UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2005 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)
530-898-0300
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 4, 2005: 15,686,049
TABLE OF CONTENTS
Page
Forward Looking Statements 1
PART I - FINANCIAL INFORMATION 2
Item 1 - Financial Statements 2
Notes to Unaudited Condensed Consolidated Financial Statements 6
Financial Summary 15
Item 2 - Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 27
Item 4 - Controls and Procedures 28
PART II - OTHER INFORMATION 29
Item 1 - Legal Proceedings 29
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 29
Item 6 - Exhibits 29
Signatures 32
Exhibits 33
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about TriCo
Bancshares (the "Company") for which it claims the protection of the safe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. When you see any of the
words "believes", "expects", "anticipates", "estimates", or similar expressions,
mean making forward-looking statements. A number of factors, some of which are
beyond the Company's ability to predict or control, could cause future results
to differ materially from those contemplated. These factors include but are not
limited to:
- a slowdown in the national and California economies;
- the prospect of additional terrorist attacks in the United States and
the uncertain effect of these events on the national and regional
economies;
- changes in the interest rate environment and interest rate policies of
the Federal Reserve Board;
- changes in the regulatory environment;
- significantly increasing competitive pressure in the banking industry;
- operational risks including data processing system failures or fraud;
- volatility of rate sensitive deposits;
- asset/liability matching risks and liquidity risks;
- changes in the level of nonperforming assets and charge-offs;
- acts of war and political instability;
- inflation, interest rate, securities market and monetary fluctuations;
- changes in the financial performance or condition of the Company's
borrowers;
- changes in the competitive environment among financial holding
companies;
- changes in accounting policies as may be adopted by regulatory
agencies, as well as the Public Company Accounting Oversight Board,
the Financial Accounting Standards Board and other accounting standard
setters; and
- changes in the Company's compensation and benefit plans.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2004, for further discussion of factors which could affect
the Company's business and cause actual results to differ materially from those
expressed in any forward-looking statement made in this report.
-1-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRICO BANCSHARES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data; unaudited)
At March 31, At December 31,
2005 2004 2004
------------------------------- -----------------
Assets:
Cash and due from banks $77,365 $55,568 $70,037
Federal funds sold 181 - -
------------------------------- -----------------
Cash and cash equivalents 77,546 55,568 70,037
Securities available for sale 293,730 307,647 286,013
Federal Home Loan Bank stock, at cost 6,781 4,830 6,781
Loans, net of allowance for loan losses
of $14,563, $13,377 and $14,525 1,167,870 980,688 1,158,442
Foreclosed assets, net of allowance for
losses of $180, $180 and $180 - 924 -
Premises and equipment, net 20,599 19,288 19,853
Cash value of life insurance 40,699 39,412 40,479
Accrued interest receivable 6,446 5,806 6,473
Goodwill 15,519 15,519 15,519
Intangible assets 5,065 5,755 5,408
Other assets 21,357 15,926 18,501
------------------------------- -----------------
Total Assets $1,655,612 $1,451,363 $1,627,506
=============================== =================
Liabilities:
Deposits:
Noninterest-bearing demand $312,739 $260,299 $311,275
Interest-bearing 1,086,010 979,640 1,037,558
------------------------------- -----------------
Total deposits 1,398,749 1,239,939 1,348,833
Federal funds purchased 20,700 16,300 46,400
Accrued interest payable 3,384 2,507 3,281
Reserve for unfunded commitments 1,632 920 1,532
Other liabilities 22,099 18,687 19,938
Other borrowings 28,176 22,877 28,152
Junior subordinated debt 41,238 20,619 41,238
------------------------------- -----------------
Total Liabilities 1,515,978 1,321,849 1,489,374
------------------------------- -----------------
Commitments and contingencies
Shareholders' Equity:
Common stock, no par value: 50,000,000
shares authorized; issued and outstanding:
15,733,517 at March 31, 2005 70,808
15,635,522 at March 31, 2004 69,568
15,723,317 at December 31, 2004 70,699
Retained earnings 71,068 57,520 67,785
Accumulated other comprehensive (loss) income, net (2,242) 2,426 (352)
------------------------------- -----------------
Total Shareholders' Equity 139,634 129,514 138,132
------------------------------- -----------------
Total Liabilities and Shareholders' Equity $1,655,612 $1,451,363 $1,627,506
===================================================
Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004.
See accompanying notes to unaudited condensed consolidated financial statements.
-2-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data; unaudited)
Three months ended March 31,
2005 2004
----------------------------
Interest and dividend income:
Loans, including fees $19,527 $16,739
Debt securities:
Taxable 2,630 2,675
Tax exempt 415 442
Dividends 60 46
Federal funds sold 4 10
----------------------------
Total interest income 22,636 19,912
----------------------------
Interest Expense:
Deposits 3,085 2,449
Federal funds purchased 172 34
Other borrowings 327 320
Junior subordinated debt 537 211
----------------------------
Total interest expense 4,121 3,014
----------------------------
Net Interest Income 18,515 16,898
----------------------------
Provision for loan losses 100 613
----------------------------
Net Interest Income After Provision for Loan Losses 18,415 16,285
----------------------------
Noninterest Income:
Service charges and fees 4,062 4,081
Gain on sale of loans 292 625
Commissions on sale of non-deposit
investment products 532 542
Increase in cash value of life insurance 220 432
Other 221 75
----------------------------
Total Noninterest Income 5,327 5,755
----------------------------
Noninterest Expense:
Salaries and related benefits 8,369 8,167
Other 6,744 6,216
----------------------------
Total Noninterest Expense 15,113 14,383
----------------------------
Income Before Income Taxes 8,629 7,657
----------------------------
Provision for income taxes 3,390 2,880
----------------------------
Net Income $5,239 $4,777
============================
Average Shares Outstanding 15,729,725 15,616,540
Diluted Average Shares Outstanding 16,366,705 16,212,845
Per Share Data
Basic Earnings $0.33 $0.31
Diluted Earnings $0.32 $0.29
Dividends Paid $0.11 $0.10
Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004.
See accompanying notes to unaudited condensed consolidated financial statements.
-3-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data; unaudited)
Accumulated
Shares of Other
Common Common Retained Comprehensive
Stock Stock Earnings (Loss) Income Total
-------------------------------------------------------------
Balance at December 31, 2003 15,668,248 $69,767 $56,379 $1,814 $127,960
Comprehensive income: ----------
Net income 4,777 4,777
Change in net unrealized gain
on Securities available for
sale, net 612 612
----------
Total comprehensive income 5,389
Stock options exercised 134,874 540 540
Tax benefit of stock options
exercised 7 7
Repurchase of common stock (167,600) (746) (2,047) (2,793)
Dividends paid ($0.10 per share) (1,589) (1,589)
-------------------------------------------------------------
Balance at March 31, 2004 15,635,522 $69,568 $57,520 $2,426 $129,514
=============================================================
Balance at December 31, 2004 15,723,317 $70,699 $67,785 ($352) $138,132
Comprehensive income: ----------
Net income 5,239 5,239
Change in net unrealized gain
on Securities available for
sale, net (1,890) (1,890)
----------
Total comprehensive income 3,349
Stock options exercised 24,000 158 158
Tax benefit of stock options
exercised 13 13
Repurchase of common stock (13,800) (62) (224) (286)
Dividends paid ($0.11 per share) (1,732) (1,732)
-------------------------------------------------------------
Balance at March 31, 2005 15,733,517 $70,808 $71,068 ($2,242) $139,634
=============================================================
Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004.
See accompanying notes to unaudited condensed consolidated financial statements.
-4-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
For the three months ended March 31,
2005 2004
------------------------------------
Operating activities:
Net income $5,239 $4,777
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of property and equipment, and amortization 917 831
Amortization of intangible assets 343 331
Provision for loan losses 100 613
Amortization of investment securities premium, net 331 443
Originations of loans for resale (15,660) (31,981)
Proceeds from sale of loans originated for resale 15,780 32,310
Gain on sale of loans (292) (625)
Amortization of mortgage servicing rights 168 190
Recovery of mortgage
servicing rights valuation allowance - (30)
(Gain) loss on sale of fixed assets (6) 78
Increase in cash value of life insurance (220) (432)
Change in:
Interest receivable 27 221
Interest payable 103 (131)
Other assets and liabilities, net 616 (89)
------------------------------------
Net cash provided by operating activities 7,446 6,506
------------------------------------
Investing activities:
Proceeds from maturities of securities available-for-sale 14,244 19,662
Purchases of securities available-for-sale (25,525) (15,249)
Purchase of Federal Home Loan Bank stock - (46)
Loan originations and principal collections, net (9,528) (11,731)
Proceeds from sale of premises and equipment 5 12
Purchases of property and equipment (1,513) (579)
------------------------------------
Net cash used by investing activities (22,317) (7,931)
------------------------------------
Financing activities:
Net increase in deposits 49,916 3,116
Net change in federal funds purchased (25,700) (23,200)
Payments of principal on long-term other borrowings (13) (10)
Net change in short-term other borrowings 37 -
Repurchase of Common Stock (286) (2,793)
Dividends paid (1,732) (1,589)
Exercise of stock options 158 540
------------------------------------
Net cash provided (used) by financing activities 22,380 (23,936)
------------------------------------
Net change in cash and cash equivalents 7,509 (25,361)
------------------------------------
Cash and cash equivalents and beginning of period 70,037 80,929
------------------------------------
Cash and cash equivalents at end of period $77,546 $55,568
====================================
Supplemental disclosure of noncash activities:
Unrealized (loss) gain on securities available for sale ($3,233) $1,031
Supplemental disclosure of cash flow activity:
Cash paid for interest expense $4,018 $3,145
Cash paid for income taxes $200 $1,745
Income tax benefit from stock option exercises $13 $7
See accompanying notes to unaudited condensed consolidated financial statements.
-5-
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: General Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations reflect interim
adjustments, all of which are of a normal recurring nature and which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods presented. The interim results for the three months ended
March 31, 2005 and 2004 are not necessarily indicative of the results expected
for the full year. These unaudited condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
and accompanying notes as well as other information included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2004.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and
its wholly-owned subsidiary, Tri Counties Bank (the "Bank"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Nature of Operations
The Company operates 32 branch offices and 15 in-store branch offices in the
California counties of Butte, Contra Costa, Del Norte, Fresno, Glenn, Kern,
Lake, Lassen, Madera, Mendocino, Merced, Nevada, Placer, Sacramento, Shasta,
Siskiyou, Stanislaus, Sutter, Tehama, Tulare, Yolo and Yuba. The Company's
operating policy since its inception has emphasized retail banking. Most of the
Company's customers are retail customers and small to medium sized businesses.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires Management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including those related to the adequacy of the allowance for loan
losses, investments, intangible assets, income taxes and contingencies. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions. The allowance for loan losses, goodwill and other intangible
assessments, income taxes, and the valuation of mortgage servicing rights, are
the only accounting estimates that materially affect the Company's consolidated
financial statements.
Significant Group Concentration of Credit Risk
The Company grants agribusiness, commercial, consumer, and residential loans to
customers located throughout the northern San Joaquin Valley, the Sacramento
Valley and northern mountain regions of California. The Company has a
diversified loan portfolio within the business segments located in this
geographical area.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash on hand, amounts due from banks and federal funds sold.
Investment Securities
The Company classifies its debt and marketable equity securities into one of
three categories: trading, available-for-sale or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling in the
near term. Held-to-maturity securities are those securities which the Company
has the ability and intent to hold until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
During the three months ended March 31, 2005, and throughout 2004, the Company
did not have any securities classified as either held-to-maturity or trading.
-6-
Available-for-sale securities are recorded at fair value. Unrealized gains and
losses, net of the related tax effect, on available-for-sale securities are
reported as a separate component of other comprehensive income (loss) in
shareholders' equity until realized.
Premiums and discounts are amortized or accreted over the life of the related
investment security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized gains
and losses for securities are included in earnings and are derived using the
specific identification method for determining the cost of securities sold.
Unrealized losses due to fluctuations in fair value of securities held to
maturity or available for sale are recognized through earnings when it is
determined that an other than temporary decline in value has occurred.
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at
the lower of aggregate cost or fair value, as determined by aggregate
outstanding commitments from investors of current investor yield requirements.
Net unrealized losses are recognized through a valuation allowance by charges to
income. At March 31, 2005 and 2004, and December 31, 2004 the Company had no
loans held for sale.
Mortgage loans held for sale are generally sold with the mortgage servicing
rights retained by the Company. The carrying value of mortgage loans sold is
reduced by the cost allocated to the associated mortgage servicing rights. Gains
or losses on sales of mortgage loans are recognized based on the difference
between the selling price and the carrying value of the related mortgage loans
sold.
Loans
Loans are reported at the principal amount outstanding, net of unearned income
and the allowance for loan losses. Loan origination and commitment fees and
certain direct loan origination costs are deferred, and the net amount is
amortized as an adjustment of the related loan's yield over the estimated life
of the loan. Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is generally
discontinued either when reasonable doubt exists as to the full, timely
collection of interest or principal or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal. When loans are 90
days past due, but in Management's judgment are well secured and in the process
of collection, they may be classified as accrual. When a loan is placed on
nonaccrual status, all interest previously accrued but not collected is
reversed. Income on such loans is then recognized only to the extent that cash
is received and where the future collection of principal is probable. Interest
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of Management, the
loans are estimated to be fully collectible as to both principal and interest.
All impaired loans are classified as nonaccrual loans.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans and deposit related overdrafts are charged against the
allowance for loan losses when Management believes that the collectibility of
the principal is unlikely or, with respect to consumer installment loans,
according to an established delinquency schedule. The allowance is an amount
that Management believes will be adequate to absorb probable losses inherent in
existing loans and leases, based on evaluations of the collectibility,
impairment and prior loss experience of loans and leases. The evaluations take
into consideration such factors as changes in the nature and size of the
portfolio, overall portfolio quality, loan concentrations, specific problem
loans, and current economic conditions that may affect the borrower's ability to
pay. The Company defines a loan as impaired when it is probable the Company will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's original effective interest
rate. As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance.
-7-
Reserve for Unfunded Commitments
The reserve for unfunded commitments is established through a provision for
losses - unfunded commitments charged to noninterest expense. The reserve for
unfunded commitments is an amount that Management believes will be adequate to
absorb probable losses inherent in existing commitments, including unused
portions of revolving lines of credits and other loans, standby letters of
credits, and unused deposit account overdraft privilege. The reserve for
unfunded commitments is based on evaluations of the collectibility, and prior
loss experience of unfunded commitments. The evaluations take into consideration
such factors as changes in the nature and size of the loan portfolio, overall
loan portfolio quality, loan concentrations, specific problem loans and related
unfunded commitments, and current economic conditions that may affect the
borrower's or depositor's ability to pay.
Servicing
Servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Generally, purchased
servicing rights are capitalized at the cost to acquire the rights. For sales of
mortgage loans, a portion of the cost of originating the loan is allocated to
the servicing right based on relative fair value. Fair value is based on market
prices for comparable mortgage servicing contracts, when available, or
alternatively, is based on a valuation model that calculates the present value
of estimated future net servicing income. The valuation model incorporates
assumptions that market participants would use in estimating future net
servicing income, such as the cost to service, the discount rate, the custodial
earnings rate, an inflation rate, ancillary income, prepayment speeds and
default rates and losses. Capitalized servicing rights are reported in other
assets and are amortized into non-interest income in proportion to, and over the
period of, the estimated future servicing income of the underlying financial
assets.
Servicing assets are evaluated for impairment based upon the fair value of the
rights as compared to amortized cost. Impairment is determined by stratifying
rights into tranches based on predominant risk characteristics, such as interest
rate, loan type and investor type. Impairment is recognized through a valuation
allowance for an individual tranche, to the extent that fair value is less than
the capitalized amount for the tranche. If the Company later determines that all
or a portion of the impairment no longer exists for a particular tranche, a
reduction of the allowance may be recorded as an increase to income.
Servicing fee income is recorded for fees earned for servicing loans. The fees
are based on a contractual percentage of the outstanding principal; or a fixed
amount per loan and are recorded as income when earned. The amortization of
mortgage servicing rights is netted against loan servicing fee income.
The following table summarizes the Company's mortgage servicing rights recorded
in other assets as of March 31, 2005 and December 31, 2004.
December 31, March 31,
(Dollars in thousands) 2004 Additions Reductions 2005
-----------------------------------------------
Mortgage Servicing Rights $3,476 $172 ($168) $3,480
Valuation allowance - - - -
-----------------------------------------------
Mortgage servicing rights, net
of valuation allowance $3,476 $172 ($168) $3,480
===============================================
At March 31, 2005 and December 31, 2004, the Company serviced real estate
mortgage loans for others of $365 million and $368 million, respectively. At
March 31, 2005 and December 31, 2004, the fair value of the Company's mortgage
servicing rights assets was $4,161,000 and $3,568,000, respectively.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to
extend credit, including commitments under credit card arrangements, commercial
letters of credit, standby letters of credit, and deposit account overdraft
privilege. Such financial instruments are recorded when they are funded.
-8-
Premises and Equipment
Land is carried at cost. Buildings and equipment, including those acquired under
capital lease, are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization expenses are computed using the
straight-line method over the estimated useful lives of the related assets or
lease terms. Asset lives range from 3-10 years for furniture and equipment and
15-40 years for land improvements and buildings.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and
are initially recorded at fair value at the date of foreclosure, establishing a
new cost basis. Subsequent to foreclosure, management periodically performs
valuations and the assets are carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in other noninterest expense.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over fair value of assets of businesses
acquired. The Company adopted the provisions of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standard No. 142, Goodwill and
Other Intangible Assets (SFAS 142), as of January 1, 2002. Pursuant to SFAS 142,
goodwill and intangible assets acquired in a purchase business combination and
determined to have an indefinite useful life are not amortized, but instead
tested for impairment at least annually in accordance with the provisions of
SFAS 142. SFAS 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with FASB
Statement of Financial Accounting Standard No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets (SFAS 144).
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 following table summarizes the Company's core deposit intangibles as of
March 31, 2005 and December 31, 2004.
December 31, March 31,
(Dollar in Thousands) 2004 Additions Reductions 2005
----------------------------------------------
Core deposit intangibles $13,643 - - $13,643
Accumulated amortization (9,201) - ($343) (9,544)
----------------------------------------------
Core deposit intangibles, net $4,442 - ($343) $4,099
==============================================
Core deposit intangibles are amortized over their expected useful lives. Such
lives are periodically reassessed to determine if any amortization period
adjustments are indicated. The following table summarizes the Company's
estimated core deposit intangible amortization for each of the five succeeding
years:
Estimated Core Deposit
Intangible Amortization
Years Ended (Dollar in thousands)
----------- -----------------------
2005 $1,381
2006 $1,395
2007 $490
2008 $523
2009 $328
Thereafter $325
-9-
The following table summarizes the Company's minimum pension liability
intangible as of March 31, 2005 and December 31, 2004.
December 31, March 31,
(Dollar in Thousands) 2004 Additions Reductions 2005
----------------------------------------------
Minimum pension liability
intangible $966 - - $966
==============================================
Intangible assets related to minimum pension liability are adjusted annually
based upon actuarial estimates.
The following table summarizes the Company's goodwill intangible as of March 31,
2005 and December 31, 2004.
December 31, March 31,
(Dollar in Thousands) 2004 Additions Reductions 2005
----------------------------------------------
Goodwill 15,519 - - 15,519
==============================================
Impairment of Long-Lived Assets and Goodwill
Long-lived assets, such as property, plant, and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of would be separately presented
in the balance sheet and reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated. The assets and
liabilities of a disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the balance sheet.
On December 31 of each year, goodwill is tested for impairment, and is tested
for impairment more frequently if events and circumstances indicate that the
asset might be impaired. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value. This determination is made at
the reporting unit level and consists of two steps. First, the Company
determines the fair value of a reporting unit and compares it to its carrying
amount. Second, if the carrying amount of a reporting unit exceeds its fair
value, an impairment loss is recognized for any excess of the carrying amount of
the reporting unit's goodwill over the implied fair value of that goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation. The residual
fair value after this allocation is the implied fair value of the reporting unit
goodwill.
Income Taxes
The Company's accounting for income taxes is based on an asset and liability
approach. The Company recognizes the amount of taxes payable or refundable for
the current year, and deferred tax assets and liabilities for the future tax
consequences that have been recognized in its financial statements or tax
returns. The measurement of tax assets and liabilities is based on the
provisions of enacted tax laws.
-10-
Stock-Based Compensation
The Company uses the intrinsic value method to account for its stock option
plans (in accordance with the provisions of Accounting Principles Board Opinion
No. 25). Under this method, compensation expense is recognized for awards of
options to purchase shares of common stock to employees under compensatory plans
only if the fair market value of the stock at the option grant date (or other
measurement date, if later) is greater than the amount the employee must pay to
acquire the stock. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123) permits companies to continue
using the intrinsic value method or to adopt a fair value based method to
account for stock option plans. The fair value based method results in
recognizing as expense over the vesting period the fair value of all stock-based
awards on the date of grant. The Company has elected to continue to use the
intrinsic value method.
Had compensation cost for the Company's option plans been determined in
accordance with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
Three months ended March 31,
(in thousands, except per share amounts) 2005 2004
---- ----
Net income As reported $5,239 $4,777
Pro forma $5,153 $4,695
Basic earnings per share As reported $0.33 $0.31
Pro forma $0.33 $0.30
Diluted earnings per share As reported $0.32 $0.29
Pro forma $0.31 $0.29
Stock-based employee compensation
cost, net of related tax effects,
included in net income As reported $0 $0
Pro forma $86 $82
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing.
Earnings Per Share
Basic earnings per share represents income available to common shareholders
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustments to income that would result from assumed issuance.
Potential common shares that may be issued by the Company relate solely from
outstanding stock options, and are determined using the treasury stock method.
Earnings per share have been computed based on the following:
Three Months Ended March 31,
2005 2004
----------------------------
(in thousands)
Net income $5,239 $4,777
Average number of common shares outstanding 15,730 15,617
Effect of dilutive stock options 637 596
----------------------------
Average number of common shares outstanding
used to calculate diluted earnings per share 16,367 16,213
============================
-11-
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
The components of other comprehensive income (loss) and related tax effects are
as follows:
Three Months Ended March 31,
----------------------------
2005 2004
----------------------------
(in thousands)
Unrealized holding (losses) gains
on available-for-sale securities ($3,233) $1,031
Tax effect 1,343 (418)
----------------------------
Unrealized holding (losses) gains on
available-for-sale securities,
net of tax (1,890) 612
============================
The components of accumulated other comprehensive loss, included in
shareholders' equity, are as follows:
March 31, December 31,
2005 2004
----------------------------
(in thousands)
Net unrealized gain (losses) on
available-for-sale securities ($2,226) $1,007
Tax effect 919 (424)
----------------------------
Unrealized holding gains (losses) on
available-for-sale securities,
net of tax (1,307) 583
----------------------------
Minimum pension liability (1,559) (1,559)
Tax effect 624 624
----------------------------
Minimum pension liability, net of tax (935) (935)
----------------------------
Accumulated other comprehensive loss ($2,242) ($352)
============================
Retirement Plans
The Company has supplemental retirement plans for current and former directors
and supplemental retirement plan covering current and former key executives.
These plans are non-qualified defined benefit plans and are unsecured and
unfunded. The Company has purchased insurance on the lives of the participants
and intends to use the cash values of these policies to pay the retirement
obligations.
The following table sets forth the net periodic benefit cost recognized for the
plans:
Three Months Ended March 31,
2005 2004
(in thousands)
----------------------------
Net pension cost included the following components:
Service cost-benefits earned during the period $104 $35
Interest cost on projected benefit obligation 133 103
Amortization of net obligation at transition 56 8
Amortization of prior service cost 24 20
Recognized net actuarial loss 1 37
----------------------------
Net periodic pension cost $318 $203
============================
During the three months ended March 31, 2005 and 2004, the Company contributed
and paid out as benefits $152,000 and $140,000, respectively, to participants
under the plans. For the year ending December 31, 2005, the Company expects to
contribute and pay out as benefits $535,000 to participants under the plans.
-12-
Recent Accounting Pronouncements
In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities (FIN 46R), which addresses
how a business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (VIEs), which was issued in January
2003. The Company was required to apply FIN 46R to variable interests in VIEs
created after December 31, 2003. For variable interests in VIEs created before
January 1, 2004, the FIN 46R will be applied beginning on January 1, 2005. For
any VIEs that must be consolidated under FIN 46R that were created before
January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE
initially would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at the date FIN
46R first applies may be used to measure the assets, liabilities and
noncontrolling interest of the VIE. The Company currently does not have any VIEs
that are within the scope of this Statement.
In December 2003, FASB issued FASB Statement of Financial Accounting Standard
No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits
(SFAS 132 revised), which prescribes employers' disclosures about pension plans
and other postretirement benefit plans; it does not change the measurement or
recognition of those plans. SFAS 132 retains and revises the disclosure
requirements contained in the original SFAS 132. It also requires additional
disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other postretirement benefit plans.
The Statement generally is effective for fiscal years ending after December 15,
2003. Disclosures required by this standard are included in the notes to these
consolidated financial statements.
In December 2004, the FASB issued FASB Statement of Financial Accounting
Standard No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which replaces
SFAS No. 123, Accounting for Stock-Based Compensation, (SFAS 123) and supercedes
APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair values
beginning with the first interim reporting period of the Company's fiscal year
beginning after June 15, 2005, with early adoption encouraged. The pro forma
disclosures previously permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. The Company is required to adopt SFAS 123R
on January 1, 2006. Under SFAS 123R, the Company must determine the appropriate
fair value model to be used for valuing share-based payments, the amortization
method for compensation cost and the transition method to be used at date of
adoption. The transition methods include prospective and retroactive adoption
options. Under the retroactive option, prior periods may be restated either as
of the beginning of the year of adoption or for all periods presented. The
prospective method requires that compensation expense be recorded for all
unvested stock options at the beginning of the first quarter of adoption of SFAS
123R, while the retroactive methods would record compensation expense for all
unvested stock options and restricted stock beginning with the first period
restated. The Company is evaluating the requirements of SFAS 123R and expects
that the adoption of SFAS 123R will not have a material impact on the Company's
consolidated results of operations and earnings per share. The Company has not
yet determined the method of adoption or the effect of adopting SFAS 123R, and
it has not determined whether the adoption will result in amounts that are
similar to the current pro forma disclosures under SFAS 123.
-13-
In March 2004, the United States Securities and Exchange Commission (SEC) issued
SEC Staff Accounting Bulletin No. 105, Application of Accounting Principles to
Loan Commitments (SAB 105), which summarizes the views of the staff of the SEC
regarding the application of generally accepted accounting principles to loan
commitments accounted for as derivative instruments. SAB 105 provides that the
fair value of recorded loan commitments that are accounted for as derivatives
under SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
should not incorporate the expected future cash flows related to the associated
servicing of the future loan. In addition, SAB 105 requires registrants to
disclose their accounting policy for loan commitments. The provisions of SAB 105
must be applied to loan commitments accounted for as derivatives that are
entered into after March 31, 2004. The adoption of this accounting standard did
not have a material impact on the Company's consolidated financial statements.
In December 2003, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position No. 03-3, Accounting for Certain Loans or Debt
Securities Acquired in a Transfer (SOP 03-3), which addresses accounting for
differences between the contractual cash flows of certain loans and debt
securities and the cash flows expected to be collected when loans or debt
securities are acquired in a transfer and those cash flow differences are
attributable, at least in part, to credit quality. As such, SOP 03-3 applies to
loans and debt securities acquired individually, in pools or as part of a
business combination and does not apply to originated loans. The application of
SOP 03-3 limits the interest income, including accretion of purchase price
discounts, that may be recognized for certain loans and debt securities.
Additionally, SOP 03-3 does not allow the excess of contractual cash flows over
cash flows expected to be collected to be recognized as an adjustment of yield,
loss accrual or valuation allowance, such as the allowance for possible loan
losses. SOP 03-3 requires that increases in expected cash flows subsequent to
the initial investment be recognized prospectively through adjustment of the
yield on the loan or debt security over its remaining life. Decreases in
expected cash flows should be recognized as impairment. In the case of loans
acquired in a business combination where the loans show signs of credit
deterioration, SOP 03-3 represents a significant change from current purchase
accounting practice whereby the acquiree's allowance for loan losses is
typically added to the acquirer's allowance for loan losses. SOP 03-3 is
effective for loans and debt securities acquired by the Company beginning
January 1, 2005. The adoption of this new standard is not expected to have a
material impact on the Company's consolidated financial statements.
Reclassifications
Certain amounts previously reported in the 2004 financial statements have been
reclassified to conform to the 2005 presentation. Additionally, in the first
quarter of 2005, the Company reclassified the reserve for unfunded commitments
from the allowance for loan losses to other liabilities, and reclassified the
provision for unfunded commitments from the provision for loan losses to other
noninterest expense. These reclassifications did not affect previously reported
net income or total shareholders' equity. Share and per share data for all
periods have been adjusted to reflect the 2-for-1 stock split effected as a
stock dividend which was paid on April 30, 2004 to shareholders of record on
April 9, 2004.
-14-
TRICO BANCSHARES
Financial Summary
(in thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
--------------------------------
2005 2004
--------------------------------
Net Interest Income (FTE) $18,756 $17,147
Provision for loan losses (100) (613)
Noninterest income 5,327 5,755
Noninterest expense (15,113) (14,383)
Provision for income taxes (FTE) (3,631) (3,129)
--------------------------------
Net income $5,239 $4,777
================================
Earnings per share2:
Basic $0.33 $0.31
Diluted $0.32 $0.29
Per share2:
Dividends paid $0.11 $0.10
Book value at period end 8.88 8.28
Tangible book value at period end 7.57 6.92
Average common shares outstanding2 15,730 15,617
Average diluted common shares outstanding2 16,367 16,213
Shares outstanding at period end 15,734 15,636
At period end:
Loans, net $1,167,870 $980,688
Total assets 1,655,612 1,451,363
Total deposits 1,398,749 1,239,939
Other borrowings 28,176 22,877
Junior subordinated debt 41,238 20,619
Shareholders' equity 139,634 129,514
Financial Ratios:
During the period (annualized):
Return on assets 1.29% 1.33%
Return on equity 14.83% 14.80%
Net interest margin1 5.12% 5.35%
Net loan charge-offs to average loans 0.01% 0.05%
Efficiency ratio1 62.75% 62.80%
Average equity to average assets 8.67% 8.96%
At period end:
Equity to assets 8.43% 8.92%
Total capital to risk-adjusted assets 11.91% 11.49%
Allowance for losses to loans3 1.37% 1.44%
1 Fully taxable equivalent (FTE)
2 Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004.
3 Allowance for losses includes allowance for loan losses and reserve for
unfunded commitments.
-15-
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 Management's Discussion and Analysis of
Financial Condition and Results of Operations, interest income and net interest
income are generally presented on a fully tax-equivalent (FTE) basis.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to the adequacy of the allowance for loan
losses, intangible assets, and contingencies. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. (See caption "Allowance for
Loan Losses" for a more detailed discussion).
Results of Operations
The following discussion and analysis is designed to provide a better
understanding of the significant changes and trends related to the Company and
the Bank's financial condition, operating results, asset and liability
management, liquidity and capital resources and should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes thereto
located at Item 1 of this report.
The Company had quarterly earnings of $5,239,000, or $0.32 per diluted share,
for the three months ended March 31, 2005. These results represent a 10.3%
increase from the $0.29 earnings per diluted share reported for the three months
ended March 31, 2004 on earnings of $4,777,000. The improvement in results from
the year-ago quarter was due to a $1,609,000 (9.4%) increase in fully
tax-equivalent net interest income to $18,756,000, and a $513,000 (83.7%)
decrease in provision for loan losses to $100,000. These contributing factors
were partially offset by a $428,000 (7.4%) decrease in noninterest income to
$5,327,000 and a $730,000 (5.1%) increase in noninterest expense to $15,113,000
for the quarter ended March 31, 2005.
Following is a summary of the components of fully taxable equivalent ("FTE") net
income for the periods indicated (dollars in thousands):
Three months ended
March 31,
-------------------------
2005 2004
-------------------------
Net Interest Income (FTE) $18,756 $17,147
Provision for loan losses (100) (613)
Noninterest income 5,327 5,755
Noninterest expense (15,113) (14,383)
Provision for income taxes (FTE) (3,631) (3,129)
-------------------------
Net income $5,239 $4,777
=========================
-16-
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended
March 31,
--------------------------------
2005 2004
--------------------------------
Interest income $22,636 $19,912
Interest expense (4,121) (3,014)
FTE adjustment 241 249
--------------------------------
Net interest income (FTE) $18,756 $17,147
================================
Average earning assets $1,464,028 $1,281,032
Net interest margin (FTE) 5.12% 5.35%
The Company's primary source of revenue is net interest income, or the
difference between interest income on earning assets and interest expense in
interest-bearing liabilities. Net interest income (FTE) during the first quarter
of 2005 increased $1,609,000 (9.4%) from the same period in 2004 to $18,756,000.
The increase in net interest income (FTE) was due to a $182,996,000 (14.3%)
increase in average balances of earning assets to $1,464,028,000 offset by a 23
basis point decrease in net interest margin (FTE) to 5.12%.
Interest and Fee Income
Interest and fee income (FTE) for the first quarter of 2005 increased $2,716,000
(13.5%) from the first quarter of 2004. The increase was the net effect of a
$182,996,000 (14.3%) increase in average interest-earning assets to
$1,464,028,000 that was partially offset by a 5 basis point decrease in the
yield on those average earning assets to 6.25%. The growth in interest-earning
assets was the result of a $196,246,000 (20.2%) increase in average loan
balances to $1,167,039,000 that was offset by a $9,449,000 (3.1%) decrease in
average balance of investments to $296,381,000 and a $3,801,000 (86.2%) decrease
in average balance of Federal funds sold to $608,000.
The average yield on the Company's earning assets decreased 5 basis points to
6.25% for the quarter ended March 31, 2005 from 6.30% for the quarter ended
March 31, 2004. The average yield on the Company's loans was 6.69% in the
quarter ended March 31, 2005 compared to 6.90% in the year-ago quarter. This 21
basis point decrease in average yield on loans is the result of continued low
longer-term loan rates despite a 175 basis point increase in the prime lending
rate between June 2004 and March 2005. As a result, longer-term loans continued
to refinance into lower rate loans between March 2004 and March 2005. In
addition, most of the Company's prime-based adjustable rate loans had rate
floors in them that mitigated approximately the first 100 basis point of the 175
basis point increase in the prime rate. Furthermore, even with a prime rate of
5.75% at March 31, 2005, any new prime-based loan added to the Company's loan
balances with a rate less than prime plus one percent (or 6.75%) will currently
further reduce the Company's average yield on loans. Conversely, if the prime
rate continues to increase, the yield on the Company's existing and new
prime-based loans will increase accordingly. The average yield on the Company's
combined taxable and nontaxable investment balances increased 6 basis points to
4.52% in the quarter ended March 31, 2005 compared to 4.46% in the year-ago
quarter. The increase in the average yield on investment balances was primarily
due to a decrease in the volume of mortgage refinancing in the quarter ended
March 31, 2005 compared to the year-ago quarter. Increased volume of mortgage
refinancing has the effect of decreasing the yields of the Companies
mortgage-backed securities, which account for approximately seventy-five percent
of the Company's investment balances. As the volume of mortgage refinancing
began to decrease in the fall of 2003, the yield on the Company's
mortgage-backed securities increased. The average yield on Federal funds sold
decreased 172 basis points to 2.63% in the quarter ended March 31, 2005 from the
year-ago quarter due to a 175 basis points increase in the Federal funds target
rate that occurred between June 2004 and March 31, 2005.
-17-
Interest Expense
Interest expense increased $1,107,000 (36.7%) in the first quarter of 2005
compared to the year-ago quarter. The increase was due to a 25 basis point
increase in the average rate paid on interest-bearing liabilities from 1.18% in
the first quarter of 2004 to 1.43% in the first quarter of 2005.
The average balance of interest-bearing liabilities increased $131,828,000
(13.0%) in the first quarter of 2005 compared to the year-ago quarter. The
average balance of all categories of interest-bearing liabilities increased from
the year-ago quarter. The average balance of interest-bearing demand deposits,
savings deposits, and time deposits were up $16,774,000 (7.5%), $14,721,000
(3.2%), and $59,205,000 (21.8%), respectively, from the year-ago quarter. In
addition, the average balance of noninterest-bearing deposits increased
$40,660,000 (15.0%) from the year-ago quarter. During the quarter ended March
31, 2005, the average balance of Federal funds purchased, other borrowings and
junior subordinated debt were up $15,277,000 (114.9%), $5,232,000 (22.9%), and
$20,619,000 (100.0%), respectively, from the year-ago quarter. The average rates
paid for all categories of interest-bearing liabilities except for savings
deposits and other borrowings were up due to increases in market rates. The
average rate paid on interest-bearing demand deposits, time deposits, federal
funds purchased, and junior subordinated debt increased 2, 41, 139, and 112
basis points respectively, to 0.20%, 2.54%, 2.41%, and 5.21%, respectively. The
average rate paid on other borrowings decreased 94 basis points to 4.65% due to
the addition of short-term other borrowings at significantly lower rates than
what previously existed in that category.
Net Interest Margin (FTE)
The following table summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended
March 31,
----------------------
2005 2004
----------------------
Yield on earning assets 6.25% 6.30%
Rate paid on interest-bearing
liabilities 1.42% 1.18%
----------------------
Net interest spread 4.82% 5.12%
Impact of all other net
noninterest-bearing funds 0.30% 0.23%
----------------------
Net interest margin 5.12% 5.35%
======================
Net interest margin in the first quarter of 2005 decreased 23 basis points
compared to the first quarter of 2004. This decrease in net interest margin was
mainly due to higher rates paid on liabilities, a change in the mix of
interest-bearing liabilities towards the higher paying categories of time
certificates, Federal funds, and junior subordinated debt, and lower yield on
loans. During the quarter ended March 31, 2005, the ratio of loans to total
interest-earning assets was 80% compared to 76% in the year-ago quarter. The
increase in interest income due to the increase in loan volume more than offset
the effect of the 21 basis point decrease in average loan yield. As a result,
the average yield on total earning assets only decreased 5 basis points. The
average rate paid on interest-bearing liabilities increased 25 basis points.
-18-
Summary of Average Balances, Yields/Rates and Interest Differential
The following table presents, for the periods indicated, information regarding
the Company's consolidated average assets, liabilities and shareholders' equity,
the amounts of interest income from average earning assets and resulting yields,
and the amount of interest expense paid on interest-bearing liabilities. Average
loan balances include nonperforming loans. Interest income includes proceeds
from loans on nonaccrual loans only to the extent cash payments have been
received and applied to interest income. Yields on securities and certain loans
have been adjusted upward to reflect the effect of income thereon exempt from
federal income taxation at the current statutory tax rate (dollars in
thousands).
For the three months ended
----------------------------------------------------------------
March 31, 2005 March 31, 2004
----------------------------- --------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- --------------------------------
Assets:
Loans $1,167,039 $19,527 6.69% $970,793 $16,739 6.90%
Investment securities - taxable 264,015 2,690 4.08% 270,358 2,721 4.03%
Investment securities - nontaxable 32,366 656 8.11% 35,472 691 7.79%
Federal funds sold 608 4 2.63% 4,409 10 0.91%
----------------------------- --------------------------------
Total earning assets 1,464,028 22,877 6.25% 1,281,032 20,161 6.30%
Other assets 164,799 159,921
---------- ----------
Total assets $1,628,827 $1,440,953
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $239,282 121 0.20% $222,508 100 0.18%
Savings deposits 482,461 870 0.72% 467,740 907 0.78%
Time deposits 330,343 2,094 2.54% 271,138 1,442 2.13%
Federal funds purchased 28,569 172 2.41% 13,292 34 1.02%
Other borrowings 28,112 327 4.65% 22,880 320 5.59%
Junior subordinated debt 41,238 537 5.21% 20,619 211 4.09%
----------------------------- --------------------------------
Total interest-bearing liabilities 1,150,005 4,121 1.43% 1,018,177 3,014 1.18%
Noninterest-bearing deposits 310,978 270,318
Other liabilities 26,580 23,325
Shareholders' equity 141,264 129,133
---------- ----------
Total liabilities and shareholders'
equity $1,628,827 $1,440,953
========== ==========
Net interest spread(1) 4.82% 5.12%
Net interest income and interest margin(2) $18,756 5.12% $17,147 5.35%
================= =================
(1) Net interest spread represents the average yield earned on assets minus the
average rate paid on interest-earning assets minus the average rate paid on
interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of earning
assets.
-19-
Summary of Changes in Interest Income and Expense due to Changes in Average
Asset and Liability Balances and Yields Earned and Rates Paid
The following table sets forth a summary of the changes in interest income and
interest expense from changes in average asset and liability balances (volume)
and changes in average interest rates for the periods indicated. Changes not
solely attributable to volume or rates have been allocated in proportion to the
respective volume and rate components (dollars in thousands).
Three months ended March 31, 2005
compared with three months
ended March 31, 2004
---------------------------------
Volume Rate Total
---------------------------------
Increase (decrease) in interest income:
Loans $3,385 ($597) $2,788
Investment securities (105) 39 (66)
Federal funds sold (9) 3 (6)
---------------------------------
Total earning assets 3,271 (555) 2,716
---------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 8 13 21
Savings deposits 29 (66) (37)
Time deposits 315 337 652
Federal funds purchased 39 99 138
Other borrowings 73 (66) 7
Junior subordinated debt 211 115 326
---------------------------------
Total interest-bearing liabilities 675 432 1,107
---------------------------------
Increase (decrease) in Net Interest Income $2,596 ($987) $1,609
=================================
Provision for Loan Losses
The Company provided $100,000 for loan losses in the first quarter of 2005
versus $613,000 in the first quarter of 2004. During the first quarter of 2005,
the Company recorded $62,000 of net loan charge-offs versus $126,000 of net loan
charge-offs in the year earlier quarter.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended March 31,
----------------------------
2005 2004
----------------------------
Service charges on deposit accounts $3,034 $3,197
ATM fees and interchange 712 581
Other service fees 484 463
Amortization of mortgage servicing rights (168) (190)
Recovery of mortgage servicing rights
valuation allowance - 30
Gain on sale of loans 292 625
Commissions on sale of
nondeposit investment products 532 542
Increase in cash value of life insurance 220 432
Other noninterest income 221 75
----------------------------
Total noninterest income $5,327 $5,755
============================
Noninterest income for the first quarter of 2005 decreased $428,000 (7.4%) from
the year-ago quarter. The decrease in noninterest income from the year-ago
quarter was mainly due to a $333,000 (53.3%) decreases in gain on sale of loans
to $292,000, and a $212,000 (49.1%) reduction in the increase in cash value of
life insurance to $220,000. The decrease in gain on sale of loans was due to a
continued slowdown in mortgage refinancing. The reduction in the increase in
cash value of life insurance was due to lower earning rates on the related
insurance policies. Service charges and fees, including those on deposit
accounts, ATM usage, and other, on a combined basis were essentially flat at
$4,230,000 in the quarter ended March 31, 2005 compared to $4,241,000 in the
year-ago quarter. This flatness was mainly due to a decrease in rejected check
charges.
-20-
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended March 31,
----------------------------
2005 2004
----------------------------
Salaries & benefits $8,369 $8,167
Equipment 980 943
Occupancy 993 937
Professional fees 407 509
Telecommunications 384 375
Data processing and software 374 383
ATM network charges 371 295
Intangible amortization 343 331
Advertising and marketing 342 191
Courier service 278 262
Postage 237 232
Assessments 76 72
Operational losses 26 40
Other 1,933 1,646
----------------------------
Total $15,113 $14,383
============================
Average full time equivalent staff 565 532
Noninterest expense to revenue (FTE) 62.75% 62.80%
Noninterest expense for the first quarter of 2005 increased $730,000 (5.1%)
compared to the first quarter of 2004. Salaries and benefits expense increased
$202,000 (2.5%) to $8,369,000. The increase in salaries and benefits expense was
mainly due to annual salary increases, and new employees at the Company's
recently opened branches in Turlock (April 2004), Woodland (November 2004), and
Lincoln (February 2005). Other categories of noninterest expense such as
equipment, occupancy, ATM network charges, and other also increased, in part,
due to these newly opened branches. Advertising and marketing expense increased
$151,000 (79%) to $342,000.
Provision for Income Tax
The effective tax rate for the three months ended March 31, 2005 was 39.3% and
reflects an increase from 37.6% for the three months ended March 31, 2004. The
provision for income taxes for all periods presented is primarily attributable
to the respective level of earnings and the incidence of allowable deductions,
particularly from increase in cash value of life insurance, tax-exempt loans and
state and municipal securities.
-21-
Classified Assets
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk. Asset reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category, which includes all
nonperforming assets and potential problem loans, and receive an elevated level
of attention to ensure collection.
The following is a summary of classified assets on the dates indicated (dollars
in thousands):
At March 31, 2005 At December 31, 2004
------------------------- ------------------------
Gross Guaranteed Net Gross Guaranteed Net
-----------------------------------------------------
Classified loans $15,859 $8,263 $7,596 $22,337 $9,436 $12,901
Other classified assets - - - - - -
-----------------------------------------------------
Total classified assets $15,859 $8,263 $7,596 $22,337 $9,436 $12,901
=====================================================
Allowance for losses/classified loans 213.2% 124.5%
Allowance for loan losses/classified loans 191.7% 112.6%
Classified assets, net of guarantees of the U.S. Government, including its
agencies and its government-sponsored agencies decreased $5,305,000 (41.1%) to
$7,596,000 at March 31, 2005 from $12,901,000 at December 31, 2004.
Nonperforming Loans
Loans are reviewed on an individual basis for reclassification to nonaccrual
status when any one of the following occurs: the loan becomes 90 days past due
as to interest or principal, the full and timely collection of additional
interest or principal becomes uncertain, the loan is classified as doubtful by
internal credit review or bank regulatory agencies, a portion of the principal
balance has been charged off, or the Company takes possession of the collateral.
Loans that are placed on nonaccrual even though the borrowers continue to repay
the loans as scheduled are classified as "performing nonaccrual" and are
included in total nonperforming loans. The reclassification of loans as
nonaccrual does not necessarily reflect Management's judgment as to whether they
are collectible.
Interest income is not accrued on loans where Management has determined that the
borrowers will be unable to meet contractual principal and/or interest
obligations, unless the loan is well secured and in the process of collection.
When a loan is placed on nonaccrual, any previously accrued but unpaid interest
is reversed. Income on such loans is then recognized only to the extent that
cash is received and where the future collection of principal is probable.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when, in the judgment of
Management, the loans are estimated to be fully collectible as to both principal
and interest.
Interest income on nonaccrual loans, which would have been recognized during the
three months, ended March 31, 2005, if all such loans had been current in
accordance with their original terms, totaled $408,000. Interest income actually
recognized on these loans during the three months ended March 31, 2005 was
$5,000.
The Company's policy is to place loans 90 days or more past due on nonaccrual
status. In some instances when a loan is 90 days past due Management does not
place it on nonaccrual status because the loan is well secured and in the
process of collection. A loan is considered to be in the process of collection
if, based on a probable specific event, it is expected that the loan will be
repaid or brought current. Generally, this collection period would not exceed 30
days. Loans where the collateral has been repossessed are classified as OREO or,
if the collateral is personal property, the loan is classified as other assets
on the Company's financial statements.
-22-
Management considers both the adequacy of the collateral and the other resources
of the borrower in determining the steps to be taken to collect nonaccrual
loans. Alternatives that are considered are foreclosure, collecting on
guarantees, restructuring the loan or collection lawsuits.
As shown in the following table, total nonperforming assets net of guarantees of
the U.S. Government, including its agencies and its government-sponsored
agencies, decreased $834,000 (17.0%) to $4,072,000 during the first three months
of 2005. Nonperforming assets net of guarantees represent 0.25% of total assets.
All nonaccrual loans are considered to be impaired when determining the need for
a specific valuation allowance. The Company continues to make a concerted effort
to work problem and potential problem loans to reduce risk of loss.
(dollars in thousands):
At March 31, 2005 At December 31, 2004
------------------------- -------------------------
Gross Guaranteed Net Gross Guaranteed Net
------------------------------------------------------
Performing nonaccrual loans $9,305 $7,347 $1,958 $11,043 $7,442 $3,601
Nonperforming, nonaccrual loans 2,288 174 2,114 1,418 174 1,244
------------------------------------------------------
Total nonaccrual loans 11,593 7,521 4,072 12,461 7,616 4,845
Loans 90 days past due and still accruing - - - 61 - 61
------------------------------------------------------
Total nonperforming loans 11,593 7,521 4,072 12,522 7,616 4,906
Other real estate owned - - - - - -
------------------------------------------------------
Total nonperforming assets $11,593 $7,521 $4,072 $12,522 $7,616 $4,906
======================================================
Nonperforming loans/total loans 0.34% 0.42%
Nonperforming assets/total assets 0.25% 0.30%
Allowance for losses/nonperforming loans 398% 327%
Allowance for loan losses/nonperforming loans 358% 296%
Allowance for Loan Losses
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 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
purposes of this discussion, "loans" shall include all loans and lease contracts
that are part of the Company'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 portfolio, and to a lesser extent the
Company's loan 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
occur 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.
-23-
The Company's method for assessing the appropriateness of the allowance for loan
losses and the reserve for unfunded commitments includes specific allowances for
identified problem loans and leases as determined by SFAS 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 SFAS 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, 2004.
Based on the current conditions of the loan portfolio, Management believes that
the allowance for loan losses and the reserve for unfunded commitments, which
collectively stand at $16,195,000 at March 31, 2005, are adequate to absorb
probable losses inherent in the Company's loan portfolio. No assurance can be
given, however, that adverse economic conditions or other circumstances will not
result in increased losses in the portfolio.
The following tables summarize the activity in the allowance for loan losses,
reserve for unfunded commitments, and allowance for losses (which is comprised
of the allowance for loan losses and the reserve for unfunded commitments) for
the periods indicated (dollars in thousands):
Three months ended March 31,
----------------------------
2005 2004
----------------------------
Allowance for loan losses:
Balance at beginning of period $14,525 $12,890
Provision for loan losses 100 613
Loans charged off (295) (188)
Recoveries of previously
charged-off loans 233 62
----------------------------
Net charge-offs (62) (126)
----------------------------
Balance at end of period $14,563 $13,377
============================
Reserve for unfunded commitments:
Balance at beginning of period $1,532 $883
Provision for losses -
unfunded commitments 100 37
----------------------------
Balance at end of period $1,632 $920
============================
Balance at end of period:
Allowance for loan losses $14,563 $13,377
Reserve for unfunded commitments 1,632 920
----------------------------
Allowance for losses $16,195 $14,297
============================
As a percentage of total loans:
Allowance for loan losses 1.23% 1.35%
Reserve for unfunded commitments 0.14% 0.09%
----------------------------
Allowance for losses 1.37% 1.44%
============================
-24-
Capital Resources
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies are reviewed regularly by Management.
On March 11, 2004, the Company's Board of Directors approved a two-for-one stock
split of its common stock. The stock split was effected in the form of a stock
dividend that entitled each shareholder of record at the close of business on
April 9, 2004 to receive one additional share for every share of TriCo common
stock held on that date. Shares resulting from the split were distributed on
April 30, 2004.
Also at its meeting on March 11, 2004, the Board of Directors approved an
increase in the maximum number of shares to be repurchased under the Company's
stock repurchase plan originally announced on July 31, 2003 from 250,000 to
500,000 effective on April 9, 2004, solely to conform with the two-for-one stock
split noted above. The 250,000 shares originally authorized for repurchase under
this plan represented approximately 3.2% of the Company's approximately
7,852,000 common shares outstanding as of July 31, 2003. This plan has no stated
expiration date for the repurchases, which may occur from time to time as market
conditions allow. As of March 31, 2005, the Company had repurchased 236,400
shares under this plan as adjusted for the 2-for-1 stock split paid on April 30,
2004, which left 263,600 shares available for repurchase under the plan.
The Company's primary capital resource is shareholders' equity, which was
$139,634,000 at March 31, 2005. This amount represents an increase of $1,502,000
from December 31, 2004, the net result of comprehensive income for the period
($3,349,000) and the issuance of common shares via the exercise of stock options
($171,000), partially offset by the repurchase of common stock ($286,000) and
dividends paid ($1,732,000). The Company's ratio of equity to total assets was
8.43%, 8.92%, and 8.49% as of March 31, 2005, March 31, 2004, and December 31,
2004, respectively. The following summarizes the ratios of capital to
risk-adjusted assets for the periods indicated:
At March 31, At Minimum
----------------- December 31, Regulatory
2005 2004 2004 Requirement
------------------------------------------------
Tier I Capital 10.81% 10.31% 10.67% 4.00%
Total Capital 11.91% 11.49% 11.86% 8.00%
Leverage ratio 9.95% 8.80% 9.86% 4.00%
Off-Balance Sheet Items
The Bank has certain ongoing commitments under operating and capital leases.
These commitments do not significantly impact operating results. As of March 31,
2005 commitments to extend credit and commitments related to the Bank's deposit
overdraft privilege product were the Bank's only financial instruments with
off-balance sheet risk. The Bank has not entered into any contracts for
financial derivative instruments such as futures, swaps, options, etc.
Commitments to extend credit were $474,291,000 and $445,054,000 at March 31,
2005 and December 31, 2004, respectively, and represent 40.1% of the total loans
outstanding at March 31, 2005 versus 38.0% at December 31, 2004. Commitments
related to the Bank's deposit overdraft privilege product totaled $31,348,000
and $28,815,000 at March 31, 2005 and December 31, 2004, respectively.
-25-
Certain Contractual Obligations
The following chart summarizes certain contractual obligations of the Company as
of December 31, 2004:
Less than 1-3 3-5 More than
(dollars in thousands) Total one year years years 5 years
------------------------------------------------------------------
Federal funds purchased $46,400 $46,400 - - -
FHLB loan, fixed rate of 5.41%
payable on April 7, 2008, callable
in its entirety by FHLB on a quarterly
basis beginning April 7, 2003 20,000 - - $20,000 -
FHLB loan, fixed rate of 5.35%
payable on December 9, 2008 1,500 - - 1,500 -
FHLB loan, fixed rate of 5.77%
payable on February 23, 2009 1,000 - - $1,000 -
Capital lease obligation on premises,
effective rate of 13% payable
monthly in varying amounts
through December 1, 2009 344 - - 344 -
Other collateralized borrowings,
fixed rate of 0.91% payable on January 2, 2005 5,308 5,308 - - -
Junior subordinated debt, adjustable rate
of three-month LIBOR plus 3.05%,
callable in whole or in part by the
Company on a quarterly basis beginning
October 7, 2008, matures October 7, 2033 20,619 - - - 20,619
Junior subordinated debt, adjustable rate
of three-month LIBOR plus 2.55%,
callable in whole or in part by the
Company on a quarterly basis beginning
July 23, 2009, matures July 23, 2034 20,619 - - - 20,619
Operating lease obligations 6,806 1,327 $2,202 1,662 1,615
Deferred compensation plans(1) 1,544 262 462 427 393
Supplemental retirement plans(1) 4,996 488 956 926 2,626
Employment agreements 233 115 118 - -
------------------------------------------------------------------
Total contractual obligations $129,369 $53,900 $3,738 $25,859 $45,872
==================================================================
(1) These amounts represent known certain payments to participants under the
Company's deferred compensation and supplemental retirement plans.
-26-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Asset and Liability Management
The goal for managing the assets and liabilities of the Company is to maximize
shareholder value and earnings while maintaining a high quality balance sheet
without exposing the Company to undue interest rate risk. The Board of Directors
has overall responsibility for the Company's interest rate risk management
policies. The Company has an Asset and Liability Management Committee (ALCO)
which establishes and monitors guidelines to control the sensitivity of earnings
to changes in interest rates.
Activities involved in asset/liability management include but are not limited to
lending, accepting and placing deposits, investing in securities and issuing
debt. Interest rate risk is the primary market risk associated with
asset/liability management. Sensitivity of earnings to interest rate changes
arises when yields on assets change in a different time period or in a different
amount from that of interest costs on liabilities. To mitigate interest rate
risk, the structure of the balance sheet is managed with the goal that movements
of interest rates on assets and liabilities are correlated and contribute to
earnings even in periods of volatile interest rates. The asset/liability
management policy sets limits on the acceptable amount of variance in net
interest margin, net income and market value of equity under changing interest
environments. Market value of equity is the net present value of estimated cash
flows from the Company's assets, liabilities and off-balance sheet items. The
Company uses simulation models to forecast net interest margin, net income and
market value of equity.
Simulation of net interest margin, net income and market value of equity under
various interest rate scenarios is the primary tool used to measure interest
rate risk. Using computer-modeling techniques, the Company is able to estimate
the potential impact of changing interest rates on net interest margin, net
income and market value of equity. A balance sheet forecast is prepared using
inputs of actual loan, securities and interest-bearing liability (i.e.
deposits/borrowings) positions as the beginning base.
In the simulation of net interest margin and net income under various interest
rate scenarios, the forecast balance sheet is processed against seven interest
rate scenarios. These seven interest rate scenarios include a flat rate
scenario, which assumes interest rates are unchanged in the future, and six
additional rate ramp scenarios ranging from +300 to -300 basis points around the
flat scenario in 100 basis point increments. These ramp scenarios assume that
interest rates increase or decrease evenly (in a "ramp" fashion) over a
twelve-month period and remain at the new levels beyond twelve months.
In the simulation of market value of equity under various interest rate
scenarios, the forecast balance sheet is processed against seven interest rate
scenarios. These seven interest rate scenarios include the flat rate scenario
described above, and six additional rate shock scenarios ranging from +300 to
- -300 basis points around the flat scenario in 100 basis point increments. These
rate shock scenarios assume that interest rates increase or decrease immediately
(in a "shock" fashion) and remain at the new level in the future.
At March 31, 2005, the results of the simulations noted above indicate that
given a "flat" balance sheet scenario, and if deposit rates track general
interest rate changes by approximately 50%, the Company's balance sheet is
slightly liability sensitive. "Liability sensitive" implies that earnings
decrease when interest rates rise, and increase when interest rates decrease.
The magnitude of all the simulation results noted above is within the Bank's
policy guidelines. The asset liability management policy limits aggregate market
risk, as measured in this fashion, to an acceptable level within the context of
risk-return trade-offs.
The simulation results noted above do not incorporate any management actions,
which might moderate the negative consequences of interest rate deviations.
Therefore, they do not reflect likely actual results, but serve as conservative
estimates of interest rate risk.
At March 31, 2005 and 2004, the Company had no derivative financial instruments.
-27-
Liquidity
The Company's principal source of asset liquidity is federal funds sold and
marketable investment securities available for sale. At March 31, 2005, federal
funds sold and investment securities available for sale totaled $293,911,000,
representing an increase of $7,898,000 or 2.8% from December 31, 2004, and a
decrease of $13,736,000 or 4.5% from March 31, 2004. In addition, the Company
generates additional liquidity from its operating activities. The Company's
profitability during the first three months of 2005 generated cash flows from
operations of $7,446,000 compared to $6,506,000 during the first three months of
2004. Additional cash flows may be provided by financing activities, primarily
the acceptance of deposits and borrowings from banks. Sales and maturities of
investment securities produced cash inflows of $14,244,000 during the three
months ended March 31, 2005 compared to $19,662,000 for the three months ended
March 31, 2004. During the three months ended March 31, 2005, the Company
invested $25,525,000 and $9,528,000 in securities and net loan growth,
respectively, compared to $15,249,000 and $11,731,000 invested in securities and
net loan growth, respectively, during the first three months of 2004. These
changes in investment and loan balances contributed to net cash used for
investing activities of $22,317,000 during the three months ended March 31,
2005, compared to net cash used for investing activities of $7,931,000 during
the three months ended March 31, 2004. Financing activities provided net cash of
$22,380,000 during the three months ended March 31, 2005, compared to net cash
used by financing activities of $23,936,000 during the three months ended March
31, 2004. Deposit balance increases and exercise of common stock options
accounted for $49,916,000 and $158,000 of financing sources of funds,
respectively, during the three months ended March 31, 2005, compared to deposit
balance increases and exercise of common stock options that accounted for
$3,116,000 and $540,000 of financing sources of funds, respectively, during the
three months ended March 31, 2004. Dividends paid used $1,732,000 and $1,589,000
of cash during the three months ended March 31, 2005 and March 31, 2004,
respectively. A decrease in Federal funds purchased and the repurchase of common
stock used $25,700,000 and $286,000 of cash, respectively, during the quarter
ended March 31, 2005. Also, the Company's liquidity is dependent on dividends
received from the Bank. Dividends from the Bank are subject to certain
regulatory restrictions.
Item 4. Controls and Procedures
The Chief Executive Officer, Richard Smith, and the Chief Financial Officer,
Thomas Reddish, evaluated the effectiveness of the Company's disclosure controls
and procedures as of March 31, 2005 ("Evaluation Date"). Based on that
evaluation, they concluded that as of the Evaluation Date the Company's
disclosure controls and procedures are effective to allow timely communication
to them of information relating to the Company and the Bank required to be
disclosed in its filings with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934, as amended ("Exchange Act").
Disclosure controls and procedures are Company controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
No changes in the Company's internal control over financial reporting occurred
during the first quarter of 2005 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
-28-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Bank is at times party to various
legal actions; all such actions are of a routine nature and arise in the normal
course of business of the Bank.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
The following table shows information concerning the common stock repurchased by
the Company during the first quarter of 2005 pursuant to the Company's stock
repurchase plan originally announced on July 31, 2003, as amended on March 11,
2004, to conform with the Company's two-for-one stock split effective on April
9, 2004, which is discussed in more detail under "Capital Resources" in this
report:
Period (a) Total number (b) Average price (c) Total number of (d) Maximum number
of Shares purchased paid per share shares purchased as of shares that may yet
part of publicly be purchased under the
announced plans or plans or programs
programs
- -----------------------------------------------------------------------------------------------------------
Jan. 1-31, 2005 - - - 277,400
Feb. 1-28, 2005 - - - 277,400
Mar. 1-31, 2005 13,800 $20.78 13,800 263,600
- -----------------------------------------------------------------------------------------------------------
Total 13,800 $20.78 13,800 263,600
Item 6 - Exhibits
3.1* Restated Articles of Incorporation dated May 9, 2003, filed as
Exhibit 3.1 to TriCo's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003.
3.2* Bylaws of TriCo Bancshares, as amended, filed as Exhibit 3.2 to
TriCo's Form S-4 Registration Statement dated January 16, 2003
(No. 333-102546).
4* Certificate of Determination of Preferences of Series AA Junior
Participating Preferred Stock filed as Exhibit 3.3 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001.
10.1* Rights Agreement dated June 25, 2001, between TriCo and Mellon
Investor Services LLC filed as Exhibit 1 to TriCo's Form 8-A
dated July 25, 2001.
10.2* Form of Change of Control Agreement dated July 20, 2004, between
TriCo and each of Craig Carney, Gary Coelho, W.R. Hagstrom,
Andrew Mastorakis, Rick Miller, Richard O'Sullivan, Thomas
Reddish, and Ray Rios filed as Exhibit 10.2 to TriCo's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004.
10.3* TriCo's 1993 Non-Qualified Stock Option Plan filed as Exhibit 4.1
to TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704).
10.4* TriCo's Non-Qualified Stock Option Plan filed as Exhibit 4.2 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704).
-29-
10.5* TriCo's Incentive Stock Option Plan filed as Exhibit 4.3 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704).
10.6* TriCo's 1995 Incentive Stock Option Plan filed as Exhibit 4.1 to
TriCo's Form S-8 Registration Statement dated August 23, 1995
(No. 33-62063).
10.7* TriCo's 2001 Stock Option Plan as amended filed as Exhibit 10.7
to TriCo's Annual Report on Form 10-K for the year ended December
31, 2004.
10.8* Employment Agreement between TriCo and Richard Smith dated April
20, 2004 filed as Exhibit 10.8 to TriCo's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004.
10.9* Tri Counties Bank Executive Deferred Compensation Plan dated
September 1, 1987, as restated April 1, 1992, and amended and
restated effective as of January 1, 2004 filed as Exhibit 10.9 to
TriCo's Quarterly Report on Form 10-Q for the quarter ended June
30, 2004.
10.10* Tri Counties Bank Deferred Compensation Plan for Directors
effective April 1, 1992, as amended and restated effective as of
January 1, 2004 filed as Exhibit 10.10 to TriCo's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004.
10.11* Amendments to Tri Counties Bank Executive Deferred Compensation
Plan referenced at Exhibit 10.9, effective as of January 1, 2005
filed as Exhibit 10.11 to TriCo's Annual Report on Form 10-K for
the year ended December 31, 2004.
10.12* Amendments to Tri Counties Bank Deferred Compensation Plan for
Directors referenced at Exhibit 10.10, effective as of January 1,
2005 filed as Exhibit 10.12 to TriCo's Annual Report on Form 10-K
for the year ended December 31, 2004.
10.13* Tri Counties Bank Supplemental Retirement Plan for Directors
dated September 1, 1987, as restated January 1, 2001, and amended
and restated January 1, 2004 filed as Exhibit 10.12 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004.
10.14* 2004 TriCo Bancshares Supplemental Retirement Plan for Directors
effective January 1, 2004 filed as Exhibit 10.13 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004.
10.15* Tri Counties Bank Supplemental Executive Retirement Plan
effective September 1, 1987, as amended and restated January 1,
2004 filed as Exhibit 10.14 to TriCo's Quarterly Report on Form
10-Q for the quarter ended June 30, 2004.
10.16* 2004 TriCo Bancshares Supplemental Executive Retirement Plan
effective January 1, 2004 filed as Exhibit 10.15 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004.
-30-
10.17* Form of Joint Beneficiary Agreement effective March 31, 2003
between Tri Counties Bank and each of George Barstow, Dan Bay,
Ron Bee, Craig Carney, Robert Elmore, Greg Gill, Richard Miller,
Andrew Mastorakis, Richard O'Sullivan, Thomas Reddish, Jerald
Sax, and Richard Smith, filed as Exhibit 10.14 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003.
10.18* Form of Joint Beneficiary Agreement effective March 31, 2003
between Tri Counties Bank and each of Don Amaral, William Casey,
Craig Compton, John Hasbrook, Michael Koehnen, Wendell Lundberg,
Donald Murphy, Carroll Taresh, and Alex Vereshagin, filed as
Exhibit 10.15 to TriCo's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003.
10.19* Form of Tri-Counties Bank Executive Long Term Care Agreement
effective June 10, 2003 between Tri Counties Bank and each of
Craig Carney, Andrew Mastorakis, Richard Miller, Richard
O'Sullivan, and Thomas Reddish, filed as Exhibit 10.16 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003.
10.20* Form of Tri-Counties Bank Director Long Term Care Agreement
effective June 10, 2003 between Tri Counties Bank and each of Don
Amaral, William Casey, Craig Compton, John Hasbrook, Michael
Koehnen, Donald Murphy, Carroll Taresh, and Alex Verischagin,
filed as Exhibit 10.17 to TriCo's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2003.
10.21* Form of Indemnification Agreement between TriCo Bancshares/Tri
Counties Bank and each of the directors of TriCo Bancshares/Tri
Counties Bank effective on the date that each director is first
elected, filed as Exhibit 10.18 to TriCo'S Annual Report on Form
10-K for the year ended December 31, 2003.
10.22* Form of Indemnification Agreement between TriCo Bancshares/Tri
Counties Bank and each of Craig Carney, W.R. Hagstrom, Andrew
Mastorakis, Rick Miller, Richard O'Sullivan, Thomas Reddish, Ray
Rios, and Richard Smith filed as Exhibit 10.21 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2004.
21.1 Tri Counties Bank, a California banking corporation, TriCo
Capital Trust I, a Delaware business trust, and TriCo Capital
Trust II, a Delaware business trust, are the only subsidiaries of
Registrant
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO
32.1 Section 1350 Certification of CEO
32.2 Section 1350 Certification of CFO
* Previously filed and incorporated by reference.
-31-
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 hereunto duly authorized.
TRICO BANCSHARES
(Registrant)
Date: May 4, 2005 /s/ Thomas J. Reddish
-----------------------------------
Thomas J. Reddish
Executive Vice President and
Chief Financial Officer
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EXHIBITS
Exhibit 31.1
Rule 13a-14/15d-14 Certification of CEO
I, Richard P. Smith, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiary, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors;
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial data;
and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 4, 2005 /s/ Richard P. Smith
----------------------------------------
Richard P. Smith
President and Chief Executive Officer
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Exhibit 31.2
Rule 13a-14/15d-14 Certification of CFO
I, Thomas J. Reddish, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiary, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors;
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial data;
and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 4, 2005 /s/ Thomas J. Reddish
----------------------------------------
Thomas J. Reddish
Executive Vice President and Chief
Financial Officer
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Exhibit 32.1
Section 1350 Certification of CEO
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ended March 31, 2005 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Richard P. Smith,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Richard P. Smith
-------------------------------------
Richard P. Smith
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to TriCo Bancshares and will be retained by TriCo Bancshares and
furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Section 1350 Certification of CFO
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ended March 31, 2005 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Thomas J. Reddish,
Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Thomas J. Reddish
-------------------------------------
Thomas J. Reddish
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to TriCo Bancshares and will be retained by TriCo Bancshares and
furnished to the Securities and Exchange Commission or its staff upon request.
-35-