<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 1997 Commission file number 0-10661
- ------------------------------- ------------------------------
TRICO BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2792841
- ------------------------------ -------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
15 Independence Circle, Chico, California 95973
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 916/898-0300
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Title of Class: Common stock, no par value
Outstanding shares as of August 4, 1997: 4,659,299
<PAGE>
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
----------------- -----------------
1997 1996
<S> <C> <C>
Assets:
Cash and due from banks $ 44,149 $ 52,231
Federal funds sold 4,400 -
Securities held-to-maturity
(approximate fair value $97,848 and $103,488) 99,285 104,713
Securities available-for-sale, net of
unrealized gain(loss) of $(567) and $(991) 144,234 65,316
Loans, net of allowance for loan losses of $(6,233) and $(6,097) 454,508 433,192
Premises and equipment, net 16,775 14,717
Investment in real estate properties 1,410 1,173
Other real estate owned 1,522 1,389
Accrued interest receivable 5,634 4,572
Intangible assets 9,673 1,036
Other assets 15,547 16,520
----------------- -----------------
Total assets $ 797,137 $ 694,859
================= =================
Liabilities:
Deposits
Noninterest-bearing demand $ 111,803 $ 100,879
Interest-bearing demand 123,198 97,178
Savings 208,255 172,789
Time certificates 260,439 224,775
----------------- -----------------
Total deposits 703,695 595,621
Fed funds purchased - 4,900
Accrued interest payable and other liabilities 9,772 9,280
Long term borrowings 21,275 24,281
----------------- -----------------
Total liabilities 734,742 634,082
Shareholders' equity:
Common stock 47,841 47,652
Retained earnings 15,240 14,076
Unrealized loss on securities available for sale, net (686) (951)
----------------- -----------------
Total shareholders' equity 62,395 60,777
----------------- -----------------
Total liabilities and shareholders' equity $ 797,137 $ 694,859
================= =================
</TABLE>
<PAGE>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands except earnings per common share)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 10,840 $ 9,030 $ 21,571 $ 17,593
Interest on investment
securities-taxable 3,702 2,641 6,646 5,339
Interest on investment
securities-tax exempt 183 30 251 63
Interest on federal funds sold 53 21 268 332
------------ ----------- ------------ -----------
Total interest income 14,778 11,722 28,736 23,327
------------ ----------- ------------ -----------
Interest expense:
Interest on deposits 5,681 3,946 10,890 8,099
Interest on federal funds purchased 92 144 131 144
Interest on other borrowings 326 408 686 790
------------ ----------- ------------ -----------
Total interest expense 6,099 4,498 11,707 9,033
------------ ----------- ------------ -----------
Net interest income 8,679 7,224 17,029 14,294
Provision for loan losses 600 50 1,200 90
------------ ----------- ------------ -----------
Net interest income after
provision for loan losses 8,079 7,174 15,829 14,204
Noninterest income:
Service charges and fees 1,684 1,176 3,175 2,295
Other income 724 404 1,330 751
------------ ----------- ------------ -----------
Total noninterest income 2,408 1,580 4,505 3,046
------------ ----------- ------------ -----------
Noninterest expenses:
Salaries and related expenses 4,031 3,005 7,607 5,964
Other, net 4,789 2,819 8,505 5,365
------------ ----------- ------------ -----------
Total noninterest expenses 8,820 5,824 16,112 11,329
------------ ----------- ------------ -----------
Net income before income taxes 1,667 2,930 4,222 5,921
Income taxes 588 1,226 1,579 2,473
------------ ----------- ------------ -----------
Net income 1,079 1,704 2,643 3,448
Primary earnings per common share $ 0.22 $ 0.37 $ 0.55 $ 0.74
============ =========== ============ ===========
Fully diluted earnings per
common share $ 0.22 $ 0.37 $ 0.55 $ 0.74
============ =========== ============ ===========
</TABLE>
<PAGE>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Common stock
----------------------------- Unrealized
Number Retained loss on
of shares Amount earnings securities, net Total
------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 4,641,223 $ 47,652 $ 14,076 $ (951) $ 60,777
Exercise of common stock
options 10,250 84 $ 84
Common stock cash
dividends (1,479) $ (1,479)
Change in unrealized
loss on securities 265 $ 265
Stock option amortization 105 $ 105
Net income, June 30, 1997 2,643 $ 2,643
------------- ------------- ------------- -------------- -------------
Balance,
June 30, 1997 4,651,473 $ 47,841 $ 15,240 $ (686) $ 62,395
============= ============= ============= ============== =============
</TABLE>
<PAGE>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income $ 2,643 $ 3,448
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 1,200 90
Provision for losses on other real estate owned 52 -
Depreciation and amortization 1,156 856
Amortization of investment security discounts (39) 30
Deferred income taxes 438 106
Investment security (gains) losses (net) (19) -
(Gain) loss on sale of OREO, net 31 (31)
(Gain) loss on sale of loans, net (17) 6
(Gain) loss on sale of fixed assets 14 -
Origination of loans held for sale (9,625) (13,896)
Proceeds from loan sales 9,580 5,256
Amortization of stock options 105 104
(Increase) decrease in interest receivable (1,062) (77)
Increase (decrease) in interest payable 1,197 (818)
(Increase) decrease in other assets and liabilities 19 (1,532)
------------ ------------
Net cash provided (used) by operating activities 5,673 (6,458)
Investing activities:
Proceeds from maturities of securities held-to-maturity 5,517 14,256
Purchases of securities held-to-maturity - (5,516)
Proceeds from maturities of securities available-for-sale 16,206 12,677
Proceeds from sale of securities available-for-sale 27,036 -
Purchases of securities available-for-sale (121,688) (13,587)
Net (increase) decrease in loans (22,884) (46,485)
Proceeds from sales of fixed assets 23 -
Purchases of premises and equipment (2,408) (1,813)
Purchases and additions to real estate properties (237) -
Proceeds from the sale of OREO 397 446
Net cash received from purchase of Wells Fargo branch deposits 140,000 -
------------ ------------
Net cash provided (used) by investing activities 41,962 (40,022)
Financing activities:
Net increase (decrease) in deposits (excluding
effects of purchase of Wells Fargo branch deposits) (42,016) (25,184)
Fed funds purchased - 30,000
Repayment of fed funds purchased (4,900) -
Borrowings under long-term debt agreements - 10,000
Payments of principal on long-term debt agreements (3,006) (2,006)
Cash dividends - Common (1,479) (1,175)
Repurchase of common stock - (146)
Exercise of common stock options 84 290
------------ ------------
Net cash provided (used) by financing activities (51,317) 11,779
------------ ------------
Increase (decrease) in cash and cash equivalents (3,682) (34,701)
Cash and cash equivalents at beginning of year 52,231 65,273
------------ ------------
Cash and cash equivalents at end of period $ 48,549 $ 30,572
============ ============
Supplemental information:
Cash paid for taxes $ 1,808 $ 3,182
Cash paid for interest expense $ 10,510 $ 9,329
</TABLE>
<PAGE>
Item 1. Notes to Condensed Consolidated
Financial Statements
Note A - Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) and in Management's opinion, include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of results for
such interim periods. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to SEC rules or regulations;
however, the Company believes that the disclosures made are adequate to make the
information presented not misleading.
The interim results for the six months ended June 30, 1997 and 1996, are not
necessarily indicative of results for the full year. It is suggested that these
financial statements be read in conjunction with the financial statements and
the notes included in the Company's Annual Report for the year ended December
31, 1996.
Note B - Recently Issued Accounting Pronouncements
In February of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The
Company is required to adopt SFAS 128 in the fourth quarter of 1997 and at that
time will restate earnings per share data for prior periods to conform with SFAS
128. Earlier application is not permitted.
SFAS 128 replaces current earnings per share reporting requirements and requires
a dual presentation of basic and diluted earnings per share. Basic earnings per
share excludes dilution and is computed by dividing net income by the weighted
average common shares outstanding during the reported period. Diluted earnings
per share reflects the potential dilution that could occur if common shares were
issued pursuant to the exercise of options under the Bank's Stock Option Plans.
Diluted earnings per share under SFAS 128 should not be significantly different
than primary earnings per share currently reported for the periods.
Pro forma amounts for basic and diluted earnings per share assuming SFAS 128 had
been in effect for the three months and six months ended June 30, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six Months ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Basic earnings per share $0.23 $0.38 $0.57 $0.77
Diluted earnings per share $0.22 $0.37 $0.55 $0.74
</TABLE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As TriCo Bancshares (the "Company") has not commenced any business operations
independent of Tri Counties Bank (the "Bank"), the following discussion pertains
primarily to the Bank. Average balances, including such balances used in
calculating certain financial ratios, are generally comprised of average daily
balances for the Company. Except within the "overview" section, interest income
and net interest income are presented on a tax equivalent basis.
In addition to the historical information contained herein, this Quarterly
Report contains certain forward-looking statements. The reader of this Quarterly
Report should understand that all such forward-looking statements are subject to
various uncertainties and risks that could affect their outcome. The Company's
actual results could differ materially from those suggested by such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, variances in the actual versus
projected growth in assets, return on assets, loan losses, expenses, rates
charged on loans and earned on securities investments, rates paid on deposits,
competition effects, fee and other noninterest income earned as well as other
factors. This entire Quarterly Report should be read to put such forward-looking
statements in context and to gain a more complete understanding of the
uncertainties and risks involved in the Company's business.
Overview
The Company earned $1,079,000 for the second quarter ended June 30, 1997 versus
$1,704,000 for the same period in 1996. Fully diluted earnings per share for the
second quarter periods were $0.22 and $0.37, respectively. Earnings for the six
months ended June 30, 1997 were $2,643,000 versus year ago results of
$3,448,000. The fully diluted earnings per share were $.55 and $.74 for the
respective six month periods.
Pretax earnings for the second quarter of 1997 were $1,667,000 versus $2,930,000
for the same period in 1996. Direct and indirect costs related to the February
21, 1997 acquisition and integration of nine branches from Wells Fargo Bank,
N.A. were major contributing factors to the lower earnings. Additionally, the
Bank made provisions for loan losses totaling $600,000 in the quarter versus
$50,000 in the second quarter last year. The higher provision was made due to
loan growth and an increase in nonperforming loans from the first quarter of
1997. Net interest income reflected growth of 20.2% to $8,679,000. The interest
income component was up $3,056,000 (26.1%) due to higher quarter over quarter
volume of both loans and securities and a 33 basis point increase in yields on
securities. Average rates received on loans were lower by 52 basis points due
primarily to the effect of lower rate mortgage loans acquired in the Sutter
Buttes Savings Bank acquisition in the fourth quarter of last year. Interest
expense increased $1,601,000 (35.6%) which was due predominately to increased
volume of interest bearing liabilities. Net interest margin was 4.96% for the
second quarter of 1997 versus 5.38% in the prior year. This lower net interest
margin reflects the change in the mix of earning assets and deposits as a result
of the Sutter Buttes acquisition and the first quarter purchase of the Wells
Fargo branches. The acquired deposits from Wells were invested in government
securities. The net interest margin for 1997 will most likely continue to be
lower than prior year levels until additional loan production replaces more of
the investment securities. Noninterest income reflected growth of 52.4% to a
total of $2,408,000 for the second quarter of 1997 over the prior year second
quarter. The service charge and fee income portion increased 43.2% to $1,684,000
due to an increase in account volumes and selective fee increases made in June
1996. Other income increased from $404,000 in 1996 to $724,000 in 1997.
Commissions on the sale of mutual funds and annuities accounted for $236,000 of
the increase.
Noninterest expense increased $2,996,000 to $8,820,000 in the second quarter
1997 versus 1996. Most of the higher costs were directly or indirectly related
to the Wells Fargo branch and Sutter Buttes acquisitions. One time integration
and ongoing operating costs for the nine acquired Wells Fargo branches totaled
$894,000 in the second quarter. Amortization of intangible assets associated
with both the Sutter Buttes and Wells acquisitions amounted to $386,000. Also,
the Bank increased staffing in various support departments and loan offices to
service the new branches and customers. As a result, salary and benefit expense
not directly related to the nine new branches increased $476,000 or 15.8% on a
quarter over quarter basis. Occupancy costs exclusive of the nine branches were
$290,000 (34.2%) higher. Of this amount, depreciation on equipment had the
largest single increase and accounted for $183,000. Much of the depreciation
related to improved computer and communication networks. Other expense
categories such as courier service, telephone, ATM charges and postage, had
significant increases as a result of the Sutter Buttes and Wells Fargo branch
acquisitions. Now that the new branches are operationally integrated, management
has turned its attention to increasing efficiencies and reducing the noninterest
expenses.
Assets of the Company totaled $797,137,000 at June 30, 1997 which was an
increase of $102,278,000 (14.7%) and $180,201,000 (29.2%) from the December 31,
1996 and June 30, 1996 ending balances, respectively. Changes in earning assets
from the prior year quarter end balances included: an increase in loans of
$87,823,000 to $460,741,000; and an increase in the cost basis of securities of
$58,428,000 to $244,085,000.
Year to date 1997, the Company had an annualized return on assets of .69% and a
return on equity of 8.57% versus 1.16% and 12.68% in 1996. TriCo Bancshares
ended the quarter with a leverage ratio of 7.6%, a Tier 1 capital ratio of 10.6%
and a total risk-based capital ratio of 11.8%.
The following tables provide a summary of the major elements of income and
expense for the second quarter of 1997 compared with the second quarter of 1996
and for the first six months of 1997 compared with the first six months of 1996.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended June 30, Percentage
1997 1996 Change
(in thousands, except increase
earnings per share) (decrease)
Interest income $ 14,873 $ 11,744 26.6%
Interest expense 6,099 4,498 35.6%
------------ ------------
Net interest income 8,774 7,246 21.1%
Provision for loan losses 600 50 1100.0%
------------ ------------
Net interest income after 8,174 7,196 13.6%
provision for loan losses
Noninterest income 2,408 1,580 52.4%
Noninterest expenses 8,820 5,824 51.4%
------------ ------------
Net income before income taxes 1,762 2,952 (40.3%)
Income taxes 588 1,226 (52.0%)
Tax equivalent adjustment1 95 22 340.6%
------------ ------------
Net income 1,079 1,704 (36.7%)
============ ============
Primary earnings per common share $ 0.22 $ 0.37 (40.5%)
1 Interest on tax-free securities is reported on a tax equivalent basis of 1.52
and 1.72 for June 30, 1997 and 1996.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Six months
ended June 30, Percentage
1997 1996 Change
(in thousands, except increase
earnings per share) (decrease)
Interest income $ 28,867 $ 23,372 23.5%
Interest expense 11,707 9,033 29.6%
------------ ------------
Net interest income 17,160 14,339 19.7%
Provision for loan losses 1,200 90 1233.3%
------------ ------------
Net interest income after 15,960 14,249 12.0%
provision for loan losses
Noninterest income 4,505 3,046 47.9%
Noninterest expenses 16,112 11,329 42.2%
------------ ------------
Net income before income taxes 4,353 5,966 (27.0%)
Income taxes 1,579 2,473 (36.2%)
Tax equivalent adjustment1 131 45 187.7%
------------ ------------
Net income 2,643 3,448 (23.3%)
============ ============
Primary earnings per common share $ 0.55 $ 0.74 (25.7%)
1 Interest on tax-free securities is reported on a tax equivalent basis of 1.52
and 1.72 for June 30, 1997 and 1996.
<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. Net
interest income comprises the major portion of the Bank's income.
In the quarter ended June 30, 1997, interest income increased $3,129,000 or
26.6%over the same period in 1996. The average balance of total earning assets
was higher by $168,948,000 which was a 31.4% increase. The acquisition of Sutter
Buttes Savings Bank in the fourth quarter of 1996 and the purchase of deposits
from Wells Fargo in February 1997 were the major contributing factors for the
increase in earning assets. The average balances of loans outstanding and
securities increased $92,034,000 and $74,699,000, respectively. These two volume
increases accounted for additional interest income of $2,383,000 and $1,068,000,
respectively. The average rate received on loans in the second quarter of 1997
was 9.84% which was a decrease of 52 basis points from the second quarter last
year. Interest income was negatively affected by $573,000 because of the lower
rate. The large number of mortgage loans in the Sutter Buttes portfolio were the
major cause in lowering the average rate for loans. However, the average rate
received on securities rose 33 basis points to 6.05% which accounted for a
$219,000 increase in interest income.
For the second quarter of 1997, interest expense increased by $1,601,000 or
35.6% over the year earlier period. Due to the two acquisitions, average
balances of interest bearing deposit liabilities increased in all categories
from the previous year. These average balances rose $173,586,000 (41.9%). The
higher volumes of interest bearing deposit liabilities increased interest
expense by $1,704,000. Average balances of Federal Funds purchased and long-term
debt fell $11,535,000 to $27,863,000 which resulted in a decrease of $157,000 in
interest expense on a quarter over quarter basis. Average rates paid on all
interest bearing liabilities were essentially flat in the second quarter 1997
versus 1996.
The combined effect of the increase in both interest income and interest expense
for the second quarter of 1997 versus the same period in 1996 resulted in an
increase of $1,528,000 (21.1%) in net interest income. Net interest margin for
the comparative quarters fell from 5.38% to 4.96%. Net interest margin is
affected by the rates received on earning assets, the mix of products i.e. loans
and securities within the assets, the yields paid on interest bearing
liabilities and the mix within these liabilities. As a result of the two
acquisitions, all four of these variables changed in the second quarter as
compared to the second quarter of last year. Management expects the net interest
margin will continue to be somewhat lower in 1997 until higher loan volume can
replace investment securities.
The six month period ending June 30, 1997, was essentially impacted by the same
factors as the second quarter. The mix and volume of earning assets and interest
bearing liabilities changed because of the two acquisitions. As a result,
interest income increased $5,495,000 or 23.5% over the same period in 1996. Most
of the increase resulted from higher average balances on loans and investment
securities. Interest income from the volume increase for these two items totaled
$6,607,000. It was offset by a $1,399,000 decrease in interest income due to
lower average rates on loans. The average rate received on all earning assets
for the six month period ended June 30, 1997 was 8.49% or 21 basis points lower
than the 8.70% for the same period in 1996.
Interest expense for the six month period increased $2,674,000 from that for the
same period in 1996. Volume increases in deposits added $2,918,000 of interest
expense. This was offset in part by slightly lower rates and a reduction in long
term debt outstanding. Overall average rates paid on interest-bearing
liabilities in the first six months of 1997 decreased 3 basis points to 3.96%
from the same period in 1996.
The combined effect of the increase in both interest income and interest expense
for the first six months of 1997 versus 1996 resulted in an increase of
$2,821,000 or 20.4% in net interest income. Net interest margin decreased 29
basis points from 5.34% to 5.05%.
The following four tables provide summaries of the components of the interest
income, interest expense and net interest margins on earning assets for the
quarter and six month periods ended June 30, 1997 versus the same periods in
1996.
<PAGE>
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
6/30/97 6/30/97
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loan 2,3 $ 440,813 $ 10,840 9.84% $ 348,779 $ 9,030 10.36%
Securities4 262,975 3,980 6.05% 188,276 2,693 5.72%
Federal funds sold 3,807 53 5.57% 1,592 21 5.28%
------------- ----------- ------------- -----------
Total earning assets 707,595 14,873 8.41% 538,647 11,744 8.72%
----------- -----------
Cash and due from bank 38,664 29,113
Premises and equipment 16,440 14,121
Other assets,net 35,172 18,486
Less: allowance
for loan losses (6,030) (5,383)
------------- -------------
Total $ 791,841 $ 594,984
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 123,443 695 2.25% $ 84,062 477 2.27%
Savings deposits 213,186 1,630 3.06% 160,453 1,226 3.06%
Time deposits 250,988 3,356 5.35% 169,516 2,243 5.29%
Federal funds purchased 6,587 92 5.59% 11,490 144 5.01%
Short-term debt 9,828 156 6.35% 9,828 146 5.94%
Long-term debt 11,448 170 5.94% 18,080 262 5.80%
------------- ----------- ------------- -----------
Total interest-bearing
liabilities 615,480 6,099 3.96% 453,429 4,498 3.97%
----------- -----------
Noninterest-bearing deposits 104,508 77,941
Other liabilities 10,268 8,842
Shareholders' equity 61,585 54,772
------------- -------------
Total liabilities
and shareholders' equity $ 791,841 $ 594,984
============= =============
Net interest rate spread5 4.44% 4.75%
Net interest income/net $ 8,774 $ 7,246
=========== ===========
interest margin6 4.96% 5.38%
=========== ===========
1 Average balances are computed principally on the basis of daily balances.
Average balance of securities is based on amortized cost.
2 Nonaccrual loans are included.
3 Interest income on loans includes fees on loans of $448,000 in 1997 and $498,000 in 1996.
4 Interest income is stated on a tax equivalent basis of 1.52 and 1.72 at June 30, 1997 and 1996.
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.
</TABLE>
<PAGE>
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
6/30/97 6/30/97
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loan 2,3 $ 436,332 $ 21,571 9.89% $ 334,190 $ 17,593 10.53%
Securities4 233,799 7,028 6.01% 190,735 5,447 5.71%
Federal funds sold 10,013 268 5.35% 12,620 332 5.26%
------------- ------------- ------------- -------------
Total earning assets 680,144 28,867 8.49% 537,545 23,372 8.70%
------------- -------------
Cash and due from bank 39,816 29,387
Premises and equipment 15,978 13,729
Other assets,net 32,142 18,127
Less: allowance
for loan losses (6,024) (5,488)
------------- -------------
Total $ 762,056 $ 593,300
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 115,114 1,299 2.26% $ 84,362 953 2.26%
Savings deposits 205,040 3,123 3.05% 163,248 2,492 3.05%
Time deposits 244,146 6,468 5.30% 172,495 4,654 5.40%
Federal funds purchased 4,731 131 5.54% 5,745 144 5.01%
Short-term debt 9,828 312 6.35% 9,828 291 5.92%
Long-term debt 12,759 374 5.86% 17,153 499 5.82%
------------- ------------- ------------- -------------
Total interest-bearing
liabilities 591,618 11,707 3.96% 452,831 9,033 3.99%
------------- -------------
Noninterest-bearing deposits 98,765 77,358
Other liabilities 9,970 8,720
Shareholders' equity 61,703 54,391
------------- -------------
Total liabilities
and shareholders' equity $ 762,056 $ 593,300
============= =============
Net interest rate spread5 4.53% 4.71%
Net interest income/net $ 17,160 $ 14,339
============= =============
interest margin6 5.05% 5.34%
============= =============
1 Average balances are computed principally on the basis of daily balances.
Average balance of securities is based on amortized cost.
2 Nonaccrual loans are included.
3 Interest income on loans includes fees on loans of $1,024,000 in 1997 and $905,000 in 1996.
4 Interest income is stated on a tax equivalent basis of 1.52 and 1.72 at June 30, 1997 and 1996.
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.
</TABLE>
<PAGE>
TRICO BANCSHARES
ANALYSIS OF VOLUME AND RATE CHANGES
ON NET INTEREST INCOME AND EXPENSE
(in thousands)
For the three months ended June 30,
1997 over 1996
Yield/
Volume Rate4 Total
----------- ----------- ------------
Increase (decrease) in interest income:
Loans 1,2 $ 2,383 $ (573) $ 1,810
Investment securities3 1,068 219 1,287
Federal funds sold 29 3 32
----------- ----------- ------------
Total 3,480 (351) 3,129
----------- ----------- ------------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 223 (5) 218
Savings deposits 403 1 404
Time deposits 1,078 35 1,113
Federal funds purchased (61) 9 (52)
Short-term debt 0 10 10
Long-term debt (96) 4 (92)
----------- ----------- ------------
Total 1,547 54 1,601
----------- ----------- ------------
Increase (decrease) in
net interest income $ 1,933 $ (405) $ 1,528
=========== =========== ============
1 Nonaccrual loans are included.
2 Interest income on loans includes fee income on loans of $448,000 in 1997 and
$498,000 in 1996. 3 Interest income is stated on a tax equivalent basis of 1.52
and 1.72 for June 30, 1997 and 1996.
4 The rate/volume variance has been included in the rate variance.
TRICO BANCSHARES
ANALYSIS OF VOLUME AND RATE CHANGES
ON NET INTEREST INCOME AND EXPENSE
(in thousands)
For the six months ended June 30,
1997 over 1996
Yield/
Volume Rate4 Total
---------- ------------ ------------
Increase (decrease) in interest income:
Loans 1,2 $ 5,377 $ (1,399) $ 3,978
Investment securities3 1,230 351 1,581
Federal funds sold (69) 5 (64)
---------- ------------ ------------
Total 6,538 (1,043) 5,495
---------- ------------ ------------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 347 (1) 346
Savings deposits 638 (7) 631
Time deposits 1,933 (119) 1,814
Federal funds purchased (25) 12 (13)
Short-term debt 0 21 21
Long-term debt (128) 3 (125)
---------- ------------ ------------
Total 2,765 (91) 2,674
---------- ------------ ------------
Increase (decrease) in
net interest income $ 3,773 $ (952) $ 2,821
========== ============ ============
1 Nonaccrual loans are included.
2 Interest income on loans includes fee income on loans of $1,024,000 in 1997
and $905,000 in 1996.
3 Interest income is stated on a tax equivalent basis of 1.52 and 1.72 for June
30, 1997 and 1996.
4 The rate/volume variance has been included in the rate variance.
<PAGE>
Provision for Loan Losses
During the second quarter of 1997, the Bank provided $600,000 for loan losses
which matched its provision of the first quarter. Net charge offs in the second
quarter decreased to $233,000 versus $831,000 in the first quarter and $522,000
in the second quarter of 1996. While the loan charge offs decreased,
nonperforming loans increased to $9,488,000 at the end of the quarter versus
$6,920,000 at the end of the first quarter. Because of the higher balances of
nonperforming loans and loan growth in 1997, management will continue to provide
for loan losses at higher levels than were recorded in 1996 until a higher
coverage ratio is attained.
Noninterest Income
Total noninterest income for the second quarter of 1997 was up $828,000 or 52.4%
from the same period in 1996. Service charges and fees on deposit accounts
increased 43.2% to $1,684,000 in the second quarter versus year ago results.
This change is due to increases in account volumes mainly as a result of the
previously mentioned acquisitions and selective fee increases made in June 1996.
Other income was up from $404,000 in the second quarter of 1996 to $724,000 in
1997. Much of the change was related to a $236,000 (69.6%) increase in
commissions on the sale of mutual funds and annuities.
Results for the first six months were consistent with the second quarter.
Overall, noninterest income was higher by $1,459,000 or 47.9% in the first six
months of 1997 versus the same period in 1996. Service charges and fee income
reflected a 38.4% increase to $3,175,000. Other income was up $579,000 to
$1,330,000 of which $332,000 of the increase was attributable to commissions on
the sale of mutual funds and annuities.
Noninterest Expense
Noninterest expense is comprised of operating expenses of the Company and the
Bank, plus the total noninterest (income) expenses of the Bank's real estate
development subsidiary. Noninterest expenses increased $2,996,000 to $8,820,000
in the second quarter 1997 versus 1996. Most of the higher costs were directly
or indirectly related to the two acquisitions. One time integration and ongoing
operating costs for the nine acquired Wells branches totaled $894,000 in the
second quarter. Amortization of intangible assets associated with both the
Sutter Buttes and Wells acquisitions amounted to $386,000. Also, the Bank
increased staffing in various support departments and loan offices to service
the new branches and customers. As a result, salary and benefit expense not
directly related to the nine new branches increased $476,000 or 15.8% on a
quarter over quarter basis. Occupancy costs exclusive of the nine branches was
$290,000 (34.2%) higher. Of this amount, depreciation on equipment had the
largest single increase and accounted for $183,000. Much of the depreciation
related to improved computer and communication networks. Other expense
categories such as courier service, telephone, ATM charges and postage, had
significant increases as a result of the Sutter Buttes and Wells Fargo branch
acquisitions. Management is addressing issues to increase efficiencies to reduce
the noninterest expenses.
For the six month period noninterest expenses increased $4,783,000 or 42.2% in
1997 over 1996. In addition to the ongoing costs associated with the Wells and
Sutter Buttes acquisitions, the year to date expenses reflect one time costs to
integrate the Wells branches of approximately $358,000. Other expenses which had
significant increases on a year over year basis include: Advertising $140,000,
telephone $124,000, ATM charges $140,000, courier service $88,000, postage
$38,000 and FDIC insurance $42,000. Most of these are related to the
acquisitions.
The overhead efficiency ratio for the first six months of 1997 was 74.8% versus
65.1% in the like period of 1996.
Provision for Income Taxes
The effective tax rate for the six months ended June 30, 1997 is 37.4% and
reflects a decrease from 41.8% in the year earlier period. The decrease in tax
rate is the result of higher nontaxable earnings from municipal bonds and life
insurance on a smaller income base from the prior year. The Bank has increased
its holdings of tax-exempt municipal bonds in the first half of 1997, so the tax
rate should continue to be somewhat lower during 1997.
Loans
In the second quarter of 1997, loan balances increased $31,125,000 or 7.2% from
the ending balances at March 31, 1997. Loan balances were higher in all
categories. The balances also exceeded year end balances by $21,451,000 and 1996
second quarter ending balances by $87,822,000. The year over year gains are
attributable to the Sutter Buttes acquisition and about a 7.2% loan growth. The
Bank has increased its commercial lending staff in the Sacramento, Bakersfield
and northern San Joaquin Valley loan offices. Management believes loan growth
should continue through the third quarter.
Securities
At June 30, 1997, securities held-to-maturity had a cost basis of $99,285,000
and an approximate fair value of $97,848,000. This portfolio contained
mortgage-backed securities totaling $76,802,000 of which $32,703,000 were CMO's.
The securities available-for-sale portfolio had a fair value of $144,234,000 and
an amortized cost of $144,801,000. This portfolio contained mortgage-backed
securities with an amortized cost of $28,385,000 of which $20,521,000 were
CMO's.
At December 31, 1996, securities held-to-maturity had a cost basis of
$104,713,000 and an approximate fair value of $103,488,000. This portfolio
contained mortgage-backed securities totaling $81,202,000 of which $33,936,000
were CMO's. The securities available-for-sale portfolio had a fair value of
$65,316,000 and an amortized cost of $66,307,000. This portfolio contained
mortgage-backed securities with an amortized cost of $30,260,000 of which
$21,603,000 were CMO's.
Growth in the securities portfolio resulted from the investment of the net
proceeds generated from the acquisition of the Wells Fargo deposits in the first
quarter.
Nonperforming Loans
As shown in the following table, total nonperforming assets have risen about
5.3% to $11,009,000 in the first six months of 1997. At June 30, 1997 non
performing assets represent 1.38% of total assets versus 1.50% at year end. No
one sector of loans accounted for the $423,000 increase in nonperforming loans.
OREO increased $133,000 as the net result of six properties being added and
eight being sold during this period. All nonaccrual loans are considered to be
impaired when determining the valuation allowance under SFAS 114. The increase
in nonperforming loans is of concern to Management. Progress was made during the
second quarter to identify problem and potential problem loans earlier.
Collection processes are being changed to help improve the timeliness of loan
payments.
June 30, December 31,
1997 1996
Nonaccrual loans $ 9,265 $ 9,044
Accruing loans past due 90 days or more 222 20
Restructured loans (in compliance with
modified terms) 0 0
---------- ----------
Total nonperforming loans 9,487 9,064
Other real estate owned 1,522 1,389
---------- ----------
Total nonperforming assets $ 11,009 $ 10,453
========== ==========
Nonincome producing investments in real
estate held by Bank's real estate
development subsidiary $ 1,410 $ 1,173
========== ==========
Nonperforming loans to total loans 2.06% 2.06%
Allowance for loan losses to
nonperforming loans 66% 67%
Nonperforming assets to total assets 1.38% 1.50%
Allowance for loan losses to
nonperforming assets 57% 58%
Allowance for Loan Loss
The Bank maintains its allowance for loan losses at a level 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 following table presents information concerning the allowance and provision
for loan losses.
June 30, June 30,
1997 1996
(in thousands)
Balance, Beginning of period $ 6,097 $ 5,580
Provision charged to operations 1,200 90
Loans charged off (1,167) (697)
Recoveries of loans previously
charged off 103 261
============ =============
Balance, end of period $ 6,233 $ 5,234
============ =============
Ending loan portfolio $ 460,741 $ 438,426
============ =============
Allowance for loan losses as a
percentage of ending loan portfolio 1.35% 1.19%
============ =============
Fixed Assets
During the second quarter of 1997 the Bank entered into a $2.5 million contract
for a building which will house most of the administrative functions of the Bank
and the Company. Operations which are now performed in four separate locations
will be consolidated in the new building. Completion of the building is targeted
for late December 1997 to early January 1998.
<PAGE>
Equity
The following table indicates the amounts of regulatory capital of the Company.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total Capital
to Risk Weighted Assets $59,642 11.78% =>$40,506 =>8.0% =>$50,634 =>10.0%
Tier I Capital
to Risk Weighted Assets $53,409 10.55% =>$20,253 =>4.0% =>$30,380 => 6.0%
</TABLE>
<PAGE>
PART II
Other Information
(a) Item 4. Submission of Matters to a Vote of Security Holders
(a.) Annual Meeting held May 20, 1997. Number of shares
represented in person or by proxy and constituting a quorum.
3,559,549 77%
(c.) Election of directors VOTES FOR
---------
Everett B. Beich 3.480,563
---------
William J. Casey 3,479,897
---------
Craig S. Compton 3,467,039
---------
Richard C. Guiton 3,480,400
---------
Douglas F. Hignell 3,480,400
---------
Brian D. Leidig 3,480,400
---------
Wendell J. Lundberg 3,480,400
---------
Donald E. Murphy 3,480.400
---------
Rodney W. Peterson 3,480,294
---------
Robert H. Steveson 3,479,441
---------
Alex A. Vereschagin, Jr. 3,480,400
---------
Ratify the appointment of Arthur Andersen LLP as independent
public accountants of the Company for 1997. Votes: FOR
3,533,453, AGAINST 878 , ABSTAIN 25,293
(b) Item 6. Exhibits Filed Herewith
Exhibit No. Exhibits
3.1 Articles of Incorporation, as amended to date, filed as
Exhibit 3.1 to Registrant's Report on Form 10-K, filed for
the year ended December 31, 1989, are incorporated herein
by reference.
3.2 Bylaws, as amended to 1992, filed as Exhibit 3.2 to
Registrant's Report on Form 10-K, filed for the year ended
December 31, 1992, are incorporated herein by reference.
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.
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.
22.1 Tri Counties Bank, a California banking corporation, is the
only subsidiary of Registrant.
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRICO BANCSHARES
Date August 4, 1997 /s/ Robert H. Steveson
--------------- ------------------------
Robert H. Steveson
President and
Chief Executive Officer
Date August 4, 1997 /s/ Robert M. Stanberry
--------------- ------------------------
Robert M. Stanberry
Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 11.1
COMPUTATIONS OF EARNINGS PER SHARE
(in thousands
except earnings per share)
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
Shares used in the computation of earnings per share:
<S> <C> <C> <C> <C>
Weighted daily average
of shares outstanding 4,648,677 4,463,891 4,645,274 4,464,909
Shares used in the computation of
primary earnings per shares 4,827,537 4,651,031 4,824,457 4,648,761
=============== =============== ============== =============
Shares used in the computation of
fully diluted earnings per share 4,864,959 4,660,819 4,852,174 4,664,660
=============== =============== ============== =============
Net income used in the computation of earnings per common share:
Net income $ 1,079 $ 1,704 $ 2,643 $ 3,448
=============== =============== ============== =============
Primary earnings per share $ 0.22 $ 0.37 $ 0.55 $ 0.74
=============== =============== ============== =============
Fully diluted earnings per share $ 0.22 $ 0.37 $ 0.55 $ 0.74
=============== =============== ============== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000356171
<NAME> TRICO BANCSHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 44,149
<INT-BEARING-DEPOSITS> 591,892
<FED-FUNDS-SOLD> 4,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 144,234
<INVESTMENTS-CARRYING> 99,285
<INVESTMENTS-MARKET> 97,848
<LOANS> 460,741
<ALLOWANCE> 6,233
<TOTAL-ASSETS> 797,137
<DEPOSITS> 703,695
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,772
<LONG-TERM> 21,275
0
0
<COMMON> 47,841
<OTHER-SE> 14,554
<TOTAL-LIABILITIES-AND-EQUITY> 797,137
<INTEREST-LOAN> 21,571
<INTEREST-INVEST> 6,897
<INTEREST-OTHER> 268
<INTEREST-TOTAL> 28,736
<INTEREST-DEPOSIT> 10,890
<INTEREST-EXPENSE> 11,707
<INTEREST-INCOME-NET> 17,029
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 16,112
<INCOME-PRETAX> 4,222
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,643
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 8.41
<LOANS-NON> 9,265
<LOANS-PAST> 222
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,097
<CHARGE-OFFS> 1,167
<RECOVERIES> 103
<ALLOWANCE-CLOSE> 6,233
<ALLOWANCE-DOMESTIC> 6,233
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
