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 March 31, 2001 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 April 30, 2001: 7,084,726
<TABLE> <CAPTION> TRICO BANCSHARES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) March 31, December 31, <S> <C> <C> 2001 2000 ------------------- ------------------ Assets: Cash and due from banks $ 41,779 $ 58,190 Federal funds sold and repurchase agreements 68,200 - ------------------ ------------------ Cash and cash equivalents 109,979 58,190 Securities available-for-sale 196,236 229,110 Loans, net of allowance for loan losses of $11,341 and $11,670, respectively 612,654 628,721 Premises and equipment, net 16,867 16,772 Cash Value of Life Insurance 14,037 13,753 Other real estate owned 1,017 1,441 Accrued interest receivable 6,147 6,935 Intangible Assets 5,236 5,464 Other assets 17,529 11,685 ------------------ ------------------ Total assets $ 979,702 $ 972,071 ================== ================== Liabilities: Deposits: Noninterest-bearing demand $ 159,040 $ 168,542 Interest-bearing demand 152,545 150,749 Savings 224,177 214,158 Time certificates 309,574 304,383 ------------------ ------------------ Total deposits 845,336 837,832 Federal funds purchased - 500 Accrued interest payable and other liabilities 15,814 14,523 Long term borrowings 32,976 33,983 ------------------ ------------------ Total liabilities 894,126 886,838 Shareholders' equity: Common stock 49,763 50,428 Retained earnings 35,681 35,129 Accumulated other comprehensive income (loss) 132 (324) ------------------ ------------------ Total shareholders' equity 85,576 85,233 ------------------ ------------------ Total liabilities and shareholders' equity $ 979,702 $ 972,071 ================== ================== </TABLE>
TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands except earnings per common share) For the three months ended March 31, 2001 2000 Interest income: Interest and fees on loans $ 15,102 $ 14,063 Interest on investment securities-taxable 2,698 3,080 Interest on investment securities-tax exempt 557 558 Interest on federal funds sold 404 193 ------------- ------------- Total interest income 18,761 17,894 ------------- ------------- Interest expense: Interest on deposits 6,690 5,769 Interest on federal funds purchased 1 9 Interest on repurchase agreements - 1 Interest on other borrowings 504 629 ------------- ------------- Total interest expense 7,195 6,408 ------------- ------------- Net interest income 11,566 11,486 Provision for loan losses 1,875 800 ------------- ------------- Net interest income after provision for loan losses 9,691 10,686 Noninterest income: Service charges and fees 1,873 1,807 Gain on sale of insurance company stock 1,756 - Gain on receipt of insurance company stock - 1,510 Other income 1,221 1,309 ------------- ------------- Total noninterest income 4,850 4,626 ------------- ------------- Noninterest expenses: Salaries and related expenses 5,158 4,834 Other, net 4,612 4,190 ------------- ------------- Total noninterest expenses 9,770 9,024 ------------- ------------- Net income before income taxes 4,771 6,288 Income taxes 1,792 2,360 ------------- ------------- Net income 2,979 3,928 ============= ============= Basic earnings per common share $ 0.42 $ 0.55 ============= ============= Diluted earnings per common share $ 0.41 $ 0.54 ============= =============
<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 (Loss) Total Income ------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> Balance, December 31, 2000 7,181,226 $50,428 $35,129 ($324) $85,233 Exercise of Common Stock options, net of tax 9,000 108 108 Repurchase of Common Stock (110,000) (773) (1,012) (1,785) Common stock cash dividends (1,415) (1,415) Comprehensive income: Net income 2,979 2,979 2,979 Other comprehensive income: Change in unrealized income (loss) on securities, net of tax 456 456 456 -------------- Comprehensive income $3,435 -------------------------------------------------------------------------------------- Balance, March 31, 2001 7,080,226 $49,763 $35,681 $132 $85,576 --------------------------------------------------------------------- </TABLE>
<TABLE> <CAPTION> TRICO BANCSHARES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the three months ended March 31, 2001 2000 -------------- -------------- <S> <C> <C> Operating activities: Net income $2,979 $3,928 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,875 800 Depreciation and amortization 628 638 Amortization of intangible assets 228 241 Accretion and amortization of investment securities discounts and premiums, net 26 73 Deferred income taxes (177) 1,901 Investment security gains, net (1,756) - Gain on sale of OREO (27) (29) Gain on sale of loans (142) (358) (Gain) loss on sale of fixed assets 10 23 Amortization of stock options - 41 Decrease (increase) in interest receivable 788 (36) Increase in interest payable 418 193 Decrease (increase) in other assets and liabilities 569 (2,053) -------------- -------------- Net cash provided by operating activities 5,419 5,362 -------------- -------------- Investing activities: Proceeds from maturities of securities available-for-sale 32,127 14,673 Proceeds from sales of securities available-for-sale 3,266 - Purchases of securities available-for-sale (63) (7,990) Proceeds from sale of fixed asset - 21 Net (increase) decrease in loans 8,058 (9,799) Purchases of premises and equipment (650) (528) Proceeds from sale of OREO 727 126 -------------- -------------- Net cash provided (used) by investing activities 43,465 (3,497) -------------- -------------- Financing activities: Net increase (decrease) in deposits 7,504 (10,770) Net increase (decrease) in Fed funds purchased (500) 4,700 Payments of principal on long-term debt agreements (1,007) (5) Repurchase of common stock (1,785) (55) Cash dividends (1,415) (1,363) Exercise of common stock options 108 171 -------------- -------------- Net cash provided (used) by financing activities 2,905 (7,322) -------------- -------------- Increase (decrease) in cash and cash equivalents 51,789 (5,457) Cash and cash equivalents at beginning of period 58,190 60,436 -------------- -------------- Cash and cash equivalents at end of period $109,979 $54,979 -------------- -------------- Supplemental information Cash paid for taxes $0 $275 Cash paid for interest expense $6,777 $6,215 </TABLE>
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 March 31, 2001 and 2000 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, 2000. Note B - Comprehensive Income 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 March 31, 2001 2000 Net income $ 2,979 $ 3,928 Net change in unrealized gains (losses) on securities available-for-sale, net of tax and reclassification adjustment 456 (532) ------- ------- Comprehensive income $ 3,435 $ 3,396 ======= =======
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 March 31, 2001 Weighted Average Per-Share Income Shares Amount Basic Earnings per Share Net income available to common shareholders $2,979 7,140,859 $0.42 Common stock options outstanding -- 128,821 Diluted Earnings per Share Net income available to common shareholders $2,979 7,269,680 $0.41 ====== ========= Three Months Ended March 31, 2000 Weighted Average Per-Share Income Shares Amount Basic Earnings per Share Net income available to common shareholders $3,928 7,171,612 $0.55 Common stock options outstanding -- 157,466 Diluted Earnings per Share Net income available to common shareholders $3,928 7,329,078 $0.54 ====== =========
Note D - Business Segments The Company is principally engaged in traditional community banking activities provided through its twenty-nine branches and eight 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. 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 and investment brokerage segments do not meet the prescribed aggregation or materiality criteria and therefore are reported as "Other" in the following table. Summarized financial information concerning the Company's reportable segments is as follows (in thousands): Community Banking Other Total Three Months Ended March 31, 2001 Net interest income $ 11,370 $ 196 $ 11,566 Noninterest income 4,157 693 4,850 Noninterest expense 9,301 469 9,770 Net income 2,777 202 2,979 Assets $964,533 $15,169 $979,702 Three Months Ended March 31, 2000 Net interest income $ 11,306 $ 180 $ 11,486 Noninterest income 3,926 700 4,626 Noninterest expense 8,599 425 9,024 Net income 3,678 250 3,928 Assets $912,003 $10,942 $922,945 Note E - Noninterest Income Included in the results for the three months ended March 31, 2001 was a one-time pre-tax income item of $1,756,000. This one-time item represents the realized gain recorded by the Company upon the sale of 88,796 common shares of John Hancock Financial Services, Inc. (JHF) for proceeds of $3,266,000. Included in the results for the three months ended March 31, 2000 was a one-time pre-tax income item of $1,510,000. This one-time item represents the initial value of 88,796 common shares of John Hancock Financial Services, Inc. (JHF) which the Bank received as a consequence of its ownership of certain insurance policies through John Hancock Mutual Life Insurance Company and John Hancock's conversion from a mutual company to a stock company.
Note F - Stock Repurchase Plan On March 15, 2001, the Company announced the completion of its stock repurchase plan initially announced on July 20, 2000. Under this repurchase plan, the Company repurchased a total of 150,000 shares at an average price of $16.05 per share. Under this plan, the Company repurchased 110,000 shares during the quarter ended March 31, 2001. Also on March 15, 2001, the Company announced that its Board of Directors approved a new plan to repurchase, as conditions warrant, up to 150,000 additional shares of the company's stock on the open market or in privately negotiated transactions. The timing of purchases and the exact number of shares to be purchased will depend on market conditions. The 150,000 shares covered by this repurchase plan represent approximately 2.1% of the Company's 7,080,226 then outstanding common stock. As of April 24, 2001, the Company has not repurchased any shares under this new plan. Note G - Sale of Nonperforming Loan During the quarter ended March 31, 2001, the Company received proceeds of $6,079,000 from the sale of a nonperforming agricultural-related loan relationship that was first reported as nonperforming in the quarter ended September 30, 2000. The Company recorded charge-offs related to this loan relationship of $2,000,000, $800,000, and $3,000,000 during the quarters ended March 31, 2001, December 31, 2000, and September 31, 2000, respectively. The net book value of principal balances after charge-offs for this nonperforming loan relationship was approximately $6,079,000, $8,400,000, and $10,000,000 at March 31, 2001, December 31, 2000, and September 31, 2000, respectively. This loan relationship was sold to a third party without recourse to the Company. As such, the Company is not subject to any future charge-offs related to this loan relationship.
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 quarterly earnings of $2,979,000 for the three months ended March 31, 2001. Diluted earnings per share were $0.41. Included in the results for the three months ended March 31, 2001 was a $1,756,000 pretax gain on the sale of the Company's equity investment in John Hancock Financial Services, Inc. (JHF). Offsetting this gain in the first quarter of 2001 was a provision for loan losses of $1,875,000. During the quarters ended December 31, 2000 and March 31, 2000, the Company reported diluted earnings per share of $0.37 and $0.54, respectively. In the quarter ended March 31, 2000, the Company recorded a $1,510,000 pretax gain from the initial receipt of its investment in JHF. Excluding the gains associated with the shares of JHF, the Company would have reported diluted earnings per share of $0.26 and $0.42 in the quarters ended March 31, 2001 and 2000, respectively. First quarter 2001 net interest income on a fully tax-equivalent yield basis increased $80,000 (0.7%) to $11,853,000 compared to $11,773,000 recorded in the first quarter of 2000. This increase in net interest income was achieved despite Federal Reserve interest rate cuts totaling 150 basis points during the quarter ended March 31, 2001, and was due to a $46,082,000 (7.9%) increase in average loan balances to $632,741,000 from $586,659,000 in the year-ago quarter. While increases in the volume of interest earning assets netted an additional $811,000 of net interest income from the year-ago quarter, the effect of the Federal Reserve interest rate cuts in the first quarter of 2001 negatively impacted net interest income by $731,000. The net result was a decrease in net interest margin to 5.41% in the quarter ended March 31, 2001 compared to 5.70% in the year-ago quarter.
Provision for loan losses for the first quarter of 2001 was $1,875,000 versus $800,000 in the same quarter in 2000. The Company had net loan charge-offs of $2,204,000 in the first quarter of 2001 compared to $77,000 of net loan recoveries in the same period of 2000. The provision for loan losses of $1,875,000 taken in the quarter ended March 31, 2001 was mainly due to an additional $2,000,000 charge-off and subsequent sale of an agricultural-related loan relationship that was first reported as nonperforming in the quarter ended September 30, 2000. During the quarter ended March 31, 2001, this loan relationship was sold to a third party without recourse to the Company. As such, the Company is not subject to any future charge-offs related to this loan relationship. As of March 31, 2001 and 2000, the ratio of nonperforming loans to total loans was 1.09% and 0.67%, respectively, and the ratio of nonperforming assets to total assets was 0.80% and 0.56%, respectively. As of March 31, 2001 and 2000, the ratio of allowance for loan losses to total loans was 1.82% and 1.99%, respectively. Excluding the charge-offs related to the single loan relationship noted above, the ratio of net loan charge-offs to average total loans over the four quarters ended March 31, 2001 was approximately 0.13%. Noninterest income in the first quarter of 2001 was $4,850,000 versus $4,626,000 in the same period of 2000. Excluding the effects of the sale of the JHF stock noted above in the first quarter of 2001, and its initial receipt in the first quarter of 2000, noninterest income would have been $3,094,000 and $3,116,000 during those periods, respectively. Service charges and fees were up $66,000 (3.7%) to $1,873,000 over the year ago period due mainly to increased ATM fee income. Other income was down $88,000 (6.7%) to $1,221,000. Commission income from the sale of nondeposit investment products was down $40,000 (5.9%) to $638,000 in the first quarter of 2001 versus $678,000 in the year-ago quarter. Conversely, for the three months ended March 31, 2001, gain on sale of loans increased $67,000 (89.4%) to $142,000 compared to $75,000 in the first quarter of 2000. No other single category of other income accounted for a significant portion of the drop in other income. Noninterest expense increased $746,000 (8.3%) to $9,770,000 in the first quarter 2001 versus 2000. Salary and benefit expense increased $324,000 (6.7%) on a quarter over quarter basis to $5,158,000. Base salary expense increased $231,000 (7.2%) to $3,450,000 due to a 2.4% increase in average full-time equivalent employees to 392, and annual salary increases. The increase in employees is due to the opening of branches in Modesto and Paradise in January and August of 2000, respectively, and additions to consumer loan origination and retail branch administration staff. Other noninterest expenses increased $422,000 (10.1%) to $4,612,000 in the first quarter of 2001. Contributing to the increase in other noninterest expense was a $125,000 (179%) increase in postage expense to $195,000, and a $99,000 (335%) increase in legal expense to $128,000 in the quarter ended March 31, 2001. The increase in postage expense was mainly due to an $80,000 postal service rebate received in the first quarter of 2000. The increase in legal expense was mainly due to activities related to the single nonperforming loan relationship discussed above. Assets of the Company totaled $979,702,000 at March 31, 2001, and represented an increase of $7,631,000 from December 31, 2000 balances and an increase of $56,757,000 from March 31, 2000 ending balances. For the first quarter of 2001, the Company had an annualized return on assets of 1.24% and a return on equity of 13.81% versus 1.73% and 21.26% in the first quarter of 2000. As of March 31, 2001 TriCo Bancshares had a Tier 1 capital ratio of 10.9% and a total risk-based capital ratio of 12.2%.
The following table provides a summary of the major elements of income and expense for the first quarter of 2000 compared with the first quarter of 1999. TRICO BANCSHARES CONDENSED COMPARATIVE INCOME STATEMENT (in thousands, except earnings per common share) Three months ended March 31, Percentage 2001 2000 Change increase (decrease) Interest income $ 19,048 $ 18,181 4.8% Interest expense 7,195 6,408 12.3% -------------- -------------- Net interest income 11,853 11,773 0.7% Provision for loan losses 1,875 800 134.4% -------------- -------------- Net interest income after 9,978 10,973 (9.1%) provision for loan losses Noninterest income 4,850 4,626 4.8% Noninterest expenses 9,770 9,024 8.3% -------------- -------------- Net income before income taxes 5,058 6,575 (23.1%) Income taxes 1,792 2,360 (24.1%) Tax equivalent adjustment1 287 287 0.0% -------------- -------------- Net income $ 2,979 $ 3,928 (24.2%) ============== ============== Diluted earnings per common share $ 0.41 $ 0.54 (24.1%) 1 Interest on tax-free securities is reported on a tax equivalent basis of 1.52 for March 31, 2001 and 2000.
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 March 31, 2001, interest income increased $867,000 or 4.8% over the same period in 2000. The average balance of total earning assets was higher by $50,333,000 (6.1%). The average balance of loans and Federal Funds sold outstanding increased $46,082,000 (7.9%) and 16,707,000 (122%), respectively, while investment security average balances decreased $12,456,000 (5.5%). The loan and federal funds volume increases accounted for additional interest income of $1,105,000 and $236,000, respectively, during the first quarter of 2001 versus the year earlier period. The decrease in the average balance of investment securities resulted in a reduction in interest income of $216,000. The average yields on loans, investment securities and Federal Funds sold were lower by 4, 31 and 33 basis points, respectively, and decreased interest income for the quarter by $258,000 over the first quarter of 2000. The overall yield on earning assets decreased 11 basis points to 8.69%. For the first quarter of 2001, interest expense increased by $787,000 or 12.3% over the year earlier period. Average balances of interest-bearing demand and time deposits increased $5,146,000 (3.5%), and $39,700,000 (14.8%), respectively. The average balances of savings deposits, short-term borrowings and long-term borrowings were lower by $5,603,000 (2.5%), $663,000 (100%), and $12,314,000 (27.1%), respectively, during the first quarter of 2001 versus the year earlier period. For the first quarter of 2001, the average balance of total interest bearing liabilities increased $26,266,000 (3.8%) over the year earlier period increasing interest expense by $314,000. The overall average rate on earning liabilities increased by 30 basis points to 4.04%, and increased interest expense by $473,000. The net effect of the increases in interest income and expense for the first quarter of 2001 versus 2000 resulted in an increase of $80,000 or 0.7% in net interest income. Net interest margin was down 29 basis points from 5.70% to 5.41%. The average balance of noninterest bearing deposits was $11,505,000 (8.5%) higher to $147,620,000 in the first quarter of 2001 versus the first quarter of 2000. The following two tables provide summaries of the components of the interest income, interest expense and net interest margins on earning assets for the quarter ended March 31, 2001 versus the same period in 2000.
<TABLE> <CAPTION> TRICO BANCSHARES ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (in thousands) Three Months Ended March 31, 2001 March 31, 2000 Average Income/ Yield/ Average Income/ Yield/ Balance1 Expense Rate Balance1 Expense Rate <S> <C> <C> <C> <C> <C> <C> Assets Earning assets Loan 2,3 $ 632,741 $15,102 9.55% $ 586,659 $14,063 9.59% Securities 213,419 3,542 6.64% 225,875 3,925 6.95% Federal funds sold 30,370 404 5.32% 13,663 193 5.65% ------------- ------------ ----------- ------------- ------------- ----------- Total earning assets 876,530 19,048 8.69% 826,197 18,181 8.80% ------------ ------------- Cash and due from bank 40,518 37,362 Premises and equipment 16,891 16,025 Other assets,net 39,811 40,927 Less: allowance for loan losses (12,435) (11,404) ------------- ------------- Total $ 961,315 $ 909,107 ============= ============= Liabilities and shareholders' equity Interest-bearing Demand deposits $ 152,385 522 1.37% $ 147,239 578 1.57% Savings deposits 218,302 1,624 2.98% 223,905 1,695 3.03% Time deposits 308,479 4,544 5.89% 268,779 3,496 5.20% Fed funds purchased - - - 584 9 6.16% Repurchase agreements - - - 79 1 5.06% Long-term debt 33,188 505 6.09% 45,502 629 5.53% ------------- ------------ ----------- ------------- ------------- ----------- Total interest-bearing liabilities 712,354 7,195 4.04% 686,088 6,408 3.74% ------------ ------------- Noninterest-bearing deposits 147,620 136,115 Other liabilities 15,048 12,994 Shareholders' equity 86,293 73,910 ------------- ------------- Total liabilities and shareholders' equity $ 961,315 $ 909,107 ============= ============= Net interest rate spread5 4.65% 5.06% Net interest income/net $11,853 $11,773 ============ ============= interest margin6 5.41% 5.70% ============ ============= 1Average balances are computed principally on the basis of daily balances. 2Nonaccrual loans are included. 3Interest income on loans includes fees on loans of $911,000 in 2001 and $606,000 in 2000. 4Interest income is stated on a tax equivalent basis of 1.52 at March 31, 2001 and 2000. 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>
TRICO BANCSHARES ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE (in thousand) For the three months ended March 31, 2001 over 2000 Yield/ Volume Rate4 Total ----------- ---------- ---------- Increase (decrease) in interest income: Loans 1,2 $ 1,105 $ (66) 1,039 Investment securities3 (216) (167) (383) Federal funds sold 236 (25) 211 ----------- ---------- ---------- Total 1,125 (258) 867 ----------- ---------- ---------- Increase (decrease) in interest expense: Demand deposits (interest-bearing) 20 (76) (56) Savings deposits (42) (29) (71) Time deposits 516 532 1,048 Federal funds purchased (9) - (9) Repurchase agreements (1) - (1) Long-term debt (170) 46 (124) ----------- ---------- ---------- Total 314 473 787 ----------- ---------- ---------- Increase in net interest income $ 811 $ (731) $ 80 =========== ========== ========== 1Nonaccrual loans are included. 2Interest income on loans includes fee income on loans of $911,000 in 2001 and $606,000 in 2000. 3Interest income is stated on a tax equivalent basis of 1.52 for March 31, 2001 and 2000. 4The rate/volume variance has been included in the rate variance.
Provision for Loan Losses Provision for loan losses for the first quarter of 2001 was $1,875,000 versus $800,000 in the same quarter in 2000. The Company had net loan charge-offs of $2,204,000 in the first quarter of 2001 compared to $77,000 of net loan recoveries in the same period of 2000. The provision for loan losses of $1,875,000 taken in the quarter ended March 31, 2001 was mainly due to an additional $2,000,000 charge-off and subsequent sale of an agricultural-related loan relationship that was first reported as nonperforming in the quarter ended September 30, 2000. This loan relationship was sold to a third party without recourse to Company. As such, the Company is not subject to any future charge-offs related to this loan relationship. Noninterest Income Noninterest income in the first quarter of 2001 was $4,850,000 versus $4,626,000 in the same period of 2000. Excluding the effects of the sale of the JHF stock noted above in the first quarter of 2001, and its initial receipt in the first quarter of 2000, noninterest income would have been $3,094,000 and $3,116,000 during those periods, respectively. Service charges and fees were up $66,000 (3.7%) to $1,873,000 over the year ago period due mainly to increased ATM fee income. Other income was down $88,000 (6.7%) to $1,221,000. Commission income from the sale of nondeposit investment products was down $42,000 (6.2%) to $638,000 in the first quarter of 2001 versus $680,000 in the year-ago quarter. For the three months ended March 31, 2001, gain on sale of loans increased $67,000 (89.4%) to $142,000 compared to $75,000 in the first quarter of 2000. No other single category of other income accounted for a significant portion of the drop in other income. Noninterest Expense Noninterest expense increased $746,000 (8.3%) to $9,770,000 in the first quarter 2001 versus 2000. Salary and benefit expense increased $324,000 (6.7%) on a quarter over quarter basis to $5,158,000. Base salary expense increased $231,000 (7.2%) to $3,450,000 due to a 2.4% increase in average full-time equivalent employees to 392, and annual salary increases. The increase in employees is due to the opening of branches in Modesto and Paradise in January and August of 2000, respectively, and additions to consumer loan origination and retail branch administration staff. Other noninterest expenses increased $422,000 (10.1%) to $4,612,000 in the first quarter of 2001. Contributing to the increase in other noninterest expense was a $125,000 (179%) increase in postage expense to $195,000, and a $99,000 (335%) increase in legal expense to $128,000 in the quarter ended March 31, 2001. The increase in postage expense was mainly due to an $80,000 postal service rebate received in the first quarter of 2000. The increase in legal expense was mainly due to activities related to the single nonperforming loan relationship discussed above. In the spring of 2000, the Company began to focus additional resources on the consumer and retail banking segments of its marketplace. The result has been a significant increase in deposits and consumer loans (primarily auto and home equity loans). Since the quarter ended March 31, 2000, deposit balances have increased $61,996,000 (7.9%) to $845,336,000, and consumer loan balances have increased $32,307,000 (33.4%) to $128,961,000. The Company is in the process of applying a similar focus on the small business segment of its marketplace.
Provision for Income Taxes The tax rate for the three months ended March 31, 2001 was 37.6% compared to 37.5% in the year earlier period. Loans In the first quarter of 2001, loan balances decreased $16,396,000 (2.6%) to $623,995,000 from year-end balances of $640,391,000. Commercial and real estate loans decreased $11,650,000 (7.9%) and $13,460,000 (3.6%) from December 31, 2000 balances, respectively; while consumer loans increased $8,714,000 (7.3%) during the quarter ended March 31, 2001. At March 31, 2000, loan balances totaled $597,724,000. Securities At March 31, 2001, securities available-for-sale had a fair value of $196,236,000 and an amortized cost of $196,022,000. This portfolio contained mortgage-backed securities with an amortized cost of $130,218,000 of which $12,754,000 were CMO's. At March 31, 2001, the Company had no securities classified as held-to-maturity.
Nonperforming Loans As shown in the following table, total nonperforming assets have decreased 46.9% to $7,790,000 in the first three months of 2001. Nonperforming assets represent 0.80% of total assets. Both nonaccrual loans and OREO decreased during this period. At December 31, 2000, nonperforming loans included $8.4 million from the single loan relationship discussed above that the Company sold during the quarter ended March 31, 2001. All nonaccrual loans are considered to be impaired when determining the valuation allowance under SFAS 114. The Company continues to make a concerted effort to work problem and potential problem loans to reduce risk of loss. March 31, December 31, 2001 2000 Nonaccrual loans $ 5,957 $ 12,262 Accruing loans past due 90 days or more 816 965 Restructured loans (in compliance with modified terms) 0 0 ------------- -------------- Total nonperforming loans 6,773 13,227 Other real estate owned 1,017 1,441 ------------- -------------- Total nonperforming assets $ 7,790 $ 14,668 ============= ============== Nonperforming loans to total loans 1.09% 2.07% Allowance for loan losses to nonperforming loans 167% 88% Nonperforming assets to total assets 0.80% 1.51% Allowance for loan losses to nonperforming assets 146% 80% Allowance for Loan Loss Credit risk is inherent in the business of lending. As a result, the Company maintains an Allowance for Loan Losses to absorb losses inherent in the Company's loan and lease portfolio. This is maintained through periodic charges to earnings. These charges are shown in the Consolidated Income Statements as provision for loan losses. All specifically identifiable and quantifiable losses are immediately charged off against the allowance. However, for a variety of reasons, not all losses are immediately known to the Company and, of those that are known, the full extent of the loss may not be quantifiable at that point in time. The balance of the Company's Allowance for Loan Losses is meant to be an estimate of these unknown but probable losses inherent in the portfolio. For the remainder of this discussion, "loans" shall include all loans and lease contracts, which are a part of the Bank's portfolio.
The Company formally assesses the adequacy of the allowance on a quarterly basis. Determination of the adequacy is based on ongoing assessments of the probable risk in the outstanding loan and lease portfolio, and to a lesser extent the Company's loan and lease commitments. These assessments include the periodic re-grading of credits based on changes in their individual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interest rate environment, growth of the portfolio as a whole or by segment, and other factors as warranted. Loans are initially graded when originated. They are re-graded as they are renewed, when there is a new loan to the same borrower, when identified facts demonstrate heightened risk of nonpayment, or if they become delinquent. Re-grading of larger problem loans occurs at least quarterly. Confirmation of the quality of the grading process is obtained by independent credit reviews conducted by consultants specifically hired for this purpose and by various bank regulatory agencies. The Company's method for assessing the appropriateness of the allowance includes specific allowances for identified problem loans and leases as determined by FASB 114, formula allowance factors for pools of credits, and allowances for changing environmental factors (e.g., interest rates, growth, economic conditions, etc.). Allowance factors for loan pools are based on the previous 5 years historical loss experience by product type. Allowances for specific loans are based on FASB 114 analysis of individual credits. Allowances for changing environmental factors are Management's best estimate of the probable impact these changes have had on the loan portfolio as a whole. This process is explained in detail in the notes to the Company's Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2000. The following table presents information concerning the allowance and provision for loan losses. March 31, March 31, 2001 2000 (in thousands) (in thousands) Balance, beginning of period $ 11,670 $ 11,037 Provision charged to operations 1,875 800 Loans charged off (2,266) (74) Recoveries of loans previously charged off 62 151 --------------- --------------- Balance, end of period $ 11,341 $ 11,914 =============== =============== Ending loan portfolio $ 623,995 $ 597,724 =============== =============== Allowance for loan losses as a percentage of ending loan portfolio 1.82% 1.99% =============== ===============
During the quarter ended March 31, 2001, the Company received proceeds of $6,079,000 from the sale of a nonperforming agricultural-related loan relationship that was first reported as nonperforming in the quarter ended September 30, 2000. The Company recorded charge-offs related to this loan relationship of $2,000,000, $800,000, and $3,000,000 during the quarters ended March 31, 2001, December 31, 2000, and September 31, 2000, respectively. The net book value of principal balances after charge-offs for this nonperforming loan relationship was approximately $6,079,000, $8,400,000, and $10,000,000 at March 31, 2001, December 31, 2000, and September 31, 2000, respectively. This loan relationship was sold to a third party without recourse to the Company. As such, the Company is not subject to any future charge-offs related to this loan relationship. 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 March 31, 2001: Total Capital to Risk Weighted Assets Consolidated $89,467 12.18% =>$58,778 =>8.0% =>$73,472 =>10.0% Tri Counties Bank $87,532 11.94% =>$58,649 =>8.0% =>$73,311 =>10.0% Tier I Capital to Risk Weighted Assets Consolidated $80,283 10.93% =>$29,389 =>4.0% =>$44,083 =>6.0% Tri Counties Bank $78,341 10.69% =>$29,324 =>4.0% =>$43,987 =>6.0% Tier I Capital to Average Assets Consolidated $80,243 8.40% =>$38,234 =>4.0% =>$47,791 =>5.0% Tri Counties Bank $78,341 8.21% =>$38,169 =>4.0% =>$47,712 =>5.0% </TABLE> Item 3. MARKET RISK MANAGEMENT There have not been any significant changes in the risk management profile of the Bank since December 31, 2000.
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. 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. 10.12 Addendum to Employment Agreement of Robert H. Steveson, dated April 9, 1991, filed as Exhibit 10.12 to Registrant's Report on Form 10-K filed for the year ended December 31, 1991, is incorporated herein by reference. 22.1 Tri Counties Bank, a California banking corporation, is the only subsidiary of Registrant. (b) Reports on Form 8-K: None
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 April 30, 2001 /s/ Richard P. Smith -------------------- ----------------------- President and Chief Executive Officer Date April 30, 2001 /s/ Thomas J. Reddish -------------------- ----------------------- Vice President and CFO