<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, 1998 Commission file number 0-10661
------------- -------
TRICO BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2792841
- ------------------------------ ------------------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
63 Constitution Drive, Chico, California 95973
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 530/898-0300
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
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 11, 1998: 4,681,232
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, December 31,
1998 1997
------------------ ------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 39,420 $ 48,476
Federal funds sold 2,500 15,000
------------------ ------------------
Cash and cash equivalents 41,920 63,476
Securities held-to-maturity
(approximate fair value $82,856 and $88,950) 82,926 90,764
Securities available-for-sale, net of
unrealized gain of $609 and $471 214,951 175,753
Loans, net of allowance for loan losses of $(7,138) and $(6,459) 484,165 442,508
Premises and equipment, net 16,807 18,901
Investment in real estate properties 449 856
Other real estate owned 1,464 2,230
Accrued interest receivable 6,231 5,701
Other assets 24,382 25,976
------------------ ------------------
Total assets $ 873,295 $ 826,165
================== ==================
Liabilities:
Deposits
Noninterest-bearing demand $ 125,073 $ 122,069
Interest-bearing demand 128,145 130,958
Savings 206,321 216,402
Time certificates 265,939 254,665
------------------ ------------------
Total deposits 725,478 724,094
Fed funds purchased 15,000 15,300
Repurchase agreements 17,600 -
Accrued interest payable and other liabilities 10,756 10,207
Long term borrowings 36,432 11,440
------------------ ------------------
Total liabilities 805,266 761,041
Shareholders' equity:
Common stock 48,341 48,161
Retained earnings 19,529 16,956
Unrealized gain on securities available for sale, net 159 7
------------------ ------------------
Total shareholders' equity 68,029 65,124
------------------ ------------------
Total liabilities and shareholders' equity $ 873,295 $ 826,165
================== ==================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands except earnings per common share)
For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,922 $ 10,840 $ 23,243 $ 21,571
Interest on investment
securities-taxable 3,860 3,702 7,490 6,646
Interest on investment
securities-tax exempt 437 183 685 251
Interest on federal funds sold 62 53 128 268
-------------- -------------- -------------- -------------
Total interest income 16,281 14,778 31,546 28,736
-------------- -------------- -------------- -------------
Interest expense:
Interest on deposits 5,867 5,681 11,579 10,890
Interest on federal funds purchased 64 92 68 131
Interest on repurchase agreements 159 - 212 -
Interest on other borrowings 410 326 579 686
-------------- -------------- -------------- -------------
Total interest expense 6,500 6,099 12,438 11,707
-------------- -------------- -------------- -------------
Net interest income 9,781 8,679 19,108 17,029
Provision for loan losses 1,235 600 2,060 1,200
-------------- -------------- -------------- -------------
Net interest income after
provision for loan losses 8,546 8,079 17,048 15,829
Noninterest income:
Service charges and fees 1,875 1,684 3,757 3,175
Other income 2,080 724 3,204 1,330
-------------- -------------- -------------- -------------
Total noninterest income 3,955 2,408 6,961 4,505
-------------- -------------- -------------- -------------
Noninterest expenses:
Salaries and related expenses 4,228 4,031 8,415 7,607
Other, net 4,880 4,789 9,080 8,505
-------------- -------------- -------------- -------------
Total noninterest expenses 9,108 8,820 17,495 16,112
-------------- -------------- -------------- -------------
Net income before income taxes 3,393 1,667 6,514 4,222
Income taxes 1,252 588 2,443 1,579
-------------- -------------- -------------- -------------
Net income 2,141 1,079 4,071 2,643
Basic earnings per common share $ 0.46 $ 0.23 $ 0.87 $ 0.57
============== ============== ============== =============
Diluted earnings per common share $ 0.44 $ 0.22 $ 0.84 $ 0.55
============== ============== ============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except number of shares)
Common stock Unrealized
securities
Number Retained holding
of shares Amount earnings gain Total
------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 4,662,649 $ 48,161 $ 16,956 $ 7 $ 65,124
Exercise of common stock
options 12,543 97 $ 97
Common stock cash
dividends (1,498) $ (1,498)
Change in unrealized
gain on securities 152 $ 152
Stock option amortization 83 $ 83
Net income 4,071 $ 4,071
------------- ------------- ------------- --------------- ------------
Balance,
June 30, 1998 4,675,192 $ 48,341 $ 19,529 $ 159 $ 68,029
============= ============= ============= =============== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the six months
ended June 30,
1998 1997
<S> <C> <C>
Operating activities:
Net income $ 4,071 $ 2,643
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 2,060 1,200
Provision for losses on other real estate owned 342 52
Depreciation and amortization 1,287 1,156
Amortization of intangible assets 669 571
Accretion of investment security discounts (138) (39)
Deferred income taxes (124) 438
Investment security (gains) losses (net) (137) (19)
(Gain) loss on sale of OREO (30) 31
(Gain) loss on sale of loans (294) (17)
(Gain) loss on sale of fixed assets 69 14
Amortization of stock options 83 105
(Increase) decrease in interest receivable (530) (1,062)
Increase (decrease) in interest payable 301 1,197
(Increase) decrease in other assets and liabilities 1,097 (552)
--------------- --------------
Net cash provided (used) by operating activities 8,726 5,718
Investing activities:
Proceeds from maturities of securities held-to-maturity 7,939 5,517
Proceeds from maturities of securities available-for-sale 59,577 16,206
Proceeds from sale of securities available-for-sale 37,710 27,036
Purchases of securities available-for-sale (136,066) (121,688)
Net (increase) decrease in loans (42,029) (22,929)
Proceeds from sales of fixed assets 180 23
Purchases of premises and equipment (1,071) (2,408)
Purchases and additions to real estate properties (21) (237)
Proceeds from the sale of OREO 1,224 397
--------------- --------------
Net cash provided (used) by investing activities (72,557) (98,083)
Financing activities:
Net increase (decrease) in deposits 1,384 97,984
Net increase (decrease) in Fed funds purchased (300) -
Net increase (decrease) in repurchase agreements 17,600 (4,900)
Borrowings under long-term debt agreements 30,000 -
Payments of principal on long-term debt agreements (5,008) (3,006)
Cash dividends - Common (1,498) (1,479)
Exercise of common stock options 97 84
--------------- --------------
Net cash provided (used) by financing activities 42,275 88,683
--------------- --------------
Increase (decrease) in cash and cash equivalents (21,556) (3,682)
Cash and cash equivalents at beginning of year 63,476 52,231
--------------- --------------
Cash and cash equivalents at end of period $ 41,920 $ 48,549
=============== ==============
Supplemental information:
Cash paid for taxes $ 3,280 $ 1,808
Cash paid for interest expense $ 12,137 $ 10,510
</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 three months ended June 30, 1998 and 1997 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, 1997.
Note B - Comprehensive Income
As of January 1, 1998, the Company adopted FASB Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS 130). This
Statement established standards for the reporting and display of comprehensive
income and its components in the financial statements. For the Company,
comprehensive income includes net income reported on the statement of income and
changes in the fair value of its available-for-sale investments reported as a
component of shareholders' equity. The following table presents net income
adjusted by the change in unrealized gains or losses on the available-for-sale
investments as a component of comprehensive income (in thousands).
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
------------------ ----------------
<S> <C> <C> <C> <C>
Net income $ 2,141 $ 1,079 $ 4,071 $ 2,643
Net change in unrealized gains (losses)
on available-for-sale investments 183 591 152 265
-------- -------- -------- --------
Comprehensive income $ 2,324 $ 1,670 $ 4,223 $ 2,908
======= ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Note C - Earnings per Share
The Company's basic and diluted earnings per share are as follows (in thousands except per share data):
Three Months Ended June30, 1998
Weighted
Average Per-Share
Income Shares Amount
<S> <C> <C> <C>
Basic Earnings per Share
Net income available to common shareholders $2,141 4,671,523 $0.46
Common stock options outstanding -- 187,464
Diluted Earnings per Share
Net income available to common shareholders $2,141 4,858,987 $0.44
====== =========
Three Months Ended June30, 1997
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $1,079 4,649,403 $0.23
Common stock options outstanding -- 178,145
Diluted Earnings per Share
Net income available to common shareholders $1,079 4,827,548 $0.22
====== =========
Six Months Ended June30, 1998
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $4,071 4,665,311 $0.87
Common stock options outstanding -- 190,032
Diluted Earnings per Share
Net income available to common shareholders $4,071 4,855,343 $0.84
====== =========
Six Months Ended June30, 1997
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,643 4,645,639 $0.57
Common stock options outstanding -- 178,620
Diluted Earnings per Share
Net income available to common shareholders $2,643 4,824,259 $0.55
====== =========
</TABLE>
<PAGE>
Note D - Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedge item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999 and
the Company plans to adopt its provisions effective January 1, 2000. While the
Company does not currently utilize any traditional derivative instruments
(options, swaps, forwards, etc.) in its business, certain of its investments and
long-term borrowings have embedded options due to call or put features that may
be required to be accounted for differently under this Statement as compared to
current accounting principles. The Company has not yet quantified the impacts of
adopting Statement 133 on its consolidated financial statements, however, the
Statement could increase the volatility of future earnings and other
comprehensive income.
<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 had record quarterly earnings of $2,141,000 for the second quarter
ended June 30, 1998. The quarterly earnings represented a 98.4% increase over
the $1,079,000 reported for the same period of 1997. Diluted earnings per share
for the second quarter 1998 were $0.44 versus $0.22 in the year earlier period.
Earnings for the six months ended June 30, 1998 were $4,071,000 versus year ago
results of $2,643,000. The diluted earnings per share were $.84 and $.55 for the
respective six month periods.
Pretax earnings for the second quarter of 1998 were $3,393,000 versus $1,667,000
for the same period in 1997. During the quarter the Bank sold its credit card
portfolio of $14,365,000 for a gain of $793,000 which is included in noninterest
income. Net interest income reflected growth of 12.7% to $9,781,000. The
interest income component was up $1,503,000 (10.2%) due to higher
quarter-over-quarter volume of earning assets ($769,550,000 versus $707,595,000)
and a 17 basis point increase in yield on average earning assets. Interest
expense increased $401,000 (6.6%) which was due predominately to a $35,994,000
(5.85%) increase in interest-bearing liabilities. Average rates paid for
interest-bearing liabilities increased 3 basis points over the second quarter of
1997. Net interest margin was 5.20% for the second quarter of 1998 versus 4.96%
in the same quarter of the prior year. This higher net interest margin reflects
the effects of the higher growth rate in earning assets versus the
interest-bearing liabilities. The provision for loan losses of $1,235,000 for
the second quarter of 1998 was $635,000 higher than in the same quarter of 1997
due to loan growth and an increased level of loans charged off.
Noninterest income, net of the gain on sale of the credit card portfolio
discussed above, increased $754,000 or 31.3% for the second quarter of 1998 over
the prior year second quarter. The service charge and fee income portion
increased 11.4% to $1,875,000 due to an increase in account volumes and fees on
non-Bank customer ATM transactions implemented in the fourth quarter of 1997.
Other income, net of the nonrecurring item, increased $563,000 or 77.8% in the
second quarter of 1998 versus the same quarter in 1997. A miscellaneous income
adjustment accounted for $228,000 of the increase. Gains on the sale of
investments and real estate mortgage loans were up $55,236 to $105,455.
Commissions on the sale of mutual funds and annuities were up $55,471 to
$649,623.
Noninterest expense increased $288,000 or 3.2% in the second quarter 1998 versus
1997. Salary and benefit expense increased $197,000 (4.9%) mostly due to higher
commission payments to sales personnel and accruals for the management incentive
program. Other expenses increased $91,000 or 1.9%. On a quarter-over-quarter
basis, provisions for OREO property valuations added $303,000 to the other
expenses and all other expenses were favorable by a total of $212,000.
Assets of the Company totaled $873,295,000 at June 30, 1998 which was an
increase of $47,130,000 (5.7%) and $76,158,000 (9.6%) from the December 31, 1997
and June 30, 1997 ending balances, respectively. Changes in earning assets from
the prior year quarter end balances included an increase in loans of $30,562,000
to $491,303,000 and an increase in securities of $54,358,000 to $297,877,000.
From year end 1997 balances, nonperforming assets have decreased $2,026,000 and
total $5,453,000 at June 30, 1998. Nonperforming assets were 0.62% of total
assets at quarter end.
Year to date 1998, on an annualized basis, the Company realized a return on
assets of .99% and a return on equity of 12.19% versus 0.69% and 8.57% in the
first half of 1997. TriCo Bancshares ended the quarter with 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 1998 compared with the second quarter of 1997
and for the first six months of 1998 compared with the first six months of 1997.
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended June 30, Percentage
1998 1997 Change
(in thousands, except increase
earnings per share) (decrease)
<S> <C> <C> <C>
Interest income $ 16,504 $ 14,873 11.0%
Interest expense 6,500 6,099 6.6%
--------------- ---------------
Net interest income 10,004 8,774 14.0%
Provision for loan losses 1,235 600 105.8%
--------------- ---------------
Net interest income after 8,769 8,174 7.3%
provision for loan losses
Noninterest income 3,955 2,408 64.2%
Noninterest expenses 9,108 8,820 3.3%
--------------- ---------------
Net income before income taxes 3,616 1,762 105.2%
Income taxes 1,252 588 112.9%
Tax equivalent adjustment1 223 95 134.2%
--------------- ---------------
Net income $ 2,141 $ 1,079 98.4%
=============== ===============
Diluted earnings per common share $ 0.44 $ 0.22 100.0%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.51
and 1.52 for June 30, 1998 and 1997 respectively.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Six months
ended June 30, Percentage
1998 1997 Change
(in thousands, except increase
earnings per share) (decrease)
<S> <C> <C> <C>
Interest income $ 31,895 $ 28,867 10.5%
Interest expense 12,438 11,707 6.2%
--------------- ---------------
Net interest income 19,457 17,160 13.4%
Provision for loan losses 2,060 1,200 71.7%
--------------- ---------------
Net interest income after 17,397 15,960 9.0%
provision for loan losses
Noninterest income 6,961 4,505 54.5%
Noninterest expenses 17,495 16,112 8.6%
--------------- ---------------
Net income before income taxes 6,863 4,353 57.7%
Income taxes 2,443 1,579 54.7%
Tax equivalent adjustment1 349 131 167.7%
--------------- ---------------
Net income $ 4,071 $ 2,643 54.0%
=============== ===============
Diluted earnings per common share $ 0.84 $ 0.55 52.7%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.51
and 1.52 for June 30, 1998 and 1997 respectively.
</TABLE>
<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 three months ended June 30, 1998, interest income increased $1,631,000
or 11.0% over the same period in 1997. The average balance of total earning
assets was higher by $61,955,000 for an 8.8% increase. All categories of earning
assets had higher average balances with loans up $32,295,000 (7.3%) and
securities up $29,076,000 (11.1%). Interest income increased $1,242,000 as a
result of higher average balances. The average yields on loans, securities and
Federal Funds sold were higher by 24, 14 and 8 basis points respectively, adding
$389,000 to interest income for the quarter. The overall yield on average
earning assets rose 17 basis points to 8.58%.
For the second quarter of 1998, interest expense increased by $401,000 (6.6%)
over the year earlier period. Average balances of interest-bearing liabilities
were up $35,994,000 (5.58%) which resulted in a $469,000 increase in interest
expense. Average balances of long-term debt and time deposits increased
$17,334,000 (51.4%) and $15,675,000 (6.3%) respectively and accounted for most
of the change in interest-bearing liabilities. Rate variances on a
quarter-over-quarter basis resulted in a decrease of $68,000 in interest expense
for the second quarter of 1998.
The combined effect of the increase in both interest income and interest expense
for the second quarter of 1998 versus 1997 resulted in an increase of $1,230,000
or 14.0% in net interest income. Net interest margin was up 24 basis points to
5.20% from 4.96% for the same periods. However, net interest margin was down
from the 5.22% level in the first quarter of 1998. During the second quarter of
1998 the Company borrowed $30,000,000 from the Federal Home Loan Bank and
negotiated for $20,000,000 in certificates of deposits with the State of
California. These funds were invested in securities at an average spread of 149
basis points. The ongoing effect of these transactions will be to increase net
interest income and slightly depress the net interest margin. To the extent the
Bank is successful in replacing some of the investment portfolio with higher
yielding loans, the net interest margin will tend to move higher during the
balance of 1998.
Net interest income and net interest margin comparisons between the first six
months of 1998 and 1997 are influenced by the inclusion of six months of
operations in 1998 of the nine branches purchased from Wells Fargo Bank on
February 21, 1997, compared to the inclusion of just over four months of such
operations in 1997.
The six month period ending June 30, 1998, reflects an interest income increase
of $3,028,000 or 10.5% over the same period in 1997. 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 $2,711,000.
The balance of the increase came from slightly higher yields on earning assets.
The average rate received on all earning assets for the six month period ended
June 30, 1998 was 8.54% or 6 basis points higher than the 8.49% for the same
period in 1997.
Interest expense for the six month period increased $731,000 (6.2%) from that
for the same period in 1997. Volume increases in deposits and borrowings added
$929,000 of interest expense. This was offset in part by slightly lower rates
and reductions in Federal Funds purchased and short-term debt outstanding.
Overall average rates paid on interest-bearing liabilities in the first six
months of 1998 decreased 4 basis points to 3.92% from the same period in 1997.
The combined effect of the increase in both interest income and interest expense
for the first six months of 1998 versus 1997 resulted in an increase of
$2,297,000 or 13.4% in net interest income. Net interest margin rose 17 basis
points to 5.21 from 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, 1998 versus the same periods in
1997.
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Three Months Ended
6/30/98 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
Loans 2,3 $ 473,108 $ 11,922 10.08% $ 440,813 $ 10,840 9.84%
Securities4 292,051 4,520 6.19% 262,975 3,980 6.05%
Federal funds sold 4,391 62 5.65% 3,807 53 5.57%
------------- ------------ -------------- -----------
Total earning assets 769,550 16,504 8.58% 707,595 14,873 8.41%
------------ -----------
Cash and due from bank 30,960 38,664
Premises and equipment 17,877 16,440
Other assets,net 33,501 35,172
Less: allowance
for loan losses (7,023) (6,030)
------------- --------------
Total $ 844,865 $ 791,841
============= ==============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 133,156 755 2.27% $ 123,443 695 2.25%
Savings deposits 207,106 1,589 3.07% 213,186 1,630 3.06%
Time deposits 266,663 3,523 5.28% 250,988 3,356 5.35%
Federal funds purchased 4,543 64 5.64% 6,587 92 5.59%
Short-term debt 11,224 159 5.67% 9,828 156 6.35%
Long-term debt 28,782 410 5.70% 11,448 170 5.94%
------------- ------------ -------------- -----------
Total interest-bearing
liabilities 651,474 6,500 3.99% 615,480 6,099 3.96%
------------ -----------
Noninterest-bearing deposits 114,117 104,508
Other liabilities 11,885 10,268
Shareholders' equity 67,389 61,585
------------- --------------
Total liabilities
and shareholders' equity $ 844,865 $ 791,841
============= ==============
Net interest rate spread5 4.59% 4.44%
Net interest income/net $ 10,004 $ 8,774
============ ===========
interest margin6 5.20% 4.96%
============ ===========
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $ 802,000 in 1998 and $448,000 in 1997.
4Interest income is stated on a tax equivalent basis of 1.51 and 1.52 at June
30, 1998 and 1997 respectively. 5Net interest rate spread represents the average
yield earned on interest-earning assets less the average rate paid on
interest-bearing liabilities. 6Net interest margin is computed by dividing net
interest income by total average earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Six Months Ended
6/30/98 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
Loans 2,3 $ 463,320 $ 23,243 10.03% $ 436,332 $ 21,571 9.89%
Securities4 279,615 8,524 6.10% 233,799 7,028 6.01%
Federal funds sold 4,424 128 5.79% 10,013 268 5.35%
-------------- ------------- ------------- ------------
Total earning assets 747,359 31,895 8.54% 680,144 28,867 8.49%
------------- ------------
Cash and due from bank 31,815 39,816
Premises and equipment 18,431 15,978
Other assets,net 33,960 32,142
Less: allowance
for loan losses (6,822) (6,024)
-------------- -------------
Total $ 824,743 $ 762,056
============== =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 133,383 1,503 2.25% $ 115,114 1,299 2.26%
Savings deposits 212,145 3,237 3.05% 205,040 3,123 3.05%
Time deposits 259,233 6,839 5.28% 244,146 6,468 5.30%
Federal funds purchased 2,389 68 5.69% 4,731 131 5.54%
Short-term debt 7,473 212 5.67% 9,828 312 6.35%
Long-term debt 20,110 579 5.76% 12,759 374 5.86%
-------------- ------------- ------------- ------------
Total interest-bearing
liabilities 634,733 12,438 3.92% 591,618 11,707 3.96%
------------- ------------
Noninterest-bearing deposits 111,849 98,765
Other liabilities 11,365 9,970
Shareholders' equity 66,796 61,703
-------------- -------------
Total liabilities
and shareholders' equity $ 824,743 $ 762,056
============== =============
Net interest rate spread5 4.62% 4.53%
Net interest income/net $ 19,457 $ 17,160
============= ============
interest margin6 5.21% 5.05%
============= ============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $ 1,429,000 in 1998 and $1,024,000 in 1997.
4Interest income is stated on a tax equivalent basis of 1.51 and 1.52 at June
30, 1998 and 1997 respectively. 5Net interest rate spread represents the average
yield earned on interest-earning assets less the average rate paid on
interest-bearing liabilities. 6Net 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,
1998 over 1997
Yield/
Volume Rate4 Total
-------------- -------- ---------
Increase (decrease) in interest income:
Loans 1,2 $ 794 $ 288 $ 1,082
Investment securities3 440 100 540
Federal funds sold 8 1 9
-------------- -------- ---------
Total 1,242 389 1,631
-------------- -------- ---------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 55 5 60
Savings deposits (46) 5 (41)
Time deposits 210 (43) 167
Federal funds purchased (29) 1 (28)
Short-term debt 22 (19) 3
Long-term debt 257 (17) 240
-------------- -------- ---------
Total 469 (68) 401
-------------- -------- ---------
Increase (decrease) in
net interest income $ 773 $ 457 $ 1,230
============== ======== =========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $ 802,000 in 1998 and
$448,000 in 1997. 3Interest income is stated on a tax equivalent basis of 1.51
and 1.52 for June 30, 1998 and 1997 respectively.
4The rate/volume variance has been included in the rate variance.
<PAGE>
TRICO BANCSHARES
ANALYSIS OF VOLUME AND RATE CHANGES
ON NET INTEREST INCOME AND EXPENSE
(in thousands)
For the six months ended June 30,
1998 over 1997
Yield/
Volume Rate4 Total
-------- -------- --------
Increase (decrease) in interest income:
Loans 1,2 $ 1,334 $ 338 $ 1,672
Investment securities3 1,377 119 1,496
Federal funds sold (150) 10 (140)
-------- -------- --------
Total 2,561 467 3,028
-------- -------- --------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 206 (2) 204
Savings deposits 108 6 114
Time deposits 400 (29) 371
Federal funds purchased (65) 2 (63)
Short-term debt (75) (25) (100)
Long-term debt 215 (10) 205
-------- -------- --------
Total 789 (58) 731
-------- -------- --------
Increase (decrease) in
net interest income $ 1,772 $ 525 $ 2,297
======== ======== ========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $ 1,429,000 in 1998
and $1,024,000 in 1997. 3Interest income is stated on a tax equivalent basis of
1.51 and 1.52 for June 30, 1998 and 1997 respectively.
4The rate/volume variance has been included in the rate variance.
<PAGE>
Provision for Loan Losses
The Bank provided $1,235,000 for loan losses in the second quarter of 1998
versus $600,000 in 1997. Net charge-offs for all loans in the second quarter of
1998 totaled $881,000 versus $233,000 in the year earlier period. Two loans
accounted for $728,000 of the charge-offs in the quarter. Additional provision
required to cover loan growth from the first quarter of 1998 amounted to
$336,000. As reported in the Form 10-Q for the first quarter of 1998, the Bank
sold its credit card portfolio effective May 1, 1998, and is no longer liable
for charge offs in that portfolio. For all of 1997, net credit card charge offs
totaled $958,000 representing 36.3% of the total net charge offs for the year.
For the six months ended June 30, 1998, net credit card charge-offs totaled
$316,000 (through the sale date of May 1, 1998) representing 22.9% of total net
charge offs of $1,381,000. Management anticipates the level of the monthly
provision for loan losses for the remainder of 1998 should decrease as a result
of the sale of the credit card portfolio and the current performance of the loan
portfolio.
Noninterest Income
The Bank sold its credit card portfolio of $14,365,000 for a gain of $793,000 in
the second quarter of 1998. Noninterest income for the second quarter of 1998,
net of the gain on the sale of the credit card portfolio, increased $754,000 or
31.3% from the same period in 1997. Income from service charges and fees
increased 11.4% to $1,875,000 due to an increase in account volumes and fees on
non-Bank customer ATM transactions implemented in the fourth quarter of 1997.
Other income, net of the gain on the sale of the credit card portfolio,
increased $563,000 or 77.8% in the second quarter of 1998 versus the same
quarter in 1997. A miscellaneous income adjustment accounted for $228,000 of the
increase. Gains on the sale of investments and real estate mortgage loans were
up $55,000 to $105,000. Commissions on the sale of mutual funds and annuities
were up $55,000 to $650,000.
For the six months ended June 30, 1998, excluding the gain on the sale of the
credit card portfolio, noninterest income was up $1,663,000 or 36.9% over the
same period for 1997. Part of the increase is attributable to full first quarter
1998 operations of the nine branches purchased from Wells Fargo Bank versus only
five weeks of operations for those branches in 1997. Service charges and fee
income was up $582,000 (18.3%) as a result of increased volume of accounts and
the ATM fees described in the previous paragraph. Other income, exclusive of the
credit card gain, increased $1,081,000 (81.3%). Significant increases in the
following items contributed to the overall increase: commissions on mutual fund
and annuity sales $121,000, gain on sale of investments $117,000, gain on sale
of mortgage loans $254,000 and nonrecurring miscellaneous income items $449,000.
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 $288,000 or 3.2% in the
second quarter 1998 versus 1997. Salary and benefit expense increased $197,000
(4.9%) mostly due to higher commission payments to sales personnel and accruals
for the management incentive program. Other expenses increased $91,000 or 1.9%.
On a quarter-over-quarter basis, provisions for OREO property valuations added
$303,000 to the other expenses and all other expenses were favorable by a total
of $212,000. For the six month period noninterest expenses increased $1,383,000
(8.6%) in 1998 over 1997. Part of the increase is attributable to full first
quarter 1998 operations of the nine branches purchased from Wells Fargo Bank
versus only five weeks of operations for those branches in 1997. One time direct
costs related to the conversion of the nine Wells branches totaled $358,000 in
first six months of 1997. Salary and benefit expense increased $808,000 or 10.6%
on a year-over-year basis. The salary expense was higher due to first quarter
effect of increased staff from the 1997 Wells branch acquisition, higher benefit
costs, commissions paid to sales staff and normal salary progression. Occupancy
costs increased $134,000 mostly due to higher depreciation relating to equipment
for the acquired branches, leases for five of the acquired branches and upgraded
technology. Other expenses such as computer communications, telephone, ATM
charges, courier service and postage were higher as a result of the branch
acquisition. Amortization of intangible assets related to the acquired branches
added $98,000 of expense in the first six months of 1998. Provisions for OREO
property valuations increased $290,000 for the six months.
Provision for Income Taxes
The effective tax rate for the six months ended June 30, 1998 is 37.5% and
reflects a slight increase from 37.4% in the year earlier period. The tax rate
is lower than the statutory rate of 40.4% due to nontaxable earnings from
municipal bonds. The Bank has been increasing its holdings of tax-exempt
municipal bonds so the tax rate should continue to be lower than the statutory
rate.
Securities
At June 30, 1998, securities held-to-maturity had a cost basis of $82,926,000
and an approximate fair value of $82,856,000. This portfolio contained
mortgage-backed securities totaling $60,506,000 of which $23,751,000 were
collateralized mortgage obligations (CMOs). The securities available-for-sale
portfolio had a fair value of $214,951,000 and an amortized cost of
$214,342,000. This portfolio contained mortgage-backed securities with an
amortized cost of $78,876,000 of which $17,379,000 were CMOs.
At December 31, 1997, securities held-to-maturity had a cost basis of
$90,764,000 and an approximate fair value of $88,950,000. This portfolio
contained mortgage-backed securities totaling $68,429,000 of which $27,821,000
were CMOs. The securities available-for-sale portfolio had a fair value of
$175,753,000 and an amortized cost of $175,282,000. This portfolio contained
mortgage-backed securities with an amortized cost of $36,556,000 of which
$19,677,000 were CMOs.
Loans
At June 30, 1998, loan balances were $30,562,000 or 6.6% higher than the ending
balances at June 30, 1997 and $42,336,000 or 9.4% higher than the ending
balances at December 31, 1997. The Bank sold its credit card portfolio totaling
$14,365,000 in the second quarter of 1998. Had these loans been included at
quarter end, loan growth on a year over year basis would have been 9.8%. On a
year over year basis at June 30, commercial and real estate loan balances were
higher while there was a decrease in consumer loans due to the sale of the
credit cards. Real estate construction loans were relatively flat. Nonperforming
Loans
As shown in the following table, total nonperforming assets have decreased 27.1%
to $5,453,000 in the first six months of 1998. Nonperforming assets represent
only 0.62% of total assets. Both nonaccrual loans and OREO decreased during this
period. All nonaccrual loans are considered to be impaired when determining the
valuation allowance under SFAS 114. The Collections Department personnel
continue to make a concerted effort to work problem and potential problem loans
to reduce risk of loss.
June 30, December 31,
1998 1997
Nonaccrual loans $ 3,687 $ 4,721
Accruing loans past due 90 days or more 302 528
Restructured loans (in compliance with
modified terms) 0 0
------------- -------------
Total nonperforming loans 3,989 5,249
Other real estate owned 1,464 2,230
------------- -------------
Total nonperforming assets $ 5,453 $ 7,479
============= =============
Nonincome producing investments in real
estate held by Bank's real estate
development subsidiary $ 449 $ 856
============= =============
Nonperforming loans to total loans 0.81% 1.17%
Allowance for loan losses to
nonperforming loans 179% 123%
Nonperforming assets to total assets 0.62% 0.91%
Allowance for loan losses to
nonperforming assets 131% 86%
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,
1998 1997
(in thousands)
Balance, Beginning of period $ 6,459 $ 6,097
Provision charged to operations 2,060 1,200
Loans charged off (1,602) (1,167)
Recoveries of loans previously
charged off 221 103
---------- ------------
Balance, end of period $ 7,138 $ 6,233
========== ============
Ending loan portfolio $ 491,303 $ 460,741
========== ============
Allowance for loan losses as a
percentage of ending loan portfolio 1.45% 1.35%
========== ============
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, 1998:
Total Capital
to Risk Weighted Assets $66,689 11.82% =>$45,137 =>8.0% =>$56,421 =>10.0%
Tier I Capital
to Risk Weighted Assets $59,636 10.57% =>$22,568 =>4.0% =>$33,852 => 6.0%
Tier I Capital
to Average Assets $59,636 7.13% =>$22,568 =>4.0% =>$28,210 => 5.0%
</TABLE>
Item 3. MARKET RISK MANAGEMENT
There have not been any significant changes in the risk management profile of
the Bank since December 31, 1997.
<PAGE>
PART II
Other Information
(a) Item 4. Submission of Matters to a Vote of Security Holders
(a.) Annual Meeting held May 19, 1998. Number of shares
represented in person or by proxy and constituting a quorum.
3,599,622 77%
(c.) Election of directors VOTES FOR
---------
Everett B. Beich 3.572,670
---------
William J. Casey 3,573,360
---------
Craig S. Compton 3,574,160
---------
Douglas F. Hignell 3,574,148
---------
Brian D. Leidig 3,570,563
---------
Wendell J. Lundberg 3,572,170
---------
Donald E. Murphy 3,574,274
---------
Rodney W. Peterson 3,569,433
---------
Robert H. Steveson 3,571,040
---------
Carroll Taresh 3,569,433
---------
Alex A. Vereschagin, Jr. 3,573,774
---------
Ratify the appointment of Arthur Andersen LLP as independent
public accountants of the Company for 1997.
Votes: FOR 3,571,748, AGAINST 8,591 , ABSTAIN 19,282
(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.
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 11, 1998 /s/ Robert H. Steveson
------------------------------- -----------------------
Robert H. Steveson
President and
Chief Executive Officer
Date August 11, 1998 /s/ Robert M. Stanberry
------------------------------- -----------------------
Robert M. Stanberry
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000356171
<NAME> TRICO BANCSHARES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 39,420
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 214,951
<INVESTMENTS-CARRYING> 82,926
<INVESTMENTS-MARKET> 82,856
<LOANS> 491,303
<ALLOWANCE> 7,138
<TOTAL-ASSETS> 873,295
<DEPOSITS> 725,478
<SHORT-TERM> 32,600
<LIABILITIES-OTHER> 10,756
<LONG-TERM> 36,432
0
0
<COMMON> 48,341
<OTHER-SE> 19,688
<TOTAL-LIABILITIES-AND-EQUITY> 873,295
<INTEREST-LOAN> 23,243
<INTEREST-INVEST> 8,175
<INTEREST-OTHER> 128
<INTEREST-TOTAL> 31,546
<INTEREST-DEPOSIT> 11,579
<INTEREST-EXPENSE> 12,438
<INTEREST-INCOME-NET> 19,108
<LOAN-LOSSES> 2,060
<SECURITIES-GAINS> 137
<EXPENSE-OTHER> 17,495
<INCOME-PRETAX> 6,514
<INCOME-PRE-EXTRAORDINARY> 5,721
<EXTRAORDINARY> 793
<CHANGES> 0
<NET-INCOME> 4,071
<EPS-PRIMARY> $0.87
<EPS-DILUTED> $0.84
<YIELD-ACTUAL> 8.58
<LOANS-NON> 3,687
<LOANS-PAST> 302
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,459
<CHARGE-OFFS> 1,602
<RECOVERIES> 221
<ALLOWANCE-CLOSE> 7,138
<ALLOWANCE-DOMESTIC> 7,138
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
