TriCo Bancshares — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; balance-sheet figures are as of March 31, 2021 unless otherwise noted. TriCo Bancshares is the holding company for Tri Counties Bank, a California community bank operating across 29 counties. Figures below are in U.S. dollars.
Financial performance and condition
| Metric | Q1 2021 | Comparable / prior period |
|---|---|---|
| Net interest income | $66.4 million reported; $66.7 million fully tax-equivalent (FTE) | Reported: $63.2 million in Q1 2020; FTE up 5.1% year over year |
| Net income / diluted EPS | $33.6 million / $1.13 | $16.1 million / $0.53 in Q1 2020 |
| FTE net interest margin | 3.74% | 4.34% in Q1 2020; 3.79% in Q4 2020 |
| Noninterest income / expense | $16.1 million / $41.6 million | $11.8 million / $44.7 million in Q1 2020 |
| Efficiency ratio | 50.42% | 59.66% in Q1 2020 |
| Total assets | $8.03 billion | $7.64 billion at December 31, 2020 |
| Loans / deposits | $4.97 billion / $6.86 billion | $4.76 billion / $6.51 billion at December 31, 2020 |
| Cash and cash equivalents | $609.5 million | $669.6 million at December 31, 2020 |
| Shareholders’ equity | $942.5 million; 11.73% of assets | $925.1 million; 12.1% of assets at December 31, 2020 |
Profitability improved year over year, aided by lower funding costs, PPP-related income, loan-sale gains, and lower operating expenses. Reported net income also benefited from a $6.1 million reversal of credit-loss provision; Q1 2020 included an $8.1 million provision expense. FTE margin declined year over year, reflecting lower yields on loans and securities.
Operating cash flow was $41.2 million. Investing activities used $460.6 million, mainly reflecting $372.9 million of available-for-sale security purchases and net loan funding. Financing activities provided $359.3 million, primarily from $357.5 million of deposit growth. The filing reports $36.2 million of other borrowings and $57.7 million of junior subordinated debt at quarter-end.
Loan growth was $203.9 million from year-end, including PPP loans. Management reported $169.8 million of growth excluding PPP, of which $101.4 million was acquired loans; organic growth excluding PPP was $68.2 million. Deposits rose 5.5% from year-end, with noninterest-bearing deposits at 40.3% of total deposits.
Material changes and credit quality
- Available-for-sale securities increased to $1.68 billion from $1.41 billion at year-end; held-to-maturity securities declined to $260.5 million from $284.6 million. Unrealized losses on available-for-sale securities contributed to a $9.3 million quarterly decline in other comprehensive income.
- The allowance for credit losses on loans fell to $85.9 million, or 1.73% of loans, from $91.8 million, or 1.93%, at year-end. Management attributed the release mainly to improved economic forecasts and lower qualitative reserves; it cited an approximately eight-quarter forecast period.
- Nonperforming loans were $28.9 million and nonperforming assets were $31.3 million; nonperforming assets were 0.39% of total assets. Past-due loans of 30 days or more increased to $10.6 million from $6.8 million at year-end. Substandard loans rose to $58.1 million from $49.1 million.
- COVID-related loan modifications outstanding were $48.3 million, including $18.0 million under second deferrals and $1.8 million under third deferrals. Management said borrowers receiving modifications were risk-graded downward pending demonstrated payment performance.
Outlook, risks, and other notable items
- The filing provides no formal earnings or financial guidance. Management expected above-average liquidity to continue through 2021, given uncertainty around the pandemic and future stimulus, and intended to deploy excess liquidity toward higher-yielding assets, including loans.
- Management warned that low rates and excess liquidity could pressure net interest margin: loan yields may decline faster than deposit costs. Its interest-rate scenarios estimated that a 100-basis-point increase would raise modeled 12-month net interest income by 1.7%, while a 100-basis-point decrease would reduce it by 3.1%. These are modeled sensitivities, not forecasts.
- PPP loans totaled approximately $370.3 million at quarter-end. The company recognized $5.2 million of PPP fees in Q1 and reported $9.4 million of net deferred PPP fee income remaining. Management anticipated approximately $190.2 million of total Round 2 originations and $9.1 million in associated SBA fees, based on application and approval activity after quarter-end.
- The board authorized repurchases of up to 2 million shares, with no expiration date; no shares were repurchased under the new plan during the quarter. The quarterly dividend was $0.25 per share.
- TriCo and the Bank exceeded regulatory capital requirements. The Bank’s March 31 total risk-based capital ratio was 14.90%, versus a 10.00% well-capitalized threshold; its leverage ratio was 9.84%, versus a 5.00% threshold.
- Off-balance-sheet commitments to extend credit totaled approximately $1.48 billion, in addition to standby letters of credit and overdraft commitments. The company said ordinary-course legal proceedings were not expected to have a material adverse effect.
- Risks identified include COVID-19 and economic conditions, California real estate values, borrower performance, interest-rate and securities-market movements, deposit and liquidity availability, competition, cybersecurity and operational disruptions, and litigation.
Important facts for investors to verify
- Whether credit performance, criticized loans, delinquencies, and nonperforming assets support the lower allowance, and how management’s economic assumptions evolve.
- The repayment and forgiveness pace of PPP loans, and the timing and durability of PPP fee income.
- Whether deposit growth and liquidity can be redeployed at yields sufficient to offset continued pressure on net interest margin.
- The sensitivity of securities values and earnings to interest-rate changes, including the effect of unrealized available-for-sale losses.
- The size, status, and potential funding needs of outstanding loan commitments and COVID-related deferrals.