SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2001 Commission file number 0-10661
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TRICO BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2792841
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(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
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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
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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 August 3, 2001: 7,053,580
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, December 31,
--------- ------------
2001 2000
Assets:
Cash and due from banks $ 47,893 $ 58,190
Federal funds sold and repurchase agreements 39,800 --
--------- ------------
Cash and cash equivalents 87,693 58,190
Securities available-for-sale 185,031 229,110
Loans, net of allowance for loan losses
of $11,920 and $11,670, respectively 650,838 628,721
Premises and equipment, net 16,876 16,772
Cash Value of Life Insurance 14,319 13,753
Other real estate owned 998 1,441
Accrued interest receivable 5,941 6,935
Intangible assets 5,490 5,464
Other assets 13,107 11,685
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Total assets $ 980,293 $ 972,071
========= ===========
Liabilities:
Deposits:
Noninterest-bearing demand $ 166,559 $ 168,542
Interest-bearing demand 150,028 150,749
Savings 220,429 214,158
Time certificates 307,707 304,383
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Total deposits 844,723 837,832
Federal funds purchased -- 500
Accrued interest payable and other liabilities 16,851 14,523
Long term borrowings 32,969 33,983
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Total liabilities 894,543 886,838
Shareholders' equity:
Common stock 49,577 50,428
Retained earnings 36,573 35,129
Accumulated other comprehensive loss (400) (324)
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Total shareholders' equity 85,750 85,233
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Total liabilities and shareholders' equity $ 980,293 $ 972,071
========= ===========
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands except earnings per common share)
For the three months For the six months
ended June 30, ended June 30,
2001 2000 2001 2000
Interest income:
Interest and fees on loans $ 15,355 $ 15,385 $ 30,457 $ 29,448
Interest on investment
securities-taxable 2,258 2,969 4,956 6,049
Interest on investment
securities-tax exempt 554 556 1,111 1,114
Interest on federal funds sold 547 50 951 243
-------------- ------------- ------------ -------------
Total interest income 18,714 18,960 37,475 36,854
-------------- ------------- ------------ -------------
Interest expense:
Interest on deposits 5,816 5,933 12,506 11,702
Interest on federal funds purchased - 208 1 217
Interest on repurchase agreements - 84 - 85
Interest on other borrowings 507 685 1,011 1,314
-------------- ------------- ------------ -------------
Total interest expense 6,323 6,910 13,518 13,318
-------------- ------------- ------------ -------------
Net interest income 12,391 12,050 23,957 23,536
Provision for loan losses 775 900 2,650 1,700
-------------- ------------- ------------ -------------
Net interest income after
provision for loan losses 11,616 11,150 21,307 21,836
Noninterest income:
Service charges and fees 2,097 1,886 3,970 3,693
Gain on sale of insurance company stock - - 1,756 -
Gain on receipt of insurance company stock - - - 1,510
Other income 1,144 1,354 2,365 2,663
-------------- ------------- ------------ -------------
Total noninterest income 3,241 3,240 8,091 7,866
-------------- ------------- ------------ -------------
Noninterest expenses:
Salaries and related expenses 5,258 4,948 10,416 9,782
Other, net 5,026 4,502 9,638 8,692
-------------- ------------- ------------ -------------
Total noninterest expenses 10,284 9,450 20,054 18,474
-------------- ------------- ------------ -------------
Net income before income taxes 4,573 4,940 9,344 11,228
Income taxes 1,736 1,796 3,528 4,156
-------------- ------------- ------------ -------------
Net income $ 2,837 $ 3,144 $ 5,816 $ 7,072
============== ============= ============ =============
Basic earnings per common share $ 0.40 $ 0.44 $ 0.82 $ 0.99
============== ============= ============ =============
Diluted earnings per common share $ 0.39 $ 0.43 $ 0.80 $ 0.96
============== ============= ============ =============
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except number of shares)
Common stock Accumulated
------------------------- Other
Number Retained Comprehensive Comprehensive
of shares Amount earnings Loss Total Income
-------------------------------------------------------------------------------------
Balance, December 31, 2000 7,181,226 $50,428 $35,129 ($324) $85,233
Exercise of Common Stock options 38,830 318 318
Repurchase of Common Stock (166,476) (1,169) (1,541) (2,710)
Common stock cash dividends (2,831) (2,831)
Comprehensive income:
Net income 5,816 5,816 $5,816
Other comprehensive income:
Change in unrealized loss
on securities, net of tax 284 284 284
Change in minimum
pension liability, net of tax (360) (360) (360)
----------------
Comprehensive income $5,740
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Balance, June 30, 2001 7,053,580 $49,577 $36,573 ($400) $85,750
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TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the six months
ended June 30,
2001 2000
-------------- --------------
Operating activities:
Net income $ 5,816 $ 7,072
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 2,650 1,700
Provision for losses on other real estate owned 18 10
Depreciation and amortization 1,349 1,256
Amortization of intangible assets 455 482
Accretion and amortization of investment
securities discounts and premiums, net 100 141
Deferred income taxes 169 (173)
Investment security (gains) losses, net (1,756) -
Gain on sale of OREO (31) (50)
Gain on sale of loans (284) (179)
Loss on sale of fixed assets 8 44
Amortization of stock options - 69
Decrease (increase) in interest receivable 994 (523)
Increase in interest payable 304 454
Decrease in other assets and liabilities (1,386) (474)
-------------- --------------
Net cash provided by operating activities 8,406 9,829
-------------- --------------
Investing activities:
Proceeds from maturities of securities available-for-sale 43,044 23,596
Proceeds from sales of securities available-for-sale 3,265 -
Purchases of securities available-for-sale (127) (8,955)
Proceeds from sale of fixed assets 9 30
Net increase in loans (24,811) (52,101)
Purchases of premises and equipment (1,221) (2,253)
Proceeds from sale of OREO 784 304
-------------- --------------
Net cash provided (used) by investing activities 20,943 (39,379)
-------------- --------------
Financing activities:
Net increase (decrease) in deposits 6,891 (6,543)
Net increase (decrease) in Fed funds purchased (500) 17,000
Net increase in repurchase agreements - 4,900
Borrowings under long-term debt agreements - 35,000
Payments of principal on long-term debt agreements (1,014) (20,011)
Repurchase of common stock (2,710) (154)
Cash dividends - Common (2,831) (2,801)
Exercise of common stock options 318 301
-------------- --------------
Net cash provided by financing activities 154 27,692
-------------- --------------
Increase (decrease) in cash and cash equivalents 29,503 (1,858)
Cash and cash equivalents at beginning of period 58,190 59,636
-------------- --------------
Cash and cash equivalents at end of period $ 87,693 $ 57,778
============== ==============
Supplemental information
Cash paid for taxes $ 3,100 $ 3,961
Cash paid for interest expense $ 13,214 $ 12,864
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 disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to SEC rules or regulations;
however, the Company believes that the disclosures made are adequate to make the
information presented not misleading.
The interim results for the six months ended June 30, 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, changes in the fair value of its available-for-sale
investments and changes in minimum pension liability reported as other
comprehensive income. The following table presents net income adjusted by these
elements to determine total comprehensive income (in thousands).
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
Net income $ 2,837 $ 3,144 $ 5,816 $ 7,072
Net change in unrealized gains (losses)
on securities available-for-sale (172) 815 284 283
Net change in minimum
pension liability (360) -- (360) --
------- ------- ------- -------
Comprehensive income (loss) $ 2,305 $ 3,959 $ 5,740 $ 7,355
======= ======= ======= =======
Note C - Earnings per Share
The Company's basic and diluted earnings per share are as follows (in thousands
except per share data):
Three Months Ended June 30, 2001
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,837 7,078,085 $0.40
Common stock options outstanding -- 132,268
Diluted Earnings per Share
Net income available to common shareholders $2,837 7,210,353 $0.39
====== =========
Three Months Ended June 30, 2000
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $3,144 7,188,003 $0.44
Common stock options outstanding -- 152,309
Diluted Earnings per Share
Net income available to common shareholders $3,144 7,340,312 $0.43
====== =========
Six Months Ended June 30, 2001
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $5,816 7,109,299 $0.82
Common stock options outstanding -- 130,553
Diluted Earnings per Share
Net income available to common shareholders $5,816 7,239,852 $0.80
====== =========
Six Months Ended June 30, 2000
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $7,072 7,179,853 $0.99
Common stock options outstanding -- 159,388
Diluted Earnings per Share
Net income available to common shareholders $7,072 7,339,241 $0.96
====== =========
Note D - Business Segments
The Company is principally engaged in traditional community banking activities
provided through its twenty-nine branches and eight in-store branches located
throughout Northern California. Community banking activities include the Bank's
commercial and retail lending, deposit gathering and investment and liquidity
management activities. In addition to its community banking services, the Bank
offers investment brokerage and leasing services.
The 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 prescribed aggregation or
materiality criteria and, therefore, are reported as "Other" in the following
table.
Summarized financial information concerning the Bank's reportable segments is as
follows (in thousands):
Community
Banking Other Total
Three Months Ended June 30, 2001
Net interest income $ 12,136 $ 255 $ 12,391
Noninterest income 2,608 633 3,241
Noninterest expense 9,838 446 10,284
Net income 2,623 214 2,837
Assets $965,400 $14,893 $980,293
Three Months Ended June 30, 2000
Net interest income $ 11,825 $ 225 $ 12,050
Noninterest income 2,404 836 3,240
Noninterest expense 8,904 546 9,450
Net income 2,858 286 3,144
Assets $947,383 $13,684 $961,067
Six Months Ended June 30, 2001
Net interest income $ 23,506 $ 451 $ 23,957
Noninterest income 6,765 1,326 8,091
Noninterest expense 19,139 915 20,054
Net income 5,400 416 5,816
Assets $965,400 $14,893 $980,293
Six Months Ended June 30, 2000
Net interest income $ 23,131 $ 405 $ 23,536
Noninterest income 6,330 1,536 7,866
Noninterest expense 17,503 971 18,474
Net income 6,536 536 7,072
Assets $947,383 $13,684 $961,067
Note E - Other Income
Included in the results for the six months ended June 30, 2001 is 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 $3,265,000.
Included in the results for the six months ended June 30, 2000 is 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 of which 110,000 shares were
repurchased 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 shares. As of July 10, 2001, the Company had repurchased
52,500 shares under this new plan.
Note G - Shareholder Rights Plan
On June 25, 2001, the Company announced that its Board of Directors adopted and
entered into a Shareholder Rights Plan designed to protect and maximize
shareholder value and to assist the Board of Directors in ensuring fair and
equitable benefit to all shareholders in the event of a hostile bid to acquire
the Company.
The Company adopted this Rights Plan to protect stockholders from coercive or
otherwise unfair takeover tactics. In general terms, the Rights Plan imposes a
significant penalty upon any person or group that acquires 15% or more of the
Company's outstanding common stock without the approval of the Company's Board
of Directors. The Rights Plan was not adopted in response to any known attempt
to acquire control of the Company.
Under the Rights Plan, a dividend of one Preferred Stock Purchase Right was
declared for each common share held of record as of the close of business on
July 10, 2001. No separate certificates evidencing the Rights will be issued
unless and until they become exercisable.
The Rights generally will not become exercisable unless an acquiring entity
accumulates or initiates a tender offer to purchase 15% or more of the Company's
common stock. In that event, each Right will entitle the holder, other than the
unapproved acquirer and its affiliates, to purchase either the Company's common
stock or shares in an acquiring entity at one-half of market value.
The Right's initial exercise price, which is subject to adjustment, is $49.00.
The Company's Board of Directors generally will be entitled to redeem the Rights
at a redemption price of $.01 per Right until an acquiring entity acquires a 15%
position. The Rights expire on July 10, 2011.
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 earnings of $2,837,000 for the quarter ended June 30, 2001. The
quarterly earnings represented a 9.8% decrease over the $3,144,000 reported for
the same period of 2000. Diluted earnings per share for the second quarter of
2001 were $0.39 versus $0.43 in the year earlier period. Earnings for the six
months ended June 30, 2001 were $5,816,000 versus year ago results of
$7,072,000, and represented a 17.8% decrease. The diluted earnings per share
were $0.80 and $0.96 for the respective six-month periods. Included in the
results for the six months ended June 30, 2001 was a $1,756,000 pretax gain on
the sale of the Company's equity investment in John Hancock Financial Services,
Inc. (JHF). In the six months ended June 30, 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 $0.65 and $0.84 in the six months ended
June 30, 2001 and 2000, respectively.
Pretax earnings for the second quarter of 2001 were $4,573,000 versus $4,940,000
for the same period in 2000. Net interest income reflected growth of $341,000
(2.8%) to $12,391,000. The interest income component was down $246,000 (1.3%) to
$18,714,000 mainly due to Federal Reserve interest rate cuts totaling 275 basis
points since December 31, 2000. Interest expense for the quarter ended June 30,
2001 decreased $587,000 (8.5%) from the year-ago quarter to $6,323,000 as a
result of the Bank's efforts to reprice its liabilities. Net interest margin was
5.76% for the second quarter of 2001 versus 5.85% in the same quarter of the
prior year. The provision for loan losses of $775,000 for the second quarter of
2001 was $125,000 lower than the $900,000 recorded in the same quarter of 2000.
Noninterest income for the second quarter of 2001 increased $1,000 to $3,241,000
from $3,240,000 during the same period in 2000. Income from service charges and
fees increased $211,000 (11.2%) to $2,097,000, primarily due to increased
account service charges. Other income decreased $210,000 (15.5%) to $1,144,000
in the second quarter of 2001 versus the same quarter in 2000. Accounting for
the decrease in other income was a $253,000 (31%) decrease in commissions on the
sale of insurance, mutual funds and annuities from $816,000 to $563,000. This
decrease was partially offset by an increase in gain on sale of loans, which was
up $38,000 (37%) to $142,000 for the quarter ended June 30, 2001.
Noninterest expense increased $834,000 (8.8%) in the second quarter 2001 versus
2000. Salary and benefit expense increased $310,000 (6.3%) on a
quarter-over-quarter basis to $5,258,000. Base salary expense increased $180,000
(5.4%) due to a 2% increase in average full-time equivalent employees to 398,
and a 3.4% rate of annual salary increases. An increase in the quarterly
employee retirement expense accrual accounted for the majority of the remaining
increase in salary and benefits expense. Other noninterest expenses increased
$524,000 (11.6%) to $5,026,000 in the second quarter of 2001. Contributing to
the increase in other noninterest expense was a $169,000 (13.4%) increase in
premises and equipment expense that was primarily related to facility
maintenance and computer network upgrade. Also contributing to the increase in
other noninterest expense was a $58,000 (25.1%) increase in telephone expense,
and a $79,000 (209%) increase in legal fees related to nonperforming loans.
Utilities expense was up $9,000 (12%) over the year-ago quarter.
Assets of the Company totaled $980,293,000 at June 30, 2001 and represented
increases of $8,222,000 (0.9%) and $19,226,000 (2.0%) from December 31, 2000 and
June 30, 2000 ending balances, respectively. Changes in earning assets from the
prior year quarter-end balances included an increase in loans of $23,188,000
(3.6%) to $662,758,000 and a decrease in securities of $32,256,000 (14.8%) to
$185,031,000. The Company invested $39,800,000 of overnight Fed funds at June
30, 2001 compared to net overnight borrowings of $20,900,000 at June 30, 2000.
Deposits at June 30, 2001 were up $57,156,000 (7.3%) to $844,723,000 from
$787,567,000 at June 30, 2000. From year-end 2000 balances, nonperforming assets
have decreased $7,676,000 (52.3%) and total $6,992,000 at June 30, 2001.
Nonperforming assets were 0.71% of total assets at quarter end versus 1.51% at
December 31, 2000.
Year to date 2001, on an annualized basis, the Company realized a return on
assets of 1.21% and a return on equity of 13.48% versus 1.54% and 18.78% in the
first half of 2000. TriCo Bancshares ended the quarter with a Tier 1 capital
ratio of 10.5% and a total risk-based capital ratio of 11.7%.
The following tables provide a summary of the major elements of income and
expense for the second quarter of 2001 compared with the second quarter of 2000
and for the first six months of 2001 compared with the first six months of 2000.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended June 30, Percentage
2001 2000 Change
increase
(decrease)
Interest income $ 19,002 $ 19,241 (1.2%)
Interest expense 6,323 6,910 (8.5%)
-------------- --------------
Net interest income 12,679 12,331 2.8%
Provision for loan losses 775 900 (13.9%)
-------------- --------------
Net interest income after 11,904 11,431 4.1%
provision for loan losses
Noninterest income 3,241 3,240 0.0%
Noninterest expenses 10,284 9,450 8.8%
-------------- --------------
Net income before income taxes 4,861 5,221 (6.9%)
Income taxes 1,736 1,796 (3.3%)
Tax equivalent adjustment1 288 281 2.5%
-------------- --------------
Net income $ 2,837 $ 3,144 (9.8%)
============== ==============
Diluted earnings per common share $ 0.39 $ 0.43 (9.3%)
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for June 30, 2001 and 2000.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Six months
ended June 30, Percentage
2001 2000 Change
increase
(decrease)
Interest income $ 38,053 $ 37,422 1.7%
Interest expense 13,518 13,318 1.5%
-------------- --------------
Net interest income 24,535 24,104 1.8%
Provision for loan losses 2,650 1,700 55.9%
-------------- --------------
Net interest income after 21,885 22,404 (2.3%)
provision for loan losses
Noninterest income 8,091 7,866 2.9%
Noninterest expenses 20,054 18,474 8.6%
-------------- --------------
Net income before income taxes 9,922 11,796 (15.9%)
Income taxes 3,528 4,156 (15.1%)
Tax equivalent adjustment1 578 568 1.8%
-------------- --------------
Net income $ 5,816 $ 7,072 (17.8%)
============== ==============
Diluted earnings per common share $ 0.80 $ 0.96 (16.7%)
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for June 30, 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.
During the first six months of 2001, the Fed Reserve Bank lowered the Fed funds
target rate 275 basis points to 3.75%. The Company's internal financial models
indicate that like many of its community banking peers, in periods of falling
interest rates its net interest margin is expected to compress slightly.
Conversely, in periods of rising interest rates, its net interest margin is
expected to expand slightly. During periods of extreme interest rate changes,
such as in the first six months of 2001, this compression or expansion of net
interest margin is temporarily compounded by the fact that generally, the
Company's assets change their rates faster than the Company's liabilities change
their rates. During the quarter ended March 31, 2001, this margin compression
was at its highest level as the Fed cut interest rates 150 basis points, and the
Company's net interest margin fell to 5.41% from 5.83% in the quarter ended
December 31, 2000. During the quarter ended June 30, 2001, the Fed cut interest
rates 125 basis points, but the repricing of the Company's liabilities began to
catch up with the repricing of its assets, and the Company's net interest margin
recovered to 5.76%.
For the three months ended June 30, 2001, interest income on a fully
tax-equivalent basis decreased $239,000 (1.2%) over the same period in 2000. The
average balance of total earning assets was higher by $36,393,000 (4.3%).
Average loan and Fed funds sold balances were up $18,042,000 (2.9%) and
$46,693,000 (1,452%), respectively, while average security balances were down
$28,342,000 (12.9%). The average yield on loans, securities and Fed funds sold
was lower by 30, 45 and 184 basis points respectively. The overall yield on
average earning assets decreased 48 basis points to 8.64%.
For the second quarter of 2001, interest expense decreased $587,000 (8.5%) over
the year earlier period. Average balances of interest-bearing liabilities were
up $10,688,000 (1.5%). The average rate paid on interest bearing liabilities
decreased 40 basis points to 3.56% from the year-ago quarter.
The combined effect of the decreases in interest income and interest expense for
the second quarter of 2001 versus 2000 resulted in an increase of $348,000
(2.8%) in net interest income. Net interest margin was down 9 basis points to
5.76% from 5.85% for the same periods in 2001 and 2000.
The six-month period ending June 30, 2001, reflects an interest income increase
of $631,000 (1.7%) over the same period in 2000. The average balance of total
earning assets was higher by $42,963,000 (5.1%). Average loan and Fed funds sold
balances were up $32,062,000 (5.3%) and $31,700,000 (376%), respectively, while
average security balances were down $20,799,000 (9.3%). The average yield on
loans, securities and Fed funds sold was lower by 18, 37 and 102 basis points
respectively. The overall yield on average earning assets decreased 29 basis
points to 8.67%.
Interest expense for the six-month period increased $200,000 (1.5%) from the
same period in 2000. The average balance of total interest-bearing liabilities
increased $18,477,000 (2.7%). The average rate paid on total interest-bearing
liabilities decreased 5 basis points to 3.80%.
The combined effect of the increase in interest income and interest expense for
the first six months of 2001 versus 2000 resulted in an increase of $431,000
(1.8%) in net interest income. Net interest margin decreased 18 basis points to
5.59% from 5.77%.
The following four tables provide summaries of the components of the interest
income, interest expense and net interest margins on earning assets for the
quarter and six month periods ended June 30, 2001 versus the same periods in
2000.
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Three Months Ended
June 30, 2001 June 30, 2000
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
Assets
Earning assets
Loan 2,3 $638,685 $ 15,355 9.62% $620,643 $ 15,385 9.92%
Securities4 191,475 3,100 6.48% 219,817 3,806 6.93%
Federal funds sold 49,908 547 4.38% 3,215 50 6.22%
------------- ------------ ----------- ------------- ------------- -----------
Total earning assets 880,068 19,002 8.64% 843,675 19,241 9.12%
------------ -------------
Cash and due from bank 39,940 37,092
Premises and equipment 16,955 16,131
Other assets,net 40,965 42,507
Less: allowance
for loan losses (11,605) (12,056)
------------- -------------
Total $966,323 $927,349
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $150,471 435 1.16% $148,609 584 1.57%
Savings deposits 216,534 1,163 2.15% 215,533 1,640 3.04%
Time deposits 309,439 4,218 5.45% 269,765 3,709 5.50%
Fed funds purchased 102 1 3.92% 12,556 208 6.63%
Repurchase agreements - - 5,179 84 6.49%
Long-term debt 32,928 506 6.15% 47,144 685 5.81%
------------- ------------ ----------- ------------- ------------- -----------
Total interest-bearing
liabilities 709,474 6,323 3.56% 698,786 6,910 3.96%
------------ -------------
Noninterest-bearing deposits 154,336 138,409
Other liabilities 16,172 13,410
Shareholders' equity 86,341 76,744
------------- -------------
Total liabilities
and shareholders' equity $966,323 $927,349
============= =============
Net interest rate spread5 5.08% 5.16%
Net interest income/net $ 12,679 $ 12,331
============ =============
interest margin6 5.76% 5.85%
============ =============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $1,158,000 in 2001 and $715,000 in 2000.
4Interest income is stated on a tax equivalent basis of 1.52 at June 30, 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 CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Six Months Ended
June 30, 2001 June 30, 2000
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
Assets
Earning assets
Loan 2,3 $ 635,713 $30,457 9.58% $ 603,651 $29,448 9.76%
Securities4 202,447 6,645 6.56% 223,246 7,731 6.93%
Federal funds sold 40,139 951 4.74% 8,439 243 5.76%
------------- ------------ ----------- ------------- ------------- -----------
Total earning assets 878,299 38,053 8.67% 835,336 37,422 8.96%
------------ -------------
Cash and due from bank 40,229 36,827
Premises and equipment 16,923 16,078
Other assets,net 40,388 41,717
Less: allowance
for loan losses (12,020) (11,730)
------------- -------------
Total $ 963,819 $ 918,228
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 151,428 957 1.26% $ 147,924 1,162 1.57%
Savings deposits 217,418 2,787 2.56% 219,719 3,335 3.04%
Time deposits 308,959 8,762 5.67% 269,272 7,205 5.35%
Fed funds purchased 51 1 3.92% 6,570 217 6.61%
Repurchase agreements - - 2,629 85 6.47%
Long-term debt 33,058 1,011 6.12% 46,323 1,314 5.67%
------------- ------------ ----------- ------------- ------------- -----------
Total interest-bearing
liabilities 710,914 13,518 3.80% 692,437 13,318 3.85%
------------ -------------
Noninterest-bearing deposits 150,978 137,262
Other liabilities 15,610 13,202
Shareholders' equity 86,317 75,327
------------- -------------
Total liabilities
and shareholders' equity $ 963,819 $ 918,228
============= =============
Net interest rate spread5 4.86% 5.11%
Net interest income/net $24,535 $24,104
============ =============
interest margin6 5.59% 5.77%
============ =============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $2,069,000 in 2001 and $1,321,000 in 2000.
4Interest income is stated on a tax equivalent basis of 1.52 at June 30, 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 June 30,
2001 over 2000
Yield/
Volume Rate4 Total
----------------- ----------------- -----------------
Increase (decrease) in interest income:
Loans 1,2 $ 447 $ (477) $ (30)
Investment securities3 (491) (215) (706)
Federal funds sold 726 (229) 497
----------------- ----------------- -----------------
Total 682 (921) (239)
----------------- ----------------- -----------------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 7 (156) (149)
Savings deposits 8 (485) (477)
Time deposits 545 (36) 509
Federal funds purchased (206) (1) (207)
Repurchase agreements (84) - (84)
Long-term debt (207) 28 (179)
----------------- ----------------- -----------------
Total 63 (650) (587)
----------------- ----------------- -----------------
Increase in net interest income $ 619 $ (271) $ 348
================= ================= =================
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $1,158,000 in 2001 and $715,000 in 2000.
3Interest income is stated on a tax equivalent basis of 1.52 for June 30, 2001 and 2000 respectively.
4The rate/volume variance has been included in the rate variance.
TRICO BANCSHARES
ANALYSIS OF VOLUME AND RATE CHANGES
ON NET INTEREST INCOME AND EXPENSE
(in thousand)
For the six months ended June 30,
2001 over 2000
Yield/
Volume Rate4 Total
----------------- ----------------- -----------------
Increase (decrease) in interest income:
Loans 1,2 $ 1,564 $ (555) $ 1,009
Investment securities3 (721) (365) (1,086)
Federal funds sold 913 (205) 708
----------------- ----------------- -----------------
Total 1,756 (1,125) 631
----------------- ----------------- -----------------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 28 (233) (205)
Savings deposits (35) (513) (548)
Time deposits 1,062 495 1,557
Federal funds purchased (215) (1) (216)
Repurchase agreements (85) - (85)
Long-term debt (376) 73 (303)
----------------- ----------------- -----------------
Total 379 (179) 200
----------------- ----------------- -----------------
Increase in net interest income $ 1,377 $ (946) $ 431
================= ================= =================
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $2,069,000 in 2001 and $1,321,000 in 2000.
3Interest income is stated on a tax equivalent basis of 1.52 for June 30, 2001 and 2000.
4The rate/volume variance has been included in the rate variance.
Provision for Loan Losses
The Bank provided $775,000 for loan losses in the second quarter of 2001 versus
$900,000 in 2000. Net charge-offs for all loans in the second quarter of 2001
totaled $196,000 versus $222,000 in the year earlier period.
For the six months ended June 30, 2001 and 2000, the Bank provided $2,650,000
and $1,700,000 for loan losses, respectively. Net charge-offs for all loans
during the six months ended June 30, 2001 and 2000 were $2,400,000 and $145,000,
respectively. Included in the net charge-offs during the six months ended June
30, 2001 is $2,000,000 of charge offs related to a single borrower. (Also see
reference to this single borrower in the discussion of "Nonperforming Loans"
below.)
Noninterest Income
Noninterest income for the second quarter of 2001 increased $1,000 to $3,241,000
from $3,240,000 during the same period in 2000. Income from service charges and
fees increased $211,000 (11.2%) to $2,097,000, primarily due to increased
account service charges and ATM fees. Other income decreased $210,000 (15.5%) to
$1,144,000 in the second quarter of 2001 versus the same quarter in 2000.
Accounting for the decrease in other income was a $253,000 (31%) decrease in
commissions on the sale of insurance, mutual funds and annuities from $816,000
to $563,000. This decrease was partially offset by an increase in gain on sale
of loans which was up $38,000 (37%) to $142,000 for the quarter ended June 30,
2001.
For the six months ended June 30, 2001, noninterest income was up $225,000
(2.9%) over the same period for 2000. As described above, during the quarters
ended March 31, 2001 and 2000, the Company recorded one-time pre-tax income
items of $1,756,000 and $1,510,000, respectively from the receipt and sale of
John Hancock Financial Services, Inc. common stock. Excluding these one-time
events, noninterest income for the six months ended June 30, 2001 would have
decreased $21,000 (0.3%) to $6,335,000. Service charges and fee income was up
$277,000 (7.5%) to $3,970,000 mainly due to increased account service charges
and ATM fees. Other income decreased $298,000 (11.2%) to $2,365,000. Accounting
for the decrease in other income was a $295,000 (20%) decrease in commissions on
the sale of insurance, mutual funds and annuities from $1,480,000 to $1,185,000.
This decrease was partially offset by an increase in gain on sale of loans which
increased $105,000 (59%) to $284,000.
Noninterest Expense
Noninterest expense increased $834,000 (8.8%) in the second quarter 2001 versus
2000. Salary and benefit expense increased $310,000 (6.3%) on a
quarter-over-quarter basis to $5,258,000. Base salary expense increased $180,000
(5.4%) due to a 2% increase in average full-time equivalent employees to 398,
and a 3.4% rate of annual salary increases. Employee retirement expense accruals
increased $138,000 (49%) due mainly to increased supplemental executive
retirement plan and employee stock ownership plan accruals. Other noninterest
expenses increased $524,000 (11.6%) to $5,026,000 in the second quarter of 2001.
Contributing to the increase in other noninterest expense was a $169,000 (13.4%)
increase in premises and equipment expense that was primarily related to
facility maintenance and computer network upgrade. Utilities expense, which is
included in premises and equipment expense, was up $9,000 (12%) over the
year-ago quarter. Also contributing to the increase in other noninterest expense
was a $98,000 (46%) increase in professional service fees comprised mostly of
legal fees related to nonperforming loans. Operating expenses such as telephone,
armored car, courier, ATM, and office supplies taken as a whole were up $107,000
(9%) from the year-ago quarter, with telephone expense being up $58,000 (25%)
due primarily to the cost of enhanced data lines required by the Company's
network.
For the first six months noninterest expenses increased $1,580,000 (8.6%) to
$20,054,000 in 2001 compared to 2000. Salary and benefit expense increased
$634,000 (6.5%) to $10,416,000. Base salary expense increased $412,000 (6.3%)
due to a 2.3% increase in average full-time equivalent employees to 395, and a
4.0% rate of annual salary increases. Employee retirement expense accruals
increased $148,000 (24%) due mainly to increased supplemental executive
retirement plan and employee stock ownership plan accruals. Other noninterest
expenses increased $946,000 (10.9%) to $9,638,000. Contributing to the increase
in other noninterest expense was a $135,000 (5.2%) increase in premises and
equipment expense that was primarily related to facility maintenance and
computer network upgrade. Utilities expense, which is included in premises and
equipment expense, was up $30,000 (19%) over the year-ago period. Also
contributing to the increase in other noninterest expense was a $203,000 (47%)
increase in professional service fees comprised mostly of legal fees related to
nonperforming loans. Operating expenses such as telephone, armored car, courier,
ATM, and office supplies taken as a whole were up $327,000 (14%) from the
year-ago quarter, with telephone expense being up $73,000 (16%) due primarily to
the cost of enhanced data lines required by the Company's network, and postage
expense up $109,000 (53%) due to special customer mailings in the quarter ended
March 31, 2001.
Provision for Income Taxes
The effective tax rate for the six months ended June 30, 2001 was 37.8% and
reflects an increase from 37.0% in the year earlier period.
Loans
At June 30, 2001, loan balances were $23,188,000 (3.6%) higher than the ending
balances at June 30, 2000 and $22,367,000 (3.5%) higher than the ending balances
at December 31, 2000. On a year-over-year basis at June 30, consumer and real
estate construction loan balances were higher by $32,829,000 (31.8%) and
$6,086,000 (18.1%), respectively. Commercial and real estate mortgage loan
balances were lower by $3,504,000 (2.3%) and $12,223,000 (3.5%), respectively.
Securities
At June 30, 2001, securities available-for-sale had a fair value of $185,031,000
and an amortized cost of $185,096,000. This portfolio contained mortgage-backed
securities with an amortized cost of $119,398,000 of which $10,306,000 were
CMOs. At June 30, 2001, the Company had no securities classified as
held-to-maturity
Nonperforming Loans
As shown in the following table, total nonperforming assets have decreased 52.3%
to $6,992,000 in the first six months of 2001. Included in the nonaccrual loans
balance at December 31, 2000 was approximately $8,400,000 related to a single
borrower that was subsequently sold in the quarter ended March 31, 2001 without
recourse to the Company. Nonperforming assets represent 0.71% of total assets.
All nonaccrual loans are considered to be impaired when determining the need for
a specific valuation allowance. The Collections Department personnel continue to
make a concerted effort to work problem and potential problem loans to reduce
risk of loss.
June 30, December 31,
2001 2000
Nonaccrual loans $ 5,044 $ 12,262
Accruing loans past due 90 days or more 950 965
Restructured loans (in compliance with
modified terms) 0 0
--------------- --------------
Total nonperforming loans 5,994 13,227
Other real estate owned 998 1,441
--------------- --------------
Total nonperforming assets $ 6,992 $ 14,668
=============== ==============
Nonperforming loans to total loans 0.90% 2.07%
Allowance for loan losses to
nonperforming loans 199% 88%
Nonperforming assets to total assets 0.71% 1.51%
Allowance for loan losses to
nonperforming assets 170% 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 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
purposes of this discussion, "loans" shall include all loans and lease
contracts, that are part of the Company'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 portfolio, and to a lesser extent the
Company's loan commitments. These assessments include the periodic re-grading of
credits based on changes in their individual credit characteristics including
delinquency, seasoning, recent financial performance of the borrower, economic
factors, changes in the interest rate environment, growth of the portfolio as a
whole or by segment, and other factors as warranted. Loans are initially graded
when originated. They are re-graded as they are renewed, when there is a new
loan to the same borrower, when identified facts demonstrate heightened risk of
nonpayment, or if they become delinquent. Re-grading of larger problem loans
occur at least quarterly. Confirmation of the quality of the grading process is
obtained by independent credit reviews conducted by consultants specifically
hired for this purpose and by various bank regulatory agencies.
The Company's method for assessing the appropriateness of the allowance includes
specific allowances for identified problem loans and leases as determined by
SFAS 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 SFAS 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 for the six months ended.
June 30, June 30,
2001 2000
(in thousands) (in thousands)
Balance, beginning of period $ 11,670 $ 11,037
Provision charged to operations 2,650 1,700
Loans charged off (2,537) (424)
Recoveries of loans previously
charged off 137 279
----------------- -----------------
Balance, end of period $ 11,920 $ 12,592
================= =================
Ending loan portfolio $ 662,758 $ 639,570
================= =================
Allowance to loans as a
percentage of ending loan portfolio 1.80% 1.97%
================= =================
Equity
The following table indicates the amounts of regulatory capital of the Company.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of June 30, 2001 (amounts in thousands):
Total Capital to Risk Weighted Assets:
Consolidated $89,786 11.74% =>$61,342 =>8.0% =>$76,678 =>10.0%
Tri Counties Bank $87,787 11.51% =>$61,015 =>8.0% =>$76,269 =>10.0%
Tier I Capital to Risk Weighted Assets:
Consolidated $80,201 10.48% =>$30,671 =>4.0% =>$46,007 =>6.0%
Tri Counties Bank $78,224 10.26% =>$30,507 =>4.0% =>$45,762 =>6.0%
Tier I Capital to Average Assets:
Consolidated $80,201 8.35% =>$38,432 =>4.0% =>$48,041 =>5.0%
Tri Counties Bank $78,224 8.16% =>$38,364 =>4.0% =>$47,956 =>5.0%
Item 3. MARKET RISK MANAGEMENT
There have not been any significant changes in the market risk 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.
21.1 Tri Counties Bank, a California banking corporation, is the
only subsidiary of Registrant.
(b) Reports on Form 8-K:
During the quarter ended June 30, 2001, the Registrant filed a Current
Report on Form 8-K dated June 25, 2001 containing a press release announcing the
adoption of a Shareholders Rights Plan and a copy of the Shareholders Rights
Plan.
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 /s/ Richard P. Smith
---------------------------- -----------------------------
Richard P. Smith
President and
Chief Executive Officer
Date /s/ Thomas J. Reddish
---------------------------- -----------------------------
Thomas J. Reddish
Vice President and
Chief Financial Officer