TriCo Bancshares (NASDAQ:TCBK):

Notable Items from the Quarter

Net income was $26.1 million compared to $30.6 million in the trailing quarter, and compared to $36.3 million in the same quarter of the prior year; Pre-tax pre-provision net revenue was $42.4 million compared to $46.2 million in the trailing quarter, and compared to $55.3 million in the same quarter of the prior year
Cash flows generated from the investment securities portfolio and use of borrowing capacities continue to support the overall balance sheet with the loan to deposit ratio reaching 86.7%
Proceeds of $46.9 million from the sale of available-for-sale investment securities resulted in a pre-tax realized loss of $120,000 and an expected earn back period of less than 9-months
Average yield on earning assets was 5.10%, an increase of 16 basis points over the 4.94% in the trailing quarter, and an increase of 58 basis points over the 4.52% from the same quarter in the prior year
Net interest margin was 3.81% in the recent quarter, narrowing 7 basis points from 3.88% in the trailing quarter. Over the past several quarters the pace of margin compression has continued to slow, which is consistent with management's expectation that net interest margin will reach an inflection point by mid-2024
We continue to operate without the utilization of brokered deposits or FRB's Bank Term Funding Program
Loan balances increased $85.8 million or 1.3% while deposit balances declined $175.6 million or 2.2% from the trailing quarter
The average cost of total deposits was 1.05% for the quarter as compared to 0.86% in the trailing quarter and 0.10% in the same quarter of the prior year and, as a result, the Company's total cost of deposits have increased 101 basis points since FOMC rate actions began in March 2022, which translates to a cycle-to-date deposit beta of 19.2%

"The cumulative impact of the FOMC's series of rate increases, along with the overall level of higher interest rates appears to be slowing the rate of inflation and, just as importantly, reducing borrowers' overall demand for credit. As consumers and businesses adjust to a ‘higher for longer' rate cycle, our focus will continue to be on driving new customer acquisition opportunities. We continue to be cautious and diligent in our approach to our allowance and the management of our loan portfolio but are not seeing systemic weakness and overall levels of non-performing loans remain historically low," explained Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "2023 was eventful and challenging for TriCo and the industry alike as the continued higher interest rate environment caused compression on margins while cyber costs and the regulatory response to bank failures caused pressure on non-interest expenses. As we look forward to 2024, we are confident that continuing to maintain a fortress balance sheet, along with effective execution of long-term strategies will drive organic and acquisitive revenue growth."

TriCo Bancshares (NASDAQ:TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $26.1 million for the quarter ended December 31, 2023, compared to $30.6 million during the trailing quarter ended September 30, 2023, and $36.3 million during the quarter ended December 31, 2022. Diluted earnings per share were $0.78 for the fourth quarter of 2023, compared to $0.92 for the trailing quarter and $1.09 during the fourth quarter of 2022.

Financial Highlights

Performance highlights for the Company included the following:

For the quarter ended December 31, 2023, the Company's return on average assets was 1.05%, while the return on average equity was 9.43%. For the year ended December 31, 2023, the Company's return on average assets was 1.19%, while the return on average equity was 10.65%.
The loan to deposit ratio increased to 86.7% as of December 31, 2023, as compared to 83.8% as of the trailing quarter.
The efficiency ratio was 55.8% and 53.0% for the twelve-months ended December 31, 2023 and 2022, respectively.
The provision for credit losses was approximately $6.0 million during the quarter ended December 31, 2023, as compared to a provision for credit losses of $4.2 million during the trailing quarter ended September 30, 2023, and a provision for credit losses of $4.2 million for the three-month period ended December 31, 2022.
The allowance for credit losses to total loans was 1.79% as of December 31, 2023, compared to 1.73% as of the trailing quarter end, and 1.64% as of December 31, 2022. Non-performing assets to total assets were 0.35% on December 31, 2023, as compared to 0.33% as of September 30, 2023, and 0.25% at December 31, 2022.

Financial results reported in this document are preliminary and unaudited. Final financial results and other disclosures will be reported in our Annual Report on Form 10-K for the period ended December 31, 2023, 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

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, except per share data)	2023			2023			$ Change			% Change
Net interest income	$	86,617		$	88,123		$	(1,506	)	(1.7	) %
Provision for credit losses		(5,990	)		(4,155	)		(1,835	)	44.2	%
Noninterest income		16,040			15,984			56		0.4	%
Noninterest expense		(60,267	)		(57,878	)		(2,389	)	4.1	%
Provision for income taxes		(10,325	)		(11,484	)		1,159		(10.1	) %
Net income	$	26,075		$	30,590		$	(4,515	)	(14.8	) %
Diluted earnings per share	$	0.78		$	0.92		$	(0.14	)	(15.2	) %
Dividends per share	$	0.30		$	0.30		$	—		—	%
Average common shares		33,267			33,263			4		—	%
Average diluted common shares		33,352			33,319			33		0.1	%
Return on average total assets		1.05	%		1.23	%
Return on average equity		9.43	%		10.91	%
Efficiency ratio		58.71	%		55.59	%

	Three months ended December 31,
(dollars and shares in thousands, except per share data)	2023			2022			$ Change			% Change
Net interest income	$	86,617		$	98,900		$	(12,283	)	(12.4	) %
Provision for credit losses		(5,990	)		(4,245	)		(1,745	)	41.1	%
Noninterest income		16,040			15,880			160		1.0	%
Noninterest expense		(60,267	)		(59,469	)		(798	)	1.3	%
Provision for income taxes		(10,325	)		(14,723	)		4,398		(29.9	) %
Net income	$	26,075		$	36,343		$	(10,268	)	(28.3	) %
Diluted earnings per share	$	0.78		$	1.09		$	(0.31	)	(28.4	) %
Dividends per share	$	0.30		$	0.30		$	—		—	%
Average common shares		33,267			33,330			(63	)	(0.2	) %
Average diluted common shares		33,352			33,467			(115	)	(0.3	) %
Return on average total assets		1.05	%		1.45	%
Return on average equity		9.43	%		14.19	%
Efficiency ratio		58.71	%		51.81	%

	Twelve months ended December 31,
(dollars and shares in thousands)	2023			2022			$ Change			% Change
Net interest income	$	356,677		$	345,976		$	10,701		3.1	%
Provision for credit losses		(23,990	)		(18,470	)		(5,520	)	29.9	%
Noninterest income		61,400			63,046			(1,646	)	(2.6	) %
Noninterest expense		(233,182	)		(216,645	)		(16,537	)	7.6	%
Provision for income taxes		(43,515	)		(48,488	)		4,973		(10.3	) %
Net income	$	117,390		$	125,419		$	(8,029	)	(6.4	) %
Diluted earnings per share	$	3.52		$	3.83		$	(0.31	)	(8.1	) %
Dividends per share	$	1.20		$	1.10		$	0.10		9.1	%
Average common shares		33,261			32,584			677		2.1	%
Average diluted common shares		33,355			32,721			634		1.9	%
Return on average total assets		1.19	%		1.28	%
Return on average equity		10.65	%		11.67	%
Efficiency ratio		55.77	%		52.97	%

Balance Sheet

Total loans outstanding grew to $6.8 billion as of December 31, 2023, an organic increase of 5.3% over December 31, 2022. As compared to September 30, 2023, total loans outstanding increased during the quarter by $85.8 million or 5.1% annualized. Investments decreased to $2.31 billion as of December 31, 2023, an annualized decrease of 12.4% over December 31, 2022. Quarterly average earning assets to quarterly total average assets was 91.6% on December 31, 2023, compared to 91.4% at December 31, 2022. The loan-to-deposit ratio was 86.7% on December 31, 2023, as compared to 77.4% at December 31, 2022. The Company did not utilized brokered deposits during 2023 or 2022 and has relied solely on short-term borrowings to fund cash flow timing differences.

Total shareholders' equity increased by $89.3 million during the quarter ended December 31, 2023, as a result of accumulated other comprehensive losses decreasing by $72.2 million and net income of $26.1 million, offset partially by cash dividend payments on common stock of approximately $10.0 million. As a result, the Company's book value grew to $34.86 per share at December 31, 2023, compared to $31.39 at December 31, 2022. 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 $25.39 per share at December 31, 2023, as compared to $21.76 at December 31, 2022. As noted above, changes in the fair value of available-for-sale investment securities, net of deferred taxes continue to create moderate levels of volatility in tangible book value per share.

Trailing Quarter Balance Sheet Change

Ending balances	December 31,		September 30,					Annualized % Change
(dollars in thousands)	2023		2023		$ Change			Annualized % Change
Total assets	$	9,910,089	$	9,897,006	$	13,083		0.5	%
Total loans		6,794,470		6,708,666		85,804		5.1
Total investments		2,305,882		2,333,162		(27,280	)	(4.7	)
Total deposits		7,834,038		8,009,643		(175,605	)	(8.8	)
Total other borrowings		632,582		537,975		94,607		70.3

Loans outstanding increased by $85.8 million or 5.1% on an annualized basis during the quarter ended December 31, 2023. During the quarter, loan originations/draws totaled approximately $450.0 million while payoffs/repayments of loans totaled $368.0 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $495.0 million and $308.0 million, respectively. While origination volume decreased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2022 due in part to disciplined pricing and underwriting, as well as decreased borrower appetite given economic uncertainties. Investment security balances decreased $27.3 million or 4.7% on an annualized basis as the result of net prepayments, maturities, and sales totaling approximating $130.7 million, offset by net increases in the market value of securities of $103.6 million. Management intends to utilize excess cash flows from the investment security portfolio to support loan growth or reduce borrowings, thus driving an improved mix of earning assets. Deposit balances decreased by $175.6 million or 8.8% annualized during the period. Funding for the net cash outflows of loans, investment securities and deposits during the quarter were supported by a net increase of $94.6 million in short-term borrowings, which totaled $632.6 million at December 31, 2023.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended	December 31,		September 30,					Annualized % Change
(dollars in thousands)	2023		2023		$ Change			Annualized % Change
Total assets	$	9,879,355	$	9,874,240	$	5,115		0.2	%
Total loans		6,746,153		6,597,400		148,753		9.0
Total investments		2,277,985		2,429,335		(151,350	)	(24.9	)
Total deposits		7,990,993		8,043,101		(52,108	)	(2.6	)
Total other borrowings		515,959		449,274		66,685		59.4

Year Over Year Balance Sheet Change

Ending balances	As of December 31,							% Change
(dollars in thousands)	2023		2022		$ Change			% Change
Total assets	$	9,910,089	$	9,930,986	$	(20,897	)	(0.2	) %
Total loans		6,794,470		6,450,447		344,023		5.3
Total loans, excluding PPP		6,793,388		6,448,845		344,543		5.3
Total investments		2,305,882		2,633,269		(327,387	)	(12.4	)
Total deposits		7,834,038		8,329,013		(494,975	)	(5.9	)
Total other borrowings		632,582		264,605		367,977		139.1

Loan balances increased as a result of organic activities by approximately $344.5 million or 5.3% during the twelve-month period ending December 31, 2023. Over the same period deposit balances have declined by $495.0 million or 5.9%. The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term Federal Home Loan Bank (FHLB) borrowings. As of December 31, 2023 and December 31, 2022, short-term borrowings from the FHLB totaled $600.0 million and $216.7 million and had a weighted average interest rate of 5.38% and 4.65%, respectively.

Liquidity

The Company's primary sources of liquidity include the following for the periods indicated:

(dollars in thousands)	December 31, 2023			September 30, 2023			December 31, 2022
Borrowing capacity at correspondent banks and FRB	$	2,921,525		$	2,927,065		$	2,815,574
Less: borrowings outstanding		(600,000	)		(500,000	)		(216,700	)
Unpledged available-for-sale (AFS) investment securities		1,558,506			1,702,265			1,990,451
Cash held or in transit with FRB		51,253			72,049			56,910
Total primary liquidity	$	3,931,284		$	4,201,379		$	4,646,235

Estimated uninsured deposit balances	$	2,371,000		$	2,407,000		$	2,701,000

At December 31, 2023, the Company's primary sources of liquidity represented 50% of total deposits and 166% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $125.1 million, including approximately $8.3 million in net unrealized losses. The Company did not utilize any brokered deposits during 2023 or 2022.

Net Interest Income and Net Interest Margin

During the twelve-month period ended December 31, 2023, the Federal Open Market Committee's (FOMC) actions have resulted in an increase in the Fed Funds Rate by approximately 100 basis points. During the same period the Company's yield on total loans (excluding PPP) increased 54 basis points to 5.64% for the three months ended December 31, 2023, from 5.10% for the three months ended December 31, 2022. Moreover, the tax equivalent yield on the Company's investment security portfolio was 3.50% for the quarter ended December 31, 2023, an increase of 37 basis points from the 3.13% for the three months ended December 31, 2022. The cost of total interest-bearing deposits and total interest-bearing liabilities increased by 144 basis points and 169 basis points, respectively, between the three month periods ended December 31, 2023 and 2022. Since FOMC rate actions began in March 2022, the Company's cost of total deposits has increased 101 basis points which translates to a cycle to date deposit beta of 19.2%.

The Company continues to manage its cost of deposits through the use of various pricing and product mix strategies. As of December 31, 2023, September 30, 2023, and December 31, 2022, deposits priced utilizing these strategies totaled $1.3 billion, $1.2 billion and $579.1 million, respectively, and carried weighted average rates of 3.60%, 3.53%, and 1.64%, respectively.

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)	2023			2023			Change			% Change
Interest income	$	115,909		$	112,380		$	3,529		3.1	%
Interest expense		(29,292	)		(24,257	)		(5,035	)	20.8	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		360			405			(45	)	(11.1	) %
Net interest income (FTE)	$	86,977		$	88,528		$	(1,551	)	(1.8	) %
Net interest margin (FTE)		3.81	%		3.88	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,459		$	1,324		$	135		10.2	%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.75	%		3.82	%		(0.07	) %
PPP loans yield, net:
Amount (included in interest income)	$	1		$	2		$	(1	)	(50.0	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.81	%		3.88	%		(0.07	) %
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,460		$	1,326		$	134		10.1	%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.75	%		3.82	%		(0.07	) %

	Three months ended December 31,
(dollars in thousands)	2023			2022			Change			% Change
Interest income	$	115,909		$	102,989		$	12,920		12.5	%
Interest expense		(29,292	)		(4,089	)		(25,203	)	616.4	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		360			440			(80	)	(18.2	) %
Net interest income (FTE)	$	86,977		$	99,340		$	(12,363	)	(12.4	) %
Net interest margin (FTE)		3.81	%		4.34	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,459		$	1,751		$	(292	)	(16.7	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.75	%		4.27	%		(0.52	) %
PPP loans yield, net:
Amount (included in interest income)	$	1		$	16		$	(15	)	(93.8	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.81	%		4.34	%		(0.53	) %
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,460		$	1,767		$	(307	)	(17.4	) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.75	%		4.27	%		(0.52	) %

	Twelve months ended December 31,
(dollars in thousands)	2023			2022			Change			% Change
Interest income	$	438,354		$	355,505		$	82,849		23.3	%
Interest expense		(81,677	)		(9,529	)		(72,148	)	757.1	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		1,536			1,560			(24	)	(1.5	) %
Net interest income (FTE)	$	358,213		$	347,536		$	10,677		3.1	%
Net interest margin (FTE)		3.96	%		3.88	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	5,651		$	5,465		$	186		3.4	%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.90	%		3.81	%		0.09	%
PPP loans yield, net:
Amount (included in interest income)	$	12		$	2,390		$	(2,378	)	(99.5	) %
Net interest m

TriCo Bancshares Announces Fourth Quarter 2023 Results