FASB issued ASU 2018-02, Income Statement - Reporting
Comprehensive Income (Topic 220). ASU 2018-02 allows, but does not require, entities to reclassify certain income tax effects in accumulated other comprehensive income (AOCI) to retained earnings that
resulted from the Tax Cuts and Jobs Act (Tax Act) that was enacted on December 22, 2017. The Tax Act included a reduction to the Federal corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The
amount of the reclassification would be the difference between the income tax effects in AOCI calculated using the historical Federal corporate income tax rate of 35 percent and the income tax effects in AOCI calculated using the newly enacted
21 percent Federal corporate income tax rate. The amendments in ASU 2018-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
Early adoption is permitted. The Company adopted ASU 2018-02 on January 1, 2018, and elected to reclassify certain income tax effects in AOCI to retained earnings. This change in accounting principle was
accounted for as a cumulative-effect adjustment to the balance sheet resulting in a $1,093,000 increase to retained earnings and a corresponding decrease to AOCI on January 1, 2018.
Note 2 - Business Combinations
Merger with FNB
On July 6, 2018, pursuant to a previously announced Agreement and Plan of Merger and Reorganization dated as of December 11, 2017 (the
Merger Agreement) between the Company and FNB Bancorp (FNB), FNB merged with and into the Company with the Company continuing as the surviving corporation (the Merger). Immediately after the Merger, First National
Bank of Northern California, the wholly owned bank subsidiary of FNB (First National Bank), merged with and into the Bank, with the Bank continuing as the surviving bank. The Merger and Bank Merger are collectively referred to as the
As part of its business strategy, the Company evaluates opportunities to acquire bank holding companies, banks and other
financial institutions, which is an important element of its strategic plan. The Transaction is consistent with the Companys business strategy, which will (1) extend The Companys geographic footprint into the San Francisco Peninsula, (2)
create opportunities for the Company to provide additional products and services to First National Bank customers and other potential customers, and (3) strengthen the Companys deposit base with a mature base of core deposits.
At the close of the transaction each share of FNBB common stock issued and outstanding immediately prior to the effective time of the Merger was canceled and
converted into 0.98 shares of the Companys common stock (the Exchange Ratio), with cash paid in lieu of fractional shares of the Companys common stock. In addition, on July 6, 2018, each outstanding and unexercised
option to acquire shares of FNBB common stock held by FNBBs employees and directors was canceled and, in exchange, the holder of each option received a lump sum cash payment equal to the product of (1) the number of shares of FNBB common
stock remaining under the option multiplied by (2) the Exchange Ratio multiplied by (3) the amount, if any, by which the Average Closing Share Price, as defined in the Merger Agreement, exceeded the exercise price of the option.
These exchanges resulted in the Company issuing 7,405,277 shares of common stock, paying $6,000 in lieu of fractional shares, and paying $6,690,000 in
exchange for the outstanding FNBB options. Based on the closing price of the Companys common stock of $38.41 on July 6, 2018, the consideration value issued to the shareholders of FNBB was $284.4 million in aggregate. The 7,405,277
shares of the Companys shares issued to the shareholders of FNBB on July 6, 2018 represented 24.4% of the Companys 30,409,430 shares outstanding immediately subsequent to the Transaction.
Immediately subsequent to the Transaction, the newly combined company, operating as TriCo Bancshares with its banking subsidiary, Tri Counties Bank, had total
assets of approximately $6.1 billion. Immediately prior to the merger on July 6, 2018, FNBB had investment securities of approximately $344 million, loans of approximately $868 million, deposits of approximately
$995 million, borrowings from the Federal Home Loan Bank of San Francisco (FHLB) of $165 million, and total assets of approximately $1.3 billion. These amounts are subject to change as the Company is in the process of determining the
fair value of FNBB assets and liabilities acquired in accordance with generally accepted accounting principles. The Company anticipates recording goodwill and core deposit intangibles with this acquisition. During July 9 and 10, 2018, the
Company sold approximately $292 million of the $344 million of investment securities obtained in the Transaction at no material gain or loss from their fair value on July 6, 2018. The proceeds from these security sales were used to
pay off all of the Companys $136 million of FHLB borrowings that existed at June 30, 2018 and all of FNBBs $165 million of FHLB borrowings that existed at July 6, 2018 and matured in steps through August 6, 2018.
The Company will file an amended Form 8-K on or before September 23, 2018 that will include financial
statements for FNBB and combined pro forma financial information for the Company and FNBB as if the merger was effective on June 30, 2018 for the balance sheet and January 1, 2017 for the statements of income. The pro forma financial
information will reflect various adjustments required by applicable acquisition accounting rules.
While FNBBs banking subsidiary, First National
Bank of Northern California officially became part of Tri Counties Bank on July 6, 2018, the First National Bank branches continued to operate under the name First National Bank until the conversion of its operating systems to the
operating systems of Tri Counties Bank on July 22, 2018 at which time First National Bank banking centers along with the client relationships and all accounts converted to Tri Counties Bank.