TriCo Bancshares Announces Quarterly Results

CHICO, Calif.--()--TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $7,430,000 for the quarter ended June 30, 2020, compared to $16,121,000 during the trailing quarter ended March 31, 2020 and $23,061,000 during the quarter ended June 30, 2019. Diluted earnings per share were $0.25 for the second quarter of 2020, compared to $0.53 for the first quarter of 2020 and $0.75 for the second quarter of 2019.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three months ended June 30, 2020 included the following:

  • For the three and six months ended June 30, 2020, the Company’s return on average assets was 0.43% and 0.70%, respectively, and the return on average equity was 3.39% and 5.06%, respectively.
  • As of June 30, 2020, the Company reported total loans, total assets and total deposits of $4.80 billion, $7.36 billion and $6.25 billion, respectively.
  • The loan to deposit ratio was 76.84% as of June 30, 2020, as compared to 81.05% at March 31, 2020 and 76.82% at June 30, 2019.
  • The Company originated and funded 2,908 loans totaling $436.7 million under the Payment Protection Program (PPP).
  • For the current quarter, net interest margin was 4.10% on a tax equivalent basis as compared to 4.50% in the quarter ended June 30, 2019, and a decrease of 24 basis points from the 4.34% in the trailing quarter.
  • Non-interest bearing deposits as a percentage of total deposits were 39.81% at June 30, 2020, as compared to 34.86% at March 31, 2020 and 33.33% at June 30, 2019.
  • The average rate of interest paid on deposits, including non-interest-bearing deposits, decreased to 0.12% for the second quarter of 2020 as compared with 0.19% for the trailing quarter, and also decreased by ten basis points from the average rate paid of 0.22% during the same quarter of the prior year.
  • Non-performing assets to total assets were 0.31% at June 30, 2020, as compared to 0.31% as of March 31, 2020, and 0.35% at June 30, 2019.
  • Credit provision expense for loans and debt securities was $22.1 million during the quarter ended June 30, 2020, as compared to provision expense of $8.0 million during the trailing quarter ended March 31, 2020, and $0.5 million for the three month period ended June 30, 2019.
  • Gain on sale of loans for the three and six months ended June 30, 2020 totaled $1,736,000 and $2,627,000, as compared to $891,00 and $987,000 for the equivalent periods ended June 30, 2019, respectively.
  • The efficiency ratio was 59.89% for the second quarter of 2020, as compared to 59.75% in the trailing quarter and 60.07% in the same quarter of the 2019 year.

President and CEO, Rick Smith commented, “While these unprecedented times have created challenges for our customers and the communities we serve, we are hopeful that their actions and those of our civic leaders will lessen the long-term economic and social impacts that would otherwise result. In the midst of these challenges, the Bank continues to be proactive in our approach to ensuring our financial strength and ability to meet the needs and expectations of our customers, shareholders and employees. More specifically, given the outlook of unemployment data, we believe that it was prudent to increase our loan loss reserves despite the overall positive credit quality characteristics that our loan portfolio has demonstrated in the first half of the year. In addition, while the habits of our customers have impacted certain revenues, such as those associated with interchange fees, we are benefiting from other revenue opportunities including but not limited to those associated with the origination and sale of home mortgages.”

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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 June 30, 2020, 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 six months ended June 30, 2020 the Company’s return on average assets was 0.43% and 0.70%, respectively, and the return on average equity was 3.39% and 5.06%, respectively. For the three and six months ended June 30, 2019, the Company’s return on average assets was 1.45% and 1.43%, respectively, and the return on average equity was 10.68% and 10.71%, 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

 

 

 

 

 

 

June 30,

 

March 31,

 

 

 

 

(dollars and shares in thousands)

 

2020

 

2020

 

$ Change

 

% Change

Net interest income

 

$

64,659

 

 

$

63,192

 

 

$

1,467

 

 

2.3

%

Provision for loan losses

 

(22,089

)

 

(8,000

)

 

(14,089

)

 

176.1

%

Noninterest income

 

11,657

 

 

11,820

 

 

(163

)

 

(1.4

)%

Noninterest expense

 

(45,705

)

 

(44,819

)

 

(886

)

 

2.0

%

Provision for income taxes

 

(1,092

)

 

(6,072

)

 

4,980

 

 

(82.0

)%

Net income

 

$

7,430

 

 

$

16,121

 

 

$

(8,691

)

 

(53.9

)%

Diluted earnings per share

 

$

0.25

 

 

$

0.53

 

 

$

(0.28

)

 

(52.8

)%

Dividends per share

 

$

0.22

 

 

$

0.22

 

 

$

 

 

0.0

%

Average common shares

 

29,754

 

 

30,395

 

 

(641

)

 

(2.1

)%

Average diluted common shares

 

29,883

 

 

30,523

 

 

(640

)

 

(2.1

)%

Return on average total assets

 

0.43

%

 

1.00

%

 

 

 

 

Return on average equity

 

3.39

%

 

7.14

%

 

 

 

 

Efficiency ratio

 

59.89

%

 

59.75

%

 

 

 

 

   

 

 

Three months ended
June 30,

 

 

 

 

(dollars and shares in thousands)

 

2020

 

2019

 

$ Change

 

% Change

Net interest income

 

$

64,659

 

 

$

64,315

 

 

$

344

 

 

0.5

%

Provision for loan losses

 

(22,089

)

 

(537

)

 

(21,552

)

 

4,013.4

%

Noninterest income

 

11,657

 

 

13,423

 

 

(1,766

)

 

(13.2

)%

Noninterest expense

 

(45,705

)

 

(46,697

)

 

992

 

 

(2.1

)%

Provision for income taxes

 

(1,092

)

 

(7,443

)

 

6,351

 

 

(85.3

)%

Net income

 

$

7,430

 

 

$

23,061

 

 

$

(15,631

)

 

(67.8

)%

Diluted earnings per share

 

$

0.25

 

 

$

0.75

 

 

$

(0.50

)

 

(66.7

)%

Dividends per share

 

$

0.22

 

 

$

0.19

 

 

$

0.03

 

 

15.8

%

Average common shares

 

29,754

 

 

30,458

 

 

(704

)

 

(2.3

)%

Average diluted common shares

 

29,883

 

 

30,643

 

 

(760

)

 

(2.5

)%

Return on average total assets

 

0.43

%

 

1.45

%

 

 

 

 

Return on average equity

 

3.39

%

 

10.68

%

 

 

 

 

Efficiency ratio

 

59.89

%

 

60.07

%

 

 

 

 

   

 

 

Six months ended
June 30,

 

 

 

 

(dollars and shares in thousands)

 

2020

 

2019

 

$ Change

 

% Change

Net interest income

 

$

127,851

 

 

$

128,185

 

 

$

(334

)

 

(0.3

)%

(Provision for) reversal of loan losses

 

(30,088

)

 

1,063

 

 

(31,151

)

 

%

Noninterest income

 

23,477

 

 

25,226

 

 

(1,749

)

 

(6.9

)%

Noninterest expense

 

(90,525

)

 

(92,149

)

 

1,624

 

 

(1.8

)%

Provision for income taxes

 

(7,164

)

 

(16,538

)

 

9,374

 

 

(56.7

)%

Net income

 

$

23,551

 

 

$

45,787

 

 

$

40,066

 

 

(48.6

)%

Diluted earnings per share

 

$

0.78

 

 

$

1.49

 

 

$

(0.71

)

 

27.8

%

Dividends per share

 

$

0.44

 

 

$

0.38

 

 

$

0.06

 

 

17.6

%

Average common shares

 

30,074

 

 

30,441

 

 

(367

)

 

(1.2

)%

Average diluted common shares

 

30,203

 

 

30,650

 

 

(447

)

 

(1.5

)%

Return on average total assets

 

0.70

%

 

1.43

%

 

 

 

 

Return on average equity

 

5.06

%

 

10.71

%

 

 

 

 

Efficiency ratio

 

59.82

%

 

60.07

%

 

 

 

 

SBA Paycheck Protection Program

In March 2020 the SBA Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis. As a Small Business Administration (SBA) Preferred Lender, the Company was able to provide PPP loans to small business customers. During the quarter ended June 30, 2020, the Company originated more than 2,900 loans under the PPP program, with a total balance outstanding of $423,431,000 as of quarter end. In connection with the origination of these loans, the Company earned approximately $15,680,000 in loan fees that will be amortized over the two-year term of the loans, offset by deferred loan costs of approximately $756,000. During the three and six months ended June 30, 2020, interest and fee income recognized from PPP loans totaled $2,356,000, which was inclusive of $1,626,000 in net deferred fee accretion.

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 Company is closely monitoring the effects of the pandemic on our loan and deposit customers. Our management team continues to be focused on assessing the risks in our loan portfolio and working with our customers to mitigate where possible, the risk of potential losses. The Company implemented loan programs to allow certain consumers and businesses impacted by the pandemic to defer loan principal and interest payments.

The following is a summary of COVID related loan customer modifications as of June 30, 2020:

 

 

 

 

 

Modification Type

 

Deferral Term

(dollars in thousands)

Balance of
Modified
Loans

 

% of Total
Category of
Loans

 

Interest Only
Deferral

 

Principal and
Interest
Deferral

 

90 Days

 

180 Days

 

Other

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

CRE non-owner occupied

$

213,394

 

13.4

%

 

10.1

%

 

89.9

%

 

46.7

%

 

53.1

%

 

0.2

%

CRE owner occupied

 

37,816

 

6.5

%

 

18.3

%

 

81.7

%

 

17.4

%

 

82.7

%

 

%

Multifamily

 

13,776

 

2.4

%

 

%

 

100.0

%

 

46.0

%

 

54.0

%

 

%

Farmland

 

2,102

 

1.4

%

 

26.1

%

 

73.9

%

 

%

 

100.0

%

 

%

Total commercial real estate loans

 

267,088

 

9.2

%

 

10.9

%

 

89.2

%

 

42.1

%

 

57.7

%

 

0.2

%

Consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

SFR 1-4 1st lien

 

34,742

 

6.9

%

 

1.3

%

 

98.7

%

 

97.1

%

 

2.9

%

 

%

SFR HELOCs and junior liens

 

8,275

 

2.3

%

 

76.1

%

 

23.9

%

 

93.3

%

 

6.7

%

 

%

Other

 

4,629

 

5.7

%

 

%

 

100.0

%

 

100.0

%

 

%

 

%

Total consumer loans

 

47,646

 

5.0

%

 

14.2

%

 

85.8

%

 

96.7

%

 

3.3

%

 

%

Commercial and industrial

 

19,831

 

3.1

%

 

24.5

%

 

75.5

%

 

23.8

%

 

75.9

%

 

0.3

%

Construction

 

6,349

 

2.3

%

 

%

 

100.0

%

 

100.0

%

 

%

 

%

Agriculture production

 

 

%

 

%

 

%

 

%

 

%

 

%

Leases

 

 

%

 

%

 

%

 

%

 

%

 

%

Total modifications

$

340,915

 

7.1

%

 

11.9

%

 

88.1

%

 

49.8

%

 

50.1

%

 

0.2

%

Management has evaluated its COVID relief modifications to various industries which may have an increased level of risk exposure as a result of the economic conditions brought about by the pandemic. As of June 30, 2020 those modifications included the following:

 

 

Total Loan
Balances
Outstanding

 

Balance of
Modified Loans

 

% of Total Segment
of Loans

 

% of Total COVID
Loan Modifications

(dollars in thousands)

 

 

 

 

Hotel, recreation and leisure

 

$

225,604

 

 

$

105,920

 

47.0

%

 

31.1

%

Healthcare

 

65,261

 

 

6,169

 

9.5

%

 

1.8

%

Retail

 

74,174

 

 

678

 

0.9

%

 

0.2

%

Restaurants, bars and catering

 

55,551

 

 

9,771

 

17.6

%

 

2.9

%

Gas stations

 

47,383

 

 

 

%

 

%

Trucking and transportation

 

32,828

 

 

759

 

2.3

%

 

0.2

%

Grocery and beverage stores

 

24,852

 

 

222

 

0.9

%

 

0.1

%

Personal and professional services

 

19,146

 

 

501

 

2.6

%

 

0.2

%

Nursing and residential care facilities

 

19,882

 

 

 

%

 

%

Education

 

13,674

 

 

971

 

7.1

%

 

0.3

%

Childcare

 

2,452

 

 

 

%

 

%

Total

 

$

580,807

 

 

$

124,991

 

n/a

 

 

36.7

%

Balance Sheet

Total loans outstanding grew to $4.80 billion as of June 30, 2020, an increase of 17.0% over the same quarter of the prior year, and an annualized increase of 38.6% over the trailing quarter. Investments outstanding declined to $1.35 billion as of June 30, 2020, a decrease of 8.2% annualized over the trailing quarter as the result of prepayments and maturities. Average earning assets to total average assets continued to increase slightly to 90.6% at June 30, 2020, as compared to 90.4% and 90.3% at March 31, 2020, and June 30, 2019 respectively. The Company's loan to deposit ratio was 76.8% at June 30, 2020, as compared to 81.1% and 76.8% at March 31, 2020, and June 30, 2019 respectively.

Total shareholders' equity increased by $19,260,000 during the quarter ended June 30, 2020 primarily as a result of an improvement in unrealized gains (losses), net of tax, on investment securities totaling $25,751,000 and net income of $7,430,000, partially offset by $8,009,000 in common stock repurchases. As a result, the Company’s book value was $29.76 per share at June 30, 2020 as compared to $28.91 and $28.71 at March 31, 2020, and June 30, 2019, respectively. 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, was $21.64 per share at June 30, 2020 as compared to $20.76 and $20.60 at March 31, 2020, and June 30, 2019, respectively.

Trailing Quarter Balance Sheet Change

Ending balances

As of June 30,

 

As of March 31,

 

$ Change

 

Annualized
% Change

($‘s in thousands)

2020

 

2020

 

Total assets

$

7,360,071

 

 

$

6,474,309

 

 

$

885,762

 

 

54.7

%

Total loans

4,801,405

 

 

4,379,062

 

 

422,343

 

 

38.6

%

Total loans, excluding PPP

4,377,974

 

 

4,379,062

 

 

(1,088

)

 

(0.1

)%

Total investments

1,353,728

 

 

1,382,026

 

 

(28,298

)

 

(8.2

)%

Total deposits

$

6,248,258

 

 

$

5,402,698

 

 

$

845,560

 

 

62.6

%

Loan growth of $422,343,000 or 38.6% on an annualized basis during the second quarter of 2020 was primarily attributed to the PPP program, as total loan balances, excluding PPP, were effectively unchanged during the quarter ended June 30, 2020. Growth of deposit balances during the second quarter of 2020 were $845,560,000 or 62.6% annualized. Expansion of Federal stimulus programs and the delay of 2019 income tax payments likely attributed to the significant deposit growth during the quarter.

Average Trailing Quarter Balance Sheet Change

Qtrly avg balances

As of June 30,

 

As of March 31,

 

$ Change

 

Annualized
% Change

($‘s in thousands)

2020

 

2020

 

Total assets

$

7,027,735

 

 

$

6,506,587

 

 

$

521,148

 

 

32.0

%

Total loans

4,656,050

 

 

4,329,357

 

 

326,693

 

 

30.2

%

Total loans, excluding PPP

4,363,481

 

 

4,329,357

 

 

34,124

 

 

3.2

%

Total investments

1,371,733

 

 

1,354,664

 

 

17,069

 

 

5.0

%

Total deposits

$

5,937,294

 

 

$

5,395,933

 

 

$

541,361

 

 

40.1

%

The growth in average loans of $326,693,000, or 30.2% on an annualized basis, during the second quarter of 2020 was well above the annual year over year growth rate of 17.0%, but below the annualized quarterly growth of 38.6%. Despite the significant volume of PPP loans originated during the second quarter, the Company was also able to generate core loan growth with the average balance of non-PPP loans by increasing by $34,124,000 or an annualized growth of 3.2%, during the period.

Year Over Year Balance Sheet Change

Ending balances

As of June 30,

 

 

 

 

 

($'s in thousands)

2020

 

2019

 

$ Change

 

 

% Change

Total assets

$

7,360,071

 

 

$

6,395,172

 

 

$

964,899

 

 

 

15.1

%

Total loans

4,801,405

 

 

4,103,687

 

 

697,718

 

 

 

17.0

%

Total loans, excluding PPP

4,377,974

 

 

4,103,687

 

 

274,287

 

 

 

6.7

%

Total investments

1,353,728

 

 

1,566,720

 

 

(212,992

)

 

 

(13.6

)%

Total deposits

$

6,248,258

 

 

$

5,342,173

 

 

$

906,085

 

 

 

17.0

%

As discussed above, the PPP program has generated significant increases in volume during the second quarter ended June 30, 2020 for loan and deposit balances. Excess deposit proceeds have been temporarily allocated to cash and due from banks, which increased to $705,852,000 at June 30, 2020 from $175,582,000 as of June 20, 2019. Investment securities declined to $1,353,728,000, a change of $212,992,000 or 13.6% from $1,566,720,000, due to the accelerated rate of prepayment or maturity of these debt instruments during the period, and the Company's desire to migrate a greater percentage of its earning assets to loans. Total loans as a percentage of earning assets were 75.4% as of June 30, 2020, an increase of 4.2% over the June 30, 2019 ratio of 71.2%.

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

 

 

 

 

 

June 30,

 

March 31,

 

 

 

 

(dollars in thousands)

2020

 

2020

 

$ Change

 

% Change

Interest income

$

67,148

 

 

$

66,517

 

 

$

631

 

 

0.9

%

Interest expense

(2,489

)

 

(3,325

)

 

836

 

 

(25.1

)%

Fully tax-equivalent adjustment (FTE) (1)

286

 

 

271

 

 

15

 

 

5.5

%

Net interest income (FTE)

$

64,945

 

 

$

63,463

 

 

$

1,482

 

 

2.3

%

Net interest margin (FTE)

4.10

%

 

4.34

%

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans discount accretion, net:

 

 

 

 

 

 

 

Amount (included in interest income)

$

2,587

 

 

$

1,748

 

 

$

839

 

 

48.0

%

Effect on average loan yield

0.24

%

 

0.16

%

 

 

 

 

Effect on net interest margin (FTE)

0.16

%

 

0.12

%

 

 

 

 

Net interest margin less effect of acquired loan discount accretion

3.94

%

 

4.22

%

 

 

 

 

PPP loans yield:

 

 

 

 

 

 

 

Amount (included in interest income)

$

2,356

 

 

%

 

$

2,356

 

 

n/m

 

Effect on net interest margin (FTE)

(0.04

)%

 

%

 

 

 

 

Net interest margin less effect of PPP loan yield

4.14

%

 

%

 

 

 

 

 

Three months ended
June 30,

 

 

 

 

(dollars in thousands)

2020

 

2019

 

$ Change

 

% Change

Interest income

$

67,148

 

 

$

68,180

 

 

$

(1,032

)

 

(1.5

)%

Interest expense

(2,489

)

 

(3,865

)

 

1,376

 

 

(35.6

)%

Fully tax-equivalent adjustment (FTE) (1)

286

 

 

298

 

 

(12

)

 

(4.0

)%

Net interest income (FTE)

$

64,945

 

 

$

64,613

 

 

$

332

 

 

0.5

%

Net interest margin (FTE)

4.10

%

 

4.50

%

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans discount accretion, net:

 

 

 

 

 

 

 

Amount (included in interest income)

$

2,587

 

 

$

1,904

 

 

$

683

 

 

35.9

%

Effect on average loan yield

0.24

%

 

0.19

%

 

 

 

 

Effect on net interest margin (FTE)

0.16

%

 

0.13

%

 

 

 

 

Net interest margin less effect of acquired loan discount accretion

3.94

%

 

4.37

%

 

 

 

 

 

Six months ended
June 30,

 

 

 

 

(dollars in thousands)

2020

 

2019

 

$ Change

 

% Change

Interest income

$

133,665

 

 

$

135,637

 

 

$

(1,972

)

 

(1.5

)%

Interest expense

(5,814

)

 

(7,452

)

 

1,638

 

 

(22.0

)%

Fully tax-equivalent adjustment (FTE) (1)

557

 

 

619

 

 

(62

)

 

(10.0

)%

Net interest income (FTE)

$

128,408

 

 

$

128,804

 

 

$

(396

)

 

(0.3

)%

Net interest margin (FTE)

4.22

%

 

4.51

%

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans discount accretion, net:

 

 

 

 

 

 

 

Amount (included in interest income)

$

4,335

 

 

$

3,559

 

 

$

776

 

 

21.8

%

Effect on average loan yield

0.20

%

 

0.17

%

 

 

 

 

Effect on net interest margin (FTE)

0.14

%

 

0.12

%

 

 

 

 

Net interest margin less effect of acquired loan discount accretion

4.08

%

 

4.39

%

 

 

 

 

PPP loans yield:

 

 

 

 

 

 

 

Amount (included in interest income)

$2,356

 

 

 

 

$

2,356

 

 

n/m

 

Effect on net interest margin (FTE)

(0.03

)%

 

 

 

 

 

 

Net interest margin less effect of PPP loan yield

4.25

%

 

 

 

 

 

 

(1)

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

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. As a result of the uncertain economic environment and corresponding rate volatility, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, increased during the second quarter of 2020. During the three months ended June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019, purchased loan discount accretion was $2,587,000, $1,748,000, $2,218,000, and $2,360,000, respectively. Net accretion for the quarter ended March 31, 2019 was reduced by $259,000 from the early repayment of loans purchased at a premium several years ago.

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

 

June 30, 2020

 

March 31, 2020

 

June 30, 2019

 

Average
Balance

 

Income/
Expense

 

Yield/
Rate

 

Average
Balance

 

Income/
Expense

 

Yield/
Rate

 

Average
Balance

 

Income/
Expense

 

Yield/
Rate

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, excluding PPP

$

4,363,481

 

 

$

56,053

 

 

5.17

%

 

$

4,329,357

 

 

$

56,258

 

 

5.23

%

 

$

4,044,044

 

 

$

55,492

 

 

5.50

%

PPP loans

292,569

 

 

2,356

 

 

3.24

%

 

 

 

 

 

%

 

 

 

 

 

%

Investments-taxable

1,251,873

 

 

7,689

 

 

2.47

%

 

1,235,672

 

 

8,572

 

 

2.79

%

 

1,432,550

 

 

10,762

 

 

3.01

%

Investments-nontaxable (1)

119,860

 

 

1,238

 

 

4.15

%

 

118,992

 

 

1,175

 

 

3.97

%

 

140,562

 

 

1,358

 

 

3.88

%

Total investments

1,371,733

 

 

8,927

 

 

2.62

%

 

1,354,664

 

 

9,747

 

 

2.89

%

 

1,573,112

 

 

12,120

 

 

3.09

%

Cash at Federal Reserve and other banks

338,082

 

 

98

 

 

0.12

%

 

199,729

 

 

783

 

 

1.58

%

 

147,810

 

 

866

 

 

2.35

%

Total earning assets

6,365,865

 

 

67,434

 

 

4.26

%

 

5,883,750

 

 

66,788

 

 

4.57

%

 

5,764,966

 

 

68,478

 

 

4.76

%

Other assets, net

661,870

 

 

 

 

 

 

622,837

 

 

 

 

 

 

620,923

 

 

 

 

 

Total assets

$

7,027,735

 

 

 

 

 

 

$

6,506,587

 

 

 

 

 

 

$

6,385,889

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

$

1,293,007

 

 

64

 

 

0.02

%

 

$

1,245,896

 

 

169

 

 

0.05

%

 

$

1,276,388

 

 

$

289

 

 

0.09

%

Savings deposits

1,968,374

 

 

644

 

 

0.13

%

 

1,864,967

 

 

1,062

 

 

0.23

%

 

1,888,234

 

 

1,306

 

 

0.28

%

Time deposits

409,242

 

 

1,105

 

 

1.09

%

 

430,064

 

 

1,320

 

 

1.23

%

 

441,116

 

 

1,404

 

 

1.28

%

Total interest-bearing deposits

3,670,623

 

 

1,813

 

 

0.20

%

 

3,540,927

 

 

2,551

 

 

0.29

%

 

3,605,738

 

 

2,999

 

 

0.33

%

Other borrowings

26,313

 

 

4

 

 

0.06

%

 

22,790

 

 

5

 

 

0.09

%

 

17,963

 

 

37

 

 

0.83

%

Junior subordinated debt

57,372

 

 

672

 

 

4.71

%

 

57,272

 

 

769

 

 

5.40

%

 

57,222

 

 

829

 

 

5.81

%

Total interest-bearing liabilities

3,754,308

 

 

2,489

 

 

0.27

%

 

3,620,989

 

 

3,325

 

 

0.37

%

 

3,680,923

 

 

3,865

 

 

0.42

%

Noninterest-bearing deposits

2,266,671

 

 

 

 

 

 

1,855,006

 

 

 

 

 

 

1,765,141

 

 

 

 

 

Other liabilities

126,351

 

 

 

 

 

 

121,959

 

 

 

 

 

 

73,541

 

 

 

 

 

Shareholders’ equity

880,405

 

 

 

 

 

 

908,633

 

 

 

 

 

 

866,284

 

 

 

 

 

Total liabilities and shareholders’ equity

$

7,027,735

 

 

 

 

 

 

$

6,506,587

 

 

 

 

 

 

$

6,385,889

 

 

 

 

 

Net interest rate spread (1) (2)

 

 

 

 

3.99

%

 

 

 

 

 

4.20

%

 

 

 

 

 

4.34

%

Net interest income and margin (1) (3)

 

 

$

64,945

 

 

4.10

%

 

 

 

$

63,463

 

 

4.34

%

 

 

 

$

64,613

 

 

4.50

%

(1)

Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.

(2)

Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.

(3)

Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

Net interest income (FTE) during the three months ended June 30, 2020 increased $1,482,000 or 2.3% to $64,945,000 compared to $63,463,000 during the three months ended March 31, 2020. Over the same period net interest margin declined 24 basis points to 4.10% as compared to 4.34% in the trailing quarter. The decline in net interest income (FTE) was due primarily to a decline in yield on interest earning assets, which was 4.26% for the quarter ended June 30, 2020, which represents a decrease of 31 basis points over the trailing quarter and a decrease of 50 basis points over the same quarter in the prior year. The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, remained unchanged during the quarter ended June 30, 2020 but decreased by 150 basis points during the prior quarter to 3.25% at March 31, 2020, continuing the downward trend as compared to 4.75% at December 31, 2019 and 5.50% at June 30, 2019.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, decreased 33 basis points from 5.50% during the three months ended June 30, 2019 to 5.17% during the three months ended June 30, 2020. Of the 33 basis point decrease in yields on loans during the comparable three month period ended June 30, 2020 and 2019, 34 basis points was attributable to decreases in market rates while 1 basis point was gained from the accretion of purchased loan discounts.

The decline in interest expense is primarily attributed to the reduction in the cost of interest bearing liabilities, which decreased by 10 basis points as of June 30, 2020 to 0.27% from 0.37% at March 31, 2020, as a direct result of the aforementioned declining interest rate environment.

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS

(unaudited, dollars in thousands)

 

Six months ended June 30, 2020

 

Six months ended June 30, 2019

 

Average
Balance

 

Income/
Expense

 

Yield/
Rate

 

Average
Balance

 

Income/
Expense

 

Yield/
Rate

Assets

 

 

 

 

 

 

 

 

 

 

 

Loans, excluding PPP

$

4,346,419

 

 

$

112,311

 

 

5.20

%

 

$

4,033,954

 

 

$

109,889

 

 

5.49

%

PPP loans

146,285

 

 

2,356

 

 

3.24

%

 

 

 

 

 

%

Investments-taxable

1,235,672

 

 

16,261

 

 

2.65

%

 

1,428,951

 

 

21,677

 

 

3.06

%

Investments-nontaxable (1)

118,992

 

 

2,413

 

 

4.08

%

 

141,397

 

 

2,753

 

 

3.93

%

Total investments

1,354,664

 

 

18,674

 

 

2.77

%

 

1,570,348

 

 

24,430

 

 

3.14

%

Cash at Federal Reserve and other banks

266,752

 

 

881

 

 

0.66

%

 

158,164

 

 

1,937

 

 

2.47

%

Total earning assets

6,114,120

 

 

134,222

 

 

4.41

%

 

5,762,466

 

 

136,256

 

 

4.77

%

Other assets, net

653,006

 

 

 

 

 

 

643,592

 

 

 

 

 

Total assets

$

6,767,126

 

 

 

 

 

 

$

6,406,058

 

 

 

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand deposits

$

1,269,452

 

 

233

 

 

0.04

%

 

$

1,274,882

 

 

576

 

 

0.09

%

Savings deposits

1,918,918

 

 

1,706

 

 

0.18

%

 

1,907,677

 

 

2,439

 

 

0.26

%

Time deposits

419,638

 

 

2,425

 

 

1.16

%

 

441,447

 

 

2,703

 

 

1.23

%

Total interest-bearing deposits

3,608,008

 

 

4,364

 

 

0.24

%

 

3,624,006

 

 

5,718

 

 

0.32

%

Other borrowings

24,552

 

 

9

 

 

0.07

%

 

16,736

 

 

50

 

 

0.60

%

Junior subordinated debt

57,324

 

 

1,441

 

 

5.06

%

 

57,086

 

 

1,684

 

 

5.95

%

Total interest-bearing liabilities

3,689,884

 

 

5,814

 

 

0.32

%

 

3,697,828

 

 

7,452

 

 

0.41

%

Noninterest-bearing deposits

2,059,242

 

 

 

 

 

 

1,754,973

 

 

 

 

 

Other liabilities

123,481

 

 

 

 

 

 

98,570

 

 

 

 

 

Shareholders’ equity

894,519

 

 

 

 

 

 

854,687

 

 

 

 

 

Total liabilities and shareholders’ equity

$

6,767,126

 

 

 

 

 

 

$

6,406,058

 

 

 

 

 

Net interest rate spread (1) (2)

 

 

 

 

4.09

%

 

 

 

 

 

4.36

%

Net interest income and margin (1) (3)

 

 

$

128,408

 

 

4.22

%

 

 

 

$

128,804

 

 

4.51

%

(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 2020, declines in several market interest rates, including many rates that serve as reference indices for variable rate loans declined markedly from previous levels. As of March 31, 2020 the Company's loan portfolio consisted of approximately $4,420,000,000 in outstanding principal with a weighted average coupon rate of 4.80%. As of June 30, 2020 the Company's loan portfolio consisted of approximately $4,854,000,000 in outstanding principal balances with weighted average coupon rate of 4.37%, inclusive of the PPP program loans. Excluding these loans, the Company's loan portfolio has approximately $4,417,000,000 outstanding with a weighted average coupon rate of 4.70% as of June 30, 2020. Included in this June 30, 2020 loan total exclusive of PPP loans, are variable rate loans totaling $2,984,000,000 of which 86.5% or $2,582,000,000 were at their floor rate. The remaining variable rate loans totaling $402,000,000, which carried a weighted average coupon rate of 5.13% as of June 30, 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 4.37% which would result in the reduction of the weighted average coupon rate of the total loan portfolio, exclusive of PPP loans, from 4.70% to approximately 4.61%.

Asset Quality and Credit Loss Provisioning

The Company adopted CECL on January 1, 2020. During the three months ended June 30, 2020, the Company recorded a provision for credit losses of $22,089,000, as compared to provision expense of $8,000,000 for the trailing quarter, and $537,000 during the same period in 2019.

The net increase in allowance for credit losses (ACL) as of quarter ended June 30, 2020 totaled $21,828,000. More specifically, the changes in loan volume and changes in credit quality associated with levels of classified, past due and non-performing loans, resulted in the need for a provision for credit losses of $2,685,000. However, the majority of the increase in ACL reflects potential future credit deterioration. Specifically, portfolio-wide qualitative indicators such as the outlook for changes in California Unemployment and Gross Domestic Product (GDP), resulted in a $19,143,000 increase in credit reserves on loans as of June 30, 2020. 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 rapidly evolve and included significant shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Management noted that the majority of economic forecasts, as of the end of the current quarter, utilized in the ACL calculation have shown a migration in the estimated timing of recovery from late 2020 as the end of the first quarter to mid-2021 or beyond.

Loans past due 30 days or more decreased by $12,071,000 during the quarter ended June 30, 2020 to $16,622,000, as compared to $28,693,000 at March 31, 2020. The decrease in past due balances was driven primarily by a single loan in excess of $13,000,000 that was 60 days past due as of March 31, 2020 but was brought current during the current quarter. Total non-performing loans were $20,730,000 at June 30, 2020 and $17,955,000 at March 31, 2020 and have remained generally consistent with the $16,864,000 and $20,585,000 as of December 31, 2019 and June 30, 2019, respectively. Immediately following the quarter ended June 30, 2020, two non-accrual loans totaling $2,024,000 were paid in full including approximately $160,000 in past due interest and fees.

There were no additions and two sales of other real estate owned during the three month period ended June 30, 2020. The sold properties generated $217,000 in proceeds and had a carrying value of $201,000. As of June 30, 2020, other real estate owned consisted of three properties with a carrying value of $1,922,000.

Allocation of Loan Loss Reserves by Loan Type

 

 

 

 

 

 

As of June 30, 2020

 

As of March 31, 2020

(dollars in thousands)

Amount

 

% of Loans
Outstanding

 

Amount

 

% of Loans
Outstanding

Commercial real estate:

 

 

 

 

 

 

 

CRE - Non Owner Occupied

$

26,091

 

 

1.63

%

 

$

18,034

 

 

1.10

%

CRE - Owner Occupied

8,710

 

 

1.50

%

 

5,366

 

 

0.99

%

Multifamily

8,581

 

 

1.49

%

 

5,140

 

 

0.92

%

Farmland

1,468

 

 

0.97

%

 

713

 

 

0.50

%

Total commercial real estate loans

 

44,850

 

 

1.54

%

 

 

29,253

 

 

1.01

%

Consumer:

 

 

 

 

 

 

 

SFR 1-4 1st Liens

8,015

 

 

1.58

%

 

5,650

 

 

1.18

%

SFR HELOCs and Junior Liens

12,108

 

 

3.38

%

 

11,196

 

 

3.08

%

Other

3,042

 

 

3.73

%

 

2,746

 

 

3.33

%

Total consumer loans

 

23,165

 

 

2.45

%

 

 

19,592

 

 

2.05

%

 

 

 

 

 

 

 

 

Commercial and Industrial

4,018

 

 

0.63

%

 

3,867

 

 

1.46

%

Construction

6,775

 

 

2.43

%

 

4,595

 

 

0.65

%

Agricultural Production

919

 

 

2.59

%

 

593

 

 

2.51

%

Leases

12

 

 

0.68

%

 

11

 

 

1.90

%

Allowance for credit losses

79,739

 

 

1.66

%

 

57,911

 

 

1.32

%

Reserve for unfunded loan commitments

3,000

 

 

 

 

2,845

 

 

 

Total allowance for credit losses

$

82,739

 

 

1.72

%

 

$

60,756

 

 

1.39

%

As of June 30, 2020, total loans includes PPP loans which are fully guaranteed and therefore would not require any loss reserve allocation. In the table above, PPP loans are included in the segment "Commercial and Industrial" which is the primary driver of the allowance as a percentage of loans outstanding decreasing from 1.46% to 0.63% during the quarter. Excluding PPP loans from the ratio of the allowance for credit losses (ACL) to total loans results in a reserve ratio of approximately 1.82%. 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, 2020, the unamortized discount associated with acquired loans totaled $28,692,000 and if aggregated with the ACL would collectively represent 2.24% of total gross loans and 2.47% 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)

June 30, 2020

 

March 31, 2020

 

$ Change

 

% Change

ATM and interchange fees

$

5,165

 

 

$

5,111

 

 

$

54

 

 

1.1

%

Service charges on deposit accounts

3,046

 

 

4,046

 

 

(1,000

)

 

(24.7

)%

Other service fees

734

 

 

758

 

 

(24

)

 

(3.2

)%

Mortgage banking service fees

459

 

 

469

 

 

(10

)

 

(2.1

)%

Change in value of mortgage servicing rights

(1,236

)

 

(1,258

)

 

22

 

 

(1.7

)%

Total service charges and fees

8,168

 

 

9,126

 

 

(958

)

 

(10.5

)%

Increase in cash value of life insurance

710

 

 

720

 

 

(10

)

 

(1.4

)%

Asset management and commission income

661

 

 

916

 

 

(255

)

 

(27.8

)%

Gain on sale of loans

1,736

 

 

891

 

 

845

 

 

94.8

%

Lease brokerage income

127

 

 

193

 

 

(66

)

 

(34.2

)%

Sale of customer checks

88

 

 

124

 

 

(36

)

 

(29.0

)%

Gain on sale of investment securities

 

 

 

 

 

 

n/a

 

Gain on marketable equity securities

25

 

 

47

 

 

(22

)

 

(46.8

)%

Other

142

 

 

(197

)

 

339

 

 

(172.1

)%

Total other non-interest income

3,489

 

 

2,694

 

 

795

 

 

29.5

%

Total non-interest income

$

11,657

 

 

$

11,820

 

 

$

(163

)

 

(1.4

)%

Non-interest income decreased $163,000 or 1.4% to $11,657,000 during the three months ended June 30, 2020 compared to $11,820,000 during the trailing quarter March 31, 2020. Declines on deposit account activity and related fee income was notable during the quarter, totaling $1,000,000 during the three months ended June 30, 2020 to $3,046,000, as compared to $4,046,000 at March 31, 2020. This was directly related to the COVID-19 pandemic and depressed levels of e-commerce activity during the quarter. Conversely, mortgage loan origination volume demand increased notably during the period ended June 30, 2020 as a result of the low interest rate environment, leading to an additional $845,000 gain on sale of loans over the trailing quarter.

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

 

Three months ended
June 30,

 

 

 

 

(dollars in thousands)

2020

 

2019

 

$ Change

 

% Change

ATM and interchange fees

$

5,165

 

 

$

5,404

 

 

$

(239

)

 

(4.4

)

%

Service charges on deposit accounts

3,046

 

 

4,182

 

 

(1,136

)

 

(27.2

)

%

Other service fees

734

 

 

619

 

 

115

 

 

18.6

 

%

Mortgage banking service fees

459

 

 

475

 

 

(16

)

 

(3.4

)

%

Change in value of mortgage servicing rights

(1,236

)

 

(552

)

 

(684

)

 

123.9

 

%

Total service charges and fees

8,168

 

 

10,128

 

 

(1,960

)

 

(19.4

)

%

Increase in cash value of life insurance

710

 

 

746

 

 

(36

)

 

(4.8

)

%

Asset management and commission income

661

 

 

739

 

 

(78

)

 

(10.6

)

%

Gain on sale of loans

1,736

 

 

575

 

 

1,161

 

 

201.9

 

%

Lease brokerage income

127

 

 

239

 

 

(112

)

 

(46.9

)

%

Sale of customer checks

88

 

 

135

 

 

(47

)

 

(34.8

)

%

Gain on sale of investment securities

 

 

42

 

 

(42

)

 

 

%

Gain on marketable equity securities

25

 

 

 

 

25

 

 

 

%

Other

142

 

 

819

 

 

(677

)

 

(82.7

)

%

Total other non-interest income

3,489

 

 

3,295

 

 

194

 

 

5.9

 

%

Total non-interest income

$

11,657

 

 

$

13,423

 

 

$

(1,766

)

 

(13.2

)

%

In addition to the discussion above within the non-interest income for the three months ended June 30, 2020 and trailing March 31, 2020, a decline in the value of mortgage servicing rights was significant for the most recent quarter end. This is consistent with the low rate environment an increase in the mortgage refinance index and changes in other fair value assumptions. Specifically, accelerated prepayment speeds resulting from decreases in the 15 and 30 year mortgage rates, continued to be the largest contributor to the decline in fair value of the mortgage servicing asset which decreased to $1,236,000 during the quarter, representing an additional $684,000 decline over the same period ended 2019.

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

 

Six months ended
June 30,

 

 

 

 

(dollars in thousands)

2020

 

2019

 

$ Change

 

% Change

ATM and interchange fees

$

10,276

 

 

$

9,985

 

 

$

291

 

 

2.9

 

%

Service charges on deposit accounts

7,092

 

 

8,062

 

 

(970

)

 

(12.0

)

%

Other service fees

1,492

 

 

1,390

 

 

102

 

 

7.3

 

%

Mortgage banking service fees

928

 

 

958

 

 

(30

)

 

(3.1

)

%

Change in value of mortgage servicing rights

(2,494

)

 

(1,197

)

 

(1,297

)

 

108.4

 

%

Total service charges and fees

17,294

 

 

19,198

 

 

(1,904

)

 

(9.9

)

%

Increase in cash value of life insurance

1,430

 

 

1,521

 

 

(91

)

 

(6.0

)

%

Asset management and commission income

1,577

 

 

1,381

 

 

196

 

 

14.2

 

%

Gain on sale of loans

2,627

 

 

987

 

 

1,640

 

 

166.2

 

%

Lease brokerage income

320

 

 

459

 

 

(139

)

 

(30.3

)

%

Sale of customer checks

212

 

 

275

 

 

(63

)

 

(22.9

)

%

Gain on marketable equity securities

72

 

 

78

 

 

(6

)

 

(7.7

)

%

Other

(55

)

 

1,327

 

 

(1,382

)

 

(104.1

)

%

Total other non-interest income

6,183

 

 

6,028

 

 

155

 

 

2.6

 

%

Total non-interest income

$

23,477

 

 

$

25,226

 

 

$

(1,749

)

 

(6.9

)

%

Non-interest income decreased $1,749,000 or 6.9% to $23,477,000 during the six months ended June 30, 2020 compared to $25,226,000 during the comparable six month period in 2019. Non-interest income for the six months ended June 30, 2020 as compared to the same period in 2019 was negatively impacted by changes in the fair value of the Company’s mortgage servicing assets, as noted above, which contributed to a $1,297,000 decline. Other non-interest income declined by $1,382,000, partially from decreases in the fair value of assets used to fund acquired deferred compensation plans totaling $514,000 for the six months ended June 30, 2020 as compared to the same period 2019, as well as from an absence of one-time death benefits totaling $728,000 realized during the six months ended June 30, 2019. The declines noted above were partially offset by gains from the sale of mortgage loans, which resulted from increased volume, and contributed $1,640,000 to the overall increase in non-interest income during the six months ended June 30, 2020.

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)

June 30, 2020

 

March 31, 2020

 

$ Change

 

% Change

Base salaries, net of deferred loan origination costs

$

17,277

 

 

$

17,623

 

 

$

(346

)

 

(2.0

)

%

Incentive compensation

2,395

 

 

3,101

 

 

(706

)

 

(22.8

)

%

Benefits and other compensation costs

7,383

 

 

6,548

 

 

835

 

 

12.8

 

%

Total salaries and benefits expense

27,055

 

 

27,272

 

 

(217

)

 

(0.8

)

%

Occupancy

3,398

 

 

3,875

 

 

(477

)

 

(12.3

)

%

Data processing and software

3,657

 

 

3,367

 

 

290

 

 

8.6

 

%

Equipment

1,350

 

 

1,512

 

 

(162

)

 

(10.7

)

%

Intangible amortization

1,431

 

 

1,431

 

 

 

 

 

%

Advertising

531

 

 

665

 

 

(134

)

 

(20.2

)

%

ATM and POS network charges

1,210

 

 

1,373

 

 

(163

)

 

(11.9

)

%

Professional fees

741

 

 

703

 

 

38

 

 

5.4

 

%

Telecommunications

639

 

 

725

 

 

(86

)

 

(11.9

)

%

Regulatory assessments and insurance

360

 

 

95

 

 

265

 

 

278.9

 

%

Postage

283

 

 

290

 

 

(7

)

 

(2.4

)

%

Operational losses

184

 

 

221

 

 

(37

)

 

(16.7

)

%

Courier service

337

 

 

331

 

 

6

 

 

1.8

 

%

Gain on sale of foreclosed assets

(16

)

 

(41

)

 

25

 

 

(61

)

%

Loss on disposal of fixed assets

15

 

 

 

 

15

 

 

n/m

 

Other miscellaneous expense

4,530

 

 

3,000

 

 

1,530

 

 

51.0

 

%

Total other non-interest expense

18,650

 

 

17,547

 

 

1,103

 

 

6.3

 

%

Total non-interest expense

$

45,705

 

 

$

44,819

 

 

$

886

 

 

2.0

 

%

Average full-time equivalent staff

1,157

 

 

1,165

 

 

(8

)

 

(0.7

)

%

Non-interest expense for the quarter ended June 30, 2020 increased $886,000 or 2.0% to $45,705,000 as compared to $44,819,000 during the trailing quarter ended March 31, 2020. The increase in other miscellaneous expenses was led by an increase in indirect loan documentation and administrative costs incurred in conjunction with the PPP loan program, totaling $1,479,000 during the quarter ended June 30, 2020.

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

 

Three months ended June 30,

 

 

 

 

(dollars in thousands)

2020

 

2019

 

$ Change

 

% Change

Base salaries, net of deferred loan origination costs

$

17,277

 

 

$

17,211

 

 

$

66

 

 

0.4

 

%

Incentive compensation

2,395

 

 

3,706

 

 

(1,311

)

 

(35.4

)

%

Benefits and other compensation costs

7,383

 

 

5,802

 

 

1,581

 

 

27.2

 

%

Total salaries and benefits expense

27,055

 

 

26,719

 

 

336

 

 

1.3

 

%

Occupancy

3,398

 

 

3,738

 

 

(340

)

 

(9.1

)

%

Data processing and software

3,657

 

 

3,354

 

 

303

 

 

9.0

 

%

Equipment

1,350

 

 

1,752

 

 

(402

)

 

(22.9

)

%

Intangible amortization

1,431

 

 

1,431

 

 

 

 

 

%

Advertising

531

 

 

1,533

 

 

(1,002

)

 

(65.4

)

%

ATM and POS network charges

1,210

 

 

1,270

 

 

(60

)

 

(4.7

)

%

Professional fees

741

 

 

1,057

 

 

(316

)

 

(29.9

)

%

Telecommunications

639

 

 

773

 

 

(134

)

 

(17.3

)

%

Regulatory assessments and insurance

360

 

 

490

 

 

(130

)

 

(26.5

)

%

Postage

283

 

 

315

 

 

(32

)

 

(10.2

)

%

Operational losses

184

 

 

226

 

 

(42

)

 

(18.6

)

%

Courier service

337

 

 

412

 

 

(75

)

 

(18.2

)

%

Gain on sale of foreclosed assets

(16

)

 

(99

)

 

83

 

 

(83.8

)

%

Loss on disposal of fixed assets

15

 

 

42

 

 

(27

)

 

(64.3

)

%

Other miscellaneous expense

4,530

 

 

3,684

 

 

846

 

 

23.0

 

%

Total other non-interest expense

18,650

 

 

19,978

 

 

(1,328

)

 

(6.6

)

%

Total non-interest expense

$

45,705

 

 

$

46,697

 

 

$

(992

)

 

(2.1

)

%

Average full-time equivalent staff

1,124

 

 

1,138

 

 

(14

)

 

(1.2

)

%

Non-interest expense decreased by $992,000 or 2.1% to $45,705,000 during the three months ended June 30, 2020 as compared to $46,697,000 for the three months ended June 30, 2019. Salary and benefit expense increased modestly by $336,000 or 1.3% to $27,055,000 during the three months ended June 30, 2020 as compared to $26,719,000 for the same period in 2019. This increase was attributed to increases in benefits and other compensations costs, partially offset by decreases in incentive compensation. Miscellaneous expenses also increased during the period by $846,000 or 23.0% to $4,530,000 as a result of the additional non-payroll related indirect lending costs incurred with the PPP program discussed above. Reductions in advertising expense totaled $1,002,000 or 65.4%, to $531,000 during the three months ended June 30, 2020 as compared to $1,533,000 for the same period in 2019. Additional decreases in expenditures for the quarter ended June 30, 2020 totaling $340,000, $402,000 and $316,000 were realized within occupancy, equipment and professional fees, respectively.

 

Six months ended June 30,

 

 

 

 

(dollars in thousands)

2020

 

2019

 

$ Change

 

% Change

Base salaries, net of deferred loan origination costs

$

34,900

 

 

$

33,968

 

 

$

932

 

 

2.7

 

%

Incentive compensation

5,496

 

 

6,273

 

 

(777

)

 

(12.4

)

%

Benefits and other compensation costs

13,931

 

 

11,606

 

 

2,325

 

 

20.0

 

%

Total salaries and benefits expense

54,327

 

 

51,847

 

 

2,480

 

 

4.8

 

%

Occupancy

7,273

 

 

7,512

 

 

(239

)

 

(3.2

)

%

Data processing and software

7,024

 

 

6,703

 

 

321

 

 

4.8

 

%

Equipment

2,862

 

 

3,619

 

 

(757

)

 

(20.9

)

%

Intangible amortization

2,862

 

 

2,862

 

 

 

 

 

%

Advertising

1,196

 

 

2,864

 

 

(1,668

)

 

(58.2

)

%

ATM and POS network charges

2,583

 

 

2,593

 

 

(10

)

 

(0.4

)

%

Professional fees

1,444

 

 

1,896

 

 

(452

)

 

(23.8

)

%

Telecommunications

1,364

 

 

1,570

 

 

(206

)

 

(13.1

)

%

Regulatory assessments and insurance

455

 

 

1,001

 

 

(546

)

 

(54.5

)

%

Postage

573

 

 

625

 

 

(52

)

 

(8.3

)

%

Operational losses

405

 

 

451

 

 

(46

)

 

(10.2

)

%

Courier service

668

 

 

682

 

 

(14

)

 

(2.1

)

%

Gain on sale of foreclosed assets

(57

)

 

(198

)

 

141

 

 

(71.2

)

%

Loss on disposal of fixed assets

15

 

 

66

 

 

(51

)

 

(77.3

)

%

Other miscellaneous expense

7,531

 

 

8,056

 

 

(525

)

 

(6.5

)

%

Total other non-interest expense

36,198

 

 

40,302

 

 

(4,104

)

 

(10.2

)

%

Total non-interest expense

$

90,525

 

 

$

92,149

 

 

$

(1,624

)

 

(1.8

)

%

Average full-time equivalent staff

1,124

 

 

1,138

 

 

(14

)

 

(1.2

)

%

Non-interest expense decreased by $1,624,000 or 1.8% to $90,525,000 during the six months ended June 30, 2020 as compared to $92,149,000 for the same period in 2019. Reductions in advertising expenses totaling $1,668,000 or 58.2% to $1,196,000 provided a benefit to the bottom line, as did declines in miscellaneous expenses totaling $525,000 or 6.5% attributed primarily to reduced travel and training expenses as a result of state-wide shelter-in-place restrictions which were partially offset by the loan documentation and administrative costs associated with PPP lending activity.

Provision for Income Taxes

The Company’s effective tax rate was 23.3% for the six months ended June 30, 2020, as compared to 27.4% for the year ended December 31, 2019. The reduction in effective tax rate 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. 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 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; 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 adverse impact on the U.S. economy, including the markets in which we operate, of the novel coronavirus, which caused the Coronavirus disease 2019 (“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; the future operating or financial performance of the Company, including our outlook for future growth, 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 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; the effect of a fall in stock market prices on our brokerage and wealth management businesses; 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, 2019, 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.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands, except share data)

 

Three months ended

 

June 30,
2020

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

Revenue and Expense Data

 

 

 

 

 

 

 

 

 

Interest income

$

67,148

 

 

$

66,517

 

 

$

67,918

 

 

$

68,889

 

 

$

68,180

 

Interest expense

2,489

 

 

3,325

 

 

3,722

 

 

4,201

 

 

3,865

 

Net interest income

64,659

 

 

63,192

 

 

64,196

 

 

64,688

 

 

64,315

 

Provision for (benefit from) credit losses

22,089

 

 

8,000

 

 

(298)

 

 

(329)

 

 

537

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Service charges and fees

8,168

 

 

9,126

 

 

10,629

 

 

10,590

 

 

10,128

 

Gain on sale of investment securities

 

 

 

 

3

 

 

107

 

 

 

Other income

3,489

 

 

2,694

 

 

3,554

 

 

3,411

 

 

3,295

 

Total noninterest income

11,657

 

 

11,820

 

 

14,186

 

 

14,108

 

 

13,423

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Salaries and benefits

27,055

 

 

27,272

 

 

27,319

 

 

26,899

 

 

26,719

 

Occupancy and equipment

4,748

 

 

5,387

 

 

5,394

 

 

5,390

 

 

5,490

 

Data processing and network

4,867

 

 

4,740

 

 

4,914

 

 

4,754

 

 

4,624

 

Other noninterest expense

9,035

 

 

7,420

 

 

9,337

 

 

9,301

 

 

9,864

 

Total noninterest expense

45,705

 

 

44,819

 

 

46,964

 

 

46,344

 

 

46,697

 

Total income before taxes

8,522

 

 

22,193

 

 

31,716

 

 

32,781

 

 

30,504

 

Provision for (benefit from) income taxes

1,092

 

 

6,072

 

 

8,826

 

 

9,386

 

 

7,443

 

Net income

$

7,430

 

 

$

16,121

 

 

$

22,890

 

 

$

23,395

 

 

$

23,061

 

Share Data

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.25

 

 

$

0.53

 

 

$

0.75

 

 

$

0.77

 

 

$

0.76

 

Diluted earnings per share

$

0.25

 

 

$

0.53

 

 

$

0.75

 

 

$

0.76

 

 

$

0.75

 

Dividends per share

$

0.22

 

 

$

0.22

 

 

$

0.22

 

 

$

0.22

 

 

$

0.19

 

Book value per common share

$

29.76

 

 

$

28.91

 

 

$

29.70

 

 

$

29.39

 

 

$

28.71

 

Tangible book value per common share (1)

$

21.64

 

 

$

20.76

 

 

$

21.69

 

 

$

21.33

 

 

$

20.60

 

Shares outstanding

 

29,759,209

 

 

 

29,973,516

 

 

 

30,523,824

 

 

 

30,512,187

 

 

 

30,502,757

 

Weighted average shares

29,753,699

 

 

30,394,904

 

 

30,520,490

 

 

30,509,057

 

 

30,458,427

 

Weighted average diluted shares

29,883,193

 

 

30,522,842

 

 

30,650,071

 

 

30,629,027

 

 

30,642,518

 

Credit Quality

 

 

 

 

 

 

 

 

 

Allowance for credit losses to gross loans

1.66

%

 

1.32

%

 

0.71

%

 

0.75

%

 

0.80

%

Loans past due 30 days or more

$

16,622

 

 

$

28,693

 

 

$

9,024

 

 

$

8,089

 

 

$

14,580

 

Total nonperforming loans

$

20,730

 

 

$

17,955

 

 

$

16,864

 

 

$

18,565

 

 

$

20,585

 

Total nonperforming assets

$

22,652

 

 

$

20,184

 

 

$

19,405

 

 

$

20,111

 

 

$

22,133

 

Loans charged-off

$

491

 

 

$

510

 

 

$

1,098

 

 

$

1,522

 

 

$

293

 

Loans recovered

$

230

 

 

$

892

 

 

$

475

 

 

$

520

 

 

$

560

 

Selected Financial Ratios

 

 

 

 

 

 

 

 

 

Return on average total assets

0.43

%

 

1.00

%

 

1.40

%

 

1.44

%

 

1.45

%

Return on average equity

3.39

%

 

7.14

%

 

10.03

%

 

10.42

%

 

10.68

%

Average yield on loans, excluding PPP

5.17

%

 

5.23

%

 

5.33

%

 

5.46

%

 

5.50

%

Average yield on interest-earning assets

4.26

%

 

4.57

%

 

4.65

%

 

4.72

%

 

4.76

%

Average rate on interest-bearing deposits

0.20

%

 

0.29

%

 

0.33

%

 

0.34

%

 

0.33

%

Average cost of total deposits

0.12

%

 

0.19

%

 

0.22

%

 

0.23

%

 

0.22

%

Average rate on borrowings & subordinated debt

3.25

%

 

3.89

%

 

3.96

%

 

3.50

%

 

4.62

%

Average rate on interest-bearing liabilities

0.27

%

 

0.37

%

 

0.41

%

 

0.45

%

 

0.42

%

Net interest margin (fully tax-equivalent)

4.10

%

 

4.34

%

 

4.39

%

 

4.44

%

 

4.50

%

Loans to deposits

76.84

%

 

81.05

%

 

80.26

%

 

78.98

%

 

76.82

%

Efficiency ratio

59.89

%

 

59.75

%

 

59.92

%

 

58.82

%

 

60.07

%

Supplemental Loan Interest Income Data

 

 

 

 

 

 

 

 

 

Discount accretion on acquired loans

$

2,587

 

 

$

1,748

 

 

$

2,218

 

 

$

2,360

 

 

$

1,904

 

All other loan interest income

$

53,466

 

 

$

54,510

 

 

$

54,644

 

 

$

54,639

 

 

$

53,587

 

Total loan interest income

$

56,053

 

 

$

56,258

 

 

$

56,862

 

 

$

56,999

 

 

$

55,491

 

(1)

Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that result by the shares outstanding at the end of the period. Management believes that tangible book value per common share is meaningful because it is a measure that the Company and investors commonly use to assess shareholder value.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands)

 

 

Balance Sheet Data

June 30,
2020

 

March 31,
2020

 

December 31,
2019

 

September 30,
2019

 

June 30,
2019

Cash and due from banks

$

705,852

 

 

$

185,466

 

 

$

276,507

 

 

$

259,047

 

 

$

175,582

 

Securities, available for sale, net

999,313

 

 

1,005,006

 

 

953,098

 

 

987,054

 

 

1,136,946

 

Securities, held to maturity, net

337,165

 

 

359,770

 

 

375,606

 

 

393,449

 

 

412,524

 

Restricted equity securities

17,250

 

 

17,250

 

 

17,250

 

 

17,250

 

 

17,250

 

Loans held for sale

8,352

 

 

2,695

 

 

5,265

 

 

7,604

 

 

5,875

 

Loans:

 

 

 

 

 

 

 

 

 

Commercial loans

667,263

 

 

285,830

 

 

283,707

 

 

278,458

 

 

276,045

 

Consumer loans

416,490

 

 

428,313

 

 

445,542

 

 

442,539

 

 

434,388

 

Real estate mortgage loans

3,437,960

 

 

3,422,440

 

 

3,328,290

 

 

3,247,156

 

 

3,178,730

 

Real estate construction loans

279,692

 

 

242,479

 

 

249,827

 

 

214,195

 

 

214,524

 

Total loans, gross

4,801,405

 

 

4,379,062

 

 

4,307,366

 

 

4,182,348

 

 

4,103,687

 

Allowance for credit losses

(79,739

)

 

(57,911

)

 

(30,616

)

 

(31,537

)

 

(32,868

)

Total loans, net

4,721,666

 

 

4,321,151

 

 

4,276,750

 

 

4,150,811

 

 

4,070,819

 

Premises and equipment

85,292

 

 

86,304

 

 

87,086

 

 

87,424

 

 

88,534

 

Cash value of life insurance

119,254

 

 

118,543

 

 

117,823

 

 

117,088

 

 

116,606

 

Accrued interest receivable

20,337

 

 

18,575

 

 

18,897

 

 

18,205

 

 

20,990

 

Goodwill

220,872

 

 

220,872

 

 

220,872

 

 

220,872

 

 

220,972

 

Other intangible assets

20,694

 

 

22,126

 

 

23,557

 

 

24,988

 

 

26,418

 

Operating leases, right-of-use

29,842

 

 

30,221

 

 

27,879

 

 

28,957

 

 

30,030

 

Other assets

74,182

 

 

86,330

 

 

70,591

 

 

72,134

 

 

72,626

 

Total assets

$

7,360,071

 

 

$

6,474,309

 

 

$

6,471,181

 

 

$

6,384,883

 

 

$

6,395,172

 

Deposits:

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

$

2,487,120

 

 

$

1,883,143

 

 

$

1,832,665

 

 

$

1,777,357

 

 

$

1,780,339

 

Interest-bearing demand deposits

1,318,951

 

 

1,243,192

 

 

1,242,274

 

 

1,222,955

 

 

1,263,635

 

Savings deposits

2,043,593

 

 

1,857,684

 

 

1,851,549

 

 

1,843,873

 

 

1,856,749

 

Time certificates

398,594

 

 

418,679

 

 

440,506

 

 

451,222

 

 

441,450

 

Total deposits

6,248,258

 

 

5,402,698

 

 

5,366,994

 

 

5,295,407

 

 

5,342,173

 

Accrued interest payable

1,734

 

 

1,986

 

 

2,407

 

 

2,847

 

 

2,665

 

Operating lease liability

29,743

 

 

30,007

 

 

27,540

 

 

28,494

 

 

29,434

 

Other liabilities

98,684

 

 

96,560

 

 

91,984

 

 

87,867

 

 

74,590

 

Other borrowings

38,544

 

 

19,309

 

 

18,454

 

 

16,423

 

 

13,292

 

Junior subordinated debt

57,422

 

 

57,323

 

 

57,232

 

 

57,180

 

 

57,132

 

Total liabilities

6,474,385

 

 

5,607,883

 

 

5,564,611

 

 

5,488,218

 

 

5,519,286

 

Common stock

530,422

 

 

534,623

 

 

543,998

 

 

543,415

 

 

542,939

 

Retained earnings

354,645

 

 

356,935

 

 

367,794

 

 

351,751

 

 

335,145

 

Accum. other comprehensive income (loss)

619

 

 

(25,132

)

 

(5,222

)

 

1,499

 

 

(2,198

)

Total shareholders’ equity

$

885,686

 

 

$

866,426

 

 

$

906,570

 

 

$

896,665

 

 

$

875,886

 

Quarterly Average Balance Data

 

 

 

 

 

 

 

 

 

Average loans

$

4,363,481

 

 

$

4,329,357

 

 

$

4,231,347

 

 

$

4,142,602

 

 

$

4,044,044

 

Average interest-earning assets

$

6,365,865

 

 

$

5,883,750

 

 

$

5,823,795

 

 

$

5,810,248

 

 

$

5,764,966

 

Average total assets

$

7,027,735

 

 

$

6,506,587

 

 

$

6,482,832

 

 

$

6,452,470

 

 

$

6,385,889

 

Average deposits

$

5,937,294

 

 

$

5,395,933

 

 

$

5,385,190

 

 

$

5,327,235

 

 

$

5,370,879

 

Average borrowings and subordinated debt

$

83,685

 

 

$

80,062

 

 

$

77,452

 

 

$

130,506

 

 

$

75,185

 

Average total equity

$

880,405

 

 

$

908,633

 

 

$

905,585

 

 

$

890,667

 

 

$

866,284

 

Capital Ratio Data

 

 

 

 

 

 

 

 

 

Total risk based capital ratio

15.1

%

 

15.1

%

 

15.1

%

 

15.2

%

 

14.9

%

Tier 1 capital ratio

13.9

%

 

13.9

%

 

14.4

%

 

14.5

%

 

14.2

%

Tier 1 common equity ratio

12.8

%

 

12.8

%

 

13.3

%

 

13.4

%

 

13.0

%

Tier 1 leverage ratio

10.3

%

 

11.2

%

 

11.6

%

 

11.3

%

 

11.1

%

Tangible capital ratio (1)

9.1

%

 

10.0

%

 

10.6

%

 

10.6

%

 

10.2

%

(1)

Tangible capital ratio is calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and total assets and then dividing the adjusted assets by the adjusted equity. Management believes that the tangible capital ratio is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.

 

Contacts

Richard P. Smith
President & CEO (530) 898-0300

$Cashtags

Contacts

Richard P. Smith
President & CEO (530) 898-0300