TriCo Bancshares — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing. TriCo Bancshares is the parent of Tri Counties Bank, a California community bank operating across 32 counties. Results include Valley Republic Bancorp (VRB) from its March 25, 2022 acquisition; prior-year figures do not.
Financial performance and position
| Metric | FY2022 / year-end | FY2021 / prior year-end |
|---|---|---|
| Net interest income | $346.0 million | $271.5 million |
| Net interest margin, FTE | 3.88% | 3.58% |
| Net income | $125.4 million | $117.7 million |
| Diluted EPS | $3.83 | $3.94 |
| Net interest income after credit provision | $327.5 million | $278.3 million |
| Noninterest income | $63.0 million | $63.7 million |
| Noninterest expense | $216.6 million | $178.3 million |
| Efficiency ratio | 52.97% | 53.18% |
| Total assets | $9.93 billion | $8.61 billion |
| Total loans | $6.45 billion | $4.92 billion |
| Total deposits | $8.33 billion | $7.37 billion |
- Earnings and margins: Net income rose 6.6%, while diluted EPS declined 2.8%, reflecting the larger share count following the VRB stock issuance. FTE net interest income increased 27.4%, supported by higher average earning assets and a 30-basis-point margin expansion. Higher asset yields from rising rates were partly offset by funding-cost increases and lower PPP fee accretion.
- Credit: The provision for credit losses was $18.5 million, versus a $6.8 million reversal in 2021. The allowance for credit losses was $105.7 million, or 1.64% of loans, compared with $85.4 million, or 1.74%. Nonperforming loans improved to 0.33% of loans from 0.61%; nonperforming assets were 0.25% of assets. Net recoveries were $0.3 million.
- Cash flow and liquidity: Operating activities provided $162.9 million. Cash and cash equivalents ended the year at $107.2 million, down from $768.4 million. Investing activities used $723.2 million, while financing activities used $100.9 million. Cash and available-for-sale securities, excluding held-to-maturity securities, totaled $2.56 billion, or 25.8% of assets. Management said liquidity and capital were sufficient for obligations over the next 12 months and foreseeable future.
- Deposits and borrowings: Total deposits increased year over year due to VRB, but organic deposits declined $253.6 million. Estimated uninsured deposits were $2.70 billion. Other borrowings were $264.6 million, including $216.7 million of overnight FHLB borrowing; junior subordinated debt was $101.0 million. Available borrowing capacity was reported at up to $2.49 billion from the FHLB and $299.7 million from the Federal Reserve, subject to collateral and facility terms.
- Capital and securities: Consolidated CET1 and total capital ratios were 11.67% and 14.19%, respectively; management reported compliance with capital requirements. Tangible common equity to tangible assets was 7.6%, down 161 basis points. Available-for-sale securities had $291.0 million of gross unrealized losses at year-end; accumulated other comprehensive loss was $193.9 million after tax, largely reflecting higher interest rates.
- Fourth quarter: Net income was $36.3 million and diluted EPS was $1.09, compared with $28.2 million and $0.94 in Q4 2021. Q4 2022 credit-loss provision was $4.2 million.
Material changes and notable items
- VRB was acquired for approximately $174.0 million in cash and stock consideration. TriCo issued 4.1 million shares and recorded $83.6 million of acquisition goodwill. Acquired loans were approximately $771 million; the transaction contributed substantially to balance-sheet growth.
- Acquisition-related expenses rose to $6.3 million from $1.5 million. The increase in noninterest expense also reflected acquired operations and higher staffing.
- Gain on loan sales declined $7.2 million to $2.3 million, as higher rates reduced mortgage activity. Noninterest income was nearly flat overall.
- Commercial real estate accounted for 67.6% of loans; approximately 90.5% of the loan portfolio was collateralized by real estate, substantially all in California. Management cited recession, inflation, rate increases and yield-curve inversion as risks, while describing overall portfolio credit trends as stable or improved.
- Q4 nonperforming assets increased $3.8 million, largely due to one CRE relationship that management described as well-secured at year-end.
- In February 2023, the Bank detected a network security incident and temporarily shut down networked systems. Core banking and customer-facing operations reportedly resumed within two days; internal access and communications took about a week to restore. Investigation remained ongoing, and management anticipated additional costs while stating consequences were not considered material to date.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified the loan-loss allowance and VRB acquired-loan valuation as critical audit matters.
Outlook, risks and contingencies
The filing provides no quantified earnings, margin, loan-growth or deposit-growth guidance. Management said 2023 loan demand and deposits would depend on economic and competitive conditions; it expected Federal Reserve balance-sheet reduction and competition to put downward pressure on deposits. Management also noted recession concerns and retained credit reserves for economic uncertainty. Rising rates may benefit asset yields but can raise funding costs, pressure borrowers and reduce securities values. Other principal risks include California economic and real-estate concentration, deposit competition and outflows, cybersecurity and vendor exposure, regulatory costs as the Bank approaches $10 billion in assets, and acquisition integration and goodwill impairment. No material pending legal proceedings were reported.
Shareholder distributions continued, but future dividends remain subject to Board discretion, earnings, capital, asset quality and regulatory limits. The filing reports 2022 dividends in multiple places as both $1.10 and $1.20 per share; investors should verify the distinction between declared and paid dividends. The company repurchased 576,881 shares during 2022 under its authorization.
Important facts for investors to verify
- Reconcile reported 2022 dividends per share ($1.10 in the financial summary versus $1.20 in the equity statement and shareholder discussion).
- Track deposit trends excluding VRB, uninsured deposit balances, deposit pricing and continued use of short-term borrowings.
- Assess the size, collateral, performance and subsequent developments of the Q4 CRE relationship driving the increase in nonperforming assets.
- Monitor unrealized securities losses, tangible common equity, and liquidity under further rate or deposit stress.
- Review updates on the February 2023 cybersecurity investigation, potential customer or data impact, remediation costs, insurance recovery and any regulatory or legal actions.
- Evaluate VRB integration, acquisition-related costs, acquired-loan performance and realization of expected benefits.