<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 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 November 10, 1999: 7,145,179
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
September 30, December 31,
1999 1998
------------------- ------------------
<S> <C> <C>
Assets:
Cash and due from banks $ 42,045 $ 50,483
Federal funds sold 2,000 -
------------------- ------------------
Cash and cash equivalents 44,045 50,483
Securities available-for-sale 228,815 279,676
Loans, net of allowance for loan losses
of $10,385 and $8,207, respectively 590,956 524,227
Premises and equipment, net 16,292 16,088
Other real estate owned 860 1,412
Accrued interest receivable 5,984 5,821
Other assets 31,814 26,892
------------------- ------------------
Total assets $ 918,766 $ 904,599
=================== ==================
Liabilities:
Deposits
Noninterest-bearing demand $ 141,916 $ 148,840
Interest-bearing demand 138,727 149,698
Savings 221,372 220,810
Time certificates 268,090 249,825
------------------- ------------------
Total deposits 770,105 769,173
Fed funds purchased 10,400 14,000
Accrued interest payable and other liabilities 11,042 11,473
Long term borrowings 55,510 37,924
------------------- ------------------
Total liabilities 847,057 832,570
Shareholders' equity:
Common stock 49,430 48,838
Retained earnings 26,887 22,257
Accumulated other comprehensive income (4,608) 934
------------------- ------------------
Total shareholders' equity 71,709 72,029
------------------- ------------------
Total liabilities and shareholders' equity $ 918,766 $ 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 nine months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 13,978 $ 12,666 $ 39,251 $ 35,909
Interest on investment
securities-taxable 2,979 3,696 9,492 11,186
Interest on investment
securities-tax exempt 561 545 1,671 1,230
Interest on federal funds sold 40 5 83 133
-------------- ------------- ------------- --------------
Total interest income 17,558 16,912 50,497 48,458
-------------- ------------- ------------- --------------
Interest expense:
Interest on deposits 5,409 5,874 15,584 17,453
Interest on federal funds purchased 56 199 351 267
Interest on repurchase agreements 2 153 30 365
Interest on other borrowings 770 516 1,963 1,095
-------------- ------------- ------------- --------------
Total interest expense 6,237 6,742 17,928 19,180
-------------- ------------- ------------- --------------
Net interest income 11,321 10,170 32,569 29,278
Provision for loan losses 875 920 2,585 2,980
-------------- ------------- ------------- --------------
Net interest income after
provision for loan losses 10,446 9,250 29,984 26,298
Noninterest income:
Service charges and fees 1,792 1,798 5,279 5,555
Other income 1,056 964 3,899 4,168
-------------- ------------- ------------- --------------
Total noninterest income 2,848 2,762 9,178 9,723
-------------- ------------- ------------- --------------
Noninterest expenses:
Salaries and related expenses 4,454 4,177 13,367 12,592
Other, net 4,186 4,282 12,646 13,362
-------------- ------------- ------------- --------------
Total noninterest expenses 8,640 8,459 26,013 25,954
-------------- ------------- ------------- --------------
Net income before income taxes 4,654 3,553 13,149 10,067
Income taxes 1,721 1,269 4,831 3,712
-------------- ------------- ------------- --------------
Net income $ 2,933 $ 2,284 $ 8,318 $ 6,355
============== ============= ============= ==============
Basic earnings per common share $ 0.41 $ 0.33 $ 1.17 $ 0.91
============== ============= ============= ==============
Diluted earnings per common share $ 0.40 $ 0.31 $ 1.14 $ 0.87
============== ============= ============= ==============
</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 $48,838 $22,257 $934 $72,029
Exercise of Common Stock options 99,290 504 $504
Repurchase of Common Stock (5,101) (35) (50) ($85)
Common stock cash dividends (3,638) ($3,638)
Stock option amortization 123 $123
Comprehensive income:
Net income 8,318 $8,318 $8,318
Other comprehensive income, net of tax:
Change in unrealized loss on securities,
net of tax of $(2,535) (5,542) ($5,542) ($5,542)
---------------
Other comprehensive income: ($5,542)
---------------
Comprehensive income $2,776
------------------------------------------------------------------ ===============
Balance, September 30, 1999 7,145,179 $49,430 $26,887 ($4,608) $71,709
==================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the nine months
ended September 30,
1999 1998
<S> <C> <C>
Operating activities:
Net income $ 8,318 $ 6,355
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 2,585 2,980
Provision for losses on other real estate owned 10 586
Depreciation and amortization 1,954 1,942
Amortization of intangible assets 851 1,004
Accretion of investment security discounts 461 (77)
Deferred income taxes (158) (715)
Investment security (gains) losses (net) (24) (250)
(Gain) loss on sale of OREO (175) (23)
(Gain) loss on sale of loans (692) (351)
(Gain) loss on sale of fixed assets 1 79
Amortization of stock options 123 124
(Increase) decrease in interest receivable (163) 24
Increase (decrease) in interest payable (352) 203
(Increase) decrease in other assets and liabilities (2,271) (898)
------------- ------------
Net cash provided (used) by operating activities 10,468 10,983
Investing activities:
Proceeds from maturities of securities held-to-maturity - 12,022
Proceeds from maturities of securities available-for-sale 58,653 67,019
Proceeds from sale of securities available-for-sale 14,137 77,121
Purchases of securities available-for-sale (31,138) (172,682)
Net (increase) decrease in loans (69,580) (69,805)
Proceeds from sales of fixed assets 29 183
Purchases of premises and equipment (1,722) (1,232)
Purchases and additions to real estate properties - (21)
Proceeds from the sale of OREO 1,016 1,439
------------- ------------
Net cash provided (used) by investing activities (28,605) (85,956)
Financing activities:
Net increase (decrease) in deposits 932 898
Net increase (decrease) in Fed funds purchased (3,600) 23,500
Borrowings under long-term debt agreements 21,000 30,000
Payments of principal on long-term debt agreements (3,414) (5,012)
Cash dividends - Common (3,638) (2,255)
Repurchase of common stock (85) (59)
Exercise of common stock options 504 253
------------- ------------
Net cash provided (used) by financing activities 11,699 47,325
------------- ------------
Increase (decrease) in cash and cash equivalents (6,438) (27,648)
Cash and cash equivalents at beginning of year 50,483 63,476
------------- ------------
Cash and cash equivalents at end of period $ 44,045 $ 35,828
============= ============
Supplemental information:
Cash paid for taxes $ 5,836 $ 5,035
Cash paid for interest expense $ 18,280 $ 18,977
</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 September 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 Nine months ended
September 30, September 30,
1999 1998 1999 1998
------- ------- ------- -------
Net income $ 2,933 $ 2,284 $ 8,318 $ 6,355
Net change in unrealized gains (losses)
on securities available-for-sale (1,167) 996 (5,542) 1,148
------- ------- -------- -------
Comprehensive income $ 1,766 $ 3,280 $ 2,776 $ 7,503
======= ======= ======== =======
<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 September 30, 1999
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,933 7,140,427 $0.41
Common stock options outstanding -- 189,194
Diluted Earnings per Share
Net income available to common shareholders $2,933 7,329,621 $0.40
====== =========
Three Months Ended September 30, 1998
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $2,284 7,025,057 $0.33
Common stock options outstanding -- 240,061
Diluted Earnings per Share
Net income available to common shareholders $2,284 7,265,118 $0.31
====== =========
Nine Months Ended September 30, 1999
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $8,318 7,123,585 $1.17
Common stock options outstanding -- 189,522
Diluted Earnings per Share
Net income available to common shareholders $8,318 7,313,107 $1.14
====== =========
Nine Months Ended September 30, 1998
Weighted
Average Per-Share
Income Shares Amount
Basic Earnings per Share
Net income available to common shareholders $6,355 7,016,220 $0.91
Common stock options outstanding -- 260,516
Diluted Earnings per Share
Net income available to common shareholders $6,355 7,276,736 $0.87
====== =========
<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 were 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 September 30, 1999
Net interest income $ 10,338 $ 107 $ 10,445
Noninterest income 2,328 520 2,848
Noninterest expense 8,372 268 8,640
Net income 2,724 209 2,933
Assets $911,898 $ 6,868 $918,766
Three Months Ended September 30, 1998
Net interest income $ 9,227 $ 23 $ 9,250
Noninterest income 2,094 668 2,762
Noninterest expense 7,922 537 8,459
Net income 2,183 101 2,284
Assets $879,919 $ 1,589 $881,508
Nine Months Ended September 30, 1999
Net interest income $ 29,785 $ 198 $ 29,983
Noninterest income 7,388 1,790 9,178
Noninterest expense 25,079 934 26,013
Net income 7,679 639 8,318
Assets $911,898 $6,868 $918,766
Nine Months Ended September 30, 1998
Net interest income $ 26,272 $ 26 $ 26,298
Noninterest income 8,122 1,601 9,723
Noninterest expense 24,917 1,037 25,954
Net income 5,980 375 6,355
Assets $879,919 $1,589 $881,508
<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 $2,933,000 for the quarter ended
September 30, 1999. The quarterly earnings represented a 28.4% increase over the
$2,284,000 reported for the same period of 1998. Diluted earnings per share for
the third quarter of 1999 were $0.40 versus $0.31 in the year earlier period.
Earnings for the nine months ended September 30, 1999 were $8,318,000 versus
year ago results of $6,355,000, and represented a 30.9% increase. The diluted
earnings per share were $1.14 and $0.87 for the respective nine-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 improved operating efficiency.
Net interest income grew by $1,165,000 (11.2%) to $11,613,000 on a fully tax
equivalent basis. Interest income was up $660,000 (3.8%) due to higher quarter-
over-quarter volume of earning assets ($824,277,000 versus $792,701,000). The
average yield on earning assets decreased one basis point to 8.66%. Interest
expense decreased $505,000 (7.5%) as a result of a 2.8% increase in average
balances of interest bearing liabilities to $668,039,000 which was offset by a
40 basis point decrease in the average rate paid on interest bearing liabilities
to 3.63%. Net interest margin was 5.64% for the third quarter of 1999 versus
5.27% in the same quarter of the prior year.
The provision for loan losses of $875,000 for the third quarter of 1999 was
$45,000 (4.9%) lower than the $920,000 recorded in the same quarter of 1998.
Noninterest income for the third quarter of 1999 increased $86,000 (3.1%) to
$2,848,000 from the same period in 1998. Gains on the sale of loans were up
$82,000 (143.9%) to $139,000. Commissions on the sale of mutual funds and
annuities were up $55,000 (12.3%) to $503,000. Gains on the sale of investments
were $0 in the third quarter of 1999 compared to $114,000 in the third quarter
of 1998.
Noninterest expense increased $181,000 (2.1%) to $8,640,000 in the third quarter
1999 versus 1998. Salary and benefit expense increased $277,000 (6.6%) to
$4,454,000. Base salaries increased $184,000 (6.3%). Other expenses decreased
$96,000 (2.2%). On a quarter-over-quarter basis, provision for OREO valuation
was reduced $69,000 to $0, and intangible asset amortization decreased $51,000
(15.2%) to $284,000.
Assets of the Company totaled $918,766,000 at September 30, 1999 and represented
increases of $14,167,000 (1.6%) and $37,258,000 (4.2%) from the December 31,
1998 and September 30, 1998 ending balances, respectively. Changes in average
earning assets from the prior year third quarter-end balances included an
increase in loans of $81,708,000 (6.19%) to $587,085,000 and a decrease in
securities of $52,882,000 (29.2%) to $233,997,000. From year-end 1998 balances,
nonperforming assets have increased $130,000 (4.22%) and total $3,207,000 at
September 30, 1999. Nonperforming assets were 0.35% and 0.34% of total assets
at September 30, 1999 and December 31, 1998, respectively.
Year-to-date 1999, on an annualized basis, the Company realized a return on
assets of 1.24% and a return on equity of 15.19% versus 1.01% and 12.55% in the
nine months ended September 30, 1998. TriCo Bancshares ended the quarter with a
Tier 1 capital ratio of 10.19% and a total risk-based capital ratio of 11.44%.
The following tables provide a summary of the major elements of income and
expense for the third quarter of 1999 compared with the third quarter of 1998
and for the first nine months of 1999 compared with the first nine months of
1998.
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Three months
ended September 30, Percentage
1999 1998 Change
(in thousands, except increase
earnings per share) (decrease)
<S> <C> <C> <C>
Interest income $ 17,850 $ 17,190 3.8%
Interest expense 6,237 6,742 (7.5%)
--------------- ----------------
Net interest income 11,613 10,448 11.2%
Provision for loan losses 875 920 (4.9%)
--------------- ----------------
Net interest income after 10,738 9,528 12.7%
provision for loan losses
Noninterest income 2,848 2,762 3.1%
Noninterest expenses 8,640 8,459 2.1%
--------------- ----------------
Net income before income taxes 4,946 3,831 29.1%
Income taxes 1,721 1,269 35.6%
Tax equivalent adjustment1 292 278 5.0%
--------------- ----------------
Net income 2,933 2,284 28.4%
=============== ================
Diluted earnings per common share $ 0.40 $ 0.31 29.0%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for September 30, 1999 and 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRICO BANCSHARES
CONDENSED COMPARATIVE
INCOME STATEMENT
(in thousands, except earnings per common share)
Nine months
ended September 30, Percentage
1999 1998 Change
(in thousands, except increase
earnings per share) (decrease)
<S> <C> <C> <C>
Interest income $ 51,366 $ 49,085 4.6%
Interest expense 17,928 19,180 (6.5%)
--------------- ----------------
Net interest income 33,438 29,905 11.8%
Provision for loan losses 2,585 2,980 (13.3%)
--------------- ----------------
Net interest income after 30,853 26,925 14.6%
provision for loan losses
Noninterest income 9,178 9,723 (5.6%)
Noninterest expenses 26,013 25,954 0.2%
--------------- ----------------
Net income before income taxes 14,018 10,694 31.1%
Income taxes 4,831 3,712 30.1%
Tax equivalent adjustment1 869 627 38.6%
--------------- ----------------
Net income 8,318 6,355 30.9%
=============== ================
Diluted earnings per common share $ 1.14 $ 0.87 31.0%
1Interest on tax-free securities is reported on a tax equivalent basis of 1.52
for September 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 September 30, 1999, interest income increased
$660,000 (3.8%) over the same period in 1998. The average balance of total
earning assets was higher by $31,576,000 (4.0%). Average loan balances were up
$81,708,000 (16.2%) which resulted in a $2,047,000 increase in interest income
while average balances of securities and fed funds sold were down $50,132,000
(17.5%) which resulted in an $802,000 decrease in interest income. The average
yield on loans was lower by 50 basis points while the average yield on
securities and fed funds sold increased 25 and 52 basis points, respectively.
The overall yield on average earning assets fell 1 basis point to 8.66% which
decreased interest income by $585,000.
For the third quarter of 1999, interest expense decreased $505,000 (7.5%) over
the year earlier period. Average balances of interest-bearing liabilities were
up $18,724,000 (2.8%). The average rate paid on demand, savings, and time
deposits decreased 72, 3, and 50 basis points respectively, and accounted for
$259,000, $19,000, and $330,000 of the decrease in interest expense,
respectively. The average rate paid on interest bearing liabilities decreased 40
basis points to 3.63% and resulted in a $630,000 decrease in interest expense.
The combined effect of the increase in interest income and decrease in interest
expense for the third quarter of 1999 versus 1998 resulted in an increase of
$1,165,000 (11.2%) in net interest income. Net interest margin was up 37 basis
points to 5.64% from 5.27% for the same period a year ago. 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 nine-month period ending September 30, 1999, reflects an interest income
increase of $2,281,000 (4.7%) over the same period in 1998. An increase of
$80,758,000 (16.9%) in average balances on loans accounted for a $6,075,000
increase in interest income while a decrease of $29,055,000 (10.3%) in average
balances of securities accounted for a $1,345,000 decrease in interest income.
The average yield received on all earning assets for the nine month period
ended September 30, 1999 was down 16 basis points to 8.42%, and resulted in a
$2,415,000 offset against interest income growth.
Interest expense for the nine-month period decreased $1,252,000 (6.5%) from that
for the same period in 1998. Volume increases in interest-bearing liabilities
added $796,000 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
nine months of 1999 to 3.54%, which decreased interest expense by $2,408,000.
The combined effect of the increase in interest income and decrease in interest
expense for the first nine months of 1999 versus 1998 resulted in an increase of
$3,533,000 (11.8%) in net interest income. Net interest margin rose 25 basis
points to 5.48 from 5.23%.
The following four tables provide summaries of the components of the interest
income, interest expense and net interest margins on earning assets for the
quarter and nine month periods ended September 30, 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
30-Sep-99 30-Sep-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 $587,085 $ 13,978 9.52% $505,377 $ 12,666 10.02%
Securities4 233,997 3,832 6.55% 286,879 4,519 6.30%
Federal funds sold 3,195 40 5.01% 445 5 4.49%
------------- ----------- ------------- ----------
Total earning assets 824,277 17,850 8.66% 792,701 17,190 8.67%
----------- ----------
Cash and due from bank 36,571 35,150
Premises and equipment 16,384 16,665
Other assets, net 40,407 32,091
Less: allowance
for loan losses (9,888) (7,424)
------------- -------------
Total $907,751 $869,183
============= =============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $144,455 572 1.58% $136,991 788 2.30%
Savings deposits 219,793 1,686 3.07% 209,166 1,623 3.10%
Time deposits 263,933 3,151 4.78% 262,592 3,463 5.28%
Federal funds purchased 4,129 56 5.43% 13,552 199 5.87%
Short-term debt 217 2 5.16% 10,583 153 5.78%
Long-term debt 55,512 770 5.55% 36,431 516 5.67%
------------- ----------- ------------- ----------
Total interest-bearing
liabilities 688,039 6,237 3.63% 669,315 6,742 4.03%
----------- ----------
Noninterest-bearing deposits 133,577 119,724
Other liabilities 13,885 11,164
Shareholders' equity 72,250 68,980
------------- -------------
Total liabilities
and shareholders' equity $907,751 $869,183
============= =============
Net interest rate spread5 5.03% 4.64%
Net interest income/net $ 11,613 $ 10,448
=========== ==========
interest margin6 5.64% 5.27%
=========== ==========
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $706,000 in 1999 and
$744,000 in 1998.
4Interest income is stated on a tax equivalent basis of 1.52 at September 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)
Nine Months Ended
30-Sep-99 30-Sep-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 $ 558,251 $ 39,251 9.37% $ 477,493 $ 35,909 10.03%
Securities4 253,008 12,032 6.34% 282,063 13,043 6.17%
Federal funds sold 2,296 83 4.82% 3,083 133 5.75%
------------- ------------- ------------ ------------
Total earning assets 813,555 51,366 8.42% 762,639 49,085 8.58%
------------- ------------
Cash and due from bank 35,762 32,939
Premises and equipment 16,272 17,836
Other assets, net 36,576 33,330
Less: allowance
for loan losses (9,198) (7,025)
------------- ------------
Total $ 892,967 $ 839,719
============= ============
Liabilities
and shareholders' equity
Interest-bearing
Demand deposits $ 144,364 1,697 1.57% $ 134,599 2,291 2.27%
Savings deposits 222,323 5,046 3.03% 211,141 4,860 3.07%
Time deposits 250,856 8,841 4.70% 260,365 10,302 5.28%
Federal funds purchased 9,287 351 5.04% 6,151 267 5.79%
Short-term debt 821 30 4.87% 8,521 365 5.71%
Long-term debt 47,684 1,963 5.49% 25,610 1,095 5.70%
------------- ------------- ------------ ------------
Total interest-bearing
liabilities 675,335 17,928 3.54% 646,387 19,180 3.96%
------------- ------------
Noninterest-bearing deposits 131,942 114,503
Other liabilities 12,696 11,297
Shareholders' equity 72,994 67,532
------------- ------------
Total liabilities
and shareholders' equity $ 892,967 $ 839,719
============= ============
Net interest rate spread5 4.88% 4.62%
Net interest income/net $ 33,438 $ 29,905
============= ============
interest margin6 5.48% 5.23%
============= ============
1Average balances are computed principally on the basis of daily balances.
2Nonaccrual loans are included.
3Interest income on loans includes fees on loans of $2,194,000 in 1999 and
$2,173,000 in 1998.
4Interest income is stated on a tax equivalent basis of 1.52 at September 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 September 30,
1999 over 1998
Yield/
Volume Rate4 Total
----------- ----------- -----------
Increase (decrease) in
interest income:
Loans 1,2 $ 2,047 $ (735) $ 1,312
Investment securities3 (833) 146 (687)
Federal funds sold 31 4 35
----------- ----------- -----------
Total 1,245 (585) 660
----------- ----------- -----------
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 43 (259) (216)
Savings deposits 82 (19) 63
Time deposits 18 (330) (312)
Federal funds purchased (138) (5) (143)
Short-term debt (150) (1) (151)
Long-term debt 270 (16) 254
----------- ----------- -----------
Total 125 (630) (505)
----------- ----------- -----------
Increase (decrease) in
net interest income $ 1,120 $ 45 $ 1,165
=========== =========== ===========
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $706,000 in 1999 and
$744,000 in 1998. 3Interest income is stated on a tax equivalent basis of 1.52
for September 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 nine months ended September 30,
1999 over 1998
Yield/
Volume Rate4 Total
----------- ------------ ---------------
Increase (decrease) in
interest income:
Loans 1,2 $ 6,075 $ (2,733) $ 3,342
Investment securities3 (1,345) 334 (1,011)
Federal funds sold (34) (16) (50)
----------- ------------ ---------------
Total 4,696 (2,415) 2,281
----------- ------------ ---------------
Increase (decrease) in
interest expense:
Demand deposits
(interest-bearing) 166 (760) (594)
Savings deposits 257 (71) 186
Time deposits (377) (1,084) (1,461)
Federal funds purchased 136 (52) 84
Short-term debt (330) (5) (335)
Long-term debt 944 (76) 868
----------- ------------ ---------------
Total 796 (2,048) (1,252)
----------- ------------ ---------------
Increase (decrease) in
net interest income $ 3,900 $ (367) $ 3,533
=========== ============ ===============
1Nonaccrual loans are included.
2Interest income on loans includes fee income on loans of $2,194,000 in 1999 and
$2,173,000 in 1998. 3Interest income is stated on a tax equivalent basis of 1.52
for September 30, 1999 and 1998.
4The rate/volume variance has been included in the rate variance.
<PAGE>
Provision for Loan Losses
The Bank provided $875,000 for loan losses in the third quarter of 1999 versus
$920,000 in 1998. Net charge-offs for all loans in the third quarter of 1999
totaled $206,000 versus $197,000 in the year earlier period.
Noninterest Income
Noninterest income for the third quarter of 1999 increased $86,000 (3.1%) to
$2,848,000 from the same period in 1998. Gains on the sale of loans were up
$82,000 (143.9%) to $139,000. Commissions on the sale of mutual funds and
annuities were up $55,000 (12.3%) to $503,000. Gains on the sale of investments
were $0 in the third quarter of 1999 compared to $114,000 in the third quarter
of 1998.
For the nine months ended September 30, noninterest income was down $545,000
(5.6%) over the same period for 1998. 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 nine months ended September 30, 1999 increased $243,000 (2.7%) from the same
period in 1998. Significant changes in the following items contributed to the
$243,000 increase: commissions on mutual fund and annuity sales increased
$133,000 to $1,688,000, ATM fees increased $101,000 to $674,000, gain on sale of
loans increased $341,000 to $692,000, gain on sale of other real estate owned
increased $154,000 to $175,000, credit card fees decreased $240,000 to $0, and
gain on sale of investments decreased $227,000 to $24,000.
Noninterest Expense
Noninterest expense increased $181,000 (2.1%) to $8,640,000 in the third quarter
1999 versus 1998. Salary and benefit expense increased $277,000 (6.6%). Base
salaries increased $184,000 (6.3%). Approximately $99,000 of the increase in
base salaries was due to the recently opened Beale and Visalia branches and the
recent conversion of the Bakersfield and Sacramento loan production offices to
full service branches. Other expenses decreased $96,000 (2.2%). On a
quarter-over-quarter basis, provision for OREO valuation was reduced $69,000 to
$0, and intangible asset amortization decreased $51,000 (15.2%) to $284,000. In
total, all other categories of noninterest expense remained essentially
unchanged from the year ago quarter despite the new branch openings and
conversions noted above.
For the first nine months noninterest expenses increased $59,000 (0.2%) in 1999
compared to 1998. Salary and benefit expense increased $775,000 (6.2%) on a
year-over-year basis. Base salaries increased $306,000 (3.5%). Other expenses
decreased $716,000 (5.4%). The following changes contributed to the net decrease
in other expenses: OREO provisions and expenses decreased $378,000 to $32,000,
and amortization of intangible assets decreased $152,000 to $851,000.
Provision for Income Taxes
The effective tax rate for the nine months ended September 30, 1999 is 36.7% and
reflects a decrease from 36.9% in the year earlier period. The tax rate is lower
than the statutory rate of 40.4% due primarily to nontaxable earnings from
municipal bonds.
Loans
At September 30, 1999, loan balances were $82,446,000 (15.9%) higher than the
ending balances at September 30, 1998 and $68,907,000 (12.9%) higher than the
ending balances at December 31, 1998. On a year-over-year basis at September 30,
commercial, real estate mortgage, real estate construction, and consumer loan
balances were higher by $64,377,000 (29.8%), $10,732,000 (5.5%), $4,914,000
(15.8%), and $2,423,000 (3.2%) respectively. Consumer loan balances were
relatively flat from one year ago.
Securities
At September 30, 1999, securities available-for-sale had a fair value of
$228,815,000 and an amortized cost of $236,110,000. At September 30, 1999
this portfolio contained mortgage-backed securities with an amortized cost
of $143,683,000 of which $20,653,000 were CMOs. At December 31, 1998, securities
available-for-sale had a fair value of $279,676,000 and an amortized cost of
$278,200,000. At December 31, 1998, this portfolio contained mortgage-backed
securities with an amortized cost of $166,557,000 of which $31,152,000 were
CMOs.
<PAGE>
Nonperforming Loans
As shown in the following table, total nonperforming assets have increased 4.2%
to $3,207,000 in the first nine months of 1999. Nonperforming assets represent
0.35% of total assets, compared to .34% at year-end 1998. All nonaccrual loans
are considered to be impaired when determining the valuation allowance under
SFAS 114. The Bank continues to make a concerted effort to work problem and
potential problem loans to reduce risk of loss.
September 30, December 31,
1999 1998
Nonaccrual loans $ 1,190 $ 1,045
Accruing loans past due 90 days or more 1,157 620
Restructured loans (in compliance with
modified terms) - -
------------------- -----------------
Total nonperforming loans 2,347 1,665
Other real estate owned 860 1,412
------------------- -----------------
Total nonperforming assets $ 3,207 $ 3,077
=================== =================
Nonincome producing investments in real
estate held by Bank's real estate
development subsidiary $ - $ 856
=================== =================
Nonperforming loans to total loans 0.39% 0.31%
Allowance for loan losses to
nonperforming loans 442% 493%
Nonperforming assets to total assets 0.35% 0.34%
Allowance for loan losses to
nonperforming assets 324% 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.
For the nine months ended September 30
1999 1998
(in thousands)
Balance, Beginning of period $ 8,206 $ 6,459
Provision charged to operations 2,585 2,980
Loans charged off (514) (1,831)
Recoveries of loans previously
charged off 108 253
================== ===================
Balance, end of period $ 10,385 $ 7,861
================== ===================
Ending loan portfolio $ 601,341 $ 518,895
================== ===================
Allowance as a percentage
of ending loan portfolio 1.73% 1.51%
================== ===================
Equity
The following table indicates the amounts of regulatory capital of the Company.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1999:
Total Capital to Risk Weighted Assets:
Consolidated $78,143 11.44% =>$54,652 =>8.0% =>$68,315 =>10.0%
Tri Counties Bank $77,164 11.31% =>$54,581 =>8.0% =>$68,226 =>10.0%
Tier I Capital to Risk Weighted Assets:
Consolidated $69,604 10.19% =>$27,326 =>4.0% =>$40,989 => 6.0%
Tri Counties Bank $68,613 10.06% =>$27,291 =>4.0% =>$40,936 => 6.0%
Tier I Capital to Average Assets:
Tri Counties Bank $68,613 7.62% =>$36,008 =>4.0% =>$45,011 => 5.0%
</TABLE>
<PAGE>
Year 2000
The Company provided extensive information regarding its preparations for the
Year 2000 Century Date Change (Y2K) in the "Management's Discussion and Analysis
of Financial Condition and Results of Operstions" section of the 1998 annual
report on Form 10-K, 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 September 30, 1999, the Company
has successfully completed testing of mission critical systems.
Although the Companys remediation efforts are directed at reducing its Y2K
exposure, there can be no assurance that these efforts will fully mitigate
the effect of Y2K issues and it is likely that one or more events may disrupt
the Companys normal business operations. In the event the Company fails to
identify or correct a material Y2K problem, there could be disruptions in
normal business operations, which could have a material adverse effect on the
Companys results of operations, liquidity or financial condition.
Costs - The Company continues to estimate that it will spend approximately
$175,000 to address the Y2K issue. Through September 30, 1999, approximately
$89,000 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 from deposit withdrawals or if its customers,
funds 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 securities
transactions. There are also risks to the Company relating to providers of
power and telecommunications not being able to supply these services.
Although it is not possible to quantify the potential impact of these risks at
this time, there may be increases in future years in problem loans, credit
losses, losses in the fiduciary business and liquidity problems, as well as the
risk of litigation and potential losses from litigation related to the
foregoing.
Contingency Plans - As of September 30, 1999, the Company has successfully
completed the development of a Y2K contingency plan for business resumption.
Forward-looking statements contained in the foregoing Year 2000 section should
be read in conjunction with the cautionary statements included in the
introductory paragraphs under Managements Discussion and Analysis of Financial
Condition and Result of Operations on page 10.
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 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 November 10, 1999 /s/ Robert H. Steveson
--------------------- -----------------------
Robert H. Steveson
President and
Chief Executive Officer
Date November 10, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 42,045
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 236,110
<INVESTMENTS-MARKET> 228,815
<LOANS> 601,341
<ALLOWANCE> 10,385
<TOTAL-ASSETS> 918,766
<DEPOSITS> 770,105
<SHORT-TERM> 10,400
<LIABILITIES-OTHER> 11,042
<LONG-TERM> 55,510
0
0
<COMMON> 49,430
<OTHER-SE> 22,279
<TOTAL-LIABILITIES-AND-EQUITY> 918,766
<INTEREST-LOAN> 39,251
<INTEREST-INVEST> 11,163
<INTEREST-OTHER> 83
<INTEREST-TOTAL> 50,497
<INTEREST-DEPOSIT> 15,584
<INTEREST-EXPENSE> 17,928
<INTEREST-INCOME-NET> 32,569
<LOAN-LOSSES> 2,585
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 26,013
<INCOME-PRETAX> 13,149
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,318
<EPS-BASIC> 1.17
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 8.66
<LOANS-NON> 1,190
<LOANS-PAST> 1,157
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,206
<CHARGE-OFFS> (514)
<RECOVERIES> 108
<ALLOWANCE-CLOSE> 2,585
<ALLOWANCE-DOMESTIC> 10,385
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
