-----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, QWBNlpAGVLt9Skt1PctZKdqOsbWcQGnXiUhpXGJoJyz/7waRKOYFk8lc2cfjZi3F W2OTQH/+pLZVvdNcv2wthg== 0000912057-96-004491.txt : 19960315 0000912057-96-004491.hdr.sgml : 19960315 ACCESSION NUMBER: 0000912057-96-004491 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960314 SROS: NASD 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-10661 FILM NUMBER: 96534682 BUSINESS ADDRESS: STREET 1: TRI COUNTIES BANK ADMINISTRATION STREET 2: 40 PHILADELPHIA DRIVE CITY: CHICO STATE: CA ZIP: 95973 BUSINESS PHONE: 9168980300 MAIL ADDRESS: STREET 1: TRI COUNTIES BANK ADMINISTRATION STREET 2: 40 PHILADELPHIA DRIVE CITY: CHICO STATE: CA ZIP: 95973 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year Commission File Number 0-10661 ended December 31, 1995 TriCo Bancshares ---------------- (Exact name of registrant as specified in its charter) California 94-2792841 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15 INDEPENDENCE CIRCLE, CHICO, CALIFORNIA 95973 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code:(916) 898-0300 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, Without Par Value ------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------ The aggregate market value of the voting stock held by non-affiliates of the registrant, as of March 7, 1996, was approximately $59,106,000. This computation excludes a total of 1,138,936 shares which are beneficially owned by the officers and directors of Registrant who may be deemed to be the affiliates of Registrant under applicable rules of the Securities and Exchange Commission. The number of shares outstanding of Registrant's classes of common stock, as of March 7, 1996, was 4,468,828 shares of Common Stock, without par value. The following documents are incorporated herein by reference into the parts of Form 10-K indicated: Registrant's Annual Report to Shareholders for the fiscal year ended December 31, 1995, for Item 7 and Registrant's Proxy Statement for use in connection with its 1996 Annual Meeting of Shareholders for Part III. PART I 1. BUSINESS FORMATION OF BANK HOLDING COMPANY TriCo Bancshares (hereinafter the "Company" or "Registrant") was incorporated under the laws of the State of California on October 13, 1981. It was organized at the direction of the Board of Directors of Tri Counties Bank (the "Bank") for the purpose of forming a bank holding company. On September 7, 1982, a wholly-owned subsidiary of the Company was merged with and into the Bank resulting in the shareholders of the Bank becoming the shareholders of the Company and the Bank becoming the wholly-owned subsidiary of the Company. (The merger of the wholly-owned subsidiary of the Company with and into the Bank is hereafter referred to as the "Reorganization.") At the time of the Reorganization, the Company became a bank holding company subject to the supervision of the Board of Governors of the Federal Reserve System (the "Board") in accordance with the Bank Holding Company Act of 1956, as amended. The Bank remains subject to the supervision of the California State Banking Department and the Federal Deposit Insurance Corporation (the "FDIC"). The Bank currently is the only subsidiary of the Company and the Company has not yet commenced any business operations independent of the Bank. PROVISION OF BANKING SERVICES The Bank was incorporated as a California banking corporation on June 26, 1974, and received its Certificate of Authority to begin banking operations on March 11, 1975. The Bank engages in the general commercial banking business in the California counties of Butte, Glenn, Shasta, Siskiyou and Sutter as well as portions of Tehama and Lassen counties. The Bank currently has 14 traditional and six in-store branch offices. It opened its first banking office in Chico, California in 1975, followed by branch offices in Willows, Durham and Orland, California. The Bank opened its fifth banking office at an additional location in Chico in 1980. On March 27, 1981, the Bank acquired the assets of Shasta County Bank and thereby acquired six additional offices. These offices are located in the communities of Bieber, Burney, Cottonwood, Fall River Mills, Palo Cedro and Redding, California. On November 7, 1987, the Bank purchased the deposits and premises of the Yreka Branch of Wells Fargo Bank, thereby acquiring an additional branch office. On August 1, 1988, the Bank opened a new office in Chico at East 20th Street and Forest Avenue. The Bank opened a branch office in Yuba City on September 10, 1990. The Bank opened four supermarket branches in 1994. These supermarket branches were opened on March 7, March 28, June 6 and June 13, 1994 in Red Bluff, Yuba City, and two in Redding respectively. The Bank added one conventional branch in Redding through its acquisition of Country National Bank on July 21, 1994. On November 7, 1995, the Bank opened a supermarket branch in Chico. GENERAL BANKING SERVICES. The Bank conducts a commercial banking business including accepting demand, savings and time deposits and making commercial, real estate, and consumer loans. It also offers installment note collection, issues cashier's checks and money orders, sells travelers checks and provides safe deposit boxes and other customary banking services. Brokerage services are provided at the Bank's offices by the Bank's association with Investment Service of America (ISFA) under the name INVEST. The Bank does not offer trust services or international banking services. The Bank's operating policy since its inception has emphasized retail banking. Most of the Bank's customers are retail customers and small to medium- sized businesses. The business of the Bank 2 emphasizes serving the needs of local businesses, farmers and ranchers, retired individuals and wage earners. The majority of the Bank's loans are direct loans made to individuals and businesses in the area. At December 31, 1995, the total of the Bank's consumer installment loans outstanding was $64,445,000 (20.2%), the total of commercial loans outstanding was $152,173,000 (47.7%), and the total of real estate loans was $102,148,000 (32.1%). The Bank takes real estate, listed and unlisted securities, savings and time deposits, automobiles, machinery, equipment, inventory, accounts receivable and notes receivable secured by property as collateral for loans. Most of the Bank's deposits are attracted from individuals and business- related sources. No single person or group of persons provides a material portion of the Bank's deposits, the loss of any one or more of which would have a materially adverse effect on the business of the Bank, nor is a material portion of the Bank's loans concentrated within a single industry or group of related industries. In order to attract loan and deposit business from individuals and small to medium-sized businesses, branches of the Bank set lobby hours to accommodate local demands. In general, lobby hours are from 10:00 a.m. to 5:00 p.m. Monday through Thursday, and from 10:00 a.m. to 6:00 p.m. on Friday. However, some branches open at 9 a.m. and certain branches with less activity close earlier. Certain Bank offices also utilize drive-up facilities operating from 9:00 a.m. to 7:00 p.m. The supermarket branches are be open from 10:00 a.m. to 7:00 p.m. Monday through Saturday and 11:00 a.m. to 5:00 p.m. on Sunday. The Bank offers 24 hour ATMs at all branch locations. The ATMs are linked to several national and regional networks such as CIRRUS and STAR. In addition, banking by telephone on a 24 hour toll-free number is available to all customers. This service allows a customer to inquire for account balances and most recent transactions, transfer moneys between accounts, make loan payments, and obtain interest rate information. OTHER ACTIVITIES. The Bank presently offers the banking services referred to above and pursuant to California legislation, TCB Real Estate Corporation, a wholly-owned subsidiary of the Bank, engages in limited real estate investment. Such investment consists of holding certain real property for the purpose of development or as income earning assets. The amount of the Bank's assets committed to such investment does not exceed the total of the Bank's capital and surplus. The adoption of regulations by either the FDIC or the Board could restrict significantly, or prohibit entirely, the real estate activities of the Bank. The Bank may in the future engage in other businesses either directly or indirectly through subsidiaries acquired or formed by the Bank subject to regulatory constraints. See "Regulation, Supervision and Permitted Activities of the Company." EMPLOYEES. At December 31, 1995, the Company and the Bank employed 315 persons, including six executive officers. No employees of the Company or the Bank are presently represented by a union or covered under a collective bargaining agreement. Management believes that its employee relations are excellent. COMPETITION. The banking business in California generally, and in the Bank's primary service area specifically, is highly competitive with respect to both loans and deposits. It is dominated by a relatively small number of major banks with many offices operating over a wide geographic area. Among the advantages such major banks have over the Bank are their ability to finance wide ranging advertising campaigns and to allocate their investment assets to regions of high yield and demand. By virtue of their greater total capitalization such institutions have substantially higher lending limits than 3 does the Bank since legal lending limits to an individual customer are limited to a percentage of a Bank's total capital accounts. The Bank's primary service area, the eight California counties of Butte, Glenn, Lassen, Shasta, Siskiyou, Sutter, Tehama and Yuba, is served by ten independent commercial banks including the Bank and branches of seven state-wide (or regional) banks. Of the approximately 144 branches or facilities of commercial banks in the area, 20 offices are the Bank's offices. The Bank held approximately 12.0% percent of the commercial banking deposits in its primary service area at June 30, 1995. In addition to competing with savings institutions, commercial banks compete with other financial markets for funds. Yields on corporate and government debt securities and other commercial paper affect the ability of commercial banks to attract and hold deposits. Commercial banks also compete for available funds with money market instruments. During past periods of high interest rates, money market funds have provided substantial competition to banks for deposits and they may continue to do so in the future. The Bank relies substantially on local promotional activity, personal contacts by its officers, directors, employees and shareholders, extended hours, personalized service and its reputation in the communities it services to compete effectively. REGULATION AND SUPERVISION As a registered bank holding company under the Bank Holding Company Act of 1956 (the "BHC Act"), TriCo is subject to the regulations and supervision of the Board of Governors of the Federal Reserve System ("FRB"). The BHC Act requires TriCo to file reports with the FRB and provide additional information requested by the FRB. TriCo must receive the approval of the FRB before it may acquire all or substantially all of the assets of any bank, or ownership or control of the voting shares of any bank if, after giving effect to such acquisition of shares, TriCo would own or control more than 5 percent of the voting shares of such bank. The BHC Act also provides that no application for approval by a holding company acquire any voting shares or interest in, or all or substantially all of the assets of, a bank located outside the State of California will be approved unless such acquisition is specifically authorized by the laws of the state in which such bank is located. TriCo and any subsidiaries it may acquire or organize will be deemed to be affiliates of the Bank within the Federal Reserve Act. That Act establishes certain restrictions which limit the extent to which the Bank can supply its funds to TriCo and other affiliates. TriCo is also subject to restrictions on the underwriting and the public sale and distribution of securities. It is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property, or furnishing of services. TriCo is prohibited from engaging in, or acquiring direct or indirect control of any company engaged in non-banking activities, unless the FRB by order or regulation has found such activities to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Under California law, dividends and other distributions by TriCo are subject to declaration by the Board of Directors at its discretion out of net assets. Dividends cannot be declared and paid when such payment would make TriCo insolvent. FRB policy prohibits a bank holding company from declaring or paying a cash dividend which would impose undue pressure on the capital of subsidiary banks or would be funded only through 4 borrowings or other arrangements that might adversely affect the holding company's financial position. The policy further declares that a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. Other FRB policies forbid the payment by bank subsidiaries to their parent companies of management fees which are unreasonable in amount or exceed a fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). In addition, the FRB has authority to prohibit banks that it regulates from engaging in practices which in the opinion of the FRB are unsafe or unsound. Such practices may include the payment of dividends under some circumstances. Moreover, the payment of dividends may be inconsistent with capital adequacy guidelines. TriCo may be subject to assessment to restore the capital of the Bank should it become impaired. Federal Reserve Regulation "Y" (12 C.F.R. Part 225) sets forth those activities which are regarded as closely related to banking or managing or controlling banks and, thus, are permissible activities that may be engaged in by bank holding companies subject to approval in individual cases by the FRB. Litigation has challenged the validity of certain activities authorized by the FRB for bank holding companies, and the FRB has various regulations and applications in this regard still under consideration. TriCo is subject to the minimum capital requirements of the FRB. As a result of these requirements, the growth in assets of TriCo is limited by the amount of its capital accounts as defined by the FRB. Capital requirements may have an affect on profitability and the payment of distributions by TriCo. If TriCo is unable to increase its assets without violating the minimum capital requirements, or is forced to reduce assets, its ability to generate earnings would be reduced. Furthermore, earnings may need to be retained rather than paid as distributions to shareholders. The FRB has adopted guidelines utilizing a risk-based capital structure. These guidelines apply on a consolidated basis to bank holding companies with consolidated assets of $150 million or more. For bank holding companies with less than $150 million in consolidated assets, the guidelines apply on a bank- only basis unless the holding company is engaged in non-bank activity involving significant leverage or has a significant amount of outstanding debt that is held by the general public. TriCo currently has consolidated assets of more than $150 million; accordingly, the risk-based capital guidelines apply to TriCo. Qualifying capital is divided into two tiers. Tier 1 capital consists generally of common stockholder's equity, qualifying noncumulative perpetual preferred stock, qualifying cumulative perpetual preferred stock (up to 25 percent of total Tier 1 capital) and minority interests in the equity accounts of consolidated subsidiaries less goodwill and certain other intangible assets. Tier 2 capital consists of, among other things, allowance for loan and lease losses up to 1.25 percent of weighted risk assets, perpetual preferred stock, hybrid capital instruments, perpetual debt, mandatory convertible debt securities, subordinated debt and intermediate-term preferred stock. Tier 2 capital qualifies as part of total capital up to a maximum of 100 percent of Tier 1 capital. Amounts in excess of these limits may be issued but are not included in the calculation of risk-based capital ratios. As of December 31, 1995 TriCo must have a minimum ratio of qualifying total capital to weighted risk assets of 8 percent, of which at least 4 percent must be in the form of Tier 1 capital. The Federal regulatory agencies have adopted a minimum Tier 1 leverage ratio which is intended to supplement risk-based capital requirements and to ensure that all financial institutions, even those that 5 invest predominantly in low-risk assets, continue to maintain a minimum level of Tier 1 capital. These regulations provide that a banking organization's minimum Tier 1 leverage ratio be determined by dividing its Tier 1 capital by its quarterly average total assets, less goodwill and certain other intangible assets. Under the current rules, TriCo is required to maintain a minimum Tier 1 leverage ratio of 4 percent. At December 31, 1995, TriCo's Tier 1 leverage ratio was 8.9 percent. INSURANCE OF DEPOSITS. The Bank's deposit accounts are insured up to a maximum of $100,000 per depositor by the Federal Deposit Insurance Corporation ("FDIC"). The FDIC issues regulations and generally supervises the operations of its insured banks. This supervision and regulation is intended primarily for the protection of depositors. Effective June 1, 1995, deposit insurance premiums decreased from $.23 per $100.00 of deposits to $.04 per $100.00 of deposits. Effective January 1, 1996, the insurance rate was reduced to $0.00 per $100.00. This rate will remain in effect as long as the Bank Insurance Fund is capitalized at its legal limit. In November 1990, federal legislation was passed which removed the cap on the amount of deposit insurance premiums that can be charged by the FDIC. Under this legislation, the FDIC is able to increase deposit insurance premiums as it sees fit. This could result in a significant increase in the cost of doing business for the Bank in the future. The FDIC now has authority to adjust deposit insurance premiums paid by insured banks every six months. RISK-BASED CAPITAL REQUIREMENTS. The Bank is subject to the minimum capital requirements of the FDIC. As a result of these requirements, the growth in assets of the Bank is limited by the amount of its capital accounts as defined by the FRB. Capital requirements may have an effect on profitability and the payment of dividends on the common stock of the Bank. If the Bank is unable to increase its assets without violating the minimum capital requirements or is forced to reduce assets, its ability to generate earnings would be reduced. Further, earnings may need to be retained rather than paid as dividends to TriCo. Federal banking law requires the federal banking regulators to take "prompt corrective action" with respect to banks that do not meet minimum capital requirements. In response to this requirement, the FDIC adopted final rules based upon the five capital tiers defined by the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). The FDIC's rules provide that an institution is "well-capitalized" if its risk-based capital ratio is 10 percent or greater; its Tier 1 risk-based capital ratio is 6 percent or greater; its leverage ratio is 5 percent or greater; and the institution is not subject to a capital directive or an enforceable written agreement or order. A bank is "adequately capitalized" if its risk-based capital ratio is 8 percent or greater; its Tier 1 risk-based capital ratio is 4 percent or greater; and its leverage ratio is 4 percent or greater (3 percent or greater for "one" rated institutions). An institution is "significantly undercapitalized" if its risk- based capital ratio is less than 6 percent; its Tier 1 risk-based capital ratio is less than 3 percent; or its tangible equity (Tier 1 capital) to total assets is equal to or less than 2 percent. An institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it engages in unsafe or unsound banking practices. No sanctions apply to institutions which are "well" or "adequately" capitalized under the prompt corrective action requirements. Undercapitalized institutions are required to submit a capital restoration plan for improving capital. In order to be accepted, such plan must include a financial guaranty from the institution's holding company that the institution will return to capital compliance. If such a guarantee were deemed to be a commitment to maintain capital under the federal Bankruptcy Code, a claim for a 6 subsequent breach of the obligations under such guarantee in a bankruptcy proceeding involving the holding company would be entitled to a priority over third-party general unsecured creditors of the holding company. Undercapitalized institutions are prohibited from making capital distributions or paying management fees to controlling persons; may be subject to growth limitations; and acquisitions, branching and entering into new lines of business are restricted. Finally, the institution's regulatory agency has discretion to impose certain of the restrictions generally applicable to significantly undercapitalized institutions. In the event an institution is deemed to be significantly undercapitalized, it may be required to: sell stock; merge or be acquired; restrict transactions with affiliates; restrict interest rates paid; divest a subsidiary; or dismiss specified directors or officers. If the institution is a bank holding company, it may be prohibited from making any capital distributions without prior approval of the FRB and may be required to divest a subsidiary. A critically undercapitalized institution is generally prohibited from making payments on subordinated debt and may not, without the approval of the FDIC, enter into a material transaction other than in the ordinary course of business; engage in any covered transaction; or pay excessive compensation or bonuses. Critically undercapitalized institutions are subject to appointment of a receiver or conservator. BANK REGULATION. The federal regulatory agencies are required to adopt regulations which will establish safety and soundness standards which will apply to banks and bank holding companies. These standards must address bank operations, management, asset quality, earnings, stock valuation and employee compensation. A bank holding company or bank failing to meet established standards will face mandatory regulatory enforcement action. The grounds upon which a conservator or receiver of a bank can be appointed have been expanded. For example, a conservator or receiver can be appointed for a bank which fails to maintain minimum capital levels and has no reasonable prospect of becoming adequately capitalized. Federal law also requires, with some exception, that each bank have an annual examination performed by its primary federal regulatory agency, and an outside independent audit. The outside audit must consider bank regulatory compliance in addition to financial statement reporting. Federal law also restricts the acceptance of brokered deposits by insured depository institutions and contains a number of consumer banking provisions, including disclosure requirements and substantive contractual limitations with respect to deposit accounts. RECENT LEGISLATION As a consequence of the extensive regulation of commercial banking activities in the United States, the business of TriCo and its subsidiaries are particularly susceptible to being affected by enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. In 1994 the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was enacted by Congress. Under the act, beginning on September 29, 1995, bank holding companies may acquire banks in any state, notwithstanding contrary state law, and all banks commonly owned by a bank holding company may act as agents for one another. An agent bank may receive deposits, renew time 7 deposits, accept payments, and close and service loans for its principal banks but will not be considered to be a branch of the principal banks. In response to the Riegle-Neal Act, California enacted the California Interstate Banking and Branching Act of 1995. This act became effective September 29, 1995. Under this act, an out-of-state bank can only enter into interstate branch banking within California by acquiring an existing bank operating within California. The California bank must have been in existence for five years at the time of acquisition. GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS The principal sources of funds essential to the business of banks and bank holding companies are deposits, stockholder's equity and borrowed funds. The availability of these various sources of funds and other potential sources, such as preferred stock or commercial paper, and the extent to which they are utilized, depends on many factors, the most important of which are the FRB's monetary policies and the relative costs of different types of funds. An important function of the FRB is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressure. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objections are open market operations in United States Government securities, changes in the discount rate on bank borrowings, and changes in reserve requirements against bank deposits. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. In view of the recent changes in regulations affecting commercial banks and other actions and proposed actions by the federal government and its monetary and fiscal authorities, including proposed changes in the structure of banking in the United States, no prediction can be made as to future changes in interest rates, credit availability, deposit levels, the overall performance of banks generally or TriCo and its subsidiaries in particular. 8 GENERAL The Company conducts all of its business operations within a single geographic area and within a single industry segment. 2. PROPERTIES As the Company has not yet acquired any properties independent of the Bank, its only subsidiary, the properties of the Bank and the Bank's subsidiaries comprise all of the properties of the Company. BANK PROPERTIES The Bank owns and leases properties which house administrative and data processing functions and 20 banking offices. Major owned and leased facilities are listed below. Park Plaza Branch Pillsbury Branch 780 Mangrove Avenue 2171 Pillsbury Road Chico, CA 95926 Chico, CA 95926 10,000 square feet 5,705 square feet Leased - term expires 2010 Owned Purchasing and Printing Department Hilltop Branch 2560-C Dominic Drive 1250 Hilltop Drive Chico, CA 95928 Redding, CA 96049 8,400 square feet 6,252 square feet Leased - term expires 1995 Owned Burney Branch Cottonwood Branch 37093 Main Street 3349 Main Street Burney, CA 96013 Cottonwood, CA 96022 3,500 square feet 4,900 square feet Owned Owned Information Administration Fall River Mills Branch 110 Independence Circle 43308 Highway 299 East Chico, CA 95973 Fall River Mills, CA 96028 7,480 square feet 2,200 square feet Owned Owned Orland Branch Durham Branch 100 E. Walker Street 9411 Midway Orland, CA 95963 Durham, CA 95938 3,000 square feet 2,150 square feet Owned Owned 9 Redding Branch Willows Branch 1810 Market Street 210 North Tehama Street Redding, CA 96001 Willows, CA 95988 14,000 square feet 4,800 square feet Owned Owned Palo Cedro Branch Yuba City Branch 9125 Deschutes Road 1441 Colusa Avenue Palo Cedro, CA 96073 Yuba City, CA 95993 4,000 square feet 6,900 square feet Owned Owned TriCo Offices Yreka Branch 15 Independence Circle 165 South Broadway Chico, CA 95973 Yreka, CA 96097 7,000 square feet 6,000 square feet Leased - term expires 2011 Owned Administration Offices Data Processing Center 40 Philadelphia Drive 1103 Fortress Chico, CA 95973 Chico, CA 95973 7,000 square feet 13,600 square feet Owned Leased - term expires 2011 3. LEGAL PROCEEDINGS Neither the Company nor the Bank is a party to any material legal proceedings, other than ordinary routine litigation incidental to the business of the Company and the Bank, nor is any of their property the subject of any such proceedings. 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS Not applicable. 10 PART II 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Common Stock of the Company trades on the NASDAQ National Market under the symbol "TCBK." The shares were first listed in the NASDAQ Stock Market in April 1993. The active market makers on NASDAQ include: Hoefer & Arnett, Incorporated, Piper Jaffray Companies Inc., Sutro & Co. Inc. and Van Kasper & Co. Inc. The following table summarizes the Common Stock high and low trading prices and volume of shares traded by quarter as reported by NASDAQ. The prices have been adjusted to reflect the five-for-four stock split effected as a stock dividend in September 1995.
PRICES OF THE APPROXIMATE COMPANY'S COMMON TRADING STOCK VOLUME QUARTER ENDED:(1),(2) HIGH LOW (IN SHARES) ---------------------------------------- March 31, 1994 $ 19.60 $ 14.80 227,560 June 30, 1994 16.00 13.60 131,258 September 30, 1994 15.20 12.20 69,651 December 31, 1994 13.20 11.00 139,441 March 31, 1995 12.80 10.80 118,010 June 30, 1995 13.20 12.20 213,026 September 30, 1995 16.60 12.00 535,140 December 31, 1995 16.40 14.50 236,821 ---------------------------------------- ----------------------------------------
(1)Quarterly trading activity has been compiled from NASDAQ trading reports. (2)Adjusted to reflect the 5-for-4 stock split effected on September 22, 1995. HOLDERS As of December 31, 1995, there were approximately 1,787 holders of record of the Company's Common Stock. DIVIDENDS The Company has paid quarterly dividends since March 1990. After giving effect to the September 1995 five-for-four stock split, dividends had been paid at the rate of $.08 per share. In December 1995, the Company raised the quarterly dividend to $.13 per share. In addition to the cash dividends, the Company has periodically paid stock dividends. In 1993 the Company paid a stock dividend of 12%. The holders of Common Stock of the Company are entitled to receive cash dividends when and as declared by the Board of Directors, out of funds legally available therefor, subject to the restrictions set forth in the California General Corporation Law (the "Corporation Law"). The Corporation Law provides that a corporation may make a distribution to its shareholders if the corporation's retained earnings equal at least the amount of the proposed distribution. The Company, as sole shareholder of the Bank, is entitled to dividends when and as declared by the Bank's Board of Directors, out of funds legally available therefore, subject to the powers of the Federal Deposit Insurance Corporation (the "FDIC") and the restrictions set forth in the California Financial Code (the "Financial Code"). The Financial Code provides that a bank may not make any distributions 11 in excess of the lessor of: (i) the bank's retained earnings, or (ii) the bank's net income for the last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such period. However, a bank may, with the prior approval of the California Superintendent of Banks (the "Superintendent"), make a distribution to its shareholders of up to the greater of (A) the bank's retained earnings, (B) the bank's net income for its last fiscal year, or (C) the bank's net income for its current fiscal year. If the Superintendent determines that the shareholders' equity of a bank is inadequate or that a distribution by the bank to its shareholders would be unsafe or unsound, the Superintendent may order a bank to refrain from making a proposed distribution. The FDIC may also order a bank to refrain from making a proposed distribution when, in its opinion, the payment of such would be an unsafe or unsound practice. The Bank paid dividends totaling $3,200,000 to the Company in 1995. As of December 31, 1995 and subject to the limitations and restrictions under applicable law, the Bank had funds available for dividends in the amount of $16,237,000. The Federal Reserve Act limits the loans and advances that the Bank may make to its affiliates. For purposes of such Act, the Company is an affiliate of the Bank. The Bank may not make any loans, extensions of credit or advances to the Company if the aggregate amount of such loans, extensions of credit, advances and any repurchase agreements and investments exceeds 10% of the capital stock and surplus of the Bank. Any such permitted loan or advance by the Bank must be secured by collateral of a type and value set forth in the Federal Reserve Act. 12 6. FIVE YEAR SELECTED FINANCIAL DATA (in thousands, except share data)
1995 1994 1993(5) 1992(5) 1991(5) -------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA:(1) Interest income $46,011 $43,240 $40,947 $40,272 $40,451 Interest expense 17,988 15,680 13,996 15,600 18,988 -------------------------------------------------------------------- Net interest income 28,023 27,560 26,951 24,672 21,463 Provision for loan losses 335 316 1,858 2,101 1,531 -------------------------------------------------------------------- Net interest income after provision for loan losses 27,688 27,244 25,093 22,571 19,932 Noninterest income 5,933 5,025 6,726 5,572 4,965 Noninterest expense 21,661 22,058 20,225 18,031 17,045 -------------------------------------------------------------------- Income before income taxes 11,960 10,211 11,594 10,112 7,852 Provision for income taxes 4,915 4,350 4,779 4,112 3,031 -------------------------------------------------------------------- Net income $7,045 $5,861 $6,815 $6,000 $4,821 -------------------------------------------------------------------- -------------------------------------------------------------------- SHARE DATA:(2) Primary earnings per share $ 1.46 $1.18 $1.42 $1.46 $1.10 Cash dividend paid per share 0.37 0.32 0.31 0.28 0.24 Common shareholders' equity at year end 11.92 10.10 10.05 8.46 7.25 BALANCE SHEET DATA: Total loans, gross $318,766 $307,103 $305,902 $317,518 $316,397 Total assets 603,554 593,834 575,897 492,404 439,358 Total deposits 516,193 491,172 515,999 451,346 400,479 Total shareholders' equity 53,213 48,231 47,068 36,545 34,822 SELECTED FINANCIAL RATIOS: Return on average assets 1.22% .99% 1.25% 1.25% 1.15% Return on average common shareholders' equity 13.95% 12.42% 15.81% 19.48% 15.69% Leverage ratio(3) 8.92% 8.75% 8.18% 7.39% 7.97% Total risk-based capital ratio 15.17% 14.65% 14.02% 11.94% 11.49% Net interest margin(4) 5.36% 5.18% 5.49% 5.76% 5.87% Allowance for loan losses to total loans outstanding at end of year 1.75% 1.83% 1.95% 1.51% 1.31% -------------------------------------------------------------------
(1)Tax-exempt securities are presented on an actual yield basis. (2)Retroactively adjusted to reflect 5-for-4 stock split effected in 1995, and the 12%, 15%, and 15% stock dividends declared in 1993, 1992 and 1991, respectively. (3)Tier 1 capital divided by total ending assets. (4)Calculated on a tax equivalent basis. (5)Restated on a historical basis to reflect the July 21, 1994 acquisition of Country National Bank on a pooling-of-interests basis. 13 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Management's Discussion and Analysis of Financial Condition and Results of Operations, included on pages 27 through 42 of Registrant's 1995 Annual Report to Shareholders, (pages 1 through 43 in Exhibit 13.1 as electronically filed) is incorporated herein by reference. 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and independent auditor's report, included in Registrant's 1995 Annual Report to Shareholders, are incorporated herein by reference:
Pages Of 1995 Annual Pages Of Exhibit 13.1 Report To Shareholders As Electronically Filed ---------------------- ----------------------- Report of Independent Public Accountants 25 23 Consolidated Balance Sheets as of December 31, 1995 and 1994 10 1 Consolidated Statements of Income for the three years ended December 31, 1995, 1994 and 1993 11 2 Consolidated Statements of Changes in Shareholders' Equity for the three years ended December 31, 1995, 1994 and 1993 12 3 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 13 4 Notes to Consolidated Financial Statements 14 5
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 14 PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding Registrant's directors and executive officers will be set forth under the captions "Proposal No. 1 - Election of Directors of the Company" in Registrant's Proxy Statement for use in connection with the Annual Meeting of Shareholders to be held on or about May 21, 1996. Said information is incorporated herein by reference. 11. EXECUTIVE COMPENSATION Information regarding compensation of Registrant's directors and executive officers will be set forth under the captions "Proposal No. 1 - Election of Directors of the Company" in Registrant's Proxy Statement for use in connection with the Annual Meeting of Shareholders to be held on or about May 21, 1996. Said information is incorporated herein by reference. 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners, directors and executive officers of Registrant will be set forth in Registrant's Proxy Statement for use in connection with the Annual Meeting of Shareholders to be held on or about May 21, 1996. Said information is incorporated herein by reference. 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is set forth under the caption "Proposal No. 1 - Election of Directors of the Company" in Registrant's Proxy Statement for use in connection with the Annual Meeting of Shareholders to be held on or about May 21, 1996. Said information is incorporated herein by reference. 15 PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. INDEX TO FINANCIAL STATEMENTS: A list of the consolidated financial statements of Registrant incorporated herein is included in Item 8 of this Report. The report of Deloitte & Touche referred to in the report of Arthur Andersen is included herein as Exhibit 99.1. 2. FINANCIAL STATEMENT SCHEDULES: Schedules have been omitted because they are not applicable or are not required under the instructions contained in Regulation S-X or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto. 3. EXHIBITS FILED HEREWITH: EXHIBIT NO. EXHIBITS 3.1 Articles of Incorporation, as amended to date, filed as Exhibit 3.1 to Registrant's Report on Form 10-K, filed for the year ended December 31, 1989, are incorporated herein by reference. 3.2 Bylaws, as amended to 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. 4.2 Certificate of Determination of Preferences of Series B Preferred Stock, filed as Appendix A to Registrant's Registration Statement on Form S-1 (No. 33-22738), is incorporated herein by reference. 10.1 Lease for Park Plaza Branch premises entered into as of September 29, 1978, by and between Park Plaza Limited Partnership as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.9 to the TriCo Bancshares Registration Statement on Form S-14 (Registration No. 2-74796) is incorporated herein by reference. 10.2 Lease for Administration Headquarters premises entered into as of April 25, 1986, by and between Fortress-Independence Partnership (A California Limited Partnership) as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.6 to Registrant's Report on Form 10-K filed for the year ended December 31, 1986, is incorporated herein by reference. 10.3 Lease for Data Processing premises entered into as of April 25, 1986, by and between Fortress-Independence Partnership (A California Limited Partnership) as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.7 to Registrant's Report on Form 10-K filed for the year ended December 31, 1986, is incorporated herein by reference. 16 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. 10.9 Employment Agreement of Robert H. Steveson, dated December 12, 1989 between Tri Counties Bank and Robert H. Steveson, filed as Exhibit 10.9 to Registrant's Report on Form 10-K filed for the year ended December 31, 1989, is incorporated by reference. 10.11 Lease for Purchasing and Printing Department premises entered into as of February 1, 1990, by and between Dennis M. Casagrande as lessor and Tri Counties Bank as lessee, filed as Exhibit 10.11 to Registrant's Report on Form 10-K filed for the year ended December 31, 1991, is incorporated herein by reference. 10.12 Addendum to Employment Agreement of Robert H. Steveson, dated April 9, 1991, filed as Exhibit 10.12 to Registrant's Report on Form 10-K filed for the year ended December 31, 1991, is incorporated herein by reference. 11.1 Computation of earnings per share. 13.1 TriCo Bancshares 1995 Annual Report to Shareholders.* 22.1 Tri Counties Bank, a California banking corporation, is the only subsidiary of Registrant. 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Deloitte & Touche LLP 99.1 Report of Deloitte & Touche LLP, filed as Exhibit 99.1 to Registrant's Report of Form 10-K filed for the year ended December 31, 1994, is incorporated herein by reference. -------------------------- * Deemed filed only with respect to those portions thereof incorporated herein by reference. (b) REPORTS ON FORM 8-K: None filed 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 12, 1996 TRICO BANCSHARES By: /s/Robert H. Steveson ------------------------- Robert H. Steveson, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 12, 1996 /s/Robert H. Steveson ----------------------------------- Robert H. Steveson, President, Chief Executive Officer and Director (Principal Executive Officer) Date: March 12, 1996 /s/Robert M. Stanberry ----------------------------------- Robert M. Stanberry, Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 12, 1996 /s/Everett B. Beich ----------------------------------- Everett B. Beich, Director and Vice Chairman of the Board Date: March 12, 1996 /s/William J. Casey ----------------------------------- William J. Casey, Director Date: March 12, 1996 /s/DeWayne E. Caviness ----------------------------------- DeWayne E. Caviness, Director Date: March 12, 1996 /s/Craig S. Compton ----------------------------------- Craig S. Compton, Director Date: March 12, 1996 /s/Richard C. Guiton ----------------------------------- Richard C. Guiton, Director 18 Date: March 12, 1996 ----------------------------------- Douglas F. Hignell, Secretary and Director Date: March 12, 1996 /s/Brian D. Leidig ----------------------------------- Brian D. Leidig, Director Date: March 12, 1996 /s/Wendell J. Lundberg ----------------------------------- Wendell J. Lundberg, Director Date: March 12, 1996 ----------------------------------- Donald E. Murphy, Director Date: March 12, 1996 /s/Rodney W. Peterson ----------------------------------- Rodney W. Peterson, Director Date: March 12, 1996 ----------------------------------- Alex A. Vereschagin, Jr., Director and Chairman of the Board 19 EXHIBIT 11.1 COMPUTATIONS OF EARNINGS PER SHARE
Years ended December 31 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Shares used in the computation of earnings per share (1) Weighted daily average of shares outstanding 4,430,092 4,389,802 4,094,009 3,534,855 3,504,826 Shares used in the computation of primary earnings per shares 4,656,896 4,641,383 4,338,255 3,556,836 3,515,270 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Shares used in the computation of fully diluted earnings per share 4,693,188 4,642,197 4,416,135 3,556,836 3,528,091 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income used in the computation of earnings per common stock: Income before adjustment for interest expense on convertible capital notes $7,045 $ 5,861 $ 6,815 $ 6,000 $ 4,821 Adjustment for preferred stock dividend (245) (420) (630) (797) (944) Net income, as adjusted $ 6,800 $ 5,441 $ 6,185 $ 5,203 $ 3,877 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- Primary earnings per share $ 1.46 $ 1.18 $ 1.42 $ 1.46 $ 1.10 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- --------- Fully diluted earnings per share $ 1.45 $ 1.18 $ 1.40 $ 1.46 $ 1.10 ---------- --------- --------- --------- --------- ---------- --------- --------- --------- ---------
(1)Retroactively adjusted for stock dividends and stock splits. 20 EXHIBIT 13.1 TRICO BANCSHARES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
December 31, ASSETS 1995 1994 ------------------------------ Cash and due from banks $ 39,673 $ 39,709 Federal funds sold 25,600 -- ------------------------------ CASH AND CASH EQUIVALENTS 65,273 39,709 Securities held-to-maturity (approximate fair value $116,576 and $131,649) 116,865 143,788 Securities available-for-sale 76,246 74,706 LOANS: Commercial 152,173 153,957 Consumer 64,445 58,471 Real estate mortgages 81,888 76,673 Real estate construction 20,260 18,002 ------------------------------ 318,766 307,103 Less: Allowance for loan losses 5,580 5,608 ------------------------------ Net loans 313,186 301,495 Premises and equipment, net 13,189 13,198 Investment in real estate properties 1,173 1,173 Other real estate owned 631 2,124 Accrued interest receivable 4,609 4,748 Deferred income taxes 3,106 5,445 Other assets 9,276 7,448 ------------------------------ TOTAL ASSETS $603,554 $593,834 ------------------------------ ------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY DEPOSITS: Noninterest-bearing demand $ 90,308 $ 88,957 Interest-bearing demand 84,314 80,657 Savings 161,479 190,800 Time certificates, $100,000 and over 13,439 1,118 Other time certificates 166,653 129,640 ------------------------------ Total deposits 516,193 491,172 Repurchase agreements -- 30,457 Accrued interest payable 3,162 1,760 Other liabilities 4,694 3,715 Long-term debt 26,292 18,499 ------------------------------ TOTAL LIABILITIES 550,341 545,603 Commitments and contingencies (Note G) SHAREHOLDERS' EQUITY: Preferred stock, no par value: Authorized 1,000,000 shares; Series B, issued and outstanding none (0) and 8,000 shares, respectively -- 3,899 Common stock, no par value: Authorized 20,000,000 shares; issued and outstanding 4,464,828 and 3,513,707 shares, respectively 44,315 43,552 Retained earnings 9,548 4,488 Unrealized loss on securities available-for-sale, net (650) (3,708) ------------------------------ TOTAL SHAREHOLDERS' EQUITY 53,213 48,231 ------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $603,554 $593,834 ------------------------------ ------------------------------
See Notes to Consolidated Financial Statements TRICO BANCSHARES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except earnings per share)
Years Ended December 31, 1995 1994 1993 --------------------------------------- INTEREST INCOME: Interest and fees on loans $ 33,776 $ 30,641 $ 31,795 Interest on investment securities--taxable 11,706 12,247 8,585 Interest on investment securities--tax exempt 158 229 238 Interest on federal funds sold 371 123 329 --------------------------------------- Total interest income 46,011 43,240 40,947 --------------------------------------- INTEREST EXPENSE: Interest on interest-bearing demand deposits 2,000 2,066 3,362 Interest on savings 5,167 6,442 5,046 Interest on time certificates of deposit 8,736 5,333 4,343 Interest on time certificates of deposit, $100,000 and over 328 61 255 Interest on short-term borrowing 526 719 739 Interest on long-term debt 1,231 1,059 251 --------------------------------------- Total interest expense 17,988 15,680 13,996 --------------------------------------- NET INTEREST INCOME 28,023 27,560 26,951 Provision for loan losses 335 316 1,858 --------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 27,688 27,244 25,093 --------------------------------------- NONINTEREST INCOME: Service charges and fees 4,163 3,570 3,558 Other income 1,780 1,478 1,747 Securities gains (losses), net (10) (23) 1,421 --------------------------------------- Total noninterest income 5,933 5,025 6,726 --------------------------------------- NONINTEREST EXPENSES: Salaries and related expenses 10,787 10,550 9,072 Other, net 10,874 11,508 11,153 --------------------------------------- Total noninterest expenses 21,661 22,058 20,225 --------------------------------------- NET INCOME BEFORE INCOME TAXES 11,960 10,211 11,594 Income taxes 4,915 4,350 4,779 --------------------------------------- NET INCOME $ 7,045 $ 5,861 $ 6,815 PREFERRED STOCK DIVIDENDS 245 420 630 --------------------------------------- --------------------------------------- NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 6,800 $ 5,441 $ 6,185 --------------------------------------- --------------------------------------- PRIMARY EARNINGS PER COMMON SHARE $ 1.46 $ 1.18 $ 1.42 --------------------------------------- FULLY DILUTED EARNINGS PER COMMON SHARE $ 1.45 $ 1.18 $ 1.40 ---------------------------------------
See Notes to Consolidated Financial Statements Exhibit 13.1 2 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years ended December 31, 1995, 1994 and 1993 (in thousands, except share amounts)
SERIES B SERIES C PREFERRED STOCK PREFERRED STOCK COMMON STOCK --------------------- --------------------- ------------------------- NUMBER NUMBER NUMBER OF OF OF SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------------------------------------------------------------------------------- Balance, December 31, 1992 8,000 $ 3,899 16,900 $ 2,187 2,571,096 $29,002 Redemption of Preferred Stock -- -- (16,900) (2,187) -- -- Common Stock issued -- -- -- -- 529,000 7,734 12% Common Stock Dividend declared -- -- -- -- 319,848 5,917 Exercise of Common Stock options -- -- -- -- 16,310 165 Series B Preferred Stock cash dividends -- -- -- -- -- -- Series C Preferred Stock cash dividends -- -- -- -- -- -- Common Stock cash dividends -- -- -- -- -- -- Net income -- -- -- -- -- -- Reduction of ESOP debt -- -- -- -- -- -- ---------------------------------------------------------------------------------- Balance, December 31, 1993 8,000 3,899 -- -- 3,436,254 42,818 Exercise of Common Stock options -- -- -- -- 77,453 403 Series B Preferred Stock cash dividends -- -- -- -- -- -- Common Stock cash dividends -- -- -- -- -- -- Cumulative effect of change in accounting method for investment securities -- -- -- -- -- -- Change in unrealized loss on securities -- -- -- -- -- -- Stock option amortization -- -- -- -- -- 331 Net income -- -- -- -- -- -- ---------------------------------------------------------------------------------- Balance, December 31, 1994 8,000 3,899 -- -- 3,513,707 43,552 Redemption of Preferred Stock (8,000) (3,899) -- -- -- -- Exercise of Common Stock options -- -- -- -- 72,694 554 5-for-4 Common Stock split -- -- -- -- 878,427 -- Series B Preferred Stock cash dividends -- -- -- -- -- -- Common Stock cash dividends -- -- -- -- -- -- Change in unrealized loss on securities -- -- -- -- -- -- Stock option amortization -- -- -- -- -- 209 Net income -- -- -- -- -- -- ---------------------------------------------------------------------------------- Balance, December 31, 1995 -- $ -- -- $ -- 4,464,828 $44,315 ---------------------------------------------------------------------------------- ---------------------------------------------------------------------------------- UNREALIZED DEBT RETAINED LOSS ON GUARANTEE EARNINGS SECURITIES FOR ESOP TOTAL ----------------------------------------------------- Balance, December 31, 1992 $ 1,578 $ -- $ (120) $36,546 Redemption of Preferred Stock (95) -- -- (2,282) Common Stock issued -- -- -- 7,734 12% Common Stock Dividend declared (5,917) -- -- -- Exercise of Common Stock options -- -- -- 165 Series B Preferred Stock cash dividends (420) -- -- (420) Series C Preferred Stock cash dividends (210) -- -- (210) Common Stock cash dividends (1,400) -- -- (1,400) Net income 6,815 -- -- 6,815 Reduction of ESOP debt -- -- 120 120 ----------------------------------------------------- Balance, December 31, 1993 351 -- -- 47,068 Exercise of Common Stock options -- -- -- 403 Series B Preferred Stock cash dividends (420) -- -- (420) Common Stock cash dividends (1,304) -- -- (1,304) Cumulative effect of change in accounting method for investment securities -- 270 -- 270 Change in unrealized loss on securities -- (3,978) -- (3,978) Stock option amortization -- -- -- 331 Net income 5,861 -- -- 5,861 ----------------------------------------------------- Balance, December 31, 1994 4,488 (3,708) -- 48,231 Redemption of Preferred Stock (101) -- (4,000) Exercise of Common Stock options -- -- -- 554 5-for-4 Common Stock split -- -- -- -- Series B Preferred Stock cash dividends (245) -- -- (245) Common Stock cash dividends (1,639) -- -- (1,639) Change in unrealized loss on securities -- 3,058 -- 3,058 Stock option amortization -- -- -- 209 Net income 7,045 -- -- 7,045 ----------------------------------------------------- Balance, December 31, 1995 $ 9,548 $ (650) $ -- $53,213 ----------------------------------------------------- -----------------------------------------------------
See Notes to Consolidated Financial Statements Exhibit 13.1 3 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years ended December 31, 1995 1994 1993 ----------------------------------------- OPERATING ACTIVITIES: Net income $ 7,045 $ 5,861 $ 6,815 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 335 316 1,858 Provision for losses on other real estate owned 99 53 642 Depreciation and amortization 1,600 1,405 1,030 (Accretion) amortization of investment security (discounts) premiums, net 117 450 1,643 Deferred income taxes (134) (90) 1,126 Investment security (gains) losses, net 10 23 (1,453) (Gain) loss on sale of loans (56) (173) (294) (Gain) loss on sale of investments in real estate properties, net (78) 54 (17) Origination of loans held for sale (9,666) (8,943) (75,552) Proceeds from loan sales 9,835 8,186 77,299 Amortization of stock options 209 331 -- (Increase) decrease in interest receivable 139 (1,106) 770 Increase (decrease) in interest payable 1,402 30 (695) (Increase) decrease in other assets and liabilities (876) (1,777) 180 ----------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 9,981 4,620 13,352 ----------------------------------------- INVESTING ACTIVITIES: Proceeds from maturities of securities held-to-maturity 19,516 15,374 -- Purchases of securities held-to-maturity (2,740) (22,439) -- Proceeds from maturities of securities available-for-sale 12,427 23,282 63,940 Proceeds from sales of securities available-for-sale 6,993 36,490 182,092 Purchases of securities available-for-sale (5,638) (74,619) (327,531) Net (increase) decrease in loans (12,529) (1,968) 6,323 Purchases of premises and equipment (1,335) (2,025) (1,861) Proceeds from sale of real estate properties 1,862 2,408 262 ----------------------------------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 18,556 (23,497) (76,775) ----------------------------------------- FINANCING ACTIVITIES: Net increase (decrease) in deposits 25,021 (24,827) 64,654 Borrowings (payments) under repurchase agreements (30,457) 30,457 -- Borrowings under long-term debt agreements 9,828 11,400 52,005 Payments of principal on long-term debt agreements (2,035) (45) (45,768) Redemption of Preferred Stock (4,000) -- (2,282) Cash dividends -- Preferred (245) (420) (630) Cash dividends -- Common (1,639) (1,304) (1,400) Issuance of Common Stock 554 403 7,899 ----------------------------------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (2,973) 15,664 74,478 ----------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 25,564 (3,213) 11,055 ----------------------------------------- Cash and cash equivalents at beginning of year 39,709 42,922 31,867 ----------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 65,273 $ 39,709 $ 42,922 ----------------------------------------- SUPPLEMENTAL INFORMATION Cash paid for taxes $ 5,240 $ 3,809 $ 5,431 Cash paid for interest expense $ 16,586 $ 15,650 $ 13,365 Non-cash debt guarantee for ESOP $ -- $ -- $ (120) Non-cash assets acquired through foreclosure $ 390 $ 1,016 $ 3,187 Non-cash transfers of OREO to fixed assets $ -- $ -- $ 504
See Notes to Consolidated Financial Statements Exhibit 13.1 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1995, 1994 and 1993 NOTE A - GENERAL SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of TriCo Bancshares (the "Company") conform to generally accepted accounting principles and general practices within the banking industry. The following are descriptions of the more significant accounting and reporting policies. Certain reclassifications have been made to the prior years' financial statements in order to conform with the classifications of the December 31, 1995 financial statements. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiary, Tri Counties Bank (the "Bank"), and the wholly- owned subsidiaries of the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation. All data has been restated on a historical basis to reflect the July 21, 1994 acquisition of Country National Bank on a pooling-of-interests basis. NATURE OF OPERATIONS The Company operates fourteen branch offices and six in-store branches in the California counties of Butte, Glenn, Shasta, Siskiyou, Sutter, Tehama, and Lassen. The Bank's operating policy since its inception has emphasized retail banking. Most of the Bank's customers are retail customers and small to medium sized businesses. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SECURITIES The Company classifies its debt and marketable equity securities into one of three categories: trading, available-for-sale or held-to-maturity. Trading securities are bought and held principally for the purpose of selling in the near term. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. In 1995 and 1994 the Company did not have any securities classified as trading. Available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized gains and losses, net of the related tax effect, on available-for-sale securities are reported as a separate component of shareholders' equity until realized. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities are included in earnings and are derived using the specific identification method for determining the cost of securities sold. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115) as of January 1, 1994. The effect of adopting SFAS 115 was to recognize an unrealized gain (net of tax) of $270,000 as an increase in shareholders' equity. LOANS Loans are reported at the principal amount outstanding, net of unearned income and the allowance for loan losses. Loan origination and commitment fees and certain direct loan origination costs are deferred, and the net amount is amortized as an adjustment of the related loan's yield over the estimated life of the loan. Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is generally discontinued either when reasonable doubt exists as to the full, timely collection of interest or principal or when a loan becomes contractually past due by 90 days or more with respect to interest or Exhibit 13.1 5 principal. When loans are 90 days past due, but in Management's judgment are well secured and in the process of collection, they are not classified as nonaccrual. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loans are estimated to be fully collectible as to both principal and interest. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when Management believes that the collectibility of the principal is unlikely or, with respect to consumer installment loans, according to an established delinquency schedule. The allowance is an amount that Management believes will be adequate to absorb probable losses inherent in existing loans, leases and commitments to extend credit, based on evaluations of the collectibility, impairment and prior loss experience of loans, leases and commitments to extend credit. The evaluations take into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, commitments, and current and anticipated economic conditions that may affect the borrower's ability to pay. The Company adopted SFAS 114, Accounting by Creditors for Impairment of a Loan, and SFAS 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures, as of January 1, 1995. Under this statement, a loan is impaired when it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. SFAS 114 requires that certain impaired loans be measured based on the present value of expected future cash flows discounted at the loan's original effective interest rate. As a practical expedient, impairment may be measured based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. The Company had previously measured the allowance for loan losses using methods similar to those prescribed in SFAS 114. As a result of adopting these statements, no additional allowance for loan losses was required as of January 1, 1995. MORTGAGE OPERATIONS The Company sold substantially all of its conforming long term residential mortgage loans originated during 1995, 1994 and 1993 for cash proceeds equal to the fair value of the loans. These loans were originated through Bank branches and not obtained from mortgage brokers. Servicing rights were retained on all of the loans sold, for which the Company receives a servicing fee. Because the amounts are not significant, the Company does not capitalize excess servicing fees, which represent the present value of the spread between the face rate of the loan and the rate paid to the investor net of the amount required to cover the cost of servicing the loan plus a profit margin given the expected life of the loans. Gain or loss on the sale of loans represents the difference between the cash proceeds received and the carrying value of the loans sold. The carrying value is the original value of the loan adjusted for loan origination fees and costs. At December 31, 1995, mortgage loans held for sale totaled $783,000. The Company had entered into commitments to sell all of these loans at year end. At December 31, 1995 and 1994, the Company serviced real estate mortgage loans for others of $136 million and $139 million, respectively. PREMISES AND EQUIPMENT Premises and equipment, including those acquired under capital lease, are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expenses are computed using the straight-line method over the estimated useful lives of the related assets or lease terms. Asset lives range from 3-10 years for furniture and equipment and 15-30 years for land improvements and buildings. Exhibit 13.1 6 INVESTMENT IN REAL ESTATE PROPERTIES Investment in real estate properties is stated at the lower of cost or market and consists of properties either acquired directly or transferred from other real estate owned for the purpose of development or to be held as income-earning assets. Subsequent to acquisition or transfer, properties included in the investment in real estate properties account are periodically evaluated. Any decline in value below the carrying amount of a property is included in other expenses. Income and expenses on the investment in real estate properties are included in other expenses. OTHER REAL ESTATE OWNED Real estate acquired by foreclosure is carried at the lower of the recorded investment in the property or its fair value. Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, when necessary. Any subsequent write-downs are recorded as a valuation allowance with a charge to other expenses in the income statement. Expenses of such properties, net of related income, and gains and losses on their disposition, are included in other expenses. INCOME TAXES The Company's accounting for income taxes is based on an asset and liability approach. The Company recognizes the amount of taxes payable or refundable for the current year, and deferred tax assets and liabilities for the future tax consequences that have been recognized in its financial statements or tax returns. The measurement of tax assets and liabilities is based on the provisions of enacted tax laws. EARNINGS PER COMMON SHARE Earnings per common share are computed based on the weighted average number of shares of common stock and common stock equivalents outstanding. The weighted average number of shares used in the computation of primary earnings per common share were: 4,656,893 for 1995, 4,641,384 for 1994 and 4,338,255 for 1993. The weighted average number of shares used in the computation of fully diluted earnings per common share were: 4,693,188 for 1995, 4,642,197 for 1994 and 4,416,135 for 1993. These shares have been adjusted for the 1994 merger with Country National Bank and the 1995 five-for-four stock split. Common stock equivalent shares consist of options outstanding under the Company's qualified and non-qualified stock option plans. CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and Federal funds sold. NOTE B - RESTRICTED CASH BALANCES Reserves (in the form of deposits with the Federal Reserve Bank) of $7,909,000 and $7,181,000 were maintained to satisfy Federal regulatory requirements at December 31, 1995 and December 31, 1994. These reserves are included in cash and due from banks in the accompanying balance sheet. Exhibit 13.1 7 NOTE C - INVESTMENT SECURITIES The amortized cost and estimated fair values of investments in debt securities are summarized in the following tables:
December 31, 1995 ----------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------------------------------------------- (in thousands) SECURITIES HELD-TO-MATURITY U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 29,744 $ 588 $ (34) $ 30,298 Obligations of states and political subdivisions 849 -- (9) 840 Mortgage-backed securities 86,272 493 (1,327) 85,438 -------------------------------------------------- Totals $ 116,865 $1,081 $(1,370) $116,576 -------------------------------------------------- -------------------------------------------------- SECURITIES AVAILABLE-FOR-SALE U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 42,038 $ 225 $ (45) $ 42,218 Obligations of states and political subdivisions 1,700 42 -- 1,742 Mortgage-backed securities 29,076 28 (486) 28,618 Other securities 3,668 -- -- 3,668 -------------------------------------------------- Totals $ 76,482 $ 295 $ (531) $ 76,246 -------------------------------------------------- -------------------------------------------------- December 31, 1994 ----------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value -------------------------------------------------- (in thousands) SECURITIES HELD-TO-MATURITY U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 45,631 $ 9 $(1,982) $ 43,658 Obligations of states and political subdivisions 1,098 1 (49) 1,050 Mortgage-backed securities 97,059 -- (10,118) 86,941 -------------------------------------------------- Totals $143,788 $ 10 $(12,149) $131,649 -------------------------------------------------- -------------------------------------------------- SECURITIES AVAILABLE-FOR-SALE U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 37,865 $ -- $ (1,583) $ 36,282 Obligations of states and political subdivisions 2,321 18 (33) 2,306 Mortgage-backed securities 36,374 -- (3,745) 32,629 Other securities 3,489 -- -- 3,489 -------------------------------------------------- Totals $ 80,049 $ 18 $ (5,361) $ 74,706 -------------------------------------------------- --------------------------------------------------
Exhibit 13.1 8 The amortized cost and estimated fair value of debt securities at December 31, 1995 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized Fair Cost Value ------------------------------- (in thousands) SECURITIES HELD-TO-MATURITY Due in one year $ 3,142 $ 3,152 Due after one year through five years 27,635 28,114 Due after five years through ten years 11,494 11,529 Due after ten years 74,594 73,781 ------------------------------- Totals $116,865 $116,576 ------------------------------- ------------------------------- SECURITIES AVAILABLE-FOR-SALE Due in one year $ 16,890 $ 16,883 Due after one year through five years 24,949 25,167 Due after five years through ten years 432 448 Due after ten years 30,543 30,080 ------------------------------- 72,814 72,578 Other Securities 3,668 3,668 ------------------------------- Totals $ 76,482 $ 76,246 ------------------------------- -------------------------------
Proceeds from sales of investments in debt securities:
GROSS GROSS GROSS FOR THE YEAR PROCEEDS GAINS LOSSES - ------------------------------------------------------------- (in thousands) 1995 $ 6,993 $ 40 $ 50 1994 $36,490 $117 $140
On November 17, 1995, the Company adopted the FASB Special Report concerning the implementation of SFAS 115 and it elected to transfer certain treasury securities with an amortized cost of $10,062,266 and an unrealized gain of $1,034,922 from the held-to-maturity to the available-for-sale category. Investment securities with an aggregate carrying value of $35,930,000 and $35,243,000 at December 31, 1995 and 1994, respectively, were pledged as collateral. Exhibit 13.1 9 NOTE D - ALLOWANCE FOR LOAN LOSSES Activity in the allowance for loan losses was as follows:
Years Ended December 31, 1995 1994 1993 ------------------------------ (in thousands) Balance, beginning of year $5,608 $5,973 $4,798 Provision charged to operations 335 316 1,858 Loans charged off (581) (1,050) (1,275) Recoveries of loans previously charged off 218 369 592 ------------------------------ Balance, end of year $5,580 $5,608 $5,973 ------------------------------ ------------------------------
Loans classified as nonaccrual amounted to approximately $2,213,000, $1,122,000, and $1,595,000 at December 31, 1995, 1994 and 1993, respectively. If interest on those loans had been accrued, such income would have been approximately $166,000, $123,000 and $60,000 in 1995, 1994 and 1993, respectively. As of December 31, the Company's recorded investment in impaired loans and the related valuation allowance calculated under SFAS 114 were as follows:
1995 ------------------------- Recorded Valuation Investment Allowance ------------------------- Impaired loans - Valuation allowance required $ 552 $380 No valuation allowance required 4,534 -- ------------------------- Total impaired loans $5,086 $380 ------------------------- -------------------------
This valuation allowance is included in the allowance for loan losses shown above. The average recorded investment in impaired loans for the year ended December 31, 1995 was $3,579,000. The Company recognized interest income on impaired loans of $345,000 for the year ended December 31, 1995. NOTE E - PREMISES AND EQUIPMENT Premises and equipment were comprised of:
December 31, 1995 1994 ---------------------------- (in thousands) Premises $10,366 $9,948 Furniture and equipment 9,118 8,620 ---------------------------- 19,484 18,568 Less: Accumulated depreciation and amortization (8,964) (8,047) ---------------------------- 10,520 10,521 Land and land improvements 2,669 2,677 ---------------------------- $13,189 $13,198 ---------------------------- ----------------------------
Exhibit 13.1 10 Depreciation and amortization of premises and equipment amounted to $1,344,000, $1,202,000 and $1,030,000 in 1995, 1994 and 1993, respectively. NOTE F - LONG-TERM DEBT AND OTHER BORROWINGS Long-term debt is as follows:
December 31, 1995 1994 -------------------- (in thousands) FHLB loan, fixed rate of 4.56% payable on March 21, 1995 $ -- $ 2,000 FHLB loan, fixed rate of 5.14% payable on March 21, 1996 2,000 2,000 FHLB loan, fixed rate of 5.53% payable on March 21, 1997 3,000 3,000 FHLB loan, effective rate of 4.38% payable on April 28, 1998 5,000 5,000 FHLB loan, fixed rate of 5.62% payable on February 4, 1999 400 400 FHLB loan, fixed rate of 6.14% payable on March 21, 1999 3,000 3,000 FHLB loan, fixed rate of 5.84% payable on November 6, 2000 1,500 1,500 FHLB loan, fixed rate of 5.90% payable January 16, 2001 1,000 1,000 FHLB repurchase agreements, fixed rate of 5.85% payable on July 17, 1997 9,828 -- Capital lease obligations on equipment, effective rate of 8.8% payable monthly through August 7, 1995 -- 26 Capital lease obligation on premises, effective rate of 13% payable monthly in varying amounts through December 1, 2009 564 573 -------------------- Total long-term debt $26,292 $18,499 -------------------- --------------------
The Bank maintains a collateralized line of credit with the Federal Home Loan Bank of San Francisco. Based on the FHLB stock requirements at December 31, 1995, this line provided for maximum borrowings of $32,197,000 of which $15,900,000 was outstanding, leaving $16,297,000 available. The maximum month-end outstanding balances of repurchase agreements in 1995 and 1994 were $25,475,000 and $30,457,000, respectively. The Bank has available unused lines of credit totaling $33,000,000 for Federal funds transactions. NOTE G - COMMITMENTS AND CONTINGENCIES (SEE ALSO NOTE O) At December 31, 1995, future minimum commitments under non-cancelable capital and operating leases with initial or remaining terms of one year or more are as follows:
Capital Operating Leases Leases ------------------------- (in thousands) 1996 $ 83 $ 598 1997 84 458 1998 85 457 1999 86 349 2000 87 287 Thereafter 829 2,463 ----------------------- Future minimum lease payments 1,254 $ 4,612 -------- -------- Less amount representing interest 690 ----- Present value of future lease payments $ 564 ----- -----
Rent expense under operating leases was $887,000 in 1995, $767,000 in 1994, and $530,000 in 1993. Exhibit 13.1 11 In 1995, the Bank entered into license agreements to rent space in two supermarkets. These are twenty year agreements with five year renewals. The Bank is a defendant in legal actions arising from normal business activities. Management believes that these actions are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Bank's financial position. NOTE H - PREFERRED STOCK At December 31, 1994 the Company had one series of cumulative nonvoting preferred stock outstanding. This preferred stock was redeemed on August 1, 1995. The following table summarizes the terms of the issue at December 31, 1994.
PER SHARE DIVIDEND REDEMPTION LIQUIDATION SERIES RATE SHARES DATE VALUE - ------------------------------------------------------------------------- B 10.5% 8,000 AUG. 1, 1995 $500
NOTE I - DIVIDEND RESTRICTIONS The Bank paid to the Company cash dividends in the aggregate amounts of $3,200,000, none ($0) and $500,600 in 1995, 1994 and 1993. The Bank is regulated by the Federal Deposit Insurance Corporation (FDIC) and the California State Banking Department. California banking laws limit the Bank's ability to pay dividends to the lesser of (1) retained earnings or (2) net income for the last three fiscal years, less cash distributions paid during such period. Under this regulation, at December 31, 1995, the Bank may pay dividends of $16,237,000. Exhibit 13.1 12 NOTE J - STOCK OPTIONS In May 1995, the Company adopted the TriCo Bancshares 1995 Incentive Stock Option Plan ('95 Plan) covering key employees. Under the '95 Plan 150,000 shares were reserved for issuance. The option price cannot be less than the fair market value of the Common Stock at the date of grant. Options for the '95 Plan expire on the tenth anniversary of the grant date. The Company also has outstanding options under one plan approved in 1993 and two plans approved in 1989. Options under the 1993 plan vest over a six year period. Options under the 1989 plan vest 20% annually. Unexercised options for the 1993 and 1989 plans terminate 10 years from the date of the grant. Stock option activity is summarized in the following table:
Number Option Price of Shares* Per Share* --------------------------------------- Outstanding at December 31, 1993 663,755 $ 5.74 to $ 7.86 Country National Bank Options exchanged for shares (35,587) Options exercised (61,228) 5.74 to 7.86 Options cancelled (6,666) 7.43 to 7.43 Outstanding at December 31, 1994 560,274 7.43 to 7.86 Options granted 31,250 7.86 to 13.20 Options exercised (72,694) 7.43 to 7.86 -------------------------------------- Outstanding at December 31, 1995 518,830 $ 7.43 to $13.20 -------------------------------------- --------------------------------------
*Adjusted for 5-for-4 stock split effected September 22, 1995. NOTE K - OTHER OPERATING EXPENSES AND INCOME The components of other operating expenses were as follows:
Years Ended December 31, 1995 1994 1993 -------------------------------------- (in thousands) Equipment and data processing $ 2,508 $ 2,497 $ 1,790 Occupancy 1,573 1,469 1,413 Advertising 563 650 555 Net other real estate owned expense 201 190 845 Net losses on investment in real estate 25 17 153 Professional fees 593 1,172 1,190 Assessments 727 1,199 1,114 Postage 405 335 413 Other 4,279 3,979 3,680 --------------------------------------- Total other operating expenses $10,874 $11,508 $11,153 --------------------------------------- ---------------------------------------
Commissions on sales of annuities and mutual funds in the amounts of $900,000, $988,000 and $927,000 for the years 1995, 1994 and 1993 are included in other income. Exhibit 13.1 13 NOTE L - INCOME TAXES The current and deferred components of the income tax provision were comprised of:
Years Ended December 31, 1995 1994 1993 ------------------------------------- (in thousands) Current Tax Provision: Federal $ 3,640 $ 3,189 $ 4,331 State 1,409 1,251 1,462 ------------------------------------- Total current 5,049 4,440 5,793 Deferred Tax Benefit: Federal (36) (21) (738) State (98) (69) (276) ------------------------------------- Total deferred (134) (90) (1,014) ------------------------------------- Total income taxes $ 4,915 $ 4,350 $ 4,779 ------------------------------------- -------------------------------------
Taxes recorded directly to stockholders' equity are not included in the preceding table. Taxes and tax benefits relating to changes in the unrealized gains and losses on available-for-sale investment securities amounting to $2,473,000 in 1995 and ($2,697,000) in 1994 were recorded directly to shareholders' equity. The provisions for income taxes applicable to income before taxes for the years ended December 31, 1995, 1994 and 1993 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory federal income tax rate are reconciled as follows:
Years Ended December 31, 1995 1994 1993 ------------------------ Federal statutory income tax rate 34.2% 34.0% 34.0% State income taxes, net of federal tax benefit 7.4 8.0 7.4 Tax-exempt interest on municipal obligations (.4) (.8) (.7) Merger expenses not deductible for tax purposes -- 1.5 .4 Other (.1) (.1) .1 ------------------------ Effective Tax Rate 41.1% 42.6% 41.2% ------------------------ ------------------------
Exhibit 13.1 14 The components of the net deferred tax asset of the Company as of December 31, were as follows:
1995 1994 --------------------- (in thousands) Deferred Tax Assets: Loan losses $ 2,151 $ 2,146 Unrealized loss on securities 500 2,697 Deferred compensation 1,348 1,100 OREO write downs 178 170 Capital leases -- 158 Loss on investment in real estate 228 229 Other 162 72 --------------------- Total deferred tax assets 4,567 6,572 --------------------- Deferred Tax Liabilities: Depreciation (608) (718) Capital leases (78) -- Securities accretion (273) (126) Other (502) (283) --------------------- Total deferred tax liability (1,461) (1,127) ---------------------- Net deferred tax asset $ 3,106 $ 5,445 ---------------------- ----------------------
NOTE M - RETIREMENT PLANS Substantially all employees with at least one year of service are covered by a discretionary employee stock ownership plan (ESOP). Contributions are made to the plan at the discretion of the Board of Directors. Country National Bank had an ESOP which was merged into the TriCo plan during 1995. Contributions to the plan(s) totaling $432,000 in 1995, $378,000 in 1994 and $384,000 in 1993 are included in salary expense. The Company has a supplemental retirement plan for directors and a supplemental executive retirement plan covering key executives. These plans are nonqualified defined benefit plans and are unsecured and unfunded. The Company has purchased insurance on the lives of the participants and intends to use the cash values of these policies ($3,926,000 and $3,444,000 at December 31, 1995 and 1994, respectively) to pay the retirement obligations. Exhibit 13.1 15 The following table sets forth the plans' status:
December 31, 1995 1994 1993 ---------------------------- (in thousands) Actuarial present value of benefit obligations: Vested benefit obligation $(2,795) $(1,780) $(1,893) ---------------------------- ---------------------------- Accumulated benefit obligation (2,795) (1,780) (1,893) ---------------------------- ---------------------------- Projected benefit obligation for service rendered to date (2,795) (1,973) (2,167) ---------------------------- ---------------------------- Plan assets at fair value $ -- $ -- $ -- ---------------------------- ---------------------------- Projected benefit obligation in excess of plan assets $(2,795) $(1,973) $(2,167) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 664 67 392 Prior service cost not yet recognized in net periodic pension cost 123 120 128 Unrecognized net obligation at transition 322 357 518 - ---------------------------- Accrued pension cost included in other liabilities $(1,686) $(1,429) $(1,129) ---------------------------- ---------------------------- Net pension cost included the following components: Service cost-benefits earned during the period $ 100 $ 114 $ 100 Interest cost on projected benefit obligation 159 158 134 Net amortization and deferral 46 69 58 ---------------------------- Net periodic pension cost $ 305 $ 341 $ 292 ---------------------------- ----------------------------
The net periodic pension cost was determined using a discount rate assumption of 7.0% for 1995, 7.75% for 1994, and 7.0% for 1993. The rates of increase in compensation used were 0% to 5%. The Company has an Executive Deferred Compensation Plan which allows directors and key executives designated by the Board of Directors of the Company to defer a portion of their compensation. The Company has purchased insurance on the lives of the participants and intends to use the cash values of these policies to pay the compensation obligations. At December 31, 1995 and 1994 the cash values exceeded the recorded liabilities. NOTE N - RELATED PARTY TRANSACTIONS Certain directors, officers, and companies with which they are associated were customers of, and had banking transactions with, the Company or its Subsidiary in the ordinary course of business. It is the Company's policy that all loans and commitments to lend to officers and directors be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other borrowers of the Bank. The following table summarizes the activity in these loans for 1995.
BALANCE BALANCE DECEMBER 31, ADVANCES/ DECEMBER 31, 1994 NEW LOANS PAYMENTS 1995 - ------------------------------------------------------------------------- (IN THOUSANDS) $ 9,252 $ 1,361 $ 2,141 $ 8,472
Exhibit 13.1 16 NOTE O - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Contractual Amount December 31, ------------------- 1995 1994 (in thousands) Financial instruments whose contract amounts represent credit risk: Commitments to extend credit: Commercial loans $27,763 $30,449 Consumer loans 39,114 43,205 Real estate mortgage loans 335 146 Real estate construction loans 10,815 7,715 Standby letters of credit 414 451
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of one year or less or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on Management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Most standby letters of credit are issued for one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral requirements vary, but in general follow the requirements for other loan facilities. NOTE P - CONCENTRATION OF CREDIT RISK Tri Counties Bank grants agribusiness, commercial and residential loans to customers located throughout the northern Sacramento Valley and northern mountain regions of California. The Bank has a diversified loan portfolio within the business segments located in this geographical area. Exhibit 13.1 17 NOTE Q - DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS CASH & SHORT-TERM INVESTMENTS For these short-term instruments, the carrying amount is a reasonable estimate of fair value. SECURITIES For all securities, fair values are based on quoted market prices or dealer quotes. See footnote C for further analysis. LOANS The fair value of variable rate loans is the current carrying value. These loans are regularly adjusted to market rates. The fair value of other types of fixed rate loans is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. Fair value for nonaccrual loans is reported at carrying value and is included in the net loan total. Since the allowance for loan losses exceeds any potential adjustment for nonaccrual valuation, no further valuation adjustment has been made. ACCRUED INTEREST RECEIVABLE For these short-term instruments, the carrying amount is a reasonable estimate of fair value. DEPOSIT LIABILITIES AND LONG-TERM DEBT The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. These values do not consider the estimated fair value of the Company's core deposit intangible, which is a significant unrecognized asset of the Company. The fair value of time deposits and debt is based on the discounted value of contractual cash flows. OTHER LIABILITIES Other liabilities represent short-term instruments. The carrying amount is a reasonable estimate of fair value. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT The fair value of letters of credit and standby letters of credit is not significant. ACCRUED INTEREST PAYABLE For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Exhibit 13.1 18 The estimated fair values of the Company's financial instruments are as follows:
December 31, 1995 --------------------- Carrying Fair Financial assets: Amount Value --------------------- (In thousands) Cash and short-term investments $ 65,273 $ 65,273 Securities: Held-to-maturity 116,865 116,576 Available-for-sale 76,246 76,246 Loans, net 313,186 316,764 Accrued interest receivable 4,609 4,609 Financial liabilities: Deposits 516,19 516,653 Accrued interest payable 3,162 3,162 Other liabilities 4,694 4,694 Long-term borrowings 6,292 26,430 December 31, 1994 --------------------- Carrying Fair Financial assets: Amount Value --------------------- (In thousands) Cash and short-term investments $ 39,709 $ 39,709 Securities: Held-to-maturity 143,788 131,649 Available-for-sale 74,706 74,706 Loans, net 301,495 297,367 Accrued interest receivable 4,748 4,748 Financial liabilities: Deposits 491,172 490,802 Accrued interest payable 1,760 1,760 Other liabilities 3,715 3,715 Long-term borrowing 18,499 18,441
NOTE R - ACQUISITION On July 21, 1994, the Company issued approximately 490,000 shares of its common stock in exchange for all of the outstanding common stock of Country National Bank, Redding, California. This business transaction was accounted for as a pooling-of-interests combination and accordingly, the consolidated financial statements and financial data for periods prior to the combination have been restated to include the accounts and results of operations of Country National Bank. Certain reclassifications have been made to Country National Bank to conform to TriCo Bancshares' presentation. The results of operations previously reported by the separate enterprises and the combined amounts presented in the accompanying consolidated financial statements are summarized as follows: Exhibit 13.1 19
Year ended December 31, 1993 -------------- (in thousands) Net interest income: TriCo Bancshares $24,208 Country National Bank 2,743 - ---------------------------------------------------------------- Combined $26,951 - ---------------------------------------------------------------- - ---------------------------------------------------------------- Net income: TriCo Bancshares $ 6,339 Country National Bank 476 - ---------------------------------------------------------------- Combined $ 6,815 - ---------------------------------------------------------------- - ---------------------------------------------------------------- Net income per share: TriCo Bancshares* $ 1.89 Country National Bank* 1.28 - ---------------------------------------------------------------- Combined $ 1.78 - ---------------------------------------------------------------- - ---------------------------------------------------------------- *As originally reported.
NOTE S - FUTURE FINANCIAL ACCOUNTING STANDARDS In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights, which is effective for fiscal years beginning after December 15, 1995. This statement requires, under certain circumstances, entities to recognize as a separate asset an amount related to the right to service mortgage loans. The Company will adopt this statement on January 1, 1996 and does not expect that it will have a material impact on its financial position or results of operations. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), which is effective for transactions entered into for fiscal years beginning after December 15, 1995. The statement defines a fair value based method of accounting for stock-based compensation. As permitted by SFAS 123, the Company will not change its method of accounting for stock options but will provide the additional required disclosures beginning in fiscal 1996. Exhibit 13.1 20 NOTE T - TRICO BANCSHARES FINANCIAL STATEMENTS TRICO BANCSHARES (PARENT ONLY) BALANCE SHEETS
December 31, ASSETS 1995 1994 ----------------------- (in thousands) Cash $ 134 $ 2,527 Investment in Tri Counties Bank 52,868 45,590 Other assets 303 185 ----------------------- Total assets $53,305 $48,302 ----------------------- ----------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Total liabilities $ 92 $ 71 ----------------------- Shareholders' equity: Preferred stock, no par value: Authorized 1,000,000 shares; Series B, issued and outstanding none (0) and 8,000 shares -- 3,899 Common stock, no par value: Authorized 20,000,000 shares; issued and outstanding 4,464,828 and 3,513,707 shares, respectively 44,315 43,552 Retained earnings 9,548 4,488 Unrealized loss on securities available-for-sale, net (650) (3,708) ----------------------- Total shareholders' equity 53,213 48,231 ----------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $53,305 $48,302 ----------------------- -----------------------
STATEMENTS OF INCOME
Years Ended December 31, 1995 1994 1993 ----------------------------------- (in thousands) Interest income $ -- $ -- $ -- ----------------------------------- Administration expense 282 334 199 ----------------------------------- Loss before equity in net income of Tri Counties Bank (282) (334) (199) Equity in net income of Tri Counties Bank: Distributed 3,200 -- 808 Undistributed 4,010 6,103 6,124 Income tax credits 117 92 82 ----------------------------------- NET INCOME $7,045 $ 5,861 $ 6,815 ----------------------------------- -----------------------------------
Exhibit 13.1 21 STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 1994 1993 ----------------------------------- (in thousands) OPERATING ACTIVITIES: Net income $7,045 $5,861 $6,815 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed equity in Tri Counties Bank (4,010) (6,103) (6,124) Deferred income taxes (117) (92) (82) Increase (decrease) in other operating assets and liabilities 19 (168) 205 ----------------------------------- NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES 2,937 (502) 814 ----------------------------------- INVESTING ACTIVITIES: Capital contributed to Tri Counties Bank -- (183) -- ----------------------------------- NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES -- (183) -- ----------------------------------- FINANCING ACTIVITIES: Issuance of common stock 554 403 7,899 Cash dividends -- preferred (245) (420) (630) Cash dividends -- common (1,639) (1,304) (1,400) ----------------------------------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (5,330) (1,321) 3,587 ----------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,393) (2,006) 4,401 Cash and cash equivalents at beginning of year 2,527 4,533 132 ----------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 134 $2,527 $4,533 ----------------------------------- -----------------------------------
Exhibit 13.1 22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF TRICO BANCSHARES AND SUBSIDIARY: We have audited the accompanying consolidated balance sheets of TriCo Bancshares (a California corporation) and Subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Country National Bank, a company acquired during 1994 in a transaction accounted for as a pooling-of-interests, as discussed in Note R to the consolidated financial statements. Such statements are included in TriCo Bancshares' consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1993 and reflect 7% of consolidated net income in 1993. These statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to amounts included for Country National Bank, is based solely upon the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits, and the report of the other auditors, provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TriCo Bancshares and Subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements, effective January 1, 1994, the Corporation changed its method of accounting for certain investments in debt and equity securities as required by Statement of Financial Accounting Standards No. 115. /s/ Arthur Andersen LLP San Francisco, California January 23, 1996 Exhibit 13.1 23 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. Unless otherwise stated, interest income and net interest income are presented on a tax equivalent basis. All financial information has been restated on a historical basis to reflect the July 21, 1994 merger with Country National Bank (CNB) accounted for on a pooling-of-interests basis. OVERVIEW As reported last year, the groundwork began in 1993 for establishing the base for future growth of the Bank. In 1994 the opening of four supermarket branches and the acquisition of Country National Bank laid the foundation for solidifying the Bank's community bank leadership in its market area. The Bank's external and internal structures continued to build and develop in 1995. The Bank opened a branch in Albertson's Chico store in November and another is scheduled to open in Albertson's Grass Valley store in March 1996. A loan production office was opened in Bakersfield, California in December and the Bank is planning to open one in Sacramento in the first quarter of 1996. These are relatively low cost ways to expand the Bank's service area. Changes in the organizational structure, coupled with new and upgraded product delivery systems, are helping the Bank remain competitive in the ever changing California banking environment. Management continues to believe the Bank's establishment of the supermarket branches was well timed. Tri Counties Bank is one of few community banks that is employing in-store branches as part of a service delivery strategy. It is apparent from their actions that in-store branches will continue to play an important role in long term service delivery strategies for the two major California banks. The aggressive position taken by those two banks to tie up contracts with the major store chains has presented Management with a challenge to obtain desirable locations for our expansion plans. Management still hopes to expand the Bank's service area by adding two to four in-store branches in each of the next several years. Net income of $7,045,000 for 1995 was a record for the Company. Income increased $1,184,000 or 20.2% over 1994 and is attributable to several factors. Net interest income increased $463,000 (not tax adjusted) as the increase of $2,771,000 in interest income was offset in part by an increase of $2,308,000 in interest expense. Interest rates received on earning assets and rates paid on interest-bearing liabilities both increased in 1995. The net interest margin improved to 5.36% in 1995 from 5.18% in 1994. Noninterest income increased $908,000 of which $593,000 was due to service charge and fee income as the result of both rate changes and increased volumes. Noninterest expenses decreased $397,000. Major favorable impacts to these expenses resulted from a decrease in FDIC insurance of $380,000, or 35.8%, and the elimination of the one time costs of approximately $840,000 relating to the 1994 acquisition of Country National Bank. The full year effect of the expenses related to the four supermarket branches which were opened during 1994, as well as other cost increases, offset these cost reductions in part. The Company's 1995 income tax rate decreased 1.5% to 41.1% due to the reduction in non-deductible acquisition costs which were incurred in 1994. Assets of the Company totaled $603,554,000 at December 31, 1995, which was an increase of $9,720,000 from 1994 ending balances. Loan balances increased $11,673,000 to $318,766,000. During 1995 the treasury yield curve flattened. That is, rates earned on short term investments were within 100 to 150 basis points of the 30 year bond rates. Consequently, Management decided not to reinvest funds received from maturing instruments or prepayments of principal from mortgage backed securities in longer term securities. As a result, the securities portfolio decreased about $25,383,000 or 11.6% from year ago balances. At December 31, 1995, the Company had $25,600,000 invested in overnight Federal funds versus none at year end 1994. Net income for 1994 decreased to $5,861,000 from $6,815,000 in 1993. Contributing factors to the decrease included: costs associated with the CNB acquisition including investment banking fees, legal and accounting fees, as well as costs associated with converting CNB to the banking systems at Tri Counties Bank; startup costs and expenses related to the four new supermarket branches. Significant gains of $1,421,000 on the sale of securities realized in 1993 versus a small loss in 1994. These unfavorable impacts on earnings were offset in part by a $609,000 (2.3%) (not tax adjusted) increase in net interest income. Also, other income was down slightly. Exhibit 13.1 24 The quality of the Bank's loan portfolio allowed Management to reduce the provision for loan losses by $1,542,000 in 1994 which helped to offset the adverse factors. Management's goal for the Bank is to deliver a full array of competitive products to its customers while maintaining the personalized customer service of a community bank. We believe this strategy will provide growth and above average returns for our shareholders. Exhibit 13.1 25 (A) RESULTS OF OPERATIONS
Years Ended December 31, 1995 1994 1993 (1) 1992 (1) 1991 (1) ----------------------------------------------------------------- (in thousands, except earnings per share amounts) INTEREST INCOME: Interest and fees on loans $ 33,776 $ 30,641 $ 31,795 $ 33,695 $ 35,852 Interest on investment securities--taxable 11,706 12,247 8,585 6,170 3,192 Interest on investment securities--tax exempt(2) 272 401 426 489 1,347 Interest on federal funds sold 371 123 329 129 530 --------------------------------------------------------------------- Total interest income 46,125 43,412 41,135 40,483 40,894 --------------------------------------------------------------------- INTEREST EXPENSE: Interest on deposits 16,231 13,902 13,006 15,427 18,849 Interest on short-term borrowing 526 719 739 65 20 Interest on long-term debt 1,231 1,059 251 108 119 --------------------------------------------------------------------- Total interest expense 17,988 15,680 13,996 15,600 18,988 --------------------------------------------------------------------- NET INTEREST INCOME 28,137 27,732 27,139 24,883 21,906 Provision for loan losses 335 316 1,858 2,101 1,531 --------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 27,802 27,416 25,281 22,782 20,375 --------------------------------------------------------------------- NONINTEREST INCOME: Service charges, fees and other 5,943 5,048 5,304 5,205 4,926 Investment securities gains (losses), net (10) (23) 1,421 367 39 --------------------------------------------------------------------- Total noninterest income 5,933 5,025 6,725 5,572 4,965 --------------------------------------------------------------------- NONINTEREST EXPENSES: Salaries and employee benefits 10,787 10,550 9,072 8,460 8,035 Other, net 10,874 11,508 11,152 9,570 9,010 --------------------------------------------------------------------- Total noninterest expenses 21,661 22,058 20,224 18,030 17,045 --------------------------------------------------------------------- NET INCOME BEFORE INCOME TAXES 12,074 10,383 11,782 10,324 8,295 Income taxes 4,915 4,350 4,779 4,113 3,031 Tax equivalent adjustment (2) 114 172 188 211 443 --------------------------------------------------------------------- NET INCOME $ 7,045 $ 5,861 $ 6,815 $ 6,000 $ 4,821 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- PRIMARY EARNINGS PER COMMON SHARE (3) $ 1.46 $ 1.18 $ 1.42 $ 1.46 $ 1.10 FULLY DILUTED EARNINGS PER COMMON SHARE (3) $ 1.45 $ 1.18 $ 1.40 $ 1.46 $ 1.10 --------------------------------------------------------------------- --------------------------------------------------------------------- SELECTED BALANCE SHEET INFORMATION Total Assets $603,554 $593,834 $575,897 $492,404 $439,358 Long-term Debt 26,292 18,499 7,144 907 1,027 Preferred Stock -- 3,899 3,899 6,086 8,630 ---------------------------------------------------------------------
(1) Restated on a historical basis to reflect the July 21, 1994 acquisition of Country National Bank on a pooling-of-interests basis. (2) Interest on tax-free securities is reported on a tax equivalent basis of 1.72 for 1995, 1.75 for 1994, 1.79 for 1993, 1.76 for 1992, and 1.49 for 1991. (3) Restated on a historical basis to reflect the 5-for-4 stock split effected September 22, 1995. Exhibit 13.1 26 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. In 1995 net interest income increased $405,000 (1.5%) to $28,137,000. The interest income component increased $2,713,000 (6.3%) to $46,125,000. Rates received on loans in 1995 averaged 10.95% which was 85 basis points higher than rates received in 1994. The higher rates accounted for the majority of the increase in interest income. Average loans outstanding also increased modestly in 1995 as did rates received on securities and Federal Funds sold. These increases were offset in part by an 8.1% ($18,411,000) decrease in average balances of investment securities which resulted in a reduction of $1,052,000 in interest income. For 1995 the interest expense component increased $2,308,000 (14.7%) to $17,988,000 over 1994. Most of this increase can be attributed to higher rates paid on time certificates of deposit in 1995. The average rate paid on time certificates increased 133 basis points or 32% over the 1994 average. This large increase was due to the local competitive market environment. During part of the year, Management did not raise the rates to meet the local competition and as a result some deposit runoff was experienced. For the year, average balances on interest-bearing deposits decreased $9,118,000 (2.2%). The higher rates on time certificates also caused customers to shift some funds from savings to time certificates. Average balances in savings accounts decreased $44,572,000 (21.1%) as time certificate balances increased $35,179,000 (27.1%). The effect of the changes in the net interest income and the average balances of the interest earning assets and the interest-bearing liabilities resulted in an overall increase of 18 basis points in net interest margin. Net interest margin for 1995 was 5.36% versus 5.18% in 1994. The net interest income for 1994 of $27,732,000 was an increase of $593,000 (2.2%) over 1993. Interest income increased 5.5% as the growth in investment securities and slightly higher yields on securities offset lower average loan balances. The net interest income in 1994 was adversely affected by a 12.0% increase in interest expense as both the volume of interest-bearing liabilities and rates paid on them increased. Even though net interest income increased, net interest margin in 1994 decreased 31 basis points to 5.18%. The net interest margin reflected a 22 basis point decline in the average yield received on earning assets coupled with a 9 basis point increase in the average rates paid on interest-bearing liabilities. Because loan demand remained relatively soft throughout most of 1994, asset growth was in investment securities which have lower yields than loans. Interest income in 1994 increased $2,277,000 or 5.5% over 1993. Growth in the securities portfolio from an average balance of $167,244,000 in 1993 to $228,616,000 in 1994 coupled with a 20 basis point increase in security yields resulted in an increase of $3,637,000 in interest income. This increase was offset by a decrease in loan interest income due to lower volumes. Overall yield on the earning assets decreased 22 basis points as the increased volume of earning assets was in the securities which have lower yields than loans. Interest expense increased $1,684,000 to $15,680,000 in 1994. Most of the increase was due to the volume of interest-bearing liabilities as average rates paid increased just 10 basis points from 1993 levels. While rates paid on the full year basis within the deposit category were not significantly changed from the prior year, time deposits in the fourth quarter reflected a jump of 62 basis points from the 1993 levels. Table One, Analysis of Change in Net Interest Margin on Earning Assets, and Table Two, Analysis of Volume and Rate Changes on Net Interest Income and Expenses, are provided to enable the reader to understand the components and past trends of the Bank's interest income and expenses. Table One provides an analysis of change in net interest margin on earning assets setting forth average assets, liabilities and shareholders' equity; interest income earned and interest expense paid and average rates earned and paid; and the net interest margin on earning assets. Table Two presents an analysis of volume and rate change on net interest income and expense. Exhibit 13.1 27 TABLE ONE: ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
1995 1994 1993 ------------------------------------------------------------------------------------------------- Average Yield/ Average Yield/ Average Yield/ ASSETS Balance (1) Income Rate Balance (1) Income Rate Balance (1) Income Rate ------------------------------------------------------------------------------------------------- (dollars in thousands) Earning assets: Loans (2,3) $308,473 $33,776 10.95% $303,497 $30,641 10.10% $314,691 $31,795 10.10% Securities - taxable 207,163 11,706 5.65% 224,447 12,247 5.46% 163,322 8,585 5.26% Securities - nontaxable (4) 3,042 272 8.93% 4,169 401 9.62% 3,922 426 10.86% Federal funds sold 6,702 371 5.54% 3,727 123 3.30% 12,394 329 2.65% -------- ------- -------- ------- -------- ------- Total earning assets 525,380 46,125 8.78% 535,840 43,412 8.10% 494,329 41,135 8.32% ------- ------- ------- ------- ------- ------- Cash and due from banks 29,150 31,935 30,546 Premises and equipment 13,206 13,151 11,749 Other assets, net 19,537 19,240 14,479 Less: Unrealized loss on securities (3,156) (3,538) -- Less: Allowance for loan losses (5,636) (5,917) (5,731) -------- -------- -------- Total assets $578,481 $590,711 $545,372 -------- -------- -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing demand deposits $ 81,408 2,000 2.46% $ 81,133 2,066 2.55% $ 71,751 1,885 2.63% Savings deposits 166,637 5,167 3.10% 211,209 6,442 3.05% 206,975 6,523 3.15% Time deposits 164,965 9,064 5.49% 129,786 5,394 4.16% 114,649 4,598 4.01% Federal funds purchased 1,953 120 6.14% 3,726 174 4.67% 1,760 59 3.35% Repurchase agreements 6,696 406 6.06% 10,727 545 5.08% 20,104 680 3.38% Long-term debt 21,416 1,231 5.75% 20,637 1,059 5.13% 4,440 251 5.65% -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities 443,075 17,988 4.06% 457,218 15,680 3.43% 419,679 13,996 3.33% ------- ------- ------- ------- ------- ------- Noninterest-bearing deposits 76,184 79,776 74,812 Other liabilities 8,196 6,014 6,141 Shareholders' equity 51,026 47,703 44,740 -------- -------- -------- Total liabilities and shareholders' equity $578,481 $590,711 $545,372 -------- -------- -------- -------- -------- -------- Net interest rate spread (5) 4.72% 4.67% 4.99% ----- ----- ----- Net interest income/net interest margin (6) $28,137 5.36% $27,732 5.18% $27,139 5.49% ------- ----- ------- ----- ------- ----- ------- ------- -------
(1) Average balances are computed principally on the basis of daily balances . (2) Nonaccrual loans are included. (3) Interest income on loans includes fees on loans of $1,676,000 in 1995, $1,701,000 in 1994 and $2,241,000 in 1993. (4) Interest income is stated on a tax equivalent basis of 1.72 for 1995, 1.75 for 1994 and 1.79 for 1993. (5) Net interest rate spread represents the average yield earned on interest- earning assets less the average rate paid on interest-bearing liabilities. (6) Net interest margin is computed by dividing net interest income by total average earning assets. Exhibit 13.1 28 TABLE TWO: ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSES
1995 OVER 1994 1994 over 1993 -------------------------------------------------------------------------- YIELD/ Yield/ VOLUME RATE (4) TOTAL Volume Rate (4) Total -------------------------------------------------------------------------- (dollars in thousands) Increase (decrease) in interest income: Loans (1,2) $ 502 $ 2,633 $ 3,135 $ (1,131) $ (23) $(1,154) Investment securities (3) (1,052) 382 (670) 3,240 397 3,637 -------------------------------------------------------------------------- Total (452) 3,165 2,713 1,879 398 2,277 -------------------------------------------------------------------------- Increase (decrease) in interest expense: Demand deposits (interest-bearing) 7 (73) (66) 246 (65) 181 Savings deposits (1,359) 84 (1,275) 133 (214) (81) Time deposits 1,462 2,208 3,670 607 189 796 Federal funds purchased (83) 29 (54) 66 49 115 Repurchase agreements (205) 66 (139) (317) 182 (135) Long-term borrowings 40 132 172 916 (108) 808 -------------------------------------------------------------------------- Total (138) 2,446 2,308 1,651 33 1,684 -------------------------------------------------------------------------- Increase (decrease) in net interest income $ (314) $ 719 $ 405 $ 228 $ 365 $ 593 -------------------------------------------------------------------------- --------------------------------------------------------------------------
(1) Nonaccrual loans are included. (2) Interest income on loans includes fees on loans of $1,676,000 in 1995, $1,701,000 in 1994 and $2,241,000 in 1993. (3) Interest income is stated on a tax equivalent basis of 1.72 for 1995, 1.75 for 1994 and 1.79 for 1993. (4) The rate/volume variance has been included in the rate variance. PROVISION FOR LOAN LOSSES The 1995 provision for loan losses of $335,000 was a slight increase over the 1994 provision. This provision essentially maintained the allowance for loan losses at a constant level as the provision and loan recoveries were just $28,000 less than the loans charged off. Net charge-offs for the year were only .12% of average loans outstanding which was reflective of the continuing quality of the loan portfolio. Nonperforming loans were .76% of total loans at year end versus .37% in 1994. The allowance for loan losses to nonperforming loans was 226% versus 489% at the end of 1994. These two ratios for the Bank compare to averages of about 3.2% and 82% respectively, for California peer banks. (See balance sheet analysis "Allowance for Loan Losses" for further discussion.) The Bank reduced its provision for loan losses in 1994 to $316,000 for a decrease of 82% from 1993. The provision was reduced from prior year levels as loan quality remained very good with net charge-offs equaling just .22% of average loans outstanding. Nonperforming loans were .37% of total loans at year end versus .56% in 1993. The allowance for loan losses to nonperforming loans was 489% versus 347% at the end of 1993. SERVICE CHARGES AND FEES AND OTHER INCOME Service charge and fee income grew by 16.6% to $4,163,000 in 1995. Most of the increase came from fee increases on returned checks coupled with volume increases. The 20.4% or $302,000 increase in other income resulted from a mixture of changes within the category and nonrecurring items. Gains on the sale of loans was down for the second straight year as origination of mortgage loans continued to be soft. Commissions on the sales of mutual funds and annuities decreased 5% to 8% as sales were soft in the first part of 1995. In 1994 service charge and fee income was relatively flat versus 1993. No accounts within the category had a year over year variance exceeding 2% of the category. Other income decreased $269,000 to $1,478,000 in Exhibit 13.1 29 1994. Gains on the sale of loans decreased $274,000 or 61% from the 1993 level. Origination of mortgage loans were off significantly due to the higher interest rates. Commissions from the sale of investment products increased a modest 1.9% to $945,000 in 1994. However, due to the stock market conditions during 1994, commissions from the sale of mutual funds decreased $114,000 (56.8%) while commissions on the sale of annuities increased $156,000 (26.9%). Other categories did not have any significant changes. SECURITIES TRANSACTIONS The Bank had very few securities transactions in 1995. It realized a total net loss of $10,000 for the year on sales of securities. The flat yield curve present for most of 1995 presented few opportunities to invest at rates attractive to Bank Management. The current investment strategy consists of allowing the investment portfolio to shrink as securities mature or prepayments are received. These funds will be invested in short term instruments until they can be deployed into loans or until the yield curve for intermediate term securities improves. Sales activity from the available-for-sale securities in 1994 was significantly reduced from the 1993 levels. The Bank realized a total net loss of $23,000 as compared to a gain of $1,421,000 in 1993 as a result of restructuring the investment portfolio. During 1993, the continuing decline of interest rates had presented Management with an on-going challenge to maintain an acceptable yield on its investment securities while maintaining reasonable interest rate risk. Because of this decline, Management elected to make greater use of Collateralized Mortgage Obligations (CMO's) which paid higher rates of interest than equivalent maturity U.S. Treasuries or Agencies. By the end of 1993, the Bank had mostly completed restructuring its investment portfolio for both improved yields and in preparation for adoption of SFAS 115 on January 1, 1994. SALARIES AND BENEFITS Salary and benefit expenses increased 2.25% or $237,000 in 1995. Base salaries increased $259,000 (3.6%) and were reflective of the full year effect of staffing for the in-store branches and normal salary reviews. Management incentive payments for 1995 were less than those for 1994, as approximately $245,000 in one time bonus and termination payments were made to Country National Bank employees in 1994. Group insurance expenses decreased 10.0% mostly due to a one time premium refund. These expenses are not expected to increase significantly in 1996. In 1994, salaries and benefits increased $1,478,000 or 16.3%. Of the increase $745,000 was attributable to base salaries which included the effect for supermarket staffing, a new in-house legal department, a new collections department and normal salary increases. In addition approximately $245,000 of the increase was due to the payments to Country National Bank employees discussed above. The balance of the increase was due to increases in employee incentive pay and employee benefits including payroll taxes. OTHER EXPENSES Other expenses decreased $634,000 or 5.5% in 1995. In September the FDIC significantly reduced deposit insurance premiums retroactive to June 1995. For the year, the lower insurance premium and lower average deposits resulted in a favorable change of $478,000 from 1994. Greater savings will be realized in 1996 as the FDIC has reduced the deposit insurance premium to zero ($0) for well capitalized banks as long as its insurance fund maintains the prescribed level. The absence of the one time merger costs of approximately $840,000 incurred in 1994 also favorably impacted other expenses in 1995. A 9.0% ($302,000) increase in premise and equipment expenses, which were mostly due to the full year effect of the in-store branches, partially offset these large decreases. Net increases in various other expenses totaled approximately $380,000 with no single expense classification being significant. In 1994 other expenses increased $355,000 or 3.2% to $11,508,000. Within the overall category there were some large variances. For the following categories of expense, most of the variances were related to either increased business activity at the new supermarket branches or the acquisition of CNB: amortization of leasehold improvements increased $36,000 or 70.8%; depreciation on equipment increased $187,000 or 30.3%; purchase of customer checks increased $75,000 or 74%; outside data processing services increased $88,000 or 47% due to conversion costs for CNB; communication costs increased $114,000 or 37%; advertising costs increased $48,000 or 11.4%; promotion expenses increased $43,000 or 91.5%; professional fees increased $329,000 or 100% and were mostly merger related. Other large variances occurred in the following accounts: service charges for the automated teller machines (ATM) increased $81,000 or 126% as costs were incurred to change the vendor that provided the ATM network services; amortization for market discount on stock options Exhibit 13.1 30 was $124,000 as this was the first year for this charge; FDIC assessment increased $71,000 due to higher deposit volumes. Significant decreases occurred in the following categories: postage decreased $76,000 or 18% in part due to consolidating mailings; provision for OREO losses decreased $663,000 or 93% as OREO activity decreased during the year; legal fees for loan collection decreased $236,000 or 57% as this function was brought in house after the first quarter. PROVISION FOR TAXES The effective tax rate on income was 41.1%, 42.6% and 41.2% in 1995, 1994, and 1993. The effective tax rate was greater than the federal statutory tax rate due to state tax expense of $1,311,000, $1,182,000 and $1,186,000 in these years. Tax-free income of $158,000, $229,000 and $238,000 from investment securities in these years helped to reduce the effective tax rate. In both 1994 and 1993 nondeductible expenses related to the CNB merger were incurred which increased the effective tax rate. RETURN ON AVERAGE ASSETS AND EQUITY The following table sets forth certain ratios for the Company for the last three years (using average balance sheet data):
1995 1994 1993 ---------------------------- Return on assets 1.22% .99% 1.25 % Return on shareholders' equity 13.81% 12.29% 15.23 % Return on common shareholders' equity 13.95% 12.42% 15.81 % Shareholders' equity to assets 8.82% 8.06% 8.21 % Common shareholders' equity to assets 8.82% 7.42% 7.17 % Common shareholders' dividend payout ratio 24.10% 23.97% 22.64 % ----------------------------
Return on assets rebounded in 1995 to 1.22% from the 0.99% achieved in 1994. The higher return was achieved through improved earnings applied to average assets which were $12,230,000 lower in 1995. Return on assets of 0.99% in 1994 was down from 1.25% attained in the prior year. The lower ROA achieved in 1994 was reflective of the compounding of an increase in average assets of 8.3% and a decrease in net income of 14%. The return on shareholder's equity improved to 13.8% in 1995 versus the 12.3% return achieved in 1994. The improved ROE for 1995 was reflective of both increased earnings and higher average shareholders' equity. Return on shareholders' equity fell to 12.3% in 1994 from 15.2% in 1993. Average capital due to earnings increased 6.6% while net income decreased. In the past two years the difference between the return on Common shareholders' equity and return on shareholders' equity has been narrowing. This change is due to the reduction of the dividend amounts paid for preferred stock dividends. In August of 1995, the Company redeemed its Series B Preferred Stock and in December of 1993, it had redeemed its Series C Preferred Stock. The annual dividend requirements for these two issues were $420,000 and $229,000 respectively. Since all of the Company's preferred shares have now been redeemed, from 1996 forward there will not be any requirements for preferred dividends. The total shareholders' equity to asset ratio increased in 1995 to 8.8% from 8.1%. This reflects the combination of the reduction in average assets, the increased earnings and the redemption of the Series B Preferred Stock. In 1994 there was just a .1% increase from 1993. The December 1993 redemption of the Series C Preferred Stock coupled with the growth in assets contributed to this change. The Common shareholders' equity to assets ratio increased from 7.2% in 1993 to 7.4% in 1994 and 8.4% in 1995. These ratios are impacted by the same factors as the total equity ratios except for the direct effect of reduction in total capital for the redemption of the preferred stock issues. In 1995, dividends paid to Common shareholders totaled $1,639,000 as compared to $1,304,000 in 1994. The resulting Common shareholders' dividend payout ratio of 24.1% was .1% higher than the payout for 1994. The increase in dividends paid matched the earnings growth. Common shareholders' dividend payout ratio increased to 24.0% in 1994 from 22.6% in 1993 even though total dividend distributions to Common shareholders decreased to $1,304,000 from $1,400,000. The payout ratio increased as the 6.9% decrease in cash dividends paid was offset by the 12.0% decrease in income available for Common shareholders. Exhibit 13.1 31 (B) BALANCE SHEET ANALYSIS LOANS The Company concentrates its lending activities in four principal areas: commercial loans (including agricultural loans); consumer loans; real estate mortgage loans (residential and commercial loans and mortgage loans originated for sale); and real estate construction loans. At December 31, 1995, these four categories accounted for approximately 48%, 20%, 26% and 6%, respectively, of the Company's loan portfolio. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and maturity of the loans, the borrower's relationship with the Company and prevailing money market rates indicative of the Company's cost of funds. The majority of the Company's loans are direct loans made to individuals, farmers and local businesses. The Company relies substantially on local promotional activity, personal contacts by bank officers, directors and employees to compete with other financial institutions. The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment. Loan activity, while not robust in 1995, reflected some improvements over 1994 as average loans outstanding increased 1.6% to $308,473,000 and year end balances increased 3.8% to $318,766,000. The average loan to deposit ratio in 1995 was 63.1% versus 60.7% in 1994. Management anticipates that the higher year end loan balances will provide a good platform for growth in 1996. As mentioned in the Overview section of this report, the Bank has opened a loan production office in Bakersfield, California and plans to open a similar office in Sacramento, in 1996. Management's goal is to replace maturing investment securities with loans. Loan demand was soft in 1994 as average loan balances decreased 3.6% from 1993 levels. The 1994 year end loan balances of $307,103,000 were up slightly from 1993 ending balances. The average loan to deposit ratio for 1994 was down 6.5% from the 1993 average of 67.2%. In 1993 the Bank installed a new software system which resulted in some changes in the loan classifications. The prior year classifications were not restated in the following table, but in general there was not a significant change in the loan mix. Over the five year period real estate construction loans have decreased as the result of economic conditions and de-emphasis of this loan type by the Bank. Commercial loans have generally increased as a percent of loans and this increase has offset the decrease in construction loan percent. Management does not foresee any significant changes occurring in the loan mix in the coming year. LOAN PORTFOLIO COMPOSITE
December 31, 1995 1994 1993 1992 1991 --------------------------------------------------- (dollars in thousands) Commercial, financial and agricultural $152,173 $153,957 $140,750 $150,685 $149,960 Consumer installment 64,445 58,471 55,654 47,726 51,635 Real estate mortgage 81,888 76,673 88,887 88,715 83,187 Real estate construction 20,260 18,002 20,611 30,392 31,615 --------------------------------------------------- Total loans $318,766 $307,103 $305,902 $317,518 $316,397 ---------------------------------------------------
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS Nonperforming assets at December 31, 1995 totaled $3,064,000 which was a 6.3% decrease from 1994. The OREO component had a significant decrease from $2,124,000 in 1994 to $631,000 in 1995. However, this decrease was offset in great part by an increase in nonperforming loans. They increased from $1,146,000 in 1994 to $2,433,000 in 1995. The nonperforming loans at December 31, 1995 consisted of numerous lower value loans with the largest being about $188,000. With this increase, the ratio of nonperforming loans to total loans was .76% as compared to .37% in 1994. While nonperforming loans are up from the prior year, management does not see a trend of increasing problem loans. Both nonperforming loans and nonperforming assets at December 31, 1994 reflected significant decreases from 1993 year end totals. Nonperforming loans decreased 33.4% to $1,146,000 and nonperforming assets Exhibit 13.1 32 decreased 38.8% to $3,270,000. Bank management had emphasized improving collections during 1994 and actively sought to dispose of OREO properties. Both of these actions helped to reduce the nonperforming loans and assets. At .37% of total loans, nonperforming loans were at their lowest as a percentage of total loans in the prior five years. Commercial, real estate and consumer loans are reviewed on an individual basis for reclassification to nonaccrual status when any one of the following occurs: the loan becomes 90 days past due as to interest or principal (unless in Management's opinion the loan is well secured and in the process of collection), the full and timely collection of additional interest or principal becomes uncertain, the loan is classified as doubtful by internal auditors or bank regulatory agencies, a portion of the principal balance has been charged off, or the Company takes possession of the collateral. The reclassification of loans as nonaccrual does not necessarily reflect Management's judgment as to whether they are collectible. Interest income is not accrued on loans where Management has determined that the borrowers will be unable to meet contractual principal and/or interest obligations, unless the loan is well secured and in process of collection. When a loan is placed on nonaccrual, any previously accrued but unpaid interest is reversed. Income on such loans is then recognized only to the extent that cash is received and where the future collection on principal is probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loans are estimated to be fully collectible as to both principal and interest. Interest income on nonaccrual loans which would have been recognized during the year ended December 31, 1995, if all such loans had been current in accordance with their original terms, totaled $166,000. Interest income actually recognized on these loans in 1995 was $66,000. With respect to the Company's policy of placing loans 90 days or more past due on nonaccrual status unless the loan is well secured and in the process of collection, a loan is considered to be in the process of collection if, based on a probable specific event, it is expected that the loan will be repaid or brought current. Generally, this collection period would not exceed 30 days. Loans where the collateral has been repossessed are classified as OREO or, if the collateral is personal property, the loan is classified as other assets on the Company's financial statements. Management considers both the adequacy of the collateral and the other resources of the borrower in determining the steps to be taken to collect nonaccrual loans. Alternatives that are considered are foreclosure, collecting on guarantees, restructuring the loan or collection lawsuits. Exhibit 13.1 33 The following table sets forth the amount of the Company's nonperforming assets as of the dates indicated.
December 31, ---------------------------------------------------- 1995 1994 1993 1992 1991 ---------------------------------------------------- (dollars in thousands) Nonaccrual loans $ 2,213 $ 1,122 $ 1,595 $ 583 $ 1,562 Accruing loans past due 90 days or more 220 24 126 1,611 989 Restructured loans (in compliance with modified terms) -- -- -- -- -- ---------------------------------------------------- Total nonperforming loans 2,433 1,146 1,721 2,194 2,551 Other real estate owned 631 2,124 3,624 1,860 1,426 ---------------------------------------------------- Total nonperforming assets $ 3,064 $ 3,270 $ 5,345 $ 4,054 $ 3,977 ---------------------------------------------------- ---------------------------------------------------- Nonincome producing investments in real estate held by Bank's real estate development subsidiary $ 1,173 $ 1,173 $ 1,172 $ 1,240 $ 1,735 ---------------------------------------------------- Nonperforming loans to total loans .76% .37% .56% .69% .81% Allowance for loan losses to nonper- forming loans 229% 489% 347% 219% 163% Nonperforming assets to total assets .51% .55% .93% .82% .91% Allowance for loan losses to nonper- forming assets 182% 171% 112% 118% 105% ----------------------------------------------------
ALLOWANCE FOR LOAN LOSSES ACTIVITY In determining the adequacy of the allowance for loan losses, Management relies primarily on its review of the loan portfolio both to ascertain whether there are probable losses to be written off and to assess the loan portfolio in the aggregate. Problem loans are examined on an individual basis to determine estimated probable loss. In addition, Management considers current and projected loan mix and loan volumes, historical net loan loss experience for each loan category and current and anticipated economic conditions affecting each loan category. Based on the current conditions of the loan portfolio and nonperforming assets as discussed in the previous section, Management decreased the allowance for loan losses to 1.75% of outstanding loans at December 31, 1995 versus 1.83% at the prior year end. It is anticipated the Bank will continue to provide for loan losses at this level in the near term. Management believes that the $5,580,000 allowance for loan losses at December 31, 1995 is adequate to absorb probable losses inherent in the Bank's loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio. The primary risk elements considered by Management with respect to installment and residential real estate loans is lack of timely payment and the value of the collateral. The primary risk elements considered by Management with respect to its credit card portfolio are general economic conditions, timeliness of payments and the potential for fraud and over limit credit draws. The primary risk elements considered by Management with respect to real estate construction loans are the financial condition of borrowers, fluctuations in real estate values in the Company's market areas, fluctuations in interest rates, timeliness of payments, the availability of conventional financing, the demand for housing in the Company's market areas and general economic conditions. The primary risk elements with respect to commercial loans are the financial condition of the borrower, general economic conditions in the Company's market area, the sufficiency of collateral, the timeliness of payment and, with respect to adjustable rate loans, interest rate fluctuations. Exhibit 13.1 34 The following table summarizes, for the years indicated, the activity in the allowance for loan losses:
December 31, ----------------------------------------------------- 1995 1994 1993 1992 1991 ----------------------------------------------------- (dollars in thousands) Balance, beginning of year $ 5,608 $ 5,973 $ 4,798 $ 4,156 $ 3,595 Provision charged to operations 335 316 1,858 2,101 1,531 LOANS CHARGED OFF: Commercial, financial and agricultural (149) (338) (653) (875) (976) Consumer installment (432) (712) (622) (719) (446) Real estate mortgage -- -- -- (23) -- ---------------------------------------------------- Total loans charged-off (581) (1,050) (1,275) (1,617) (1,422) ---------------------------------------------------- RECOVERIES: Commercial, financial and agricultural 98 205 380 106 384 Consumer installment 120 164 212 52 68 --------------------------------------------------- Total recoveries 218 369 592 158 452 ---------------------------------------------------- Net loans charged-off (363) (681) (683) (1,459) (970) ---------------------------------------------------- BALANCE, YEAR END $ 5,580 $ 5,608 $ 5,973 $ 4,798 $ 4,156 --------------------------------------------------- --------------------------------------------------- AVERAGE TOTAL LOANS $308,473 $303,497 $314,691 $318,839 $305,562 --------------------------------------------------- RATIOS: Net charge-offs during period to average loans outstanding during period .12% .22% .22% .46% .32% Provision for loan losses to aver- age loans outstanding .11% .10% .59% .66% .50% Allowance to loans at year end(1) 1.75% 1.83% 1.95% 1.51% 1.31% ---------------------------------------------------
(1)Banker's acceptances and commercial paper are not included. As part of its loan review process, Management has developed pools of reserves based on specific identified problem loans and historical loss data. The following tables summarize the allocation of the allowance for loan losses at December 31, 1995 and 1994. Exhibit 13.1 35
December 31, 1995 ------------------------ (dollars in thousands) Percent of loans in each category to Balance at End of Period Applicable to: Amount total loans Commercial, financial and agricultural $3,932 47.7% Real Estate--construction -- 6.4% Real Estate--mortgage 355 25.7% Installment loans to individuals 1,293 20.2% ------- ------ $5,580 100.0% ------- ------ ------- ------
December 31, 1994 ----------------------- (dollars in thousands) Percent of loans in each category to Balance at End of Period Applicable to: Amount total loans Commercial, financial and agricultural $3,271 50.1% Real Estate--construction -- 5.9% Real Estate--mortgage 407 25.0% Installment loans to individuals 1,234 19.0% Unallocated 696 N/A ------ ------ $5,608 100.0% ------ ------ ------ ------
INVESTMENT IN REAL ESTATE PROPERTIES At December 31, 1995 and 1994, $1,173,000 of property was held by a subsidiary of the Bank for the purposes of development. OTHER REAL ESTATE OWNED The December 31, 1995 balance of Other Real Estate Owned (OREO) was $631,000 versus $2,124,000 in 1994. Properties foreclosed in 1995 and remaining in the Bank's possession at year end were valued at $206,000 net of a valuation allowance of $9,000. OREO properties consist of a mixture of land, single family residences and commercial buildings. OREO had decreased $1,500,000 in 1994. DEPOSITS Deposits at December 31, 1995 were up 5.1% to $516,193,000 over the 1994 year end balances. In-store deposits almost doubled in 1995 ending the year at $29,605,000. There was growth in both the interest-bearing and noninterest- bearing demand deposits. However, most of the growth was attributable to time certificates of deposit (CD's). They increased $49,334,000 or 37.7% during 1995. At the same time, savings deposits decreased $29,321,000 (15.4%). Depositors moved funds from savings to CD's as the yields on CD's often were 200-300 basis points higher. The local market conditions dictated the high CD rates. The increase of $12.3 million in the over $100,000 CD category is largely attributable to a $9.0 million deposit from the State of California. This deposit has a 90 day maturity and is renewable at the Bank's option. In 1994 total deposits decreased $24,880,000 or 4.8% from 1993 ending balances. Essentially all of the decrease occurred in savings accounts and time deposits. During the second half of 1993 as interest rates rose, banks and savings and loan institutions in the Bank's market area began offering higher rates on CD's. Bank Management did not choose to meet some of these rates until late in the year. Consequently, some funds moved Exhibit 13.1 36 out of the Bank's deposit base. Management believed that the Bank had sufficient liquidity and ability to meet the loan demand so some runoff of deposits could be tolerated. At the end of 1993, the in-store branches had deposits totaling just over $15,000,000. ACCRUED INTEREST PAYABLE At December 31, 1995, the balance of accrued interest payable was $3,162,000 which was an increase of $1,402,000 over the 1994 year end. This increase was attributable to the higher rates and balances in time certificates of deposit. At December 31, 1994, accrued interest payable had increased $30,000 to $1,760,000. The increase was due to the higher rates of interest being accrued on time certificates of deposit and was offset by lower CD balances. LONG-TERM DEBT During 1995 the Bank incurred long term debt in the amount of $9,828,000 with a term of two years. This debt is in the form of a repurchase agreement. The Bank also retired $2,000,000 of long term debt during the year. During 1994 the Bank incurred long-term debt in the amount of $11,400,000 with terms varying from one to seven years. These loans were used as matched funding for loans made by the Bank. EQUITY The Company and the Bank are subject to the minimum capital requirements of the Federal Reserve Board and the FDIC. Effective December 31, 1990, the Federal Reserve Board guidelines implemented new risk-based capital ratio requirements. These guidelines provide a measure of capital adequacy and are intended to reflect the degree of risk associated with both on and off balance sheet items, including residential loans sold with recourse, legally binding loan commitments and standby letters of credit. Under these regulations, financial institutions are required to maintain capital to support activities which in the past did not require capital. A financial institution's risk-based capital ratio is calculated by dividing its qualifying capital by its risk- weighted assets. Qualifying capital is divided into two tiers. Core capital (Tier 1) consists generally of Common shareholders' equity, cumulative (up to 25% of capital) and noncumulative perpetual preferred stock and minority interest in equity capital accounts of consolidated subsidiaries. Supplementary capital (Tier 2) consists of among other things, allowance for loan and lease losses up to 1.25% of risk-weighted assets, cumulative (not qualifying as Tier 1) and limited life preferred stock, mandatory convertible securities and subordinated debt. Tier 2 capital qualifies as a part of total capital up to a maximum of 100% of Tier 1 capital. Amounts in excess of these limits may be issued but are not included in the calculation of the risk-based capital ratio. The Company and the Bank must generally have a minimum ratio of qualifying total capital to risk-weighted assets of 8%, of which 4% of qualifying total capital must be in the form of Tier 1 capital. In addition, the regulators have promulgated capital leverage guidelines designed to supplement the risk-based capital guidelines. Banks and bank holding companies must maintain a minimum ratio of Tier 1 capital to adjusted total assets of 3% for the highest rated organizations, with all other banks and holding companies required to maintain an additional cushion of at least 100 to 200 basis points above the 3% minimum. As of December 31, 1995, the Company's Tier 1 capital was 8.9% of adjusted total assets. At December 31, 1994, this ratio was 8.7% of adjusted total assets. Exhibit 13.1 37 The following table indicates the amounts of regulatory capital of the Company.
Total Risked- Tier Based Leverage ------------------------------------ (dollars in thousands) December 31, 1995 Company's % 13.9% 15.2% 8.9% Regulatory minimum % 4.0% 8.0% 4.0% Company's capital $ $ 53,863 $ 58,700 $ 53,863 Regulatory minimum $ 15,479 30,958 24,142 ----------------------------------- Computed excess $ 38,384 $ 27,742 $ 29,721 ----------------------------------- ----------------------------------- December 31, 1994 Company's % 13.4% 14.6% 8.7% Regulatory minimum % 4.0% 8.0% 4.0% Company's capital $ $ 51,939 $ 56,784 $ 51,939 Regulatory minimum $ 15,505 31,011 23,753 ----------------------------------- Computed excess $ 36,434 $ 25,773 $ 28,186 ----------------------------------- -----------------------------------
Management believes that the capital is adequate to support anticipated growth, meet the cash dividend requirements of the Company and meet the future risk-based capital requirements of the Bank and the Company. LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity refers to the Company's ability to provide funds at an acceptable cost to meet loan demand and deposit withdrawals, as well as contingency plans to meet unanticipated funding needs or loss of funding sources. These objectives can be met from either the asset or liability side of the balance sheet. Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally summarized as investing activities in the Consolidated Statement of Cash Flows. Net cash provided from these sources totaled approximately $18,556,000 in 1995. Liquidity is generated from liabilities through deposit growth and short-term borrowings. These activities are included under financing activities in the cash flow statement. In 1995 cash was used as the increase in deposits of $25,021,000 was offset by the repayment of repurchase agreements totaling $30,457,000. The Company also had available correspondent banking lines of credit totaling $33,000,000. While these sources are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market conditions. Liquidity is also provided or used through the results of operating activities. Net cash of $9,981,000 was provided from operating activities in 1995. In 1994 $4,620,000 had been provided from operating activities. Since the adoption of SFAS 115 January 1, 1994, Management has targeted the available-for-sale portfolio (AFS) to be maintained at 35-40% of the total securities holdings. The AFS securities plus cash in excess of reserve requirements totaled $133,610,000 which was 22.1% of total assets at year end. This was up from $107,234,000 and 18.1% at the end of 1994. The overall liquidity of the Bank is enhanced by the sizable core deposits which provide a relatively stable funding base. The maturity distribution of certificates of deposit in denominations of $100,000 or more is set forth in the following table. These deposits are generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if available. In 1995, $9,000,000 of the balance is a deposit by the State of California which is renewable at the Bank's option. Exhibit 13.1 38 CERTIFICATES OF DEPOSIT IN DENOMINATIONS OF $100,000 OR MORE
Amounts as of December 31, --------------------------------- 1995 1994 1993 --------------------------------- (in thousands) TIME REMAINING UNTIL MATURITY: Less than 3 months $ 9,985 $ 401 $ 1,572 3 months to 6 months 2,909 717 2,001 6 months to 12 months 545 -- 1,400 More than 12 months -- -- 450 --------------------------------- Total $13,439 $ 1,118 $ 5,423 --------------------------------- ---------------------------------
Loan demand also affects the Bank's liquidity position. The following table present the maturities of performing loans at December 31, 1995. LOAN MATURITIES - DECEMBER 31, 1995
AFTER ONE BUT WITHIN WITHIN AFTER 5 ONE YEAR 5 YEARS YEARS TOTAL -------------------------------------------- (in thousands) Loans with predetermined interest rates: Commercial, financial and agricultural $ 6,624 $ 18,798 $ 25,931 $ 51,353 Consumer installment 3,513 9,831 8,055 21,399 Real estate mortgage 2,349 9,898 34,877 47,124 Real estate construction 6,519 88 103 6,710 -------------------------------------------- 19,005 38,615 68,966 126,586 -------------------------------------------- Loans with floating interest rates: Commercial, financial and agricultural 43,800 20,687 36,333 100,820 Consumer installment 12,389 2,611 28,046 43,046 Real estate mortgage 2,070 5,986 26,708 34,764 Real estate construction 13,550 -- -- 13,550 -------------------------------------------- 71,809 29,284 91,087 192,180 -------------------------------------------- Total loans $ 90,814 $ 67,899 $160,053 $318,766 -------------------------------------------- --------------------------------------------
Interest rate sensitivity is a function of the repricing characteristics of the Company's portfolio of assets and liabilities. These repricing characteristics are the time frames within which the interest-bearing assets and liabilities are subject to change in interest rates either at replacement, repricing or maturity. Interest rate sensitivity management focuses on the maturity of assets and liabilities and their repricing during periods of changes in market interest rates. Interest rate sensitivity is measured as the difference between the volumes of assets and liabilities in the Company's current portfolio that are subject to repricing at various time horizons. The differences are known as interest sensitivity gaps. The following repricing tables present the Bank's interest rate sensitivity position at December 31, 1995 and 1994: Exhibit 13.1 39 INTEREST RATE SENSITIVITY - DECEMBER 31, 1995
Repricing within: ------------------------------------------------------- 3 3 - 6 6 - 12 1 - 5 Over months months months years 5 years ------------------------------------------------------- (dollars in thousands) Interest-earning assets: Securities $ 10,403 $ 9,802 $ 17,195 $111,822 $ 44,125 Fed funds sold 25,600 -- -- -- -- Loans 190,446 7,262 14,336 40,123 66,602 ------------------------------------------------------- Total interest-earning assets $226,446 $ 17,064 $ 31,531 $151,945 $110,727 Interest-bearing liabilities Transaction deposits $245,793 $ -- $ -- $ -- $ -- Time 56,402 88,906 29,263 5,520 -- Long-term borrowings 7,003 3 6 18,128 1,152 ------------------------------------------------------- Total interest-bearing liabilities $309,198 $ 88,909 $ 29,269 $ 23,648 $ 1,152 ------------------------------------------------------- Interest sensitivity gap $(82,752) $(71,845) $ 2,262 $128,297 $ 109,575 Cumulative sensitivity gap (82,752) (154,597) (152,336) (24,039) 85,537 As a percentage of earning assets: Interest sensitivity gap (15.39%) (13.36%) 0.42% 23.86% 20.38% -------------------------------------------------------
INTEREST RATE SENSITIVITY - DECEMBER 31, 1994
Repricing within: ------------------------------------------------------- 3 3 - 6 6 - 12 1 - 5 Over months months months years 5 years ------------------------------------------------------- (dollars in thousands) Interest-earning assets: Securities $ 7,441 $ 7,045 $ 16,817 $118,338 $ 75,257 Fed funds sold -- -- -- -- Loans 168,133 15,627 17,815 31,357 74,171 ------------------------------------------------------- Total interest-earning assets $175,574 $ 22,672 $ 34,632 $149,695 $149,428 Interest-bearing liabilities Transaction deposits $271,457 $ -- $ -- $ -- $ -- Time 24,872 67,306 36,249 2,228 103 Short-term borrowings 30,457 -- -- -- -- Long-term borrowings 7,015 15 9 8,448 3,012 ------------------------------------------------------- Total interest-bearing liabilities $ 333,801 $ 67,321 $ 36,258 $ 10,676 $ 3,115 ------------------------------------------------------- Interest sensitivity gap $(158,227) $(44,649) $ (1,626) $139,019 $146,313 Cumulative sensitivity gap (158,227) (202,876) (204,502) (65,483) 80,830 As a percentage of earning assets: Interest sensitivity gap (29.74%) (8.39%) (0.31%) 26.13% 27.50% -------------------------------------------------------
Exhibit 13.1 40 The maturity distribution and yields of the investment portfolios are presented in the following tables: SECURITIES MATURITIES AND WEIGHTED AVERAGE YIELDS - DECEMBER 31, 1995
AFTER ONE YEAR AFTER FIVE YEARS WITHIN BUT THROUGH BUT THROUGH AFTER TEN ONE YEAR FIVE YEARS TEN YEARS YEARS TOTAL ---------------------------------------------------------------------------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ---------------------------------------------------------------------------------- (dollars in thousands) SECURITIES HELD-TO-MATURITY U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 3,012 6.22% $ 22,519 5.81% $ 2,000 6.50% $ 2,610 6.84% $ 30,141 5.92% Obligations of states and political subdivisions 130 3.59% 719 4.23% -- -- -- -- 849 4.30% Mortgage-backed securities -- -- 4,795 5.76% 9,606 6.09% 72,341 5.86% 86,742 5.70% - ------------------------------------------------------------------------------------------------------------------------------------ Total securities held-to-maturity $ 3,142 6.11% $ 28,033 5.76% $11,606 6.16% $74,951 5.74% $117,732 5.76% SECURITIES AVAILABLE-FOR-SALE U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 16,614 5.23% $ 22,855 5.88% $ -- -- $ 2,539 6.70% $ 42,038 5.45% Obligations of states and political subdivisions 247 5.70% 1,022 5.38% 431 5.65% -- -- 1,700 5.78% Mortgage-backed securities -- -- 1,072 6.93% -- -- 28,004 5.42% 29,076 5.25% Other securities -- -- -- -- -- -- 3,668 -- 3,668 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total securities available-for-sale $ 16,891 5.24% $ 24,949 5.90% $ 431 5.65% $ 34,211 5.53% $ 76,482 5.36% Total all securities $ 20,033 5.38% $ 52,982 5.83% $12,037 6.14% $109,162 5.79% $194,214 5.62% ---------------------------------------------------------------------------------- Less: unrealized loss on securities transferred from available-for-sale $ (867) Less: unrealized loss on securities available-for-sale (236) -------- Total $193,211 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
The principal cash requirements of the Company are dividends on Common Stock when declared. The Company is dependent upon the payment of cash dividends by the Bank to service its commitments. The Company expects that the cash dividends paid by the Bank to the Company will be sufficient to meet this payment schedule. OFF-BALANCE SHEET ITEMS The Bank has certain ongoing commitments for operating leases. (See footnote G for the terms.) These commitments do not severely impact operating results. As of December 31, 1995 commitments to extend credit were the sole source of financial instruments with off-balance sheet risk. The Bank has not entered into any contracts for financial derivative instruments such as futures, swaps, options etc. Loan commitments increased to $91,276,000 from $81,513,000 at December 31, 1994. Much of the increase relates to credit cards. The commitments represent 28.6% of the total loans outstanding at year end 1995 versus 26.5% a year ago. DISCLOSURE OF FAIR VALUE The Financial Accounting Standards Board (FASB), Statement of Financial Accounting Standards Number 107, Disclosures about Fair Value of Financial Statements, requires the disclosure of fair value of most financial instruments, whether recognized or not recognized in the financial statements. The intent of presenting the fair values of financial instruments is to depict the market's assessment of the present value of net future cash flows discounted to reflect both current interest rates and the market's assessment of the risk that the cash flows will not occur. In determining fair values, the Company used the carrying amount for cash, short-term investments, accrued interest receivable, short-term borrowings and accrued interest payable as all of these instruments are short term in nature. Securities are reflected at quoted market values. Loans and deposits have a long term time horizon which required more complex calculations for fair value determination. Loans are grouped into homogeneous Exhibit 13.1 41 categories and broken down between fixed and variable rate instruments. Loans with a variable rate, which reprice immediately, are valued at carrying value. The fair value of fixed rate instruments is estimated by discounting the future cash flows using current rates. Credit risk and repricing risk factors are included in the current rates. Fair value for nonaccrual loans is reported at carrying value and is included in the net loan total. Since the allowance for loan losses exceeds any potential adjustment for nonaccrual valuation, no further valuation adjustment has been made. Demand deposits, savings and certain money market accounts are short term in nature so the carrying value equals the fair value. For deposits that extend over a period in excess of four months, the fair value is estimated by discounting the future cash payments using the rates currently offered for deposits of similar remaining maturities. At 1995 year end, the fair values calculated on the Company's assets are .5% above the carrying values versus 2.9% below the carrying values in 1994. The increase in the calculated fair values relates to the securities and loan categories and is the result of the general decrease in interest rates in 1995. Exhibit 13.1 42 EX-23.1 2 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated January 23, 1996, incorporated by reference in the Form 10-K, into the Corporation's previously filed Form S-8 Registration Statement No. 33-88704 and Form S-3 Registration Statement No. 33-30557. /s/ Arthur Andersen LLP San Francisco, California March 7, 1996 EX-23.2 3 EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-88704 on Form S-8 and Registration Statement No. 33-30557 on Form S-3 of TriCo Bancshares of our report related to Country National Bank dated January 28, 1994 appearing in the Annual Report on Form 10-K of TriCo Bancshares for the year ended December 31, 1995. /s/ Deloitte & Touche LLP Sacramento, California March 7, 1996 EX-27 4 FINANCIAL DATA SCHEDULE
9 1,000 YEAR DEC-31-1995 DEC-31-1995 39,673 0 25,600 0 76,246 116,865 116,576 318,766 5,580 603,554 516,193 0 7,856 26,292 0 0 44,315 8,898 603,554 33,776 11,864 371 46,011 16,231 17,988 28,023 335 (10) 21,661 11,960 11,960 0 0 7,045 1.46 1.45 8.78 2,213 220 0 0 5,608 581 218 5,580 5,580 0 0
-----END PRIVACY-ENHANCED MESSAGE-----