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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year Commission File Number 0-10661
ended December 31, 1999
TriCo Bancshares
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(Exact name of registrant as specified in its charter)
California 94-2792841
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
63 Constitution Drive, Chico, California 95973
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(530) 898-0300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
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(Title of Class)
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 periods 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
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 14, 2000, was approximately $78,398,000. This
computation excludes a total of 1,954,829 shares which are beneficially owned by
the officers and directors of Registrant who may be deemed to be the affiliates
of Registrant under applicable rules of the Securities and Exchange Commission.
The number of shares outstanding of Registrant's classes of common stock, as of
March 14, 2000, was 7,181,350 shares of Common Stock, without par value.
The following documents are incorporated herein by reference into the parts of
Form 10-K indicated: Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1999, for Item 7, and Registrant's Proxy Statement for
use in connection with its 2000 Annual Meeting of Shareholders, for Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X
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PART I
1. BUSINESS
Formation of Bank Holding Company.
TriCo Bancshares (hereinafter the "Company") was incorporated under the
laws of the State of California on October 13, 1981. It was organized at the
direction of the Board of Directors of Tri Counties Bank (the "Bank") for the
purpose of forming a bank holding company. On September 7, 1982, a wholly-owned
subsidiary of the Company was merged with and into the Bank resulting in the
shareholders of the Bank becoming the shareholders of the Company and the Bank
becoming the wholly-owned subsidiary of the Company. (The merger of the
wholly-owned subsidiary of the Company with and into the Bank is hereafter
referred to as the "Reorganization.") At the time of the Reorganization, the
Company became a bank holding company subject to the supervision of the Board of
Governors of the Federal Reserve System (the "Board") in accordance with the
Bank Holding Company Act of 1956, as amended. The Bank remains subject to the
supervision of the State of California Department of Financial Institutions and
the Federal Deposit Insurance Corporation (the "FDIC"). The Bank currently is
the only subsidiary of the Company and the Company has not yet commenced any
business operations independent of the Bank.
Provision of Banking Services.
The Bank was incorporated as a California banking corporation on June 26,
1974, and received its Certificate of Authority to begin banking operations on
March 11, 1975.
The Bank engages in the general commercial banking business in the
California counties of Butte, Del Norte, Glenn, Kern, Lake, Lassen, Madera,
Mendocino, Merced, Nevada, Sacramento, Shasta, Siskiyou, Stanislaus, Sutter,
Tehama, Tulare, and Yuba. The Bank currently has 28 traditional branches, 8
in-store branches, and 1 video-banking supermarket branch. It opened its first
banking office in Chico, California in 1975, followed by branch offices in
Willows, Durham and Orland, California. The Bank opened its fifth banking office
at an additional location in Chico in 1980. On March 27, 1981, the Bank acquired
the assets of Shasta County Bank and thereby acquired six additional offices.
These offices are located in the communities of Bieber, Burney, Cottonwood, Fall
River Mills, Palo Cedro and Redding, California. On November 7, 1987, the Bank
purchased the deposits and premises of the Yreka Branch of Wells Fargo Bank,
thereby acquiring an additional branch office. On August 1, 1988, the Bank
opened a new office in Chico at East 20th Street and Forest Avenue. The Bank
opened a branch office in Yuba City on September 10, 1990. The Bank opened four
supermarket branches in 1994. These supermarket branches were opened on March 7,
March 28, June 6 and June 13, 1994 in Red Bluff, Yuba City, and two in Redding
respectively. The Bank added one conventional branch in Redding through its
acquisition of Country National Bank on July 21, 1994. On November 7, 1995, the
Bank opened a supermarket branch in Chico. In March 1996 the Bank opened its
sixth supermarket branch in Grass Valley. The acquisition of Sutter Buttes
Savings Bank in October 1996 added a branch in Marysville. Loan production
offices were established in Bakersfield and Sacramento in 1996. On February 21,
1997, the Bank purchased nine branches from Wells Fargo Bank, N.A. The acquired
branches are located in Crescent City, Weed, Mt. Shasta, Susanville, Covelo,
Middletown, Patterson, Gustine and Chowchilla. This acquisition expanded the
Bank's market area from the Sacramento Valley and intermountain areas to include
parts of the northern coastal region and the northern San Joaquin Valley. In
November 1998 the Bank converted its Bakersfield and Sacramento loan production
offices to full service branches. On February 10, 1999, the Bank opened a
video-banking supermarket branch in Chico. In July 1999, the Bank opened its
ninth supermarket branch at Beale Air Force Base. The Bank opened branch offices
in Visalia and Modesto, during August 1999 and January 2000, respectively.
General Banking Services.
The Bank conducts a commercial banking business including accepting demand,
savings and time deposits and making commercial, real estate, and consumer
loans. It also offers installment note collection, issues cashier's checks and
money orders, sells travelers checks and provides safe deposit boxes and other
customary banking services. Brokerage services are provided at the Bank's
offices by the Bank's association with INVEST Financial Corporation. The Bank
does not offer trust services or international banking services.
The Bank's operating policy since its inception has emphasized retail
banking. Most of the Bank's customers are retail customers and small to
medium-sized businesses. The business of the Bank emphasizes serving the needs
of local businesses, farmers and ranchers, retired individuals and wage earners.
The majority of the Bank's loans are direct loans made to individuals and
businesses in the regions of California where its branches are located. At
December 31, 1999, the total of the Bank's consumer installment loans
outstanding was $79,589,000 (13.5%), the total of commercial loans outstanding
was $262,916,000 (44.7%), and the total of real estate loans including
construction loans of $38,277,000 was $245,474,000 (41.8%). The Bank takes real
estate, listed and unlisted securities, savings and time deposits, automobiles,
machinery, equipment, inventory, accounts receivable and notes receivable
secured by property as collateral for loans.
-2-
Most of the Bank's deposits are attracted from individuals and
business-related sources. No single person or group of persons provides a
material portion of the Bank's deposits, the loss of any one or more of which
would have a materially adverse effect on the business of the Bank, nor is a
material portion of the Bank's loans concentrated within a single industry or
group of related industries.
In order to attract loan and deposit business from individuals and small to
medium-sized businesses, branches of the Bank set lobby hours to accommodate
local demands. In general, lobby hours are from 9:00 a.m. to 5:00 p.m. Monday
through Thursday, and from 9:00 a.m. to 6:00 p.m. on Friday. Certain branches
with less activity open later and close earlier. Some Bank offices also utilize
drive-up facilities operating from 9:00 a.m. to 7:00 p.m. The supermarket
branches are open from 9:00 a.m. to 7:00 p.m. Monday through Saturday and 11:00
a.m. to 5:00 p.m. on Sunday.
The Bank offers 24-hour ATMs at almost all branch locations. The ATMs are
linked to several national and regional networks such as CIRRUS and STAR. In
addition, banking by telephone on a 24-hour toll-free number is available to all
customers. This service allows a customer to obtain account balances and most
recent transactions, transfer moneys between accounts, make loan payments, and
obtain interest rate information.
In February 1998, the Bank became the first bank in the Northern Sacramento
Valley to offer banking services on the Internet. This banking service provides
customers one more tool for anywhere, anytime access to their accounts.
Other activities.
In addition to the banking services referred to above, pursuant to
California law, TCB Real Estate Corporation, a wholly-owned subsidiary of the
Bank, was engaged in limited real estate investments until December 1998. At
that time, TCB Real Estate Corporation divested its remaining real estate
investments. Such investments consisted of holding certain real property for the
purpose of development or as income earning assets. The amount of the Bank's
assets committed to such investment did not exceed the total of the Bank's
capital and surplus. In 1996 the FDIC directed the Bank to divest the properties
held by TCB Real Estate Corporation and to terminate its operations. The Bank
and the FDIC agreed to a plan that called for the divestiture by June 30, 1999.
TCB Real Estate Corporation was dissolved on April 27, 1999.
The Bank may in the future engage in other businesses either directly or
indirectly through subsidiaries acquired or formed by the Bank subject to
regulatory constraints. See "Regulation and Supervision."
Employees.
At December 31, 1999, the Company and the Bank employed 446 persons,
including four executive officers. Full time equivalent employees were 379. No
employees of the Company or the Bank are presently represented by a union or
covered under a collective bargaining agreement. Management believes that its
employee relations are excellent.
Competition.
The banking business in California generally, and in the Bank's primary
service area specifically, is highly competitive with respect to both loans and
deposits. It is dominated by a relatively small number of major banks with many
offices operating over a wide geographic area. Among the advantages such major
banks have over the Bank are their ability to finance wide ranging advertising
campaigns and to allocate their investment assets to regions of high yield and
demand. By virtue of their greater total capitalization such institutions have
substantially higher lending limits than does the Bank.
In addition to competing with savings institutions, commercial banks
compete with other financial markets for funds. Yields on corporate and
government debt securities and other commercial paper may be higher than on
deposits, and therefor affect the ability of commercial banks to attract and
hold deposits. Commercial banks also compete for available funds with money
market instruments and mutual funds. During past periods of high interest rates,
money market funds have provided substantial competition to banks for deposits
and they may continue to do so in the future. In today's high growth stock
market environment mutual funds have become a major source of competition for
savings dollars.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company and its subsidiary
are particularly susceptible to being affected by enactment of federal and state
legislation which may have the effect of increasing or decreasing the cost of
doing business, modifying permissible activities or enhancing the competitive
position of other financial institutions.
-3-
The Bank relies substantially on local promotional activity, personal
contacts by its officers, directors, employees and shareholders, extended hours,
personalized service and its reputation in the communities it services to
compete effectively.
Regulation and Supervision.
As a registered bank holding company under the Bank Holding Company Act of
1956 (the "BHC Act"), the Company is subject to the regulation and supervision
of the Board of Governors of the Federal Reserve System ("FRB"). The BHC Act
requires the Company to file reports with the FRB and provide additional
information requested by the FRB. The Company must receive the approval of the
FRB before it may acquire all or substantially all of the assets of any bank, or
ownership or control of the voting shares of any bank if, after giving effect to
such acquisition of shares, the Company would own or control more than 5 percent
of the voting shares of such bank.
The Company and any subsidiaries it may acquire or organize will be deemed
to be affiliates of the Bank within the Federal Reserve Act. That Act
establishes certain restrictions which limit the extent to which the Bank can
supply its funds to the Company and other affiliates. The Company is also
subject to restrictions on the underwriting and the public sale and distribution
of securities. It is prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, sale or lease of property, or
furnishing of services.
The Company is prohibited from engaging in, or acquiring direct or indirect
control of any company engaged in non-banking activities, unless the FRB by
order or regulation has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
Notwithstanding this prohibition, under the Financial Services
Modernization Act of 1999, the Company may engage in any activity, and may
acquire and retain the shares of any company engaged in any activity, that the
FRB, in coordination with the Secretary of the Treasury, determines (by
regulation or order) to be financial in nature or incidental to such financial
activities. Furthermore, such law dictates several activities that are
considered to be financial in nature, and therefore are not subject to FRB
approval.
Under California law, dividends and other distributions by the Company are
subject to declaration by the Board of Directors at its discretion out of net
assets. Dividends cannot be declared and paid when such payment would make the
Company insolvent.
FRB policy prohibits a bank holding company from declaring or paying a cash
dividend which would impose undue pressure on the capital of subsidiary banks or
would be funded only through borrowings or other arrangements that might
adversely affect the holding company's financial position. The policy further
declares that a bank holding company should not continue its existing rate of
cash dividends on its common stock unless its net income is sufficient to fully
fund each dividend and its prospective rate of earnings retention appears
consistent with its capital needs, asset quality and overall financial
condition. Other FRB policies forbid the payment by bank subsidiaries to their
parent companies of management fees which are unreasonable in amount or exceed a
fair market value of the services rendered (or, if no market exists, actual
costs plus a reasonable profit).
In addition, the FRB has authority to prohibit banks that it regulates from
engaging in practices which in the opinion of the FRB are unsafe or unsound.
Such practices may include the payment of dividends under some circumstances.
Moreover, the payment of dividends may be inconsistent with capital adequacy
guidelines. The Company may be subject to assessment to restore the capital of
the Bank should it become impaired.
The Company is subject to the minimum capital requirements of the FRB. As a
result of these requirements, the growth in assets of the Company is limited by
the amount of its capital accounts as defined by the FRB. Capital requirements
may have an affect on profitability and the payment of distributions by the
Company. If the Company is unable to increase its assets without violating the
minimum capital requirements, or is forced to reduce assets, its ability to
generate earnings would be reduced. Furthermore, earnings may need to be
retained rather than paid as distributions to shareholders.
The FRB has adopted guidelines utilizing a risk-based capital structure.
These guidelines apply on a consolidated basis to bank holding companies with
consolidated assets of $150 million or more. For bank holding companies with
less than $150 million in consolidated assets, the guidelines apply on a
bank-only basis unless the holding company is engaged in non-bank activity
involving significant leverage or has a significant amount of outstanding debt
that is held by the general public. The Company currently has consolidated
assets of more than $150 million; accordingly, the risk-based capital guidelines
apply to the Company on a consolidated basis.
-4-
Qualifying capital is divided into two tiers. Tier 1 capital consists
generally of common stockholders' equity, qualifying noncumulative perpetual
preferred stock, qualifying cumulative perpetual preferred stock (up to 25
percent of total Tier 1 capital) and minority interests in the equity accounts
of consolidated subsidiaries, less goodwill and certain other intangible assets.
Tier 2 capital consists of, among other things, allowance for loan and lease
losses up to 1.25 percent of weighted risk assets, perpetual preferred stock,
hybrid capital instruments, perpetual debt, mandatory convertible debt
securities, subordinated debt and intermediate-term preferred stock. Tier 2
capital qualifies as part of total capital up to a maximum of 100 percent of
Tier 1 capital. Amounts in excess of these limits may be issued but are not
included in the calculation of risk-based capital ratios. As of December 31,
1999, the Company must have a minimum ratio of qualifying total capital to
weighted risk assets of 8 percent, of which at least 4 percent must be in the
form of Tier 1 capital.
The Federal regulatory agencies have adopted a minimum Tier 1 leverage
ratio which is intended to supplement risk-based capital requirements and to
ensure that all financial institutions, even those that invest predominantly in
low-risk assets, continue to maintain a minimum level of Tier 1 capital. These
regulations provide that a banking organization's minimum Tier 1 leverage ratio
be determined by dividing its Tier 1 capital by its quarterly average total
assets, less goodwill and certain other intangible assets. Under the current
rules, the Company is required to maintain a minimum Tier 1 leverage ratio of 4
percent.
Insurance of Deposits.
The Bank's deposit accounts are insured up to a maximum of $100,000 per
depositor by the FDIC. The FDIC issues regulations and generally supervises the
operations of its insured banks. This supervision and regulation is intended
primarily for the protection of depositors, not shareholders.
As of December 31, 1999, the deposit insurance premium rate was $0.0212 per
$100.00 in deposits. In November 1990, federal legislation was passed which
removed the cap on the amount of deposit insurance premiums that can be charged
by the FDIC. Under this legislation, the FDIC is able to increase deposit
insurance premiums as it sees fit. This could result in a significant increase
in the cost of doing business for the Bank in the future. The FDIC now has
authority to adjust deposit insurance premiums paid by insured banks every six
months.
The Bank's Risk-Based Capital Requirements.
The Bank is subject to the minimum capital requirements of the FDIC. As a
result of these requirements, the growth in assets of the Bank is limited by the
amount of its capital accounts as defined by the FRB. Capital requirements may
have an effect on profitability and the payment of dividends on the common stock
of the Bank. If the Bank is unable to increase its assets without violating the
minimum capital requirements or is forced to reduce assets, its ability to
generate earnings would be reduced. Further, earnings may need to be retained
rather than paid as dividends to the Company.
Federal banking law requires the federal banking regulators to take "prompt
corrective action" with respect to banks that do not meet minimum capital
requirements. In response to this requirement, the FDIC adopted final rules
based upon the five capital tiers defined by the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA); well capitalized, adequately
capitalized, under capitalized, significantly under capitalized and critically
under capitalized. For example, the FDIC's rules provide that an institution is
"well-capitalized" if its total risk-based capital ratio is 10 percent or
greater; its Tier 1 risk-based capital ratio is 6 percent or greater; its
leverage ratio is 5 percent or greater; and the institution is not subject to a
capital directive or an enforceable written agreement or order. A bank is
"adequately capitalized" if its total risk-based capital ratio is 8 percent or
greater; its Tier 1 risk-based capital ratio is 4 percent or greater; and its
leverage ratio is 4 percent or greater (3 percent or greater for certain of the
highest-rated institutions). An institution is "significantly undercapitalized"
if its risk-based capital ratio is less than 6 percent; its Tier 1 risk-based
capital ratio is less than 3 percent; or its tangible equity (Tier 1 capital) to
total assets is equal to or less than 2 percent. An institution may be deemed to
be in a capitalization category that is lower than is indicated by its actual
capital position if it engages in unsafe or unsound banking practices.
No sanctions apply to institutions which are "well" or "adequately"
capitalized under the prompt corrective action requirements. Undercapitalized
institutions are required to submit a capital restoration plan for improving
capital. In order to be accepted, such plan must include a financial guaranty
from the institution's holding company that the institution will return to
capital compliance. If such a guarantee were deemed to be a commitment to
maintain capital under the federal Bankruptcy Code, a claim for a subsequent
breach of the obligations under such guarantee in a bankruptcy proceeding
involving the holding company would be entitled to a priority over third-party
general unsecured creditors of the holding company. Undercapitalized
institutions are prohibited from making capital distributions or paying
management fees to controlling persons; may be subject to growth limitations;
and acquisitions, branching and entering into new lines of business are
restricted. Finally, the institution's regulatory agency has discretion to
impose certain of the restrictions generally applicable to significantly
undercapitalized institutions.
-5-
In the event an institution is deemed to be significantly undercapitalized,
it may be required to: sell stock; merge or be acquired; restrict transactions
with affiliates; restrict interest rates paid on deposits; divest a subsidiary;
or dismiss specified directors or officers. If the institution is a bank holding
company, it may be prohibited from making any capital distributions without
prior approval of the FRB and may be required to divest a subsidiary. A
critically undercapitalized institution is generally prohibited from making
payments on subordinated debt and may not, without the approval of the FDIC,
enter into a material transaction other than in the ordinary course of business;
engage in any covered transaction; or pay excessive compensation or bonuses.
Critically undercapitalized institutions are subject to appointment of a
receiver or conservator.
Bank Regulation.
The federal regulatory agencies are required to adopt regulations which
will establish safety and soundness standards which will apply to banks and bank
holding companies. These standards must address bank operations, management,
asset quality, earnings, stock valuation and employee compensation. A bank
holding company or bank failing to meet established standards will face
mandatory regulatory enforcement action.
The grounds upon which a conservator or receiver of a bank can be appointed
have been expanded. For example, a conservator or receiver can be appointed for
a bank that fails to maintain minimum capital levels and has no reasonable
prospect of becoming adequately capitalized.
Federal law also requires, with some exception, that each bank have an
annual examination performed by its primary federal regulatory agency, and an
outside independent audit. The outside audit must consider bank regulatory
compliance in addition to financial statement reporting.
Federal law also restricts the acceptance of brokered deposits by insured
depository institutions and contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
Governmental Monetary Policies and Economic Conditions.
The principal sources of funds essential to the business of banks and bank
holding companies are deposits, stockholder's equity and borrowed funds. The
availability of these various sources of funds and other potential sources, such
as preferred stock or commercial paper, and the extent to which they are
utilized, depends on many factors, the most important of which are the FRB's
monetary policies and the relative costs of different types of funds. An
important function of the FRB is to regulate the national supply of bank credit
in order to combat recession and curb inflationary pressure. Among the
instruments of monetary policy used by the Federal Reserve Board to implement
these objections are open market operations in United States Government
securities, changes in the discount rate on bank borrowings, and changes in
reserve requirements against bank deposits. The monetary policies of the FRB
have had a significant effect on the operating results of commercial banks in
the past and are expected to continue to do so in the future. In view of the
recent changes in regulations affecting commercial banks and other actions and
proposed actions by the federal government and its monetary and fiscal
authorities, including proposed changes in the structure of banking in the
United States, no prediction can be made as to future changes in interest rates,
credit availability, deposit levels, the overall performance of banks generally
or the Company and its subsidiaries in particular.
General.
The Company conducts all of its business operations within a single
geographic area. The Company is principally engaged in traditional community
banking activities provided through its twenty-eight branches and nine in-store
branches located throughout Northern and Central California. Community banking
activities include the Bank's commercial and retail lending, deposit gathering
and investment and liquidity management activities. In addition to its community
banking services, the Bank offers investment brokerage and leasing services. In
1998 and prior, the Company held investments in real estate through its
wholly-owned subsidiary, TCB Real Estate. These activities are monitored and
reported by Bank management as separate operating segments.
-6-
2. PROPERTIES
As the Company has not yet acquired any properties independent of the
Bank, its only subsidiary, the properties of the Bank and the Bank's
subsidiaries comprise all of the properties of the Company.
Bank Properties
The Bank owns and leases properties that house administrative and data
processing functions and 33 banking offices. Major owned and leased facilities
are listed below.
Park Plaza Branch Pillsbury Branch
780 Mangrove Avenue 2171 Pillsbury Road
Chico, CA 95926 Chico, CA 95926
10,000 square feet 5,705 square feet
Leased - term expires 2010 Owned
Visalia Branch Hilltop Branch
2914 W. Main Street 1250 Hilltop Drive
Visalia, CA 93291 Redding, CA 96049
2,400 square feet 6,252 square feet
Leased Owned
Burney Branch Cottonwood Branch
37093 Main Street 3349 Main Street
Burney, CA 96013 Cottonwood, CA 96022
3,500 square feet 4,900 square feet
Owned Owned
Willows Branch Fall River Mills Branch
210 North Tehama Street 43308 Highway 299 East
Willows, CA 95988 Fall River Mills, CA 96028
4,800 square feet 2,200 square feet
Owned Owned
Orland Branch Durham Branch
100 E. Walker Street 9411 Midway
Orland, CA 95963 Durham, CA 95938
3,000 square feet 2,150 square feet
Owned Owned
Palo Cedro Branch Yuba City Branch
9125 Deschutes Road 1441 Colusa Avenue
Palo Cedro, CA 96073 Yuba City, CA 9599
3,400 square feet 6,900 square feet
Owned Owned
Chowchilla Branch Covelo Branch
305 Trinity Street 76405 Covelo Road
Chowchilla, CA 93610 Covelo, CA 95428
6,000 square feet 3,000 square feet
Leased - term expires 2009 Leased - month to month
-7-
Crescent City Branch Gustine Branch
936 Third Street 319 Fifth Street
Crescent City, CA 95531 Gustine, CA 95322
4,700 square feet 5,100 square feet
Owned Owned
Marysville Branch Middletown Branch
729 E Street 21097 Calistoga Street
Marysville, CA 95901 Middletown, CA 95461
1,600 square feet 2,600 square feet
Leased - term expires 2001 Leased - term expires 2002
Mt. Shasta Branch Patterson Branch
204 Chestnut Street 17 Plaza
Mt. Shasta, CA 96067 Patterson, CA 95363
6,500 square feet 4,000 square feet
Leased - term expires 2007 Owned
Susanville Branch Weed Branch
1605 Main Street 303 Main Street
Susanville, CA 96130 Weed, CA 96094
7,200 square feet 6,200 square feet
Leased - term expires 2002 Owned
TriCo Offices1 Yreka Branch
15 Independence Circle 165 South Broadway
Chico, CA 95973 Yreka, CA 96097
7,000 square feet 6,000 square feet
Leased - term expires 2011 Owned
Redding Branch2 Data Processing Center
1810 Market Street 1103 Fortress
Redding, CA 96001 Chico, CA 95926
14,000 square feet 13,600 square feet
Owned Leased - term expires 2011
Bakersfield Branch Sacramento Branch
5201 California Ave., Suite 102 1760 Challenge Way, Suite 100
Bakersfield, CA 93309 Sacramento, CA 95815
3,200 square feet 3,005 square feet
Leased - term expires 2000 Leased - term expires 2000
Headquarters Building Redding Downtown Branch
63 Constitution Drive 1845 California Street
Chico, CA 95973 Redding, CA 96001
30,000 square feet 3,265 square feet
Owned Owned
Modesto Branch
3320 Tully Road, Suite 3
Modesto, CA 95350
3,850 square feet
Leased
1This leased building was vacated in 1998 and is being subleased.
2This building was vacated in 1997 and is currently being leased.
-8-
3. LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to any material legal
proceedings, other than ordinary routine litigation incidental to the business
of the Company and the Bank, nor is any of their property the subject of any
such proceedings.
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
-9-
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Common Stock of the Company trades on the NASDAQ National Market under
the symbol "TCBK." The shares were first listed in the NASDAQ Stock Market in
April 1993.
The following table summarizes the Common Stock high and low trading prices
and volume of shares traded by quarter as reported by NASDAQ.
Prices of the Approximate
Company's Common Trading
Stock Volume
Quarter Ended:1,2 High Low (in shares)
March 31, 1998 $ 22.67 $ 20.00 293,600
June 30, 1998 22.58 18.33 398,300
September 30, 1998 19.83 15.33 394,600
December 31, 1998 18.50 14.08 330,800
March 31, 1999 18.25 15.44 401,800
June 30, 1999 18.75 15.81 680,100
September 30, 1999 20.00 16.75 417,900
December 31, 1999 20.50 17.00 363,800
1Quarterly trading activity has been compiled from NASDAQ trading reports.
2Stock prices and trading volumes adjusted to reflect 3-for-2 stock split
effected October 30, 1998.
Holders
As of March 14, 2000, there were approximately 1,850 holders of record of
the Company's Common Stock.
Dividends
The Company has paid quarterly dividends since March 1990. The Company paid
quarterly dividends of $0.19 per share in the third and fourth quarters of 1999,
$0.16 per share in the first and second quarters of 1999 and the fourth quarter
of 1998, and $0.11 per share in each of the previous three quarters. The holders
of Common Stock of the Company are entitled to receive cash dividends when and
as declared by the Board of Directors, out of funds legally available therefor,
subject to the restrictions set forth in the California General Corporation Law
(the "Corporation Law"). The Corporation Law provides that a corporation may
make a distribution to its shareholders if the corporation's retained earnings
equal at least the amount of the proposed distribution.
The Company, as sole shareholder of the Bank, is entitled to receive
dividends when and as declared by the Bank's Board of Directors, out of funds
legally available therefore, subject to the powers of the FDIC and the
restrictions set forth in the California Financial Code (the "Financial Code").
The Financial Code provides that a bank may not make any distributions in excess
of the lessor of: (i) the bank's retained earnings, or (ii) the bank's net
income for the last three fiscal years, less the amount of any distributions
made by the bank to its shareholders during such period. However, a bank may,
with the prior approval of the California Superintendent of Banks (the
"Superintendent"), make a distribution to its shareholders of up to the greater
of (A) the bank's retained earnings, (B) the bank's net income for its last
fiscal year, or (C) the bank's net income for its current fiscal year. If the
Superintendent determines that the shareholders' equity of a bank is inadequate
or that a distribution by the bank to its shareholders would be unsafe or
unsound, the Superintendent may order a bank to refrain from making a proposed
distribution. The FDIC may also order a bank to refrain from making a proposed
distribution when, in its opinion, the payment of such would be an unsafe or
unsound practice. The Bank paid dividends totaling $5,170,000 to the Company in
1999. As of December 31, 1999 and subject to the limitations and restrictions
under applicable law, the Bank had funds available for dividends in the amount
of $14,828,000.
The Federal Reserve Act limits the loans and advances that the Bank may
make to its affiliates. For purposes of such Act, the Company is an affiliate of
the Bank. The Bank may not make any loans, extensions of credit or advances to
the Company if the aggregate amount of such loans, extensions of credit,
advances and any repurchase agreements and investments exceeds 10% of the
capital stock and surplus of the Bank. Any such permitted loan or advance by the
Bank must be secured by collateral of a type and value set forth in the Federal
Reserve Act.
-10-
6. FIVE YEAR SELECTED FINANCIAL DATA (in thousands, except share data)
1999 1998 1997 1996 1995
Statement of Operations Data:1
Interest income $68,589 $65,138 $59,877 $49,148 $46,011
Interest expense 24,370 25,296 23,935 19,179 17,988
Net interest income 44,219 39,842 35,942 29,969 28,023
Provision for loan losses 3,550 4,200 3,000 777 335
Net interest income after
provision for loan losses 40,669 35,642 32,942 29,192 27,688
Noninterest income 12,101 12,869 9,566 6,636 5,933
Noninterest expense 34,833 34,692 32,932 23,485 21,661
Income before income taxes 17,937 13,819 9,576 12,343 11,960
Provision for income taxes 6,534 5,049 3,707 5,037 4,915
Net income $11,403 $8,770 $5,869 $7,306 $7,045
Share Data:2
Diluted earnings per share $1.56 $1.21 $0.81 $ 1.04 $0.97
Cash dividend paid per share 0.70 0.49 0.43 0.39 0.25
Common shareholders' equity
at year end 10.22 10.22 9.31 8.73 7.95
Balance Sheet Data at year end4:
Total loans, gross $587,979 $532,433 $448,967 $439,218 $318,766
Total assets 924,796 904,599 826,165 694,859 603,554
Total deposits 794,110 769,173 724,094 595,621 516,193
Total shareholders' equity 73,123 72,029 65,124 60,777 53,213
Total long-term debt 45,505 37,924 11,440 24,281 26,292
Selected Financial Ratios:
Return on average assets 1.26% 1.03% 0.75% 1.18% 1.22%
Return on average common
shareholders' equity 15.59% 12.80% 9.34% 13.03% 13.95%
Total risk-based capital ratio 11.77% 11.83% 11.90% 13.58% 15.17%
Net interest margin3 5.49% 5.28% 5.16% 5.37% 5.36%
Allowance for loan losses to total
loans outstanding at end of year 1.88% 1.54% 1.44% 1.39% 1.75%
1 Tax-exempt securities are presented on an actual yield basis.
2 Retroactively adjusted to reflect 5-for-4 stock split effected in 1995, and 3-for-2 stock split effected in 1998.
3 Calculated on a tax equivalent basis.
4 The 1996 data reflects changes due to the purchase of Sutter Buttes Savings Bank.
-11-
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included in Registrant's 1999 Annual Report to Shareholders, (pages
28 through 47 of Exhibit 13.1 as electronically filed) is incorporated herein by
reference.
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Discussion is included Management's Discussion and Analysis (pages 28
through 47 of Exhibit 13.1 as electronically filed) and is incorporated herein
by reference.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and independent auditor's report,
included in Registrant's 1999 Annual Report to Shareholders, are incorporated
herein by reference:
Pages of Exhibit 13.1
as Electronically Filed
Report of Independent Public Accountants 27
Consolidated Balance Sheets as of
December 31, 1999 and 1998 1
Consolidated Statements of Income
for the years ended December 31,
1999, 1998 and 1997 2
Consolidated Statements of Changes in
Shareholders' Equity for the
years ended December 31, 1999,
1998 and 1997 3
Consolidated Statements of Cash Flows
for the years ended December 31,
1999, 1998 and 1997 4
Notes to Consolidated Financial
Statements 6
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
-12-
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Registrant's directors and executive officers will be
set forth under the caption, "Proposal No. 1 Election of Directors of the
Company" in Registrant's Proxy Statement for use in connection with the Annual
Meeting of Shareholders to be held on or about May 9, 2000. Said information is
incorporated herein by reference.
11. EXECUTIVE COMPENSATION
Information regarding compensation of Registrant's directors and executive
officers will be set forth under the caption, "Proposal No. 1 - Election of
Directors of the Company" in Registrant's Proxy Statement for use in connection
with the Annual Meeting of Shareholders to be held on or about May 9, 2000. Said
information is incorporated herein by reference.
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners,
directors and executive officers of Registrant will be set forth under the
caption, "Information Concerning the Solicitation" in Registrant's Proxy
Statement for use in connection with the Annual Meeting of Shareholders to be
held on or about May 9, 2000. Said information is incorporated herein by
reference.
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth under the caption, "Proposal No. 1 Election of Directors of the Company"
in Registrant's Proxy Statement for use in connection with the Annual Meeting of
Shareholders to be held on or about May 9, 2000. Said information is
incorporated herein by reference.
-13-
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements:
A list of the consolidated financial statements of
Registrant incorporated herein is included in Item 8 of
this Report.
2. Financial Statement Schedules:
Schedules have been omitted because they are not
applicable or are not required under the instructions contained in Regulation
S-X or because the information required to be set forth therein is included in
the consolidated financial statements or notes thereto.
3. Exhibits Filed herewith:
Exhibit No. Exhibits
3.1 Articles of Incorporation, as amended to date, filed as
Exhibit 3.1 to Registrant's Report on Form 10-K, filed for
the year ended December 31, 1989, are incorporated herein
by reference.
3.2 Bylaws, as amended to date, filed as Exhibit 3.2 to
Registrant's Report on Form 10-K, filed for the year ended
December 31, 1992, are incorporated herein by reference.
4.2 Certificate of Determination of Preferences of Series B
Preferred Stock, filed as Appendix A to Registrant's
Registration Statement on Form S-1 (No. 33-22738), is
incorporated herein by reference.
10.1 Lease for Park Plaza Branch premises entered into as of
September 29, 1978, by and between Park Plaza Limited
Partnership as lessor and Tri Counties Bank as lessee,
filed as Exhibit 10.9 to the TriCo Bancshares Registration
Statement on Form S-14 (Registration No. 2-74796) is
incorporated herein by reference.
10.2 Lease for Administration Headquarters premises entered into
as of April 25, 1986, by and between Fortress-Independence
Partnership (A California Limited Partnership) as lessor
and Tri Counties Bank as lessee, filed as Exhibit 10.6 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1986, is incorporated herein by reference.
10.3 Lease for Data Processing premises entered into as of April
25, 1986, by and between Fortress-Independence Partnership
(A California Limited Partnership) as lessor and Tri
Counties Bank as lessee, filed as Exhibit 10.7 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1986, is incorporated herein by reference.
10.4 Lease for Chico Mall premises entered into as of March 11,
1988, by and between Chico Mall Associates as lessor and
Tri Counties Bank as lessee, filed as Exhibit 10.4 to
Registrant's Report on Form 10-K filed for the year ended
December 31, 1988, is incorporated by reference.
10.5 First amendment to lease entered into as of May 31, 1988 by
and between Chico Mall Associates and Tri Counties Bank,
filed as Exhibit 10.5 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1988, is incorporated
by reference.
-14-
10.9 Employment Agreement of Robert H. Steveson, dated December
12, 1989 between Tri Counties Bank and Robert H. Steveson,
filed as Exhibit 10.9 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1989, is incorporated
by reference.
10.11 Lease for Purchasing and Printing Department premises
entered into as of February 1, 1990, by and between Dennis
M. Casagrande as lessor and Tri Counties Bank as lessee,
filed as Exhibit 10.11 to Registrant's Report on Form 10-K
filed for the year ended December 31, 1991, is incorporated
herein by reference.
10.12 Addendum to Employment Agreement of Robert H. Steveson,
dated April 9, 1991, filed as Exhibit 10.12 to Registrant's
Report on Form 10-K filed for the year ended December 31,
1991, is incorporated herein by reference.
10.13 The 1993 Non-Qualified Stock Option Plan filed as Exhibit
4.1, the Non-Qualified Stock Option Plan filed as Exhibit
4.2 and the Incentive Stock Option Plan filed as Exhibit
4.3 to Registrant's Form S-8 Registration No. 33-88704
dated January 19, 1995 and the 1995 Incentive Stock Option
Plan filed as Exhibit 4.1 to Registrant's Form S-8,
Registration No. 33-62063 dated August 23, 1995, are
incorporated herein by reference.
11.1 Computation of earnings per share.
13.1 TriCo Bancshares 1999 Annual Report to Shareholders.*
21.1 Tri Counties Bank, a California banking corporation, is the
only subsidiary of Registrant.
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule
* Deemed filed only with respect to those portions thereof incorporated herein
by reference.
(b) Reports on Form 8-K:
None
-15-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 14, 2000 TRICO BANCSHARES
By: /s/ Richard P. Smith
Richard P. Smith, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 14, 2000 /s/ Richard P. Smith
Richard P. Smith, President, Chief Executive
Officer and Director (Principal Executive Officer)
Date: March 14, 2000 /s/ Thomas J. Reddish
Thomas J. Reddish, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
Date: March 14, 2000 /s/ Everett B. Beich
Everett B. Beich, Director
Date: March 21, 2000 /s/ William J. Casey
William J. Casey, Director and Vice Chairman
of the Board
Date: March 21, 2000 /s/ Craig S. Compton
Craig S. Compton, Director
Date: March 14, 2000 /s/ Douglas F. Hignell
Douglas F. Hignell, Secretary and Director
Date: March 14, 2000 /s/ Brian D. Leidig
Brian D. Leidig, Director
Date: March 14, 2000 /s/ Wendell J. Lundberg
Wendell J. Lundberg, Director
Date: March 14, 2000 /s/ Donald E. Murphy
Donald E. Murphy, Director
-16-
Date: March 14, 2000 /s/ Robert H. Steveson
Robert H. Steveson, Director and
Co-Chairman of the Board
Date: March 14, 2000 /s/ Carroll R. Taresh
Carroll R. Taresh, Director
Date: March 14, 2000 /s/ Alex A. Vereschagin
Alex A. Vereschagin, Jr., Director and
Chairman of the Board
-17-
EXHIBIT 11.1
COMPUTATIONS OF EARNINGS PER SHARE
Years ended December 31
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Shares used in the computation
of earnings per share1
Weighted daily average
of shares outstanding 7,129,560 7,017,306 6,978,089 6,769,735 6,645,138
Shares used in the computation
of diluted earnings per share 7,318,520 7,267,602 7,246,011 7,034,627 6,985,339
========= ========= ========= ========= =========
Net income used in the computation of earnings per common stock:
Income before adjustment
for interest expense on
convertible capital notes $11,403 $8,770 $5,869 $7,306 $7,045
Adjustment for preferred
Stock dividend -- -- -- -- (245)
Net income, as adjusted $11,403 $8,770 $5,869 $7,306 $6,800
======= ====== ====== ====== ======
Basic earnings per share $ 1.60 $ 1.25 $ 0.84 $ 1.08 $ 1.02
======= ======= ======= ======= =======
Diluted earnings per share $ 1.56 $ 1.21 $ 0.81 $ 1.04 $ 0.97
======= ======= ======= ======= =======
1Retroactively adjusted for stock dividends and stock splits.
-1-
EXHIBIT 13.1
TRICO BANCSHARES CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
Assets 1999 1998
Cash and due from banks $ 52,036 $ 50,483
Federal funds sold 8,400 --
------------------------------
Cash and cash equivalents 60,436 50,483
Securities available-for-sale 231,708 279,676
Loans:
Commercial 262,916 211,773
Consumer 79,589 72,512
Real estate mortgages 207,197 211,072
Real estate construction 38,277 37,076
------------------------------
587,979 532,433
Less: Allowance for loan losses 11,037 8,206
------------------------------
Net loans 576,942 524,227
Premises and equipment, net 16,043 16,088
Other real estate owned 760 1,412
Accrued interest receivable 6,076 5,821
Deferred income taxes 10,764 5,783
Intangible assets 6,429 7,564
Other assets 15,638 13,545
------------------------------
Total assets $ 924,796 $ 904,599
==============================
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing demand $ 155,937 $ 148,840
Interest-bearing demand 143,923 149,698
Savings 222,615 220,810
Time certificates, $100,000 and over 73,462 64,857
Other time certificates 198,173 184,968
------------------------------
Total deposits 794,110 769,173
Federal funds purchased -- 14,000
Accrued interest payable 4,193 3,863
Other liabilities 7,865 7,610
Long-term debt and other borrowings 45,505 37,924
------------------------------
Total liabilities 851,673 832,570
Commitments and contingencies (Note H)
Shareholders' equity:
Common stock, no par value: Authorized 20,000,000 shares;
issued and outstanding 7,152,329 and 7,050,990 shares, respectively 50,043 48,838
Retained earnings 28,613 22,257
Accumulated other comprehensive income (loss) (5,533) 934
------------------------------
Total shareholders' equity 73,123 72,029
------------------------------
Total liabilities and shareholders' equity $ 924,796 $ 904,599
==============================
See Notes to Consolidated Financial Statements
-1-
Exhibit 13.1
TRICO BANCSHARES CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except earnings per share)
Years Ended December 31,
1999 1998 1997
Interest income:
Interest and fees on loans $ 53,395 $ 48,506 $ 44,903
Interest on investment securities--taxable 12,500 14,622 13,791
Interest on investment securities--tax exempt 2,229 1,860 630
Interest on federal funds sold 465 150 553
-------------------------------------------------
Total interest income 68,589 65,138 59,877
Interest expense:
Interest on interest-bearing demand deposits 2,287 2,932 2,781
Interest on savings 6,811 6,473 6,400
Interest on time certificates of deposit 8,970 11,685 11,481
Interest on time certificates of deposit, $100,000 and over 3,209 1,775 2,020
Interest on short-term borrowing 386 816 537
Interest on long-term debt 2,707 1,615 716
-------------------------------------------------
Total interest expense 24,370 25,296 23,935
-------------------------------------------------
Net interest income 44,219 39,842 35,942
Provision for loan losses 3,550 4,200 3,000
-------------------------------------------------
Net interest income after provision for loan losses 40,669 35,642 32,942
Noninterest income:
Service charges and fees 7,127 7,387 6,745
Other income 4,974 5,482 2,821
-------------------------------------------------
Total noninterest income 12,101 12,869 9,566
Noninterest expenses:
Salaries and related expenses 17,837 16,803 15,671
Other, net 16,996 17,889 17,261
-------------------------------------------------
Total noninterest expenses 34,833 34,692 32,932
-------------------------------------------------
Income before income taxes 17,937 13,819 9,576
Income taxes 6,534 5,049 3,707
-------------------------------------------------
Net income $11,403 $ 8,770 $ 5,869
=================================================
Basic earnings per common share $ 1.60 $ 1.25 $ 0.84
Diluted earnings per common share $ 1.56 $ 1.21 $ 0.81
See Notes to Consolidated Financial Statements
-2-
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997 (in thousands, except share amounts)
Common Stock Accumulated
Number Other
of Retained Comprehensive Comprehensive
Shares Amount Earnings Income (Loss) Total Income
----------------------------------------------------------------
Balance, December 31, 1996 4,641,223 $47,652 $14,076 $(951) $60,777
Exercise of Common Stock options 22,526 332 332
Repurchase of Common Stock (1,100) (11) (19) (30)
Common Stock cash dividends (2,970) (2,970)
Stock option amortization 188 188
Comprehensive income:
Net income 5,869 5,869 $5,869
Other comprehensive income, net of tax:
Change in unrealized loss on securities, net of tax
and reclassification adjustments (Note A): 958
----------
Other comprehensive income: 958 958 958
----------
Comprehensive income $6,827
---------------------------------------------------===============
Balance, December 31, 1997 4,662,649 48,161 16,956 7 65,124
Exercise of Common Stock options 60,125 532 532
3-for-2 Common Stock split 2,330,371
Repurchase of Common Stock (2,055) (21) (39) (60)
Common Stock cash dividends (3,430) (3,430)
Stock option amortization 166 166
Comprehensive income:
Net income 8,770 8,770 $8,770
Other comprehensive income, net of tax:
Cumulative effect of change in accounting principle 337
Change in unrealized gain on securities, net of tax
and reclassification adjustments (Note A): 590
----------
Other comprehensive income: 927 927 927
----------
Comprehensive income $9,697
---------------------------------------------------===============
Balance, December 31, 1998 7,050,990 48,838 22,257 934 72,029
Exercise of Common Stock options 106,440 1,074 1,074
Repurchase of Common Stock (5,101) (35) (51) (86)
Common Stock cash dividends (4,996) (4,996)
Stock option amortization 166 166
Comprehensive income:
Net income 11,403 11,403 $11,403
Other comprehensive income, net of tax:
Change in unrealized gain on securities, net of tax
and reclassification adjustments (Note A): (6,467)
----------
Other comprehensive loss: (6,467) (6,467) (6,467)
----------
Comprehensive income $4,936
---------------------------------------------------===============
Balance, December 31, 1999 7,152,329 $50,043 $28,613 $(5,533) $73,123
===================================================
See Notes to Consolidated Financial Statements
-3-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
1999 1998 1997
Operating activities:
Net income $ 11,403 $ 8,770 $ 5,869
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 3,550 4,200 3,000
Provision for losses on other real estate owned 10 377 169
Provision for premises impairment and lease loss -- 175 300
Depreciation and amortization 2,615 2,611 2,438
Amortization of intangible assets 1,135 1,338 1,342
(Accretion) amortization of investment
security (discounts) premiums, net 538 128 (273)
Deferred income taxes (410) (2,084) (601)
Investment security gains, net (24) (316) (18)
(Gain) loss on sale of loans (800) (497) (260)
(Gain) loss on sale of other real estate owned, net (178) 96 11
Amortization of stock options 166 166 188
Change in assets and liabilities:
(Increase) decrease in interest receivable (255) (120) (1,129)
Increase (decrease) in interest payable 330 (176) 992
(Increase) decrease in other assets and liabilities (2,481) 678 (10,078)
------------------------------------------
Net cash provided by operating activities 15,599 15,346 1,950
Investing activities :
Proceeds from maturities of securities held-to-maturity -- 18,523 14,116
Proceeds from maturities of securities available-for-sale 64,496 82,214 35,604
Proceeds from sales of securities available-for-sale 14,137 87,094 29,033
Purchases of securities available-for-sale (41,372) (199,335) (173,327)
Net increase in loans (56,138) (86,066) (13,915)
Purchases of premises and equipment (2,058) (1,225) (5,968)
Proceeds from sale of other real estate owned 1,268 1,711 838
Proceeds from sale of premises and equipment 44 1,110 --
Proceeds from sale of real estate properties -- 554 --
Purchases and additions to real estate properties -- -- (288)
------------------------------------------
Net cash used by investing activities (19,623) (95,420) (113,907)
Financing activities:
Net increase in deposits 24,937 45,079 128,473
Net increase (decrease) in federal funds borrowed (14,000) (1,300) 10,400
Borrowings under long-term debt agreements 21,000 31,500 --
Payments of principal on long-term debt agreements (13,419) (5,016) (12,841)
Repurchase of Common Stock (86) (60) (30)
Cash dividends-- Common (4,996) (3,430) (2,970)
Issuance of Common Stock 541 308 170
------------------------------------------
Net cash provided by financing activities 13,977 67,081 123,202
------------------------------------------
Increase (decrease) in cash and cash equivalents 9,953 (12,993) 11,245
Cash and cash equivalents at beginning of year 50,483 63,476 52,231
------------------------------------------
Cash and cash equivalents at end of year $ 60,436 $ 50,483 $ 63,476
==========================================
-4-
Supplemental information:
Cash paid for taxes $ 7,240 $ 6,965 $ 3,907
Cash paid for interest expense $ 24,040 $ 25,472 $ 22,943
Non-cash assets acquired through foreclosure $ 673 $ 644 $ 1,859
Supplemental schedule of non-cash investing and financing activities: On October
1, 1998, the Company adopted Statement of Financial Accounting Standards No. 133
(see Note A) and in connection with the adoption, elected to transfer investment
securities carried at $78,901,000 from the held-to-maturity classification to
the available-for-sale classification.
See Notes to Consolidated Financial Statements
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1999, 1998
and 1997
Note A - General Summary of Significant Accounting Policies
The accounting and reporting policies of TriCo Bancshares (the "Company")
conform to generally accepted accounting principles and general practices within
the banking industry. The following are descriptions of the more significant
accounting and reporting policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary, Tri Counties Bank (the "Bank"), and the
wholly-owned subsidiaries of the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Nature of Operations
The Company operates twenty-eight branch offices and nine in-store branch
offices in the California counties of Butte, Del Norte, Glenn, Kern, Lake,
Lassen, Madera, Mendocino, Merced, Nevada, Sacramento, Shasta, Siskiyou,
Stanislaus, Sutter, Tehama, Tulare 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 generally
accepted accounting principles 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.
Actual results could differ from those estimates.
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. In
1999 and 1998, the Company did not have any securities classified as trading.
Available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. 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 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.
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
The adoption of SFAS 133 did not materially impact the financial position
or results of operations of the Company as the Company does not utilize
derivative instruments in its operations. As allowed by the Statement, in
connection with the adoption of SFAS 133, the Bank reclassified investment
securities carried at $78,901,000 from the held-to-maturity classification to
the available-for-sale classification. As a result of this transfer, an
unrealized gain of $337,000, net of tax, was recognized in other comprehensive
income as a cumulative effect of change in accounting principle.
-6-
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 not be classified as nonaccrual. 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.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans 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,
leases and commitments to extend credit, based on evaluations of the
collectibility, impairment and prior loss experience of loans, leases and
commitments to extend credit. The evaluations take into consideration such
factors as changes in the nature and size of the portfolio, overall portfolio
quality, loan concentrations, specific problem loans, commitments, 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. Certain 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.
Mortgage Operations
The Company sold substantially all of its conforming long-term residential
mortgage loans originated during 1999, 1998 and 1997 for cash proceeds equal to
the fair value of the loans. The Company records originated mortgage servicing
rights as assets by allocating the total costs incurred between the loan and the
servicing right based on their relative fair values.
The cost of mortgage servicing rights is amortized in proportion to, and
over the period of, estimated net servicing revenues. The Company assesses
capitalized mortgage servicing rights for impairment based upon the fair value
of those rights at each reporting date. For purposes of measuring impairment,
the rights are stratified based upon the product type, term and interest rates.
Fair value is determined by discounting estimated net future cash flows from
mortgage servicing activities using discount rates that approximate current
market rates and estimated prepayment rates, among other assumptions. The amount
of impairment recognized, if any, is the amount by which the capitalized
mortgage servicing rights for a stratum exceeds their fair value. Impairment, if
any, is recognized through a valuation allowance for each individual stratum.
At December 31, 1999, the Company had no mortgage loans held for sale. At
December 31, 1999 and 1998, the Company serviced real estate mortgage loans for
others of $149 million and $124 million, respectively.
Premises and Equipment
Premises 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.
-7-
Other Real Estate Owned
Real estate acquired by foreclosure is carried at the lower of the recorded
investment in the property or its fair value less estimated disposition costs.
Prior to foreclosure, the value of the underlying loan is written down to the
fair value of the real estate to be acquired less estimated disposition costs by
a charge to the allowance for loan losses, when necessary. Any subsequent
write-downs are recorded as a valuation allowance with a charge to other
expenses in the income statement. Expenses related to such properties, net of
related income, and gains and losses on their disposition, are included in other
expenses.
Identifiable Intangible Assets
Identifiable intangible assets are included in other assets and are
amortized using an accelerated method over a period of ten years.
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.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and Federal funds sold.
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 and the pro forma disclosures required by SFAS 123 are
included in Note J.
Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). This
statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. For the Company,
comprehensive income includes net income reported on the statement of income and
changes in the fair value of its available-for-sale investments reported as a
component of shareholders' equity.
The changes in the components of other comprehensive income for the years ended
December 31, 1999, 1998 and 1997 are reported as follows:
1999 1998 1997
(in thousands)
Unrealized gain (loss) arising during the period, net of tax $(6,452) $1,128 $969
Reclassification adjustment for net realized gains
on securities available for sale included in net
income during the year, net of tax of $9, $115 and
$7, respectively (15) (201) (11)
-----------------------------------------
$(6,467) $927 $958
=========================================
-8-
Reclassifications
Certain amounts previously reported in the 1998 and 1997 financial
statements have been reclassified to conform to the 1999 presentation. These
reclassifications did not effect previously reported net income or total
shareholders' equity.
Note B - Restricted Cash Balances
Reserves (in the form of deposits with the Federal Reserve Bank) of $500,000
were maintained to satisfy Federal regulatory requirements at December 31, 1999
and December 31, 1998. These reserves are included in cash and due from banks in
the accompanying balance sheet.
Note C - Investment Securities
The amortized cost and estimated fair values of investments in debt securities are summarized in the following tables:
December 31, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------
(in thousands)
Securities Available-for-Sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $31,447 $16 $ (887) $30,576
Obligations of states and political subdivisions 44,969 40 (2,394) 42,615
Mortgage-backed securities 137,980 1 (5,392) 132,589
Other securities 26,029 170 (271) 25,928
----------------------------------------------------------
Totals $240,425 $ 227 $ (8,944) $231,708
==========================================================
December 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------------------
(in thousands)
Securities Available-for-Sale
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 39,523 $ 260 $ -- $ 39,783
Obligations of states and political subdivisions 50,525 1,545 (44) 52,026
Mortgage-backed securities 166,557 415 (326) 166,646
Other securities 21,595 -- (374) 21,221
-----------------------------------------------------------
Totals $ 278,200 $2,220 $ (744) $279,676
===========================================================
-9-
The amortized cost and estimated fair value of debt securities at December
31, 1999 by contractual maturity are shown below. Actual maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
(in thousands)
Securities Available-for-Sale
Due in one year $ 1,473 $ 1,469
Due after one year through five years 22,902 22,430
Due after five years through ten years 47,437 45,688
Due after ten years 164,308 157,816
-----------------------------------
236,120 227,403
Other Securities 4,305 4,305
-----------------------------------
Totals $240,425 $231,708
===================================
Proceeds from sales of securities available-for-sale were as follows:
Gross Gross Gross
For the Year Proceeds Gains Losses
(in thousands)
1999 $14,137 $ 24 $ --
1998 $87,094 $331 $ 15
1997 $29,033 $ 19 $ 1
Investment securities with an aggregate carrying value of $106,585,000 and
$118,962,000 at December 31, 1999 and 1998, respectively, were pledged as
collateral for specific borrowings, lines of credit and local agency deposits.
Note D - Allowance for Loan Losses
Activity in the allowance for loan losses was as follows:
Years Ended December 31,
1999 1998 1997
(in thousands)
Balance, beginning of year $8,206 6,459 $6,097
Provision for loan losses 3,550 4,200 3,000
Loans charged off (1,082) (2,755) (2,840)
Recoveries of loans previously charged off 363 302 202
----------------------------------
Balance, end of year $11,037 $8,206 $6,459
Loans classified as nonaccrual amounted to approximately $1,758,000,
$1,045,000, and $4,721,000 at December 31, 1999, 1998, and 1997, respectively.
These nonaccrual loans were classified as impaired and are included in the
recorded balance in impaired loans for the respective years shown below. If
interest on those loans had been accrued, such income would have been
approximately $69,000, $220,000, and $460,000, in 1999, 1998 and 1997,
respectively.
-10-
As of December 31, the Company's recorded investment in impaired loans and
the related valuation allowance were as follows (in thousands):
1999
Recorded Valuation
Investment Allowance
Impaired loans -
Valuation allowance required $649 $215
No valuation allowance required 3,943 --
-----------------------------------
Total impaired loans $4,592 $215
1998
Recorded Valuation
Investment Allowance
Impaired loans -
Valuation allowance required $ 952 $490
No valuation allowance required 4,750 --
-----------------------------------
Total impaired loans $5,702 $490
This valuation allowance is included in the allowance for loan losses shown
above for the respective year. The average recorded investment in impaired loans
was $5,147,000, $9,459,000, and $14,784,000 for the years ended December 31,
1999, 1998 and 1997, respectively. The Company recognized interest income on
impaired loans of $371,000, $565,000, and $1,118,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Note E - Premises and Equipment
Premises and equipment were comprised of:
December 31,
1999 1998
(in thousands)
Premises $11,814 $11,441
Furniture and equipment 14,040 13,141
---------------------------------
25,854 24,582
Less:
Accumulated depreciation
and amortization (13,372) (11,897)
---------------------------------
12,482 12,685
Land and land improvements 3,561 3,403
---------------------------------
$16,043 $16,088
=================================
Depreciation and amortization of premises and equipment amounted to
$2,281,000, $2,251,000, and $2,100,000 in 1999, 1998 and 1997, respectively. In
1997, the Company provided $300,000 for the impairment of certain properties and
leaseholds which it vacated.
-11-
Note F - Time Deposits
At December 31, 1999, the scheduled maturities of time deposits were as follows
(in thousands):
Scheduled
Maturities
2000 $260,373
2001 8,070
2002 2,998
2003 32
2004 and thereafter 162
---------
Total $271,635
Note G - Long-Term Debt and Other Borrowings
Long-term debt is as follows:
December 31,
1999 1998
(in thousands)
FHLB loan, fixed rate of 5.62% payable on February 4, 1999 $ -- $ 400
FHLB loan, fixed rate of 6.14% payable on March 21, 1999 -- 3,000
FHLB loan, fixed rate of 5.41% payable on May 30, 2000 20,000 --
FHLB loan, fixed rate of 5.84% payable on November 6, 2000 1,500 1,500
FHLB loan, fixed rate of 5.90% payable on January 16, 2001 1,000 1,000
FHLB loan, fixed rate of 5.20% payable on June 12, 2003, callable
by FHLB on a quarterly basis beginning June 12, 1999 -- 10,000
FHLB loan, fixed rate of 5.41% payable on April 7, 2008, callable
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 --
Capital lease obligation on premises, effective rate of 13% payable
monthly in varying amounts through December 1, 2009 505 524
-------------------------
Total long-term debt $45,505 $37,924
The Company maintains a collateralized line of credit with the Federal Home
Loan Bank of San Francisco. Based on the FHLB stock requirements at December 31,
1999, this line provided for maximum borrowings of $82,371,000 of which
$45,000,000 was outstanding, leaving $37,371,000 available. The maximum
month-end outstanding balances of short term reverse repurchase agreements in
1999 and 1998 were $5,000,000 and $20,000,000, respectively. The Company has
available unused lines of credit totaling $65,000,000 for Federal funds
transactions at December 31, 1999.
-12-
Note H - Commitments and Contingencies (See also Note P)
At December 31, 1999, future minimum commitments under non-cancelable
capital and operating leases with initial or remaining terms of one year or more
are as follows:
Capital Operating
Leases Leases
(in thousands)
2000 $ 87 $ 827
2001 88 693
2002 89 584
2003 90 543
2004 91 420
Thereafter 471 2,123
---------------------------
Future minimum lease payments $ 916 $5,190
Less amount representing interest 411
---------------------------
Present value of future lease payments $ 505
Rent expense under operating leases was $1,013,000 in 1999, $1,066,000 in
1998, and $1,059,000 in 1997.
The Company is a defendant in legal actions arising from normal business
activities. Management believes that these actions are without merit or that the
ultimate liability, if any, resulting from them will not materially affect the
Company's financial position.
Note I - Dividend Restrictions
The Bank paid to the Company cash dividends in the aggregate amounts of
$5,170,000, $3,650,000, and $3,000,000 in 1999, 1998 and 1997, respectively. The
Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the
State of California Department of Financial Institutions. California banking
laws limit the Bank's ability to pay dividends to the lesser of (1) retained
earnings or (2) net income for the last three fiscal years, less cash
distributions paid during such period. Under this regulation, at December 31,
1999, the Bank may pay dividends of $14,828,000.
-13-
Note J - Stock Options
In May 1995, the Company adopted the TriCo Bancshares 1995 Incentive Stock
Option Plan (`95 Plan) covering key employees. Under the 1995 Plan, the option
price cannot be less than the fair market value of the Common Stock at the date
of grant. Options for the `95 Plan expire on the tenth anniversary of the grant
date.
The Company also has outstanding options under one plan approved in 1993
and two plans approved in 1989. Options under the 1993 plan were granted at an
exercise price less than the fair market value of the common stock and vest over
a six year period. Options under the 1989 plans vest 20% annually. Unexercised
options for the 1993 and 1989 plans terminate 10 years from the date of the
grant.
Stock option activity is summarized in the following table:
Weighted Weighted
Average Average
Number Option Price Exercise Fair value
Of Shares* Per Share Price of Grants
Outstanding at
December 31, 1996 640,046 $4.95 to $12.25 $5.31
Options granted 84,000 14.17 to 18.25 17.52 $5.59
Options exercised (33,789) 4.95 to 5.24 5.03
Options forfeited (18,900) 5.24 to 5.24 5.24
Outstanding at
December 31, 1997 671,357 4.95 to 18.25 5.65
Options exercised (60,125) 4.95 to 18.25 5.12
Options forfeited (1,350) 18.25 to 18.25 18.25
Outstanding at
December 31, 1998 609,882 4.95 to 18.25 7.37
Options exercised (106,440) 4.95 to 5.24 5.09
Options forfeited (2,551) 5.24 to 18.25 12.89
Outstanding at
December 31, 1999 500,891 $4.95 to $18.25 $7.82
*Adjusted for the 3-for-2 Common Stock split effected October 30, 1998.
Of the stock options outstanding as of December 31, 1999, options on
455,760 shares were exercisable at a weighted average price of $7.09.
The Company has stock options outstanding under the four option plans
described above. The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized except for the options
granted under the 1993 plan. The Company recognized expense of $166,000,
$166,000, and $188,000 for the 1993 Plan options in 1999, 1998 and 1997
respectively. Had compensation cost for these 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:
1999 1998 1997
Net income As reported $11,403 $8,770 $5,869
Pro forma $11,330 $8,697 $5,829
Basic earnings per share As reported $1.60 $1.25 $0.84
Pro forma $1.59 $1.24 $0.83
Diluted earnings per share As reported $1.56 $1.21 $0.81
Pro forma $1.55 $1.20 $0.81
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997: risk-free interest rate of 6.06%; expected
dividend yield of 2.46%; expected life of 6 years; expected volatility of
30.49%. No options were granted in 1999 and 1998.
-14-
Note K - Other Noninterest Income and Expenses
The components of other noninterest income were as follows:
Years Ended December 31,
1999 1998 1997
(in thousands)
Commissions on sale of investment and insurance products $ 2,319 $ 2,066 $ 2,016
Gain on sale of loans and leases 800 497 260
Increase in cash value of insurance policies 373 336 233
Sale of customer checks 283 263 63
Gain (loss) on sale of other real estate owned 178 (96) (11)
Gain on sale of investments 24 316 18
Gain on sale of credit card portfolio -- 897 --
Other 997 1,203 242
-------------------------------------------
Total other noninterest income $ 4,974 $ 5,482 $ 2,821
The components of other noninterest expenses were as follows:
Years Ended December 31,
1999 1998 1997
(in thousands)
Equipment and data processing $ 3,525 $