TCBK - TriCo Bancshares Announces Second Quarter 2022 Results

July, 27 2022 04:35 PM TriCo Bancshares

Notable Items for Second Quarter 2022

Results for the quarter reflect the full operational impact of the March 25, 2022 merger with Valley Republic Bancorp.
Organic loan growth, excluding PPP, for the quarter of $300.3 million or 20.7% annualized and credit quality continued to show improvement, while organic deposit growth for the quarter was $42.3 million or 1.9% annualized
Net interest margin, excluding the benefit from acquired loan discount accretion and PPP loan yield, increased 0.28% to 3.57%
Quarterly pre-tax pre-provision net revenues grew to $45.2 million, inclusive of $2.2 million in merger expenses, as compared to $36.6 million, inclusive of $4.0 million in merger expenses, in the trailing quarter and $38.9 million in the same quarter of the prior year

"While we continue to build on the strength of our core franchise, we are cautiously optimistic despite the potential volatility which may be forthcoming for the financial services industry," noted Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "We are pleased with the increase in rates, as well as the mix shift of our average earning assets, which facilitated meaningful expansion of net interest margin and the growth in revenues for the quarter."

TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $31,364,000 for the quarter ended June 30, 2022, compared to $20,374,000 during the trailing quarter ended March 31, 2022, and $28,362,000 during the quarter ended June 30, 2021. Diluted earnings per share were $0.93 for the second quarter of 2022, compared to $0.67 for the first quarter of 2022 and $0.95 for the second quarter of 2021.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three and six months ended June 30, 2022, included the following:

For the three and six months ended June 30, 2022, the Company’s return on average assets was 1.24% and 1.10%, while the return on average equity was 11.53% and 9.93%, respectively. These ratios were impacted by merger related expenses of $2,221,000 and $6,253,000 for the respective periods in 2022.
Organic loan growth, excluding PPP and acquired loans, totaled $300.3 million (20.7% annualized) for the current quarter and $638.4 million (13.6% annualized) for the trailing twelve-month period.
For the current quarter, net interest margin, less the effect of acquired loan discount accretion and PPP yields ( non-GAAP ), on a tax equivalent basis was 3.57%, an increase of 28 basis points from 3.29% in the trailing quarter.
The efficiency ratio was 55.45% for the three months ended June 30, 2022, as compared to 55.95% for the trailing quarter.
As of June 30, 2022, the Company reported total loans, total assets and total deposits of $6.1 billion, $10.1 billion and $8.8 billion, respectively. As a direct result of organic loan growth during the quarter, the loan to deposit ratio has increased to 69.8% as of June 30, 2022, as compared to 67.2% as of the trailing quarter.
The average rate of interest paid on deposits, including non-interest-bearing deposits, equaled 0.04% during the second quarter of 2022, consistent with 0.04% during the trailing quarter, and representing a decrease of one basis point from the average rate paid of 0.05% during the same quarter of the prior year.
Noninterest income related to service charges and fees was $13.0 million for the three month period ended June 30, 2022, an increase of 19.3% when compared to the same period in 2021.
The provision for credit losses for loans and debt securities was approximately $2.1 million during the quarter ended June 30, 2022, as compared to a provision expense of $8.3 million during the trailing quarter ended March 31, 2022, and a reversal of provision expense totaling $0.3 million for the three month period ended June 30, 2021.
The allowance for credit losses to total loans was 1.60% as of June 30, 2022, compared to 1.64% as of the trailing quarter end, and 1.74% as of June 30, 2021. Non-performing assets to total assets were 0.15% at June 30, 2022, as compared to 0.17% as of March 31, 2022, and 0.43% at June 30, 2021.

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Annual Report on Form 10-Q for the period ended June 30, 2022, 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)

2022

2022

$ Change

% Change
Net interest income

$
85,046


$
67,924


$
17,122


25.2
%
Provision for credit losses


(2,100
)


(8,330
)


6,230


(74.8
) %
Noninterest income


16,430



15,096



1,334


8.8
%
Noninterest expense


(56,264
)


(46,447
)


(9,817
)

21.1
%
Provision for income taxes


(11,748
)


(7,869
)


(3,879
)

49.3
%
Net income

$
31,364


$
20,374


$
10,990


53.9
%
Diluted earnings per share

$
0.93


$
0.67


$
0.26


38.8
%
Dividends per share

$
0.25


$
0.25


$
—


—
%
Average common shares


33,561



30,050



3,511


11.7
%
Average diluted common shares


33,705



30,202



3,503


11.6
%
Return on average total assets


1.24
%


0.94
%




Return on average equity


11.53
%


8.19
%




Efficiency ratio


55.45
%


55.95
%



Three months ended June 30,




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

2022

2021

$ Change

% Change
Net interest income

$
85,046


$
67,083


$
17,963


26.8
%
(Provision for) reversal of credit losses


(2,100
)


260



(2,360
)

(907.7
) %
Noninterest income


16,430



15,957



473


3.0
%
Noninterest expense


(56,264
)


(44,171
)


(12,093
)

27.4
%
Provision for income taxes


(11,748
)


(10,767
)


(981
)

9.1
%
Net income

$
31,364


$
28,362


$
3,002


10.6
%
Diluted earnings per share

$
0.93


$
0.95


$
(0.02
)

(2.1
) %
Dividends per share

$
0.25


$
0.25


$
—


—
%
Average common shares


33,561



29,719



3,842


12.9
%
Average diluted common shares


33,705



29,904



3,801


12.7
%
Return on average total assets


1.24
%


1.40
%




Return on average equity


11.53
%


11.85
%




Efficiency ratio


55.45
%


53.19
%



Six months ended June 30,


(dollars and shares in thousands)

2022

2021

$ Change

% Change
Net interest income

$
152,970


$
133,523


$
19,447


14.6
%
Reversal of (provision for) credit losses


(10,430
)


6,320



(16,750
)

(265.0
) %
Noninterest income


31,526



32,067



(541
)

(1.7
) %
Noninterest expense


(102,711
)


(85,789
)


(16,922
)

19.7
%
Provision for income taxes


(19,617
)


(24,110
)


4,493


(18.6
) %
Net income

$
51,738


$
62,011


$
(10,273
)

(16.6
) %
Diluted earnings per share

$
1.62


$
2.07


$
(0.45
)

(21.7
) %
Dividends per share

$
0.50


$
0.50


$
—


—
%
Average common shares


31,815



29,723



2,092


7.0
%
Average diluted common shares


31,963



29,904



2,059


6.9
%
Return on average total assets


1.10
%


1.57
%




Return on average equity


9.93
%


13.16
%




Efficiency ratio


55.67
%


51.81
%

Balance Sheet

Total loans outstanding, excluding PPP, grew to $6.10 billion as of June 30, 2022, an increase of 29.5% over the prior twelve months, of which 13.6% was related to organic loan growth. Investments increased to $2.80 billion as of June 30, 2022, an increase of 33.2% annualized over the prior twelve months. Quarterly average earning assets to quarterly total average assets were generally unchanged at 92.2% at June 30, 2022, as compared to 92.9% and 92.8% at March 31, 2022, and June 30, 2021, respectively. The loan to deposit ratio was 69.8% at June 30, 2022, as compared to 67.2% and 70.7% at March 31, 2022, and June 30, 2021, respectively.

Total shareholders' equity decreased by $67,005,000 during the quarter ended June 30, 2022, as a result of an increase in accumulated other comprehensive losses of $68,611,000, share repurchases totaling approximately $21,750,000, and cash dividend payments on common stock of $8,360,000, partially offset by net income of $31,364,000. As a result, the Company’s book value was $31.25 per share at June 30, 2022 as compared to $32.78 and $32.53 at March 31, 2022, and June 30, 2021, 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 $21.41 per share at June 30, 2022, as compared to $23.04 and $24.60 at March 31, 2022, and June 30, 2021, respectively.

Trailing Quarter Balance Sheet Change

Ending balances

June 30,

March 31,



Annualized % Change
(dollars in thousands)

2022

2022

$ Change
Total assets

$
10,120,611

$
10,118,328

$
2,283

0.1
%
Total loans


6,113,421


5,851,975


261,446

17.9

Total loans, excluding PPP


6,095,667


5,795,370


300,297

20.7

Total investments


2,802,815


2,569,706


233,109

36.3

Total deposits

$
8,756,775

$
8,714,477

$
42,298

1.9
%

Organic loan growth, excluding PPP, of $300,297,000 or 20.7% on an annualized basis was realized during the quarter ended June 30, 2022, primarily within commercial real estate. During the quarter, and exclusive of PPP balance changes, loan originations totaled approximately $697 million while payoffs of loans totaled $397 million, which compares to origination and payoff activity during the three months ended March 31, 2022 of $396 million and $225 million, respectively. While management believes that loan pipelines are robust, loan activity during the quarter is reflective of increased customer awareness of the rising interest rate environment. Investment security growth was $233,109,000 or 36.3% on an annualized basis as excess liquidity from strong deposit growth during the trailing 12 month period was put to use in higher yielding earning assets. Deposit balances increased, with an organic change of $42,298,000 or 1.9% annualized during the period.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended

June 30,

March 31,



Acquired Balances

Organic $ Change

Organic % Change
(dollars in thousands)

2022

2022

$ Change



Total assets

$
10,121,714

$
8,778,256

$
1,343,458

$
1,302,928

$
40,530

1.8
%
Total loans


5,928,430


4,988,560


939,870


739,017


200,853

16.1

Total loans, excluding PPP


5,890,578


4,937,865


952,713


718,557


234,156

19.0

Total investments


2,732,466


2,457,077


275,389


104,840


170,549

27.8

Total deposits

$
8,743,320

$
7,521,930

$
1,221,390

$
1,161,458

$
59,932

3.2
%

Year Over Year Balance Sheet Change

Ending balances

As of June 30,



Acquired Balances

Organic $ Change

Organic % Change
(dollars in thousands)

2022

2021

$ Change


Total assets

$
10,120,611

$
8,170,365

$
1,950,246

$
1,363,529

$
586,717

7.2
%
Total loans


6,113,421


4,944,894


1,168,527


773,390


395,137

8.0

Total loans, excluding PPP


6,095,667


4,705,302


1,390,365


751,978


638,387

13.6

Total investments


2,802,815


2,103,575


699,240


109,716


589,524

28.0

Total deposits

$
8,756,775

$
6,992,053

$
1,764,722

$
1,215,479

$
549,243

7.9
%

Non-PPP loan balances have increased as a result of organic activities by approximately $638,387,000 during the twelve month period ending June 30, 2022. This, combined with earning assets acquired in the merger with Valley Republic Bank, has led to a long-term beneficial and meaningful shift in the makeup of the loan portfolio. Specifically, during the twelve months ended June 30, 2022 and excluding PPP balance changes, loan originations totaled approximately $2.2 billion while payoffs of loans totaled $1.6 billion. Investment securities increased to $2,802,815,000 at June 30, 2022, an organic change of $589,524,000 or 28.0% from the prior year.

Net Interest Income and Net Interest Margin

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)

2022

2022

Change

% Change
Interest income

$
86,955


$
69,195


$
17,760


25.7
%
Interest expense


(1,909
)


(1,271
)


(638
)

50.2
%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾


397



283



114


40.3
%
Net interest income (FTE)

$
85,443


$
68,207


$
17,236


25.3
%
Net interest margin (FTE)


3.67
%


3.39
%













Acquired loans discount accretion, net:








Amount (included in interest income)

$
1,677


$
1,323


$
354


26.8
%
Net interest margin less effect of acquired loan discount accretion ⁽¹⁾


3.60
%


3.32
%


0.28
%


PPP loans yield, net:








Amount (included in interest income)

$
964


$
1,097


$
(133
)

(12.1
) %
Net interest margin less effect of PPP loan yield ⁽¹⁾


3.65
%


3.36
%


0.29
%


Acquired loans discount accretion and PPP loan yield, net:








Amount (included in interest income)

$
2,641


$
2,420


$
221


9.1
%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾


3.57
%


3.29
%


0.28
%



Three months ended June 30,




(dollars in thousands)

2022

2021

Change

% Change
Interest income

$
86,955


$
68,479


$
18,476


27.0
%
Interest expense


(1,909
)


(1,396
)


(513
)

36.7
%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾


397



255



142


55.7
%
Net interest income (FTE)

$
85,443


$
67,338


$
18,105


26.9
%
Net interest margin (FTE)


3.67
%


3.58
%













Acquired loans discount accretion, net:








Amount (included in interest income)

$
1,677


$
2,566


$
(889
)

(34.6
) %
Net interest margin less effect of acquired loan discount accretion ⁽¹⁾


3.60
%


3.44
%


0.16
%


PPP loans yield, net:








Amount (included in interest income)

$
964


$
3,179


$
(2,215
)

(69.7
) %
Net interest margin less effect of PPP loan yield ⁽¹⁾


3.65
%


3.57
%


0.08
%


Acquired loans discount accretion and PPP loan yield, net:








Amount (included in interest income)

$
2,641


$
5,745


$
(3,104
)

(54.0
) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾


3.57
%


3.43
%


0.14
%



Six months ended June 30,




(dollars in thousands)

2022

2021

Change

% Change
Interest income

$
156,150


$
136,395


$
19,755


14.5
%
Interest expense


(3,180
)


(2,872
)


(308
)

10.7
%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾


680



532



148


27.8
%
Net interest income (FTE)

$
153,650


$
134,055


$
19,595


14.6
%
Net interest margin (FTE)


3.54
%


3.66
%













Acquired loans discount accretion, net:








Amount (included in interest income)

$
3,000


$
4,278


$
(1,278
)

(29.9
) %
Net interest margin less effect of acquired loan discount accretion ⁽¹⁾


3.51
%


3.54
%


(0.03
) %


PPP loans yield, net:








Amount (included in interest income)

$
2,061


$
9,042


$
(6,981
)

(77.2
) %
Net interest margin less effect of PPP loan yield ⁽¹⁾


3.51
%


3.59
%


(0.08
) %


Acquired loans discount accretion and PPP loan yield, net:








Amount (included in interest income)

$
5,061


$
13,320


$
(8,259
)

(62.0
) %
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾


3.44
%


3.46
%


(0.02
) %

(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. Generally, as time goes on, 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 the first two quarters of 2022. During the three months ended June 30, 2022, March 31, 2022, and June 30, 2021, purchased loan discount accretion was $1,677,000, $1,323,000, and $2,566,000, 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, 2022

March 31, 2022

June 30, 2021


Average Balance

Income/ Expense

Yield/ Rate

Average Balance

Income/ Expense

Yield/ Rate

Average Balance

Income/ Expense

Yield/ Rate
Assets


















Loans, excluding PPP

$
5,890,578

$
68,954

4.70
%

$
4,937,865

$
56,648

4.65
%

$
4,646,188

$
57,125

4.93
%
PPP loans


37,852


964

10.22
%


50,695


1,097

8.78
%


332,277


3,179

3.84
%
Investments-taxable


2,536,362


14,350

2.27
%


2,313,204


10,223

1.79
%


1,875,056


7,189

1.54
%
Investments-nontaxable ⁽¹⁾


196,104


1,720

3.52
%


143,873


1,225

3.45
%


132,034


1,106

3.36
%
Total investments


2,732,466


16,070

2.36
%


2,457,077


11,448

1.89
%


2,007,090


8,295

1.66
%
Cash at Federal Reserve and other banks


669,163


1,364

0.82
%


707,563


285

0.16
%


559,026


135

0.10
%
Total earning assets


9,330,059


87,352

3.76
%


8,153,200


69,478

3.46
%


7,544,581


68,734

3.65
%
Other assets, net


791,655






625,056






584,093




Total assets

$
10,121,714





$
8,778,256





$
8,128,674




Liabilities and shareholders’ equity


















Interest-bearing demand deposits

$
1,799,205

$
99

0.02
%

$
1,597,309

$
84

0.02
%

$
1,490,247

$
77

0.02
%
Savings deposits


3,003,337


529

0.07
%


2,571,023


327

0.05
%


2,316,889


308

0.05
%
Time deposits


337,007


220

0.26
%


301,499


268

0.36
%


324,867


443

0.55
%
Total interest-bearing deposits


5,139,549


848

0.07
%


4,469,831


679

0.06
%


4,132,003


828

0.08
%
Other borrowings


35,253


5

0.06
%


44,731


5

0.05
%


40,986


5

0.05
%
Junior subordinated debt


100,991


1,056

4.19
%


60,971


587

3.90
%


57,788


563

3.91
%
Total interest-bearing liabilities


5,275,793


1,909

0.15
%


4,575,533


1,271

0.11
%


4,230,777


1,396

0.13
%
Noninterest-bearing deposits


3,603,771






3,052,099






2,811,078




Other liabilities


150,696






141,400






126,674




Shareholders’ equity


1,091,454






1,009,224






960,145




Total liabilities and shareholders’ equity

$
10,121,714





$
8,778,256





$
8,128,674




Net interest rate spread ^{(1) (2)}





3.61
%





3.35
%





3.52
%
Net interest income and margin ^{(1) (3)}



$
85,443

3.67
%



$
68,207

3.39
%



$
67,338

3.58
%

(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, 2022 increased $17,236,000 or 25.3% to $85,443,000 compared to $68,207,000 during the three months ended March 31, 2022. In addition, net interest margin improved 28 basis points to 3.67%, as compared to the trailing quarter. The increase in net interest income is primarily attributed to an additional $4,622,000 in investment revenues and $1,079,000 in revenues on cash balances due to increases in average volume and rates, respectively. As a partial offset, increases in the average balance and rates on subordinated debt resulted in an increase in interest expense of $469,000 over the trailing quarter.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, decreased 23 basis points from 4.93% during the three months ended June 30, 2021, to 4.70% during the three months ended June 30, 2022. The accretion of discounts from acquired loans added 11 and 22 basis points to loan yields during the quarters ended June 30, 2022 and June 30, 2021, respectively. Therefore, of the 23 basis point decrease in yields on loans during the comparable three month periods ended June 30, 2022 and 2021, 12 basis points was attributable to changes in competitive market rates, while 11 basis points resulted from less accretion of discounts.

The rates paid on interest bearing deposits generally remained flat during the quarter ended June 30, 2022 compared to the trailing quarter. The cost of interest-bearing deposits decreased by 1 basis point during the quarter ended June 30, 2022, to 0.07% from 0.08% during the same quarter of the prior year. In addition, the level of noninterest-bearing deposits continues to benefit the average cost of total deposits which remained flat at 0.04% in both the current and trailing quarter, compared to 0.5% in the second quarter of the prior year. Specifically, the ratio of average total noninterest-bearing deposits to total average deposits was 41.2% and 40.6% as of June 30, 2022 and March 31, 2022, respectively, as compared to 40.5% for the quarter ended June 30, 2021.



Six months ended June 30, 2022

Six months ended June 30, 2021


Average Balance

Income/ Expense

Yield/ Rate

Average Balance

Income/ Expense

Yield/ Rate
Assets












Loans, excluding PPP

$
5,416,854

$
125,602

4.68
%

$
4,527,329

$
111,698

4.98
%
PPP loans


44,238


2,061

9.40
%


344,011


9,042

5.30
%
Investments-taxable


2,434,045


24,573

2.04
%


1,763,140


13,583

1.55
%
Investments-nontaxable ⁽¹⁾


170,132


2,945

3.49
%


128,564


2,306

3.62
%
Total investments


2,604,177


27,518

2.13
%


1,891,704


15,889

1.69
%
Cash at Federal Reserve and other banks


688,257


1,649

0.48
%


629,952


298

0.10
%
Total earning assets


8,753,526


156,830

3.61
%


7,392,996


136,927

3.73
%
Other assets, net


700,170






575,138




Total assets

$
9,453,696





$
7,968,134




Liabilities and shareholders’ equity












Interest-bearing demand deposits

$
1,698,815

$
183

0.02
%

$
1,461,377

$
153

0.02
%
Savings deposits


2,788,374


856

0.06
%


2,272,830


637

0.06
%
Time deposits


319,351


488

0.31
%


330,703


975

0.59
%
Total interest-bearing deposits


4,806,540


1,527

0.06
%


4,064,910


1,765

0.09
%
Other borrowings


39,966


10

0.05
%


36,870


9

0.05
%
Junior subordinated debt


81,092


1,643

4.09
%


57,739


1,098

3.83
%
Total interest-bearing liabilities


4,927,598


3,180

0.13
%


4,159,519


2,872

0.14
%
Noninterest-bearing deposits


3,329,459






2,734,922




Other liabilities


146,073






123,233




Shareholders’ equity


1,050,566






950,460




Total liabilities and shareholders’ equity

$
9,453,696





$
7,968,134




Net interest rate spread ^{(1) (2)}





3.48
%





3.59
%
Net interest income and margin ^{(1) (3)}



$
153,650

3.54
%



$
134,055

3.66
%

(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 Loan Portfolio Composition

During the quarter ended June 30, 2022, market interest rates, including many rates that serve as reference indices for variable rate loans, increased modestly. However, the loan portfolio yield continues to have a temporary downward bias due to the timing associated with the repricing of variable rate loans and continued market competition. As of June 30, 2022, the Company's loan portfolio consisted of approximately $6.1 billion in outstanding principal with a weighted average coupon rate of 4.39%, inclusive of PPP loans. Excluding PPP loans, the Company's loan portfolio has approximately $6.09 billion outstanding loan balances with a weighted average coupon rate of 4.40% as of June 30, 2022. Included in the June 30, 2022 loan total are variable rate loans totaling $3.5 billion, of which, $875 million are considered floating based on the Wall Street Prime index.

Asset Quality and Credit Loss Provisioning

During the three months ended June 30, 2022, the Company recorded a provision for credit losses of $2,100,000, as compared to a $8,330,000 provision during the trailing quarter, and a reversal of provision expense of $260,000 during the first quarter of 2021.

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



Three months ended
(dollars in thousands)

June 30, 2022

March 31, 2022

December 31, 2021

June 30, 2021
Addition to (reversal of) allowance for credit losses

$
1,940

$
8,205

$
715

$
(145
)
Addition to (reversal of) reserve for unfunded loan commitments


160


125


265


(115
)
Total provision for (reversal of) credit losses

$
2,100

$
8,330

$
980

$
(260
)

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, 2022

June 30, 2021

June 30, 2022

June 30, 2021
Balance, beginning of period

$
96,049


$
85,941


$
85,376


$
91,847

ACL at acquisition for PCD loans


—



—



2,037



—

Provision for (reversal of) credit losses


1,940



(145
)


10,145



(6,385
)
Loans charged-off


(401
)


(387
)


(1,144
)


(613
)
Recoveries of previously charged-off loans


356



653



1,530



1,213

Balance, end of period

$
97,944


$
86,062


$
97,944


$
86,062

The allowance for credit losses (ACL) was $97,944,000 as of June 30, 2022, a net increase of $1,895,000 over the immediately preceding quarter. The provision for credit losses of $1,940,000 during the quarter was the net effect of increases in required reserves due to loan growth and net charge-offs totaling $45,000. By comparison, the provision for credit losses of $10,145,000 during the six-months ended June 30, 2022 was generally comprised of $10,820,000 in association with the loans acquired from Valley Republic Bank and a net reversal of credit losses of $675,000. The qualitative components of the ACL resulted in a net decline in required reserves due to continued improvement in US employment rates and tempered by a weaker outlook of US GDP. Meanwhile, the quantitative component of the ACL increased reserve requirements over the trailing quarter due to loan volume growth partially offset by decreases in reserves associated with specifically evaluated loans.

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 included 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. However, management notes that the majority of economic forecasts utilized in the ACL calculation have remained directionally consistent with preceding quarters, as general economic conditions continue to improve, albeit at a pace slower than expected due to unforeseen disruptions in the supply chain and increasing energy prices. In addition, management notes that the actual and forecast increases in inflation that were previously identified by the Federal Reserve Board as "transitory", combined with overseas conflicts and leading to the rise in short-term interest rates and flattening or inversion of the yield curve, may be further indication of future economic contraction. As a result, management continues to believe that certain credit weakness 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 decreased by $2,482,000 during the quarter ended June 30, 2022 to $5,920,000, as compared to $8,402,000 at March 31, 2022. Non-performing loans were $11,925,000 at June 30, 2022, a decrease of $2,163,000 and $20,780,000 from $14,088,000 and $32,705,000 as of March 31, 2022 and June 30, 2021, respectively.

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



June 30,

% of Total Loans

March 31,

% of Total Loans

June 30,

% of Total Loans
(dollars in thousands)

2022


2022


2021

Risk Rating:












Pass

$
5,960,781


97.5
%

$
5,682,026


97.1
%

$
4,756,381


96.2
%
Special Mention


105,819


1.7
%


120,684


2.1
%


130,232


2.6
%
Substandard


46,821


0.8
%


49,265


0.8
%


58,281


1.2
%
Total

$
6,113,421




$
5,851,975




$
4,944,894
















Classified loans to total loans


0.77
%




0.84
%




1.18
%


Loans past due 30+ days to total loans


0.10
%




0.14
%




0.19
%

The ratio of classified loans to total loans improved to 0.77% as of June 30, 2022 as compared to both 0.84% and 1.18% for the trailing quarter and same quarter of the prior year, respectively. The Company's criticized loan balances decreased during the current quarter by approximately $17,309,000 to $152,640,000 as of June 30, 2022. The improvement in criticized loans was the result of active management by the credit department, as there were no loan sales during the period. The five largest criticized credits upgraded or paid off totaled approximately $8,800,000, and there were no charge-offs incurred in connection with the successful management of these credits.

There was one property added to other real estate owned totaling $375,000 during the quarter ended June 30, 2022, and no disposals. As of June 30, 2022, other real estate owned consisted of nine properties with a carrying value of approximately $3,379,000.

Non-performing assets of $15,304,000 at June 30, 2022 represented 0.15% of total assets, a decrease from the $16,995,000 or 0.17% and $34,952,000 or 0.43% as of March 31, 2022 and June 30, 2021, respectively. The improvement in non-performing assets during the current quarter was spread amongst several lending relationships.

Allocation of Credit Loss Reserves by Loan Type


As of June 30, 2022
As of December 31, 2021

As of June 30, 2021
(dollars in thousands)

Amount

% of Loans Outstanding

Amount

% of Loans Outstanding

Amount

% of Loans Outstanding
Commercial real estate:












CRE - Non Owner Occupied

$
28,081

1.41
%

$
25,739

1.61
%

$
26,028

1.70
%
CRE - Owner Occupied


12,620

1.35
%


10,691

1.51
%


10,463

1.59
%
Multifamily


11,795

1.36
%


12,395

1.51
%


13,196

1.59
%
Farmland


2,954

1.17
%


2,315

1.34
%


1,950

1.13
%
Total commercial real estate loans


55,450

1.37
%


51,140

1.55
%


51,637

1.62
%
Consumer:












SFR 1-4 1st Liens


10,311

1.43
%


10,723

1.60
%


10,629

1.61
%
SFR HELOCs and Junior Liens


11,591

3.01
%


10,510

3.11
%


10,701

3.29
%
Other


2,029

3.41
%


2,241

3.34
%


2,620

3.73
%
Total consumer loans


23,931

2.06
%


23,474

2.19
%


23,950

2.27
%













Commercial and Industrial


9,979

1.97
%


3,862

1.49
%


4,511

1.00
%
Construction


7,522

2.40
%


5,667

2.55
%


4,951

2.47
%
Agricultural Production


1,046

1.47
%


1,215

2.39
%


1,007

2.40
%
Leases


16

0.20
%


18

0.27
%


6

0.12
%
Allowance for credit losses


97,944

1.60
%


85,376

1.74
%


86,062

1.74
%
Reserve for unfunded loan commitments


4,075




3,790




3,465


Total allowance for credit losses

$
102,019

1.67
%

$
89,166

1.81
%

$
89,527

1.81
%

For the periods presented in the table above and for purposes of calculating the "% of Loans Outstanding", PPP loans are included in the segment "Commercial and Industrial." PPP loans are fully guaranteed and therefore would not require any loss reserve allocation. Excluding the net outstanding balances of PPP loans from the ratio of the ACL to total loans results in a reserve ratio of approximately 1.61% as of June 30, 2022. 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, 2022, the unamortized discount associated with acquired loans totaled $33,100,000 and, if aggregated with the ACL, would collectively represent 2.13% of total gross loans and 2.15% of total loans less PPP loans.

SBA Paycheck Protection Program

In March 2020 (Round 1) and subsequently in December 2020 (Round 2), the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis. Tri Counties Bank, through its online portal, facilitated the ability for borrowers to open a new deposit account and submit PPP applications during the entirety of the Programs. The SBA ended PPP and did not accept new borrowing applications, effective May 31, 2021. The following is a summary of PPP loan related information as of the periods indicated:

(dollars in thousands)

June 30, 2022

December 31, 2021

June 30, 2021
Total number of PPP loans outstanding


90


450


2,209







PPP loan balance (TCBK round 1 origination), gross

$
1,183

$
2,544

$
51,547
PPP loan balance (TCBK round 2 origination), gross


9,442


60,767


197,035
Acquired PPP loan balance (VRB origination), gross


7,447


—


—
Total PPP loans, gross outstanding

$
18,072

$
63,311

$
248,582







PPP deferred loan fees (Round 1 origination)


—


1


477
PPP deferred loan fees (Round 2 origination)


318


2,163


8,513
Total PPP deferred loan fees (costs) outstanding

$
318

$
2,164

$
8,990

As of June 30, 2022, there was approximately $318,000 in net deferred fee income remaining to be recognized. During the three months ended June 30, 2022, the Company recognized $872,000 in fees on PPP loans as compared with $974,000 and $2,334,000 for the three months ended March 31, 2022 and June 30, 2021, respectively. Based on the payment guarantee provided by the SBA as well as the expected short-term duration of the PPP loans acquired from VRB, the fair value of these loans approximates the principal balance outstanding as of the merger date, and therefore, no purchase discount was recorded.

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, 2022

March 31, 2022

Change

% Change
ATM and interchange fees

$
6,984


$
6,243


$
741


11.9
%
Service charges on deposit accounts


4,163



3,834



329


8.6
%
Other service fees


1,279



882



397


45.0
%
Mortgage banking service fees


482



463



19


4.1
%
Change in value of mortgage servicing rights


136



274



(138
)

(50.4
) %
Total service charges and fees


13,044



11,696



1,348


11.5
%
Increase in cash value of life insurance


752



638



114


17.9
%
Asset management and commission income


1,039



887



152


17.1
%
Gain on sale of loans


542



1,246



(704
)

(56.5
) %
Lease brokerage income


238



158



80


50.6
%
Sale of customer checks


441



104



337


324.0
%
Gain on sale of investment securities


—



—



—


n/m
Loss on marketable equity securities


(94
)


(137
)


43


(31.4
) %
Other


468



504



(36
)

(7.1
) %
Total other non-interest income


3,386



3,400



(14
)

(0.4
) %
Total non-interest income

$
16,430


$
15,096


$
1,334


8.8
%

Non-interest income increased $1,334,000 or 8.8% to $16,430,000 during the three months ended June 30, 2022, compared to $15,096,000 during the quarter ended March 31, 2022. Generally, the quarter over quarter changes reflect the VRB merger timing of March 25, 2022, and therefore, had minimal benefit in the trailing quarter but are captured fully within the current quarter ended June 30, 2022. As an outlier, the gain on sale of mortgage loans declined by $704,000 or 56.5% during the quarter ended June 30, 2022, attributed to the rapidly rising rate environment and resulting decline in mortgage application and origination volumes.

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)

2022

2021

Change

% Change
ATM and interchange fees

$
6,984


$
6,558


$
426


6.5
%
Service charges on deposit accounts


4,163



3,462



701


20.2
%
Other service fees


1,279



914



365


39.9
%
Mortgage banking service fees


482



467



15


3.2
%
Change in value of mortgage servicing rights


136



(471
)


607


(128.9
) %
Total service charges and fees


13,044



10,930



2,114


19.3
%
Increase in cash value of life insurance


752



745



7


0.9
%
Asset management and commission income


1,039



947



92


9.7
%
Gain on sale of loans


542



2,847



(2,305
)

(81.0
) %
Lease brokerage income


238



249



(11
)

(4.4
) %
Sale of customer checks


441



116



325


280.2
%
Gain on sale of investment securities


—



—



—


n/m
(Loss) gain on marketable equity securities


(94
)


8



(102
)

(1,275.0
) %
Other


468



115



353


307.0
%
Total other non-interest income


3,386



5,027



(1,641
)

(32.6
) %
Total non-interest income

$
16,430


$
15,957


$
473


3.0
%

In addition to the discussion above, within the non-interest income for the three months ended June 30, 2022, ATM and interchange fees improved $426,000 or 6.5%, as did service charges on deposit accounts totaling $701,000 or 20.2%, both as a result of increased usage due to relaxed social distancing guidelines and growth in deposit customers during the six months ended June 30, 2022, when compared to the same period in the prior year. Further, changes in the value of mortgage service rights, while lesser in magnitude, typically have an inverse relationship with changes in mortgage banking activities.



Six months ended June 30,




(dollars in thousands)

2022

2021

Change

% Change
ATM and interchange fees

$
13,227


$
12,419


$
808


6.5
%
Service charges on deposit accounts


7,997



6,731



1,266


18.8
%
Other service fees


2,161



1,785



376


21.1
%
Mortgage banking service fees


945



930



15


1.6
%
Change in value of mortgage servicing rights


410



(459
)


869


(189.3
) %
Total service charges and fees


24,740



21,406



3,334


15.6
%
Increase in cash value of life insurance


1,390



1,418



(28
)

(2.0
) %
Asset management and commission income


1,926



1,781



145


8.1
%
Gain on sale of loans


1,788



6,094



(4,306
)

(70.7
) %
Lease brokerage income


396



359



37


10.3
%
Sale of customer checks


545



235



310


131.9
%
Gain on sale of investment securities


—



—



—


n/m
Loss on marketable equity securities


(231
)


(45
)


(186
)

413.3
%
Other


972



819



153


18.7
%
Total other non-interest income


6,786



10,661



(3,875
)

(36.3
) %
Total non-interest income

$
31,526


$
32,067


$
(541
)

(1.7
) %

The changes in non-interest income for the six months ended June 30, 2022 and 2021 are generally consistent with changes in the three months periods discussed 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, 2022

March 31, 2022

Change

% Change
Base salaries, net of deferred loan origination costs

$
22,169


$
18,216


$
3,953


21.7
%
Incentive compensation


4,282



2,583



1,699


65.8
%
Benefits and other compensation costs


6,491



5,972



519


8.7
%
Total salaries and benefits expense


32,942



26,771



6,171


23.1
%
Occupancy


3,996



3,575



421


11.8
%
Data processing and software


3,596



3,513



83


2.4
%
Equipment


1,453



1,333



120


9.0
%
Intangible amortization


1,702



1,228



474


38.6
%
Advertising


818



637



181


28.4
%
ATM and POS network charges


1,781



1,375



406


29.5
%
Professional fees


1,233



876



357


40.8
%
Telecommunications


564



521



43


8.3
%
Regulatory assessments and insurance


779



720



59


8.2
%
Merger and acquisition expenses


2,221



4,032



(1,811
)

(44.9
) %
Postage


313



228



85


37.3
%
Operational (gain) loss


456



(183
)


639


(349.2
) %
Courier service


486



414



72


17.4
%
Gain on sale or acquisition of foreclosed assets


(98
)


—



(98
)

n/m
(Gain) loss on disposal of fixed assets


5



(1,078
)


1,083


(100.5
) %
Other miscellaneous expense


4,017



2,485



1,532


61.6
%
Total other non-interest expense


23,322



19,676



3,646


18.5
%
Total non-interest expense

$
56,264


$
46,447


$
9,817


21.1
%
Average full-time equivalent staff


1,183



1,084



99


9.1
%

Non-interest expense for the quarter ended June 30, 2022 increased $9,817,000 or 21.1% to $56,264,000 as compared to $46,447,000 during the trailing quarter ended March 31, 2022. Total salaries and benefits expense increased by $6,171,000 or 23.1%, led by wage related increases of $3,953,000 or 21.7% to $22,169,000 due to a net increase of 99 full-time equivalent positions following the aforementioned merger with VRB, an increase in vacation accruals which management believes are partially seasonal, and annual merit increases which averaged 3.1% and were effective March 28, 2022. Incentive compensation increased by $1,699,000 or 65.8% to $4,282,000 compared to the trailing quarter due to strong overall Company performance and elevated levels of loan production and growth. Merger and acquisition expenses associated with the VRB merger totaled $2,221,000 during the current quarter and are not expected to be significant in future periods. Included in the current quarter's merger and acquisition expenses are costs associated with the contractual obligations owed to a former VRB executive whom recently resigned from the Company to accept employment outside of the banking industry.

During the three months ended March 31, 2022, the Company sold a former administrative building and relocated a branch during the previous quarter resulting in a net gain on disposal of approximately $1,078,000 as noted above.

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)

2022

2021

Change

% Change
Base salaries, net of deferred loan origination costs

$
22,169


$
17,537


$
4,632


26.4
%
Incentive compensation


4,282



4,322



(40
)

(0.9
) %
Benefits and other compensation costs


6,491



5,222



1,269


24.3
%
Total salaries and benefits expense


32,942



27,081



5,861


21.6
%
Occupancy


3,996



3,700



296


8.0
%
Data processing and software


3,596



3,201



395


12.3
%
Equipment


1,453



1,207



246


20.4
%
Intangible amortization


1,702



1,431



271


18.9
%
Advertising


818



734



84


11.4
%
ATM and POS network charges


1,781



1,551



230


14.8
%
Professional fees


1,233



1,046



187


17.9
%
Telecommunications


564



564



—


—
%
Regulatory assessments and insurance


779



618



161


26.1
%
Merger and acquisition expenses


2,221



—



2,221


n/m
Postage


313



124



189


152.4
%
Operational loss


456



212



244


115.1
%
Courier service


486



288



198


68.8
%
Gain on sale or acquisition of foreclosed assets


(98
)


(15
)


(83
)

553.3
%
(Gain) loss on disposal of fixed assets


5



(426
)


431


(101.2
) %
Other miscellaneous expense


4,017



2,855



1,162


40.7
%
Total other non-interest expense


23,322



17,090



6,232


36.5
%
Total non-interest expense

$
56,264


$
44,171


$
12,093


27.4
%
Average full-time equivalent staff


1,183



1,020



163


16.0
%

Total non-interest expense increased $12,093,000 or 27.4% to $56,264,000 during the three months ended June 30, 2022 as compared to $44,171,000 for the trailing quarter ended, for reasons similar to those referenced above.



Six months ended June 30,




(dollars in thousands)

2022

2021

Change

% Change
Base salaries, net of deferred loan origination costs

$
40,385


$
33,048


$
7,337


22.2
%
Incentive compensation


6,865



7,902



(1,037
)

(13.1
) %
Benefits and other compensation costs


12,463



11,461



1,002


8.7
%
Total salaries and benefits expense


59,713



52,411



7,302


13.9
%
Occupancy


7,571



7,426



145


2.0
%
Data processing and software


7,109



6,403



706


11.0
%
Equipment


2,786



2,724



62


2.3
%
Intangible amortization


2,930



2,862



68


2.4
%
Advertising


1,455



1,114



341


30.6
%
ATM and POS network charges


3,156



2,797



359


12.8
%
Professional fees


2,109



1,640



469


28.6
%
Telecommunications


1,085



1,145



(60
)

(5.2
) %
Regulatory assessments and insurance


1,499



1,230



269


21.9
%
Merger and acquisition expenses


6,253



—



6,253


n/m
Postage


541



322



219


68.0
%
Operational loss


273



421



(148
)

(35.2
) %
Courier service


900



582



318


54.6
%
Gain on sale or acquisition of foreclosed assets


(98
)


(66
)


(32
)

48.5
%
Gain on disposal of fixed assets


(1,073
)


(426
)


(647
)

151.9
%
Other miscellaneous expense


6,502



5,204



1,298


24.9
%
Total other non-interest expense


42,998



33,378



9,620


28.8
%
Total non-interest expense

$
102,711


$
85,789


$
16,922


19.7
%
Average full-time equivalent staff


1,133



1,022



111


10.9
%

The changes in non-interest expense for the six months ended June 30, 2022 and 2021 are generally consistent with changes in the comparable three months periods discussed above.

Provision for Income Taxes

The Company’s effective tax rate was 27.5% for the six months ended June 30, 2022, as compared to 28.1% for the year ended December 31, 2021. 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 Statement

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 on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; 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 continuing adverse impact on the U.S. economy, including the markets in which we operate due to the COVID-19 global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability 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, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities or geopolitical events; the costs or effects of mergers, acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, and/or our ability to realize the contemplated financial business benefits associated with any such activities; the regulatory and financial impacts associated with exceeding $10 billion in total assets; 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 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 effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; our noninterest expense and the 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 integrating and retaining key employees; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks; change to U.S. tax policies, including our effective income tax rate; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the discontinuation of the London Interbank Offered Rate and other reference rates; 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, 2021, which has been filed with the Securities and Exchange Commission (the “SEC”) and are 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, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021
Revenue and Expense Data










Interest income

$
86,955


$
69,195


$
71,024


$
69,628


$
68,479

Interest expense


1,909



1,271



1,241



1,395



1,396

Net interest income


85,046



67,924



69,783



68,233



67,083

Provision for (benefit from) credit losses


2,100



8,330



980



(1,435
)


(260
)
Noninterest income:










Service charges and fees


13,044



11,696



11,277



11,265



10,930

Gain on sale of investment securities


—



—



—



—



—

Other income


3,386



3,400



5,225



3,830



5,027

Total noninterest income


16,430



15,096



16,502



15,095



15,957

Noninterest expense (2):










Salaries and benefits


34,370



28,597



27,666



26,274



27,081

Occupancy and equipment


5,449



4,925



5,011



5,107



4,907

Data processing and network


5,468



5,089



5,444



5,381



4,752

Other noninterest expense


10,977



7,836



8,558



9,045



7,431

Total noninterest expense


56,264



46,447



46,679



45,807



44,171

Total income before taxes


43,112



28,243



38,626



38,956



39,129

Provision for income taxes


11,748



7,869



10,404



11,534



10,767

Net income

$
31,364


$
20,374


$
28,222


$
27,422


$
28,362

Share Data










Basic earnings per share

$
0.93


$
0.68


$
0.95


$
0.92


$
0.95

Diluted earnings per share

$
0.93


$
0.67


$
0.94


$
0.92


$
0.95

Dividends per share

$
0.25


$
0.25


$
0.25


$
0.25


$
0.25

Book value per common share

$
31.25


$
32.78


$
33.64


$
33.05


$
32.53

Tangible book value per common share (1)

$
21.41


$
23.04


$
25.80


$
25.16


$
24.60

Shares outstanding


33,350,974



33,837,935



29,730,424



29,714,609



29,716,294

Weighted average shares


33,561,389



30,049,919



29,723,791



29,713,558



29,718,603

Weighted average diluted shares


33,705,280



30,201,698



29,870,059



29,850,530



29,903,560

Credit Quality










Allowance for credit losses to gross loans


1.60
%


1.64
%


1.74
%


1.72
%


1.74
%
Loans past due 30 days or more

$
5,920


$
8,402


$
4,332


$
10,539


$
9,292

Total nonperforming loans

$
11,925


$
14,088


$
30,350


$
28,790


$
32,705

Total nonperforming assets

$
15,304


$
16,995


$
32,944


$
31,440


$
34,952

Loans charged-off

$
401


$
743


$
197


$
1,582


$
387

Loans recovered

$
356


$
1,174


$
552


$
1,321


$
653

Selected Financial Ratios










Return on average total assets


1.24
%


0.94
%


1.31
%


1.30
%


1.40
%
Return on average equity


11.53
%


8.19
%


11.20
%


11.02
%


11.85
%
Average yield on loans, excluding PPP


4.70
%


4.65
%


4.73
%


4.85
%


4.93
%
Average yield on interest-earning assets


3.76
%


3.46
%


3.56
%


3.57
%


3.65
%
Average rate on interest-bearing deposits


0.07
%


0.06
%


0.06
%


0.08
%


0.08
%
Average cost of total deposits


0.04
%


0.04
%


0.04
%


0.05
%


0.05
%
Average rate on borrowings & subordinated debt


3.12
%


2.27
%


1.98
%


2.02
%


2.31
%
Average rate on interest-bearing liabilities


0.15
%


0.11
%


0.11
%


0.13
%


0.13
%
Net interest margin (fully tax-equivalent) (1)


3.67
%


3.39
%


3.50
%


3.50
%


3.58
%
Loans to deposits


69.81
%


67.15
%


66.74
%


67.54
%


70.72
%
Efficiency ratio


55.45
%


55.95
%


54.10
%


54.97
%


53.19
%
Supplemental Loan Interest Income Data










Discount accretion on acquired loans

$
1,677


$
1,323


$
1,780


$
2,034


$
2,566

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

$
67,277


$
55,325


$
54,930


$
55,184


$
54,559

Total loan interest income (excluding PPP) (1)

$
68,954


$
56,648


$
56,710


$
57,218


$
57,125

(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, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021
Cash and due from banks

$
488,868


$
1,035,683


$
768,421


$
740,236


$
639,740

Securities, available for sale, net


2,608,771



2,365,708



2,210,876



2,098,786



1,850,547

Securities, held to maturity, net


176,794



186,748



199,759



216,979



235,778

Restricted equity securities


17,250



17,250



17,250



17,250



17,250

Loans held for sale


1,216



1,030



3,466



3,072



5,723

Loans:










Commercial real estate


4,049,893



3,832,974



3,306,054



3,222,737



3,194,336

Consumer


1,162,989



1,136,712



1,071,551



1,053,653



1,050,609

Commercial and industrial


507,685



500,882



259,355



345,027



452,069

Construction


313,646



303,960



222,281



216,680



200,714

Agriculture production


71,373



69,339



50,811



44,410



41,967

Leases


7,835



8,108



6,572



4,989



5,199

Total loans, gross


6,113,421



5,851,975



4,916,624



4,887,496



4,944,894

Allowance for credit losses


(97,944
)


(96,049
)


(85,376
)


(84,306
)


(86,062
)
Total loans, net


6,015,477



5,755,926



4,831,248



4,803,190



4,858,832

Premises and equipment


73,811



73,692



78,687



78,968



79,178

Cash value of life insurance


132,857



132,104



117,857



120,932



120,287

Accrued interest receivable


25,861



22,769



19,292



18,425



18,923

Goodwill


307,942



307,942



220,872



220,872



220,872

Other intangible assets


20,074



21,776



12,369



13,562



14,971

Operating leases, right-of-use


27,154



28,404



25,665



26,815



26,365

Other assets


224,536



169,296



109,025



98,943



81,899

Total assets

$
10,120,611


$
10,118,328


$
8,614,787


$
8,458,030


$
8,170,365

Deposits:










Noninterest-bearing demand deposits

$
3,604,237


$
3,583,269


$
2,979,882


$
2,943,016


$
2,843,783

Interest-bearing demand deposits


1,796,580



1,788,639



1,568,682



1,519,426



1,486,321

Savings deposits


3,028,787



2,993,873



2,521,011



2,447,706



2,337,557

Time certificates


327,171



348,696



297,584



326,674



324,392

Total deposits


8,756,775



8,714,477



7,367,159



7,236,822



6,992,053

Accrued interest payable


755



653



928



1,056



1,026

Operating lease liability


29,283



30,500



26,280



27,290



26,707

Other liabilities


155,529



126,348



112,070



107,282



85,388

Other borrowings


35,089



36,184



50,087



45,601



40,559

Junior subordinated debt


101,003



100,984



58,079



57,965



57,852

Total liabilities


9,078,434



9,009,146



7,614,603



7,476,016



7,203,585

Common stock


696,441



706,672



532,244



531,339



531,038

Retained earnings


491,705



479,868



466,959



446,948



427,575

Accum. other comprehensive income (loss)


(145,969
)


(77,358
)


981



3,727



8,167

Total shareholders’ equity

$
1,042,177


$
1,109,182


$
1,000,184


$
982,014


$
966,780

Quarterly Average Balance Data










Average loans, excluding PPP

$
5,890,578


$
4,937,865


$
4,759,294


$
4,684,492


$
4,646,188

Average interest-earning assets

$
9,330,059


$
8,153,200


$
7,947,798


$
7,758,169


$
7,544,581

Average total assets

$
10,121,714


$
8,778,256


$
8,546,004


$
8,348,111


$
8,128,674

Average deposits

$
8,743,320


$
7,521,930


$
7,304,659


$
7,137,263


$
6,943,081

Average borrowings and subordinated debt

$
136,244


$
105,702


$
108,671


$
106,221


$
98,774

Average total equity

$
1,091,454


$
1,009,224


$
999,764


$
987,026


$
960,145

Capital Ratio Data










Total risk-based capital ratio


14.1
%


15.0
%


15.4
%


15.4
%


15.3
%
Tier 1 capital ratio


12.3
%


13.1
%


14.2
%


14.2
%


14.1
%
Tier 1 common equity ratio


11.5
%


12.3
%


13.2
%


13.2
%


13.0
%
Tier 1 leverage ratio


9.3
%


10.8
%


9.9
%


9.9
%


9.9
%
Tangible capital ratio (1)


7.3
%


8.0
%


9.2
%


9.1
%


9.2
%

(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, 2022

March 31, 2022

June 30, 2021

June 30, 2022

June 30, 2021
Net interest margin










Acquired loans discount accretion, net:










Amount (included in interest income)

$1,677

$1,323

$2,566

$3,000

$4,278
Effect on average loan yield

0.11 %

0.11 %

0.22 %

0.11 %

0.18 %
Effect on net interest margin (FTE)

0.07 %

0.07 %

0.14 %

0.03 %

0.12 %
Net interest margin (FTE)

3.67 %

3.39 %

3.58 %

3.54 %

3.66 %
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)

3.60 %

3.32 %

3.44 %

3.51 %

3.54 %
PPP loans yield, net:










Amount (included in interest income)

$964

$1,097

$3,179

$2,061

$9,042
Effect on net interest margin (FTE)

0.03 %

0.03 %

0.01 %

0.03 %

0.07 %
Net interest margin less effect of PPP loan yield (Non-GAAP)

3.65 %

3.36 %

3.57 %

3.51 %

3.59 %
Acquired loan discount accretion and PPP loan yield, net:










Amount (included in interest income)

$2,641

$2,420

$5,745

$5,061

$13,320
Effect on net interest margin (FTE)

0.10 %

0.10 %

0.15 %

0.10 %

0.19 %
Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)

3.57 %

3.29 %

3.43 %

3.44 %

3.46 %



Three months ended

Six months ended
(dollars in thousands)

June 30, 2022

March 31, 2022

June 30, 2021

June 30, 2022

June 30, 2021
Pre-tax pre-provision return on average assets or equity










Net income (GAAP)

$31,364

$20,374

$28,362

$51,738

$62,011
Exclude income tax expense

11,748

7,869

10,767

19,617

24,110
Exclude provision (benefit) for credit losses

2,100

8,330

(260)

10,430

(6,320)
Net income before income tax and provision expense (Non-GAAP)

$45,212

$36,573

$38,869

$81,785

$79,801











Average assets (GAAP)

$10,121,714

$8,778,256

$8,128,674

$9,453,696

$7,968,134
Average equity (GAAP)

$1,091,454

$1,009,224

$960,145

$1,050,566

$950,460











Return on average assets (GAAP) (annualized)

1.24 %

0.94 %

1.40 %

1.10 %

1.57 %
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)

1.79 %

1.69 %

1.92 %

1.74 %

2.03 %
Return on average equity (GAAP) (annualized)

11.53 %

8.19 %

11.85 %

9.93 %

13.16 %
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)

16.61 %

14.70 %

16.24 %

15.70 %

16.98 %



Three months ended

Six months ended
(dollars in thousands)

June 30, 2022

March 31, 2022

June 30, 2021

June 30, 2022

June 30, 2021
Return on tangible common equity










Average total shareholders' equity

$1,091,454

$1,009,224

$960,145

$1,050,566

$950,460
Exclude average goodwill

307,942

226,676

220,872

267,533

220,872
Exclude average other intangibles

21,040

12,604

15,687

16,845

19,264
Average tangible common equity (Non-GAAP)

$762,472

$769,944

$723,586

$766,188

$710,324











Net income (GAAP)

$31,364

$20,374

$28,362

$51,738

$62,011
Exclude amortization of intangible assets, net of tax effect

1,199

865

1,008

2,064

2,016
Tangible net income available to common shareholders (Non-GAAP)

$32,563

$21,239

$29,370

$53,802

$64,027











Return on average equity

11.53 %

8.19 %

11.85 %

9.93 %

13.16 %
Return on average tangible common equity (Non-GAAP)

17.13 %

11.19 %

16.28 %

14.16 %

18.18 %



Three months ended
(dollars in thousands)

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021
Tangible shareholders' equity to tangible assets










Shareholders' equity (GAAP)

$1,042,177

$1,109,182

$1,000,184

$982,014

$966,780
Exclude goodwill and other intangible assets, net

328,016

329,718

233,241

234,434

235,843
Tangible shareholders' equity (Non-GAAP)

$714,161

$779,464

$766,943

$747,580

$730,937











Total assets (GAAP)

$10,120,611

$10,118,328

$8,614,787

$8,458,030

$8,170,365
Exclude goodwill and other intangible assets, net

328,016

329,718

233,241

234,434

235,843
Total tangible assets (Non-GAAP)

$9,792,595

$9,788,610

$8,381,546

$8,223,596

$7,934,522











Shareholders' equity to total assets (GAAP)

10.30 %

10.96 %

11.61 %

11.61 %

11.83 %
Tangible shareholders' equity to tangible assets (Non-GAAP)

7.29 %

7.96 %

9.15 %

9.09 %

9.21 %



Three months ended
(dollars in thousands)

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021

June 30, 2021
Tangible common shareholders' equity per share










Tangible s/h equity (Non-GAAP)

$714,161

$779,464

$766,943

$747,580

$730,937











Common shares outstanding at end of period

33,350,974

33,837,935

29,730,424

29,714,609

29,716,294











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

$31.25

$32.78

$33.64

$33.05

$32.53
Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)

$21.41

$23.04

$25.80

$25.16

$24.60

View source version on businesswire.com: https://www.businesswire.com/news/home/20220727005230/en/

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

Company Name:	TriCo Bancshares
Stock Symbol:	TCBK
Market:	NASDAQ
Website:	tcbk.com

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