TriCo Bancshares Announces Quarterly Results

TriCo Bancshares (NASDAQ: TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $22,726,000 for the quarter ended March 31, 2019, compared to $23,211,000 during the trailing quarter December 31, 2018 and $13,910,000 during the quarter ended March 31, 2018. Diluted earnings per share were $0.74 for the first quarter of 2019, compared to $0.76 for the fourth quarter of 2018 and $0.60 for the first quarter of 2018.

Financial Highlights

Performance highlights and other developments for the Company during the three months ended March 31, 2019 included the following:

• For the three months ended March 31, 2019, the Company’s return on average assets was 1.41% and the return on average equity was 10.78%.
• As of March 31, 2019, the Company reached record levels of total loans, total assets and total deposits which were $4.03 billion, $6.47 billion and $5.43 billion, respectively.
• The loan to deposit ratio remained stable at 74.3% at March 31, 2019 as compared to 75.0% at December 31, 2018 and 75.2% at March 31, 2018.
• Net interest margin grew 32 basis points to 4.46% on a tax equivalent basis as compared to 4.14% in the quarter ended March 31, 2018 and decreased by 7 basis points from the trailing quarter.
• Non-interest bearing deposits as a percentage of total deposits were 32.4% at March 31, 2019, as compared to 32.8% at December 31, 2018 and 33.3% at March 31, 2018.
• The average rate of interest paid on deposits, including noninterest-bearing deposits, remained low at 0.20%, with no change from the trailing quarter and an increase of 9 basis points from the average rate paid during the same quarter of the prior year.
• Non-performing assets to total assets were 0.34% as of March 31, 2019 as compared to 0.47% and 0.54% at December 31, 2018 and March 31, 2018, respectively.
• The balance of nonperforming loans decreased by $7.9 million and recoveries on previously charged-off loans significantly contributed to the $1.6 million reversal of the allowance for loan losses during the period.
• The efficiency ratio increased slightly to 60.1% as compared to the trailing quarter, which had an efficiency ratio of 59.1%.

President and CEO, Rick Smith commented, “Our strategic focus on process improvement and efficiency through the use of technology, investments in the next generation of our leadership teams, and our commitment to delivering service with solutions to our customers remain as the keys to the continued success of the Company. With the storm filled weeks of winter behind us, we remain optimistic about the growth possibilities throughout the markets that we serve.”

Smith continued, “Regardless of the local, national or global economic and political volatility that transpires, we believe that TriCo’s strengths including our low cost of funds, overall credit quality and access to liquidity provide us with significant competitive advantages.”

Summary Results

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

Balance Sheet

Deposit growth of $63,796,000 or 4.8% on an annualized basis during the first quarter of 2019 continued to provide benefit to the overall organic growth in total assets of $88,469,000 (5.6% annualized).

Total average assets increased by $78,473,000 (5.0% annualized) to $6,426,227,000 and total average deposits increased by $151,049,000 (11.5% annualized) to $5,393,188,000 as compared to the trailing quarter.

In addition to the balance sheet changes which resulted from the acquisition of FNB Bancorp, total assets grew by $228,695,000 (4.8%) between March 2018 and March 2019. This growth was led by $129,915,000 (4.2%) of organic loan growth which was funded by $353,923,000 (8.7%) in organic deposit growth.

Total equity increased to $853,278,000 at March 31, 2019 as compared to $827,373,000 at the close of the trailing quarter and inclusive of $8,927,000 and $17,879,000 in accumulated other comprehensive loss at the same periods, respectively. As a result, the Company’s book value per share increased to $28.04 at March 31, 2019 from $27.20 per share at December 31, 2018. The Company’s tangible book value per share, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, increased to $19.86 per share at March 31, 2019 from $18.97 per share at December 31, 2018. Excluding accumulated other comprehensive losses from total equity for both quarters, tangible book value per share increased to $20.16 at March 31, 2019 from $19.56 at December 31, 2018.

Net Interest Income and Net Interest Margin

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

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. During the three months ended March 31, 2019, December 31, 2018 and March 31, 2018, purchased loan discount accretion was $1,655,000, $1,982,000, and $632,000, respectively. During the three months ended March 31, 2019, loans purchased at net premiums several years ago were repaid prior to expected maturity resulting in approximately $259,000 of accelerated amortization.

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

Net interest income (FTE) during the three months ended March 31, 2019 decreased $132,000 or 0.2% to $64,192,000 compared to $64,324,000 during the three months ended December 31, 2018. The generally static level of net interest income (FTE) was due primarily to negligible changes in the average balances and mix of interest earnings assets and interest bearing liabilities during the quarter but negatively impacted by the repayment of loans prior to anticipated maturity that were acquired for net premiums.

The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, has increased by 1.50% to 5.50% at March 31, 2019 as compared to 4.00% at March 31, 2018. The most recent increase of the index was during December 2018, with an increase of 25 basis points. As such, there were minimal changes to loan yields as compared to the trailing quarter. However, as compared to the same quarter in the prior year, average loan yields increased 38 basis points from 5.03% during the three months ended March 31, 2018 to 5.41% during the three months ended March 31, 2019. Of the 38 basis point increase in yields on loans, 30 basis points was attributable to increases in market rates while 8 basis points was from increased accretion of purchased loans.

The impact of changes in rates and volumes of interest bearing liabilities resulted in a decrease in interest expense of $476,000 during the current quarter. Declines in interest expense on other borrowings contributed to $626,000 of the decrease which was partially offset by a $109,000 increase in interest expense on time deposits and an additional $25,000 in expense on variable rate junior subordinated debt. Comparing the quarter ended March 31, 2019 to the trailing quarter, the total cost of interest bearing liabilities decreased by 5 basis points to 0.39% but increased 9 basis points from the same quarter in the prior year due in part to differences in market rates associated with deposits acquired from First National Bank of Northern California and to increases in the variable rates paid on other borrowings and subordinated debt.

Asset Quality and Loan Loss Provisioning

The Company recorded a benefit from the reversal of provision for loan losses of $1,600,000 during the three months ended March 31, 2019 as compared to a benefit from the reversal of provision of $236,000 in the same quarter of the prior year. The benefit from the reversal of the provision was necessitated in part by $1,082,000 in net recoveries on previously charged-off loans during the first quarter of 2019 as compared to net charge-offs of $114,000 in the first quarter of 2018. Additionally, while the Company remains cautious about the risks associated with trends in California real estate prices and the affordability of housing in the markets served by the Company, changes in affordability and energy related index rates improved during the quarter ended March 31, 2019. The qualitative factors associated with these two measures reduced the level of calculated required reserves by approximately $1,059,000.

Provision for Income Taxes

The Company’s effective tax rate was 28.6% for the quarter ended March 31, 2019 as compared to 28.1% for the same quarter in the prior year. As previously reported, the Company’s effective tax rate was 24.0% for the quarter ended December 31, 2018 which was benefited by certain tax method elections. Absent the benefits made possible through these elections, the Company’s effective tax rate would have been 27.5% for the quarter ended December 31, 2018.

Non-interest Income

The following table presents the key components of noninterest income for the periods indicated:

Noninterest income decreased $426,000 (3.5%) to $11,864,000 during the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The decrease in noninterest income was due primarily to a $756,000 (681.1%) decrease in the fair value of mortgage servicing rights, $234,000 (26.7%) decrease in asset management and commission income, $214,000 (34.2%) decrease in gain on sale of loans, and a $272,000 (73.3%) decrease on the gain on sale of foreclosed assets. Offsetting the decreases in non-interest income was an increase in ATM and interchange fees of $346,000 (8.2%), an increase in service charges on deposit accounts of $101,000 (2.7%), and an increase in the cash value of life insurance of $167,000 (27.5%). The fair value of the mortgage servicing asset decreased as compared to the first quarter in the prior year due to changes in the assumptions utilized in determining the fair value. Specifically, increased prepayment speeds and decreases in the 15 and 30 year mortgage rates were the largest contributors to the decline in fair value of the mortgage servicing asset.

Noninterest income decreased $770,000 (6.1%) to $11,864,000 during the three months ended March 31, 2019 compared to the three months ended December 31, 2018. The decrease in noninterest income was due primarily to a $1,062,000 (10.5%) decrease in total service charges and fees, which comprised primarily of a $461,000 (250.5%) decrease in the fair value of the mortgage servicing rights and $333,000 (6.8%) decrease in ATM and interchange fees. Partially offsetting the decreases in non-interest income was an increase in other miscellaneous income of $358,000 (238.7%).

Non-interest Expense

The following table presents the key components of the Company’s noninterest expense for the periods indicated:

Salary and benefit expenses increased $3,476,000 (16.1%) to $25,128,000 during the three months ended March 31, 2019 compared to $21,652,000 during the three months ended March 31, 2018. Base salaries, net of deferred loan origination costs increased $2,795,000 (20.0%) to $16,757,000. The increase in base salaries was due primarily to a 13.6% increase in average full time equivalent employees to 1,138 from 1,002 in the year-ago quarter. Commissions and incentive compensation increased $115,000 (4.7%) to $2,567,000 during the three months ended March 31, 2019 compared to the year-ago quarter due primarily to organic loan and deposit growth. Benefits & other compensation expense increased $566,000 (10.8%) to $5,804,000 during the three months ended March 31, 2019 due primarily to increases in the average full time equivalent employees, as mentioned above.

Other noninterest expense increased $3,875,000 (23.5%) to $20,385,000 during the three months ended March 31, 2019 compared to the three months ended March 31, 2018. The increase in other noninterest expense was due primarily to increased overhead operating costs related to the additional branches as a result of the prior year acquisition of FNB Bancorp. Highlighting those increases were intangible amortization, occupancy, data processing and software, and advertising expenses, which increased by $1,092,000, $1,093,000, $835,000 and $493,000, respectively, as compared to the prior year quarter. The increases in noninterest expenses were partially offset by decreased merger & acquisition expenses of $476,000.

Salary and benefit expenses increased $114,000 (0.5%) to $25,128,000 during the three months ended March 31, 2019 compared to $25,014,000 during the three months ended December 31, 2018. Base salaries, net of deferred loan origination costs decreased $223,000 (1.3%) to $16,757,000. Commissions and incentive compensation decreased $746,000 (22.5%) to $2,567,000 during the three months ended March 31, 2019 compared to the trailing quarter due primarily to lack of organic loan and deposit growth. Benefits & other compensation expense increased $1,083,000 (22.9%) to $5,804,000 during the three months ended March 31, 2019 due primarily to increases in group insurance and employer taxes.

Other noninterest expense increased $114,000 (0.6%) to $20,385,000 during the three months ended March 31, 2019 compared to the trailing quarter. Increases in occupancy, data processing and software, and equipment were offset by decrease in professional fees, operational losses, and courier service.

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 ATM, online and mobile banking access. Brokerage services are provided by the Bank’s investment services 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; mergers and acquisitions; changes in the level of our nonperforming assets and charge-offs; 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 deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; the impact of competition from other financial service providers; the possibility that any of the anticipated benefits of our recent merger with FNBB will not be realized or will not be realized within the expected time period, or that integration of FNBB’s operations will be more costly or difficult than expected; the challenges of integrating and retaining key employees; unanticipated regulatory or judicial proceedings; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2018, which is on file with the Securities and Exchange Commission (the “SEC”) and 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.

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