TriCo Bancshares — Q2 2022 Form 10-Q
Business context and reporting period. Unaudited quarterly results for the three and six months ended June 30, 2022. TriCo Bancshares is a California bank holding company operating Tri Counties Bank across 31 California counties. Results include the full-quarter operating impact of Valley Republic Bancorp (VRB), acquired March 25, 2022.
Key financial metrics
| Metric | Q2 2022 / June 30, 2022 | Comparable period / reference |
|---|---|---|
| Net income | $31.4 million; diluted EPS $0.93 | $28.4 million and $0.95 diluted EPS in Q2 2021 |
| Six-month net income | $51.7 million; diluted EPS $1.62 | $62.0 million and $2.07 diluted EPS in H1 2021 |
| Net interest income | $85.0 million for Q2; $153.0 million for H1 | Q2: $67.1 million; H1: $133.5 million in 2021 |
| Net interest margin | 3.67% FTE for Q2; 3.57% excluding acquired-loan discount accretion and PPP yield | 3.58% and 3.43%, respectively, in Q2 2021 |
| Assets and loans | Total assets $10.12 billion; loans $6.11 billion | Assets $8.61 billion and loans $4.92 billion at December 31, 2021 |
| Deposits and cash | Deposits $8.76 billion; cash and cash equivalents $488.9 million | Deposits $7.37 billion and cash $768.4 million at December 31, 2021 |
| Credit quality | Allowance for credit losses $97.9 million, or 1.60% of loans; nonperforming assets 0.15% of assets | Allowance ratio 1.74% and NPAs 0.38% at December 31, 2021 |
| Capital | Consolidated total risk-based capital 14.13%; CET1 11.54%; leverage 9.35% | All capital requirements were met; the Bank remained well capitalized |
Q2 noninterest income was $16.4 million, up 3.0% year over year; noninterest expense was $56.3 million, up 27.4%. The efficiency ratio was 55.45% versus 53.19% in Q2 2021. Return on average assets and equity were 1.24% and 11.53%, respectively. The quarterly dividend was $0.25 per share.
For the six months, operating activities generated $72.1 million in cash; investing activities used $472.7 million and financing activities provided $121.0 million. The company repurchased approximately 526,749 shares for $21.8 million during Q2. Total shareholders’ equity was $1.04 billion; accumulated other comprehensive loss was $146.0 million.
Material changes versus prior periods
- VRB added $1.36 billion of assets, including $771.4 million of loans and $1.22 billion of deposits at acquisition. TriCo issued approximately 4.1 million shares; recorded goodwill was $87.1 million. Acquisition-related expense was $2.2 million in Q2 and $6.3 million for H1.
- Organic loans, excluding PPP and acquired balances, grew $300.3 million during Q2 (20.7% annualized); management reported $638.4 million of organic growth over the trailing 12 months.
- Q2 net income rose from Q2 2021, but diluted EPS declined from $0.95 to $0.93 as average shares increased. H1 net income and EPS were below 2021, partly amid reduced PPP income and higher expenses.
- Available-for-sale securities had $209.9 million of gross unrealized losses at June 30, principally attributed by management to higher interest rates rather than credit deterioration. The related net-of-tax AOCI loss on these securities was $147.3 million.
- Nonperforming assets improved from $32.9 million at year-end to $15.3 million. The allowance increased from $85.4 million to $97.9 million, including reserves associated with acquired loans.
Outlook, risks, contingencies and unusual items
- No quantified earnings or revenue guidance was provided. Management described loan pipelines as robust and said it intended to deploy excess liquidity selectively into higher-yielding assets while maintaining credit quality. It anticipated further VRB office consolidation in Q3 2022.
- Management cited inflation, supply-chain disruption, rising energy prices, overseas conflict, higher short-term rates and a flattening or inverted yield curve as potential indicators of economic contraction. It maintained a cautious credit reserve posture.
- Interest-rate sensitivity modeling estimated that an immediate 100-basis-point rate decline could reduce 12-month net interest income by 6.0% and market value of equity by 9.9%; a 200-basis-point increase was estimated to raise NII by 1.0%. These are model estimates based on assumptions and a static balance sheet.
- Unfunded credit commitments were approximately $2.04 billion, alongside $38.6 million of standby letters of credit. The company reported a $2.42 billion FHLB borrowing line and a $243.5 million Federal Reserve line, with no amounts outstanding on either at quarter-end.
- Management said ordinary-course legal matters were not expected to materially adversely affect financial position, results or cash flows. The filing added global economic and geopolitical instability, including the war in Ukraine, as a risk factor. Actual outcomes may differ from estimates, including credit-loss assumptions, securities values, and acquisition integration benefits.
Important facts for investors to verify
- How VRB integration, planned branch and office consolidations, and acquisition-related costs affect future expenses and expected benefits.
- Whether organic loan growth and loan pipelines persist, and how the concentrated California real estate and commercial loan exposures perform if economic conditions weaken.
- Whether deposit balances remain stable and deposit costs rise as interest rates change; review the company’s interest-rate sensitivity assumptions.
- Whether unrealized securities losses remain noncredit-related and whether liquidity needs could require securities sales before recovery of amortized cost.
- How credit quality, criticized loans, nonperforming assets and the adequacy of the allowance evolve amid inflation, higher rates and potential economic contraction.
- How share repurchases, dividends, acquisition-related share issuance and accumulated other comprehensive losses affect capital and book value per share.