UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2004 Commission file number 0-10661
- ------------------------------- ------------------------------
TRICO BANCSHARES
(Exact name of registrant as specified in its charter)
California 94-2792841
- ------------------------------ -------------------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
63 Constitution Drive, Chico, California 95973
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 530/898-0300
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
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 August 3, 2004: 15,677,000
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 14
Item 2 - Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 29
Item 4 - Controls and Procedures 30
PART II - OTHER INFORMATION 31
Item 1 - Legal Proceedings 31
Item 2 - Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 31
Item 4 - Submission of Matters to a Vote of Security Holders 31
Item 5 - Other Information 32
Item 6 - Exhibits and Reports on Form 8-K 32
Signatures 34
Exhibits 35
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,
they 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;
- increased economic uncertainty created by the terrorist attacks on the
United States and the actions taken in response;
- 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;
- 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; and
- asset/liability matching risks and liquidity risks.
The reader is directed to the Company's annual report on Form 10-K for the year
ended December 31, 2003, 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)
(Unaudited) (Unaudited)
At June 30, At December 31,
2004 2003 2003
------------------------------- -----------------
Assets:
Cash and due from banks $65,512 $65,051 $80,603
Federal funds sold - 3,200 326
------------------------------- -----------------
Cash and cash equivalents 65,512 68,251 80,929
Investment securities available for sale 309,163 354,040 316,436
Loans
Commercial 146,262 147,746 142,252
Consumer 357,901 237,704 319,029
Real estate mortgages 518,696 407,218 458,369
Real estate construction 55,605 59,622 61,591
------------------------------- -----------------
1,078,464 852,290 981,241
Allowance for loan losses (15,529) (13,455) (13,773)
------------------------------- -----------------
Loans, net of allowance for loan losses 1,062,935 838,835 967,468
Premises and equipment, net 18,996 19,830 19,521
Cash value of life insurance 39,844 34,633 38,980
Other real estate owned 628 1,551 932
Accrued interest receivable 6,069 6,001 6,027
Goodwill and other intangible assets 20,931 22,189 21,604
Other assets 21,095 15,572 16,858
------------------------------- -----------------
Total Assets $1,545,173 $1,360,902 $1,468,755
=============================== =================
Liabilities:
Deposits:
Noninterest-bearing demand $282,292 $260,861 $298,462
Interest-bearing demand 224,552 204,538 220,875
Savings 476,798 393,198 441,461
Time certificates, $100,000 and over 99,242 111,249 94,500
Other time certificates 184,468 203,759 181,525
------------------------------- -----------------
Total deposits 1,267,352 1,173,605 1,236,823
Federal funds purchased 66,000 17,400 39,500
Accrued interest payable 2,272 2,615 2,638
Other Liabilities 17,125 19,810 18,328
Long-term debt and other borrowings 22,866 22,905 22,887
Junior subordinated debt 41,238 - 20,619
------------------------------- -----------------
Total Liabilities 1,416,853 1,236,335 1,340,795
=============================== =================
Shareholders' Equity:
Authorized - 50,000,000 shares of common stock
Issued and outstanding:
15,640,000 at June 30, 2004 69,623
15,704,000 at June 30, 2003 70,015
15,668,000 at December 31, 2003 69,767
Retained earnings 60,681 51,119 56,379
Accumulated other comprehensive
(loss) income, net (1,984) 3,433 1,814
------------------------------- -----------------
Total Shareholders' Equity 128,320 124,567 127,960
------------------------------- -----------------
Total Liabilities and Shareholders' Equity $1,545,173 $1,360,902 $1,468,755
=============================== =================
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 AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
Three months ended June 30,Six months ended June 30,
2004 2003 2004 2003
--------------------------------------------------------
Interest Income:
Interest and fees on loans $17,551 $14,713 $34,290 $27,702
Interest on federal funds sold 1 18 11 102
Interest on investment securities
available for sale
Taxable 2,638 2,939 5,359 5,683
Tax exempt 438 491 880 1,023
--------------------------------------------------------
Total interest income 20,628 18,161 40,540 34,510
--------------------------------------------------------
Interest Expense:
Interest on interest-bearing demand deposits 105 132 205 250
Interest on savings 857 906 1,764 1,626
Interest on time certificates of deposit 1,425 2,023 2,867 3,982
Interest on short-term borrowing 150 63 184 63
Interest on long-term debt 320 321 640 639
Interest on junior subordinated debt 230 - 441 -
--------------------------------------------------------
Total interest expense 3,087 3,445 6,101 6,560
--------------------------------------------------------
Net Interest Income 17,541 14,716 34,439 27,950
--------------------------------------------------------
Provision for loan losses 1,300 150 1,950 300
--------------------------------------------------------
Net Interest Income After Provision for
Loan Losses 16,241 14,566 32,489 27,650
--------------------------------------------------------
Noninterest Income:
Service charges and fees 4,910 3,985 8,991 7,485
Gain on sale of loans 433 1,319 1,058 2,452
Commissions on sale of non-deposit
investment products 615 461 1,129 909
Other 984 789 1,519 1,104
--------------------------------------------------------
Total Noninterest Income 6,942 6,554 12,697 11,950
--------------------------------------------------------
Noninterest Expense:
Salaries and related benefits 8,440 7,636 16,607 14,513
Other 6,972 6,732 13,151 12,506
--------------------------------------------------------
Total Noninterest Expense 15,412 14,368 29,758 27,019
--------------------------------------------------------
Income Before Income Taxes 7,771 6,752 15,428 12,581
--------------------------------------------------------
Provision for income taxes 2,924 2,498 5,804 4,714
--------------------------------------------------------
Net Income $4,847 $4,254 $9,624 $7,867
--------------------------------------------------------
Other Comprehensive (Loss) Income:
Change in unrealized (loss) gain on
securities available for sale, net (4,410) 745 (3,798) 1,130
--------------------------------------------------------
Comprehensive Income $437 $4,999 $5,826 $8,997
========================================================
Average Shares Outstanding 15,640 15,593 15,628 14,867
Diluted Average Shares Outstanding 16,215 16,042 16,214 15,316
Per Share Data
Basic Earnings $0.31 $0.27 $0.62 $0.53
Diluted Earnings $0.30 $0.27 $0.59 $0.51
Dividends Paid $0.11 $0.10 $0.21 $0.20
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, unaudited)
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss), net Total
-----------------------------------------------
Balance, December 31, 2002 $50,472 $46,239 $2,303 $99,014
Net income for the period 7,867 7,867
Stock issued, including
stock option tax benefits 18,527 18,527
Exercise of stock options,
including tax benefits 1,016 1,016
Dividends (2,987) (2,987)
Unrealized gain on securities
available for sale, net 1,130 1,130
-----------------------------------------------
Balance, June 30, 2003 $70,015 $51,119 $3,433 $124,567
===============================================
Balance, December 31, 2003 $69,767 $56,379 $1,814 $127,960
Net income for the period 9,624 9,624
Stock issued, including
stock option tax benefits 602 602
Repurchase of common stock (746) (2,047) (2,793)
Dividends (3,275) (3,275)
Unrealized loss on securities
available for sale, net (3,798) (3,798)
-----------------------------------------------
Balance, June 30, 2004 $69,623 $60,681 ($1,984) $128,320
===============================================
See accompanying notes to unaudited condensed consolidated financial statements
-4-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
For the six months
ended June 30,
2004 2003
-------------------------------
Operating Activities:
Net income $9,624 $7,867
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment 1,625 1,323
Amortization of intangible assets 673 552
Provision for loan losses 1,950 300
Amortization of investment securities premium, net 1,009 1,819
Investment security gains net - (100)
Originations of loans for resale (55,376) (115,962)
Proceeds from sale of loans originated for resale 55,929 117,135
Gain on sale of loans (1,058) (2,452)
Amortization of mortgage servicing rights 406 543
Reduction of mortgage servicing rights valuation allowance (600) -
Gain on sale of other real estate owned (182) (60)
Gain on sale of fixed assets (12) (3)
Change in assets and liabilities:
(Increase) decrease in interest receivable (42) 185
Decrease in interest payable (366) (386)
(Increase) decrease in other assets and liabilities (3,112) 3,329
-------------------------------
Net Cash Provided by Operating Activities 10,468 14,090
-------------------------------
Investing Activities:
Net cash obtained in mergers and acquisitions - 7,450
Proceeds from maturities of securities available-for-sale 41,225 122,570
Proceeds from sale of securities available-for-sale - 12,139
Purchases of securities available-for-sale (41,438) (109,717)
Net increase in loans (97,417) (90,439)
Proceeds from sale of premises and equipment 539 10
Purchases of property and equipment (1,407) (1,555)
Proceeds from sale of other real estate owned 478 60
Purchase of life insurance - (18,910)
-------------------------------
Net Cash Used by Investing Activities (98,020) (78,392)
-------------------------------
Financing Activities:
Net increase in deposits 30,529 42,319
Net increase in Federal funds purchased 26,500 17,400
Issuance of junior subordinated debt 20,619 -
Payments of principal on long-term debt agreements (21) (19)
Repurchase of Common Stock (2,793)
Dividends paid (3,275) (2,987)
Exercise of stock options/issuance of Common Stock 576 570
-------------------------------
Net Cash Provided by Financing Activities 72,135 57,283
-------------------------------
Net Decrease in Cash and Cash Equivalents (15,417) (7,019)
-------------------------------
Cash and Cash Equivalents and Beginning of Period 80,929 75,270
-------------------------------
Cash and Cash Equivalents at End of Period $65,512 $68,251
===============================
Supplemental Disclosure of Noncash Activities:
Unrealized (loss) gain on securities available for sale ($6,477) $1,830
Loans transferred to other real estate owned - $619
Supplemental Disclosure of Cash Flow Activity:
Cash paid for interest expense $6,467 $6,872
Cash paid for income taxes $7,460 $3,010
Income tax benefit from stock option exercises $26 $446
The acquisition of North State National Bank
Involved the following:
Common stock issued $18,527
Liabilities assumed $126,722
Fair value of assets acquired, other than cash
and cash equivalents ($119,102)
Core deposit intangible ($3,365)
Goodwill ($15,332)
Net cash and cash equivalents received $7,450
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 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 and six month
periods ended June 30, 2004 are not necessarily indicative of the results
expected for the full year. These unaudited 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, 2003.
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 33 branch offices and 13 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 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 one accounting estimate that materially affects the financial
statements is the allowance for loan losses.
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 that 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
six months ended June 30, 2004 and throughout 2003, the Company did not have any
securities classified as either held-to-maturity or trading.
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 (loss) 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.
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 a permanent decline in value has occurred.
-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, and 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. 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
Transfers and servicing of financial assets and extinguishments of liabilities
are accounted for and reported based on consistent application of a
financial-components approach that focuses on control. Transfers of financial
assets that are sales are distinguished from transfers that are secured
borrowings. Retained interests (mortgage servicing rights) in loans sold are
measured by allocating the previous carrying amount of the transferred assets
between the loans sold and retained interest, if any, based on their relative
fair value at the date of transfer. Fair values are estimated using discounted
cash flows based on a current market interest rate.
The Company recognizes a gain and a related asset for the fair value of the
rights to service loans for others when loans are sold. The Company sold
substantially all of its conforming long-term residential mortgage loans
originated during six months ended June 30, 2004 for cash proceeds equal to the
fair value of the loans.
The following table summarizes the Company's mortgage servicing rights assets as
of June 30, 2004 and December 31, 2003.
December 31, June 30,
(Dollars in thousands) 2003 Additions Reductions 2004
-----------------------------------------------
Mortgage Servicing Rights $3,413 $506 ($406) $3,513
Valuation allowance (600) 600 -
-----------------------------------------------
Mortgage servicing rights, net
of valuation allowance $2,813 $506 $194 $3,513
===============================================
The recorded value of mortgage servicing rights is included in other assets, and
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 June 30, 2004, the Company had no
mortgage loans held for sale. At June 30, 2004 and December 31, 2003, the
Company serviced real estate mortgage loans for others of $373 million and $357
million, respectively.
-7-
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 for land improvement and
buildings.
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 together with other expenses related to such
properties, net of related income. Gains and losses on disposition of such
property are included in other income or other expenses as applicable.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over fair value of assets of businesses
acquired. The Company applies the provisions of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). 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 Standards 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 June
30, 2004 and December 31, 2003.
December 31, June 30,
(Dollar in Thousands) 2003 Additions Reductions 2004
----------------------------------------------
Core deposit intangibles $13,643 - - $13,643
Accumulated amortization (7,843) ($673) - (8,516)
----------------------------------------------
Core deposit intangibles, net $5,800 ($673) - $5,127
==============================================
-8-
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)
----------- -----------------------
2004 $1,358
2005 $1,381
2006 $1,395
2007 $490
2008 $523
Thereafter $653
The following table summarizes the Company's minimum pension liability
intangible as of June 30, 2004 and December 31, 2003.
December 31, June 30,
(Dollar in Thousands) 2003 Additions Reductions 2004
----------------------------------------------
Minimum pension liability
intangible $285 - - $285
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 June 30,
2004 and December 31, 2003.
December 31, June 30,
(Dollar in Thousands) 2003 Additions Reductions 2004
----------------------------------------------
Goodwill $15,519 - - $15,519
Impairment of Long-Lived Assets and Goodwill
The Company applies the provisions of SFAS 144. In accordance with SFAS 144,
long-lived assets, such as premises 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, in accordance
with FASB Statement of Financial Accounting Standards No. 141, Business
Combinations (SFAS 141). The residual fair value after this allocation is the
implied fair value of the reporting unit goodwill.
Junior Subordinated Debt
On June 22, 2004 the Company formed a subsidiary business trust, TriCo Capital
Trust II, to issue trust preferred securities. Concurrently with the issuance of
the trust preferred securities, the trust issued 619 shares of common stock to
the Company for $1,000 per share or an aggregate of $619,000. In addition, the
Company issued a Junior Subordinated Debenture to the Trust in the amount of
$20,619,000. The terms of the Junior Subordinated Debenture are materially
consistent with the terms of the trust preferred securities issued by TriCo
Capital Trust II. Also on June 22, 2004, TriCo Capital Trust II completed an
offering of 20,000 shares of cumulative trust preferred securities for cash in
an aggregate amount of $20,000,000. The trust preferred securities are
mandatorily redeemable upon maturity on July 23, 2034 with an interest rate that
resets quarterly at three-month LIBOR plus 2.55%, or 4.10% for the first
quarterly interest period. TriCo Capital Trust II has the right to redeem the
trust preferred securities on or after July 23, 2009. The trust preferred
securities were issued through an underwriting syndicate to which the Company
paid underwriting fees of $2.50 per trust preferred security or an aggregate of
$50,000. The net proceeds of $19,950,000 will be used to finance the opening of
new branches, improve bank services and technology, repurchase shares of the
Company's common stock as described below and increase the Company's capital.
The trust preferred securities have not been and will not be registered under
the Securities Act of 1933, as amended, or applicable state securities laws and
were sold pursuant to an exemption from registration under the Securities Act of
1933. The trust preferred securities may not be offered or sold in the United
States absent registration or an applicable exemption from the registration
requirements of the Securities Act of 1933, as amended, and applicable state
securities laws.
-9-
The $20,619,000 of junior subordinated debentures issued by TriCo Capital Trust
II were reflected as junior subordinated debt in the consolidated balance sheet
at June 30, 2004. The common stock issued by TriCo Capital Trust II was recorded
in other assets in the consolidated balance sheet at June 30, 2004.
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) and Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure (SFAS 148) permit 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 June 30, Six Months Ended June 30,
(in thousands, except per share amounts) 2004 2003 2004 2003
---- ---- ---- ----
Net income As reported $4,847 $4,254 $9,624 $7,867
Pro forma $4,762 $4,198 $9,457 $7,755
Basic earnings per share As reported $0.31 $0.27 $0.62 $0.53
Pro forma $0.30 $0.27 $0.61 $0.52
Diluted earnings per share As reported $0.30 $0.27 $0.59 $0.51
Pro forma $0.29 $0.26 $0.58 $0.51
Stock-based employee compensation
cost, net of related tax effects,
included in net income As reported $0 $0 $0 $0
Pro forma $85 $56 $167 $112
Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004.
-10-
Retirement Plans
The Company has supplemental retirement plans covering directors and 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 Six Months
Ended June 30, Ended June 30,
(in thousands) 2004 2003 2004 2003
---- ---- ---- ----
Net pension cost included the following components:
Service cost-benefits earned during the period $117 $31 $151 $63
Interest cost on projected benefit obligation 144 105 248 209
Amortization of net obligation at transition (3) 9 5 18
Amortization of prior service cost 34 20 54 40
Recognized net actuarial loss 18 38 55 77
-----------------------------------
Net periodic pension cost $310 $203 $513 $407
===================================
During the six months ended June 30, 2004, the Company contributed and paid out
as benefits $265,000 to participants under the plans. For the year ending
December 31, 2004, the Company expects to contribute and pay out as benefits
$490,000 to participants under the plans.
During the quarter ended June 30, 2004, the Company established the 2004 TriCo
Bancshares Supplemental Executive Retirement Plan ("2004 SERP"). The 2004 SERP
is designed to replace the 1987 Tri Counties Bank Supplemental Executive
Retirement Plan ("1987 SERP"). Participants who were eligible to receive
benefits in the 1987 SERP and were employed by the Company as of December 31,
2003 will have their benefits provided by the 2004 SERP. All eligible
Participants who were no longer employed by the Company as of December 31, 2003
will continue to receive benefits pursuant to the provisions of the 1987 SERP.
During the quarter ended June 30, 2004, the Company established the 2004 TriCo
Bancshares Supplemental Retirement Plan for Directors ("2004 SRP for
Directors"). The 2004 SRP for Directors is designed to replace the 1987 Tri
Counties Bank Supplemental Retirement Plan for Directors ("1987 SRP for
Directors"). Participants who were eligible to receive benefits in the 1987 SRP
for Directors and were Directors of by the Company as of December 31, 2003 will
have their benefits provided by the 2004 SRP for Directors. All eligible
Participants who were no longer Directors of the Company as of December 31, 2003
will continue to receive benefits pursuant to the provisions of the 1987 SRP for
Directors.
Based on the current circumstances, and the establishment of the plans noted
above, the Company currently estimates net periodic pension cost for the
year-ending December 31, 2004 will be approximately $1,026,000 compared to
$812,000 and $738,000 that was recorded for the years ended December 31, 2003
and 2002, respectively.
-11-
Deferred Compensation Plans
The Company has deferred compensation plans covering its directors and key
executives. During the quarter ended June 30, 2004, the Company established the
2004 TriCo Bancshares Deferred Compensation Plan ("2004 Deferred Comp Plan), and
modified the existing 1987 Tri Counties Bank Executive Deferred Compensation
Plan ("1987 Plan") and the 1992 Tri Counties Bank Director Deferred Compensation
Plan ("1992 Plan").
The modifications to the 1987 Plan and the 1992 Plan include the following:
- A limitation on participant deferrals (not including accumulated
interest) not to exceed $250,000 through December 31, 2004.
- A requirement that the account balance of any participant be
distributed on or before 12/31/2008, or, at the participant's
election, transferred as the participant's opening balance to the 2004
Deferred Comp Plan.
- Final termination on December 31, 2008.
The features of the 2004 Deferred Comp Plan include the following:
- Eligibility and participation requirements are unchanged from the 1987
Plan and the 1992 Plan. The 2004 Deferred Comp Plan provides for
participation by both employees and directors.
- Participants may elect to defer any portion of their future
compensation. The amount to be deferred will be stated as a percentage
and must not be less than two thousand four hundred dollars ($2,400)
during the deferral period.
- A participant in the 2004 Deferred Comp Plan controls his investments
in a Bank-owned brokerage account. Although the participant will
manage his or her brokerage account, it will remain the sole property
of the Bank and only the Bank will be permitted to make contributions
to or withdrawals from the account.
As of June 30, 2004, participant balances in the 1987 Plan and the 1992 Plan
totaled $5,757,000, and were recorded as other liabilities in the Company's
consolidated financial statements. The Company currently estimates that as the
1987 Plan and the 1992 Plan are phased out and terminated on December 31, 2008,
the Company will recognize related annual cost savings.
-12-
Comprehensive Income
For the Company, comprehensive income includes net income reported on the
statement of income, changes in the fair value of its available-for-sale
investments, and changes in the minimum pension liability reported as a
component of shareholders' equity.
The changes in the components of accumulated other comprehensive income (loss)
for the six months ended June 30, 2004 and 2003 are reported as follows:
Six Months Ended June 30,
2004 2003
-----------------------------
Unrealized Gain on Securities (in thousands)
Beginning Balance $2,519 $3,048
Unrealized (loss) gain arising
during the period, net of tax (3,798) 1,130
-----------------------------
Ending Balance ($1,279) $4,178
=============================
Minimum Pension Liability
Beginning Balance ($705) ($745)
Change in minimum pension liability,
net of tax - -
-----------------------------
Ending Balance ($705) ($745)
=============================
Total accumulated other comprehensive
income (loss), net ($1,984) $3,433
=============================
Reclassifications
Certain amounts previously reported in the 2003 financial statements have been
reclassified to conform to the 2004 presentation. 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.
-13-
TRICO BANCSHARES
Financial Summary
(dollars in thousands, except per share amounts)
(Unaudited) (Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------------------------------------------------
2004 2003 2004 2003
Net Interest Income (FTE) $17,811 $15,000 $34,958 $28,543
Provision for loan losses (1,300) (150) (1,950) (300)
Noninterest income 6,942 6,554 12,697 11,950
Noninterest expense (15,412) (14,368) (29,758) (27,019)
Provision for income taxes (FTE) (3,194) (2,782) (6,323) (5,307)
Net income $4,847 $4,254 $9,624 $7,867
Average shares outstanding 15,640 15,593 15,628 14,867
Diluted average shares outstanding 16,215 16,042 16,214 15,271
Shares outstanding at period end 15,640 15,704 15,640 15,704
As Reported:
Basic earnings per share $0.31 $0.27 $0.62 $0.53
Diluted earnings per share $0.30 $0.27 $0.59 $0.51
Return on assets 1.29% 1.27% 1.31% 1.26%
Return on equity 14.97% 13.88% 14.89% 14.07%
Net interest margin 5.27% 5.02% 5.31% 5.09%
Net loan charge-offs to average loans 0.03% 0.96% 0.04% 0.58%
Efficiency ratio (FTE) 62.26% 66.66% 62.44% 66.73%
Average Balances:
Total assets $1,505,261 $1,339,107 $1,473,107 $1,244,433
Earning assets 1,351,774 1,194,618 1,316,403 1,121,452
Total loans 1,029,425 801,493 1,000,109 740,734
Total deposits 1,252,472 1,146,211 1,242,088 1,075,032
Shareholders' equity $129,481 $122,567 $129,307 $111,853
Balances at Period End:
Total assets $1,545,173 $1,360,902
Earning assets 1,387,627 1,209,530
Total loans 1,078,464 852,290
Total deposits 1,267,352 1,173,605
Shareholders' equity $128,320 $124,567
Financial Ratios at Period End:
Allowance for loan losses to loans 1.44% 1.58%
Book value per share $8.20 $7.93
Tangible book value per share $6.87 $6.52
Equity to assets 8.30% 9.15%
Total capital to risk assets 12.40% 10.37%
Dividends Paid Per Share $0.11 $0.10 $0.21 $0.20
Dividend Payout Ratio 36.7% 37.0% 35.6% 38.5%
Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004.
-14-
Item 2. Management's Discussion and Analysis of Financial Conditions 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 of America. 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.
The Company had quarterly earnings of $4,847,000, or $0.30 per diluted share,
for the three months ended June 30, 2004. These results represent a 11.1%
increase from the $0.27 earnings per diluted share reported for the three months
ended June 30, 2003 on earnings of $4,254,000. The improvement in results from
the year-ago quarter was due to a $2,811,000 (18.7%) increase in fully
tax-equivalent net interest income to $17,811,000, and a $388,000 (5.9%)
increase in noninterest income to $6,942,000. These contributing factors were
partially offset by a $1,150,000 (767%) increase in provision for loan losses
and a $1,044,000 (7.3%) increase in noninterest expense to $15,412,000 for the
quarter ended June 30, 2004.
The Company reported earnings of $9,624,000, or $0.59 per diluted share, for the
six months ended June 30, 2004. These results represent a 15.7% increase from
the $0.51 earnings per diluted share reported for the six months ended June 30,
2003 on earnings of $7,867,000. The improvement in results from the year-ago
period was due to a $6,415,000 (22.5%) increase in fully tax-equivalent net
interest income to $34,958,000, and a $747,000 (6.3%) increase in noninterest
income to $12,697,000. These contributing factors were partially offset by a
$1,650,000 (550%) increase in provision for loan losses to $1,950,000, and a
$2,739,000 (10.1%) increase in noninterest expense to $29,758,000 for the six
months ended June 30, 2004.
-15-
Following is a summary of the components of fully taxable equivalent ("FTE") net
income for the periods indicated (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------------------------------
2004 2003 2004 2003
------------------------------------------------
Net Interest Income (FTE) $17,811 $15,000 $34,958 $28,543
Provision for loan losses (1,300) (150) (1,950) (300)
Noninterest income 6,942 6,554 12,697 11,950
Noninterest expense (15,412) (14,368) (29,758) (27,019)
Provision for income taxes (FTE) (3,194) (2,782) (6,323) (5,307)
------------------------------------------------
Net income $4,847 $4,254) $9,624 $7,867
================================================
Net income for the second quarter of 2004 was $593,000 (13.9%) more than for the
same quarter of 2003. A significant increase in fully taxable equivalent net
interest income (up $2,811,000 or 18.7%) and an increase in noninterest income
(up $388,000 or 5.9%), more than offset an increase in provision for loan losses
(up $1,150,000 or 767%), and an increase in noninterest expenses (up $1,044,000
or 7.3%). The increase in net interest income (FTE) was due to an increase in
average balance of interest-earning assets (up $157 million to $1.352 billion or
13.1%) and a 0.25% increase in net interest margin. The increase in provision
for loan losses was mainly due to loan growth as loan quality remains high and
loan charge-offs remain low. The $388,000 increase in noninterest income from
the year-ago quarter was mainly due to an increase in service charges and fee
income (up $356,000 or 8.9% to $4,340,000), an increase in gain on sale of
nondeposit investment products (up $154,000 or 33.4% to $615,000), and an
increase in cash value of life insurance (up $56,000 or 14.9% to $432,000). Also
during the quarter ended June 30, 2004, the Company recovered $570,000 of a
previously recorded valuation allowance related to its mortgage servicing asset,
and realized gains of $89,000 and $182,000 on the sale of fixed assets and other
real estate, respectively. Partially offsetting these contributing factors was a
decrease in gain on sale of loans (down $886,000 or 67.2% to $433,000). The
increase in noninterest expense was mainly due to an increase in salary and
benefit expense (up $804,000 or 10.5% to $8,440,000). The increase in salary and
benefits expense was mainly due to the opening of de-novo branches in Roseville
(November 2003), Folsom (December 2003), and Turlock (April 2004), and regular
salary increases. Other noninterest expense also increased (up $240,000 or 3.6%
to $6,972,000).
Net income for the six months ended June 30, 2004 was $1,757,000 (22.3%) more
than for the same period of 2003. A significant increase in fully taxable
equivalent net interest income (up $6,415,000 or 22.5%) and an increase in
noninterest income (up $747,000 or 6.3%), more than offset an increase in
provision for loan losses (up $1,650,000 or 550%), and an increase in
noninterest expenses (up $2,739,000 or 10.1%). The increase in net interest
income (FTE) was due to an increase in average balance of interest-earning
assets (up $195 million to $1.316 billion or 17.4%) and a 0.22% increase in net
interest margin. The increase in provision for loan losses was mainly due to
loan growth as loan quality remains high and loan charge-offs remain low. The
$747,000 increase in noninterest income from the year-ago six month period was
mainly due to an increase in service charges and fee income (up $906,000 or
12.1% to $8,392,000), an increase in gain on sale of nondeposit investment
products (up $220,000 or 24.2% to $1,129,000), and an increase in cash value of
life insurance (up $349,000 or 67.8% to $864,000). Also during the six months
ended June 30, 2004, the Company recovered $600,000 of a previously recorded
valuation allowance related to its mortgage servicing asset, and realized gains
of $12,000 and $182,000 on the sale of fixed assets and other real estate,
respectively. Partially offsetting these contributing factors was a decrease in
gain on sale of loans (down $1,394,000 or 56.9% to $1,058,000). The increase in
noninterest expense was mainly due to an increase in salary and benefit expense
(up $2,094,000 or 14.4% to $16,607,000). The increase in salary and benefits
expense was mainly due to the addition of one branch from the acquisition of
North State National Bank (April 2003), the opening of de-novo branches in
Roseville (November 2003), Folsom (December 2003), and Turlock (April 2004), and
regular salary increases. Other noninterest expense also increased (up $645,000
or 5.2% to $13,151,000).
-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 Six months ended
June 30, June 30,
-------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------
Interest income $20,628 $18,161 $40,540 $34,510
Interest expense (3,087) (3,445) (6,101) (6,560)
FTE adjustment 270 284 519 593
-------------------------------------------------------
Net interest income (FTE) $17,811 $15,000 $34,958 $28,543
=======================================================
Average earning assets $1,351,774 $1,194,618 $1,316,403 $1,121,452
Net interest margin (FTE) 5.27% 5.02% 5.31% 5.09%
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 2004 increased $2,811,000 (18.7%) from the same period in 2003 to
$17,811,000. The increase in net interest income (FTE) was due to the increased
average balances of earning assets (up $157 million or 13.1% to $1.352 billion)
and a 0.25% increase in net interest margin (FTE).
Net interest income (FTE) during the first six months of 2004 increased
$6,415,000 (22.5%) from the same period in 2003 to $34,958,000. The increase in
net interest income (FTE) was due to the increased average balances of earning
assets (up $195 million or 17.4% to $1.316 billion) and a 0.22% increase in net
interest margin (FTE).
Interest and Fee Income
Interest and fee income (FTE) for the second quarter of 2004 increased
$2,453,000 (13.3%) from the second quarter of 2003. The increase was the net
effect of higher average interest-earning assets (up $157 million or 13.1% to
$1.352 billion) and no change in the yield on those average earning assets that
remained at 6.18%. The growth in interest-earning assets was due to a $228
million (28.5%) increase in average loan balances that was partially offset by
decreases of $65 million and $6 million in average balances of investments and
federal funds sold, respectively.
The average yield on the Company's combined earning assets did not change from
the year-ago quarterly yield of 6.18% despite a 0.52% decrease in the average
yield of the Company's loan portfolio, due to a higher percentage of earning
assets in loans rather than investments, and increased yields on investments.
This downward trend in loan yields was reflective of general interest rate
markets during much of the twelve months ended June 30, 2004. The increase in
yields on investments was mainly due to maturities of shorter-term, lower
yielding investments.
Interest and fee income (FTE) for the six months ended June 30, 2004 increased
$5,956,000 (17.0%) from the same period of 2003. The increase was the net effect
of higher average interest-earning assets (up $195 million or 17.4% to $1.316
billion) that was partially offset by a 0.02% decrease in the yield on those
average earning assets to 6.24%. The growth in interest-earning assets was led
by a $259 million (35%) increase in average loan balances to $1 billion that was
partially offset by decreases of $49 million and $15 million in average balances
of investments and federal funds sold, respectively.
The average yield on the Company's earning assets decreased only 0.02% to 6.24%
for the six month period ended June 30, 2004 from 6.26% for the same period in
2003 despite a 0.62% decrease in the average yield of the Company's loan
portfolio, due to a higher percentage of earning assets in loans rather than
investments, and increased yields on investments. This downward trend in loan
yields was reflective of general interest rate markets during much of the twelve
months ended June 30, 2004. The increase in yields on investments was mainly due
to maturities of shorter-term, lower yielding investments.
-17-
Interest Expense
Interest expense decreased $358,000 (10.4%) to $3,087,000 in the second quarter
of 2004 compared to $3,445,000 in the year-ago quarter. The average balance of
interest-bearing liabilities increased $132 million (13.9%) to $1.084 billion in
the second quarter compared to $952 million in the year-ago quarter. The
increase in interest-bearing liabilities was concentrated in the lower earning
interest-bearing demand deposits (up $18 million or 8.5%), savings deposits (up
$105 million or 27.8%), and Federal funds purchased (up $36 million or 180%).
The average balance of the higher earning time deposits was down $50 million
(15.6%) while the average balance of junior subordinated debt was up $23 million
from the year-ago quarter. In addition, the average balance of
noninterest-bearing deposits increased $32 million (13.5%) from the year-ago
quarter. The average rate paid for all categories of interest-bearing
liabilities decreased from the average rate paid in the year-ago quarter as a
result of general market interest rate changes.
Interest expense decreased $459,000 (7.0%) to $6,101,000 for the six months
ended June 30, 2004 compared to $6,560,000 in the year-ago period. The average
balance of interest-bearing liabilities increased $165 million (18.6%) to $1.051
billion for the six months ended June 30, 2004 compared to $886 million in the
year-ago period. The increase in interest-bearing liabilities was concentrated
in the lower earning interest-bearing demand deposits (up $27 million or 13.6%),
savings deposits (up $128 million or 36.7%), and Federal funds purchased (up $25
million or 250%). The average balance of the higher earning time deposits was
down $36 million (11.7%) while the average balance of junior subordinated debt
was up $22 million from the year-ago period. In addition, for the six months
ended June 30, 2004, the average balance of noninterest-bearing deposits
increased $48 million (21.6%) from the year-ago period. The average rate paid
for all categories of interest-bearing liabilities decreased from the average
rate paid in the year-ago quarter as a result of general market interest rate
changes.
Net Interest Margin (FTE)
The following table summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended Six months ended
June 30, June 30,
---------------------------------------------
2004 2003 2004 2003
---------------------------------------------
Yield on earning assets 6.18% 6.18% 6.24% 6.26%
Rate paid on interest-bearing
Liabilities 1.14% 1.45% 1.16% 1.48%
---------------------------------------------
Net interest spread 5.04% 4.73% 5.08% 4.78%
Impact of all other net
noninterest-bearing funds 0.23% 0.29% 0.23% 0.31%
---------------------------------------------
Net interest margin 5.27% 5.02% 5.31% 5.09%
=============================================
Net interest margin in the second quarter of 2004 increased 0.25% compared to
the second quarter of 2003. This increase in net interest margin was mainly due
to lower rates paid on liabilities, and a change in the ratio of loans to total
interest earning assets. During the quarter ended June 30, 2004, the ratio of
loans to total interest earnings assets was 76% compared to 67% in the year-ago
quarter. The increase in interest income due to the increase in loan volume more
than offset the effect of the 0.52% decrease in average loan yield. As a result,
the average yield on total earning assets did not change, while the average rate
paid on interest-bearing liabilities decreased 0.31%.
Net interest margin for the six months ended June 30, 2004 increased 0.22%
compared to the six months ended June 30, 2003. This increase in net interest
margin was mainly due to lower rates paid on liabilities, and a change in the
ratio of loans to total interest earning assets. During the six months ended
June 30, 2004, the ratio of loans to total interest earnings assets was 76%
compared to 66% in the year-ago six-month period. The increase in interest
income due to the increase in loan volume more than offset the effect of the
0.62% decrease in average loan yield. As a result, the average yield on total
earning assets decreased only 0.02%, while the average rate paid on
interest-bearing liabilities decreased 0.32%.
-18-
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, 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
----------------------------------------------------------------
June 30, 2004 June 30, 2003
----------------------------- ------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $1,029,425 $17,551 6.82% $801,493 $14,713 7.34%
Investment securities - taxable 287,058 2,638 3.68% 348,375 2,939 3.37%
Investment securities - nontaxable 34,870 708 8.12% 38,780 775 8.00%
Federal funds sold 421 1 0.95% 5,970 18 1.21%
----------------------------- ------------------------------
Total earning assets 1,351,774 20,898 6.18% 1,194,618 18,445 6.18%
Other assets 153,487 -------- 144,489 --------
---------- ---------
Total assets $1,505,261 $1,339,107
========== =========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $229,878 105 0.18% $211,561 132 0.25%
Savings deposits 482,796 857 0.71% 377,830 906 0.96%
Time deposits 270,476 1,425 2.11% 320,268 2,023 2.53%
Federal funds purchased 55,754 150 1.08% 19,556 63 1.29%
Other borrowings 22,870 320 5.60% 22,908 321 5.61%
Junior subordinated debt 22,681 230 4.06% - - -
----------------------------- ------------------------------
Total interest-bearing liabilities 1,084,455 3,087 1.14% 952,123 3,445 1.45%
Noninterest-bearing deposits 269,322 -------- 236,552 --------
Other liabilities 22,003 27,865
Shareholders' equity 129,481 122,567
---------- ---------
Total liabilities and shareholders'
equity $1,505,261 $1,339,107
========== =========
Net interest spread(1) 5.04% 4.73%
Net interest income and interest margin(2) $17,811 5.27% $15,000 5.02%
================= ====================
(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-
For the six months ended
----------------------------------------------------------------
June 30, 2004 June 30, 2003
----------------------------- ------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $1,000,109 $34,290 6.86% $740,734 $27,702 7.48%
Investment securities - taxable 278,708 5,359 3.85% 323,556 5,683 3.51%
Investment securities - nontaxable 35,171 1,399 7.96% 39,958 1,616 8.09%
Federal funds sold 2,415 11 0.91% 17,204 102 1.19%
----------------------------- ------------------------------
Total earning assets 1,316,403 41,059 6.24% 1,121,452 35,103 6.26%
Other assets 156,704 -------- 122,981 --------
---------- ---------
Total assets $1,473,107 $1,244,433
========== =========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $226,193 205 0.18% $199,289 250 0.25%
Savings deposits 475,268 1,764 0.74% 347,098 1,626 0.94%
Time deposits 270,807 2,867 2.12% 306,596 3,982 2.60%
Federal funds purchased 34,523 184 1.07% 9,778 63 1.29%
Other borrowings 22,875 640 5.60% 22,913 639 5.58%
Junior subordinated debt 21,650 441 4.07% - - -
----------------------------- ------------------------------
Total interest-bearing liabilities 1,051,316 6,101 1.16% 885,674 6,560 1.48%
Noninterest-bearing deposits 269,820 -------- 222,049 --------
Other liabilities 22,664 24,857
Shareholders' equity 129,307 111,853
---------- ---------
Total liabilities and shareholders'
equity $1,473,107 $1,244,433
========== =========
Net interest spread(1) 5.08% 4.78%
Net interest income and interest margin(2) $34,958 5.31% $28,543 5.09%
================= ====================
(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.
-20-
Summary of Changes in Interest Income and Expense due to Changes in Average
Asset & Liability Balances and Yields Earned & Rates Paid
The following tables set forth a summary of the changes in interest income (FTE)
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 June 30, 2004
compared with three months
ended June 30, 2003
---------------------------------
Volume Rate Total
---------------------------------
Increase (decrease) in interest income:
Loans $4,183 ($1,345) $2,838
Investment securities (626) 258 (368)
Federal funds sold (17) - (17)
---------------------------------
Total earning assets 3,540 (1,087) 2,453
---------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 11 (38) (27)
Savings deposits 252 (301) (49)
Time deposits (315) (283) (598)
Federal funds purchased 117 (30) 87
Other borrowings (1) - (1)
Junior subordinated debt 230 - 230
---------------------------------
Total interest-bearing liabilities 294 (652) (358)
---------------------------------
Increase (decrease) in Net Interest Income $3,246 ($435) $2,811
=================================
Six months ended June 30, 2004
compared with six months
ended June 30, 2003
---------------------------------
Volume Rate Total
---------------------------------
Increase (decrease) in interest income:
Loans $9,701 (3,113) 6,588
Investment securities (997) 456 (541)
Federal funds sold (88) (3) (91)
---------------------------------
Total earning assets 8,616 (2,660) 5,956
---------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 34 (79) (45)
Savings deposits 602 (464) 138
Time deposits (465) (650) (1,115)
Federal funds purchased 160 (39) 121
Other borrowings (1) 2 1
Junior subordinated debt - 441 441
---------------------------------
Total interest-bearing liabilities 330 (789) (459)
---------------------------------
Increase (decrease) in Net Interest Income $8,286 ($1,871) $6,415
=================================
-21-
Provision for Loan Losses
The Company provided $1,300,000 for loan losses in the second quarter of 2004
versus $150,000 in the second quarter of 2003. During the second quarter of
2004, the Company recorded $67,000 of net loan charge offs versus $1,916,000 of
net loan charge-offs in the year earlier quarter. The decrease in charge-offs is
primarily due to a $1,900,000 charge-off that occurred in the second quarter of
2003 related to two commercial real estate loans to a single entity
collateralized by a single building.
The Company provided $1,950,000 for loan losses during the six months ended June
30, 2004 versus $300,000 during the six months ended June 30, 2003. During the
six months ended June 30, 2004, the Company recorded $193,000 of net loan charge
offs versus $2,150,000 of net loan charge-offs in the year earlier six-month
period.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------
Service charges on deposit accounts $3,407 $3,192 $6,605 $6,050
ATM fees and interchange 664 597 1,246 1,117
Other service fees 269 196 541 318
Mortgage servicing asset valuation recovery 570 - 600 -
Gain on sale of loans 433 1,319 1,058 2,452
Commissions on sale of
nondeposit investment products 615 461 1,129 909
Gain on sale of investments - 100 - 100
Gain on sale of fixed assets 89 - 12 3
Gain on sale of other real estate 182 60 182 60
Increase in cash value of life insurance 432 376 864 515
Other noninterest income 279 253 460 426
----------------------------------------------------
Total noninterest income $6,942 $6,554 $12,697 $11,950
====================================================
Noninterest income for the second quarter of 2004 increased $388,000 (5.9%) to
$6,942,000 from $6,554,000 in the year-ago quarter. The increase in noninterest
income from the year-ago quarter was mainly due to an increase in service
charges and fee income (up $355,000 or 8.9% to $4,340,000), an increase in gain
on sale of nondeposit investment products (up $154,000 or 33.4% to $615,000),
and an improvement of increase in cash value of life insurance (up $56,000 or
14.9% to $432,000). Also during the quarter ended June 30, 2004, the Company
recovered $570,000 of a previously recorded valuation allowance related to its
mortgage servicing asset, and realized gains of $89,000 and $182,000 on the sale
of fixed assets and other real estate, respectively. Partially offsetting these
contributing factors was a decrease in gain on sale of loans (down $886,000 or
67.2% to $433,000). The increase in service charge and fee income and gain on
sale of nondeposit investment products is mainly due to the expansion of the
Company into new markets and increased penetration in existing markets. The
improvement in increase in cash value of life insurance is due to approximately
$22.5 million of life insurance that was purchased in the spring of 2003. The
recovery of a previously recorded valuation allowance related to the Company's
mortgage servicing asset, and the decrease in gain on sale of loans is due to
the slowdown in the residential mortgage refinance market that started during
the second half of 2003.
Noninterest income for the six months ended June 30, 2004 increased $747,000
(6.3%) to $12,697,000 from $11,950,000 in the same period in 2003. The increase
in noninterest income from the year-ago six month period was mainly due to an
increase in service charges and fee income (up $907,000 or 12.1% to $8,392,000),
an increase in gain on sale of nondeposit investment products (up $220,000 or
24.2% to $1,129,000), and an improvement of increase in cash value of life
insurance (up $349,000 or 67.8% to $864,000). Also during the six months ended
June 30, 2004, the Company recovered $600,000 of a previously recorded valuation
allowance related to its mortgage servicing asset, and realized gains of $12,000
and $182,000 on the sale of fixed assets and other real estate, respectively.
Partially offsetting these contributing factors was a decrease in gain on sale
of loans (down $1,394,000 or 56.9% to $1,058,000).
-22-
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2004 2003 2004 2003
----------------------------------------------------
Salaries $5,189 $4,792 $10,283 $9,042
Commissions and incentives 1,383 1,361 2,460 2,472
Employee benefits 1,868 1,483 3,864 2,999
Occupancy 1,003 890 1,946 1,682
Equipment 913 832 1,850 1,579
Professional fees 598 641 1,107 1,215
Telecommunications 421 392 796 783
Data processing and software 400 349 783 640
Advertising and marketing 234 370 425 642
Courier service 269 260 531 508
ATM network charges 325 255 620 487
Intangible amortization 342 324 673 552
Postage 235 230 467 428
Operational losses 112 176 152 306
Assessments 73 65 145 125
Other 2,047 1,948 3,656 3,559
----------------------------------------------------
Total $15,412 $14,368 $29,758 $27,019
====================================================
Average full time equivalent staff 539 513 536 490
Noninterest expense to revenue (FTE) 62.26% 66.66% 62.44% 66.73%
Noninterest expense for the second quarter of 2004 increased $1,044,000 (7.3%)
to $15,412,000 from $14,368,000 in the second quarter of 2003. The increase in
noninterest expense was mainly due to a $804,000 (10.5%) increase in salary and
benefit expense to $8,440,000. The increase in salary and benefits expense was
mainly due to annual salary increases, new employees from the opening of de-novo
branches in Roseville (November 2003), Folsom (December 2003), and Turlock
(April 2004). Noninterest expense excluding salaries and benefits also increased
(up $240,000 or 3.6% to $6,972,000).
Noninterest expense for the first six months of 2004 increased $2,739,000
(10.1%) to $29,758,000 from $27,019,000 in the first six months of 2003. The
increase in noninterest expense was mainly due to a $2,094,000 (14.4%) increase
in salary and benefit expense to $16,607,000. The increase in salary and
benefits expense was mainly due to annual salary increases, new employees from
the addition of one branch through the acquisition of North State National Bank
(April 2003), and the opening of de-novo branches in Roseville (November 2003),
Folsom (December 2003), and Turlock (April 2004). Noninterest expense excluding
salaries and benefits also increased (up $645,000 or 5.2% to $13,151,000).
Provision for Income Tax
The effective tax rate for the three months ended June 30, 2003 was 37.6% and
reflects an increase from 37.0% for the three months ended June 30, 2003. The
effective tax rate for the six months ended June 30, 2004 was 37.6% and reflects
an increase from 37.5% for the six months ended June 30, 2003. 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 tax-exempt loans, state and municipal securities, and bank
owned life insurance.
-23-
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 June 30, 2004 At December 31, 2003
------------------------- ------------------------
Gross Guaranteed Net Gross Guaranteed Net
-----------------------------------------------------
Classified loans $25,266 $9,826 $15,440 $29,992 $11,209 $18,783
Other classified assets 628 - 628 932 - 932
-----------------------------------------------------
Total classified assets $25,894 $9,826 $16,068 $30,924 $11,209 $19,715
=====================================================
Allowance for loan losses/
Classified loans 100.6% 73.3%
Classified assets, net of guarantees of the U.S. Government, including its
agencies and its government-sponsored agencies at June 30, 2004, decreased $3.6
million (18.5%) to $16.1 million from $19.7 million at December 31, 2003.
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
six months, ended June 30, 2004, if all such loans had been current in
accordance with their original terms, totaled $639,435. Interest income actually
recognized on these loans during the six months ended June 30, 2004 was
$449,923.
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.
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.
-24-
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 $812,000 (15.3%) to $4,514,000 million during the first six
months of 2004. Nonperforming assets net of guarantees represent 0.29% 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 June 30, 2004 At December 31, 2003
------------------------- -------------------------
Gross Guaranteed Net Gross Guaranteed Net
------------------------------------------------------
Performing nonaccrual loans $10,409 $8,014 $2,395 $10,997 $7,936 $3,061
Nonperforming, nonaccrual loans 1,896 444 1,452 2,551 1,252 1,299
------------------------------------------------------
Total nonaccrual loans 12,305 8,458 3,847 13,548 9,188 4,360
Loans 90 days past due and still accruing 39 - 39 34 - 34
------------------------------------------------------
Total nonperforming loans 12,344 8,458 3,886 13,582 9,188 4,394
Other real estate owned 628 - 628 932 - 932
------------------------------------------------------
Total nonperforming assets $12,972 $8,458 $4,514 $14,514 $9,188 $5,326
======================================================
Nonperforming loans to total loans 0.36% 0.45%
Allowance for loan losses/nonperforming loans 400% 313%
Nonperforming assets to total assets 0.29% 0.36%
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.
The Company's method for assessing the appropriateness of the allowance 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,
2003.
Based on the current conditions of the loan portfolio, Management believes that
the $15,529,000 allowance for loan losses at June 30, 2004 is 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.
-25-
The following table summarizes the loan loss provision, net credit losses and
allowance for loan losses for the periods indicated (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
------------------------------------------------
2004 2003 2004 2003
------------------------------------------------
Balance, beginning of period $14,296 $14,293 $13,773 $14,377
Addition through merger - 928 - 928
Loan loss provision 1,300 150 1,950 300
Loans charged off (177) (2,063) (365) (2,343)
Recoveries of previously
charged-off loans 110 147 171 193
------------------------------------------------
Net charge-offs (67) (1,916) (194) (2,150)
------------------------------------------------
Balance, end of period $15,529 $13,455 $15,529 $13,455
================================================
Allowance for loan losses/loans outstanding 1.44% 1.58%
Junior Subordinated Debt
On July 31, 2003, the Company formed a subsidiary business trust, TriCo Capital
Trust I, to issue trust preferred securities. Concurrently with the issuance of
the trust preferred securities, the trust issued 619 shares of common stock to
the Company for $1,000 per share or an aggregate of $619,000. In addition, the
Company issued a Junior Subordinated Debenture to the Trust in the amount of
$20,619,000. The terms of the Junior Subordinated Debenture are materially
consistent with the terms of the trust preferred securities issued by TriCo
Capital Trust I. Also on July 31, 2003, TriCo Capital Trust I completed an
offering of 20,000 shares of cumulative trust preferred securities for cash in
an aggregate amount of $20,000,000. The trust preferred securities are
mandatorily redeemable upon maturity on October 7, 2033 with an interest rate
that resets quarterly at three-month LIBOR plus 3.05%, or 4.16% for the first
quarterly interest period. TriCo Capital Trust I has the right to redeem the
trust preferred securities on or after October 7, 2008. The trust preferred
securities were issued through an underwriting syndicate to which the Company
paid underwriting fees of $7.50 per trust preferred security or an aggregate of
$150,000. The net proceeds of $19,850,000 will be used to finance the opening of
new branches, improve bank services and technology, repurchase shares of the
Company's common stock under its repurchase plan and increase the Company's
capital. The trust preferred securities have not been and will not be registered
under the Securities Act of 1933, as amended, or applicable state securities
laws and were sold pursuant to an exemption from registration under the
Securities Act of 1933. The trust preferred securities may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements of the Securities Act of 1933, as amended, and
applicable state securities laws.
As a result of the adoption of FIN 46R, the Company deconsolidated TriCo Capital
Trust I as of and for year ended December 31, 2003. The $20,619,000 of junior
subordinated debentures issued by TriCo Capital Trust I were reflected as junior
subordi