TCBK - TriCo Bancshares Announces Third Quarter 2022 Results

October, 26 2022 08:00 AM TriCo Bancshares

Notable Items for Third Quarter 2022

Net interest margin, excluding the benefit from acquired loan discount accretion and PPP loan yield, increased 0.41% to 3.98%

Efficiency ratio improved to 49.6%, largely as a result of revenue growth as non-interest expenses, excluding merger related costs, were relatively unchanged as compared with the prior quarter

Organic loan growth (excluding PPP) for the quarter of $216.7 million or 14.2% annualized, with continued strength in credit quality

Quarterly pre-tax pre-provision net revenues grew to $55.3 million, as compared to $45.2 million inclusive of $2.2 million in merger expenses in the trailing quarter, and $37.5 million in the same quarter of the prior year inclusive of $0.6 million in merger expenses

"Despite the potential for increasing volatility in interest rates and the general economy, the core franchise value of Tri Counties Bank, being anchored in our credit culture and low costs of funds, continues to drive our financial performance," noted Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "Non-interest bearing deposits increased by nearly $74 million during the quarter and, to date during the current rising rate cycle, we have been able to maintain a low deposit Beta. Looking forward, we anticipate deposit Betas will be further pressured due to continued rate increases by the Federal Reserve. These rate increases could also decrease loan pipelines as borrowers reconsider the impact of higher rates on proposed projects."

TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $37,338,000 for the quarter ended September 30, 2022, compared to $31,364,000 during the trailing quarter ended June 30, 2022, and $27,422,000 during the quarter ended September 30, 2021. Diluted earnings per share were $1.12 for the third quarter of 2022, compared to $0.93 for the second quarter of 2022 and $0.92 for the third quarter of 2021.

Financial Highlights

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

For the three and nine months ended September 30, 2022, the Company’s return on average assets was 1.46% and 1.23%, while the return on average equity was 13.78% and 11.25%, respectively. The nine-month ratio was impacted by merger related expenses of $6,253,000 during the 2022 period.

Organic loan growth, excluding PPP and acquired loans, totaled $216.7 million (14.2% annualized) for the current quarter and $824.3 million (17.4% annualized) for the trailing twelve-month period.

As of September 30, 2022, the Company reported total loans, total assets and total deposits of $6.3 billion, $10.0 billion and $8.7 billion, respectively. As a direct result of organic loan growth during the quarter, the loan to deposit ratio has increased to 72.9% as of September 30, 2022, as compared to 69.8% as of the trailing quarter.

The average rate of interest paid on deposits, including non-interest-bearing deposits, of 0.04% has remained unchanged during each of the prior four quarters, and represents 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 $12.7 million for the three month period ended September 30, 2022, an increase of 12.6% when compared to the same period in 2021.

The provision for credit losses for loans and debt securities was approximately $3.8 million during the quarter ended September 30, 2022, as compared to a provision expense of $2.1 million during the trailing quarter ended June 30, 2022, and a reversal of provision expense totaling $1.4 million for the three month period ended September 30, 2021.

The allowance for credit losses to total loans was 1.61% as of September 30, 2022, compared to 1.60% as of the trailing quarter end, and 1.72% as of September 30, 2021. Non-performing assets to total assets were 0.21% at September 30, 2022, as compared to 0.15% as of June 30, 2022, and 0.37% at September 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 September 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





September 30,

June 30,




(dollars and shares in thousands, except per share data)
2022

2022

$ Change

% Change
Net interest income
$
94,106


$
85,046


$
9,060


10.7
%
Provision for credit losses

(3,795
)


(2,100
)


(1,695
)

80.7
%
Noninterest income

15,640



16,430



(790
)

(4.8
) %
Noninterest expense

(54,465
)


(56,264
)


1,799


(3.2
) %
Provision for income taxes

(14,148
)


(11,748
)


(2,400
)

20.4
%
Net income
$
37,338


$
31,364


$
5,974


19.0
%
Diluted earnings per share
$
1.12


$
0.93


$
0.19


20.4
%
Dividends per share
$
0.30


$
0.25


$
0.05


20.0
%
Average common shares

33,348



33,561



(213
)

(0.6
) %
Average diluted common shares

33,463



33,705



(242
)

(0.7
) %
Return on average total assets

1.46
%


1.24
%




Return on average equity

13.78
%


11.53
%




Efficiency ratio

49.63
%


55.45
%


Three months ended September 30,




(dollars and shares in thousands, except per share data)
2022

2021

$ Change

% Change
Net interest income
$
94,106


$
68,233


$
25,873


37.9
%
(Provision for) reversal of credit losses

(3,795
)


1,435



(5,230
)

(364.5
) %
Noninterest income

15,640



15,095



545


3.6
%
Noninterest expense

(54,465
)


(45,807
)


(8,658
)

18.9
%
Provision for income taxes

(14,148
)


(11,534
)


(2,614
)

22.7
%
Net income
$
37,338


$
27,422


$
9,916


36.2
%
Diluted earnings per share
$
1.12


$
0.92


$
0.20


21.7
%
Dividends per share
$
0.30


$
0.25


$
0.05


20.0
%
Average common shares

33,348



29,714



3,634


12.2
%
Average diluted common shares

33,463



29,851



3,612


12.1
%
Return on average total assets

1.46
%


1.30
%




Return on average equity

13.78
%


11.02
%




Efficiency ratio

49.63
%


54.97
%


Nine months ended September 30,


(dollars and shares in thousands)
2022

2021

$ Change

% Change
Net interest income
$
247,076


$
201,756


$
45,320


22.5
%
Reversal of (provision for) credit losses

(14,225
)


7,755



(21,980
)

(283.4
) %
Noninterest income

47,166



47,162



4


—
%
Noninterest expense

(157,176
)


(131,596
)


(25,580
)

19.4
%
Provision for income taxes

(33,765
)


(35,644
)


1,879


(5.3
) %
Net income
$
89,076


$
89,433


$
(357
)

(0.4
) %
Diluted earnings per share
$
2.74


$
2.99


$
(0.25
)

(8.4
) %
Dividends per share
$
0.80


$
0.75


$
0.05


6.7
%
Average common shares

32,332



29,720



2,612


8.8
%
Average diluted common shares

32,469



29,887



2,582


8.6
%
Return on average total assets

1.23
%


1.48
%




Return on average equity

11.25
%


12.42
%




Efficiency ratio

53.42
%


52.87
%

Balance Sheet

Total loans outstanding, excluding PPP, grew to $6.31 billion as of September 30, 2022, an increase of 33.3% over the prior twelve months, of which 17.4% was related to organic loan growth. Investments increased to $2.67 billion as of September 30, 2022, an increase of 14.4% annualized over the prior twelve months. Quarterly average earning assets to quarterly total average assets were generally unchanged at 92.0% at September 30, 2022, as compared to 92.2% and 92.9% at June 30, 2022, and September 30, 2021, respectively. The loan to deposit ratio was 72.9% at September 30, 2022, as compared to 69.8% and 67.5% at June 30, 2022, and September 30, 2021, respectively.

Total shareholders' equity decreased by $51,839,000 during the quarter ended September 30, 2022, as a result of an increase in accumulated other comprehensive losses of $76,740,000, share repurchases totaling approximately $2,059,000 and cash dividend payments on common stock of $10,004,000, partially offset by net income of $37,338,000. As a result, the Company’s book value was $29.71 per share at September 30, 2022 as compared to $31.25 and $33.05 at June 30, 2022, and September 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 $19.92 per share at September 30, 2022, as compared to $21.41 and $25.16 at June 30, 2022, and September 30, 2021, respectively.

Trailing Quarter Balance Sheet Change

Ending balances
September 30,

June 30,



Annualized % Change
(dollars in thousands)
2022

2022

$ Change
Total assets
$
9,976,879

$
10,120,611

$
(143,732
)

(5.7
) %
Total loans

6,314,290


6,113,421


200,869


13.1

Total loans, excluding PPP

6,312,348


6,095,667


216,681


14.2

Total investments

2,668,145


2,802,815


(134,670
)

(19.2
)
Total deposits
$
8,655,769

$
8,756,775

$
(101,006
)

(4.6
) %

Organic loan growth, excluding PPP, of $216,681,000 or 14.2% on an annualized basis was realized during the quarter ended September 30, 2022, primarily within commercial real estate. During the quarter, and exclusive of PPP balance changes, loan originations/draws totaled approximately $737.0 million while payoffs/repayments of loans totaled $536.0 million, which compares to origination/draws and payoff/repayments activity during the three months ended June 30, 2022 of $697.0 million and $397.0 million, respectively. While management believes that loan pipelines remain sufficient to support loan growth, loan pipeline activity may moderate as customer awareness of the rising interest rate environment weighs more heavily on their decision making criteria. Investment security balances decreased $134,670,000 or 19.2% on an annualized basis as the result of declines in market values grew, and prepayments or maturities from the portfolio were utilized to augment the Company's overall balance sheet position. Deposit balances also decreased, with a change of $101,006,000 or 4.6% annualized during the period. These deposit balance changes are partially the result of approximately $51.6 million in FDIC insured money market account balances being placed with partner institutions.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended
September 30,

June 30,



Annualized % Change
(dollars in thousands)
2022

2022

$ Change

Total assets
$
10,131,118

$
10,121,714

$
9,404

0.4
%
Total loans

6,171,042


5,928,430


242,612

16.4

Total loans, excluding PPP

6,162,267


5,890,578


271,689

18.4

Total investments

2,802,119


2,732,466


69,653

10.2

Total deposits
$
8,752,215

$
8,743,320

$
8,895

0.4
%

Year Over Year Balance Sheet Change

Ending balances
As of September 30,



Acquired Balances

Organic $ Change

Organic % Change
(dollars in thousands)
2022

2021

$ Change


Total assets
$
9,976,879

$
8,458,030

$
1,518,849

$
1,363,529

$
155,320

1.8
%
Total loans

6,314,290


4,887,496


1,426,794


773,390


653,404

13.4

Total loans, excluding PPP

6,312,348


4,736,048


1,576,300


751,978


824,322

17.4

Total investments

2,668,145


2,333,015


335,130


109,716


225,414

9.7

Total deposits
$
8,655,769

$
7,236,822

$
1,418,947

$
1,215,479

$
203,468

2.8
%

Non-PPP loan balances have increased as a result of organic activities by approximately $824.3 million during the twelve month period ending September 30, 2022. Investment securities increased to $2.7 billion at September 30, 2022, an organic change of $225.4 million or 9.7% from the prior year. When combined with balances acquired from Valley Republic Bank, this represents an increase of nearly $1.8 billion in earning assets during the last twelve months.

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





September 30,

June 30,




(dollars in thousands)
2022

2022

Change

% Change
Interest income
$
96,366


$
86,955


$
9,411


10.8
%
Interest expense

(2,260
)


(1,909
)


(351
)

18.4
%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾

440



397



43


10.8
%
Net interest income (FTE)
$
94,546


$
85,443


$
9,103


10.7
%
Net interest margin (FTE)

4.02
%


3.67
%












Acquired loans discount accretion, net:







Amount (included in interest income)
$
714


$
1,677


$
(963
)

(57.4
) %
Net interest margin less effect of acquired loan discount accretion ⁽¹⁾

3.99
%


3.60
%


0.39
%


PPP loans yield, net:







Amount (included in interest income)
$
313


$
964


$
(651
)

(67.5
) %
Net interest margin less effect of PPP loan yield ⁽¹⁾

4.02
%


3.65
%


0.37
%


Acquired loans discount accretion and PPP loan yield, net:







Amount (included in interest income)
$
1,027


$
2,641


$
(1,614
)

(61.1
) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾

3.98
%


3.57
%


0.41
%


Three months ended September 30,




(dollars in thousands)
2022

2021

Change

% Change
Interest income
$
96,366


$
69,628


$
26,738


38.4
%
Interest expense

(2,260
)


(1,395
)


(865
)

62.0
%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾

440



265



175


66.0
%
Net interest income (FTE)
$
94,546


$
68,498


$
26,048


38.0
%
Net interest margin (FTE)

4.02
%


3.50
%












Acquired loans discount accretion, net:







Amount (included in interest income)
$
714


$
2,034


$
(1,320
)

(64.9
) %
Net interest margin less effect of acquired loan discount accretion ⁽¹⁾

3.99
%


3.40
%


0.59
%


PPP loans yield, net:







Amount (included in interest income)
$
313


$
3,507


$
(3,194
)

(91.1
) %
Net interest margin less effect of PPP loan yield ⁽¹⁾

4.02
%


3.42
%


0.60
%


Acquired loans discount accretion and PPP loan yield, net:







Amount (included in interest income)
$
1,027


$
5,541


$
(4,514
)

(81.5
) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾

3.98
%


3.31
%


0.67
%


Nine months ended September 30,




(dollars in thousands)
2022

2021

Change

% Change
Interest income
$
252,516


$
206,023


$
46,493


22.6
%
Interest expense

(5,440
)


(4,267
)


(1,173
)

27.5
%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾

1,120



797



323


40.5
%
Net interest income (FTE)
$
248,196


$
202,553


$
45,643


22.5
%
Net interest margin (FTE)

3.71
%


3.61
%












Acquired loans discount accretion, net:







Amount (included in interest income)
$
3,714


$
6,311


$
(2,597
)

(41.2
) %
Net interest margin less effect of acquired loan discount accretion ⁽¹⁾

3.65
%


3.50
%


0.15
%


PPP loans yield, net:







Amount (included in interest income)
$
2,374


$
12,549


$
(10,175
)

(81.1
) %
Net interest margin less effect of PPP loan yield ⁽¹⁾

3.69
%


3.53
%


0.16
%


Acquired loans discount accretion and PPP loan yield, net:







Amount (included in interest income)
$
6,088


$
18,860


$
(12,772
)

(67.7
) %
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾

3.63
%


3.41
%


0.22
%

(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 throughout 2022. During the three months ended September 30, 2022, June 30, 2022, and September 30, 2021, purchased loan discount accretion was $714,000, $1,677,000, and $2,034,000, 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

September 30, 2022

June 30, 2022

September 30, 2021

Average Balance

Income/ Expense

Yield/ Rate

Average Balance

Income/ Expense

Yield/ Rate

Average Balance

Income/ Expense

Yield/ Rate
Assets

















Loans, excluding PPP
$
6,162,267

$
75,643

4.87
%

$
5,890,578

$
68,954

4.70
%

$
4,684,492

$
57,218

4.85
%
PPP loans

8,775


313

14.15
%


37,852


964

10.22
%


213,430


3,507

6.52
%
Investments-taxable

2,591,513


17,122

2.62
%


2,536,362


14,350

2.27
%


2,019,283


7,741

1.52
%
Investments-nontaxable ⁽¹⁾

210,606


1,908

3.59
%


196,104


1,720

3.52
%


130,028


1,147

3.50
%
Total investments

2,802,119


19,030

2.69
%


2,732,466


16,070

2.36
%


2,149,311


8,888

1.64
%
Cash at Federal Reserve and other banks

346,991


1,820

2.08
%


669,163


1,364

0.82
%


710,936


280

0.16
%
Total earning assets

9,320,152


96,806

4.12
%


9,330,059


87,352

3.76
%


7,758,169


69,893

3.57
%
Other assets, net

810,966






791,655






589,942




Total assets
$
10,131,118





$
10,121,714





$
8,348,111




Liabilities and shareholders’ equity

















Interest-bearing demand deposits
$
1,775,884

$
119

0.03
%

$
1,799,205

$
99

0.02
%

$
1,507,697

$
116

0.03
%
Savings deposits

3,011,145


685

0.09
%


3,003,337


529

0.07
%


2,407,368


328

0.05
%
Time deposits

321,100


188

0.23
%


337,007


220

0.26
%


321,381


411

0.51
%
Total interest-bearing deposits

5,108,129


992

0.08
%


5,139,549


848

0.07
%


4,236,446


855

0.08
%
Other borrowings

38,908


5

0.05
%


35,253


5

0.06
%


48,330


6

0.05
%
Junior subordinated debt

101,011


1,263

4.96
%


100,991


1,056

4.19
%


57,891


534

3.66
%
Total interest-bearing liabilities

5,248,048


2,260

0.17
%


5,275,793


1,909

0.15
%


4,342,667


1,395

0.13
%
Noninterest-bearing deposits

3,644,086






3,603,771






2,900,817




Other liabilities

164,208






150,696






117,601




Shareholders’ equity

1,074,776






1,091,454






987,026




Total liabilities and shareholders’ equity
$
10,131,118





$
10,121,714





$
8,348,111




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




3.95
%





3.61
%





3.45
%
Net interest income and margin ^{(1) (3)}


$
94,546

4.02
%



$
85,443

3.67
%



$
68,498

3.50
%

(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 September 30, 2022 increased $9,103,000 or 10.7% to $94,546,000 compared to $85,443,000 during the three months ended June 30, 2022. In addition, net interest margin improved 35 basis points to 4.02%, as compared to the trailing quarter. The increase in net interest income is primarily attributed to an additional $6,038,000 in loan interest and fee income and $2,960,000 in investment income, due to increases in average volume and rates as compared to the trailing quarter, respectively. As a partial offset, increases in interest rates on subordinated debt resulted in an increase in interest expense of $207,000 over the same period.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 2 basis points from 4.85% during the three months ended September 30, 2021, to 4.87% during the three months ended September 30, 2022. The accretion of discounts from acquired loans added 5 and 17 basis points to loan yields during the quarters ended September 30, 2022 and September 30, 2021, respectively. Therefore, the 2 basis point increase in yields on loans during the comparable three month periods ended September 30, 2022 and 2021 was the net effect of a 14 basis point increase in market loan rates, partially offset by a 12 basis point decline in the accretion of discounts.

The rates paid on interest bearing deposits increased by 1 basis point during the quarter ended September 30, 2022 compared to the trailing quarter. The cost of interest-bearing deposits remained flat at 8 basis points between the quarter ended September 30, 2022 and 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 third quarter of the prior year. Non-interest bearing deposit balances grew $74.0 million during the three months ended September 30, 2022. As of September 30, 2022, the ratio of average total noninterest-bearing deposits to total average deposits was 41.6% .


Nine months ended September 30, 2022

Nine months ended September 30, 2021

Average Balance

Income/ Expense

Yield/ Rate

Average Balance

Income/ Expense

Yield/ Rate
Assets











Loans, excluding PPP
$
5,668,055

$
201,245

4.75
%

$
4,580,292

$
168,916

4.93
%
PPP loans

32,287


2,374

9.83
%


300,006


12,549

5.59
%
Investments-taxable

2,487,111


41,695

2.24
%


1,838,023


21,324

1.55
%
Investments-nontaxable ⁽¹⁾

183,772


4,853

3.53
%


129,057


3,453

3.58
%
Total investments

2,670,883


46,548

2.33
%


1,967,080


24,777

1.68
%
Cash at Federal Reserve and other banks

573,252


3,469

0.81
%


656,912


578

0.12
%
Total earning assets

8,944,477


253,636

3.79
%


7,504,290


206,820

3.68
%
Other assets, net

737,721






591,983




Total assets
$
9,682,198





$
8,096,273




Liabilities and shareholders’ equity











Interest-bearing demand deposits
$
1,724,787

$
302

0.02
%

$
1,476,987

$
269

0.02
%
Savings deposits

2,863,447


1,541

0.07
%


2,318,169


965

0.06
%
Time deposits

319,940


676

0.28
%


327,562


1,386

0.57
%
Total interest-bearing deposits

4,908,174


2,519

0.07
%


4,122,718


2,620

0.08
%
Other borrowings

39,609


15

0.05
%


40,732


15

0.05
%
Junior subordinated debt

87,804


2,906

4.42
%


57,790


1,632

3.78
%
Total interest-bearing liabilities

5,035,587


5,440

0.14
%


4,221,240


4,267

0.14
%
Noninterest-bearing deposits

3,435,487






2,790,828




Other liabilities

152,186






121,334




Shareholders’ equity

1,058,938






962,871




Total liabilities and shareholders’ equity
$
9,682,198





$
8,096,273




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




3.65
%





3.54
%
Net interest income and margin ^{(1) (3)}


$
248,196

3.71
%



$
202,553

3.61
%

(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 September 30, 2022, 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 September 30, 2022, the Company's loan portfolio consisted of approximately $6.4 billion in outstanding principal with a weighted average coupon rate of 4.65%. Included in the September 30, 2022 loan total are variable rate loans totaling $3.6 billion, of which, $862 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities totaling $402 million which are subject to repricing on not less than a quarterly basis.

Asset Quality and Credit Loss Provisioning

During the three months ended September 30, 2022, the Company recorded a provision for credit losses of $3,795,000, as compared to a $2,100,000 provision during the trailing quarter, and a reversal of provision expense of $1,435,000 during the third quarter of 2021.

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


Three months ended
(dollars in thousands)
September 30, 2022

June 30, 2022

March 31, 2022

September 30, 2021
Addition to (reversal of) allowance for credit losses
$
3,500

$
1,940

$
8,205

$
(1,495
)
Addition to reserve for unfunded loan commitments

295


160


125


60

Total provision for (reversal of) credit losses
$
3,795

$
2,100

$
8,330

$
(1,435
)

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


Three months ended

Nine months ended
(dollars in thousands)
September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021
Balance, beginning of period
$
97,944


$
86,062


$
85,376


$
91,847

ACL at acquisition for PCD loans

—



—



2,037



—

Provision for (reversal of) credit losses

3,500



(1,495
)


13,645



(7,880
)
Loans charged-off

(267
)


(1,582
)


(1,411
)


(2,195
)
Recoveries of previously charged-off loans

311



1,321



1,841



2,534

Balance, end of period
$
101,488


$
84,306


$
101,488


$
84,306

The allowance for credit losses (ACL) was $101,488,000 as of September 30, 2022, a net increase of $3,544,000 over the immediately preceding quarter. The provision for credit losses of $3,500,000 during the quarter was the net effect of increases in required reserves due to qualitative factors and individually analyzed credits. In addition to the aforementioned quarterly increase, the provision for credit losses of $13,645,000 during the nine months ended September 30, 2022 was comprised of $10,820,000 in association with the loans acquired from Valley Republic Bank in the first quarter of 2022, and a net provision for credit losses of $2,825,000 associated with organic loan portfolio growth and the net changes in quantitative and qualitative factors associated with overall borrower performance. For the quarter, the qualitative components of the ACL resulted in a net increase in required reserves, despite continued improvement in US employment rates, due to increased uncertainty in the global economic markets, concentration risks in commercial lending and the rapid rise in interest rates. Meanwhile, the quantitative component of the ACL increased reserve requirements over the trailing quarter due to loan volume growth and increases in specific reserves totaling approximately $1,237,000.

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. Inflation remains elevated from continued disruptions in the supply chain and high energy prices Despite the expected continued benefit to the net interest income of the Company from the elevated rate environment, Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have boosted expectations of the US entering a recession within 12 months and has led to the lowest levels of consumer sentiment in decades. 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 increased by $551,000 during the quarter ended September 30, 2022 to $6,471,000, as compared to $5,920,000 at June 30, 2022. Non-performing loans were $17,471,000 at September 30, 2022, an increase of $5,546,000 from $11,925,000 as of June 30, 2022, and a decrease of $11,319,000 from $28,790,000 as of September 30, 2021. The current quarter change in non-performing assets is nearly entirely attributed to a single agriculture production relationship, which also was the primary contributor to the increase in specific reserves for the quarter.

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


September 30,
% of Total Loans

June 30,
% of Total Loans

September 30,
% of Total Loans
(dollars in thousands)
2022


2022


2021

Risk Rating:








Pass
$
6,133,805

97.1
%

$
5,960,781

97.5
%

$
4,698,475

96.1
%
Special Mention

126,273

2.0
%


105,819

1.7
%


138,699

2.9
%
Substandard

54,212

0.9
%


46,821

0.8
%


50,322

1.0
%
Total
$
6,314,290



$
6,113,421



$
4,887,496











Classified loans to total loans

0.86
%



0.77
%



1.03
%

Loans past due 30+ days to total loans

0.10
%



0.10
%



0.22
%

The ratio of classified loans increased to 0.86% as of September 30, 2022 as compared to 0.77% in the trailing quarter, but improved by 17 basis points from the equivalent period in 2021. The Company's criticized loan balances increased during the current quarter by approximately $27,846,000 to $180,486,000 as of September 30, 2022. There were no charge-offs incurred in connection with these loans and management continues to work toward resolution with the borrowers.

There were two properties added to other real estate owned totaling $443,000 during the quarter ended September 30, 2022, and two disposals totaling $394,000. As of September 30, 2022, other real estate owned consisted of nine properties with a carrying value of approximately $3,441,000.

Non-performing assets of $20,912,000 at September 30, 2022 represented 0.21% of total assets, a slight change but generally in line with the $15,304,000 or 0.15% and $31,440,000 or 0.37% as of June 30, 2022 and September 30, 2021, respectively.

Allocation of Credit Loss Reserves by Loan Type



As of September 30, 2022

As of December 31, 2021

As of September 30, 2021
(dollars in thousands)

Amount

% of Loans Outstanding

Amount

% of Loans Outstanding

Amount

% of Loans Outstanding
Commercial real estate:












CRE - Non Owner Occupied

$
29,244

1.42
%

$
25,739

1.61
%

$
25,221

1.65
%
CRE - Owner Occupied


13,525

1.39
%


10,691

1.51
%


10,730

1.53
%
Multifamily


12,749

1.36
%


12,395

1.51
%


12,876

1.55
%
Farmland


3,122

1.12
%


2,315

1.34
%


1,902

1.15
%
Total commercial real estate loans


58,640

1.38
%


51,140

1.55
%


50,729

1.57
%
Consumer:












SFR 1-4 1st Liens


10,671

1.39
%


10,723

1.60
%


10,618

1.60
%
SFR HELOCs and Junior Liens


11,383

2.89
%


10,510

3.11
%


10,431

3.23
%
Other


1,878

3.23
%


2,241

3.34
%


2,442

3.59
%
Total consumer loans


23,932

1.97
%


23,474

2.19
%


23,491

2.22
%













Commercial and Industrial


10,400

1.94
%


3,862

1.49
%


3,427

0.99
%
Construction


6,132

2.52
%


5,667

2.55
%


5,528

2.55
%
Agricultural Production


2,368

3.31
%


1,215

2.39
%


1,119

2.52
%
Leases


16

0.20
%


18

0.27
%


12

0.24
%
Allowance for credit losses


101,488

1.61
%


85,376

1.74
%


84,306

1.72
%
Reserve for unfunded loan commitments


4,370




3,790




3,525


Total allowance for credit losses

$
105,858

1.68
%

$
89,166

1.81
%

$
87,831

1.80
%

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 September 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 September 30, 2022, the unamortized discount associated with acquired loans totaled $32,256,000 and, if aggregated with the ACL, would collectively represent 2.11% of total gross loans and 2.12% 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)
September 30, 2022

December 31, 2021

September 30, 2021
Total number of PPP loans outstanding

16


450


1,449






PPP loan balance (TCBK round 1 origination), gross
$
433

$
2,544

$
9,302
PPP loan balance (TCBK round 2 origination), gross

533


60,767


148,159
Acquired PPP loan balance (VRB origination), gross

1,003


—


—
Total PPP loans, gross outstanding
$
1,969

$
63,311

$
157,461






PPP deferred loan fees (Round 1 origination)

—


1


40
PPP deferred loan fees (Round 2 origination)

27


2,163


5,973
Total PPP deferred loan fees (costs) outstanding
$
27

$
2,164

$
6,013

As of September 30, 2022, there was approximately $27,000 in net deferred fee income remaining to be recognized. During the three months ended September 30, 2022, the Company recognized $291,000 in fees on PPP loans as compared with $872,000 and $2,984,000 for the three months ended June 30, 2022 and September 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)
September 30, 2022

June 30, 2022

Change

% Change
ATM and interchange fees
$
6,714


$
6,984


$
(270
)

(3.9
) %
Service charges on deposit accounts

4,436



4,163



273


6.6
%
Other service fees

1,022



1,279



(257
)

(20.1
) %
Mortgage banking service fees

477



482



(5
)

(1.0
) %
Change in value of mortgage servicing rights

33



136



(103
)

(75.7
) %
Total service charges and fees

12,682



13,044



(362
)

(2.8
) %
Increase in cash value of life insurance

659



752



(93
)

(12.4
) %
Asset management and commission income

1,020



1,039



(19
)

(1.8
) %
Gain on sale of loans

357



542



(185
)

(34.1
) %
Lease brokerage income

252



238



14


5.9
%
Sale of customer checks

326



441



(115
)

(26.1
) %
Gain on sale of investment securities

—



—



—


n/m

Loss on marketable equity securities

(115
)


(94
)


(21
)

22.3
%
Other

459



468



(9
)

(1.9
) %
Total other non-interest income

2,958



3,386



(428
)

(12.6
) %
Total non-interest income
$
15,640


$
16,430


$
(790
)

(4.8
) %

Non-interest income decreased $790,000 or 4.8% to $15,640,000 during the three months ended September 30, 2022, compared to $16,430,000 during the quarter ended June 30, 2022. Gain on sale of mortgage loans declined by $185,000 or 34.1% during the quarter ended September 30, 2022, attributed to the continued rising rate environment and resulting decline in overall mortgage application and origination volumes. The decrease in total service charges and fees is wholly attributable to changes in customer use activities and the ongoing integration of customers acquired from Valley Republic Bank (VRB). Looking forward, during the fourth quarter of 2022, the Company will no longer charge personal and business customers a non-sufficient funds fee for returned checks.

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


Three months ended September 30,




(dollars in thousands)
2022

2021

Change

% Change
ATM and interchange fees
$
6,714


$
6,516


$
198


3.0
%
Service charges on deposit accounts

4,436



3,608



828


22.9
%
Other service fees

1,022



897



125


13.9
%
Mortgage banking service fees

477



476



1


0.2
%
Change in value of mortgage servicing rights

33



(232
)


265


(114.2
) %
Total service charges and fees

12,682



11,265



1,417


12.6
%
Increase in cash value of life insurance

659



644



15


2.3
%
Asset management and commission income

1,020



957



63


6.6
%
Gain on sale of loans

357



1,814



(1,457
)

(80.3
) %
Lease brokerage income

252



183



69


37.7
%
Sale of customer checks

326



107



219


204.7
%
Gain on sale of investment securities

—



—



—


n/m

Loss on marketable equity securities

(115
)


(14
)


(101
)

721.4
%
Other

459



139



320


230.2
%
Total other non-interest income

2,958



3,830



(872
)

(22.8
) %
Total non-interest income
$
15,640


$
15,095


$
545


3.6
%

Generally, the increases in recurring non-interest income items reflects the VRB merger timing. As noted above, decreasing mortgage related activity reduced the gain on sale of loans recorded during the quarter by $1,457,000 or 80.3%, as compared to the three months ended September 30, 2021. Further, changes in the value of mortgage service rights, while lesser in magnitude, typically have an inverse relationship with changes in mortgage banking activities.


Nine months ended September 30,




(dollars in thousands)
2022

2021

Change

% Change
ATM and interchange fees
$
19,941


$
18,935


$
1,006


5.3
%
Service charges on deposit accounts

12,433



10,339



2,094


20.3
%
Other service fees

3,183



2,682



501


18.7
%
Mortgage banking service fees

1,422



1,406



16


1.1
%
Change in value of mortgage servicing rights

443



(691
)


1,134


(164.1
) %
Total service charges and fees

37,422



32,671



4,751


14.5
%
Increase in cash value of life insurance

2,049



2,062



(13
)

(0.6
) %
Asset management and commission income

2,946



2,738



208


7.6
%
Gain on sale of loans

2,145



7,908



(5,763
)

(72.9
) %
Lease brokerage income

648



542



106


19.6
%
Sale of customer checks

871



342



529


154.7
%
Gain on sale of investment securities

—



—



—


n/m

Loss on marketable equity securities

(346
)


(59
)


(287
)

486.4
%
Other

1,431



958



473


49.4
%
Total other non-interest income

9,744



14,491



(4,747
)

(32.8
) %
Total non-interest income
$
47,166


$
47,162


$
4


—
%

The changes in non-interest income for the nine months ended September 30, 2022 and 2021 are generally consistent with changes in the three month 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)
September 30, 2022

June 30, 2022

Change

% Change
Base salaries, net of deferred loan origination costs
$
22,377


$
22,169


$
208


0.9
%
Incentive compensation

4,832



4,282



550


12.8
%
Benefits and other compensation costs

6,319



6,491



(172
)

(2.6
) %
Total salaries and benefits expense

33,528



32,942



586


1.8
%
Occupancy

3,965



3,996



(31
)

(0.8
) %
Data processing and software

3,449



3,596



(147
)

(4.1
) %
Equipment

1,422



1,453



(31
)

(2.1
) %
Intangible amortization

1,702



1,702



—


—
%
Advertising

990



818



172


21.0
%
ATM and POS network charges

1,694



1,781



(87
)

(4.9
) %
Professional fees

1,172



1,233



(61
)

(4.9
) %
Telecommunications

575



564



11


2.0
%
Regulatory assessments and insurance

828



779



49


6.3
%
Merger and acquisition expenses

—



2,221



(2,221
)

(100.0
) %
Postage

287



313



(26
)

(8.3
) %
Operational loss

492



456



36


7.9
%
Courier service

497



486



11


2.3
%
Gain on sale or acquisition of foreclosed assets

(148
)


(98
)


(50
)

51.0
%
Loss on disposal of fixed assets

4



5



(1
)

(20.0
) %
Other miscellaneous expense

4,008



4,017



(9
)

(0.2
) %
Total other non-interest expense

20,937



23,322



(2,385
)

(10.2
) %
Total non-interest expense
$
54,465


$
56,264


$
(1,799
)

(3.2
) %
Average full-time equivalent staff

1,198



1,183



15


1.3
%

Non-interest expense for the quarter ended September 30, 2022 decreased $1,799,000 or 3.2% to $54,465,000 as compared to $56,264,000 during the trailing quarter ended June 30, 2022. Total salaries and benefits expense increased by $586,000 or 1.8%, led by incentive compensation related expenses of $550,000 or 12.8% compared to the trailing quarter, due to strong overall Company performance and continued loan production and growth. The merger and acquisition expenses from the trailing quarter were entirely associated with the VRB merger, which are not expected to be incurred in future periods.

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


Three months ended September 30,




(dollars in thousands)
2022

2021

Change

% Change
Base salaries, net of deferred loan origination costs
$
22,377


$
17,673


$
4,704


26.6
%
Incentive compensation

4,832



3,123



1,709


54.7
%
Benefits and other compensation costs

6,319



5,478



841


15.4
%
Total salaries and benefits expense

33,528



26,274



7,254


27.6
%
Occupancy

3,965



3,771



194


5.1
%
Data processing and software

3,449



3,689



(240
)

(6.5
) %
Equipment

1,422



1,336



86


6.4
%
Intangible amortization

1,702



1,409



293


20.8
%
Advertising

990



966



24


2.5
%
ATM and POS network charges

1,694



1,692



2


0.1
%
Professional fees

1,172



1,090



82


7.5
%
Telecommunications

575



574



1


0.2
%
Regulatory assessments and insurance

828



673



155


23.0
%
Merger and acquisition expenses

—



651



(651
)

n/m

Postage

287



156



131


84.0
%
Operational loss

492



244



248


101.6
%
Courier service

497



286



211


73.8
%
Gain on sale or acquisition of foreclosed assets

(148
)


(144
)


(4
)

2.8
%
(Gain) loss on disposal of fixed assets

4



(19
)


23


(121.1
) %
Other miscellaneous expense

4,008



3,159



849


26.9
%
Total other non-interest expense

20,937



19,533



1,404


7.2
%
Total non-interest expense
$
54,465


$
45,807


$
8,658


18.9
%
Average full-time equivalent staff

1,198



1,049



149


14.2
%

Generally, the increases in recurring non-interest expense items reflect the VRB merger timing of March 25, 2022, and therefore, related expenses for the combined entities, less certain realized cost savings, are only being captured within the most recent three months ended September 30, 2022. Total non-interest expense increased $8,658,000 or 18.9% to $54,465,000 during the three months ended September 30, 2022 as compared to $45,807,000 for the quarter ended September 30, 2021. Total salaries and benefits expense increased by $7,254,000 or 27.6% to $33,528,000, largely from a net increase of 99 full-time equivalent positions following the aforementioned merger with VRB, the build out of other loan production and compliance teams, and the continued strength of organic growth within the loan portfolio driving incentive compensation expense.


Nine months ended September 30,




(dollars in thousands)
2022

2021

Change

% Change
Base salaries, net of deferred loan origination costs
$
62,762


$
50,721


$
12,041


23.7
%
Incentive compensation

11,697



11,025



672


6.1
%
Benefits and other compensation costs

18,782



16,939



1,843


10.9
%
Total salaries and benefits expense

93,241



78,685



14,556


18.5
%
Occupancy

11,536



11,197



339


3.0
%
Data processing and software

10,558



10,092



466


4.6
%
Equipment

4,208



4,060



148


3.6
%
Intangible amortization

4,632



4,271



361


8.5
%
Advertising

2,445



2,080



365


17.5
%
ATM and POS network charges

4,850



4,489



361


8.0
%
Professional fees

3,281



2,730



551


20.2
%
Telecommunications

1,660



1,719



(59
)

(3.4
) %
Regulatory assessments and insurance

2,327



1,903



424


22.3
%
Merger and acquisition expenses

6,253



651



5,602


860.5
%
Postage

828



478



350


73.2
%
Operational loss

765



665



100


15.0
%
Courier service

1,397



868



529


60.9
%
Gain on sale or acquisition of foreclosed assets

(246
)


(210
)


(36
)

17.1
%
Gain on disposal of fixed assets

(1,069
)


(445
)


(624
)

140.2
%
Other miscellaneous expense

10,510



8,363



2,147


25.7
%
Total other non-interest expense

63,935



52,911



11,024


20.8
%
Total non-interest expense
$
157,176


$
131,596


$
25,580


19.4
%
Average full-time equivalent staff

1,155



1,031



124


12.0
%

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

Provision for Income Taxes

The Company’s effective tax rate was 27.5% for the nine months ended September 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; 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 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 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 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; 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; breaches in data security, including as a result of work from home arrangements; failure to safeguard personal information; 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 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

September 30, 2022

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021
Revenue and Expense Data









Interest income
$
96,366


$
86,955


$
69,195


$
71,024


$
69,628

Interest expense

2,260



1,909



1,271



1,241



1,395

Net interest income

94,106



85,046



67,924



69,783



68,233

Provision for (benefit from) credit losses

3,795



2,100



8,330



980



(1,435
)
Noninterest income:









Service charges and fees

12,682



13,044



11,696



11,277



11,265

Gain on sale of investment securities

—



—



—



—



—

Other income

2,958



3,386



3,400



5,225



3,830

Total noninterest income

15,640



16,430



15,096



16,502



15,095

Noninterest expense (2):









Salaries and benefits

33,528



34,370



28,597



27,666



26,274

Occupancy and equipment

5,387



5,449



4,925



5,011



5,107

Data processing and network

5,143



5,468



5,089



5,444



5,381

Other noninterest expense

10,407



10,977



7,836



8,558



9,045

Total noninterest expense

54,465



56,264



46,447



46,679



45,807

Total income before taxes

51,486



43,112



28,243



38,626



38,956

Provision for income taxes

14,148



11,748



7,869



10,404



11,534

Net income
$
37,338


$
31,364


$
20,374


$
28,222


$
27,422

Share Data









Basic earnings per share
$
1.12


$
0.93


$
0.68


$
0.95


$
0.92

Diluted earnings per share
$
1.12


$
0.93


$
0.67


$
0.94


$
0.92

Dividends per share
$
0.30


$
0.25


$
0.25


$
0.25


$
0.25

Book value per common share
$
29.71


$
31.25


$
32.78


$
33.64


$
33.05

Tangible book value per common share (1)
$
19.92


$
21.41


$
23.04


$
25.80


$
25.16

Shares outstanding

33,332,189



33,350,974



33,837,935



29,730,424



29,714,609

Weighted average shares

33,348,322



33,561,389



30,049,919



29,723,791



29,713,558

Weighted average diluted shares

33,463,364



33,705,280



30,201,698



29,870,059



29,850,530

Credit Quality









Allowance for credit losses to gross loans

1.61
%


1.60
%


1.64
%


1.74
%


1.72
%
Loans past due 30 days or more
$
6,471


$
5,920


$
8,402


$
4,332


$
10,539

Total nonperforming loans
$
17,471


$
11,925


$
14,088


$
30,350


$
28,790

Total nonperforming assets
$
20,912


$
15,304


$
16,995


$
32,944


$
31,440

Loans charged-off
$
267


$
401


$
743


$
197


$
1,582

Loans recovered
$
311


$
356


$
1,174


$
552


$
1,321

Selected Financial Ratios









Return on average total assets

1.46
%


1.24
%


0.94
%


1.31
%


1.30
%
Return on average equity

13.78
%


11.53
%


8.19
%


11.20
%


11.02
%
Average yield on loans, excluding PPP

4.87
%


4.70
%


4.65
%


4.73
%


4.85
%
Average yield on interest-earning assets

4.12
%


3.76
%


3.46
%


3.56
%


3.57
%
Average rate on interest-bearing deposits

0.08
%


0.07
%


0.06
%


0.06
%


0.08
%
Average cost of total deposits

0.04
%


0.04
%


0.04
%


0.04
%


0.05
%
Average rate on borrowings & subordinated debt

3.60
%


3.12
%


2.27
%


1.98
%


2.02
%
Average rate on interest-bearing liabilities

0.17
%


0.15
%


0.11
%


0.11
%


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

4.02
%


3.67
%


3.39
%


3.50
%


3.50
%
Loans to deposits

72.95
%


69.81
%


67.15
%


66.74
%


67.54
%
Efficiency ratio

49.63
%


55.45
%


55.95
%


54.10
%


54.97
%
Supplemental Loan Interest Income Data









Discount accretion on acquired loans
$
714


$
1,677


$
1,323


$
1,780


$
2,034

All other loan interest income (excluding PPP) (1)
$
74,929


$
67,277


$
55,325


$
54,930


$
55,184

Total loan interest income (excluding PPP) (1)
$
75,643


$
68,954


$
56,648


$
56,710


$
57,218

(1)

Non-GAAP measure

(2)

Inclusive of merger related expenses

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited. Dollars in thousands)


Balance Sheet Data
September 30, 2022

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021
Cash and due from banks
$
246,509


$
488,868


$
1,035,683


$
768,421


$
740,236

Securities, available for sale, net

2,482,857



2,608,771



2,365,708



2,210,876



2,098,786

Securities, held to maturity, net

168,038



176,794



186,748



199,759



216,979

Restricted equity securities

17,250



17,250



17,250



17,250



17,250

Loans held for sale

247



1,216



1,030



3,466



3,072

Loans:









Commercial real estate

4,238,930



4,049,893



3,832,974



3,306,054



3,222,737

Consumer

1,217,297



1,162,989



1,136,712



1,071,551



1,053,653

Commercial and industrial

534,960



507,685



500,882



259,355



345,027

Construction

243,571



313,646



303,960



222,281



216,680

Agriculture production

71,599



71,373



69,339



50,811



44,410

Leases

7,933



7,835



8,108



6,572



4,989

Total loans, gross

6,314,290



6,113,421



5,851,975



4,916,624



4,887,496

Allowance for credit losses

(101,488
)


(97,944
)


(96,049
)


(85,376
)


(84,306
)
Total loans, net

6,212,802



6,015,477



5,755,926



4,831,248



4,803,190

Premises and equipment

73,266



73,811



73,692



78,687



78,968

Cash value of life insurance

132,933



132,857



132,104



117,857



120,932

Accrued interest receivable

27,070



25,861



22,769



19,292



18,425

Goodwill

307,942



307,942



307,942



220,872



220,872

Other intangible assets

18,372



20,074



21,776



12,369



13,562

Operating leases, right-of-use

26,622



27,154



28,404



25,665



26,815

Other assets

262,971



224,536



169,296



109,025



98,943

Total assets
$
9,976,879


$
10,120,611


$
10,118,328


$
8,614,787


$
8,458,030

Deposits:









Noninterest-bearing demand deposits
$
3,678,202


$
3,604,237


$
3,583,269


$
2,979,882


$
2,943,016

Interest-bearing demand deposits

1,749,123



1,796,580



1,788,639



1,568,682



1,519,426

Savings deposits

2,924,674



3,028,787



2,993,873



2,521,011



2,447,706

Time certificates

303,770



327,171



348,696



297,584



326,674

Total deposits

8,655,769



8,756,775



8,714,477



7,367,159



7,236,822

Accrued interest payable

853



755



653



928



1,056

Operating lease liability

28,717



29,283



30,500



26,280



27,290

Other liabilities

153,110



155,529



126,348



112,070



107,282

Other borrowings

47,068



35,089



36,184



50,087



45,601

Junior subordinated debt

101,024



101,003



100,984



58,079



57,965

Total liabilities

8,986,541



9,078,434



9,009,146



7,614,603



7,476,016

Common stock

696,348



696,441



706,672



532,244



531,339

Retained earnings

516,699



491,705



479,868



466,959



446,948

Accum. other comprehensive income (loss)

(222,709
)


(145,969
)


(77,358
)


981



3,727

Total shareholders’ equity
$
990,338


$
1,042,177


$
1,109,182


$
1,000,184


$
982,014

Quarterly Average Balance Data









Average loans, excluding PPP
$
6,162,267


$
5,890,578


$
4,937,865


$
4,759,294


$
4,684,492

Average interest-earning assets
$
9,320,152


$
9,330,059


$
8,153,200


$
7,947,798


$
7,758,169

Average total assets
$
10,131,118


$
10,121,714


$
8,778,256


$
8,546,004


$
8,348,111

Average deposits
$
8,752,215


$
8,743,320


$
7,521,930


$
7,304,659


$
7,137,263

Average borrowings and subordinated debt
$
139,919


$
136,244


$
105,702


$
108,671


$
106,221

Average total equity
$
1,074,776


$
1,091,454


$
1,009,224


$
999,764


$
987,026

Capital Ratio Data









Total risk-based capital ratio

14.0
%


14.1
%


15.0
%


15.4
%


15.4
%
Tier 1 capital ratio

12.2
%


12.3
%


13.1
%


14.2
%


14.2
%
Tier 1 common equity ratio

11.4
%


11.5
%


12.3
%


13.2
%


13.2
%
Tier 1 leverage ratio

9.6
%


9.3
%


10.8
%


9.9
%


9.9
%
Tangible capital ratio (1)

6.9
%


7.3
%


8.0
%


9.2
%


9.1
%

(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

Nine months ended
(dollars in thousands)
September 30, 2022

June 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021
Net interest margin









Acquired loans discount accretion, net:









Amount (included in interest income)
$
714


$
1,677


$
2,034


$
3,714


$
6,311

Effect on average loan yield

0.05
%


0.11
%


0.17
%


0.09
%


0.18
%
Effect on net interest margin (FTE)

0.03
%


0.07
%


0.10
%


0.06
%


0.11
%
Net interest margin (FTE)

4.02
%


3.67
%


3.50
%


3.71
%


3.61
%
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)

3.99
%


3.60
%


3.40
%


3.65
%


3.50
%
PPP loans yield, net:









Amount (included in interest income)
$
313


$
964


$
3,507


$
2,374


$
12,549

Effect on net interest margin (FTE)

0.01
%


0.02
%


0.09
%


0.02
%


0.08
%
Net interest margin less effect of PPP loan yield (Non-GAAP)

4.02
%


3.65
%


3.42
%


3.69
%


3.53
%
Acquired loan discount accretion and PPP loan yield, net:









Amount (included in interest income)
$
1,027


$
2,641


$
5,541


$
6,088


$
18,860

Effect on net interest margin (FTE)

0.04
%


0.10
%


0.19
%


0.08
%


0.20
%
Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)

3.98
%


3.57
%


3.31
%


3.63
%


3.41
%


Three months ended

Nine months ended
(dollars in thousands)
September 30, 2022

June 30, 2022

September 30, 2021

September 30, 2022

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









Net income (GAAP)
$
37,338


$
31,364


$
27,422


$
89,076


$
89,433

Exclude income tax expense

14,148



11,748



11,534



33,765



35,644

Exclude provision (benefit) for credit losses

3,795



2,100



(1,435
)


14,225



(7,755
)
Net income before income tax and provision expense (Non-GAAP)
$
55,281


$
45,212


$
37,521


$
137,066


$
117,322











Average assets (GAAP)
$
10,131,118


$
10,121,714


$
8,348,111


$
9,682,198


$
8,096,273

Average equity (GAAP)
$
1,074,776


$
1,091,454


$
987,026


$
1,058,938


$
962,871











Return on average assets (GAAP) (annualized)

1.46
%


1.24
%


1.30
%


1.23
%


1.48
%
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)

2.16
%


1.79
%


1.78
%


1.89
%


1.94
%
Return on average equity (GAAP) (annualized)

13.78
%


11.53
%


11.02
%


11.25
%


12.42
%
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)

20.41
%


16.61
%


15.08
%


17.31
%


16.29
%


Three months ended

Nine months ended
(dollars in thousands)
September 30, 2022

June 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021
Return on tangible common equity









Average total shareholders' equity
$
1,074,776


$
1,091,454


$
987,026


$
1,058,938


$
962,871

Exclude average goodwill

307,942



307,942



220,872



281,151



220,872

Exclude average other intangibles

19,433



21,040



14,267



17,717



19,264

Average tangible common equity (Non-GAAP)
$
747,401


$
762,472


$
751,887


$
760,070


$
722,735











Net income (GAAP)
$
37,338


$
31,364


$
27,422


$
89,076


$
89,433

Exclude amortization of intangible assets, net of tax effect

1,199



1,199



992



3,263



3,008

Tangible net income available to common shareholders (Non-GAAP)
$
38,537


$
32,563


$
28,414


$
92,339


$
92,441











Return on average equity

13.78
%


11.53
%


11.02
%


11.25
%


12.42
%
Return on average tangible common equity (Non-GAAP)

20.46
%


17.13
%


14.99
%


16.24
%


17.10
%


Three months ended
(dollars in thousands)
September 30, 2022

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021
Tangible shareholders' equity to tangible assets









Shareholders' equity (GAAP)
$
990,338


$
1,042,177


$
1,109,182


$
1,000,184


$
982,014

Exclude goodwill and other intangible assets, net

326,314



328,016



329,718



233,241



234,434

Tangible shareholders' equity (Non-GAAP)
$
664,024


$
714,161


$
779,464


$
766,943


$
747,580











Total assets (GAAP)
$
9,976,879


$
10,120,611


$
10,118,328


$
8,614,787


$
8,458,030

Exclude goodwill and other intangible assets, net

326,314



328,016



329,718



233,241



234,434

Total tangible assets (Non-GAAP)
$
9,650,565


$
9,792,595


$
9,788,610


$
8,381,546


$
8,223,596











Shareholders' equity to total assets (GAAP)

9.93
%


10.30
%


10.96
%


11.61
%


11.61
%
Tangible shareholders' equity to tangible assets (Non-GAAP)

6.88
%


7.29
%


7.96
%


9.15
%


9.09
%


Three months ended
(dollars in thousands)
September 30, 2022

June 30, 2022

March 31, 2022

December 31, 2021

September 30, 2021
Tangible common shareholders' equity per share









Tangible s/h equity (Non-GAAP)
$
664,024

$
714,161

$
779,464

$
766,943

$
747,580










Common shares outstanding at end of period

33,332,189


33,350,974


33,837,935


29,730,424


29,714,609










Common s/h equity (book value) per share (GAAP)
$
29.71

$
31.25

$
32.78

$
33.64

$
33.05
Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)
$
19.92

$
21.41

$
23.04

$
25.80

$
25.16

View source version on businesswire.com: https://www.businesswire.com/news/home/20221026005147/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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