2Q24 Financial Highlights

• Net income increased to $29.0 million or $0.87 per diluted share as compared to $27.7 million or $0.83 per diluted share in the trailing quarter
• Deposit balances increased $62.6 million or 3.1% (annualized) from the trailing quarter
• Average yield on earning assets was 5.24%, an increase of 11 basis points over the 5.13% in the trailing quarter
• Net interest margin (FTE) was 3.68% in the recent quarter, unchanged from the trailing quarter
• Non-interest bearing deposits averaged 32.0% of total deposits during the quarter
• The average cost of total deposits was 1.45%, an increase of 24 basis points as compared to 1.21% in the trailing quarter, and an increase of 87 basis points from 0.58% in the same quarter of the prior year; the Company's total cost of deposits have increased 141 basis points since FOMC rate actions began in March 2022, which translates to a cycle-to-date deposit beta of 26.9%

CHICO, Calif. -- (Business Wire)

TriCo Bancshares (NASDAQ: TCBK):

Executive Commentary:

“Our results for the second quarter continued to demonstrate TriCo’s stability and ability to operate effectively under various and changing economic environments. Our focus on core deposit growth and relationship banking continues to provide positive traction for our Bank," said Rick Smith, President and CEO. Smith further commented; "Our loan portfolio risk trends remain strong as the credit cycle continues to normalize as compared to the past several years. Borrowers continue to be responsive and supportive of our proactive efforts to manage credit risk.”

Peter Wiese, EVP and CFO added, “Our net interest margin was unchanged from the trailing quarter, a positive indicator that net interest income is poised to gain momentum in the second half of 2024. Our balance sheet strategies around deposit growth and borrowing reductions continue to be successful, and despite the modest increase in non-interest expenses during the second quarter, our full year outlook remains unchanged. In addition, our use of capital, including a cash dividend and share repurchase activities, illustrate our commitment to building shareholder value and our forward-looking confidence in the Company.”

Selected Financial Highlights

• For the quarter ended June 30, 2024, the Company’s return on average assets was 1.19%, while the return on average equity was 9.99%; for the trailing quarter ended March 31, 2024, the Company’s return on average assets was 1.13%, while the return on average equity was 9.50%.
• Diluted earnings per share were $0.87 for the second quarter of 2024, compared to $0.83 for the trailing quarter and $0.75 during the second quarter of 2023.
• The loan to deposit ratio decreased to 83.8% as of June 30, 2024, as compared to 85.1% for the trailing quarter end, as a result of both deposit growth and loan contraction during the quarter.
• The efficiency ratio was 59.61% for the quarter ended June 30, 2024, as compared to 57.36% for the trailing quarter.
• The provision for credit losses was approximately $0.4 million during the quarter ended June 30, 2024, as compared to $4.3 million during the trailing quarter end, reflecting the continued risks associated with general economic trends and forecasts, partially offset by a decline in specific reserves and loan balances.
• The allowance for credit losses (ACL) to total loans was 1.83% as of June 30, 2024, compared to 1.83% as of the trailing quarter end, and 1.80% as of June 30, 2023. Non-performing assets to total assets were 0.36% on June 30, 2024, as compared to 0.37% as of March 31, 2024, and 0.41% at June 30, 2023. At June 30, 2024, the ACL represented 377% of non-performing loans.

Financial results reported in this document are preliminary and unaudited. Final financial results and other disclosures will be reported on Form 10-Q for the period ended June 30, 2024, 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.

Operating Results and Performance Ratios

Balance Sheet Data

Total loans outstanding were $6.7 billion as of June 30, 2024, an organic increase of $221.8 million 3.4% over June 30, 2023, but a decrease of $58.2 million or 3.4% annualized as compared to the trailer quarter ended March 31, 2024. As the Company continued with its balance sheet augmentation strategies, investments decreased by $135.5 million and $399.3 million for the three and twelve month periods ended June 30, 2024 and ending the quarter with a balance of $2.09 billion or 21.4% of total assets. Quarterly average earning assets to quarterly total average assets was 92.0% on June 30, 2024, compared to 91.6% at June 30, 2023. The loan-to-deposit ratio was 83.8% on June 30, 2024, as compared to 80.6% at June 30, 2023. The Company did not utilize brokered deposits during 2024 or 2023 and continues to rely on organic deposit customers and short-term borrowings to fund cash flow timing differences.

Total shareholders' equity increased by $12.0 million during the quarter ended June 30, 2024, as net income of $29.0 million and a $2.9 million decrease in accumulated other comprehensive losses was partially offset by cash dividend payments on common stock of approximately $10.9 million and net share repurchases totaling $9.0 million. As a result, the Company’s book value grew to $35.62 per share at June 30, 2024, compared to $32.86 at June 30, 2023. 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 $26.13 per share at June 30, 2024, as compared to $23.30 at June 30, 2023. As noted above, changes in the fair value of available-for-sale investment securities, net of deferred taxes continue to create moderate levels of volatility in tangible book value per share.

Trailing Quarter Balance Sheet Change

Loans outstanding decreased by $58.2 million or 3.4% on an annualized basis during the quarter ended June 30, 2024. During the quarter, loan originations/draws totaled approximately $310.1 million while payoffs/repayments of loans totaled $368.7 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $325.5 million and $321.3 million, respectively. Origination volume activity levels remain slightly lower relative to the comparative period in 2023 due in part to disciplined pricing and underwriting, as well as decreased borrower demand given economic uncertainties. The increase in payoffs/repayments as compared to the trailing quarter was spread amongst numerous borrowers, regions and loan types.

Investment security balances decreased $135.5 million or 24.4% on an annualized basis as a result of net prepayments, and maturities, collectively totaling approximating $164.0 million and, to a lesser extent, sales totaling $28.6 million, partially offset by security purchases totaling $53.5 million, in addition to net increases in the market value of securities of $4.1 million. Investment security purchases were comprised of floating rate instruments tied to SOFR with an initial weighted average coupon of 6.77% and a weighted average life of 4.7 years. Investment security sales were primarily comprised of fixed rate instruments with a weighted average coupon of 2.39% and a weighted average life of 3.8 years. While management intends to primarily utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth, excess liquidity will be utilized for purchases of investment securities to support net interest income growth and net interest margin expansion.

Deposit balances increased by $62.6 million or 3.1% annualized during the period, led by growth within time deposits.

Other borrowings totaled $247.8 million at June 30, 2024, representing a net decrease of $144.6 million from the trailing quarter. This quarter over quarter decrease was facilitated by proceeds from the sale, call or maturity of investment securities, and growth in deposits.

Average Trailing Quarter Balance Sheet Change

Year Over Year Balance Sheet Change

Loan balances increased as a result of organic activities by approximately $221.8 million or 3.4% during the twelve-month period ending June 30, 2024. Over the same period deposit balances have declined by $45.1 million or 0.6%. The Company has offset these declines through the deployment of excess cash balances and maturity or sale of investment security balances.

Primary Sources of Liquidity

On June 30, 2024, the Company's primary sources of liquidity represented 52% of total deposits and 170% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $113.7 million, including approximately $9.0 million in net unrealized losses.

Net Interest Income and Net Interest Margin

During the twelve-month period ended June 30, 2024, the Federal Open Market Committee's (FOMC) actions have resulted in an increase in the Fed Funds Rate by approximately 25 basis points. During the same period the Company's yield on total loans increased 44 basis points to 5.82% for the three months ended June 30, 2024, from 5.38% for the three months ended June 30, 2023. The tax equivalent yield on the Company's investment security portfolio was 3.42% for the quarter ended June 30, 2024, an increase of 18 basis points from the 3.24% for the three months ended June 30, 2023. The cost of total interest-bearing deposits and total interest-bearing liabilities increased by 119 basis points and 102 basis points, respectively, between the three-month periods ended June 30, 2024 and 2023. Since FOMC rate actions began in March 2022, the Company's cost of total deposits has increased 141 basis points which translates to a cycle to date deposit beta of 26.9%.

The Company continues to manage its cost of deposits through the use of various pricing and product mix strategies. As of June 30, 2024, December 31, 2023, and June 30, 2023, deposits priced utilizing these strategies totaled $1.4 billion, $1.3 billion and $1.0 billion, respectively, and carried weighted average rates of 3.80%, 3.60%, and 3.38%, respectively.

Analysis Of Change In Net Interest Margin On Earning Assets

Net interest income (FTE) during the three months ended June 30, 2024, decreased $0.7 million or 0.9% to $82.3 million compared to $83.0 million during the three months ended March 31, 2024. Net interest margin of 3.68% remained consistent with the trailing quarter. The decrease in net interest income is primarily attributed to an additional $5.5 million or 23.3% increase in deposit interest expense due to changes in product mix, as customers continue to migrate towards higher yielding term deposit accounts. Deposit cost increases during the current quarter were also influenced by continued competitive pricing pressures. These increases in deposit costs were partially offset by a $3.3 million reduction in interest expense on other borrowings costs as the average balance of those borrowings decreased by $259.1 million during the period. Additionally, interest and fee income on loans increased $1.7 million as both rates and average balances on loans increased when compared to the trailing quarter.

As compared to the same quarter in the prior year, average loan yields increased 44 basis points from 5.38% during the three months ended June 30, 2023, to 5.82% during the three months ended June 30, 2024. The accretion of discounts from acquired loans added 5 basis points and 9 basis points to loan yields during the quarters ended June 30, 2024 and June 30, 2023, respectively. The cost of interest-bearing deposits increased by 119 basis points between the quarter ended June 30, 2024, and the same quarter of the prior year. In addition, the average balance of noninterest-bearing deposits decreased by $562.5 million from the three-month average for the period ended June 30, 2023 amidst a continued migration of customer funds to interest-bearing products.

For the quarter ended June 30, 2024, the ratio of average total noninterest-bearing deposits to total average deposits was 32.0%, as compared to 33.8% and 39.2% for the quarters ended March 31, 2024 and June 30, 2023, respectively.

Interest Rates and Earning Asset Composition

As of June 30, 2024, the Company's loan portfolio consisted of approximately $6.8 billion in outstanding principal with a weighted average coupon rate of 5.47%. During the three-month periods ending June 30, 2024, March 31, 2024, and June 30, 2023, the weighted average coupon on loan production in the quarter was 7.98%, 7.78% and 6.85%, respectively. Included in the June 30, 2024 total loans are adjustable rate loans totaling $4.2 billion, of which, $921.0 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities with fair values totaling $339.9 million which are subject to repricing on not less than a quarterly basis.

Asset Quality and Credit Loss Provisioning

During the three months ended June 30, 2024, the Company recorded a provision for credit losses of $0.4 million, as compared to $4.3 million during the trailing quarter, and $9.7 million during the second quarter of 2023.

The provision for credit losses on loans of $0.3 million during the recent quarter was the result of net charge-offs approximating $1.2 million and increases in reserves for qualitative factors, partially offset by a $0.5 million decrease in specific reserves for individually evaluated credits and other decreases in quantitative reserve requirements driven primarily by a decline in loan balances. The provision for credit losses was needed to partially replenish the allowance for credit losses on loans subsequent to processing net charge-offs during the quarter and to account for ongoing risks associated with the qualitative components of the ACL model, as compared to any significant deterioration in credit quality on the existing loan portfolio.

The allowance for credit losses (ACL) was $123.5 million or 1.83% of total loans as of June 30, 2024. For the current quarter, the qualitative components of the ACL that contributed to an increase in required reserves primarily related to uncertainty around US policy and related effects on domestic economic trends that are inconsistent with those desired by the FOMC.

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 includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and general services. Management notes the rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a recession within 12 months. While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential reductions has inhibited a change to forecasted reserve levels. As a result, management continues to believe that certain credit weaknesses 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 $13.9 million during the quarter ended June 30, 2024, to $30.4 million, as compared to $16.5 million at March 31, 2024. The majority of loans identified as past due are well-secured by collateral, and approximately $13.3 million is less than 90 days delinquent. Non-performing loans were $32.8 million at June 30, 2024, a decrease of $1.4 million from $34.2 million as of March 31, 2024, and a decrease of $4.8 million from $37.6 million as of June 30, 2023. Management continues to proactively work with these borrowers to identify actionable and appropriate resolution strategies which are customary for the industries. Of the $32.8 million loans designated as non-performing as of June 30, 2024, approximately $11.7 million are current or less than 30 days past due with respect to payments required under their existing loan agreements.

The ratio of classified loans to total loans of 1.56% as of June 30, 2024, increased 44 basis points from March 31, 2024 and increased 56 basis points from the comparative quarter ended 2023. The change in classified loans outstanding as compared to the trailing quarter totaled $21.9 million. Loans with the risk grade classification substandard increased by $28.7 million over the trailing quarter and relate primarily to five loans across two relationships totaling $25.2 million, including $18.0 million in agricultural and farmland loans and $7.2 million in non-owner occupied CRE loans. All loans within these relationships are performing as agreed and have substantial collateral support and borrower guarantees. As a percentage of total loans outstanding, classified assets remain consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic and reflect management's historically conservative approach to credit risk monitoring. The Company's combined criticized loan balances totaled $206.3 million as of June 30, 2024, an improvement of $14.5 million from June 30, 2023.

Outstanding balances on construction loans, which have historically been associated with elevated levels of risk, experienced balance reductions of $65.6 million during the current quarter. These reductions were primarily associated with $49.1 million in balances that were converted to term loans upon the completion of construction and achievement of stabilized occupancy, $44.0 million in balances that paid down or paid-off, and the offsetting balance representing new draws or originations.

Further, management has taken action to proactively assess the repayment capacity of borrowers that will likely be subject to rate resets in the near term. To date this analysis as well as management's observations of loans that have experienced a rate reset, have not resulted in the need to provide any concessions to borrowers.

As of June 30, 2024, other real estate owned consisted of 10 properties with a carrying value of approximately $2.5 million, which is unchanged from the trailing quarter end. Non-performing assets of $35.3 million at June 30, 2024, represented 0.36% of total assets, a change from the $36.7 million or 0.37% and $40.5 million or 0.41% as of March 31, 2024 and June 30, 2023, respectively.

Allocation of Credit Loss Reserves by Loan Type

In addition to the allowance for credit losses above, the Company has acquired various performing loans whose fair value as of the acquisition date was determined to be less than the principal balance owed on those loans. This difference represents the collective discount of credit, interest rate and liquidity measurements which is expected to be amortized over the life of the loans. As of June 30, 2024, the unamortized discount associated with acquired loans totaled $22.5 million, which, when combined with the total allowance for credit losses above, represents 2.26% of total loans.

Non-interest Income

Total non-interest income increased $0.10 million or 0.6% to $15.9 million during the three months ended June 30, 2024, compared to $15.8 million during the quarter ended March 31, 2024. Increased transactions that drive interchange and service fee income caused revenues from these sources to increase by $0.4 million. Asset management and commission income also increased $0.2 million, or 20.5%, due primarily to increases in assets under management. Net losses related to investment activities were realized, as the Company improved liquidity and future earnings through the sale of investment securities, the losses from which were offset by gains recognized in association with the exchange of Visa Class B shares. Other income declined by $0.3 million or 59.2% during the quarter following $0.2 million in non-recurring realized gains recorded in the trailing quarter from alternative investments.

Non-interest income increased $0.1 million or 0.8% to $15.9 million during the three months ended June 30, 2024, compared to $15.7 million during the comparative quarter ended June 30, 2023. Interchange fees earned in the second quarter of 2023 were elevated as compared to the comparable 2024 quarter due to increased customer activity. The remaining various components of non-interest income are largely consistent period over period and in-line with commentary provided above.