8-K
TRICO BANCSHARES / (TCBK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_______________
FORM 8-K
_______________
Current report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
October 26, 2021
_______________________
(Exact name of registrant as specified in its charter)
_______________________
| California | 0-10661 | 94-2792841 | |
|---|---|---|---|
| (State or other jurisdiction of<br>incorporation or organization) | (Commission File No.) | (I.R.S. Employer<br>Identification No.) | |
| 63 Constitution Drive | Chico, | California | 95973 |
| --- | --- | --- | --- |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (530) 898-0300
_______________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||
|---|---|---|---|---|
| ☐ | Soliciting material pursuant to rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||
| --- | --- | ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| --- | --- | ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br>Symbol(s) | Name of each exchange<br>on which registered |
|---|---|---|
| Common Stock, no par value | TCBK | Nasdaq |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company. ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On October 26, 2021, TriCo Bancshares (the "Company") announced its unaudited financial results for the three and nine month periods ended September 30, 2021. A copy of the press release is attached as Exhibit 99.1 to this to this Form 8-K and is incorporated herein by reference.
Item 7.01 Regulation FD Disclosure
The executive officers of the Company intend to use the materials filed herewith, in whole or in part, in one or more presentations, discussions or meetings with investors. A copy of the investor presentation is attached hereto as Exhibit 99.2.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
99.1 Press release dated October 26, 2021
99.2 Investor Presentation
The information furnished under Item 2.02, Item 7.01 and Item 9.01 of this Current Period on Form 8-K, including the exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, nor shall it be deemed incorporated by reference in any registration statement or other filings of TriCo Bancshares under the Securities Act of 1933, as amended, except as shall be set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TRICO BANCSHARES | |
|---|---|
| Date: October 26, 2021 | /s/ Peter G. Wiese |
| Peter G. Wiese, Executive Vice President and Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Document
Exhibit 99.1
| PRESS RELEASE | Contact: Peter G. Wiese |
|---|---|
| For Immediate Release | EVP & Chief Financial Officer (530) 898-0300 |
TRICO BANCSHARES ANNOUNCES QUARTERLY RESULTS
CHICO, CA – (October 26, 2021) – TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $27,422,000 for the quarter ended September 30, 2021, compared to $28,362,000 during the trailing quarter ended June 30, 2021 and $17,606,000 during the quarter ended September 30, 2020. Diluted earnings per share were $0.92 for the third quarter of 2021, compared to $0.95 for the second quarter of 2021 and $0.59 for the third quarter of 2020.
Financial Highlights
Performance highlights and other developments for the Company as of or for the three and nine months ended September 30, 2021 included the following:
•For the three and nine months ended September 30, 2021, the Company’s return on average assets was 1.30% and 1.48%, respectively, and the return on average equity was 11.02% and 12.42%, respectively.
•Organic loan growth, excluding PPP, totaled $30.7 million (2.6% annualized) for the current quarter and $335.7 million (7.6%) for the trailing twelve-month period.
•For the current quarter, net interest margin was 3.50% on a tax equivalent basis as compared to 3.72% in the quarter ended September 30, 2020, and a decrease of 8 basis points from 3.58% in the trailing quarter.
•The efficiency ratio was 52.87% for the nine months ended September 30, 2021, as compared to 59.59% for the same period of the prior year.
•As of September 30, 2021, the Company reported total loans, total assets and total deposits of $4.89 billion, $8.46 billion and $7.24 billion, respectively. As a direct result of significant deposit growth in the last year, the loan to deposit ratio was 67.54% as of September 30, 2021, as compared to 73.21% at December 31, 2020 and 76.12% at September 30, 2020.
•The average rate of interest paid on deposits, including non-interest-bearing deposits, remained at 0.05% for the third quarter of 2021 as compared with 0.05% for the trailing quarter, and decreased by 4 basis points from the average rate paid of 0.09% during the same quarter of the prior year.
•The balance of PPP loans outstanding at September 30, 2021 totaled $157.5 million and the balance of SBA fees remaining to be accreted totaled $6.0 million. Approximately 98% of all round one and 25% of all round two PPP loans have been forgiven and repaid by the SBA.
•Noninterest income related to service charges and fees was $11.3 million and $32.7 million for the three and nine month periods ended September 30, 2021, an increase of 7.6% and 17.7% when compared to the same periods in 2020.
•Gains generated from the origination and sale of mortgage loans were $1,814,000 in the third quarter of 2021 as compared with $2,847,000 and $3,035,000 during the trailing quarter and same quarter of the prior year.
•The reversal of provision for credit losses for loans and debt securities was $1.4 million during the quarter ended September 30, 2021, as compared to a reversal of provision expense of $0.3 million during the trailing quarter ended June 30, 2021, and a provision expense totaling $7.6 million for the three month period ended September 30, 2020.
•The allowance for credit losses to total loans was 1.72% as of September 30, 2021, compared to 1.93% as of December 31, 2020, and 1.81% as of September 30, 2020. Non-performing assets to total assets were 0.37% at September 30, 2021, as compared to 0.43% as of June 30, 2021, and 0.34% at September 30, 2020.
“Our ability to grow and shift the mix of our earning assets continues to benefit increases in net interest income. While we maintain a positive outlook on the impacts that possible rate increases and Fed balance sheet tapering will have on our asset sensitive structure, our production teams continue to drive increases in the level of organic loan originations and our operational team members remain vigilant in their efforts to create efficiencies." commented Peter Wiese, EVP and Chief Financial Officer. Rick Smith, President and Chief Executive Officer added; "We are very pleased with the open and transparent lines of communication that have already formed between our legacy employees and the employees of Valley Republic Bank. As we seek to complete the formal close of the merger in the coming months, our excitement and confidence about the benefits this union will provide to our collective communities, customers, and shareholders continues to grow."
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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 September 30, 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 and nine months ended September 30, 2021, the Company’s return on average assets was 1.30% and 1.48%, respectively, while the return on average equity was 11.02% and 12.42%, respectively. For the three and nine months ended September 30, 2020, the Company’s return on average assets was 0.95% and 0.79%, respectively, while the return on average equity was 7.79% and 6.13%, respectively.
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) | 2021 | 2021 | Change | % Change | |||||
| Net interest income | $ | 68,233 | $ | 67,083 | 1.7 | % | |||
| Reversal of credit losses | 1,435 | 260 | 1,175 | 451.9 | % | ||||
| Noninterest income | 15,095 | 15,957 | (862) | (5.4) | % | ||||
| Noninterest expense | (45,807) | (44,171) | (1,636) | 3.7 | % | ||||
| Provision for income taxes | (11,534) | (10,767) | (767) | 7.1 | % | ||||
| Net income | $ | 27,422 | $ | 28,362 | (3.3) | % | |||
| Diluted earnings per share | $ | 0.92 | $ | 0.95 | (3.2) | % | |||
| Dividends per share | $ | 0.25 | $ | 0.25 | — | % | |||
| Average common shares | 29,714 | 29,719 | (5) | 0.0 | % | ||||
| Average diluted common shares | 29,851 | 29,904 | (53) | (0.2) | % | ||||
| Return on average total assets | 1.30 | % | 1.40 | % | |||||
| Return on average equity | 11.02 | % | 11.85 | % | |||||
| Efficiency ratio | 54.97 | % | 53.19 | % |
All values are in US Dollars.
| Three months ended<br>September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (dollars and shares in thousands) | 2021 | 2020 | Change | % Change | |||||
| Net interest income | $ | 68,233 | $ | 63,454 | 7.5 | % | |||
| Reversal of (provision for) credit losses | 1,435 | (7,649) | 9,084 | (118.8) | % | ||||
| Noninterest income | 15,095 | 15,137 | (42) | (0.3) | % | ||||
| Noninterest expense | (45,807) | (46,714) | 907 | (1.9) | % | ||||
| Provision for income taxes | (11,534) | (6,622) | (4,912) | 74.2 | % | ||||
| Net income | $ | 27,422 | $ | 17,606 | 55.8 | % | |||
| Diluted earnings per share | $ | 0.92 | $ | 0.59 | 55.9 | % | |||
| Dividends per share | $ | 0.25 | $ | 0.22 | 13.6 | % | |||
| Average common shares | 29,714 | 29,764 | (50) | (0.2) | % | ||||
| Average diluted common shares | 29,851 | 29,844 | 7 | — | % | ||||
| Return on average total assets | 1.30 | % | 0.95 | % | |||||
| Return on average equity | 11.02 | % | 7.79 | % | |||||
| Efficiency ratio | 54.97 | % | 59.44 | % |
All values are in US Dollars.
| Nine months ended<br>September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (dollars and shares in thousands) | 2021 | 2020 | Change | % Change | |||||
| Net interest income | $ | 201,756 | $ | 191,305 | 5.5 | % | |||
| Reversal of (provision for) credit losses | 7,755 | (37,963) | 45,718 | (120.4) | % | ||||
| Noninterest income | 47,162 | 38,614 | 8,548 | 22.1 | % | ||||
| Noninterest expense | (131,596) | (137,013) | 5,417 | (4.0) | % | ||||
| Provision for income taxes | (35,644) | (13,786) | (21,858) | 158.6 | % | ||||
| Net income | $ | 89,433 | $ | 41,157 | 117.3 | % | |||
| Diluted earnings per share | $ | 2.99 | $ | 1.37 | 118.2 | % | |||
| Dividends per share | $ | 0.75 | $ | 0.66 | 13.6 | % | |||
| Average common shares | 29,720 | 29,971 | (251) | (0.8) | % | ||||
| Average diluted common shares | 29,887 | 30,083 | (196) | (0.7) | % | ||||
| Return on average total assets | 1.48 | % | 0.79 | % | |||||
| Return on average equity | 12.42 | % | 6.13 | % | |||||
| Efficiency ratio | 52.87 | % | 59.59 | % |
All values are in US Dollars.
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 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, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| Total number of PPP loans outstanding | 1,449 | 2,209 | 2,484 | 2,310 | 2,924 | |||||
| PPP loan balance (Round 1 origination), gross | $ | 9,302 | $ | 51,547 | $ | 193,958 | $ | 333,982 | $ | 437,793 |
| PPP loan balance (Round 2 origination), gross | 148,159 | 197,035 | 176,316 | n/a | n/a | |||||
| Total PPP loans, gross outstanding | $ | 157,461 | $ | 248,582 | $ | 370,274 | $ | 333,982 | $ | 437,793 |
| PPP deferred loan fees (Round 1 origination) | $ | 40 | $ | 477 | $ | 2,358 | $ | 7,212 | $ | 11,846 |
| PPP deferred loan fees (Round 2 origination) | 5,973 | 8,513 | 7,072 | n/a | n/a | |||||
| Total PPP deferred loan fees outstanding | $ | 6,013 | $ | 8,990 | $ | 9,430 | $ | 7,212 | $ | 11,846 |
As of September 30, 2021, the total gross balance outstanding of PPP loans was $157,461,000 as compared to total PPP originations of $640,410,000. In connection with the origination of these loans, the Company earned approximately $25,299,000 in loan fees, offset by deferred loan costs of approximately $1,245,000, the net of which will be recognized over the earlier of loan maturity (between 24-60 months), repayment or receipt of forgiveness confirmation. As of September 30, 2021, there was approximately $6,013,000 in net deferred fee income remaining to be recognized. During the three and nine months ended September 30, 2021, the Company recognized $2,984,000 and $10,306,000, respectively in fees on PPP loans as compared with $2,603,000 and $4,959,000 for the three and nine months ended September 30, 2020, respectively.
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 following is a summary of COVID related loan customer modifications with outstanding balances as of September 30, 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 | $ | 22,264 | 1.5 | % | 100.0 | % | — | % | 17.4 | % | 65.6 | % | 17.0 | % |
| CRE owner occupied | 1,243 | 0.2 | 100.0 | — | — | — | 100.0 | |||||||
| Multifamily | — | — | — | — | — | — | — | |||||||
| Farmland | — | — | — | — | — | — | — | |||||||
| Total commercial real estate loans | 23,507 | 0.7 | — | — | 16.5 | 62.2 | 21.4 | |||||||
| Consumer loans | — | — | — | — | — | — | — | |||||||
| Commercial and industrial | 550 | 0.1 | 100.0 | — | — | — | 100.0 | |||||||
| Construction | — | — | — | — | — | — | — | |||||||
| Agriculture production | — | — | — | — | — | — | — | |||||||
| Leases | — | — | — | — | — | — | — | |||||||
| Total modifications | $ | 24,057 | 0.5 | % | 100.0 | % | — | % | 16.1 | % | 60.8 | % | 23.1 | % |
Of the remaining balance outstanding as of September 30, 2021, $5,665,000 is related to second deferrals which are expected to conclude their modification period during 2021, and the remainder of deferrals are expected to conclude in the first quarter of 2022. However, as long as the current pandemic and recessionary economic conditions continue, it is possible that additional borrowers may request an initial or subsequent modification to their loan terms.
Balance Sheet
Total loans outstanding, excluding PPP, grew to $4.74 billion as of September 30, 2021, an increase of 7.6% over the same quarter of the prior year, and an annualized increase of 2.6% over the trailing quarter. Investments outstanding increased to $2.33 billion as of September 30, 2021, an increase of 43.6% annualized over the trailing quarter. Average earning assets to total average assets continued to increase to 92.9% at September 30, 2021, as compared to 92.8% and 92.3% at June 30, 2021, and September 30, 2020, respectively. The loan to deposit ratio was 67.5% at September 30, 2021, as compared to 70.7% and 76.1% at June 30, 2021, and September 30, 2020, respectively.
Total shareholders' equity increased by $15,234,000 during the quarter ended September 30, 2021, primarily as a result of net income of $27,422,000, offset by a decrease in accumulated other comprehensive income of $4,440,000, and $7,429,000 in cash dividends paid on common stock. As a result, the Company’s book value increased to $33.05 per share at September 30, 2021 as compared to $32.53 and $30.31 at June 30, 2021, and September 30, 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 $25.16 per share at September 30, 2021, as compared to $24.60 and $22.24 at June 30, 2021, and September 30, 2020, respectively.
Trailing Quarter Balance Sheet Change
| Ending balances | As of September 30, | June 30, | Change | Annualized<br> % Change | |||
|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2021 | 2021 | |||||
| Total assets | $ | 8,458,030 | $ | 8,170,365 | 14.1 | % | |
| Total loans | 4,887,496 | 4,944,894 | (57,398) | (4.6) | % | ||
| Total loans, excluding PPP | 4,736,048 | 4,705,302 | 30,746 | 2.6 | % | ||
| Total investments | 2,333,015 | 2,103,575 | 229,440 | 43.6 | % | ||
| Total deposits | $ | 7,236,822 | $ | 6,992,053 | 14.0 | % |
All values are in US Dollars.
Organic loan growth, excluding PPP, of $30,746,000 or 2.6% on an annualized basis was realized during the quarter ended September 30, 2021, primarily within commercial real estate. In addition, investment security growth was $229,440,000 or 43.6% on an annualized basis as excess liquidity, driven by continued strong deposit growth, was put to use in higher yielding earning assets. Earning asset growth was funded by the continued growth of deposit balances which increased during the third quarter of 2021 by $244,769,000 or 14.0% annualized.
Average Trailing Quarter Balance Sheet Change
| Qtrly avg balances for the period ended | September 30, | June 30, | Change | Annualized<br> % Change | |||
|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2021 | 2021 | |||||
| Total assets | $ | 8,348,111 | $ | 8,128,674 | 10.8 | % | |
| Total loans | 4,897,922 | 4,978,465 | (80,543) | (6.5) | % | ||
| Total loans, excluding PPP | 4,684,492 | 4,646,188 | 38,304 | 3.3 | % | ||
| Total investments | 2,149,311 | 2,007,090 | 142,221 | 28.3 | % | ||
| Total deposits | $ | 7,137,263 | $ | 6,943,081 | 11.2 | % |
All values are in US Dollars.
The decrease in average total loans of $80,543,000, or (6.5)% on an annualized basis, during the third quarter of 2021 was led by the quarter over quarter decline in net PPP loan balances outstanding totaling $88,144,000. As noted above, 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 September 30, | ||||||
|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2021 | 2020 | Change | % Change | |||
| Total assets | $ | 8,458,030 | $ | 7,449,799 | 13.5 | % | |
| Total loans | 4,887,496 | 4,826,338 | 61,158 | 1.3 | % | ||
| Total loans, excluding PPP | 4,736,048 | 4,400,390 | 335,658 | 7.6 | % | ||
| Total investments | 2,333,015 | 1,473,935 | 859,080 | 58.3 | % | ||
| Total deposits | $ | 7,236,822 | $ | 6,340,588 | 14.1 | % |
All values are in US Dollars.
Net PPP loan balances outstanding have declined by $274,499,000 during the twelve months ended September 30, 2021, meanwhile, non-PPP loan balances (both organic and purchased) have increased by $335,658,000 during the same period. This has led to a beneficial and meaningful shift in the makeup of the loan portfolio, despite total loan balances increasing modestly between September 30, 2021 and September 30, 2020, by $61,158,000 or 1.3%. The Company's organic loan production originations have increased meaningfully over the past year but have also been challenged by an acceleration in payoffs. Specifically, during the twelve months ended September 30, 2021 and September 30, 2020 organic loan originations totaled approximately $1.16 billion and $0.89 billion, respectively; while payoffs of loans totaled $0.84 billion and $0.60 billion, respectively. While pipelines continue to grow, loan originations of $4,086,000 relate to the Company's recently opened loan production offices. Investment securities increased to $2,333,015,000 at September 30, 2021, a change of $859,080,000 or 58.3% from $1,473,935,000 at September 30, 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 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 30, | June 30, | ||||||||
| (dollars in thousands) | 2021 | 2021 | Change | % Change | |||||
| Interest income | $ | 69,628 | $ | 68,479 | 1.7 | % | |||
| Interest expense | (1,395) | (1,396) | 1 | (0.1) | % | ||||
| Fully tax-equivalent adjustment (FTE) (1) | 265 | 255 | 10 | 3.9 | % | ||||
| Net interest income (FTE) | $ | 68,498 | $ | 67,338 | 1.7 | % | |||
| Net interest margin (FTE) | 3.50 | % | 3.58 | % | |||||
| Acquired loans discount accretion, net: | |||||||||
| Amount (included in interest income) | $ | 2,034 | $ | 2,566 | |||||
| Net interest margin less effect of acquired loan discount accretion(1) | 3.40 | % | 3.44 | % | (0.04) | % | |||
| PPP loans yield, net: | |||||||||
| Amount (included in interest income) | $ | 3,507 | $ | 3,179 | |||||
| Net interest margin less effect of PPP loan yield (1) | 3.42 | % | 3.61 | % | (0.19) | % | |||
| Acquired loans discount accretion and PPP loan yield, net: | |||||||||
| Amount (included in interest income) | $ | 5,541 | $ | 5,745 | |||||
| Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1) | 3.31 | % | 3.47 | % | (0.16) | % |
All values are in US Dollars.
| Three months ended<br>September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2021 | 2020 | Change | % Change | |||||
| Interest income | $ | 69,628 | $ | 65,438 | 6.4 | % | |||
| Interest expense | (1,395) | (1,984) | 589 | (29.7) | % | ||||
| Fully tax-equivalent adjustment (FTE) (1) | 265 | 254 | 11 | 4.3 | % | ||||
| Net interest income (FTE) | $ | 68,498 | $ | 63,708 | 7.5 | % | |||
| Net interest margin (FTE) | 3.50 | % | 3.72 | % | |||||
| Acquired loans discount accretion, net: | |||||||||
| Amount (included in interest income) | $ | 2,034 | $ | 1,876 | |||||
| Net interest margin less effect of acquired loan discount accretion(1) | 3.40 | % | 3.61 | % | (0.21) | % | |||
| PPP loans yield, net: | |||||||||
| Amount (included in interest income) | $ | 3,507 | $ | 2,603 | |||||
| Net interest margin less effect of PPP loan yield (1) | 3.42 | % | 3.81 | % | (0.39) | % | |||
| Acquired loans discount accretion and PPP loan yield, net: | |||||||||
| Amount (included in interest income) | $ | 5,541 | $ | 4,479 | |||||
| Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1) | 3.31 | % | 3.70 | % | (0.39) | % |
All values are in US Dollars.
| Nine months ended<br>September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2021 | 2020 | Change | % Change | |||||
| Interest income | $ | 206,023 | $ | 199,103 | 3.5 | % | |||
| Interest expense | (4,267) | (7,798) | 3,531 | (45.3) | % | ||||
| Fully tax-equivalent adjustment (FTE) (1) | 797 | 811 | (14) | (1.7) | % | ||||
| Net interest income (FTE) | $ | 202,553 | $ | 192,116 | 5.4 | % | |||
| Net interest margin (FTE) | 3.61 | % | 4.02 | % | |||||
| Acquired loans discount accretion, net: | |||||||||
| Amount (included in interest income) | $ | 6,311 | $ | 6,211 | |||||
| Net interest margin less effect of acquired loan discount accretion(1) | 3.50 | % | 3.91 | % | (0.41) | % | |||
| PPP loans yield, net: | |||||||||
| Amount (included in interest income) | $ | 12,549 | $ | 4,959 | |||||
| Net interest margin less effect of PPP loan yield (1) | 3.53 | % | 4.07 | % | (0.54) | % | |||
| Acquired loans discount accretion and PPP loan yield, net: | |||||||||
| Amount (included in interest income) | $ | 18,860 | $ | 11,170 | |||||
| Net interest margin less effect of acquired loans discount and PPP loan yield (1) | 3.41 | % | 3.91 | % | (0.50) | % |
All values are in US Dollars.
(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 accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the dollar impact of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining unaccreted discount or unamortized premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. As a result of the increase in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, declined during the third quarter of 2021. During the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, purchased loan discount accretion was $2,034,000, $2,566,000, and $1,876,000, 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, 2021 | June 30, 2021 | September 30, 2020 | ||||||||||||||||
| Average<br>Balance | Income/<br>Expense | Yield/<br>Rate | Average<br>Balance | Income/<br>Expense | Yield/<br>Rate | Average<br>Balance | Income/<br>Expense | Yield/<br>Rate | ||||||||||
| Assets | ||||||||||||||||||
| Loans, excluding PPP | $ | 4,684,492 | $ | 57,218 | 4.85 | % | $ | 4,646,188 | $ | 57,125 | 4.93 | % | $ | 4,389,672 | $ | 55,436 | 5.02 | % |
| PPP loans | 213,430 | 3,507 | 6.52 | % | 332,277 | 3,179 | 3.84 | % | 437,892 | 2,603 | 2.36 | % | ||||||
| Investments-taxable | 2,019,283 | 7,741 | 1.52 | % | 1,875,056 | 7,189 | 1.54 | % | 1,261,793 | 6,376 | 2.01 | % | ||||||
| Investments-nontaxable (1) | 130,028 | 1,147 | 3.50 | % | 132,034 | 1,106 | 3.36 | % | 114,419 | 1,102 | 3.83 | % | ||||||
| Total investments | 2,149,311 | 8,888 | 1.64 | % | 2,007,090 | 8,295 | 1.66 | % | 1,376,212 | 7,478 | 2.16 | % | ||||||
| Cash at Federal Reserve and other banks | 710,936 | 280 | 0.16 | % | 559,026 | 135 | 0.10 | % | 611,719 | 175 | 0.11 | % | ||||||
| Total earning assets | 7,758,169 | 69,893 | 3.57 | % | 7,544,581 | 68,734 | 3.65 | % | 6,815,495 | 65,692 | 3.83 | % | ||||||
| Other assets, net | 589,942 | 584,093 | 565,466 | |||||||||||||||
| Total assets | $ | 8,348,111 | $ | 8,128,674 | $ | 7,380,961 | ||||||||||||
| Liabilities and shareholders’ equity | ||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,507,697 | $ | 116 | 0.03 | % | $ | 1,490,247 | $ | 77 | 0.02 | % | $ | 1,339,797 | $ | 56 | 0.02 | % |
| Savings deposits | 2,407,368 | 328 | 0.05 | % | 2,316,889 | 308 | 0.05 | % | 2,075,077 | 484 | 0.09 | % | ||||||
| Time deposits | 321,381 | 411 | 0.51 | % | 324,867 | 443 | 0.55 | % | 387,922 | 872 | 0.89 | % | ||||||
| Total interest-bearing deposits | 4,236,446 | 855 | 0.08 | % | 4,132,003 | 828 | 0.08 | % | 3,802,796 | 1,412 | 0.15 | % | ||||||
| Other borrowings | 48,330 | 6 | 0.05 | % | 40,986 | 5 | 0.05 | % | 33,750 | 4 | 0.05 | % | ||||||
| Junior subordinated debt | 57,891 | 534 | 3.66 | % | 57,788 | 563 | 3.91 | % | 57,475 | 568 | 3.93 | % | ||||||
| Total interest-bearing liabilities | 4,342,667 | 1,395 | 0.13 | % | 4,230,777 | 1,396 | 0.13 | % | 3,894,021 | 1,984 | 0.20 | % | ||||||
| Noninterest-bearing deposits | 2,900,817 | 2,811,078 | 2,475,842 | |||||||||||||||
| Other liabilities | 117,601 | 126,674 | 112,112 | |||||||||||||||
| Shareholders’ equity | 987,026 | 960,145 | 898,986 | |||||||||||||||
| Total liabilities and shareholders’ equity | $ | 8,348,111 | $ | 8,128,674 | $ | 7,380,961 | ||||||||||||
| Net interest rate spread (1) (2) | 3.45 | % | 3.52 | % | 3.63 | % | ||||||||||||
| Net interest income and margin (1) (3) | $ | 68,498 | 3.50 | % | $ | 67,338 | 3.58 | % | $ | 63,708 | 3.72 | % |
(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, 2021 increased $1,160,000 or 1.7% to $68,498,000 compared to $67,338,000 during the three months ended June 30, 2021. Over the same period, net interest margin decreased 8 basis points to 3.50% as compared to 3.58% in the trailing quarter. The 8 basis point decrease coincides with, and is primarily attributed to, an 8 basis point decrease in non-PPP loan yields. The remaining segments of quarter over quarter changes in yields largely offset each
other, which included a 268 basis point improvement in PPP loans to 6.52% at September 30, 2021 from 3.84% at June 30, 2021, attributed to an acceleration of deferred fee accretion stemming from Round 2 PPP loans being forgiven by the SBA and repaid.
As compared to the same quarter in the prior year, average loan yields, excluding PPP, decreased 17 basis points from 5.02% during the three months ended September 30, 2020, to 4.85% during the three months ended September 30, 2021. The accretion of discounts from acquired loans added 17 basis points to loan yields during both quarters ended September 30, 2021 and September 30, 2020. Therefore, the 17 basis point decrease in yields on loans during the comparable three month periods ended September 30, 2021 and 2020 was entirely attributable to decreases in market rates. The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, has remained unchanged at 3.25% since March 15, 2020, when it was reduced from 4.25%.
The rates paid on interest bearing liabilities generally remained flat during the quarter ended September 30, 2021 compared to the trailing quarter. The decline in interest expense when compared to the same quarter from the prior year, however, was primarily attributed to reductions in the rates offered on deposit products. As a result, the cost of interest-bearing deposits decreased by 7 basis points as of September 30, 2021, to 0.08% from 0.15% at September 30, 2020. In addition, the growth of noninterest-bearing deposits continues to benefit the average cost of total deposits as compared to historical periods. Specifically, the ratio of average total noninterest-bearing deposits to total average deposits was 40.6% and 40.5% as of September 30, 2021 and June 30, 2021, respectively, as compared to 39.4% in the quarter ended September 30, 2020. As a result, the average cost of total deposits decreased to 0.05% at September 30, 2021, compared to 0.09% in the same period of 2020.
ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
(unaudited, dollars in thousands)
| Nine months ended September 30, 2021 | Nine months ended September 30, 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average<br>Balance | Income/<br>Expense | Yield/<br>Rate | Average<br>Balance | Income/<br>Expense | Yield/<br>Rate | |||||||
| Assets | ||||||||||||
| Loans, excluding PPP | $ | 4,580,292 | $ | 168,916 | 4.93 | % | $ | 4,360,942 | $ | 167,747 | 5.14 | % |
| PPP loans | 300,006 | 12,549 | 5.59 | % | 244,196 | 4,959 | 2.71 | % | ||||
| Investments-taxable | 1,838,023 | 21,324 | 1.55 | % | 1,249,823 | 22,637 | 2.42 | % | ||||
| Investments-nontaxable (1) | 129,057 | 3,453 | 3.58 | % | 117,745 | 3,515 | 3.99 | % | ||||
| Total investments | 1,967,080 | 24,777 | 1.68 | % | 1,367,568 | 26,152 | 2.55 | % | ||||
| Cash at Federal Reserve and other banks | 656,912 | 578 | 0.12 | % | 403,252 | 1,056 | 0.35 | % | ||||
| Total earning assets | 7,504,290 | 206,820 | 3.68 | % | 6,375,958 | 199,914 | 4.19 | % | ||||
| Other assets, net | 591,983 | 595,617 | ||||||||||
| Total assets | $ | 8,096,273 | $ | 6,971,575 | ||||||||
| Liabilities and shareholders’ equity | ||||||||||||
| Interest-bearing demand deposits | $ | 1,476,987 | $ | 269 | 0.02 | % | $ | 1,293,071 | $ | 289 | 0.03 | % |
| Savings deposits | 2,318,169 | 965 | 0.06 | % | 1,971,348 | 2,190 | 0.15 | % | ||||
| Time deposits | 327,562 | 1,386 | 0.57 | % | 409,005 | 3,297 | 1.08 | % | ||||
| Total interest-bearing deposits | 4,122,718 | 2,620 | 0.08 | % | 3,673,424 | 5,776 | 0.21 | % | ||||
| Other borrowings | 40,732 | 15 | 0.05 | % | 26,223 | 13 | 0.07 | % | ||||
| Junior subordinated debt | 57,790 | 1,632 | 3.78 | % | 57,374 | 2,009 | 4.68 | % | ||||
| Total interest-bearing liabilities | 4,221,240 | 4,267 | 0.14 | % | 3,757,021 | 7,798 | 0.28 | % | ||||
| Noninterest-bearing deposits | 2,790,828 | 2,197,315 | ||||||||||
| Other liabilities | 121,334 | 120,486 | ||||||||||
| Shareholders’ equity | 962,871 | 896,753 | ||||||||||
| Total liabilities and shareholders’ equity | $ | 8,096,273 | $ | 6,971,575 | ||||||||
| Net interest rate spread (1) (2) | 3.54 | % | 3.91 | % | ||||||||
| Net interest income and margin (1) (3) | $ | 202,553 | 3.61 | % | $ | 192,116 | 4.02 | % |
(1)Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.
(2)Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
(3)Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.
Interest Rates and Loan Portfolio Composition
During the quarter ended September 30, 2021, market interest rates, including many rates that serve as reference indices for variable rate loans, improved modestly. However, the loan portfolio yield continues to have a downward bias due to the repricing of loans at lower rates and increased market competition stemming from loan to deposit ratios at historic lows. As of September 30, 2021, the Company's loan portfolio consisted of approximately $4.9 billion in outstanding principal with a weighted average coupon rate of 4.28%, inclusive of the PPP program loans. Excluding PPP loans, the Company's loan portfolio has approximately $4.8 billion outstanding with a weighted average coupon rate of 4.38% as of September 30, 2021. Included in the September 30, 2021 loan total, exclusive of PPP loans, are variable rate loans totaling $3.0 billion of which 88.5% or $2.7 billion were at their floor rate. The remaining variable rate loans totaling $351.0 million, which carried a weighted average coupon rate of 4.78% as of September 30, 2021, are subject to further rate adjustment. If those remaining variable rate loans were to collectively, through future rate adjustments, be reduced to their respective floors, they would have a weighted average coupon rate of approximately 4.25% which would result in the reduction of the weighted average coupon rate of the total loan portfolio, exclusive of PPP loans, from 4.38% to approximately 4.30%.
As of December 31, 2020, the Company's loan portfolio consisted of approximately $4.80 billion in outstanding principal with a weighted average coupon rate of 4.35%, inclusive of the PPP program loans. Excluding PPP loans, the Company's loan portfolio has approximately $4.47 billion outstanding with a weighted average coupon rate of 4.60% as of December 31, 2020. Included in the December 31, 2020 loan total, exclusive of PPP loans, are variable rate loans totaling $3.02 billion of which 88.2% or $2.66 billion were at their floor rate. The remaining variable rate loans totaling $357.0 million, which carried a weighted average coupon rate of 5.03% as of December 31, 2020, are subject to further rate adjustment. If those remaining variable rate loans were to collectively, through future rate adjustments, be reduced to their respective floors, they would have a weighted average coupon rate of approximately 4.36% which would result in the reduction of the weighted average coupon rate of the total loan portfolio, exclusive of PPP loans, from 4.60% to approximately 4.55%.
Asset Quality and Credit Loss Provisioning
During the three months ended September 30, 2021, the Company recorded a reversal of provision for credit losses of $1,435,000, as compared to a reversal of provision for credit losses of $260,000 during the trailing quarter, and a provision expense of $7,649,000 during the third quarter of 2020.
The following table presents details of the provision for credit losses for the periods indicated:
| Three months ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||
| Addition to (reversal of) allowance for credit losses | $ | (1,495) | $ | (145) | $ | (6,240) | $ | 4,450 | $ | 7,649 |
| Addition to (reversal of) reserve for unfunded loan commitments | 60 | (115) | 180 | 400 | — | |||||
| Total provision for credit losses | $ | (1,435) | $ | (260) | $ | (6,060) | $ | 4,850 | $ | 7,649 |
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, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||
| Balance, beginning of period | $ | 86,062 | $ | 79,739 | $ | 91,847 | $ | 30,616 |
| Impact from adoption of ASU 2016-13 | — | — | — | 18,913 | ||||
| Provision for (reversal of) credit losses | (1,495) | 7,649 | (7,880) | 37,738 | ||||
| Loans charged-off | (1,582) | (194) | (2,195) | (1,195) | ||||
| Recoveries of previously charged-off loans | 1,321 | 381 | 2,534 | 1,503 | ||||
| Balance, end of period | $ | 84,306 | $ | 87,575 | $ | 84,306 | $ | 87,575 |
The allowance for credit losses (ACL) was $84,306,000 as of September 30, 2021, a net decrease of $1,756,000 over the immediately preceding quarter. The reversal of allowance for credit losses of $1,495,000 was necessary as net charge-offs totaling $261,000 during the quarter were less than the required changes in quantitative and qualitative reserve components. More specifically, the quantitative reserve required under the cohort model reduced required reserves by $1,762,000, in addition to a decrease in specific reserves on impaired totals of $874,000 as of quarter end.
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. However, management notes that the majority of economic forecasts utilized in the ACL calculation have remained directionally consistent with preceding quarters, as general economic conditions continue to improve, albeit at a pace slower than expected due to unforeseen disruptions in the supply chain and increasing energy prices. In addition, management notes that the level of governmental assistance provided through PPP as well as other programs during the last several quarters has been unprecedented. As a result, management continues to believe that certain credit weakness are likely present in the overall economy and that it is appropriate to maintain a reserve level that incorporates such risk factors.
Loans past due 30 days or more increased by $1,247,000 during the quarter ended September 30, 2021 to $10,539,000, as compared to $9,292,000 at June 30, 2021. Non-performing loans were $28,790,000 at September 30, 2021, a decrease of $3,915,000 and $5,827,000, respectively, from $32,705,000 and $22,963,000 as of June 30, 2021, and September 30, 2020, respectively.
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) | 2021 | 2021 | 2020 | ||||||||||||||
| Risk Rating: | |||||||||||||||||
| Pass | $ | 4,698,475 | 96.1 | % | $ | 4,756,381 | 96.2 | % | $ | 4,630,266 | 95.9 | % | |||||
| Special Mention | 138,699 | 2.9 | % | 130,232 | 2.6 | % | 147,343 | 3.1 | % | ||||||||
| Substandard | 50,322 | 1.0 | % | 58,281 | 1.2 | % | 48,729 | 0.9 | % | ||||||||
| Total | $ | 4,887,496 | $ | 4,944,894 | $ | 4,826,338 | |||||||||||
| Classified loans to total loans | 1.03 | % | 1.18 | % | 1.01 | % | |||||||||||
| Loans past due 30+ days to total loans | 0.22 | % | 0.19 | % | 0.22 | % |
The Company's loan portfolio for non-classified loans (loans graded special mention or better) remains consistent for the quarter ended September 30, 2021, as compared to the trailing quarter June 30, 2021, representing 99.0% and 98.8% of total loans outstanding, respectively. Loans risk graded special mention increased by approximately $8,466,000 during the current quarter as compared to the trailing quarter, while loans risk graded substandard decreased by $8,047,000 over the same period.
There was one addition to other real estate owned totaling $560,000, including a $113,000 fair value benefit, during the quarter ended September 30, 2021 and there was one sale for approximately $189,000, which generated a net gain of $31,000 for the quarter. As of September 30, 2021, other real estate owned consisted of six properties with a carrying value of approximately $2,650,000.
Allocation of Credit Loss Reserves by Loan Type
| As of September 30, 2021 | As of December 31, 2020 | As of September 30, 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | Amount | % of Loans Outstanding | Amount | % of Loans Outstanding | Amount | % of Loans Outstanding | ||||||
| Commercial real estate: | ||||||||||||
| CRE - Non Owner Occupied | $ | 25,221 | 1.65 | % | $ | 29,380 | 1.91 | % | $ | 28,847 | 1.80 | % |
| CRE - Owner Occupied | 10,730 | 1.53 | % | 10,861 | 1.74 | % | 9,625 | 1.66 | % | |||
| Multifamily | 12,876 | 1.55 | % | 11,472 | 1.79 | % | 10,032 | 1.67 | % | |||
| Farmland | 1,902 | 1.15 | % | 1,980 | 1.30 | % | 1,790 | 1.17 | % | |||
| Total commercial real estate loans | 50,729 | 1.57 | % | 53,693 | 1.82 | % | 50,294 | 1.71 | % | |||
| Consumer: | ||||||||||||
| SFR 1-4 1st Liens | 10,618 | 1.60 | % | 10,117 | 1.83 | % | 8,937 | 1.72 | % | |||
| SFR HELOCs and Junior Liens | 10,431 | 3.23 | % | 11,771 | 3.59 | % | 11,676 | 3.51 | % | |||
| Other | 2,442 | 3.59 | % | 3,260 | 4.20 | % | 3,394 | 4.18 | % | |||
| Total consumer loans | 23,491 | 2.22 | % | 25,148 | 2.62 | % | 24,007 | 2.57 | % | |||
| Commercial and Industrial | 3,427 | 0.99 | % | 4,252 | 0.81 | % | 4,534 | 72.00 | % | |||
| Construction | 5,528 | 2.55 | % | 7,540 | 2.65 | % | 7,640 | 2.68 | % | |||
| Agricultural Production | 1,119 | 2.52 | % | 1,209 | 2.74 | % | 1,093 | 2.69 | % | |||
| Leases | 12 | 0.24 | % | 5 | 0.13 | % | 7 | 0.19 | % | |||
| Allowance for credit losses | 84,306 | 1.72 | % | 91,847 | 1.93 | % | 87,575 | 1.81 | % | |||
| Reserve for unfunded loan commitments | 3,525 | 3,400 | 3,000 | |||||||||
| Total allowance for credit losses | $ | 87,831 | 1.80 | % | $ | 95,247 | 2.00 | % | $ | 90,575 | 1.88 | % |
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 1.78% as of September 30, 2021. 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, 2021, the unamortized discount associated with acquired loans totaled $17,984,000 and, if aggregated with the ACL, would collectively represent 2.09% of total gross loans and 2.16% of total loans less PPP loans.
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, 2021 | June 30, 2021 | Change | % Change | |||
| ATM and interchange fees | $ | 6,516 | $ | 6,558 | (0.6) | % | |
| Service charges on deposit accounts | 3,608 | 3,462 | 146 | 4.2 | % | ||
| Other service fees | 897 | 914 | (17) | (1.9) | % | ||
| Mortgage banking service fees | 476 | 467 | 9 | 1.9 | % | ||
| Change in value of mortgage servicing rights | (232) | (471) | 239 | (50.7) | % | ||
| Total service charges and fees | 11,265 | 10,930 | 335 | 3.1 | % | ||
| Increase in cash value of life insurance | 644 | 745 | (101) | (13.6) | % | ||
| Asset management and commission income | 957 | 947 | 10 | 1.1 | % | ||
| Gain on sale of loans | 1,814 | 2,847 | (1,033) | (36.3) | % | ||
| Lease brokerage income | 183 | 249 | (66) | (26.5) | % | ||
| Sale of customer checks | 107 | 116 | (9) | (7.8) | % | ||
| Gain on sale of investment securities | — | — | — | n/m | |||
| Gain (loss) on marketable equity securities | (14) | 8 | (22) | (275.0) | % | ||
| Other | 139 | 115 | 24 | 20.9 | % | ||
| Total other non-interest income | 3,830 | 5,027 | (1,197) | (23.8) | % | ||
| Total non-interest income | $ | 15,095 | $ | 15,957 | (5.4) | % |
All values are in US Dollars.
Non-interest income decreased $862,000 or 5.4% to $15,095,000 during the three months ended September 30, 2021, compared to $15,957,000 during the trailing quarter June 30, 2021. Gain on sale of mortgage loans declined by $1,033,000 or 36.3% during the recent quarter ended, as interest rates continued to trend higher, contributing to the decline in total mortgage origination and refinance activity during the three months ended September 30, 2021. Changes in ATM and interchange fees as well as service charges were a direct result of changes in usage and depositor requested services.
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) | 2021 | 2020 | Change | % Change | |||
| ATM and interchange fees | $ | 6,516 | $ | 5,637 | 15.6 | % | |
| Service charges on deposit accounts | 3,608 | 3,334 | 274 | 8.2 | % | ||
| Other service fees | 897 | 805 | 92 | 11.4 | % | ||
| Mortgage banking service fees | 476 | 457 | 19 | 4.2 | % | ||
| Change in value of mortgage servicing rights | (232) | 236 | (468) | (198.3) | % | ||
| Total service charges and fees | 11,265 | 10,469 | 796 | 7.6 | % | ||
| Increase in cash value of life insurance | 644 | 773 | (129) | (16.7) | % | ||
| Asset management and commission income | 957 | 667 | 290 | 43.5 | % | ||
| Gain on sale of loans | 1,814 | 3,035 | (1,221) | (40.2) | % | ||
| Lease brokerage income | 183 | 175 | 8 | 4.6 | % | ||
| Sale of customer checks | 107 | 91 | 16 | 17.6 | % | ||
| Gain on sale of investment securities | — | 7 | (7) | n/m | |||
| Gain on marketable equity securities | (14) | — | (14) | n/m | |||
| Other | 139 | (80) | 219 | (273.8) | % | ||
| Total other non-interest income | 3,830 | 4,668 | (838) | (18.0) | % | ||
| Total non-interest income | $ | 15,095 | $ | 15,137 | (0.3) | % |
All values are in US Dollars.
In addition to the discussion above within the non-interest income for the three months ended September 30, 2021, ATM and interchange fees improved $879,000 or 15.6% as a result of increased usage due to relaxed social distancing guidelines during the quarter September 30, 2021 when compared to the same period in the prior year. Changes in the value of mortgage servicing rights and gain on sale of mortgage loans declined by $468,000 and $1,221,000, respectively, related to the aforementioned interest rate increases during the most recent two quarters. Included in other non-interest income for the three months ended September 30, 2021 and 2020 are earnings (losses) from the changes in fair value of acquired deferred compensation plans of $23,000 and ($241,000), respectively.
The following table presents the key components of non-interest income for the current and prior year periods indicated:
| Nine months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2021 | 2020 | Change | % Change | |||
| ATM and interchange fees | $ | 18,935 | $ | 15,913 | 19.0 | % | |
| Service charges on deposit accounts | 10,339 | 10,426 | (87) | (0.8) | % | ||
| Other service fees | 2,682 | 2,296 | 386 | 16.8 | % | ||
| Mortgage banking service fees | 1,406 | 1,386 | 20 | 1.4 | % | ||
| Change in value of mortgage servicing rights | (691) | (2,258) | 1,567 | (69.4) | % | ||
| Total service charges and fees | 32,671 | 27,763 | 4,908 | 17.7 | % | ||
| Increase in cash value of life insurance | 2,062 | 2,203 | (141) | (6.4) | % | ||
| Asset management and commission income | 2,738 | 2,244 | 494 | 22.0 | % | ||
| Gain on sale of loans | 7,908 | 5,662 | 2,246 | 39.7 | % | ||
| Lease brokerage income | 542 | 495 | 47 | 9.5 | % | ||
| Sale of customer checks | 342 | 303 | 39 | 12.9 | % | ||
| Gain on sale of investment securities | — | 7 | (7) | n/m | |||
| Gain (loss) on marketable equity securities | (59) | 72 | (131) | (181.9) | % | ||
| Other | 958 | (135) | 1,093 | (809.6) | % | ||
| Total other non-interest income | 14,491 | 10,851 | 3,640 | 33.5 | % | ||
| Total non-interest income | $ | 47,162 | $ | 38,614 | 22.1 | % |
All values are in US Dollars.
Total non-interest income increased by $8,548,000 or 22.1% to $47,162,000 during the nine months ended September 30, 2021, compared to $38,614,000 during the trailing quarter September 30, 2020. Other non-interest income increased by $1,093,000 or 809.6% for the nine months ended September 30, 2021. Most notably, the nine months ended 2020 period included a reduction of income totaling $577,000 attributed decreases in the fair value of assets used to fund acquired deferred compensation plans, as compared to an increase in income totaling $370,000 during the same period in 2021. The remaining changes in non-interest income for the nine months ended September 30, 2021 and 2020 are generally consistent with the changes 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, 2021 | June 30, 2021 | Change | % Change | |||
| Base salaries, net of deferred loan origination costs | $ | 17,673 | $ | 17,537 | 0.8 | % | |
| Incentive compensation | 3,123 | 4,322 | (1,199) | (27.7) | % | ||
| Benefits and other compensation costs | 5,478 | 5,222 | 256 | 4.9 | % | ||
| Total salaries and benefits expense | 26,274 | 27,081 | (807) | (3.0) | % | ||
| Occupancy | 3,771 | 3,700 | 71 | 1.9 | % | ||
| Data processing and software | 3,689 | 3,201 | 488 | 15.2 | % | ||
| Equipment | 1,336 | 1,207 | 129 | 10.7 | % | ||
| Intangible amortization | 1,409 | 1,431 | (22) | (1.5) | % | ||
| Advertising | 966 | 734 | 232 | 31.6 | % | ||
| ATM and POS network charges | 1,692 | 1,551 | 141 | 9.1 | % | ||
| Professional fees | 1,090 | 1,046 | 44 | 4.2 | % | ||
| Telecommunications | 574 | 564 | 10 | 1.8 | % | ||
| Regulatory assessments and insurance | 673 | 618 | 55 | 8.9 | % | ||
| Merger and acquisition expenses | 651 | — | 651 | n/m | |||
| Postage | 156 | 124 | 32 | 25.8 | % | ||
| Operational losses | 244 | 212 | 32 | 15.1 | % | ||
| Courier service | 286 | 288 | (2) | (0.7) | % | ||
| Gain on sale or acquisition of foreclosed assets | (144) | (15) | (129) | 860.0 | % | ||
| Gain on disposal of fixed assets | (19) | (426) | 407 | (95.5) | % | ||
| Other miscellaneous expense | 3,159 | 2,855 | 304 | 10.6 | % | ||
| Total other non-interest expense | 19,533 | 17,090 | 2,443 | 14.3 | % | ||
| Total non-interest expense | $ | 45,807 | $ | 44,171 | 3.7 | % | |
| Average full-time equivalent staff | 1,049 | 1,020 | 29 | 2.8 | % |
All values are in US Dollars.
Non-interest expense for the quarter ended September 30, 2021 increased $1,636,000 or 3.7% to $45,807,000 as compared to $44,171,000 during the trailing quarter ended June 30, 2021. Merger and acquisition expenses of $651,000 were recorded during the quarter in connection with the merger agreement with Valley Republic Bancorp entered on July 27, 2021. A non-recurring gain on disposal of fixed assets related to the sale of a former branch totaling $426,000 was recorded during the trailing quarter. Additionally, as a result of various event postponements that resulted from COVID distancing requirements as well as normal seasonality in not-for-profit event sponsorships, expenses associated with these activities fluctuated significantly between periods and were $203,000, $3,000, and $386,000 in each of the first three quarters of 2021 and $124,000 in the third quarter of 2020 and are included in other
miscellaneous expenses. As a partial offset, total salaries and benefits expense declined by $807,000 or 3.0%, led by incentive compensation declines of $1,199,000 or 27.7% to $3,123,000 during the quarter ended September 30, 2021 as compared to the trailing period. Costs associated with the Company's recently opened loan production offices, inclusive of salaries, benefits and occupancy, totaled approximately $710,000 during the third quarter and $235,000 in the second quarter.
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) | 2021 | 2020 | Change | % Change | |||
| Base salaries, net of deferred loan origination costs | $ | 17,673 | $ | 18,754 | (5.8) | % | |
| Incentive compensation | 3,123 | 2,184 | 939 | 43.0 | % | ||
| Benefits and other compensation costs | 5,478 | 8,383 | (2,905) | (34.7) | % | ||
| Total salaries and benefits expense | 26,274 | 29,321 | (3,047) | (10.4) | % | ||
| Occupancy | 3,771 | 3,440 | 331 | 9.6 | % | ||
| Data processing and software | 3,689 | 3,561 | 128 | 3.6 | % | ||
| Equipment | 1,336 | 1,549 | (213) | (13.8) | % | ||
| Intangible amortization | 1,409 | 1,431 | (22) | (1.5) | % | ||
| Advertising | 966 | 869 | 97 | 11.2 | % | ||
| ATM and POS network charges | 1,692 | 1,314 | 378 | 28.8 | % | ||
| Professional fees | 1,090 | 955 | 135 | 14.1 | % | ||
| Telecommunications | 574 | 619 | (45) | (7.3) | % | ||
| Regulatory assessments and insurance | 673 | 538 | 135 | 25.1 | % | ||
| Merger and acquisition expenses | 651 | — | 651 | n/m | |||
| Postage | 156 | 118 | 38 | 32.2 | % | ||
| Operational losses | 244 | 154 | 90 | 58.4 | % | ||
| Courier service | 286 | 345 | (59) | (17.1) | % | ||
| Gain on sale or acquisition of foreclosed assets | (144) | — | (144) | n/m | |||
| (Gain) loss on disposal of fixed assets | (19) | 22 | (41) | (186.4) | % | ||
| Other miscellaneous expense | 3,159 | 2,478 | 681 | 27.5 | % | ||
| Total other non-interest expense | 19,533 | 17,393 | 2,140 | 12.3 | % | ||
| Total non-interest expense | $ | 45,807 | $ | 46,714 | (1.9) | % | |
| Average full-time equivalent staff | 1,049 | 1,105 | (56) | (5.1) | % |
All values are in US Dollars.
Non-interest expense decreased by $907,000 or 1.9% to $45,807,000 during the three months ended September 30, 2021 as compared to $46,714,000 for the three months ended September 30, 2020. Salaries, net of deferred loan origination costs, decreased by $1,081,000 to $17,673,000 for the three months ended September 30, 2021. The comparative period in 2020 included approximately $400,000 in non-recurring severance costs from reductions in personnel and a reduction of nearly $745,000 in deferred loan origination costs following a taper of the first round of PPP loan origination volume. Benefits and other compensation expense decreased by $2,905,000 during the three months ended September 30, 2021, primarily the result of decreases in expenses associated with retirement obligations and group insurance costs. Approximately $95,000 of the increase in occupancy expense is attributable to the Company's recently opened loan production offices.
The following table presents the key components of non-interest income for the current and prior year periods indicated:
| Nine months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2021 | 2020 | Change | % Change | |||
| Base salaries, net of deferred loan origination costs | $ | 50,721 | $ | 53,654 | (5.5) | % | |
| Incentive compensation | 11,025 | 7,680 | 3,345 | 43.6 | % | ||
| Benefits and other compensation costs | 16,939 | 22,314 | (5,375) | (24.1) | % | ||
| Total salaries and benefits expense | 78,685 | 83,648 | (4,963) | (5.9) | % | ||
| Occupancy | 11,197 | 10,713 | 484 | 4.5 | % | ||
| Data processing and software | 10,092 | 10,585 | (493) | (4.7) | % | ||
| Equipment | 4,060 | 4,411 | (351) | (8.0) | % | ||
| Intangible amortization | 4,271 | 4,293 | (22) | (0.5) | % | ||
| Advertising | 2,080 | 2,065 | 15 | 0.7 | % | ||
| ATM and POS network charges | 4,489 | 3,897 | 592 | 15.2 | % | ||
| Professional fees | 2,730 | 2,399 | 331 | 13.8 | % | ||
| Telecommunications | 1,719 | 1,983 | (264) | (13.3) | % | ||
| Regulatory assessments and insurance | 1,903 | 993 | 910 | 91.6 | % | ||
| Merger and acquisition expenses | 651 | — | 651 | n/m | |||
| Postage | 478 | 691 | (213) | (30.8) | % | ||
| Operational losses | 665 | 559 | 106 | 19.0 | % | ||
| Courier service | 868 | 1,013 | (145) | (14.3) | % | ||
| Gain on sale or acquisition of foreclosed assets | (210) | (57) | (153) | 268.4 | % | ||
| (Gain) loss on disposal of fixed assets | (445) | 37 | (482) | (1302.7) | % | ||
| Other miscellaneous expense | 8,363 | 9,783 | (1,420) | (14.5) | % | ||
| Total other non-interest expense | 52,911 | 53,365 | (454) | (0.9) | % | ||
| Total non-interest expense | $ | 131,596 | $ | 137,013 | (4.0) | % | |
| Average full-time equivalent staff | 1,031 | 1,129 | (98) | (8.7) | % |
All values are in US Dollars.
The changes in non-interest expense for the nine months ended September 30, 2021 and 2020 are generally consistent with the changes in the comparable three month periods discussed above. During the nine months ended September 30, 2021, approximately $944,000 is attributable to the Company's recently opened loan production offices, of which approximately $824,000 relates to salaries and benefits. Regulatory assessment and insurance expense increased in the current year to date period primarily due to the expiration of credits during the 2020 year and to a lesser extent, the overall balance sheet growth of the bank.
Provision for Income Taxes
The Company’s effective tax rate was 28.5% for the nine months ended September 30, 2021, as compared to 25.8% for the year ended December 31, 2020. The reduced effective tax rate in the prior year was made possible through the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which provided the Company with an opportunity to file amended tax returns and generate proposed refunds of approximately $805,000. While the Company has initiated several tax strategies in anticipation of future tax rate increases, it is not anticipated that any will directly impact the Company's effective tax rate until such rate changes have been legislatively approved. Other differences between the Company's effective tax rate and applicable federal and state statutory rates are due to the proportion of non-taxable revenue and low income housing 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 in communities throughout Northern and Central 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; the impact of changes in financial services policies, laws and regulations; technological changes; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the continuing adverse impact on the U.S. economy, including the markets in which we operate due to the COVID-19 global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; 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 ability to execute our business plan in new lending markets, the future operating or financial performance of the Company, including our outlook for future growth and changes in the level of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; our noninterest expense and the efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of integrating and retaining key employees; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks; change to U.S. tax policies, including our effective income tax rate; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the discontinuation of the London Interbank Offered Rate and other reference rates; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2020, which has been filed with the Securities and Exchange Commission (the “SEC”) and are available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We are under 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,<br>2021 | June 30,<br>2021 | March 31,<br>2021 | December 31,<br>2020 | September 30,<br>2020 | |||||||||||
| Revenue and Expense Data | |||||||||||||||
| Interest income | $ | 69,628 | $ | 68,479 | $ | 67,916 | $ | 68,081 | $ | 65,438 | |||||
| Interest expense | 1,395 | 1,396 | 1,476 | 1,659 | 1,984 | ||||||||||
| Net interest income | 68,233 | 67,083 | 66,440 | 66,422 | 63,454 | ||||||||||
| Provision for (benefit from) credit losses | (1,435) | (260) | (6,060) | 4,850 | 7,649 | ||||||||||
| Noninterest income: | |||||||||||||||
| Service charges and fees | 11,265 | 10,930 | 10,476 | 10,218 | 10,469 | ||||||||||
| Gain on sale of investment securities | — | — | — | — | 7 | ||||||||||
| Other income | 3,830 | 5,027 | 5,634 | 6,362 | 4,661 | ||||||||||
| Total noninterest income | 15,095 | 15,957 | 16,110 | 16,580 | 15,137 | ||||||||||
| Noninterest expense: | |||||||||||||||
| Salaries and benefits | 26,274 | 27,081 | 25,330 | 28,473 | 29,321 | ||||||||||
| Occupancy and equipment | 5,107 | 4,907 | 5,243 | 5,108 | 4,989 | ||||||||||
| Data processing and network | 5,381 | 4,752 | 4,448 | 4,455 | 4,875 | ||||||||||
| Other noninterest expense | 9,045 | 7,431 | 6,597 | 7,709 | 7,529 | ||||||||||
| Total noninterest expense | 45,807 | 44,171 | 41,618 | 45,745 | 46,714 | ||||||||||
| Total income before taxes | 38,956 | 39,129 | 46,992 | 32,407 | 24,228 | ||||||||||
| Provision for income taxes | 11,534 | 10,767 | 13,343 | 8,750 | 6,622 | ||||||||||
| Net income | $ | 27,422 | $ | 28,362 | $ | 33,649 | $ | 23,657 | $ | 17,606 | |||||
| Share Data | |||||||||||||||
| Basic earnings per share | $ | 0.92 | $ | 0.95 | $ | 1.13 | $ | 0.80 | $ | 0.59 | |||||
| Diluted earnings per share | $ | 0.92 | $ | 0.95 | $ | 1.13 | $ | 0.79 | $ | 0.59 | |||||
| Dividends per share | $ | 0.25 | $ | 0.25 | $ | 0.25 | $ | 0.22 | $ | 0.22 | |||||
| Book value per common share | $ | 33.05 | $ | 32.53 | $ | 31.71 | $ | 31.12 | $ | 30.31 | |||||
| Tangible book value per common share (1) | $ | 25.16 | $ | 24.60 | $ | 23.72 | $ | 23.09 | $ | 22.24 | |||||
| Shares outstanding | 29,714,609 | 29,716,294 | 29,727,122 | 29,727,214 | 29,769,389 | ||||||||||
| Weighted average shares | 29,713,558 | 29,718,603 | 29,727,182 | 29,756,831 | 29,763,898 | ||||||||||
| Weighted average diluted shares | 29,850,530 | 29,903,560 | 29,904,974 | 29,863,478 | 29,844,396 | ||||||||||
| Credit Quality | |||||||||||||||
| Allowance for credit losses to gross loans | 1.72 | % | 1.74 | % | 1.73 | % | 1.93 | % | 1.81 | % | |||||
| Loans past due 30 days or more | $ | 10,539 | $ | 9,292 | $ | 10,550 | $ | 6,767 | $ | 10,522 | |||||
| Total nonperforming loans | $ | 28,790 | $ | 32,705 | $ | 28,941 | $ | 26,864 | $ | 22,963 | |||||
| Total nonperforming assets | $ | 31,440 | $ | 34,952 | $ | 31,250 | $ | 29,708 | $ | 25,020 | |||||
| Loans charged-off | $ | 1,582 | $ | 387 | $ | 226 | $ | 560 | $ | 194 | |||||
| Loans recovered | $ | 1,321 | $ | 653 | $ | 560 | $ | 382 | $ | 381 | |||||
| Selected Financial Ratios | |||||||||||||||
| Return on average total assets | 1.30 | % | 1.40 | % | 1.75 | % | 1.24 | % | 0.95 | % | |||||
| Return on average equity | 11.02 | % | 11.85 | % | 14.51 | % | 10.37 | % | 7.79 | % | |||||
| Average yield on loans, excluding PPP | 4.85 | % | 4.93 | % | 5.02 | % | 5.04 | % | 5.02 | % | |||||
| Average yield on interest-earning assets | 3.57 | % | 3.65 | % | 3.82 | % | 3.88 | % | 3.83 | % | |||||
| Average rate on interest-bearing deposits | 0.08 | % | 0.08 | % | 0.10 | % | 0.12 | % | 0.15 | % | |||||
| Average cost of total deposits | 0.05 | % | 0.05 | % | 0.06 | % | 0.07 | % | 0.09 | % | |||||
| Average rate on borrowings & subordinated debt | 2.02 | % | 2.31 | % | 2.42 | % | 2.43 | % | 2.49 | % | |||||
| Average rate on interest-bearing liabilities | 0.13 | % | 0.13 | % | 0.15 | % | 0.17 | % | 0.20 | % | |||||
| Net interest margin (fully tax-equivalent) (1) | 3.50 | % | 3.58 | % | 3.74 | % | 3.79 | % | 3.72 | % | |||||
| Loans to deposits | 67.54 | % | 70.72 | % | 72.37 | % | 73.21 | % | 76.12 | % | |||||
| Efficiency ratio | 54.97 | % | 53.19 | % | 50.42 | % | 55.11 | % | 59.44 | % | |||||
| Supplemental Loan Interest Income Data | |||||||||||||||
| Discount accretion on acquired loans | $ | 2,034 | $ | 2,566 | $ | 1,712 | $ | 1,960 | $ | 1,876 | |||||
| All other loan interest income (excluding PPP) (1) | $ | 55,184 | $ | 54,559 | $ | 52,861 | $ | 53,379 | $ | 53,560 | |||||
| Total loan interest income (excluding PPP) (1) | $ | 57,218 | $ | 57,125 | $ | 54,573 | $ | 55,339 | $ | 55,436 |
(1) Non-GAAP measure.
TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in thousands)
| Balance Sheet Data | September 30,<br>2021 | June 30,<br>2021 | March 31,<br>2021 | December 31,<br>2020 | September 30,<br>2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash and due from banks | $ | 740,236 | $ | 639,740 | $ | 609,522 | $ | 669,551 | $ | 652,582 | |||||
| Securities, available for sale, net | 2,098,786 | 1,850,547 | 1,685,076 | 1,417,289 | 1,145,989 | ||||||||||
| Securities, held to maturity, net | 216,979 | 235,778 | 260,454 | 284,563 | 310,696 | ||||||||||
| Restricted equity securities | 17,250 | 17,250 | 17,250 | 17,250 | 17,250 | ||||||||||
| Loans held for sale | 3,072 | 5,723 | 3,995 | 6,268 | 6,570 | ||||||||||
| Loans: | |||||||||||||||
| Commercial real estate | 3,222,737 | 3,194,336 | 3,108,624 | 2,951,902 | 2,936,422 | ||||||||||
| Consumer | 1,053,653 | 1,050,609 | 1,041,213 | 952,108 | 926,835 | ||||||||||
| Commercial and industrial | 345,027 | 452,069 | 551,077 | 526,327 | 633,897 | ||||||||||
| Construction | 216,680 | 200,714 | 221,613 | 284,842 | 284,933 | ||||||||||
| Agriculture production | 44,410 | 41,967 | 39,753 | 44,164 | 40,613 | ||||||||||
| Leases | 4,989 | 5,199 | 4,697 | 3,784 | 3,638 | ||||||||||
| Total loans, gross | 4,887,496 | 4,944,894 | 4,966,977 | 4,763,127 | 4,826,338 | ||||||||||
| Allowance for credit losses | (84,306) | (86,062) | (85,941) | (91,847) | (87,575) | ||||||||||
| Total loans, net | 4,803,190 | 4,858,832 | 4,881,036 | 4,671,280 | 4,738,763 | ||||||||||
| Premises and equipment | 78,968 | 79,178 | 82,338 | 83,731 | 84,856 | ||||||||||
| Cash value of life insurance | 120,932 | 120,287 | 119,543 | 118,870 | 120,026 | ||||||||||
| Accrued interest receivable | 18,425 | 18,923 | 19,442 | 20,004 | 19,557 | ||||||||||
| Goodwill | 220,872 | 220,872 | 220,872 | 220,872 | 220,872 | ||||||||||
| Other intangible assets | 13,562 | 14,971 | 16,402 | 17,833 | 19,264 | ||||||||||
| Operating leases, right-of-use | 26,815 | 26,365 | 27,540 | 27,846 | 28,879 | ||||||||||
| Other assets | 98,943 | 81,899 | 88,142 | 84,172 | 84,495 | ||||||||||
| Total assets | $ | 8,458,030 | $ | 8,170,365 | $ | 8,031,612 | $ | 7,639,529 | $ | 7,449,799 | |||||
| Deposits: | |||||||||||||||
| Noninterest-bearing demand deposits | $ | 2,943,016 | $ | 2,843,783 | $ | 2,766,510 | $ | 2,581,517 | $ | 2,517,819 | |||||
| Interest-bearing demand deposits | 1,519,426 | 1,486,321 | 1,465,915 | 1,414,908 | 1,346,716 | ||||||||||
| Savings deposits | 2,447,706 | 2,337,557 | 2,302,927 | 2,164,942 | 2,099,780 | ||||||||||
| Time certificates | 326,674 | 324,392 | 328,048 | 344,567 | 376,273 | ||||||||||
| Total deposits | 7,236,822 | 6,992,053 | 6,863,400 | 6,505,934 | 6,340,588 | ||||||||||
| Accrued interest payable | 1,056 | 1,026 | 970 | 1,362 | 1,571 | ||||||||||
| Operating lease liability | 27,290 | 26,707 | 27,780 | 27,973 | 28,894 | ||||||||||
| Other liabilities | 107,282 | 85,388 | 102,955 | 94,597 | 91,902 | ||||||||||
| Other borrowings | 45,601 | 40,559 | 36,226 | 26,914 | 27,055 | ||||||||||
| Junior subordinated debt | 57,965 | 57,852 | 57,742 | 57,635 | 57,527 | ||||||||||
| Total liabilities | 7,476,016 | 7,203,585 | 7,089,073 | 6,714,415 | 6,547,537 | ||||||||||
| Common stock | 531,339 | 531,038 | 531,367 | 530,835 | 531,075 | ||||||||||
| Retained earnings | 446,948 | 427,575 | 408,211 | 381,999 | 365,611 | ||||||||||
| Accum. other comprehensive income | 3,727 | 8,167 | 2,961 | 12,280 | 5,576 | ||||||||||
| Total shareholders’ equity | $ | 982,014 | $ | 966,780 | $ | 942,539 | $ | 925,114 | $ | 902,262 | |||||
| Quarterly Average Balance Data | |||||||||||||||
| Average loans, excluding PPP | $ | 4,684,492 | $ | 4,646,188 | $ | 4,407,150 | $ | 4,363,873 | $ | 4,389,672 | |||||
| Average interest-earning assets | $ | 7,758,169 | $ | 7,544,581 | $ | 7,239,726 | $ | 6,998,582 | $ | 6,815,495 | |||||
| Average total assets | $ | 8,348,111 | $ | 8,128,674 | $ | 7,808,912 | $ | 7,570,952 | $ | 7,380,961 | |||||
| Average deposits | $ | 7,137,263 | $ | 6,943,081 | $ | 6,653,754 | $ | 6,341,175 | $ | 6,278,638 | |||||
| Average borrowings and subordinated debt | $ | 106,221 | $ | 98,774 | $ | 90,397 | $ | 90,085 | $ | 91,225 | |||||
| Average total equity | $ | 987,026 | $ | 960,145 | $ | 940,775 | $ | 907,468 | $ | 898,986 | |||||
| Capital Ratio Data | |||||||||||||||
| Total risk based capital ratio | 15.4 | % | 15.3 | % | 15.1 | % | 15.2 | % | 15.2 | % | |||||
| Tier 1 capital ratio | 14.2 | % | 14.1 | % | 13.9 | % | 14.0 | % | 14.0 | % | |||||
| Tier 1 common equity ratio | 13.2 | % | 13.0 | % | 12.9 | % | 12.9 | % | 12.9 | % | |||||
| Tier 1 leverage ratio | 9.9 | % | 9.9 | % | 10.0 | % | 9.9 | % | 10.0 | % | |||||
| Tangible capital ratio (1) | 9.1 | % | 9.2 | % | 9.1 | % | 9.3 | % | 9.2 | % |
(1) Non-GAAP measure.
TRICO BANCSHARES—NON-GAAP FINANCIAL MEASURES
(Unaudited. Dollars in thousands)
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this press release because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results, and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:
| Three months ended | Nine months ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | September 30,<br>2021 | June 30,<br>2021 | September 30,<br>2020 | September 30,<br>2021 | September 30,<br>2020 | ||||||||||
| Net interest margin | |||||||||||||||
| Acquired loans discount accretion, net: | |||||||||||||||
| Amount (included in interest income) | $ | 2,034 | $ | 2,566 | $ | 1,876 | $ | 6,311 | $ | 6,211 | |||||
| Effect on average loan yield | 0.17 | % | 0.17 | % | 0.17 | % | 0.18 | % | 0.19 | % | |||||
| Effect on net interest margin (FTE) | 0.10 | % | 0.14 | % | 0.11 | % | 0.11 | % | 0.13 | % | |||||
| Net interest margin (FTE) | 3.50 | % | 3.58 | % | 3.72 | % | 3.61 | % | 4.02 | % | |||||
| Net interest margin less effect of acquired loan discount accretion (Non-GAAP) | 3.40 | % | 3.44 | % | 3.61 | % | 3.50 | % | 3.89 | % | |||||
| PPP loans yield, net: | |||||||||||||||
| Amount (included in interest income) | $ | 3,507 | $ | 3,179 | $ | 2,603 | $ | 12,549 | $ | 4,959 | |||||
| Effect on net interest margin (FTE) | 0.09 | % | (0.03) | % | (0.09) | % | 0.08 | % | (0.05) | % | |||||
| Net interest margin less effect of PPP loan yield (Non-GAAP) | 3.42 | % | 3.61 | % | 3.81 | % | 3.53 | % | 4.07 | % | |||||
| Acquired loan discount accretion and PPP loan yield, net: | |||||||||||||||
| Amount (included in interest income) | $ | 5,541 | $ | 5,745 | $ | 4,479 | $ | 18,860 | $ | 11,170 | |||||
| Effect on net interest margin (FTE) | 0.19 | % | 0.11 | % | 0.02 | % | 0.20 | % | 0.11 | % | |||||
| Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP) | 3.31 | % | 3.47 | % | 3.70 | % | 3.41 | % | 3.91 | % | |||||
| Three months ended | Nine months ended | ||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (dollars in thousands) | September 30,<br>2021 | June 30,<br>2021 | September 30,<br>2020 | September 30,<br>2021 | September 30,<br>2020 | ||||||||||
| Pre-tax pre-provision return on average assets or equity | |||||||||||||||
| Net income (GAAP) | $ | 27,422 | 28,362 | $ | 17,606 | $ | 89,433 | $ | 41,157 | ||||||
| Exclude income tax expense | 11,534 | 10,767 | 6,622 | 35,644 | 13,786 | ||||||||||
| Exclude provision (benefit) for credit losses | (1,435) | (260) | 7,649 | (7,755) | 37,963 | ||||||||||
| Net income before income tax and provision expense (Non-GAAP) | $ | 37,521 | $ | 38,869 | $ | 31,877 | $ | 117,322 | $ | 92,906 | |||||
| Average assets (GAAP) | $ | 8,348,111 | $ | 8,128,674 | $ | 7,380,961 | $ | 8,096,273 | $ | 6,971,575 | |||||
| Average equity (GAAP) | 987,026 | 960,145 | 898,986 | 962,871 | 896,753 | ||||||||||
| Return on average assets (GAAP) (annualized) | 1.30 | % | 1.40 | % | 0.95 | % | 1.48 | % | 0.79 | % | |||||
| Pre-tax pre-provision return on average assets (Non-GAAP) (annualized) | 1.78 | % | 1.94 | % | 1.72 | % | 1.94 | % | 1.78 | % | |||||
| Return on average equity (GAAP) (annualized) | 11.02 | % | 11.85 | % | 7.79 | % | 12.42 | % | 6.13 | % | |||||
| Pre-tax pre-provision return on average equity (Non-GAAP) (annualized) | 15.08 | % | 16.42 | % | 14.11 | % | 16.29 | % | 13.84 | % | |||||
| Three months ended | Nine months ended | ||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (dollars in thousands) | September 30,<br>2021 | June 30,<br>2021 | September 30,<br>2020 | September 30,<br>2021 | September 30,<br>2020 | ||||||||||
| Return on tangible common equity | |||||||||||||||
| Average total shareholders' equity | $ | 987,026 | $ | 960,145 | $ | 898,986 | $ | 962,871 | $ | 896,753 | |||||
| Exclude average goodwill | 220,872 | 220,872 | 220,872 | 220,872 | 220,872 | ||||||||||
| Exclude average other intangibles | 14,267 | 15,687 | 22,842 | 19,264 | 21,410 | ||||||||||
| Average tangible common equity (Non-GAAP) | $ | 751,887 | $ | 723,586 | $ | 655,272 | $ | 722,735 | $ | 654,471 | |||||
| Net income (GAAP) | $ | 27,422 | $ | 28,362 | $ | 17,606 | $ | 89,433 | $ | 41,157 | |||||
| Exclude amortization of intangible assets, net of tax effect | 992 | 1,008 | 1,008 | 3,008 | 3,024 | ||||||||||
| Tangible net income available to common shareholders (Non-GAAP) | $ | 28,414 | 29,370 | $ | 18,614 | $ | 92,441 | $ | 44,181 | ||||||
| Return on average equity | 11.02 | % | 11.85 | % | 7.79 | % | 12.42 | % | 6.13 | % | |||||
| Return on average tangible common equity (Non-GAAP) | 14.99 | % | 16.46 | % | 11.30 | % | 17.10 | % | 9.02 | % | |||||
| Three months ended | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (dollars in thousands) | September 30,<br>2021 | June 30,<br>2021 | March 31,<br>2021 | December 31,<br>2020 | September 30,<br>2020 | ||||||||||
| Tangible common shareholders' equity to tangible assets | |||||||||||||||
| Shareholders' equity (GAAP) | $ | 982,014 | $ | 966,780 | $ | 942,539 | $ | 925,114 | $ | 902,262 | |||||
| Exclude goodwill and other intangible assets, net | 234,434 | 235,843 | 237,274 | 238,705 | 240,136 | ||||||||||
| Tangible s/h equity (Non-GAAP) | $ | 747,580 | $ | 730,937 | $ | 705,265 | $ | 686,409 | $ | 662,126 | |||||
| Total assets (GAAP) | $ | 8,458,030 | $ | 8,170,365 | $ | 8,031,612 | $ | 7,639,529 | $ | 7,449,799 | |||||
| Exclude goodwill and other intangible assets, net | 234,434 | 235,843 | 237,274 | 238,705 | 240,136 | ||||||||||
| Total tangible assets (Non-GAAP) | $ | 8,223,596 | $ | 7,934,522 | $ | 7,794,338 | $ | 7,400,824 | $ | 7,209,663 | |||||
| Common s/h equity to total assets (GAAP) | 11.61 | % | 11.83 | % | 11.74 | % | 12.11 | % | 12.11 | % | |||||
| Tangible common shareholders' equity to tangible assets (Non-GAAP) | 9.09 | % | 9.21 | % | 9.05 | % | 9.27 | % | 9.18 | % | |||||
| Three months ended | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||
| (dollars in thousands) | September 30,<br>2021 | June 30,<br>2021 | March 31,<br>2021 | December 31,<br>2020 | September 30,<br>2020 | ||||||||||
| Tangible common shareholders' equity per share | |||||||||||||||
| Tangible s/h equity (Non-GAAP) | $ | 747,580 | $ | 730,937 | $ | 705,265 | $ | 686,409 | $ | 662,126 | |||||
| Tangible assets (Non-GAAP) | 8,223,596 | 7,934,522 | 7,794,338 | 7,400,824 | 7,209,663 | ||||||||||
| Common shares outstanding at end of period | 29,714,609 | 29,716,294 | 29,727,122 | 29,727,214 | 29,769,389 | ||||||||||
| Common s/h equity (book value) per share (GAAP) | $ | 33.05 | $ | 32.53 | $ | 31.71 | $ | 31.12 | $ | 30.31 | |||||
| Tangible common shareholders' equity (tangible book value) per share (Non-GAAP) | $ | 25.16 | $ | 24.60 | $ | 23.72 | $ | 23.09 | $ | 22.24 |
*****************
18
a2021-q3investorpresenta
October 2021 Investor Presentation INVESTOR PRESENTATION Third Quarter 2021 Richard P. Smith – President & Chief Executive Officer John S. Fleshood – EVP & Chief Operating Officer Peter G. Wiese – EVP & Chief Financial Officer Exhibit 99.2
October 2021 Investor Presentation 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; the impact of changes in financial services policies, laws and regulations; technological changes; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the continuing adverse impact on the U.S. economy, including the markets in which we operate due to the COVID-19 global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; 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 ability to execute business plans in new lending market; the future operating or financial performance of the Company, including our outlook for future growth and changes in the level of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; our noninterest expense and the efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of integrating and retaining key employees; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks; change to U.S. tax policies, including our effective income tax rate; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the discontinuation of the London Interbank Offered Rate and other reference rates; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2020, which has been filed with the Securities and Exchange Commission (the “SEC”) and are available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We are under 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. 2 SAFE HARBOR STATEMENT
October 2021 Investor Presentation • Most Recent Quarter Recap • Company Overview • Lending Overview • Deposit Overview • Financials 3 AGENDA
October 2021 Investor Presentation4 MOST RECENT QUARTER HIGHLIGHTS Consistent Profitability • Pre-tax pre-provision ROAA and ROAE were 1.78% and 15.08%, respectively, for the quarter ended September 30, 2021, and 1.72% and 14.11%, respectively, for the same quarter in the prior year. • Management remains focused on disciplined expense management with increases in the current quarter being largely correlated to, merger and acquisition costs, the opening and buildout of loan production offices and the timing of donation and advertising activities. • Our efficiency ratio was 52.9% during the first nine months of 2021, compared to 59.6% during the same nine-month period of the prior year. Growth to Drive Results • Organic non-PPP loan production levels were $303 million, a 6.3% increase over the trailing quarter, while gross payoffs also grew to $244 million or a 27.1% increase over the trailing quarter. • While the start-up costs associated with newly opened loan production offices currently exceed revenues, those loan production teams have generated more than $60 million of in-process underwriting volumes • Management is actively monitoring a variety of acquisition opportunities. Net Interest Income and Margin • Net interest margin (FTE) was 3.50% for Q3 2021, compared to 3.58% for Q2 2021, and 3.72% in Q3 2020. Compression in NIM has been driven by growth in the investment security portfolio as a percent of average total earning assets which was 27.7% at Q3 2021 compared to 20.2% at Q3 2020. • Growth in non-interest-bearing deposits continue to drive improved funding costs where total cost of deposits was 0.05% in Q3 2021 compared to 0.09% Q3 2020. Credit Quality • Excluding PPP, loan loss reserves were 1.78% of total loans compared to 1.83% as of June 30, 2021 and 2.07% as of December 31, 2020 . • Approximately 98% of all round one and 25% of all round two PPP loans have been forgiven by the SBA. • Meaningful decreases in the volume of COVID related loan payment deferral modifications, the balance of total non-performing loans, and a continued low ratio of classified loans to total loans. Diverse Deposit Base • Non-interest-bearing deposits comprise 40.7% of total deposits, and core deposits have grown 14.1% YOY Capital Strategies • Strength in core earnings is key to self-financed and self-funded growth. • We remain well capitalized across all regulatory capital ratios. • Consistent quarterly dividend payments with a history of periodic increases. • Active share repurchase program with demonstrated utilization, albeit currently on hold as a result of the pending merger.
October 2021 Investor Presentation5 COMPANY OVERVIEW
October 2021 Investor Presentation Nasdaq: TCBK Headquarters: Chico, California Stock Price*: $43.40 Market Cap.: $1.3 Billion Asset Size: $8.5 Billion Loans: $4.9 Billion Deposits: $7.2 Billion Bank Branches: 70 ATMs: 88 Bank ATMs, with access to over 37,000 network ATMs Market Area: TriCo currently serves 31 counties throughout California. 6 COMPANY OVERVIEW * As of close of business September 30, 2021
October 2021 Investor Presentation7 EXECUTIVE TEAM Rick Smith President & CEO TriCo since 1993 John Fleshood EVP Chief Operating Officer TriCo since 2016 Dan Bailey EVP Chief Banking Officer TriCo since 2007 Craig Carney EVP Chief Credit Officer TriCo since 1996 Peter Wiese EVP Chief Financial Officer TriCo since 2018 Judi Giem SVP Chief HR Officer TriCo since 2020 Greg Gehlmann SVP General Counsel TriCo since 2017
October 2021 Investor Presentation8 POSITIVE EARNINGS TRACK RECORD * Impact of the Tax Cut and Jobs Act results in adjusted quarterly diluted EPS of $0.45. Q4'17 * Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Net Income ($MM) $3.0 $13.9 $15.0 $16.2 $23.2 $22.7 $23.1 $23.4 $22.9 $16.1 $7.4 $17.6 $23.6 $33.6 $28.4 $27.4 Qtrly Diluted EPS $0.13 $0.60 $0.65 $0.53 $0.76 $0.74 $0.75 $0.76 $0.75 $0.53 $0.25 $0.59 $0.79 $1.13 $0.95 $0.92 Adj EPS $0.45 $0.60 $0.65 $0.53 $0.76 $0.74 $0.75 $0.76 $0.75 $0.53 $0.25 $0.59 $0.79 $1.13 $0.95 $0.92 $0.00 $0.40 $0.80 $1.20 $0 $4 $8 $12 $16 $20 $24 $28 $32 $36 Q tr ly E P S ( di lu te d ) E a rn in gs ( in M ill io ns )
October 2021 Investor Presentation9 SHAREHOLDER RETURNS Dividends per Share: 11.5% CAGR* Dividends as % of Earnings Return on Avg. Shareholder Equity Diluted EPS * CAGR based upon 2015 full year to 2021 annualized; all figures through 9/30/2021. $0.11 $0.15 $0.15 $0.17 $0.19 $0.22 $0.25 $0.13 $0.15 $0.17 $0.17 $0.19 $0.22 $0.25 $0.13 $0.15 $0.17 $0.17 $0.22 $0.22 $0.25 $0.15 $0.15 $0.17 $0.19 $0.22 $0.22 $0.52 $0.60 $0.66 $0.70 $0.82 $0.88 2015 2016 2017 2018 2019 2020 2021 Q1 Q2 Q3 Q4 10.04% 9.47% 8.10% 10.75% 10.49% 7.18% 12.42% 2015 2016 2017 2018 2019 2020 2021 31% 31% 37% 27% 27% 41% 25% 2015 2016 2017 2018 2019 2020 2021 $0.36 $0.46 $0.52 $0.60 $0.74 $0.53 $1.13 $0.49 $0.41 $0.58 $0.65 $0.75 $0.25 $0.95 $0.55 $0.53 $0.51 $0.53 $0.76 $0.59 $0.92 $0.50 $0.54 $0.76 $0.75 $0.79 $1.91 $1.94 $1.74 $2.54 $3.00 $2.16 2015 2016 2017 2018 2019 2020 2021 Q1 Q2 Q3 Q4
October 2021 Investor Presentation $1,841 $1,920 $1,981 $2,043 $2,170 $2,190 $2,556 $2,609 $2,744 $3,916 $4,221 $4,518 $4,761 $6,352 $6,471 $7,640 $8,032 $8,170 $8,458 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q1 2021 Q2 2021 Q3 2021 Core Acquired PPP Loans May 2010 Acquired Granite Community Bank ($100MM assets) September 2011 Acquired Citizens Bank of Northern California ($288MM assets) January 2014 Acquired North Valley Bank ($931MM assets) March 2016 Acquired 3 Branches from BofA ($164MM assets) July 2018 Acquired FNB Bancorp ($1.2B assets) Organic Growth and Disciplined Acquisitions 10 CONSISTENT GROWTH CAGR 5 yrs. 10 yrs. Total Assets 13.6% 13.0% Excluding PPP 13.2% 12.8%
October 2021 Investor Presentation Executive Management Themes and Topics 11 “TOP OF MIND” • Building a Successful Partnership With Our Future Team Members at Valley Republic Bank and Working to Ensure an Efficient Integration of Culture and Operations • Driving Loan and Non-Interest Income Growth / Diversification Through Organic and Acquisition Based Strategies • The Short and Possible Long-term Economic Impacts of Inflation; the Timing of Fed Tapering and its Impact on Excess Market Liquidity; and Supply Chain Influences on Consumer Spending and Consumption • Relevant and Competitive Digital Spend and the Acquisition Cost of New Customers • Relentless Pursuit of Greater Operational Efficiency • Maintaining Our Culture and Sense of Team…Virtually • Industry Consolidation, Talent Acquisition and Proactive Succession Planning
October 2021 Investor Presentation12 LOANS AND CREDIT QUALITY
October 2021 Investor Presentation13 CONSISTENT LOAN GROWTH • 2018 includes acquisition of FNB Bancorp (Loan Yield was 5.04%); Q1 2021 increase includes $98MM Jumbo Mortgage pool purchase • End of period balances are presented net of fees and include LHFS. Yields based on average balance and annualized quarterly interest income. $3,015 $4,022 $4,038 $4,104 $4,182 $4,305 $4,381 $4,386 $4,407 $4,443 $4,610 $4,711 $4,739$423 $426 $327 $361 $240 $151 5.16% 5.24% 5.48% 5.50% 5.46% 5.33% 5.23% 5.05% 4.78% 5.09% 5.15% 4.86% 4.92% 3.50% 4.50% 5.50% 6.50% $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 2017 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Non-PPP PPP Loans Loan Yield Loan Yield Excl PPP
October 2021 Investor Presentation $349 $178 $199 $165 $250 $464 $285 $303 -$210 -$118 -$140 -$131 -$166 -$241 -$192 -$244 -$85 -$80 -$78 -$82 -$97 -$86 -$84 -$81 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Originations Paid/Closed Paydowns 14 GROSS PRODUCTION VS PAYOFF • Outstanding Principal in Millions, excludes PPP; and excludes changes in utilization (draws or repayments) on lines of credit • Includes Q1-2021 increase of $98MM and Q4-2020 increase of $40MM in Jumbo Mortgage pool purchases TCBK originated over $1.3 billion in the trailing twelve months, compared to nearly $0.9 billion in the twelve months prior, while facing headwinds of an increased $244 million in payoffs during that span. In addition to the $0.9 billion in non-PPP loan originations during this period, TCBK originated over $0.4 billion in PPP loans.
October 2021 Investor Presentation $1,526 $701 $830 $665 $345 $323 $217 $210 $68 $1,600 $581 $602 $518 $634 $333 $285 $193 $82 CRE Non-Owner Occupied CRE-Owner Occupied Multifamily SFR 1-4 Term Commercial & Industrial SFR HELOC and Junior Liens Construction Agriculture & Farmland Auto & Other 3Q-2021 3Q-2020 15 DIVERSIFIED LOAN PORTFOLIO Note: Dollars in millions, Net Book Value at period end, excludes LHFS; Auto & other includes Leases. Commercial & Industrial includes one Municipality Loan for $2.58 mln. CRE Non- Owner Occupied 31% CRE-Owner Occupied 14% Multifamily 17% SFR 1-4 Term 14% Commercial & Industrial 7% SFR HELOC and Junior Liens 7% Construction 5% Agriculture & Farmland 4% Auto & Other 1% CRE Non Ow n By Collateral Loans, net ($MM) # Loans % of CRE NOO Retail $426 335 28% Office $374 366 24% Hotel/Motel $222 79 15% Warehouse $121 158 8% Light Industrial $89 101 6% Self Storage $71 35 5% Mixed Use, Retail $44 53 3% Restaurant/Bar $31 59 2% Other (20 Types) $148 156 10% Total $1,526 1,342 100%
October 2021 Investor Presentation 78% 56% 58% 61% 62% 71% 38% 46% 21% 39% 40% 37% 38% 25% 60% 46% 1% 5% 2% 2% 0% 4% 2% 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Hotel/Motel Office Building Retail Building Warehouse Light Industrial Other Multifamily CRE Owner Occupied <= 60% > 60% - 75% > 75% 16 CRE COLLATERAL VALUES LTV Range CRE Non-Owner-Occupied by Collateral Type DISTRIBUTION BY LTV
October 2021 Investor Presentation $1,541 $1,618 $834 $606 $321 $329 $344 $643 $707 $589 $668 $522 $219 $290 $211 $192 $65 $79 $164 $104 $43 $33 $521 $545 $353 $273 $30 $22 $206 $188 $55 $50 $9 $54 3Q-2021 3Q-2020 3Q-2021 3Q-2020 3Q-2021 3Q-2020 3Q-2021 3Q-2020 3Q-2021 3Q-2020 3Q-2021 3Q-2020 3Q-2021 3Q-2020 3Q-2021 3Q-2020 3Q-2021 3Q-2020 CRE Non-Owner Occupied Multifamily SFR HELOC and Junior Liens Commercial & Industrial CRE-Owner Occupied SFR 1-4 Term Construction Agriculture & Farmland Auto & Other Outstanding Principal ($MM) Unfunded Commitment ($MM) 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% $0 $25 $50 $75 $100 $125 $150 20212020201920182017201620152014201320122011201020092008>2008 Private Balance (MM) Unfunded (MM) WA Rate HELOCs – by vintage, with weighted avg. coupon 17 UNFUNDED LOAN COMMITMENTS Outstanding Principal and Commitments exclude unearned fees and discounts/premiums, Leases, DDA Overdraft, and Credit Cards C&I includes PPP loans for $158 million and $438 million in Outstanding Principal Q3 2021 and Q3 2020, respectively. 3.33% 4.19% 4.48%4.53%4.53%4.44%4.34%4.28% 4.77% 5.45%5.24% 4.49%4.64% 3.63%3.72%
October 2021 Investor Presentation18 C&I UTILIZATION Excludes PPP loans; Outstanding Principal excludes unearned fees and discounts/premiums ($ millions) $249 $248 $243 $247 $262 $208 $205 $197 $187 $206 $186 $219 $207 $221 $254 $235 $265 $273 $372 $384 $360 $353 53.3% 54.5% 52.4% 49.3% 52.7% 44.0% 42.9% 34.5% 32.7% 36.4% 34.5% 0% 10% 20% 30% 40% 50% 60% $0 $100 $200 $300 $400 $500 $600 1Q-2019 2Q-2019 3Q-2019 4Q-2019 1Q-2020 2Q-2020 3Q-2020 4Q-2020 1Q-2021 2Q-2021 3Q-2021 M ill io n s of $ Outstanding Principal ($MM) Unfunded Commitment Utilization
October 2021 Investor Presentation19 LOAN YIELD COMPOSITION Dollars in millions, Wtd Avg Rate (weighted average rate) as of 09/30/2021 and based upon outstanding principal; excludes unearned fees and accretion/amortization therein • Variable rate loans at their floor as a percentage of total variable loans has remained stable at 88% in Q3-2021. • The most prominent index for the variable portfolio is 5 Year Treasury CMT Fixed 36% Variable At Floor 57% Variable Above Floor 6% Variable No Floor 1% Fixed vs. Variable, Total Loans (ex-PPP)
October 2021 Investor Presentation20 LOAN YIELD COMPOSITION Dollars in millions, WA Rate (weighted average rate) as of 09/30/2021 and based upon outstanding principal; excludes unearned fees and accretion/amortization therein Next Reprice signifies either the next scheduled reprice date or maturity. When reprice date is blank, index is prime and monthly frequency indicator is applied, loan is classified as Monthly. Loans at Floor by Year of Next Reprice $442 $285 $238 $257 $439 $530 $523 4.00% 3.77% 3.76% 3.68% 3.65% 3.97% 3.63% 4.58% 4.47% 4.79% 4.92% 4.31% 4.26% 3.95% Monthly < 1 Year 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years > 5 Years Balance WA Rate No Floor WA Rate At Floor
October 2021 Investor Presentation21 LOAN YIELD COMPOSITION Dollars in millions, WA Rate (weighted average rate) as of 09/30/2021 and based upon outstanding principal; excludes unearned fees and accretion/amortization therein Next Reprice signifies either the next scheduled reprice date or maturity. When reprice date is blank, index is prime and monthly frequency indicator is applied, loan is classified as Monthly. Loans at Floor by Year of Next Reprice – Commercial Real Estate & Multifamily $78 $224 $210 $221 $357 $455 $389 4.10% 3.82% 3.79% 3.68% 3.65% 4.00% 3.79% 4.60% 4.44% 4.78% 4.91% 4.25% 4.26% 4.09% Monthly < 1 Year 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years > 5 Years Balance WA Rate No Floor WA Rate At Floor
October 2021 Investor Presentation22 ALLOWANCE FOR CREDIT LOSSES Drivers of Change under CECL Change in reserve for all collectively and individually analyzed loans rated criticized or worse Within the C&I segment a charge off for $0.8MM resulted in the release of the specific reserve for the substandard loan Lagging recovery of California Unemployment remains the largest driver of qualitative factors As quantitative reserve rates continue to recede, Q factor observations support reserve retention Total reserve reduction of $1.756 million Q3 2021 Includes volume and mix change due to originations, draws, pay downs, and payoffs Improvement in risk grades overall, coupled with continued low loss experience, result in declining quantitative loss rates Gross charge offs $1.582 million Gross recoveries $1.321 million 1.74% of Total Loans 1.83% Excluding PPP 1.72% of Total Loans 1.78% Excluding PPP
October 2021 Investor Presentation23 ALLOWANCE FOR CREDIT LOSSES Allocation of Allowance by Segment
October 2021 Investor Presentation24 RISK GRADE MIGRATION Zero balance in Doubtful and Loss 86.9%85.0%84.6%82.1%82.2%83.9% 9.3%11.2%11.4%13.6%13.8% 14.0% 2.8%2.6%2.9%3.3%3.0%1.3% 1.0%1.2%1.2%1.0%1.0%0.9% 3Q-20212Q-20211Q-20214Q-20203Q-20202Q-2020 % o f L oa n P o rt fo lio O u ts ta nd in g, b y R is k G ra de Pass Watch Special Mention Substandard
October 2021 Investor Presentation 118% 120% 124% 174% 159% 180% 193% 343% 385% 395% 342% 297% 263% 258% 1 2 9 % 1 2 5 % 1 3 4 % 1 3 1 % 1 2 9 % 1 4 5 % 1 5 6 % 1 3 9 % 2 0 2 % 1 9 1 % 1 7 9 % 1 8 7 % 1 9 4 % 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 TCBK Peers 0.54% 0.45% 0.45% 0.32% 0.35% 0.30% 0.28% 0.30% 0.31% 0.33% 0.38% 0.38% 0.42% 0.36% 0.77% 0.64% 0.58% 0.59% 0.61% 0.54% 0.47% 0.73% 0.53% 0.58% 0.75% 0.73% 0.68% 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 TCBK Peers 25 ASSET QUALITY Peer group consists of 99 closest peers in terms of asset size, range $4.1-11.5 Billion source: BankRegData.com NPA and NPL ratios displayed are net of guarantees Coverage Ratio: Allowance as % of Non-Performing Loans NPAs have remained below peers while loss coverage has expanded, first with the adoption of CECL, then through the on-going concerns of the pandemic; resulting in an increase in the coverage ratio of non-performing loans through Q3 2020. Subsequently, moderate releases have been recorded. Non-Performing Assets as a % of Total Assets
October 2021 Investor Presentation26 DEPOSITS
October 2021 Investor Presentation27 DEPOSITS: STRENGTH IN FUNDING Total Deposits = $7.24 billion 98.6% of Funding Liabilities Liability Mix 09/30/2021 Peer group consists of 99 closest peers in terms of asset size, range $4.7-11.5 Billion; source: BankRegData.com Net Loans includes LHFS and Allowance for Credit Loss; Core Deposits = Total Deposits less CDs > 250k and Brokered Deposits Non Interest- bearing Demand Deposits, 39.4% (Cost 0.00%) Interest-bearing Demand & Savings Deposits, 53.1% (Cost 0.05%) Time Deposits, 4.4% (Cost 0.52%) Borrowings & Subordinated Debt, 1.4% Other liabilities, 1.8% 3 3 .6 3 3 .6 3 2 .8 3 2 .4 3 3 .3 3 3 .6 3 4 .1 3 4 .9 3 9 .8 3 9 .7 3 9 .7 4 0 .3 4 0 .7 4 0 .7 0 10 20 30 40 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 Non Interest-bearing Deposits as % of Total Deposits TCBK Peers 7 9 .1 8 0 .7 7 6 .3 7 5 .5 7 8 .1 8 0 .6 8 1 .6 8 1 .6 7 6 .9 7 5 .9 7 2 .7 7 1 .8 7 0 .2 6 7 .7 0 20 40 60 80 100 120 2018 Q2 2018 Q3 2018 Q4 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 Loans to Core Deposits (%) TCBK Peers
October 2021 Investor Presentation Cost of Deposits Noninterest-Bearing Demand - - - - - - - - - - - Int-Bearing Demand & Savings 0.18% 0.20% 0.19% 0.19% 0.16% 0.09% 0.06% 0.05% 0.04% 0.04% 0.05% Time Deposits 1.18% 1.28% 1.39% 1.27% 1.23% 1.09% 0.89% 0.68% 0.64% 0.55% 0.52% Total Deposits 0.20% 0.22% 0.23% 0.22% 0.19% 0.12% 0.09% 0.07% 0.06% 0.05% 0.05% Interest-bearing Deposits 0.30% 0.33% 0.34% 0.33% 0.29% 0.20% 0.15% 0.12% 0.10% 0.08% 0.08% 28 DEPOSITS: STRENGTH IN COST OF FUNDS $446 $441 $451 $441 $419 $399 $376 $345 $328 $324 $327 $3,223 $3,121 $3,067 $3,094 $3,101 $3,363 $3,446 $3,580 $3,769 $3,824 $3,967 $1,762 $1,780 $1,777 $1,833 $1,883 $2,487 $2,518 $2,582 $2,767 $2,844 $2,943$5,430 $5,342 $5,295 $5,367 $5,403 $6,248 $6,341 $6,506 $6,863 $6,992 $7,237 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Continued growth in the volume of noninterest- bearing deposits both in terms of dollars and as a percent of total deposits. Industry leading cost of total deposits, driven by better than peer mix of non- interest-bearing deposits.
October 2021 Investor Presentation29 FINANCIALS
October 2021 Investor Presentation 65.1% 68.7% 65.4% 63.7% 59.7% 58.4% 52.9% 2015 2016 2017 2018 2019 2020 2021 30 CONSISTENT OPERATING METRICS Net Interest Margin (FTE) PPNR as % of Average Assets Efficiency Ratio ROAA 4.32% 4.23% 4.22% 4.30% 4.47% 3.96% 3.61% 2015 2016 2017 2018 2019 2020 2021 1.79% 1.60% 1.70% 1.73% 1.94% 1.83% 1.94% 2015 2016 2017 2018 2019 2020 2021 1.11% 1.02% 0.89% 1.24% 1.43% 0.91% 1.48% 2015 2016 2017 2018 2019 2020 2021 * All 2021 figures YTD through 9/30/2021, annualized.
October 2021 Investor Presentation31 WELL CAPITALIZED Tier 1 Capital Ratio Total Risk Based Capital CET1 Ratio Tangible Common Equity Ratio 9.2% 9.1% 9.3% 9.5% 10.6% 9.3% 9.1% 2015 2016 2017 2018 2019 2020 Q3 2021 12.2% 12.2% 11.7% 12.5% 13.3% 12.9% 13.2% 2015 2016 2017 2018 2019 2020 Q3 2021 13.8% 13.7% 13.2% 13.7% 14.4% 14.0% 14.2% 2015 2016 2017 2018 2019 2020 Q3 2021 15.1% 14.8% 14.1% 14.4% 15.1% 15.2% 15.4% 2015 2016 2017 2018 2019 2020 Q3 2021
October 2021 Investor Presentation32 August 0