TriCo Bancshares Announces Second Quarter 2023 Results

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Notable Items for Second Quarter 2023

  • Net income was $24.9 million compared to $35.8 million in the trailing quarter, and compared to $31.4 million in the same quarter of the prior year; Pre-tax pre-provision net revenue was $43.1 million compared to $53.2 million in the trailing quarter, and compared to $45.2 million in the same quarter of the prior year

  • Loan balances increased by $98.3 million or 6.1% (annualized) versus the prior quarter and deposit balances increased by $69.5 million or 3.5% (annualized) versus the prior quarter and the Bank has not utilized brokered deposits or FRB borrowing facilities

  • The average cost of total deposits was 0.58% for the quarter as compared to 0.25% in the trailing quarter and 0.04% in the same quarter of the prior year and, as a result, the Company's total cost of deposits have increased 54 basis points since FOMC rate actions began, which translates to a cycle-to-date deposit beta of 10.8%

  • Balance sheet flexibility remains anchored in readily accessible sources of liquidity including undrawn borrowing capacities, on-balance sheet cash and unpledged investment securities totaling nearly $4.4 billion

  • Overall credit quality remains within historical norms as non-performing assets represent approximately 0.41% of total assets and the ratio of classified loans to total loans remains below one percent

  • Average yield on earning assets was 4.78%, an increase of 14 basis points over the 4.64% in the trailing quarter; net interest margin was 3.96%, a change of 25 basis points from 4.21% in the trailing quarter

  • Operations, as evidenced by the increase in the efficiency ratio from 50.3% in the trailing quarter to 58.7% in the current quarter, were impacted by a variety of both recurring and non-recurring activities

"We were pleased by our ability to grow deposits during the quarter while doing so without the use of brokered funding sources and at rates that were favorable to the Bank. Although nonaccrual and classified loans have increased, they remain below historical averages. Through the Bank's ongoing portfolio review processes and active management, we have not identified any evidence of systemic risk," explained Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "As deposit balances grew and repayment of principal from the investment security portfolio accelerated, excess proceeds were utilized to reduce the balance and costs associated with short-term borrowing. As we look to the second half of 2023, margin preservation and expense control will be our focused priorities."

CHICO, Calif., July 26, 2023--(BUSINESS WIRE)--TriCo Bancshares (NASDAQ: TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $24.9 million for the quarter ended June 30, 2023, compared to $35.8 million during the trailing quarter ended March 31, 2023, and $31.4 million during the quarter ended June 30, 2022. Diluted earnings per share were $0.75 for the second quarter of 2023, compared to $1.07 for the first quarter of 2023 and $0.93 during the second quarter of 2022.

Financial Highlights

Performance highlights for the Company as of or for the three and six months ended June 30, 2023, included the following:

  • For the quarter ended June 30, 2023, the Company’s return on average assets was 1.01%, while the return on average equity was 8.98%.

  • Deposit balances for the quarter ended June 30, 2023, increased by $69.5 million as compared to March 31, 2023. Loan growth for the quarter exceeded deposit growth, resulting in the loan to deposit ratio increasing to 80.5% as of June 30, 2023, as compared to 80.0% as of the trailing quarter.

  • The efficiency ratio was 54.4% and 55.67% for the six months ended June 30, 2023 and 2022, respectively.

  • The provision for credit losses for loans and debt securities was approximately $9.7 million during the quarter ended June 30, 2023, as compared to a provision for credit losses of $4.2 million during the trailing quarter ended March 31, 2023, and a provision for credit losses of $2.1 million for the three-month period ended June 30, 2022.

  • The allowance for credit losses to total loans was 1.80% as of June 30, 2023, compared to 1.69% as of the trailing quarter end, and 1.60% as of June 30, 2022. Non-performing assets to total assets were 0.41% on June 30, 2023, as compared to 0.20% as of March 31, 2023, and 0.15% at June 30, 2022.

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the period ended June 30, 2023, and may differ materially from the results and disclosures in this document due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information.

Summary Results

The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:

Three months ended

June 30,

March 31,

(dollars and shares in thousands, except per share data)

2023

2023

$ Change

% Change

Net interest income

$

88,601

$

93,336

$

(4,735

)

(5.1

)%

Provision for credit losses

(9,650

)

(4,195

)

(5,455

)

130.0

%

Noninterest income

15,741

13,635

2,106

15.4

%

Noninterest expense

(61,243

)

(53,794

)

(7,449

)

13.8

%

Provision for income taxes

(8,557

)

(13,149

)

4,592

(34.9

)%

Net income

$

24,892

$

35,833

$

(10,941

)

(30.5

)%

Diluted earnings per share

$

0.75

$

1.07

$

(0.32

)

(29.9

)%

Dividends per share

$

0.30

$

0.30

$

—

—

%

Average common shares

33,219

33,296

(77

)

(0.2

)%

Average diluted common shares

33,302

33,438

(136

)

(0.4

)%

Return on average total assets

1.01

%

1.47

%

Return on average equity

8.98

%

13.36

%

Efficiency ratio

58.69

%

50.29

%

Three months ended
June 30,

(dollars and shares in thousands, except per share data)

2023

2022

$ Change

% Change

Net interest income

$

88,601

$

85,046

$

3,555

4.2

%

Provision for credit losses

(9,650

)

(2,100

)

(7,550

)

359.5

%

Noninterest income

15,741

16,430

(689

)

(4.2

)%

Noninterest expense

(61,243

)

(56,264

)

(4,979

)

8.8

%

Provision for income taxes

(8,557

)

(11,748

)

3,191

(27.2

)%

Net income

$

24,892

$

31,364

$

(6,472

)

(20.6

)%

Diluted earnings per share

$

0.75

$

0.93

$

(0.18

)

(19.4

)%

Dividends per share

$

0.30

$

0.25

$

0.05

20.0

%

Average common shares

33,219

33,561

(342

)

(1.0

)%

Average diluted common shares

33,302

33,705

(403

)

(1.2

)%

Return on average total assets

1.01

%

1.24

%

Return on average equity

8.98

%

11.53

%

Efficiency ratio

58.69

%

55.45

%

Six months ended
June 30,

(dollars and shares in thousands)

2023

2022

$ Change

% Change

Net interest income

$

181,937

$

152,970

$

28,967

18.9

%

Provision for credit losses

(13,845

)

(10,430

)

(3,415

)

32.7

%

Noninterest income

29,376

31,526

(2,150

)

(6.8

)%

Noninterest expense

(115,037

)

(102,711

)

(12,326

)

12.0

%

Provision for income taxes

(21,706

)

(19,617

)

(2,089

)

10.6

%

Net income

$

60,725

$

51,738

$

8,987

17.4

%

Diluted earnings per share

$

1.82

$

1.62

$

0.20

12.4

%

Dividends per share

$

0.60

$

0.50

$

0.10

20.0

%

Average common shares

33,257

31,815

1,442

4.5

%

Average diluted common shares

33,371

31,963

1,408

4.4

%

Return on average total assets

1.24

%

1.10

%

Return on average equity

11.13

%

9.93

%

Efficiency ratio

54.44

%

55.67

%

Balance Sheet

Total loans outstanding, excluding PPP, grew to $6.5 billion as of June 30, 2023, an increase of 7.0% over the prior twelve months, and is entirely related to organic loan growth. As compared to March 31, 2023, total loans outstanding increased by $98.3 million or 6.1% annualized. Investments decreased to $2.49 billion as of June 30, 2023, an annualized decrease of 14.3% over the prior year quarter end. Quarterly average earning assets to quarterly total average assets were 91.6% on June 30, 2023, as compared to 91.4% and 92.2% at December 31, 2022, and June 30, 2022, respectively. The loan-to-deposit ratio was 80.5% on June 30, 2023, as compared to 80.0% and 69.8% at December 31, 2022, and June 30, 2022, respectively. During the current year to date period, and throughout the 2022 fiscal year, the Company held no brokered deposits and relied solely on short-term borrowings to fund cash flow timing differences.

Total shareholders' equity increased by $2.5 million during the quarter ended June 30, 2023, as a result of accumulated other comprehensive losses increasing by $11.9 million and cash dividend payments on common stock of approximately $10.0 million, offset by net income of $24.9 million. As a result, the Company’s book value was $32.86 per share at June 30, 2023, as compared to $32.84 and $31.25 at December 31, 2022 and June 30, 2022, respectively. The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $23.30 per share at June 30, 2023, as compared to $23.22 and $21.41 at December 31, 2022, and June 30, 2022, respectively.

Trailing Quarter Balance Sheet Change

Ending balances

June 30,

March 31,

Annualized

% Change

(dollars in thousands)

2023

2023

$ Change

Total assets

$

9,853,421

$

9,842,394

$

11,027

0.4

%

Total loans

6,520,740

6,422,421

98,319

6.1

Total investments

2,485,378

2,577,769

(92,391

)

(14.3

)

Total deposits

8,095,365

8,025,865

69,500

3.5

Total other borrowings

$

392,714

$

434,140

$

(41,426

)

(38.2

)%

Loans outstanding increased by $98.3 million or 6.1% on an annualized basis during the quarter ended June 30, 2023. During the quarter, loan originations/draws totaled approximately $456.0 million while payoffs/repayments of loans totaled $356.0 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $357.0 million and $389.0 million, respectively. While origination volume increased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2022 due in part to disciplined pricing and underwriting, as well as decreased borrower appetite at currently offered lending rates. Management continues to believe that the current loan pipeline is sufficient to support the Company's objectives. Investment security balances decreased $92.4 million or 14.3% on an annualized basis as the result of net prepayments, maturities, and purchases totaling approximating $75.2 million and net decreases in the market value of securities of $16.9 million. Management seeks to utilize excess cash flows from the investment security portfolio to support loan growth or reduce borrowings thus resulting in an improved mix of earning assets. Deposit balances increased by $69.5 million or 3.5% annualized during the period. Net cash flow surpluses during the quarter resulted in a net decrease of $41.4 million in short-term borrowings, which totaled $392.7 million as of the period ended June 30, 2023.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended

June 30,

March 31,

Annualized

% Change

(dollars in thousands)

2023

2023

$ Change

Total assets

$

9,848,191

$

9,878,927

$

(30,736

)

(1.2

)%

Total loans

6,467,381

6,413,958

53,423

3.3

Total investments

2,525,334

2,587,285

(61,951

)

(9.6

)

Total deposits

7,981,515

8,218,576

(237,061

)

(11.5

)

Total other borrowings

$

477,256

$

277,632

$

199,624

287.6

%

Year Over Year Balance Sheet Change

Ending balances

As of June 30,

% Change

(dollars in thousands)

2023

2022

$ Change

Total assets

$

9,853,421

$

10,120,611

$

(267,190

)

(2.6

)%

Total loans

6,520,740

6,113,421

407,319

6.7

Total loans, excluding PPP

6,519,316

6,095,667

423,649

7.0

Total investments

2,485,378

2,802,815

(317,437

)

(11.3

)

Total deposits

8,095,365

8,756,775

(661,410

)

(7.6

)

Total other borrowings

$

392,714

$

35,089

$

357,625

1,019.2

%

Non-PPP loan balances increased as a result of organic activities by approximately $423.6 million or 7.0% during the twelve-month period ending June 30, 2023. Over the same period deposit balances have declined by $661.4 million or 7.6%. The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term FHLB borrowings. As of June 30, 2023, short-term borrowings from the FHLB totaled $394.1 million and had an interest rate of 5.11%.

Liquidity

The Company's primary sources of liquidity include the following for the periods indicated:

(dollars in thousands)

June 30, 2023

March 31, 2023

June 30, 2022

Borrowing capacity at correspondent banks and FRB

$

2,847,052

$

2,853,219

$

2,690,597

Less: borrowings outstanding

(350,000

)

(394,095

)

—

Unpledged available-for-sale (AFS) investment securities

1,813,894

1,883,353

2,192,704

Cash held or in transit with FRB

79,530

67,468

432,190

Total primary liquidity

$

4,390,476

$

4,409,945

$

5,315,491

Estimated uninsured deposit balances

$

2,522,718

$

2,312,309

$

2,950,614

At June 30, 2023, the Company's primary sources of liquidity represented 54.2% of total deposits and 174% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $134.4 million, including approximately $10.7 million in net unrealized losses. The Company did not utilize any brokered deposits during 2023 or 2022.

Net Interest Income and Net Interest Margin

During the twelve-month period ended June 30, 2023, the Federal Open Market Committee's (FOMC) actions have resulted in an increase in the Fed Funds Rate by 350 basis points. During the same period the Company's yield on total loans (excluding PPP) increased 68 basis points to 5.38% for the three months ended June 30, 2023, from 4.70% for the three months ended June 30, 2022. Moreover, the tax equivalent yield on the Company's investment security portfolio increased by 88 basis points to 3.24% during the twelve months ended June 30, 2023. The cost of total interest-bearing deposits and total interest-bearing liabilities increased by 88 basis points and 122 basis points, respectively, between the three-month periods ended June 30, 2023 and 2022. Since FOMC rate actions began, the Company's cost of total deposits has increased 54 basis points which translates to a cycle to date deposit beta of 10.80%.

The Company continues to manage its cost of deposits through the use of pricing strategies and delayed changes to the deposit rates offered to the general public. As of June 30, 2023, March 31, 2023, and December 31, 2022, total deposits priced utilizing these strategies totaled $1,070.7 million, $731.9 million and $579.1 million, respectively, and carried weighted average rates of 3.38%, 2.68% and 1.64%, respectively.

The following is a summary of the components of net interest income for the periods indicated:

Three months ended

June 30,

March 31,

(dollars in thousands)

2023

2023

Change

% Change

Interest income

$

107,158

$

102,907

$

4,251

4.1

%

Interest expense

(18,557

)

(9,571

)

(8,986

)

93.9

%

Fully tax-equivalent adjustment (FTE) (1)

379

392

(13

)

(3.3

)%

Net interest income (FTE)

$

88,980

$

93,728

$

(4,748

)

(5.1

)%

Net interest margin (FTE)

3.96

%

4.21

%

Acquired loans discount accretion, net:

Amount (included in interest income)

$

1,471

$

1,397

$

74

5.3

%

Net interest margin less effect of acquired loan discount accretion(1)

3.89

%

4.15

%

(0.26

)%

PPP loans yield, net:

Amount (included in interest income)

$

4

$

5

$

(1

)

(20.0

)%

Net interest margin less effect of PPP loan yield (1)

3.96

%

4.21

%

(0.25

)%

Acquired loans discount accretion and PPP loan yield, net:

Amount (included in interest income)

$

1,475

$

1,402

$

73

5.2

%

Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)

3.89

%

4.15

%

(0.26

)%

Three months ended
June 30,

(dollars in thousands)

2023

2022

Change

% Change

Interest income

$

107,158

$

86,955

$

20,203

23.2

%

Interest expense

(18,557

)

(1,909

)

(16,648

)

872.1

%

Fully tax-equivalent adjustment (FTE) (1)

379

397

(18

)

(4.5

)%

Net interest income (FTE)

$

88,980

$

85,443

$

3,537

4.1

%

Net interest margin (FTE)

3.96

%

3.67

%

Acquired loans discount accretion, net:

Amount (included in interest income)

$

1,471

$

1,677

$

(206

)

(12.3

)%

Net interest margin less effect of acquired loan discount accretion(1)

3.89

%

3.60

%

0.29

%

PPP loans yield, net:

Amount (included in interest income)

$

4

$

964

$

(960

)

(99.6

)%

Net interest margin less effect of PPP loan yield (1)

3.96

%

3.64

%

0.32

%

Acquired loans discount accretion and PPP loan yield, net:

Amount (included in interest income)

$

1,475

$

2,641

$

(1,166

)

(44.1

)%

Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)

3.89

%

3.57

%

0.32

%

Six months ended
June 30,

(dollars in thousands)

2023

2022

Change

% Change

Interest income

$

210,064

$

156,150

$

53,914

34.5

%

Interest expense

(28,127

)

(3,180

)

(24,947

)

784.5

%

Fully tax-equivalent adjustment (FTE) (1)

770

680

90

13.2

%

Net interest income (FTE)

$

182,707

$

153,650

$

29,057

18.9

%

Net interest margin (FTE)

4.08

%

3.54

%

Acquired loans discount accretion, net:

Amount (included in interest income)

$

2,868

$

3,000

$

(132

)

(4.4

)%

Net interest margin less effect of acquired loan discount accretion(1)

4.02

%

3.51

%

0.51

%

PPP loans yield, net:

Amount (included in interest income)

$

9

$

2,061

$

(2,052

)

(99.6

)%

Net interest margin less effect of PPP loan yield (1)

4.08

%

3.51

%

0.57

%

Acquired loans discount accretion and PPP loan yield, net:

Amount (included in interest income)

$

2,877

$

5,061

$

(2,184

)

(43.2

)%

Net interest margin less effect of acquired loans discount and PPP loan yield (1)

4.02

%

3.44

%

0.58

%

(1)

Certain information included herein is presented on a fully tax-equivalent (FTE) basis and / or to present additional financial details which may be desired by users of this financial information. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provide additional clarity in assessing its results, and the presentation of these measures are common practice within the banking industry. See additional information related to non-GAAP measures at the back of this document.

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or the discount is accreted (added to) interest income over the remaining life of the loan. The dollar impact of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining unaccreted discount or unamortized premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. As a result of the increase in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, declined during 2023 as compared to 2022. During the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, purchased loan discount accretion was $1.5 million, $1.4 million, and $1.7 million, respectively.

The following table shows the components of net interest income and net interest margin on a fully tax-equivalent (FTE) basis for the quarterly periods indicated:

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS

(unaudited, dollars in thousands)

Three months ended

Three months ended

Three months ended

June 30, 2023

March 31, 2023

June 30, 2022

Average

Balance

Income/

Expense

Yield/

Rate

Average

Balance

Income/

Expense

Yield/

Rate

Average

Balance

Income/

Expense

Yield/

Rate

Assets

Loans, excluding PPP

$

6,465,903

$

86,743

5.38

%

$

6,412,386

$

82,410

5.21

%

$

5,890,578

$

68,954

4.70

%

PPP loans

1,478

4

1.09

%

1,572

5

1.29

%

37,852

964

10.22

%

Investments-taxable

2,343,511

18,775

3.21

%

2,398,235

18,916

3.20

%

2,536,362

14,350

2.27

%

Investments-nontaxable (1)

181,823

1,641

3.62

%

189,050

1,699

3.64

%

196,104

1,720

3.52

%

Total investments

2,525,334

20,416

3.24

%

2,587,285

20,615

3.23

%

2,732,466

16,070

2.36

%

Cash at Federal Reserve and other banks

29,349

374

5.11

%

26,818

269

4.07

%

669,163

1,364

0.82

%

Total earning assets

9,022,064

107,537

4.78

%

9,028,061

103,299

4.64

%

9,330,059

87,352

3.76

%

Other assets, net

826,127

850,866

791,655

Total assets

$

9,848,191

$

9,878,927

$

10,121,714

Liabilities and shareholders’ equity

Interest-bearing demand deposits

$

1,657,714

$

2,173

0.53

%

$

1,673,114

$

387

0.09

%

$

1,799,205

$

99

0.02

%

Savings deposits

2,768,981

6,936

1.00

%

2,898,463

4,154

0.58

%

3,003,337

529

0.07

%

Time deposits

426,689

2,348

2.21

%

274,805

604

0.89

%

337,007

220

0.26

%

Total interest-bearing deposits

4,853,384

11,457

0.95

%

4,846,382

5,145

0.43

%

5,139,549

848

0.07

%

Other borrowings

477,256

5,404

4.54

%

277,632

2,809

4.10

%

35,253

5

0.06

%

Junior subordinated debt

101,056

1,696

6.73

%

101,044

1,617

6.49

%

100,991

1,056

4.19

%

Total interest-bearing liabilities

5,431,696

18,557

1.37

%

5,225,058

9,571

0.74

%

5,275,793

1,909

0.15

%

Noninterest-bearing deposits

3,128,131

3,372,194

3,603,771

Other liabilities

176,141

194,202

150,696

Shareholders’ equity

1,112,223

1,087,473

1,091,454

Total liabilities and shareholders’ equity

$

9,848,191

$

9,878,927

$

10,121,714

Net interest rate spread (1) (2)

3.41

%

3.90

%

3.61

%

Net interest income and margin (1) (3)

$

88,980

3.96

%

$

93,728

4.21

%

$

85,443

3.67

%

(1)

Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.

(2)

Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

(3)

Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

Net interest income (FTE) during the three months ended June 30, 2023, decreased $4.7 million or 5.1% to $89.0 million compared to $93.7 million during the three months ended March 31, 2023. In addition, net interest margin declined 25 basis points to 3.96%, compared to the trailing quarter. The decrease in net interest income is primarily attributed to an additional $6.3 million in deposit interest expense and $2.6 million in additional interest expense on other borrowings, both due to increases in interest rates as compared to the trailing quarter. As a partial offset, total interest income also increased as compared to the trailing quarter, up $4.3 million or 4.1%.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 68 basis points from 4.70% during the three months ended June 30, 2022, to 5.38% during the three months ended June 30, 2023. The accretion of discounts from acquired loans added 9 and 11 basis points to loan yields during the quarters ended June 30, 2023 and June 30, 2022, respectively.

The rates paid on interest bearing deposits increased by 52 basis points during the quarter ended June 30, 2023, compared to the trailing quarter. The cost of interest-bearing deposits increased by 88 basis points between the quarter ended June 30, 2023, and the same quarter of the prior year. In addition, the average balance of noninterest-bearing deposits decreased by $244.1 million quarter over quarter. As of June 30, 2023, the ratio of average total noninterest-bearing deposits to total average deposits was 39.2%, as compared to 41.0% and 41.2% at March 31, 2023 and June 30, 2022, respectively.

Six months ended June 30, 2023

Six months ended June 30, 2022

Average

Balance

Income/

Expense

Yield/

Rate

Average

Balance

Income/

Expense

Yield/

Rate

Assets

Loans, excluding PPP

$

6,439,292

$

169,152

5.30

%

$

5,416,854

$

125,602

4.68

%

PPP loans

1,525

9

1.19

%

44,238

2,061

9.40

%

Investments-taxable

2,370,722

37,691

3.21

%

2,434,045

24,573

2.04

%

Investments-nontaxable (1)

185,417

3,340

3.63

%

170,132

2,945

3.49

%

Total investments

2,556,139

41,031

3.24

%

2,604,177

27,518

2.13

%

Cash at Federal Reserve and other banks

28,090

643

4.62

%

688,257

1,649

0.48

%

Total earning assets

9,025,046

210,835

4.71

%

8,753,526

156,830

3.61

%

Other assets, net

838,425

700,170

Total assets

$

9,863,471

$

9,453,696

Liabilities and shareholders’ equity

Interest-bearing demand deposits

$

1,665,371

$

2,560

0.31

%

$

1,698,815

$

183

0.02

%

Savings deposits

2,833,365

11,090

0.79

%

2,788,374

856

0.06

%

Time deposits

351,166

2,952

1.70

%

319,351

488

0.31

%

Total interest-bearing deposits

4,849,902

16,602

0.69

%

4,806,540

1,527

0.06

%

Other borrowings

377,995

8,212

4.38

%

39,966

10

0.05

%

Junior subordinated debt

101,050

3,314

6.61

%

81,092

1,643

4.09

%

Total interest-bearing liabilities

5,328,947

28,128

1.06

%

4,927,598

3,180

0.13

%

Noninterest-bearing deposits

3,249,488

3,329,459

Other liabilities

185,123

146,073

Shareholders’ equity

1,099,913

1,050,566

Total liabilities and shareholders’ equity

$

9,863,471

$

9,453,696

Net interest rate spread (1) (2)

3.65

%

3.48

%

Net interest income and margin (1) (3)

$

182,707

4.08

%

$

153,650

3.54

%

(1)

Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.

(2)

Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

(3)

Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

Interest Rates and Earning Asset Composition

During the quarter ended June 30, 2023, market interest rates, including many rates that serve as reference indices for variable rate loans and investment securities continued to increase. As noted above, these rate increases have continued to benefit growth in total interest income. As of June 30, 2023, the Company's loan portfolio consisted of approximately $6.5 billion in outstanding principal with a weighted average coupon rate of 5.15%. During the three-month periods ending June 30, 2023, March 31, 2023, and December 31, 2022, the weighted average coupon on loan production in the quarter was 6.85%, 6.71%, and 6.05%, respectively. Included in the June 30, 2023 loan total are adjustable rate loans totaling $3.8 billion, of which, $859.9 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities with fair values totaling $375.5 million which are subject to repricing on not less than a quarterly basis.

Asset Quality and Credit Loss Provisioning

During the three months ended June 30, 2023, the Company recorded a provision for credit losses of $9.7 million, as compared to $4.2 million during the trailing quarter, and $2.1 million during the first quarter of 2022.

The following table presents details of the provision for credit losses for the periods indicated:

Three months ended

Six months ended

(dollars in thousands)

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Addition to allowance for credit losses

$

8,980

$

1,940

$

13,295

$

10,145

Addition to reserve for unfunded loan commitments

670

160

550

285

Total provision for credit losses

$

9,650

$

2,100

$

13,845

$

10,430

The following table presents the activity in the allowance for credit losses on loans for the periods indicated:

Three months ended

Six months ended

(dollars in thousands)

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Balance, beginning of period

$

108,407

$

96,049

$

105,680

$

85,376

ACL at acquisition for PCD loans

—

—

—

2,037

Provision for credit losses

8,980

1,940

13,295

10,145

Loans charged-off

(277

)

(401

)

(2,035

)

(1,144

)

Recoveries of previously charged-off loans

219

356

389

1,530

Balance, end of period

$

117,329

$

97,944

$

117,329

$

97,944

The allowance for credit losses (ACL) was $117.3 million as of June 30, 2023, a net increase of $8.9 million over the immediately preceding quarter. The provision for credit losses of $9.0 million during the recent quarter was the net effect of increases in required reserves due to individually analyzed credits, qualitative factors, and quantitative reserves under the cohort model. On a comparative basis, the provision for credit losses of $1.9 million during the three months ended June 30, 2022, was largely the result of loan growth in the period. For the current quarter, the qualitative components of the ACL resulted in a net increase in required reserves totaling approximately $2.9 million due to softening of the California employment data, and increase in the corporate debt yields. Meanwhile, the quantitative component of the ACL increased reserve requirements by approximately $6.0 million over the trailing quarter primarily due to increases in specific reserves.

The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to evolve and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date, particularly CA unemployment trends. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing and food prices. Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have informed expectations of the US entering a recession within 12 months. As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.

Loans past due 30 days or more increased by $1.6 million during the quarter ended June 30, 2023, to $9.5 million, as compared to $7.9 million at March 31, 2023. Non-performing loans were $37.6 million at June 30, 2023, an increase of $21.6 million from $16.0 million as of March 31, 2023, and an increase of $25.7 million from $11.9 million as of June 30, 2022. The current quarter increase in non-performing assets is nearly entirely attributed to a single relationship. Of the $37.6 million loans designated as non-performing as of June 30, 2023, approximately $31.7 million are current with respect to payments required under their original loan agreements.

The following table illustrates the total loans by risk rating and their respective percentage of total loans for the periods presented:

June 30,

% of Loans Outstanding

March 31,

% of Loans Outstanding

June 30,

% of Loans Outstanding

(dollars in thousands)

2023

2023

2022

Risk Rating:

Pass

$

6,299,893

96.5

%

$

6,232,962

97.0

%

$

5,960,781

97.5

%

Special Mention

155,678

2.4

%

125,492

2.0

%

105,819

1.7

%

Substandard

65,169

1.0

%

63,967

1.0

%

46,821

0.8

%

Total

$

6,520,740

$

6,422,421

$

6,113,421

Classified loans to total loans

1.00

%

1.00

%

0.77

%

Loans past due 30+ days to total loans

0.15

%

0.12

%

0.10

%

The ratio of classified loans of 1.00% as of June 30, 2023, remained consistent with the trailing quarter, but increased by 23 basis points from June 30, 2022. The Company's criticized loan balances increased during the current quarter by $31.4 million to $220.8 million as of June 30, 2023. The recent increase in special mention loans as a percentage of total loans outstanding is consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic and reflects management's historically conservative approach to credit risk monitoring. The newly criticized special mention loans are spread amongst a handful of relationships, with diversity amongst geographies and collateral types.

There were no properties added or disposed within Other Real Estate Owned during the second quarter of 2023. Total write-downs of $0.5 million were incurred during the current quarter across four properties. As of June 30, 2023, other real estate owned consisted of nine properties with a carrying value of approximately $2.9 million.

Non-performing assets of $40.5 million at June 30, 2023, represented 0.41% of total assets, a change from the $19.5 million or 0.20% and $15.3 million or 0.15% as of March 31, 2023 and June 30, 2022, respectively.

Allocation of Credit Loss Reserves by Loan Type

As of June 30, 2023

As of March 31, 2023

As of June 30, 2022

(dollars in thousands)

Amount

% of Loans Outstanding

Amount

% of Loans Outstanding

Amount

% of Loans Outstanding

Commercial real estate:

CRE - Non Owner Occupied

$

33,042

1.54

%

$

32,963

1.53

%

$

28,081

1.41

%

CRE - Owner Occupied

20,208

2.08

%

14,559

1.50

%

12,620

1.35

%

Multifamily

14,075

1.48

%

13,873

1.47

%

11,795

1.36

%

Farmland

3,691

1.33

%

3,542

1.29

%

2,954

1.17

%

Total commercial real estate loans

71,016

1.63

%

64,937

1.49

%

55,450

1.37

%

Consumer:

SFR 1-4 1st Liens

13,134

1.58

%

11,920

1.48

%

10,311

1.43

%

SFR HELOCs and Junior Liens

10,608

2.92

%

10,914

2.91

%

11,591

3.01

%

Other

2,771

4.67

%

2,062

3.76

%

2,029

3.41

%

Total consumer loans

26,513

2.12

%

24,896

2.02

%

23,931

2.06

%

Commercial and Industrial

11,647

2.02

%

12,069

2.18

%

9,979

1.97

%

Construction

7,031

2.53

%

5,655

2.50

%

7,522

2.40

%

Agricultural Production

1,105

1.80

%

833

1.77

%

1,046

1.47

%

Leases

17

0.20

%

17

0.20

%

16

0.20

%

Allowance for credit losses

117,329

1.80

%

108,407

1.69

%

97,944

1.60

%

Reserve for unfunded loan commitments

4,865

4,195

4,075

Total allowance for credit losses

$

122,194

1.87

%

$

112,602

1.75

%

$

102,019

1.67

%

In addition to the allowance for credit losses above, the Company has acquired various performing loans whose fair value as of the acquisition date was determined to be less than the principal balance owed on those loans. This difference represents the collective discount of credit, interest rate and liquidity measurements which is expected to be amortized over the life of the loans. As of June 30, 2023, the unamortized discount associated with acquired loans totaled $27.6 million.

Non-interest Income

The following table presents the key components of non-interest income for the current and trailing quarterly periods indicated:

Three months ended

(dollars in thousands)

June 30, 2023

March 31, 2023

Change

% Change

ATM and interchange fees

$

6,856

$

6,344

$

512

8.1

%

Service charges on deposit accounts

4,581

3,431

1,150

33.5

%

Other service fees

992

1,166

(174

)

(14.9

)%

Mortgage banking service fees

454

465

(11

)

(2.4

)%

Change in value of mortgage servicing rights

85

(209

)

294

(140.7

)%

Total service charges and fees

12,968

11,197

1,771

15.8

%

Increase in cash value of life insurance

788

802

(14

)

(1.7

)%

Asset management and commission income

1,158

934

224

24.0

%

Gain on sale of loans

295

206

89

43.2

%

Lease brokerage income

74

98

(24

)

(24.5

)%

Sale of customer checks

407

288

119

41.3

%

Loss on sale of investment securities

—

(164

)

164

(100.0

)%

(Loss) gain on marketable equity securities

(42

)

42

(84

)

(200.0

)%

Other income

93

232

(139

)

(59.9

)%

Total other non-interest income

2,773

2,438

335

13.7

%

Total non-interest income

$

15,741

$

13,635

$

2,106

15.4

%

Non-interest income increased $2.1 million or 15.4% to $15.7 million during the three months ended June 30, 2023, compared to $13.6 million during the quarter ended March 31, 2023. Total service charges and fees increased by $1.8 million or 15.8% during the period, which is largely a return to normalcy following the waived or reversed fees during the first quarter of 2023 as previously disclosed.

The following table presents the key components of non-interest income for the current and prior year periods indicated:

Three months ended June 30,

(dollars in thousands)

2023

2022

Change

% Change

ATM and interchange fees

$

6,856

$

6,984

$

(128

)

(1.8

)%

Service charges on deposit accounts

4,581

4,163

418

10.0

%

Other service fees

992

1,279

(287

)

(22.4

)%

Mortgage banking service fees

454

482

(28

)

(5.8

)%

Change in value of mortgage servicing rights

85

136

(51

)

(37.5

)%

Total service charges and fees

12,968

13,044

(76

)

(0.6

)%

Increase in cash value of life insurance

788

752

36

4.8

%

Asset management and commission income

1,158

1,039

119

11.5

%

Gain on sale of loans

295

542

(247

)

(45.6

)%

Lease brokerage income

74

238

(164

)

(68.9

)%

Sale of customer checks

407

441

(34

)

(7.7

)%

Loss on sale of investment securities

—

—

—

—

%

Loss on marketable equity securities

(42

)

(94

)

52

(55.3

)%

Other income

93

468

(375

)

(80.1

)%

Total other non-interest income

2,773

3,386

(613

)

(18.1

)%

Total non-interest income

$

15,741

$

16,430

$

(689

)

(4.2

)%

Non-interest income decreased $0.7 million or 4.2% to $15.7 million during the three months ended June 30, 2023, compared to $16.4 million during the quarter ended June 30, 2022. The declining mortgage related activity resulting from elevated interest rates reduced income recorded from the sale of loans by $0.2 million or 45.6%, and to a lesser extent a smaller change in the fair value of mortgage servicing rights, as compared to the three months ended June 30, 2022. Other non-interest income reductions of $0.4 million were primarily the result of a $0.3 million difference in fair value changes of assets associated with retirement plans where the corresponding offset of those changes are included in benefits and other compensation costs.

Six months ended June 30,

(dollars in thousands)

2023

2022

Change

% Change

ATM and interchange fees

$

13,200

$

13,227

$

(27

)

(0.2

)%

Service charges on deposit accounts

8,012

7,997

15

0.2

%

Other service fees

2,158

2,161

(3

)

(0.1

)%

Mortgage banking service fees

919

945

(26

)

(2.8

)%

Change in value of mortgage servicing rights

(124

)

410

(534

)

(130.2

)%

Total service charges and fees

24,165

24,740

(575

)

(2.3

)%

Increase in cash value of life insurance

1,590

1,390

200

14.4

%

Asset management and commission income

2,092

1,926

166

8.6

%

Gain on sale of loans

501

1,788

(1,287

)

(72.0

)%

Lease brokerage income

172

396

(224

)

(56.6

)%

Sale of customer checks

695

545

150

27.5

%

Loss on sale of investment securities

(164

)

—

(164

)

n/m

Loss on marketable equity securities

—

(231

)

231

(100.0

)%

Other income

325

972

(647

)

(66.6

)%

Total other non-interest income

5,211

6,786

(1,575

)

(23.2

)%

Total non-interest income

$

29,376

$

31,526

$

(2,150

)

(6.8

)%

Non-interest income decreased $2.2 million or 6.8% to $29.4 million during the three months ended June 30, 2023, as compared to $31.5 million during the six months ended June 30, 2022, for reasons similar to those referenced above.

Non-interest Expense

The following table presents the key components of non-interest expense for the current and trailing quarterly periods indicated:

Three months ended

(dollars in thousands)

June 30, 2023

March 31, 2023

Change

% Change

Base salaries, net of deferred loan origination costs

$

24,059

$

23,000

$

1,059

4.6

%

Incentive compensation

4,377

2,895

1,482

51.2

%

Benefits and other compensation costs

6,278

6,668

(390

)

(5.8

)%

Total salaries and benefits expense

34,714

32,563

2,151

6.6

%

Occupancy

3,991

4,160

(169

)

(4.1

)%

Data processing and software

4,638

4,032

606

15.0

%

Equipment

1,436

1,383

53

3.8

%

Intangible amortization

1,656

1,656

—

—

%

Advertising

1,016

759

257

33.9

%

ATM and POS network charges

1,902

1,709

193

11.3

%

Professional fees

1,985

1,589

396

24.9

%

Telecommunications

809

595

214

36.0

%

Regulatory assessments and insurance

1,993

792

1,201

151.6

%

Postage

311

299

12

4.0

%

Operational loss

1,090

435

655

150.6

%

Courier service

483

339

144

42.5

%

Gain on sale or acquisition of foreclosed assets

—

—

—

—

%

Loss on disposal of fixed assets

18

—

18

n/m

Other miscellaneous expense

5,201

3,483

1,718

49.3

%

Total other non-interest expense

26,529

21,231

5,298

25.0

%

Total non-interest expense

$

61,243

$

53,794

$

7,449

13.8

%

Average full-time equivalent staff

1,210

1,219

(9

)

(0.7

)%

Non-interest expense for the quarter ended June 30, 2023, increased $7.4 million or 13.8% to $61.2 million as compared to $53.8 million during the trailing quarter ended March 31, 2023. Total salaries and benefits expense increased by $2.2 million or 6.6%, led by $1.5 million of growth in incentive compensation expense related to the achievement of certain loan and deposit volume targets and a $1.1 million or 4.6% increase in salaries which were primarily driven by Company-wide merit increases which became effective in late March of this year. Data processing and software expenses increased by $0.6 million or 15.0% related to ongoing investments in the Company's data management and security infrastructure. Advertising costs increased $0.3 million or 33.9% during the quarter, connected to an increase in media advertising for promotional campaigns. Professional fees for the three months ended June 30, 2023, include approximately $0.7 million in costs associated with third party assistance with contract negotiation, the benefits of which will be realized in future periods. Regulatory assessments increased $1.2 million or 151.6% during the quarter as a result of increases in assessment rates. Management estimates that the near-term future quarterly run rate of these regulatory assessment expenses will be approximately $1.75 million per quarter, but anticipates that these costs will increase further if the economic environment in which the Company operates continues to deteriorate. The Company does not anticipate that it will be subject to the recently announced special assessments as its total uninsured deposits do not exceed $5.0 billion. Operational losses also increased by $0.7 million or 150.6%, primarily as a result of burglary at several ATM machines. Other miscellaneous expenses increased $1.7 million or 49.3%, due primarily to changes in regulatory requirements which is expected to result in an estimated $0.8 million in refunds to customers previously charged non-sufficient funds fees and an additional increase of $0.5 million in provision expense on real estate owned and various other increases across the Company, including travel and entertainment costs.

The following table presents the key components of non-interest expense for the current and prior year quarterly periods indicated:

Three months ended June 30,

(dollars in thousands)

2023

2022

Change

% Change

Base salaries, net of deferred loan origination costs

$

24,059

$

22,169

$

1,890

8.5

%

Incentive compensation

4,377

4,282

95

2.2

%

Benefits and other compensation costs

6,278

6,491

(213

)

(3.3

)%

Total salaries and benefits expense

34,714

32,942

1,772

5.4

%

Occupancy

3,991

3,996

(5

)

(0.1

)%

Data processing and software

4,638

3,596

1,042

29.0

%

Equipment

1,436

1,453

(17

)

(1.2

)%

Intangible amortization

1,656

1,702

(46

)

(2.7

)%

Advertising

1,016

818

198

24.2

%

ATM and POS network charges

1,902

1,781

121

6.8

%

Professional fees

1,985

1,233

752

61.0

%

Telecommunications

809

564

245

43.4

%

Regulatory assessments and insurance

1,993

779

1,214

155.8

%

Merger and acquisition expenses

—

2,221

(2,221

)

(100.0

)%

Postage

311

313

(2

)

(0.6

)%

Operational loss

1,090

456

634

139.0

%

Courier service

483

486

(3

)

(0.6

)%

Gain on sale or acquisition of foreclosed assets

—

(98

)

98

(100.0

)%

Loss (gain) on disposal of fixed assets

18

5

13

260.0

%

Other miscellaneous expense

5,201

4,017

1,184

29.5

%

Total other non-interest expense

26,529

23,322

3,207

13.8

%

Total non-interest expense

$

61,243

$

56,264

$

4,979

8.8

%

Average full-time equivalent staff

1,210

1,183

27

2.3

%

Total non-interest expense increased $5.0 million or 8.8% to $61.2 million during the three months ended June 30, 2023, as compared to $56.3 million for the quarter ended June 30, 2022. Total salaries and benefits expense increased by $1.8 million or 5.4% to $34.7 million, largely from a net increase of 27 full-time equivalent positions as well as annual merit increases as previously discussed. Professional fees increased by $0.7 million which was directly associated with third party contract negotiation assistance, the benefits of which will be realized in future periods. Other miscellaneous expenses increased $1.2 million or 29.5%, due primarily to changes in regulatory requirements which is expected to result in an estimated $0.8 million in refunds to customers previously charged non-sufficient funds fees and an additional increase of $0.5 million in provision expense on real estate owned and various other increases across the Company, including travel and entertainment costs. Merger and acquisition expenses associated with the VRB merger totaled $2.2 million for the quarter ended June of 2022. The reasons for changes in data processing and software, and operational losses, are consistent with the discussions previously provided.

Six months ended June 30,

(dollars in thousands)

2023

2022

Change

% Change

Base salaries, net of deferred loan origination costs

$

47,059

$

40,385

$

6,674

16.5

%

Incentive compensation

7,272

6,865

407

5.9

%

Benefits and other compensation costs

12,946

12,463

483

3.9

%

Total salaries and benefits expense

67,277

59,713

7,564

12.7

%

Occupancy

8,151

7,571

580

7.7

%

Data processing and software

8,670

7,109

1,561

22.0

%

Equipment

2,819

2,786

33

1.2

%

Intangible amortization

3,312

2,930

382

13.0

%

Advertising

1,775

1,455

320

22.0

%

ATM and POS network charges

3,611

3,156

455

14.4

%

Professional fees

3,574

2,109

1,465

69.5

%

Telecommunications

1,404

1,085

319

29.4

%

Regulatory assessments and insurance

2,785

1,499

1,286

85.8

%

Merger and acquisition expenses

—

6,253

(6,253

)

(100.0

)%

Postage

610

541

69

12.8

%

Operational loss

1,525

273

1,252

458.6

%

Courier service

822

900

(78

)

(8.7

)%

Gain on sale or acquisition of foreclosed assets

—

(98

)

98

(100.0

)%

Loss (gain) on disposal of fixed assets

18

(1,073

)

1,091

(101.7

)%

Other miscellaneous expense

8,684

6,502

2,182

33.6

%

Total other non-interest expense

47,760

42,998

4,762

11.1

%

Total non-interest expense

$

115,037

$

102,711

$

12,326

12.0

%

Average full-time equivalent staff

1,214

1,133

81

7.1

%

Total non-interest expense increased $12.3 million or 12.0% to $115.0 million during the six months ended June 30, 2023, as compared to $102.7 million for the comparative period in 2022, for reasons primarily associated with the acquisition of Valley Republic Bank in March of 2022 which resulted in expense increases for nearly every identified category. Merger and acquisition expenses associated with the VRB merger totaled $6.2 million for the six-month period ended 2022. The reasons for additional and more specific changes in various costs identified above, and including but not limited to data processing, regulatory assessments, operational losses and other expenses are consistent with the discussions previously provided.

Provision for Income Taxes

The Company’s effective tax rate was 25.6% for the quarter ended June 30, 2023, as compared to 26.8% for the period ended March 31, 2023, and 28.1% for the year ended December 31, 2022. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 29.6% are due to the proportion of non-taxable revenues, non-deductible expenses, and benefits from tax credits as compared to the levels of pre-tax earnings.

About TriCo Bancshares

Established in 1975, Tri Counties Bank is a wholly-owned subsidiary of TriCo Bancshares (NASDAQ: TCBK) headquartered in Chico, California, providing a unique brand of customer Service with Solutions available in traditional stand-alone and in-store bank branches and loan production offices in communities throughout California. Tri Counties Bank provides an extensive and competitive breadth of consumer, small business and commercial banking financial services, along with convenient around-the-clock ATMs, online and mobile banking access. Brokerage services are provided by Tri Counties Advisors through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations impacts on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; regulatory restrictions on our ability to successfully market and price our products to consumers; technological changes; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the impact of a slowing U.S. economy and potentially increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of, and cost of, sources of funding and the demand for our products; adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, commodities prices, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities, terrorism or geopolitical events; adverse developments in the financial services industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; risks related to the sufficiency of liquidity; the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; the costs or effects of mergers, acquisitions or dispositions we may make, as well as whether we are able to obtain any required governmental approvals in connection with any such activities, or identify and complete favorable transactions in the future, and/or realize the contemplated financial business benefits; the regulatory and financial impacts associated with exceeding $10 billion in total assets; the negative impact on our reputation and profitability in the event customers experience economic harm or in the event that regulatory violations are identified; the ability to execute our business plan in new lending markets; the future operating or financial performance of the Company, including our outlook for future growth and changes in the level and direction of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effectiveness of the Company's asset management activities in improving, resolving or liquidating lower-quality assets; the effect of changes in the financial performance and/or condition of our borrowers; changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us due to changes in credit quality or rates; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; the effects of changes in the level or cost of checking or savings account deposits on our funding costs and net interest margin; increasing noninterest expense and its impact on our efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of attracting, integrating and retaining key employees; the vulnerability of the Company's operational or security systems or infrastructure including the impact of the recent cyber security ransomware incident on our operations and reputation, the systems of third-party vendors or other service providers with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond to such incidents; increased data security risks due to work from home arrangements and email vulnerability; failure to safeguard personal information; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the transition away from the London Interbank Offered Rate toward new interest rate benchmarks; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2022, which has been filed with the Securities and Exchange Commission (the "SEC") and all subsequent filings with the SEC under Sections 13(a), 13(c), 14, and 15(d) of the Securities Act of 1934, as amended. Such filings are also available in the "Investor Relations" section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We undertake no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands, except share data)

Three months ended

June 30,
2023

March 31,
2023

December 31,
2022

September 30,
2022

June 30,
2022

Revenue and Expense Data

Interest income

$

107,158

$

102,907

$

102,989

$

96,366

$

86,955

Interest expense

18,557

9,571

4,089

2,260

1,909

Net interest income

88,601

93,336

98,900

94,106

85,046

Provision for credit losses

9,650

4,195

4,245

3,795

2,100

Noninterest income:

Service charges and fees

12,968

11,197

12,343

12,682

13,044

Loss on sale of investment securities

—

(164

)

—

—

—

Other income

2,773

2,602

3,537

2,958

3,386

Total noninterest income

15,741

13,635

15,880

15,640

16,430

Noninterest expense (2):

Salaries and benefits

34,714

32,563

36,611

33,528

34,370

Occupancy and equipment

5,427

5,543

5,482

5,387

5,449

Data processing and network

6,540

5,741

6,236

5,143

5,468

Other noninterest expense

14,562

9,947

11,140

10,407

10,977

Total noninterest expense

61,243

53,794

59,469

54,465

56,264

Total income before taxes

33,449

48,982

51,066

51,486

43,112

Provision for income taxes

8,557

13,149

14,723

14,148

11,748

Net income

$

24,892

$

35,833

$

36,343

$

37,338

$

31,364

Share Data

Basic earnings per share

$

0.75

$

1.08

$

1.09

$

1.12

$

0.93

Diluted earnings per share

$

0.75

$

1.07

$

1.09

$

1.12

$

0.93

Dividends per share

$

0.30

$

0.30

$

0.30

$

0.30

$

0.25

Book value per common share

$

32.86

$

32.84

$

31.39

$

29.71

$

31.25

Tangible book value per common share (1)

$

23.30

$

23.22

$

21.76

$

19.92

$

21.41

Shares outstanding

33,259,260

33,195,250

33,331,513

33,332,189

33,350,974

Weighted average shares

33,219,168

33,295,750

33,330,029

33,348,322

33,561,389

Weighted average diluted shares

33,301,548

33,437,680

33,467,393

33,463,364

33,705,280

Credit Quality

Allowance for credit losses to gross loans

1.80

%

1.69

%

1.64

%

1.61

%

1.60

%

Loans past due 30 days or more

$

9,483

$

7,891

$

4,947

$

6,471

$

5,920

Total nonperforming loans

$

37,592

$

16,025

$

21,321

$

17,471

$

11,925

Total nonperforming assets

$

40,506

$

19,464

$

24,760

$

20,912

$

15,304

Loans charged-off

$

276

$

1,758

$

174

$

267

$

401

Loans recovered

$

218

$

170

$

66

$

311

$

356

Selected Financial Ratios

Return on average total assets

1.01

%

1.47

%

1.45

%

1.46

%

1.24

%

Return on average equity

8.98

%

13.36

%

14.19

%

13.78

%

11.53

%

Average yield on loans, excluding PPP

5.38

%

5.21

%

5.10

%

4.87

%

4.70

%

Average yield on interest-earning assets

4.78

%

4.64

%

4.52

%

4.12

%

3.76

%

Average rate on interest-bearing deposits

0.95

%

0.43

%

0.18

%

0.08

%

0.07

%

Average cost of total deposits

0.58

%

0.25

%

0.10

%

0.04

%

0.04

%

Average cost of total deposits and other borrowings

0.80

%

0.38

%

0.12

%

0.04

%

0.02

%

Average rate on borrowings & subordinated debt

4.92

%

4.74

%

4.07

%

3.60

%

3.12

%

Average rate on interest-bearing liabilities

1.37

%

0.74

%

0.32

%

0.17

%

0.15

%

Net interest margin (fully tax-equivalent) (1)

3.96

%

4.21

%

4.34

%

4.02

%

3.67

%

Loans to deposits

80.55

%

80.02

%

77.45

%

72.95

%

69.81

%

Efficiency ratio

58.69

%

50.29

%

51.81

%

49.63

%

55.45

%

Supplemental Loan Interest Income Data

Discount accretion on acquired loans

$

1,471

$

1,397

$

1,751

$

714

$

1,677

All other loan interest income (excluding PPP) (1)

$

85,272

$

81,013

$

79,989

$

74,929

$

67,277

Total loan interest income (excluding PPP) (1)

$

86,743

$

82,410

$

81,740

$

75,643

$

68,954

(1)

Non-GAAP measure

(2)

Inclusive of merger related expenses

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands)

Balance Sheet Data

June 30,
2023

March 31,
2023

December 31,
2022

September 30,
2022

June 30,
2022

Cash and due from banks

$

118,792

$

110,335

$

107,230

$

246,509

$

488,868

Securities, available for sale, net

2,323,011

2,408,452

2,455,036

2,482,857

2,608,771

Securities, held to maturity, net

145,117

152,067

160,983

168,038

176,794

Restricted equity securities

17,250

17,250

17,250

17,250

17,250

Loans held for sale

1,058

226

1,846

247

1,216

Loans:

Commercial real estate

4,343,924

4,353,959

4,359,083

4,238,930

4,049,893

Consumer

1,252,225

1,233,797

1,240,743

1,217,297

1,162,989

Commercial and industrial

576,247

553,098

569,921

534,960

507,685

Construction

278,425

225,996

211,560

243,571

313,646

Agriculture production

61,337

47,062

61,414

71,599

71,373

Leases

8,582

8,509

7,726

7,933

7,835

Total loans, gross

6,520,740

6,422,421

6,450,447

6,314,290

6,113,421

Allowance for credit losses

(117,329

)

(108,407

)

(105,680

)

(101,488

)

(97,944

)

Total loans, net

6,403,411

6,314,014

6,344,767

6,212,802

6,015,477

Premises and equipment

72,619

72,096

72,327

73,266

73,811

Cash value of life insurance

135,332

134,544

133,742

132,933

132,857

Accrued interest receivable

32,835

31,388

31,856

27,070

25,861

Goodwill

304,442

304,442

304,442

307,942

307,942

Other intangible assets

13,358

15,014

16,670

18,372

20,074

Operating leases, right-of-use

29,140

30,000

26,862

26,622

27,154

Other assets

257,056

252,566

257,975

262,971

224,536

Total assets

$

9,853,421

$

9,842,394

$

9,930,986

$

9,976,879

$

10,120,611

Deposits:

Noninterest-bearing demand deposits

$

3,073,353

$

3,236,696

$

3,502,095

$

3,678,202

$

3,604,237

Interest-bearing demand deposits

1,751,998

1,635,706

1,718,541

1,749,123

1,796,580

Savings deposits

2,778,118

2,807,796

2,884,378

2,924,674

3,028,787

Time certificates

491,896

345,667

223,999

303,770

327,171

Total deposits

8,095,365

8,025,865

8,329,013

8,655,769

8,756,775

Accrued interest payable

3,655

1,643

1,167

853

755

Operating lease liability

31,377

32,228

29,004

28,717

29,283

Other liabilities

136,464

157,222

159,741

153,110

155,529

Other borrowings

392,714

434,140

264,605

47,068

35,089

Junior subordinated debt

101,065

101,051

101,040

101,024

101,003

Total liabilities

8,760,640

8,752,149

8,884,570

8,986,541

9,078,434

Common stock

695,305

695,168

697,448

696,348

696,441

Retained earnings

578,852

564,538

542,873

516,699

491,705

Accum. other comprehensive loss, net of tax

(181,376

)

(169,461

)

(193,905

)

(222,709

)

(145,969

)

Total shareholders’ equity

$

1,092,781

$

1,090,245

$

1,046,416

$

990,338

$

1,042,177

Quarterly Average Balance Data

Average loans, excluding PPP

$

6,465,903

$

6,412,386

$

6,357,250

$

6,162,267

$

5,890,578

Average interest-earning assets

$

9,022,064

$

9,028,061

$

9,076,450

$

9,320,152

$

9,330,059

Average total assets

$

9,848,191

$

9,878,927

$

9,932,931

$

10,131,118

$

10,121,714

Average deposits

$

7,981,515

$

8,218,576

$

8,545,172

$

8,752,215

$

8,743,320

Average borrowings and subordinated debt

$

578,312

$

378,676

$

186,957

$

139,919

$

136,244

Average total equity

$

1,112,223

$

1,087,473

$

1,016,468

$

1,074,776

$

1,091,454

Capital Ratio Data

Total risk-based capital ratio

14.5

%

14.5

%

14.2

%

14.0

%

14.1

%

Tier 1 capital ratio

12.7

%

12.7

%

12.4

%

12.2

%

12.3

%

Tier 1 common equity ratio

12.0

%

12.0

%

11.7

%

11.4

%

11.5

%

Tier 1 leverage ratio

10.4

%

10.2

%

10.1

%

9.6

%

9.3

%

Tangible capital ratio (1)

8.1

%

8.1

%

7.6

%

6.9

%

7.3

%

(1)

Non-GAAP measure

TRICO BANCSHARES—NON-GAAP FINANCIAL MEASURES
(Unaudited. Dollars in thousands)

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this press release because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:

Three months ended

Six months ended

(dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Net interest margin

Acquired loans discount accretion, net:

Amount (included in interest income)

$

1,471

$

1,397

$

1,677

$

2,868

$

3,000

Effect on average loan yield

0.09

%

0.09

%

0.11

%

0.09

%

0.11

%

Effect on net interest margin (FTE)

0.07

%

0.06

%

0.07

%

0.06

%

0.07

%

Net interest margin (FTE)

3.96

%

4.21

%

3.67

%

4.08

%

3.54

%

Net interest margin less effect of acquired loan discount accretion (Non-GAAP)

3.89

%

4.15

%

3.60

%

4.02

%

3.47

%

PPP loans yield, net:

Amount (included in interest income)

$

4

$

5

$

964

$

9

$

2,061

Effect on net interest margin (FTE)

—

%

—

%

0.03

%

—

%

0.03

%

Net interest margin less effect of PPP loan yield (Non-GAAP)

3.96

%

4.21

%

3.64

%

4.08

%

3.51

%

Acquired loan discount accretion and PPP loan yield, net:

Amount (included in interest income)

$

1,475

$

1,402

$

2,641

$

2,877

$

5,061

Effect on net interest margin (FTE)

0.07

%

0.06

%

0.10

%

0.06

%

0.10

%

Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)

3.89

%

4.15

%

3.57

%

4.02

%

3.44

%

Three months ended

Six months ended

(dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Pre-tax pre-provision return on average assets or equity

Net income (GAAP)

$

24,892

$

35,833

$

31,364

$

60,725

$

51,738

Exclude provision for income taxes

8,557

13,149

11,748

21,706

19,617

Exclude provision (benefit) for credit losses

9,650

4,195

2,100

13,845

10,430

Net income before income tax and provision expense (Non-GAAP)

$

43,099

$

53,177

$

45,212

$

96,276

$

81,785

Average assets (GAAP)

$

9,848,191

$

9,878,927

$

10,121,714

$

9,863,471

$

9,453,696

Average equity (GAAP)

$

1,112,223

$

1,087,473

$

1,091,454

$

1,099,913

$

1,050,566

Return on average assets (GAAP) (annualized)

1.01

%

1.47

%

1.24

%

1.24

%

1.10

%

Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)

1.76

%

2.18

%

1.79

%

1.97

%

1.74

%

Return on average equity (GAAP) (annualized)

8.98

%

13.36

%

11.53

%

11.13

%

9.93

%

Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)

15.54

%

19.83

%

16.61

%

17.65

%

15.70

%

Three months ended

Six months ended

(dollars in thousands)

June 30,
2023

March 31,
2023

June 30,
2022

June 30,
2023

June 30,
2022

Return on tangible common equity

Average total shareholders' equity

$

1,112,223

$

1,087,473

$

1,091,454

$

1,099,913

$

1,050,566

Exclude average goodwill

304,442

304,442

307,942

334,565

267,533

Exclude average other intangibles

14,716

15,842

21,040

16

16,845

Average tangible common equity (Non-GAAP)

$

793,065

$

767,189

$

762,472

$

765,332

$

766,188

Net income (GAAP)

$

24,892

$

35,833

$

31,364

$

60,725

$

51,738

Exclude amortization of intangible assets, net of tax effect

1,166

1,166

1,199

2,333

2,064

Tangible net income available to common shareholders (Non-GAAP)

$

26,058

$

36,999

$

32,563

$

63,058

$

53,802

Return on average equity

8.98

%

13.36

%

11.53

%

11.13

%

9.93

%

Return on average tangible common equity (Non-GAAP)

13.18

%

19.56

%

17.13

%

16.62

%

14.16

%

Three months ended

(dollars in thousands)

June 30,
2023

March 31,
2023

December 31,
2022

September 30,
2022

June 30,
2022

Tangible shareholders' equity to tangible assets

Shareholders' equity (GAAP)

$

1,092,781

$

1,090,245

$

1,046,416

$

990,338

$

1,042,177

Exclude goodwill and other intangible assets, net

317,800

319,456

321,112

326,314

328,016

Tangible shareholders' equity (Non-GAAP)

$

774,981

$

770,789

$

725,304

$

664,024

$

714,161

Total assets (GAAP)

$

9,853,421

$

9,842,394

$

9,930,986

$

9,976,879

$

10,120,611

Exclude goodwill and other intangible assets, net

317,800

319,456

321,112

326,314

328,016

Total tangible assets (Non-GAAP)

$

9,535,621

$

9,522,938

$

9,609,874

$

9,650,565

$

9,792,595

Shareholders' equity to total assets (GAAP)

11.09

%

11.08

%

10.54

%

9.93

%

10.30

%

Tangible shareholders' equity to tangible assets (Non-GAAP)

8.13

%

8.09

%

7.55

%

6.88

%

7.29

%

Three months ended

(dollars in thousands)

June 30,
2023

March 31,
2023

December 31,
2022

September 30,
2022

June 30,
2022

Tangible common shareholders' equity per share

Tangible s/h equity (Non-GAAP)

$

774,981

$

770,789

$

725,304

$

664,024

$

714,161

Common shares outstanding at end of period

33,259,260

33,195,250

33,331,513

33,332,189

33,350,974

Common s/h equity (book value) per share (GAAP)

$

32.86

$

32.84

$

31.39

$

29.71

$

31.25

Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)

$

23.30

$

23.22

$

21.76

$

19.92

$

21.41

View source version on businesswire.com: https://www.businesswire.com/news/home/20230726475602/en/

Contacts

Peter G. Wiese, EVP & CFO, (530) 898-0300

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