TriCo Bancshares Announces Quarterly and Annual Results

CHICO, Calif.--()--TriCo Bancshares (NASDAQ: TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $23,211,000 for the quarter ended December 31, 2018, compared to $2,989,000 for the fourth quarter of 2017. Diluted earnings per share were $0.76 for the fourth quarter of 2018, compared to $0.13 for the fourth quarter of 2017. Net income was $68,320,000 for the year ended December 31, 2018, compared to $40,554,000 for the year ended December 31, 2017. Diluted earnings per share were $2.54 for the year ended December 31, 2018, compared to $1.74 for the year ended December 31, 2017.

Net income for the twelve months ended December 31, 2018 and 2017 includes $5,227,000 and $530,000, respectively, of the FNB Bancorp (FNBB) related merger and acquisition expenses. Excluding the impact of the FNBB merger expenses, net of income taxes, net income totaled $72,327,000 for the year ended December 31, 2018, or $2.69 per diluted share. Net income for the fourth quarter of 2017 includes income tax expense of $7,416,000 due to the re-measurement of the Company’s net deferred tax asset (“DTA”) resulting from the Tax Cuts and Jobs Act of 2017. Excluding the impact of the FNBB related merger expenses, net of tax, and the DTA re-measurement, net income totaled $48,462,000 for the year ended December 31, 2017, or $2.08 per diluted share.

Financial Highlights

Performance highlights and other developments for the Company during the three and twelve months ended December 31, 2018 included the following:

  • For the three and twelve months ended December 31, 2018, the Company’s return on average assets was 1.47% and 1.24% and the return on average equity was 11.40% and 10.75%.
  • As of December 31, 2018, the Company reached record levels of total assets and total deposits which were $6.35 billion and $5.37 billion, respectively.
  • The loan to deposit ratio remained stable at 74.9% at December 31, 2018 as compared to 75.2% at December 31, 2017.
  • Net interest margin grew 14 basis points to 4.46% on a tax equivalent basis as compared to 4.32% in the trailing quarter.
  • Non-interest bearing deposits as a percentage of total deposits were 32.8% at December 31, 2018 as compared to 34.1% at December 31, 2017.
  • The average rate of interest paid on deposits, including noninterest-bearing deposits, remained low at 0.20%, an increase of 4 basis points from the trailing quarter.
  • Non-performing assets to total assets were 0.47% as of December 31, 2018 as compared to 0.46% and 0.58% at September 30, 2018 and December 31, 2017, respectively.
  • Revenue growth and operational changes resulted in notable improvement in the efficiency ratio which was 59.1% for the quarter ended December 31, 2018 as compared to 65.2% in the trailing quarter and 66.1% in the same quarter of the prior year.

President and CEO, Rick Smith commented, “We are very pleased with the Bank’s strong financial results for 2018. In addition to consistent organic loan and deposit growth, the completion of the acquisition of First National Bank of Northern California in July of this year provided meaningful scale that drove improvement in both our net interest margin and operational efficiency.”

Smith continued, “While TriCo’s franchise covers twenty nine counties across Northern California and the Central Valley, we remain mindful of the communities that were impacted by natural disasters. Our Company and our employees will continue to play a leadership role in driving the restoration efforts and we are continually thankful to those who have partnered with us and who have been so generous with their support.”

Summary Results

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

     
Three months ended
December 31,
(dollars and shares in thousands) 2018   2017

$ Change

% Change

Net interest income $ 64,002 $ 45,093 $ 18,909 41.9%
Provision for loan losses (806 ) (1,677 ) 871 nm
Noninterest income 12,634 12,478 156 1.3%
Noninterest expense (45,285 ) (38,076 ) (7,209 ) 18.9%
Provision for income taxes   (7,334 )   (14,829 )   7,495   (50.5%)
Net income $ 23,211   $ 2,989   $ 20,222   676.5%
 
Diluted earnings per share $ 0.76 $ 0.13 $ 0.63 484.6%
Dividends per share $ 0.19 $ 0.17 $ 0.02 11.8%
Average common shares 30,423 22,945 7,478 32.6%
Average diluted common shares 30,672 23,290 7,382 31.7%
 
Return on average total assets 1.47 % 0.26 %
Return on average equity 11.40 % 2.33 %
Efficiency ratio 59.09 % 66.14 %
 
  Three months ended    
December 31,   September 30,
(dollars and shares in thousands) 2018 2018 $ Change

% Change

Net interest income $ 64,002 $ 60,489 $ 3,513 5.8%
Provision for loan losses (806 ) (2,651 ) 1,845 nm
Noninterest income 12,634 12,186 448 3.7%
Noninterest expense (45,285 ) (47,378 ) 2,093 (4.4%)
Provision for income taxes   (7,334 )   (6,476 )   (858 ) 13.2%
Net income $ 23,211   $ 16,170   $ 7,041   43.5%
 
Diluted earnings per share $ 0.76 $ 0.53 $ 0.23 42.4%
Dividends per share $ 0.19 $ 0.17 $ 0.02 11.8%
Average common shares 30,423 30,011 412 1.4%
Average diluted common shares 30,672 30,291 381 1.3%
 
Return on average total assets 1.47 % 1.05 %
Return on average equity 11.40 % 9.11 %
Efficiency ratio 59.09 % 65.19 %
 
  Twelve months ended    
December 31,
(dollars and shares in thousands) 2018   2017 $ Change % Change
Net interest income $ 215,346 $ 174,604 $ 40,742 23.3 %
Provision for loan losses (2,583 ) (89 ) (2,494 ) nm
Noninterest income 49,284 50,021 (737 ) (1.5 %)
Noninterest expense (168,695 ) (147,024 ) (21,671 ) 14.7 %
Provision for income taxes   (25,032 )   (36,958 )   11,926   (32.3 %)
Net income $ 68,320   $ 40,554   $ 27,766   68.5 %
 
Diluted earnings per share $ 2.54 $ 1.74 $ 0.80 46.0 %
Dividends per share $ 0.70 $ 0.66 $ 0.04 6.1 %
Average common shares 26,593 22,912 3,681 16.1 %
Average diluted common shares 26,881 23,250 3,631 15.6 %
 
Return on average total assets 1.24 % 0.89 %
Return on average equity 10.75 % 8.10 %
Efficiency ratio 63.75 % 65.45 %
 

The following is a summary of certain of the Company’s consolidated assets and deposits as of the dates indicated:

           
Ending balances As of December 31, Acquired Organic Organic
($'s in thousands) 2018 2017 $ Change Balances $ Change % Change
Total assets $ 6,352,441 $ 4,761,315 $ 1,591,126 $ 1,463,200 $ 127,926 2.7 %
Total loans 4,022,014 3,015,165 1,006,849 834,683 172,166 5.7 %
Total investments 1,580,096 1,262,683 317,413 335,667 (18,254 ) (1.4 %)
Total deposits $ 5,366,466 $ 4,009,131 $ 1,357,335 $ 991,935 $ 365,400 9.1 %
 
 
Qtrly avg balances As of December 31, Acquired Organic Organic
($'s in thousands) 2018 2017 $ Change Balances

$ Change

% Change
Total assets $ 6,325,130 $ 4,658,677 $ 1,666,453 $ 1,463,200 $ 203,253 4.4 %
Total loans 4,022,651 2,948,277 1,074,374 834,683 239,691 8.1 %
Total investments 1,523,094 1,254,868 268,226 335,667 (67,441 ) (5.4 %)
Total deposits $ 5,253,123 $ 3,961,422 $ 1,291,701 $ 991,935 $ 299,766 7.6 %
 

Overall results for the three and twelve months ended December 31, 2018 were primarily benefited by the acquisition of First National Bank of Northern California, the wholly owned subsidiary of FNB Bancorp, effective July 6, 2018. In connection with the acquisition and subsequent integration and restructuring, the Company incurred a variety of expenses. During the three and twelve month periods ended December 31, 2018 total non-interest expenses increased by $7,209,000 (18.9%) and $21,671,000 (14.7%) as compared to the same periods in 2017. There were no merger related costs incurred in the fourth quarter of 2018. Costs related to the merger were $5,227,000 for the twelve months ended December 31, 2018, as compared to $530,000 during the year ended December 31, 2017.

In addition to the $834,683,000 in loans acquired, recorded net of a $33,417,000 discount, organic loan growth totaled $172,166,000 (5.7%) during 2018. Organic deposit growth for 2018 was $365,400,000 (9.1%) in addition to the $991,935,000 in acquired deposits. Total assets acquired from FNB Bancorp totaled $1,306,539,000, inclusive of the core deposit intangible. Goodwill associated with the acquisition of FNB Bancorp was $156,661,000 and the core deposit intangible, which will be amortized over an estimated weighted average life of 6.2 years, was $27,605,000.

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    
December 31,
(dollars in thousands) 2018   2017 $ Change % Change
Interest income $ 68,065 $ 46,961 $ 21,104 44.9 %
Interest expense (4,063 ) (1,868 ) (2,195 ) 117.5 %
FTE adjustment   322     625     (303 ) (48.5 %)
Net interest income (FTE) $ 64,324   $ 45,718   $ 18,606   40.7 %
Net interest margin (FTE)   4.46 %   4.26 %
Acquired loans discount accretion:
Amount (included in interest income) $ 1,982 $ 1,498 $ 484 32.3 %
Effect on average loan yield 0.20 % 0.20 %
Effect on net interest margin (FTE) 0.14 % 0.14 %
 
      Twelve months ended    
December 31,
(dollars in thousands) 2018   2017 $ Change % Change
Interest income $ 228,218 $ 181,402 $ 46,816 25.8 %
Interest expense (12,872 ) (6,798 ) (6,074 ) 89.3 %
FTE adjustment   1,304     2,499     (1,195 ) (47.8 %)
Net interest income (FTE) $ 216,650   $ 177,103   $ 39,547   22.3 %
Net interest margin (FTE)   4.28 %   4.22 %
Acquired loans discount accretion:
Amount (included in interest income) $ 5,271 $ 6,564 $ (1,293 ) (19.7 %)
Effect on average loan yield 0.15 % 0.23 %
Effect on net interest margin (FTE) 0.10 % 0.16 %
 

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. During the three and twelve months ended December 31, 2018, purchased loan discount accretion was $1,982,000 and $5,271,000, respectively; for the three and twelve months ended December 31, 2017, purchased loan accretion was $1,498,000 and $6,564,000, respectively. The changes in volume of interest earning assets and interest bearing liabilities contributed an additional $15,601,000 in interest income while the changes in rates contributed $3,005,000 during the current quarter as compared to the quarter ended December 31, 2017. The decreases in Federal tax equivalent yield adjustment are due to tax rate changes which became effective on January 1, 2018 whereby the Federal tax rate was reduced from 35% to 21%.

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

December 31, 2018

September 30, 2018

December 31, 2017

Average   Income/   Yield/ Average   Income/   Yield/ Average   Income/   Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
Assets
Loans $ 4,022,651 $ 55,662 5.53 % $ 4,028,462 $ 53,102 5.27 % $ 2,948,277 $ 38,194 5.18 %
Investments - taxable 1,380,693 8,955 2.59 % 1,336,361 9,648 2.89 % 1,118,547 7,459 2.67 %
Investments - nontaxable (1)   142,401   1,395 3.92 %   153,704   1,546 4.02 %   136,321   1,666 4.89 %
Total investments 1,523,094 10,350 2.72 % 1,490,065 11,194 3.00 % 1,254,868 9,125 2.91 %
Cash at Federal Reserve and other banks   220,317   2,375 4.31 %   119,635   615 2.06 %   86,211   267 1.24 %
Total earning assets 5,766,062 68,387 4.74 % 5,638,162 64,911 4.61 % 4,289,356 47,586 4.44 %
Other assets, net   559,068   530,182   369,021
Total assets $ 6,325,130 $ 6,168,344 $ 4,658,377
Liabilities and shareholders' equity
Interest-bearing demand deposits $ 1,184,999 272 0.09 % $ 1,125,159 248 0.09 % $ 964,827 210 0.09 %
Savings deposits 1,868,664 1,132 0.24 % 1,803,022 833 0.18 % 1,380,384 430 0.12 %
Time deposits   460,555   1,190 1.03 %   430,286   991 0.92 %   307,446   422 0.55 %
Total interest-bearing deposits 3,514,218 2,594 0.30 % 3,358,467 2,072 0.25 % 2,652,657 1,062 0.16 %
Other borrowings 122,410 639 2.09 % 246,637 1,178 1.91 % 61,769 141 0.91 %
Junior subordinated debt   57,016   830 5.82 %   56,973   815 5.72 %   56,837   665 4.68 %
Total interest-bearing liabilities 3,693,644   4,063 0.44 % 3,662,077   4,065 0.44 % 2,771,263   1,868 0.27 %
Noninterest-bearing deposits 1,738,905 1,710,374 1,308,765
Other liabilities 78,136 86,131 65,642
Shareholders' equity   814,445   709,762   513,007
Total liabilities and shareholders' equity $ 6,325,130 $ 6,168,344 $ 4,658,677

Net interest rate spread (1) (2)

4.30 % 4.17 % 4.17 %

Net interest income and net interest margin (1) (3)

$ 64,324 4.46 % $ 60,846 4.32 % $ 45,718 4.26 %
 
(1) Fully taxable equivalent (FTE)
(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 December 31, 2018 increased $3,478,000 or 5.7% to $64,324,000 compared to $60,846,000 during the three months ended September 30, 2018. The increase in net interest income (FTE) was due primarily to an increase in the average rates on loans which increased 26 basis points.

The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, has increased by 1.00% to 5.50% at December 31, 2018 as compared to 4.50% at December 31, 2017. The 35 basis point increase in loan yields from 5.18% during the three months ended December 31, 2017 to 5.53% during the three months ended December 31, 2018 was due to increases in market rates. More specifically, there was no change on the effect purchased loan discount accretion had to net interest margin between the three months ended December 31, 2018 and September 30, 2018. More importantly, yields on loans increased 26 basis points as compared to the prior quarter from 5.27% for the three months ended September 30, 2018, of which 28 basis points were contributed by changes in the coupon rate associated with loans, offset by a decrease of 2 basis points attributed to the decreased impact from accretion of purchased loans.

The impact of changes in rates and volumes of interest bearing liabilities resulted in neutral impact as interest expense declined by $2,000 during the quarter. Comparing the quarter ended December 31, 2018 to the trailing quarter the total cost of interest bearing liabilities remained unchanged at 0.44% but increased 17 basis points from the same quarter in the prior year due in part to differences in market rates associated with deposits acquired from First National Bank of Northern California and to increases in the variable rates paid on other borrowings and subordinated debt. The weighted average rate associated with interest bearing acquired deposits was 0.29% for non-time deposits and 0.92% for time deposits on the day of acquisition. The average rate paid on other borrowings was 2.09% at December 31, 2018 as compared to 1.91% and 0.91% as of the trailing quarter and the same quarter in the prior year, respectively.

 
ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
(unaudited, dollars in thousands)
 

Twelve Months Ended

 

Twelve Months Ended

December 31, 2018

December 31, 2017

Average   Income/   Yield/ Average   Income/   Yield/
Balance Expense Rate Balance Expense Rate
Assets
Loans $ 3,548,498 $ 186,117 5.24 % $ 2,842,659 $ 146,794 5.16 %
Investments - taxable 1,241,829 33,997 2.74 % 1,087,302 29,096 2.68 %
Investments - nontaxable (1)   142,146   5,649 3.97 %   136,240   6,664 4.89 %
Total investments 1,383,975 39,646 2.86 % 1,223,542 35,760 2.92 %
Cash at Federal Reserve and other banks   131,496   3,759 2.86 %   126,432   1,347 1.07 %
Total earning assets 5,063,969 229,522 4.53 % 4,192,633 183,901 4.39 %
Other assets, net   452,157   361,872
Total assets $ 5,516,126 $ 4,554,505
Liabilities and shareholders' equity
Interest-bearing demand deposits $ 1,075,331 945 0.09 % $ 939,516 744 0.08 %
Savings deposits 1,610,202 2,803 0.17 % 1,368,705 1,683 0.12 %
Time deposits   378,058   3,248 0.86 %   317,724   1,531 0.48 %
Total interest-bearing deposits 3,063,591 6,996 0.23 % 2,625,945 3,958 0.15 %
Other borrowings 154,372 2,745 1.78 % 41,252 305 0.74 %
Junior subordinated debt   56,950   3,131 5.50 %   56,762   2,535 4.47 %
Total interest-bearing liabilities 3,274,913   12,872 0.39 % 2,723,959   6,798 0.25 %
Noninterest-bearing deposits 1,531,383 1,262,592
Other liabilities 74,113 67,301
Shareholders' equity   635,717   500,653
Total liabilities and shareholders' equity $ 5,516,126 $ 4,554,505
Net interest rate spread (1) (2) 4.14 % 4.14 %
Net interest income and net interest margin (1) (3) $ 216,650 4.28 % $ 177,103 4.22 %
 
(1) Fully taxable equivalent (FTE)
(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 year ended December 31, 2018 increased $39,547,000 or 22.3% to $216,650,000 compared to $177,103,000 during the year ended December 31, 2017. The increase in net interest income (FTE) was due primarily to an increase in the average balance of loans, which was partially offset by an increase in the average balance of interest-bearing liabilities and a 14 basis point increase in the average rate paid on interest-bearing liabilities.

During the twelve months ended December 31, 2018, the average balance of loans increased by $705,839,000 (24.8%) to $3,548,498,000. The increase in net interest income was partially offset by a decrease in the year-to-date purchased loan discount accretion from $6,564,000 during the year ended December 31, 2017 to $5,271,000 during the year ended December 31, 2018. This decrease in purchased loan discount accretion reduced loan yields by 8 basis points, and net interest margin by 6 basis points. The 14 basis point increase in the average rate paid on interest-bearing liabilities was primarily due to increases in market rates that increased the rates the Company pays on its time deposits, overnight borrowings, and junior subordinated debt.

Also affecting net interest margin during the three and twelve months ended December 31, 2018, was the decrease in the Federal tax rate from 35% to 21%. This decrease in the Federal tax rate caused the fully tax-equivalent (FTE) yield on the Company’s nontaxable investments to decrease from 4.89% during 2017 to 3.97% during 2018.

Asset Quality and Loan Loss Provisioning

The Company recorded provision for loan losses of $806,000 during the three months ended December 31, 2018 as compared to a provision of $1,677,000 in the prior year quarter. While the Company did record net recoveries of $172,000 during the fourth quarter of 2018 as compared to net charge-offs of $101,000 in the 2017 quarter, the primary cause for the increase in provision for loan losses was due to estimated losses related to the Camp Fire. As of December 31, 2018 the Company had established reserves totaling $3,250,000 related to the Camp Fire. While the Company remains cautious about the risks associated with trends in California real estate prices and the affordability of housing in the markets served by the Company, changes in affordability and energy related index rates improved during the quarter ended December 31, 2018. The qualitative factors associated with these two measures reduced the level of calculated required reserves by approximately $2,000,000.

During the twelve months ended December 31, 2018 the Company recorded a loan loss provision of $2,583,000 as compared to a loan loss provision of $89,000 during the twelve months ended December 31, 2017. Nonperforming loans were $27,494,000, or 0.68% of loans outstanding as of December 31, 2018, compared to $27,148,000, or 0.67% of loans outstanding as of September 30, 2018 and $24,394,000 or 0.81% of loans outstanding as of December 31, 2017.

Provision for Income Taxes

The Company’s effective tax rate was 24.0% and 26.8%, respectively, for the quarter and year ended December 31, 2018. During the quarter ended December 31, 2018, the Company made certain tax method elections in order to benefit from the change in corporate tax rates associated with the Tax Cut and Jobs Act of 2017. As a result, the provision for income taxes was benefited by approximately $1,058,000. Absent this benefit, the Company’s effective tax rate would have been 27.5% and 27.9% for the quarter and year ended December 31, 2018, respectively.

Non-interest Income

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

  Three months ended    
December 31,
(dollars in thousands) 2018   2017 $ Change % Change
ATM fees and interchange $ 4,914 $ 4,255 $ 659 15.5 %
Service charges on deposit accounts 4,059 3,954 105 2.7 %
Other service fees 832 761 71 9.3 %
Mortgage banking service fees 511 515 (4 ) (0.8 %)
Change in value of mortgage servicing rights   (184 )   77   (261 ) (339.0 %)
Total service charges and fees   10,132     9,562   570   6.0 %
 
Commission on nondeposit investment products 737 745 (8 ) (1.1 %)
Increase in cash value of life insurance 722 642 80 12.5 %
Gain on sale of loans 540 816 (276 ) (33.8 %)
Lease brokerage income 164 181 (17 ) (9.4 %)
Gain on sale of foreclosed assets 18 403 (385 ) (95.5 %)
Other noninterest income   321     129   192   148.8 %
Total other noninterest income   2,502     2,916   (414 ) (14.2 %)
Total noninterest income $ 12,634   $ 12,478 $ 156   1.3 %
 

Noninterest income increased $156,000 (1.3%) to $12,634,000 during the three months ended December 31, 2018 compared to the three months ended December 31, 2017. The increase in noninterest income was due primarily to a $659,000 (15.5%) increase in ATM fees and interchange and a $105,000 (2.7%) increase in service charges on deposit accounts. The increases in noninterest income as compared to the prior year quarter were offset by decreases in gain on sale of loans of $276,000 (33.8%) and gain on sale of foreclosed assets of $385,000 (95.5%). The $276,000 decrease in gain on sale of loans was due primarily to decreased residential mortgage refinance activity compared to the year-ago quarter during a rising rate environment.

  Twelve months ended    
December 31,
(dollars in thousands) 2018   2017 $ Change % Change
ATM fees and interchange $ 18,249 $ 16,727 $ 1,522 9.1 %
Service charges on deposit accounts 15,467 16,056 (589 ) (3.7 %)
Other service fees 2,852 3,282 (430 ) (13.1 %)
Mortgage banking service fees 2,038 2,076 (38 ) (1.8 %)
Change in value of mortgage servicing rights   (146 )   (718 )   572   (79.7 %)
Total service charges and fees   38,460     37,423     1,037   2.8 %
 
Commission on nondeposit investment products 3,151 2,729 422 15.5 %
Increase in cash value of life insurance 2,718 2,685 33 1.2 %
Gain on sale of loans 2,371 3,109 (738 ) (23.7 %)
Gain on sale of investment securities 207 961 (754 ) (78.5 %)
Lease brokerage income 678 782 (104 ) (13.3 %)
Gain on sale of foreclosed assets 408 711 (303 ) (42.6 %)
Other noninterest income   1,291     1,621     (330 ) (20.4 %)
Total other noninterest income   10,824     12,598     (1,774 ) (14.1 %)
Total noninterest income $ 49,284   $ 50,021   $ (737 ) (1.5 %)
 

Noninterest income decreased $737,000 (1.5%) to $49,284,000 during the twelve months ended December 31, 2018 compared to the twelve months ended December 31, 2017. The decrease in noninterest income was due primarily to decreases in gain on sale of loans of $738,000 (23.7%), gain on sale of investment securities of $754,000 (78.5%), gain on sale of foreclosed assets of $303,000 (42.6%), and decreases of $330,000 (20.4%) in miscellaneous income which were partially offset by an increase in commissions on non-deposit investment products of $422,000 (15.5%). Additionally, service charges and fees increased by $1,037,000 (2.8%). The increase in service charges and fees was driven by an increase in ATM fees and interchange of $1,522,000 (9.1%).

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

  Three months ended    
December 31,
(dollars in thousands) 2018   2017 $ Change % Change
Base salaries, overtime and temporary help, net of deferred loan origination costs $ 16,980 $ 13,942 $ 3,038 21.8 %
Commissions and incentives 3,313 2,247 1,066 47.4 %
Employee benefits   4,721   4,421   300   6.8 %
Total salaries and benefits expense   25,014   20,610   4,404   21.4 %
 
Occupancy 3,565 2,698 867 32.1 %
Data processing and software 3,042 3,116 (74 ) (2.4 %)
Equipment 1,713 1,797 (84 ) (4.7 %)
ATM and POS network charges 1,413 1,399 14 1.0 %
Advertising 1,364 928 436 47.0 %
Intangible amortization 1,431 339 1,092 322.1 %
Professional fees 1,071 1,388 (317 ) (22.8 %)
Telecommunications 822 686 136 19.8 %
Regulatory assessments and insurance 522 424 98 23.1 %
Courier service 518 283 235 83.0 %
Operational losses 497 228 269 118.0 %
Postage 220 238 (18 ) (7.6 %)
Merger and acquisition expense - 530 (530 ) (100.0 %)
Other miscellaneous expense   4,093   3,412   681   20.0 %
Total other noninterest expense   20,271   17,466   2,805   16.1 %
Total noninterest expense $ 45,285 $ 38,076 $ 7,209   18.9 %
 
Average full time equivalent employees 1,134 985 149 15.1 %
 

Salary and benefit expenses increased $4,404,000 (21.4%) to $25,014,000 during the three months ended December 31, 2018 compared to $20,610,000 during the three months ended December 31, 2017. Base salaries, net of deferred loan origination costs increased $3,038,000 (21.8%) to $16,980,000. The increase in base salaries was due primarily to a 15.1% increase in average full time equivalent employees to 1,134 from 985 in the year-ago quarter. Commissions and incentive compensation increased $1,066,000 (47.4%) to $3,313,000 during the three months ended December 31, 2018 compared to the year-ago quarter due primarily to organic loan and deposit growth. Benefits & other compensation expense increased $300,000 (6.8%) to $4,721,000 during the three months ended December 31, 2018 due primarily to increases in the average full time equivalent employees, as mentioned above.

Other noninterest expense increased $2,805,000 (16.1%) to $20,271,000 during the three months ended December 31, 2018 compared to the three months ended December 31, 2017. The increase in other noninterest expense was due primarily to increased costs related to the merger of FNBB. Highlighting those increases were intangible amortization, occupancy, and advertising, which increased by $1,092,000, $867,000 and $436,000, respectively, as compared to the prior year quarter. The increases in noninterest expenses were partially offset by decreased professional fees and merger & acquisition expenses of $317,000 and $530,000, respectively.

  Twelve months ended    
December 31,
(dollars in thousands) 2018   2017 $ Change % Change
Base salaries, overtime and temporary help, net of deferred loan origination costs $ 62,422 $ 54,589 $ 7,833 14.3 %
Commissions and incentives 11,147 9,227 1,920 20.8 %
Employee benefits   20,373   19,114   1,259   6.6 %
Total salaries and benefits expense   93,942   82,930   11,012   13.3 %
 
Occupancy 12,139 10,894 1,245 11.4 %
Data processing and software 11,021 10,448 573 5.5 %
Equipment 6,651 7,141 (490 ) (6.9 %)
Merger and acquisition expense 5,227 530 4,697 886.2 %
ATM and POS network charges 5,271 4,752 519 10.9 %
Advertising 4,578 4,101 477 11.6 %
Professional fees 3,546 3,745 (199 ) (5.3 %)
Intangible amortization 3,499 1,389 2,110 151.9 %
Telecommunications 3,023 2,713 310 11.4 %
Regulatory assessments and insurance 1,906 1,676 230 13.7 %
Courier service 1,287 1,035 252 24.3 %
Operational losses 1,260 1,394 (134 ) (9.6 %)
Postage 1,154 1,296 (142 ) (11.0 %)
Other miscellaneous expense   14,191   12,980   1,211   9.3 %
Total other noninterest expense   74,753   64,094   10,659   16.6 %
Total noninterest expense $ 168,695 $ 147,024 $ 21,671   14.7 %
 
Average full time equivalent employees 1,071 1,000 71 7.1 %
 

Salary and benefit expenses increased $11,012,000 (13.3%) to $93,942,000 during the twelve months ended December 31, 2018 compared to $82,930,000 during the prior twelve months ended December 31, 2017. Base salaries, net of deferred loan origination costs increased $7,833,000 (14.3%) to $62,422,000. The increase in base salaries was due primarily to a 7.1% increase in average full time equivalent employees to 1,071 from 1,000 in the prior year-to-date period. Also affecting the increase in base salaries were annual merit increases and a higher wage base from the acquired employees of FNBB due to the Bay Area region’s higher cost of living. Commissions and incentive compensation increased $1,920,000 (20.8%) to $11,147,000 during 2018 compared to 2017 primarily due to organic growth of loans and deposits. Benefits & other compensation expense increased $1,259,000 (6.6%) to $20,373,000 during the year ended December 31, 2018 due primarily to increases in the average full time equivalent employees, as mentioned above.

Other noninterest expense increased $10,659,000 (16.6%) to $74,753,000 during the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase in other noninterest expense was due primarily to increased costs related to the merger of FNBB. Highlighting some of those increases were merger expenses, increases in intangible amortization, occupancy, data processing, and advertising, which increased by $4,697,000, $2,110,000, $1,245,000, $573,000, and $477,000, respectively, as compared to the prior year. The increases in noninterest expenses were partially offset by decreased equipment expenses and professional fees of $490,000 and $199,000, respectively.

Balance Sheet

In addition to the balance sheet changes which resulted from the acquisition of FNB Bancorp, total assets grew by $127,926,000 between December 2017 and December 2018. This growth was led by $172,166,000 related to organic loan growth which was funded by $365,400,000 in organic deposit growth. Total equity increased to $827,373,000 at December 31, 2018 as compared to $802,115,000 at the close of the trailing quarter and inclusive of $17,879,000 and $26,959,000 in accumulated other comprehensive loss at the same periods. As a result, the Company’s book value per share increased to $27.20 at December 31, 2018 from $26.37 per share at September 30, 2018. The Company’s tangible book value, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, increased to $18.97 per share at December 31, 2018 from $18.10 per share at September 30, 2018.

About TriCo Bancshares

Established in 1975, Tri Counties Bank is a wholly-owned subsidiary of TriCo Bancshares (NASDAQ: TCBK) headquartered in Chico, California, providing a unique brand of customer Service with Solutions available in traditional stand-alone and in-store bank branches in communities throughout Northern and Central California. Tri Counties Bank provides an extensive and competitive breadth of consumer, small business and commercial banking financial services, along with convenient around-the-clock ATM, online and mobile banking access. Brokerage services are provided by the Bank’s investment services through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more.

Forward-Looking Statement

The statements contained herein that are not historical facts are forward-looking statements based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of changes in financial services policies, laws and regulations; technological changes; mergers and acquisitions; changes in the level of our nonperforming assets and charge-offs; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; the impact of competition from other financial service providers; the possibility that any of the anticipated benefits of our recent merger with FNBB will not be realized or will not be realized within the expected time period, or that integration of FNBB’s operations will be more costly or difficult than expected; the challenges of integrating and retaining key employees; unanticipated regulatory or judicial proceedings; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2017, 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
December 31,   September 30,   June 30,   March 31,   December 31,
2018 2018 2018 2018 2017
Revenue and Expense Data
Interest income $ 68,065 $ 64,554 $ 48,478 $ 47,121 $ 46,961
Interest expense   4,063   4,065   2,609   2,135   1,868  
Net interest income 64,002 60,489 45,869 44,986 45,093
Provision for (benefit from) loan losses 806 2,651 (638 ) (236 ) 1,677
Noninterest income:
Service charges and fees 10,132 9,743 9,228 9,356 9,562
Gain on sale of investment securities - 207 - - -
Other income   2,502   2,236   2,946   2,934   2,916  
Total noninterest income 12,634 12,186 12,174 12,290 12,478
Noninterest expense:
Salaries and benefits 25,014 25,823 21,453 21,652 20,610
Occupancy and equipment 5,278 5,056 4,357 4,232 4,495
Data processing and network 4,455 3,981 4,116 3,740 4,515
Other noninterest expense   10,538   12,518   7,944   8,538   8,456  
Total noninterest expense   45,285   47,378   37,870   38,162   38,076  
Total income before taxes   30,545   22,646   20,811   19,350   17,818  
Net income $ 23,211 $ 16,170 $ 15,029 $ 13,910 $ 2,989  
Share Data
Basic earnings per share $ 0.76 $ 0.54 $ 0.65 $ 0.61 $ 0.13
Diluted earnings per share $ 0.76 $ 0.53 $ 0.65 $ 0.60 $ 0.13
Dividends per share $ 0.19 $ 0.17 $ 0.17 $ 0.17 $ 0.17
Book value per common share $ 27.20 $ 26.37 $ 22.27 $ 22.01 $ 22.03

Tangible book value per common share (1)

$ 18.97 $ 18.10 $ 19.28 $ 19.00 $ 19.01
Shares outstanding 30,417,223 30,417,818 23,004,153 22,956,323 22,955,963
Weighted average shares 30,422,687 30,011,307 22,983,439 22,956,239 22,944,523
Weighted average diluted shares 30,671,723 30,291,225 23,276,471 23,283,127 23,289,545
Credit Quality
Past due greater than 30 days $ 17,368 $ 13,218 $ 11,626 $ 20,416 $ 11,609
Nonperforming originated loans 19,416 17,087 17,077 16,080 15,463
Total nonperforming loans 27,494 27,148 25,420 24,381 24,394
Total nonperforming assets 29,774 28,980 26,794 25,945 27,620
Loans charged-off 424 1,142 318 480 627
Loans recovered $ 596 $ 570 $ 507 $ 366 $ 526
Selected Financial Ratios
Return on average total assets 1.47 % 1.05 % 1.25 % 1.17 % 0.26 %
Return on average equity 11.40 % 9.11 % 11.78 % 11.00 % 2.33 %
Average yield on loans 5.53 % 5.27 % 5.06 % 5.03 % 5.18 %
Average yield on interest-earning assets 4.74 % 4.61 % 4.38 % 4.33 % 4.44 %
Average rate on interest-bearing deposits 0.30 % 0.25 % 0.18 % 0.16 % 0.16 %
Average cost of total deposits 0.20 % 0.16 % 0.12 % 0.11 % 0.11 %
Average rate on borrowings and subordiated debt 3.27 % 2.63 % 2.80 % 2.52 % 2.72 %
Average rate on interest-bearing liabilities 0.44 % 0.44 % 0.36 % 0.30 % 0.27 %
Net interest margin (fully tax-equivalent) 4.46 % 4.32 % 4.14 % 4.14 % 4.26 %
Loans to deposits 74.95 % 79.08 % 77.17 % 75.16 % 75.21 %
Efficiency ratio 59.09 % 65.19 % 65.24 % 66.63 % 66.14 %
Supplemental Loan Interest Income Data
Discount accretion on acquired loans $ 1,982 $ 2,098 $ 559 $ 632 $ 1,489
All other loan interest income 53,680 51,004 38,745 37,417 36,705
Total loan interest income $ 55,662 $ 53,102 $ 39,304 $ 38,049 $ 38,194
 
NOTE:

(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.

 
TRICO BANCSHARES - CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in thousands)
  Three months ended
December 31,   September 30,   June 30,   March 31,   December 31,
Balance Sheet Data 2018 2018 2018 2018 2017
Cash and due from banks $ 227,533 $ 226,543 $ 184,062 $ 182,979 $ 205,428
Securities, available for sale 1,117,910 1,058,806 757,075 738,785 730,883
Securities, held to maturity 444,936 459,897 477,745 496,035 514,844
Restricted equity securities 17,250 17,250 16,956 16,956 16,956
Loans held for sale 3,687 3,824 3,601 2,149 4,616
Loans:
Commercial loans 276,548 289,645 237,619 216,015 220,500
Consumer loans 418,982 421,287 350,925 348,789 365,113
Real estate mortgage loans 3,143,100 3,132,202 2,401,040 2,359,379 2,291,995
Real estate construction loans 183,384 184,302 156,729 145,550 137,557
Total loans, gross 4,022,014 4,027,436 3,146,313 3,069,733 3,015,165
Allowance for loan losses (32,582) (31,603) (29,524) (29,973) (30,323)

Total loans, net

3,989,432

3,995,833

3,116,789

3,039,760

2,984,842
Foreclosed assets 2,280 1,832 1,374 1,564 3,226
Premises and equipment 89,347 89,290 59,014 58,558 57,742
Cash value of life insurance 117,318 116,596 99,047 98,391 97,783
Goodwill 220,972 220,972 64,311 64,311 64,311
Other intangible assets 29,280 30,711 4,496 4,835 5,174
Accrued interest receivable 19,412 19,592 14,253 12,407 13,772
Other assets 73,084 77,719 64,430 63,227 61,738
Total assets $ 6,352,441 $ 6,318,865 $ 4,863,153 $ 4,779,957 $ 4,761,315
Deposits:
Noninterest-bearing demand deposits $ 1,760,580 $ 1,710,505 $ 1,369,834 $ 1,359,996 $ 1,368,218
Interest-bearing demand deposits 1,252,366 1,152,705 1,006,331 1,022,299 971,459
Savings deposits 1,921,324 1,801,087 1,385,268 1,395,481 1,364,518
Time certificates 432,196 428,820 315,789 306,628 304,936
Total deposits 5,366,466 5,093,117 4,077,222 4,084,404 4,009,131
Accrued interest payable 1,997 1,729 1,175 958 930
Other liabilities 83,724 82,077 62,623 67,393 66,422
Other borrowings 15,839 282,831 152,839 65,041 122,166
Junior subordinated debt 57,042 56,996 56,950 56,905 56,858
Total liabilities $ 5,525,068 $ 5,516,750 $ 4,350,809 $ 4,274,701 $ 4,255,507
Common stock 541,762 541,519 256,590 256,226 255,836
Retained earnings 303,490 287,555 276,877 266,235 255,200
Accumulated other comprehensive loss (17,879) (26,959) (21,123) (17,205) (5,228)
Total shareholders' equity $ 827,373 $ 802,115 $ 512,344 $ 505,256 $ 505,808
Average Balance Data
Average loans $ 4,022,651 $ 4,028,462 $ 3,104,126 $ 3,028,178 $ 2,948,277
Average interest-earning assets $ 5,766,062 $ 5,638,162 $ 4,457,660 $ 4,380,596 $ 4,289,656
Average total assets $ 6,325,130 $ 6,168,344 $ 4,814,523 $ 4,741,227 $ 4,658,677
Average deposits $ 5,253,123 $ 5,068,841 $ 4,042,110 $ 4,004,332 $ 3,961,422
Average borrowings and subordinated debt $ 179,426 $ 303,610 $ 196,235 $ 164,663 $ 118,606
Average total equity $ 814,445 $ 709,762 $ 510,433 $ 506,013 $ 513,007
Capital Ratio Data
Total risk based capital ratio 14.4% 13.9% 13.9% 13.9% 14.1%
Tier 1 capital ratio 13.7% 13.2% 13.1% 13.0% 13.2%
Tier 1 common equity ratio 12.5% 12.0% 11.7% 11.6% 11.7%
Tier 1 leverage ratio 10.7% 10.7% 10.9% 10.8% 10.8%
Tangible capital ratio 9.5% 9.1% 9.3% 9.3% 9.3%

Contacts

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

Release Summary

TRICO BANCSHARES ANNOUNCES Q4 2018 AND 2018 ANNUAL RESULTS.

$Cashtags

Contacts

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