<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, 1999 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 July 23, 1999: 7,138,879
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
June 30, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 39,098 $ 50,483
Federal funds sold 2,500 -
------------------ ------------------
Cash and cash equivalents 41,598 50,483
Securities available-for-sale 237,435 279,676
Loans, net of allowance for loan losses of $(9,716) and $(8,207) 554,926 524,227
Premises and equipment, net 16,375 16,088
Other real estate owned 719 1,412
Accrued interest receivable 5,666 5,821
Other assets 31,706 26,892
------------------ ------------------
Total assets $ 888,425 $ 904,599
================== ==================
Liabilities:
Deposits
Noninterest-bearing demand $ 134,907 $ 148,840
Interest-bearing demand 138,048 149,698
Savings 220,433 220,810
Time certificates 252,707 249,825
------------------ ------------------
Total deposits 746,095 769,173
Fed funds purchased 3,600 14,000
Accrued interest payable and other liabilities 12,020 11,473
Long term borrowings 55,515 37,924
------------------ ------------------
Total liabilities 817,230 832,570
Shareholders' equity:
Common stock 49,301 48,838
Retained earnings 25,335 22,257
Accumulated other comprehensive income (3,441) 934
------------------ ------------------
Total shareholders' equity 71,195 72,029
------------------ ------------------
Total liabilities and shareholders' equity $ 888,425 $ 904,599
================== ==================
</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,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 12,889 $ 11,922 $ 25,273 $ 23,243
Interest on investment
securities-taxable 3,108 3,860 6,513 7,490
Interest on investment
securities-tax exempt 562 437 1,110 685
Interest on federal funds sold 35 62 43 128
-------------- -------------- -------------- -------------
Total interest income 16,594 16,281 32,939 31,546
-------------- -------------- -------------- -------------
Interest expense:
Interest on deposits 5,066 5,867 10,175 11,579
Interest on federal funds purchased 94 64 295 68
Interest on repurchase agreements 21 159 28 212
Interest on other borrowings 672 410 1,193 579
-------------- -------------- -------------- -------------
Total interest expense 5,853 6,500 11,691 12,438
-------------- -------------- -------------- -------------
Net interest income 10,741 9,781 21,248 19,108
Provision for loan losses 870 1,235 1,710 2,060
-------------- -------------- -------------- -------------
Net interest income after
provision for loan losses 9,871 8,546 19,538 17,048
Noninterest income:
Service charges and fees 1,780 1,875 3,487 3,757
Other income 1,588 2,080 2,843 3,204
-------------- -------------- -------------- -------------
Total noninterest income 3,368 3,955 6,330 6,961
-------------- -------------- -------------- -------------
Noninterest expenses:
Salaries and related expenses 4,480 4,228 8,913 8,415
Other, net 4,407 4,880 8,460 9,080
-------------- -------------- -------------- -------------
Total noninterest expenses 8,887 9,108 17,373 17,495
-------------- -------------- -------------- -------------
Net income before income taxes 4,352 3,393 8,495 6,514
Income taxes 1,601 1,252 3,110 2,443
-------------- -------------- -------------- -------------
Net income 2,751 2,141 5,385 4,071
Basic earnings per common share $ 0.39 $ 0.31 $ 0.76 $ 0.58
============== ============== ============== =============
Diluted earnings per common share $ 0.38 $ 0.29 $ 0.74 $ 0.56
============== ============== ============== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands, except number of shares)
Common stock Accumulated
other
Number Retained comprehensive Comprehensive
of shares Amount earnings income Total income
------------- ------------- ------------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,050,990 $ 48,831 $ 22,257 $ 934 $ 72,029
Exercise of common stock
options 79,850 403 $ 403
Repurchase of common stock (3,093) (22) (27) $ (49)
Common stock cash
dividends (2,280) $ (2,280)
Stock option amortization 82 $ 82
Comprehensive income:
Net income 5,385 $ 5,385 $ 5,385
Other comprehensive income, net of tax:
Change in unrealized loss on securities,
net of tax of ($2,535) (4,375) $ (4,375) $ (4,375)
-------------
Other comprehensive income $ (4,375)
-------------
Comprehensive income $ 1,010
------------- ------------- ------------- --------------- ------------ =============
Balance, June 30, 1998 7,127,747 $ 49,301 $ 25,335 $ (3,441) $ 71,195
============= ============= ============= =============== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the six months
ended June 30,
1999 1998
<S> <C> <C>
Operating activities:
Net income $ 5,385 $ 4,071
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 1,710 2,060
Provision for losses on other real estate owned 10 342
Depreciation and amortization 1,309 1,287
Amortization of intangible assets 568 669
Accretion of investment security discounts 345 (138)
Deferred income taxes (106) (124)
Investment security (gains) losses (net) (24) (137)
(Gain) loss on sale of OREO (170) (30)
(Gain) loss on sale of loans (553) (294)
(Gain) loss on sale of fixed assets (7) 69
Amortization of stock options 82 83
(Increase) decrease in interest receivable 155 (530)
Increase (decrease) in interest payable (379) 301
(Increase) decrease in other assets and liabilities (1,532) 1,097
--------------- --------------
Net cash provided (used) by operating activities 6,793 8,726
Investing activities:
Proceeds from maturities of securities held-to-maturity - 7,939
Proceeds from maturities of securities available-for-sale 48,956 59,577
Proceeds from sale of securities available-for-sale 14,137 37,710
Purchases of securities available-for-sale (28,083) (136,066)
Net (increase) decrease in loans (32,627) (42,029)
Proceeds from sales of fixed assets 28 180
Purchases of premises and equipment (1,228) (1,071)
Purchases and additions to real estate properties - (21)
Proceeds from the sale of OREO 952 1,224
--------------- --------------
Net cash provided (used) by investing activities 2,135 (72,557)
Financing activities:
Net increase (decrease) in deposits (23,078) 1,384
Net increase (decrease) in Fed funds purchased (10,400) (300)
Net increase (decrease) in repurchase agreements - 17,600
Borrowings under long-term debt agreements 21,000 30,000
Payments of principal on long-term debt agreements (3,409) (5,008)
Cash dividends - Common (2,280) (1,498)
Repurchase of common stock (49) -
Exercise of common stock options 403 97
--------------- --------------
Net cash provided (used) by financing activities (17,813) 42,275
--------------- --------------
Increase (decrease) in cash and cash equivalents (8,885) (21,556)
Cash and cash equivalents at beginning of year 50,483 63,476
--------------- --------------
Cash and cash equivalents at end of period $ 41,598 $ 41,920
=============== ==============
Supplemental information:
Cash paid for taxes $ 3,680 $ 3,280
Cash paid for interest expense $ 12,070 $ 12,137
</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, 1999 and 1998 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, 1998.
Note B - Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS 130). This statement
establishes 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 other
comprehensive income. 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).
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
Net income $2,751 $2,141 $5,385 $4,071
Net change in unrealized gains (losses)
on securities available-for-sale (3,598) 183 (4,375) 152
------- ------- ------- -------
Comprehensive income $ (847) $2,324 $1,010 $4,223
======= ======= ======= =======
<PAGE>
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 June 30, 1999
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,751 7,124,366 $0.39
Common stock options outstanding -- 187,514
Diluted Earnings per Share
Net income available to common shareholders $2,751 7,311,880 $0.38
====== =========
Three Months Ended June 30, 1998
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,141 7,007,285 $0.31
Common stock options outstanding -- 281,196
Diluted Earnings per Share
Net income available to common shareholders $2,141 7,288,481 $0.29
====== =========
Six Months Ended June 30, 1999
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $5,385 7,115,024 $0.76
Common stock options outstanding -- 189,689
Diluted Earnings per Share
Net income available to common shareholders $5,385 7,304,713 $0.74
====== =========
Six Months Ended June 30, 1998
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $4,071 6,997,967 $0.58
Common stock options outstanding -- 285,048
Diluted Earnings per Share
Net income available to common shareholders $4,071 7,283,015 $0.56
====== =========
<PAGE>
Note D - Business Segments
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information, (SFAS 131). This Statement establishes standards for the reporting
and display of information about operating segments and related disclosures.
The Company is principally engaged in traditional community banking activities
provided through its twenty-seven branches and nine in-store branches located
throughout Northern California. Community banking activities include the Bank's
commercial and retail lending, deposit gathering and investment and liquidity
management activities. In addition to its community banking services, the Bank
offers investment brokerage and leasing services. The Company held investments
in real estate through its wholly-owned subsidiary, TCB Real Estate. These
activities are monitored and reported by Bank management as separate operating
segments.
The accounting policies of the segments are the same as those described in Note
A. The Company evaluates segment performance based on net interest income, or
profit or loss from operations, before income taxes not including nonrecurring
gains and losses.
As permitted under the Statement, the results of the separate branches have been
aggregated into a single reportable segment, Community Banking. The Company's
leasing, investment brokerage and real estate segments do not meet the
prescribed aggregation or materiality criteria and therefore are reported as
"Other" in the following table.
<PAGE>
Summarized financial information concerning the Bank's reportable segments is as
follows (in thousands):
Community
Banking Other Total
Three Months Ended June 30, 1999
Net interest income $ 10,667 $ 74 $ 10,741
Noninterest income 2,708 660 3,368
Noninterest expense 8,523 364 8,887
Net income 2,524 227 2,751
Assets $ 883,374 $ 5,051 $ 888,425
Three Months Ended June 30, 1998
Net interest income $ 9,779 $ 2 $ 9,781
Noninterest income 3,294 661 3,955
Noninterest expense 8,726 382 9,108
Net income 1,969 172 2,141
Assets $ 821,834 $ 588 $ 822,422
Six Months Ended June 30, 1999
Net interest income $ 21,157 $ 91 $ 21,248
Noninterest income 5,060 1,270 6,330
Noninterest expense 16,707 666 17,373
Net income 4,954 431 5,385
Assets $ 883,374 $ 5,051 $ 888,425
Six Months Ended June 30, 1998
Net interest income $ 19,105 $ 3 $ 19,108
Noninterest income 5,826 1,135 6,961
Noninterest expense 16,857 638 17,495
Net income 3,757 314 4,071
Assets $ 821,834 $ 588 $ 822,422
<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 $2,751,000 for the quarter ended
June 30, 1999. The quarterly earnings represented a 28.5% increase over the
$2,141,000 reported for the same period of 1998. Diluted earnings per share for
the second quarter of 1999 were $0.38 versus $0.29 in the year earlier period.
Earnings for the six months ended June 30, 1999 were $5,385,000 versus year ago
results of $4,071,000, and represented a 32.3% increase. The diluted earnings
per share were $0.74 and $0.56 for the respective six-month periods.
Factors contributing to the improved operating results included continued loan
growth, an increase in net interest rate spread, a reduction in provision for
loan losses, and a reduction in noninterest expenses.
Pretax earnings for the second quarter of 1999 were $4,352,000 versus $3,393,000
for the same period in 1998. During the second quarter of 1998, the Bank sold
its credit card portfolio of $14,365,000 for a gain of $793,000 that is included
in noninterest income for 1998. Net interest income reflected growth of 9.8% to
$10,741,000. The interest income component was up $313,000 (1.9%) due to higher
quarter-over-quarter volume of earning assets ($807,687,000 versus $769,550,000)
offset by the effect of a 22 basis point decrease in yield on average earning
assets. Interest expense decreased $647,000 (10.0%) which was due predominately
to a 49 basis point decrease in the average rate paid on interest bearing
liabilities. Net interest margin was 5.46% for the second quarter of 1999 versus
5.20% in the same quarter of the prior year. This higher net interest margin
reflects the effects of a higher growth rate in earning assets versus the
interest-bearing liabilities, and a larger decrease in the average rate paid on
interest bearing liabilities as compared to the decrease average yield earned on
interest bearing assets. The decrease in rates and yields from June of 1998 to
June of 1999 is a reflection of the general decrease in market interest rates
that occurred in the fall of 1998. The provision for loan losses of $870,000 for
the second quarter of 1999 was $365,000 lower than the $1,235,000 recorded in
the same quarter of 1998.
Excluding the gain on the sale of the credit card portfolio in 1998, noninterest
income for the second quarter of 1999 increased $206,000 (6.5%) from the same
period in 1998. Income from service charges and fees decreased $95,000 (5.1%)
and was primarily due to the absence of credit card fees that contributed
$122,000 of income in the second quarter of 1998. Other income, net of the gain
on the sale of the credit card portfolio, increased $301,000 (23.4%) in the
second quarter of 1999 versus the same quarter in 1998. Gain on sale of other
real estate owned accounted for $156,000 of the increase. Gains on the sale of
loans were up $115,000 to $195,000. Commissions on the sale of mutual funds and
annuities were up $16,000 to $665,000.
Noninterest expense decreased $221,000 (2.4%) in the second quarter 1999 versus
1998. Salary and benefit expense increased $252,000 (6.0%) mostly due to higher
commission payments to sales personnel and accruals for performance incentive
programs. Base salaries increased $103,000 (3%). Other expenses decreased
$473,000 (9.7%). On a quarter-over-quarter basis, provision for OREO valuation
was reduced $148,000 to $10,000 and all other expenses were favorable by a total
of $325,000.
Assets of the Company totaled $888,425,000 at June 30, 1999 and represented a
decrease of $16,174,000 (1.8%) and an increase of $15,130,000 (1.7%) from the
December 31, 1998 and June 30, 1998 ending balances, respectively. Changes in
earning assets from the prior year quarter end balances included an increase in
loans of $73,339,000 to $564,642,000 and an decrease in securities of
$60,442,000 to $237,435,000. From year end 1998 balances, nonperforming assets
have decreased $529,000 and total $2,548,000 at June 30, 1999. Nonperforming
assets were 0.29% of total assets at quarter end.
Year to date 1999, on an annualized basis, the Company realized a return on
assets of 1.21% and a return on equity of 14.68% versus 0.99% and 12.19% in the
first half of 1998. TriCo Bancshares ended the quarter with a Tier 1 capital
ratio of 10.5% 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 second quarter of 1999 compared with the second quarter of 1998
and for the first six months of 1999 compared with the first six months of 1998.
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended June 30, Percentage
1999 1998 Change
(in thousands, except increase
earnings per share) (decrease)
<S> <C> <C> <C>
Interest income $ 16,886 $ 16,504 2.3%
Interest expense 5 853 6,500 (10.0%)
--------------- ---------------
Net interest income 11 033 10,004 10.3%
Provision for loan losses 870 1,235 (29.6%)
--------------- ---------------
Net interest income after 10,163 8,769 15.9%
provision for loan losses
Noninterest income 3,368 3,955 (14.8%)
Noninterest expenses 8,887 9,108 (2.4%)
--------------- ---------------
Net income before income taxes 4,644 3,616 28.4%
Income taxes 1,601 1,252 27.9%
Tax equivalent adjustment1 292 223 31.1%
--------------- ---------------
Net income $ 2,751 2,141 28.5%
=============== ===============
Diluted earnings per common share $ 0.38 $ 0.29 31.0%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for June 30, 1999 and 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Six months
ended June 30, Percentage
1999 1998 Change
(in thousands, except increase
earnings per share) (decrease)
<S> <C> <C> <C>
Interest income $ 33,516 $ 31,895 10.5%
Interest expense 11,691 12,438 6.2%
--------------- ---------------
Net interest income 21,825 19,457 13.4%
Provision for loan losses 1,710 2,060 71.7%
--------------- ---------------
Net interest income after 20,115 17,397 9.0%
provision for loan losses
Noninterest income 6,330 6,961 54.5%
Noninterest expenses 17,373 17,495 8.6%
--------------- ---------------
Net income before income taxes 9,072 6,863 57.7%
Income taxes 3,110 2,443 54.7%
Tax equivalent adjustment1 577 349 167.7%
--------------- ---------------
Net income $ 5,385 $ 4,071 54.0%
=============== ===============
Diluted earnings per common share $ 0.74 $ 0.56 32.1%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for June 30, 1999 and 1998.
</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, 1999, interest income increased $382,000
(2.3%) over the same period in 1998. The average balance of total earning assets
was higher by $38,137,000 (5.0%). Average loan balances were up $79,921,000
(16.9%) while average balances of securities and fed funds sold were down
$41,784,000 (14.3%). The average yields on loans and Federal Funds sold were
lower by 76 and 89 basis points respectively, while the average yield on
securities increased 11 basis points. The overall yield on average earning
assets fell 22 basis points to 8.36%.
For the second quarter of 1999, interest expense decreased $647,000 (10.0%) over
the year earlier period. Average balances of interest-bearing liabilities were
up $17,173,000 (2.6%). The average rate paid on demand deposits and time
deposits decreased 70 and 65 basis points respectively, and accounted for
$252,000 and $396,000 of the decrease in interest expense, respectively. The
average rate paid on interest bearing liabilities decreased 49 basis points to
3.50%.
The combined effect of the increase in interest income and decrease in interest
expense for the second quarter of 1999 versus 1998 resulted in an increase of
$1,029,000 (10.3%) in net interest income. Net interest margin was up 26 basis
points to 5.46% from 5.20% for the same periods. To the extent the Bank
continues to be successful in replacing some of the investment portfolio with
higher yielding loans, the net interest margin should tend to move higher during
the balance of 1999.
The six month period ending June 30, 1999, reflects an interest income increase
of $1,621,000 (5.1%) over the same period in 1998. An increase of $80,275,000
(17.3%) in average balances on loans accounted for a $4,027,000 increase in
interest income. The average yield received on all earning assets for the six
month period ended June 30, 1999 was down 24 basis points to 8.30%, and resulted
in a $1,814,000 offset against interest income growth.
Interest expense for the six month period decreased $747,000 (6.0%) from that
for the same period in 1998. Volume increases in deposits and borrowings added
$672,000 to interest expense. This was offset by a 42 basis point decline in the
overall average rate paid on interest-bearing liabilities in the first six
months of 1999 to 3.50%, which decreased interest expense by $1,419,000.
The combined effect of the increase in interest income and decrease in interest
expense for the first six months of 1999 versus 1998 resulted in an increase of
$2,368,000 (12.2%) in net interest income. Net interest margin rose 22 basis
points to 5.40 from 5.21%.
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, 1999 versus the same periods in
1998.
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
ANALYSIS OF CHANGE IN NET INTEREST
MARGIN ON EARNING ASSETS
(in thousands)
Three Months Ended
6/30/99 6/30/98
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 $ 553,029 $ 12,889 9.32% $ 473,108 $ 11,922 10.08%
Securities4 251,714 3,962 6.30% 292,051 4,520 6.19%
Federal funds sold 2,944 35 4.76% 4,391 62 5.65%
------------- ------------ -------------- -----------
Total earning assets 807,687 16,886 8.36% 769,550 16,504 8.58%
------------ -----------
Cash and due from bank 35,110 30,960
Premises and equipment 16,323 17,877
Other assets,net 33,957 33,501
Less: allowance
for loan losses (9,223) (7,023)
------------- --------------
Total $ 883,854 $ 844,865
============= ==============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 143,329 561 1.57% $ 133,156 755 2.27%
Savings deposits 222,717 1,681 3.02% 207,106 1,589 3.07%
Time deposits 243,713 2,824 4.63% 266,663 3,523 5.28%
Federal funds purchased 7,538 94 4.99% 4,543 64 5.64%
Short-term debt 1,701 21 4.94% 11,224 159 5.67%
Long-term debt 49,649 672 5.41% 28,782 410 5.70%
------------- ------------ -------------- -----------
Total interest-bearing
liabilities 668,647 5,853 3.50% 651,474 6,500 3.99%
------------ -----------
Noninterest-bearing deposits 129,864 114,117
Other liabilities 11,942 11,885
Shareholders' equity 73,401 67,389
------------- --------------
Total liabilities
and shareholders' equity $ 883,854 $ 844,865
============= ==============
Net interest rate spread5 4.86% 4.59%
Net interest income/net $ 11,033 $ 10,004
============ ===========
interest margin6 5.46% 5.20%
============ ===========
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $751,000 in 1999 and $802,000 in 1998.
4Interest income is stated on a tax equivalent basis of 1.52 at June 30, 1999 and 1998.
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
6/30/99 6/30/98
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 $ 543,595 $ 25,273 9.30% $ 463,320 $ 23,243 10.03%
Securities4 262,671 8,200 6.24% 279,615 8,524 6.10%
Federal funds sold 1,839 43 4.68% 4,424 128 5.79%
-------------- ------------- ------------- ------------
Total earning assets 808,105 33,516 8.30% 747,359 31,895 8.54%
------------- ------------
Cash and due from bank 35,351 31,815
Premises and equipment 16,215 18,431
Other assets,net 34,629 33,960
Less: allowance
for loan losses (8,847) (6,822)
-------------- -------------
Total $ 885,453 $ 824,743
============== =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 144,318 1,125 1.56% $ 133,383 1,503 2.25%
Savings deposits 223,609 3,360 3.01% 212,145 3,237 3.05%
Time deposits 244,209 5,690 4.66% 259,233 6,839 5.28%
Federal funds purchased 11,909 295 4.95% 2,389 68 5.69%
Short-term debt 1,128 28 4.96% 7,473 212 5.67%
Long-term debt 43,705 1,193 5.46% 20,110 579 5.76%
-------------- ------------- ------------- ------------
Total interest-bearing
liabilities 668,878 11,691 3.50% 634,733 12,438 3.92%
------------- ------------
Noninterest-bearing deposits 131,111 111,849
Other liabilities 12,092 11,365
Shareholders' equity 73,372 66,796
-------------- -------------
Total liabilities
and shareholders' equity $ 885,453 $ 824,743
============== =============
Net interest rate spread5 4.80% 4.62%
Net interest income/net $ 21,825 $ 19,457
============= ============
interest margin6 5.40% 5.21%
============= ============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $ 1,488,000 in 1999 and $1,429,000 in 1998.
4Interest income is stated on a tax equivalent basis of 1.52 at June 30, 1999 and 1998.
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,
1999 over 1998
Yield/
Volume Rate4 Total
-------------- -------- ---------
Increase (decrease) in interest income:
Loans 1,2 $ 2,014 $(1,047) $ 967
Investment securities3 (624) 66 (558)
Federal funds sold (20) (7) (27)
-------------- -------- ---------
Total 1,370 (988) 382
-------------- -------- ---------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 58 (252) (194)
Savings deposits 120 (28) 92
Time deposits (303) (396) (699)
Federal funds purchased 42 (12) 30
Short-term debt (135) (3) (138)
Long-term debt 297 (35) 262
-------------- -------- ---------
Total 79 (726) (647)
-------------- -------- ---------
Increase (decrease) in
net interest income $ 1,291 $ (262) 1,029
============== ======== =========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $751,000 in 1999 and
$802,000 in 1998. 3Interest income is stated on a tax equivalent basis of 1.52
for June 30, 1999 and 1998 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,
1999 over 1998
Yield/
Volume Rate4 Total
-------- -------- --------
Increase (decrease) in interest income:
Loans 1,2 $ 4,027 $(1,997) $ 2,030
Investment securities3 (517) 193 (324)
Federal funds sold (75) (10) (85)
-------- -------- --------
Total 3,435 (1,814) 1,621
-------- -------- --------
Increase (decrease) in interest expense:
Demand deposits
(interest-bearing) 123 (501) (378)
Savings deposits 175 (52) 123
Time deposits (396) (753) (1,149)
Federal funds purchased 271 (44) 227
Short-term debt (180) (4) (184)
Long-term debt 679 (65) 614
-------- -------- --------
Total 672 (1,419) (747)
-------- -------- --------
Increase (decrease) in
net interest income $ 2,763 $ (395) $ 2,368
======== ======== ========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $ 1,488,000 in 1999
and $1,429,000 in 1998. 3Interest income is stated on a tax equivalent basis of
1.52 for June 30, 1999 and 1998.
4The rate/volume variance has been included in the rate variance.
<PAGE>
Provision for Loan Losses
The Bank provided $870,000 for loan losses in the second quarter of 1999 versus
$1,235,000 in 1998. Net charge-offs for all loans in the second quarter of 1999
totaled $140,000 versus $881,000 in the year earlier period. Two loans accounted
for $728,000 of the charge-offs in the second quarter of 1998.
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. Excluding the gain on the sale of the credit card
portfolio in 1998, noninterest income for the second quarter of 1999 increased
$206,000 (6.5%) from the same period in 1998. Income from service charges and
fees decreased $95,000 (5.1%), primarily due to the absence of credit card fees
that contributed $122,000 of income in the second quarter of 1998. Other income,
net of the gain on the sale of the credit card portfolio, increased $301,000
(23.4%) in the second quarter of 1999 versus the same quarter in 1998. Gain on
sale of other real estate owned accounted for $156,000 of the increase. Gains on
the sale of loans were up $115,000 to $195,000. Commissions on the sale of
mutual funds and annuities were up $16,000 to $665,000.
For the six months ended June 30, 1999, excluding the gain on the sale of the
credit card portfolio, noninterest income was up $162,000 (2.6%) over the same
period for 1998. Service charges and fee income was down $270,000 (7.2%). The
absence of credit card fee income in 1999 accounted for $247,000 of the
decrease. Other income, exclusive of the credit card gain, increased $432,000
(17.9%). Significant changes in the following items contributed to the net
increase: commissions on mutual fund and annuity sales increased $77,000 to
$1,185,000, gain on sale of investments decreased $113,000 to $24,000, gain on
sale of loans increased $259,000 to $553,000, and gain on sale of other real
estate owned increased $140,000 to $170,000.
Noninterest Expense
Noninterest expense decreased $221,000 (2.4%) in the second quarter 1999 versus
1998. Salary and benefit expense increased $252,000 (6.0%) mostly due to higher
commission payments to sales personnel and accruals for performance incentive
programs. Base salaries increased $103,000 (3%). Other expenses decreased
$473,000 (9.7%). On a quarter-over-quarter basis, provision for OREO valuation
was reduced $148,000 to $10,000 and all other expenses were favorable by a total
of $325,000.
For the first six months noninterest expenses decreased $122,000 (0.7%) in 1999
compared to 1998. Salary and benefit expense increased $498,000 (5.9%) on a
year-over-year basis. Base salaries increased $123,000 (2.1%). Other expenses
decreased $620,000 (6.8%). The following changes contributed to the net decrease
in other expenses: OREO provisions and expenses decreased $291,000 to $20,000,
and amortization of intangible assets decreased $101,000 to $568,000.
Provision for Income Taxes
The effective tax rate for the six months ended June 30, 1999 is 36.6% and
reflects a decrease from 37.5% in the year earlier period. The tax rate is lower
than the statutory rate of 40.4% due to nontaxable earnings from municipal
bonds.
Loans
At June 30, 1999, loan balances were $73,339,000 (14.9%) higher than the ending
balances at June 30, 1998 and $32,209,000 (6.1%) higher than the ending balances
at December 31, 1998. On a year over year basis at June 30, commercial, real
estate mortgage, and real estate construction loan balances were higher by
$42,909,000 (20.7%), $24,206,000 (13.5%), and $6,511,000 (22.2%), respectively.
Consumer loan balances were relatively flat from one year ago.
Securities
At June 30, 1999, securities available-for-sale had a fair value of $237,435,000
and an amortized cost of $242,869,000. This portfolio contained mortgage-backed
securities with an amortized cost of $153,377,000 of which $24,542,000 were
CMOs.
<PAGE>
Nonperforming Loans
As shown in the following table, total nonperforming assets have decreased 17.2%
to $2,548,000 in the first six months of 1999. Nonperforming assets represent
only 0.29% of total assets. 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,
1999 1998
Nonaccrual loans $ 967 $ 1,045
Accruing loans past due 90 days or more 862 620
Restructured loans (in compliance with
modified terms) 0 0
------------- -------------
Total nonperforming loans 1,829 1,665
Other real estate owned 719 1,412
------------- -------------
Total nonperforming assets $ 2,548 $ 3,077
============= =============
Nonperforming loans to total loans 0.32% 0.31%
Allowance for loan losses to
nonperforming loans 531% 493%
Nonperforming assets to total assets 0.29% 0.34%
Allowance for loan losses to
nonperforming assets 381% 267%
<PAGE>
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,
1999 1998
(in thousands)
Balance, Beginning of period $ 8,206 $ 6,459
Provision charged to operations 1,710 2,060
Loans charged off (270) (1,602)
Recoveries of loans previously
charged off 70 221
---------- ------------
Balance, end of period $ 9,716 $ 7,138
========== ============
Ending loan portfolio $ 564,462 $ 491,303
========== ============
Allowance for loan losses as a
percentage of ending loan portfolio 1.72% 1.45%
========== ============
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, 1999:
Total Capital to Risk Weighted Assets:
Consolidated $75,707 11.73% =>$51,628 =>8.0% =>$64,535 =>10.0%
Tri Counties Bank $74,700 11.59% =>$51,560 =>8.0% =>$64,451 =>10.0%
Tier I Capital to Risk Weighted Assets:
Consolidated $67,640 10.48% =>$25,814 =>4.0% =>$38,721 => 6.0%
Tri Counties Bank $66,623 10.34% =>$25,780 =>4.0% =>$38,670 => 6.0%
Tier I Capital to Average Assets:
Tri Counties Bank $66,623 7.60% =>$35,043 =>4.0% =>$43,803 => 5.0%
</TABLE>
<PAGE>
Year 2000
The Company provided extensive information regarding its preparations for the
Year 2000 Century Date Change (Y2K) in the 1998 10-K MD&A, filed by the Company
on March 12, 1999. The discussion here is intended to update that information.
State of readiness - Since early 1997, the Company has been addressing the
impact of Y2K to its data processing systems. Key financial information and
operational systems were assessed and detailed plans were developed to ensure
that Y2K system modifications were in place for all mission critical systems. As
most of the critical software is purchased from vendors, the Company is
concentrating its efforts on implementation and testing of Y2K "Compliant"
versions provided by these vendors. Full system validation and certification of
these versions is being performed. As of June 30, 1999, the Company has
successfully completed testing of mission critical systems.
Costs - The Company continues to estimate that it will spend approximately
$175,000 to address the Y2K issue. Through June 30, 1999, approximately $60,000
has been spent. Management does not anticipate a material adverse impact to the
Company's results of operations or financial position.
Risks - The primary risk of failure to adequately address the Y2K problem would
be the inability to process loans and deposit transactions for customers. The
Company also is exposed to risk if its customers, fund providers, or
correspondent financial institutions and brokerage firms are unable to
adequately address Y2K in their own data processing systems. The Company has
contacted all of its major loan customers and those other financial institutions
with whom it has backup borrowing arrangements to assess the steps that these
third parties are taking to address the Y2K issue for themselves and their
customers. The Company's risk with respect to loan customers who do not address
the Y2K issue is the risk of non-payment or late payment of loans. The Company's
risk with respect to funds providers is that in the event of a shortage of
liquidity they would not be able to meet their commitments to the Company. The
Company's risk with respect to other financial institutions and brokerage firms
is that it may be unable to settle security transactions. There are also risks
to the Company relating to providers of power and telecommunications not being
able to supply these services.
Contingency Plans - As of June 30, 1999, the Company has successfully completed
the development of a Y2K contingency plan for business resumption.
Item 3. MARKET RISK MANAGEMENT
There have not been any significant changes in the risk management profile of
the Bank since December 31, 1998.
<PAGE>
PART II
Other Information
(a) Item 4. Submission of Matters to a Vote of Security Holders
(a.) Annual Meeting held May 11, 1999. Number of shares represented
in person or by proxy and constituting a quorum: 5,477,783 77%
(b.) Election of directors VOTES FOR
---------
Everett B. Beich 5,462,132
---------
William J. Casey 5,462,132
---------
Craig S. Compton 5,461,957
---------
Douglas F. Hignell 5,462,132
---------
Brian D. Leidig 5,460,759
---------
Wendell J. Lundberg 5,460,759
---------
Donald E. Murphy 5,460,759
---------
Rodney W. Peterson 5,461,634
---------
Robert H. Steveson 5,458,700
---------
Carroll Taresh 5,452,577
---------
Alex A. Vereschagin, Jr.5,460,698
---------
(c.) Ratify the appointment of Arthur Andersen LLP as independent
public accountants of the Company for 1999.
Votes: FOR 5,437,700, AGAINST 1,590, ABSTAIN 38,493
(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.
21.1 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 July 23, 1999 /s/ Robert H. Steveson
------------------------ --------------------------
Robert H. Steveson
President and
Chief Executive Officer
Date July 23, 1999 /s/ Thomas J. Reddish
------------------------ --------------------------
Thomas J. Reddish
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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 39,098
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 242,868
<INVESTMENTS-MARKET> 237,435
<LOANS> 564,642
<ALLOWANCE> 9,716
<TOTAL-ASSETS> 888,425
<DEPOSITS> 746,095
<SHORT-TERM> 3,600
<LIABILITIES-OTHER> 12,020
<LONG-TERM> 55,515
0
0
<COMMON> 49,301
<OTHER-SE> 21,894
<TOTAL-LIABILITIES-AND-EQUITY> 888,425
<INTEREST-LOAN> 25,273
<INTEREST-INVEST> 7,623
<INTEREST-OTHER> 43
<INTEREST-TOTAL> 32,939
<INTEREST-DEPOSIT> 10,175
<INTEREST-EXPENSE> 11,691
<INTEREST-INCOME-NET> 21,248
<LOAN-LOSSES> 1,710
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 17,373
<INCOME-PRETAX> 8,495
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,385
<EPS-BASIC> 0.76
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 8.36
<LOANS-NON> 967
<LOANS-PAST> 862
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,206
<CHARGE-OFFS> 270
<RECOVERIES> 70
<ALLOWANCE-CLOSE> 1,710
<ALLOWANCE-DOMESTIC> 9,716
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
