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, 2002 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 May 7, 2002: 7,008,230
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
March 31, December 31,
------------------ ------------------
2002 2001
Assets:
Cash and due from banks $ 42,647 $ 59,264
Federal funds sold and repurchase agreements 55,200 18,700
------------------ ------------------
Cash and cash equivalents 97,847 77,964
Securities available-for-sale 222,594 224,590
Loans, net of allowance for loan losses
of $13,337 and $13,058, respectively 623,871 645,674
Premises and equipment, net 16,136 16,457
Cash Value of Life Insurance 14,722 14,602
Other real estate owned 71 71
Accrued interest receivable 5,480 5,522
Intangible Assets 4,842 5,070
Other assets 14,370 15,497
------------------ ------------------
Total assets $ 999,933 $ 1,005,447
================== ==================
Liabilities:
Deposits:
Noninterest-bearing demand $ 172,087 $ 190,386
Interest-bearing demand 174,852 165,542
Savings 256,845 247,399
Time certificates 269,488 277,066
------------------ ------------------
Total deposits 873,272 880,393
Accrued interest payable and other liabilities 14,996 15,165
Long term borrowings 22,948 22,956
------------------ ------------------
Total liabilities 911,216 918,514
Shareholders' equity:
Common stock 49,608 49,679
Retained earnings 39,720 37,909
Accumulated other comprehensive loss (611) (655)
------------------ ------------------
Total shareholders' equity 88,717 86,933
------------------ ------------------
Total liabilities and shareholders' equity $ 999,933 $ 1,005,447
================== ==================
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands except earnings per common share)
For the three months
ended March 31,
2002 2001
Interest income:
Interest and fees on loans $ 13,008 $ 14,893
Interest on investment
securities-taxable 2,230 2,698
Interest on investment
securities-tax exempt 554 557
Interest on federal funds sold 166 404
------------- -------------
Total interest income 15,958 18,552
------------- -------------
Interest expense:
Interest on deposits 2,944 6,690
Interest on other borrowings 319 505
------------- -------------
Total interest expense 3,263 7,195
------------- -------------
Net interest income 12,695 11,357
Provision for loan losses 800 1,875
------------- -------------
Net interest income after
provision for loan losses 11,895 9,482
Noninterest income:
Service charges and fees 1,973 1,873
Gain on sale of insurance company stock - 1,756
Other income 1,853 1,399
------------- -------------
Total noninterest income 3,826 5,028
------------- -------------
Noninterest expenses:
Salaries and related expenses 5,739 5,127
Other, net 4,663 4,612
------------- -------------
Total noninterest expenses 10,402 9,739
------------- -------------
Net income before income taxes 5,319 4,771
Income taxes 1,990 1,792
------------- -------------
Net income 3,329 2,979
============= =============
Basic earnings per common share $ 0.48 $ 0.42
============= =============
Diluted earnings per common share $ 0.47 $ 0.41
============= =============
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(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, 2001 7,000,980 $49,679 $37,909 ($655) $86,933
Repurchase of Common Stock (10,000) (71) (119) (190)
Common stock cash dividends (1,399) (1,399)
Comprehensive income:
Net income 3,329 3,329 $3,329
Other comprehensive income:
Change in unrealized loss
on securities, net of tax 44 44 44
--------------
Comprehensive income $3,373
-----------------------------------------------------------------------------------
Balance, March 31, 2002 6,990,980 $49,608 $39,720 ($611) $88,717
-----------------------------------------------------------------
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
For the three months
ended March 31,
2002 2001
-------------- --------------
Operating activities:
Net income $3,329 $2,979
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 800 1,875
Depreciation and amortization 601 628
Amortization of intangible assets 228 228
Accretion and amortization of investment
securities discounts and premiums, net 341 26
Deferred income taxes (28) (177)
Investment security gains, net - (1,756)
Gain on sale of OREO - (27)
Gain on sale of loans (963) (320)
Loss on sale of fixed assets 20 10
Decrease in interest receivable 42 788
Increase (decrease) in interest payable (671) 418
Decrease in other assets and liabilities 1,512 569
-------------- --------------
Net cash provided by operating activities 5,211 5,241
-------------- --------------
Investing activities:
Proceeds from maturities of securities available-for-sale 28,682 32,127
Proceeds from sales of securities available-for-sale - 3,266
Purchases of securities available-for-sale (26,958) (63)
Net decrease in loans 21,966 8,236
Proceeds from sale of premises and equipment 3 -
Purchases of premises and equipment (303) (650)
Proceeds from sale of OREO - 727
-------------- --------------
Net cash provided (used) by investing activities 23,390 43,643
-------------- --------------
Financing activities:
Net (decrease) increase in deposits (7,121) 7,504
Net decrease in Fed funds purchased - (500)
Payments of principal on long-term debt agreements (8) (1,007)
Repurchase of common stock (190) (1,785)
Cash dividends (1,399) (1,415)
Exercise of common stock options - 108
-------------- --------------
Net cash (used) provided by financing activities (8,718) 2,905
-------------- --------------
Increase in cash and cash equivalents 19,883 51,789
Cash and cash equivalents at beginning of period 77,964 58,190
-------------- --------------
Cash and cash equivalents at end of period $97,847 $109,979
-------------- --------------
Supplemental information
Cash paid for taxes $0 $0
Cash paid for interest expense $3,934 $6,777
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
Item 1. Notes to Unaudited Condensed Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited 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, 2002 and 2001 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, 2001.
Certain amounts previously reported in the 2001 financial statements have been
reclassified to conform to the 2002 presentation. These reclassifications did
not affect previously reported net income or total shareholders' equity.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 141, "Business Combinations" (SFAS 141),
and Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
and specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized after 2001, but instead be periodically
evaluated for impairment. Intangible assets with definite useful lives are
required to be amortized over their respective estimated useful lives to their
estimated residual values, and also reviewed for impairment.
Effective January 1, 2002, the Company was required to adopt the provisions of
SFAS 141 and SFAS 142. Accordingly, any goodwill and any intangible asset
determined to have an indefinite useful life that are acquired in a purchase
business combination will not be amortized, but will continue to be evaluated
for impairment in accordance with the appropriate accounting literature. The
Company was also required to reassess the useful lives and residual values of
all such intangible assets and make any necessary amortization period
adjustments by March 31, 2002. No such adjustments were made.
In addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company was required to test the intangible asset
for impairment in the first quarter of 2002. The Company has no intangibles with
indefinite useful life.
As of the date of adoption, the Company had identifiable intangible assets
consisting of core deposit premiums and minimum pension liability. Core deposit
premiums are amortized using an accelerated method over a period of ten years.
Intangible assets related to minimum pension liability are adjusted annually
based upon actuarial estimates. The Company has no goodwill (unidentifiable
intangible assets). As of March 31, 2002 and December 31, 2001, the Company had
unamortized core deposit premiums of $4,325,000 and $4,553,000, respectively.
Amortization of core deposit premiums was $228,000 during the first quarter of
2002 and 2001. Core deposit premiums are scheduled to amortize at a rate of
$228,000 per quarter through the quarter ended December 31, 2006.
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,
2002 2001
Net income $ 3,329 $ 2,979
Net change in unrealized gains
on securities available-for-sale, net
of tax and reclassification adjustment
44 456
------- -------
Comprehensive income $ 3,373 $ 3,435
======= =======
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, 2002
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $3,329 6,992,480 $0.48
Dilutive effect of common stock options outstanding 124,894
---------
Diluted Earnings per Share
Net income available to common shareholders $3,329 7,117,374 $0.47
====== =========
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
Dilutive effect of common stock options outstanding 128,821
---------
Diluted Earnings per Share
Net income available to common shareholders $2,979 7,269,680 $0.41
====== =========
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, 2002
Net interest income $ 12,462 $ 233 $ 12,695
Noninterest income 3,211 615 3,826
Noninterest expense 9,903 499 10,402
Net income 3,113 216 3,329
Assets $985,816 $14,177 $999,933
Three Months Ended March 31, 2001
Net interest income $ 11,161 $ 196 $ 11,357
Noninterest income 4,335 693 5,028
Noninterest expense 9,270 469 9,739
Net income 2,777 202 2,979
Assets $964,533 $15,169 $979,702
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.
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 since December 31, 2000.
On October 19, 2001, the Company announced the completion of its stock
repurchase plan initially announced on March 15, 2001. Under this repurchase
plan, the Company repurchased a total of 150,000 shares.
Also on October 19, 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 2.2% of the Company's 6,992,080
common shares outstanding on October 19, 2001. As of December 31, 2001, the
Company repurchased 108,800 shares under this new plan. During the quarter ended
March 31, 2002, the Company repurchased 10,000 shares under this new plan. As of
this date, 31,200 shares remain to be repurchased 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 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
per Right. 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.
Note H - 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. Within the "overview" section, interest income and net
interest income are generally presented on a fully tax-equivalent (FTE) basis.
In addition to the historical information contained herein, this Quarterly
Report contains certain forward-looking statements. The reader of this Quarterly
Report should understand that all such forward-looking statements are subject to
various uncertainties and risks that could affect their outcome. The Company's
actual results could differ materially from those suggested by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on securities investments, rates paid on deposits,
competition effects, fee and other noninterest income earned as well as other
factors. This entire Quarterly Report should be read to put such forward-looking
statements in context and to gain a more complete understanding of the
uncertainties and risks involved in the Company's business.
Overview
The Company had quarterly earnings of $3,329,000 for the three months ended
March 31, 2002. Diluted earnings per share were $0.47. During the quarters ended
December 31, 2001 and March 31, 2001, the Company reported diluted earnings per
share of $0.47 and $0.41, respectively. Included in the results for the three
months ended March 31, 2001 was a one-time pre-tax gain of $1,756,000 from the
sale of insurance company stock. Offsetting this gain in the first quarter of
2001 was a provision for loan losses of $1,875,000. Excluding the one-time gain
noted above, the Company would have reported diluted earnings per share of $0.47
and $0.26 in the quarters ended March 31, 2002 and 2001, respectively.
First quarter 2002 net interest income on a fully tax-equivalent yield basis
increased $1,356,000 (11.6%) to $13,000,000 compared to $11,644,000 recorded in
the first quarter of 2001. This increase in net interest income was due in part
to a $26,006,000 (3.0%) increase in the average balance of interest earning
assets to $902,596,000 from $876,530,000 in the year-ago quarter, and a change
in relative mix of deposits towards less time deposits and more noninterest and
low-interest bearing deposits. These volume related changes contributed $848,000
to the increase in net interest income. Despite a 475 basis point decline in the
federal funds target rate during 2001, by the quarter ended March 31, 2002, the
Company was able to sufficiently adjust rates on interest bearing liabilities
such that the net effect of interest rate changes from the year-ago quarter
added $508,000 to net interest income. The net result was an increase in fully
tax-equivalent net interest margin to 5.76% in the quarter ended March 31, 2002
compared to 5.31% in the year-ago quarter.
Provision for loan losses for the first quarter of 2002 was $800,000 versus
$1,875,000 in the same quarter in 2001. The Company had net loan charge-offs of
$521,000 in the first quarter of 2002 compared to $2,204,000 of net loan
charge-offs in the same period of 2001. 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, 2002 and 2001, the ratio of nonperforming loans to
total loans was 1.54% and 1.09%, respectively, and the ratio of nonperforming
assets to total assets was 0.99% and 0.80%, respectively. As of March 31, 2002
and 2001, the ratio of allowance for loan losses to total loans was 2.09% and
1.82%, respectively.
Noninterest income, excluding a one-time pre-tax gain of $1,756,000 from the
sale of insurance company stock during the quarter ended March 31, 2001,
increased $554,000 (16.9%) to $3,826,000 in the quarter ended March 31, 2002.
Service charges and fees increased $100,000 (5.3%) to $1,973,000, while other
income increase $454,000 (32.5%) to $1,853,000 in the quarter ended March 31,
2002 compared to the year-ago quarter. The increase in service charges and fees
was mainly due to a 2.3% increase in the number of core-deposit customers,
increased ATM fees due to an expanded ATM network, and small rate increases in
service charges and fees. The increase in other income from the year-ago quarter
was mainly due to a $643,000 (201%) increase in gain on sale of loans to
$963,000, offset by a $100,000 (16%) decrease in commissions from the sale of
non-deposit investment products to $538,000.
Noninterest expense increased $663,000 (6.8%) to $10,402,000 in the quarter
ended March 31, 2002 from $9,739,000 in the quarter ended March 31, 2001. This
increase in noninterest expense was mainly due to a $612,000 (11.9%) increase in
salary and benefit expense to $5,739,000. Average full-time equivalent employees
were up 25 (6.4%) to 417 during the quarter ended March 31, 2002 from 392 during
the year-ago quarter.
Assets of the Company totaled $999,933,000 at March 31, 2002, and represented a
decrease of $5,514,000 from December 31, 2001 balances and an increase of
$20,231,000 from March 31, 2001 ending balances.
For the first quarter of 2002, the Company had an annualized return on assets of
1.34% and a return on equity of 14.88% versus 1.24% and 13.81% in the first
quarter of 2001. As of March 31, 2002 TriCo Bancshares had a Tier 1 capital
ratio of 10.9% and a total risk-based capital ratio of 12.1%.
The following table provides a summary of the major elements of income and
expense for the first quarter of 2002 compared with the first quarter of 2001 on
a fully tax-equivalent basis.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended March 31, Percentage
2002 2001 Change
increase
(decrease)
Interest income (FTE) $ 16,263 $ 18,839 (13.7%)
Interest expense 3,263 7,195 (54.6%)
----------- -----------
Net interest income (FTE) 13,000 11,644 11.6%
Provision for loan losses 800 1,875 (57.3%)
----------- -----------
Net interest income after 12,200 9,769 24.9%
provision for loan losses (FTE)
Noninterest income 3,826 5,028 (23.9%)
Noninterest expenses 10,402 9,739 6.8%
----------- -----------
Net income before income taxes 5,624 5,058 11.2%
Income taxes 1,990 1,792 11.0%
Tax equivalent adjustment1 305 287 6.3%
----------- -----------
Net income $ 3,329 $ 2,979 11.7%
=========== ===========
Diluted earnings per common share $ 0.47 $ 0.41 14.6%
1 Interest on tax-free securities is reported on a tax equivalent basis of 1.55
and 1.52 for March 31, 2002 and 2001, respectively.
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, 2002, interest income on a fully
tax-equivalent basis decreased $2,576,000 (13.7%) to $16,263,000 from
$18,839,000 during the quarter ended March 31, 2001. This decrease was mainly
due to decreases in interest rates. The average balance of total earning assets
increased $26,066,000 (3.0%) to $902,596,000 from the year-ago quarter. The
average balance of loans, investments and federal funds sold outstanding
increased $9,341,000 (1.5%), $7,373,000 (3.5%), and $9,352,000 (31%),
respectively, to $642,082,000, $220,792,000 and $39,722,000, respectively. These
volume increases in interest earning assets accounted for additional interest
income of $466,000, during the first quarter of 2002 versus the year earlier
period. The average yields on loans, investment securities and federal funds
sold were lower by 131, 104 and 365 basis points, respectively, and decreased
interest income for the quarter by $3,042,000 over the first quarter of 2001.
The overall yield on earning assets decreased 139 basis points to 7.21% during
the quarter ended March 31, 2002 from 8.60% during the quarter ended March 31,
2001
For the first quarter of 2002, interest expense decreased $3,932,000 (55%) to
$3,263,000 from $7,195,000 from the year-ago quarter. This decrease in interest
expense was mainly due to a decrease in interest rates, increases in demand and
savings deposit balances, and decreases in time deposit and other borrowing
balances. Average balances of noninterest-bearing demand, interest-bearing
demand and savings deposits increased $19,432,000 (13.2%), $19,221,000 (12.6%),
and $35,377,000 (16.2%), respectively, to $167,052,000, $171,606,000, and
$253,679,000, respectively, from the year-ago quarterly average balances. The
average balances of time deposits, and other borrowings were lower by
$37,787,000 (12.3%), and $10,237,000 (30.9%), respectively, to $270,692,000 and
$22,951,000, respectively, during the first quarter of 2002 versus the year
earlier period. For the first quarter of 2002, the change in the average
balances of the components of interest-bearing liabilities decreased interest
expense by $382,000 from the year earlier period. The overall average rate on
earning liabilities decreased 222 basis points to 1.82% during the quarter ended
March 31, 2002 from 4.04% during the year-ago quarter, and decreased interest
expense by $3,550,000.
The net effect of the decreases in interest income and expense for the first
quarter of 2002 versus 2001 was an increase in fully tax-equivalent net interest
income of $1,356,000 (11.6%) to $13,000,000 from $11,644,000. Net interest
margin on a fully-tax equivalent basis was up 45 basis points to 5.76% during
the quarter ended March 31, 2002 versus 5.31% during the year-ago quarter.
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, 2002 versus the same period in 2001.
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Three Months Ended
March 31, 2002 March 31, 2001
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
Assets
Earning assets
Loan 2,3 $ 642,082 $13,008 8.10% $ 632,741 $14,893 9.41%
Securities 220,792 3,089 5.60% 213,419 3,542 6.64%
Federal funds sold 39,722 166 1.67% 30,370 404 5.32%
------------- ------------ ----------- ------------- ------------- -----------
Total earning assets 902,596 16,263 7.21% 876,530 18,839 8.60%
------------ -------------
Cash and due from bank 43,908 40,518
Premises and equipment 16,358 16,891
Other assets,net 40,849 39,811
Less: allowance
for loan losses (13,240) (12,435)
------------- -------------
Total $ 990,471 $ 961,315
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 171,606 121 0.28% $ 152,385 522 1.37%
Savings deposits 253,679 680 1.07% 218,302 1,624 2.98%
Time deposits 270,692 2,143 3.17% 308,479 4,544 5.89%
Long-term debt 22,951 319 5.56% 33,188 505 6.09%
------------- ------------ ----------- ------------- ------------- -----------
Total interest-bearing
liabilities 718,928 3,263 1.82% 712,354 7,195 4.04%
------------ -------------
Noninterest-bearing deposits 167,052 147,620
Other liabilities 14,986 15,048
Shareholders' equity 89,505 86,293
------------- -------------
Total liabilities
and shareholders' equity $ 990,471 $ 961,315
============= =============
Net interest rate spread5 5.39% 4.56%
Net interest income/net $13,000 $11,644
============ =============
interest margin6 5.76% 5.31%
============ =============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $975,000 in 2002 and
$702,000 in 2001.
4Interest income is stated on a tax equivalent basis of 1.55 and 1.52 at March
31, 2002 and 2001, respectively.
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,
2002 over 2001
Yield/
Volume Rate4 Total
----------- ---------- ----------
Increase (decrease) in
interest income:
Loans 1,2 $ 220 $ (2,105) $ (1,885)
Investment securities3 122 (575) (453)
Federal funds sold 124 (362) (238)
----------- ---------- ----------
Total 466 (3,042) (2,576)
----------- ---------- ----------
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 66 (467) (401)
Savings deposits 264 (1,208) (944)
Time deposits (556) (1,845) (2,401)
Long-term debt (156) (30) (186)
----------- ---------- ----------
Total (382) (3,550) (3,932)
----------- ---------- ----------
Increase in net interest income $ 848 $ 508 $ 1,356
=========== ========== ==========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $975,000 in 2002 and
$702,000 in 2001. 3Interest income is stated on a tax equivalent basis of
1.55 and 1.52 for March 31, 2002 and 2001, respectively.
4The rate/volume variance has been included in the rate variance.
Provision for Loan Losses
Provision for loan losses for the first quarter of 2002 was $800,000 versus
$1,875,000 in the same quarter in 2001. The Company had net loan charge-offs of
$521,000 in the first quarter of 2002 compared to $2,204,000 of net loan
charge-offs in the same period of 2001. 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 the Company. As such, the Company is not subject to any future
charge-offs related to this loan relationship.
Noninterest Income
Noninterest income, excluding a one-time pre-tax gain of $1,756,000 from the
sale of an investment in an insurance company during the quarter ended March 31,
2001, increased $554,000 (16.9%) to $3,826,000 in the quarter ended March 31,
2002. Service charges and fees increased $100,000 (5.3%) to $1,973,000, while
other income increase $454,000 (32.5%) to $1,853,000 in the quarter ended March
31, 2002 compared to the year-ago quarter. The increase in service charges and
fees was mainly due to a 2.3% increase in the number of core-deposit customers,
increased ATM fees due to an expanded ATM network, and small rate increases in
service charges and fees. The increase in other income from the year-ago quarter
was mainly due to a $643,000 (201%) increase in gain on sale of loans to
$963,000. During the quarter ended March 31, 2002, the Company originated and
sold residential real estate mortgage loans totaling $46,947,000 compared to
$15,425,000 originated and sold in the quarter ended March 31, 2001. In the
quarter ended March 31, 2002, commissions from the sale of non-deposit
investment products decreased from the year-ago quarter total by $100,000 (16%)
to $538,000.
Noninterest Expense
Noninterest expense increased $663,000 (6.8%) to $10,402,000 in the quarter
ended March 31, 2002 from $9,739,000 in the quarter ended March 31, 2001. This
increase in noninterest expense was mainly due to a $612,000 (11.9%) increase in
salary and benefit expense to $5,739,000. Average full-time equivalent employees
were up 25 (6.4%) to 417 during the quarter ended March 31, 2002 from 392 during
the year-ago quarter.
Provision for Income Taxes
The tax rate for the three months ended March 31, 2002 was 37.4% compared to
37.6% in the year earlier period.
Loans
In the first quarter of 2002, loan balances decreased $21,524,000 (3.3%) to
$637,208,000 from December 31, 2001 balances of $658,732,000. This decrease from
year-end balances is not unusual, and is due mainly to the seasonal nature of
the agriculture related sector of the Bank's loan portfolio. Commercial and real
estate loans decreased $7,028,000 (5.4%) and $16,878,000 (4.5%) from December
31, 2001 balances, respectively; while consumer loans increased $2,383,000
(1.5%) during the quarter ended March 31, 2002. Loan balances of $637,208,000 as
of March 31, 2002 represent an increase of $13,213,000 (2.1%) from loans
balances of $623,995,000 as of March 31, 2001.
Securities
At March 31, 2002, securities available-for-sale had a fair value of
$222,594,000 and an amortized cost of $222,338,000. This portfolio contained
mortgage-backed securities with an amortized cost of $134,817,000 of which
$4,986,000 were CMO's. At March 31, 2002, the Company had no securities
classified as held-to-maturity.
Nonperforming Loans
As shown in the following table, total nonperforming assets have increased 62%
to $9,906,000 in the first three months of 2002. Nonperforming assets represent
0.99% of total assets. Included in the nonperforming loan balance as of March
31, 2002 are loans totaling $2,865,000 to one borrower that have reached their
contractual maturity date and are well secured and in the process of collection
via refinancing. These loans were classified as over ninety days past due and
still accruing interest during the quarter ended March 31, 2002. The Company
expects the refinancing of these loans to be completed by June 30, 2002.
Excluding these loans, nonperforming loan balances at March 31, 2002 would have
been $6,970,000. 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,
2002 2001
Nonaccrual loans $ 6,387 $ 5,466
Accruing loans past due 90 days or more 3,448 584
--------------- -----------
Total nonperforming loans 9,835 6,050
Other real estate owned 71 71
--------------- -----------
Total nonperforming assets $ 9,906 $ 6,121
=============== ===========
Nonperforming loans to total loans 1.54% 0.92%
Allowance for loan losses to
nonperforming loans 136% 216%
Nonperforming assets to total assets 0.99% 0.61%
Allowance for loan losses to
nonperforming assets 135% 213%
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,
2001.
The following table presents information concerning the allowance and provision
for loan losses.
March 31, March 31,
2002 2001
(in thousands)
Balance, beginning of period $ 13,058 $ 11,670
Provision charged to operations 800 1,875
Loans charged off (561) (2,266)
Recoveries of loans previously
charged off 40 62
------------- ---------------
Balance, end of period $ 13,337 $ 11,341
============= ===============
Ending loan portfolio $ 637,208 $ 623,995
============= ===============
Allowance for loan losses as a
percentage of ending loan portfolio 2.09% 1.82%
============= ===============
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, 2002:
Total Capital to Risk Weighted Assets
Consolidated $93,178 12.12% =>$61,514 =>8.0% =>$76,892 =>10.0%
Tri Counties Bank $91,065 11.87% =>$61,358 =>8.0% =>$76,697 =>10.0%
Tier I Capital to Risk Weighted Assets
Consolidated $83,520 10.86% =>$30,757 =>4.0% =>$46,135 =>6.0%
Tri Counties Bank $81,432 10.62% =>$30,678 =>4.0% =>$46,018 =>6.0%
Tier I Capital to Average Assets
Consolidated $83,520 8.48% =>$39,409 =>4.0% =>$49,262 =>5.0%
Tri Counties Bank $81,432 8.28% =>$39,332 =>4.0% =>$49,166 =>5.0%
Liquidity
The Company's principal source of asset liquidity is fed funds sold and
marketable investment securities available for sale. At March 31, 2002, fed
funds sold and investment securities available for sale totaled $278 million,
representing an increase of $35 million from December 31, 2001. In addition, the
Company generates additional liquidity from its operating activities. The
Company's profitability during the first three months of 2002 and 2001 generated
cash flows from operations of $5.2 million and $5.2 million, respectively.
Additional cash flows may be provided by financing activities, primarily the
acceptance of deposits and borrowings from banks. The Company also realized net
cash inflows from its investing activities during the 2002 period. During the
quarter ended March 31, 2002, sales & maturities of investment securities net of
purchases were $1.7 million while decreases in loan balances totaled $22
million. These changes in investment and loan balances contributed to net cash
provided from investing activities of $23.4 million during the quarter ended
March 31, 2002. The net decrease in loans during the quarter ended March 31, is
not uncommon for the Company given its concentration of agriculture related
loans which seasonally pay down in the late fall and winter, and increase in the
spring and summer. From December 31, 2000 to March 31, 2002, the Company's
agriculture related loan balances ranged from 16% to 20% of the Company's total
loan balances. Financing activities were a net user of $8.7 million of cash
during the three months ended March 31, 2002. Deposit balance decreases
accounted for $7.1 million of the financing use of funds. During the quarter
ended March 31, 2002, the Company allowed higher-rate time certificate balances
to decrease by $7.6 million, while other types of deposit increased by $500,000.
Dividends paid and the repurchase of common stock used $1.4 million and $190,000
of cash during the quarter ended March 31, 2002, respectively.
Item 3. MARKET RISK MANAGEMENT
There have not been any significant changes in the risk management profile of
the Bank since December 31, 2001.
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.
22.1 Tri Counties Bank, a California banking corporation, is the
only subsidiary of Registrant.
(b) Reports on Form 8-K:
--------------------
During the quarter ended March 31, 2002 the Company filed the following Current
Reports on Form 8-K:
Description Date of Report
----------------------- ----------------
Changes to Registrant's March 27, 2002
Certifying Accountant
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 05/07/2002 /s/ Richard P. Smith
-------------------- -----------------------
Richard P. Smith
President and Chief
Executive Officer
Date 05/07/2002 /s/ Thomas J. Reddish
-------------------- -----------------------
Thomas J. Reddish
Vice President and CFO