TriCo Bancshares Announces Quarterly Results

CHICO, Calif.--()--TriCo Bancshares (NASDAQ: TCBK) (the "Company"), parent company of Tri Counties Bank, today announced earnings of $7,365,000, or $0.45 per diluted share, for the three months ended March 31, 2014. These results compare to earnings of $8,477,000, or $0.53 per diluted share reported by the Company for the three months ended March 31, 2013.

Total assets of the Company increased $142,751,000 (5.5%) to $2,755,184,000 at March 31, 2014 from $2,612,433,000 at March 31, 2013. Total investments increased $296,854,000 (192%) to $450,955,000 at March 31, 2014 from $154,101,000 at March 31, 2013. Total loans increased $154,690,000 (10.1%) to $1,687,052,000 at March 31, 2014 from $1,532,362,000 at March 31, 2013. Total deposits increased $125,570,000 (5.5%) to $2,411,120,000 at March 31, 2014 from $2,285,550,000 at March 31, 2013.

The following is a summary of the components of the Company’s consolidated net income for the periods indicated:

          Three months ended        
March 31,
(dollars in thousands) 2014       2013  

$ Change

  % Change  
Net Interest Income $26,072 $24,569 $1,503 6.1 %
Benefit from reversal of provision for loan losses 1,355 1,108 247 22.3 %
Noninterest income 8,295 10,218 (1,923 ) (18.8 %)
Noninterest expense (23,317 ) (21,601 ) (1,716 ) 7.9 %
Provision for income taxes (5,040 ) (5,817 ) 777   (13.4 %)
Net income $7,365   $8,477   ($1,112 ) (13.1 %)
 

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:

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
(unaudited, dollars in thousands)
      Three Months Ended       Three Months Ended       Three Months Ended
March 31, 2014 December 31, 2013 March 31, 2013
Average     Income/     Yield/ Average     Income/     Yield/ Average     Income/     Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
Earning assets
Loans $ 1,671,231 $ 23,738 5.68 % $ 1,649,692 $ 24,470 5.93 % $ 1,548,565 $ 24,072 6.22 %
Investments - taxable 390,230 2,976 3.05 % 326,696 2,457 3.01 % 156,057 1,187 3.04 %
Investments - nontaxable 17,618 218 4.95 % 19,641 256 5.21 % 8,884 162 7.29 %
Cash at Federal Reserve and other banks   473,833   309   0.26 %   515,289   375   0.29 %   721,424   446   0.25 %
Total earning assets 2,552,912   27,241   4.27 % 2,511,318   27,558   4.39 % 2,434,930   25,867   4.25 %
Other assets, net   184,852   181,913   174,864
Total assets $ 2,737,764 $ 2,693,231 $ 2,609,794
Liabilities and shareholders' equity
Interest-bearing
Demand deposits $ 546,998 121 0.09 % $ 534,270 117 0.09 % $ 520,507 141 0.11 %
Savings deposits 840,221 257 0.12 % 826,378 260 0.13 % 782,173 271 0.14 %
Time deposits 280,968 404 0.58 % 297,052 434 0.58 % 333,556 513 0.62 %
Other borrowings 6,461 1 0.06 % 8,629 1 0.05 % 8,188 1 0.05 %
Trust preferred securities   41,238   304   2.95 %   41,238   311   3.02 %   41,238   311   3.02 %
Total interest-bearing liabilities 1,715,886   1,087   0.25 % 1,707,567   1,123   0.26 % 1,685,662   1,237   0.29 %
Noninterest-bearing deposits 731,731 699,530 651,303
Other liabilities 35,262 37,114 39,150
Shareholders' equity   254,885   249,020   233,679
Total liabilities
and shareholders' equity $ 2,737,764 $ 2,693,231 $ 2,609,794
Net interest rate spread 4.02 % 4.13 % 3.96 %
Net interest income/net interest margin (FTE)   26,154   4.10 %   26,435   4.21 %   24,630   4.05 %
FTE adjustment   (82 )   (96 )   (61 )
Net interest income (not FTE) $ 26,072   $ 26,339   $ 24,569  
 

Net interest income (FTE) during the first quarter of 2014 increased $1,524,000 (6.2%) from the same period in 2013 to $26,154,000. The increase in net interest income (FTE) was due primarily to a $242,907,000 (147%) increase in the average balance of investments to $407,848,000, and a $122,666,000 (7.9%) increase in the average balance of loans to $1,671,231,000 that were partially offset by a 54 basis point decrease in the average yield on loans from 6.22% during the three months ended March 31, 2013 to 5.68% during the three months ended March 31, 2014. During much of 2013 and the three months ended March 31, 2014, the Company used a portion of its Fed funds sold to buy investments. The increase in average loan balances was due to organic loan growth and the purchase of $62,698,000 of loans during 2013. The decrease in average loan yields was due primarily to declines in market yields on new and renewed loans compared to yields on repricing, maturing, and paid off loans. The increases in average investment and loan balances added $1,780,000 and $1,907,000 to net interest income (FTE) while the decrease in average loan yields reduced net interest income (FTE) by $2,241,000 when compared to the year-ago quarter. During much of 2013 and the three months ended March 31, 2014, the Company deployed some of its excess Federal funds sold into some higher yielding investments while trying to maintain an appropriate level of interest rate risk. Loans acquired through purchase or acquisition of other banks are classified as Purchased Not Credit Impaired (PNCI), Purchased Credit Impaired – cash basis (PCI – cash basis), or Purchased Credit Impaired – other (PCI – other). Loans not acquired in an acquisition or otherwise “purchased” are classified as “originated”. Often, such purchased loans are purchased at a discount to face value, and part of this discount is accreted into (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effect of this discount accretion decreases as these purchased loans mature or payoff early. Further details regarding interest income from loans, including fair value discount accretion, may be found under the heading “Supplemental Loan Interest Income Data” in the Consolidated Financial Data table at the end of this press release.

The Company benefited from a $1,355,000 reversal of provision for loan losses during the three months ended March 31, 2014 versus a benefit of $1,108,000 during the three months ended March 31, 2013. The reversal of provision for loan losses during the first quarter of 2014 was primarily the result of improvements in collateral values and estimated cash flows related to nonperforming originated loans and purchased credit impaired loans, reductions in nonperforming originated loans and purchased credit impaired loans, and decreased loss histories for performing originated loans.

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

      Three months ended          
March 31,
(dollars in thousands) 2014       2013  

$ Change

  % Change  
Service charges on deposit accounts $2,690 $3,140 ($450 ) (14.3 %)
ATM fees and interchange 2,013 1,875 138 7.4 %
Other service fees 520 559 (39 ) (7.0 %)
Mortgage banking service fees 420 416 4 1.0 %
Change in value of mortgage servicing rights (181 ) (61 ) (120 ) 196.7 %
Total service charges and fees 5,462   5,929   (467 ) (7.9 %)
 
Gain on sale of loans 464 2,294 (1,830 ) (79.8 %)
Commission on NDIP 771 761 10 1.3 %
Increase in cash value of life insurance 397 426 (29 ) (6.8 %)
Change in indemnification asset (412 ) (101 ) (311 ) 307.9 %
Gain on sale of foreclosed assets 1,227 551 676 122.7 %
Other noninterest income 386   358   28   7.8 %
Total other noninterest income 2,833   4,289   (1,456 ) (33.9 %)
Total noninterest income $8,295   $10,218   ($1,923 ) (18.8 %)
 

Noninterest income decreased $1,923,000 (18.8%) to $8,295,000 in the three months ended March 31, 2014 when compared to the three months ended March 31, 2013. The decrease in noninterest income was due primarily to a $1,830,000 (79.9%) decrease in gain on sale of loans to $464,000, and a $450,000 (14.3%) decrease in service charges on deposit accounts that were partially offset by a $676,000 (123%) increase in gain on sale of foreclosed assets to $1,227,000. The decrease in gain on sale of loans was primarily due to the increase in residential real estate mortgage rates that occurred in May 2013 that resulted in a significant decrease in mortgage refinance activity, and thus a significant decrease in newly originated mortgages for the Company to sell. The decrease in service charges on deposit accounts was primarily due to reduced customer overdrafts and a resulting decrease in non-sufficient funds fees. The increase in gain on sale of foreclosed assets was due to a general increase in property values and sales activity from their lows during the financial crisis that started in 2008.

Salary and benefit expenses increased $342,000 (2.6%) to $13,303,000 during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. Base salaries increased $518,000 (6.2%) to $8,866,000 during the three months ended March 31, 2014 versus the year ago period despite a 1.5% decrease in the average number of full time equivalent employees from 743 to 732. The average number of full time equivalent employees decreased primarily due to the reductions in staff from the closing of five branches since December 31, 2012 that was partially offset by increases in full time equivalent back office staff and management. The salary expense attributable to the newly added back office staff and management outweighed the reduction in salaries from the branch closings. Annual salary merit increases of approximately 2.5% also contributed to the increase in base salary expense. Incentive and commission related salary expenses decreased $163,000 (12.7%) to $1,123,000 during three months ended March 31, 2014 due primarily to decreases in production related incentives tied to reduced residential real estate mortgage loan originations and sales. Benefits expense, including retirement, medical and workers’ compensation insurance, and taxes, decreased $13,000 (0.4%) to $3,314,000 during the three months ended March 31, 2014.

Other noninterest expenses increased $1,374,000 (15.9%) to $10,014,000 during the three months ended March 31, 2014 compared to the three months ended March 31, 2013. The increase in other noninterest expense was due primarily a $303,000 (18.3%) increase in occupancy expense to $1,962,000 that included $238,000 of accelerated depreciation expense of leasehold improvements related to the closing of two branches in the quarter ended March 31, 2014, a $255,000 (58%) reduction in reversal of provision for losses on unfunded commitments to $185,000 from $440,000, a $228,000 (44.8%) increase in professional fees to $739,000 that included $296,000 of legal and consulting fees related to the proposed merger with North Valley Bancorp, a $147,000 (29.6%) increase in ATM network charges to $643,000, and a $100,000 (9.3%) increase in data processing and software expense.

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

      Three months ended          
March 31,
(dollars in thousands) 2014       2013  

$ Change

  % Change  
Salaries $8,866 $8,348 $518 6.2 %
Commissions and incentives 1,123 1,286 (163 ) (12.7 %)
Employee benefits 3,314   3,327   (13 ) (0.4 %)
Total salaries and benefits expense 13,303   12,961   342   2.6 %
 
Occupancy 1,962 1,659 303 18.3 %
Equipment 1,036 1,034 2 0.2 %
Change in reserve for unfunded commitments (185 ) (440 ) 255 (58.0 %)
Data processing and software 1,178 1,078 100 9.3 %
Telecommunications 580 525 55 10.5 %
ATM network charges 643 496 147 29.6 %
Professional fees 739 511 228 44.6 %
Advertising and marketing 342 325 17 5.2 %
Postage 227 231 (4 ) (1.7 %)
Courier service 234 167 67 40.1 %
Intangible amortization 52 52 0 0.0 %
Operational losses 177 117 60 51.3 %
Provision for foreclosed asset losses 36 27 9 33.3 %
Foreclosed asset expense 158 99 59 59.6 %
Assessments 521 606 (85 ) (14.0 %)
Other 2,314   2,153   161   7.5 %
Total other noninterest expense 10,014   8,640   1,374   15.9 %
Total noninterest expense $23,317   $21,601   $1,716   7.9 %

On January 21, 2014, the Company and North Valley Bancorp announced that they entered into an Agreement and Plan of Merger and Reorganization under which North Valley will merge with and into the Company, with the Company as the surviving corporation. North Valley Bancorp shareholders will receive a fixed exchange ratio of 0.9433 shares of TriCo Bancshares common stock for each share of North Valley common stock. The merger is expected to be completed in the third quarter of 2014, subject to approval of the merger by shareholders of both companies, receipt of required regulatory and other approvals and satisfaction of customary closing conditions.

In addition to the historical information contained herein, this press release may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The reader of this press release should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company’s actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, interest rate fluctuations, economic conditions in the Company's primary market area, demand for loans, regulatory and accounting changes, loan losses, expenses, rates charged on loans and earned on securities investments, rates paid on deposits, competition effects, fee and other noninterest income earned, whether and when shareholders and regulators approve the Company’s proposed merger with North Valley Bancorp, as well as other factors detailed in the Company's reports filed with the Securities and Exchange Commission which are incorporated herein by reference, including the Form 10-K for the year ended December 31, 2013. These reports and this entire press release should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Company's business. Any forward-looking statement may turn out to be wrong and cannot be guaranteed. The Company does not intend to update any of the forward-looking statements after the date of this release. Shareholders are urged to read the joint proxy statement/prospectus that will be included in the registration statement on Form S-4, which the Company will file with the SEC in connection the proposed action because it will contain important information about TriCo, North Valley, the merger and related matters, including additional risk and uncertainties

TriCo Bancshares and Tri Counties Bank are headquartered in Chico, California. Tri Counties Bank has a 39-year history in the banking industry. It operates 41 traditional branch locations and 20 in-store branch locations in 23 California counties. Tri Counties Bank offers financial services and provides a diversified line of products and services to consumers and businesses, which include demand, savings and time deposits, consumer finance, online banking, mortgage lending, and commercial banking throughout its market area. It operates a network of 67 ATMs and an automated Customer Service Department, available 24 hours a day, seven days a week. Brokerage services are provided by the Bank’s investment services affiliate, Raymond James Financial Services, Inc. For further information please visit the Tri Counties Bank web site at http://www.tricountiesbank.com.

ADDITIONAL INFORMATION ABOUT THE PROPOSED MERGER TRANSACTION AND WHERE TO FIND IT

Investors and shareholder are urged to carefully review and consider each of TriCo’s and North Valley Bancorp’s public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q. The documents filed by TriCo with the SEC may be obtained free of charge at TriCo’s website at www.tricountiesbank.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from TriCo by requesting them in writing to TriCo, 63 Constitution Drive, Chico, California 95973; Attention: Investor Relations, or by telephone at (530) 898-0300. The documents filed by North Valley with the SEC may be obtained free of charge at North Valley’s website at www.novb.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from North Valley by requesting them in writing to North Valley Bancorp, 300 Park Marina Circle, Redding, CA 96001, Attention: Corporate Secretary, or by telephone at Phone: (530) 226-2900.

TriCo intends to file a registration statement with the SEC which will include a joint proxy statement of TriCo and North Valley and a prospectus of TriCo, and each party will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decision, investors and security holders of North Valley and TriCo are urged to carefully read the entire registration statement and joint proxy statement/prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. A definitive joint proxy statement/prospectus will be sent to the shareholders of each company seeking required stockholder approvals. Investors and security holders will be able to obtain the registration statement and the joint proxy statement/prospectus free of charge from the SEC’s website or from TriCo or North Valley by writing to the addresses provided for each company set forth above.

TriCo, North Valley, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from TriCo and North Valley shareholders in favor of the approval of the transaction. Information regarding TriCo’s officers and directors will be included in TriCo’s Form 10-K Annual Report to be filed with the SEC, and information regarding North Valley's officers and directors will be included in North Valley's Form 10-K Annual Report to be filed with the SEC. Descriptions of the interests of the directors and executive officers of TriCo and North Valley in the proposed merger will be set forth in the proxy statement/prospectus and other relevant documents filed with the SEC (when they become available).

 
TRICO BANCSHARES - CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in thousands, except share data)
          Three months ended
March 31,     December 31,     September 30,     June 30,     March 31,
  2014         2013         2013         2013         2013  
Statement of Income Data
Interest income $ 27,159 $ 27,462 $ 27,536 $ 25,756 $ 25,806
Interest expense 1,087 1,123 1,169 1,167 1,237
Net interest income 26,072 26,339 26,367 24,589 24,569
Provision for (benefit from) loan losses (1,355 ) 172 (393 ) 614 (1,108 )
Noninterest income:
Service charges and fees 5,462 5,973 6,662 6,693 5,929
Other income 2,833 1,380 2,465 3,438 4,289
Total noninterest income 8,295 7,353 9,127 10,131 10,218
Noninterest expense:
Base salaries net of deferred loan origination costs
8,866 8,832 8,716 8,508 8,348
Incentive compensation expense 1,123 943 1,166 1,299 1,286
Employee benefits and other compensation expense
3,314 3,449 2,979 3,083 3,327
Total salaries and benefits expense 13,303 13,224 12,861 12,890 12,961
Other noninterest expense 10,014 11,654 10,755 10,619 8,640
Total noninterest expense 23,317 24,878 23,616 23,509 21,601
Income before taxes 12,405 8,642 12,271 10,597 14,294
Net income $ 7,365 $ 5,236 $ 7,361 $ 6,325 $ 8,477
Share Data
Basic earnings per share $ 0.46 $ 0.33 $ 0.46 $ 0.39 $ 0.53
Diluted earnings per share $ 0.45 $ 0.32 $ 0.45 $ 0.39 $ 0.53
Book value per common share $ 15.94 $ 15.61 $ 15.27 $ 14.90 $ 14.75
Tangible book value per common share $ 14.93 $ 14.59 $ 14.24 $ 13.87 $ 13.71
Shares outstanding 16,120,297 16,076,662 16,076,662 16,065,469 16,005,191
Weighted average shares 16,096,569 16,076,662 16,073,864 16,027,557 16,002,482
Weighted average diluted shares 16,322,295 16,333,476 16,230,160 16,134,510 16,091,150
Credit Quality
Nonperforming originated loans $ 44,334 $ 45,131 $ 53,261 $ 52,661 $ 54,763
Total nonperforming loans 51,968 53,216 61,384 61,466 63,963
Foreclosed assets, net of allowance 3,215 6,262 4,140 5,054 6,124
Loans charged-off 766 1,840 985 1,947 2,771
Loans recovered $ 2,197 $ 574 $ 1,119 $ 1,065 $ 1,098
Selected Financial Ratios
Return on average total assets 1.08 % 0.78 % 1.13 % 0.98 % 1.30 %
Return on average equity 11.56 % 8.41 % 12.08 % 10.54 % 14.51 %
Average yield on loans 5.68 % 5.93 % 6.14 % 5.94 % 6.22 %
Average yield on interest-earning assets 4.27 % 4.39 % 4.60 % 4.27 % 4.25 %
Average rate on interest-bearing liabilities 0.25 % 0.26 % 0.28 % 0.28 % 0.29 %
Net interest margin (fully tax-equivalent) 4.10 % 4.21 % 4.40 % 4.07 % 4.05 %
Supplemental Loan Interest Income Data:
Discount accretion PCI - cash basis loans $ 203 $ 255 $ 140 $ 129 $ 167
Discount accretion PCI - other loans 984 893 898 732 597
Discount accretion PNCI loans 379 568 1,115 815 766
All other loan interest income 22,172 22,754 22,970 22,207 22,542
Total loan interest income $ 23,738 $ 24,470 $ 25,123 $ 23,883 $ 24,072
 
TRICO BANCSHARES - CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in thousands)
        Three months ended
March 31,     December 31,     September 30,     June 30,     March 31,
Balance Sheet Data   2014         2013         2013         2013         2013  
Cash and due from banks $ 502,251 $ 598,368 $ 541,150 $ 592,155 $ 802,271
Securities, available for sale 97,269 104,647 115,215 127,519 144,454
Securities, held to maturity 344,523 240,504 193,262 85,643 -
Federal Home Loan Bank Stock 9,163 9,163 9,163 9,163 9,647
Loans held for sale 1,119 2,270 3,247 6,582 7,931
Loans:
Commercial loans 119,418 131,878 133,616 128,410 115,483
Consumer loans 381,786 383,163 389,711 387,217 376,063
Real estate mortgage loans 1,126,298 1,107,863 1,091,475 1,097,446 1,010,249
Real estate construction loans 59,550 49,103 42,249 38,967 30,567
Total loans, gross 1,687,052 1,672,007 1,657,051 1,652,040 1,532,362
Allowance for loan losses (38,322 ) (38,245 ) (39,340 ) (39,599 ) (39,867 )
Foreclosed assets 3,215 6,262 4,140 5,054 6,124
Premises and equipment 32,004 31,612 31,246 31,194 29,468
Cash value of life insurance 52,706 52,309 51,919 51,388 51,008
Goodwill 15,519 15,519 15,519 15,519 15,519
Intangible assets 831 883 935 987 1,040
Mortgage servicing rights 6,107 6,165 6,049 5,571 4,984
FDIC indemnification asset (220 ) 206 861 1,441 1,807
Accrued interest receivable 6,690 6,516 6,450 7,339 7,201
Other assets 35,277 35,880 35,239 35,935 38,484
Total assets $ 2,755,184 2,744,066 2,632,106 2,587,931 2,612,433
Deposits:
Noninterest-bearing demand deposits 728,492 789,458 656,266 645,461 639,420
Interest-bearing demand deposits 554,296 533,351 524,897 514,088 531,695
Savings deposits 856,811 798,986 811,182 791,978 786,352
Time certificates 271,521 288,688 300,966 315,175 328,083
Total deposits 2,411,120 2,410,483 2,293,311 2,266,702 2,285,550
Accrued interest payable 865 938 937 944 975
Reserve for unfunded commitments 2,230 2,415 2,875 3,210 3,175
Other liabilities 36,035 31,711 33,667 29,936 37,340
Other borrowings 6,719 6,335 14,626 6,575 8,125
Junior subordinated debt 41,238 41,238 41,238 41,238 41,238
Total liabilities 2,498,207 2,493,120 2,386,654 2,348,605 2,376,403
Total shareholders' equity 256,977 250,946 245,452 239,326 236,030
Accumulated other
comprehensive gain 1,802 1,857 132 49 1,538
Average loans 1,671,231 1,649,692 1,635,506 1,608,511 1,548,565
Average interest-earning assets 2,552,912 2,511,318 2,405,194 2,422,818 2,434,920
Average total assets 2,737,764 2,693,231 2,603,243 2,584,734 2,609,794
Average deposits 2,399,918 2,357,230 2,274,042 2,259,471 2,287,539
Average total equity $ 254,885 $ 249,020 $ 243,776 $ 239,985 $ 233,679
Total risk based capital ratio 14.8 % 14.8 % 14.9 % 14.7 % 15.2 %
Tier 1 capital ratio 13.6 % 13.5 % 13.6 % 13.5 % 13.9 %
Tier 1 leverage ratio 10.2 % 10.2 % 10.4 % 10.2 % 9.9 %
Tangible capital ratio 8.8 % 8.6 % 8.8 % 8.7 % 8.5 %

Contacts

TriCo Bancshares
Richard P. Smith, 530-898-0300
President & CEO

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Contacts

TriCo Bancshares
Richard P. Smith, 530-898-0300
President & CEO