (201)
-----------------------------------------
$5,209 $(6,467) $927
=========================================
-8-
Reclassifications
Certain amounts previously reported in the 1999 and 1998 financial
statements have been reclassified to conform to the 2000 presentation. These
reclassifications did not affect previously reported net income or total
shareholders' equity.
Note B - Restricted Cash Balances
Reserves (in the form of deposits with the Federal Reserve Bank) of $500,000
were maintained to satisfy Federal regulatory requirements at December 31, 2000
and December 31, 1999. These reserves are included in cash and due from banks in
the accompanying balance sheet.
Note C - Investment Securities
The amortized cost and estimated fair values of investments in debt securities
are summarized in the following tables:
December 31, 2000
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------
(in thousands)
Securities Available-for-Sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $31,308 $35 $(170) $31,173
Obligations of states and political subdivisions 44,721 778 (123) 45,376
Mortgage-backed securities 136,410 31 (1,355) 135,086
Other securities 17,183 1,831 (1,539) 17,475
------------------------------------------------------------
Totals $229,622 $2,675 $(3,187) $229,110
============================================================
December 31, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------
(in thousands)
Securities Available-for-Sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $31,447 $16 $ (887) $30,576
Obligations of states and political subdivisions 44,969 40 (2,394) 42,615
Mortgage-backed securities 137,980 1 (5,392) 132,589
Other securities 26,029 170 (271) 25,928
-----------------------------------------------------------
Totals $240,425 $227 $(8,944) $231,708
===========================================================
-9-
The amortized cost and estimated fair value of debt securities at December
31, 2000 by contractual maturity are shown below. Actual maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
(in thousands)
Securities Available-for-Sale
Due in one year $5,305 $5,299
Due after one year through five years 29,687 29,605
Due after five years through ten years 48,958 48,594
Due after ten years 140,215 138,323
-----------------------------------
Other Securities 5,457 7,289
-----------------------------------
Totals $229,622 $229,110
===================================
Proceeds from sales of securities available-for-sale were as follows:
Gross Gross Gross
For the Year Proceeds Gains Losses
(in thousands)
2000 $ -- $ -- $ --
1999 $14,137 $ 24 $ --
1998 $87,094 $331 $ 15
Investment securities with an aggregate carrying value of $128,500,000 and
$106,585,000 at December 31, 2000 and 1999, respectively, were pledged as
collateral for specific borrowings, lines of credit and local agency deposits.
Note D - Allowance for Loan Losses
Activity in the allowance for loan losses was as follows:
Years Ended December 31,
2000 1999 1998
(in thousands)
Balance, beginning of year $11,037 $8,206 $6,459
Provision for loan losses 5,000 3,550 4,200
Loans charged off (4,705) (1,082) (2,755)
Recoveries of loans previously charged off 338 363 302
----------------------------------
Balance, end of year $11,670 $11,037 $8,206
Loans classified as nonaccrual amounted to approximately $ 12,262,000,
$1,758,000 and $1,045,000 at December 31, 2000, 1999, and 1998, respectively.
These nonaccrual loans were classified as impaired and are included in the
recorded balance in impaired loans for the respective years shown below. If
interest on those loans had been accrued, such income would have been
approximately $731,000, $69,000 and $220,000, in 2000, 1999 and 1998,
respectively.
-10-
As of December 31, the Company's recorded investment in impaired loans and
the related valuation allowance were as follows (in thousands):
2000
Recorded Valuation
Investment Allowance
Impaired loans -
Valuation allowance required $16,191 $3,266
No valuation allowance required 25,322
-----------------------------------
Total impaired loans $41,513 $3,266
1999
Recorded Valuation
Investment Allowance
Impaired loans -
Valuation allowance required $649 $215
No valuation allowance required 3,943 --
-----------------------------------
Total impaired loans $4,592 $215
This valuation allowance is included in the allowance for loan losses shown
above for the respective year. The average recorded investment in impaired loans
was $23,053,000, $5,147,000 and $9,459,000 for the years ended December 31,
2000, 1999 and 1998, respectively. The Company recognized interest income on
impaired loans of $2,962,000, $371,000 and $565,000 for the years ended December
31, 2000, 1999 and 1998, respectively.
Note E - Premises and Equipment
Premises and equipment were comprised of:
December 31,
2000 1999
(in thousands)
Premises $12,215 $11,814
Furniture and equipment 15,180 14,040
27,395 25,854
Less:
Accumulated depreciation
and amortization (14,181) (13,372)
13,214 12,482
Land and land improvements 3,558 3,561
$16,772 $16,043
Depreciation and amortization of premises and equipment amounted to
$2,152,000, $2,281,000 and $2,251,000 in 2000, 1999 and 1998, respectively.
-11-
Note F - Time Deposits
At December 31, 2000, the scheduled maturities of time deposits were as follows
(in thousands):
Scheduled
Maturities
2001 $285,427
2002 12,796
2003 5,992
2004 20
2005 and thereafter 148
---------
Total $304,383
Note G - Long-Term Debt and Other Borrowings
Long-term debt is as follows:
December 31,
2000 1999
(in thousands)
FHLB loan, fixed rate of 5.41% payable on May 30, 2000 $ -- $20,000
FHLB loan, fixed rate of 5.84% payable on November 6, 2000 -- 1,500
FHLB loan, fixed rate of 5.90% payable on January 16, 2001 1,000 1,000
FHLB loan, fixed rate of 7.36% payable on November 30, 2001 10,000 --
FHLB loan, fixed rate of 5.41% payable on April 7, 2008, callable
by FHLB on a quarterly basis beginning April 7, 2003 20,000 20,000
FHLB loan, fixed rate of 5.35% payable on December 9, 2008 1,500 1,500
FHLB loan, fixed rate of 5.77% payable on February 23, 2009 1,000 1,000
Capital lease obligation on premises, effective rate of 13% payable
monthly in varying amounts through December 1, 2009 483 505
-------------------------
Total long-term debt $33,983 $45,505
The Company maintains a collateralized line of credit with the Federal Home
Loan Bank of San Francisco. Based on the FHLB stock requirements at December 31,
2000, this line provided for maximum borrowings of $117,121,000 of which
$33,500,000 was outstanding, leaving $83,621,000 available. The maximum
month-end outstanding balances of short term reverse repurchase agreements in
2000 and 1999 were $16,611,000 and $5,000,000, respectively. The Company has
available unused lines of credit totaling $64,500,000 for Federal funds
transactions at December 31, 2000.
-12-
Note H - Commitments and Contingencies (See also Note P)
At December 31, 2000, future minimum commitments under non-cancelable
capital and operating leases with initial or remaining terms of one year or more
are as follows:
Capital Operating
Leases Leases
(in thousands)
2001 $ 88 $1,000
2002 89 897
2003 90 861
2004 91 744
2005 92 552
Thereafter 379 2,495
---------------------------
Future minimum lease payments 829 $6,549
Less amount representing interest 346
---------------------------
Present value of future lease payments $ 483
Rent expense under operating leases was $971,000 in 2000, $1,013,000 in
1999, and $1,066,000 in 1998.
The Company is a defendant in legal actions arising from normal business
activities. Management believes that these actions are without merit or that the
ultimate liability, if any, resulting from them will not materially affect the
Company's financial position or results from operations.
Note I - Dividend Restrictions
The Bank paid to the Company cash dividends in the aggregate amounts of
$7,118,000, $5,170,000 and $3,650,000 in 2000, 1999 and 1998, respectively. The
Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the
State of California Department of Financial Institutions. California banking
laws limit the Bank's ability to pay dividends to the lesser of (1) retained
earnings or (2) net income for the last three fiscal years, less cash
distributions paid during such period. Under this regulation, at December 31,
2000, the Bank may pay dividends of $17,867,000.
-13-
Note J - Stock Options
In May 1995, the Company adopted the TriCo Bancshares 1995 Incentive Stock
Option Plan ('95 Plan) covering key employees. Under the 1995 Plan, the option
price cannot be less than the fair market value of the Common Stock at the date
of grant. Options for the '95 Plan expire on the tenth anniversary of the grant
date.
The Company also has outstanding options under one plan approved in 1993
and two plans approved in 1989. Options under the 1993 plan were granted at an
exercise price less than the fair market value of the common stock and vest over
a six year period. Options under the 1989 plans vest 20% annually. Unexercised
options for the 1993 and 1989 plans terminate 10 years from the date of the
grant.
Stock option activity is summarized in the following table:
Weighted Weighted
Average Average
Number Option Price Exercise Fair Value
Of Shares* Per Share Price of Grants
Outstanding at
December 31, 1997 671,357 $4.95 to $18.25 $5.65
Options exercised (60,125) 4.95 to 18.25 5.12
Options forfeited (1,350) 18.25 to 18.25 18.25
Outstanding at
December 31, 1998 609,882 4.95 to 18.25 7.37
Options exercised (106,440) 4.95 to 5.24 5.09
Options forfeited (2,551) 5.24 to 18.25 12.89
Outstanding at
December 31, 1999 500,891 4.95 to 18.25 7.82
Options granted 118,900 16.13 to 16.13 16.13 $3.99
Options exercised (78,625) 5.24 to 5.24 5.24
Options forfeited (750) 18.25 to 18.25 18.25
Outstanding at
December 31, 2000 540,416 $4.95 to $18.25 $10.01
*Adjusted for the 3-for-2 Common Stock split effected October 30, 1998.
Of the stock options outstanding as of December 31, 2000, options on
426,902 shares were exercisable at a weighted average price of $8.38.
The Company has stock options outstanding under the four option plans
described above. The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized except for the options
granted under the 1993 plan. The Company recognized expense of $69,000,
$166,000, and $166,000 for the 1993 Plan options in 2000, 1999 and 1998,
respectively. Had compensation cost for these plans been determined in
accordance with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
2000 1999 1998
Net income As reported $12,623 $11,403 $8,770
Pro forma $12,507 $11,330 $8,697
Basic earnings per share As reported $1.76 $1.60 $1.25
Pro forma $1.74 $1.59 $1.24
Diluted earnings per share As reported $1.72 $1.56 $1.21
Pro forma $1.70 $1.55 $1.20
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 2000: risk-free interest rate of 6.65%; expected
dividend yield of 4.7%; expected life of 6 years; expected volatility of 30%. No
options were granted in 1999 and 1998.
-14-
Note K - Other Noninterest Income and Expenses
The components of other noninterest income were as follows:
Years Ended December 31,
2000 1999 1998
(in thousands)
Commissions on sale of investment and insurance products $ 2,784 $ 2,319 $ 2,066
Gain on sale of loans and leases 525 800 497
Increase in cash value of insurance policies 657 373 336
Sale of customer checks 286 283 263
Gain (loss) on sale of other real estate owned 83 178 (96)
Gain on sale of credit card portfolio -- -- 897
Receipt of stock from insurance company demutualization 1,510 -- --
Other 1,316 997 1,203
-------------------------------------------
Total other noninterest income $7,161 $4,950 $5,166
The components of other noninterest expenses were as follows:
Years Ended December 31,
2000 1999 1998
(in thousands)
Equipment and data processing $3,376 $ 3,525 $ 3,551
Occupancy 2,587 2,456 2,353
Advertising 1,336 943 879
Professional fees 1,005 1,027 1,046
Intangible amortization 965 1,135 1,338
Telecommunications 957 906 976
Postage 486 552 548
Assessments 222 179 174
Net other real estate owned expense 127 62 540
Provision for premises impairment and lease loss -- -- 175
Operational losses 807 273 334
Other 6,115 5,938 5,975
-------------------------------------------
Total other noninterest expenses $17,983 $16,996 $17,889
-15-
Note L - Income Taxes
The current and deferred components of the income tax provision were
comprised of:
Years Ended December 31,
2000 1999 1998
(in thousands)
Current Tax Provision:
Federal $5,890 $ 5,013 $ 5,245
State 1,997 1,931 1,888
-------------------------------------------
Total current 7,887 6,944 7,133
Deferred Tax Benefit:
Federal (511) (152) (1,621)
State (139) (258) (463)
-------------------------------------------
Total deferred (650) (410) (2,084)
-------------------------------------------
Total income taxes $ 7,237 $ 6,534 $ 5,049
Taxes recorded directly to shareholders' equity are not included in the
preceding table. These taxes (benefits) relating to changes in the unrealized
gains and losses on available-for-sale investment securities amounting to
$2,996,000 in 2000, $(3,846,000) in 1999 and $657,000 in 1998, and benefits
related to employee stock options of $243,000 in 2000, $246,000 in 1999 and
$224,000 in 1998 were recorded directly to shareholders' equity.
The provisions for income taxes applicable to income before taxes for the
years ended December 31, 2000, 1999 and 1998 differ from amounts computed by
applying the statutory Federal income tax rates to income before taxes. The
effective tax rate and the statutory federal income tax rate are reconciled as
follows:
Years Ended December 31,
2000 1999 1998
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 6.2 6.3 6.8
Tax-exempt interest on municipal obligations (3.9) (3.9) (4.1)
Other 0.1 -- (0.2)
----------------------------
Effective Tax Rate 36.4% 36.4% 36.5%
-16-
The components of the net deferred tax asset of the Company as of December
31, were as follows:
2000 1999
(in thousands)
Deferred Tax Assets:
Loan losses $ 5,015 $ 4,586
Deferred compensation 2,948 2,519
Intangible amortization 882 823
Nonaccrual interest 335 31
Stock option amortization 243 286
Unrealized loss on securities 188 3,184
OREO write downs 181 266
Other 323 816
--------------------------
Total deferred tax assets 10,115 12,511
Deferred Tax Liabilities:
Securities income (833) --
Securities accretion (384) (299)
Depreciation (339) (671)
Capital leases (105) (101)
State taxes (36) (351)
Other (325)
--------------------------
Total deferred tax liability (1,697) (1,747)
--------------------------
Net deferred tax asset $ 8,418 $10,764
-17-
Note M - Retirement Plans
Substantially all employees with at least one year of service are covered
by a discretionary employee stock ownership plan (ESOP). Contributions are made
to the plan at the discretion of the Board of Directors. Contributions to the
plan(s) totaling $842,000 in 2000, $881,000 in 1999, and $640,000 in 1998 are
included in salary expense.
The Company has a supplemental retirement plan for directors and a
supplemental executive retirement plan covering key executives. These plans are
non-qualified defined benefit plans and are unsecured and unfunded. The Company
has purchased insurance on the lives of the participants and intends to use the
cash values of these policies ($7,938,000 and $7,247,000 at December 31, 2000
and 1999, respectively) to pay the retirement obligations.
The Company has an Executive Deferred Compensation Plan, which allows
directors and key executives designated by the Board of Directors of the Company
to defer a portion of their compensation. The Company has purchased insurance on
the lives of the participants and intends to use the cash values of these
policies to pay the compensation obligations. At December 31, 2000 and 1999, the
cash values exceeded the recorded liabilities.
The following table sets forth the plans' status:
December 31,
2000 1999
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $(4,378) $(3,933)
Service cost (74) (70)
Interest cost (317) (275)
Amendments (181) (78)
Actuarial loss (322) (158)
Benefits paid 138 136
------------------------
Benefit obligation at end of year $(5,134) $(4,378)
Change in plan assets:
Fair value of plan assets at beginning of year $ -- $ --
Fair value of plan assets at end of year $ -- $ --
Funded status $(5,134) $(4,378)
Unrecognized net obligation existing at January 1, 1986 148 183
Unrecognized net actuarial loss 1,264 983
Unrecognized prior service cost 333 166
------------------------
Accrued benefit cost $(3,389) $(3,046)
Years Ended December 31,
2000 1999 1998
(in thousands)
Net pension cost included the following components:
Service cost-benefits earned during the period $ 74 $ 70 $ 53
Interest cost on projected benefit obligation 317 275 256
Amortization of net obligation at transition 35 35 35
Amortization of prior service cost 13 11 10
Recognized net actuarial loss 41 43 47
Net periodic pension cost $480 $434 $401
The net periodic pension cost was determined using a discount rate assumption of
7.25% for 2000, 7.0% for 1999, and 7.0% for 1998, respectively. The rates of
increase in compensation used in each year were 0% to 5%.
-18-
Note N - Earnings per Share
The Company's basic and diluted earnings per share are as follows (in
thousands except per share data):
Year Ended December 31, 2000
Weighted Average
Income Shares Per Share Amount
Basic Earnings per Share
Net income available to common shareholders $12,623 7,191,790 $1.76
Common stock options outstanding -- 148,939
Diluted Earnings per Share
Net income available to common shareholders $12,623 7,340,729 $1.72
======= =========
Year Ended December 31, 1999
Weighted Average
Income Shares Per Share Amount
Basic Earnings per Share
Net income available to common shareholders $11,403 7,129,560 $1.60
Common stock options outstanding -- 188,960
Diluted Earnings per Share
Net income available to common shareholders $11,403 7,318,520 $1.56
======= =========
Year Ended December 31, 1998
Weighted Average
Income Shares Per Share Amount
Basic Earnings per Share
Net income available to common shareholders $8,770 7,017,306 $1.25
Common stock options outstanding -- 259,296
Diluted Earnings per Share
Net income available to common shareholders $8,770 7,276,602 $1.21
======= =========
-19-
Note O - Related Party Transactions
Certain directors, officers, and companies with which they are associated
were customers of, and had banking transactions with, the Company or its
Subsidiary in the ordinary course of business. It is the Company's policy that
all loans and commitments to lend to officers and directors be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other borrowers of the
Bank.
The following table summarizes the activity in these loans for 2000:
Balance Balance
December 31, Advances/ Removed/ December 31,
1999 New Loans Payments 2000
(in thousands)
$9,912 $1,390 $4,779 $6,523
Note P - Financial Instruments With Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contract amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Contractual Amount
December 31,
2000 1999
(in thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit:
Commercial loans $79,808 $74,992
Consumer loans 55,528 49,735
Real estate mortgage loans 477 364
Real estate construction loans 22,289 13,581
Standby letters of credit 1,229 1,988
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates of one year or less or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon extension
of credit, is based on Management's credit evaluation of the customer.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support private borrowing arrangements. Most standby
letters of credit are issued for one year or less. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Collateral requirements vary, but in general
follow the requirements for other loan facilities.
-20-
Note Q - Concentration of Credit Risk
The Company grants agribusiness, commercial, consumer, and residential
loans to customers located throughout the northern San Joaquin Valley, the
Sacramento Valley and northern mountain regions of California. The Company has a
diversified loan portfolio within the business segments located in this
geographical area.
Note R - Disclosure of Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practical to estimate that
value. Cash and due from banks, accrued interest receivable and payable, and
short-term borrowings are considered short-term instruments. For these
short-term instruments their carrying amount approximates their fair value.
Securities
For all securities, fair values are based on quoted market prices or dealer
quotes. See Note C for further analysis.
Loans
The fair value of variable rate loans is the current carrying value. The
interest rates on these loans are regularly adjusted to market rates. The fair
value of other types of fixed rate loans is estimated by discounting the future
cash flows using current rates at which similar loans would be made to borrowers
with similar credit ratings for the same remaining maturities. The allowance for
loan losses is a reasonable estimate of the valuation allowance needed to adjust
computed fair values for credit quality of certain loans in the portfolio.
Deposit Liabilities and Long-Term Debt
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. These
values do not consider the estimated fair value of the Company's core deposit
intangible, which is a significant unrecognized asset of the Company. The fair
value of time deposits and debt is based on the discounted value of contractual
cash flows.
Commitments to Extend Credit and Standby Letters of Credit
The fair value of letters of credit and standby letters of credit is not
significant.
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 2000
Carrying Fair
Financial assets: Amount Value
(in thousands)
Cash and cash equivalents $ 58,190 $ 58,190
Securities:
Available-for-sale 229,110 229,110
Loans, net 628,721 637,389
Accrued interest receivable 6,935 6,935
Financial liabilities:
Deposits 837,832 795,101
Federal funds purchased 500 500
Accrued interest payable 5,245 5,245
Long-term borrowings 33,983 35,066
-21-
December 31, 1999
Carrying Fair
Financial assets: Amount Value
(in thousands)
Cash and cash equivalents $ 60,436 $ 60,436
Securities:
Available-for-sale 231,708 231,708
Loans, net 576,942 562,406
Accrued interest receivable 6,076 6,076
Financial liabilities:
Deposits 794,110 735,559
Federal funds purchased -- --
Accrued interest payable 4,193 4,193
Long-term borrowings 45,505 44,244
Note S - TriCo Bancshares Financial Statements
TriCo Bancshares (Parent Only) Balance Sheets
December 31,
Assets 2000 1999
(in thousands)
Cash $ 272 $ 161
Securities available-for-sale 180 180
Investment in Tri Counties Bank 83,457 71,855
Other assets 1,324 927
--------------------------
Total assets $85,233 $73,123
==========================
Liabilities and shareholders' equity
Total liabilities $ -- $ --
Shareholders' equity:
Common stock, no par value:
Authorized 20,000,000 shares;
issued and outstanding 7,181,226
and 7,152,329 shares, respectively $ 50,428 $ 50,043
Retained earnings 35,129 28,613
Accumulated other comprehensive income (loss) (324) (5,533)
--------------------------
Total shareholders' equity 85,233 73,123
--------------------------
Total liabilities and shareholders' equity $85,233 $73,123
==========================
-22-
Statements of Income Years Ended December 31,
2000 1999 1998
(in thousands)
Interest income $ 18 $ 1 $ --
Administration expense 980 385 369
---------------------------
Loss before equity in net income of Tri Counties Bank (962) (384) (369)
Equity in net income of Tri Counties Bank:
Distributed 7,118 5,170 3,650
Undistributed 6,070 6,459 5,338
Income tax credits 397 158 151
---------------------------
Net income $12,623 $11,403 $8,770
===========================
Statements of Cash Flows
Years ended December 31,
2000 1999 1998
(in thousands)
Operating activities:
Net income $12,623 $11,403 $8,770
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed equity in Tri Counties Bank (6,070) (6,459) (5,338)
Deferred income taxes (397) (158) (153)
Decrease in other operating assets and liabilities -- (8) (76)
Net cash provided by operating activities 6,156 4,778 3,203
Investing activities:
Purchases of securities available-for-sale -- (180) --
Net cash used for investing activities -- (180) --
Financing activities:
Issuance of common stock 411 541 309
Repurchase of common stock (776) (86) (60)
Cash dividends - common (5,680) (4,996) (3,430)
Net cash used for financing activities (6,045) (4,541) (3,181)
Increase in cash and cash equivalents 111 57 22
Cash and cash equivalents at beginning of year 161 104 82
Cash and cash equivalents at end of year $ 272 $ 161 $ 104
-23-
Note T - Regulatory Matters
The Company is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets, and of Tier I
capital to average assets. Management believes, as of December 31, 2000, that
the Company meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, the most recent notification from the FDIC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table below. There are no conditions or events since that
notification that Management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2000:
Total Capital (to Risk Weighted Assets):
Consolidated $89,302 12.20% =>$58,537 =>8.0% =>$73,172 =>10.0%
Tri Counties Bank $87,414 11.97% =>$58,417 =>8.0% =>$73,021 =>10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated $80,156 10.95% =>$29,268 =>4.0% =>$43,903 => 6.0%
Tri Counties Bank $78,255 10.72% =>$29,208 =>4.0% =>$43,812 => 6.0%
Tier I Capital (to Average Assets):
Consolidated $80,156 8.41% =>$38,128 =>4.0% =>$47,660 => 5.0%
Tri Counties Bank $78,255 8.22% =>$38,069 =>4.0% =>$47,587 => 5.0%
As of December 31, 1999:
Total Capital (to Risk Weighted Assets):
Consolidated $80,808 11.77% =>$54,916 =>8.0% =>$68,645 =>10.0%
Tri Counties Bank $79,556 11.61% =>$54,827 =>8.0% =>$68,534 =>10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated $72,227 10.52% =>$27,458 =>4.0% =>$41,187 => 6.0%
Tri Counties Bank $70,959 10.35% =>$27,413 =>4.0% =>$41,120 => 6.0%
Tier I Capital (to Average Assets):
Consolidated $72,227 7.78% =>$37,130 =>4.0% =>$46,413 => 5.0%
Tri Counties Bank $70,959 7.65% =>$37,093 =>4.0% =>$46,367 => 5.0%
-24-
Note U - Summary of Quarterly Results of Operations (unaudited)
The following table sets forth the results of operations for the four
quarters of 2000 and 1999, and is unaudited; however, in the opinion of
Management, it reflects all adjustments (which include only normal recurring
adjustments) necessary to present fairly the summarized results for such
periods.
2000 Quarters Ended
December 31, September 30, June 30, March 31,
(Dollars in thousands, except per share data)
Interest income $19,887 $19,912 $18,960 $17,894
Interest expense 7,584 7,641 6,910 6,408
-------- -------- -------- --------
Net interest income 12,303 12,271 12,050 11,486
Provision for loan losses 1,500 1,800 900 800
-------- -------- -------- --------
Net interest income after
provision for loan losses 10,803 10,471 11,150 10,686
Noninterest income 3,445 3,334 3,240 4,626
Noninterest expense 10,116 9,305 9,450 9,024
-------- -------- -------- --------
Income before income taxes 4,132 4,500 4,940 6,288
Income tax expense 1,428 1,653 1,796 2,360
-------- -------- -------- --------
Net income $ 2,704 $ 2,847 $ 3,144 $ 3,928
======= ======= ======= =======
Per common share:
Net income (diluted) $ 0.37 $ 0.39 $ 0.43 $ 0.54
======= ======= ======= =======
Dividends $ 0.20 $ 0.20 $ 0.20 $ 0.19
======= ======= ======= =======
1999 Quarters Ended
December 31, September 30, June 30, March 31,
(Dollars in thousands, except per share data)
Interest income $18,092 $17,558 $16,594 $16,345
Interest expense 6,442 6,237 5,853 5,838
-------- -------- -------- --------
Net interest income 11,650 11,321 10,741 10,507
Provision for loan losses 965 875 870 840
-------- -------- -------- --------
Net interest income after
provision for loan losses 10,685 10,446 9,871 9,667
Noninterest income 2,923 2,848 3,368 2,962
Noninterest expense 8,820 8,640 8,887 8,486
-------- -------- -------- --------
Income before income taxes 4,788 4,654 4,352 4,143
Income tax expense 1,703 1,721 1,601 1,509
-------- -------- -------- --------
Net income $ 3,085 $ 2,933 $ 2,751 $ 2,634
======= ======= ======= =======
Per common share:
Net income (diluted) $ 0.42 $ 0.40 $ 0.38 $ 0.36
======= ======= ======= =======
Dividends $ 0.19 $ 0.19 $ 0.16 $ 0.16
======= ======= ======= =======
-25-
Note V - Business Segments
The Company is principally engaged in traditional community banking
activities provided through its 30 branches and 7 in-store branches located
throughout Northern and Central 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. In 1998 and prior,
the Company held investments in real estate through its wholly-owned subsidiary,
TCB Real Estate. These activities are monitored and reported by Bank management
as separate operating segments.
The accounting policies of the segments are the same as those described in
Note A. The Company evaluates segment performance based on net interest income,
or profit or loss from operations, before income taxes not including
nonrecurring gains and losses.
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 for the years ended December 31, 2000,
1999 and 1998 concerning the Bank's reportable segments is as follows:
Community
Banking Other Total
2000
Net interest income $ 47,228 $ 882 $ 48,110
Noninterest income 11,506 3,139 14,645
Noninterest expense 35,913 1,982 37,895
Net income 11,328 1,295 12,623
Assets $956,447 $15,624 $972,071
1999
Net interest income $ 43,540 $ 679 $ 44,219
Noninterest income 9,668 2,433 12,101
Noninterest expense 33,558 1,275 34,833
Net income 10,237 1,166 11,403
Assets $915,890 $8,906 $924,796
1998
Net interest income $ 39,789 $ 53 $ 39,842
Noninterest income 10,777 2,092 12,869
Noninterest expense 33,416 1,276 34,692
Net income 8,203 567 8,770
Assets $901,580 $3,019 $904,599
-26-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of TriCo Bancshares and Subsidiary:
We have audited the accompanying consolidated balance sheets of TriCo
Bancshares (a California corporation) and Subsidiary as of December 31, 2000 and
1999, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TriCo
Bancshares and Subsidiary as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000 in conformity with auditing standards generally accepted
in the United States.
/s/ Arthur Andersen, LLP
San Francisco, California
January 17, 2001
-27-
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. Interest income and net interest
income are presented on a tax equivalent basis.
In addition to the historical information contained herein, this Annual
Report contains certain forward-looking statements. The reader of this Annual
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 Annual 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
2000 was another outstanding year for TriCo Bancshares and Tri Counties
Bank, and marked the Bank's twenty-fifth year of existence. During the year, the
Company continued its expansion into the San Joaquin Valley with the opening of
a branch in Modesto, and added to its presence north of Sacramento with the
opening of a branch in Paradise. In 2000, the Bank also refocused and added
resources to enhance its retail and small business banking delivery systems. At
the same time the Bank was expanding, it was able to improve the profitability
of its entire operation from the Oregon border to Bakersfield.
Strong loan demand and expense control allowed the Bank to increase its
loan to deposit ratio, net interest margin and efficiency ratio in 2000. 2000
was the third year in which every employee's compensation was tied to the
financial performance of the employee's business unit, the business units they
support, and the Bank overall. The combination of growth and increased internal
cooperation resulted in a 10.7% increase in net income during 2000. Management
believes the Bank is positioned to realize continued growth in earnings and
returns for shareholders in 2001.
The Company had earnings of $12,623,000 for the year ended December 31,
2000 versus $11,403,000 for 1999. Diluted earnings per share for the same years
were $1.72 and $1.56, respectively.
Net interest income for 2000 was $49,280,000 which was an increase of
$3,907,000 (8.6%) over 1999. The interest income component of net interest
income was up 11.6% to $77,823,000. Interest and fees on loans were up
$8,766,000 (16.4%) to $62,161,000 as average loans outstanding increased
$57,979,000 (10.2%) to $624,717,000 and the average earnings rate on loans
increased 53 basis points to 9.95%. Interest income on investment securities and
federal funds sold decreased $686,000 (4.2%) to $15,662,000 mostly due to lower
average balances. Interest expense was up $4,173,000 (17.1%) to $28,543,000.
This increase was due to an increase in the average rate paid on interest
bearing liabilities from 3.57% to 4.05%, as well as an increase in average
balances of interest bearing liabilities from $682,358,000 to $704,005,000. Net
interest margin was 5.73% in 2000 versus 5.49% in 1999.
The Bank provided $5,000,000 to the allowance for loan losses in 2000
compared to $3,550,000 in 1999. Net loan charge-offs in 2000 were $4,367,000
compared to $719,000 in 1999. At year-end 2000 and 1999 the allowance for loan
losses as a percentage of gross loans was 1.82% and 1.88%, respectively.
Noninterest income is comprised of "service charges and fees" and "other
income". Service charge and fee income increased $357,000 (5.0%) to $7,484,000
in 2000 versus year ago results. Other income was up $2,187,000 (44.0%) to
$7,161,000 from $4,974,000 in 1999. The increase in other income included 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. Also during 2000,
income from the sale of mutual funds, annuities and insurance increased $465,000
(20.1%) to $2,784,000. Overall, noninterest income increased $2,544,000 (21.0%)
for the year to $14,645,000.
-28-
Noninterest expenses increased $3,062,000 (8.8%) to $37,895,000 in 2000.
The Company's efficiency ratio, which is noninterest expense divided by the sum
of noninterest income and fully tax-equivalent net interest income, improved to
59.3% in 2000 from 60.6% in 1999.
Salary and benefit expenses increased $2,075,000 (11.6%) to $19,912,000 in
2000. Incentive and commission related salary expenses increased $444,000
(24.3%) to $2,274,000 in 2000. Base salaries and benefits increased $1,631,000
(10.2%) in 2000. The increase in base salaries was mainly due to a 3.7% increase
in average full time equivalent employees (FTEs) from 378 during 1999 to 392
during 2000, and an average annual base salary and benefits expense increase of
6.5% during 2000. The large increase in incentive and commission related salary
expense was more than offset by revenue growth. These results are consistent
with the Bank's strategy of working more efficiently with fewer employees who
are compensated in part based on their business unit's performance. Other
noninterest expenses increased $987,000 (5.8%) to $17,983,000 in 2000.
Assets of the Company totaled $972,071,000 at December 31, 2000 which was
an increase of $47,275,000 (5.1%) from 1999 ending balances.
For 2000, the Company realized a return on assets of 1.35% and a return on
shareholders' equity of 16.03% versus 1.26% and 15.59%, respectively, in 1999.
The Company ended 2000 with a Tier 1 capital ratio of 11.0% and a total
risk-based capital ratio of 12.2%.
Management's continuing goal for the Bank is to deliver a full array of
competitive products to its customers while maintaining the personalized
customer service of a community bank. We believe this strategy will provide
continued growth and the ability to achieve strong returns for our shareholders.
-29-
(A) Results of Operations
Years Ended December 31,
2000 1999 1998 1997 1996
(in thousands, except earnings per share amounts)
Interest income:
Interest and fees on loans $ 62,161 $ 53,395 $ 48,506 $ 44,903 $ 38,227
Interest on investment securities-taxable 11,704 12,500 14,622 13,791 10,409
Interest on investment securities-tax exempt1 3,420 3,383 2,809 958 207
Interest on federal funds sold 538 465 150 553 392
----------------------------------------------------------------
Total interest income 77,823 69,743 66,087 60,205 49,235
Interest expense:
Interest on deposits 25,003 21,277 22,865 22,682 17,201
Interest on short-term borrowing 623 386 816 537 359
Interest on long-term debt 2,917 2,707 1,615 716 1,619
----------------------------------------------------------------
Total interest expense 28,543 24,370 25,296 23,935 19,179
----------------------------------------------------------------
Net interest income 49,280 45,373 40,791 36,270 30,056
Provision for loan losses 5,000 3,550 4,200 3,000 777
----------------------------------------------------------------
Net interest income after provision
for loan losses 44,280 41,823 36,591 33,270 29,279
Noninterest income:
Service charges, fees and other 14,645 12,077 12,553 9,548 6,636
Investment securities gains (losses), net -- 24 316 18 --
----------------------------------------------------------------
Total noninterest income 14,645 12,101 12,869 9,566 6,636
Noninterest expenses:
Salaries and employee benefits 19,912 17,837 16,803 15,671 11,989
Other, net 17,983 16,996 17,889 17,261 11,496
----------------------------------------------------------------
Total noninterest expenses 37,895 34,833 34,692 32,932 23,485
Net income before income taxes 21,030 19,091 14,768 9,904 12,430
Income taxes 7,237 6,534 5,049 3,707 5,037
Tax equivalent adjustment2 1,170 1,154 949 328 87
----------------------------------------------------------------
Net income $12,623 $11,403 $ 8,770 $ 5,869 $ 7,306
================================================================
Basic earnings per common share2 $ 1.76 $ 1.60 $ 1.25 $ 0.84 $ 1.08
Diluted earnings per common share2 $ 1.72 $ 1.56 $ 1.21 $ 0.81 $ 1.04
Cash dividend paid per share $ 0.79 $ 0.70 $ 0.49 $ 0.43 $ 0.39
Selected Balance Sheet Information
Total Assets $972,071 $924,796 $904,599 $826,165 $694,859
Long-term Debt $33,983 $45,505 $37,924 $11,440 $24,281
1 Interest on tax-free securities is reported on a tax equivalent basis of 1.52 for 2000, 1.52 for 1999, 1.52 for 1998, 1.52 for
1997, and 1.72 for 1996.
2 Restated on a historical basis to reflect the 3-for-2 stock split effected October 30, 1998.
-30-
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 for 2000 totaled $49,280,000 which was up $3,907,000
(8.6%) over the prior year. Interest income increased $8,080,000 (11.6%) to
$77,823,000 in 2000. Average outstanding loan balances of $624,717,000 for 2000
reflected a 10.2% increase over 1999 balances. This increase in average loan
balances contributed an additional $5,462,000 to interest income and was the
major factor in the improvement in net interest income. The average yield
received on loans rose 53 basis points to 9.95% which increased interest income
by $3,304,000. This increase in average yield resulted from increases in market
interest rates that began in 1999 and reached their high in the spring of 2000.
Average balances of investment securities decreased $24,178,000 (9.7%) to
$226,163,000. The lower volume of securities resulted in a decrease in interest
income of $1,534,000. An increase of 35 basis points in the average tax
effective yield on investments added $775,000 to interest income.
Interest expense increased $4,173,000 (17.1%) to $28,543,000 in 2000.
Higher average balances of interest- bearing liabilities added $1,009,000 to
interest expense in 2000 as compared to 1999, while a higher average rate paid
for those balances increased interest expense by $3,164,000. Net interest margin
for 2000 was 5.73% versus 5.49% in 1999.
Net interest income for 1999 totaled $45,373,000 which was up $4,582,000
(11.2%) over the prior year. Average outstanding loan balances of $566,738,000
for 1999 reflected a 16.2% increase over 1998 balances. This increase
contributed an additional $7,873,000 to interest income and was the major factor
in the improvement in net interest income. The average yield received on loans
fell 53 basis points to 9.42% which reduced interest income by $2,984,000. This
decrease in average yield resulted from reductions in market interest rates that
began in 1998 and reached their low in the spring of 1999 before beginning to
rise in the fall of 1999. Average balances of investment securities decreased
$31,706,000 (11.2%) to $250,341,000. The lower volume of securities resulted in
a decrease in interest income of $1,959,000. An increase of 16 basis points in
the average tax effective yield on investments added $411,000 to interest
income.
Interest expense decreased $926,000 (3.7%) to $24,370,000 in 1999. Higher
average balances of interest- bearing liabilities added $1,225,000 to interest
expense in 1999 as compared to 1998, while a lower average rate paid for those
balances reduced interest expense by $2,151,000. Net interest margin for 1999
was 5.49% versus 5.28% in 1998.
Table One, Analysis of Net Interest Margin on Earning Assets, and Table
Two, Analysis of Volume and Rate Changes on Net Interest Income and Expenses,
are provided to enable the reader to understand the components and past trends
of the Bank's interest income and expenses. Table One provides an analysis of
net interest margin on earning assets setting forth average assets, liabilities
and shareholders' equity; interest income earned and interest expense paid and
average rates earned and paid; and the net interest margin on earning assets.
Table Two presents an analysis of volume and rate change on net interest income
and expense.
-31-
Table One: Analysis of Net Interest Margin on Earning Assets
2000 1999 1998
Average Yield/ Average Yield/ Average Yield/
Assets Balance1 Income Rate Balance1 Income Rate Balance1 Income Rate
(dollars in thousands)
Earning assets:
Loans2,3 $624,717 $62,161 9.95% $566,738 $53,395 9.42% $487,598 $48,506 9.95%
Securities - taxable 181,316 11,704 6.46% 205,489 12,500 6.08% 245,499 14,622 5.96%
Securities - nontaxable4 44,847 3,420 7.63% 44,852 3,383 7.54% 36,548 2,809 7.69%
Federal funds sold 8,696 538 6.19% 8,733 465 5.32% 2,663 150 5.63%
---------------------------------------------------------------------------------------------
Total earning assets 859,576 77,823 9.05% 825,812 69,743 8.45% 772,308 66,087 8.56%
Cash and due from banks 39,295 37,206 33,819
Premises and equipment 16,622 16,260 17,448
Other assets, net 42,150 37,210 32,921
Less: Unrealized gain
(loss) on securities (8,112) (3,508) 355
Less: Allowance for loan
losses (11,741) (9,525) (7,270)
--------- --------- ---------
Total assets $937,790 $903,455 $849,581
Liabilities and
shareholders' equity
Interest-bearing demand
deposits $149,412 2,360 1.58% $145,558 2,287 1.57% $137,001 2,932 2.14%
Savings deposits 218,286 6,837 3.13% 224,368 6,811 3.04% 212,291 6,473 3.05%
Time deposits 278,968 15,806 5.67% 255,659 12,179 4.76% 257,805 13,460 5.22%
Federal funds purchased 7,753 524 6.76% 7,024 356 5.07% 8,025 446 5.56%
Repurchase agreements 1,508 99 6.56% 614 30 4.89% 6,474 370 5.72%
Long-term debt 48,078 2,917 6.07% 49,135 2,707 5.51% 28,426 1,615 5.68%
---------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 704,005 28,543 4.05% 682,358 24,370 3.57% 650,022 25,296 3.89%
Noninterest-bearing
deposits 141,767 135,511 119,929
Other liabilities 13,277 12,465 11,109
Shareholders' equity 78,741 73,121 68,521
--------- --------- ---------
Total liabilities and
shareholders' equity $937,790 $903,455 $849,581
Net interest rate spread5 5.00% 4.87% 4.67%
Net interest income/net
interest margin6 $49,280 5.73% $45,373 5.49% $40,791 5.28%
1 Average balances are computed principally on the basis of daily balances.
2 Nonaccrual loans are included.
3 Interest income on loans includes fees on loans of $2,928,000 in 2000,
$2,853,000 in 1999, and $2,958,000 in 1998.
4 Interest income is stated on a tax equivalent basis of 1.52 in 2000, 1999,
and 1998.
5 Net interest rate spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities.
6 Net interest margin is computed by dividing net interest income by total
average earning assets.
-32-
Table Two: Analysis of Volume and Rate Changes on Net Interest Income and Expenses
2000 over 1999 1999 over 1998
Yield/ Yield/
Volume Rate 4 Total Volume Rate 4 Total
Increase (decrease) in (dollars in thousands)
interest income:
Loans1,2 $ 5,462 $ 3,304 $ 8,766 $ 7,873 $(2,984) $ 4,889
Investment securities3 (1,534) 775 (759) (1,959) 411 (1,548)
Federal funds sold (2) 75 73 342 (27) 315
-------------------------------------------------------------------------
Total 3,926 4,154 8,080 6,256 (2,600) 3,656
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 61 12 73 183 (828) (645)
Savings deposits (185) 211 26 368 (30) 338
Time deposits 1,110 2,517 3,627 (112) (1,169) (1,281)
Federal funds purchased 37 131 168 (56) (34) (90)
Repurchase agreements 44 25 69 (335) (5) (340)
Long-term borrowings (58) 268 210 1,177 (85) 1,092
-------------------------------------------------------------------------
Total 1,009 3,164 4,173 1,225 (2,151) (926)
-------------------------------------------------------------------------
Increase (decrease) in
net interest income $ 2,917 $ 990 $ 3,907 $ 5,031 $ (449) $ 4,582
1 Nonaccrual loans are included.
2 Interest income on loans includes fees on loans of $2,928,000 in 2000,
$2,853,000 in 1999, and $2,958,000 in 1998.
3 Interest income is stated on a tax equivalent basis of 1.52 in 2000, 1999,
and 1998.
4 The rate/volume variance has been included in the rate variance.
Provision for Loan Losses
In 2000, the Bank provided $5,000,000 for loan losses compared to
$3,550,000 in 1999. Net loan charge-offs increased $3,648,000 (507%) to
$4,367,000 during 2000. Included in the $4,367,000 of net loan charge-offs
during 2000 is $3,800,000 of charge-offs on a group of agricultural related
loans to one borrower. As of December 31, 2000, the Company's recorded net book
value for this nonperforming loan relationship after charge-offs was
approximately $8,400,000. Net charge-offs of consumer installment loans
decreased $63,000 (56%). Net charge-offs of commercial, financial and
agricultural loans increased $3,631,000 (675%), while net charge-offs of real
estate mortgage loans increased $80,000 (116%). The 2000 charge-offs represented
0.70% of average loans outstanding versus 0.13% the prior year. Nonperforming
loans were 2.29% of total loans at year end versus 0.46% in 1999. The ratio of
allowance for loan losses to nonperforming loans was 80% versus 412% at the end
of 1999.
In 1999, the Bank provided $3,550,000 for loan losses compared to
$4,200,000 in 1998. Net loan charge-offs decreased $1,734,000 (70.7%) to
$719,000 during 1999. Net charge-offs of consumer installment loans decreased
$460,000 (80.4%) mainly due to the sale of the Bank's credit card portfolio in
May 1998. Net charge-offs of commercial, financial and agricultural loans
decreased $1,163,000 (68.4%), while net charge-offs of real estate mortgage
loans decreased $111,000 (61.7%). The 1999 charge-offs represented 0.13% of
average loans outstanding versus 0.50% the prior year. Nonperforming loans were
0.46% of total loans at year end versus 0.31% in 1998. The ratio of allowance
for loan losses to nonperforming loans was 412% versus 493% at the end of 1998
(See balance sheet analysis "Nonaccrual, Past Due and Restructured Loans" for
further discussion).
-33-
Service Charges and Fees and Other Income
For 2000, service charge and fee income increased $357,000 (5.0%) to
$7,484,000 compared to $7,127,000 in 1999. This increase was due mainly to
increased ATM fees. Other income was up $2,187,000 (44.0%) to $7,161,000 from
$4,974,000 in 1999. The increase in other income included a one-time pre-tax
income item of $1,510,000 from the receipt of common stock. 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. The Bank
continues to own the JHF shares in its securities available-for-sale, and as of
December 31, 2000 has recorded an additional $1,831,000 unrealized gain since
the receipt of these shares. Significant changes in the following items also
contributed to the net increase in other income: commissions on non-deposit
investment product sales increased $465,000 to $2,784,000, income from the
increase in cash value of insurance policies increased $284,000 to $657,000, and
gain on sale of loans decreased $275,000 to $525,000. Overall, noninterest
income increased $2,544,000 (21.0%) for the year to $14,645,000.
For 1999, service charge and fee income decreased $260,000 (3.5%) to
$7,127,000 compared to $7,387,000 in 1998. This decrease was mainly due to
$283,000 of non-recurring credit card related fee income that was recorded
subsequent to the sale of the Bank's credit card portfolio in May of 1998. Other
income was down $508,000 (9.3%) to $4,974,000 from $5,482,000 in 1998. The
decrease in other income included a gain on sale of the credit card portfolio of
$897,000 in 1998, gain on the sale of investments of $24,000 in 1999 compared to
$316,000 in 1998, gain on sale of loans of $800,000 in 1999 versus $497,000 in
1998, and income from the sale of mutual funds, annuities and insurance of
$2,318,000 in 1999 compared to $2,066,000 in 1998. Overall, noninterest income
decreased $768,000 (6.0%) for the year to $12,101,000. Excluding the effect of
the credit card portfolio, which was sold in May 1998, noninterest income would
have increased $412,000 (3.5%) to $12,101,000 in 1999 versus $11,689,000 in
1998.
Securities Transactions
During 2000 the Bank had no sales of securities. Also during 2000, the Bank
received proceeds from maturities of securities totaling $39,663,000, and used
$29,077,000 to purchase securities.
For 1999 the Bank realized net gains of $24,000 on the sale of securities
with market values of $14,137,000. In addition, the Bank received proceeds from
maturities of securities totaling $64,496,000. During 1999 the Bank purchased
$41,372,000 of securities.
Salaries and Benefits
Salary and benefit expenses increased $2,075,000 (11.6%) to $19,912,000 in
2000. Incentive and commission related salary expenses increased $444,000
(24.3%) to $2,274,000 in 2000. Base salaries and benefits increased $1,631,000
(10.2%) in 2000. The increase in base salaries was mainly due to a 3.7% increase
in average full time equivalent employees (FTEs) from 378 during 1999 to 392
during 2000, and an average annual base salary and benefits expense increase of
6.5% during 2000. The large increase in incentive and commission related salary
expense was more than offset by revenue growth. These results are consistent
with the Bank's strategy of working more efficiently with fewer employees who
are compensated in part based on their business unit's performance or on their
ability to generate revenue.
Salary and benefit expenses increased $1,034,000 (6.2%) to $17,837,000 in
1999. Base salaries increased $528,000 (4.5%). Average full time equivalent
employees were 378 in 1999 versus 376 in 1998. Incentive and commission related
salary expenses increased $328,000 (21.8%) to $1,830,000 in 1999.
Other Expenses
Other expenses increased $987,000 (5.8%) to $17,983,000 in 2000.
Approximately $534,000 of the increase was due to operational losses that went
from $273,000 in 1999 to $807,000 in 2000. Contributing to the increase in
operational losses during 2000 was a $434,000 fraud loss due to a single deposit
relationship that was identified in the fourth quarter of 2000. Advertising
expense increased $390,000 to $1,336,000 in 2000. Intangible asset amortization
decreased $170,000 in 2000 to $965,000.
Other expenses decreased $893,000 (5.0%) to $16,996,000 in 1999.
Approximately $478,000 of the decrease was due to reduced expenses and
provisions related to other real estate owned which decreased to $62,000 in 1999
from $540,000 in 1998. Intangible asset amortization decreased $203,000 in 1999
to $1,135,000.
-34-
Provision for Taxes
The effective tax rate on income was 36.4%, 36.4%, and 36.5% in 2000, 1999,
and 1998, respectively. The effective tax rate was greater than the federal
statutory tax rate due to state tax expense of $1,857,000, $1,680,000, and
$1,425,000, in these years. Tax-free income of $2,250,000, $2,229,000, and
$1,860,000 from investment securities in these years helped to reduce the
effective tax rate.
Return on Average Assets and Equity
The following table sets forth certain ratios for the Company for the last
three years (using average balance sheet data):
2000 1999 1998
Return on total assets 1.35% 1.26% 1.03%
Return on shareholders' equity 16.03% 15.59% 12.80%
Shareholders' equity to total assets 8.78% 8.09% 8.07%
Common shareholders' dividend payout ratio 45.00% 43.81% 39.11%
During 2000, return on assets increased to 1.35% from 1.26% in 1999. The
increase in ROA was due to increased productivity and the Bank's continued loan
growth. The Company's efficiency ratio (noninterest expense divided by net
interest income plus noninterest income) improved to 59.3% in 2000 from 60.6% in
1999. Return on assets increased in 1999 to 1.26% from the 1.03% achieved in
1998.
Return on shareholders' equity increased to 16.03% in 2000 from 15.59% in
1999. The higher ROE in 2000 resulted from average capital increasing 7.7% while
net income increased 10.7%. In 1999, return on shareholders' equity increased to
15.59% from 12.80% in 1998. The higher ROE in 1999 was due to a 30.0% increase
in net income while average shareholders' equity increased only 6.7%.
In 2000, the average shareholders' equity to average asset ratio increased
to 8.78% from 8.09%. The shareholders' average equity to average assets ratio
for 1999 increased to 8.09% from 8.07% for 1998.
In 2000, dividends paid to common shareholders totaled $5,680,000 compared
to $4,996,000 in 1999. The resulting common shareholders' dividend payout ratio
of 45.0% in 2000 compared to 43.8% in 1999.
(B) Balance Sheet Analysis
Loans
The Bank concentrates its lending activities in four principal areas:
commercial loans (including agricultural loans), consumer loans, real estate
mortgage loans (residential and commercial loans and mortgage loans originated
for sale), and real estate construction loans. At December 31, 2000, these four
categories accounted for approximately 43%, 16%, 35%, and 6% of the Bank's loan
portfolio, respectively, as compared to 45%, 13%, 35%, and 7%, at December 31,
1999. The shift in the percentages was primarily due to the Bank's efforts to
increase its consumer loan portfolio during 2000. The interest rates charged for
the loans made by the Bank vary with the degree of risk, the size and maturity
of the loans, the borrower's relationship with the Bank and prevailing money
market rates indicative of the Bank's cost of funds.
The majority of the Bank's loans are direct loans made to individuals,
farmers and local businesses. The Bank relies substantially on local promotional
activity, personal contacts by bank officers, directors and employees to compete
with other financial institutions. The Bank makes loans to borrowers whose
applications include a sound purpose, a viable repayment source and a plan of
repayment established at inception and generally backed by a secondary source of
repayment.
At December 31, 2000 loans totaled $640,391,000 which was an 8.9%
($52,412,000) increase over the balances at the end of 1999. Demand for
commercial and agriculture related loans was strong in 2000. Demand for
residential mortgage loans decreased significantly starting in the fall of 1999,
and was replaced somewhat by demand for home equity loans, which the Bank
classifies as consumer loans. The average loan to deposit ratio in 2000 was
79.2% compared to 74.5% in 1999.
-35-
At December 31, 1999, loans totaled $587,979,000 which was a 10.4%
($55,546,000) increase over the balances at the end of 1998. Demand for
commercial and agriculture related loans was strong in 1999. Total loan balances
at the Bank's southernmost branches, which include its Sacramento office and its
San JoaquinValley offices, increased $56,105,000 to $113,128,000 during 1999
while loan balances at the Bank's northern branches decreased $559,000 to
$474,851,000 in 1999. From January 1999 to July 1999, the Bank sold
approximately $26,275,000 of fixed rate residential mortgage loans out of its
loan portfolio that were originated prior to December 31, 1998. Excluding the
sale of these fixed rate residential mortgage loans, loan balances in the Bank's
northern branches would have increased approximately $25,716,000 in 1999. The
average loan to deposit ratio in 1999 was 74.5% compared to 67.2% in 1998.
Loan Portfolio Composite
December 31,
2000 1999 1998 1997 1996
(dollars in thousands)
Commercial, financial and
agricultural $277,935 $262,916 $211,773 $165,813 $176,868
Consumer installment 101,548 79,589 72,512 87,950 75,498
Real estate mortgage 222,909 207,197 211,072 160,954 160,575
Real estate construction 37,999 38,277 37,076 34,250 26,348
----------------------------------------------------------------------
Total loans $640,391 $587,979 $532,433 $448,967 $439,289
Nonaccrual, Past Due and Restructured Loans
During 2000, nonperforming assets increased $11,227,000 (326%) to a total
of $14,668,000. Nonperforming loans increased $10,546,000 (393%) to $13,227,000,
and other real estate owned (OREO) increased $681,000 (90%) to $1,441,000 during
2000. The ratio of nonperforming loans to total loans at December 31, 2000 was
2.07% versus 0.46% at the end of 1999. Included in the balance of nonperforming
loans at December 31, 2000 is $8,400,000 that represents the Company's recorded
net book value for a group of agricultural related loans to one borrower. The
Company believes the problems with this loan relationship are not applicable to
the Company's agriculture loan portfolio generally as the Company believes that
the weakness in this loan relationship was not due to crop failure or overall
weakness in the agriculture sectors in which this borrower operates. Rather, the
Company believes the losses on this loan relationship is unique to this
particular borrower. Excluding the large nonperforming loan relationship noted
above, the ratio of nonperforming loans to total loans at December 31, 2000
would have been 0.75%. Classifications of nonperforming loans as a percent of
the total at the end of 2000 were as follows: secured by real estate, 57%; loans
to farmers, 40%; commercial loans, 2.5%; and consumer loans, 0.5%.
During 1999, nonperforming assets increased $364,000 (11.8%) to a total of
$3,441,000. Nonperforming loans increased $1,016,000 (61.0%) to $2,681,000, and
other real estate owned (OREO) decreased $652,000 (46.2%) to $760,000 during
1999. The ratio of nonperforming loans to total loans at December 31, 1999 was
0.46% versus 0.31% at the end of 1998. The continued low ratio of nonperforming
loans to total loans was due in part to favorable economic conditions and three
years of operation under an enhanced system, which focuses on early
identification of problem loans followed by prompt action to ensure performance
or charge-off of the loan. Classifications of nonperforming loans as a percent
of the total at the end of 1999 were as follows: secured by real estate, 84%;
loans to farmers, 11%; commercial loans, 3%; and consumer loans, 2%.
Commercial, real estate and consumer loans are reviewed on an individual
basis for reclassification to nonaccrual status when any one of the following
occurs: the loan becomes 90 days past due as to interest or principal, the full
and timely collection of additional interest or principal becomes uncertain, the
loan is classified as doubtful by internal credit review or bank regulatory
agencies, a portion of the principal balance has been charged off, or the Bank
takes possession of the collateral. The reclassification of loans as nonaccrual
does not necessarily reflect Management's judgment as to whether they are
collectible.
-36-
Interest income is not accrued on loans where Management has determined
that the borrowers will be unable to meet contractual principal and/or interest
obligations, unless the loan is well secured and in the process of collection.
When a loan is placed on nonaccrual, any previously accrued but unpaid interest
is reversed. Income on such loans is then recognized only to the extent that
cash is received and where the future collection on principal is probable.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when, in the judgment of
Management, the loans are estimated to be fully collectible as to both principal
and interest.
Interest income on nonaccrual loans, which would have been recognized
during the year, ended December 31, 2000, if all such loans had been current in
accordance with their original terms, totaled $1,824,000. Interest income
actually recognized on these loans in 2000 was $1,093,000.
The Bank's policy is to place loans 90 days or more past due on nonaccrual
status. In some instances when a loan is 90 days past due Management does not
place it on nonaccrual status because the loan is well secured and in the
process of collection. A loan is considered to be in the process of collection
if, based on a probable specific event, it is expected that the loan will be
repaid or brought current. Generally, this collection period would not exceed 30
days. Loans where the collateral has been repossessed are classified as OREO or,
if the collateral is personal property, the loan is classified as other assets
on the Company's financial statements.
Management considers both the adequacy of the collateral and the other
resources of the borrower in determining the steps to be taken to collect
nonaccrual loans. Alternatives that are considered are foreclosure, collecting
on guarantees, restructuring the loan or collection lawsuits.
The following table sets forth the amount of the Bank's nonperforming
assets as of the dates indicated:
December 31,
2000 1999 1998 1997 1996
(dollars in thousands)
Nonaccrual loans $12,262 $ 1,758 $ 1,045 $ 4,721 $ 9,044
Accruing loans past due
90 days or more 965 923 620 528 20
----------------------------------------------------------------------------
Total nonperforming loans $13,227 2,681 1,665 5,249 9,064
Other real estate owned 1,441 760 1,412 2,230 1,389
----------------------------------------------------------------------------
Total nonperforming assets $14,668 $ 3,441 $ 3,077 $ 7,479 $10,453
Nonincome producing investments
in real estate held by Bank's real
estate development subsidiary $ -- $ -- $ -- $ 856 $ 1,173
Nonperforming loans to total loans 2.07% 0.46% 0.31% 1.17% 2.06%
Allowance for loan losses to nonper-
forming loans 88% 412% 493% 123% 67%
Nonperforming assets to total assets 1.51% 0.37% 0.34% 0.91% 1.50%
Allowance for loan losses to nonper-
forming assets 80% 321% 267% 86% 58%
-37-
Allowance for Loan Losses
Credit risk is inherent in the business of lending. As a result, the
Company maintains an Allowance for Loan 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 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.
Assessment of the Adequacy of the Allowance for Loan Losses
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 occurs 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, formula
allowance factors for pools of credits, and allowances for changing
environmental factors (e.g., interest rates, growth, economic conditions, etc.).
Allowances for identified problem loans are based on specific analysis of
individual credits. Allowance factors for loan pools are based on the previous 5
years historical loss experience by product type. 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.
The Components of the Allowance for Loan Losses
As noted above, the overall allowance consists of a specific allowance, a
formula allowance, and an allowance for environmental factors. The first
component, the specific allowance, results from the analysis of identified
problem credits and the evaluation of sources of repayment including collateral,
as applicable. Through Management's ongoing loan grading process, individual
loans are identified that have conditions that indicate the borrower may be
unable to pay all amounts due under the contractual terms. These loans are
evaluated individually by Management and specified allowances for loan losses
established where applicable. The amount of this component is disclosed in Note
D to the consolidated financial statements. In addition to loans identified for
specific allowance analysis, Management may identify additional loans for
specific allowance analysis.
The second component, the formula allowance, is an estimate of the probable
losses that have occurred across the major loan categories in the Company's loan
portfolio. This analysis is based on loan grades by pool and the loss history of
these pools. This analysis covers the Company's entire loan portfolio including
unused commitments but excludes any loans, which were analyzed individually for
specific allowances as discussed above. The total amount allocated for this
component is determined by applying loss estimation factors to outstanding loans
and loan commitments. The loss factors are based primarily on the Company's
historical loss experience tracked over a five-year period and adjusted as
appropriate for the input of current trends and events. Because historical loss
experience varies for the different categories of loans, the loss factors
applied to each category also differ. In addition, there is a greater chance
that the Company has suffered a loss from a loan that was graded less than
satisfactory than if the loan was last graded satisfactory. Therefore, for any
given category, a larger loss estimation factor is applied to less than
satisfactory loans than to those that the Company last graded as satisfactory.
The resulting formula allowance is the sum of the allocations determined in this
manner.
The third or "unallocated" component of the allowance for credit losses is
a component that is not allocated to specific loans or groups of loans, but
rather is intended to absorb losses that may not be provided for by the other
components.
-38-
There are several primary reasons that the other components discussed above
might not be sufficient to absorb the losses present in portfolios, and the
unallocated portion of the allowance is used to provide for the losses that have
occurred because of them.
The first is that there are limitations to any credit risk grading process.
The volume of loans makes it impractical to re-grade every loan every quarter.
Therefore, it is possible that some currently performing loans not recently
graded will not be as strong as their last grading and an insufficient portion
of the allowance will have been allocated to them. Grading and loan review often
must be done without knowing whether all relevant facts are at hand. Troubled
borrowers may deliberately or inadvertently omit important information from
reports or conversations with lending officers regarding their financial
condition and the diminished strength of repayment sources.
The second is that the loss estimation factors are based primarily on
historical loss totals. As such, the factors may not give sufficient weight to
such considerations as the current general economic and business conditions that
affect the Company's borrowers and specific industry conditions that affect
borrowers in that industry. The factors might also not give sufficient weight to
other environmental factors such as changing economic conditions and interest
rates, portfolio growth, entrance into new markets or products, and other
characteristics as may be determined by Management.
Specifically, in assessing how much unallocated allowance needed to be
provided at December 31, 2000, Management considered the following:
o with respect to loans to the agriculture industry, Management
considered the effects on borrowers of weather conditions and
overseas market conditions for exported products as well as
commodity prices in general;
o with respect to changes in the interest rate environment
Management considered the recent changes in interest rates and the
resultant economic impact it may have had on borrowers with high
leverage and/or low profitability; and
o with respect to loans to borrowers in new markets and growth in
general, Management considered the relatively short seasoning of
such loans and the lack of experience with such borrowers.
Each of these considerations was assigned a factor and applied to a portion
or all of the loan portfolio. Since these factors are not derived from
experience and are applied to large non-homogeneous groups of loans, they are
considered unallocated and are available for use across the portfolio as a
whole.
At December 31, 2000 the allowance for loan losses was $11,670,000
consisting of a specific allowance of $3,266,000, a formula allowance of
$5,414,000, and an unallocated allowance of $2,990,000. At December 31, 1999 the
allowance for loan losses was $11,037,000 consisting of a specific allowance of
$600,000, a formula allowance of $6,606,000, and an unallocated allowance of
$3,831,000.
The increase in the specific allowance portion of the reserve was due to
the overall increase in classified and impaired loans, which under the Company's
allowance methodology are analyzed for specific reserve. As these classified and
impaired loans were analyzed for specific reserve, they were excluded from the
loan balances that were subject to the formula allowance portion of the reserve;
and resulted in a decrease in the formula allowance portion of the reserve.
The allowance for loan losses to total loans at December 31, 2000 was 1.82%
versus 1.88% at the end of 1999. At December 31, 1998, the allowance for loan
losses to total loans was 1.54%.
Based on the current conditions of the loan portfolio, Management believes
that the $11,670,000 allowance for loan losses at December 31, 2000 is adequate
to absorb probable losses inherent in the Bank's loan portfolio. No assurance
can be given, however, that adverse economic conditions or other circumstances
will not result in increased losses in the portfolio.
-39-
The following table summarizes, for the years indicated, the activity in the allowance for loan losses:
December 31,
2000 1999 1998 1997 1996
(dollars in thousands)
Balance, beginning of year $ 11,037 $ 8,206 $ 6,459 $ 6,097 $ 5,580
Provision charged to operations 5,000 3,550 4,200 3,000 777
Loans charged off:
Commercial, financial and
agricultural (4,450) (865) (1,865) (1,289) (283)
Consumer installment (103) (148) (702) (1,551) (909)
Real estate mortgage (152) (69) (188) -- --
-----------------------------------------------------------------------------
Total loans charged-off (4,705) (1,082) (2,755) (2,840) (1,192)
Recoveries:
Commercial, financial and
agricultural 281 327 164 85 243
Consumer installment 54 36 130 117 66
Real estate mortgage 3 -- 8 -- --
-----------------------------------------------------------------------------
Total recoveries 338 363 302 202 309
-----------------------------------------------------------------------------
Net loans charged-off (4,367) (719) (2,453) (2,638) (883)
Balance added through acquisition -- -- -- -- 623
-----------------------------------------------------------------------------
Balance, year end $ 11,670 $ 11,037 $ 8,206 $ 6,459 $ 6,097
=============================================================================
Average total loans $624,717 $566,738 $487,598 $448,117 $368,550
Ratios:
Net charge-offs during period
to average loans outstanding
during period 0.70% 0.13% 0.50% 0.59% 0.24%
Provision for loan losses to aver-
age loans outstanding 0.80% 0.63% 0.86% 0.67% 0.21%
Allowance to loans at year end 1.82% 1.88% 1.54% 1.44% 1.39%
-40-
The following tables summarize the allocation of the allowance for loan
losses between loan types at December 31, 2000 and 1999:
December 31, 2000
(dollars in thousands)
Percent of
loans in each
category to
Balance at End of Period Applicable to: Amount total loans
Commercial, financial and agricultural $6,873 43.4%
Consumer installment 1,373 15.9%
Real estate mortgage 2,925 34.8%
Real estate construction 499 5.9%
------- ------
$11,670 100.0%
December 31, 1999
(dollars in thousands)
Percent of
loans in each
category to
Balance at End of Period Applicable to: Amount total loans
Commercial, financial and agricultural 5,224 44.7%
Consumer installment 1,464 13.6%
Real estate mortgage 3,671 35.2%
Real estate construction 678 6.5%
------- ------
$11,037 100.0%
Investment in Real Estate Properties
During 1998, the subsidiary divested all investment properties pursuant to
an agreement between the Bank and the FDIC.
Other Real Estate Owned
The December 31, 2000 balance of Other Real Estate Owned (OREO) was
$1,441,000 versus $760,000 in 1999. Properties foreclosed in 2000 and remaining
in the Bank's possession at year-end were valued at $1,037,000 net of a
valuation allowance of $15,000. The Bank disposed of properties with a value of
$928,000 in 2000. OREO properties consist of a mixture of land, single family
residences, and commercial buildings.
Intangible Assets
At December 31, 2000 and 1999, the Bank had intangible assets totaling
$5,464,000 and $6,429,000, respectively. The intangible assets are the result of
the Bank's 1997 acquisitions of certain Wells Fargo branches and Sutter Buttes
Savings Bank. Amortization of intangible assets amounting to $965,000,
$1,135,000 and $1,338,000 was recorded in 2000, 1999, and 1998, respectively.
-41-
Deposits
Deposits at December 31, 2000 were up $43,722,000 (5.5%) over the 1999
year-end balances to $837,832,000. All categories of deposits except savings
increased in 2000. Included in the December 31, 2000 and 1999 certificate of
deposit balances is $40,000,000 from the State of California.
Deposits at December 31, 1999 were up $24,937,000 (3.2%) to $794,110,000
over the 1998 year-end balances. All categories of deposits except
interest-bearing demand deposits increased in 1999. The Bank often experiences
significant deposit balance increases at year-end due to agricultural and small
business customers depositing year-end receipts. The magnitude of this year-end
deposit increase varies from year to year. Interest-bearing demand deposits were
up 14.3% from year-end 1997 to year-end 1998, and then down 3.9% from year-end
1998 to year-end 1999.
Long-Term Debt
During 2000, the Bank repaid $46,522,000 of long-term debt, and added
$35,000,000 under long-term debt agreements. In 1999, the Bank made principal
payments of $13,419,000 on long-term debt obligations, and added $21,000,000
under long-term debt agreements.
Equity
See Note T in the financial statements for a discussion of regulatory
capital requirements. Management believes that the Company's capital is adequate
to support anticipated growth, meet the cash dividend requirements of the
Company and meet the future risk-based capital requirements of the Bank and the
Company.
Market Risk Management
Overview. The goal for managing the assets and liabilities of the Bank is
to maximize shareholder value and earnings while maintaining a high quality
balance sheet without exposing the Bank to undue interest rate risk. The Board
of Directors has overall responsibility for the Company's interest rate risk
management policies. The Bank has an Asset and Liability Management Committee
(ALCO) which establishes and monitors guidelines to control the sensitivity of
earnings to changes in interest rates.
Asset/Liability Management. Activities involved in asset/liability
management include but are not limited to lending, accepting and placing
deposits, investing in securities and issuing debt. Interest rate risk is the
primary market risk associated with asset/liability management. Sensitivity of
earnings to interest rate changes arises when yields on assets change in a
different time period or in a different amount from that of interest costs on
liabilities. To mitigate interest rate risk, the structure of the balance sheet
is managed with the goal that movements of interest rates on assets and
liabilities are correlated and contribute to earnings even in periods of
volatile interest rates. The asset/liability management policy sets limits on
the acceptable amount of variance in net interest margin, net income and market
value of equity under changing interest environments. Market value of equity is
the net present value of estimated cash flows from the Bank's assets,
liabilities and off-balance sheet items. The Bank uses simulation models to
forecast net interest margin, net income and market value of equity.
Simulation of net interest margin, net income and market value of equity
under various interest rate scenarios is the primary tool used to measure
interest rate risk. Using computer-modeling techniques, the Bank is able to
estimate the potential impact of changing interest rates on net interest margin,
net income and market value of equity. A balance sheet forecast is prepared
using inputs of actual loan, securities and interest-bearing liability (i.e.
deposits/borrowings) positions as the beginning base.
In the simulation of net interest margin and net income under various
interest rate scenarios, the forecast balance sheet is processed against seven
interest rate scenarios. These seven interest rate scenarios include a flat rate
scenario, which assumes interest rates are unchanged in the future, and six
additional rate ramp scenarios ranging from +300 to -300 basis points around the
flat scenario in 100 basis point increments. These ramp scenarios assume that
interest rates increase or decrease evenly (in a "ramp" fashion) over a
twelve-month period and remain at the new levels beyond twelve months.
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The following table summarizes the effect on net interest income and net
income due to changing interest rates as measured against a flat rate (no
change) scenario:
Interest Rate Risk Simulation of Net Interest Income and Net Income as of
December 31, 2000
Estimated Change in Estimated Change in
Change in Interest Net Interest Income (NII) Net Income (NI)
Rates (Basis Points) (as % of "flat" NII) (as % of "flat" NI)
+300 (ramp) 1.25% 2.75%
+200 (ramp) 1.03% 2.29%
+100 (ramp) 0.66% 1.48%
+ 0 (flat) -- --
-100 (ramp) (1.52)% (3.39)%
-200 (ramp) (3.15)% (7.04)%
-300 (ramp) (5.21)% (11.64)%
In the simulation of market value of equity under various interest rate
scenarios, the forecast balance sheet is processed against seven interest rate
scenarios. These seven interest rate scenarios include the flat rate scenario
described above, and six additional rate shock scenarios ranging from +300 to
- -300 basis points around the flat scenario in 100 basis point increments. These
rate shock scenarios assume that interest rates increase or decrease immediately
(in a "shock" fashion) and remain at the new level in the future.
The following table summarizes the effect on market value of equity due to
changing interest rates as measured against a flat rate (no change) scenario:
Interest Rate Risk Simulation of Market Value of Equity as of December 31,
2000
Estimated Change in
Change in Interest Market Value of Equity (MVE)
Rates (Basis Points) (as % of "flat" MVE)
+300 (shock) (10.74)%
+200 (shock) (6.92)%
+100 (shock) (3.35)%
+ 0 (flat) --
-100 (shock) 2.14%
-200 (shock) 2.12%
-300 (shock) (2.08)%
These results indicate that the balance sheet is slightly asset sensitive
since earnings increase when interest rates rise. The magnitude of all the
simulation results noted above is within the Bank's policy guidelines. The asset
liability management policy limits aggregate market risk, as measured in this
fashion, to an acceptable level within the context of risk-return trade-offs.
The simulation results noted above do not incorporate any management
actions, which might moderate the negative consequences of interest rate
deviations. Therefore, they do not reflect likely actual results, but serve as
conservative estimates of interest rate risk.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the preceding tables. For
example, although certain of the Bank's assets and liabilities may have similar
maturities or repricing time frames, they may react in different degrees to
changes in market interest rates. In addition, the interest rates on certain of
the Bank's asset and liability categories may precede, or lag behind, changes in
market interest rates. Also, the actual rates of prepayments on loans and
investments could vary significantly from the assumptions utilized in deriving
the results as presented in the preceding table. Further, a change in U.S.
Treasury rates accompanied by a change in the shape of the treasury yield curve
could result in different estimations from those presented herein. Accordingly,
the results in the preceding tables should not be relied upon as indicative of
actual results in the event of changing market interest rates. Additionally, the
resulting estimates of changes in market value of equity are not intended to
represent, and should not be construed to represent, estimates of changes in the
underlying value of the Bank.
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Interest rate sensitivity is a function of the repricing characteristics of
the Bank's portfolio of assets and liabilities. One aspect of these repricing
characteristics is the time frame within which the interest-bearing assets and
liabilities are subject to change in interest rates either at replacement,
repricing or maturity. An analysis of the repricing time frames of
interest-bearing assets and liabilities is sometimes called a "gap" analysis
because it shows the gap between assets and liabilities repricing or maturing in
each of a number of periods. Another aspect of these repricing characteristics
is the relative magnitude of the repricing for each category of interest earning
asset and interest-bearing liability given various changes in market interest
rates. Gap analysis gives no indication of the relative magnitude of repricing
given various changes in interest rates. Interest rate sensitivity management
focuses on the maturity of assets and liabilities and their repricing during
periods of changes in market interest rates. Interest rate sensitivity gaps are
measured as the difference between the volumes of assets and liabilities in the
Bank's current portfolio that are subject to repricing at various time horizons.
The following interest rate sensitivity table shows the Bank's repricing
gaps as of December 31, 2000. In this table transaction deposits, which may be
repriced at will by the Bank, have been included in the less than 3-month
category. The inclusion of all of the transaction deposits in the less than
3-month repricing category causes the Bank to appear liability sensitive.
Because the Bank may reprice its transaction deposits at will, transaction
deposits may or may not reprice immediately with changes in interest rates. In
recent years of moderate interest rate changes the Bank's earnings have reacted
as though the gap position is slightly asset sensitive mainly because the
magnitude of interest-bearing liability repricing has been less than the
magnitude of interest-earning asset repricing. This difference in the magnitude
of asset and liability repricing is mainly due to the Bank's strong core deposit
base, which although they may be repriced within three months, historically, the
timing of their repricing has been longer than three months and the magnitude of
their repricing has been minimal.
Due to the limitations of gap analysis, as described above, the Bank does
not actively use gap analysis in managing interest rate risk. Instead, the Bank
relies on the more sophisticated interest rate risk simulation model described
above as its primary tool in measuring and managing interest rate risk.
Interest Rate Sensitivity - December 31, 2000
Repricing within:
Less than 3 3 - 6 6 - 12 1 - 5 Over
months months months years 5 years
(dollars in thousands)
Interest-earning assets:
Securities $ 52,094 $ 8,431 $ 17,918 $ 90,838 $ 54,884
Loans 304,835 31,642 59,550 172,827 60,942
-------------------------------------------------------------------------------
Total interest-earning assets $ 356,929 $ 40,073 $ 77,468 $ 263,665 $ 115,826
Interest-bearing liabilities
Transaction deposits $ 364,908 $ --- $ --- $ --- $ ---
Time 117,716 71,815 95,895 18,819 136
Fed funds purchased 500 --- --- --- ---
Long-term borrowings 1,007 7 10,016 169 22,783
-------------------------------------------------------------------------------
Total interest-bearing liabilities $ 484,131 $ 71,822 $ 105,911 $ 18,988 $ 22,919
-------------------------------------------------------------------------------
Interest sensitivity gap $ (127,202) $ (31,749) $ (28,443) $ 244,677 $ 92,907
Cumulative sensitivity gap $ (127,202) $ (158,951) $ (187,394) $ 57,283 $ 150,190
As a percentage of earning assets:
Interest sensitivity gap (14.90%) (3.72%) (3.33%) 28.65% 10.88%
Cumulative sensitivity gap (14.90%) (18.61%) (21.94%) 6.71% 17.59%
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Liquidity
Liquidity refers to the Bank's ability to provide funds at an acceptable
cost to meet loan demand and deposit withdrawals, as well as contingency plans
to meet unanticipated funding needs or loss of funding sources. These objectives
can be met from either the asset or liability side of the balance sheet. Asset
liquidity sources consist of the repayments and maturities of loans, selling of
loans, short-term money market investments, maturities of securities and sales
of securities from the available-for-sale portfolio. These activities are
generally summarized as investing activities in the Consolidated Statement of
Cash Flows. Net cash used by investing activities totaled approximately
$47,739,000 in 2000, which means that assets were not generally used for
liquidity purposes. Increased loan balances were responsible for the major use
of funds in this category.
Liquidity is generated from liabilities through deposit growth and
short-term borrowings. These activities are included under financing activities
in the Consolidated Statement of Cash Flows. In 2000, financing activities
provided funds totaling $26,655,000. Internal deposit growth provided funds
amounting to $43,722,000. The Bank also had available correspondent banking
lines of credit totaling $64,500,000 at year-end. While these sources are
expected to continue to provide significant amounts of funds in the future,
their mix, as well as the possible use of other sources, will depend on future
economic and market conditions.
Liquidity is also provided or used through the results of operating
activities. In 2000, operating activities provided cash of $18,838,000.
In connection with the adoption of SFAS 133 on October 1, 1998, the Bank
reclassified its entire portfolio of held-to-maturity investment securities,
with a carrying value of $78,901,000, to the available-for-sale classification.
The AFS securities plus cash and cash equivalents in excess of reserve
requirements totaled $286,800,000 at December 31, 2000, which was 29.5% of total
assets at that time. This was down from $291,644,000 and 31.5% at the end of
1999.
The overall liquidity of the Bank is enhanced by the sizable core deposits,
which provide a relatively stable funding base. The maturity distribution of
certificates of deposit in denominations of $100,000 or more is set forth in the
following table. These deposits are generally more rate sensitive than other
deposits and, therefore, are more likely to be withdrawn to obtain higher yields
elsewhere if available. The Bank participates in a program wherein the State of
California places time deposits with the Bank at the Bank's option. At December
31, 2000 and 1999, the Bank had $40,000,000 of these State deposits.
Certificates of Deposit in Denominations of $100,000 or More
Amounts as of
December 31,
2000 1999 1998
(in thousands)
Time remaining until maturity:
Less than 3 months $55,721 $52,260 $47,957
3 months to 6 months 14,002 10,906 7,208
6 months to 12 months 18,686 7,228 3,812
More than 12 months 4,933 3,068 5,880
------------------------------------------
Total $93,342 $73,462 $64,857
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Loan demand also affects the Bank's liquidity position. The following table
presents the maturities of loans at December 31, 2000:
Loan Maturities - December 31, 2000
After
One But
Within Within After 5
One Year 5 Years Years Total
(in thousands)
Loans with predetermined interest rates:
Commercial, financial and agricultural $27,996 $57,041 $18,949 $103,986
Consumer installment 12,159 27,557 15,946 55,662
Real estate mortgage 5,089 22,286 59,824 87,199
Real estate construction 16,680 0 320 17,000
------------------------------------------------------------
$61,924 $106,884 $95,039 $263,847
Loans with floating interest rates:
Commercial, financial and agricultural $114,076 $65,195 $97,757 $277,028
Consumer installment 44,371 32 0 44,403
Real estate mortgage 17,855 1,729 14,274 33,858
Real estate construction 9,721 11,472 62 21,255
------------------------------------------------------------
$186,023 $78,428 $112,093 $376,544
------------------------------------------------------------
Total loans $247,947 $185,312 $207,132 $640,391
The maturity distribution and yields of the available-for-sale investment
portfolio is presented in the following table. The timing of the maturities
indicated in the table below is based on final contractual maturities. Most
mortgage-backed securities return principal throughout their contractual lives.
As such, the weighted average life of mortgage-backed securities based on
outstanding principal balance is usually significantly shorter than the final
contractual maturity indicated below. At December 31, 2000, the Bank had no
held-to-maturity securities.
Securities Maturities and Weighted Average Tax Equivalent Yields - December 31, 2000
After One Year After Five Years
Within but Through but Through After Ten
One Year Five Years Ten Years Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(dollars in thousands)
Securities Available-for-Sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $4,998 4.92% $9,932 5.74% $16,243 7.05% $ -- -- % $31,173 6.29%
Obligations of states and political subdivisions 301 7.69% 4,178 5.72% 1,643 6.86% 39,254 7.80% 45,376 7.57%
Mortgage-backed securities -- -- % 15,496 6.32% 30,708 5.83% 88,882 6.60% 135,086 6.39%
Corporate bonds 10,186 7.88% 10,186 7.88%
Other securities 3,948 8.04% 3,948 8.04%
Other equities 3,341 0.00% 3,341 0.00%
-------------------------------------------------------------------------------------
Total securities available-for-sale $5,299 5.08% $29,606 6.04% $48,594 6.27% $145,611 6.90% $229,110 6.71%
-------------------------------------------------------------------------------------
Total all securities $5,299 5.08% $29,606 6.04% $48,594 6.27% $145,611 6.90% $229,110 6.71%
The principal cash requirements of the Company are dividends on Common
Stock when declared. The Company is dependent upon the payment of cash dividends
by the Bank to service its commitments. The Company expects that the cash
dividends paid by the Bank to the Company will be sufficient to meet this
payment schedule.
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Off-Balance Sheet Items
The Bank has certain ongoing commitments under operating and capital
leases. (See Note H of the financial statements for the terms.) These
commitments do not significantly impact operating results.
As of December 31, 2000 commitments to extend credit were the Bank's only
financial instruments with off-balance sheet risk. The Bank has not entered into
any contracts for financial derivative instruments such as futures, swaps,
options, etc. Loan commitments increased to $163,667,000 from $140,660,000 at
December 31, 1999. The commitments represent 25.6% of the total loans
outstanding at year-end 2000 versus 23.9% a year ago.
Disclosure of Fair Value
The intent of presenting the fair values of financial instruments is to
depict the market's assessment of the present value of net future cash flows
discounted to reflect both current interest rates and the market's assessment of
the risk that the cash flows will not occur.
In determining fair values, the Bank used the carrying amount for cash,
short-term investments, accrued interest receivable, short-term borrowings and
accrued interest payable, as all of these instruments are short-term in nature.
Securities are reflected at quoted market values. Loans and deposits have a
long-term time horizon, which required more complex calculations for fair value
determination. Loans are grouped into homogeneous categories and broken down
between fixed and variable rate instruments. Loans with a variable rate, that
reprice immediately, are valued at carrying value. The fair value of fixed rate
instruments is estimated by discounting the future cash flows using current
rates. Credit risk and repricing risk factors are included in the current rates.
Fair value for nonaccrual loans is reported at carrying value and is included in
the net loan total. Since the allowance for loan losses exceeds any potential
adjustment for credit problems, no further valuation adjustment has been made.
Demand deposits, savings and certain money market accounts are short term
in nature so the carrying value equals the fair value. For deposits that extend
over a period in excess of four months, the fair value is estimated by
discounting the future cash payments using the rates currently offered for
deposits of similar remaining maturities.
At 2000 year-end, the fair values calculated on the Bank's assets are 0.88%
above the carrying values versus 1.60% below the carrying values at year-end
1999. The change in the calculated fair value percentage relates to the loan
category and is the result of changes in interest rates in 2000 (See Note R of
the financial statements).
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