TriCo Bancshares (NASDAQ:TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $28,222,000 for the quarter ended December 31, 2021, compared to $27,422,000 during the trailing quarter ended September 30, 2021 and $23,657,000 during the quarter ended December 31, 2020. Diluted earnings per share were $0.94 for the fourth quarter of 2021, compared to $0.92 for the third quarter of 2021 and $0.79 for the fourth quarter of 2020.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three and twelve months ended December 31, 2021 included the following:

For the three and twelve months ended December 31, 2021, the Company's return on average assets was 1.31% and 1.43%, respectively, and the return on average equity was 11.20% and 12.10%, respectively.
Loan growth, excluding PPP, totaled $119.4 million (10.1% annualized) for the current quarter and $419.1 million (9.4% annualized) for the trailing twelve-month period.
For the current quarter, net interest margin on a tax equivalent basis was 3.50%, which was consistent with the 3.50% in the trailing quarter and 3.79% for the quarter ended December 31, 2020.
The efficiency ratio improved to 53.18% for the twelve months ended December 31, 2021, as compared to 58.40% for the same period of the prior year.
As of December 31, 2021, the Company reported total loans, total assets and total deposits of $4.92 billion, $8.61 billion and $7.37 billion, respectively. As a direct result of significant deposit growth in the last year, the loan to deposit ratio has declined to 66.74% as of December 31, 2021, as compared to 73.21% at December 31, 2020.
The average rate of interest paid on deposits, including non-interest-bearing deposits, equaled 0.04% during the fourth quarter of 2021, comparing favorably with 0.05% during the trailing quarter, and representing a decrease of 3 basis points from the average rate paid of 0.07% during the same quarter of the prior year.
The balance of PPP loans outstanding at December 31, 2021 totaled $63.3 million and the balance of SBA fees remaining to be accreted totaled $2.2 million. Over 90% of all PPP loans originated have been forgiven and repaid by the SBA.
Noninterest income related to service charges and fees was $11.3 million and $43.9 million for the three and twelve month periods ended December 31, 2021, an increase of 10.4% and 15.7% when compared to the same periods in 2020.
The provision for credit losses for loans and debt securities was approximately $1.0 million during the quarter ended December 31, 2021, as compared to a reversal of provision expense of $1.4 million during the trailing quarter ended September 30, 2021, and a provision expense totaling $4.9 million for the three month period ended December 31, 2020.
The allowance for credit losses to total loans was 1.74% as of December 31, 2021, compared to 1.72% as of the trailing quarter end, and 1.93% as of December 31, 2020. Non-performing assets to total assets were 0.38% at December 31, 2021, as compared to 0.37% as of September 30, 2021, and 0.39% at December 31, 2020.

"Fourth Quarter operating results remained strong as net loan growth, excluding PPP, exceeded 10 percent during the quarter. In addition, the performance of our Southern California commercial banking centers that opened in the Summer of 2021 are exceeding our internal forecasts," commented Rick Smith, President and Chief Executive Officer. Smith added, "We also expect our acquisition of Valley Republic Bank to close in the first quarter of 2022. The Valley Team continues to build loan pipelines and their loan growth remains strong."

Peter Wiese, EVP and Chief Financial Officer also commented, "2021 represented the first year in our history where annual net income exceeded $100 million and total shareholders' equity grew to over $1.0 billion. We thank our pandemic-weary Team for all of their hard work and efforts over the past year."

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Annual Report on Form 10-K for the period ended December 31, 2021, 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 twelve months ended December 31, 2021, the Company's return on average assets was 1.31% and 1.43%, respectively, while the return on average equity was 11.20% and 12.10%, respectively. For the three and twelve months ended December 31, 2020, the Company's return on average assets was 1.24% and 0.91%, respectively, while the return on average equity was 10.37% and 7.18%, 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
	December 31,			September 30,
(dollars and shares in thousands)	2021			2021			$ Change			% Change
Net interest income	$	69,783		$	68,233		$	1,550		2.3	%
(Provision for) reversal of credit losses		(980	)		1,435			(2,415	)	(168.3	) %
Noninterest income		16,502			15,095			1,407		9.3	%
Noninterest expense		(46,679	)		(45,807	)		(872	)	1.9	%
Provision for income taxes		(10,404	)		(11,534	)		1,130		(9.8	) %
Net income	$	28,222		$	27,422		$	800		2.9	%
Diluted earnings per share	$	0.94		$	0.92		$	0.02		2.2	%
Dividends per share	$	0.25		$	0.25		$	—		—	%
Average common shares		29,724			29,714			10		—	%
Average diluted common shares		29,870			29,851			19		0.1	%
Return on average total assets		1.31	%		1.30	%
Return on average equity		11.20	%		11.02	%
Efficiency ratio		54.10	%		54.97	%

	Three months ended December 31,
(dollars and shares in thousands)	2021			2020			$ Change			% Change
Net interest income	$	69,783		$	66,422		$	3,361		5.1	%
Reversal of credit losses		(980	)		(4,850	)		3,870		(79.8	) %
Noninterest income		16,502			16,580			(78	)	(0.5	) %
Noninterest expense		(46,679	)		(45,745	)		(934	)	2.0	%
Provision for income taxes		(10,404	)		(8,750	)		(1,654	)	18.9	%
Net income	$	28,222		$	23,657		$	4,565		19.3	%
Diluted earnings per share	$	0.94		$	0.79		$	0.15		19.0	%
Dividends per share	$	0.25		$	0.22		$	0.03		13.6	%
Average common shares		29,724			29,757			(33	)	(0.1	) %
Average diluted common shares		29,870			29,863			7		—	%
Return on average total assets		1.31	%		1.24	%
Return on average equity		11.20	%		10.37	%
Efficiency ratio		54.10	%		55.11	%

	Twelve months ended December 31,
(dollars and shares in thousands)	2021			2020			$ Change			% Change
Net interest income	$	271,539		$	257,727		$	13,812		5.4	%
Reversal of (provision for) credit losses		6,775			(42,813	)		49,588		(115.8	) %
Noninterest income		63,664			55,194			8,470		15.3	%
Noninterest expense		(178,275	)		(182,758	)		4,483		(2.5	) %
Provision for income taxes		(46,048	)		(22,536	)		(23,512	)	104.3	%
Net income	$	117,655		$	64,814		$	52,841		81.5	%
Diluted earnings per share	$	3.94		$	2.16		$	1.78		82.4	%
Dividends per share	$	1.00		$	0.88		$	0.12		13.6	%
Average common shares		29,721			29,917			(196	)	(0.7	) %
Average diluted common shares		29,882			30,028			(146	)	(0.5	) %
Return on average total assets		1.43	%		0.91	%
Return on average equity		12.10	%		7.18	%
Efficiency ratio		53.18	%		58.40	%

SBA Paycheck Protection Program

In March 2020 (Round 1) and subsequently in December 2020 (Round 2), the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis. Tri Counties Bank, through its online portal, facilitated the ability for borrowers to open a new deposit account and submit PPP applications during the entirety of the Programs. The SBA ended PPP and did not accept new borrowing applications, effective May 31, 2021.

The following is a summary of PPP loan related information as of the periods indicated:

(dollars in thousands)	December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020
Total number of PPP loans outstanding		450		1,449		2,209		2,484		2,310

PPP loan balance (Round 1 origination), gross	$	2,544	$	9,302	$	51,547	$	193,958	$	333,982
PPP loan balance (Round 2 origination), gross		60,767		148,159		197,035		176,316		n/a
Total PPP loans, gross outstanding	$	63,311	$	157,461	$	248,582	$	370,274	$	333,982

PPP deferred loan fees (Round 1 origination)	$	1	$	40	$	477	$	2,358	$	7,212
PPP deferred loan fees (Round 2 origination)		2,163		5,973		8,513		7,072		n/a
Total PPP deferred loan fees outstanding	$	2,164	$	6,013	$	8,990	$	9,430	$	7,212

As of December 31, 2021, the total gross balance outstanding of PPP loans was $63,311,000 as compared to total PPP originations of $640,410,000. In connection with the origination of these loans, the Company earned approximately $25,299,000 in loan fees, offset by deferred loan costs of approximately $1,245,000, the net of which will be recognized over the earlier of loan maturity (between 24-60 months), repayment or receipt of forgiveness confirmation. As of December 31, 2021, there was approximately $2,164,000 in net deferred fee income remaining to be recognized. During the three and twelve months ended December 31, 2021, the Company recognized $3,842,000 and $14,148,000, respectively in fees on PPP loans as compared with $4,643,000 and $7,760,000 for the three and twelve months ended December 31, 2020, respectively.

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 applicable period for this relief, originally expected to expire on December 31, 2020, was extended through 2021 by way of the Consolidated Appropriations Act.

The following is a summary of COVID related loan customer modifications with outstanding balances as of December 31, 2021:

					Modification Type				Deferral Term
(dollars in thousands)	Modified Loan Balances Outstanding		% of Total Category of Loans		Interest Only Deferral		Principal and Interest Deferral		90 Days		180 Days		Other
Commercial real estate:
CRE non-owner occupied	$	18,437	1.2	%	100.0	%	—	%	—	%	79.5	%	20.5	%
CRE owner occupied		—	—		—		—		—		—		—
Multifamily		—	—		—		—		—		—		—
Farmland		—	—		—		—		—		—		—
Total commercial real estate loans		18,437	0.6		—		—		—		79.5		20.5
Consumer loans		—	—		—		—		—		—		—
Commercial and industrial		—	—		—		—		—		—		—
Construction		—	—		—		—		—		—		—
Agriculture production		—	—		—		—		—		—		—
Leases		—	—		—		—		—		—		—
Total modifications	$	18,437	0.4	%	100.0	%	—	%	—	%	79.5	%	20.5	%

The remaining balance outstanding as of December 31, 2021 are expected to conclude their modification period during the first half of 2022. The COVID deferral relief period under the CARES act legislation ended effective January 1, 2022, as such, any further requests for modification from borrowers will be evaluated in accordance with loan modification accounting guidance.

Balance Sheet

Total loans outstanding, excluding PPP, grew to $4.86 billion as of December 31, 2021, an increase of 9.4% over the prior year, and an annualized increase of 10.1% over the trailing quarter. Investments increased to $2.43 billion as of December 31, 2021, an increase of 16.3% annualized over the trailing quarter. Average earning assets to total average assets continued to increase to 93.0% at December 31, 2021, as compared to 92.9% and 92.4% at September 30, 2021, and December 31, 2020, respectively. The loan to deposit ratio was 66.7% at December 31, 2021, as compared to 67.5% and 73.2% at September 30, 2021, and December 31, 2020, respectively.

Total shareholders' equity increased by $18,170,000 during the quarter ended December 31, 2021, primarily as a result of net income of $28,222,000, offset by a decrease in accumulated other comprehensive income of $2,746,000, and $7,433,000 in cash dividends paid on common stock. As a result, the Company's book value increased to $33.64 per share at December 31, 2021 as compared to $33.05 and $31.12 at September 30, 2021, and December 31, 2020, respectively. The Company's tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders' equity and dividing that sum by total shares outstanding, was $25.80 per share at December 31, 2021, as compared to $25.16 and $23.09 at September 30, 2021, and December 31, 2020, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	As of December 31,		September 30,		$ Change		Annualized % Change
(dollars in thousands)	2021		2021		$ Change		Annualized % Change
Total assets	$	8,614,787	$	8,458,030	$	156,757	7.4	%
Total loans		4,916,624		4,887,496		29,128	2.4	%
Total loans, excluding PPP		4,855,477		4,736,048		119,429	10.1	%
Total investments		2,427,885		2,333,015		94,870	16.3	%
Total deposits	$	7,367,159	$	7,236,822	$	130,337	7.2	%

Organic loan growth, excluding PPP, of $119,429,000 or 10.1% on an annualized basis was realized during the quarter ended December 31, 2021, primarily within commercial real estate. In addition, investment security growth was $94,870,000 or 16.3% on an annualized basis as excess liquidity, driven by continued strong deposit growth, was put to use in higher yielding earning assets. Deposit balances increased during the fourth quarter of 2021 by $130,337,000 or 7.2% annualized.

Average Trailing Quarter Balance Sheet Change

Qtrly avg balances for the period ended	December 31,		September 30,		$ Change			Annualized % Change
(dollars in thousands)	2021		2021		$ Change			Annualized % Change
Total assets	$	8,546,004	$	8,348,111	$	197,893		9.5	%
Total loans		4,862,457		4,897,922		(35,465	)	(2.9	) %
Total loans, excluding PPP		4,759,294		4,684,492		74,802		6.4	%
Total investments		2,402,582		2,149,311		253,271		47.1	%
Total deposits	$	7,304,659	$	7,137,263	$	167,396		9.4	%

The decrease in average total loans of $35,465,000, or 2.9% on an annualized basis, during the fourth quarter of 2021, was led by the quarter over quarter decline in net PPP loan balances outstanding totaling $90,301,000. As noted above, the significant growth in both ending and average balances of investment securities was a direct result of management's focus on the deployment of excess cash balances which remained elevated due to continued deposit growth during the quarter.

Year Over Year Balance Sheet Change

Ending balances	As of December 31,
(dollars in thousands)	2021		2020		$ Change		% Change
Total assets	$	8,614,787	$	7,639,529	$	975,258	12.8	%
Total loans		4,916,624		4,763,127		153,497	3.2	%
Total loans, excluding PPP		4,855,477		4,436,357		419,120	9.4	%
Total investments		2,427,885		1,719,102		708,783	41.2	%
Total deposits	$	7,367,159	$	6,505,934	$	861,225	13.2	%

Net PPP loan balances outstanding have declined by $265,623,000 during the twelve months ended December 31, 2021, meanwhile, non-PPP loan balances (both organic and purchased) have increased by $419,120,000 during the same period. This has led to a beneficial and meaningful shift in the makeup of the loan portfolio, despite total loan balances increasing modestly during the year ended December 31, 2021, by $153,497,000 or 3.2%. The Company's non-PPP loan originations have increased significantly over the past year but have also been challenged by an acceleration in payoffs. Specifically, during the years ended December 31, 2021 and 2020, loan originations totaled approximately $1.46 billion and $0.79 billion, respectively; while payoffs of loans totaled $1.04 billion and $0.66 billion, respectively. Loan originations are inclusive of those related to the Company's recently opened Southern California loan production offices which contributed $34,742,000 and $38,828,000 during the three and twelve months ended December 31, 2021, respectively. Investment securities increased to $2,427,885,000 at December 31, 2021, a change of $708,783,000 or 41.2% from the prior year.

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,			September 30,
(dollars in thousands)	2021			2021			$ Change			% Change
Interest income	$	71,024		$	69,628		$	1,396		2.0	%
Interest expense		(1,241	)		(1,395	)		154		(11.0	) %
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		274			265			9		3.4	%
Net interest income (FTE)	$	70,057		$	68,498		$	1,559		2.3	%
Net interest margin (FTE)		3.50	%		3.50	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,780		$	2,034		$	(254	)
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.41	%		3.40	%				0.01	%
PPP loans yield, net:
Amount (included in interest income)	$	4,094		$	3,507		$	587
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.34	%		3.42	%				(0.08	) %
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	5,874		$	5,541		$	333
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.25	%		3.31	%				(0.06	) %

	Three months ended December 31,
(dollars in thousands)	2021			2020			$ Change			% Change
Interest income	$	71,024		$	68,081		$	2,943		4.3	%
Interest expense		(1,241	)		(1,659	)		418		(25.2	) %
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		274			258			16		6.2	%
Net interest income (FTE)	$	70,057		$	66,680		$	3,377		5.1	%
Net interest margin (FTE)		3.50	%		3.79	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,780		$	1,960		$	(180	)
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.41	%		3.68	%				(0.27	) %
PPP loans yield, net:
Amount (included in interest income)	$	4,094		$	5,676		$	(1,582	)
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.34	%		3.68	%				(0.34	) %
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	5,874		$	7,636		$	(1,762	)
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.25	%		3.57	%				(0.32	) %

	Twelve months ended December 31,
(dollars in thousands)	2021			2020			$ Change			% Change
Interest income	$	277,047		$	267,184		$	9,863		3.7	%
Interest expense		(5,508	)		(9,457	)		3,949		(41.8	) %
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		1,071			1,069			2		0.2	%
Net interest income (FTE)	$	272,610		$	258,796		$	13,814		5.3	%
Net interest margin (FTE)		3.58	%		3.96	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	8,091		$	8,171		$	(80	)
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.47

TriCo Bancshares Announces Annual and Quarterly Results