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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year Commission File Number 0-10661
ended December 31, 1995
TriCo Bancshares
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(Exact name of registrant as specified in its charter)
California 94-2792841
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 INDEPENDENCE CIRCLE, CHICO, CALIFORNIA 95973
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(916) 898-0300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
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(Title of Class)
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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 7, 1996, was approximately $59,106,000. This
computation excludes a total of 1,138,936 shares which are beneficially owned by
the officers and directors of Registrant who may be deemed to be the affiliates
of Registrant under applicable rules of the Securities and Exchange Commission.
The number of shares outstanding of Registrant's classes of common stock, as of
March 7, 1996, was 4,468,828 shares of Common Stock, without par value.
The following documents are incorporated herein by reference into the parts of
Form 10-K indicated: Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1995, for Item 7 and Registrant's Proxy Statement for
use in connection with its 1996 Annual Meeting of Shareholders for Part III.
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PART I
1. BUSINESS
FORMATION OF BANK HOLDING COMPANY
TriCo Bancshares (hereinafter the "Company" or "Registrant") was
incorporated under the laws of the State of California on October 13, 1981. It
was organized at the direction of the Board of Directors of Tri Counties Bank
(the "Bank") for the purpose of forming a bank holding company. On September 7,
1982, a wholly-owned subsidiary of the Company was merged with and into the Bank
resulting in the shareholders of the Bank becoming the shareholders of the
Company and the Bank becoming the wholly-owned subsidiary of the Company. (The
merger of the wholly-owned subsidiary of the Company with and into the Bank is
hereafter referred to as the "Reorganization.") At the time of the
Reorganization, the Company became a bank holding company subject to the
supervision of the Board of Governors of the Federal Reserve System (the
"Board") in accordance with the Bank Holding Company Act of 1956, as amended.
The Bank remains subject to the supervision of the California State Banking
Department and the Federal Deposit Insurance Corporation (the "FDIC"). The Bank
currently is the only subsidiary of the Company and the Company has not yet
commenced any business operations independent of the Bank.
PROVISION OF BANKING SERVICES
The Bank was incorporated as a California banking corporation on
June 26, 1974, and received its Certificate of Authority to begin banking
operations on March 11, 1975.
The Bank engages in the general commercial banking business in the
California counties of Butte, Glenn, Shasta, Siskiyou and Sutter as well as
portions of Tehama and Lassen counties. The Bank currently has 14 traditional
and six in-store branch offices. It opened its first banking office in Chico,
California in 1975, followed by branch offices in Willows, Durham and Orland,
California. The Bank opened its fifth banking office at an additional location
in Chico in 1980. On March 27, 1981, the Bank acquired the assets of Shasta
County Bank and thereby acquired six additional offices. These offices are
located in the communities of Bieber, Burney, Cottonwood, Fall River Mills, Palo
Cedro and Redding, California. On November 7, 1987, the Bank purchased the
deposits and premises of the Yreka Branch of Wells Fargo Bank, thereby acquiring
an additional branch office. On August 1, 1988, the Bank opened a new office in
Chico at East 20th Street and Forest Avenue. The Bank opened a branch office in
Yuba City on September 10, 1990. The Bank opened four supermarket branches in
1994. These supermarket branches were opened on March 7, March 28, June 6 and
June 13, 1994 in Red Bluff, Yuba City, and two in Redding respectively. The
Bank added one conventional branch in Redding through its acquisition of Country
National Bank on July 21, 1994. On November 7, 1995, the Bank opened a
supermarket branch in Chico.
GENERAL BANKING SERVICES. The Bank conducts a commercial banking business
including accepting demand, savings and time deposits and making commercial,
real estate, and consumer loans. It also offers installment note collection,
issues cashier's checks and money orders, sells travelers checks and provides
safe deposit boxes and other customary banking services. Brokerage services are
provided at the Bank's offices by the Bank's association with Investment Service
of America (ISFA) under the name INVEST. The Bank does not offer trust services
or international banking services.
The Bank's operating policy since its inception has emphasized retail
banking. Most of the Bank's customers are retail customers and small to medium-
sized businesses. The business of the Bank
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emphasizes serving the needs of local businesses, farmers and ranchers, retired
individuals and wage earners. The majority of the Bank's loans are direct loans
made to individuals and businesses in the area. At December 31, 1995, the total
of the Bank's consumer installment loans outstanding was $64,445,000 (20.2%),
the total of commercial loans outstanding was $152,173,000 (47.7%), and the
total of real estate loans was $102,148,000 (32.1%). The Bank takes real
estate, listed and unlisted securities, savings and time deposits, automobiles,
machinery, equipment, inventory, accounts receivable and notes receivable
secured by property as collateral for loans.
Most of the Bank's deposits are attracted from individuals and business-
related sources. No single person or group of persons provides a material
portion of the Bank's deposits, the loss of any one or more of which would have
a materially adverse effect on the business of the Bank, nor is a material
portion of the Bank's loans concentrated within a single industry or group of
related industries.
In order to attract loan and deposit business from individuals and small to
medium-sized businesses, branches of the Bank set lobby hours to accommodate
local demands. In general, lobby hours are from 10:00 a.m. to 5:00 p.m. Monday
through Thursday, and from 10:00 a.m. to 6:00 p.m. on Friday. However, some
branches open at 9 a.m. and certain branches with less activity close earlier.
Certain Bank offices also utilize drive-up facilities operating from 9:00 a.m.
to 7:00 p.m. The supermarket branches are be open from 10:00 a.m. to 7:00 p.m.
Monday through Saturday and 11:00 a.m. to 5:00 p.m. on Sunday.
The Bank offers 24 hour ATMs at all branch locations. The ATMs are linked
to several national and regional networks such as CIRRUS and STAR. In addition,
banking by telephone on a 24 hour toll-free number is available to all
customers. This service allows a customer to inquire for account balances and
most recent transactions, transfer moneys between accounts, make loan payments,
and obtain interest rate information.
OTHER ACTIVITIES. The Bank presently offers the banking services referred
to above and pursuant to California legislation, TCB Real Estate Corporation, a
wholly-owned subsidiary of the Bank, engages in limited real estate investment.
Such investment consists of holding certain real property for the purpose of
development or as income earning assets. The amount of the Bank's assets
committed to such investment does not exceed the total of the Bank's capital and
surplus. The adoption of regulations by either the FDIC or the Board could
restrict significantly, or prohibit entirely, the real estate activities of the
Bank.
The Bank may in the future engage in other businesses either directly or
indirectly through subsidiaries acquired or formed by the Bank subject to
regulatory constraints. See "Regulation, Supervision and Permitted Activities
of the Company."
EMPLOYEES. At December 31, 1995, the Company and the Bank employed 315
persons, including six executive officers. No employees of the Company or the
Bank are presently represented by a union or covered under a collective
bargaining agreement. Management believes that its employee relations are
excellent.
COMPETITION. The banking business in California generally, and in the
Bank's primary service area specifically, is highly competitive with respect to
both loans and deposits. It is dominated by a relatively small number of major
banks with many offices operating over a wide geographic area. Among the
advantages such major banks have over the Bank are their ability to finance wide
ranging advertising campaigns and to allocate their investment assets to regions
of high yield and demand. By virtue of their greater total capitalization such
institutions have substantially higher lending limits than
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does the Bank since legal lending limits to an individual customer are limited
to a percentage of a Bank's total capital accounts.
The Bank's primary service area, the eight California counties of Butte,
Glenn, Lassen, Shasta, Siskiyou, Sutter, Tehama and Yuba, is served by ten
independent commercial banks including the Bank and branches of seven state-wide
(or regional) banks. Of the approximately 144 branches or facilities of
commercial banks in the area, 20 offices are the Bank's offices. The Bank held
approximately 12.0% percent of the commercial banking deposits in its primary
service area at June 30, 1995.
In addition to competing with savings institutions, commercial banks
compete with other financial markets for funds. Yields on corporate and
government debt securities and other commercial paper affect the ability of
commercial banks to attract and hold deposits. Commercial banks also compete
for available funds with money market instruments. During past periods of high
interest rates, money market funds have provided substantial competition to
banks for deposits and they may continue to do so in the future.
The Bank relies substantially on local promotional activity, personal
contacts by its officers, directors, employees and shareholders, extended hours,
personalized service and its reputation in the communities it services to
compete effectively.
REGULATION AND SUPERVISION
As a registered bank holding company under the Bank Holding Company Act of
1956 (the "BHC Act"), TriCo is subject to the regulations and supervision of the
Board of Governors of the Federal Reserve System ("FRB"). The BHC Act requires
TriCo to file reports with the FRB and provide additional information requested
by the FRB. TriCo must receive the approval of the FRB before it may acquire
all or substantially all of the assets of any bank, or ownership or control of
the voting shares of any bank if, after giving effect to such acquisition of
shares, TriCo would own or control more than 5 percent of the voting shares of
such bank. The BHC Act also provides that no application for approval by a
holding company acquire any voting shares or interest in, or all or
substantially all of the assets of, a bank located outside the State of
California will be approved unless such acquisition is specifically authorized
by the laws of the state in which such bank is located.
TriCo and any subsidiaries it may acquire or organize will be deemed to be
affiliates of the Bank within the Federal Reserve Act. That Act establishes
certain restrictions which limit the extent to which the Bank can supply its
funds to TriCo and other affiliates. TriCo is also subject to restrictions on
the underwriting and the public sale and distribution of securities. It is
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit, sale or lease of property, or furnishing of services.
TriCo is prohibited from engaging in, or acquiring direct or indirect
control of any company engaged in non-banking activities, unless the FRB by
order or regulation has found such activities to be closely related to banking
or managing or controlling banks as to be a proper incident thereto.
Under California law, dividends and other distributions by TriCo are
subject to declaration by the Board of Directors at its discretion out of net
assets. Dividends cannot be declared and paid when such payment would make
TriCo insolvent.
FRB policy prohibits a bank holding company from declaring or paying a cash
dividend which would impose undue pressure on the capital of subsidiary banks or
would be funded only through
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borrowings or other arrangements that might adversely affect the holding
company's financial position. The policy further declares that a bank holding
company should not continue its existing rate of cash dividends on its common
stock unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality and overall financial condition. Other FRB policies forbid
the payment by bank subsidiaries to their parent companies of management fees
which are unreasonable in amount or exceed a fair market value of the services
rendered (or, if no market exists, actual costs plus a reasonable profit).
In addition, the FRB has authority to prohibit banks that it regulates from
engaging in practices which in the opinion of the FRB are unsafe or unsound.
Such practices may include the payment of dividends under some circumstances.
Moreover, the payment of dividends may be inconsistent with capital adequacy
guidelines. TriCo may be subject to assessment to restore the capital of the
Bank should it become impaired.
Federal Reserve Regulation "Y" (12 C.F.R. Part 225) sets forth those
activities which are regarded as closely related to banking or managing or
controlling banks and, thus, are permissible activities that may be engaged in
by bank holding companies subject to approval in individual cases by the FRB.
Litigation has challenged the validity of certain activities authorized by the
FRB for bank holding companies, and the FRB has various regulations and
applications in this regard still under consideration.
TriCo is subject to the minimum capital requirements of the FRB. As a
result of these requirements, the growth in assets of TriCo is limited by the
amount of its capital accounts as defined by the FRB. Capital requirements may
have an affect on profitability and the payment of distributions by TriCo. If
TriCo is unable to increase its assets without violating the minimum capital
requirements, or is forced to reduce assets, its ability to generate earnings
would be reduced. Furthermore, earnings may need to be retained rather than
paid as distributions to shareholders.
The FRB has adopted guidelines utilizing a risk-based capital structure.
These guidelines apply on a consolidated basis to bank holding companies with
consolidated assets of $150 million or more. For bank holding companies with
less than $150 million in consolidated assets, the guidelines apply on a bank-
only basis unless the holding company is engaged in non-bank activity involving
significant leverage or has a significant amount of outstanding debt that is
held by the general public. TriCo currently has consolidated assets of more
than $150 million; accordingly, the risk-based capital guidelines apply to
TriCo.
Qualifying capital is divided into two tiers. Tier 1 capital consists
generally of common stockholder's equity, qualifying noncumulative perpetual
preferred stock, qualifying cumulative perpetual preferred stock (up to 25
percent of total Tier 1 capital) and minority interests in the equity accounts
of consolidated subsidiaries less goodwill and certain other intangible assets.
Tier 2 capital consists of, among other things, allowance for loan and lease
losses up to 1.25 percent of weighted risk assets, perpetual preferred stock,
hybrid capital instruments, perpetual debt, mandatory convertible debt
securities, subordinated debt and intermediate-term preferred stock. Tier 2
capital qualifies as part of total capital up to a maximum of 100 percent of
Tier 1 capital. Amounts in excess of these limits may be issued but are not
included in the calculation of risk-based capital ratios. As of December 31,
1995 TriCo must have a minimum ratio of qualifying total capital to weighted
risk assets of 8 percent, of which at least 4 percent must be in the form of
Tier 1 capital.
The Federal regulatory agencies have adopted a minimum Tier 1 leverage
ratio which is intended to supplement risk-based capital requirements and to
ensure that all financial institutions, even those that
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invest predominantly in low-risk assets, continue to maintain a minimum level of
Tier 1 capital. These regulations provide that a banking organization's minimum
Tier 1 leverage ratio be determined by dividing its Tier 1 capital by its
quarterly average total assets, less goodwill and certain other intangible
assets. Under the current rules, TriCo is required to maintain a minimum Tier 1
leverage ratio of 4 percent. At December 31, 1995, TriCo's Tier 1 leverage
ratio was 8.9 percent.
INSURANCE OF DEPOSITS.
The Bank's deposit accounts are insured up to a maximum of $100,000 per
depositor by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC
issues regulations and generally supervises the operations of its insured banks.
This supervision and regulation is intended primarily for the
protection of depositors.
Effective June 1, 1995, deposit insurance premiums decreased from $.23 per
$100.00 of deposits to $.04 per $100.00 of deposits. Effective January 1, 1996,
the insurance rate was reduced to $0.00 per $100.00. This rate will remain in
effect as long as the Bank Insurance Fund is capitalized at its legal limit. In
November 1990, federal legislation was passed which removed the cap on the
amount of deposit insurance premiums that can be charged by the FDIC. Under
this legislation, the FDIC is able to increase deposit insurance premiums as it
sees fit. This could result in a significant increase in the cost of doing
business for the Bank in the future. The FDIC now has authority to adjust
deposit insurance premiums paid by insured banks every six months.
RISK-BASED CAPITAL REQUIREMENTS.
The Bank is subject to the minimum capital requirements of the FDIC. As a
result of these requirements, the growth in assets of the Bank is limited by the
amount of its capital accounts as defined by the FRB. Capital requirements may
have an effect on profitability and the payment of dividends on the common stock
of the Bank. If the Bank is unable to increase its assets without violating the
minimum capital requirements or is forced to reduce assets, its ability to
generate earnings would be reduced. Further, earnings may need to be retained
rather than paid as dividends to TriCo.
Federal banking law requires the federal banking regulators to take "prompt
corrective action" with respect to banks that do not meet minimum capital
requirements. In response to this requirement, the FDIC adopted final rules
based upon the five capital tiers defined by the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA). The FDIC's rules provide that an
institution is "well-capitalized" if its risk-based capital ratio is 10 percent
or greater; its Tier 1 risk-based capital ratio is 6 percent or greater; its
leverage ratio is 5 percent or greater; and the institution is not subject to a
capital directive or an enforceable written agreement or order. A bank is
"adequately capitalized" if its risk-based capital ratio is 8 percent or
greater; its Tier 1 risk-based capital ratio is 4 percent or greater; and its
leverage ratio is 4 percent or greater (3 percent or greater for "one" rated
institutions). An institution is "significantly undercapitalized" if its risk-
based capital ratio is less than 6 percent; its Tier 1 risk-based capital
ratio is less than 3 percent; or its tangible equity (Tier 1 capital) to total
assets is equal to or less than 2 percent. An institution may be deemed to be
in a capitalization category that is lower than is indicated by its actual
capital position if it engages in unsafe or unsound banking practices.
No sanctions apply to institutions which are "well" or "adequately"
capitalized under the prompt corrective action requirements. Undercapitalized
institutions are required to submit a capital restoration plan for improving
capital. In order to be accepted, such plan must include a financial guaranty
from the institution's holding company that the institution will return to
capital compliance. If such a guarantee were deemed to be a commitment to
maintain capital under the federal Bankruptcy Code, a claim for a
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subsequent breach of the obligations under such guarantee in a bankruptcy
proceeding involving the holding company would be entitled to a priority over
third-party general unsecured creditors of the holding company.
Undercapitalized institutions are prohibited from making capital distributions
or paying management fees to controlling persons; may be subject to growth
limitations; and acquisitions, branching and entering into new lines of business
are restricted. Finally, the institution's regulatory agency has discretion to
impose certain of the restrictions generally applicable to significantly
undercapitalized institutions.
In the event an institution is deemed to be significantly undercapitalized,
it may be required to: sell stock; merge or be acquired; restrict transactions
with affiliates; restrict interest rates paid; divest a subsidiary; or dismiss
specified directors or officers. If the institution is a bank holding company,
it may be prohibited from making any capital distributions without prior
approval of the FRB and may be required to divest a subsidiary. A critically
undercapitalized institution is generally prohibited from making payments on
subordinated debt and may not, without the approval of the FDIC, enter into a
material transaction other than in the ordinary course of business; engage in
any covered transaction; or pay excessive compensation or bonuses. Critically
undercapitalized institutions are subject to appointment of a receiver or
conservator.
BANK REGULATION.
The federal regulatory agencies are required to adopt regulations which
will establish safety and soundness standards which will apply to banks and bank
holding companies. These standards must address bank operations, management,
asset quality, earnings, stock valuation and employee compensation. A bank
holding company or bank failing to meet established standards will face
mandatory regulatory enforcement action.
The grounds upon which a conservator or receiver of a bank can be appointed
have been expanded. For example, a conservator or receiver can be appointed for
a bank which fails to maintain minimum capital levels and has no reasonable
prospect of becoming adequately capitalized.
Federal law also requires, with some exception, that each bank have an
annual examination performed by its primary federal regulatory agency, and an
outside independent audit. The outside audit must consider bank regulatory
compliance in addition to financial statement reporting.
Federal law also restricts the acceptance of brokered deposits by insured
depository institutions and contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
RECENT LEGISLATION
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of TriCo and its subsidiaries are
particularly susceptible to being affected by enactment of federal and state
legislation which may have the effect of increasing or decreasing the cost of
doing business, modifying permissible activities or enhancing the competitive
position of other financial institutions.
In 1994 the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 was enacted by Congress. Under the act, beginning on September 29, 1995,
bank holding companies may acquire banks in any state, notwithstanding contrary
state law, and all banks commonly owned by a bank holding company may act as
agents for one another. An agent bank may receive deposits, renew time
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deposits, accept payments, and close and service loans for its principal banks
but will not be considered to be a branch of the principal banks.
In response to the Riegle-Neal Act, California enacted the California
Interstate Banking and Branching Act of 1995. This act became effective
September 29, 1995. Under this act, an out-of-state bank can only enter into
interstate branch banking within California by acquiring an existing bank
operating within California. The California bank must have been in existence
for five years at the time of acquisition.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS
The principal sources of funds essential to the business of banks and bank
holding companies are deposits, stockholder's equity and borrowed funds. The
availability of these various sources of funds and other potential sources, such
as preferred stock or commercial paper, and the extent to which they are
utilized, depends on many factors, the most important of which are the FRB's
monetary policies and the relative costs of different types of funds. An
important function of the FRB is to regulate the national supply of bank credit
in order to combat recession and curb inflationary pressure. Among the
instruments of monetary policy used by the Federal Reserve Board to implement
these objections are open market operations in United States Government
securities, changes in the discount rate on bank borrowings, and changes in
reserve requirements against bank deposits. The monetary policies of the FRB
have had a significant effect on the operating results of commercial banks in
the past and are expected to continue to do so in the future. In view of the
recent changes in regulations affecting commercial banks and other actions and
proposed actions by the federal government and its monetary and fiscal
authorities, including proposed changes in the structure of banking in the
United States, no prediction can be made as to future changes in interest rates,
credit availability, deposit levels, the overall performance of banks generally
or TriCo and its subsidiaries in particular.
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GENERAL
The Company conducts all of its business operations within a single
geographic area and within a single industry segment.
2. PROPERTIES
As the Company has not yet acquired any properties independent of the Bank,
its only subsidiary, the properties of the Bank and the Bank's subsidiaries
comprise all of the properties of the Company.
BANK PROPERTIES
The Bank owns and leases properties which house administrative and data
processing functions and 20 banking offices. Major owned and leased facilities
are listed below.
Park Plaza Branch Pillsbury Branch
780 Mangrove Avenue 2171 Pillsbury Road
Chico, CA 95926 Chico, CA 95926
10,000 square feet 5,705 square feet
Leased - term expires 2010 Owned
Purchasing and Printing Department Hilltop Branch
2560-C Dominic Drive 1250 Hilltop Drive
Chico, CA 95928 Redding, CA 96049
8,400 square feet 6,252 square feet
Leased - term expires 1995 Owned
Burney Branch Cottonwood Branch
37093 Main Street 3349 Main Street
Burney, CA 96013 Cottonwood, CA 96022
3,500 square feet 4,900 square feet
Owned Owned
Information Administration Fall River Mills Branch
110 Independence Circle 43308 Highway 299 East
Chico, CA 95973 Fall River Mills, CA 96028
7,480 square feet 2,200 square feet
Owned Owned
Orland Branch Durham Branch
100 E. Walker Street 9411 Midway
Orland, CA 95963 Durham, CA 95938
3,000 square feet 2,150 square feet
Owned Owned
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Redding Branch Willows Branch
1810 Market Street 210 North Tehama Street
Redding, CA 96001 Willows, CA 95988
14,000 square feet 4,800 square feet
Owned Owned
Palo Cedro Branch Yuba City Branch
9125 Deschutes Road 1441 Colusa Avenue
Palo Cedro, CA 96073 Yuba City, CA 95993
4,000 square feet 6,900 square feet
Owned Owned
TriCo Offices Yreka Branch
15 Independence Circle 165 South Broadway
Chico, CA 95973 Yreka, CA 96097
7,000 square feet 6,000 square feet
Leased - term expires 2011 Owned
Administration Offices Data Processing Center
40 Philadelphia Drive 1103 Fortress
Chico, CA 95973 Chico, CA 95973
7,000 square feet 13,600 square feet
Owned Leased - term expires 2011
3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material legal
proceedings, other than ordinary routine litigation incidental to the business
of the Company and the Bank, nor is any of their property the subject of any
such proceedings.
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock of the Company trades on the NASDAQ National Market under
the symbol "TCBK." The shares were first listed in the NASDAQ Stock Market in
April 1993. The active market makers on NASDAQ include: Hoefer & Arnett,
Incorporated, Piper Jaffray Companies Inc., Sutro & Co. Inc. and Van Kasper &
Co. Inc.
The following table summarizes the Common Stock high and low trading prices
and volume of shares traded by quarter as reported by NASDAQ. The prices have
been adjusted to reflect the five-for-four stock split effected as a stock
dividend in September 1995.
<TABLE>
<CAPTION>
PRICES OF THE APPROXIMATE
COMPANY'S COMMON TRADING
STOCK VOLUME
QUARTER ENDED:(1),(2) HIGH LOW (IN SHARES)
----------------------------------------
<S> <C> <C> <C>
March 31, 1994 $ 19.60 $ 14.80 227,560
June 30, 1994 16.00 13.60 131,258
September 30, 1994 15.20 12.20 69,651
December 31, 1994 13.20 11.00 139,441
March 31, 1995 12.80 10.80 118,010
June 30, 1995 13.20 12.20 213,026
September 30, 1995 16.60 12.00 535,140
December 31, 1995 16.40 14.50 236,821
----------------------------------------
----------------------------------------
</TABLE>
(1)Quarterly trading activity has been compiled from NASDAQ trading reports.
(2)Adjusted to reflect the 5-for-4 stock split effected on September 22, 1995.
HOLDERS
As of December 31, 1995, there were approximately 1,787 holders of record of
the Company's Common Stock.
DIVIDENDS
The Company has paid quarterly dividends since March 1990. After giving
effect to the September 1995 five-for-four stock split, dividends had been paid
at the rate of $.08 per share. In December 1995, the Company raised the
quarterly dividend to $.13 per share. In addition to the cash dividends, the
Company has periodically paid stock dividends. In 1993 the Company paid a stock
dividend of 12%. The holders of Common Stock of the Company are entitled to
receive cash dividends when and as declared by the Board of Directors, out of
funds legally available therefor, subject to the restrictions set forth in the
California General Corporation Law (the "Corporation Law"). The Corporation Law
provides that a corporation may make a distribution to its shareholders if the
corporation's retained earnings equal at least the amount of the proposed
distribution.
The Company, as sole shareholder of the Bank, is entitled to dividends when
and as declared by the Bank's Board of Directors, out of funds legally available
therefore, subject to the powers of the Federal Deposit Insurance Corporation
(the "FDIC") and the restrictions set forth in the California Financial Code
(the "Financial Code"). The Financial Code provides that a bank may not make
any distributions
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in excess of the lessor of: (i) the bank's retained earnings, or (ii) the
bank's net income for the last three fiscal years, less the amount of any
distributions made by the bank to its shareholders during such period. However,
a bank may, with the prior approval of the California Superintendent of Banks
(the "Superintendent"), make a distribution to its shareholders of up to the
greater of (A) the bank's retained earnings, (B) the bank's net income for its
last fiscal year, or (C) the bank's net income for its current fiscal year. If
the Superintendent determines that the shareholders' equity of a bank is
inadequate or that a distribution by the bank to its shareholders would be
unsafe or unsound, the Superintendent may order a bank to refrain from making a
proposed distribution. The FDIC may also order a bank to refrain from making a
proposed distribution when, in its opinion, the payment of such would be an
unsafe or unsound practice. The Bank paid dividends totaling $3,200,000 to the
Company in 1995. As of December 31, 1995 and subject to the limitations and
restrictions under applicable law, the Bank had funds available for dividends in
the amount of $16,237,000.
The Federal Reserve Act limits the loans and advances that the Bank may make to
its affiliates. For purposes of such Act, the Company is an affiliate of the
Bank. The Bank may not make any loans, extensions of credit or advances to the
Company if the aggregate amount of such loans, extensions of credit, advances
and any repurchase agreements and investments exceeds 10% of the capital stock
and surplus of the Bank. Any such permitted loan or advance by the Bank must be
secured by collateral of a type and value set forth in the Federal Reserve Act.
12
<PAGE>
6. FIVE YEAR SELECTED FINANCIAL DATA
(in thousands, except share data)
<TABLE>
<CAPTION>
1995 1994 1993(5) 1992(5) 1991(5)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Interest income $46,011 $43,240 $40,947 $40,272 $40,451
Interest expense 17,988 15,680 13,996 15,600 18,988
--------------------------------------------------------------------
Net interest income 28,023 27,560 26,951 24,672 21,463
Provision for loan losses 335 316 1,858 2,101 1,531
--------------------------------------------------------------------
Net interest income after
provision for loan losses 27,688 27,244 25,093 22,571 19,932
Noninterest income 5,933 5,025 6,726 5,572 4,965
Noninterest expense 21,661 22,058 20,225 18,031 17,045
--------------------------------------------------------------------
Income before income taxes 11,960 10,211 11,594 10,112 7,852
Provision for income taxes 4,915 4,350 4,779 4,112 3,031
--------------------------------------------------------------------
Net income $7,045 $5,861 $6,815 $6,000 $4,821
--------------------------------------------------------------------
--------------------------------------------------------------------
SHARE DATA:(2)
Primary earnings per share $ 1.46 $1.18 $1.42 $1.46 $1.10
Cash dividend paid per share 0.37 0.32 0.31 0.28 0.24
Common shareholders' equity
at year end 11.92 10.10 10.05 8.46 7.25
BALANCE SHEET DATA:
Total loans, gross $318,766 $307,103 $305,902 $317,518 $316,397
Total assets 603,554 593,834 575,897 492,404 439,358
Total deposits 516,193 491,172 515,999 451,346 400,479
Total shareholders' equity 53,213 48,231 47,068 36,545 34,822
SELECTED FINANCIAL RATIOS:
Return on average assets 1.22% .99% 1.25% 1.25% 1.15%
Return on average common
shareholders' equity 13.95% 12.42% 15.81% 19.48% 15.69%
Leverage ratio(3) 8.92% 8.75% 8.18% 7.39% 7.97%
Total risk-based capital ratio 15.17% 14.65% 14.02% 11.94% 11.49%
Net interest margin(4) 5.36% 5.18% 5.49% 5.76% 5.87%
Allowance for loan losses to total
loans outstanding at end of year 1.75% 1.83% 1.95% 1.51% 1.31%
-------------------------------------------------------------------
</TABLE>
(1)Tax-exempt securities are presented on an actual yield basis.
(2)Retroactively adjusted to reflect 5-for-4 stock split effected in 1995, and
the 12%, 15%, and 15% stock dividends declared in 1993, 1992 and 1991,
respectively.
(3)Tier 1 capital divided by total ending assets.
(4)Calculated on a tax equivalent basis.
(5)Restated on a historical basis to reflect the July 21, 1994 acquisition of
Country National Bank on a pooling-of-interests basis.
13
<PAGE>
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included on pages 27 through 42 of Registrant's 1995 Annual Report
to Shareholders, (pages 1 through 43 in Exhibit 13.1 as electronically filed) is
incorporated herein by reference.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and independent auditor's report,
included in Registrant's 1995 Annual Report to Shareholders, are incorporated
herein by reference:
<TABLE>
<CAPTION>
Pages Of 1995 Annual Pages Of Exhibit 13.1
Report To Shareholders As Electronically Filed
---------------------- -----------------------
<S> <C> <C>
Report of Independent Public Accountants 25 23
Consolidated Balance Sheets as of
December 31, 1995 and 1994 10 1
Consolidated Statements of Income
for the three years ended December 31,
1995, 1994 and 1993 11 2
Consolidated Statements of Changes in
Shareholders' Equity for the three
years ended December 31, 1995,
1994 and 1993 12 3
Consolidated Statements of Cash Flows
for the years ended December 31, 1995,
1994 and 1993 13 4
Notes to Consolidated Financial
Statements 14 5
</TABLE>
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
14
<PAGE>
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Registrant's directors and executive officers will be
set forth under the captions "Proposal No. 1 - Election of Directors of the
Company" in Registrant's Proxy Statement for use in connection with the Annual
Meeting of Shareholders to be held on or about May 21, 1996. Said information
is incorporated herein by reference.
11. EXECUTIVE COMPENSATION
Information regarding compensation of Registrant's directors and executive
officers will be set forth under the captions "Proposal No. 1 - Election of
Directors of the Company" in Registrant's Proxy Statement for use in connection
with the Annual Meeting of Shareholders to be held on or about May 21, 1996.
Said information is incorporated herein by reference.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners,
directors and executive officers of Registrant will be set forth in Registrant's
Proxy Statement for use in connection with the Annual Meeting of Shareholders to
be held on or about May 21, 1996. Said information is incorporated herein by
reference.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth under the caption "Proposal No. 1 - Election of Directors of the Company"
in Registrant's Proxy Statement for use in connection with the Annual Meeting of
Shareholders to be held on or about May 21, 1996. Said information is
incorporated herein by reference.
15
<PAGE>
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. INDEX TO FINANCIAL STATEMENTS:
A list of the consolidated financial statements of Registrant
incorporated herein is included in Item 8 of this Report. The report of
Deloitte & Touche referred to in the report of Arthur Andersen is included
herein as Exhibit 99.1.
2. FINANCIAL STATEMENT SCHEDULES:
Schedules have been omitted because they are not applicable or
are not required under the instructions contained in Regulation S-X or because
the information required to be set forth therein is included in the consolidated
financial statements or notes thereto.
3. EXHIBITS FILED HEREWITH:
EXHIBIT NO. EXHIBITS
3.1 Articles of Incorporation, as amended to date, filed as Exhibit 3.1 to
Registrant's Report on Form 10-K, filed for the year ended December
31, 1989, are incorporated herein by reference.
3.2 Bylaws, as amended to 1992, filed as Exhibit 3.2 to Registrant's
Report on Form 10-K, filed for the year ended December 31, 1992,
are incorporated herein by reference.
4.2 Certificate of Determination of Preferences of Series B Preferred
Stock, filed as Appendix A to Registrant's Registration Statement on
Form S-1 (No. 33-22738), is incorporated herein by reference.
10.1 Lease for Park Plaza Branch premises entered into as of September 29,
1978, by and between Park Plaza Limited Partnership as lessor and Tri
Counties Bank as lessee, filed as Exhibit 10.9 to the TriCo
Bancshares Registration Statement on Form S-14 (Registration No.
2-74796) is incorporated herein by reference.
10.2 Lease for Administration Headquarters premises entered into as of
April 25, 1986, by and between Fortress-Independence Partnership (A
California Limited Partnership) as lessor and Tri Counties Bank as
lessee, filed as Exhibit 10.6 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1986, is incorporated herein
by reference.
10.3 Lease for Data Processing premises entered into as of April 25, 1986,
by and between Fortress-Independence Partnership (A California
Limited Partnership) as lessor and Tri Counties Bank as lessee, filed
as Exhibit 10.7 to Registrant's Report on Form 10-K filed for the
year ended December 31, 1986, is incorporated herein by reference.
16
<PAGE>
10.4 Lease for Chico Mall premises entered into as of March 11, 1988, by
and between Chico Mall Associates as lessor and Tri Counties Bank as
lessee, filed as Exhibit 10.4 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1988, is incorporated by
reference.
10.5 First amendment to lease entered into as of May 31, 1988 by and
between Chico Mall Associates and Tri Counties Bank, filed as Exhibit
10.5 to Registrant's Report on Form 10-K filed for the year ended
December 31, 1988, is incorporated by reference.
10.9 Employment Agreement of Robert H. Steveson, dated December 12, 1989
between Tri Counties Bank and Robert H. Steveson, filed as Exhibit
10.9 to Registrant's Report on Form 10-K filed for the year ended
December 31, 1989, is incorporated by reference.
10.11 Lease for Purchasing and Printing Department premises entered into as
of February 1, 1990, by and between Dennis M. Casagrande as lessor and
Tri Counties Bank as lessee, filed as Exhibit 10.11 to Registrant's
Report on Form 10-K filed for the year ended December 31, 1991, is
incorporated herein by reference.
10.12 Addendum to Employment Agreement of Robert H. Steveson, dated April 9,
1991, filed as Exhibit 10.12 to Registrant's Report on Form 10-K filed
for the year ended December 31, 1991, is incorporated herein by
reference.
11.1 Computation of earnings per share.
13.1 TriCo Bancshares 1995 Annual Report to Shareholders.*
22.1 Tri Counties Bank, a California banking corporation, is the only
subsidiary of Registrant.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Deloitte & Touche LLP
99.1 Report of Deloitte & Touche LLP, filed as Exhibit 99.1 to Registrant's
Report of Form 10-K filed for the year ended December 31, 1994, is
incorporated herein by reference.
--------------------------
* Deemed filed only with respect to those portions thereof incorporated
herein by reference.
(b) REPORTS ON FORM 8-K:
None filed
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 12, 1996 TRICO BANCSHARES
By: /s/Robert H. Steveson
-------------------------
Robert H. Steveson, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 12, 1996 /s/Robert H. Steveson
-----------------------------------
Robert H. Steveson, President,
Chief Executive Officer and Director (Principal
Executive Officer)
Date: March 12, 1996 /s/Robert M. Stanberry
-----------------------------------
Robert M. Stanberry, Vice President and Chief
Financial Officer (Principal Financial Officer)
Date: March 12, 1996 /s/Everett B. Beich
-----------------------------------
Everett B. Beich, Director and Vice Chairman of
the Board
Date: March 12, 1996 /s/William J. Casey
-----------------------------------
William J. Casey, Director
Date: March 12, 1996 /s/DeWayne E. Caviness
-----------------------------------
DeWayne E. Caviness, Director
Date: March 12, 1996 /s/Craig S. Compton
-----------------------------------
Craig S. Compton, Director
Date: March 12, 1996 /s/Richard C. Guiton
-----------------------------------
Richard C. Guiton, Director
18
<PAGE>
Date: March 12, 1996
-----------------------------------
Douglas F. Hignell, Secretary and
Director
Date: March 12, 1996 /s/Brian D. Leidig
-----------------------------------
Brian D. Leidig, Director
Date: March 12, 1996 /s/Wendell J. Lundberg
-----------------------------------
Wendell J. Lundberg, Director
Date: March 12, 1996
-----------------------------------
Donald E. Murphy, Director
Date: March 12, 1996 /s/Rodney W. Peterson
-----------------------------------
Rodney W. Peterson, Director
Date: March 12, 1996
-----------------------------------
Alex A. Vereschagin, Jr., Director and
Chairman of the Board
19
<PAGE>
EXHIBIT 11.1
COMPUTATIONS OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Years ended December 31
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Shares used in the
computation of
earnings per share (1)
Weighted daily average
of shares outstanding 4,430,092 4,389,802 4,094,009 3,534,855 3,504,826
Shares used in the
computation of primary
earnings per shares 4,656,896 4,641,383 4,338,255 3,556,836 3,515,270
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in the
computation of
fully diluted
earnings per share 4,693,188 4,642,197 4,416,135 3,556,836 3,528,091
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income used in the
computation of earnings
per common stock:
Income before adjustment
for interest expense on
convertible capital notes $7,045 $ 5,861 $ 6,815 $ 6,000 $ 4,821
Adjustment for preferred
stock dividend (245) (420) (630) (797) (944)
Net income, as adjusted $ 6,800 $ 5,441 $ 6,185 $ 5,203 $ 3,877
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Primary earnings
per share $ 1.46 $ 1.18 $ 1.42 $ 1.46 $ 1.10
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Fully diluted earnings
per share $ 1.45 $ 1.18 $ 1.40 $ 1.46 $ 1.10
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
</TABLE>
(1)Retroactively adjusted for stock dividends and stock splits.
20
<PAGE>
EXHIBIT 13.1
TRICO BANCSHARES CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
ASSETS 1995 1994
------------------------------
<S> <C> <C>
Cash and due from banks $ 39,673 $ 39,709
Federal funds sold 25,600 --
------------------------------
CASH AND CASH EQUIVALENTS 65,273 39,709
Securities held-to-maturity
(approximate fair value $116,576 and $131,649) 116,865 143,788
Securities available-for-sale 76,246 74,706
LOANS:
Commercial 152,173 153,957
Consumer 64,445 58,471
Real estate mortgages 81,888 76,673
Real estate construction 20,260 18,002
------------------------------
318,766 307,103
Less: Allowance for loan losses 5,580 5,608
------------------------------
Net loans 313,186 301,495
Premises and equipment, net 13,189 13,198
Investment in real estate properties 1,173 1,173
Other real estate owned 631 2,124
Accrued interest receivable 4,609 4,748
Deferred income taxes 3,106 5,445
Other assets 9,276 7,448
------------------------------
TOTAL ASSETS $603,554 $593,834
------------------------------
------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand $ 90,308 $ 88,957
Interest-bearing demand 84,314 80,657
Savings 161,479 190,800
Time certificates, $100,000 and over 13,439 1,118
Other time certificates 166,653 129,640
------------------------------
Total deposits 516,193 491,172
Repurchase agreements -- 30,457
Accrued interest payable 3,162 1,760
Other liabilities 4,694 3,715
Long-term debt 26,292 18,499
------------------------------
TOTAL LIABILITIES 550,341 545,603
Commitments and contingencies (Note G)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized 1,000,000 shares;
Series B, issued and outstanding
none (0) and 8,000 shares, respectively -- 3,899
Common stock, no par value:
Authorized 20,000,000 shares;
issued and outstanding 4,464,828
and 3,513,707 shares, respectively 44,315 43,552
Retained earnings 9,548 4,488
Unrealized loss on securities
available-for-sale, net (650) (3,708)
------------------------------
TOTAL SHAREHOLDERS' EQUITY 53,213 48,231
------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $603,554 $593,834
------------------------------
------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
TRICO BANCSHARES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 33,776 $ 30,641 $ 31,795
Interest on investment securities--taxable 11,706 12,247 8,585
Interest on investment securities--tax exempt 158 229 238
Interest on federal funds sold 371 123 329
---------------------------------------
Total interest income 46,011 43,240 40,947
---------------------------------------
INTEREST EXPENSE:
Interest on interest-bearing demand deposits 2,000 2,066 3,362
Interest on savings 5,167 6,442 5,046
Interest on time certificates of deposit 8,736 5,333 4,343
Interest on time certificates of deposit, $100,000 and over 328 61 255
Interest on short-term borrowing 526 719 739
Interest on long-term debt 1,231 1,059 251
---------------------------------------
Total interest expense 17,988 15,680 13,996
---------------------------------------
NET INTEREST INCOME 28,023 27,560 26,951
Provision for loan losses 335 316 1,858
---------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 27,688 27,244 25,093
---------------------------------------
NONINTEREST INCOME:
Service charges and fees 4,163 3,570 3,558
Other income 1,780 1,478 1,747
Securities gains (losses), net (10) (23) 1,421
---------------------------------------
Total noninterest income 5,933 5,025 6,726
---------------------------------------
NONINTEREST EXPENSES:
Salaries and related expenses 10,787 10,550 9,072
Other, net 10,874 11,508 11,153
---------------------------------------
Total noninterest expenses 21,661 22,058 20,225
---------------------------------------
NET INCOME BEFORE INCOME TAXES 11,960 10,211 11,594
Income taxes 4,915 4,350 4,779
---------------------------------------
NET INCOME $ 7,045 $ 5,861 $ 6,815
PREFERRED STOCK DIVIDENDS 245 420 630
---------------------------------------
---------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 6,800 $ 5,441 $ 6,185
---------------------------------------
---------------------------------------
PRIMARY EARNINGS PER COMMON SHARE $ 1.46 $ 1.18 $ 1.42
---------------------------------------
FULLY DILUTED EARNINGS PER COMMON SHARE $ 1.45 $ 1.18 $ 1.40
---------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
Exhibit 13.1 2
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
(in thousands, except share amounts)
<TABLE>
<CAPTION>
SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------------- --------------------- -------------------------
NUMBER NUMBER NUMBER
OF OF OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 8,000 $ 3,899 16,900 $ 2,187 2,571,096 $29,002
Redemption of Preferred Stock -- -- (16,900) (2,187) -- --
Common Stock issued -- -- -- -- 529,000 7,734
12% Common Stock Dividend
declared -- -- -- -- 319,848 5,917
Exercise of Common Stock options -- -- -- -- 16,310 165
Series B Preferred Stock cash
dividends -- -- -- -- -- --
Series C Preferred Stock cash
dividends -- -- -- -- -- --
Common Stock cash dividends -- -- -- -- -- --
Net income -- -- -- -- -- --
Reduction of ESOP debt -- -- -- -- -- --
----------------------------------------------------------------------------------
Balance, December 31, 1993 8,000 3,899 -- -- 3,436,254 42,818
Exercise of Common Stock options -- -- -- -- 77,453 403
Series B Preferred Stock cash
dividends -- -- -- -- -- --
Common Stock cash dividends -- -- -- -- -- --
Cumulative effect of change in
accounting method for investment
securities -- -- -- -- -- --
Change in unrealized loss on
securities -- -- -- -- -- --
Stock option amortization -- -- -- -- -- 331
Net income -- -- -- -- -- --
----------------------------------------------------------------------------------
Balance, December 31, 1994 8,000 3,899 -- -- 3,513,707 43,552
Redemption of Preferred Stock (8,000) (3,899) -- -- -- --
Exercise of Common Stock options -- -- -- -- 72,694 554
5-for-4 Common Stock split -- -- -- -- 878,427 --
Series B Preferred Stock cash
dividends -- -- -- -- -- --
Common Stock cash dividends -- -- -- -- -- --
Change in unrealized loss
on securities -- -- -- -- -- --
Stock option amortization -- -- -- -- -- 209
Net income -- -- -- -- -- --
----------------------------------------------------------------------------------
Balance, December 31, 1995 -- $ -- -- $ -- 4,464,828 $44,315
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
<CAPTION>
UNREALIZED DEBT
RETAINED LOSS ON GUARANTEE
EARNINGS SECURITIES FOR ESOP TOTAL
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $ 1,578 $ -- $ (120) $36,546
Redemption of Preferred Stock (95) -- -- (2,282)
Common Stock issued -- -- -- 7,734
12% Common Stock Dividend
declared (5,917) -- -- --
Exercise of Common Stock options -- -- -- 165
Series B Preferred Stock cash
dividends (420) -- -- (420)
Series C Preferred Stock cash
dividends (210) -- -- (210)
Common Stock cash dividends (1,400) -- -- (1,400)
Net income 6,815 -- -- 6,815
Reduction of ESOP debt -- -- 120 120
-----------------------------------------------------
Balance, December 31, 1993 351 -- -- 47,068
Exercise of Common Stock options -- -- -- 403
Series B Preferred Stock cash
dividends (420) -- -- (420)
Common Stock cash dividends (1,304) -- -- (1,304)
Cumulative effect of change in
accounting method for investment
securities -- 270 -- 270
Change in unrealized loss on
securities -- (3,978) -- (3,978)
Stock option amortization -- -- -- 331
Net income 5,861 -- -- 5,861
-----------------------------------------------------
Balance, December 31, 1994 4,488 (3,708) -- 48,231
Redemption of Preferred Stock (101) -- (4,000)
Exercise of Common Stock options -- -- -- 554
5-for-4 Common Stock split -- -- -- --
Series B Preferred Stock cash
dividends (245) -- -- (245)
Common Stock cash dividends (1,639) -- -- (1,639)
Change in unrealized loss
on securities -- 3,058 -- 3,058
Stock option amortization -- -- -- 209
Net income 7,045 -- -- 7,045
-----------------------------------------------------
Balance, December 31, 1995 $ 9,548 $ (650) $ -- $53,213
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
Exhibit 13.1 3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,045 $ 5,861 $ 6,815
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 335 316 1,858
Provision for losses on other real estate owned 99 53 642
Depreciation and amortization 1,600 1,405 1,030
(Accretion) amortization of investment
security (discounts) premiums, net 117 450 1,643
Deferred income taxes (134) (90) 1,126
Investment security (gains) losses, net 10 23 (1,453)
(Gain) loss on sale of loans (56) (173) (294)
(Gain) loss on sale of investments in real estate properties, net (78) 54 (17)
Origination of loans held for sale (9,666) (8,943) (75,552)
Proceeds from loan sales 9,835 8,186 77,299
Amortization of stock options 209 331 --
(Increase) decrease in interest receivable 139 (1,106) 770
Increase (decrease) in interest payable 1,402 30 (695)
(Increase) decrease in other assets and liabilities (876) (1,777) 180
-----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,981 4,620 13,352
-----------------------------------------
INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity 19,516 15,374 --
Purchases of securities held-to-maturity (2,740) (22,439) --
Proceeds from maturities of securities available-for-sale 12,427 23,282 63,940
Proceeds from sales of securities available-for-sale 6,993 36,490 182,092
Purchases of securities available-for-sale (5,638) (74,619) (327,531)
Net (increase) decrease in loans (12,529) (1,968) 6,323
Purchases of premises and equipment (1,335) (2,025) (1,861)
Proceeds from sale of real estate properties 1,862 2,408 262
-----------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 18,556 (23,497) (76,775)
-----------------------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 25,021 (24,827) 64,654
Borrowings (payments) under repurchase agreements (30,457) 30,457 --
Borrowings under long-term debt agreements 9,828 11,400 52,005
Payments of principal on long-term debt agreements (2,035) (45) (45,768)
Redemption of Preferred Stock (4,000) -- (2,282)
Cash dividends -- Preferred (245) (420) (630)
Cash dividends -- Common (1,639) (1,304) (1,400)
Issuance of Common Stock 554 403 7,899
-----------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,973) 15,664 74,478
-----------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,564 (3,213) 11,055
-----------------------------------------
Cash and cash equivalents at beginning of year 39,709 42,922 31,867
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 65,273 $ 39,709 $ 42,922
-----------------------------------------
SUPPLEMENTAL INFORMATION
Cash paid for taxes $ 5,240 $ 3,809 $ 5,431
Cash paid for interest expense $ 16,586 $ 15,650 $ 13,365
Non-cash debt guarantee for ESOP $ -- $ -- $ (120)
Non-cash assets acquired through foreclosure $ 390 $ 1,016 $ 3,187
Non-cash transfers of OREO to fixed assets $ -- $ -- $ 504
</TABLE>
See Notes to Consolidated Financial Statements
Exhibit 13.1 4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
NOTE A - GENERAL SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of TriCo Bancshares (the "Company")
conform to generally accepted accounting principles and general practices within
the banking industry. The following are descriptions of the more significant
accounting and reporting policies. Certain reclassifications have been made to
the prior years' financial statements in order to conform with the
classifications of the December 31, 1995 financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary, Tri Counties Bank (the "Bank"), and the wholly-
owned subsidiaries of the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation. All data has been restated
on a historical basis to reflect the July 21, 1994 acquisition of Country
National Bank on a pooling-of-interests basis.
NATURE OF OPERATIONS
The Company operates fourteen branch offices and six in-store branches in the
California counties of Butte, Glenn, Shasta, Siskiyou, Sutter, Tehama, and
Lassen. The Bank's operating policy since its inception has emphasized retail
banking. Most of the Bank'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 generally accepted
accounting principles 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.
Actual results could differ from those estimates.
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 which 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.
In 1995 and 1994 the Company did not have any securities classified as trading.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized gains and losses, net of the
related tax effect, on available-for-sale securities are reported as a separate
component of 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.
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS 115) as of January 1, 1994. The effect of adopting SFAS 115 was
to recognize an unrealized gain (net of tax) of $270,000 as an increase in
shareholders' equity.
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
Exhibit 13.1 5
<PAGE>
principal. When loans are 90 days past due, but in Management's judgment are
well secured and in the process of collection, they are not 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
and anticipated economic conditions that may affect the borrower's ability to
pay.
The Company adopted SFAS 114, Accounting by Creditors for Impairment of a
Loan, and SFAS 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures, as of January 1, 1995. Under this statement, a
loan is impaired when it is probable the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement. 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.
MORTGAGE OPERATIONS
The Company sold substantially all of its conforming long term residential
mortgage loans originated during 1995, 1994 and 1993 for cash proceeds equal to
the fair value of the loans. These loans were originated through Bank branches
and not obtained from mortgage brokers. Servicing rights were retained on all
of the loans sold, for which the Company receives a servicing fee. Because the
amounts are not significant, the Company does not capitalize excess servicing
fees, which represent the present value of the spread between the face rate of
the loan and the rate paid to the investor net of the amount required to cover
the cost of servicing the loan plus a profit margin given the expected life of
the loans. Gain or loss on the sale of loans represents the difference between
the cash proceeds received and the carrying value of the loans sold. The
carrying value is the original value of the loan adjusted for loan origination
fees and costs. At December 31, 1995, mortgage loans held for sale totaled
$783,000. The Company had entered into commitments to sell all of these loans
at year end. At December 31, 1995 and 1994, the Company serviced real estate
mortgage loans for others of $136 million and $139 million, respectively.
PREMISES AND EQUIPMENT
Premises and equipment, including those acquired under capital lease, are
stated at cost less accumulated depreciation and amortization. Depreciation and
amortization expenses are computed using the straight-line method over the
estimated useful lives of the related assets or lease terms. Asset lives range
from 3-10 years for furniture and equipment and 15-30 years for land
improvements and buildings.
Exhibit 13.1 6
<PAGE>
INVESTMENT IN REAL ESTATE PROPERTIES
Investment in real estate properties is stated at the lower of cost or market
and consists of properties either acquired directly or transferred from other
real estate owned for the purpose of development or to be held as income-earning
assets.
Subsequent to acquisition or transfer, properties included in the investment
in real estate properties account are periodically evaluated. Any decline in
value below the carrying amount of a property is included in other expenses.
Income and expenses on the investment in real estate properties are included in
other expenses.
OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure is carried at the lower of the recorded
investment in the property or its fair value. Prior to foreclosure, the value
of the underlying loan is written down to the fair value of the real estate to
be acquired by a charge to the allowance for loan losses, when necessary. Any
subsequent write-downs are recorded as a valuation allowance with a charge to
other expenses in the income statement. Expenses of such properties, net of
related income, and gains and losses on their disposition, are included in other
expenses.
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.
EARNINGS PER COMMON SHARE
Earnings per common share are computed based on the weighted average number
of shares of common stock and common stock equivalents outstanding. The
weighted average number of shares used in the computation of primary earnings
per common share were: 4,656,893 for 1995, 4,641,384 for 1994 and 4,338,255 for
1993. The weighted average number of shares used in the computation of fully
diluted earnings per common share were: 4,693,188 for 1995, 4,642,197 for 1994
and 4,416,135 for 1993. These shares have been adjusted for the 1994 merger
with Country National Bank and the 1995 five-for-four stock split. Common stock
equivalent shares consist of options outstanding under the Company's qualified
and non-qualified stock option plans.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and Federal funds sold.
NOTE B - RESTRICTED CASH BALANCES
Reserves (in the form of deposits with the Federal Reserve Bank) of
$7,909,000 and $7,181,000 were maintained to satisfy Federal regulatory
requirements at December 31, 1995 and December 31, 1994. These reserves are
included in cash and due from banks in the accompanying balance sheet.
Exhibit 13.1 7
<PAGE>
NOTE C - INVESTMENT SECURITIES
The amortized cost and estimated fair values of investments in debt securities
are summarized in the following tables:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 29,744 $ 588 $ (34) $ 30,298
Obligations of states and political subdivisions 849 -- (9) 840
Mortgage-backed securities 86,272 493 (1,327) 85,438
--------------------------------------------------
Totals $ 116,865 $1,081 $(1,370) $116,576
--------------------------------------------------
--------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 42,038 $ 225 $ (45) $ 42,218
Obligations of states and political subdivisions 1,700 42 -- 1,742
Mortgage-backed securities 29,076 28 (486) 28,618
Other securities 3,668 -- -- 3,668
--------------------------------------------------
Totals $ 76,482 $ 295 $ (531) $ 76,246
--------------------------------------------------
--------------------------------------------------
December 31, 1994
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------
(in thousands)
SECURITIES HELD-TO-MATURITY
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 45,631 $ 9 $(1,982) $ 43,658
Obligations of states and political subdivisions 1,098 1 (49) 1,050
Mortgage-backed securities 97,059 -- (10,118) 86,941
--------------------------------------------------
Totals $143,788 $ 10 $(12,149) $131,649
--------------------------------------------------
--------------------------------------------------
SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 37,865 $ -- $ (1,583) $ 36,282
Obligations of states and political subdivisions 2,321 18 (33) 2,306
Mortgage-backed securities 36,374 -- (3,745) 32,629
Other securities 3,489 -- -- 3,489
--------------------------------------------------
Totals $ 80,049 $ 18 $ (5,361) $ 74,706
--------------------------------------------------
--------------------------------------------------
</TABLE>
Exhibit 13.1 8
<PAGE>
The amortized cost and estimated fair value of debt securities at December
31, 1995 by contractual maturity are shown below. Actual maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
-------------------------------
(in thousands)
<S> <C> <C>
SECURITIES HELD-TO-MATURITY
Due in one year $ 3,142 $ 3,152
Due after one year through five years 27,635 28,114
Due after five years through ten years 11,494 11,529
Due after ten years 74,594 73,781
-------------------------------
Totals $116,865 $116,576
-------------------------------
-------------------------------
SECURITIES AVAILABLE-FOR-SALE
Due in one year $ 16,890 $ 16,883
Due after one year through five years 24,949 25,167
Due after five years through ten years 432 448
Due after ten years 30,543 30,080
-------------------------------
72,814 72,578
Other Securities 3,668 3,668
-------------------------------
Totals $ 76,482 $ 76,246
-------------------------------
-------------------------------
</TABLE>
Proceeds from sales of investments in debt securities:
<TABLE>
<CAPTION>
GROSS GROSS GROSS
FOR THE YEAR PROCEEDS GAINS LOSSES
- -------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
1995 $ 6,993 $ 40 $ 50
1994 $36,490 $117 $140
</TABLE>
On November 17, 1995, the Company adopted the FASB Special Report concerning
the implementation of SFAS 115 and it elected to transfer certain treasury
securities with an amortized cost of $10,062,266 and an unrealized gain of
$1,034,922 from the held-to-maturity to the available-for-sale category.
Investment securities with an aggregate carrying value of $35,930,000 and
$35,243,000 at December 31, 1995 and 1994, respectively, were pledged as
collateral.
Exhibit 13.1 9
<PAGE>
NOTE D - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
------------------------------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $5,608 $5,973 $4,798
Provision charged to operations 335 316 1,858
Loans charged off (581) (1,050) (1,275)
Recoveries of loans previously charged off 218 369 592
------------------------------
Balance, end of year $5,580 $5,608 $5,973
------------------------------
------------------------------
</TABLE>
Loans classified as nonaccrual amounted to approximately $2,213,000,
$1,122,000, and $1,595,000 at December 31, 1995, 1994 and 1993, respectively.
If interest on those loans had been accrued, such income would have been
approximately $166,000, $123,000 and $60,000 in 1995, 1994 and 1993,
respectively.
As of December 31, the Company's recorded investment in impaired loans and
the related valuation allowance calculated under SFAS 114 were as follows:
<TABLE>
<CAPTION>
1995
-------------------------
Recorded Valuation
Investment Allowance
-------------------------
<S> <C> <C>
Impaired loans -
Valuation allowance required $ 552 $380
No valuation allowance required 4,534 --
-------------------------
Total impaired loans $5,086 $380
-------------------------
-------------------------
</TABLE>
This valuation allowance is included in the allowance for loan losses shown
above.
The average recorded investment in impaired loans for the year ended December
31, 1995 was $3,579,000. The Company recognized interest income on impaired
loans of $345,000 for the year ended December 31, 1995.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment were comprised of:
<TABLE>
<CAPTION>
December 31,
1995 1994
----------------------------
(in thousands)
<S> <C> <C>
Premises $10,366 $9,948
Furniture and equipment 9,118 8,620
----------------------------
19,484 18,568
Less:
Accumulated depreciation
and amortization (8,964) (8,047)
----------------------------
10,520 10,521
Land and land improvements 2,669 2,677
----------------------------
$13,189 $13,198
----------------------------
----------------------------
</TABLE>
Exhibit 13.1 10
<PAGE>
Depreciation and amortization of premises and equipment amounted to
$1,344,000, $1,202,000 and $1,030,000 in 1995, 1994 and 1993, respectively.
NOTE F - LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
--------------------
(in thousands)
<S> <C> <C>
FHLB loan, fixed rate of 4.56% payable on March 21, 1995 $ -- $ 2,000
FHLB loan, fixed rate of 5.14% payable on March 21, 1996 2,000 2,000
FHLB loan, fixed rate of 5.53% payable on March 21, 1997 3,000 3,000
FHLB loan, effective rate of 4.38% payable on April 28, 1998 5,000 5,000
FHLB loan, fixed rate of 5.62% payable on February 4, 1999 400 400
FHLB loan, fixed rate of 6.14% payable on March 21, 1999 3,000 3,000
FHLB loan, fixed rate of 5.84% payable on November 6, 2000 1,500 1,500
FHLB loan, fixed rate of 5.90% payable January 16, 2001 1,000 1,000
FHLB repurchase agreements, fixed rate of 5.85% payable on July 17, 1997 9,828 --
Capital lease obligations on equipment, effective rate of 8.8% payable
monthly through August 7, 1995 -- 26
Capital lease obligation on premises, effective rate of 13% payable
monthly in varying amounts through December 1, 2009 564 573
--------------------
Total long-term debt $26,292 $18,499
--------------------
--------------------
</TABLE>
The Bank maintains a collateralized line of credit with the Federal Home Loan
Bank of San Francisco. Based on the FHLB stock requirements at December 31,
1995, this line provided for maximum borrowings of $32,197,000 of which
$15,900,000 was outstanding, leaving $16,297,000 available. The maximum
month-end outstanding balances of repurchase agreements in 1995 and 1994 were
$25,475,000 and $30,457,000, respectively. The Bank has available unused
lines of credit totaling $33,000,000 for Federal funds transactions.
NOTE G - COMMITMENTS AND CONTINGENCIES (SEE ALSO NOTE O)
At December 31, 1995, future minimum commitments under non-cancelable capital
and operating leases with initial or remaining terms of one year or more are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------------------------
(in thousands)
<S> <C> <C>
1996 $ 83 $ 598
1997 84 458
1998 85 457
1999 86 349
2000 87 287
Thereafter 829 2,463
-----------------------
Future minimum lease payments 1,254 $ 4,612
--------
--------
Less amount representing interest 690
-----
Present value of future lease payments $ 564
-----
-----
</TABLE>
Rent expense under operating leases was $887,000 in 1995, $767,000 in 1994, and
$530,000 in 1993.
Exhibit 13.1 11
<PAGE>
In 1995, the Bank entered into license agreements to rent space in two
supermarkets. These are twenty year agreements with five year renewals.
The Bank is a defendant in legal actions arising from normal business
activities. Management believes that these actions are without merit or that
the ultimate liability, if any, resulting from them will not materially affect
the Bank's financial position.
NOTE H - PREFERRED STOCK
At December 31, 1994 the Company had one series of cumulative nonvoting
preferred stock outstanding. This preferred stock was redeemed on August 1,
1995. The following table summarizes the terms of the issue at December 31,
1994.
<TABLE>
<CAPTION>
PER SHARE
DIVIDEND REDEMPTION LIQUIDATION
SERIES RATE SHARES DATE VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
B 10.5% 8,000 AUG. 1, 1995 $500
</TABLE>
NOTE I - DIVIDEND RESTRICTIONS
The Bank paid to the Company cash dividends in the aggregate amounts of
$3,200,000, none ($0) and $500,600 in 1995, 1994 and 1993. The Bank is
regulated by the Federal Deposit Insurance Corporation (FDIC) and the California
State Banking Department. California banking laws limit the Bank's ability to
pay dividends to the lesser of (1) retained earnings or (2) net income for the
last three fiscal years, less cash distributions paid during such period. Under
this regulation, at December 31, 1995, the Bank may pay dividends of
$16,237,000.
Exhibit 13.1 12
<PAGE>
NOTE J - STOCK OPTIONS
In May 1995, the Company adopted the TriCo Bancshares 1995 Incentive Stock
Option Plan ('95 Plan) covering key employees. Under the '95 Plan 150,000
shares were reserved for issuance. The option price cannot be less than the
fair market value of the Common Stock at the date of grant. Options for the '95
Plan expire on the tenth anniversary of the grant date.
The Company also has outstanding options under one plan approved in 1993 and
two plans approved in 1989. Options under the 1993 plan vest over a six year
period. Options under the 1989 plan vest 20% annually. Unexercised options for
the 1993 and 1989 plans terminate 10 years from the date of the grant.
Stock option activity is summarized in the following table:
<TABLE>
<CAPTION>
Number Option Price
of Shares* Per Share*
---------------------------------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 663,755 $ 5.74 to $ 7.86
Country National Bank
Options exchanged for shares (35,587)
Options exercised (61,228) 5.74 to 7.86
Options cancelled (6,666) 7.43 to 7.43
Outstanding at December 31, 1994 560,274 7.43 to 7.86
Options granted 31,250 7.86 to 13.20
Options exercised (72,694) 7.43 to 7.86
--------------------------------------
Outstanding at December 31, 1995 518,830 $ 7.43 to $13.20
--------------------------------------
--------------------------------------
</TABLE>
*Adjusted for 5-for-4 stock split effected September 22, 1995.
NOTE K - OTHER OPERATING EXPENSES AND INCOME
The components of other operating expenses were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
--------------------------------------
(in thousands)
<S> <C> <C> <C>
Equipment and data processing $ 2,508 $ 2,497 $ 1,790
Occupancy 1,573 1,469 1,413
Advertising 563 650 555
Net other real estate owned expense 201 190 845
Net losses on investment in real estate 25 17 153
Professional fees 593 1,172 1,190
Assessments 727 1,199 1,114
Postage 405 335 413
Other 4,279 3,979 3,680
---------------------------------------
Total other operating expenses $10,874 $11,508 $11,153
---------------------------------------
---------------------------------------
</TABLE>
Commissions on sales of annuities and mutual funds in the amounts of
$900,000, $988,000 and $927,000 for the years 1995, 1994 and 1993 are included
in other income.
Exhibit 13.1 13
<PAGE>
NOTE L - INCOME TAXES
The current and deferred components of the income tax provision were
comprised of:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
-------------------------------------
(in thousands)
<S> <C> <C> <C>
Current Tax Provision:
Federal $ 3,640 $ 3,189 $ 4,331
State 1,409 1,251 1,462
-------------------------------------
Total current 5,049 4,440 5,793
Deferred Tax Benefit:
Federal (36) (21) (738)
State (98) (69) (276)
-------------------------------------
Total deferred (134) (90) (1,014)
-------------------------------------
Total income taxes $ 4,915 $ 4,350 $ 4,779
-------------------------------------
-------------------------------------
</TABLE>
Taxes recorded directly to stockholders' equity are not included in the
preceding table. Taxes and tax benefits relating to changes in the unrealized
gains and losses on available-for-sale investment securities amounting to
$2,473,000 in 1995 and ($2,697,000) in 1994 were recorded directly to
shareholders' equity.
The provisions for income taxes applicable to income before taxes for the
years ended December 31, 1995, 1994 and 1993 differ from amounts computed by
applying the statutory Federal income tax rates to income before taxes.
The effective tax rate and the statutory federal income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 34.2% 34.0% 34.0%
State income taxes, net of federal tax benefit 7.4 8.0 7.4
Tax-exempt interest on municipal obligations (.4) (.8) (.7)
Merger expenses not deductible for tax purposes -- 1.5 .4
Other (.1) (.1) .1
------------------------
Effective Tax Rate 41.1% 42.6% 41.2%
------------------------
------------------------
</TABLE>
Exhibit 13.1 14
<PAGE>
The components of the net deferred tax asset of the Company as of December
31, were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------
(in thousands)
<S> <C> <C>
Deferred Tax Assets:
Loan losses $ 2,151 $ 2,146
Unrealized loss on securities 500 2,697
Deferred compensation 1,348 1,100
OREO write downs 178 170
Capital leases -- 158
Loss on investment in real estate 228 229
Other 162 72
---------------------
Total deferred tax assets 4,567 6,572
---------------------
Deferred Tax Liabilities:
Depreciation (608) (718)
Capital leases (78) --
Securities accretion (273) (126)
Other (502) (283)
---------------------
Total deferred tax liability (1,461) (1,127)
----------------------
Net deferred tax asset $ 3,106 $ 5,445
----------------------
----------------------
</TABLE>
NOTE M - RETIREMENT PLANS
Substantially all employees with at least one year of service are covered by
a discretionary employee stock ownership plan (ESOP). Contributions are made to
the plan at the discretion of the Board of Directors. Country National Bank had
an ESOP which was merged into the TriCo plan during 1995. Contributions to the
plan(s) totaling $432,000 in 1995, $378,000 in 1994 and $384,000 in 1993 are
included in salary expense.
The Company has a supplemental retirement plan for directors and a
supplemental executive retirement plan covering key executives. These plans are
nonqualified defined benefit plans and are unsecured and unfunded. The Company
has purchased insurance on the lives of the participants and intends to use the
cash values of these policies ($3,926,000 and $3,444,000 at December 31, 1995
and 1994, respectively) to pay the retirement obligations.
Exhibit 13.1 15
<PAGE>
The following table sets forth the plans' status:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
----------------------------
(in thousands)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(2,795) $(1,780) $(1,893)
----------------------------
----------------------------
Accumulated benefit obligation (2,795) (1,780) (1,893)
----------------------------
----------------------------
Projected benefit obligation for service rendered to date (2,795) (1,973) (2,167)
----------------------------
----------------------------
Plan assets at fair value $ -- $ -- $ --
----------------------------
----------------------------
Projected benefit obligation in excess of plan assets $(2,795) $(1,973) $(2,167)
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 664 67 392
Prior service cost not yet
recognized in net periodic pension cost 123 120 128
Unrecognized net obligation at transition 322 357 518
- ----------------------------
Accrued pension cost included in other liabilities $(1,686) $(1,429) $(1,129)
----------------------------
----------------------------
Net pension cost included the following components:
Service cost-benefits earned during the period $ 100 $ 114 $ 100
Interest cost on projected benefit obligation 159 158 134
Net amortization and deferral 46 69 58
----------------------------
Net periodic pension cost $ 305 $ 341 $ 292
----------------------------
----------------------------
</TABLE>
The net periodic pension cost was determined using a discount rate assumption
of 7.0% for 1995, 7.75% for 1994, and 7.0% for 1993. The rates of increase in
compensation used were 0% to 5%.
The Company has an Executive Deferred Compensation Plan which allows
directors and key executives designated by the Board of Directors of the Company
to defer a portion of their compensation. The Company has purchased insurance
on the lives of the participants and intends to use the cash values of these
policies to pay the compensation obligations. At December 31, 1995 and 1994 the
cash values exceeded the recorded liabilities.
NOTE N - RELATED PARTY TRANSACTIONS
Certain directors, officers, and companies with which they are associated
were customers of, and had banking transactions with, the Company or its
Subsidiary in the ordinary course of business. It is the Company's policy that
all loans and commitments to lend to officers and directors be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other borrowers of the
Bank.
The following table summarizes the activity in these loans for 1995.
<TABLE>
<CAPTION>
BALANCE BALANCE
DECEMBER 31, ADVANCES/ DECEMBER 31,
1994 NEW LOANS PAYMENTS 1995
- -------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
$ 9,252 $ 1,361 $ 2,141 $ 8,472
</TABLE>
Exhibit 13.1 16
<PAGE>
NOTE O - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contract amounts of those instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
<TABLE>
<CAPTION>
Contractual Amount
December 31,
-------------------
1995 1994
(in thousands)
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit:
Commercial loans $27,763 $30,449
Consumer loans 39,114 43,205
Real estate mortgage loans 335 146
Real estate construction loans 10,815 7,715
Standby letters of credit 414 451
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates of one year or less or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on Management's credit evaluation of the customer. Collateral
held varies, but may include accounts receivable, inventory, property, plant
and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support private borrowing arrangements. Most standby
letters of credit are issued for one year or less. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Collateral requirements vary, but in general
follow the requirements for other loan facilities.
NOTE P - CONCENTRATION OF CREDIT RISK
Tri Counties Bank grants agribusiness, commercial and residential loans to
customers located throughout the northern Sacramento Valley and northern
mountain regions of California. The Bank has a diversified loan portfolio
within the business segments located in this geographical area.
Exhibit 13.1 17
<PAGE>
NOTE Q - DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH & SHORT-TERM INVESTMENTS
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
SECURITIES
For all securities, fair values are based on quoted market prices or dealer
quotes. See footnote C for further analysis.
LOANS
The fair value of variable rate loans is the current carrying value. These
loans are regularly adjusted to market rates. The fair value of other types of
fixed rate loans is estimated by discounting the future cash flows using current
rates at which similar loans would be made to borrowers with similar credit
ratings for the same remaining maturities. Fair value for nonaccrual loans is
reported at carrying value and is included in the net loan total. Since the
allowance for loan losses exceeds any potential adjustment for nonaccrual
valuation, no further valuation adjustment has been made.
ACCRUED INTEREST RECEIVABLE
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
DEPOSIT LIABILITIES AND LONG-TERM DEBT
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. These
values do not consider the estimated fair value of the Company's core deposit
intangible, which is a significant unrecognized asset of the Company. The fair
value of time deposits and debt is based on the discounted value of contractual
cash flows.
OTHER LIABILITIES
Other liabilities represent short-term instruments. The carrying amount
is a reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of letters of credit and standby letters of credit is not
significant.
ACCRUED INTEREST PAYABLE
For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Exhibit 13.1 18
<PAGE>
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
---------------------
Carrying Fair
Financial assets: Amount Value
---------------------
(In thousands)
<S> <C> <C>
Cash and short-term investments $ 65,273 $ 65,273
Securities:
Held-to-maturity 116,865 116,576
Available-for-sale 76,246 76,246
Loans, net 313,186 316,764
Accrued interest receivable 4,609 4,609
Financial liabilities:
Deposits 516,19 516,653
Accrued interest payable 3,162 3,162
Other liabilities 4,694 4,694
Long-term borrowings 6,292 26,430
<CAPTION>
December 31, 1994
---------------------
Carrying Fair
Financial assets: Amount Value
---------------------
(In thousands)
<S> <C> <C>
Cash and short-term investments $ 39,709 $ 39,709
Securities:
Held-to-maturity 143,788 131,649
Available-for-sale 74,706 74,706
Loans, net 301,495 297,367
Accrued interest receivable 4,748 4,748
Financial liabilities:
Deposits 491,172 490,802
Accrued interest payable 1,760 1,760
Other liabilities 3,715 3,715
Long-term borrowing 18,499 18,441
</TABLE>
NOTE R - ACQUISITION
On July 21, 1994, the Company issued approximately 490,000 shares of its
common stock in exchange for all of the outstanding common stock of Country
National Bank, Redding, California. This business transaction was accounted for
as a pooling-of-interests combination and accordingly, the consolidated
financial statements and financial data for periods prior to the combination
have been restated to include the accounts and results of operations of Country
National Bank. Certain reclassifications have been made to Country National
Bank to conform to TriCo Bancshares' presentation.
The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized as follows:
Exhibit 13.1 19
<PAGE>
<TABLE>
<CAPTION>
Year ended
December 31,
1993
--------------
(in thousands)
<S> <C>
Net interest income:
TriCo Bancshares $24,208
Country National Bank 2,743
- ----------------------------------------------------------------
Combined $26,951
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Net income:
TriCo Bancshares $ 6,339
Country National Bank 476
- ----------------------------------------------------------------
Combined $ 6,815
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Net income per share:
TriCo Bancshares* $ 1.89
Country National Bank* 1.28
- ----------------------------------------------------------------
Combined $ 1.78
- ----------------------------------------------------------------
- ----------------------------------------------------------------
*As originally reported.
</TABLE>
NOTE S - FUTURE FINANCIAL ACCOUNTING STANDARDS
In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 122, Accounting for Mortgage Servicing
Rights, which is effective for fiscal years beginning after December 15, 1995.
This statement requires, under certain circumstances, entities to recognize as a
separate asset an amount related to the right to service mortgage loans. The
Company will adopt this statement on January 1, 1996 and does not expect that it
will have a material impact on its financial position or results of operations.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), which is
effective for transactions entered into for fiscal years beginning after
December 15, 1995. The statement defines a fair value based method of
accounting for stock-based compensation. As permitted by SFAS 123, the Company
will not change its method of accounting for stock options but will provide the
additional required disclosures beginning in fiscal 1996.
Exhibit 13.1 20
<PAGE>
NOTE T - TRICO BANCSHARES FINANCIAL STATEMENTS
TRICO BANCSHARES (PARENT ONLY) BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1995 1994
-----------------------
(in thousands)
<S> <C> <C>
Cash $ 134 $ 2,527
Investment in Tri Counties Bank 52,868 45,590
Other assets 303 185
-----------------------
Total assets $53,305 $48,302
-----------------------
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Total liabilities $ 92 $ 71
-----------------------
Shareholders' equity:
Preferred stock, no par value:
Authorized 1,000,000 shares;
Series B, issued and outstanding
none (0) and 8,000 shares -- 3,899
Common stock, no par value:
Authorized 20,000,000 shares;
issued and outstanding 4,464,828
and 3,513,707 shares, respectively 44,315 43,552
Retained earnings 9,548 4,488
Unrealized loss on securities
available-for-sale, net (650) (3,708)
-----------------------
Total shareholders' equity 53,213 48,231
-----------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $53,305 $48,302
-----------------------
-----------------------
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
-----------------------------------
(in thousands)
<S> <C> <C> <C>
Interest income $ -- $ -- $ --
-----------------------------------
Administration expense 282 334 199
-----------------------------------
Loss before equity in net income
of Tri Counties Bank (282) (334) (199)
Equity in net income of Tri Counties Bank:
Distributed 3,200 -- 808
Undistributed 4,010 6,103 6,124
Income tax credits 117 92 82
-----------------------------------
NET INCOME $7,045 $ 5,861 $ 6,815
-----------------------------------
-----------------------------------
</TABLE>
Exhibit 13.1 21
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
-----------------------------------
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $7,045 $5,861 $6,815
Adjustments to reconcile net
income to net cash provided
by operating activities:
Undistributed equity in Tri Counties
Bank (4,010) (6,103) (6,124)
Deferred income taxes (117) (92) (82)
Increase (decrease) in other
operating assets and liabilities 19 (168) 205
-----------------------------------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 2,937 (502) 814
-----------------------------------
INVESTING ACTIVITIES:
Capital contributed to
Tri Counties Bank -- (183) --
-----------------------------------
NET CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES -- (183) --
-----------------------------------
FINANCING ACTIVITIES:
Issuance of common stock 554 403 7,899
Cash dividends -- preferred (245) (420) (630)
Cash dividends -- common (1,639) (1,304) (1,400)
-----------------------------------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES (5,330) (1,321) 3,587
-----------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (2,393) (2,006) 4,401
Cash and cash equivalents at
beginning of year 2,527 4,533 132
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 134 $2,527 $4,533
-----------------------------------
-----------------------------------
</TABLE>
Exhibit 13.1 22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TRICO BANCSHARES AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheets of TriCo
Bancshares (a California corporation) and Subsidiary as of December 31, 1995 and
1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements of Country National Bank, a company acquired during 1994 in a
transaction accounted for as a pooling-of-interests, as discussed in Note R to
the consolidated financial statements. Such statements are included in TriCo
Bancshares' consolidated statements of income, changes in shareholders' equity
and cash flows for the year ended December 31, 1993 and reflect 7% of
consolidated net income in 1993. These statements were audited by other
auditors whose report has been furnished to us and our opinion, insofar as it
relates to amounts included for Country National Bank, is based solely upon the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits, and the report of the other auditors, provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of TriCo Bancshares and Subsidiary as
of December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, effective
January 1, 1994, the Corporation changed its method of accounting for certain
investments in debt and equity securities as required by Statement of Financial
Accounting Standards No. 115.
/s/ Arthur Andersen LLP
San Francisco, California
January 23, 1996
Exhibit 13.1 23
<PAGE>
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.
All financial information has been restated on a historical basis to
reflect the July 21, 1994 merger with Country National Bank (CNB) accounted for
on a pooling-of-interests basis.
OVERVIEW
As reported last year, the groundwork began in 1993 for establishing the
base for future growth of the Bank. In 1994 the opening of four supermarket
branches and the acquisition of Country National Bank laid the foundation for
solidifying the Bank's community bank leadership in its market area. The Bank's
external and internal structures continued to build and develop in 1995. The
Bank opened a branch in Albertson's Chico store in November and another is
scheduled to open in Albertson's Grass Valley store in March 1996. A loan
production office was opened in Bakersfield, California in December and the Bank
is planning to open one in Sacramento in the first quarter of 1996. These are
relatively low cost ways to expand the Bank's service area. Changes in the
organizational structure, coupled with new and upgraded product delivery
systems, are helping the Bank remain competitive in the ever changing California
banking environment.
Management continues to believe the Bank's establishment of the supermarket
branches was well timed. Tri Counties Bank is one of few community banks that
is employing in-store branches as part of a service delivery strategy. It is
apparent from their actions that in-store branches will continue to play an
important role in long term service delivery strategies for the two major
California banks. The aggressive position taken by those two banks to tie up
contracts with the major store chains has presented Management with a challenge
to obtain desirable locations for our expansion plans. Management still hopes
to expand the Bank's service area by adding two to four in-store branches in
each of the next several years.
Net income of $7,045,000 for 1995 was a record for the Company. Income
increased $1,184,000 or 20.2% over 1994 and is attributable to several factors.
Net interest income increased $463,000 (not tax adjusted) as the increase of
$2,771,000 in interest income was offset in part by an increase of $2,308,000 in
interest expense. Interest rates received on earning assets and rates paid on
interest-bearing liabilities both increased in 1995. The net interest margin
improved to 5.36% in 1995 from 5.18% in 1994. Noninterest income increased
$908,000 of which $593,000 was due to service charge and fee income as the
result of both rate changes and increased volumes. Noninterest expenses
decreased $397,000. Major favorable impacts to these expenses resulted from a
decrease in FDIC insurance of $380,000, or 35.8%, and the elimination of the one
time costs of approximately $840,000 relating to the 1994 acquisition of Country
National Bank. The full year effect of the expenses related to the four
supermarket branches which were opened during 1994, as well as other cost
increases, offset these cost reductions in part. The Company's 1995 income tax
rate decreased 1.5% to 41.1% due to the reduction in non-deductible acquisition
costs which were incurred in 1994.
Assets of the Company totaled $603,554,000 at December 31, 1995, which was
an increase of $9,720,000 from 1994 ending balances. Loan balances increased
$11,673,000 to $318,766,000.
During 1995 the treasury yield curve flattened. That is, rates earned on
short term investments were within 100 to 150 basis points of the 30 year bond
rates. Consequently, Management decided not to reinvest funds received from
maturing instruments or prepayments of principal from mortgage backed securities
in longer term securities. As a result, the securities portfolio decreased
about $25,383,000 or 11.6% from year ago balances. At December 31, 1995, the
Company had $25,600,000 invested in overnight Federal funds versus none at year
end 1994.
Net income for 1994 decreased to $5,861,000 from $6,815,000 in 1993.
Contributing factors to the decrease included: costs associated with the CNB
acquisition including investment banking fees, legal and accounting fees, as
well as costs associated with converting CNB to the banking systems at Tri
Counties Bank; startup costs and expenses related to the four new supermarket
branches. Significant gains of $1,421,000 on the sale of securities realized in
1993 versus a small loss in 1994. These unfavorable impacts on earnings were
offset in part by a $609,000 (2.3%) (not tax adjusted) increase in net interest
income. Also, other income was down slightly.
Exhibit 13.1 24
<PAGE>
The quality of the Bank's loan portfolio allowed Management to reduce the
provision for loan losses by $1,542,000 in 1994 which helped to offset the
adverse factors.
Management's goal for the Bank is to deliver a full array of competitive
products to its customers while maintaining the personalized customer service of
a community bank. We believe this strategy will provide growth and above
average returns for our shareholders.
Exhibit 13.1 25
<PAGE>
(A) RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993 (1) 1992 (1) 1991 (1)
-----------------------------------------------------------------
(in thousands, except earnings per share amounts)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 33,776 $ 30,641 $ 31,795 $ 33,695 $ 35,852
Interest on investment securities--taxable 11,706 12,247 8,585 6,170 3,192
Interest on investment securities--tax exempt(2) 272 401 426 489 1,347
Interest on federal funds sold 371 123 329 129 530
---------------------------------------------------------------------
Total interest income 46,125 43,412 41,135 40,483 40,894
---------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 16,231 13,902 13,006 15,427 18,849
Interest on short-term borrowing 526 719 739 65 20
Interest on long-term debt 1,231 1,059 251 108 119
---------------------------------------------------------------------
Total interest expense 17,988 15,680 13,996 15,600 18,988
---------------------------------------------------------------------
NET INTEREST INCOME 28,137 27,732 27,139 24,883 21,906
Provision for loan losses 335 316 1,858 2,101 1,531
---------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 27,802 27,416 25,281 22,782 20,375
---------------------------------------------------------------------
NONINTEREST INCOME:
Service charges, fees and other 5,943 5,048 5,304 5,205 4,926
Investment securities gains (losses), net (10) (23) 1,421 367 39
---------------------------------------------------------------------
Total noninterest income 5,933 5,025 6,725 5,572 4,965
---------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits 10,787 10,550 9,072 8,460 8,035
Other, net 10,874 11,508 11,152 9,570 9,010
---------------------------------------------------------------------
Total noninterest expenses 21,661 22,058 20,224 18,030 17,045
---------------------------------------------------------------------
NET INCOME BEFORE INCOME TAXES 12,074 10,383 11,782 10,324 8,295
Income taxes 4,915 4,350 4,779 4,113 3,031
Tax equivalent adjustment (2) 114 172 188 211 443
---------------------------------------------------------------------
NET INCOME $ 7,045 $ 5,861 $ 6,815 $ 6,000 $ 4,821
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
PRIMARY EARNINGS PER COMMON SHARE (3) $ 1.46 $ 1.18 $ 1.42 $ 1.46 $ 1.10
FULLY DILUTED EARNINGS PER COMMON SHARE (3) $ 1.45 $ 1.18 $ 1.40 $ 1.46 $ 1.10
---------------------------------------------------------------------
---------------------------------------------------------------------
SELECTED BALANCE SHEET INFORMATION
Total Assets $603,554 $593,834 $575,897 $492,404 $439,358
Long-term Debt 26,292 18,499 7,144 907 1,027
Preferred Stock -- 3,899 3,899 6,086 8,630
---------------------------------------------------------------------
</TABLE>
(1) Restated on a historical basis to reflect the July 21, 1994 acquisition of
Country National Bank on a pooling-of-interests basis.
(2) Interest on tax-free securities is reported on a tax equivalent basis of
1.72 for 1995, 1.75 for 1994, 1.79 for 1993, 1.76 for 1992, and 1.49 for
1991.
(3) Restated on a historical basis to reflect the 5-for-4 stock split effected
September 22, 1995.
Exhibit 13.1 26
<PAGE>
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.
In 1995 net interest income increased $405,000 (1.5%) to $28,137,000. The
interest income component increased $2,713,000 (6.3%) to $46,125,000. Rates
received on loans in 1995 averaged 10.95% which was 85 basis points higher than
rates received in 1994. The higher rates accounted for the majority of the
increase in interest income. Average loans outstanding also increased modestly
in 1995 as did rates received on securities and Federal Funds sold. These
increases were offset in part by an 8.1% ($18,411,000) decrease in average
balances of investment securities which resulted in a reduction of $1,052,000 in
interest income.
For 1995 the interest expense component increased $2,308,000 (14.7%) to
$17,988,000 over 1994. Most of this increase can be attributed to higher rates
paid on time certificates of deposit in 1995. The average rate paid on time
certificates increased 133 basis points or 32% over the 1994 average. This
large increase was due to the local competitive market environment. During part
of the year, Management did not raise the rates to meet the local competition
and as a result some deposit runoff was experienced. For the year, average
balances on interest-bearing deposits decreased $9,118,000 (2.2%). The higher
rates on time certificates also caused customers to shift some funds from
savings to time certificates. Average balances in savings accounts decreased
$44,572,000 (21.1%) as time certificate balances increased $35,179,000 (27.1%).
The effect of the changes in the net interest income and the average balances of
the interest earning assets and the interest-bearing liabilities resulted in an
overall increase of 18 basis points in net interest margin. Net interest margin
for 1995 was 5.36% versus 5.18% in 1994.
The net interest income for 1994 of $27,732,000 was an increase of $593,000
(2.2%) over 1993. Interest income increased 5.5% as the growth in investment
securities and slightly higher yields on securities offset lower average loan
balances. The net interest income in 1994 was adversely affected by a 12.0%
increase in interest expense as both the volume of interest-bearing liabilities
and rates paid on them increased. Even though net interest income increased,
net interest margin in 1994 decreased 31 basis points to 5.18%. The net
interest margin reflected a 22 basis point decline in the average yield received
on earning assets coupled with a 9 basis point increase in the average rates
paid on interest-bearing liabilities. Because loan demand remained relatively
soft throughout most of 1994, asset growth was in investment securities which
have lower yields than loans.
Interest income in 1994 increased $2,277,000 or 5.5% over 1993. Growth in
the securities portfolio from an average balance of $167,244,000 in 1993 to
$228,616,000 in 1994 coupled with a 20 basis point increase in security yields
resulted in an increase of $3,637,000 in interest income. This increase was
offset by a decrease in loan interest income due to lower volumes. Overall
yield on the earning assets decreased 22 basis points as the increased volume of
earning assets was in the securities which have lower yields than loans.
Interest expense increased $1,684,000 to $15,680,000 in 1994. Most of the
increase was due to the volume of interest-bearing liabilities as average rates
paid increased just 10 basis points from 1993 levels. While rates paid on the
full year basis within the deposit category were not significantly changed from
the prior year, time deposits in the fourth quarter reflected a jump of 62 basis
points from the 1993 levels.
Table One, Analysis of Change in Net Interest Margin on Earning Assets, and
Table Two, Analysis of Volume and Rate Changes on Net Interest Income and
Expenses, are provided to enable the reader to understand the components and
past trends of the Bank's interest income and expenses. Table One provides an
analysis of change in net interest margin on earning assets setting forth
average assets, liabilities and shareholders' equity; interest income earned and
interest expense paid and average rates earned and paid; and the net interest
margin on earning assets. Table Two presents an analysis of volume and rate
change on net interest income and expense.
Exhibit 13.1 27
<PAGE>
TABLE ONE: ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
ASSETS Balance (1) Income Rate Balance (1) Income Rate Balance (1) Income Rate
-------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans (2,3) $308,473 $33,776 10.95% $303,497 $30,641 10.10% $314,691 $31,795 10.10%
Securities - taxable 207,163 11,706 5.65% 224,447 12,247 5.46% 163,322 8,585 5.26%
Securities - nontaxable (4) 3,042 272 8.93% 4,169 401 9.62% 3,922 426 10.86%
Federal funds sold 6,702 371 5.54% 3,727 123 3.30% 12,394 329 2.65%
-------- ------- -------- ------- -------- -------
Total earning assets 525,380 46,125 8.78% 535,840 43,412 8.10% 494,329 41,135 8.32%
------- ------- -------
------- ------- -------
Cash and due from banks 29,150 31,935 30,546
Premises and equipment 13,206 13,151 11,749
Other assets, net 19,537 19,240 14,479
Less: Unrealized loss
on securities (3,156) (3,538) --
Less: Allowance for loan
losses (5,636) (5,917) (5,731)
-------- -------- --------
Total assets $578,481 $590,711 $545,372
-------- -------- --------
-------- -------- --------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing demand
deposits $ 81,408 2,000 2.46% $ 81,133 2,066 2.55% $ 71,751 1,885 2.63%
Savings deposits 166,637 5,167 3.10% 211,209 6,442 3.05% 206,975 6,523 3.15%
Time deposits 164,965 9,064 5.49% 129,786 5,394 4.16% 114,649 4,598 4.01%
Federal funds purchased 1,953 120 6.14% 3,726 174 4.67% 1,760 59 3.35%
Repurchase agreements 6,696 406 6.06% 10,727 545 5.08% 20,104 680 3.38%
Long-term debt 21,416 1,231 5.75% 20,637 1,059 5.13% 4,440 251 5.65%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 443,075 17,988 4.06% 457,218 15,680 3.43% 419,679 13,996 3.33%
------- ------- -------
------- ------- -------
Noninterest-bearing
deposits 76,184 79,776 74,812
Other liabilities 8,196 6,014 6,141
Shareholders' equity 51,026 47,703 44,740
-------- -------- --------
Total liabilities and
shareholders' equity $578,481 $590,711 $545,372
-------- -------- --------
-------- -------- --------
Net interest rate spread (5) 4.72% 4.67% 4.99%
----- ----- -----
Net interest income/net
interest margin (6) $28,137 5.36% $27,732 5.18% $27,139 5.49%
------- ----- ------- ----- ------- -----
------- ------- -------
</TABLE>
(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 $1,676,000 in 1995,
$1,701,000 in 1994 and $2,241,000 in 1993.
(4) Interest income is stated on a tax equivalent basis of 1.72 for 1995, 1.75
for 1994 and 1.79 for 1993.
(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.
Exhibit 13.1 28
<PAGE>
TABLE TWO: ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND
EXPENSES
<TABLE>
<CAPTION>
1995 OVER 1994 1994 over 1993
--------------------------------------------------------------------------
YIELD/ Yield/
VOLUME RATE (4) TOTAL Volume Rate (4) Total
--------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
interest income:
Loans (1,2) $ 502 $ 2,633 $ 3,135 $ (1,131) $ (23) $(1,154)
Investment securities (3) (1,052) 382 (670) 3,240 397 3,637
--------------------------------------------------------------------------
Total (452) 3,165 2,713 1,879 398 2,277
--------------------------------------------------------------------------
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 7 (73) (66) 246 (65) 181
Savings deposits (1,359) 84 (1,275) 133 (214) (81)
Time deposits 1,462 2,208 3,670 607 189 796
Federal funds purchased (83) 29 (54) 66 49 115
Repurchase agreements (205) 66 (139) (317) 182 (135)
Long-term borrowings 40 132 172 916 (108) 808
--------------------------------------------------------------------------
Total (138) 2,446 2,308 1,651 33 1,684
--------------------------------------------------------------------------
Increase (decrease) in
net interest income $ (314) $ 719 $ 405 $ 228 $ 365 $ 593
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
(1) Nonaccrual loans are included.
(2) Interest income on loans includes fees on loans of $1,676,000 in 1995,
$1,701,000 in 1994 and $2,241,000 in 1993.
(3) Interest income is stated on a tax equivalent basis of 1.72 for 1995,
1.75 for 1994 and 1.79 for 1993.
(4) The rate/volume variance has been included in the rate variance.
PROVISION FOR LOAN LOSSES
The 1995 provision for loan losses of $335,000 was a slight increase over the
1994 provision. This provision essentially maintained the allowance for loan
losses at a constant level as the provision and loan recoveries were just
$28,000 less than the loans charged off. Net charge-offs for the year were only
.12% of average loans outstanding which was reflective of the continuing quality
of the loan portfolio. Nonperforming loans were .76% of total loans at year end
versus .37% in 1994. The allowance for loan losses to nonperforming loans was
226% versus 489% at the end of 1994. These two ratios for the Bank compare to
averages of about 3.2% and 82% respectively, for California peer banks. (See
balance sheet analysis "Allowance for Loan Losses" for further discussion.)
The Bank reduced its provision for loan losses in 1994 to $316,000 for a
decrease of 82% from 1993. The provision was reduced from prior year levels as
loan quality remained very good with net charge-offs equaling just .22% of
average loans outstanding. Nonperforming loans were .37% of total loans at year
end versus .56% in 1993. The allowance for loan losses to nonperforming loans
was 489% versus 347% at the end of 1993.
SERVICE CHARGES AND FEES AND OTHER INCOME
Service charge and fee income grew by 16.6% to $4,163,000 in 1995. Most of
the increase came from fee increases on returned checks coupled with volume
increases. The 20.4% or $302,000 increase in other income resulted from a
mixture of changes within the category and nonrecurring items. Gains on the
sale of loans was down for the second straight year as origination of mortgage
loans continued to be soft. Commissions on the sales of mutual funds and
annuities decreased 5% to 8% as sales were soft in the first part of 1995.
In 1994 service charge and fee income was relatively flat versus 1993. No
accounts within the category had a year over year variance exceeding 2% of the
category. Other income decreased $269,000 to $1,478,000 in
Exhibit 13.1 29
<PAGE>
1994. Gains on the sale of loans decreased $274,000 or 61% from
the 1993 level. Origination of mortgage loans were off
significantly due to the higher interest rates. Commissions from
the sale of investment products increased a modest 1.9% to
$945,000 in 1994. However, due to the stock market conditions
during 1994, commissions from the sale of mutual funds decreased
$114,000 (56.8%) while commissions on the sale of annuities
increased $156,000 (26.9%). Other categories did not have any
significant changes.
SECURITIES TRANSACTIONS
The Bank had very few securities transactions in 1995. It
realized a total net loss of $10,000 for the year on sales of
securities. The flat yield curve present for most of 1995
presented few opportunities to invest at rates attractive to Bank
Management. The current investment strategy consists of allowing
the investment portfolio to shrink as securities mature or
prepayments are received. These funds will be invested in short
term instruments until they can be deployed into loans or until
the yield curve for intermediate term securities improves.
Sales activity from the available-for-sale securities in 1994
was significantly reduced from the 1993 levels. The Bank
realized a total net loss of $23,000 as compared to a gain of
$1,421,000 in 1993 as a result of restructuring the investment
portfolio. During 1993, the continuing decline of interest rates
had presented Management with an on-going challenge to maintain
an acceptable yield on its investment securities while
maintaining reasonable interest rate risk. Because of this
decline, Management elected to make greater use of Collateralized
Mortgage Obligations (CMO's) which paid higher rates of interest
than equivalent maturity U.S. Treasuries or Agencies. By the end
of 1993, the Bank had mostly completed restructuring its
investment portfolio for both improved yields and in preparation
for adoption of SFAS 115 on January 1, 1994.
SALARIES AND BENEFITS
Salary and benefit expenses increased 2.25% or $237,000 in
1995. Base salaries increased $259,000 (3.6%) and were
reflective of the full year effect of staffing for the in-store
branches and normal salary reviews. Management incentive
payments for 1995 were less than those for 1994, as approximately
$245,000 in one time bonus and termination payments were made to
Country National Bank employees in 1994. Group insurance
expenses decreased 10.0% mostly due to a one time premium refund.
These expenses are not expected to increase significantly in
1996.
In 1994, salaries and benefits increased $1,478,000 or 16.3%.
Of the increase $745,000 was attributable to base salaries which
included the effect for supermarket staffing, a new in-house
legal department, a new collections department and normal salary
increases. In addition approximately $245,000 of the increase
was due to the payments to Country National Bank employees
discussed above. The balance of the increase was due to
increases in employee incentive pay and employee benefits
including payroll taxes.
OTHER EXPENSES
Other expenses decreased $634,000 or 5.5% in 1995. In
September the FDIC significantly reduced deposit insurance
premiums retroactive to June 1995. For the year, the lower
insurance premium and lower average deposits resulted in a
favorable change of $478,000 from 1994. Greater savings will be
realized in 1996 as the FDIC has reduced the deposit insurance
premium to zero ($0) for well capitalized banks as long as its
insurance fund maintains the prescribed level. The absence of
the one time merger costs of approximately $840,000 incurred in
1994 also favorably impacted other expenses in 1995. A 9.0%
($302,000) increase in premise and equipment expenses, which were
mostly due to the full year effect of the in-store branches,
partially offset these large decreases. Net increases in various
other expenses totaled approximately $380,000 with no single
expense classification being significant.
In 1994 other expenses increased $355,000 or 3.2% to
$11,508,000. Within the overall category there were some large
variances. For the following categories of expense, most of the
variances were related to either increased business activity at
the new supermarket branches or the acquisition of CNB:
amortization of leasehold improvements increased $36,000 or
70.8%; depreciation on equipment increased $187,000 or 30.3%;
purchase of customer checks increased $75,000 or 74%; outside
data processing services increased $88,000 or 47% due to
conversion costs for CNB; communication costs increased $114,000
or 37%; advertising costs increased $48,000 or 11.4%; promotion
expenses increased $43,000 or 91.5%; professional fees increased
$329,000 or 100% and were mostly merger related. Other large
variances occurred in the following accounts: service charges
for the automated teller machines (ATM) increased $81,000 or 126%
as costs were incurred to change the vendor that provided the ATM
network services; amortization for market discount on stock
options
Exhibit 13.1 30
<PAGE>
was $124,000 as this was the first year for this charge; FDIC
assessment increased $71,000 due to higher deposit volumes.
Significant decreases occurred in the following categories:
postage decreased $76,000 or 18% in part due to consolidating
mailings; provision for OREO losses decreased $663,000 or 93% as
OREO activity decreased during the year; legal fees for loan
collection decreased $236,000 or 57% as this function was brought
in house after the first quarter.
PROVISION FOR TAXES
The effective tax rate on income was 41.1%, 42.6% and 41.2% in 1995, 1994,
and 1993. The effective tax rate was greater than the federal statutory tax
rate due to state tax expense of $1,311,000, $1,182,000 and $1,186,000 in these
years. Tax-free income of $158,000, $229,000 and $238,000 from investment
securities in these years helped to reduce the effective tax rate. In both 1994
and 1993 nondeductible expenses related to the CNB merger were incurred which
increased the effective tax rate.
RETURN ON AVERAGE ASSETS AND EQUITY
The following table sets forth certain ratios for the Company for the last
three years (using average balance sheet data):
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------
<S> <C> <C> <C>
Return on assets 1.22% .99% 1.25 %
Return on shareholders' equity 13.81% 12.29% 15.23 %
Return on common shareholders' equity 13.95% 12.42% 15.81 %
Shareholders' equity to assets 8.82% 8.06% 8.21 %
Common shareholders' equity to assets 8.82% 7.42% 7.17 %
Common shareholders' dividend payout ratio 24.10% 23.97% 22.64 %
----------------------------
</TABLE>
Return on assets rebounded in 1995 to 1.22% from the 0.99% achieved in 1994.
The higher return was achieved through improved earnings applied to average
assets which were $12,230,000 lower in 1995. Return on assets of 0.99% in 1994
was down from 1.25% attained in the prior year. The lower ROA achieved in 1994
was reflective of the compounding of an increase in average assets of 8.3% and a
decrease in net income of 14%.
The return on shareholder's equity improved to 13.8% in 1995 versus the 12.3%
return achieved in 1994. The improved ROE for 1995 was reflective of both
increased earnings and higher average shareholders' equity. Return on
shareholders' equity fell to 12.3% in 1994 from 15.2% in 1993. Average capital
due to earnings increased 6.6% while net income decreased.
In the past two years the difference between the return on Common
shareholders' equity and return on shareholders' equity has been narrowing.
This change is due to the reduction of the dividend amounts paid for preferred
stock dividends. In August of 1995, the Company redeemed its Series B Preferred
Stock and in December of 1993, it had redeemed its Series C Preferred Stock.
The annual dividend requirements for these two issues were $420,000 and $229,000
respectively. Since all of the Company's preferred shares have now been
redeemed, from 1996 forward there will not be any requirements for preferred
dividends.
The total shareholders' equity to asset ratio increased in 1995 to 8.8% from
8.1%. This reflects the combination of the reduction in average assets, the
increased earnings and the redemption of the Series B Preferred Stock. In 1994
there was just a .1% increase from 1993. The December 1993 redemption of the
Series C Preferred Stock coupled with the growth in assets contributed to this
change.
The Common shareholders' equity to assets ratio increased from 7.2% in 1993
to 7.4% in 1994 and 8.4% in 1995. These ratios are impacted by the same factors
as the total equity ratios except for the direct effect of reduction in total
capital for the redemption of the preferred stock issues.
In 1995, dividends paid to Common shareholders totaled $1,639,000 as compared
to $1,304,000 in 1994. The resulting Common shareholders' dividend payout ratio
of 24.1% was .1% higher than the payout for 1994. The increase in dividends
paid matched the earnings growth. Common shareholders' dividend payout ratio
increased to 24.0% in 1994 from 22.6% in 1993 even though total dividend
distributions to Common shareholders decreased to $1,304,000 from $1,400,000.
The payout ratio increased as the 6.9% decrease in cash dividends paid was
offset by the 12.0% decrease in income available for Common shareholders.
Exhibit 13.1 31
<PAGE>
(B) BALANCE SHEET ANALYSIS
LOANS
The Company concentrates its lending activities in four principal areas:
commercial loans (including agricultural loans); consumer loans; real estate
mortgage loans (residential and commercial loans and mortgage loans originated
for sale); and real estate construction loans. At December 31, 1995, these four
categories accounted for approximately 48%, 20%, 26% and 6%, respectively, of
the Company's loan portfolio. The interest rates charged for the loans made by
the Company vary with the degree of risk, the size and maturity of the loans,
the borrower's relationship with the Company and prevailing money market rates
indicative of the Company's cost of funds.
The majority of the Company's loans are direct loans made to individuals,
farmers and local businesses. The Company relies substantially on local
promotional activity, personal contacts by bank officers, directors and
employees to compete with other financial institutions. The Company makes loans
to borrowers whose applications include a sound purpose, a viable repayment
source and a plan of repayment established at inception and generally backed by
a secondary source of repayment.
Loan activity, while not robust in 1995, reflected some improvements over
1994 as average loans outstanding increased 1.6% to $308,473,000 and year end
balances increased 3.8% to $318,766,000. The average loan to deposit ratio in
1995 was 63.1% versus 60.7% in 1994. Management anticipates that the higher
year end loan balances will provide a good platform for growth in 1996. As
mentioned in the Overview section of this report, the Bank has opened a loan
production office in Bakersfield, California and plans to open a similar office
in Sacramento, in 1996. Management's goal is to replace maturing investment
securities with loans.
Loan demand was soft in 1994 as average loan balances decreased 3.6% from
1993 levels. The 1994 year end loan balances of $307,103,000 were up slightly
from 1993 ending balances. The average loan to deposit ratio for 1994 was down
6.5% from the 1993 average of 67.2%.
In 1993 the Bank installed a new software system which resulted in some
changes in the loan classifications. The prior year classifications were not
restated in the following table, but in general there was not a significant
change in the loan mix. Over the five year period real estate construction
loans have decreased as the result of economic conditions and de-emphasis of
this loan type by the Bank. Commercial loans have generally increased as a
percent of loans and this increase has offset the decrease in construction loan
percent.
Management does not foresee any significant changes occurring in the loan mix
in the coming year.
LOAN PORTFOLIO COMPOSITE
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
---------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $152,173 $153,957 $140,750 $150,685 $149,960
Consumer installment 64,445 58,471 55,654 47,726 51,635
Real estate mortgage 81,888 76,673 88,887 88,715 83,187
Real estate construction 20,260 18,002 20,611 30,392 31,615
---------------------------------------------------
Total loans $318,766 $307,103 $305,902 $317,518 $316,397
---------------------------------------------------
</TABLE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
Nonperforming assets at December 31, 1995 totaled $3,064,000 which was a 6.3%
decrease from 1994. The OREO component had a significant decrease from
$2,124,000 in 1994 to $631,000 in 1995. However, this decrease was offset in
great part by an increase in nonperforming loans. They increased from
$1,146,000 in 1994 to $2,433,000 in 1995. The nonperforming loans at December
31, 1995 consisted of numerous lower value loans with the largest being about
$188,000. With this increase, the ratio of nonperforming loans to total loans
was .76% as compared to .37% in 1994. While nonperforming loans are up from the
prior year, management does not see a trend of increasing problem loans.
Both nonperforming loans and nonperforming assets at December 31, 1994
reflected significant decreases from 1993 year end totals. Nonperforming loans
decreased 33.4% to $1,146,000 and nonperforming assets
Exhibit 13.1 32
<PAGE>
decreased 38.8% to $3,270,000. Bank management had emphasized improving
collections during 1994 and actively sought to dispose of OREO properties. Both
of these actions helped to reduce the nonperforming loans and assets. At .37%
of total loans, nonperforming loans were at their lowest as a percentage of
total loans in the prior five years.
Commercial, real estate and consumer 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 (unless
in Management's opinion the loan is well secured and in the process of
collection), the full and timely collection of additional interest or principal
becomes uncertain, the loan is classified as doubtful by internal auditors or
bank regulatory agencies, a portion of the principal balance has been charged
off, or the Company takes possession of the collateral. The reclassification of
loans as nonaccrual does not necessarily reflect Management's judgment as to
whether they are collectible.
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 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 on 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 year ended December 31, 1995, if all such loans had been current in
accordance with their original terms, totaled $166,000. Interest income
actually recognized on these loans in 1995 was $66,000.
With respect to the Company's policy of placing loans 90 days or more past
due on nonaccrual status unless 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.
Exhibit 13.1 33
<PAGE>
The following table sets forth the amount of the Company's nonperforming
assets as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 2,213 $ 1,122 $ 1,595 $ 583 $ 1,562
Accruing loans past due
90 days or more 220 24 126 1,611 989
Restructured loans (in compliance
with modified terms) -- -- -- -- --
----------------------------------------------------
Total nonperforming loans 2,433 1,146 1,721 2,194 2,551
Other real estate owned 631 2,124 3,624 1,860 1,426
----------------------------------------------------
Total nonperforming assets $ 3,064 $ 3,270 $ 5,345 $ 4,054 $ 3,977
----------------------------------------------------
----------------------------------------------------
Nonincome producing investments
in real estate held by Bank's real
estate development subsidiary $ 1,173 $ 1,173 $ 1,172 $ 1,240 $ 1,735
----------------------------------------------------
Nonperforming loans to total loans .76% .37% .56% .69% .81%
Allowance for loan losses to nonper-
forming loans 229% 489% 347% 219% 163%
Nonperforming assets to total assets .51% .55% .93% .82% .91%
Allowance for loan losses to nonper-
forming assets 182% 171% 112% 118% 105%
----------------------------------------------------
</TABLE>
ALLOWANCE FOR LOAN LOSSES ACTIVITY
In determining the adequacy of the allowance for loan losses, Management
relies primarily on its review of the loan portfolio both to ascertain whether
there are probable losses to be written off and to assess the loan portfolio in
the aggregate. Problem loans are examined on an individual basis to determine
estimated probable loss. In addition, Management considers current and
projected loan mix and loan volumes, historical net loan loss experience for
each loan category and current and anticipated economic conditions affecting
each loan category. Based on the current conditions of the loan portfolio and
nonperforming assets as discussed in the previous section, Management decreased
the allowance for loan losses to 1.75% of outstanding loans at December 31, 1995
versus 1.83% at the prior year end. It is anticipated the Bank will continue to
provide for loan losses at this level in the near term.
Management believes that the $5,580,000 allowance for loan losses at December
31, 1995 is adequate to absorb probable losses inherent in the Bank'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 primary risk elements considered by Management with respect to
installment and residential real estate loans is lack of timely payment and the
value of the collateral. The primary risk elements considered by Management
with respect to its credit card portfolio are general economic conditions,
timeliness of payments and the potential for fraud and over limit credit draws.
The primary risk elements considered by Management with respect to real estate
construction loans are the financial condition of borrowers, fluctuations in
real estate values in the Company's market areas, fluctuations in interest
rates, timeliness of payments, the availability of conventional financing, the
demand for housing in the Company's market areas and general economic
conditions. The primary risk elements with respect to commercial loans are the
financial condition of the borrower, general economic conditions in the
Company's market area, the sufficiency of collateral, the timeliness of payment
and, with respect to adjustable rate loans, interest rate fluctuations.
Exhibit 13.1 34
<PAGE>
The following table summarizes, for the years indicated, the activity in the
allowance for loan losses:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 5,608 $ 5,973 $ 4,798 $ 4,156 $ 3,595
Provision charged to operations 335 316 1,858 2,101 1,531
LOANS CHARGED OFF:
Commercial, financial and
agricultural (149) (338) (653) (875) (976)
Consumer installment (432) (712) (622) (719) (446)
Real estate mortgage -- -- -- (23) --
----------------------------------------------------
Total loans charged-off (581) (1,050) (1,275) (1,617) (1,422)
----------------------------------------------------
RECOVERIES:
Commercial, financial and
agricultural 98 205 380 106 384
Consumer installment 120 164 212 52 68
---------------------------------------------------
Total recoveries 218 369 592 158 452
----------------------------------------------------
Net loans charged-off (363) (681) (683) (1,459) (970)
----------------------------------------------------
BALANCE, YEAR END $ 5,580 $ 5,608 $ 5,973 $ 4,798 $ 4,156
---------------------------------------------------
---------------------------------------------------
AVERAGE TOTAL LOANS $308,473 $303,497 $314,691 $318,839 $305,562
---------------------------------------------------
RATIOS:
Net charge-offs during period
to average loans outstanding
during period .12% .22% .22% .46% .32%
Provision for loan losses to aver-
age loans outstanding .11% .10% .59% .66% .50%
Allowance to loans at year end(1) 1.75% 1.83% 1.95% 1.51% 1.31%
---------------------------------------------------
</TABLE>
(1)Banker's acceptances and commercial paper are not included.
As part of its loan review process, Management has developed pools of
reserves based on specific identified problem loans and historical loss data.
The following tables summarize the allocation of the allowance for loan losses
at December 31, 1995 and 1994.
Exhibit 13.1 35
<PAGE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------
(dollars in thousands)
Percent of
loans in each
category to
Balance at End of Period Applicable to: Amount total loans
<S> <C> <C>
Commercial, financial and agricultural $3,932 47.7%
Real Estate--construction -- 6.4%
Real Estate--mortgage 355 25.7%
Installment loans to individuals 1,293 20.2%
------- ------
$5,580 100.0%
------- ------
------- ------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------------
(dollars in thousands)
Percent of
loans in each
category to
Balance at End of Period Applicable to: Amount total loans
<S> <C> <C>
Commercial, financial and agricultural $3,271 50.1%
Real Estate--construction -- 5.9%
Real Estate--mortgage 407 25.0%
Installment loans to individuals 1,234 19.0%
Unallocated 696 N/A
------ ------
$5,608 100.0%
------ ------
------ ------
</TABLE>
INVESTMENT IN REAL ESTATE PROPERTIES
At December 31, 1995 and 1994, $1,173,000 of property was held by a
subsidiary of the Bank for the purposes of development.
OTHER REAL ESTATE OWNED
The December 31, 1995 balance of Other Real Estate Owned (OREO) was $631,000
versus $2,124,000 in 1994. Properties foreclosed in 1995 and remaining in the
Bank's possession at year end were valued at $206,000 net of a valuation
allowance of $9,000. OREO properties consist of a mixture of land, single
family residences and commercial buildings. OREO had decreased $1,500,000 in
1994.
DEPOSITS
Deposits at December 31, 1995 were up 5.1% to $516,193,000 over the 1994 year
end balances. In-store deposits almost doubled in 1995 ending the year at
$29,605,000. There was growth in both the interest-bearing and noninterest-
bearing demand deposits. However, most of the growth was attributable to time
certificates of deposit (CD's). They increased $49,334,000 or 37.7% during
1995. At the same time, savings deposits decreased $29,321,000 (15.4%).
Depositors moved funds from savings to CD's as the yields on CD's often were
200-300 basis points higher. The local market conditions dictated the high CD
rates. The increase of $12.3 million in the over $100,000 CD category is
largely attributable to a $9.0 million deposit from the State of California.
This deposit has a 90 day maturity and is renewable at the Bank's option.
In 1994 total deposits decreased $24,880,000 or 4.8% from 1993 ending
balances. Essentially all of the decrease occurred in savings accounts and time
deposits. During the second half of 1993 as interest rates rose, banks and
savings and loan institutions in the Bank's market area began offering higher
rates on CD's. Bank Management did not choose to meet some of these rates until
late in the year. Consequently, some funds moved
Exhibit 13.1 36
<PAGE>
out of the Bank's deposit base. Management believed that the Bank had
sufficient liquidity and ability to meet the loan demand so some runoff of
deposits could be tolerated. At the end of 1993, the in-store branches had
deposits totaling just over $15,000,000.
ACCRUED INTEREST PAYABLE
At December 31, 1995, the balance of accrued interest payable was $3,162,000
which was an increase of $1,402,000 over the 1994 year end. This increase was
attributable to the higher rates and balances in time certificates of deposit.
At December 31, 1994, accrued interest payable had increased $30,000 to
$1,760,000. The increase was due to the higher rates of interest being accrued
on time certificates of deposit and was offset by lower CD balances.
LONG-TERM DEBT
During 1995 the Bank incurred long term debt in the amount of $9,828,000 with
a term of two years. This debt is in the form of a repurchase agreement. The
Bank also retired $2,000,000 of long term debt during the year.
During 1994 the Bank incurred long-term debt in the amount of $11,400,000
with terms varying from one to seven years. These loans were used as matched
funding for loans made by the Bank.
EQUITY
The Company and the Bank are subject to the minimum capital requirements of
the Federal Reserve Board and the FDIC. Effective December 31, 1990, the
Federal Reserve Board guidelines implemented new risk-based capital ratio
requirements. These guidelines provide a measure of capital adequacy and are
intended to reflect the degree of risk associated with both on and off balance
sheet items, including residential loans sold with recourse, legally binding
loan commitments and standby letters of credit. Under these regulations,
financial institutions are required to maintain capital to support activities
which in the past did not require capital. A financial institution's risk-based
capital ratio is calculated by dividing its qualifying capital by its risk-
weighted assets.
Qualifying capital is divided into two tiers. Core capital (Tier 1) consists
generally of Common shareholders' equity, cumulative (up to 25% of capital) and
noncumulative perpetual preferred stock and minority interest in equity capital
accounts of consolidated subsidiaries. Supplementary capital (Tier 2) consists
of among other things, allowance for loan and lease losses up to 1.25% of
risk-weighted assets, cumulative (not qualifying as Tier 1) and limited life
preferred stock, mandatory convertible securities and subordinated debt.
Tier 2 capital qualifies as a part of total capital up to a maximum of 100%
of Tier 1 capital. Amounts in excess of these limits may be issued but are
not included in the calculation of the risk-based capital ratio. The Company
and the Bank must generally have a minimum ratio of qualifying total capital
to risk-weighted assets of 8%, of which 4% of qualifying total capital must
be in the form of Tier 1 capital.
In addition, the regulators have promulgated capital leverage guidelines
designed to supplement the risk-based capital guidelines. Banks and bank
holding companies must maintain a minimum ratio of Tier 1 capital to adjusted
total assets of 3% for the highest rated organizations, with all other banks and
holding companies required to maintain an additional cushion of at least 100 to
200 basis points above the 3% minimum. As of December 31, 1995, the Company's
Tier 1 capital was 8.9% of adjusted total assets. At December 31, 1994, this
ratio was 8.7% of adjusted total assets.
Exhibit 13.1 37
<PAGE>
The following table indicates the amounts of regulatory capital of
the Company.
<TABLE>
<CAPTION>
Total Risked-
Tier Based Leverage
------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
December 31, 1995
Company's % 13.9% 15.2% 8.9%
Regulatory minimum % 4.0% 8.0% 4.0%
Company's capital $ $ 53,863 $ 58,700 $ 53,863
Regulatory minimum $ 15,479 30,958 24,142
-----------------------------------
Computed excess $ 38,384 $ 27,742 $ 29,721
-----------------------------------
-----------------------------------
December 31, 1994
Company's % 13.4% 14.6% 8.7%
Regulatory minimum % 4.0% 8.0% 4.0%
Company's capital $ $ 51,939 $ 56,784 $ 51,939
Regulatory minimum $ 15,505 31,011 23,753
-----------------------------------
Computed excess $ 36,434 $ 25,773 $ 28,186
-----------------------------------
-----------------------------------
</TABLE>
Management believes that the capital is adequate to support anticipated
growth, meet the cash dividend requirements of the Company and meet the future
risk-based capital requirements of the Bank and the Company.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity refers to the Company's ability to provide funds at an acceptable
cost to meet loan demand and deposit withdrawals, as well as contingency plans
to meet unanticipated funding needs or loss of funding sources. These
objectives can be met from either the asset or liability side of the balance
sheet. Asset liquidity sources consist of the repayments and maturities of
loans, selling of loans, short-term money market investments, maturities of
securities and sales of securities from the available-for-sale portfolio. These
activities are generally summarized as investing activities in the Consolidated
Statement of Cash Flows. Net cash provided from these sources totaled
approximately $18,556,000 in 1995.
Liquidity is generated from liabilities through deposit growth and short-term
borrowings. These activities are included under financing activities in the
cash flow statement. In 1995 cash was used as the increase in deposits of
$25,021,000 was offset by the repayment of repurchase agreements totaling
$30,457,000. The Company also had available correspondent banking lines of
credit totaling $33,000,000. While these sources are expected to continue to
provide significant amounts of funds in the future, their mix, as well as the
possible use of other sources, will depend on future economic and market
conditions.
Liquidity is also provided or used through the results of operating
activities. Net cash of $9,981,000 was provided from operating activities in
1995. In 1994 $4,620,000 had been provided from operating activities.
Since the adoption of SFAS 115 January 1, 1994, Management has targeted the
available-for-sale portfolio (AFS) to be maintained at 35-40% of the total
securities holdings. The AFS securities plus cash in excess of reserve
requirements totaled $133,610,000 which was 22.1% of total assets at year end.
This was up from $107,234,000 and 18.1% at the end of 1994.
The overall liquidity of the Bank is enhanced by the sizable core deposits
which provide a relatively stable funding base. The maturity distribution of
certificates of deposit in denominations of $100,000 or more is set forth in the
following table. These deposits are generally more rate sensitive than other
deposits and, therefore, are more likely to be withdrawn to obtain higher yields
elsewhere if available. In 1995, $9,000,000 of the balance is a deposit by the
State of California which is renewable at the Bank's option.
Exhibit 13.1 38
<PAGE>
CERTIFICATES OF DEPOSIT IN DENOMINATIONS OF $100,000 OR MORE
<TABLE>
<CAPTION>
Amounts as of
December 31,
---------------------------------
1995 1994 1993
---------------------------------
(in thousands)
<S> <C> <C> <C>
TIME REMAINING UNTIL MATURITY:
Less than 3 months $ 9,985 $ 401 $ 1,572
3 months to 6 months 2,909 717 2,001
6 months to 12 months 545 -- 1,400
More than 12 months -- -- 450
---------------------------------
Total $13,439 $ 1,118 $ 5,423
---------------------------------
---------------------------------
</TABLE>
Loan demand also affects the Bank's liquidity position. The following table
present the maturities of performing loans at December 31, 1995.
LOAN MATURITIES - DECEMBER 31, 1995
<TABLE>
<CAPTION>
AFTER
ONE BUT
WITHIN WITHIN AFTER 5
ONE YEAR 5 YEARS YEARS TOTAL
--------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Loans with predetermined interest rates:
Commercial, financial and agricultural $ 6,624 $ 18,798 $ 25,931 $ 51,353
Consumer installment 3,513 9,831 8,055 21,399
Real estate mortgage 2,349 9,898 34,877 47,124
Real estate construction 6,519 88 103 6,710
--------------------------------------------
19,005 38,615 68,966 126,586
--------------------------------------------
Loans with floating interest rates:
Commercial, financial and agricultural 43,800 20,687 36,333 100,820
Consumer installment 12,389 2,611 28,046 43,046
Real estate mortgage 2,070 5,986 26,708 34,764
Real estate construction 13,550 -- -- 13,550
--------------------------------------------
71,809 29,284 91,087 192,180
--------------------------------------------
Total loans $ 90,814 $ 67,899 $160,053 $318,766
--------------------------------------------
--------------------------------------------
</TABLE>
Interest rate sensitivity is a function of the repricing characteristics of
the Company's portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest-bearing assets and
liabilities are subject to change in interest rates either at replacement,
repricing or maturity. Interest rate sensitivity management focuses on the
maturity of assets and liabilities and their repricing during periods of changes
in market interest rates. Interest rate sensitivity is measured as the
difference between the volumes of assets and liabilities in the Company's
current portfolio that are subject to repricing at various time horizons. The
differences are known as interest sensitivity gaps.
The following repricing tables present the Bank's interest rate sensitivity
position at December 31, 1995 and 1994:
Exhibit 13.1 39
<PAGE>
INTEREST RATE SENSITIVITY - DECEMBER 31, 1995
<TABLE>
<CAPTION>
Repricing within:
-------------------------------------------------------
3 3 - 6 6 - 12 1 - 5 Over
months months months years 5 years
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities $ 10,403 $ 9,802 $ 17,195 $111,822 $ 44,125
Fed funds sold 25,600 -- -- -- --
Loans 190,446 7,262 14,336 40,123 66,602
-------------------------------------------------------
Total interest-earning assets $226,446 $ 17,064 $ 31,531 $151,945 $110,727
Interest-bearing liabilities
Transaction deposits $245,793 $ -- $ -- $ -- $ --
Time 56,402 88,906 29,263 5,520 --
Long-term borrowings 7,003 3 6 18,128 1,152
-------------------------------------------------------
Total interest-bearing liabilities $309,198 $ 88,909 $ 29,269 $ 23,648 $ 1,152
-------------------------------------------------------
Interest sensitivity gap $(82,752) $(71,845) $ 2,262 $128,297 $ 109,575
Cumulative sensitivity gap (82,752) (154,597) (152,336) (24,039) 85,537
As a percentage of earning assets:
Interest sensitivity gap (15.39%) (13.36%) 0.42% 23.86% 20.38%
-------------------------------------------------------
</TABLE>
INTEREST RATE SENSITIVITY - DECEMBER 31, 1994
<TABLE>
<CAPTION>
Repricing within:
-------------------------------------------------------
3 3 - 6 6 - 12 1 - 5 Over
months months months years 5 years
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities $ 7,441 $ 7,045 $ 16,817 $118,338 $ 75,257
Fed funds sold -- -- -- --
Loans 168,133 15,627 17,815 31,357 74,171
-------------------------------------------------------
Total interest-earning assets $175,574 $ 22,672 $ 34,632 $149,695 $149,428
Interest-bearing liabilities
Transaction deposits $271,457 $ -- $ -- $ -- $ --
Time 24,872 67,306 36,249 2,228 103
Short-term borrowings 30,457 -- -- -- --
Long-term borrowings 7,015 15 9 8,448 3,012
-------------------------------------------------------
Total interest-bearing liabilities $ 333,801 $ 67,321 $ 36,258 $ 10,676 $ 3,115
-------------------------------------------------------
Interest sensitivity gap $(158,227) $(44,649) $ (1,626) $139,019 $146,313
Cumulative sensitivity gap (158,227) (202,876) (204,502) (65,483) 80,830
As a percentage of earning assets:
Interest sensitivity gap (29.74%) (8.39%) (0.31%) 26.13% 27.50%
-------------------------------------------------------
</TABLE>
Exhibit 13.1 40
<PAGE>
The maturity distribution and yields of the investment portfolios are
presented in the following tables:
SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS - DECEMBER 31, 1995
<TABLE>
<CAPTION>
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN BUT THROUGH BUT THROUGH AFTER TEN
ONE YEAR FIVE YEARS TEN YEARS YEARS TOTAL
----------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 3,012 6.22% $ 22,519 5.81% $ 2,000 6.50% $ 2,610 6.84% $ 30,141 5.92%
Obligations of states and political subdivisions 130 3.59% 719 4.23% -- -- -- -- 849 4.30%
Mortgage-backed securities -- -- 4,795 5.76% 9,606 6.09% 72,341 5.86% 86,742 5.70%
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities held-to-maturity $ 3,142 6.11% $ 28,033 5.76% $11,606 6.16% $74,951 5.74% $117,732 5.76%
SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 16,614 5.23% $ 22,855 5.88% $ -- -- $ 2,539 6.70% $ 42,038 5.45%
Obligations of states and political subdivisions 247 5.70% 1,022 5.38% 431 5.65% -- -- 1,700 5.78%
Mortgage-backed securities -- -- 1,072 6.93% -- -- 28,004 5.42% 29,076 5.25%
Other securities -- -- -- -- -- -- 3,668 -- 3,668 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total securities available-for-sale $ 16,891 5.24% $ 24,949 5.90% $ 431 5.65% $ 34,211 5.53% $ 76,482 5.36%
Total all securities $ 20,033 5.38% $ 52,982 5.83% $12,037 6.14% $109,162 5.79% $194,214 5.62%
----------------------------------------------------------------------------------
Less: unrealized loss on securities transferred from available-for-sale $ (867)
Less: unrealized loss on securities available-for-sale (236)
--------
Total $193,211
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The principal cash requirements of the Company are dividends on Common Stock
when declared. The Company is dependent upon the payment of cash dividends by
the Bank to service its commitments. The Company expects that the cash
dividends paid by the Bank to the Company will be sufficient to meet this
payment schedule.
OFF-BALANCE SHEET ITEMS
The Bank has certain ongoing commitments for operating leases. (See footnote
G for the terms.) These commitments do not severely impact operating results.
As of December 31, 1995 commitments to extend credit were the sole source of
financial instruments with off-balance sheet risk. The Bank has not entered
into any contracts for financial derivative instruments such as futures, swaps,
options etc. Loan commitments increased to $91,276,000 from $81,513,000 at
December 31, 1994. Much of the increase relates to credit cards. The
commitments represent 28.6% of the total loans outstanding at year end 1995
versus 26.5% a year ago.
DISCLOSURE OF FAIR VALUE
The Financial Accounting Standards Board (FASB), Statement of Financial
Accounting Standards Number 107, Disclosures about Fair Value of Financial
Statements, requires the disclosure of fair value of most financial instruments,
whether recognized or not recognized in the financial statements. The intent of
presenting the fair values of financial instruments is to depict the market's
assessment of the present value of net future cash flows discounted to reflect
both current interest rates and the market's assessment of the risk that the
cash flows will not occur.
In determining fair values, the Company used the carrying amount for cash,
short-term investments, accrued interest receivable, short-term borrowings and
accrued interest payable as all of these instruments are short term in nature.
Securities are reflected at quoted market values. Loans and deposits have a
long term time horizon which required more complex calculations for fair value
determination. Loans are grouped into homogeneous
Exhibit 13.1 41
<PAGE>
categories and broken down between fixed and variable rate instruments. Loans
with a variable rate, which reprice immediately, are valued at carrying value.
The fair value of fixed rate instruments is estimated by discounting the future
cash flows using current rates. Credit risk and repricing risk factors are
included in the current rates. Fair value for nonaccrual loans is reported at
carrying value and is included in the net loan total. Since the allowance for
loan losses exceeds any potential adjustment for nonaccrual valuation, no
further valuation adjustment has been made.
Demand deposits, savings and certain money market accounts are short term in
nature so the carrying value equals the fair value. For deposits that extend
over a period in excess of four months, the fair value is estimated by
discounting the future cash payments using the rates currently offered for
deposits of similar remaining maturities.
At 1995 year end, the fair values calculated on the Company's assets are .5%
above the carrying values versus 2.9% below the carrying values in 1994. The
increase in the calculated fair values relates to the securities and loan
categories and is the result of the general decrease in interest rates in 1995.
Exhibit 13.1 42
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated January 23, 1996, incorporated by
reference in the Form 10-K, into the Corporation's previously filed
Form S-8 Registration Statement No. 33-88704 and Form S-3 Registration
Statement No. 33-30557.
/s/ Arthur Andersen LLP
San Francisco, California
March 7, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-88704 on Form S-8 and Registration Statement No. 33-30557 on Form S-3 of
TriCo Bancshares of our report related to Country National Bank dated
January 28, 1994 appearing in the Annual Report on Form 10-K of TriCo
Bancshares for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP
Sacramento, California
March 7, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 39,673
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 25,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,246
<INVESTMENTS-CARRYING> 116,865
<INVESTMENTS-MARKET> 116,576
<LOANS> 318,766
<ALLOWANCE> 5,580
<TOTAL-ASSETS> 603,554
<DEPOSITS> 516,193
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,856
<LONG-TERM> 26,292
0
0
<COMMON> 44,315
<OTHER-SE> 8,898
<TOTAL-LIABILITIES-AND-EQUITY> 603,554
<INTEREST-LOAN> 33,776
<INTEREST-INVEST> 11,864
<INTEREST-OTHER> 371
<INTEREST-TOTAL> 46,011
<INTEREST-DEPOSIT> 16,231
<INTEREST-EXPENSE> 17,988
<INTEREST-INCOME-NET> 28,023
<LOAN-LOSSES> 335
<SECURITIES-GAINS> (10)
<EXPENSE-OTHER> 21,661
<INCOME-PRETAX> 11,960
<INCOME-PRE-EXTRAORDINARY> 11,960
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,045
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 8.78
<LOANS-NON> 2,213
<LOANS-PAST> 220
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,608
<CHARGE-OFFS> 581
<RECOVERIES> 218
<ALLOWANCE-CLOSE> 5,580
<ALLOWANCE-DOMESTIC> 5,580
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
