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, 1995 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.) 15 INDEPENDENCE CIRCLE, CHICO, CALIFORNIA 95973 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 916/898-0300 ------------ - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of Class: Common stock, no par value Outstanding shares as of November 10, 1995: 4,459,445 TRICO BANCSHARES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) SEPTEMBER 30, DECEMBER 31, 1995 1994 Assets: Cash and due from banks $ 26,794 $ 39,709 Securities held-to-maturity (approximate fair value $130,004 and $131,649) 132,594 143,788 Securities available-for-sale, net of unrealized (loss) of $(921) and $(5,343) 69,337 74,706 Loans, net of allowance for loan losses of $(5,658) and $(5,608) 314,226 301,742 Premises and equipment, net 13,036 13,198 Investment in real estate properties 1,173 1,173 Other real estate owned 1,091 1,877 Accrued interest receivable 4,413 4,748 Other assets 12,657 12,893 -------------------- -------------------- Total assets $ 575,321 $ 593,834 -------------------- -------------------- -------------------- -------------------- Liabilities: Deposits Noninterest-bearing demand $ 74,018 $ 88,957 Interest-bearing demand 79,273 80,657 Savings 159,198 190,800 Time certificates 170,523 130,758 -------------------- -------------------- Total deposits 483,012 491,172 Fed funds purchased 7,700 0 Repurchase agreements 9,828 30,457 Accrued interest payable and other liabilities 6,865 5,475 Long term borrowings 16,466 18,499 -------------------- -------------------- Total liabilities 523,871 545,603 Shareholders' equity: Preferred stock 0 3,899 Common stock 44,222 43,552 Retained earnings 8,319 4,488 Securities unrealized holdings (loss), net (1,091) (3,708) -------------------- -------------------- Total shareholders' equity 51,450 48,231 -------------------- -------------------- Total liabilities and shareholders' equity $ 575,321 $ 593,834 -------------------- -------------------- -------------------- -------------------- 2 TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands except earnings per common share) FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, 1995 1994 1995 1994 ---- ---- ---- ---- Interest income: Interest and fees on loans $ 8,724 $ 7,854 $ 25,005 $ 22,363 Interest on investment securities-taxable 2,857 3,127 8,962 9,106 Interest on investment securities-tax exempt 38 58 125 181 Interest on federal funds sold 10 25 140 116 ------------ ------------ ------------ ------------ Total interest income 11,629 11,064 34,232 31,766 ------------ ------------ ------------ ------------ Interest expense: Interest on deposits 4,127 3,516 11,988 10,355 Interest on federal funds purchased 49 53 106 114 Interest on other borrowings 353 477 1,249 1,040 ------------ ------------ ------------ ------------ Total interest expense 4,529 4,046 13,343 11,509 ------------ ------------ ------------ ------------ Net interest income 7,100 7,018 20,889 20,257 Provision for loan losses 160 200 235 230 ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 6,940 6,818 20,654 20,027 Noninterest income: Service charges and fees 1,067 924 3,103 2,646 Other income 375 318 1,419 1,142 Securities gains (losses), net 0 15 (10) (24) ------------ ------------ ------------ ------------ Total noninterest income 1,442 1,257 4,512 3,764 ------------ ------------ ------------ ------------ Noninterest expenses: Salaries and related expenses 2,652 2,682 8,186 7,960 Other, net 2,600 3,001 8,093 8,673 ------------ ------------ ------------ ------------ Total noninterest expenses 5,252 5,683 16,279 16,633 ------------ ------------ ------------ ------------ Net income before income taxes 3,130 2,392 8,887 7,158 Income taxes 1,286 1,158 3,649 3,109 ------------ ------------ ------------ ------------ Net income 1,844 1,234 5,238 4,049 Preferred stock dividends 35 105 245 315 ------------ ------------ ------------ ------------ Net income available to common shareholders 1,809 1,129 4,993 3,734 ------------ ------------ ------------ ------------ Primary earnings per common share $ 0.39 $ 0.24 $ 1.08 $ 0.80 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ Fully diluted earnings per common share $ 0.38 $ 0.24 $ 1.06 $ 0.80 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 3 TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) (in thousands, except number of shares) PREFERRED STOCK COMMON STOCK UNREALIZED SECURITIES NUMBER NUMBER RETAINED HOLDING OF SHARES AMOUNT OF SHARES AMOUNT EARNINGS GAIN (LOSS) TOTAL Balance, January 1, 1995 8,000 $ 3,899 4,392,134 $ 43,552 $ 4,488 $ (3,708) $ 48,231 Preferred stock redemption (8,000) (3,899) 0 0 (101) 0 (4,000) Exercise of common stock options 0 0 67,311 513 0 0 513 Preferred stock cash dividends 0 0 0 0 (245) 0 (245) Common stock cash dividends 0 0 0 0 (1,061) 0 (1,061) Change in securities unrealized holding gain (loss) 0 0 0 0 0 2,617 2,617 Stock option amortization 0 0 0 157 0 0 157 Net income, September 30, 1995 0 0 0 0 5,238 0 5,238 --------- --------- --------- --------- -------- --------- --------- Balance, September 30, 1995 0 $ 0 4,459,445 $ 44,222 $ 8,319 $ (1,091) $ 51,450 --------- --------- --------- --------- -------- --------- --------- --------- --------- --------- --------- -------- --------- --------- 4 TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 ---- ---- Operating activities: Net income $ 5,238 $ 4,049 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 235 230 Provision for losses on OREO 35 12 Depreciation and amortization 1,202 1,016 Amortization of investment security discounts 89 154 Deferred income taxes (112) 155 Investment security (gains) losses (net) 10 24 (Gain) loss on sale of other real estate owned (73) 10 (Gain) loss on sale of loans (23) - Proceeds from loan sales 5,819 12,427 Origination of loans held for sale (6,794) (5,851) Amortization of stock options 157 249 (Increase) decrease in interest receivable 335 (715) Increase (decrease) in interest payable 959 79 (Increase) decrease in other assets and liabilities (1,346) (1,913) -------- ------- Net cash provided by operating activities 5,731 9,926 -------- ------- Investing activities: Proceeds from maturities of securities held-to-maturity 11,191 12,642 Purchases of securities held-to-maturity - (22,439) Proceeds from maturities of securities available-for-sale 8,554 19,931 Proceeds from sales of securities available-for-sale 6,993 36,861 Purchases of securities available-for-sale (5,720) (73,945) Net (increase) decrease in loans (12,077) (15,139) Purchases of premises and equipment (852) (1,821) Proceeds from sale of other real estate owned 1,180 2,036 Purchases and additions to real estate properties - (1) -------- ------- Net cash provided (used) by investing activities 9,269 (41,875) ---------- ------- (continued) 5 TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) (continued) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 ---- ---- Financing activities: Net increase (decrease) in deposits (8,160) (17,647) Net increase in federal funds purchased 7,700 - Borrowings under repurchase agreements - 25,500 Repayment of repurchase agreements (20,629) - Borrowings under long-term debt agreements - 11,389 Payments of principal on long-term debt agreements (2,033) (22) Redemption of preferred stock (4,000) - Cash dividends - Preferred (245) (315) Cash dividends - Common (1,061) (954) Exercise of common stock options 513 342 ---------- --------- Net cash provided (used) by financing activities (27,915) 18,293 ---------- --------- Increase (decrease) in cash and cash equivalents (12,915) (13,656) Cash and cash equivalents at beginning of year 39,709 42,922 ---------- ---------- Cash and cash equivalents at end of period $ 26,794 $ 29,266 ---------- ---------- ---------- ---------- Supplemental information: Cash paid for taxes $ 3,540 $ 2,841 Cash paid for interest expense $ 12,384 $ 11,430 6 Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in Management's opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for such interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules or regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the nine months ended September 30, 1995 and 1994, are not necessarily indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company's Annual Report for the year ended December 31, 1994. Certain reclassifications have been made to the prior year's financial statements in order to conform with the classifications of the September 30, 1995 financial statements. NOTE B - IMPAIRED LOANS AND TROUBLED DEBT RESTRUCTURINGS As of January 1, 1995, the Company adopted the FASB Statement of Financial Accounting Standards No 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, (SFAS 114) and SFAS 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURES. SFAS 114 requires that certain impaired loans be 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. The Company had previously measured the allowance for loan losses using methods similar to those prescribed in SFAS 114. As a result of adopting these statements, no additional allowance for loan losses was required as of January 1, 1995. 7 As of September 30, 1995, the Company's recorded investment in impaired loans and the related valuation allowance calculated under SFAS 114 are as follows: Recorded Valuation Investment Allowance ---------- --------- (in thousands) Impaired Loans - Valuation allowance required $ 391 $ 234 No valuation allowance required 3,732 - ----------- ----------- Total impaired loans $ 4,123 $ 234 ----------- ----------- ----------- ----------- The valuation allowance related to impaired loans under SFAS 114 is included in the allowance for loan losses on the consolidated balance sheet at September 30, 1995. The average recorded investment in impaired loans for the nine months ended September 30, 1995 was $3,077,000. Interest payments received on impaired loans are recorded as interest income unless collection of the remaining recorded investment is doubtful at which time payments received are recorded as reductions of principal. The Company recognized interest income on impaired loans of $170,000 for the nine months ended September 30, 1995. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As TriCo Bancshares (the "Company" ) has not commenced any business operations independent of Tri Counties Bank (the "Bank"), the following discussion pertains primarily to the Bank. Average balances, including such balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company. Unless otherwise stated, interest income and net interest income are presented on a tax equivalent basis. OVERVIEW The Company earned $1,844,000 for the third quarter ended September 30, 1995 versus $1,234,000 in 1994. Fully diluted earnings per share for the third quarter periods were $0.38 and $0.24, respectively. Earnings for the nine months ended September 30, 1995 were $5,238,000 versus year ago results of $4,049,000. The fully diluted earnings per share were $1.06 and $.80 for the respective nine month periods. The earnings per share results have been adjusted for a five for four (5/4) stock split effected as a stock dividend in September 1995. Operating results of the Bank for the third quarter improved on a year over year basis as well as compared to second quarter 1995 results. Net income before taxes increased $738,000 or 30.9% in the third quarter of 1995 versus 1994 and $137,000 or 4.6% versus the prior quarter. Net interest income, noninterest income and noninterest expenses all had favorable changes from the year ago third quarter. Net interest income increased $82,000 or 1.2% due to higher average rates received on earning assets and lower average balances on interest bearing liabilities. These increases in net interest income were partially offset by lower average balances on earning assets and higher rates on interest bearing liabilities. Net interest margin for the third quarter of 1995 was 5.49% versus 5.24% in 1994. Noninterest income increased $185,000 or 14.7%. Service charges and fee revenues accounted for most of the increase. Noninterest expenses decreased $431,000 or 7.6%. Of this amount, approximately $216,000 was attributable to the reduction in the FDIC deposit insurance premiums. The third quarter of 1994 contained one time merger costs of approximately $512,000. These reductions were offset in part by increases in premise and equipment related expenses and other expenses. Assets of the Company totaled $575,321,000 at September 30, 1995 which was an increase of $10,603,000 from the 1995 second quarter ending balances. All of this increase was reflected in loans as those balances increased $11,185,000 during the quarter. However, total assets were $19,989,000 lower from year ago balances. Management has generally allowed the investment portfolio to decrease as securities mature or principal payments on mortgage backed securities take place. As a result the securities portfolio decreased about $23,186,000 from year ago balances. Loan 9 balances increased $6.2 million from the prior year third quarter. These two items account for most of the changes in assets. Decreases in deposit liabilities of $15,340,000 and reverse repurchase agreements of $15,672,000 and a $7,700,000 increase in Federal Funds Purchased from year ago levels mostly offset the changes in the assets. At September 30, 1995, the year to date annualized ROA was 1.21% and the ROE was 13.9%. For the same period in 1994 these ratios were .92% and 11.4% respectively. At the end of the third quarter of 1995, TriCo Bancshares had a leverage ratio of 9.1% based on ending assets, a Tier 1 capital ratio of 13.5% and a total risk-based capital ratio of 14.7%. These compared to 8.4%, 13.0% and 14.3% in 1994. The following tables provide a summary of the major elements of income and expense for the third quarter of 1995 compared with the third quarter of 1994 and for the first nine months of 1995 compared with the first nine months of 1994. 10 TRICO BANCSHARES CONDENSED COMPARATIVE INCOME STATEMENT (in thousands, except earnings per common share) Three months ended September 30, Percentage 1995 1994 Change ---- ---- increase (in thousands, except (decrease) earnings per share) Interest income $ 11,658 $ 11,109 4.9% Interest expense 4,529 4,046 11.9% -------- -------- Net interest income 7,129 7,063 0.9% Provision for loan losses 160 200 -20.0% -------- -------- Net interest income after 6,969 6,863 1.5% provision for loan losses Noninterest income 1,442 1,257 14.7% Noninterest expenses 5,252 5,683 -7.6% -------- -------- Net income before income taxes 3,159 2,437 29.6% Income taxes 1,286 1,158 11.1% Tax equivalent adjustment(1) 29 45 -36.7% -------- -------- Net income 1,844 1,234 49.4% -------- -------- -------- -------- Preferred stock dividends (35) (105) -66.7% Net income available to 1,809 1,129 60.2% common shareholders' Primary earnings per common share 0.39 0.24 62.5% (1) Interest on tax-free securities is reported on a tax equivalent basis of 1.75 and 1.77 for September 30, 1995 and 1994 respectively. 11 TRICO BANCSHARES CONDENSED COMPARATIVE INCOME STATEMENT (in thousands, except earnings per common share) Nine months ended September 30, 1995 1994 Percentage ---- ---- Change (in thousands, except increase earnings per share) (decrease) Interest income $ 34,326 $ 31,906 7.6% Interest expense 13,343 11,509 15.9% -------- -------- Net interest income 20,983 20,397 2.9% Provision for loan losses 235 230 2.2% Net interest income after 20,748 20,167 2.9% provision for loan losses Noninterest income 4,512 3,764 19.9% Noninterest expenses 16,279 16,633 -2.1% -------- -------- Net income before income taxes 8,981 7,298 23.1% Income taxes 3,649 3,109 17.4% Tax equivalent adjustment(1) 94 140 -33.0% -------- -------- Net income 5,238 4,049 29.4% -------- -------- -------- -------- Preferred stock dividends (245) (315) -22.2% Net income available to 4,993 3,734 33.7% common shareholders' Primary earnings per common share 1.08 0.80 35.0% (1) Interest on tax-free securities is reported on a tax equivalent basis of 1.75 and 1.77 for September 30, 1995 and 1994 respectively. 12 NET INTEREST INCOME / NET INTEREST MARGIN Net interest income represents the excess of interest and fees earned on interest-earning assets (loans, securities and Federal Funds sold) over the interest paid on deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. Net interest income comprises the major portion of the Bank's income. In the quarter ended September 30, 1995, interest income increased $549,000 or 4.9 percent over the same period in 1994. Higher rates received on loans and a small increase in average loan balances were the factors contributing to the interest income increase. Average rates received on loans were 103 basis points or 10.2% higher and reflected the 1994 and early 1995 increases in prime rate. Average loan balances were $2,490,000 (.8%) higher. These two items provided an increase of $870,000 in interest income. The interest income increase for loans was offset in part by a decrease of $297,000 in interest income from investment securities. For the third quarter of 1995, the average balance of investment securities was $20,766,000 or 9.2% lower than for the same period of 1994. This reduction in investment securities was basically the result of maturities and paydowns received on the portfolio. For the third quarter of 1995, interest expense increased by $483,000 or 11.9% over the year earlier period. Interest paid on time deposits increased $1,001,000 or 72.1%. Because of the rate increases precipitated by the Federal Reserve Bank, average rates paid on time deposits increased from 4.92% in 1994 to 5.75% in 1995. This accounted for an increase in interest expense of $600,000. As the rates paid on time deposits increased deposits shifted from savings accounts into the time certificates. Increases in the time deposit balances resulted in additional interest expense of $401,000. This was offset in part by a $401,000 (24.9%) decrease in interest paid on savings accounts due to the lower average balances. All other categories of interest bearing liabilities had lower average balances from the third quarter in 1994. The combined effect of the increase in both interest income and interest expense for the third quarter of 1995 versus 1994 resulted in a slight increase of $66,000 in net interest income. Net interest margin increased 25 basis points from 5.24% to 5.49%. For the nine month period ending September 30, 1995, interest income increased $2,420,000 or 7.6% over 1994. Essentially all of the increase was the result of higher rates earned on all categories of interest earning assets. The average rate. received on earning assets increased 78 basis points or 9.8%. Additional interest 13 earned on a 1.4% increase in loan volume was offset by reduced interest income on a 5.2% decrease in balances of investment securities. Interest expense for the nine month period increased $1,834,000 over the 1994 amount. This 15.9% increase was mostly due to rate and volume increases in time deposits as interest paid on those instruments increased $2,701,000 or 69.4%. The major offsetting item to this increase was a $1,010 (20.6%) decrease in interest paid on savings accounts due to lower average balances. The higher rates paid on time deposits caused customers to move funds from savings accounts. Overall rates paid on interest-bearing liabilities in the first nine months of 1995 increased 67 basis points to 4.03% from the same period in 1994. The combined effect of the increase in both interest income and interest expense for the first nine months of 1995 versus 1994 resulted in an increase of $586,000 in net interest income. Net interest margin increased 25 basis points from 5.10% to 5.35%. The following four tables provide summaries of the components of the interest income, interest expense and net interest margins on earning assets for the quarter and nine month periods ended September 30, 1995 versus the same periods in 1994. 14 TRICO BANCSHARES ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (in thousands) Three Months Ended ------------------ 30-Sep-95 30-Sep-94 --------- --------- Average Income/ Yield/ Average Income/ Yield/ Balance(1) Expense Rate Balance(1) Expense Rate Assets Earning assets Loans(2)(3) $ 313,858 $ 8,724 11.12% $ 311,368 $ 7,854 10.09% Securities(4) 204,748 2,924 5.71% 225,514 3,230 5.73% Federal funds sold 721 10 5.55% 2,639 25 3.79% --------- ------- -------- ------- Total earning assets 519,327 11,658 8.98% 539,521 11,109 8.24% ------- ------- Cash and due from bank 26,552 31,936 Premises and equipment 13,170 13,747 Other assets,net 17,018 18,791 Less: allowance for loan losses (5,633) (5,826) --------- --------- Total $ 570,434 $ 598,169 --------- --------- --------- --------- Liabilities and shareholders' equity Interest-bearing Demand deposits $ 80,546 501 2.49% $ 81,058 518 2.56% Savings deposits 157,844 1,236 3.13% 210,174 1,609 3.06% Time deposits 168,434 2,390 5.68% 130,687 1,389 4.25% Federal funds purchased 3,410 49 5.75% 4,309 53 4.92% Short-term debt 8,137 116 5.70% 19,510 248 5.08% Long-term debt 16,469 237 5.76% 18,517 229 4.95% -------- ----- --------- ----- Total interest-bearing liabilities 434,840 4,529 4.17% 464,255 4,046 3.49% ----- ----- Noninterest-bearing deposits 76,457 79,963 Other liabilities 9,630 6,227 Shareholders' equity 49,507 47,724 -------- --------- Total liabilities and shareholders' equity $ 570,434 $ 598,169 -------- --------- -------- --------- Net interest rate spread(5) 4.81% 4.75% ----- Net interest income/net $ 7,129 $ 7,063 ------- ------- ------- ------- interest margin(6) 5.49% 5.24% ------- ------- ------- ------- (1) Average balances are computed principally on the basis of daily balances. (2) Nonaccrual loans are included. (3) Interest income on loans includes fees on loans of $395,000 in 1995 and $565,000 in 1994. (4) Interest income is stated on a tax equivalent basis of 1.75 and 1.77 at September 30, 1995 and 1994. (5) Net interest rate spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (6) Net interest margin is computed by dividing net interest income by total average earning assets. 15 TRICO BANCSHARES ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (in thousands) Nine Months Ended ----------------- 30-Sep-95 30-Sep-94 --------- --------- Average Income/ Yield/ Average Income/ Yield/ Balance(1) Expense Rate Balance(1) Expense Rate Assets Earning assets Loans(2)(3) $ 305,118 $ 25,005 10.93% $ 300,800 $ 22,363 9.91% Securities(4) 214,313 9,181 5.71% 227,341 9,427 5.53% Federal funds sold 3,327 140 5.61% 4,781 116 3.24% --------- --------- --------- ------- Total earning assets $ 522,758 34,326 8.76% 532,922 31,906 7.98% --------- ------- Cash and due from bank 28,513 32,060 Premises and equipment 13,247 13,084 Other assets,net 15,968 17,764 Less: allowance for loan losses (5,634) (5,919) --------- --------- Total $ 574,852 $ 589,911 --------- --------- --------- --------- Liabilities and shareholders' equity Interest-bearing Demand deposits $ 80,547 1,485 2.46% $ 83,659 1,555 2.48% Savings deposits 168,708 3,912 3.09% 212,419 4,910 3.08% Time deposits 161,045 6,591 5.46% 129,155 3,890 4.02% Federal funds purchased 2,349 106 6.02% 3,549 114 4.28% Short-term debt 11,647 522 5.98% 12,639 457 4.82% Long-term debt 17,070 727 5.68% 15,516 583 5.01% --------- --------- --------- ------- Total interest-bearing liabilities 441,366 13,343 4.03% 456,937 11,509 3.36% --------- ------- Noninterest-bearing deposits 75,030 79,783 Other liabilities 8,311 5,924 Shareholders' equity 50,145 47,267 --------- --------- Total liabilities and shareholders' equity $ 574,852 $ 589,911 --------- --------- --------- --------- Net interest rate spread(5) 4.72% 4.62% ---- ---- Net interest income/net $ 20,983 $20,397 -------- ------- -------- ------- interest margin(6) 5.35% 5.10% -------- ------- -------- ------- (1) Average balances are computed principally on the basis of daily balances. (2) Nonaccrual loans are included. (3) Interest income on loans includes fees on loans of $1,205,000 in 1995 and $1,536,000 in 1994. (4) Interest income is stated on a tax equivalent basis of 1.75 and 1.77 at September 30, 1995 and 1994. (5) Net interest rate spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. (6) Net interest margin is computed by dividing net interest income by total average earning assets. 16 TRICO BANCSHARES ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE (in thousands) For the three months ended September 30 --------------------------------------- 1995 over 1994 -------------- Yield/ Volume Rate(4) Total --------- ---------- --------- Increase (decrease) in interest income: Loans(1)(2) $ 63 $ 807 $ 870 Investment securities(3) (297) (10) (307) Federal funds sold (18) 3 (15) --------- ---------- --------- Total (252) 801 549 --------- ---------- --------- Increase (decrease) in interest expense: Demand deposits (interest-bearing) (3) (14) (17) Savings deposits (401) 28 (373) Time deposits 401 600 1,001 Federal funds purchased (11) 7 (4) Short-term debt (145) 13 (132) Long-term debt (25) 33 8 --------- ---------- --------- Total (184) 667 483 --------- ---------- --------- Increase (decrease) in net interest income $ (68) $ 134 $ 66 --------- ---------- --------- --------- ---------- --------- (1) Nonaccrual loans are included. (2) Interest income on loans includes fee income on loans of $395,000 in 1995 and $565,000 in 1994. (3) Interest income is stated on a tax equivalent basis of 1.75 and 1.77 for September 30, 1995 and 1994. (4) The rate/volume variance has been included in the rate variance. 17 TRICO BANCSHARES ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE (in thousands) For the nine months ended September 30 -------------------------------------- 1995 over 1994 -------------- Yield/ Volume Rate(4) Total --------- ---------- --------- Increase (decrease) in interest income: Loans(1)(2) $ 321 $ 2,321 $ 2,642 Investment securities(3) (540) 294 (246) Federal funds sold (35) 59 24 --------- --------- --------- Total (254) 2,674 2,420 --------- --------- --------- --------- --------- --------- Increase (decrease) in interest expense: Demand deposits (interest-bearing) (58) (12) (70) Savings deposits (1,010) 12 (998) Time deposits 960 1,741 2,701 Federal funds purchased (39) 31 (8) Short-term debt (36) 101 65 Long-term debt 58 86 144 --------- --------- --------- Total (125) 1,959 1,834 --------- --------- --------- Increase (decrease) in net interest income $ (129) $ 715 $ 586 --------- --------- --------- --------- --------- --------- (1) Nonaccrual loans are included. (2) Interest income on loans includes fee income on loans of $1,205,000 in 1995 and $1,536,000 in 1994. (3) Interest income is stated on a tax equivalent basis of 1.75 and 1.77 for September 30, 1995 and 1994. (4) The rate/volume variance has been included in the rate variance. 18 PROVISION FOR LOAN LOSSES In the first nine months of 1995, the Bank provided $235,000 for loan losses versus $230,000 in 1994. The provision replenished the net loans charged off during the first nine months of 1995 and added $50,000 for growth in outstanding loan balances. The allowance for loan losses was 1.77% of outstanding loans versus 1.83% at December 31,1994. Management's ongoing analysis of the loan portfolio determined that the remaining balance of $5,658,000 in the allowance for loan losses is adequate to cover probable losses inherent in the loan portfolio. NONINTEREST INCOME Total noninterest income for the third quarter of 1995 increased $185,000 or 14.7% from the same period in 1994. Selective rate increases in service charges which took effect January 1, 1995 as well as increased volumes in some fee categories added approximately $130,000 to noninterest income. Commissions on the sale of annuities and mutual funds also contributed to the increase as they were up $104,000 or 62.9%. This revenue was offset in part by a $47,000 (80.9%) decline in sale of 1-4 family mortgages as origination's of these loans have been significantly down in 1995. No other individual items had significant changes. Results for the nine months were consistent with the third quarter. Overall, noninterest income increased $748,000 or 19.9% in 1995 versus 1994. Service charges and fee income accounted for $458,000 of the increase. This increase resulted from the same factors as detailed above. In the other income category non recurring income items increased $295,000 and commissions on the sale of annuities and mutual funds increased by $75,000 (11.2%) during the first nine months of 1995. These increases were offset in part by a $137,000 reduction in revenue from the sale of 1-4 family mortgage loans. Mortgage lending activity has been significantly lower during 1995. 19 NONINTEREST EXPENSE Noninterest expense is comprised of operating expenses of the Company and the Bank, plus the total noninterest (income) expenses (excluding gains or losses from securities) of the Bank's real estate development subsidiary. These expenses decreased $431,000 or 7.6% in the third quarter of 1995 versus the same period last year. For the quarter, salaries and benefits reflected a slight decrease from the prior year. This reduction was due in part to a reduction in staffing levels as average full time equivalent employees decreased 5.6 from the prior year. Also, one time merger payments of $178,000 were incurred in 1994. Other expenses decreased $401,000 or 13.4% in the third quarter . Two major factors contributed to the decrease. In 1994 merger costs totaling $512,000 were incurred and in 1995 the FDIC insurance premium rate was reduced resulting in a favorable change of $228,000 for the quarter. These savings were offset in part by net increases of $120,000 in premise and equipment expenses and $220,000 in other operating expenses. These increases were incurred in various expense categories with no significant changes in any one category. For the nine month period noninterest expenses decreased $354,000 or 2.1% in 1995 over 1994. Taking the 1994 one time merger costs of $916,000 into account results in a net increase in noninterest expenses of $562,000 or 3.6%. Salaries and related expenses were up $226,000 or 2.8% due to normal salary progressions and the full nine month effect of supermarket operations begun in 1994. Premise and equipment expenses were up $296,000 or 12.2% with much of the increase related to the supermarket branches. Decreases of $122,000 (31%) and $231,000 (27%) were realized in advertising and FDIC insurance expenses. Other categories of expenses had moderate increases or decreases. Management continually reviews these expenses and expense controls. With the addition of more supermarket branches the ongoing expenses will probably continue to show modest increases. PROVISION FOR INCOME TAXES The effective tax rate for the nine months ended September 30, 1995 is 41.1%. This rate approximates the combined California and Federal statutory rates. The actual rate equals the statutory rate as the Bank does not have significant holdings of tax exempt securities. The Bank does not anticipate increasing its holdings of tax-free securities in the near term. 20 LOANS In the third quarter of 1995, loan balances increased $11,185,000 or 3.6% from the ending balances at June 30, 1995. Loan balances were higher in all categories. The balances also exceeded year end balances by $12,530,000 and 1994 third quarter ending balances by $6,113,000. While the economy in the Bank's market area has remained relatively soft, the Bank has been aggressively marketing its loan products. Loan underwriting standards have been maintained, but pricing has been more competitive. Some of the growth in commercial loan balances has come from the normal advances on seasonal agricultural production credit lines. Management believes modest loan growth should continue through the fourth quarter. SECURITIES At September 30, 1995, securities held-to-maturity had a cost basis of $132,594,000 and a fair value of $130,004,000. This portfolio contained mortgage-backed securities totaling $89,026,000 of which $39,832,000 were CMO's. The securities available-for-sale portfolio had a fair market value of $69,337,000 with an amortized cost basis of $70,258,000. This portfolio contained mortgage-backed securities totaling $33,364,000 of which $26,006,000 were CMO's. At December 31, 1994 the fair value of the two portfolios was $17,482,000 or 7.8% less than amortized cost. Because of the declining long term interest rates during 1995, at September 30 the fair value of securities reflected an unrealized loss of $3,511,000 or 1.7% of amortized cost. If loan demand continues to improve, management intends to continue to move funds from maturing securities into loans. 21 NONPERFORMING LOANS As shown in the following table, total nonperforming assets have increased a modest $7,000 since year end. Nonperforming assets decreased $1,574,000 from the second quarter balance of $4,604,000. Most of that decrease took place in the nonaccrual loan category. Non performing assets represent only 0.53% of total assets. Nonaccrual loans increased while OREO decreased during this period. All nonaccrual loans are considered to be impaired when determining any valuation allowance under SFAS 114 (see (Note B). The Collections Department personnel continue to make a concerted effort to work problem and potential problem loans to reduce risk of loss. September 30, December 31, ------------- ----------- 1995 1994 ---- ---- Nonaccrual loans $ $ 1,919 $ 1,122 Accruing loans past due 90 days or more 20 24 Restructured loans (in compliance with modified terms) 0 0 ------------ ----------- Total nonperforming loans 1,939 1,146 Other real estate owned 1,091 1,877 ------------ ----------- Total nonperforming assets $ 3,030 $ 3,023 ------------ ----------- ------------ ----------- Nonincome producing investments in real estate held by Bank's real estate development subsidiary $ 1,173 $ 1,173 ------------ ----------- ------------ ----------- Nonperforming loans to total loans 0.61% 0.36% Allowance for loan losses to nonperforming loans 292% 489% Nonperforming assets to total assets 0.53% 0.51% Allowance for loan losses to nonperforming assets 187% 198% 22 ALLOWANCE FOR LOAN LOSSES The Bank maintains its allowance for loan losses at a level considered by Management to be adequate to cover the risk of loss in the loan portfolio at a particular point in time. This determination includes an evaluation and analysis of historical experience, current loan mix and volume, and projected economic conditions. The following table presents information concerning the allowance and provision for loan losses. September 30, December 31, ------------- ----------- 1995 1994 ---- ---- (in thousands) Balance, Beginning of period $ 5,608 $ 5,973 Provision charged to operations 235 230 Loan charged off (361) (575) Recoveries of loans previously charged off 176 260 Balance, end of period $ 5,658 $ 5,888 ------------ ------------ ------------ ------------ Ending loan portfolio $ 319,884 $ 313,771 ------------ ------------ ------------ ------------ Allowance to loans as a percentage of ending loan portfolio 1.77% 1.88% ------------ ------------ ------------ ------------ 23 EQUITY The following table indicates the amounts of regulatory capital of the Company. Tier I Total Risk- Leverage Based ---------- ---------- --------- (dollars in thousands) September 30, 1995 Company's % 13.5% 14.7% 9.1% Regulatory minimum % 4.0% 8.0% 4.0% Company's capital $ $ 52,541 $ 57,421 $ 52,541 Regulatory minimum $ 15,615 31,230 23,013 ---------- ---------- --------- Computed excess $ 36,926 $ 26,191 $ 29,528 ---------- ---------- --------- ---------- ---------- --------- 24 PART II OTHER INFORMATION Item 5. Exhibits Index Page -------------- ---- a. Exhibits -------- Computations of Earnings Per Share 27 b. Reports on Form 8-K: -------------------- None 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRICO BANCSHARES Date November 10, 1995 /s/Robert H. Steveson -------------------- -------------------------------------- Robert H. Steveson President and Chief Executive Officer Date November 10, 1995 /s/Robert M. Stanberry -------------------- -------------------------------------- Robert M. Stanberry Vice President and Chief Financial Officer 26