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 March 31, 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 May 4, 2004: 15,639,522
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 12
Item 2 - Management's Discussion and Analysis of Financial 13
Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 23
Item 4 - Controls and Procedures 24
PART II - OTHER INFORMATION 25
Item 1 - Legal Proceedings 25
Item 2 - Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities 25
Item 4 - Submission of Matters to a Vote of Security Holders 25
Item 6 - Exhibits and Reports on Form 8-K 25
Signatures 28
Exhibits 29
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about TriCo
Bancshares (the "Company") for which it claims the protection of the safe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on Management's current knowledge and
belief and include information concerning the Company's possible or assumed
future financial condition and results of operations. When you see any of the
words "believes", "expects", "anticipates", "estimates", or similar expressions,
mean making forward-looking statements. A number of factors, some of which are
beyond the Company's ability to predict or control, could cause future results
to differ materially from those contemplated. These factors include but are not
limited to:
- a continued slowdown in the national and California economies;
- increased economic uncertainty created by the recent 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 March 31, At December 31,
2004 2003 2003
------------------------------- -----------------
Assets:
Cash and due from banks $55,568 $58,925 $80,603
Federal funds sold - 10,100 326
------------------------------- -----------------
Cash and cash equivalents 55,568 69,025 80,929
Investment securities available for sale 312,657 354,007 316,436
Loans:
Commercial 131,759 117,329 142,252
Consumer 334,221 210,633 319,029
Real estate mortgages 465,429 330,001 458,369
Real estate construction 62,656 35,810 61,591
------------------------------- -----------------
994,065 693,773 981,241
Allowance for loan losses (14,297) (14,293) (13,773)
------------------------------- -----------------
Loans, net of allowance for loan losses 979,768 679,480 967,468
Premises and equipment, net 19,288 17,542 19,521
Cash value of life insurance 39,412 29,257 38,980
Other real estate owned 924 1,608 932
Accrued interest receivable 5,806 5,891 6,027
Goodwill and other intangible assets 21,274 3,815 21,604
Other assets 15,746 15,878 16,858
------------------------------- -----------------
Total Assets $1,450,443 $1,176,503 $1,468,755
=============================== =================
Liabilities:
Deposits:
Noninterest-bearing demand $260,299 $226,373 $298,462
Interest-bearing demand 222,986 188,575 220,875
Savings 488,915 324,584 441,461
Time certificates, $100,000 and over 91,038 94,089 94,500
Other time certificates 176,701 199,031 181,525
------------------------------- -----------------
Total deposits 1,239,939 1,032,652 1,236,823
Federal funds purchased 16,300 - 39,500
Accrued interest payable 2,507 3,034 2,638
Other Liabilities 18,687 16,010 18,328
Long-term debt and other borrowings 22,877 22,915 22,887
Junior subordinated debt 20,619 - 20,619
------------------------------- -----------------
Total Liabilities 1,320,929 1,074,611 1,340,795
=============================== =================
Shareholders' Equity:
Authorized - 20,000 shares of common stock
Issued and outstanding:
15,636 at March 31, 2004 69,568
14,161 at March 31, 2003 50,768
15,668 at December 31, 2003 69,767
Retained earnings 57,520 48,436 56,379
Accumulated other comprehensive income, net 2,426 2,688 1,814
------------------------------- -----------------
Total Shareholders' Equity 129,514 101,892 127,960
------------------------------- -----------------
Total Liabilities and Shareholders' Equity $1,450,443 $1,176,503 $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 March 31,
2004 2003
----------------------------
Interest Income:
Interest and fees on loans $16,739 $12,989
Interest on federal funds sold 10 84
Interest on investment securities
available for sale:
Taxable 2,721 2,744
Tax exempt 442 532
----------------------------
Total interest income 19,912 16,349
----------------------------
Interest Expense:
Interest on interest-bearing demand deposits 100 118
Interest on savings 907 720
Interest on time certificates of deposit 1,442 1,959
Interest on short-term borrowing 34 -
Interest on long-term debt 320 318
Interest on junior subordinated debt 211 -
----------------------------
Total interest expense 3,014 3,115
----------------------------
Net Interest Income 16,898 13,234
----------------------------
Provision for loan losses 650 150
----------------------------
Net Interest Income After Provision for Loan Losses 16,248 13,084
----------------------------
Noninterest Income:
Service charges and fees 4,081 3,500
Gain on sale of loans 625 1,133
Commissions on sale of non-deposit
investment products 542 448
Other 507 315
----------------------------
Total Noninterest Income 5,755 5,396
----------------------------
Noninterest Expense:
Salaries and related benefits 8,167 6,877
Other 6,179 5,774
----------------------------
Total Noninterest Expense 14,346 12,651
----------------------------
Income Before Income Taxes 7,657 5,829
----------------------------
Provision for income taxes 2,880 2,216
----------------------------
Net Income $4,777 $3,613
----------------------------
Comprehensive Income:
Change in unrealized gain on securities
available for sale, net 612 385
----------------------------
Comprehensive Income $5,389 $3,998
============================
Average Shares Outstanding 15,616,540 14,141,402
Diluted Average Shares Outstanding 16,212,845 14,500,356
Per Share Data
Basic Earnings $0.31 $0.26
Diluted Earnings $0.29 $0.25
Dividends Paid $0.10 $0.10
Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004. See accompanying notes to unaudited
condensed consolidated financial statements.
-3-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, 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 3,613 3,613
Stock issued, including
stock option tax benefits 296 296
Dividends (1,416) (1,416)
Unrealized gain on securities
available for sale, net 385 385
-----------------------------------------------
Balance March 31, 2003 $50,768 $48,436 $2,688 $101,892
===============================================
Balance, December 31, 2003 $69,767 $56,379 $1,814 $127,960
Net income for the period 4,777 4,777
Stock issued, including
stock option tax benefits 547 547
Repurchase of common stock (746) (2,047) (2,793)
Dividends (1,589) (1,589)
Unrealized gain on securities
available for sale, net 612 612
-----------------------------------------------
Balance March 31, 2004 $69,568 $57,520 $2,426 $129,514
===============================================
See accompanying notes to unaudited condensed consolidated financial statements.
-4-
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
For the three months
ended March 31,
2004 2003
-------------------------------
Operating Activities:
Net income $4,777 $3,613
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment 831 653
Amortization of intangible assets 331 228
Provision for loan losses 650 150
Amortization of investment securities premium, net 443 757
Originations of loans for resale (31,981) (53,210)
Proceeds from sale of loans originated for resale 32,310 53,750
Gain on sale of loans (625) (1,133)
Amortization of mortgage servicing rights 190 256
Reduction of mortgage servicing rights valuation allowance (30) -
Loss (gain) on sale of fixed assets 78 (2)
Change in assets and liabilities:
Decrease (increase) in interest receivable 221 (247)
(Decrease) increase in interest payable (131) 107
Decrease in other assets and liabilities 661 720
-------------------------------
Net Cash Provided by Operating Activities 7,725 5,642
-------------------------------
Investing Activities:
Proceeds from maturities of securities available-for-sale 19,662 36,864
Purchases of securities available-for-sale (15,295) (53,010)
Net increase in loans (12,950) (7,161)
Proceeds from sale of premises and equipment 12 2
Purchases of property and equipment (579) (904)
Purchase of life insurance - (13,910)
-------------------------------
Net Cash Used by Investing Activities (9,150) (38,119)
-------------------------------
Financing Activities:
Net increase in deposits 3,116 27,415
Net decrease in Federal funds purchased (23,200) -
Payments of principal on long-term debt agreements (10) (9)
Repurchase of Common Stock (2,793) -
Dividends paid (1,589) (1,416)
Exercise of stock options/issuance of Common Stock 540 242
-------------------------------
Net Cash (Used) Provided by Financing Activities (23,936) 26,232
-------------------------------
Net Decrease in Cash and Cash Equivalents (25,361) (6,245)
-------------------------------
Cash and Cash Equivalents and Beginning of Period 80,929 75,270
-------------------------------
Cash and Cash Equivalents at End of Period $55,568 $69,025
===============================
Supplemental Disclosure of Noncash Activities:
Unrealized gain on securities available for sale $1,031 $594
Loans transferred to other real estate owned - $676
Income tax benefit from stock option exercises $7 $54
Supplemental Disclosure of Cash Flow Activities:
Cash paid for interest expense $3,145 $3,008
Cash paid for income taxes $1,745 $10
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 months ended
March 31, 2004 and 2003 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 10 in-store branch offices in the
California counties of Butte, Contra Costa, Del Norte, Fresno, 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 consolidated 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
three months ended March 31, 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 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, 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 three months ended March 31, 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 March 31, 2004 and December 31, 2003.
December 31, March 31,
(Dollars in thousands) 2003 Additions Reductions 2004
-----------------------------------------------
Mortgage Servicing Rights $3,413 $296 ($190) $3,519
Valuation allowance (600) - 30 (570)
-----------------------------------------------
Mortgage servicing rights, net
of valuation allowance $2,813 $296 ($160) $2,949
-7-
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 March 31, 2004, the Company had no mortgage loans held for sale. At March 31,
2004 and December 31, 2003, the Company serviced real estate mortgage loans for
others of $371 million and $357 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.
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 Standard 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 Standard No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets (SFAS 144).
As of the date of adoption, the Company had identifiable intangible assets
consisting of core deposit premiums and minimum pension liability. Core deposit
premiums are amortized using an accelerated method over a period of ten years.
Intangible assets related to minimum pension liability are adjusted annually
based upon actuarial estimates.
The following table summarizes the Company's core deposit intangibles as of
March 31, 2004 and December 31, 2003.
December 31, March 31,
(Dollar in Thousands) 2003 Additions Reductions 2004
----------------------------------------------
Core deposit intangibles $13,643 - - $13,643
Accumulated amortization (7,843) ($331) - (8,174)
----------------------------------------------
Core deposit intangibles, net $5,800 ($331) - $5,469
==============================================
-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 March 31, 2004 and December 31, 2003.
December 31, March 31,
(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 March 31,
2004 and December 31, 2003.
December 31, March 31,
(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.
-9-
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 consolidated 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.
Had compensation cost for the Company's option plans been determined in
accordance with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
Three Months Ended March 31,
(in thousands, except per share amounts) 2004 2003
---- ----
Net income As reported $4,777 $3,613
Pro forma $4,695 $3,561
Basic earnings per share As reported $0.31 $0.26
Pro forma $0.30 $0.25
Diluted earnings per share As reported $0.29 $0.25
Pro forma $0.29 $0.25
Stock-based employee compensation
cost, net of related tax effects,
included in net income As reported $0 $0
Pro forma $82 $52
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 a supplemental retirement plan for directors and a supplemental
executive retirement plan covering key executives. These plans are non-qualified
defined benefit plans and are unsecured and unfunded. The Company has purchased
insurance on the lives of the participants and intends to use the cash values of
these policies to pay the retirement obligations.
The following table sets forth the net periodic benefit cost recognized for the
plans:
Three Months Ended March 31,
2004 2003
(in thousands)
----------------------------
Net pension cost included the following components:
Service cost-benefits earned during the period $35 $31
Interest cost on projected benefit obligation 103 105
Amortization of net obligation at transition 8 9
Amortization of prior service cost 20 20
Recognized net actuarial loss 37 38
----------------------------
Net periodic pension cost $203 $203
============================
During the three months ended March 31, 2004, the Company contributed and paid
out as benefits $140,000 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.
Comprehensive Income
For the Company, comprehensive income includes net income reported on the
statement of income and comprehensive 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 for the
three months ended March 31, 2004 and 2003 are reported as follows:
Three Months Ended March 31,
2004 2003
----------------------------
Unrealized Gain on Securities (in thousands)
Beginning Balance $2,519 $3,048
Unrealized gain arising during the
period, net of tax 612 385
----------------------------
Ending Balance $3,131 $3,433
----------------------------
Minimum Pension Liability
Beginning Balance ($705) ($745)
Change in minimum pension liability,
net of tax - -
----------------------------
Ending Balance ($705) ($745)
----------------------------
Total accumulated other comprehensive
income, net $2,426 $2,688
----------------------------
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.
-11-
TRICO BANCSHARES
Financial Summary
(dollars in thousands, except per share amounts)
(Unaudited)
Three months ended
March 31,
--------------------------------
2004 2003
--------------------------------
Net Interest Income (FTE) $17,147 $13,543
Provision for loan losses (650) (150)
Noninterest income 5,755 5,396
Noninterest expense (14,346) (12,651)
Provision for income taxes (FTE) (3,129) (2,525)
--------------------------------
Net income $4,777 $3,613
================================
Average shares outstanding 15,617 14,141
Diluted average shares outstanding 16,213 14,500
Shares outstanding at period end 15,636 14,161
As Reported:
Basic earnings per share $0.31 $0.26
Diluted earnings per share $0.29 $0.25
Return on assets 1.33% 1.26%
Return on equity 14.80% 14.29%
Net interest margin 5.35% 5.17%
Net loan charge-offs to average loans 0.05% 0.14%
Efficiency ratio (FTE) 62.64% 66.80%
Average Balances:
Total assets $1,440,953 $1,149,759
Earning assets 1,281,032 1,048,286
Total loans 970,793 679,975
Total deposits 1,231,704 1,003,853
Shareholders' equity $129,133 $101,139
Balances at Period End:
Total assets $1,450,443 $1,176,503
Earning assets 1,306,722 1,057,880
Total loans 994,065 693,773
Total deposits 1,239,939 1,032,652
Shareholders' equity $129,514 $101,892
Financial Ratios at Period End:
Allowance for loan losses to loans 1.44% 2.06%
Book value per share $8.28 $7.20
Equity to assets 8.93% 8.66%
Total capital to risk assets 11.49% 11.63%
Dividends Paid Per Share $0.10 $0.10
Dividend Payout Ratio 33.26% 39.19%
Share and per share data for all periods have been adjusted to reflect the
2-for-1 stock split paid on April 30, 2004.
-12-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As TriCo Bancshares (the "Company") has not commenced any business operations
independent of Tri Counties Bank (the "Bank"), the following discussion pertains
primarily to the Bank. Average balances, including such balances used in
calculating certain financial ratios, are generally comprised of average daily
balances for the Company. Within Management's Discussion and Analysis of
Financial Condition and Results of Operations, interest income and net interest
income are generally presented on a fully tax-equivalent (FTE) basis.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to the adequacy of the allowance for loan
losses, intangible assets, and contingencies. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. (See caption "Allowance for
Loan Losses" for a more detailed discussion).
Results of Operations
The following discussion and analysis is designed to provide a better
understanding of the significant changes and trends related to the Company and
the Bank's financial condition, operating results, asset and liability
management, liquidity and capital resources and should be read in conjunction
with the Consolidated Financial Statements of the Company and the Notes thereto.
The Company had quarterly earnings of $4,777,000, or $0.29 per diluted share,
for the three months ended March 31, 2004. These results represent a 16.0%
increase from the $0.25 earnings per diluted share reported for the three months
ended March 31, 2003 on earnings of $3,613,000. The improvement in results from
the year-ago quarter was due to a $3,604,000 (26.6%) increase in fully
tax-equivalent net interest income to $17,147,000, and a $359,000 (6.7%)
increase in noninterest income to $5,755,000. These contributing factors where
partially offset by a $500,000 (333%) increase in provision for loan losses to
$650,000 and a $1,695,000 (13.4%) increase in noninterest expense to $14,346,000
for the quarter ended March 31, 2004.
Included in the results for the quarter ended March 31, 2004 was the effect of
the Company's acquisition of North State National Bank on April 4, 2003. On
April 4, 2003, North State National Bank had assets of $140 million, loans
totaling $77 million, and deposits totaling $126 million. The Company issued
$13,090,057 in cash, 723,512 shares of TriCo common stock, and options to
purchase 79,587 TriCo common shares at an average exercise price of $6.22 per
share in exchange for all of the 1,234,375 common shares and options to purchase
79,937 common shares of North State National Bank outstanding as of April 4,
2003.
-13-
Following is a summary of the components of fully taxable equivalent ("FTE") net
income for the periods indicated (dollars in thousands):
Three months ended
March 31,
--------------------------------
2004 2003
--------------------------------
Net Interest Income (FTE) $17,147 $13,543
Provision for loan losses (650) (150)
Noninterest income 5,755 5,396
Noninterest expense (14,346) (12,651)
Provision for income taxes (FTE) (3,129) (2,525)
--------------------------------
Net income $4,777 $3,613
================================
Net Interest Income
Following is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended
March 31,
--------------------------------
2004 2003
--------------------------------
Interest income $19,912 $16,349
Interest expense (3,014) (3,115)
FTE adjustment 249 309
--------------------------------
Net interest income (FTE) $17,147 $13,543
================================
Average earning assets $1,281,032 $1,048,286
Net interest margin (FTE) 5.35% 5.17%
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 $3,604,000 (26.6%) from the same period in 2003 to
$17,147,000. The increase in net interest income (FTE) was due to increased
average balances of earning assets (up $232.7 million or 22.2% to $1.281billion)
and an 18 basis point increase in net interest margin (FTE) to 5.35%.
Interest and Fee Income
Interest and fee income (FTE) for the first quarter of 2004 increased $3,503,000
(21.0%) from the first quarter of 2003. The increase was the net effect of
higher average interest-earning assets (up $232.7 million or 22.2% to
$1.281billion) that was partially offset by a 6 basis point decrease in the
yield on those average earning assets to 6.30%. The growth in interest-earning
assets was the result of a $290.8 million (42.8%) increase in average loan
balances to $970.8 million that was offset by decreases in average balance of
investments of $34.0 (10.0%) to $305.8 million and average balance of Federal
funds sold of $24.0 million (84.5%) to $4.4 million.
The average yield on the Company's earning assets decreased to 6.30% for the
quarter ended March 31, 2004 from 6.36% for the quarter ended March 31, 2003.
The average yield on the Company's loans was 6.90% in the quarter ended March
31, 2004 compared to 7.64% in the year-ago quarter. This 74 basis point decrease
in average yield on loans is the result of the trend in general interest rates
throughout much of 2002 and 2003 towards lower rates. The average yield on the
Company's investment balances increased 24 basis points to 4.46% in the quarter
ended March 31, 2004 compared to 4.22% in the year-ago quarter. The increase in
the average yield on investment balances was primarily due to a decrease in the
volume of mortgage refinancing in the quarter ended March 31, 2004 compared to
the year-ago quarter. Increased volume of mortgage refinancing has the effect of
decreasing the yields of the Companies mortgage-backed securities, which account
for approximately seventy-five percent of the Company's investment balances. As
the volume of mortgage refinancing began to decrease in the fall of 2003, the
yield on the Company's mortgage-backed securities increased. The average yield
on Federal funds sold decreased 27 basis points to 0.91% in the quarter ended
March 31, 2004 from the year-ago quarter due to a 25 basis points decrease in
the Federal funds target rate that occurred in June 2003.
-14-
Interest Expense
Interest expense decreased $101,000 (3.2%) in the first quarter of 2004 compared
to the year-ago quarter. The decrease was due to a decrease in the average rate
paid on interest-bearing liabilities from 1.52% in the first quarter of 2003 to
1.18% in the first quarter of 2004.
The average balance of interest-bearing liabilities increased $199.0 million
(24.3%) in the first quarter of 2004 compared to the year-ago quarter. The
increase in interest-bearing liabilities was concentrated in the lower earning
interest-bearing demand deposit (up $35.5 million or 19.0%), and savings
deposits (up $151.4 million or 47.9%). The average balance of the higher earning
time deposits was down $21.8 million (7.4%) from the year-ago quarter. In
addition, the average balance of noninterest-bearing deposits increased $62.8
million (30.2%) from the year-ago quarter. During the quarter ended March 31,
2004, average balance of Federal funds purchased and junior subordinated debt
were $13.3 million and $20.6 million, respectively, compared to none of each in
the year-ago quarter. The average rate paid for all categories of
interest-bearing liabilities, except for other borrowings, 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
March 31,
---------------------
2004 2003
---------------------
Yield on earning assets 6.30% 6.36%
Rate paid on interest-bearing
Liabilities 1.18% 1.52%
---------------------
Net interest spread 5.12% 4.84%
Impact of all other net
noninterest-bearing funds 0.23% 0.33%
---------------------
Net interest margin 5.35% 5.17%
=====================
Net interest margin in the first quarter of 2004 increased 18 basis points
compared to the first 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 March 31, 2004,
the ratio of loans to total interest earnings assets was 76% compared to 66% in
the year-ago quarter. The increase in interest income due to the increase in
loan volume more than offset the effect of the 74 basis point decrease in
average loan yield. As a result, the average yield on total earning assets only
decreased 6 basis points, while the average rate paid on interest-bearing
liabilities decreased 34 basis points.
-15-
Summary of Average Balances, Yields/Rates and Interest Differential
The following table presents, for the periods indicated, information regarding
the Company's consolidated average assets, liabilities and shareholders' equity,
the amounts of interest income from average earning assets and resulting yields,
and the amount of interest expense paid on interest-bearing liabilities. Average
loan balances include nonperforming loans. Interest income includes proceeds
from loans on nonaccrual loans only to the extent cash payments have been
received and applied to interest income. Yields on securities and certain loans
have been adjusted upward to reflect the effect of income thereon exempt from
federal income taxation at the current statutory tax rate (dollars in
thousands).
For the three months ended
----------------------------------------------------------------
March 31, 2004 March 31, 2003
----------------------------- ------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $970,793 $16,739 6.90% $679,975 $12,989 7.64%
Investment securities - taxable 270,358 2,721 4.03% 298,737 2,744 3.67%
Investment securities - nontaxable 35,472 691 7.79% 41,136 841 8.17%
Federal funds sold 4,409 10 0.91% 28,438 84 1.18%
----------------------------- ------------------------------
Total earning assets 1,281,032 20,161 6.30% 1,048,286 16,658 6.36%
Other assets 159,921 101,473
---------- ----------
Total assets $1,440,953 $1,149,759
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $222,508 100 0.18% $187,017 118 0.25%
Savings deposits 467,740 907 0.78% 316,366 720 0.91%
Time deposits 271,138 1,442 2.13% 292,924 1,959 2.68%
Federal funds purchased 13,292 34 1.02% - -
Other borrowings 22,880 320 5.59% 22,918 318 5.55%
Junior subordinated debt 20,619 211 4.09% - -
----------------------------- ------------------------------
Total interest-bearing liabilities 1,018,177 3,014 1.18% 819,225 3,115 1.52%
Noninterest-bearing deposits 270,318 207,546
Other liabilities 23,325 21,849
Shareholders' equity 129,133 101,139
---------- ----------
Total liabilities and
shareholders' equity $1,440,953 $1,149,759
========== ==========
Net interest spread(1) 5.12% 4.84%
Net interest income and interest margin(2) $17,147 5.35% $13,543 5.17%
================ =================
(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.
-16-
Summary of Changes in Interest Income and Expense due to Changes in Average
Asset & Liability Balances and Yields Earned & Rates Paid
The following table sets forth a summary of the changes in interest income and
interest expense from changes in average asset and liability balances (volume)
and changes in average interest rates for the periods indicated. Changes not
solely attributable to volume or rates have been allocated in proportion to the
respective volume and rate components (dollars in thousands).
Three months ended March 31, 2004
compared with three months
ended March 31, 2003
---------------------------------
Volume Rate Total
---------------------------------
Increase (decrease) in interest income:
Loans $5,555 ($1,805) $3,750
Investment securities (359) 186 (173)
Federal funds sold (71) (3) (74)
---------------------------------
Total earning assets 5,125 (1,622) 3,503
---------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 22 (40) (18)
Savings deposits 344 (157) 187
Time deposits (146) (371) (517)
Federal funds purchased 34 - 34
Other borrowings (1) 3 2
Junior subordinated debt 211 - 211
---------------------------------
Total interest-bearing liabilities 464 (565) (101)
---------------------------------
Increase (decrease) in Net Interest Income $4,661 ($1,057) $3,604
=================================
Provision for Loan Losses
The Company provided $650,000 for loan losses in the first quarter of 2004
versus $150,000 in the first quarter of 2003. During the first quarter of 2004,
the Company recorded $126,000 of net loan charge offs versus $234,000 of net
loan charge-offs in the year earlier quarter.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended
March 31,
---------------------
2004 2003
---------------------
Service charges on deposit accounts $3,197 $2,858
ATM fees and interchange 581 520
Other service fees 303 122
Gain on sale of loans 625 1,133
Commissions on sale of
nondeposit investment products 514 448
Increase in cash value of life insurance 432 139
Other noninterest income 103 176
---------------------
Total noninterest income $5,755 $5,396
=====================
-17-
Noninterest income for the first quarter of 2004 increased $359,000 (6.7%) from
the year-ago quarter. The increase in noninterest income from the year-ago
quarter was mainly due to increases in service charges on deposit products (up
$339 or 11.9% to $3,197,000), cash value of life insurance (up $293,000 or 211%
to $432,000), and other servicing fees (up $181,000 or 148% to $303,000) that
were partially offset by a decrease in gain on sale of loans (down $508,000 or
44.8% to $625,000). The increase in service charges income was mainly due to
increased number of customers. The higher amount of 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 increase in other service fees is due to
increased mortgage servicing fees net of mortgage servicing premium
amortization. The decrease in gain on sale of loans was due to the slowdown in
the residential mortgage refinance market that started during the second half of
2003.
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended
March 31,
----------------------
2004 2003
----------------------
Salaries $5,094 $4,250
Commissions and incentives 1,077 1,111
Employee benefits 1,996 1,516
Equipment 943 791
Occupancy 937 747
Professional fees 509 574
Data processing and software 383 291
Telecommunications 375 391
Intangible amortization 331 228
ATM network charges 295 232
Courier service 262 248
Postage 232 198
Advertising and marketing 191 272
Assessments 72 60
Operational losses 40 130
Other 1,609 1,612
----------------------
Total $14,346 $12,651
======================
Average full time equivalent staff 532 467
Noninterest expense to revenue (FTE) 62.64% 66.80%
Noninterest expense for the first quarter of 2004 increased $1,695,000 (13.4%).
The increase in noninterest expense was mainly due to a $1,290,000 (18.8%)
increase in salary and benefit expense to $8,167,000. The increase in salary and
benefits expense was mainly due to annual salary increases, increased commission
and incentive expense, and new employees at the Company's four newly opened
branches in 2003. Noninterest expense excluding salaries and benefits also
increased (up $405,000 or 7.0% to $6,179,000). Approximately $342,000 of this
increase was expenses related to equipment and facilities depreciation and
maintenance.
Provision for Income Tax
The effective tax rate for the three months ended March 31, 2004 was 37.6% and
reflects a decrease from 38.0% for the three months ended March 31, 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 and state and municipal securities.
-18-
Classified Assets
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk. Asset reviews are performed using grading standards and criteria
similar to those employed by bank regulatory agencies. Assets receiving lesser
grades fall under the "classified assets" category, which includes all
nonperforming assets and potential problem loans, and receive an elevated level
of attention to ensure collection.
The following is a summary of classified assets on the dates indicated (dollars
in thousands):
At March 31, 2004 At December 31, 2003
------------------------- ------------------------
Gross Guaranteed Net Gross Guaranteed Net
-----------------------------------------------------
Classified loans $27,946 $10,476 $17,470 $29,992 $11,209 $18,783
Other classified assets 924 - 924 932 - 932
-----------------------------------------------------
Total classified assets $28,870 $10,476 $18,394 $30,924 $11,209 $19,715
=====================================================
Allowance for loan losses/
Classified loans 77.7% 73.3%
Classified assets, net of guarantees of the U.S. Government, including its
agencies and its government-sponsored agencies at March 31, 2004, decreased $1.3
million (6.7%) to $18.4 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
three months, ended March 31, 2004, if all such loans had been current in
accordance with their original terms, totaled $348,000. Interest income actually
recognized on these loans during the three months ended March 31, 2004 was
$226,000.
The Company's policy is to place loans 90 days or more past due on nonaccrual
status. In some instances when a loan is 90 days past due Management does not
place it on nonaccrual status because the loan is well secured and in the
process of collection. A loan is considered to be in the process of collection
if, based on a probable specific event, it is expected that the loan will be
repaid or brought current. Generally, this collection period would not exceed 30
days. Loans where the collateral has been repossessed are classified as OREO or,
if the collateral is personal property, the loan is classified as other assets
on the Company's financial statements.
-19-
Management considers both the adequacy of the collateral and the other resources
of the borrower in determining the steps to be taken to collect nonaccrual
loans. Alternatives that are considered are foreclosure, collecting on
guarantees, restructuring the loan or collection lawsuits.
As shown in the following table, total nonperforming assets net of guarantees of
the U.S. Government, including its agencies and its government-sponsored
agencies, increased $863,000 (16.2%) to $6,189,000 during the first three months
of 2004. Nonperforming assets net of guarantees represent 0.43% of total assets.
All nonaccrual loans are considered to be impaired when determining the need for
a specific valuation allowance. The Company continues to make a concerted effort
to work problem and potential problem loans to reduce risk of loss.
(dollars in thousands):
At March 31, 2004 At December 31, 2003
------------------------- -------------------------
Gross Guaranteed Net Gross Guaranteed Net
------------------------------------------------------
Performing nonaccrual loans $10,450 $7,816 $2,634 $10,997 $7,936 $3,061
Nonperforming, nonaccrual loans 3,349 1,061 2,288 2,551 1,252 1,299
------------------------------------------------------
Total nonaccrual loans 13,799 8,877 4,922 13,548 9,188 4,360
Loans 90 days past due and still accruing 343 - 343 34 - 34
------------------------------------------------------
Total nonperforming loans 14,142 8,877 5,265 13,582 9,188 4,394
Other real estate owned 924 - 924 932 - 932
------------------------------------------------------
Total nonperforming assets $15,066 $8,877 $6,189 $14,514 $9,188 $5,326
======================================================
Nonperforming loans to total loans 0.53% 0.45%
Allowance for loan losses/nonperforming loans 272% 313%
Nonperforming assets to total assets 0.43% 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.
-20-
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 $14,297,000 allowance for loan losses at March 31, 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.
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
March 31,
------------------------
2004 2003
------------------------
Balance, beginning of period $13,773 $14,377
Loan loss provision 650 150
Loans charged off (188) (280)
Recoveries of previously
charged-off loans 62 46
------------------------
Net charge-offs (126) (234)
------------------------
Balance, end of period $14,297 $14,293
========================
Allowance for loan losses/loans outstanding 1.44% 2.06%
Capital Resources
The current and projected capital position of the Company and the impact of
capital plans and long-term strategies are reviewed regularly by Management.
As previously announced on March 11, 2004, the Board of Directors of TriCo
Bancshares approved a two-for-one stock split of its common stock at its meeting
held on March 11, 2004. The stock split will be effected in the form of a stock
dividend and will entitle each stockholder of record at the close of business on
April 9, 2004 to receive one additional share for every share of TriCo common
stock held on that date. Shares resulting from the split will be distributed on
April 30, 2004. As of March 11, 2004, the Company had 7,817,761 common shares
outstanding.
Also at its meeting on March 11, 2004, the Board of Directors of TriCo
Bancshares approved an increase in the maximum number of shares to be
repurchased under the Company's stock repurchase plan originally announced on
July 31, 2003 from 250,000 to 500,000 to be effective on April 9, 2004, solely
to conform with the two-for-one stock split noted above. The 250,000 shares
originally authorized for repurchase under this plan represented approximately
3.2% of the Company's approximately 7,852,000 common shares outstanding as of
July 31, 2003. This plan has no stated expiration date for the repurchases,
which may occur from time to time as market conditions allow. As of May 4, 2004,
the Company repurchased 222,600 shares under this plan as adjusted for the
2-for-1 stock split paid on April 30, 2004, which leaves 277,400 shares
available for repurchase under the plan.
-21-
The Company's primary capital resource is shareholders' equity, which was $129.5
million at March 31, 2004. This amount represents an increase of $1.6 million
from December 31, 2003, the net result of comprehensive income for the period
($5.4 million) and the issuance of common shares via the exercise of stock
options ($0.5 million), partially offset by the repurchase of common stock ($2.8
million) and dividends paid ($1.5 million). The Company's ratio of equity to
total assets was 8.93%, 8.66%, and 8.71% as of March 31, 2004, March 31, 2003,
and December 31, 2003, respectively. The following summarizes the ratios of
capital to risk-adjusted assets for the periods indicated:
To Be Well
At March 31, At Minimum Capitalized Under
---------------- December 31, Regulatory Prompt Corrective
2004 2003 2003 Requirement Action Provisions
------------------------------------------------------------------
Tier I Capital 10.31% 10.38% 10.41% 4.00% 6.00%
Total Capital 11.49% 11.63% 11.57% 8.00% 10.00%
Leverage ratio 8.80% 8.23% 8.68% 4.00% 5.00%
Off-Balance Sheet Arrangements
The Bank has certain ongoing commitments under operating and capital leases.
These commitments do not significantly impact operating results. As of March 31,
2004 commitments to extend credit were the Company's only financial instruments
with off-balance sheet risk. The Company has not entered into any contracts for
financial derivative instruments such as futures, swaps, options, etc. Loan
commitments increased to $362.5 million from $332.9 million at December 31,
2003. The commitments represent 36.5% of the total loans outstanding at year-end
2003 versus 33.9% at December 31, 2003.
Certain Contractual Obligations
The following chart summarizes certain contractual obligations of the Company as
of December 31, 2003:
Less than 1-3 3-5 More than
(dollars in thousands) Total one year years years 5 years
------------------------------------------------------------------
Federal funds purchased $39,500 $39,500 - - -
FHLB loan, fixed rate of 5.41%
payable on April 7, 2008, callable
in its entirety by FHLB on a quarterly
basis beginning April 7, 2003 20,000 - - $20,000 -
FHLB loan, fixed rate of 5.35%
payable on December 9, 2008 1,500 - - 1,500 -
FHLB loan, fixed rate of 5.77%
payable on February 23, 2009 1,000 - - - $1,000
Capital lease obligation on premises,
effective rate of 13% payable
monthly in varying amounts
through December 1, 2009 562 90 183 187 102
Junior subordinated debt, adjustable rate
of three-month LIBOR plus 3.05%,
callable in whole or in part by the
Company on a quarterly basis beginning
October 7, 2008, matures October 7, 2033 20,619 - - - 20,619
Operating lease obligations 6,254 1,172 1,835 1,428 1,819
Deferred compensation(1) 5,195 269 505 438 3,983
Supplemental retirement plans(1) 3,567 498 937 774 1,358
Employment agreements 253 253 - - -
------------------------------------------------------------------
Total contractual obligations $98,450 $41,782 $3,460 $24,327 $28,881
==================================================================
(1) These amounts represent known certain payments to participants under the
Company's deferred compensation and supplemental retirement plans.
-22-
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Asset and Liability Management
The goal for managing the assets and liabilities of the Company is to maximize
shareholder value and earnings while maintaining a high quality balance sheet
without exposing the Company to undue interest rate risk. The Board of Directors
has overall responsibility for the Company's interest rate risk management
policies. The Company has an Asset and Liability Management Committee (ALCO)
which establishes and monitors guidelines to control the sensitivity of earnings
to changes in interest rates.
Activities involved in asset/liability management include but are not limited to
lending, accepting and placing deposits, investing in securities and issuing
debt. Interest rate risk is the primary market risk associated with
asset/liability management. Sensitivity of earnings to interest rate changes
arises when yields on assets change in a different time period or in a different
amount from that of interest costs on liabilities. To mitigate interest rate
risk, the structure of the balance sheet is managed with the goal that movements
of interest rates on assets and liabilities are correlated and contribute to
earnings even in periods of volatile interest rates. The asset/liability
management policy sets limits on the acceptable amount of variance in net
interest margin, net income and market value of equity under changing interest
environments. Market value of equity is the net present value of estimated cash
flows from the Company's assets, liabilities and off-balance sheet items. The
Company uses simulation models to forecast net interest margin, net income and
market value of equity.
Simulation of net interest margin, net income and market value of equity under
various interest rate scenarios is the primary tool used to measure interest
rate risk. Using computer-modeling techniques, the Company is able to estimate
the potential impact of changing interest rates on net interest margin, net
income and market value of equity. A balance sheet forecast is prepared using
inputs of actual loan, securities and interest-bearing liability (i.e.
deposits/borrowings) positions as the beginning base.
In the simulation of net interest margin and net income under various interest
rate scenarios, the forecast balance sheet is processed against seven interest
rate scenarios. These seven interest rate scenarios include a flat rate
scenario, which assumes interest rates are unchanged in the future, and six
additional rate ramp scenarios ranging from +300 to -300 basis points around the
flat scenario in 100 basis point increments. These ramp scenarios assume that
interest rates increase or decrease evenly (in a "ramp" fashion) over a
twelve-month period and remain at the new levels beyond twelve months.
In the simulation of market value of equity under various interest rate
scenarios, the forecast balance sheet is processed against seven interest rate
scenarios. These seven interest rate scenarios include the flat rate scenario
described above, and six additional rate shock scenarios ranging from +300 to
- -300 basis points around the flat scenario in 100 basis point increments. These
rate shock scenarios assume that interest rates increase or decrease immediately
(in a "shock" fashion) and remain at the new level in the future.
At March 31, 2004 and 2003, the results of the simulations noted above indicate
that the balance sheet is slightly asset sensitive (earnings increase when
interest rates rise). The magnitude of all the simulation results noted above is
within the Company's policy guidelines. The asset liability management policy
limits aggregate market risk, as measured in this fashion, to an acceptable
level within the context of risk-return trade-offs.
The simulation results noted above do not incorporate any management actions,
which might moderate the negative consequences of interest rate deviations.
Therefore, they do not reflect likely actual results, but serve as conservative
estimates of interest rate risk.
At March 31, 2004 and 2003, the Company had no derivative financial instruments.
-23-
Liquidity
The Company's principal source of asset liquidity is federal funds sold and
marketable investment securities available for sale. At March 31, 2004, federal
funds sold and investment securities available for sale totaled $313 million,
representing a decrease of $4 million or 0.1% from December 31, 2003, and a
decrease of $51 million or 14% from March 31, 2003. In addition, the Company
generates additional liquidity from its operating activities. The Company's
profitability during the first three months of 2004 generated cash flows from
operations of $7.7 million compared to $5.6 million during the first three
months of 2003. Additional cash flows may be provided by financing activities,
primarily the acceptance of deposits and borrowings from banks. Sales and
maturities of investment securities produced cash inflows of $19.7 million
during the three months ended March 31, 2004 compared to $36.9 million for the
three months ended March 31, 2003. During the three months ended March 31, 2004,
the Company invested $15.3 million and $13.0 million in securities and net loan
growth, respectively, compared to $53.0 million, $7.2 million, and $13.9 million
invested in securities, net loan growth, and life insurance policies,
respectively, during the first three months of 2003. These changes in
investment, loan, and life insurance balances contributed to net cash used for
investing activities of $9.2 million during the three months ended March 31,
2004, compared to net cash used for investing activities of $38.1 million during
the three months ended March 31, 2003. Financing activities used net cash of
$23.9 million during the three months ended March 31, 2004, compared to net cash
provided by financing activities of $26.2 million during the three months ended
March 31, 2003. Deposit balance increases and exercise of common stock options
accounted for $3.1 million and $540,000 of financing sources of funds,
respectively, during the three months ended March 31, 2004, compared to deposit
balance increases and exercise of common stock options that accounted for $27.4
million and $242,000 of financing sources of funds, respectively, during the
three months ended March 31, 2003. Dividends paid used $1.5 million and $1.4
million of cash during the three months ended March 31, 2004 and March 31, 2003,
respectively. A decrease in Federal funds purchased and the repurchase of common
stock used $23.2 million and $2.8 million of cash, respectively, during the
quarter ended arch 31, 2004. Also, the Company's liquidity is dependent on
dividends received from the Bank. Dividends from the Bank are subject to certain
regulatory restrictions.
Item 4. Controls and Procedures
The Chief Executive Officer, Richard Smith, and the Chief Financial Officer,
Thomas Reddish, evaluated the effectiveness of the Company's disclosure controls
and procedures as of March 31, 2004 ("Evaluation Date"). Based on that
evaluation, they concluded that as of the Evaluation Date the Company's
disclosure controls and procedures are effective to allow timely communication
to them of information relating to the Company and the Bank required to be
disclosed in its filings with the Securities and Exchange Commission ("SEC")
under the Securities Exchange Act of 1934, as amended ("Exchange Act").
Disclosure controls and procedures are Company controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
-24-
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Due to the nature of the banking business, the Bank is at times party to various
legal actions; all such actions are of a routine nature and arise in the normal
course of business of the Bank.
Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
The following table shows information concerning the common stock repurchased by
the Company during the first quarter of 2004 pursuant to the Company's stock
repurchase plan originally announced on July 31, 2003, as amended on March 11,
2004, to conform with the Company's two-for-one stock split effective on April
9, 2004, which is discussed in more detail under "Capital Resources" in this
report:
Period (a) Total number (b) Average price (c) Total number of (d) Maximum number
of Shares purchased paid per share shares purchased as of shares that may yet
part of publicly be purchased under the
announced plans or plans or programs
programs
- -----------------------------------------------------------------------------------------------------------
Jan. 1-31, 2004 93,600 $16.40 93,600 351,400
Feb. 1-29, 2004 74,000 $17.00 74,000 277,400
Mar. 1-31, 2004 - - - 277,400
- -----------------------------------------------------------------------------------------------------------
Total 167,600 $16.66 167,600 277,400
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was held on May 4, 2004.
(b) and (c) The following vote results are based on the number of shares
outstanding prior to the 2-for-1 stock split paid on April 30, 2004. The
following eleven directors were elected at the meeting:
Votes For Votes Against/Withheld Abstentions
William J. Casey 6,211,353 272,395 -
Donald J. Amaral 6,165,571 318,177 -
Craig S. Compton 6,226,680 257,068 -
John S.A. Hasbrook 6,283,846 199,902 -
Michael W. Koehnen 6,289,696 194,052 -
Wendell J. Lundberg 6,202,532 281,216 -
Donald E. Murphy 6,213,445 270,303 -
Steve G. Nettleton 6,284,518 199,230 -
Richard P. Smith 6,283,513 200,235 -
Carroll R. Taresh 5,673,757 809,991 -
Alex A. Vereschagin, Jr. 6,271,636 212,112 -
The shareholders approved an amendment to the Company's articles of
incorporation to increase the authorized shares of common stock from
20,000,000 to 50,000,000. 5,801,690 shares were voted for approval, 627,114
shares were voted against and 53,771 shares abstained.
The shareholders approved an amendment to the Company's 2001 stock option
plan to increase by 450,000 the number of shares which may be granted under
the plan. 4,178,658 shares were voted for approval, 926,004 shares were
voted against and 108,449 shares abstained.
-25-
The shareholders ratified the appointment of KPMG LLP as independent public
accountants of the Company for 2004. 6,378,503 shares were voted for the
ratification, 23,539 shares were voted against and 81,706 shares abstained.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
3.1* Restated Articles of Incorporation dated May 9, 2003, filed as
Exhibit 3.1 to TriCo's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003
3.2* Bylaws of TriCo Bancshares, as amended, filed as Exhibit 3.2 to
TriCo's Form S-4 Registration Statement dated January 16, 2003
(No. 333-102546)
4* Certificate of Determination of Preferences of Series AA Junior
Participating Preferred Stock filed as Exhibit 3.3 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001
10.1* Rights Agreement dated June 25, 2001, between TriCo and Mellon
Investor Services LLC filed as Exhibit 1 to TriCo's Form 8-A
dated July 25, 2001
10.2* Form of Change of Control Agreement dated April 10, 2001, between
TriCo and each of Richard O'Sullivan, Thomas Reddish, Ray Rios
and Richard Smith, and dated February 27, 2003, between TriCo and
Craig Carney filed as Exhibit 10.9 to TriCo's Report on Form 10-Q
for the quarter ended September 30, 2001
10.3* TriCo's 1993 Non-Qualified Stock Option Plan filed as Exhibit 4.1
to TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.4* TriCo's Non-Qualified Stock Option Plan filed as Exhibit 4.2 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.5* TriCo's Incentive Stock Option Plan filed as Exhibit 4.3 to
TriCo's Form S-8 Registration Statement dated January 18, 1995
(No. 33-88704)
10.6* TriCo's 1995 Incentive Stock Option Plan filed as Exhibit 4.1 to
TriCo's Form S-8 Registration Statement dated August 23, 1995
(No. 33-62063)
10.7* TriCo's 2001 Stock Option Plan filed as Exhibit 4 to TriCo's Form
S-8 Registration Statement dated July 27, 2001 (No. 33-66064)
10.8* Employment Agreement between TriCo and Richard Smith dated April
10, 2001, filed as Exhibit 10.8 to TriCo's Form S-4 Registration
Statement dated January 16, 2003 (No. 333-102546)
10.9* Tri Counties Bank Executive Deferred Compensation Plan dated
September 1, 1987, as restated April 1, 1992, and amended
November 12, 2002, filed as Exhibit 10.9 to TriCo's Form S-4
Registration Statement dated January 16, 2003 (No. 333-102546)
-26-
10.10* Tri Counties Bank Supplemental Retirement Plan for Directors
dated September 1, 1987, as restated January 1, 2001, filed as
Exhibit 10.10 to TriCo's Form S-4 Registration Statement dated
January 16, 2003 (No. 333-102546)
10.11* Tri Counties Bank Supplemental Executive Retirement Plan
effective September 1, 1987, filed as Exhibit 10.11 to TriCo's
Form S-4 Registration Statement dated January 16, 2003 (No.
333-102546)
10.12* Tri Counties Bank Deferred Compensation Plan for Directors
effective April 1, 1992, filed as Exhibit 10.12 to TriCo's Form
S-4 Registration Statement dated January 16, 2003 (No.
333-102546)
10.13* Employment Agreement between TriCo and Richard O'Sullivan dated
April 10, 2001, filed as Exhibit 10.13 to TriCo's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2003
10.14* Form of Joint Beneficiary Agreement effective March 31, 2003
between Tri Counties Bank and each of George Barstow, Dan Bay,
Ron Bee, Craig Carney, Robert Elmore, Greg Gill, Richard Miller,
Andrew Mastorakis, Richard O'Sullivan, Thomas Reddish, Jerald
Sax, and Richard Smith, filed as Exhibit 10.14 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003
10.15* Form of Joint Beneficiary Agreement effective March 31, 2003
between Tri Counties Bank and each of Don Amaral, William Casey,
Craig Compton, John Hasbrook, Michael Koehnen, Wendell Lundberg,
Donald Murphy, Carroll Taresh, and Alex Vereshagin, filed as
Exhibit 10.15 to TriCo's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003
10.16* Form of Tri-Counties Bank Executive Long Term Care Agreement
effective June 10, 2003 between Tri Counties Bank and each of
Craig Carney, Andrew Mastorakis, Richard Miller, Richard
O'Sullivan, and Thomas Reddish, filed as Exhibit 10.16 to TriCo's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003
10.17* Form of Tri-Counties Bank Director Long Term Care Agreement
effective June 10, 2003 between Tri Counties Bank and each of Don
Amaral, William Casey, Craig Compton, John Hasbrook, Michael
Koehnen, Donald Murphy, Carroll Taresh, and Alex Verischagin,
filed as Exhibit 10.17 to TriCo's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2003
10.18* Form of Indemnification Agreement between TriCo Bancshares/Tri
Counties Bank and each of the directors of TriCo Bancshares/Tri
Counties Bank effective on the date that each director is first
elected, filed as Exhibit 10.18 to TriCo'S Annual Report on Form
10-K for the year ended December 31, 2003.
-27-
11.1 Computation of earnings per share
21.1 Tri Counties Bank, a California banking corporation, and TriCo
Capital Trust I, a Delaware business trust, are the only
subsidiaries of Registrant
31.1 Rule 13a-14(a)/15d-14(a) Certification of CEO
31.2 Rule 13a-14(a)/15d-14(a) Certification of CFO
32.1 Section 1350 Certification of CEO
32.2 Section 1350 Certification of CFO
* Previously filed and incorporated by reference.
(b) Reports on Form 8-K
During the quarter ended March 31, 2004 the Company filed the following
Current Reports on Form 8-K:
Description Date of Report
---------------------------------- ---------------------
TriCo Bancshares Announces 2-for-1 March 11, 2004
Stock Split
Quarterly results of operations April 21, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
TRICO BANCSHARES
(Registrant)
Date: May 4, 2004 /s/ Thomas J. Reddish
-----------------------------------
Thomas J. Reddish
Executive Vice President and
Chief Financial Officer
-28-
EXHIBITS
Exhibit 11.1
TRICO BANCSHARES
Computation of Earnings Per Share on Common and Common Equivalent Shares and on
Common Shares Assuming Full Dilution
For the
three months
ended March 31,
(In thousands, except per share data) 2004 2003
----------------------
Weighted average number of common
shares outstanding - basic 15,617 14,141
Add exercise of options reduced by
the number of shares that could
have been purchased with the
proceeds of such exercise 596 359
----------------------
Weighted average number of common
shares outstanding - diluted 16,213 14,500
======================
Net income $4,777 $3,613
Basic earnings per share $0.31 $0.26
Diluted earnings per share $0.29 $0.25
-29-
Exhibit 31.1
Rule 13a-14/15d-14 Certification of CEO
I, Richard P. Smith, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiary, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors;
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial data;
and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 4, 2004 /s/ Richard P. Smith
----------------------------------------
Richard P. Smith
President and Chief Executive Officer
-30-
Exhibit 31.2
Rule 13a-14/15d-14 Certification of CFO
I, Thomas J. Reddish, certify that;
1. I have reviewed this quarterly report on Form 10-Q of TriCo
Bancshares;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiary, is made known
to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this quarterly report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this quarterly report based on such evaluation; and
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors;
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial data;
and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 4, 2004 /s/ Thomas J. Reddish
----------------------------------------
Thomas J. Reddish
Executive Vice President and
Chief Financial Officer
-31-
Exhibit 32.1
Section 1350 Certification of CEO
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ended March 31, 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Richard P. Smith,
President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Richard P. Smith
-------------------------------------
Richard P. Smith
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to TriCo Bancshares and will be retained by TriCo Bancshares and
furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Section 1350 Certification of CFO
In connection with the Quarterly Report of TriCo Bancshares (the "Company") on
Form 10-Q for the period ended March 31, 2004 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Thomas J. Reddish,
Vice President and Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Thomas J. Reddish
-------------------------------------
Thomas J. Reddish
Executive Vice President and
Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to TriCo Bancshares and will be retained by TriCo Bancshares and
furnished to the Securities and Exchange Commission or its staff upon request.
-32-