UNITED STATES
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 September 30, 2003 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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
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 November 12, 2003: 7,848,524
TABLE OF CONTENTS
Page
Forward Looking Statements 1
PART I - FINANCIAL INFORMATION 2
Item 1 - Financial Statements 2
Notes to Unaudited Condensed Consolidated Financial Statements 6
Financial Summary 13
Item 2 - Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosure about Market Risk 27
Item 4 - Controls and Procedures 28
PART II - OTHER INFORMATION 29
Item 1 - Legal Proceedings 29
Item 6 - Exhibits and Reports on Form 8-K 29
Signatures 31
Exhibits 32
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about TriCo
Bancshares (the "Company") for which it claims the protection of the safe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. When you see any of the
words "believes", "expects", "anticipates", "estimates", or similar expressions,
mean making forward-looking statements. A number of factors, some of which are
beyond the Company's ability to predict or control, could cause future results
to differ materially from those contemplated. These factors include but are not
limited to:
- a continued slowdown in the national and California economies;
- increased economic uncertainty created by the recent war in Iraq;
- the prospect of additional terrorist attacks in the United States and the
uncertain effect of these events on the national and regional economies;
- changes in the interest rate environment;
- changes in the regulatory environment;
- significantly increasing competitive pressure in the banking industry;
- operational risks including data processing system failures or fraud;
- volatility of rate sensitive deposits; and
- asset/liability matching risks and liquidity risks.
On April 4, 2003, the Company acquired North State National Bank, located in
Chico, California. Many possible events or factors could affect the future
financial results and performance of the Company after the merger including:
- actual cost savings resulting from the merger are less than we
expected, we are unable to realize those cost savings as soon as we
expected or we incur additional or unexpected costs;
- revenues after the merger are less than we expected;
- competition among financial services companies increases;
- we have more trouble integrating our businesses than we expected;
- changes in the interest rate environment reduces our interest margins;
- general economic conditions change or are worse than we expected;
- legislative or regulatory changes adversely affect our business;
- changes occur in business conditions and inflation;
- personal or commercial customers' bankruptcies increase;
- changes occur in the securities markets; and
- technology-related changes are more difficult to make or more expensive
than we expected.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2002, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report.
-1-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRICO BANCSHARES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) (Unaudited)
At September 30, At December 31,
------------------------------- ------------------
2003 2002 2002
Assets:
Cash and due from banks $66,747 $56,749 $67,170
Federal funds sold 1,900 23,400 8,100
------------------------------- ------------------
Cash and cash equivalents 68,647 80,149 75,270
Investment securities available for sale 350,941 268,921 338,024
Loans
Commercial 152,477 142,290 125,982
Consumer 297,186 191,601 201,858
Real estate mortgages 420,312 313,191 319,969
Real estate construction 60,066 36,472 39,713
------------------------------- ------------------
Total loans 930,041 683,554 687,522
Allowance for loan losses (13,460) (14,382) (14,377)
------------------------------- ------------------
Loans, net of allowance for loan losses 916,581 669,172 673,145
Premises and equipment, net 19,787 16,583 17,224
Cash value of life insurance 38,644 15,045 15,208
Other real estate owned 1,545 - 932
Accrued interest receivable 6,152 5,552 5,644
Deferred income taxes 8,646 7,957 8,429
Intangible assets 21,992 4,387 4,043
Other assets 7,649 5,757 6,655
------------------------------- ------------------
Total Assets $1,440,584 $1,073,523 $1,144,574
=============================== ==================
Liabilities:
Deposits:
Noninterest-bearing demand $267,148 $202,895 $232,499
Interest-bearing demand 211,219 175,883 182,816
Savings 426,340 268,182 297,926
Time certificates, $100,000 and over 99,574 86,945 90,404
Other time certificates 191,571 203,990 201,592
------------------------------- ------------------
Total deposits 1,195,852 937,895 1,005,237
Federal funds purchased 55,700 - -
Accrued interest payable 2,556 2,608 2,927
Other Liabilities 18,756 13,667 14,472
Long-term debt and other borrowings 22,894 22,932 22,924
Trust preferred securities 20,000 - -
------------------------------- ------------------
Total Liabilities 1,315,758 977,102 1,045,560
------------------------------- ------------------
Shareholders' Equity:
Authorized - 20,000,000 shares of common
stock Issued and outstanding:
7,846,001 at September 30, 2003 69,875
7,035,590 at September 30, 2002 50,188
7,060,965 at December 31, 2002 50,472
Retained earnings 53,728 43,900 46,239
Accumulated other comprehensive income, net 1,223 2,333 2,303
------------------------------- ------------------
Total Shareholders' Equity 124,826 96,421 99,014
------------------------------- ------------------
Total Liabilities and Shareholders' Equity $1,440,584 $1,073,523 $1,144,574
=============================== ==================
See accompanying notes to unaudited condensed consolidated financial statements
-2-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended September 30, Nine months ended September 30,
2003 2002 2003 2002
-------------------------------------------------------------------
Interest Income:
Interest and fees on loans $16,228 $13,333 $43,930 $39,387
Interest on federal funds sold 25 143 127 476
Interest on investment securities
available for sale
Taxable 2,389 2,410 8,072 6,949
Tax exempt 463 549 1,486 1,656
-------------------------------------------------------------------
Total interest income 19,105 16,435 53,615 48,468
-------------------------------------------------------------------
Interest Expense:
Interest on interest-bearing demand deposits 137 115 387 350
Interest on savings 893 656 2,519 2,011
Interest on time certificates of deposit 1,771 2,129 5,753 6,340
Interest on short-term borrowing 38 1 101 1
Interest on long-term debt 325 326 964 967
Interest on trust preferred securities 141 - 141 -
-------------------------------------------------------------------
Total interest expense 3,305 3,227 9,865 9,669
-------------------------------------------------------------------
Net Interest Income 15,800 13,208 43,750 38,799
-------------------------------------------------------------------
Provision for loan losses 150 700 450 2,000
-------------------------------------------------------------------
Net Interest Income After Provision for
Loan Losses 15,650 12,508 43,300 36,799
-------------------------------------------------------------------
Noninterest Income:
Service charges and fees 3,117 3,521 10,602 7,635
Gain on sale of investments 97 - 197 -
Gain on sale of loans 936 752 3,388 2,254
Commissions on sale of non-deposit
investment products 432 712 1,341 1,989
Other 624 428 1,628 1,304
-------------------------------------------------------------------
Total Noninterest Income 5,206 5,413 17,156 13,182
-------------------------------------------------------------------
Noninterest Expense:
Salaries and related benefits 7,460 6,344 21,973 17,856
Other 6,589 5,789 19,095 15,642
-------------------------------------------------------------------
Total Noninterest Expense 14,049 12,133 41,068 33,498
-------------------------------------------------------------------
Income Before Income Taxes 6,807 5,788 19,388 16,483
-------------------------------------------------------------------
Provision for income taxes 2,469 2,161 7,183 6,163
-------------------------------------------------------------------
Net Income $4,338 $3,627 $12,205 $10,320
-------------------------------------------------------------------
Comprehensive Income:
Change in unrealized (loss) gain on
securities available for sale, net (2,210) 940 (1,080) 2,988
-------------------------------------------------------------------
Comprehensive Income $2,128 $4,567 $11,125 $13,308
===================================================================
Average Shares Outstanding 7,850 7,026 7,572 7,010
Diluted Average Shares Outstanding 8,095 7,231 7,789 7,188
Per Share Data
Basic Earnings $0.55 $0.52 $1.61 $1.47
Diluted Earnings $0.54 $0.50 $1.57 $1.44
Dividends Paid $0.20 $0.20 $0.60 $0.60
See accompanying notes to unaudited condensed consolidated financial statements
-3-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, unaudited)
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss), net Total
-----------------------------------------------
Balance, December 31, 2001 $49,679 $37,909 ($655) $86,933
Net income for the period 10,320 10,320
Exercise of stock options,
including tax benefits 579 579
Repurchase of common stock (70) (119) (189)
Dividends (4,210) (4,210)
Unrealized gain on securities
available for sale, net 2,988 2,988
-----------------------------------------------
Balance September 30, 2002 $50,188 $43,900 $2,333 $96,421
===============================================
Balance, December 31, 2002 $50,472 $46,239 $2,303 $99,014
Net income for the period 12,205 12,205
Issuance of stock and options
related to merger 18,459 18,459
Exercise of stock options,
including tax benefits 1,016 1,016
Repurchase of common stock (72) (157) (229)
Dividends (4,559) (4,559)
Unrealized loss on securities
available for sale, net (1,080) (1,080)
-----------------------------------------------
Balance September 30, 2003 $69,875 $53,728 $1,223 $124,826
===============================================
See accompanying notes to unaudited condensed consolidated financial statements
-4-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
For the nine months
ended September 30,
2003 2002
-------------------------------
Operating Activities:
Net income $12,205 $10,320
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment 2,108 1,956
Amortization of intangible assets 877 683
Provision for loan losses 450 2,000
Amortization of investment securities premium, net 2,920 1,080
Deferred income taxes 58 (108)
Investment security gains net (197) -
Originations of loans for resale (147,602) (113,271)
Proceeds from sale of loans originated for resale 149,355 114,227
Gain on sale of loans (3,388) (2,254)
Amortization of mortgage servicing rights 1,042 498
Provision for mortgage servicing rights valuation 600 -
(Gain) loss on sale of other real estate owned (60) (8)
(Gain) loss on sale of fixed assets (3) 10
Change in assets and liabilities:
Decrease (increase) in interest receivable 34 (30)
Decrease in interest payable (445) (880)
Increase in other assets and liabilities 1,698 2,547
-------------------------------
Net Cash Provided by Operating Activities 19,652 16,770
-------------------------------
Investing Activities:
Net cash obtained in mergers and acquisitions 7,450 -
Proceeds from maturities of securities available-for-sale 170,120 87,365
Proceeds from sale of securities available-for-sale 22,320 -
Purchases of securities available-for-sale (169,113) (127,999)
Net increase in loans (168,329) (25,498)
Proceeds from sale of premises and equipment 15 16
Purchases of property and equipment (2,191) (1,902)
Proceeds from sale of other real estate owned 60 79
Purchase of life insurance (22,475) -
-------------------------------
Net Cash Used by Investing Activities (162,143) (67,939)
-------------------------------
Financing Activities:
Net increase in deposits 64,566 57,502
Net increase in Federal funds purchased 55,700 -
Payments of principal on long-term debt agreements (30) (24)
Issuance of trust preferred securities 19,850 -
Repurchase of Common Stock (229) (189)
Dividends paid (4,559) (4,210)
Exercise of stock options/issuance of Common Stock 570 275
-------------------------------
Net Cash Provided by Financing Activities 135,868 53,354
-------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (6,623) 2,185
-------------------------------
Cash and Cash Equivalents and Beginning of Period 75,270 77,964
-------------------------------
Cash and Cash Equivalents at End of Period $68,647 $80,149
===============================
Supplemental Disclosure of Noncash Activities:
Unrealized (loss) gain on securities available for sale ($1,930) $4,777
Loans transferred to other real estate owned $613 -
Supplemental Disclosure of Cash Flow Activity:
Cash paid for interest expense $10,236 $10,549
Cash paid for income taxes $4,810 $4,700
Income tax benefit from stock option exercises $446 $304
The acquisition of North State National Bank
Involved the following:
Common stock issued $18,459
Liabilities assumed $126,722
Fair value of assets acquired, other than cash
and cash equivalents ($118,905)
Core deposit intangible ($3,365)
Goodwill ($15,461)
Net cash and cash equivalents received $7,450
See accompanying notes to unaudited condensed consolidated financial statements
-5-
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: General Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations reflect interim
adjustments, all of which are of a normal recurring nature and which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim period presented. The interim results for the three and nine month
periods ended September 30, 2003 and 2002 are not necessarily indicative of the
results expected for the full year. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and accompanying notes as well as other information included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiaries, Tri Counties Bank (the "Bank"), and TriCo Capital
Trust I. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Nature of Operations
The Company operates 33 branch offices and 10 in-store branch offices in the
California counties of Butte, Contra Costa, Del Norte, Fresno, Glenn, Kern,
Lake, Lassen, Madera, Mendocino, Merced, Nevada, Sacramento, Shasta, Siskiyou,
Stanislaus, Sutter, Tehama, Tulare and Yuba. The Company's operating policy
since its inception has emphasized retail banking. Most of the Company's
customers are retail customers and small to medium sized businesses.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires Management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including those related to the adequacy of the allowance for loan
losses, investments, intangible assets, income taxes and contingencies. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. The one accounting estimate that materially affects the financial
statements is the allowance for loan losses.
Investment Securities
The Company classifies its debt and marketable equity securities into one of
three categories: trading, available-for-sale or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling in the
near term. Held-to-maturity securities are those securities that the Company has
the ability and intent to hold until maturity. All other securities not included
in trading or held-to-maturity are classified as available-for-sale. During the
nine months ended September 30, 2003 and throughout 2002, the Company did not
have any securities classified as either held-to-maturity or trading.
Available-for-sale securities are recorded at fair value. Unrealized gains and
losses, net of the related tax effect, on available-for-sale securities are
reported as a separate component of other comprehensive income in shareholders'
equity until realized.
Premiums and discounts are amortized or accreted over the life of the related
investment security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized gains
and losses for securities are included in earnings and are derived using the
specific identification method for determining the cost of securities sold.
Unrealized losses due to fluctuations in fair value of securities held to
maturity or available for sale are recognized through earnings when it is
determined that a permanent decline in value has occurred.
-6-
Loans
Loans are reported at the principal amount outstanding, net of unearned income
and the allowance for loan losses. Loan origination and commitment fees and
certain direct loan origination costs are deferred, and the net amount is
amortized as an adjustment of the related loan's yield over the estimated life
of the loan. Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is generally
discontinued either when reasonable doubt exists as to the full, timely
collection of interest or principal or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal. When loans are 90
days past due, but in Management's judgment are well secured and in the process
of collection, they may not be classified as nonaccrual. When a loan is placed
on nonaccrual status, all interest previously accrued but not collected is
reversed. Income on such loans is then recognized only to the extent that cash
is received and where the future collection of principal is probable. Interest
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of Management, the
loans are estimated to be fully collectible as to both principal and interest.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
Management believes that the collectibility of the principal is unlikely or,
with respect to consumer installment loans, according to an established
delinquency schedule. The allowance is an amount that Management believes will
be adequate to absorb probable losses inherent in existing loans, leases and
commitments to extend credit, based on evaluations of the collectibility,
impairment and prior loss experience of loans, leases and commitments to extend
credit. The evaluations take into consideration such factors as changes in the
nature and size of the portfolio, overall portfolio quality, loan
concentrations, specific problem loans, commitments, and current economic
conditions that may affect the borrower's ability to pay. The Company defines a
loan as impaired when it is probable the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. Impaired
loans are measured based on the present value of expected future cash flows
discounted at the loan's original effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
When the measure of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded through a valuation allowance.
Mortgage Operations
Transfers and servicing of financial assets and extinguishments of liabilities
are accounted for and reported based on consistent application of a
financial-components approach that focuses on control. Transfers of financial
assets that are sales are distinguished from transfers that are secured
borrowings. Retained interests (mortgage servicing rights) in loans sold are
measured by allocating the previous carrying amount of the transferred assets
between the loans sold and retained interest, if any, based on their relative
fair value at the date of transfer. Fair values are estimated using discounted
cash flows based on a current market interest rate.
The Company recognizes a gain and a related asset for the fair value of the
rights to service loans for others when loans are sold. The Company sold
substantially all of its conforming long-term residential mortgage loans
originated during nine months ended September 30, 2003 for cash proceeds equal
to the fair value of the loans.
The recorded value of mortgage servicing rights is included in other assets, and
is amortized in proportion to, and over the period of, estimated net servicing
revenues. The Company assesses capitalized mortgage servicing rights for
impairment based upon the fair value of those rights at each reporting date. For
purposes of measuring impairment, the rights are stratified based upon the
product type, term and interest rates. Fair value is determined by discounting
estimated net future cash flows from mortgage servicing activities using
discount rates that approximate current market rates and estimated prepayment
rates, among other assumptions. The amount of impairment recognized, if any, is
the amount by which the capitalized mortgage servicing rights for a stratum
exceeds their fair value. Impairment, if any, is recognized through a valuation
allowance for each individual stratum.
-7-
At September 30, 2003, the Company had no mortgage loans held for sale. At
September 30, 2003 and December 31, 2002, the Company serviced real estate
mortgage loans for others of $348 million and $307 million, respectively.
The following table summarizes the Company's mortgage servicing rights assets as
of September 30, 2003 and December 31, 2002.
December 31, September 30,
(Dollars in thousands) 2002 Additions Reductions 2003
-----------------------------------------------
Mortgage servicing rights $2,821 $1,635 ($1,042) $3,414
Valuation allowance - - (600) (600)
-----------------------------------------------
Mortgage servicing rights, net
of valuation allowance $2,821 $1,635 ($1,642) $2,814
===============================================
Intangible Assets
The Company reviews for impairment of certain intangibles held, at the end of
each calendar year or whenever events or changes indicate that the carrying
amount of an asset may not be recoverable. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair market value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
Identifiable Intangible Assets
Identifiable intangible assets consist of core deposit intangibles and minimum
pension liability.
The following table summarizes the Company's core deposit intangible as of
September 30, 2003 and December 31, 2002.
December 31, September 30,
(Dollar in Thousands) 2002 Additions Reductions 2003
-----------------------------------------------
Core deposit intangibles $10,278 $3,365 - $13,643
Accumulated amortization (6,636) - ($877) (7,513)
-----------------------------------------------
Core deposit intangibles, net $3,642 $3,365 ($877) $6,130
===============================================
Core deposit intangibles are amortized over their expected useful lives. Such
lives are periodically reassessed to determine if any amortization period
adjustments are indicated. The following table summarizes the Company's
estimated core deposit intangible amortization for each of the five succeeding
years:
Estimated Core Deposit
Intangible Amortization
Years Ended (Dollar in thousands)
----------- -----------------------
2003 $1,207
2004 $1,358
2005 $1,381
2006 $1,395
2007 $490
Thereafter $1,176
The following table summarizes the Company's minimum pension liability
intangible as of September 30, 2003 and December 31, 2002.
December 31, September 30,
(Dollar in Thousands) 2002 Additions Reductions 2003
-----------------------------------------------
Minimum pension liability
intangible $401 - - $401
===============================================
Intangible assets related to minimum pension liability are adjusted annually
based upon actuarial estimates.
-8-
Goodwill
The following table summarizes the Company's goodwill intangible as of September
30, 2003 and December 31, 2002.
December 31, September 30,
(Dollar in Thousands) 2002 Additions Reductions 2003
-----------------------------------------------
Goodwill - $15,461 - $15,461
===============================================
Trust Preferred Securities
On July 31, 2003, TriCo completed an offering of 20,000 shares of cumulative
trust preferred securities for cash in an aggregate amount of $20,000,000. The
trust preferred securities are mandatorily redeemable upon maturity on October
7, 2033 with an interest rate that resets quarterly at three-month LIBOR plus
3.05%, or 4.16% for the first quarterly interest period. TriCo has the right to
redeem the trust preferred securities on or after October 7, 2008. The trust
preferred securities were issued through an underwriting syndicate to which the
Company paid underwriting fees of $7.50 per trust preferred security or an
aggregate of $150,000. The net proceeds of $19,850,000 will be used to finance
the opening of new branches, improve bank services and technology, repurchase
shares of the Company's common stock as described below and increase the
Company's capital. The trust preferred securities have not been and will not be
registered under the Securities Act of 1933, as amended, or applicable state
securities laws and were sold pursuant to an exemption from registration under
the Securities Act of 1933. The trust preferred securities may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act of 1933, as amended, and
applicable state securities laws. The Company formed a subsidiary business
trust, TriCo Capital Trust I, to issue the trust preferred securities.
Concurrently with the issuance of the trust preferred securities, the trust
issued 619 shares of common stock to the Company for $1,000 per share or an
aggregate of $619,000. In addition, the Company issued a Junior Subordinated
Debenture to the Trust in the amount of $20,619,000. The terms of the Junior
Subordinated Debenture are materially consistent with the terms of the trust
preferred securities issued by TriCo Capital Trust I.
Income Taxes
The Company's accounting for income taxes is based on an asset and liability
approach. The Company recognizes the amount of taxes payable or refundable for
the current year, and deferred tax assets and liabilities for the future tax
consequences that have been recognized in its financial statements or tax
returns. The measurement of tax assets and liabilities is based on the
provisions of enacted tax laws.
-9-
Stock-Based Compensation
The Company uses the intrinsic value method to account for its stock option
plans (in accordance with the provisions of Accounting Principles Board Opinion
No. 25). Under this method, compensation expense is recognized for awards of
options to purchase shares of common stock to employees under compensatory plans
only if the fair market value of the stock at the option grant date (or other
measurement date, if later) is greater than the amount the employee must pay to
acquire the stock. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123) permits companies to continue
using the intrinsic value method or to adopt a fair value based method to
account for stock option plans. The fair value based method results in
recognizing as expense over the vesting period the fair value of all stock-based
awards on the date of grant. The Company has elected to continue to use the
intrinsic value method.
Had compensation cost for the Company's option plans been determined in
accordance with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts) 2003 2002 2003 2002
---- ---- ---- ----
Net income As reported $4,338 $3,627 $12,205 $10,320
Pro forma $4,271 $3,574 $12,030 $10,165
Basic earnings per share As reported $0.55 $0.52 $1.61 $1.47
Pro forma $0.54 $0.51 $1.59 $1.45
Diluted earnings per share As reported $0.54 $0.50 $1.57 $1.44
Pro forma $0.53 $0.49 $1.54 $1.41
Stock-based employee compensation
cost, net of related tax effects,
included in net income As reported $0 $0 $0 $0
Pro forma $67 $53 $175 $155
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 the minimum pension liability reported as a
component of shareholders' equity.
The changes in the components of accumulated other comprehensive income (loss)
for the nine months ended September 30, 2003 and 2002 are reported as follows:
Nine Months Ended September 30,
2003 2002
-------------------------------
Unrealized Gain on Securities (in thousands)
Beginning Balance $3,048 $117
Unrealized (loss) gain arising
during the period, net of tax (1,080) 2,988
-------------------------------
Ending Balance $1,968 $3,105
-------------------------------
Minimum Pension Liability
Beginning Balance ($745) ($772)
Change in minimum pension liability,
net of tax - -
-------------------------------
Ending Balance ($745) ($772)
-------------------------------
Total accumulated other comprehensive
income (loss), net $1,223 $2,333
-------------------------------
Reclassifications
Certain amounts previously reported in the 2002 financial statements have been
reclassified to conform to the 2003 presentation. These reclassifications did
not affect previously reported net income or total shareholders' equity.
-10-
Acquisition
TriCo Bancshares (NASDAQ:TCBK), parent company of Tri Counties Bank, acquired
North State National Bank, a national banking organization located in Chico,
California, by the merger of North State into its wholly owned subsidiary, Tri
Counties Bank, effective 5:01 pm on April 4, 2003. The acquisition and the
related merger agreement dated October 3, 2002, was approved by the California
Department of Financial Institutions, the Federal Deposit Insurance Corporation,
and the shareholders of North State National Bank on March 4, March 7, and March
19, 2003, respectively. At the time of the acquisition, North State had total
assets of $140 million, investment securities of $41 million, loans of $76
million, and deposits of $126 million. The acquisition was accounted for using
the purchase method of accounting. The amount of goodwill recorded as of the
merger date, which represented the excess of the total purchase price over the
estimated fair value of net asset acquired, was approximately $15.5 million. The
Company recorded a core deposit intangible, which represents the excess of the
fair value of North State's deposits over their book value on the acquisition
date, of approximately $3.4 million. This core deposit intangible is scheduled
to be amortized over a seven-year average life.
Under the terms of the merger agreement, TriCo paid $13,090,057 in cash, issued
723,512 shares of TriCo common stock, and issued options to purchase 79,587
shares of TriCo common stock at an average exercise price of $6.22 per share in
exchange for all of the 1,234,375 common shares and options to purchase 79,937
common shares of North State National Bank outstanding as of April 4, 2003.
The pro forma financial information in the following table illustrates the
combined operating results of TriCo and North State National Bank for the nine
months ended September 30, 2003 and 2002 as if the acquisition of North State
National Bank had occurred as of January 1, 2002. The pro forma financial
information is presented for informational purposes and is not necessarily
indicative of the results of operations that would have occurred if TriCo and
North State National Bank had constituted a single entity as of or January 1,
2002. The pro forma financial information is also not necessarily indicative of
the future results of operations of the combined company. In particular, any
opportunity to achieve certain cost savings as a result of the acquisition has
not been included in the pro forma financial information.
For the nine months ended September 30,
2003 2002
---- ----
(in thousands except earnings per share)
Net interest income $45,186 $43,168
Provision for loan losses 450 2,000
Noninterest income 17,347 13,603
Noninterest expense 42,224 35,936
Income tax expense 7,360 7,151
Net income $12,499 $11,684
Basic earnings per share $1.60 $1.51
Diluted earnings per share $1.55 $1.47
The only significant pro forma adjustment is the amortization expense relating
to core deposit intangible, and the income tax benefit associated with the pro
forma adjustment.
-11-
Impact of Recently Issued Financial Accounting Pronouncements
In January 2003, the FASB issued FIN 46, which clarifies the application of
Accounting Research Bulletin ("ARB") 51, consolidated financial statements, to
certain entities (called variable interest entities) in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The disclosure
requirements of this Interpretation are effective for all financial statements
issued after January 31, 2003. The consolidation requirements apply to all
variable interest entities created after January 31, 2003. In addition, public
companies must apply the consolidation requirements to variable interest
entities that existed prior to February 1, 2003 and remain in existence as of
the beginning of annual or interim periods beginning after September 15, 2003.
Given the nature of the Company's operations, management does not expect this
Interpretation to have a significant impact on the consolidated financial
statements.
In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, to provide clarification of
certain terms and investment characteristics identified in Statement 133.
Statement 149 is to be applied prospectively and is effective for contracts
entered into or modified after June 30, 2003. The Company does not expect the
adoption of the Statement will have a material impact on the consolidated
financial statements.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The provisions
of this Statement are effective for financial instruments entered into or
modified after May 31, 2003, and otherwise are effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of nonpublic entities. Given the nature of the
Company's liability and equity instruments, management does not expect this
Statement to have a material impact to the consolidated financial statements
upon adoption of the Statement on July 1, 2003.
-12-
TRICO BANCSHARES
Financial Summary
(dollars in thousands, except per share amounts)
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------------
Net Interest Income (FTE) $16,069 $13,520 $44,612 $39,742
Provision for loan losses (150) (700) (450) (2,000)
Noninterest income 5,206 5,413 17,156 13,182
Noninterest expense (14,049) (12,133) (41,068) (33,498)
Provision for income taxes (FTE) (2,738) (2,473) (8,045) (7,106)
--------------------------------------------------------------
Net income $4,338 $3,627 $12,205 $10,320
==============================================================
Average shares outstanding 7,850 7,026 7,572 7,010
Diluted average shares outstanding 8,095 7,231 7,789 7,188
Shares outstanding at period end 7,846 7,036 7,846 7,036
As Reported:
Basic earnings per share $0.55 $0.52 $1.61 $1.47
Diluted earnings per share $0.54 $0.50 $1.57 $1.44
Return on assets 1.25% 1.39% 1.26% 1.36%
Return on equity 14.09% 15.17% 14.07% 14.92%
Net interest margin 5.24% 5.67% 5.14% 5.72%
Net loan charge-offs (recoveries)
to average loans 0.07% (0.04%) 0.39% 0.14%
Efficiency ratio (FTE) 66.04% 64.08% 66.49% 63.29%
Average Balances:
Total assets $1,384,672 $1,044,518 $1,291,693 $1,015,068
Earning assets 1,226,453 954,611 1,156,837 926,386
Total loans 876,068 676,009 786,341 655,682
Total deposits 1,185,059 908,675 1,112,111 883,898
Shareholders' equity $123,168 $95,645 $115,666 $92,212
Balances at Period End:
Total assets $1,440,584 $1,073,523
Earning assets 1,282,882 975,875
Total loans 930,041 683,554
Total deposits 1,195,852 937,895
Shareholders' equity $124,826 $96,421
Financial Ratios at Period End:
Allowance for loan losses to loans 1.45% 2.10%
Book value per share $15.91 $13.70
Equity to assets 8.66% 8.98%
Total capital to risk assets 11.73% 11.89%
Dividends Paid Per Share $0.20 $0.20 $0.60 $0.60
Dividend Payout Ratio 37.04% 38.75% 38.22% 40.80%
-13-
Item 2. Management's Discussion and Analysis of Financial Conditions 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 Management's Discussion and Analysis of
Financial Condition and Results of Operations, interest income and net interest
income are generally presented on a fully tax-equivalent (FTE) basis.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to the adequacy of the allowance for loan
losses, intangible assets, and contingencies. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. (See caption "Allowance for
Loan Losses" for a more detailed discussion).
Results of Operations
The following discussion and analysis is designed to provide a better
understanding of the significant changes and trends related to the Company and
the Bank's financial condition, operating results, asset and liability
management, liquidity and capital resources and should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes thereto.
The Company had quarterly earnings of $4,338,000, or $0.54 per diluted share,
for the three months ended September 30, 2003. These results represent an 8.0%
increase from the $0.50 earnings per diluted share reported for the three months
ended September 30, 2002 on earnings of $3,627,000. The improvement in results
from the year-ago quarter was due to a $2,549,000 (18.9%) increase in fully
tax-equivalent net interest income to $16,069,000, and a $550,000 (78.6%)
decrease in provision for loan losses to $150,000. These contributing factors
were offset by a $207,000 (3.8%) decrease in noninterest income to $5,206,000
and $1,916,000 (15.8%) increase in noninterest expense to $14,049,000 for the
quarter ended September 30, 2003. The Company reported earnings of $12,205,000,
or $1.57 per diluted share, for the nine months ended September 30, 2003. These
results represent a 9.0% increase from the $1.44 earnings per diluted share
reported for the nine months ended September 30, 2002 on earnings of
$10,320,000. The improvement in results from the year-ago period was due to a
$4,870,000 (12.3%) increase in fully tax-equivalent net interest income to
$44,612,000, a $1,550,000 (77.5%) decrease in provision for loan losses to
$450,000, and a $3,974,000 (30.1%) increase in noninterest income to
$17,156,000. These contributing factors were offset by a $7,570,000 (22.6%)
increase in noninterest expense to $41,068,000 for the nine months ended
September 30, 2003. Included in the Company's results of operations for the
three-month and nine-month periods ended September 30, 2003, are the effects of
the acquisition of North State National Bank on April 4, 2003.
-14-
Following is a summary of the components of fully taxable equivalent ("FTE") net
income for the periods indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Net Interest Income (FTE) $16,069 $13,520 $44,612 $39,742
Provision for loan losses (150) (700) (450) (2,000)
Noninterest income 5,206 5,413 17,156 13,182
Noninterest expense (14,049) (12,133) (41,068) (33,498)
Provision for income taxes (FTE) (2,738) (2,473) (8,045) (7,106)
---------------------------------------------
Net income $4,338 $3,627 $12,205 $10,320
=============================================
Net income for the third quarter of 2003 was $711,000 (19.6%) more than for the
same quarter of 2002. An increase in fully taxable equivalent net interest
income (up $2,549,000 or 18.9%), and a decrease in provision for loan losses
(down $550,000 or 78.6%) more than offset a decrease in noninterest income (down
$207,000 or 3.8%), and an increase in noninterest expenses (up $1,916,000 or
15.8%). The increase in net interest income (FTE) was due to an increase in
average balance of interest-earning assets (up $272 million or 28.5%) that was
partially offset by a 43 basis point decrease in net interest margin. The
decrease in provision for loan losses was due to stable loan quality and the
maintenance of adequate loss reserve levels. The decrease in noninterest income
from the year-ago quarter was mainly due to decreases in mortgage banking
activities (down $673,000 or 93.0%) and commissions on sale of nondeposit
investment products (down $280,000 or 39.4%). Offsetting these decreases in
noninterest income were increases in service charges on deposit accounts (up
$321,000 or 11.1%), and increase in cash value of life insurance (up $327,000 or
275%). The increase in noninterest expense was mainly due to an increase in
salary and benefit expense (up $1,116,000 or 17.6% to $7,460,000). The increase
in salary and benefits expense was mainly due to annual salary increases,
increased commission and incentive expense, and new employees at four new
branches the Company opened during 2002 and from the merger with North State
National Bank on April 4, 2003. Other noninterest expense also increased (up
$800,000 or 13.8% to $6,589,000) due to the new branch openings in 2002 and the
merger with North State.
Net income for the nine months ended September 30, 2003 was $1,885,000 (18.3%)
more than for the same period of 2002. An increase in fully taxable equivalent
net interest income (up $4,870,000 or 12.3%), a decrease in provision for loan
losses (down $1,550,000 or 77.5%), and an increase in noninterest income (up
$3,974,000 or 30.1%), more than offset an increase in noninterest expenses (up
$7,570,000 or 22.6%). The increase in net interest income (FTE) was due to an
increase in average balance of interest-earning assets (up $230 million or
24.9%) that was partially offset by a 58 basis point decrease in net interest
margin. The decrease in provision for loan losses (down $1,550,000 or 77.5%) was
due to stable loan quality and the maintenance of adequate loss reserve levels.
The increase in noninterest income from the year-ago period was mainly due to an
increase in service charges and fee income on deposit products (up $3,340,000 or
56.4% to $9,258,000) due to the introduction of an overdraft privilege deposit
product in July 2002 that has added a new stream of recurring noninterest
income. The increase in noninterest expense was mainly due to an increase in
salary and benefit expense (up $4,117,000 or 23.1% to $21,973,000). The increase
in salary and benefits expense was mainly due to annual salary increases,
increased commission and incentive expense, and new employees at four new
branches the Company opened during 2002 and from the merger with North State
National Bank on April 4, 2003. Other noninterest expense also increased (up
$3,453,000 or 22.1% to $19,095,000) due to the new branch openings in 2002, and
the merger with North State.
-15-
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------
2003 2002 2003 2002
------------------------------------------------
Interest income $19,105 $16,435 $53,615 $48,468
Interest expense (3,305) (3,227) (9,865) (9,669)
FTE adjustment 269 312 862 943
------------------------------------------------
Net interest income (FTE) $16,069 $13,520 $44,612 $39,742
================================================
Average earning assets $1,226,453 $954,611 $1,156,837 $926,386
Net interest margin (FTE) 5.24% 5.67% 5.14% 5.72%
The Company's primary source of revenue is net interest income, or the
difference between interest income on earning assets and interest expense in
interest-bearing liabilities. Net interest income (FTE) during the third quarter
of 2003 increased $2,549,000 (18.9%) from the same period in 2002 to
$16,069,000. The increase in net interest income (FTE) was due to the increased
average balances of earning assets (up $271,842,000 or 28.5% to $1.23 billion)
that was partially offset by a 43 basis point decrease in net interest margin
(FTE).
Net interest income (FTE) during the first nine months of 2003 increased
$4,870,000 (12.3%) from the same period in 2002 to $44,612,000. The increase in
net interest income (FTE) was due to the increased average balances of earning
assets (up $230,450,000 or 24.9% to $1.16 billion) that was partially offset by
a 58 basis point decrease in net interest margin (FTE).
Interest and Fee Income
Interest and fee income (FTE) for the third quarter of 2003 increased $2,627,000
(15.7%) from the second quarter of 2002. The increase was the net effect of
higher average interest-earning assets (up $271,842,000 or 28.5% to $1.23
billion) that was partially offset by a 70 basis point decrease in the yield on
those average earning assets to 6.32%. The growth in interest-earning assets was
led by a $200.1 million (29.6%) increase in average loan balances to $876.1
million, and a $93.6 million (38.1%) increase in average investment balances.
The average balance of federal funds sold decreased $21.8 million (66.2%) to
$11.1 million.
The average yield on the Company's earning assets decreased to 6.32% from 7.02%
for the quarter ended September 30, 2002. This downward trend in yields was
reflective of general interest rate markets during much of the twelve months
ended September 30, 2003.
Interest and fee income (FTE) for the nine months ended September 30, 2003
increased $5,066,000 (10.3%) from the same period of 2002. The increase was the
net effect of higher average interest-earning assets (up $230,451,000 or 24.9%
to $1.16 billion) that was partially offset by an 83 basis point decrease in the
yield on those average earning assets to 6.28%. The growth in interest-earning
assets was led by a $130.7 million (19.9%) increase in average loan balances to
$786.3 million, and a $121.7 million (52.1%) increase in average investment
balances to $355.3 million. The average balance of federal funds sold decreased
$21.9 million (59.1%) to $15.2 million.
The average yield on the Company's earning assets decreased to 6.28% for the
nine-month period ended September 30, 2003 from 7.11% for the same period in
2002. This downward trend in yields was reflective of general interest rate
markets during the twelve months ended September 30, 2003.
-16-
Interest Expense
Interest expense increased $78,000 (2.4%) to $3,305,000 in the third quarter of
2003 compared to $3,227,000 in the year-ago quarter. The average balance of
interest-bearing liabilities increased $223.5 million (29.9%) to $972.0 million
in the third quarter of 2003 compared to $748.5 million in the year-ago quarter.
The increase in interest-bearing liabilities was concentrated in the lower
earning interest-bearing demand deposits (up $38.3 million or 21.8%), and
savings deposits (up $143.8 million or 55.0%). The average balance of the higher
earning time deposits was up $14.1 million (4.9%) from the year-ago quarter. In
addition, the average balance of noninterest-bearing deposits increased $80.2
million (43.8%) from the year-ago quarter, and the average balance of Federal
funds purchased was $13.8 million in the quarter ended September 30, 2003
compared to $0.2 million in the year-ago quarter. The average balance of trust
preferred securities was $13.6 million in the quarter ended September 30, 2003
compared to $0 in the year-ago quarter. The average rate paid for all categories
of interest-bearing liabilities decreased from the average rate paid in the
year-ago quarter as a result of general market interest rate changes.
Interest expense increased $196,000 (2.0%) to $9,865,000 for the nine months
ended September 30, 2003 compared to $9,669,000 in the year-ago period. The
average balance of interest-bearing liabilities increased $182.1 million (24.9%)
to $914.7 million for the nine months ended September 30, 2003 compared to
$732.7 million in the year-ago period. The increase in interest-bearing
liabilities was concentrated in the lower earning interest-bearing demand
deposits (up $30.5 million or 17.6%), and savings deposits (up $109.6 million or
42.6%). The average balance of the higher earning time deposits was up $26.4
million (9.5%) from the year-ago period. In addition, for the nine months ended
September 30, 2003, the average balance of noninterest-bearing deposits
increased $61.7 million (35.4%) from the year-ago period, and the average
balance of Federal funds purchased was $11.1 million in the nine months ended
September 30, 2003 compared to $0.1 million in the year-ago six month period.
The average balance of trust preferred securities was $4.5 million in the
nine-month period ended September 30, 2003 compared to $0 in the year-ago
nine-month period. The average rate paid for all categories of interest-bearing
liabilities decreased from the average rate paid in the year-ago quarter as a
result of general market interest rate changes.
Net Interest Margin (FTE)
The following table summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2003 2002 2003 2002
---------------------------------------------
Yield on earning assets 6.32% 7.02% 6.28% 7.11%
Rate paid on interest-bearing
Liabilities 1.36% 1.72% 1.44% 1.76%
---------------------------------------------
Net interest spread 4.96% 5.30% 4.84% 5.35%
Impact of all other net
noninterest-bearing funds 0.28% 0.37% 0.30% 0.37%
---------------------------------------------
Net interest margin 5.24% 5.67% 5.14% 5.72%
=============================================
Net interest margin in the third quarter of 2003 decreased 43 basis points
compared to the third quarter of 2002. Net interest margin for the nine months
ended September 30, 2003 decreased 58 basis points compared to the nine months
ended September 30, 2002. Throughout much of 2002, the Company was able to
decrease the rates it paid on interest-bearing deposits approximately as fast as
the rates on interest-earning assets decreased. By doing so, the Company was
able to maintain a relatively high net interest margin throughout much of 2002.
However, in the fourth quarter of 2002, it became increasingly difficult to
reduce the rates paid on interest-bearing deposits. As a result, the Company's
net interest margin began to decrease. Also, throughout much of 2002, the
Company grew deposits faster than it grew loans. As a result, much of the
available funds from these deposits were invested in securities rather than
higher yielding loans, and this also contributed to a decrease in net interest
margin. During the quarters ended September 30, 2003 and June 30, 2003, the
Company's growth rate for loans exceeded its growth rate for deposits, and this
faster loan growth rate helped to slow down the rate of decrease in the
Company's net interest margin.
-17-
Summary of Average Balances, Yields/Rates and Interest Differential The
following tables present, for the periods indicated, information regarding the
Company's consolidated average assets, liabilities and shareholders' equity, the
amounts of interest income from average earning assets and resulting yields, and
the amount of interest expense paid on interest-bearing liabilities. Average
loan balances include nonperforming loans. Interest income includes proceeds
from loans on nonaccrual loans only to the extent cash payments have been
received and applied to interest income. Yields on securities and certain loans
have been adjusted upward to reflect the effect of income thereon exempt from
federal income taxation at the current statutory tax rate (dollars in
thousands).
For the three months ended
----------------------------------------------------------------
September 30, 2003 September 30, 2002
----------------------------- ------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $876,068 $16,228 7.41% $676,009 $13,332 7.89%
Investment securities - taxable 301,784 2,389 3.17% 201,982 2,411 4.77%
Investment securities - nontaxable 37,468 732 7.81% 43,659 861 7.89%
Federal funds sold 11,133 25 0.90% 32,961 143 1.74%
Total earning assets 1,226,453 19,374 6.32% 954,611 16,747 7.02%
Other assets 158,219 89,907
---------- ----------
Total assets $1,384,672 $1,044,518
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $214,259 137 0.26% $175,964 115 0.26%
Savings deposits 405,339 893 0.88% 261,510 656 1.00%
Time deposits 302,121 1,771 2.34% 288,021 2,129 2.96%
Federal funds purchased 13,826 38 1.10% 246 1 1.63%
Other borrowings 22,898 325 5.68% 22,772 326 5.73%
Trust preferred securities 13,560 141 4.16% - - -
----------------------------- ------------------------------
Total interest-bearing liabilities 972,003 3,305 1.36% 748,513 3,227 1.72%
Noninterest-bearing deposits 263,340 183,180
Other liabilities 26,161 17,180
Shareholders' equity 123,168 95,645
---------- ----------
Total liabilities and
shareholders' equity $1,384,672 $1,044,518
========== ==========
Net interest spread(1) 4.96% 5.30%
Net interest income and interest margin(2) $16,069 5.24% $13,520 5.67%
================== ====================
(1) Net interest spread represents the average yield earned on assets minus the
average rate paid on interest-earning assets minus the average rate paid on
interest-bearing liabilities
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning
assets.
-18-
For the nine months ended
----------------------------------------------------------------
September 30, 2003 September 30, 2002
----------------------------- ------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $786,341 $43,930 7.45% $655,682 $39,386 8.01%
Investment securities - taxable 316,219 8,072 3.40% 189,370 6,950 4.89%
Investment securities - nontaxable 39,119 2,348 8.00% 44,245 2,599 7.83%
Federal funds sold 15,158 127 1.12% 37,089 476 1.71%
Total earning assets 1,156,837 54,477 6.28% 926,386 49,411 7.11%
Other assets 134,856 88,682
---------- ----------
Total assets $1,291,693 $1,015,068
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $204,334 387 0.25% $173,796 350 0.27%
Savings deposits 366,725 2,519 0.92% 257,138 2,011 1.04%
Time deposits 305,088 5,753 2.51% 278,690 6,340 3.03%
Federal funds purchased 11,142 101 1.21% 83 1 1.61%
Other borrowings 22,908 964 5.61% 22,943 967 5.62%
Trust preferred securities 4,519 141 4.16% - - -
----------------------------- ------------------------------
Total interest-bearing liabilities 914,716 9,865 1.44% 732,650 9,669 1.76%
Noninterest-bearing deposits 235,964 174,274
Other liabilities 25,347 15,932
Shareholders' equity 115,666 92,212
---------- ----------
Total liabilities and
shareholders' equity $1,291,693 $1,015,068
========== ==========
Net interest spread(1) 4.84% 5.35%
Net interest income and interest margin(2) $44,612 5.14% $39,742 5.72%
================== ====================
(1) Net interest spread represents the average yield earned on assets minus the
average rate paid on interest-earning assets minus the average rate paid on
interest-bearing liabilities
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning
assets.
-19-
Summary of Changes in Interest Income and Expense due to Changes in Average
Asset & Liability Balances and Yields Earned & Rates Paid
The following tables set forth a summary of the changes in interest income (FTE)
and interest expense from changes in average asset and liability balances
(volume) and changes in average interest rates for the periods indicated.
Changes not solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components (dollars in thousands).
Three months ended September 30, 2003
compared with three months
ended September 30, 2002
-------------------------------------
Volume Rate Total
-------------------------------------
Increase (decrease) in interest income:
Loans $3,946 ($1,050) $2,896
Investments - taxable 1,190 (1,212) (22)
Investments - nontaxable (122) (7) (129)
Federal funds sold (95) (23) (118)
-------------------------------------
Total earning assets 4,919 (2,292) 2,627
-------------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 25 (3) 22
Savings deposits 360 (123) 237
Time deposits 104 (462) (358)
Federal funds purchased 55 (18) 37
Other borrowings 2 (3) (1)
Trust preferred securities 141 - 141
-------------------------------------
Total interest-bearing liabilities 687 (609) 78
-------------------------------------
Increase (decrease) in Net Interest Income $4,232 ($1,683) $2,549
=====================================
Nine months ended September 30, 2003
compared with nine months
ended September 30, 2002
-------------------------------------
Volume Rate Total
-------------------------------------
Increase (decrease) in interest income:
Loans $7,849 ($3,305) $4,544
Investments - taxable 4,652 (3,530) 1,122
Investments - nontaxable (301) 50 (251)
Federal funds sold (281) (68) (349)
-------------------------------------
Total earning assets 11,919 (6,853) 5,066
-------------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 62 (25) 37
Savings deposits 855 (347) 508
Time deposits 600 (1,187) (587)
Federal funds purchased 134 (34) 100
Other borrowings (1) (2) (3)
Trust preferred securities 141 - 141
-------------------------------------
Total interest-bearing liabilities 1,791 (1,595) 196
-------------------------------------
Increase (decrease) in Net Interest Income $10,128 ($5,258) $4,870
=====================================
-20-
Provision for Loan Losses
The Company provided $150,000 for loan losses in the third quarter of 2003
versus $700,000 in the third quarter of 2002. During the third quarter of 2003,
the Company recorded $145,000 of net loan charge offs versus $69,000 of net loan
recoveries in the year earlier quarter.
The Company provided $450,000 for loan losses during the nine months ended
September 30, 2003 versus $2,000,000 during the nine months ended September 30,
2002. During the nine months ended September 30, 2003, the Company recorded
$2,295,000 of net loan charge offs versus $676,000 of net loan charge-offs in
the year earlier nine-month period. The increase in charge-offs is primarily due
to a $1,554,000 net charge-off related to two commercial real estate loans to a
single entity collateralized by a single building. The Company had previously
established a specific allowance for the two commercial real estate loans noted
above in its allowance for loan losses. The collection was realized on July 31,
2003 via the Company's receipt of net proceeds of $11,474,000 from the sale of
the building. The collection resulted in a recovery of $346,000 of the
$1,900,000 charged-off on these loans during the quarter ended June 30, 2003.
The $1,900,000 charge-off is reflected in the Company's results of operations
for the quarter ended June 30, 2003. The $346,000 recovery is reflected in the
Company's results of operations for the quarter ended September 30, 2003.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------
2003 2002 2003 2002
--------------------------------------------
Service charges on deposit
accounts $3,208 $2,887 $9,258 $5,918
ATM fees and interchange 566 488 1,683 1,299
Other service fees 228 174 693 489
Amortization of mortgage servicing
rights,
net of mortgage servicing fees (285) (28) (432) (71)
Provision for mortgage
servicing valuation allowance (600) - (600) -
Gain on sale of loans 936 752 3,388 2,254
Commissions on sale of
nondeposit investment products 432 712 1,341 1,989
Gain on sale of investments 97 - 197 -
Increase in cash value of life
insurance 446 119 961 443
Other noninterest income 178 309 667 861
Total noninterest income $5,206 $5,413 $17,156 $13,182
Noninterest income for the third quarter of 2003 decreased $207,000 (3.8%) to
$5,206,000 from $5,413,000 in the year-ago quarter. The decrease in noninterest
income from the year-ago quarter was due to an increase in amortization of
mortgage servicing rights net of mortgage servicing fees (up $257,000 to
$285,000), and a provision for mortgage servicing valuation allowance (of
$600,000) taken in the quarter ended September 30, 2003. The increase in the
amortization of mortgage servicing rights and the provision for mortgage
servicing valuation allowance taken in the third quarter of 2003 are the result
of the recent peak in mortgage refinance activity. While the Company benefits
from increased gain on sale of loans during periods of high levels of mortgage
refinance activity, it may also experience increased amortization and provisions
for mortgage servicing valuations of mortgage servicing rights. (See Notes to
Unaudited Condensed Consolidated Financial Statements for additional information
concerning the Company's mortgage operations and valuation of mortgage servicing
rights.) Overall, mortgage banking activities, net of amortization and valuation
allowance, accounted for $51,000 of noninterest income in the third quarter of
2003 compared to $724,000 in the year-ago quarter. Excluding mortgage banking
activities and gain on sale of investments, noninterest income was up $369,000
(7.9%) during the third quarter of 2003 versus the year-ago quarter. Service
charges on deposit accounts were up $321,000 (11.1%) due primarily to new
customers, and increase in cash value of life insurance was up $327,000 (275%)
due to a 157% increase in banked-owned life insurance to $38.6 million at
September 30, 2003 versus $15.0 million at September 30, 2002. Commission on
sale of nondeposit investment products decreased $281,000 (39.4%) to $432,000 in
the third quarter of 2003 compared to $713,000 in the year-ago quarter.
-21-
Noninterest income for the nine months ended September 30, 2003 increased
$3,974,000 (30.1%) to $17,156,000 from $13,182,000 in the same period in 2002.
Mortgage banking activities, net of amortization and valuation allowance,
accounted for $2,356,000 of noninterest income during the nine months ended
September 30, 2003 compared to $2,183,000 during the nine months ended September
30, 2002. Excluding mortgage banking activities and gain on sale of investments,
noninterest income was up $3,604,000 (32.8%) during the nine months ended
September 30, 2003 compared to during the nine months ended September 30, 2002.
Service charges on deposit accounts were up $3,340,000 (56.4%) due primarily to
new customers and the introduction of the Company's overdraft privilege product
in July 2002. Increase in cash value of life insurance was up $518,000 (117%)
due to a 157% increase in banked-owned life insurance to $38.6 million at
September 30, 2003 versus $15.0 million at September 30, 2002. Commission on
sale of nondeposit investment products decreased $648,000 (32.6%) to $1,341,000
during the nine months ended September 30, 2003 compared to $1,989,000 during
the year-ago nine-month period.
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------
2003 2002 2003 2002
----------------------------------------------
Salaries $5,006 $4,225 $14,048 $11,616
Commissions and incentives 929 889 3,401 2,579
Employee benefits 1,525 1,230 4,524 3,661
Occupancy 922 752 2,604 2,157
Equipment 877 741 2,456 2,247
Professional fees 582 567 1,797 1,196
Telecommunications 384 363 1,167 1,034
Data processing and software 386 272 1,026 764
Advertising and marketing 226 468 868 934
Courier service 258 235 766 684
ATM network charges 255 205 742 611
Intangible amortization 325 228 877 683
Postage 202 212 630 543
Operational losses 240 192 546 295
Assessments 72 64 197 175
Other 1,860 1,490 5,419 4,319
----------------------------------------------
Total $14,049 $12,133 $41,068 $33,498
==============================================
Average full time
equivalent staff 516 437 499 427
Noninterest expense
to revenue (FTE) 66.04% 64.08% 66.49% 63.29%
Noninterest expense for the third quarter of 2003 increased $1,916,000 (15.8%)
to $14,049,000 from $12,133,000 in the third quarter of 2002. The increase in
noninterest expense was mainly due to a $1,116,000 (17.6%) increase in salary
and benefit expense to $7,460,000. The increase in salary and benefits expense
was mainly due to annual salary increases, increased commission and incentive
expense, and new employees at the Company's four newly opened branches in 2002
and from the merger with North State National Bank on April 4, 2003. Noninterest
expense excluding salaries and benefits also increased (up $800,000 or 13.8% to
$6,589,000). Approximately $420,000 of this increase was related to occupancy,
equipment, and data processing and software expenses.
-22-
Noninterest expense for the first nine months of 2003 increased $7,570,000
(22.6%) to $41,068,000 from $33,498,000 in the first nine months of 2002. The
increase in noninterest expense was mainly due to a $4,117,000 (23.1%) increase
in salary and benefit expense to $21,973,000. The increase in salary and
benefits expense was mainly due to annual salary increases, increased commission
and incentive expense, and new employees at the Company's four newly opened
branches in 2002 and from the merger with North State National Bank on April 4,
2003. Noninterest expense excluding salaries and benefits also increased (up
$3,453,000 or 22.1% to $19,095,000). Occupancy, equipment, and data processing
and software expenses accounted for $918,000 of this increase. Operational
losses accounted for $251,000 of the increase other noninterest expense. The
increase in operational losses is mainly due to operational losses from the
overdraft privilege product introduced in July 2002, and is more than offset by
the increase in noninterest income from the overdraft privilege product.
Provision for Income Tax
The effective tax rate for the three months ended September 30, 2003 was 36.3%
and reflects a decrease from 37.3% for the three months ended September 30,
2002. The effective tax rate for the nine months ended September 30, 2003 was
37.1% and reflects a decrease from 37.4% for the nine months ended September 30,
2002. The provision for income taxes for all periods presented is primarily
attributable to the respective level of earnings and the incidence of allowable
deductions, particularly from tax-exempt loans, state and municipal securities,
and bank owned life insurance.
Classified Assets
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk. Asset reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category, which includes all
nonperforming assets and potential problem loans, and receive an elevated level
of attention to ensure collection.
The following is a summary of classified assets on the dates indicated (dollars
in thousands):
At September 30, 2003 At December 31, 2002
------------------------- ------------------------
Gross Guaranteed Net Gross Guaranteed Net
-----------------------------------------------------
Classified loans $34,234 $11,593 $22,641 $52,642 $12,280 $40,062
Other classified assets 1,545 - 1,545 932 - 932
-----------------------------------------------------
Total classified assets $35,779 $11,593 $24,186 $53,574 $12,280 $40,994
-----------------------------------------------------
Allowance for loan losses/
Classified loans 55.7% 35.1%
Classified assets, net of guarantees of the U.S. Government, including its
agencies and its government-sponsored agencies at September 30, 2003, decreased
$16.7 million (40.8%) to $24.3 million from $41.0 million at December 31, 2002.
Nonperforming Loans
Loans are reviewed on an individual basis for reclassification to nonaccrual
status when any one of the following occurs: the loan becomes 90 days past due
as to interest or principal, the full and timely collection of additional
interest or principal becomes uncertain, the loan is classified as doubtful by
internal credit review or bank regulatory agencies, a portion of the principal
balance has been charged off, or the Company takes possession of the collateral.
Loans that are placed on nonaccrual even though the borrowers continue to repay
the loans as scheduled are classified as "performing nonaccrual" and are
included in total nonperforming loans. The reclassification of loans as
nonaccrual does not necessarily reflect Management's judgment as to whether they
are collectible.
-23-
Interest income is not accrued on loans where Management has determined that the
borrowers will be unable to meet contractual principal and/or interest
obligations, unless the loan is well secured and in the process of collection.
When a loan is placed on nonaccrual, any previously accrued but unpaid interest
is reversed. Income on such loans is then recognized only to the extent that
cash is received and where the future collection of principal is probable.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when, in the judgment of
Management, the loans are estimated to be fully collectible as to both principal
and interest.
Interest income on nonaccrual loans, which would have been recognized during the
nine months, ended September 30, 2003, if all such loans had been current in
accordance with their original terms, totaled $1,097,000. Interest income
actually recognized on these loans during the nine months ended September 30,
2003 was $766,000.
The Company's policy is to place loans 90 days or more past due on nonaccrual
status. In some instances when a loan is 90 days past due Management does not
place it on nonaccrual status because the loan is well secured and in the
process of collection. A loan is considered to be in the process of collection
if, based on a probable specific event, it is expected that the loan will be
repaid or brought current. Generally, this collection period would not exceed 30
days. Loans where the collateral has been repossessed are classified as OREO or,
if the collateral is personal property, the loan is classified as other assets
on the Company's financial statements.
Management considers both the adequacy of the collateral and the other resources
of the borrower in determining the steps to be taken to collect nonaccrual
loans. Alternatives that are considered are foreclosure, collecting on
guarantees, restructuring the loan or collection lawsuits.
As shown in the following table, total nonperforming assets net of guarantees of
the U.S. Government, including its agencies and its government-sponsored
agencies, decreased $1,495,000 (16.4%) to $7,617,000 during the first nine
months of 2003. Nonperforming assets net of guarantees represent 0.53% of total
assets. All nonaccrual loans are considered to be impaired when determining the
need for a specific valuation allowance. The Company continues to make a
concerted effort to work problem and potential problem loans to reduce risk of
loss.
(dollars in thousands):
At September 30, 2003 At December 31, 2002
------------------------- -------------------------
Gross Guaranteed Net Gross Guaranteed Net
------------------------------------------------------
Performing nonaccrual loans $11,114 $8,048 $3,066 $13,199 $8,432 $4,767
Nonperforming, nonaccrual loans 4,502 1,566 2,936 4,091 718 3,373
------------------------------------------------------
Total nonaccrual loans 15,616 9,614 6,002 17,290 9,150 8,140
Loans 90 days past due and still accruing 70 - 70 40 - 40
------------------------------------------------------
Total nonperforming loans 15,686 9,614 6,072 17,330 9,150 8,180
Other real estate owned 1,545 - 1,545 932 - 932
------------------------------------------------------
Total nonperforming assets $17,231 $9,614 $7,617 $18,262 $9,150 $9,112
======================================================
Nonperforming loans to total loans 0.65% 1.19%
Allowance for loan losses/nonperforming loans 222% 176%
Nonperforming assets to total assets 0.53% 0.80%
Allowance for loan losses to nonperforming assets 177% 158%
-24-
Allowance for Loan Losses
Credit risk is inherent in the business of lending. As a result, the Company
maintains an Allowance for Loan Losses to absorb losses inherent in the
Company's loan 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,
2002.
Based on the current conditions of the loan portfolio, Management believes that
the $13,460,000 allowance for loan losses at September 30, 2003 is adequate to
absorb probable losses inherent in the Company's loan portfolio. No assurance
can be given, however, that adverse economic conditions or other circumstances
will not result in increased losses in the portfolio.
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
-----------------------------------------------
2003 2002 2003 2002
-----------------------------------------------
Balance, beginning of period $13,455 $13,613 $14,377 $13,058
Addition through merger - - 928 -
Loan loss provision 150 700 450 2,000
Loans charged off (551) (72 (2,894) (915)
Recoveries of previously
charged-off loans 406 141 599 239
-----------------------------------------------
Net (charge-offs) recoveries (145) 69 (2,295) (676)
-----------------------------------------------
Balance, end of period $13,460 $14,382 $13,460 $14,382
===============================================
Allowance for loan losses/loans outstanding 1.45% 2.10%
-25-
Capital Resources
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies are reviewed regularly by Management.
On July 31, 2003, TriCo completed an offering of 20,000 shares of cumulative
trust preferred securities for cash in an aggregate amount of $20,000,000. The
trust preferred securities are mandatorily redeemable upon maturity on October
7, 2033 with an interest rate that resets quarterly at three-month LIBOR plus
3.05%, or 4.16% for the first quarterly interest period. TriCo has the right to
redeem the trust preferred securities on or after October 7, 2008. The trust
preferred securities were issued through an underwriting syndicate to which the
Company paid underwriting fees of $7.50 per trust preferred security or an
aggregate of $150,000. The net proceeds of $19,850,000 will be used to finance
the opening of new branches, improve bank services and technology, repurchase
shares of the Company's common stock as described below and increase the
Company's capital. The trust preferred securities have not been and will not be
registered under the Securities Act of 1933, as amended, or applicable state
securities laws and were sold pursuant to an exemption from registration under
the Securities Act of 1933. The trust preferred securities may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act of 1933, as amended, and
applicable state securities laws. The Company formed a subsidiary business
trust, TriCo Capital Trust I, to issue the trust preferred securities.
Concurrently with the issuance of the trust preferred securities, the trust
issued 619 shares of common stock to the Company for $1,000 per share or an
aggregate of $619,000. In addition, the Company issued a Junior Subordinated
Debenture to the Trust in the amount of $20,619,000. The terms of the Junior
Subordinated Debenture are materially consistent with the terms of the trust
preferred securities issued by TriCo Capital Trust I.
Also on July 31, 2003, the Company announced the termination of its stock
repurchase plan to repurchase 150,000 shares of common stock originally
announced on October 19, 2001. There were 118,800 shares repurchased under the
plan and the remaining 31,200 shares had not been repurchased. The Company has
adopted a new stock repurchase plan for the repurchase of up to 250,000 shares
of the Company's common stock from time to time as market conditions allow. The
250,000 shares authorized for repurchase under this plan represented
approximately 3.2% of the Company's approximately 7,852,000 common shares
outstanding as of July 31, 2003. This new plan has no stated expiration date for
the repurchases. The Company repurchased 8,100 common shares under this new
plan, all of which were repurchased during the quarter ended September 30, 2003.
The Company's primary capital resource is shareholders' equity, which was $124.8
million at September 30, 2003. This amount represents an increase of $25.8
million from December 31, 2002, the net result of issuance of common stock and
options related to the merger with North State National Bank ($18.5 million),
comprehensive income for the period ($1.1 million), and the issuance of common
shares via the exercise of stock options ($1.0 million), partially offset by
dividends paid ($4.6 million) and the repurchase of common stock ($0.2 million).
The Company's ratio of equity to total assets was 8.66%, 8.98%, and 8.65% as of
September 30, 2003, September 30, 2002, and December 31, 2002, respectively.
The following summarizes the ratios of capital to risk-adjusted assets for the
periods indicated:
To Be Well
At September 30, At Minimum Capitalized Under
----------------- December 31, Regulatory Prompt Corrective
2003 2002 2002 Requirement Action Provisions
------------------------------------------------------------------
Tier I Capital 10.55% 10.63% 10.71% 4.00% 6.00%
Total Capital 11.73% 11.89% 11.97% 8.00% 10.00%
Leverage ratio 8.85% 8.53% 8.27% 4.00% 5.00%
-26-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Asset and Liability Management
The goal for managing the assets and liabilities of the Company is to maximize
shareholder value and earnings while maintaining a high quality balance sheet
without exposing the Company to undue interest rate risk. The Board of Directors
has overall responsibility for the Company's interest rate risk management
policies. The Company has an Asset and Liability Management Committee (ALCO)
which establishes and monitors guidelines to control the sensitivity of earnings
to changes in interest rates.
Activities involved in asset/liability management include but are not limited to
lending, accepting and placing deposits, investing in securities and issuing
debt. Interest rate risk is the primary market risk associated with
asset/liability management. Sensitivity of earnings to interest rate changes
arises when yields on assets change in a different time period or in a different
amount from that of interest costs on liabilities. To mitigate interest rate
risk, the structure of the balance sheet is managed with the goal that movements
of interest rates on assets and liabilities are correlated and contribute to
earnings even in periods of volatile interest rates. The asset/liability
management policy sets limits on the acceptable amount of variance in net
interest margin, net income and market value of equity under changing interest
environments. Market value of equity is the net present value of estimated cash
flows from the Company's assets, liabilities and off-balance sheet items. The
Company uses simulation models to forecast net interest margin, net income and
market value of equity.
Simulation of net interest margin, net income and market value of equity under
various interest rate scenarios is the primary tool used to measure interest
rate risk. Using computer-modeling techniques, the Company is able to estimate
the potential impact of changing interest rates on net interest margin, net
income and market value of equity. A balance sheet forecast is prepared using
inputs of actual loan, securities and interest-bearing liability (i.e.
deposits/borrowings) positions as the beginning base.
In the simulation of net interest margin and net income under various interest
rate scenarios, the forecast balance sheet is processed against seven interest
rate scenarios. These seven interest rate scenarios include a flat rate
scenario, which assumes interest rates are unchanged in the future, and six
additional rate ramp scenarios ranging from +300 to -300 basis points around the
flat scenario in 100 basis point increments. These ramp scenarios assume that
interest rates increase or decrease evenly (in a "ramp" fashion) over a
twelve-month period and remain at the new levels beyond twelve months.
In the simulation of market value of equity under various interest rate
scenarios, the forecast balance sheet is processed against seven interest rate
scenarios. These seven interest rate scenarios include the flat rate scenario
described above, and six additional rate shock scenarios ranging from +300 to
- -300 basis points around the flat scenario in 100 basis point increments. These
rate shock scenarios assume that interest rates increase or decrease immediately
(in a "shock" fashion) and remain at the new level in the future.
At September 30, 2003 and 2002, the results of the simulations noted above
indicate that the balance sheet is slightly asset sensitive (earnings increase
when interest rates rise). The magnitude of all the simulation results noted
above is within the Company's policy guidelines. The asset liability management
policy limits aggregate market risk, as measured in this fashion, to an
acceptable level within the context of risk-return trade-offs.
The simulation results noted above do not incorporate any management actions,
which might moderate the negative consequences of interest rate deviations.
Therefore, they do not reflect likely actual results, but serve as conservative
estimates of interest rate risk.
At September 30, 2003 and 2002, the Company had no derivative financial
instruments.
-27-
Liquidity
The Company's principal source of asset liquidity is cash and amounts due from
banks, federal funds sold, and marketable investment securities available for
sale. At September 30, 2003, federal funds sold and investment securities
available for sale totaled $353 million, representing an increase of $6.7
million or 1.9% from December 31, 2002, and an increase of $61 million or 20.7%
from September 30, 2002. In addition, the Company generates additional liquidity
from its operating activities. The Company's profitability during the first nine
months of 2003 generated cash flows from operations of $19.7 million compared to
$16.8 million during the first nine months of 2002. Additional cash flows may be
provided by financing activities, primarily the acceptance of deposits and
borrowings from banks. Sales and maturities of investment securities produced
cash inflows of $192 million during the nine months ended September 30, 2003
compared to $87 million for the nine months ended September 30, 2002. During the
nine months ended September 30, 2003, the Company invested $169 million, $168
million, and $22 million in securities, net loan growth, and life insurance
policies, respectively, compared to $128 million and $25 million used to
purchase investments and net loan growth, respectively, during the first nine
months of 2002. These changes in investment, loan, and life insurance balances
contributed to net cash used for investing activities of $162 million during the
nine months ended September 30, 2003, compared to net cash used for investing
activities of $68 million during the nine months ended September 30, 2002.
Financing activities provided net cash of $136 million during the nine months
ended September 30, 2003, compared to net cash provided by financing activities
of $53 million during the nine months ended September 30, 2002. Increases in
deposit balances, Federal funds borrowed and issuance of trust preferred
securities accounted for $65 million, $56 million and $20 million of financing
sources of funds, respectively, during the nine months ended September 30, 2003,
compared to deposit balance increases that accounted for $58 million of
financing sources of funds during the nine months ended September 30, 2002.
Dividends paid used $4.6 million and $4.2 million of cash during the nine months
ended September 30, 2003 and September 30, 2002, respectively. Also, the
Company's liquidity is dependent on dividends received from the Bank. Dividends
from the Bank are subject to certain regulatory restrictions.
Item 4. Controls and Procedures
The Chief Executive Officer, Richard Smith, and the Chief Financial Officer,
Thomas Reddish, evaluated the effectiveness of the Company's disclosure controls
and procedures as of September 30, 2003 ("Evaluation Date"). Based on that
evaluation, they concluded that as of the Evaluation Date the Company's
disclosure controls and procedures are effective to allow timely communication
to them of information relating to the Company and the Bank required to be
disclosed in its filings with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934, as amended ("Exchange Act").
Disclosure controls and procedures are Company controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
-28-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Bank is at times party to various
legal actions; all such actions are of a routine nature and arise in the normal
course of business of the Bank.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3.1* Restated Articles of Incorporation dated May 9, 2003, filed as
Exhibit 3.1 to TriCo's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003
3.2* Bylaws of TriCo Bancshares, as amended, filed as Exhibit 3.2 to
TriCo's Form S-4 Registration Statement dated January 16, 2003
(No. 333-102546)
4* Certificate of Determination of Preferences of Series AA Junior
Participating Preferred Stock filed as Exhibit 3.3 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001
10.1* Rights Agreement dated June 25, 2001, between TriCo and Mellon
Investor Services LLC filed as Exhibit 1 to TriCo's Form 8-A
dated July 25, 2001
10.2* Form of Change of Control Agreement between TriCo and each of
Craig Carney (dated February 27, 2003), Richard O'Sullivan (date
February 24, 2003), and Thomas Reddish (dated April 10, 2001),
filed as Exhibit 10.9 to TriCo's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001
10.3* TriCo's 1993 Non-Qualified Stock Option Plan filed as Exhibit 4.1
to TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.4* TriCo's Non-Qualified Stock Option Plan filed as Exhibit 4.2 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.5* TriCo's Incentive Stock Option Plan filed as Exhibit 4.3 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.6* TriCo's 1995 Incentive Stock Option Plan filed as Exhibit 4.1 to
TriCo's Form S-8 Registration Statement dated August 23, 1995
(No. 33-62063)
10.7* TriCo's 2001 Stock Option Plan filed as Exhibit 4 to TriCo's Form
S-8 Registration Statement dated July 27, 2001 (No. 33-66064)
10.8* Employment Agreement between TriCo and Richard Smith dated April
10, 2001, filed as Exhibit 10.8 to TriCo's Form S-4 Registration
Statement dated January 16, 2003 (No. 333-102546)
-29-
10.9* Tri Counties Bank Executive Deferred Compensation Plan dated
September 1, 1987, as restated April 1, 1992, and amended
November 12, 2002, filed as Exhibit 10.9 to TriCo's Form S-4
Registration Statement dated January 16, 2003 (No. 333-102546)
10.10* Tri Counties Bank Supplemental Retirement Plan for Directors
dated September 1, 1987, as restated January 1, 2001, filed as
Exhibit 10.10 to TriCo's Form S-4 Registration Statement dated
January 16, 2003 (No. 333-102546)
10.11* Tri Counties Bank Supplemental Executive Retirement Plan
effective September 1, 1987, filed as Exhibit 10.11 to TriCo's
Form S-4 Registration Statement dated January 16, 2003 (No.
333-102546)
10.12* Tri Counties Bank Deferred Compensation Plan for Directors
effective April 1, 1992, filed as Exhibit 10.12 to TriCo's Form
S-4 Registration Statement dated January 16, 2003 (No.
333-102546)
10.13* Employment Agreement between TriCo and Richard O'Sullivan dated
April 10, 2001, filed as Exhibit 10.13 to TriCo's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003
10.14 Form of Joint Beneficiary Agreement effective March 31, 2003
between Tri Counties Bank and each of Craig Carney, Andrew
Mastorakis, Richard O'Sullivan, Thomas Reddish, and Richard Smith
10.15 Form of Joint Beneficiary Agreement effective March 31, 2003
between Tri Counties Bank and each of Don Amaral, William Casey,
Craig Compton, John Hasbrook, Michael Koehnen, Wendell Lundberg,
Donald Murphy, Carroll Taresh, and Alex Vereshagin
10.16 Form of Tri-Counties Bank Executive Long Term Care Agreement
effective June 10, 2003 between Tri Counties Bank and each of
Andrew Mastorakis, Richard O'Sullivan, and Thomas Reddish
10.17 Form of Tri-Counties Bank Director Long Term Care Agreement
effective June 10, 2003 between Tri Counties Bank and each of Don
Amaral, William Casey, John Hasbrook, Michael Koehnen, Donald
Murphy, Carroll Taresh, and Alex Verischagin
11.1 Computation of earnings per share
21.1 Tri Counties Bank, a California banking corporation, and TriCo
Capital Trust I, a Delaware business trust, are the only
subsidiaries of Registrant
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO
32.1 Section 1350 Certification of CEO
32.2 Section 1350 Certification of CFO
* Previously filed and incorporated by reference.
-30-
(b) Reports on Form 8-K
During the quarter ended September 30, 2003 the Company filed the following
Current Reports on Form 8-K:
Description Date of Report
------------------------------------ --------------------
Quarterly results of operations. July 30, 2003
Declaration of $0.20 per common July 30, 2003
share dividend payable September
30, 2003 to holders of record on
September 9, 2003; trust preferred
issuance; cancellation of existing
stock repurchase plan; approval of
new stock repurchase plan; substantial
reduction in nonperforming assets.
Quarterly results of operations. October 23, 2003
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 hereunto duly authorized.
TRICO BANCSHARES
(Registrant)
Date: November 12, 2003 /s/ Thomas J. Reddish
----------------------------------------
Thomas J. Reddish
Vice President and Chief Financial Officer
-31-
Exhibit 10.14
Form of Joint Beneficiary Agreement effective March 31, 2003 between Tri
Counties Bank and each of Craig Carney, Andrew Mastorakis, Richard O'Sullivan,
Thomas Reddish, and Richard Smith
JOINT BENEFICIARY AGREEMENT
Insurer: Massachusetts Mutual Life Insurance Company
Policy Number:
Insurer: New York Life Insurance Company
Policy Number:
Insurer: Beneficial Life Insurance Company:
Policy Number:
Insurer: Northwestern Mutual Life Insurance Company
Policy Number:
Owner: Tri Counties Bank
Insured:
Effective Date:
This Agreement is by and between Tri Counties Bank and___________________, an
executive of the Company.
I. DEFINITIONS
- --------------------
The term "Policy" shall refer to the above-cited policies as well any policies
obtained, by means of 1035 exchange, to replace the above-cited policies. Policy
definitions shall govern.
II. POLICY TITLE AND OWNERSHIP
- -----------------------------------
The respective rights and duties of the Company and the Insured in the Policy
shall be as follows: Title and ownership shall reside in the Company for its use
and for the use of the Insured all in accordance with this Agreement. The
Company alone may, to the extent of its interest, exercise the right to borrow
or withdraw the Policy cash values or to terminate the Policy. Where the Company
and the Insured, mutually agree to exercise the right to increase coverage under
the Policy, then, in such event, the rights, duties and benefits of the parties
to such increased coverage shall continue to be subject to the terms of this
Agreement.
III. BENEFICIARY DESIGNATION
- ---------------------------------
The Insured shall have the right and power to designate beneficiaries to receive
his/her share of death proceeds, as provided in this Agreement. Likewise, the
Insured shall have the right and power to elect and change a payment option for
such beneficiaries.
IV. PREMIUM PAYMENTS
- -------------------------
The Company shall pay premiums and the Insured shall not be responsible for any
portion thereof.
V. TAXABLE BENEFIT
- ------------------------
Annually the Insured will receive a taxable benefit equal to the assumed cost of
insurance as required by the Internal Revenue Service. The Company (or its
administrator) will report to the Insured such imputed income on Form W-2 or its
equivalent.
-32-
VI. DIVISION OF DEATH PROCEEDS
- -----------------------------------
The Company shall be entitled to the death proceeds of the Policy except that,
subject to Paragraph VII herein, beneficiaries designated by the Insured in
accordance with Paragraph III, shall be entitled to a split dollar share of the
death proceeds.
1) If, at the time of his or her death, the Insured is employed by the
Company, the Insured employee's beneficiary (ies), shall be entitled
to an amount, as follows:
(a) If the Insured employee has not yet attained the of age seventy
(70), the lesser of $___________, or one hundred percent (100%)
of the Net At Risk Insurance portion of the proceeds; Net At Risk
Insurance portion of the proceeds is the aggregate total proceeds
less the cash value of the Policies designated herein;
(b) If the Insured employee is seventy (70), or older, but not yet
age eighty (80), the lesser of $_________, or one hundred percent
(100%) of the Net At Risk Insurance portion of the proceeds;
(c) If the Insured employee dies after the attainment of age eighty
(80), the lesser of $________, or one hundred percent (100%) of
the Net At Risk Insurance portion of the proceeds.
2) If, at the time of his or her death, the Insured is no longer employed
by the Company but, prior to death, was eligible to receive payments
pursuant to the Tri Counties Supplemental Executive Retirement Plan
(the SERP), the Insured's beneficiary (ies), shall be entitled to an
amount, as follows. For purposes of this Paragraph VI, the term
Applicable Percentage shall refer to the Applicable Percentage as
defined in the SERP and in effect as of the Insured's last date of
employment with the Company:
(a) If the Insured has not yet attained the of age seventy (70), the
Applicable Percentage times the lesser of $_________, or one
hundred percent (100%) of the Net At Risk Insurance portion of
the proceeds;
(b) If the Insured is seventy (70) or older, but not yet age eighty
(80), the Applicable Percentage times the lesser of $__________,
or one hundred percent (100%) of the Net At Risk Insurance
portion of the proceeds;
(c) If the Insured dies after the attainment of age eighty (80), the
Applicable Percentage times the lesser of $________, or one
hundred percent (100%) of the Net At Risk Insurance portion of
the proceeds.
3) If the Company no longer employs the Insured at the time of death and
the Insured was not eligible to receive payments under the SERP prior
to death, the beneficiaries' share of Policy proceeds shall be
$50,000, provided the policy (ies) remain in force.
4) The Company and the Insured's beneficiaries shall share any interest
due on death proceeds in the same pro rata ratio as applies to death
proceeds, respectively.
5) In the event that the Policy is terminated other than as a result of a
termination of this Agreement pursuant to paragraph X. hereunder, and
the Insured is eligible to receive benefits pursuant to Paragraph IV
(1) or (2) above, then the Bank shall pay to the Insured's beneficiary
(ies) an amount which will provide a total after-tax death benefit
equal to the benefit that the Insured would have received if the
Policy had not been terminated.
6) Payment of the death benefit determined by the preceding paragraphs
shall be made and distributed from the Policies in the following
order, with resort to each succeeding policy only to the extent that
the proceeds of each prior listed Policy are insufficient to satisfy
the specified death benefit in full: : (a) Massachusetts Mutual Life
Insurance Company Policy Number (b) Beneficial Life Insurance Company
Policy Number BL (c) New York Life Insurance Company Policy Number (d)
Northwestern Mutual Life Insurance Company Policy Number .
-33-
VII. DIVISION OF CASH SURRENDER VALUE
- -----------------------------------------
The Company shall at all times be entitled to an amount equal to the Policy's
cash value, as that term is defined in the Policy, less any Policy loans and
unpaid interest or cash withdrawals previously incurred by the Company and any
applicable Policy surrender charges. Such cash value shall be determined as of
the date of surrender of the Policy or death of the Insured as the case may be.
VIII. PREMIUM WAIVER
- -----------------------
If the Policy contains a premium waiver provision, any such waived amounts shall
be considered for all purposes of this Agreement as having been paid by the
Company.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
- ----------------------------------------------------------------------------
In the event the Policy involves an endowment or annuity element, the Company's
right and interest in any endowment proceeds or annuity benefits shall be
determined according to this Agreement, by regarding such endowment proceeds, or
the commuted value of such annuity benefits, as the Policy's cash value. Such
endowment proceeds or annuity benefits shall be treated like death proceeds for
the purposes of division under this Agreement.
X. TERMINATION OF AGREEMENT
- ---------------------------------
This Agreement shall terminate immediately upon the commission of any act by the
Insured that results in the termination of the Policy by the Insurer. Except as
provided above, this Agreement shall terminate upon distribution of death
benefits in accordance with Paragraph VI above.
XI. PROHIBITION ON ASSIGNMENT
- ----------------------------------
The Insured may not, without the prior written consent of the Company, assign to
any individual, trust or other organization, any right, title or interest in the
Policy or in any rights, options, privileges or duties created under this
Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
- -------------------------------------------
This Agreement shall be binding upon the Insured and the Company, and their
respective heirs, successors, personal representatives and assigns, as
applicable.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
- -----------------------------------------------
The Company is hereby designated the "Named Fiduciary" until resignation or
removal by its Board of Directors. As Named Fiduciary, the Company shall be
responsible for the management, control, and administration of this Agreement as
established herein. The Named Fiduciary may allocate to others certain aspects
of the management and operations responsibilities of this Agreement, including
the employment of advisors and the delegation of any ministerial duties to
qualified individuals.
XIV. FUNDING POLICY
- -----------------------
The funding Policy for this Agreement shall be to maintain the Policy in force
by paying, when due, all premiums required.
XV. CLAIM PROCEDURES
- -------------------------
Claims shall be directed to The Benefit Marketing Group, Inc. Atlanta, Georgia
(770-952-1529). If a claim is payable, a benefit check will be issued to the
Named Fiduciary. In the event that a claim is not eligible under the Policy, the
Insurer will notify the Named Fiduciary of the denial as required by the Policy.
If the Named Fiduciary is dissatisfied with the denial of the claim and wishes
to contest such claim denial, it should contact the office named above and they
will assist in making inquiry to the Insurer. All objections to the Insurer's
actions should be in writing and submitted to the office named above for
transmittal to the Insurer.
-34-
XVI. GENDER AND PLURAL VS SINGULAR
- --------------------------------------
Whenever in this Agreement words are used in the masculine or neuter gender,
they shall be read and construed as in the masculine, feminine or neuter gender,
whenever they should so apply. When applicable, nouns in the singular shall be
read and construed as in the plural and visa versa.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
- --------------------------------------------------------
The Insurer shall not be deemed a party to this Agreement, but will be served
with an executed copy of this Agreement. Payment or other performance in
accordance with the Policy provisions shall fully discharge the Insurer from any
and all liability.
IN WITNESS WHEREOF, the Insured and duly authorized Company officer have signed
this Agreement as of the above written date.
TRI COUNTIES BANK INSURED
- -------------------------- --------------------------------
Richard Miller
Senior Vice President
-35-
BENEFICIARY DESIGNATION FORM
FOR THE JOINT BENEFICIARY DESIGNATION AGREEMENT
I. PRIMARY DESIGNATION
-------------------
(You may refer to the beneficiary designation information prior to
completion of this form.)
A. Person(s) as a Primary Designation:
-----------------------------------
(Please indicate the percentage for each beneficiary.)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Primary Designation:
--------------------------------
My Primary Beneficiary is The Estate of ______________________________________
as set forth in the last will and testament dated the _____ day of
_____________, _____ and any codicils thereto.
C. Trust as a Primary Designation:
-------------------------------
Name of the Trust: ____________________________________________________________
Execution Date of the Trust: _____ / _____ / _________
Name of the Trustee: __________________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each
beneficiary):
________________________________________________________________________________
________________________________________________________________________________
Is this an Irrevocable Life Insurance Trust? ________ Yes ________ No
(If yes and this designation is for a Split Dollar agreement, an Assignment of
Rights form should be completed.)
-36-
II. SECONDARY (CONTINGENT) DESIGNATION
A. Person(s) as a Secondary (Contingent) Designation:
--------------------------------------------------
(Please indicate the percentage for each beneficiary.)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Secondary (Contingent) Designation:
------------------------------------------------
My Secondary Beneficiary is The Estate of _____________________________________
as set forth in my last will and testament dated the _____ day of ___________,
_____ and any codicils thereto.
C. Trust as a Secondary (Contingent) Designation:
-----------------------------------------------
Name of the Trust: ____________________________________________________________
Execution Date of the Trust: _____ / _____ / _________
Name of the Trustee: __________________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each
beneficiary):
________________________________________________________________________________
________________________________________________________________________________
All sums payable under the Joint Beneficiary Designation Agreement by reason of
my death shall be paid to the Primary Beneficiary(ies), if he or she survives
me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary
(Contingent) Beneficiary(ies). This beneficiary designation is valid until the
participant notifies the bank in writing.
- ---------------------------------------------- ------------------
Insured Date
-37-
Exhibit 10.15
Form of Joint Beneficiary Agreement effective March 31, 2003 between Tri
Counties Bank and each of Don Amaral, William Casey, Craig Compton, John
Hasbrook, Michael Koehnen, Wendell Lundberg, Donald Murphy, Carroll Taresh, and
Alex Vereshagin
JOINT BENEFICIARY AGREEMENT
Insurer:
Policy Number:
Owner: Tri Counties Bank
Insured:
Effective Date
This Agreement is by and between Tri Counties Bank and, _________________a
Director of the Company.
I. DEFINITIONS
- --------------------
The term "Policy" shall refer to the above-cited policies as well any policies
obtained, by means of 1035 exchange, to replace the above-cited policies. Policy
definitions shall govern.
II. POLICY TITLE AND OWNERSHIP
- -----------------------------------
The respective rights and duties of the Company and the Insured in the Policy
shall be as follows: Title and ownership shall reside in the Company for its use
and for the use of the Insured all in accordance with this Agreement. The
Company alone may, to the extent of its interest, exercise the right to borrow
or withdraw the Policy cash values or to terminate the Policy. Where the Company
and the Insured, mutually agree to exercise the right to increase coverage under
the Policy, then, in such event, the rights, duties and benefits of the parties
to such increased coverage shall continue to be subject to the terms of this
Agreement.
III. BENEFICIARY DESIGNATION
- ---------------------------------
The Insured shall have the right and power to designate beneficiaries to receive
his/her share of death proceeds, as provided in this Agreement. Likewise, the
Insured shall have the right and power to elect and change a payment option for
such beneficiaries.
IV. PREMIUM PAYMENTS
- -------------------------
The Company shall pay premiums and the Insured shall not be responsible for any
portion thereof.
V. TAXABLE BENEFIT
- ------------------------
Annually the Insured will receive a taxable benefit equal to the assumed cost of
insurance as required by the Internal Revenue Service. The Company (or its
administrator) will report to the Insured such imputed income on Form W-2 or its
equivalent.
VI. DIVISION OF DEATH PROCEEDS
- -----------------------------------
The Company shall be entitled to the death proceeds of the Policy except that,
subject to Paragraph VII herein, beneficiaries designated by the Insured in
accordance with Paragraph III, shall be entitled to a split dollar share of the
death proceeds.
-38-
1. If, at the time of his or her death, the Insured is serving as a Director
of the Company, the Insured employee's beneficiary (ies), shall be entitled
to an amount, as follows:
a. If the Insured has not yet attained the of age seventy (70), the
lesser of $___________, or one hundred percent (100%) of the Net At
Risk Insurance portion of the proceeds; Net At Risk Insurance portion
of the proceeds is the aggregate total proceeds less the cash value of
the Policies designated herein;
b. If the Insured is seventy (70), or older, but not yet age eighty (80),
the lesser of $_________, or one hundred percent (100%) of the Net At
Risk Insurance portion of the proceeds;
c. If the Insured dies after the attainment of age eighty (80), the
lesser of $________, or one hundred percent (100%) of the Net At Risk
Insurance portion of the proceeds.
2. If, at the time of his or her death, the Insured is no longer a Director of
the Company but, prior to death, was eligible to receive payments pursuant
to the Tri Counties Supplemental Retirement Plan for Directors (the SERP),
the Insured's beneficiary (ies), shall be entitled to an amount, as
follows. For purposes of this Paragraph VI, the term Applicable Percentage
shall refer to the Applicable Percentage as defined in the SERP and in
effect as of the Insured's last date of service as a Director of the
Company:
a. If the Insured has not yet attained the of age seventy (70), the
Applicable Percentage times the lesser of $_________, or one hundred
percent (100%) of the Net At Risk Insurance portion of the proceeds;
b. If the Insured is seventy (70) or older, but not yet age eighty (80),
the Applicable Percentage times the lesser of $__________, or one
hundred percent (100%) of the Net At Risk Insurance portion of the
proceeds;
c. If the Insured dies after the attainment of age eighty (80), the
Applicable Percentage times the lesser of $________, or one hundred
percent (100%) of the Net At Risk Insurance portion of the proceeds.
3. If the Insured is not a Director of the Company at the time of death and
the Insured was not eligible to receive payments under the SERP prior to
death, the beneficiaries' share of Policy proceeds shall be $50,000,
provided the policy (ies) remain in force.
4. The Company and the Insured's beneficiaries shall share any interest due on
death proceeds in the same pro rata ratio as applies to death proceeds,
respectively.
5. In the event that the Policy is terminated other than as a result of a
termination of this Agreement pursuant to paragraph X. hereunder, and the
Insured is eligible to receive benefits pursuant to Paragraph IV (1) or (2)
above, then the Bank shall pay to the Insured's beneficiary (ies) an amount
which will provide a total after-tax death benefit equal to the benefit
that the Insured would have received if the Policy had not been terminated.
6. Payment of the death benefit determined by the preceding paragraphs shall
be made and distributed from the Policies in the following order, with
resort to each succeeding policy only to the extent that the proceeds of
each prior listed Policy are insufficient to satisfy the specified death
benefit in full: (a) John Hancock Life Insurance Company Policy Number (b)
Security Life of Denver Policy Number (c) Massachusetts Mutual Life
Insurance Company Policy Number (d) Beneficial Life Insurance Company
Policy Number BL (e) New York Life Insurance Company Policy Number (f)
Northwestern Mutual Life Insurance Company Policy Number .
-39-
VII. DIVISION OF CASH SURRENDER VALUE
- -----------------------------------------
The Company shall at all times be entitled to an amount equal to the Policy's
cash value, as that term is defined in the Policy, less any Policy loans and
unpaid interest or cash withdrawals previously incurred by the Company and any
applicable Policy surrender charges. Such cash value shall be determined as of
the date of surrender of the Policy or death of the Insured as the case may be.
VIII. PREMIUM WAIVER
- -----------------------
If the Policy contains a premium waiver provision, any such waived amounts shall
be considered for all purposes of this Agreement as having been paid by the
Company.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
- ----------------------------------------------------------------------------
In the event the Policy involves an endowment or annuity element, the Company's
right and interest in any endowment proceeds or annuity benefits shall be
determined according to this Agreement, by regarding such endowment proceeds, or
the commuted value of such annuity benefits, as the Policy's cash value. Such
endowment proceeds or annuity benefits shall be treated like death proceeds for
the purposes of division under this Agreement.
X. TERMINATION OF AGREEMENT
- ---------------------------------
This Agreement shall terminate immediately upon the commission of any act by the
Insured that results in the termination of the Policy by the Insurer. Except as
provided above, this Agreement shall terminate upon distribution of death
benefits in accordance with Paragraph VI above.
XI. PROHIBITION ON ASSIGNMENT
- ----------------------------------
The Insured may not, without the prior written consent of the Company, assign to
any individual, trust or other organization, any right, title or interest in the
Policy or in any rights, options, privileges or duties created under this
Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
- -------------------------------------------
This Agreement shall be binding upon the Insured and the Company, and their
respective heirs, successors, personal representatives and assigns, as
applicable.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
- -----------------------------------------------
The Company is hereby designated the "Named Fiduciary" until resignation or
removal by its Board of Directors. As Named Fiduciary, the Company shall be
responsible for the management, control, and administration of this Agreement as
established herein. The Named Fiduciary may allocate to others certain aspects
of the management and operations responsibilities of this Agreement, including
the employment of advisors and the delegation of any ministerial duties to
qualified individuals.
XIV. FUNDING POLICY
- -----------------------
The funding Policy for this Agreement shall be to maintain the Policy in force
by paying, when due, all premiums required.
XV. CLAIM PROCEDURES
- -------------------------
Claims shall be directed to The Benefit Marketing Group, Inc. Atlanta, Georgia
(770-952-1529). If a claim is payable, a benefit check will be issued to the
Named Fiduciary. In the event that a claim is not eligible under the Policy, the
Insurer will notify the Named Fiduciary of the denial as required by the Policy.
If the Named Fiduciary is dissatisfied with the denial of the claim and wishes
to contest such claim denial, it should contact the office named above and they
will assist in making inquiry to the Insurer. All objections to the Insurer's
actions should be in writing and submitted to the office named above for
transmittal to the Insurer.
-40-
XVI. GENDER AND PLURAL VS SINGULAR
- --------------------------------------
Whenever in this Agreement words are used in the masculine or neuter gender,
they shall be read and construed as in the masculine, feminine or neuter gender,
whenever they should so apply. When applicable, nouns in the singular shall be
read and construed as in the plural and visa versa.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
- --------------------------------------------------------
The Insurer shall not be deemed a party to this Agreement, but will be served
with an executed copy of this Agreement. Payment or other performance in
accordance with the Policy provisions shall fully discharge the Insurer from any
and all liability.
IN WITNESS WHEREOF, the Insured and duly authorized Company officer have signed
this Agreement as of the above written date.
TRI COUNTIES BANK INSURED
- -------------------------- --------------------------------
Richard Miller
Senior Vice President
-41-
BENEFICIARY DESIGNATION FORM
FOR THE JOINT BENEFICIARY DESIGNATION AGREEMENT
I. PRIMARY DESIGNATION
-------------------
(You may refer to the beneficiary designation information prior to
completion of this form.)
A. Person(s) as a Primary Designation:
-----------------------------------
(Please indicate the percentage for each beneficiary.)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Primary Designation:
--------------------------------
My Primary Beneficiary is The Estate of ______________________________________
as set forth in the last will and testament dated the _____ day of
_____________, _____ and any codicils thereto.
C. Trust as a Primary Designation:
-------------------------------
Name of the Trust: ____________________________________________________________
Execution Date of the Trust: _____ / _____ / _________
Name of the Trustee: __________________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each
beneficiary):
________________________________________________________________________________
________________________________________________________________________________
Is this an Irrevocable Life Insurance Trust? ________ Yes ________ No
(If yes and this designation is for a Split Dollar agreement, an Assignment of
Rights form should be completed.)
-42-
II. SECONDARY (CONTINGENT) DESIGNATION
A. Person(s) as a Secondary (Contingent) Designation:
--------------------------------------------------
(Please indicate the percentage for each beneficiary.)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
Name________________________________ Relationship_________________ / _______%
Address:________________________________________________________________________
(Street) (City) (State) (Zip)
B. Estate as a Secondary (Contingent) Designation:
------------------------------------------------
My Secondary Beneficiary is The Estate of _____________________________________
as set forth in my last will and testament dated the _____ day of ___________,
_____ and any codicils thereto.
C. Trust as a Secondary (Contingent) Designation:
-----------------------------------------------
Name of the Trust: ____________________________________________________________
Execution Date of the Trust: _____ / _____ / _________
Name of the Trustee: __________________________________________________________
Beneficiary(ies) of the Trust (please indicate the percentage for each
beneficiary):
________________________________________________________________________________
________________________________________________________________________________
All sums payable under the Joint Beneficiary Designation Agreement by reason of
my death shall be paid to the Primary Beneficiary(ies), if he or she survives
me, and if no Primary Beneficiary(ies) shall survive me, then to the Secondary
(Contingent) Beneficiary(ies). This beneficiary designation is valid until the
participant notifies the bank in writing.
- ---------------------------------------------- ------------------
Insured Date
-43-
Exhibit 10.16
Form of Tri-Counties Bank Executive Long Term Care Agreement effective June 10,
2003 between Tri Counties Bank and each of Andrew Mastorakis, Richard
O'Sullivan, and Thomas Reddish
TRI-COUNTIES BANK
EXECUTIVE LONG TERM CARE AGREEMENT
THIS AGREEMENT, effective ___________ is made and entered into, by and between
Tri Counties Bank (collectively, the "Company"), and _______________________, an
Executive of the Company (hereinafter, the "Participant").
WITNESSETH:
WHEREAS, it is the consensus of the Board of Directors (hereinafter, the
"Board") that the Participant's services to the Company are of exceptional merit
and constitute an invaluable contribution to the general welfare of the Company;
and
WHEREAS, it is in the best interests of the Company to encourage the
Participant's continued service to Company during the Participant's lifetime or
until the age of retirement; and
WHEREAS, it is the desire of the Company that the Participant's services be
retained as herein provided; and
WHEREAS, the Participant is willing to continue to serve the Company provided
the Company agrees to pay the Participant certain benefits in accordance with
the terms and conditions hereinafter set forth;
ACCORDINGLY, it is the desire of the Company and the Participant to enter into
this Agreement under which the Company will agree to make certain payments on
behalf of the Participant pursuant to this Agreement;
NOW, THEREFORE, in consideration of services performed in the past and to be
performed in the future as well as of the mutual promises and covenants herein
contained it is agreed as follows:
I. LONG TERM CARE BENEFIT
The Company hereby agrees:
A. To pay the initial single premium for the Long Term Care policy
described herein, on behalf of the Participant:
Insurer:
Policy Number:
B. That, subject to Paragraph IV, the sole ownership of said policy shall
reside with the Participant for the Participant's sole use and
benefit.
-44-
II. REIMBURSEMENT OBLIGATION UPON TERMINATION OF SERVICE
For purposes of this Agreement, the term service shall refer to
Participant's service as an Executive of the Company and, except as
follows, the phrase "years of service" shall be measured in full years from
the date of this Agreement to the date of Participant's termination. If the
Participant signs the Agreement at any time during 2003, then 2003 shall be
counted as a full year of service. The following events of termination
exempt the Participant from the reimbursement provisions of this Section
III.
1. Termination for any reason following five years of service;
2. Death;
3. Disability;
4. Normal Retirement, as mandated by resolution of the Board of
Directors;
5. Termination for any reason following a Change of Control. For purpose
of this Agreement, the term Change of Control shall be as defined in
employment agreements with the Chief Executive Officer of the Company;
6. If, upon execution of this Agreement, the Participant is a current
member of the Board of Directors of the Company, termination of such
membership, resulting from non-reelection to the Board.
If the Participant's service terminates for any reason other than one of
those listed immediately above, the Participant shall reimburse the Company
the amount of premium expended by the Bank on the Participant's behalf for
Long Term Care Insurance, multiplied times the percentage set forth in the
schedule that follows:
Years of Service Amount
---------------- --------------------------
One Year 80% of the Single Premium
Two Years 60% of the Single Premium
Three Years 40% of the Single Premium
Four Years 20% of the Single Premium
Five Years No Obligation to Reimburse
The reimbursement amount shall be due and payable within thirty (30) days
from the date of termination of service. To facilitate prompt
reimbursement, the Company may off-set against any amounts it owes to a
terminated Participant.
III. MISCELLANEOUS
A. Termination: This Agreement shall terminate on the later of the
following dates:
- The date of Participant's termination or
- The date on which the Participant satisfies the reimbursement
obligation described herein.
B. Alienability and Assignment Prohibition: The Participant shall have no
power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to seizure
for the payment of any debts, judgments, alimony or separate
maintenance owed by the Participant or the Participant's
beneficiary(ies), nor be transferable by operation of law in the event
of bankruptcy, insolvency or otherwise. In the event that the
Participant or any beneficiary attempts assignment, commutation,
hypothecation, transfer or disposal of the benefits hereunder, the
Company's liabilities shall forthwith cease and terminate.
-45-
C. Taxable Benefit: For so long as the Participant remains in Service,
and barring any adverse change in current tax law, the Participant
will incur no taxable consequence as a result of the benefit described
by this Agreement. If the Participant terminates Service, but is and
remains a member of the Board of Directors of the Company, then
annually the Insured will receive a taxable benefit equal to the
Premium times that percentage by which his/her reimbursement
obligation was reduced at the end of the year, as required by the
Internal Revenue Service. The Company (or its administrator) will
report to the Insured such imputed income on Form 1099 or its
equivalent.
D. Amendment or Revocation: This Plan may be amended or revoked at any
time, in whole or in part, by the mutual written consent of the
Participant and the Company.
E. Gender: Whenever in this Participant Plan words are used in the
masculine or neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so apply.
F. Fringe Benefit Effect on Other Company Benefit Plans: The long term
care benefits provided by this Agreement are granted by the Company as
a fringe benefit to the Participant and are not part of any fee
reduction plan or arrangement deferring fees or other compensation.
The Participant does not have a right to any form of compensation
instead of these long-term care benefits. Nothing contained in this
Participant Plan shall affect the right of the Participant to receive
any other benefit or compensation that constitutes a part of the
Company's existing or future benefit or compensation structure.
G. Headings: Headings and subheadings in this Agreement are for reference
and convenience only and shall not be deemed a part of this Agreement.
H. Applicable Law: The laws of the State of California shall govern the
validity and interpretation of this Agreement.
I. Partial Invalidity: If any term, provision, covenant, or condition of
this Agreement is determined by an arbitrator or a court, as the case
may be, to be invalid, void, or unenforceable, such determination
shall not render any other term, provision, covenant, or condition
invalid, void, or unenforceable, and the Agreement shall remain in
full force and effect notwithstanding such partial invalidity.
J. Continuation as Participant: Neither this Agreement nor the payments
of any benefits hereunder are to be construed as giving to the
Participant any right to be retained as a director or an employee of
the Company.
-46-
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read
this Agreement and executed the original thereof on the first date set forth
hereinabove, and that, upon execution, each has received a conforming copy.
PARTICIPANT
- --------------------------------
Name (print)
--------------------
Date of Execution:
--------------
TRI COUNTIES BANK
- --------------------------------
Rick Miller, SVP Human Resources
Date of Execution:
--------------
-47-
Exhibit 10.17
Form of Tri-Counties Bank Director Long Term Care Agreement effective June 10,
2003 between Tri Counties Bank and each of Don Amaral, William Casey, John
Hasbrook, Michael Koehnen, Donald Murphy, Carroll Taresh, and Alex Verischagin
TRI-COUNTIES BANK
DIRECTOR LONG TERM CARE AGREEMENT
THIS AGREEMENT, effective ___________ is made and entered into, by and between
Tri Counties Bank (collectively, the "Company"), and _______________________, a
Director of the Company (hereinafter, the "Participant").
WITNESSETH:
WHEREAS, it is the consensus of the Board of Directors (hereinafter, the
"Board") that the Participant's services to the Company are of exceptional merit
and constitute an invaluable contribution to the general welfare of the Company;
and
WHEREAS, it is in the best interests of the Company to encourage the
Participant's continued service to Company during the Participant's lifetime or
until the age of retirement; and
WHEREAS, it is the desire of the Company that the Participant's services be
retained as herein provided; and
WHEREAS, the Participant is willing to continue to serve the Company provided
the Company agrees to pay the Participant certain benefits in accordance with
the terms and conditions hereinafter set forth;
ACCORDINGLY, it is the desire of the Company and the Participant to enter into
this Agreement under which the Company will agree to make certain payments on
behalf of the Participant pursuant to this Agreement;
NOW, THEREFORE, in consideration of services performed in the past and to be
performed in the future as well as of the mutual promises and covenants herein
contained it is agreed as follows:
I. LONG TERM CARE BENEFIT
The Company hereby agrees:
A. To pay the initial single premium for the Long Term Care policy
described herein, on behalf of the Participant:
Insurer:
Policy Number:
B. That, subject to Paragraph IV, the sole ownership of said policy shall
reside with the Participant for the Participant's sole use and
benefit.
-48-
II. REIMBURSEMENT OBLIGATION UPON TERMINATION OF SERVICE
For purposes of this Agreement, the term service shall refer to service as
a Director of the Company and, except as follows, the phrase "years of
service" shall be measured in full years from the date of this Agreement to
the date of Participant's termination. If the Participant signs the
Agreement at any time during 2003, then 2003 shall be counted as a full
year of service. The following events of termination exempt the Director
from the reimbursement provisions of this Section III.
1. Termination for any reason following five years of service;
2. Death;
3. Disability;
4. Normal Retirement, as mandated by resolution of the Board of
Directors;
5. Termination for any reason following a Change of Control. For purpose
of this Agreement, the term Change of Control shall be as defined in
employment agreements with the Chief Executive Officer of the Company;
6. Termination resulting from non-reelection to the Board.
If the Participant's service terminates for any reason other than one of
those listed immediately above, the Participant shall reimburse the Company
the amount of premium expended by the Bank on the Participant's behalf for
Long Term Care Insurance, multiplied times the percentage set forth in the
schedule that follows:
Years of Service Amount
---------------- --------------------------
One Year 80% of the Single Premium
Two Years 60% of the Single Premium
Three Years 40% of the Single Premium
Four Years 20% of the Single Premium
Five Years No Obligation to Reimburse
The reimbursement amount shall be due and payable within thirty (30) days
from the date of termination of service. To facilitate prompt
reimbursement, the Company may off-set against any amounts it owes to a
terminated Director.
III. MISCELLANEOUS
A. Termination: This Agreement shall terminate on the later of the
following dates:
- The date of Director's termination or
- The date on which the Director satisfies the reimbursement
obligation described herein.
B. Alienability and Assignment Prohibition: The Participant shall have no
power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to seizure
for the payment of any debts, judgments, alimony or separate
maintenance owed by the Participant or the Participant's beneficiary
(ies), nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event that the Participant
or any beneficiary attempts assignment, commutation, hypothecation,
transfer or disposal of the benefits hereunder, the Company's
liabilities shall forthwith cease and terminate.
-49-
C. Taxable Benefit: Annually the Insured will receive a taxable benefit
equal to the Premium times that percentage by which his/her
reimbursement obligation was reduced at the end of the year, as
required by the Internal Revenue Service. The Company (or its
administrator) will report to the Insured such imputed income on Form
1099 or its equivalent.
D. Amendment or Revocation: This Plan may be amended or revoked at any
time, in whole or in part, by the mutual written consent of the
Participant and the Company.
E. Gender: Whenever in this Participant Plan words are used in the
masculine or neuter gender, they shall be read and construed as in the
masculine, feminine or neuter gender, whenever they should so apply.
F. Fringe Benefit Effect on Other Company Benefit Plans: The long term
care benefits provided by this Agreement are granted by the Company as
a fringe benefit to the Participant and are not part of any fee
reduction plan or arrangement deferring fees or other compensation.
The Participant does not have a right to any form of compensation
instead of these long-term care benefits. Nothing contained in this
Participant Plan shall affect the right of the Participant to receive
any other benefit or compensation that constitutes a part of the
Company's existing or future benefit or compensation structure.
G. Headings: Headings and subheadings in this Agreement are for reference
and convenience only and shall not be deemed a part of this Agreement.
H. Applicable Law: The laws of the State of California shall govern the
validity and interpretation of this Agreement.
I. Partial Invalidity: If any term, provision, covenant, or condition of
this Agreement is determined by an arbitrator or a court, as the case
may be, to be invalid, void, or unenforceable, such determination
shall not render any other term, provision, covenant, or condition
invalid, void, or unenforceable, and the Agreement shall remain in
full force and effect notwithstanding such partial invalidity.
J. Continuation as Participant: Neither this Agreement nor the payments
of any benefits hereunder are to be construed as giving to the
Participant any right to be retained as a director or an employee of
the Company.
-50-
IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read
this Agreement and executed the original thereof on the first date set forth
hereinabove, and that, upon execution, each has received a conforming copy.
PARTICIPANT
- --------------------------------
Name (print)
--------------------
Date of Execution:
--------------
TRI COUNTIES BANK
- --------------------------------
Rick Miller, SVP Human Resources
Date of Execution:
--------------
-51-
Exhibit 11.1
TRICO BANCSHARES
Computation of Earnings Per Share on Common and Common Equivalent Shares and on
Common Shares Assuming Full Dilution
For the For the
three months nine months
ended September 30, ended September 30,
(In thousands, except per share data) 2003 2002 2003 2002
-------------------------------------------
Weighted average number of common
shares outstanding - basic 7,850 7,026 7,572 7,010
Add exercise of options reduced by
the number of shares that could
have been purchased with the
proceeds of such exercise 245 205 217 178
-------------------------------------------
Weighted average number of common
shares outstanding - diluted 8,095 7,231 7,789 7,188
===========================================
Net income $4,338 $3,627 $12,205 $10,320
Basic earnings per share $0.55 $0.52 $1.61 $1.47
Diluted earnings per share $0.54 $0.50 $1.57 $1.44
-52-
Exhibit 31.1
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as Amended
I, Richard P. Smith, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have;
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors:
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 12, 2003 /s/ Richard P. Smith
-------------------------------------
Richard P. Smith
President and Chief Executive Officer
-53-
Exhibit 31.2
Certification Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange
Act of 1934, as Amended
I, Thomas J. Reddish, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and we have;
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this quarterly report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluations; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors:
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 12, 2003 /s/ Thomas J. Reddish
-------------------------------------
Thomas J. Reddish
Vice President and Chief Financial
Officer
-54-
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350.
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ending September 30, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Richard P. Smith,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Richard P. Smith
-------------------------------------
Richard P. Smith
President and Chief Executive Officer
A signed original of this written statement required by Section 906
has been provided to TriCo Bancshares and will be retained by TriCo
Bancshares and furnished to the Securities and Exchange Commission or
its staff upon request.
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350.
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ending September 30, 2003 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Thomas J. Reddish,
Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Thomas J. Reddish
--------------------------------------
Thomas J. Reddish
Vice President and Chief Financial
Officer
-55-
A signed original of this written statement required by Section 906 has been
provided to TriCo Bancshares and will be retained by TriCo Bancshares and
furnished to the Securities and Exchange Commission or its staff upon request.