-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MLK+dXZDvtnPD4ZOiLjit8r91yHmnAAg408p5vxP9rqJ7O1XO/Ubc86YFQHn06TK IMaWRiPUVh3MABV+9HgJlQ== 0000356171-01-500010.txt : 20020410 0000356171-01-500010.hdr.sgml : 20020410 ACCESSION NUMBER: 0000356171-01-500010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRICO BANCSHARES / CENTRAL INDEX KEY: 0000356171 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942792841 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10661 FILM NUMBER: 1782656 BUSINESS ADDRESS: STREET 1: TRICO BANCSHARES STREET 2: 63 CONSTITUTION DRIVE CITY: CHICO STATE: CA ZIP: 95973 BUSINESS PHONE: 5308980300 MAIL ADDRESS: STREET 1: TRICO BANCSHARES STREET 2: 63 CONSTITUTION DRIVE CITY: CHICO STATE: CA ZIP: 95973 10-Q 1 tcb10q3q01.txt TRICO BANCSHARES FORM 10-Q 9/30/2001 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 September 30, 2001 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 ----- ----- 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 November 9, 2001: 7,034,580 PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS TRICO BANCSHARES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands) September 30, December 31, ------------- ------------ 2001 2000 Assets: Cash and due from banks $ 48,317 $ 58,190 Federal funds sold 27,000 - ------------- ------------ Cash and cash equivalents 75,317 58,190 Securities available-for-sale 210,789 229,110 Loans, net of allowance for loan losses of $12,437 and $11,670, respectively 655,720 628,721 Premises and equipment, net 16,510 16,772 Cash Value of Life Insurance 14,559 13,753 Other real estate owned 723 1,441 Accrued interest receivable 6,087 6,935 Intangible Assets 5,262 5,464 Other assets 11,183 11,685 ------------- ------------ Total assets $ 996,150 $ 972,071 ============= ============ Liabilities: Deposits Noninterest-bearing demand $ 177,970 $ 168,542 Interest-bearing demand 155,304 150,749 Savings 228,367 214,158 Time certificates 297,839 304,383 ------------- ------------ Total deposits 859,480 837,832 Fed funds purchased - 500 Accrued interest payable and other liabilities 15,327 14,523 Long term borrowings 32,963 33,983 ------------- ------------ Total liabilities 907,770 886,838 Shareholders' equity: Common stock 49,395 50,428 Retained earnings 37,974 35,129 Accumulated other comprehensive income (loss) 1,011 (324) ------------- ------------ Total shareholders' equity 88,380 85,233 ------------- ------------ Total liabilities and shareholders' equity $ 996,150 $ 972,071 ============= ============
TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (in thousands except earnings per common share) For the three months For the nine months ended September 30, ended September 30, 2001 2000 2001 2000 Interest income: Interest and fees on loans $ 15,486 $ 16,470 $ 45,943 $ 45,918 Interest on investment securities-taxable 2,202 2,852 7,158 8,901 Interest on investment securities-tax exempt 555 555 1,666 1,669 Interest on federal funds sold 370 35 1,321 278 -------------- ------------ ------------- ------------- Total interest income 18,613 19,912 56,088 56,766 -------------- ------------ ------------- ------------- Interest expense: Interest on deposits 5,097 6,382 17,603 18,084 Interest on federal funds purchased 3 295 4 512 Interest on repurchase agreements - 14 - 99 Interest on other borrowings 512 950 1,523 2,264 -------------- ------------ ------------- ------------- Total interest expense 5,612 7,641 19,130 20,959 -------------- ------------ ------------- ------------- Net interest income 13,001 12,271 36,958 35,807 Provision for loan losses 600 1,800 3,250 3,500 -------------- ------------ ------------- ------------- Net interest income after provision for loan losses 12,401 10,471 33,708 32,307 Noninterest income: Service charges and fees 2,045 1,870 6,015 5,563 Gain on sale of insurance company stock - - 1,756 - Gain on receipt of insurance company stock - - - 1,510 Other income 1,366 1,464 3,731 4,127 -------------- ------------ ------------- ------------- Total noninterest income 3,411 3,334 11,502 11,200 -------------- ------------ ------------- ------------- Noninterest expenses: Salaries and related expenses 5,483 4,946 15,899 14,728 Other, net 5,034 4,359 14,672 13,051 -------------- ------------ ------------- ------------- Total noninterest expenses 10,517 9,305 30,571 27,779 -------------- ------------ ------------- ------------- Net income before income taxes 5,295 4,500 14,639 15,728 Income taxes 2,050 1,653 5,578 5,809 -------------- ------------ ------------- ------------- Net income $ 3,245 $ 2,847 $ 9,061 $ 9,919 ============== ============ ============= ============= Basic earnings per common share $ 0.46 $ 0.40 $ 1.28 $ 1.38 ============== ============ ============= ============= Diluted earnings per common share $ 0.45 $ 0.39 $ 1.25 $ 1.35 ============== ============ ============= =============
TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) (in thousands, except number of shares) Common stock Accumulated ------------------------ Other Change in Number Retained Comprehensive Unrealized of shares Amount earnings Income/(Loss) Total Gain/(Loss) ----------------------------------------------------------------------------------- Balance, December 31, 2000 7,181,226 $50,428 $35,129 ($324) $85,233 Exercise of Common Stock options 38,830 386 386 Repurchase of Common Stock (201,976) (1,419) (1,979) (3,398) Common Stock cash dividends (4,237) (4,237) Comprehensive income: Net income 9,061 9,061 $9,061 Other comprehensive income: Change in unrealized gain/(loss) on securities, net of tax 1,695 1,695 1,695 Change in minimum pension liability, net of tax (360) (360) (360) --------------- Comprehensive income $10,396 ------------------------------------------------------------------ --------------- Balance, September 30, 2001 7,018,080 $49,395 $37,974 $1,011 $88,380 ------------------------------------------------------------------
TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) For the nine months ended September 30, 2001 2000 ------------- ------------- Operating activities: Net income $ 9,061 $ 9,919 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,250 3,500 Provision for losses on other real estate owned 18 25 Depreciation and amortization 1,891 1,875 Amortization of intangible assets 683 724 Accretion of investment security discounts 139 200 Deferred income taxes (551) (245) Investment security (gains) losses (net) (1,791) - (Gain) loss on sale of OREO (48) (68) (Gain) loss on sale of loans (476) (385) (Gain) loss on sale of fixed assets (4) 52 Amortization of stock options - 69 (Increase) decrease in interest receivable 848 (285) Increase (decrease) in interest payable (895) 429 (Increase) decrease in other assets and liabilities (162) (773) ------------- ------------- Net cash provided (used) by operating activities 11,963 15,037 Investing activities: Proceeds from maturities of securities available-for-sale 63,331 29,309 Proceeds from sale of securities available-for-sale 14,120 - Purchases of securities available-for-sale (54,738) (9,023) Net (increase) decrease in loans (30,100) (66,654) Proceeds from sales of fixed assets 23 32 Purchases of premises and equipment (1,426) (2,872) Proceeds from the sale of OREO 1,075 914 ------------- ------------- Net cash provided (used) by investing activities (7,715) (48,294) Financing activities: Net increase (decrease) in deposits 21,648 14,500 Net increase (decrease) in Fed funds purchased (500) 13,600 Borrowings under long-term debt agreements - 35,000 Payments of principal on long-term debt agreements (1,020) (35,017) Cash dividends - Common (4,237) (4,243) Repurchase of common stock (3,398) (235) Exercise of common stock options 386 364 ------------- ------------- Net cash provided (used) by financing activities 12,879 23,969 ------------- ------------- Increase (decrease) in cash and cash equivalents 17,127 (9,288) Cash and cash equivalents at beginning of year 58,190 59,636 ------------- ------------- Cash and cash equivalents at end of period $ 75,317 $ 50,348 ============= ============= Supplemental information: Cash paid for taxes $ 5,775 $ 6,573 Cash paid for interest expense $ 20,025 $ 20,530
Notes to Condensed Consolidated Financial Statements Note A - Basis of Presentation The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and in Management's opinion, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of results for such interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to SEC rules or regulations; however, the Company believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the three and nine months ended September 30, 2001 and 2000 are not necessarily indicative of results for the full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Note B - Comprehensive Income For the Company, comprehensive income includes net income reported on the statement of income, changes in the fair value of its available-for-sale investments and changes in minimum pension liability reported as other comprehensive income. The following table presents net income adjusted by these elements to determine total comprehensive income (in thousands): Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 Net income $3,245 $ 2,847 $ 9,061 $ 9,919 Net change in unrealized gains/(losses) on securities available-for-sale 1,411 1,555 1,695 1,838 Net change in minimum pension liability - - (360) - ------- -------- ------- ------- Comprehensive income $4,656 $ 4,402 $10,396 $11,757 ====== ======= ======= ======= Note C - Earnings per Share The Company's basic and diluted earnings per share are as follows (dollars in thousands except per share data): Three Months Ended September 30, 2001 Weighted Average Per-Share Income Shares Amount Basic Earnings per Share: Net income available to common shareholders $3,245 7,044,156 $0.46 Common stock options outstanding -- 186,767 Diluted Earnings per Share: Net income available to common shareholders $3,245 7,230,923 $0.45 ====== ========= Three Months Ended September 30, 2000 Weighted Average Per-Share Income Shares Amount Basic Earnings per Share: Net income available to common shareholders $2,847 7,203,004 $0.40 Common stock options outstanding -- 146,398 Diluted Earnings per Share: Net income available to common shareholders $2,847 7,349,402 $0.39 ====== ========= Nine Months Ended September 30, 2001 Weighted Average Per-Share Income Shares Amount Basic Earnings per Share: Net income available to common shareholders $9,061 7,087,346 $1.28 Common stock options outstanding -- 149,497 Diluted Earnings per Share: Net income available to common shareholders $9,061 7,236,843 $1.25 ====== ========= Nine Months Ended September 30, 2000 Weighted Average Per-Share Income Shares Amount Basic Earnings per Share: Net income available to common shareholders $9,919 7,187,655 $1.38 Common stock options outstanding -- 155,010 Diluted Earnings per Share: Net income available to common shareholders $9,919 7,342,665 $1.35 ====== ========= Note D - Business Segments The Company is principally engaged in traditional community banking activities provided by the Company's wholly-owned subsidiary, Tri Counties Bank (the "Bank") through its thirty branches and seven in-store branches located throughout Northern California from the Oregon boarder to Bakersfield. Community banking activities include the Bank's commercial and retail lending, deposit gathering and investment and liquidity management activities. In addition to its community banking services, the Bank offers investment brokerage and leasing services. The results of the Bank's separate branches have been aggregated into a single reportable segment, "Community Banking". The Company's leasing, investment brokerage and real estate segments do not meet the prescribed aggregation or materiality criteria and, therefore, are reported as "Other" in the following table. Summarized financial information concerning the Bank's reportable segments is as follows (in thousands): Community Banking Other Total Three Months Ended September 30, 2001 Net interest income $ 12,832 $ 169 $ 13,001 Noninterest income 2,652 759 3,411 Noninterest expense 9,878 639 10,517 Net income 3,066 179 3,245 Assets $980,270 $ 15,880 $996,150 Three Months Ended September 30, 2000 Net interest income $ 12,059 $ 212 $ 12,271 Noninterest income 2,507 827 3,334 Noninterest expense 8,792 513 9,305 Net income 2,552 295 2,847 Assets $947,064 $ 14,917 $961,981 Nine Months Ended September 30, 2001 Net interest income $ 36,338 $ 620 $ 36,958 Noninterest income 9,417 2,085 11,502 Noninterest expense 28,826 1,745 30,571 Net income 8,466 595 9,061 Assets $980,270 $15,880 $996,150 Nine Months Ended September 30, 2000 Net interest income $ 35,190 $ 617 $ 35,807 Noninterest income 8,837 2,363 11,200 Noninterest expense 26,295 1,484 27,779 Net income 9,088 831 9,919 Assets $947,064 $ 14,917 $961,981 Note E - Other Income Included in the results for the nine months ended September 30, 2001 is a one-time pre-tax income item of $1,756,000. This one-time item represents the realized gain recorded by the Company upon the sale of 88,796 common shares of John Hancock Financial Services, Inc. (JHF) for proceeds of $3,265,000. Included in the results for the nine months ended September 30, 2000 was a one-time pre-tax income item of $1,510,000. This one-time item represents the initial value of 88,796 common shares of JHF which the Bank received as a consequence of its ownership of certain insurance policies through John Hancock Mutual Life Insurance Company and JHF's conversion from a mutual company to a stock company. Note F - Stock Repurchase Plans On March 15, 2001, the Company announced the completion of its first stock repurchase plan initially announced on July 20, 2000. Under this repurchase plan, the Company repurchased a total of 150,000 shares of which 110,000 shares were repurchased since December 31, 2000. On October 19, 2001, the Company announced the completion of its second stock repurchase plan initially announced on March 15, 2001. Under this repurchase plan, the Company repurchased a total of 150,000 shares. Also on October 19, 2001, the Company announced that its Board of Directors approved a new plan to repurchase, as conditions warrant, up to 150,000 additional shares of the Company's stock on the open market or in privately negotiated transactions. The timing of purchases and the exact number of shares to be purchased will depend on market conditions. The 150,000 shares covered by this repurchase plan represent approximately 2.2% of the Company's 6,992,080 then outstanding common shares. As of November 9, 2001, the Company had repurchased 68,500 shares under this new plan. Note G - Shareholder Rights Plan On June 25, 2001, the Company announced that its Board of Directors adopted and entered into a Shareholder Rights Plan designed to protect and maximize shareholder value and to assist the Board of Directors in ensuring fair and equitable benefit to all shareholders in the event of a hostile bid to acquire the Company. The Company adopted this Rights Plan to protect stockholders from coercive or otherwise unfair takeover tactics. In general terms, the Rights Plan imposes a significant penalty upon any person or group that acquires 15% or more of the Company's outstanding common stock without approval of the Company's Board of Directors. The Rights Plan was not adopted in response to any known attempt to acquire control of the Company. Under the Rights Plan, a dividend of one Preferred Stock Purchase Right was declared for each common share held of record as of the close of business on July 10, 2001. No separate certificates evidencing the Rights will be issued unless and until they become exercisable. The Rights generally will not become exercisable unless an acquiring entity accumulates or initiates a tender offer to purchase 15% or more of the Company's common stock. In that event, each Right will entitle the holder, other than the unapproved acquirer and its affiliates, to purchase either the Company's common stock or shares in an acquiring entity at one-half of market value. The Right's initial exercise price, which is subject to adjustment, is $49.00 per Right. The Company's Board of Directors generally will be entitled to redeem the Rights at a redemption price of $.01 per Right until an acquiring entity acquires a 15% position. The Rights expire on July 10, 2011. 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. Except within the "overview" section, interest income and net interest income are presented on a tax equivalent basis. In addition to the historical information contained herein, this Quarterly Report contains certain forward-looking statements. The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, fee and other noninterest income earned as well as other factors. This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. Overview The Company had earnings of $3,245,000 for the quarter ended September 30, 2001. The quarterly earnings represented a 14.0% increase from the $2,847,000 reported for the same period of 2000. Diluted earnings per share for the third quarter of 2001 were $0.45 versus $0.39 in the year earlier period. Earnings for the nine months ended September 30, 2001 were $9,061,000 versus year ago results of $9,919,000, and represented an 8.7% decrease. The diluted earnings per share were $1.25 and $1.35 for the respective nine-month periods. Included in the results for the nine months ended September 30, 2001 was a $1,756,000 pretax gain on the sale of the Company's equity investment in John Hancock Financial Services, Inc. (JHF). In the nine months ended September 30, 2000, the Company recorded a $1,510,000 pretax gain from the initial receipt of its investment in JHF. Excluding the gains associated with the shares of JHF, the Company would have reported diluted earnings per share of $1.10 and $1.23 in the nine months ended September 30, 2001 and 2000, respectively. The increase in third quarter operating results was due to a $730,000 (6.0%) increase in net interest income, a $1,200,000 (67%) decrease in provision for loan losses offset by a $1,212,000 (13.0%) increase in noninterest expense. The 6.0% increase in net interest income was primarily due to a 2.8% increase in the average balance of interest earning assets and a 16 basis point increase in net interest margin. The 67% decrease in the quarterly provision for loan losses was due to a 97% decrease in quarterly net loan charge offs. The 13.0% increase in noninterest expense was due to increased salary expense from annual salary increases and additional headcount, and increased other operational expenses due to new branch locations and sales volume related expenses. Net interest income for the quarter ended September 30, 2001 grew $718,000 (5.7%) to $13,289,000 on a fully tax equivalent basis. Interest income was down $1,311,000 (6.5%) mainly due to Federal Reserve interest rate cuts totaling 400 basis points since December 31, 2000. This was partially offset by a 2.8% increase in the quarter-over-quarter volume of earning assets ($894,670,000 versus $869,779,000). The average yield on earning assets decreased 85 basis points to 8.45%. Interest expense decreased $2,029,000 (26.6%) as a result of a 110 basis point decrease in the average rate paid on interest-bearing liabilities to 3.15% and a 0.8% decrease in average balances of interest-bearing liabilities to $713,356,000. The average balance of noninterest-bearing deposits increased 15.3% to $164,583,000 from the year-ago quarter. Net interest margin was 5.94% for the third quarter of 2001 versus 5.78% in the same quarter of the prior year. Noninterest income for the third quarter of 2001 increased $77,000 (2.3%) to $3,411,000 from the same period in 2000. Service charge and fee income was up $175,000 (9.4%) to $2,045,000 mainly due to increased deposit account service charges and fees. Other noninterest income decreased $98,000 (6.7%) to $1,366,000. The decrease in other noninterest income was comprised of a $2,000 (0.3%) decrease in commissions on nondeposit investment product sales to $678,000, a $14,000 (6.8%) decrease in gain on sale of loans and loan servicing to $191,000, a $105,000 (72%) decrease in miscellaneous noninterest income to $41,000, and a $35,000 (100%) increase in gain on sale of investments. Noninterest expense increased $1,212,000 (13.0%) to $10,517,000 in the third quarter of 2001 versus the same period in 2000. Salary and benefit expense increased $537,000 (10.9%) to $5,483,000 due to a $175,000 (5.1%) increase in base salaries to $3,606,000, a $205,000 (42%) increase in sales commissions and incentives to $699,000, and a $72,000 (27%) increase in employee retirement expense to $336,000. Average full-time equivalent employees increased 2.1% from the year-ago quarter to 487. Other expenses increased $675,000 (15.5%) to $5,034,000. Expenses contributing to this increase included a $109,000 (45%) increase in telephone expense to $350,000, a $58,000 (30%) increase in ATM network charges, an $84,000 (6%) increase in premises and equipment expense to $1,415,000, and a $138,000 (46%) increase in loan production and maintenance expenses. Assets of the Company totaled $996,150,000 at September 30, 2001 and represented increases of $24,079,000 (2.5%) and $34,169,000 (3.6%) from the December 31, 2000 and September 30, 2000 ending balances, respectively. Changes in average earning assets from the prior year third quarter-end balances included an increase in loans of $10,581,000 (1.6%) to $661,630,000, a decrease in securities of $25,250,000 (11.7%) to $191,296,000, and an increase in Federal funds sold of $39,560,000 to $41,744,000. From year-end 2000 balances, nonperforming assets have decreased $8,141,000 (55.5%) and total $6,527,000 at September 30, 2001. Nonperforming assets were 0.66% and 1.51% of total assets at September 30, 2001 and December 31, 2000, respectively. Nonperforming assets were $6,992,000, $7,790,000, and $14,668,000 at June 30, 2001, March 31, 2001, and December 31, 2000, respectively. Year-to-date 2001, on an annualized basis, the Company realized a return on assets of 1.25% and a return on equity of 13.90% versus 1.42% and 17.16%, respectively, in the nine months ended September 30, 2000. TriCo Bancshares ended the quarter with a Tier 1 capital ratio of 10.44% and a total risk-based capital ratio of 11.69%. The following tables provide a summary of the major elements of income and expense for the third quarter of 2001 compared with the third quarter of 2000 and for the first nine months of 2001 compared with the first nine months of 2000: TRICO BANCSHARES CONDENSED COMPARATIVE INCOME STATEMENT (unaudited) Three months ended September 30, Percentage 2001 2000 Change (in thousands, except increase earnings per share) (decrease) Interest income $ 18,901 $ 20,212 (6.5%) Interest expense 5,612 7,641 (26.6%) -------- -------- Net interest income 13,289 12,571 5.7% Provision for loan losses 600 1,800 (66.7%) -------- -------- Net interest income after 12,689 10,771 17.8% provision for loan losses Noninterest income 3,411 3,334 2.3% Noninterest expenses 10,517 9,305 13.0% -------- -------- Net income before income taxes 5,583 4,800 16.3% Income taxes 2,050 1,653 24.0% Tax equivalent adjustment1 288 300 (4.0%) -------- -------- Net income 3,245 2,847 14.0% ======== ======== Diluted earnings per common share $ 0.45 $ 0.39 15.4% 1Interest on tax-free securities is reported on a tax equivalent basis of 1.52 for September 30, 2001 and 2000. TRICO BANCSHARES CONDENSED COMPARATIVE INCOME STATEMENT (unaudited) Nine months ended September 30, Percentage 2001 2000 Change (in thousands, except increase earnings per share) (decrease) Interest income $ 56,954 $ 57,634 (1.2%) Interest expense 19,130 20,959 (8.7%) -------- -------- Net interest income 37,824 36,675 3.1% Provision for loan losses 3,250 3,500 (7.1%) -------- -------- Net interest income after 34,574 33,175 4.2% provision for loan losses Noninterest income 11,502 11,200 2.7% Noninterest expenses 30,571 27,779 10.1% -------- -------- Net income before income taxes 15,505 16,596 (6.6%) Income taxes 5,578 5,809 (4.0%) Tax equivalent adjustment1 866 868 (0.2%) -------- -------- Net income 9,061 9,919 (8.7%) ======== ======== Diluted earnings per common share $ 1.25 $ 1.35 (7.4%) 1Interest on tax-free securities is reported on a tax equivalent basis of 1.52 for September 30, 2001 and 2000. Net Interest Income / Net Interest Margin Net interest income represents the excess of interest and fees earned on interest-earning assets (loans, securities and Federal Funds sold) over the interest paid on deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. Net interest income comprises the major portion of the Bank's income. For the three months ended September 30, 2001, interest income decreased $1,311,000 (6.5%) over the same period in 2000. The average balance of total earning assets was higher by $24,891,000 (2.9%). Average loan and Federal funds sold balances were up $10,581,000 (1.6%) and $39,560,000 (1,811%), respectively, and resulted in increases on interest income of $268,000 and $634,000, respectively. Average balances of securities were down $25,250,000 (11.7%) which resulted in a $432,000 decrease in interest income. The average yield on loans was lower by 76 basis points while the average yield on securities and Fed funds sold decreased 48 and 286 basis points, respectively. The overall yield on average earning assets decreased 85 basis points to 8.45% which decreased interest income by $1,781,000. For the third quarter of 2001, interest expense decreased $2,029,000 (26.6%) over the year earlier period. Average balances of interest-bearing liabilities were down $5,814,000 (0.8%), and resulted in a $325,000 decrease in interest expense. The average rate paid on interest- bearing liabilities decreased 110 basis points to 3.15% and resulted in a $1,704,000 decrease in interest expense. The combined effect of the decrease in interest income and decrease in interest expense for the third quarter of 2001 versus the third quarter of 2000 resulted in an increase of $718,000 (5.7%) in net interest income. Net interest margin was up 16 basis points to 5.94% from 5.78% for the same period a year ago. The nine-month period ending September 30, 2001, reflects an interest income decrease of $680,000 (1.2%) over the same period in 2000. Increases of $24,823,000 (4.0%) and $34,349,000 (543%) in average balances of loans and Federal funds sold, respectively, accounted for increases in interest income of $1,839,000 and $1,507,000, respectively. A decrease of $22,299,000 (10.1%) in average balances of securities accounted for a $1,154,000 decrease in interest income. The average yield received on all earning assets for the nine-month period ended September 30, 2001 was down 48 basis points to 8.59%, and resulted in a $2,872,000 decrease in interest income. Interest expense for the nine-month period decreased $1,829,000 (8.7%) from that for the same period in 2000. Average balances of interest-bearing liabilities were up $10,291,000 (1.5%) and resulted in a $69,000 increase in interest expense. The average rate paid on interest- bearing liabilities decreased 40 basis points to 3.58% and resulted in a $1,898,000 decrease in interest expense. The combined effect of the decreases in interest income and interest expense for the first nine months of 2001 versus 2000 resulted in an increase of $1,149,000 (3.1%) in net interest income. Net interest margin decreased 6 basis points to 5.71% from 5.77%. Historically, the Bank's net interested margin has exhibited an asset-sensitive nature, meaning when market interest rates increased the Bank's net interest margin generally increased, and when rates decreased the Bank's net interest margin decreased. During 2000, the Federal Reserve was raising interest rates, and the Bank's margin improved. In January 2001, the Federal Reserve started a historic series of interest rate reductions which caused the Bank's net interest margin to contract in the quarter ended March 31, 2001. The Bank then began aggressively cutting its deposit rates that despite continued Federal Reserve rate reductions lead to significant improvements in net interest margin in the quarters ended June 30, and September 30, 2001. The Federal Reserve has continued to aggressively decrease interest rates, and as it does it becomes increasingly difficult for the Bank to maintain its current relatively high net interest margin. The following four tables provide summaries of the components of the interest income, interest expense and net interest margins on earning assets for the quarter and nine month periods ended September 30, 2001 versus the same periods in 2000:
TRICO BANCSHARES ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (unaudited, in thousands) Three Months Ended 30-Sep-01 30-Sep-00 Average Income/ Yield/ Average Income/ Yield/ Balance1 Expense Rate Balance1 Expense Rate Assets Earning assets Loans 2,3 $661,630 $ 15,486 9.36% $651,049 $ 16,470 10.12% Securities4 191,296 3,045 6.37% 216,546 3,707 6.85% Federal funds sold 41,744 370 3.55% 2,184 35 6.41% ------------- ----------- ------------- ---------- Total earning assets 894,670 18,901 8.45% 869,779 20,212 9.30% ----------- ---------- Cash and due from bank 42,680 38,693 Premises and equipment 16,760 17,244 Other assets, net 40,367 41,610 Less: allowance for loan losses (12,090) (11,866) ------------- ------------- Total $982,387 $955,460 ============= ============= Liabilities and shareholders' equity Interest-bearing Demand deposits $157,315 368 0.94% $148,728 590 1.59% Savings deposits 224,338 1,111 1.98% 214,663 1,725 3.21% Time deposits 298,505 3,618 4.85% 279,355 4,067 5.82% Federal funds purchased 235 3 5.11% 17,131 295 6.89% Repurchase agreements - - 804 14 5.16% Long-term debt 32,963 512 6.21% 58,489 950 6.50% ------------- ----------- ------------- ---------- Total interest-bearing liabilities 713,356 5,612 3.15% 719,170 7,641 4.25% ----------- ---------- Noninterest-bearing deposits 164,583 142,767 Other liabilities 16,441 13,039 Shareholders' equity 88,005 80,484 ------------- ------------- Total liabilities and shareholders' equity $982,385 $955,460 ============= ============= Net interest rate spread5 5.30% 5.05% Net interest income/net $ 13,289 $ 12,571 =========== ========== interest margin6 5.94% 5.78% =========== ========== 1Average balances are computed principally on the basis of daily balances. 2Nonaccrual loans are included. 3Interest income on loans includes fees on loans of $1,406,000 in 2001 and $829,000 in 2000. 4Interest income is stated on a tax equivalent basis of 1.52 at September 30, 2001 and 2000. 5Net interest rate spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. 6Net interest margin is computed by dividing net interest income by total average earning assets.
TRICO BANCSHARES ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (unaudited, in thousands) Nine Months Ended 30-Sep-01 30-Sep-00 Average Income/ Yield/ Average Income/ Yield/ Balance1 Expense Rate Balance1 Expense Rate Assets Earning assets Loans 2,3 $ 644,447 $ 45,943 9.51% $ 619,624 $ 45,918 9.88% Securities4 198,689 9,690 6.50% 220,988 11,438 6.90% Federal funds sold 40,680 1,321 4.33% 6,331 278 5.85% ------------- ------------- ------------ ------------ Total earning assets 883,816 56,954 8.59% 846,943 57,634 9.07% ------------- ------------ Cash and due from bank 41,055 37,456 Premises and equipment 16,868 16,471 Other assets, net 40,381 41,681 Less: allowance for loan losses (12,044) (11,776) ------------- ------------ Total $ 970,076 $ 930,775 ============= ============ Liabilities and shareholders' equity Interest-bearing Demand deposits $ 153,412 1,325 1.15% $ 148,195 1,752 1.58% Savings deposits 219,750 3,898 2.37% 218,015 5,060 3.09% Time deposits 305,436 12,380 5.40% 272,670 11,272 5.51% Federal funds purchased 113 4 4.25% 10,129 512 6.74% Repurchase agreements - - 2,014 99 6.55% Long-term debt 33,026 1,523 6.15% 50,423 2,264 5.99% ------------- ------------- ------------ ------------ Total interest-bearing liabilities 711,737 19,130 3.58% 701,446 20,959 3.98% ------------- ------------ Noninterest-bearing deposits 155,563 139,117 Other liabilities 15,890 13,147 Shareholders' equity 86,886 77,065 ------------- ------------ Total liabilities and shareholders' equity $ 970,076 $ 930,775 ============= ============ Net interest rate spread5 5.01% 5.09% Net interest income/net $ 37,825 $ 36,675 ============= ============ interest margin6 5.71% 5.77% ============= ============ 1Average balances are computed principally on the basis of daily balances. 2Nonaccrual loans are included. 3Interest income on loans includes fees on loans of $3,475,000 in 2001 and $2,150,000 in 2000. 4Interest income is stated on a tax equivalent basis of 1.52 at September 30, 2001 and 2000. 5Net interest rate spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities. 6Net interest margin is computed by dividing net interest income by total average earning assets.
TRICO BANCSHARES ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE (unaudited, in thousands) For the three months ended September 30, 2001 over 2000 Yield/ Volume Rate4 Total ------------------ ------------------ -------------------- Increase (decrease) in interest income: Loans 1,2 $ 268 $ (1,252) $ (984) Investment securities3 (432) (230) (662) Federal funds sold 634 (299) 335 ------------------ ------------------ -------------------- Total 470 (1,781) (1,311) ------------------ ------------------ -------------------- Increase (decrease) in interest expense: Demand deposits (interest-bearing) 34 (256) (222) Savings deposits 78 (692) (614) Time deposits 279 (728) (449) Federal funds purchased (291) (1) (292) Short-term debt (10) (4) (14) Long-term debt (415) (23) (438) ------------------ ------------------ -------------------- Total (325) (1,704) (2,029) ------------------ ------------------ -------------------- Increase (decrease) in net interest income $ 795 $ (77) $ 718 ================== ================== ==================== 1Nonaccrual loans are included. 2Interest income on loans includes fee income on loans of $1,406,000 in 2001 and $829,000 in 2000. 3Interest income is stated on a tax equivalent basis of 1.52 for September 30, 2001 and 2000. 4The rate/volume variance has been included in the rate variance.
TRICO BANCSHARES ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE (unaudited, in thousands) For the nine months ended September 30, 2001 over 2000 Yield/ Volume Rate4 Total ----------------- ----------------- ----------------- Increase (decrease) in interest income: Loans 1,2 $ 1,839 $ (1,814) $ 25 Investment securities3 (1,154) (594) (1,748) Federal funds sold 1,507 (464) 1,043 ----------------- ----------------- ----------------- Total 2,192 (2,872) (680) ----------------- ----------------- ----------------- Increase (decrease) in interest expense: Demand deposits (interest-bearing) 62 (489) (427) Savings deposits 40 (1,202) (1,162) Time deposits 1,354 (246) 1,108 Federal funds purchased (506) (2) (508) Short-term debt (99) - (99) Long-term debt (782) 41 (741) ----------------- ----------------- ----------------- Total 69 (1,898) (1,829) ----------------- ----------------- ----------------- Increase (decrease) in net interest income $ 2,123 $ (973) $ 1,150 ================= ================= ================= 1Nonaccrual loans are included. 2Interest income on loans includes fee income on loans of $3,475,000 in 2001 and $2,150,000 in 2000. 3Interest income is stated on a tax equivalent basis of 1.52 for September 30, 2001 and 2000. 4The rate/volume variance has been included in the rate variance.
Provision for Loan Losses The Bank provided $600,000 for loan losses in the third quarter of 2001 versus $1,800,000 in 2000. Net charge-offs for all loans in the third quarter of 2001 totaled $83,000 versus $3,174,000 in the year earlier period. Of the $3,174,000 net charge-offs in the third quarter of 2000, $3,000,000 was related to one borrower. This significant charge-off activity in the quarter ended September 30, 2000 also contributed to the significant provision for loan losses in that period. Noninterest Income Noninterest income for the third quarter of 2001 increased $77,000 (2.3%) to $3,411,000 from the same period in 2000. Service charge and fee income was up $175,000 (9.4%) to $2,045,000 mainly due to increased deposit account service charges and fees. Other noninterest income decreased $98,000 (6.7%) to $1,366,000. The decrease in other noninterest income was comprised of a $2,000 (0.3%) decrease in commissions on nondeposit investment product sales to $678,000, a $14,000 (6.8%) decrease in gain on sale of loans and loan servicing to $191,000, a $105,000 (72%) decrease in miscellaneous noninterest income to $41,000, and a $35,000 (100%) increase in gain on sale of investments. For the nine months ended September 30, noninterest income was up $302,000 (2.7%) over the same period for 2000. As described above, during the quarters ended March 31, 2001 and 2000, the Company recorded one-time pre-tax income items of $1,756,000 and $1,510,000, respectively from the receipt and sale of John Hancock Financial Services, Inc. common stock. Excluding these one-time events, noninterest income for the nine months ended September 30, 2001 would have increased $56,000 (0.6%) to $9,746,000. Service charges and fee income was up $452,000 (8.1%) to $6,015,000 mainly due to increased deposit account service charges and fees. Other income decreased $396,000 (9.6%) to $3,731,000 primarily due to a $300,000 (14%) decrease in commissions earned on the sale of nondeposit investment products to $1,864,000. Noninterest Expense Noninterest expense increased $1,212,000 (13.0%) to $10,517,000 in the third quarter of 2001 versus the same period in 2000. Salary and benefit expense increased $537,000 (10.9%) to $5,483,000 due to a $175,000 (5.1%) increase in base salaries to $3,606,000, a $205,000 (42%) increase in sales commissions and incentives to $699,000, and a $72,000 (27%) increase in employee retirement expense to $336,000. Average full-time equivalent employees increased 2.1% from the year-ago quarter to 487. Other expenses increased $675,000 (15.5%) to $5,034,000. Expenses contributing to this increase included a $109,000 (45%) increase in telephone expense to $350,000, a $58,000 (30%) increase in ATM network charges to $250,000, an $84,000 (6%) increase in premises and equipment expense to $1,415,000, and a $138,000 (46%) increase in loan production and maintenance expenses to $437,000. For the first nine months noninterest expenses increased $2,792,000 (10.1%) in 2001 compared to 2000. Salary and benefit expense increased $1,171,000 (8.0%) on a year-over-year basis to $15,899,000. Base salaries increased $587,000 (5.9%) to $10,596,000. Other expenses increased $1,621,000 (12.4%) to $14,672,000. Expenses contributing to this increase included a $183,000 (26%) increase in telephone expense to $895,000, a $128,000 (23%) increase in ATM network charges to $689,000, an $219,000 (6%) increase in premises and equipment expense to $4,126,000, and a $196,000 (29%) increase in loan production and maintenance expenses to $882,000. The increases in telephone, ATM network, and premises and equipment expenses are mainly due to the Company's efforts to upgrade, combine, and expand its ATM and communications networks. The increase in loan production and maintenance expenses is mainly due to increased production of consumer loans, including home equity loans and real estate mortgage loans, and are offset by increased fee income and net interest income. Provision for Income Taxes The effective tax rate for the nine months ended September 30, 2001 is 38.1% and reflects an increase from 36.9% in the year earlier period. Loans At September 30, 2001, loan balances were $17,350,000 (2.7%) higher than the ending balances at September 30, 2000 and $27,766,000 (4.3%) higher than the ending balances at December 31, 2000. On a year-over-year basis at September 30, consumer and real estate construction loan balances were higher by $35,571,000 (31.3%), and $16,478,000 (57.7%), respectively. Commercial and real estate mortgage loan balances were lower by $15,610,000 (9.3%), and $19,089,000 (5.6%), respectively. Securities At September 30, 2001, securities available-for-sale had a fair value of $210,789,000 and an amortized cost of $208,561,000. This portfolio contained mortgage-backed securities with an amortized cost of $131,111,000 of which $8,276,000 were CMOs. Nonperforming Loans As shown in the following table, total nonperforming assets have decreased $8,141,000 (56%) to $6,527,000 in the first nine months of 2001. Included in the nonaccrual loans balance at December 31, 2000 was approximately $8,400,000 related to a single borrower that was subsequently sold in the quarter ended March 31, 2001 without recourse to the Company. Nonperforming assets represent 0.66% of total assets, compared to 1.51% at year-end 2000. All nonaccrual loans are considered to be impaired under SFAS 114 Accounting by Creditors for Impairment of a Loan. The Bank continues to make a concerted effort to work problem and potential problem loans to reduce risk of loss. September 30, December 31, 2001 2000 (unaudited, in thousands) Nonaccrual loans $ 5,587 $ 12,262 Accruing loans past due 90 days or more 217 965 Restructured loans (in compliance with modified terms) - - --------- ---------- Total nonperforming loans 5,804 13,227 Other real estate owned 723 1,441 --------- ---------- Total nonperforming assets $ 6,527 $ 14,668 ========= ========== Nonperforming loans to total loans 0.87% 2.07% Allowance for loan losses to nonperforming loans 214% 88% Nonperforming assets to total assets 0.66% 1.51% Allowance for loan losses to nonperforming assets 191% 80% Allowance for Loan Loss Credit risk is inherent in the business of lending. As a result, the Company maintains an Allowance for Loan and Leases Losses to absorb losses inherent in the Company's loan and lease 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 and Lease Losses is meant to be an estimate of these unknown but probable losses inherent in the portfolio. For the remainder of this discussion, "loans" shall include all loans and lease contracts, which are a part of the Bank'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 and lease portfolio, and to a lesser extent the Company's loan and lease commitments. These assessments include the periodic re-grading of credits based on changes in their individual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interest rate environment, growth of the portfolio as a whole or by segment, and other factors as warranted. Loans are initially graded when originated. They are re-graded as they are renewed, when there is a new loan to the same borrower, when identified facts demonstrate heightened risk of nonpayment, or if they become delinquent. Re-grading of larger problem loans occur at least quarterly. Confirmation of the quality of the grading process is obtained by independent credit reviews conducted by consultants specifically hired for this purpose and by various bank regulatory agencies. The Company's method for assessing the appropriateness of the allowance includes specific allowances for identified problem loans and leases as determined by SFAS 114, formula allowance factors for pools of credits, and allowances for changing environmental factors (e.g., interest rates, growth, economic conditions, etc.). Allowance factors for loan pools are based on the previous 5 years historical loss experience by product type. Allowances for specific loans are based on SFAS 114 analysis of individual credits. Allowances for changing environmental factors are Management's best estimate of the probable impact these changes have had on the loan portfolio as a whole. This process is explained in detail in the notes to the Company's Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended December 31, 2000. The following table presents information concerning the allowance and provision for loan losses: For the nine months ended September 30, 2001 2000 (unaudited, in thousands) Balance, Beginning of period $ 11,670 $ 11,037 Provision charged to operations 3,250 3,500 Loans charged off (2,647) (3,626) Recoveries of loans previously charged off 164 307 ------------- ------------- Balance, end of period $ 12,437 $ 11,218 ============= ============= Ending loan portfolio $ 668,157 $ 650,807 ============= ============= Allowance as a percentage of ending loan portfolio 1.86% 1.72% ============= ============= Equity The following table indicates the amounts of regulatory capital of the Company (unaudited, in thousands):
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio As of September 30, 2001: Total Capital to Risk Weighted Assets: Consolidated $91,433 11.69% =>$62,543 =>8.0% =>$78,179 =>10.0% Tri Counties Bank $89,253 11.44% =>$62,407 =>8.0% =>$78,008 =>10.0% Tier I Capital to Risk Weighted Assets: Consolidated $81,625 10.44% =>$31,271 =>4.0% =>$46,908 => 6.0% Tri Counties Bank $79,469 10.19% =>$31,203 =>4.0% =>$46,805 => 6.0% Tier I Capital to Average Assets: Consolidated $81,625 8.35% =>$39,087 =>4.0% =>$48,859 => 5.0% Tri Counties Bank $79,469 8.15% =>$39,014 =>4.0% =>$48,768 => 5.0%
Item 3. MARKET RISK MANAGEMENT There have not been any significant changes in the risk management profile of the Bank since December 31, 2000. PART II Other Information Item 2. Changes in Securities and Use of Proceeds (a) & (b) On July 10, 2001, the Company declared a dividend of one Preferred Stock Purchase Right for each common share held of record at the close of business on such date, pursuant to the Company's Shareholder Rights Plan. In general terms, the Rights Plan imposes a significant penalty upon any person or group that acquires 15% or more of the Company's outstanding common stock without approval of the Company's Board of Directors. The Rights generally will not become exercisable unless an acquiring entity accumulates or initiates a tender offer to purchase 15% or more of the Company's common stock. In that event, each right will entitle the holder, other than the unapproved acquirer and its affiliates, to purchase either the Company's common stock or shares in an acquiring entity at one-half of market value. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit No. Exhibits 3.1 Articles of Incorporation, as amended to date, filed as Exhibit 3.1 to Registrant's Report on Form 10-K, filed for the year ended December 31, 1989, are incorporated herein by reference. 3.2 Bylaws, as amended to 1992, filed as Exhibit 3.2 to Registrant's Report on Form 10-K, filed for the year ended December 31, 1992, are incorporated herein by reference. 3.3 Certificate of Determination of Preferences of series AA Junior Participating Preferred Stock filed with the California Secretary of State on June 28, 2001, is attached here to. 10.1 Lease for Park Plaza Branch premises entered into as of September 29, 1978, by and between Park Plaza Limited Partnership as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.9 to the TriCo Bancshares Registration Statement on Form S-14 (Registration No. 2-74796) is incorporated herein by reference. 10.2 Lease for Administration Headquarters premises entered into as of April 25, 1986, by and between Fortress-Independence Partnership (A California Limited Partnership) as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.6 to Registrant's Report on Form 10-K filed for the year ended December 31, 1986, is incorporated herein by reference. 10.3 Lease for Data Processing premises entered into as of April 25, 1986, by and between Fortress-Independence Partnership (A California Limited Partnership) as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.7 to Registrant's Report on Form 10-K filed for the year ended December 31, 1986, is incorporated herein by reference. 10.4 Lease for Chico Mall premises entered into as of March 11, 1988, by and between Chico Mall Associates as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.4 to Registrant's Report on Form 10-K filed for the year ended December 31, 1988, is incorporated by reference. 10.5 First amendment to lease entered into as of May 31, 1988 by and between Chico Mall Associates and Tri Counties Bank, filed as Exhibit 10.5 to Registrant's Report on Form 10-K filed for the year ended December 31, 1988, is incorporated by reference. 10.6 Employment Agreement of Robert H. Steveson, dated December 12, 1989 between Tri Counties Bank and Robert H. Steveson, filed as Exhibit 10.9 to Registrant's Report on Form 10-K filed for the year ended December 31, 1989, is incorporated by reference. 10.7 Addendum to Employment Agreement of Robert H. Steveson, dated April 9, 1991, filed as Exhibit 10.12 to Registrant's Report on Form 10-K filed for the year ended December 31, 1991, is incorporated herein by reference. 10.8 Rights Agreement dated June 25, 2001, by and between TriCo Bancshares and Mellon Investor Services LLC, as Rights Agent, filed a Exhibit 1 to the Registrant's Form 8-A filed on July 5, 2001, is incorporated herein by reference. 10.9 Form of Change of Control Agreement dated April 10, 2001, by and between the Registrant and each of Craig Carney, Richard O'Sullivan, Thomas Reddish, Ray Rios and Richard Smith, is attached here to. 21.1 Tri Counties Bank, a California banking corporation, is the only subsidiary of Registrant. (b) Reports on Form 8-K: None 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 thereunto duly authorized. TRICO BANCSHARES Date November 13, 2001 /s/ Richard P. Smith ---------------------------- ----------------------------- Richard P. Smith President and Chief Executive Officer Date November 13, 2001 /s/ Thomas J. Reddish ---------------------------- ----------------------------- Thomas J. Reddish Vice President and Chief Financial Officer EX-3 3 tcb_ex-3.txt EXHIBIT 3.3 - CERTIFICATE OF DETERMINATION Exhibit 3.3 CERTIFICATE OF DETERMINATION OF PREFERENCES OF SERIES AA JUNIOR PARTICIPATING PREFERRED STOCK OF TRICO BANCSHARES, a California corporation The undersigned, Richard Smith and Thomas Reddish, DO HEREBY CERTIFY that: A. They are the duly elected and acting President/CEO and Chief Financial Officer/Vice President, respectively, of TriCo Bancshares, a California corporation (the "Corporation"). B. The authorized number of shares of Preferred Stock is 1,000,000. The authorized number of Series AA Junior Participating Preferred Stock is 150,000, none of which have been issued. C. Pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Articles of Incorporation of the said Corporation, the said Board of Directors on June 12, 2001, adopted the following resolutions creating a series of 150,000 shares of Preferred Stock designated as "Series AA Junior Participating Preferred Stock": WHEREAS, the Articles of Incorporation of the Corporation authorize a class of Preferred Stock comprising 1,000,000 shares issuable from time to time in one or more series; and WHEREAS, the Board of Directors of the Corporation is authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, including but not limited to the dividend rights, dividend rates, conversion rights, voting rights and the liquidation preferences, and the number of shares constituting any such series and the designation thereof, or any of them; and WHEREAS, the Corporation heretofore has not issued or designated any series of Preferred Stock, and it is the desire of the Board of Directors of the Corporation, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to Series AA Junior Participating Preferred Stock and the number of shares constituting such series; NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of the Articles of Incorporation, a series of Preferred Stock, no par value, of the Corporation be and hereby is created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: 1. Designation and Amount. ----------------------- The shares of such series shall be designated as "Series AA Junior Participating Preferred Stock" (the "Series AA Preferred Stock") and the number of shares constituting the Series AA Preferred Stock shall be One Hundred Fifty Thousand (150,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided that no decrease shall reduce the number of shares of Series AA Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series AA Preferred Stock. 2. Dividends and Distributions. ---------------------------- (A) Subject to the rights of the holders of any shares of any series of Series AA Preferred stock (or any similar stock) ranking prior and superior to the Series AA Preferred Stock with respect to dividends, the holders of shares of Series AA Preferred Stock, in preference to the holders of shares of Common Stock, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on any regular quarterly dividend payment date as shall be established by the Board of Directors (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series AA Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series AA Preferred Stock. In the event the Corporation shall at any time after July 10, 2001 (the "Rights Declaration Date"), declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series AA Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series AA Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series AA Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series AA Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series AA Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series AA Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may, in accordance with applicable law, fix a record date for the determination of holders of shares of Series AA Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than such number of days prior to the date fixed for the payment thereof as may be allowed by applicable law. 3. Voting Rights. -------------- The holders of shares of Series AA Preferred Stock shall have the following voting rights: (A) Each share of Series AA Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as otherwise provided in the Corporation's Articles of Incorporation (as amended hereby), or by law, the holders of shares of Series AA Preferred Stock, the holders of shares of Common Stock, and the holders of shares of any other capital stock of the Corporation having general voting rights, shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth in the Corporation's Articles of Incorporation (as amended hereby), and except as otherwise provided by law, holders of Series AA Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. 4. Certain Restrictions. --------------------- (A) Whenever quarterly dividends or other dividends or distributions payable on the Series AA Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series AA Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series AA Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series AA Preferred Stock, except dividends paid ratably on the Series AA Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series AA Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series AA Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series AA Preferred Stock, or any shares of stock ranking on a parity with the Series AA Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. ------------------ Any shares of Series AA Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall become authorized but unissued shares of Series AA Preferred Stock and may be reissued as part of a new series of Series AA Preferred Stock subject to the conditions and restrictions on issuance set forth in the Articles of Incorporation, as amended hereby, and by any subsequent amendments, or as otherwise required by law. 6. Liquidation, Dissolution or Winding Up. --------------------------------------- Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series AA Preferred Stock unless, prior thereto, the holders of shares of Series AA Preferred Stock shall have received $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series AA Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series AA Preferred Stock, except distributions made ratably on the Series AA Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time after the Rights Declaration Date declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series AA Preferred Stock were entitled immediately prior to such event under the provision in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. Consolidation, Merger, Etc. --------------------------- In case the Corporation shall enter into any consolidation, merger, statutory share exchange, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series AA Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series AA Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event. 8. No Redemption. -------------- The shares of Series AA Preferred Stock shall not be redeemable. 9. Rank. ----- The Series AA Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. 10. Amendment. ---------- The Articles of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series AA Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series AA Preferred Stock, voting together as a single class. 11. Fractional Shares. ------------------ Series AA Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series AA Preferred Stock. The undersigned declare under the penalty of perjury that the matters set forth in the foregoing certificate are true and correct of their own knowledge. Executed at Chico, California, on June 28, 2001. /s/ Richard P. Smith ----------------------------- Richard P. Smith, President and CEO /s/ Thomas J. Reddish ----------------------------- Thomas J. Reddish, Chief Financial Officer and Vice President EX-10 4 tcb_ex-10.txt EXHIBIT 10.9 - FORM OF CHANGE OF CONTROL AGREEMENT Exhibit 10.9 CHANGE OF CONTROL AGREEMENT This Agreement is dated as of April 10, 2001, and is by and among TRI COUNTIES BANK ("Employer"), a California corporation having its principal place of business at 63 Constitution Drive, Chico, California 95973, Employer's parent, TRICO BANCSHARES, ("TriCo") and ("Employee"). WHEREAS, Employer desires to retain and assure Employee's services and loyalty during the any pending Change of Control of Employer, as defined herein and is willing to provide severance benefits in excess of its regular severance benefits in such event; WHEREAS, Employee desires to continue in the employ of Employer under the terms and subject to the conditions hereinafter set forth. NOW THEREFORE, the parties hereto agree as follows: 1. TERM OF AGREEMENT ----------------- The initial term of this Agreement shall be for two years. On each anniversary of this Agreement, this Agreement shall automatically renew for an additional one (1) year period, unless terminated by either party ninety (90) days prior to such anniversary date. 2. DUTIES OF EMPLOYMENT -------------------- Employee hereby agrees to devote his full and exclusive time and attention to the business of Employer and its subsidiaries (collectively, "Employer"), to faithfully perform the duties assigned to him by the Board of Directors consistent with his office, and to conduct himself in such a way as shall best serve the interests of Employer. 3. CHANGE IN CONTROL ----------------- 3.1 In the event of a "Change in Control" of Employer or TriCo, as defined herein, and in the event that, within ninety days of the Change of Control, either: (i) Employee's employment is terminated; or (ii) Employee gives written notice that he wishes to invoke the provisions of this Section 3; or (iii) a substantial and material change occurs in Employee's title and/or responsibilities, subject to the provisions of Section 3.3, Employee shall be entitled to receive his salary at the rate then in effect for a period of [eighteen (18) months/two (2)] years following the occurrence of the events set forth herein, as well as an amount equal to 150% of the annual bonuses earned by the Employee for the last complete calendar year or year of employment, whichever is greater paid in eighteen equal monthly installments, provided, however, that the present value of said payments shall not be more than two hundred ninety-nine percent (299%) of Employee's compensation as defined by Section 280G of the Internal Revenue Code of 1954, as amended. Employer shall be relieved of its obligation to make payments under this Section if, at the time it is to make such payment, it is insolvent, in conservatorship or receivership, is in a troubled condition, is operating under a supervisory agreement with any regulatory agency having jurisdiction, has been given a financial soundness rating of "4" or "5", or is subject to a proceeding to terminate or suspend federal deposit insurance. 3.2 For purposes of this Section 3, a "Change in Control" of Employer shall occur: 3.3 (a) upon Employer's knowledge that any person (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) is or becomes "the beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of shares of Employer or TriCo, representing more than 50% of the combined voting power of the then outstanding securities Employer or TriCo; or (b) upon the first purchase of the common stock of Employer or TriCo pursuant to a tender or exchange offer (other than a tender or exchange offer made by Employer or TriCo); or (c) upon the approval by the stockholders of Employer or TriCo of a merger or consolidation (other than a merger of consolidation in which Employer or TriCo is the surviving corporation and which does not result in any reclassification or reorganization of the then outstanding securities or Employer or TriCo), a sale or disposition of all or substantially all of the assets of Employer or TriCo, or a plan of liquidation or dissolution of Employer or TriCo; or (d) if, during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Employer or TriCo cease for any reason to constitute at least a majority thereof, unless the election or nomination for the election by the stockholders of Employer or TriCo of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 3.4 Anything in this Agreement to the contrary notwithstanding, prior to the payment of any compensation or benefits payable under Section 3.1 hereof, the certified public accountants of Employer immediately prior to a Change of Control (the "Certified Public Accountants") shall determine as promptly as practical and in any event with 20 business days following the sale of Employer whether any payment or distribution by Employer to or for the benefit of Employee (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement, any other agreements or otherwise) (a "Payment") would more likely than not be nondeductible by the Company for Federal income purposes because of section 280G of the Internal Revenue Code of 1 986, as amended (the "Code"), and if it is, then the aggregate present value of amounts payable or distributable to or for the benefit of Employer pursuant to this Agreement (such payments or distributions pursuant to this Agreement are thereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the reduced Amount. For purposes of this Section, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any payment to be nondeductible by Employer because of said Section 280G of the Code. If under this Section the certified Public Accountants determine that any payment would more likely than not be nondeductible by Employer because of Section 280G of the Code, Employer shall promptly give Employee notice to the effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Employee may then elect, in his sole discretion, which and how much of the Agreement Payments or any other payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments or any other payments equals the Reduced Amount), and shall advise the Employer in writing of his election within 20 business days of his receipt of notice. If no such election is made by Employee within such 20-day period, Employer may elect which and how much of the Agreement Payments or any other payments shall be eliminated or reduced (as long as after such election the Aggregate present value of the Agreement Payments equals the Reduced Amount) and shall notify Employee promptly of such election. For purposes of this Section, present value shall be determined in accordance with Section 280G(d)(4) of the Code. All determinations made by the Certified Public Accountants shall be binding upon Employer and Employee and the payment to Employee shall be made within 20 days of sale of Employer. Employer may suspend for a period of up to 30 days after the sale of Employer the Payment and any other payments or benefits due to Employee until the Certified Public Accountants finish the determination and Employee (or Employer, as the case may be) elects how to reduce the Agreement Payments or any other payments, if necessary. As promptly as practicable following such determination and the elections hereunder, Employer shall pay to or distribute to or for the benefit of Employee such amounts as are then due to Employee under this Agreement. As a result of the uncertainty in the application of Section 280G of the Code, it is possible that Agreement Payments may have been made by Employer which should not have been made ("Overpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the Certified Public Accountants, based upon the assertion of a deficiency by the Internal Revenue Service against Employer or Employee which said Certified Public Accountants believe has a high probability of success, determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Employee which Employee shall repay to Employer together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by Employee to Employer in and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that the Certified Public Accountants, based upon controlling precedent, determine that an Underpayment has occurred, any such Underpayment shall be promptly paid by Employer to or for the benefit of Employee together with interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code. 4. COVENENT TO PROTECT TRADE SECRETS --------------------------------- 4.1 The parties hereto recognize that the services performed and to be performed by Employee are special and unique and that by reason of this employment Employee has acquired and will continue to acquire confidential information regarding the strategic plans, business plans, trade secrets, policies, finances, customers and other business affairs of Employer (collectively "Trade Secrets"). Employee hereby agrees not to divulge such Trade Secrets to anyone, either during his employment with Employer or for a period of three years following the termination of his employment. Employee further agrees that all memoranda, notes, records, reports, letters, and other documents made, compiled, received, held, or used by Employee while employed by Employer concerning any phase of the business of Employer shall be Employer's property and shall be delivered by Employee to Employer on the termination of his employment, or at any earlier time on the request of the Board of Directors. 4.2 Employee and Employer agree that in consideration of the payment of the amounts payable to Employee hereunder, Employee specifically covenants to comply with all of the restrictions and obligations contained in this Section 4 except as otherwise specifically provided for herein. Employee and Employer further agree that they have discussed the restrictions and obligations contained in this Section 4 and stipulate that they are reasonable. 4.3 The agreement of Employee contained in this Section 4 shall be enforceable both at law and in equity, by injunction and otherwise; and the rights and remedies of Employer hereunder with respect thereto shall be cumulative and not alternative and shall not be exhausted by any one or more uses thereof. 5. TERMINATION ----------- This Agreement is terminable as follows: 5.1 By Employer, upon the death or permanent physical or mental disability of Employee. (For purposes hereof, permanent physical or mental disability shall be deemed to have occurred when Employee has been unable, with reasonable accommodation, to perform the essential functions of his job (i) for a period of six (6) consecutive months or (ii) on 80% or more of the normal working days during any nine (9) consecutive months.) 5.2 By Employer, without prior notice, for Employee's dishonesty, disloyalty, willful misconduct, dereliction of duty or conviction of a felony or other crime the subject matter of which is related to his duties for Employer. 5.3 By Employer, upon ninety (90) days prior written notice without cause, or by Employer pursuant to Section 1.2 hereof, provided, however this agreement may not be termination pursuant to this Section 5.3 at any time there is a pending or threaten Change of Control of Employer. 6. SCOPE OF AGREEMENT: WAIVERS AND AMENDMENTS ------------------------------------------ The scope of this Agreement is limited to the specific provisions set forth herein and is not intended to encompass all the terms and conditions of the relationship between Employee and Employer and any and all matters related thereto. The effects of the termination of Employee's employment under circumstances other than after a Change of Control and as specifically set forth herein shall be subject to the policies of Employer and any other written agreement between Employee and Employer and/or TriCo. Neither this Agreement nor any term or condition hereof, including without limitation, the terms and conditions of this Section, any be waived or modified in whole or in part as against Employer or Employee, as the case may be, except by written instrument signed by an authorized officer of Employer and by Employee, expressly stating that it is intended to operate as a waiver or modification of this Agreement, and any such written waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach hereof. 7. NOTICE ------ Any notice hereunder shall be in writing and shall be deemed effective five (5) days after it has been mailed, by certified mail, in the case of Employer or TriCo addressed to the address above written, or such other address as Employee knows to be the then corporate office of Employer or TriCo, to the attention of the President of Employer or TriCo and, in the case of Employee, to Employee's address as contained in the personnel records of Employer. 8. SEVERABILITY ------------ If any term or provision of this Agreement or the application thereof to any person, property or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons, property or circumstances other than those as to which it is invalid or unenforceable, shall not be effected thereby, and each term provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 9. NO RESTRICTIONS --------------- Employee hereby represents and warrants that he is not now and will not be subject to any agreement, restriction, lien, encumbrance, or right, title or interest in any one, limiting in any way the scope of this Agreement or in any way inconsistent with this Agreement. 10. NO ASSIGNMENT: BINDING EFFECT ----------------------------- This Agreement shall be binding upon and inure to the benefit of Employer, its successors or assigns. Except as to the obligation of Employee to render personal services which shall be non-assignable, this Agreement shall be binding upon and inure to the heirs, executors, administrators, and assigns of Employee. 11. HEADINGS -------- The captions and headings contained herein have been inserted for convenience or reference only and shall not affect the meaning or interpretation of this Agreement. 12. GOVERNING LAW AND CHOICE OF FORUM --------------------------------- This Agreement shall be construed and enforced in accordance with the laws of the State of California and shall be enforced in the State or Federal Courts sitting in California. --------------------------------------- Employee TRICO BANCSHARES By: --------------------------------------- William J. Casey, Chairman of the Board TRI COUNTIES BANK By: --------------------------------------- William J. Casey, Chairman of the Board -----END PRIVACY-ENHANCED MESSAGE-----