<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 September 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 November 4, 1997: 4,658,949
<PAGE>
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------------------
1997 1996
<S> <C> <C>
Assets:
Cash and due from banks $ 38,447 $ 52,231
Securities held-to-maturity
(approximate fair value $95,876 and $103,488) 96,245 104,713
Securities available-for-sale, net of unrealized
gain (loss) of $196 and $(991) 150,423 65,316
Loans, net of allowance for loan losses of $(6,364) and $(6,097) 461,697 433,192
Premises and equipment, net 17,731 14,717
Investment in real estate properties 606 1,173
Other real estate owned 2,081 1,389
Accrued interest receivable 5,076 4,572
Intangible assets 9,286 1,036
Other assets 16,549 16,520
----------------- -----------------
Total assets $ 798,141 $ 694,859
================= =================
Liabilities:
Deposits
Noninterest-bearing demand $ 113,610 $ 100,879
Interest-bearing demand 127,545 97,178
Savings 208,271 172,789
Time certificates 259,527 224,775
----------------- -----------------
Total deposits 708,953 595,621
Fed funds purchased - 4,900
Repurchase agreements 4,700 -
Accrued interest payable and other liabilities 9,214 9,280
Long term borrowings 11,443 24,281
----------------- -----------------
Total liabilities 734,310 634,082
Shareholders' equity:
Common stock 47,930 47,652
Retained earnings 16,088 14,076
Unrealized loss on securities available for sale, net (187) (951)
----------------- -----------------
Total shareholders' equity 63,831 60,777
----------------- -----------------
Total liabilities and shareholders' equity $ 798,141 $ 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 nine months
ended September 30, ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,767 $ 9,955 $ 33,338 $ 27,548
Interest on investment
securities-taxable 3,519 2,577 10,165 7,916
Interest on investment
securities-tax exempt 189 30 440 93
Interest on federal funds sold 24 - 292 332
-------------- ------------- ------------- -------------
Total interest income 15,499 12,562 44,235 35,889
-------------- ------------- ------------- -------------
Interest expense:
Interest on deposits 5,885 4,196 16,775 12,295
Interest on federal funds purchased 29 204 160 348
Interest on other borrowings 213 456 899 1,246
-------------- ------------- ------------- -------------
Total interest expense 6,127 4,856 17,834 13,889
-------------- ------------- ------------- -------------
Net interest income 9,372 7,706 26,401 22,000
Provision for loan losses 1,000 537 2,200 627
-------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 8,372 7,169 24,201 21,373
Noninterest income:
Service charges and fees 1,748 1,296 4,923 3,591
Other income 729 449 2,041 1,200
Securities gains (losses), net - - 18 -
-------------- ------------- ------------- -------------
Total noninterest income 2,477 1,745 6,982 4,791
-------------- ------------- ------------- -------------
Noninterest expenses:
Salaries and related expenses 3,997 2,941 11,604 8,905
Other, net 4,203 2,876 12,708 8,241
-------------- ------------- ------------- -------------
Total noninterest expenses 8,200 5,817 24,312 17,146
-------------- ------------- ------------- -------------
Net income before income taxes 2,649 3,097 6,871 9,018
Income taxes 1,035 1,276 2,614 3,749
-------------- ------------- ------------- -------------
Net income 1,614 1,821 4,257 5,269
Primary earnings per common share $ 0.33 $ 0.39 $ 0.88 $ 1.13
============== ============= ============= =============
Fully diluted earnings per common share $ 0.33 $ 0.39 $ 0.88 $ 1.13
============== ============= ============= =============
</TABLE>
<PAGE>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Common stock Unrealized
------------------------------ (loss) on
Number Retained securities,
of shares Amount earnings 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 18,826 143 $ 143
Repurchase of common stock (1,100) (11) (19) $ (30)
Common stock cash
dividends (2,226) $ (2,226)
Change in unrealized
loss on securities 764 $ 764
Stock option amortization 146 $ 146
Net income, September 30, 1997 4,257 $ 4,257
-------------- ------------- ------------- ------------ ------------
Balance, September 30, 1997 4,658,949 $ 47,930 $ 16,088 $ (187) $ 63,831
============== ============= ============= ============ ============
</TABLE>
<PAGE>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income $ 4,257 $ 5,269
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 2,200 627
Provision for losses on OREO 169 -
Depreciation and amortization 1,759 1,328
Amortization of investment security discounts (62) 42
Deferred income taxes (97) 107
Investment security (gains) losses (net) (18) -
(Gain) loss on sale of other real estate owned 33 (5)
(Gain) loss on sale of premises and equipment (14) (7)
(Gain) loss on sale of loans (139) 8
Proceeds from loan sales 15,130 13,217
Origination of loans held for sale (22,325) (20,483)
Amortization of stock options 146 156
(Increase) decrease in interest receivable (504) 527
Increase (decrease) in interest payable 771 (729)
(Increase) decrease in other assets and liabilities (9,814) (2,195)
------------ -----------
Net cash provided (used) by operating activities (8,508) (2,138)
------------ -----------
Investing activities:
Proceeds from maturities of securities held-to-maturity 8,595 16,627
Purchases of securities held-to-maturity - (5,516)
Proceeds from maturities of securities available-for-sale 18,815 19,777
Proceeds from sales of securities available-for-sale 29,033 -
Purchases of securities available-for-sale (131,695) (13,644)
Net (increase) decrease in loans (24,735) (56,023)
Purchases of premises and equipment (3,940) (2,030)
Proceeds from sale of other real estate owned 470 515
------------ -----------
Net cash provided (used) by investing activities (103,457) (40,294)
------------ -----------
Financing activities:
Net increase (decrease) in deposits 113,332 9,426
Net increase (decrease) in federal funds purchased (4,900) 7,500
Borrowings under repurchase agreements 4,700 -
Payments of principal on long-term debt agreements (12,838) (2,008)
Repurchase of common stock (30) (146)
Cash dividends - Common (2,226) (1,779)
Exercise of common stock options 143 356
------------ -----------
Net cash provided (used) by financing activities 98,181 13,349
------------ -----------
Increase (decrease) in cash and cash equivalents (13,784) (29,083)
Cash and cash equivalents at beginning of year 52,231 65,273
------------ -----------
Cash and cash equivalents at end of period $ 38,447 $ 36,190
============ ===========
Supplemental information:
Cash paid for taxes $ 2,924 $ 4,097
Cash paid for interest expense $ 18,187 $ 14,618
</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 nine months ended September 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 nine months ended September 30, 1997 and
1996 are as follows:
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Basic earnings per share $0.35 $0.41 $0.92 $1.18
Diluted earnings per share $0.33 $0.39 $0.88 $1.13
<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 $1,614,000 for the third quarter ended September 30, 1997
versus $1,821,000 for the same period in 1996. Fully diluted earnings per share
for the third quarter periods were $0.33 and $0.39, respectively. Earnings for
the nine months ended September 30, 1997 were $4,257,000 versus year ago results
of $5,269,000. The fully diluted earnings per share were $.88 and $1.13 for the
respective nine month periods.
Pretax earnings for the third quarter of 1997 were $2,649,000 versus $3,097,000
for the same period in 1996. While quarterly pretax earnings declined $448,000
from the prior year, the 1997 third quarter pretax earnings rose $982,000 or
58.9% above the second quarter 1997 results. Higher operating costs related to
the February 21, 1997 acquisition and integration of nine branches from Wells
Fargo Bank, N.A. continued to adversely impact earnings as compared to prior
year results. Additionally, the Bank made provisions for loan losses totaling
$1,000,000 in the quarter versus $537,000 in the third quarter last year. The
higher provision was made due to loan growth and an increase of $669,000in net
loans charged off in the third quarter of 1997 from a total of $200,000 in the
third quarter of 1996. Net interest income reflected growth of 21.6% to
$9,372,000. The interest income component was up $2,937,000 (23.4%) due to
higher quarter over quarter volume of both loans and securities and a 23 basis
point increase in yields on securities. Average rates received on loans was
lower by 39 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 $1,271,000 (26.1%) which was
due predominately to increased volume of interest bearing liabilities. Net
interest margin was 5.12% for the third quarter of 1997 versus 5.39% 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' 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 42.0% to a total of $2,477,000 for the
third quarter of 1997 over the prior year third quarter. The service charge and
fee income portion increased 34.9% to $1,748,000 due to an increase in account
volumes. Other income increased from $449,000 in 1996 to $711,000 in 1997.
Commissions on the sale of mutual funds and annuities accounted for $227,000 of
the increase.
Noninterest expense increased $2,383,000 to $8,200,000 in the third quarter 1997
versus 1996. Of the higher costs, $851,000 were directly related to continuing
operations of the purchased branches. Additionally, amortization of intangible
assets associated with the Sutter Buttes and Wells branch acquisitions amounted
to $386,000. Increased staffing in various support departments and loan offices
to service the new branches in addition to normal salary progressions added
$530,000 (18.0%) to salary and benefit expense on a quarter over quarter basis.
Occupancy costs exclusive of the new branches was $141,000 (14.5%) higher. Of
this amount, depreciation on equipment had the largest single increase and
accounted for $101,000. 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. The provision for OREO losses
was $117,000 in the third quarter of 1997 versus no provision in the same
quarter last year. Noninterest expenses related to ongoing operations, exclusive
of onetime acquisition costs, dropped $214,000 in the third quarter of 1997 from
the second quarter 1997 results. Management will continue to focus its attention
on increasing efficiencies and reducing the noninterest expenses.
Assets of the Company totaled $798,141,000 at September 30, 1997 which was an
increase of $103,282,000 (14.9%) and $177,102,000 (28.5%) from the December 31,
1996 and September 30, 1996 ending balances, respectively. Changes in earning
assets from the prior year quarter end balances included an increase in loans of
$88,111,000 to $468,061,000 and an increase in securities of $72,571,000 to
$246,668,000. Nonperforming assets decreased $2,241,000 from December 31, 1996
to a balance of $8,212,000 at September 30, 1997.
Year to date 1997, the Company had an annualized return on assets of .73% and a
return on equity of 9.12% versus 1.17% and 12.80% in 1996. TriCo Bancshares
ended the quarter with a Tier 1 capital ratio of 10.48% and a total risk-based
capital ratio of 11.7%.
The following tables provide a summary of the major elements of income and
expense for the third quarter of 1997 compared with the third quarter of 1996
and for the first nine months of 1997 compared with the first nine months of
1996.
<PAGE>
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended September 30, Percentage
1997 1996 Change
(in thousands, except increase
earnings per share) (decrease)
Interest income $ 15,597 $ 12,584 23.9%
Interest expense 6,127 4,856 26.2%
------------ ------------
Net interest income 9,470 7,728 22.6%
Provision for loan losses 1,000 537 86.2%
------------ ------------
Net interest income after 8,470 7,191 17.8%
provision for loan losses
Noninterest income 2,477 1,745 41.9%
Noninterest expenses 8,200 5,817 41.0%
------------ ------------
Net income before income taxes 2,747 3,119 (11.9%)
Income taxes 1,035 1,276 (18.9%)
Tax equivalent adjustment1 98 22 355.0%
------------ ------------
Net income 1,614 1,821 (11.4%)
============ ============
Primary earnings per common share $ 0.33 $ 0.39 (15.4%)
1 Interest on tax-free securities is reported on a tax equivalent basis of 1.52
and 1.72 for September 30, 1997 and 1996.
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Nine months
ended September 30, Percentage
1997 1996 Change
(in thousands, except increase
earnings per share) (decrease)
Interest income $ 44,464 $ 35,956 23.7%
Interest expense 17,834 13,889 28.4%
------------ ------------
Net interest income 26,630 22,067 20.7%
Provision for loan losses 2,200 627 250.9%
------------ ------------
Net interest income after 24,430 21,440 13.9%
provision for loan losses
Noninterest income 6,982 4,791 45.7%
Noninterest expenses 24,312 17,146 41.8%
------------ ------------
Net income before income taxes 7,100 9,085 (21.9%)
Income taxes 2,614 3,749 (30.3%)
Tax equivalent adjustment1 229 67 241.7%
------------ ------------
Net income 4,257 5,269 (19.2%)
============ ============
Primary earnings per common share $ 0.88 $ 1.13 (22.1%)
1 Interest on tax-free securities is reported on a tax equivalent basis of 1.52
and 1.72 for September 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.
For the quarter ended September 30, 1997, interest income increased $3,013,000
or 23.9%over the same period in 1996. The average balance of total earning
assets was higher by $159,654,000 which was a 28.4% 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 $86,299,000 and $71,618,000, respectively. These two
volume increases accounted for additional interest income of $2,270,000 and
$1,029,000, respectively. The average rate received on loans in the third
quarter of 1997 was 10.1% which was a decrease of 39 basis points from the third
quarter last year. The lower rate resulted in an unfavorable variance in
interest income of $458,000. The large number of mortgage loans in the Sutter
Buttes portfolio was the major cause in lowering the average rate for loans. The
average rate received on securities rose 23 basis points to 6.0% which accounted
for a $148,000 increase in interest income.
For the third quarter of 1997, interest expense increased by $1,271,000 or 26.2%
over the year earlier period. Due to the two acquisitions, average balances of
interest bearing deposit liabilities increased in all categories from the same
period of the previous year. These average balances rose $160,213,000 (36.8%).
The higher volumes of interest bearing deposit liabilities increased interest
expense by $1,567,000. Average balances of Federal Funds purchased and debt fell
$25,406,000 to $18,801,000 which resulted in a decrease of $381,000 in interest
expense on a quarter over quarter basis. Average rates paid on all interest
bearing liabilities were down 6 basis points in the third quarter 1997 versus
1996.
The combined effect of the increase in both interest income and interest expense
for the third quarter of 1997 versus the same period in 1996 resulted in an
increase of $1,742,000 (22.6%) in net interest income. Net interest margin for
the comparative quarters fell from 5.51% to 5.25%. 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 third quarter as
compared to the third quarter of last year. While net interest margin for the
third quarter of 1997 improved 29 basis points over the second quarter 1997
level, management expects the net interest margin will continue to be lower
overall in 1997 versus 1996. The margin will probably remain lower than in
periods prior to the acquisition until higher loan volume can replace investment
securities.
The nine month period ending September 30, 1997, was essentially impacted by the
same factors as the third quarter. The mix and volume of earning assets and
interest bearing liabilities changed because of the two acquisitions. As a
result, interest income increased $8,508,000 or 23.7% in the first nine months
of 1997 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 $9,916,000. It was offset by a
$1,865,000 decrease in interest income due to a lower average yield on loans.
The average rate received on all earning assets for the nine month period ended
September 30, 1997 was 8.54% or 25 basis points lower than the 8.79% for the
same period in 1996.
Interest expense for the nine month period increased $3,945,000 from that for
the same period in 1996. Volume increases in deposits added $4,487,000 of
interest expense. This was offset in part by slightly lower rates and a
$12,105,000 reduction in Federal Funds purchased and debt outstanding. Overall
average rates paid on interest-bearing liabilities in the first nine months of
1997 decreased 4 basis points to 3.97% 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 nine month periods ended September 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
30-Sep-97 30-Sep-96
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans 2,3 $ 464,748 $ 11,767 10.13% $ 378,449 $ 9,955 10.52%
Securities4 254,517 3,806 5.98% 182,899 2,629 5.75%
Federal funds sold 1,737 24 5.53% - -
------------- ----------- ------------ -----------
Total earning assets 721,002 15,597 8.65% 561,348 12,584 8.97%
----------- -----------
Cash and due from bank 31,777 33,374
Premises and equipment 16,936 14,293
Other assets, net 30,388 18,603
Less: allowance
for loan losses (6,208) (5,338)
------------- ------------
Total $ 793,896 $ 622,280
============= ============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 126,420 720 2.28% $ 90,215 519 2.30%
Savings deposits 208,147 1,613 3.10% 158,640 1,229 3.10%
Time deposits 261,630 3,552 5.43% 187,129 2,448 5.23%
Federal funds purchased 1,989 29 5.83% 13,701 204 5.96%
Short-term debt 5,368 42 3.13% 6,196 88 5.68%
Long-term debt 11,444 171 5.98% 24,310 368 6.06%
------------- ----------- ------------ -----------
Total interest-bearing
liabilities 614,998 6,127 3.99% 480,191 4,856 4.05%
----------- -----------
Noninterest-bearing deposits 105,264 78,999
Other liabilities 10,299 7,166
Shareholders' equity 63,335 55,924
------------- ------------
Total liabilities
and shareholders' equity $ 793,896 $ 622,280
============= ============
Net interest rate spread5 4.67% 4.92%
Net interest income/net $ 9,470 $ 7,728
=========== ===========
interest margin6 5.25% 5.51%
=========== ===========
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 $496,000 in 1997 and $502,000 in 1996.
4 Interest income is stated on a tax equivalent basis of 1.52 and 1.72 at September 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>
Nine Months Ended
30-Sep-97 30-Sep-96
Average Income/ Yield/ Average Income/ Yield/
Balance1 Expense Rate Balance1 Expense Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans 2,3 $ 445,908 $ 33,338 9.97% $ 348,943 $ 27,548 10.53%
Securities4 240,781 10,834 6.00% 188,123 8,076 5.72%
Federal funds sold 7,224 292 5.39% 8,383 332 5.28%
------------- ------------ ------------ -------------
Total earning assets 693,913 44,464 8.54% 545,449 35,956 8.79%
------------ -------------
Cash and due from bank 37,107 30,716
Premises and equipment 16,301 13,917
Other assets, net 31,551 18,316
Less: allowance
for loan losses (6,086) (5,438)
------------- ------------
Total $ 772,786 $ 602,960
============= ============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 118,924 2,019 2.26% $ 86,313 1,472 2.27%
Savings deposits 206,087 4,736 3.06% 161,712 3,721 3.07%
Time deposits 250,038 10,020 5.34% 177,373 7,102 5.34%
Federal funds purchased 3,807 160 5.60% 8,397 348 5.53%
Short-term debt 8,325 354 5.67% 3,285 137 5.56%
Long-term debt 12,316 545 5.90% 24,871 1,109 5.95%
------------- ------------ ------------ -------------
Total interest-bearing
liabilities 599,497 17,834 3.97% 461,951 13,889 4.01%
------------ -------------
Noninterest-bearing deposits 100,955 77,905
Other liabilities 10,081 8,202
Shareholders' equity 62,253 54,902
------------- ------------
Total liabilities
and shareholders' equity $ 772,786 $ 602,960
============= ============
Net interest rate spread5 4.58% 4.78%
Net interest income/net $ 26,630 $ 22,067
============ =============
interest margin6 5.12% 5.39%
============ =============
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 $1,520,000 in 1997 and $1,407,000 in 1996.
4 Interest income is stated on a tax equivalent basis of 1.52 and 1.72 at September 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 September 30,
1997 over 1996
Yield/
Volume Rate4 Total
---------------- ----------------- ------------
Increase (decrease) in interest income:
Loans 1,2 $ 2,270 $ (458) $ 1,812
Investment securities3 1,029 148 1,177
Federal funds sold 24 - 24
---------------- ----------------- ------------
Total 3,323 (310) 3,013
---------------- ----------------- ------------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 208 (7) 201
Savings deposits 384 - 384
Time deposits 975 129 1,104
Federal funds purchased (174) (1) (175)
Short-term debt (12) (34) (46)
Long-term debt (195) (2) (197)
---------------- ----------------- ------------
Total 1,186 85 1,271
---------------- ----------------- ------------
Increase (decrease) in
net interest income $ 2,137 $ (395) $ 1,742
================ ================= ============
1 Nonaccrual loans are included.
2 Interest income on loans includes fee income on loans of $496,000 in 1997 and
$502,000 in 1996.
3 Interest income is stated on a tax equivalent basis of 1.52 and 1.72 for
September 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 nine months ended September 30,
1997 over 1996
Yield/
Volume Rate4 Total
------------ ----------- -----------
Increase (decrease) in interest income:
Loans 1,2 $ 7,655 $ (1,865) $ 5,790
Investment securities3 2,261 497 2,758
Federal funds sold (46) 6 (40)
------------ ----------- -----------
Total 9,870 (1,362) 8,508
------------ ----------- -----------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 556 (9) 547
Savings deposits 1,021 (6) 1,015
Time deposits 2,910 8 2,918
Federal funds purchased (190) 2 (188)
Short-term debt 210 7 217
Long-term debt (560) (4) (564)
------------ ----------- -----------
Total 3,947 (2) 3,945
------------ ----------- -----------
Increase (decrease) in
net interest income $ 5,923 $ (1,360) $ 4,563
============ =========== ===========
1 Nonaccrual loans are included.
2 Interest income on loans includes fee income on loans of $1,520,000 in 1997
and $1,407,000 in 1996.
3 Interest income is stated on a tax equivalent basis of 1.52 and 1.72 for
September 30, 1997 and 1996.
4 The rate/volume variance has been included in the rate variance.
<PAGE>
Provision for Loan Losses
During the third quarter of 1997, the Bank provided $1,000,000 for loan losses
which was $463,000 higher than provided in the year ago quarter. The higher
provision was necessitated by higher net charge offs which were $869,000 in the
third quarter versus $200,000 in the third quarter of 1996.
Charged off loans were higher in all loan categories.
For the nine month period ended September 30,1997 the Bank provided $2,200,000
for loan losses versus $627,000 in the same period of 1996. Net charge offs for
the nine month periods in 1997 and 1996 were $1,933,000 and $636,000
respectively. Net charge offs of commercial loans during the nine months were
$863,000 in 1997 versus $35,000 in 1996. Credit card net charge offs in the
first nine months of 1997 increased $246,000 to $695,000 as compared to the same
period in 1996. These two loan categories accounted for the major portion of the
higher charge offs.
It is expected that the Bank will continue to provide for loan losses at higher
levels than were recorded in 1996 as a result of loan growth and higher level of
adversely rated credits in the loan portfolio.
Noninterest Income
Total noninterest income for the third quarter of 1997 was up $732,000 or 42.0%
from the same period in 1996. Service charges and fees on deposit accounts
increased 34.9% to $1,748,000 in the third quarter versus year ago results. This
change was due to increases in account volumes mainly as a result of the
previously mentioned acquisitions. Other income was up from $449,000 in the
third quarter of 1996 to $711,000 in 1997. Much of the change was related to a
$227,000 (83.5%) increase in commissions on the sale of mutual funds and
annuities.
Results for the nine months were consistent with the third quarter. Overall,
noninterest income was higher by $2,191,000 or 45.7% in the first nine months of
1997 versus the same period in 1996. Service charges and fee income reflected a
37.1% increase to $4,923,000. Both the increased volume of accounts from the
acquisitions and selective fee increases made in June of 1996 contributed to the
higher income. Other income was up $841,000 to $2,041,000 of which $559,000 of
the increase was attributable to commissions on the sale of mutual funds and
annuities. Gains on the sale of real estate loans accounted for $147,000 of the
increase.
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 expense increased $2,383,000 to $8,200,000
in the third quarter 1997 versus 1996. Of the higher costs, $851,000 were
directly related to continuing operations of the purchased branches.
Additionally, amortization of intangible assets associated with the Sutter
Buttes and Wells branch acquisitions amounted to $386,000. Increased staffing in
various support departments and loan offices to service the new branches in
addition to normal salary progressions added $530,000 (18.0%) to salary and
benefit expense on a quarter over quarter basis. Occupancy costs exclusive of
the new branches was $141,000 (14.5%) higher. Of this amount, depreciation on
equipment had the largest single increase and accounted for $101,000. 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. The provision for OREO losses was $117,000 in the third
quarter of 1997 versus no provision in the same quarter last year. This
provision was made on five different OREO properties. Noninterest expenses
related to ongoing operations, exclusive of onetime acquisition costs, dropped
$214,000 in the third quarter of 1997 from the second quarter 1997 results.
Management will continue to focus its attention on increasing efficiencies and
reducing the noninterest expenses.
For the nine month period noninterest expenses increased $7,166,000 or 41.8% in
1997 over 1996. Of this amount conversion and direct operating costs associated
with the acquired branches accounted for $2,257,000. Amortization of intangible
assets associated with the acquisitions amounted to $957,000. Other expenses
which had significant increases on a year over year basis and were closely
related to providing services to the new branches and customers include: Salary
and benefits $1,405,000, premise and equipment $572,000, telephone $158,000, ATM
charges $136,000, courier service $152,000, postage $58,000 and FDIC insurance
$70,000. Provision for OREO loss and other OREO expenses increased $238,000.
The overhead efficiency ratio for the first nine months of 1997 was 72.8% versus
64.0% in the like period of 1996.
Provision for Income Taxes
The effective tax rate for the nine months ended September 30, 1997 is 38.1% and
reflects a decrease from 41.6% 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 third quarter of 1997, loan balances increased $7,320,000 or 1.6% from
the ending balances at June 30, 1997. Loan balances were higher in all
categories. The balances also exceeded year end balances by $28,771,000 and 1996
third quarter ending balances by $88,111,000. The year over year gains are
attributable to the Sutter Buttes acquisition and loan growth of 7.2%. The Bank
has increased its commercial lending staff in the Sacramento, Bakersfield and
northern San Joaquin Valley loan offices. Seasonal agricultural loans are
expected to start paying down in the fourth quarter so no net loan growth is
anticipated during the remainder of the 1997.
Securities
At September 30, 1997, securities held-to-maturity had a cost basis of
$96,245,000 and an approximate fair value of $95,876,000. This portfolio
contained mortgage-backed securities totaling $73,936,000 of which $31,575,000
were CMO's. The securities available-for-sale portfolio had a fair value of
$150,423,000 and an amortized cost of $150,227,000. This portfolio contained
mortgage-backed securities with an amortized cost of $26,929,000 of which
$19,486,000 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 at September 30,
1997 were $8,212,000 which is a decrease of 21.4% from the year end balance. At
September 30, 1997 non performing assets represent 1.03% of total assets versus
1.50% at year end. Nonaccrual loans secured by real estate decreased
approximately $3,227,000 (43.7%) to $4,154,000, which accounted for the largest
single change. Commercial and consumer installment nonperforming loans also had
decreases. Agricultural nonperforming loans reflected some increase. OREO
increased $692,000 as the net result of ten properties being added and ten being
sold during this period and an additional OREO provision of $170,000. 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 has been made in the process to identify problem and
potential problem loans earlier. Collection processes are being changed to help
improve the timeliness of loan payments.
September 30, December 31,
1997 1996
Nonaccrual loans $ 5,515 $ 9,044
Accruing loans past due 90 days or more 616 20
Restructured loans (in compliance with
modified terms) - -
----------- ------------
Total nonperforming loans 6,131 9,064
Other real estate owned 2,081 1,389
----------- ------------
Total nonperforming assets $ 8,212 $ 10,453
=========== ============
Nonincome producing investments in real
estate held by Bank's real estate
development subsidiary $ 606 $ 1,173
=========== ============
Nonperforming loans to total loans 1.31% 2.06%
Allowance for loan losses to
nonperforming loans 104% 67%
Nonperforming assets to total assets 1.03% 1.50%
Allowance for loan losses to
nonperforming assets 77% 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.
For the nine months ended September 30
1997 1996
(in thousands)
Balance, Beginning of period $ 6,097 $ 5,580
Provision charged to operations 2,200 627
Loans charged off (2,105) (919)
Recoveries of loans previously
charged off 172 283
Balance, end of period $ 6,364 $ 5,571
=========== ============
Ending loan portfolio $ 468,061 $ 379,950
=========== ============
Allowance for loans as a
percentage of ending loan portfolio 1.36% 1.47%
=========== ============
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 September 30, 1997:
Total Capital
to Risk Weighted Assets $61,096 11.70% =>$41,790 =>8.0% =>$52,237 =>10.0%
Tier I Capital
to Risk Weighted Assets $54,732 10.48% =>$20,895 =>4.0% =>$31,342 => 6.0%
</TABLE>
<PAGE>
PART II
Other Information
(a) Item 6. Exhibits Filed Herewith
Exhibit No. Exhibits
3.1 Articles of Incorporation, as amended to date, filed as
Exhibit 3.1 to Registrant's Report on Form 10-K, filed for
the year ended December 31, 1989, are incorporated herein
by reference.
3.2 Bylaws, as amended to 1992, filed as Exhibit 3.2 to
Registrant's Report on Form 10-K, filed for the year ended
December 31, 1992, are incorporated herein by reference.
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 November 7, 1997 /s/ Robert H. Steveson
------------------ -----------------------
Robert H. Steveson
President and
Chief Executive Officer
Date November 7, 1997 /s/ Robert M. Stanberry
------------------ ------------------------
Robert M. Stanberry
Vice President and
Chief Financial Officer
EXHIBIT 11
COMPUTATIONS OF EARNINGS PER SHARE
(in thousands
except earnings per share)
(unaudited)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 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 4,657,719 4,498,831 4,649,468 4,476,299
Shares used in the computation of
primary earnings per shares 4,833,158 4,673,451 4,827,288 4,657,051
================ ================ ============== ==============
Shares used in the computation of
fully diluted earnings per share 4,849,605 4,713,229 4,851,197 4,680,967
================ ================ ============== ==============
Net income used in the computation of earnings per common share:
Net income, as reported $ 1,614 $ 1,821 $ 4,257 $ 5,269
================ ================ ============== ==============
Primary earnings per share $ 0.33 $ 0.39 $ 0.88 $ 1.13
================ ================ ============== ==============
Fully diluted earnings per share $ 0.33 $ 0.39 $ 0.88 $ 1.13
================ ================ ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000356171
<NAME> TRICO BANCSHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 38,447
<INT-BEARING-DEPOSITS> 595,343
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 150,423
<INVESTMENTS-CARRYING> 96,245
<INVESTMENTS-MARKET> 95,876
<LOANS> 468,061
<ALLOWANCE> 6,364
<TOTAL-ASSETS> 798,141
<DEPOSITS> 708,953
<SHORT-TERM> 4,700
<LIABILITIES-OTHER> 9,214
<LONG-TERM> 11,443
0
0
<COMMON> 47,930
<OTHER-SE> 15,901
<TOTAL-LIABILITIES-AND-EQUITY> 798,141
<INTEREST-LOAN> 33,338
<INTEREST-INVEST> 10,605
<INTEREST-OTHER> 292
<INTEREST-TOTAL> 44,235
<INTEREST-DEPOSIT> 16,775
<INTEREST-EXPENSE> 17,834
<INTEREST-INCOME-NET> 26,401
<LOAN-LOSSES> 2,200
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 24,312
<INCOME-PRETAX> 6,871
<INCOME-PRE-EXTRAORDINARY> 6,871
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,257
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 8.54
<LOANS-NON> 5,515
<LOANS-PAST> 616
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,097
<CHARGE-OFFS> 2,105
<RECOVERIES> 172
<ALLOWANCE-CLOSE> 6,364
<ALLOWANCE-DOMESTIC> 6,364
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
