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, 2002 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 May 7, 2002: 7,008,230
<TABLE> <CAPTION> TRICO BANCSHARES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) March 31, December 31, ------------------ ------------------ 2002 2001 <S> <C> <C> Assets: Cash and due from banks $ 42,647 $ 59,264 Federal funds sold and repurchase agreements 55,200 18,700 ------------------ ------------------ Cash and cash equivalents 97,847 77,964 Securities available-for-sale 222,594 224,590 Loans, net of allowance for loan losses of $13,337 and $13,058, respectively 623,871 645,674 Premises and equipment, net 16,136 16,457 Cash Value of Life Insurance 14,722 14,602 Other real estate owned 71 71 Accrued interest receivable 5,480 5,522 Intangible Assets 4,842 5,070 Other assets 14,370 15,497 ------------------ ------------------ Total assets $ 999,933 $ 1,005,447 ================== ================== Liabilities: Deposits: Noninterest-bearing demand $ 172,087 $ 190,386 Interest-bearing demand 174,852 165,542 Savings 256,845 247,399 Time certificates 269,488 277,066 ------------------ ------------------ Total deposits 873,272 880,393 Accrued interest payable and other liabilities 14,996 15,165 Long term borrowings 22,948 22,956 ------------------ ------------------ Total liabilities 911,216 918,514 Shareholders' equity: Common stock 49,608 49,679 Retained earnings 39,720 37,909 Accumulated other comprehensive loss (611) (655) ------------------ ------------------ Total shareholders' equity 88,717 86,933 ------------------ ------------------ Total liabilities and shareholders' equity $ 999,933 $ 1,005,447 ================== ================== See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements </TABLE>
TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands except earnings per common share) For the three months ended March 31, 2002 2001 Interest income: Interest and fees on loans $ 13,008 $ 14,893 Interest on investment securities-taxable 2,230 2,698 Interest on investment securities-tax exempt 554 557 Interest on federal funds sold 166 404 ------------- ------------- Total interest income 15,958 18,552 ------------- ------------- Interest expense: Interest on deposits 2,944 6,690 Interest on other borrowings 319 505 ------------- ------------- Total interest expense 3,263 7,195 ------------- ------------- Net interest income 12,695 11,357 Provision for loan losses 800 1,875 ------------- ------------- Net interest income after provision for loan losses 11,895 9,482 Noninterest income: Service charges and fees 1,973 1,873 Gain on sale of insurance company stock - 1,756 Other income 1,853 1,399 ------------- ------------- Total noninterest income 3,826 5,028 ------------- ------------- Noninterest expenses: Salaries and related expenses 5,739 5,127 Other, net 4,663 4,612 ------------- ------------- Total noninterest expenses 10,402 9,739 ------------- ------------- Net income before income taxes 5,319 4,771 Income taxes 1,990 1,792 ------------- ------------- Net income 3,329 2,979 ============= ============= Basic earnings per common share $ 0.48 $ 0.42 ============= ============= Diluted earnings per common share $ 0.47 $ 0.41 ============= ============= See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements
<TABLE> <CAPTION> TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (unaudited) (in thousands, except number of shares) Common Stock Accumulated ------------------------- Other Number Retained Comprehensive Comprehensive of Shares Amount Earnings Loss Total Income ----------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Balance, December 31, 2001 7,000,980 $49,679 $37,909 ($655) $86,933 Repurchase of Common Stock (10,000) (71) (119) (190) Common stock cash dividends (1,399) (1,399) Comprehensive income: Net income 3,329 3,329 $3,329 Other comprehensive income: Change in unrealized loss on securities, net of tax 44 44 44 -------------- Comprehensive income $3,373 ----------------------------------------------------------------------------------- Balance, March 31, 2002 6,990,980 $49,608 $39,720 ($611) $88,717 ----------------------------------------------------------------- See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements </TABLE>
<TABLE> <CAPTION> TRICO BANCSHARES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) For the three months ended March 31, 2002 2001 -------------- -------------- <S> <C> <C> Operating activities: Net income $3,329 $2,979 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 800 1,875 Depreciation and amortization 601 628 Amortization of intangible assets 228 228 Accretion and amortization of investment securities discounts and premiums, net 341 26 Deferred income taxes (28) (177) Investment security gains, net - (1,756) Gain on sale of OREO - (27) Gain on sale of loans (963) (320) Loss on sale of fixed assets 20 10 Decrease in interest receivable 42 788 Increase (decrease) in interest payable (671) 418 Decrease in other assets and liabilities 1,512 569 -------------- -------------- Net cash provided by operating activities 5,211 5,241 -------------- -------------- Investing activities: Proceeds from maturities of securities available-for-sale 28,682 32,127 Proceeds from sales of securities available-for-sale - 3,266 Purchases of securities available-for-sale (26,958) (63) Net decrease in loans 21,966 8,236 Proceeds from sale of premises and equipment 3 - Purchases of premises and equipment (303) (650) Proceeds from sale of OREO - 727 -------------- -------------- Net cash provided (used) by investing activities 23,390 43,643 -------------- -------------- Financing activities: Net (decrease) increase in deposits (7,121) 7,504 Net decrease in Fed funds purchased - (500) Payments of principal on long-term debt agreements (8) (1,007) Repurchase of common stock (190) (1,785) Cash dividends (1,399) (1,415) Exercise of common stock options - 108 -------------- -------------- Net cash (used) provided by financing activities (8,718) 2,905 -------------- -------------- Increase in cash and cash equivalents 19,883 51,789 Cash and cash equivalents at beginning of period 77,964 58,190 -------------- -------------- Cash and cash equivalents at end of period $97,847 $109,979 -------------- -------------- Supplemental information Cash paid for taxes $0 $0 Cash paid for interest expense $3,934 $6,777 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements </TABLE>
Item 1. Notes to Unaudited Condensed Consolidated Financial Statements Note A - Basis of Presentation The accompanying unaudited 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, 2002 and 2001 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, 2001. Certain amounts previously reported in the 2001 financial statements have been reclassified to conform to the 2002 presentation. These reclassifications did not affect previously reported net income or total shareholders' equity. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 141, "Business Combinations" (SFAS 141), and Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and specifies criteria that intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized after 2001, but instead be periodically evaluated for impairment. Intangible assets with definite useful lives are required to be amortized over their respective estimated useful lives to their estimated residual values, and also reviewed for impairment. Effective January 1, 2002, the Company was required to adopt the provisions of SFAS 141 and SFAS 142. Accordingly, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate accounting literature. The Company was also required to reassess the useful lives and residual values of all such intangible assets and make any necessary amortization period adjustments by March 31, 2002. No such adjustments were made. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company was required to test the intangible asset for impairment in the first quarter of 2002. The Company has no intangibles with indefinite useful life. As of the date of adoption, the Company had identifiable intangible assets consisting of core deposit premiums and minimum pension liability. Core deposit premiums are amortized using an accelerated method over a period of ten years. Intangible assets related to minimum pension liability are adjusted annually based upon actuarial estimates. The Company has no goodwill (unidentifiable intangible assets). As of March 31, 2002 and December 31, 2001, the Company had unamortized core deposit premiums of $4,325,000 and $4,553,000, respectively. Amortization of core deposit premiums was $228,000 during the first quarter of 2002 and 2001. Core deposit premiums are scheduled to amortize at a rate of $228,000 per quarter through the quarter ended December 31, 2006.
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, 2002 2001 Net income $ 3,329 $ 2,979 Net change in unrealized gains on securities available-for-sale, net of tax and reclassification adjustment 44 456 ------- ------- Comprehensive income $ 3,373 $ 3,435 ======= ======= 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, 2002 Weighted Average Per-Share Income Shares Amount Basic Earnings per Share Net income available to common shareholders $3,329 6,992,480 $0.48 Dilutive effect of common stock options outstanding 124,894 --------- Diluted Earnings per Share Net income available to common shareholders $3,329 7,117,374 $0.47 ====== ========= 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 Dilutive effect of common stock options outstanding 128,821 --------- Diluted Earnings per Share Net income available to common shareholders $2,979 7,269,680 $0.41 ====== =========
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, 2002 Net interest income $ 12,462 $ 233 $ 12,695 Noninterest income 3,211 615 3,826 Noninterest expense 9,903 499 10,402 Net income 3,113 216 3,329 Assets $985,816 $14,177 $999,933 Three Months Ended March 31, 2001 Net interest income $ 11,161 $ 196 $ 11,357 Noninterest income 4,335 693 5,028 Noninterest expense 9,270 469 9,739 Net income 2,777 202 2,979 Assets $964,533 $15,169 $979,702 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.
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 of which 110,000 shares were repurchased since December 31, 2000. On October 19, 2001, the Company announced the completion of its stock repurchase plan initially announced on March 15, 2001. Under this repurchase plan, the Company repurchased a total of 150,000 shares. Also on October 19, 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 2.2% of the Company's 6,992,080 common shares outstanding on October 19, 2001. As of December 31, 2001, the Company repurchased 108,800 shares under this new plan. During the quarter ended March 31, 2002, the Company repurchased 10,000 shares under this new plan. As of this date, 31,200 shares remain to be repurchased under this new plan. Note G - Shareholder Rights Plan On June 25, 2001, the Company announced that its Board of Directors adopted and entered into a Shareholder Rights Plan designed to protect and maximize shareholder value and to assist the Board of Directors in ensuring fair and equitable benefit to all shareholders in the event of a hostile bid to acquire the Company. The Company adopted this Rights Plan to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, the Rights Plan imposes a significant penalty upon any person or group that acquires 15% or more of the Company's outstanding common stock without approval of the Company's Board of Directors. The Rights Plan was not adopted in response to any known attempt to acquire control of the Company. Under the Rights Plan, a dividend of one Preferred Stock Purchase Right was declared for each common share held of record as of the close of business on July 10, 2001. No separate certificates evidencing the Rights will be issued unless and until they become exercisable. The Rights generally will not become exercisable unless an acquiring entity accumulates or initiates a tender offer to purchase 15% or more of the Company's common stock. In that event, each Right will entitle the holder, other than the unapproved acquirer and its affiliates, to purchase either the Company's common stock or shares in an acquiring entity at one-half of market value. The Right's initial exercise price, which is subject to adjustment, is $49.00 per Right. The Company's Board of Directors generally will be entitled to redeem the Rights at a redemption price of $.01 per Right until an acquiring entity acquires a 15% position. The Rights expire on July 10, 2011.
Note H - 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. Within the "overview" section, interest income and net interest income are generally presented on a fully tax-equivalent (FTE) 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 $3,329,000 for the three months ended March 31, 2002. Diluted earnings per share were $0.47. During the quarters ended December 31, 2001 and March 31, 2001, the Company reported diluted earnings per share of $0.47 and $0.41, respectively. Included in the results for the three months ended March 31, 2001 was a one-time pre-tax gain of $1,756,000 from the sale of insurance company stock. Offsetting this gain in the first quarter of 2001 was a provision for loan losses of $1,875,000. Excluding the one-time gain noted above, the Company would have reported diluted earnings per share of $0.47 and $0.26 in the quarters ended March 31, 2002 and 2001, respectively. First quarter 2002 net interest income on a fully tax-equivalent yield basis increased $1,356,000 (11.6%) to $13,000,000 compared to $11,644,000 recorded in the first quarter of 2001. This increase in net interest income was due in part to a $26,006,000 (3.0%) increase in the average balance of interest earning assets to $902,596,000 from $876,530,000 in the year-ago quarter, and a change in relative mix of deposits towards less time deposits and more noninterest and low-interest bearing deposits. These volume related changes contributed $848,000 to the increase in net interest income. Despite a 475 basis point decline in the federal funds target rate during 2001, by the quarter ended March 31, 2002, the Company was able to sufficiently adjust rates on interest bearing liabilities such that the net effect of interest rate changes from the year-ago quarter added $508,000 to net interest income. The net result was an increase in fully tax-equivalent net interest margin to 5.76% in the quarter ended March 31, 2002 compared to 5.31% in the year-ago quarter.
Provision for loan losses for the first quarter of 2002 was $800,000 versus $1,875,000 in the same quarter in 2001. The Company had net loan charge-offs of $521,000 in the first quarter of 2002 compared to $2,204,000 of net loan charge-offs in the same period of 2001. 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, 2002 and 2001, the ratio of nonperforming loans to total loans was 1.54% and 1.09%, respectively, and the ratio of nonperforming assets to total assets was 0.99% and 0.80%, respectively. As of March 31, 2002 and 2001, the ratio of allowance for loan losses to total loans was 2.09% and 1.82%, respectively. Noninterest income, excluding a one-time pre-tax gain of $1,756,000 from the sale of insurance company stock during the quarter ended March 31, 2001, increased $554,000 (16.9%) to $3,826,000 in the quarter ended March 31, 2002. Service charges and fees increased $100,000 (5.3%) to $1,973,000, while other income increase $454,000 (32.5%) to $1,853,000 in the quarter ended March 31, 2002 compared to the year-ago quarter. The increase in service charges and fees was mainly due to a 2.3% increase in the number of core-deposit customers, increased ATM fees due to an expanded ATM network, and small rate increases in service charges and fees. The increase in other income from the year-ago quarter was mainly due to a $643,000 (201%) increase in gain on sale of loans to $963,000, offset by a $100,000 (16%) decrease in commissions from the sale of non-deposit investment products to $538,000. Noninterest expense increased $663,000 (6.8%) to $10,402,000 in the quarter ended March 31, 2002 from $9,739,000 in the quarter ended March 31, 2001. This increase in noninterest expense was mainly due to a $612,000 (11.9%) increase in salary and benefit expense to $5,739,000. Average full-time equivalent employees were up 25 (6.4%) to 417 during the quarter ended March 31, 2002 from 392 during the year-ago quarter. Assets of the Company totaled $999,933,000 at March 31, 2002, and represented a decrease of $5,514,000 from December 31, 2001 balances and an increase of $20,231,000 from March 31, 2001 ending balances. For the first quarter of 2002, the Company had an annualized return on assets of 1.34% and a return on equity of 14.88% versus 1.24% and 13.81% in the first quarter of 2001. As of March 31, 2002 TriCo Bancshares had a Tier 1 capital ratio of 10.9% and a total risk-based capital ratio of 12.1%.
The following table provides a summary of the major elements of income and expense for the first quarter of 2002 compared with the first quarter of 2001 on a fully tax-equivalent basis. TRICO BANCSHARES CONDENSED COMPARATIVE INCOME STATEMENT (in thousands, except earnings per common share) Three months ended March 31, Percentage 2002 2001 Change increase (decrease) Interest income (FTE) $ 16,263 $ 18,839 (13.7%) Interest expense 3,263 7,195 (54.6%) ----------- ----------- Net interest income (FTE) 13,000 11,644 11.6% Provision for loan losses 800 1,875 (57.3%) ----------- ----------- Net interest income after 12,200 9,769 24.9% provision for loan losses (FTE) Noninterest income 3,826 5,028 (23.9%) Noninterest expenses 10,402 9,739 6.8% ----------- ----------- Net income before income taxes 5,624 5,058 11.2% Income taxes 1,990 1,792 11.0% Tax equivalent adjustment1 305 287 6.3% ----------- ----------- Net income $ 3,329 $ 2,979 11.7% =========== =========== Diluted earnings per common share $ 0.47 $ 0.41 14.6% 1 Interest on tax-free securities is reported on a tax equivalent basis of 1.55 and 1.52 for March 31, 2002 and 2001, respectively.
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, 2002, interest income on a fully tax-equivalent basis decreased $2,576,000 (13.7%) to $16,263,000 from $18,839,000 during the quarter ended March 31, 2001. This decrease was mainly due to decreases in interest rates. The average balance of total earning assets increased $26,066,000 (3.0%) to $902,596,000 from the year-ago quarter. The average balance of loans, investments and federal funds sold outstanding increased $9,341,000 (1.5%), $7,373,000 (3.5%), and $9,352,000 (31%), respectively, to $642,082,000, $220,792,000 and $39,722,000, respectively. These volume increases in interest earning assets accounted for additional interest income of $466,000, during the first quarter of 2002 versus the year earlier period. The average yields on loans, investment securities and federal funds sold were lower by 131, 104 and 365 basis points, respectively, and decreased interest income for the quarter by $3,042,000 over the first quarter of 2001. The overall yield on earning assets decreased 139 basis points to 7.21% during the quarter ended March 31, 2002 from 8.60% during the quarter ended March 31, 2001 For the first quarter of 2002, interest expense decreased $3,932,000 (55%) to $3,263,000 from $7,195,000 from the year-ago quarter. This decrease in interest expense was mainly due to a decrease in interest rates, increases in demand and savings deposit balances, and decreases in time deposit and other borrowing balances. Average balances of noninterest-bearing demand, interest-bearing demand and savings deposits increased $19,432,000 (13.2%), $19,221,000 (12.6%), and $35,377,000 (16.2%), respectively, to $167,052,000, $171,606,000, and $253,679,000, respectively, from the year-ago quarterly average balances. The average balances of time deposits, and other borrowings were lower by $37,787,000 (12.3%), and $10,237,000 (30.9%), respectively, to $270,692,000 and $22,951,000, respectively, during the first quarter of 2002 versus the year earlier period. For the first quarter of 2002, the change in the average balances of the components of interest-bearing liabilities decreased interest expense by $382,000 from the year earlier period. The overall average rate on earning liabilities decreased 222 basis points to 1.82% during the quarter ended March 31, 2002 from 4.04% during the year-ago quarter, and decreased interest expense by $3,550,000. The net effect of the decreases in interest income and expense for the first quarter of 2002 versus 2001 was an increase in fully tax-equivalent net interest income of $1,356,000 (11.6%) to $13,000,000 from $11,644,000. Net interest margin on a fully-tax equivalent basis was up 45 basis points to 5.76% during the quarter ended March 31, 2002 versus 5.31% during the year-ago quarter. 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, 2002 versus the same period in 2001.
<TABLE> <CAPTION> TRICO BANCSHARES ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (in thousands) Three Months Ended March 31, 2002 March 31, 2001 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 $ 642,082 $13,008 8.10% $ 632,741 $14,893 9.41% Securities 220,792 3,089 5.60% 213,419 3,542 6.64% Federal funds sold 39,722 166 1.67% 30,370 404 5.32% ------------- ------------ ----------- ------------- ------------- ----------- Total earning assets 902,596 16,263 7.21% 876,530 18,839 8.60% ------------ ------------- Cash and due from bank 43,908 40,518 Premises and equipment 16,358 16,891 Other assets,net 40,849 39,811 Less: allowance for loan losses (13,240) (12,435) ------------- ------------- Total $ 990,471 $ 961,315 ============= ============= Liabilities and shareholders' equity Interest-bearing Demand deposits $ 171,606 121 0.28% $ 152,385 522 1.37% Savings deposits 253,679 680 1.07% 218,302 1,624 2.98% Time deposits 270,692 2,143 3.17% 308,479 4,544 5.89% Long-term debt 22,951 319 5.56% 33,188 505 6.09% ------------- ------------ ----------- ------------- ------------- ----------- Total interest-bearing liabilities 718,928 3,263 1.82% 712,354 7,195 4.04% ------------ ------------- Noninterest-bearing deposits 167,052 147,620 Other liabilities 14,986 15,048 Shareholders' equity 89,505 86,293 ------------- ------------- Total liabilities and shareholders' equity $ 990,471 $ 961,315 ============= ============= Net interest rate spread5 5.39% 4.56% Net interest income/net $13,000 $11,644 ============ ============= interest margin6 5.76% 5.31% ============ ============= </TABLE> 1Average balances are computed principally on the basis of daily balances. 2Nonaccrual loans are included. 3Interest income on loans includes fees on loans of $975,000 in 2002 and $702,000 in 2001. 4Interest income is stated on a tax equivalent basis of 1.55 and 1.52 at March 31, 2002 and 2001, respectively. 5Net interest rate spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. 6Net interest margin is computed by dividing net interest income by total average earning assets.
TRICO BANCSHARES ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE (in thousand) For the three months ended March 31, 2002 over 2001 Yield/ Volume Rate4 Total ----------- ---------- ---------- Increase (decrease) in interest income: Loans 1,2 $ 220 $ (2,105) $ (1,885) Investment securities3 122 (575) (453) Federal funds sold 124 (362) (238) ----------- ---------- ---------- Total 466 (3,042) (2,576) ----------- ---------- ---------- Increase (decrease) in interest expense: Demand deposits (interest-bearing) 66 (467) (401) Savings deposits 264 (1,208) (944) Time deposits (556) (1,845) (2,401) Long-term debt (156) (30) (186) ----------- ---------- ---------- Total (382) (3,550) (3,932) ----------- ---------- ---------- Increase in net interest income $ 848 $ 508 $ 1,356 =========== ========== ========== 1Nonaccrual loans are included. 2Interest income on loans includes fee income on loans of $975,000 in 2002 and $702,000 in 2001. 3Interest income is stated on a tax equivalent basis of 1.55 and 1.52 for March 31, 2002 and 2001, respectively. 4The rate/volume variance has been included in the rate variance.
Provision for Loan Losses Provision for loan losses for the first quarter of 2002 was $800,000 versus $1,875,000 in the same quarter in 2001. The Company had net loan charge-offs of $521,000 in the first quarter of 2002 compared to $2,204,000 of net loan charge-offs in the same period of 2001. 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 the Company. As such, the Company is not subject to any future charge-offs related to this loan relationship. Noninterest Income Noninterest income, excluding a one-time pre-tax gain of $1,756,000 from the sale of an investment in an insurance company during the quarter ended March 31, 2001, increased $554,000 (16.9%) to $3,826,000 in the quarter ended March 31, 2002. Service charges and fees increased $100,000 (5.3%) to $1,973,000, while other income increase $454,000 (32.5%) to $1,853,000 in the quarter ended March 31, 2002 compared to the year-ago quarter. The increase in service charges and fees was mainly due to a 2.3% increase in the number of core-deposit customers, increased ATM fees due to an expanded ATM network, and small rate increases in service charges and fees. The increase in other income from the year-ago quarter was mainly due to a $643,000 (201%) increase in gain on sale of loans to $963,000. During the quarter ended March 31, 2002, the Company originated and sold residential real estate mortgage loans totaling $46,947,000 compared to $15,425,000 originated and sold in the quarter ended March 31, 2001. In the quarter ended March 31, 2002, commissions from the sale of non-deposit investment products decreased from the year-ago quarter total by $100,000 (16%) to $538,000. Noninterest Expense Noninterest expense increased $663,000 (6.8%) to $10,402,000 in the quarter ended March 31, 2002 from $9,739,000 in the quarter ended March 31, 2001. This increase in noninterest expense was mainly due to a $612,000 (11.9%) increase in salary and benefit expense to $5,739,000. Average full-time equivalent employees were up 25 (6.4%) to 417 during the quarter ended March 31, 2002 from 392 during the year-ago quarter. Provision for Income Taxes The tax rate for the three months ended March 31, 2002 was 37.4% compared to 37.6% in the year earlier period. Loans In the first quarter of 2002, loan balances decreased $21,524,000 (3.3%) to $637,208,000 from December 31, 2001 balances of $658,732,000. This decrease from year-end balances is not unusual, and is due mainly to the seasonal nature of the agriculture related sector of the Bank's loan portfolio. Commercial and real estate loans decreased $7,028,000 (5.4%) and $16,878,000 (4.5%) from December 31, 2001 balances, respectively; while consumer loans increased $2,383,000 (1.5%) during the quarter ended March 31, 2002. Loan balances of $637,208,000 as of March 31, 2002 represent an increase of $13,213,000 (2.1%) from loans balances of $623,995,000 as of March 31, 2001.
Securities At March 31, 2002, securities available-for-sale had a fair value of $222,594,000 and an amortized cost of $222,338,000. This portfolio contained mortgage-backed securities with an amortized cost of $134,817,000 of which $4,986,000 were CMO's. At March 31, 2002, the Company had no securities classified as held-to-maturity. Nonperforming Loans As shown in the following table, total nonperforming assets have increased 62% to $9,906,000 in the first three months of 2002. Nonperforming assets represent 0.99% of total assets. Included in the nonperforming loan balance as of March 31, 2002 are loans totaling $2,865,000 to one borrower that have reached their contractual maturity date and are well secured and in the process of collection via refinancing. These loans were classified as over ninety days past due and still accruing interest during the quarter ended March 31, 2002. The Company expects the refinancing of these loans to be completed by June 30, 2002. Excluding these loans, nonperforming loan balances at March 31, 2002 would have been $6,970,000. 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, 2002 2001 Nonaccrual loans $ 6,387 $ 5,466 Accruing loans past due 90 days or more 3,448 584 --------------- ----------- Total nonperforming loans 9,835 6,050 Other real estate owned 71 71 --------------- ----------- Total nonperforming assets $ 9,906 $ 6,121 =============== =========== Nonperforming loans to total loans 1.54% 0.92% Allowance for loan losses to nonperforming loans 136% 216% Nonperforming assets to total assets 0.99% 0.61% Allowance for loan losses to nonperforming assets 135% 213%
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, 2001.
The following table presents information concerning the allowance and provision for loan losses. March 31, March 31, 2002 2001 (in thousands) Balance, beginning of period $ 13,058 $ 11,670 Provision charged to operations 800 1,875 Loans charged off (561) (2,266) Recoveries of loans previously charged off 40 62 ------------- --------------- Balance, end of period $ 13,337 $ 11,341 ============= =============== Ending loan portfolio $ 637,208 $ 623,995 ============= =============== Allowance for loan losses as a percentage of ending loan portfolio 2.09% 1.82% ============= =============== 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.
<TABLE> <CAPTION> Equity The following table indicates the amounts of regulatory capital of the Company. 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, 2002: Total Capital to Risk Weighted Assets Consolidated $93,178 12.12% =>$61,514 =>8.0% =>$76,892 =>10.0% Tri Counties Bank $91,065 11.87% =>$61,358 =>8.0% =>$76,697 =>10.0% Tier I Capital to Risk Weighted Assets Consolidated $83,520 10.86% =>$30,757 =>4.0% =>$46,135 =>6.0% Tri Counties Bank $81,432 10.62% =>$30,678 =>4.0% =>$46,018 =>6.0% Tier I Capital to Average Assets Consolidated $83,520 8.48% =>$39,409 =>4.0% =>$49,262 =>5.0% Tri Counties Bank $81,432 8.28% =>$39,332 =>4.0% =>$49,166 =>5.0% </TABLE> Liquidity The Company's principal source of asset liquidity is fed funds sold and marketable investment securities available for sale. At March 31, 2002, fed funds sold and investment securities available for sale totaled $278 million, representing an increase of $35 million from December 31, 2001. In addition, the Company generates additional liquidity from its operating activities. The Company's profitability during the first three months of 2002 and 2001 generated cash flows from operations of $5.2 million and $5.2 million, respectively. Additional cash flows may be provided by financing activities, primarily the acceptance of deposits and borrowings from banks. The Company also realized net cash inflows from its investing activities during the 2002 period. During the quarter ended March 31, 2002, sales & maturities of investment securities net of purchases were $1.7 million while decreases in loan balances totaled $22 million. These changes in investment and loan balances contributed to net cash provided from investing activities of $23.4 million during the quarter ended March 31, 2002. The net decrease in loans during the quarter ended March 31, is not uncommon for the Company given its concentration of agriculture related loans which seasonally pay down in the late fall and winter, and increase in the spring and summer. From December 31, 2000 to March 31, 2002, the Company's agriculture related loan balances ranged from 16% to 20% of the Company's total loan balances. Financing activities were a net user of $8.7 million of cash during the three months ended March 31, 2002. Deposit balance decreases accounted for $7.1 million of the financing use of funds. During the quarter ended March 31, 2002, the Company allowed higher-rate time certificate balances to decrease by $7.6 million, while other types of deposit increased by $500,000. Dividends paid and the repurchase of common stock used $1.4 million and $190,000 of cash during the quarter ended March 31, 2002, respectively. Item 3. MARKET RISK MANAGEMENT There have not been any significant changes in the risk management profile of the Bank since December 31, 2001.
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. 22.1 Tri Counties Bank, a California banking corporation, is the only subsidiary of Registrant.
(b) Reports on Form 8-K: -------------------- During the quarter ended March 31, 2002 the Company filed the following Current Reports on Form 8-K: Description Date of Report ----------------------- ---------------- Changes to Registrant's March 27, 2002 Certifying Accountant 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 05/07/2002 /s/ Richard P. Smith -------------------- ----------------------- Richard P. Smith President and Chief Executive Officer Date 05/07/2002 /s/ Thomas J. Reddish -------------------- ----------------------- Thomas J. Reddish Vice President and CFO