TriCo Bancshares Announces Quarterly Results

admin April 28, 2021

13 16 minutes read

CHICO, Calif.–(BUSINESS WIRE)–$TCBK #CommunityBank–TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $33,649,000 for the quarter ended March 31, 2021, compared to $23,657,000 during the trailing quarter ended December 31, 2020 and $16,121,000 during the quarter ended March 31, 2020. Diluted earnings per share were $1.13 for the first quarter of 2021, compared to $0.79 for the fourth quarter of 2020 and $0.53 for the first quarter of 2020.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three months ended March 31, 2021 included the following:

For the three months ended March 31, 2021, the Company’s return on average assets was 1.75% and the return on average equity was 14.51%.
Organic loan growth, excluding PPP was $68.19 million (6.16% annualized) for the quarter totaled while total loan growth, excluding PPP was $169.78 million (15.3% annualized) for the quarter.
For the current quarter, net interest margin was 3.74% on a tax equivalent basis as compared to 4.34% in the quarter ended March 31, 2020, and a decrease of 5 basis points from the 3.79% in the trailing quarter.
The efficiency ratio was 50.42% for the first quarter of 2021, as compared to 55.11% in the trailing quarter and 59.66% in the same quarter of the prior year.
As of March 31, 2021, the Company reported total loans, total assets and total deposits of $4.97 billion, $8.03 billion and $6.86 billion, respectively. As a direct result of the considerable deposit growth experienced over the last twelve months, the loan to deposit ratio was 72.37% as of March 31, 2021, as compared to 73.21% at December 31, 2020 and 81.05% at March 31, 2020.
Non-interest bearing deposits as a percentage of total deposits were 40.31% at March 31, 2021, as compared to 39.68% at December 31, 2020 and 34.86% at March 31, 2020.
The average rate of interest paid on deposits, including non-interest-bearing deposits, decreased to 0.06% for the first quarter of 2021 as compared with 0.07% for the trailing quarter, and decreased by 13 basis points from the average rate paid of 0.19% during the same quarter of the prior year.
Total outstanding loan deferral modifications under the CARES Act legislation was $48.27 million as of March 31, 2021, of which $18.0 million related to second deferrals, and an additional $1.9 million related to third deferrals.
The reversal of provision for credit losses for loans and debt securities was $6.1 million during the quarter ended March 31, 2021, as compared to a provision expense of $4.9 million during the trailing quarter ended December 31, 2020, and a provision expense totaling $8.1 million for the three month period ended March 31, 2020.
The allowance for credit losses to total loans was 1.73% as of March 31, 2021, compared to 1.93% as of December 31, 2020, and 1.15% as January 1, 2020, following the Company’s adoption of CECL. Non-performing assets to total assets were 0.39% at March 31, 2021, as compared to 0.39% as of December 31, 2020, and 0.31% at March 31, 2020.
Gain on sale of loans for the three months ended March 31, 2021 totaled $3.2 million, as compared to $3.5 million during the quarter ended December 31, 2020 and $0.9 million for the quarter ended March 31, 2020.

“We continued to benefit from significant growth in deposits during the quarter and we effectively deployed that liquidity to defend net interest income through strong organic and PPP loan growth, as well as additional purchases of whole loans and investment securities,” commented Peter Wiese, EVP and Chief Financial Officer. Rick Smith, President and CEO added; “The actions and activities that we pursued during the second half of last year continue to benefit Tri Counties Bank as evidenced by the significant reduction in noninterest expenses and our efficiency ratio. In addition, we rewarded shareholders with an increase in our dividend which now equates to $1.00 per year paid in quarterly amounts of $0.25. Our entire team has become more energized by the idea and growing ability to return to our offices, as well as the increasing level of market activity and opportunities that we continue to pursue.”

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Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the period ended March 31, 2021, 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

For the three months ended March 31, 2021, the Company’s return on average assets was 1.75% and the return on average equity was 14.51%. For the three months ended March 31, 2020, the Company’s return on average assets was 1.00% and the return on average equity was 7.14%.

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

	Three months ended
	March 31,			December 31,
(dollars and shares in thousands)	2021			2020			$ Change		% Change
Net interest income	$	66,440		$	66,422		$	18	0.0	%
Reversal of (provision for) credit losses	6,060			(4,850)			10,910		(224.9)	%
Noninterest income	16,110			16,580			(470)		(2.8)	%
Noninterest expense	(41,618)			(45,745)			4,127		(9.0)	%
Provision for income taxes	(13,343)			(8,750)			(4,593)		52.5	%
Net income	$	33,649		$	23,657		$	9,992	42.2	%
Diluted earnings per share	$	1.13		$	0.79		$	0.34	43.0	%
Dividends per share	$	0.25		$	0.22		$	0.03	13.6	%
Average common shares	29,727			29,757			(30)		(0.1)	%
Average diluted common shares	29,905			29,863			42		0.1	%
Return on average total assets	1.75		%	1.24		%
Return on average equity	14.51		%	10.37		%
Efficiency ratio	50.42		%	55.11		%

	Three months ended March 31,
(dollars and shares in thousands)	2021			2020			$ Change		% Change
Net interest income	$	66,440		$	63,192		$	3,248	5.1	%
Reversal of (provision for) credit losses	6,060			(8,070)			14,130		(175.1)	%
Noninterest income	16,110			11,820			4,290		36.3	%
Noninterest expense	(41,618)			(44,749)			3,131		(7.0)	%
Provision for income taxes	(13,343)			(6,072)			(7,271)		119.7	%
Net income	$	33,649		$	16,121		$	17,528	108.7	%
Diluted earnings per share	$	1.13		$	0.53		$	0.60	113.2	%
Dividends per share	$	0.25		$	0.22		$	0.03	13.6	%
Average common shares	29,727			30,395			(668)		(2.2)	%
Average diluted common shares	29,905			30,523			(618)		(2.0)	%
Return on average total assets	1.75		%	1.00		%
Return on average equity	14.51		%	7.14		%
Efficiency ratio	50.42		%	59.66		%

SBA Paycheck Protection Program

In March 2020, the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) was created to help small businesses keep workers employed during the COVID-19 crisis. In December 2020, the SBA announced plans for a second round of PPP lending with streamlined requirements for both borrowers and lenders. Effective Friday, January 15, 2021, Tri Counties Bank launched and began accepting applications via an improved on-line portal which allows borrowers to open a new account and submit PPP applications under the new PPP guidance.

The following is a summary of PPP loan related activity as of the periods indicated:

(dollars in thousands)	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020
Total number of PPP loans outstanding	2,484		2,310		2,924		2,900

PPP loan balance (Round 1 origination), gross	$	193,958	$	333,982	$	437,793	$	436,731
PPP loan balance (Round 2 origination), gross	176,316			n/a		n/a		n/a
Total PPP loans, gross	$	370,274	$	333,982	$	437,793	$	436,731

PPP deferred loan fees (Round 1 origination)	$	2,358	$	7,212	$	11,846	$	13,300
PPP deferred loan fees (Round 2 origination)	7,072			n/a		n/a		n/a
Total PPP deferred loan fees	$	9,430	$	7,212	$	11,846	$	13,300

As of March 31, 2021, the total gross balance outstanding of PPP loans (Round 1) was $193,958,000 (948 loans) as compared to total round 1 PPP originations of $438,510,000. Included in the balance of outstanding PPP loans as of March 31, 2021 are approximately 115 loans totaling $75,669,000 that have been submitted to and are pending forgiveness by the SBA. In connection with the origination of these loans, the Company earned approximately $15,735,000 in loan fees, offset by deferred loan costs of approximately $763,000, the net of which will be recognized over the earlier of loan maturity (generally 24 months), repayment or receipt of forgiveness confirmation. As of March 31, 2021 there was approximately $2,358,000 in net deferred fee income remaining to be recognized. During the three months ended March 31, 2021, the Company recognized $4,854,000 in fees on round 1 PPP loans.

As of March 31, 2021, the total gross balance outstanding of PPP loans (Round 2) was $176,316,000 (1,536 loans) as compared to round 2 originations of the same amount. In connection with the origination of these loans, the Company earned approximately $7,850,000 in loan fees, offset by deferred loan costs of approximately $400,000, the net of which will be recognized over the earlier of loan maturity (generally 60 months), repayment or receipt of forgiveness confirmation. As of March 31, 2021 there was approximately $7,072,000 in net deferred fee income remaining to be recognized. During the three months ended March 31, 2021, the Company recognized $378,000 in fees on round 2 PPP loans. Based on application and approval activity occurring subsequent to March 31, 2021, management anticipates that total round 2 PPP originations will approximate 1,700 loans for $190,215,000 and which are expected generate $9,055,000 in fees from the SBA.

COVID Deferrals

Following the passage of the CARES Act legislation, the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” was issued by federal bank regulators, which offers temporary relief from troubled debt restructuring accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus. The applicable period for this relief, originally expected to expire on December 31, 2020, was extended through 2021 by way of the Consolidated Appropriations Act. The Company continues to closely monitor the effects of the pandemic on our loan and deposit customers. Our management team continues to be focused on assessing the risks in our loan portfolio and working with our customers to mitigate where possible, the risk of potential losses. Beginning in April 2020, the Company implemented loan programs to allow certain consumers and businesses impacted by the pandemic to defer loan principal and interest payments.

The following is a summary of COVID related loan customer modifications with outstanding balances as of March 31, 2021:

					Modification Type				Deferral Term
(dollars in thousands)	Modified Loan Balances Outstanding		% of Total Category of Loans		Interest Only Deferral		Principal and Interest Deferral		90 Days		180 Days		Other
Commercial real estate:
CRE non-owner occupied	$	41,848	2.69	%	95.6	%	4.4	%	26.6	%	57.9	%	15.6	%
CRE owner occupied	5,148		0.80		100.0		—		—		75.1		24.9
Multifamily	—		—		—		—		—		—		—
Farmland	—		—		—		—		—		—		—
Total commercial real estate loans	46,996		1.5		96.1		3.9		23.7		59.7		16.6
Consumer:
SFR 1-4 1st lien	457		0.1		100.0		—		—		100.0		—
SFR HELOCs and junior liens	97		—		—		100.0		100.0		—		—
Other	—		—		—		—		—		—		—
Total consumer loans	554		0.1		82.6		17.4		17.4		82.6		—
Commercial and industrial	716		0.1		78.8		21.2		—		21.2		—
Construction	—		—		—		—		—		—		—
Agriculture production	—		—		—		—		—		—		—
Leases	—		—		—		—		—		—		—
Total modifications	$	48,266	1.0	%	95.7	%	4.3	%	23.3	%	59.4	%	17.3	%

Since inception, total loan modifications associated with CARES Act legislation totaled approximately $439,346,000, of which $48,266,000 and $48,358,000 remained outstanding under their modified terms as of March 31, 2021 and December 31, 2020, respectively. Of the remaining balance outstanding as of March 31, 2021, $18,039,000 is related to second deferrals which are expected to conclude their modification period by August, 2021 and $1,845,000 is related to third deferrals expected to conclude in October, 2021. The Company has elected to forgo the CARES Act Relief guidance for loans totaling $2,160,000 and including all borrowers requesting third deferrals and has deemed such loans along with a limited number of other loans to be impaired under traditional TDR guidance. The remaining balance of loans with modified terms are expected to conclude their modification period during fiscal 2021, however, as long as the current pandemic and recessionary economic conditions continue, it is anticipated that additional borrowers may request an initial or subsequent modification to their loan terms.

Management believes that its analysis of each borrower receiving a loan modification supports the ability of that borrower to return to their normal payment terms at the conclusion of the modification period. However, management determined that risk rating downgrades for each credit receiving a deferral modification was prudent until such time that the borrower’s actual payment performance supported an upgrade to the pre-modification risk grade.

Balance Sheet

Total loans outstanding, excluding PPP, grew to $4.61 billion as of March 31, 2021, an increase of 5.2% over the same quarter of the prior year, and an annualized increase of 15.3% over the trailing quarter. Investments outstanding increased to $1.96 billion as of March 31, 2021, an increase of 56.7% annualized over the trailing quarter. Average earning assets to total average assets continued to increase to 92.7% at March 31, 2021, as compared to 92.4% and 90.4% at December 31, 2020, and March 31, 2020, respectively. The Company’s loan to deposit ratio was 72.4% at March 31, 2021, as compared to 73.2% and 81.1% at December 31, 2020, and March 31, 2020, respectively.

Total shareholders’ equity increased by $17,425,000 during the quarter ended March 31, 2021, primarily as a result of net income of $33,649,000, partially offset by a decrease in accumulated other comprehensive income of $9,319,000, and by $7,432,000 in cash dividends paid on common stock. As a result, the Company’s book value increased to $31.71 per share at March 31, 2021 as compared to $31.12 and $28.91 at December 31, 2020, and March 31, 2020, respectively. The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $23.72 per share at March 31, 2021, as compared to $23.09 and $20.80 at December 31, 2020, and March 31, 2020, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	As of March 31,		December 31,		$ Change		Annualized % Change
(dollars in thousands)	2021		2020		$ Change		Annualized % Change
Total assets	$	8,031,612	$	7,639,529	$	392,083	20.5	%
Total loans	4,966,977		4,763,127		203,850		17.1	%
Total loans, excluding PPP	4,606,133		4,436,357		169,776		15.3	%
Total investments	1,962,780		1,719,102		243,678		56.7	%
Total deposits	$	6,863,400	$	6,505,934	$	357,466	22.0	%

The growth of deposit balances continued during the first quarter of 2021, increasing by $357,466,000 or 22.0% annualized. The available liquidity from deposit growth was allocated to fund non-PPP loan and investment growth during the period, which increased by $169,776,000 and $243,678,000, or 15.3% and 56.7% annualized, respectively. Approximately $101,466,000 of the non-PPP loan growth during the quarter is attributed to an acquired pool of mortgage loans. New originations of the second round of PPP stimulus more than offset the decline in loans outstanding from the first round of PPP following SBA forgiveness, resulting in an increase of total loans during the first quarter of 2021 by $203,850,000 or 17.1% on an annualized basis as compared to the trailing quarter.

Average Trailing Quarter Balance Sheet Change

Qtrly avg balances	As of March 31,		As of December 31,		$ Change		Annualized % Change
(dollars in thousands)	2021		2020		$ Change		Annualized % Change
Total assets	$	7,808,912	$	7,570,952	$	237,960	12.6	%
Total loans	4,763,025		4,767,715		(4,690)		(0.4)	%
Total loans, excluding PPP	4,407,150		4,363,873		43,277		4.0	%
Total investments	1,775,035		1,572,511		202,524		51.5	%
Total deposits	$	6,653,754	$	6,341,175	$	312,579	19.7	%

The decline in average total loans of $4,690,000, or (0.4)% on an annualized basis, during the first quarter of 2021 was inconsistent with the actual period end growth as compared to the trailing quarter of $203,850,000 or 17.1%, primarily due to the Company’s loan originations occurring in the latter half of the quarter. In addition, the Company purchased a pool of single family residential mortgages totaling approximately $101,466,000 on the final day of the quarter. These purchased loans had at weighted average coupon of approximately 2.72% and an expected yield of approximately 2.48%. The significant growth in both ending and average balances of investment securities was a direct result of management’s focus on the deployment of excess cash balances which remained elevated due to continued deposit growth during the quarter.

Year Over Year Balance Sheet Change

Ending balances	As of March 31,
(dollars in thousands)	2021		2020		$ Change		% Change
Total assets	$	8,031,612	$	6,474,309	$	1,557,303	24.1	%
Total loans	4,966,977		4,379,062		587,915		13.4	%
Total loans, excluding PPP	4,606,133		4,379,062		227,071		5.2	%
Total investments	1,962,780		1,382,026		580,754		42.0	%
Total deposits	$	6,863,400	$	5,402,698	$	1,460,702	27.0	%

As discussed in previous quarters, the PPP program generated significant increases in volume during the twelve months ended March 31, 2021 for both loan and deposit balances. Other forms of stimulus payments have further elevated deposit levels during the same period. While excess deposit proceeds are ratably being allocated to the purchase of investment securities with medium term durations to improve overall margin, we expect to maintain above average levels of liquidity through 2021, as the economic impacts of COVID-19 and amount of future stimulus both remain uncertain. Investment securities increased to $1,962,780,000 at March 31, 2021, a change of $580,754,000 or 42.0% from $1,382,026,000 at March 31, 2020.

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
	March 31,			December 31,
(dollars in thousands)	2021			2020			$ Change		% Change
Interest income	$	67,916		$	68,081		$	(165)	(0.2)	%
Interest expense	(1,476)			(1,659)			183		(11.0)	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾	277			258			19		7.4	%
Net interest income (FTE)	$	66,717		$	66,680		$	37	0.1	%
Net interest margin (FTE)	3.74		%	3.79		%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,712		$	1,960		$	(248)
Net interest margin less effect of acquired loan discount accretion⁽¹⁾	3.64		%	3.68		%			(0.04)	%
PPP loans yield, net:
Amount (included in interest income)	$	5,863		$	5,676		$	187
Net interest margin less effect of PPP loan yield ⁽¹⁾	3.59		%	3.68		%			(0.09)	%
Acquired loans discount accretion and PPP loan yield, net: ⁽¹⁾
Amount (included in interest income)	$	7,575		$	7,636		$	(61)
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾	3.48		%	3.56		%			(0.08)	%

	Three months ended March 31,
(dollars in thousands)	2021			2020			$ Change		% Change
Interest income	$	67,916		$	66,517		$	1,399	2.1	%
Interest expense	(1,476)			(3,325)			1,849		(55.6)	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾	277			271			6		2.2	%
Net interest income (FTE)	$	66,717		$	63,463		$	3,254	5.1	%
Net interest margin (FTE)	3.74		%	4.34		%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,712		$	1,748		$	(36)
Net interest margin less effect of acquired loan discount accretion⁽¹⁾	3.64		%	4.22		%			(0.58)	%

(1)

Information is presented on a fully tax-equivalent (FTE) basis. The Company believes the use of this non-generally accepted accounting principles (non-GAAP) measure provides additional clarity in assessing its results, and the presentation of these measures on a FTE basis is a common practice within the banking industry.

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects 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 uptick in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, decreased during the first quarter of 2021. During the three months ended March 31, 2021, December 31, 2020, and March 31, 2020, purchased loan discount accretion was $1,712,000, $1,960,000, and $1,748,000, 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
	March 31, 2021						December 31, 2020						March 31, 2020
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	4,407,150	$	54,573	5.02	%	$	4,363,873	$	55,339	5.04	%	$	4,329,357	$	56,258	5.23	%
PPP loans	355,875		5,863		6.68	%	403,842		5,676		5.59	%	—		—		—	%
Investments-taxable	1,649,980		6,394		1.57	%	1,458,856		6,022		1.64	%	1,235,672		8,572		2.79	%
Investments-nontaxable ⁽¹⁾	125,055		1,200		3.89	%	113,656		1,121		3.92	%	118,992		1,175		3.97	%
Total investments	1,775,035		7,594		1.74	%	1,572,512		7,143		1.81	%	1,354,664		9,747		2.89	%
Cash at Federal Reserve and other banks	701,666		163		0.09	%	658,355		181		0.11	%	199,729		783		1.58	%
Total earning assets	7,239,726		68,193		3.82	%	6,998,582		68,339		3.88	%	5,883,750		66,788		4.57	%
Other assets, net	569,186						572,370						622,837
Total assets	$	7,808,912					$	7,570,952					$	6,506,587
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,430,943	$	76	0.02	%	$	1,275,550	$	43	0.01	%	$	1,245,896	$	169	0.05	%
Savings deposits	2,228,281		329		0.06	%	2,145,543		405		0.08	%	1,864,967		1,062		0.23	%
Time deposits	336,605		532		0.64	%	362,104		661		0.73	%	430,064		1,320		1.23	%
Total interest-bearing deposits	3,995,829		937		0.10	%	3,783,197		1,109		0.12	%	3,540,927		2,551		0.29	%
Other borrowings	32,709		4		0.05	%	32,504		4		0.05	%	22,790		5		0.09	%
Junior subordinated debt	57,688		535		3.76	%	57,581		546		3.77	%	57,272		769		5.40	%
Total interest-bearing liabilities	4,086,226		1,476		0.15	%	3,873,282		1,659		0.17	%	3,620,989		3,325		0.37	%
Noninterest-bearing deposits	2,657,925						2,557,978						1,855,006
Other liabilities	123,986						232,224						121,959
Shareholders’ equity	940,775						907,468						908,633
Total liabilities and shareholders’ equity	$	7,808,912					$	7,570,952					$	6,506,587
Net interest rate spread^{(1) (2)}					3.67	%					3.71	%					4.20	%
Net interest income and margin^{(1) (3)}			$	66,717	3.74	%			$	66,680	3.79	%			$	63,463	4.34	%