SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2001 Commission file number 0-10661
- -------------------------------- ------------------------------
TRICO BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2792841
- ------------------------------ -------------------
(State or other jurisdiction (I.R.S.Employer
incorporation or organization) Identification No.)
63 Constitution Drive, Chico, California 95973
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 530/898-0300
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Class: Common stock, no par value
Outstanding shares as of April 30, 2001: 7,084,726
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
March 31, December 31,
2001 2000
------------------- ------------------
Assets:
Cash and due from banks $ 41,779 $ 58,190
Federal funds sold and repurchase agreements 68,200 -
------------------ ------------------
Cash and cash equivalents 109,979 58,190
Securities available-for-sale 196,236 229,110
Loans, net of allowance for loan losses
of $11,341 and $11,670, respectively 612,654 628,721
Premises and equipment, net 16,867 16,772
Cash Value of Life Insurance 14,037 13,753
Other real estate owned 1,017 1,441
Accrued interest receivable 6,147 6,935
Intangible Assets 5,236 5,464
Other assets 17,529 11,685
------------------ ------------------
Total assets $ 979,702 $ 972,071
================== ==================
Liabilities:
Deposits:
Noninterest-bearing demand $ 159,040 $ 168,542
Interest-bearing demand 152,545 150,749
Savings 224,177 214,158
Time certificates 309,574 304,383
------------------ ------------------
Total deposits 845,336 837,832
Federal funds purchased - 500
Accrued interest payable and other liabilities 15,814 14,523
Long term borrowings 32,976 33,983
------------------ ------------------
Total liabilities 894,126 886,838
Shareholders' equity:
Common stock 49,763 50,428
Retained earnings 35,681 35,129
Accumulated other comprehensive income (loss) 132 (324)
------------------ ------------------
Total shareholders' equity 85,576 85,233
------------------ ------------------
Total liabilities and shareholders' equity $ 979,702 $ 972,071
================== ==================
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands except earnings per common share)
For the three months
ended March 31,
2001 2000
Interest income:
Interest and fees on loans $ 15,102 $ 14,063
Interest on investment
securities-taxable 2,698 3,080
Interest on investment
securities-tax exempt 557 558
Interest on federal funds sold 404 193
------------- -------------
Total interest income 18,761 17,894
------------- -------------
Interest expense:
Interest on deposits 6,690 5,769
Interest on federal funds purchased 1 9
Interest on repurchase agreements - 1
Interest on other borrowings 504 629
------------- -------------
Total interest expense 7,195 6,408
------------- -------------
Net interest income 11,566 11,486
Provision for loan losses 1,875 800
------------- -------------
Net interest income after
provision for loan losses 9,691 10,686
Noninterest income:
Service charges and fees 1,873 1,807
Gain on sale of insurance company stock 1,756 -
Gain on receipt of insurance company stock - 1,510
Other income 1,221 1,309
------------- -------------
Total noninterest income 4,850 4,626
------------- -------------
Noninterest expenses:
Salaries and related expenses 5,158 4,834
Other, net 4,612 4,190
------------- -------------
Total noninterest expenses 9,770 9,024
------------- -------------
Net income before income taxes 4,771 6,288
Income taxes 1,792 2,360
------------- -------------
Net income 2,979 3,928
============= =============
Basic earnings per common share $ 0.42 $ 0.55
============= =============
Diluted earnings per common share $ 0.41 $ 0.54
============= =============
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except number of shares)
Common Stock Accumulated
-------------------------- Other
Number Retained Comprehensive Comprehensive
of Shares Amount Earnings Income (Loss) Total Income
------------------------------------------------------------------------------
Balance, December 31, 2000 7,181,226 $50,428 $35,129 ($324) $85,233
Exercise of Common Stock options,
net of tax 9,000 108 108
Repurchase of Common Stock (110,000) (773) (1,012) (1,785)
Common stock cash dividends (1,415) (1,415)
Comprehensive income:
Net income 2,979 2,979 2,979
Other comprehensive income:
Change in unrealized income (loss)
on securities, net of tax 456 456 456
--------------
Comprehensive income $3,435
--------------------------------------------------------------------------------------
Balance, March 31, 2001 7,080,226 $49,763 $35,681 $132 $85,576
---------------------------------------------------------------------
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the three months
ended March 31,
2001 2000
-------------- --------------
Operating activities:
Net income $2,979 $3,928
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 1,875 800
Depreciation and amortization 628 638
Amortization of intangible assets 228 241
Accretion and amortization of investment
securities discounts and premiums, net 26 73
Deferred income taxes (177) 1,901
Investment security gains, net (1,756) -
Gain on sale of OREO (27) (29)
Gain on sale of loans (142) (358)
(Gain) loss on sale of fixed assets 10 23
Amortization of stock options - 41
Decrease (increase) in interest receivable 788 (36)
Increase in interest payable 418 193
Decrease (increase) in other assets and liabilities 569 (2,053)
-------------- --------------
Net cash provided by operating activities 5,419 5,362
-------------- --------------
Investing activities:
Proceeds from maturities of securities available-for-sale 32,127 14,673
Proceeds from sales of securities available-for-sale 3,266 -
Purchases of securities available-for-sale (63) (7,990)
Proceeds from sale of fixed asset - 21
Net (increase) decrease in loans 8,058 (9,799)
Purchases of premises and equipment (650) (528)
Proceeds from sale of OREO 727 126
-------------- --------------
Net cash provided (used) by investing activities 43,465 (3,497)
-------------- --------------
Financing activities:
Net increase (decrease) in deposits 7,504 (10,770)
Net increase (decrease) in Fed funds purchased (500) 4,700
Payments of principal on long-term debt agreements (1,007) (5)
Repurchase of common stock (1,785) (55)
Cash dividends (1,415) (1,363)
Exercise of common stock options 108 171
-------------- --------------
Net cash provided (used) by financing activities 2,905 (7,322)
-------------- --------------
Increase (decrease) in cash and cash equivalents 51,789 (5,457)
Cash and cash equivalents at beginning of period 58,190 60,436
-------------- --------------
Cash and cash equivalents at end of period $109,979 $54,979
-------------- --------------
Supplemental information
Cash paid for taxes $0 $275
Cash paid for interest expense $6,777 $6,215
Item 1. Notes to Condensed Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) and in Management's opinion, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results for
such interim periods. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to SEC rules or regulations;
however, the Company believes that the disclosures made are adequate to make the
information presented not misleading.
The interim results for the three months ended March 31, 2001 and 2000 are not
necessarily indicative of results for the full year. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes included in the Company's Annual Report for the year ended December
31, 2000.
Note B - Comprehensive Income
For the Company, comprehensive income includes net income reported on the
statement of income and changes in the fair value of its available-for-sale
investments reported as other comprehensive income. The following table presents
net income adjusted by the change in unrealized gains or losses on the
available-for-sale investments as a component of comprehensive income (in
thousands).
Three months ended
March 31,
2001 2000
Net income $ 2,979 $ 3,928
Net change in unrealized gains
(losses) on securities available-for-sale,
net of tax and reclassification adjustment 456 (532)
------- -------
Comprehensive income $ 3,435 $ 3,396
======= =======
Note C - Earnings per Share
The Company's basic and diluted earnings per share are as follows (in thousands
except per share data):
Three Months Ended March 31, 2001
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,979 7,140,859 $0.42
Common stock options outstanding -- 128,821
Diluted Earnings per Share
Net income available to common shareholders $2,979 7,269,680 $0.41
====== =========
Three Months Ended March 31, 2000
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $3,928 7,171,612 $0.55
Common stock options outstanding -- 157,466
Diluted Earnings per Share
Net income available to common shareholders $3,928 7,329,078 $0.54
====== =========
Note D - Business Segments
The Company is principally engaged in traditional community banking activities
provided through its twenty-nine branches and eight in-store branches located
throughout Northern California. Community banking activities include the Bank's
commercial and retail lending, deposit gathering and investment and liquidity
management activities. In addition to its community banking services, the Bank
offers investment brokerage and leasing services.
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 and investment brokerage segments do not meet the prescribed aggregation
or materiality criteria and therefore are reported as "Other" in the following
table.
Summarized financial information concerning the Company's reportable segments is
as follows (in thousands):
Community
Banking Other Total
Three Months Ended March 31, 2001
Net interest income $ 11,370 $ 196 $ 11,566
Noninterest income 4,157 693 4,850
Noninterest expense 9,301 469 9,770
Net income 2,777 202 2,979
Assets $964,533 $15,169 $979,702
Three Months Ended March 31, 2000
Net interest income $ 11,306 $ 180 $ 11,486
Noninterest income 3,926 700 4,626
Noninterest expense 8,599 425 9,024
Net income 3,678 250 3,928
Assets $912,003 $10,942 $922,945
Note E - Noninterest Income
Included in the results for the three months ended March 31, 2001 was a one-time
pre-tax income item of $1,756,000. This one-time item represents the realized
gain recorded by the Company upon the sale of 88,796 common shares of John
Hancock Financial Services, Inc. (JHF) for proceeds of $3,266,000.
Included in the results for the three months ended March 31, 2000 was a one-time
pre-tax income item of $1,510,000. This one-time item represents the initial
value of 88,796 common shares of John Hancock Financial Services, Inc. (JHF)
which the Bank received as a consequence of its ownership of certain insurance
policies through John Hancock Mutual Life Insurance Company and John Hancock's
conversion from a mutual company to a stock company.
Note F - Stock Repurchase Plan
On March 15, 2001, the Company announced the completion of its stock repurchase
plan initially announced on July 20, 2000. Under this repurchase plan, the
Company repurchased a total of 150,000 shares at an average price of $16.05 per
share. Under this plan, the Company repurchased 110,000 shares during the
quarter ended March 31, 2001.
Also on March 15, 2001, the Company announced that its Board of Directors
approved a new plan to repurchase, as conditions warrant, up to 150,000
additional shares of the company's stock on the open market or in privately
negotiated transactions. The timing of purchases and the exact number of shares
to be purchased will depend on market conditions. The 150,000 shares covered by
this repurchase plan represent approximately 2.1% of the Company's 7,080,226
then outstanding common stock. As of April 24, 2001, the Company has not
repurchased any shares under this new plan.
Note G - Sale of Nonperforming Loan
During the quarter ended March 31, 2001, the Company received proceeds of
$6,079,000 from the sale of a nonperforming agricultural-related loan
relationship that was first reported as nonperforming in the quarter ended
September 30, 2000. The Company recorded charge-offs related to this loan
relationship of $2,000,000, $800,000, and $3,000,000 during the quarters ended
March 31, 2001, December 31, 2000, and September 31, 2000, respectively. The net
book value of principal balances after charge-offs for this nonperforming loan
relationship was approximately $6,079,000, $8,400,000, and $10,000,000 at March
31, 2001, December 31, 2000, and September 31, 2000, respectively. This loan
relationship was sold to a third party without recourse to the Company. As such,
the Company is not subject to any future charge-offs related to this loan
relationship.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As TriCo Bancshares (the "Company") has not commenced any business operations
independent of Tri Counties Bank (the "Bank"), the following discussion pertains
primarily to the Bank. Average balances, including such balances used in
calculating certain financial ratios, are generally comprised of average daily
balances for the Company. Except within the "overview" section, interest income
and net interest income are presented on a tax equivalent basis.
In addition to the historical information contained herein, this Quarterly
Report contains certain forward-looking statements. The reader of this Quarterly
Report should understand that all such forward-looking statements are subject to
various uncertainties and risks that could affect their outcome. The Company's
actual results could differ materially from those suggested by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on securities investments, rates paid on deposits,
competition effects, fee and other noninterest income earned as well as other
factors. This entire Quarterly Report should be read to put such forward-looking
statements in context and to gain a more complete understanding of the
uncertainties and risks involved in the Company's business.
Overview
The Company had quarterly earnings of $2,979,000 for the three months ended
March 31, 2001. Diluted earnings per share were $0.41. Included in the results
for the three months ended March 31, 2001 was a $1,756,000 pretax gain on the
sale of the Company's equity investment in John Hancock Financial Services, Inc.
(JHF). Offsetting this gain in the first quarter of 2001 was a provision for
loan losses of $1,875,000. During the quarters ended December 31, 2000 and March
31, 2000, the Company reported diluted earnings per share of $0.37 and $0.54,
respectively. In the quarter ended March 31, 2000, the Company recorded a
$1,510,000 pretax gain from the initial receipt of its investment in JHF.
Excluding the gains associated with the shares of JHF, the Company would have
reported diluted earnings per share of $0.26 and $0.42 in the quarters ended
March 31, 2001 and 2000, respectively.
First quarter 2001 net interest income on a fully tax-equivalent yield basis
increased $80,000 (0.7%) to $11,853,000 compared to $11,773,000 recorded in the
first quarter of 2000. This increase in net interest income was achieved despite
Federal Reserve interest rate cuts totaling 150 basis points during the quarter
ended March 31, 2001, and was due to a $46,082,000 (7.9%) increase in average
loan balances to $632,741,000 from $586,659,000 in the year-ago quarter. While
increases in the volume of interest earning assets netted an additional $811,000
of net interest income from the year-ago quarter, the effect of the Federal
Reserve interest rate cuts in the first quarter of 2001 negatively impacted net
interest income by $731,000. The net result was a decrease in net interest
margin to 5.41% in the quarter ended March 31, 2001 compared to 5.70% in the
year-ago quarter.
Provision for loan losses for the first quarter of 2001 was $1,875,000 versus
$800,000 in the same quarter in 2000. The Company had net loan charge-offs of
$2,204,000 in the first quarter of 2001 compared to $77,000 of net loan
recoveries in the same period of 2000. The provision for loan losses of
$1,875,000 taken in the quarter ended March 31, 2001 was mainly due to an
additional $2,000,000 charge-off and subsequent sale of an agricultural-related
loan relationship that was first reported as nonperforming in the quarter ended
September 30, 2000. During the quarter ended March 31, 2001, this loan
relationship was sold to a third party without recourse to the Company. As such,
the Company is not subject to any future charge-offs related to this loan
relationship. As of March 31, 2001 and 2000, the ratio of nonperforming loans to
total loans was 1.09% and 0.67%, respectively, and the ratio of nonperforming
assets to total assets was 0.80% and 0.56%, respectively. As of March 31, 2001
and 2000, the ratio of allowance for loan losses to total loans was 1.82% and
1.99%, respectively. Excluding the charge-offs related to the single loan
relationship noted above, the ratio of net loan charge-offs to average total
loans over the four quarters ended March 31, 2001 was approximately 0.13%.
Noninterest income in the first quarter of 2001 was $4,850,000 versus $4,626,000
in the same period of 2000. Excluding the effects of the sale of the JHF stock
noted above in the first quarter of 2001, and its initial receipt in the first
quarter of 2000, noninterest income would have been $3,094,000 and $3,116,000
during those periods, respectively. Service charges and fees were up $66,000
(3.7%) to $1,873,000 over the year ago period due mainly to increased ATM fee
income. Other income was down $88,000 (6.7%) to $1,221,000. Commission income
from the sale of nondeposit investment products was down $40,000 (5.9%) to
$638,000 in the first quarter of 2001 versus $678,000 in the year-ago quarter.
Conversely, for the three months ended March 31, 2001, gain on sale of loans
increased $67,000 (89.4%) to $142,000 compared to $75,000 in the first quarter
of 2000. No other single category of other income accounted for a significant
portion of the drop in other income.
Noninterest expense increased $746,000 (8.3%) to $9,770,000 in the first quarter
2001 versus 2000. Salary and benefit expense increased $324,000 (6.7%) on a
quarter over quarter basis to $5,158,000. Base salary expense increased $231,000
(7.2%) to $3,450,000 due to a 2.4% increase in average full-time equivalent
employees to 392, and annual salary increases. The increase in employees is due
to the opening of branches in Modesto and Paradise in January and August of
2000, respectively, and additions to consumer loan origination and retail branch
administration staff. Other noninterest expenses increased $422,000 (10.1%) to
$4,612,000 in the first quarter of 2001. Contributing to the increase in other
noninterest expense was a $125,000 (179%) increase in postage expense to
$195,000, and a $99,000 (335%) increase in legal expense to $128,000 in the
quarter ended March 31, 2001. The increase in postage expense was mainly due to
an $80,000 postal service rebate received in the first quarter of 2000. The
increase in legal expense was mainly due to activities related to the single
nonperforming loan relationship discussed above.
Assets of the Company totaled $979,702,000 at March 31, 2001, and represented an
increase of $7,631,000 from December 31, 2000 balances and an increase of
$56,757,000 from March 31, 2000 ending balances.
For the first quarter of 2001, the Company had an annualized return on assets of
1.24% and a return on equity of 13.81% versus 1.73% and 21.26% in the first
quarter of 2000. As of March 31, 2001 TriCo Bancshares had a Tier 1 capital
ratio of 10.9% and a total risk-based capital ratio of 12.2%.
The following table provides a summary of the major elements of income and
expense for the first quarter of 2000 compared with the first quarter of 1999.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended March 31, Percentage
2001 2000 Change
increase
(decrease)
Interest income $ 19,048 $ 18,181 4.8%
Interest expense 7,195 6,408 12.3%
-------------- --------------
Net interest income 11,853 11,773 0.7%
Provision for loan losses 1,875 800 134.4%
-------------- --------------
Net interest income after 9,978 10,973 (9.1%)
provision for loan losses
Noninterest income 4,850 4,626 4.8%
Noninterest expenses 9,770 9,024 8.3%
-------------- --------------
Net income before income taxes 5,058 6,575 (23.1%)
Income taxes 1,792 2,360 (24.1%)
Tax equivalent adjustment1 287 287 0.0%
-------------- --------------
Net income $ 2,979 $ 3,928 (24.2%)
============== ==============
Diluted earnings per common share $ 0.41 $ 0.54 (24.1%)
1 Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for March 31, 2001 and 2000.
Net Interest Income / Net Interest Margin
Net interest income represents the excess of interest and fees earned on
interest-earning assets (loans, securities and Federal Funds sold) over the
interest paid on deposits and borrowed funds. Net interest margin is net
interest income expressed as a percentage of average earning assets. Net
interest income comprises the major portion of the Bank's income.
For the three months ended March 31, 2001, interest income increased $867,000 or
4.8% over the same period in 2000. The average balance of total earning assets
was higher by $50,333,000 (6.1%). The average balance of loans and Federal Funds
sold outstanding increased $46,082,000 (7.9%) and 16,707,000 (122%),
respectively, while investment security average balances decreased $12,456,000
(5.5%). The loan and federal funds volume increases accounted for additional
interest income of $1,105,000 and $236,000, respectively, during the first
quarter of 2001 versus the year earlier period. The decrease in the average
balance of investment securities resulted in a reduction in interest income of
$216,000. The average yields on loans, investment securities and Federal Funds
sold were lower by 4, 31 and 33 basis points, respectively, and decreased
interest income for the quarter by $258,000 over the first quarter of 2000. The
overall yield on earning assets decreased 11 basis points to 8.69%.
For the first quarter of 2001, interest expense increased by $787,000 or 12.3%
over the year earlier period. Average balances of interest-bearing demand and
time deposits increased $5,146,000 (3.5%), and $39,700,000 (14.8%),
respectively. The average balances of savings deposits, short-term borrowings
and long-term borrowings were lower by $5,603,000 (2.5%), $663,000 (100%), and
$12,314,000 (27.1%), respectively, during the first quarter of 2001 versus the
year earlier period. For the first quarter of 2001, the average balance of total
interest bearing liabilities increased $26,266,000 (3.8%) over the year earlier
period increasing interest expense by $314,000. The overall average rate on
earning liabilities increased by 30 basis points to 4.04%, and increased
interest expense by $473,000.
The net effect of the increases in interest income and expense for the first
quarter of 2001 versus 2000 resulted in an increase of $80,000 or 0.7% in net
interest income. Net interest margin was down 29 basis points from 5.70% to
5.41%. The average balance of noninterest bearing deposits was $11,505,000
(8.5%) higher to $147,620,000 in the first quarter of 2001 versus the first
quarter of 2000.
The following two tables provide summaries of the components of the interest
income, interest expense and net interest margins on earning assets for the
quarter ended March 31, 2001 versus the same period in 2000.
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Three Months Ended
March 31, 2001 March 31, 2000
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
Assets
Earning assets
Loan 2,3 $ 632,741 $15,102 9.55% $ 586,659 $14,063 9.59%
Securities 213,419 3,542 6.64% 225,875 3,925 6.95%
Federal funds sold 30,370 404 5.32% 13,663 193 5.65%
------------- ------------ ----------- ------------- ------------- -----------
Total earning assets 876,530 19,048 8.69% 826,197 18,181 8.80%
------------ -------------
Cash and due from bank 40,518 37,362
Premises and equipment 16,891 16,025
Other assets,net 39,811 40,927
Less: allowance
for loan losses (12,435) (11,404)
------------- -------------
Total $ 961,315 $ 909,107
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 152,385 522 1.37% $ 147,239 578 1.57%
Savings deposits 218,302 1,624 2.98% 223,905 1,695 3.03%
Time deposits 308,479 4,544 5.89% 268,779 3,496 5.20%
Fed funds purchased - - - 584 9 6.16%
Repurchase agreements - - - 79 1 5.06%
Long-term debt 33,188 505 6.09% 45,502 629 5.53%
------------- ------------ ----------- ------------- ------------- -----------
Total interest-bearing
liabilities 712,354 7,195 4.04% 686,088 6,408 3.74%
------------ -------------
Noninterest-bearing deposits 147,620 136,115
Other liabilities 15,048 12,994
Shareholders' equity 86,293 73,910
------------- -------------
Total liabilities
and shareholders' equity $ 961,315 $ 909,107
============= =============
Net interest rate spread5 4.65% 5.06%
Net interest income/net $11,853 $11,773
============ =============
interest margin6 5.41% 5.70%
============ =============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $911,000 in 2001 and
$606,000 in 2000.
4Interest income is stated on a tax equivalent basis of 1.52 at March 31, 2001
and 2000.
5Net interest rate spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities.
6Net interest margin is computed by dividing net interest income by total
average earning assets.
TRICO BANCSHARES
ANALYSIS OF VOLUME AND RATE CHANGES
ON NET INTEREST INCOME AND EXPENSE
(in thousand)
For the three months ended March 31,
2001 over 2000
Yield/
Volume Rate4 Total
----------- ---------- ----------
Increase (decrease) in
interest income:
Loans 1,2 $ 1,105 $ (66) 1,039
Investment securities3 (216) (167) (383)
Federal funds sold 236 (25) 211
----------- ---------- ----------
Total 1,125 (258) 867
----------- ---------- ----------
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 20 (76) (56)
Savings deposits (42) (29) (71)
Time deposits 516 532 1,048
Federal funds purchased (9) - (9)
Repurchase agreements (1) - (1)
Long-term debt (170) 46 (124)
----------- ---------- ----------
Total 314 473 787
----------- ---------- ----------
Increase in net interest income $ 811 $ (731) $ 80
=========== ========== ==========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $911,000 in 2001 and
$606,000 in 2000.
3Interest income is stated on a tax equivalent basis of 1.52 for March 31, 2001
and 2000.
4The rate/volume variance has been included in the rate variance.
Provision for Loan Losses
Provision for loan losses for the first quarter of 2001 was $1,875,000 versus
$800,000 in the same quarter in 2000. The Company had net loan charge-offs of
$2,204,000 in the first quarter of 2001 compared to $77,000 of net loan
recoveries in the same period of 2000. The provision for loan losses of
$1,875,000 taken in the quarter ended March 31, 2001 was mainly due to an
additional $2,000,000 charge-off and subsequent sale of an agricultural-related
loan relationship that was first reported as nonperforming in the quarter ended
September 30, 2000. This loan relationship was sold to a third party without
recourse to Company. As such, the Company is not subject to any future
charge-offs related to this loan relationship.
Noninterest Income
Noninterest income in the first quarter of 2001 was $4,850,000 versus $4,626,000
in the same period of 2000. Excluding the effects of the sale of the JHF stock
noted above in the first quarter of 2001, and its initial receipt in the first
quarter of 2000, noninterest income would have been $3,094,000 and $3,116,000
during those periods, respectively. Service charges and fees were up $66,000
(3.7%) to $1,873,000 over the year ago period due mainly to increased ATM fee
income. Other income was down $88,000 (6.7%) to $1,221,000. Commission income
from the sale of nondeposit investment products was down $42,000 (6.2%) to
$638,000 in the first quarter of 2001 versus $680,000 in the year-ago quarter.
For the three months ended March 31, 2001, gain on sale of loans increased
$67,000 (89.4%) to $142,000 compared to $75,000 in the first quarter of 2000. No
other single category of other income accounted for a significant portion of the
drop in other income.
Noninterest Expense
Noninterest expense increased $746,000 (8.3%) to $9,770,000 in the first quarter
2001 versus 2000. Salary and benefit expense increased $324,000 (6.7%) on a
quarter over quarter basis to $5,158,000. Base salary expense increased $231,000
(7.2%) to $3,450,000 due to a 2.4% increase in average full-time equivalent
employees to 392, and annual salary increases. The increase in employees is due
to the opening of branches in Modesto and Paradise in January and August of
2000, respectively, and additions to consumer loan origination and retail branch
administration staff. Other noninterest expenses increased $422,000 (10.1%) to
$4,612,000 in the first quarter of 2001. Contributing to the increase in other
noninterest expense was a $125,000 (179%) increase in postage expense to
$195,000, and a $99,000 (335%) increase in legal expense to $128,000 in the
quarter ended March 31, 2001. The increase in postage expense was mainly due to
an $80,000 postal service rebate received in the first quarter of 2000. The
increase in legal expense was mainly due to activities related to the single
nonperforming loan relationship discussed above. In the spring of 2000, the
Company began to focus additional resources on the consumer and retail banking
segments of its marketplace. The result has been a significant increase in
deposits and consumer loans (primarily auto and home equity loans). Since the
quarter ended March 31, 2000, deposit balances have increased $61,996,000 (7.9%)
to $845,336,000, and consumer loan balances have increased $32,307,000 (33.4%)
to $128,961,000. The Company is in the process of applying a similar focus on
the small business segment of its marketplace.
Provision for Income Taxes
The tax rate for the three months ended March 31, 2001 was 37.6% compared to
37.5% in the year earlier period.
Loans
In the first quarter of 2001, loan balances decreased $16,396,000 (2.6%) to
$623,995,000 from year-end balances of $640,391,000. Commercial and real estate
loans decreased $11,650,000 (7.9%) and $13,460,000 (3.6%) from December 31, 2000
balances, respectively; while consumer loans increased $8,714,000 (7.3%) during
the quarter ended March 31, 2001. At March 31, 2000, loan balances totaled
$597,724,000.
Securities
At March 31, 2001, securities available-for-sale had a fair value of
$196,236,000 and an amortized cost of $196,022,000. This portfolio contained
mortgage-backed securities with an amortized cost of $130,218,000 of which
$12,754,000 were CMO's. At March 31, 2001, the Company had no securities
classified as held-to-maturity.
Nonperforming Loans
As shown in the following table, total nonperforming assets have decreased 46.9%
to $7,790,000 in the first three months of 2001. Nonperforming assets represent
0.80% of total assets. Both nonaccrual loans and OREO decreased during this
period. At December 31, 2000, nonperforming loans included $8.4 million from the
single loan relationship discussed above that the Company sold during the
quarter ended March 31, 2001. All nonaccrual loans are considered to be impaired
when determining the valuation allowance under SFAS 114. The Company continues
to make a concerted effort to work problem and potential problem loans to reduce
risk of loss.
March 31, December 31,
2001 2000
Nonaccrual loans $ 5,957 $ 12,262
Accruing loans past due 90 days or more 816 965
Restructured loans (in compliance with
modified terms) 0 0
------------- --------------
Total nonperforming loans 6,773 13,227
Other real estate owned 1,017 1,441
------------- --------------
Total nonperforming assets $ 7,790 $ 14,668
============= ==============
Nonperforming loans to total loans 1.09% 2.07%
Allowance for loan losses to
nonperforming loans 167% 88%
Nonperforming assets to total assets 0.80% 1.51%
Allowance for loan losses to
nonperforming assets 146% 80%
Allowance for Loan Loss
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.
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 as determined by
FASB 114, formula allowance factors for pools of credits, and allowances for
changing environmental factors (e.g., interest rates, growth, economic
conditions, etc.). Allowance factors for loan pools are based on the previous 5
years historical loss experience by product type. Allowances for specific loans
are based on FASB 114 analysis of individual credits. Allowances for changing
environmental factors are Management's best estimate of the probable impact
these changes have had on the loan portfolio as a whole. This process is
explained in detail in the notes to the Company's Consolidated Financial
Statements in its Annual Report on Form 10-K for the year ended December 31,
2000.
The following table presents information concerning the allowance and provision
for loan losses.
March 31, March 31,
2001 2000
(in thousands) (in thousands)
Balance, beginning of period $ 11,670 $ 11,037
Provision charged to operations 1,875 800
Loans charged off (2,266) (74)
Recoveries of loans previously
charged off 62 151
--------------- ---------------
Balance, end of period $ 11,341 $ 11,914
=============== ===============
Ending loan portfolio $ 623,995 $ 597,724
=============== ===============
Allowance for loan losses as a
percentage of ending loan portfolio 1.82% 1.99%
=============== ===============
During the quarter ended March 31, 2001, the Company received proceeds of
$6,079,000 from the sale of a nonperforming agricultural-related loan
relationship that was first reported as nonperforming in the quarter ended
September 30, 2000. The Company recorded charge-offs related to this loan
relationship of $2,000,000, $800,000, and $3,000,000 during the quarters ended
March 31, 2001, December 31, 2000, and September 31, 2000, respectively. The net
book value of principal balances after charge-offs for this nonperforming loan
relationship was approximately $6,079,000, $8,400,000, and $10,000,000 at March
31, 2001, December 31, 2000, and September 31, 2000, respectively. This loan
relationship was sold to a third party without recourse to the Company. As such,
the Company is not subject to any future charge-offs related to this loan
relationship.
Equity
The following table indicates the amounts of regulatory capital of the Company.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of March 31, 2001:
Total Capital to Risk Weighted Assets
Consolidated $89,467 12.18% =>$58,778 =>8.0% =>$73,472 =>10.0%
Tri Counties Bank $87,532 11.94% =>$58,649 =>8.0% =>$73,311 =>10.0%
Tier I Capital to Risk Weighted Assets
Consolidated $80,283 10.93% =>$29,389 =>4.0% =>$44,083 =>6.0%
Tri Counties Bank $78,341 10.69% =>$29,324 =>4.0% =>$43,987 =>6.0%
Tier I Capital to Average Assets
Consolidated $80,243 8.40% =>$38,234 =>4.0% =>$47,791 =>5.0%
Tri Counties Bank $78,341 8.21% =>$38,169 =>4.0% =>$47,712 =>5.0%
Item 3. MARKET RISK MANAGEMENT
There have not been any significant changes in the risk management profile of
the Bank since December 31, 2000.
PART II
Other Information
(a) Item 6. Exhibits Filed Herewith
Exhibit No. Exhibits
3.1 Articles of Incorporation, as amended to date, filed as
Exhibit 3.1 to Registrant's Report on Form 10-K, filed for
the year ended December 31, 1989, are incorporated herein
by reference.
3.2 Bylaws, as amended to 1992, filed as Exhibit 3.2 to
Registrant's Report on Form 10-K, filed for the year ended
December 31, 1992, are incorporated herein by reference.
10.1 Lease for Park Plaza Branch premises entered into as of
September 29, 1978, by and between Park Plaza Limited
Partnership as lessor and Tri Counties Bank as lessee,
filed as Exhibit 10.9 to the TriCo Bancshares Registration
Statement on Form S-14 (Registration No. 2-74796) is
incorporated herein by reference.
10.2 Lease for Administration Headquarters premises entered into
as of April 25, 1986, by and between Fortress-Independence
Partnership (A California Limited Partnership) as lessor
and Tri Counties Bank as lessee, filed as Exhibit 10.6 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1986, is incorporated herein by reference.
10.3 Lease for Data Processing premises entered into as of April
25, 1986, by and between Fortress-Independence Partnership
(A California Limited Partnership) as lessor and Tri
Counties Bank as lessee, filed as Exhibit 10.7 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1986, is incorporated herein by reference.
10.4 Lease for Chico Mall premises entered into as of March 11,
1988, by and between Chico Mall Associates as lessor and
Tri Counties Bank as lessee, filed as Exhibit 10.4 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1988, is incorporated by reference.
10.5 First amendment to lease entered into as of May 31, 1988 by
and between Chico Mall Associates and Tri Counties Bank,
filed as Exhibit 10.5 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1988, is incorporated
by reference.
10.9 Employment Agreement of Robert H. Steveson, dated December
12, 1989 between Tri Counties Bank and Robert H. Steveson,
filed as Exhibit 10.9 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1989, is incorporated
by reference.
10.12 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.
22.1 Tri Counties Bank, a California banking corporation, is the
only subsidiary of Registrant.
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRICO BANCSHARES
Date April 30, 2001 /s/ Richard P. Smith
-------------------- -----------------------
President and
Chief Executive Officer
Date April 30, 2001 /s/ Thomas J. Reddish
-------------------- -----------------------
Vice President and CFO