TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company
of Tri Counties Bank, today announced net income of $28,362,000 for
the quarter ended June 30, 2021, compared to $33,649,000 during the
trailing quarter ended March 31, 2021 and $7,430,000 during the
quarter ended June 30, 2020. Diluted earnings per share were $0.95
for the second quarter of 2021, compared to $1.13 for the first
quarter of 2021 and $0.25 for the second quarter of 2020.
Financial Highlights
Performance highlights and other developments for the Company as
of or for the three and six months ended June 30, 2021 included the
following:
- For the three and six months ended June 30, 2021, the Company’s
return on average assets was 1.40% and 1.57%, respectively, and the
return on average equity was 11.85% and 13.16%, respectively.
- Organic loan growth, excluding PPP, totaled $99.2 million (8.6%
annualized) for the current quarter and $327.3 million (7.5%) for
the trailing twelve-month period.
- For the current quarter, net interest margin was 3.58% on a tax
equivalent basis as compared to 4.10% in the quarter ended June 30,
2020, and a decrease of 16 basis points from 3.74% in the trailing
quarter.
- The efficiency ratio was 53.19% as of June 30, 2021, as
compared to 50.42% in the trailing quarter and 59.69% in the same
quarter of the prior year.
- As of June 30, 2021, the Company reported total loans, total
assets and total deposits of $4.94 billion, $8.17 billion and $6.99
billion, respectively. As a direct result of the considerable
deposit growth in the last 6 quarters, the loan to deposit ratio
was 70.72% as of June 30, 2021, as compared to 73.21% at December
31, 2020 and 76.84% at June 30, 2020.
- Non-interest bearing deposits as a percentage of total deposits
were 40.67% at June 30, 2021, as compared to 39.68% at December 31,
2020 and 39.81% at June 30, 2020.
- The average rate of interest paid on deposits, including
non-interest-bearing deposits, decreased to 0.05% for the second
quarter of 2021 as compared with 0.06% for the trailing quarter,
and decreased by 7 basis points from the average rate paid of 0.12%
during the same quarter of the prior year.
- The balance of PPP loans outstanding at June 30, 2021 totaled
$248.6 million and the balance of SBA fees remaining to be accreted
totaled $9.0 million. In addition, nearly 90% of all round one PPP
loans have been forgiven and repaid.
- Noninterest income related to service charges and fees was
$10.9 million and $21.4 million for the three and six month periods
ended June 30, 2021, representing an increase of 33.8% and 23.8%
when compared to the same periods in 2020.
- The reversal of provision for credit losses for loans and debt
securities was $0.3 million during the quarter ended June 30, 2021,
as compared to a reversal of provision expense of $6.1 million
during the trailing quarter ended March 31, 2021, and a provision
expense totaling $22.2 million for the three month period ended
June 30, 2020.
- The allowance for credit losses to total loans was 1.74% as of
June 30, 2021, compared to 1.93% as of December 31, 2020, and 1.15%
as January 1, 2020, following the Company's adoption of CECL.
Non-performing assets to total assets were 0.43% at June 30, 2021,
as compared to 0.39% as of March 31, 2021, and 0.31% at June 30,
2020.
“The low rate and high liquidity environment in which we
currently operate necessitates our continued focus on high quality
earning asset growth. Our team's ability to execute our growth
strategies while maintaining or improving the efficiency of our
operations, as we scale towards $10 billion in total assets, will
be critical to our long-term success. We believe that our
year-to-date results for 2021 are a reflection of our
accomplishments,” commented Peter Wiese, EVP and Chief Financial
Officer. Rick Smith, President and CEO added; “We are very pleased
with the level of non-PPP organic loan growth that has been
generated to date, and we remain optimistic regarding expected
production and growth the latter half of the year. Additionally,
our new loan production offices, located in San Diego, Irvine, and
Pasadena will officially open in late Q3. We are pleased with the
level of talent we have been able to add to the organization in the
southern California geography as well as our legacy footprint, both
of which should augment our performance in the latter part of 2021
and beyond.”
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . Financial results
reported in this document are preliminary. Final financial results
and other disclosures will be reported in our Quarterly Report on
Form 10-Q for the period ended June 30, 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 six months ended June 30, 2021, the Company’s
return on average assets was 1.40% and 1.57%, respectively, while
the return on average equity was 11.85% and 13.16%, respectively.
For the three and six months ended June 30, 2020, the Company’s
return on average assets was 0.43% and 0.70%, respectively, while
the return on average equity was 3.39% and 5.06%, 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
June 30,
March 31,
(dollars and shares in thousands)
2021
2021
$ Change
% Change
Net interest income
$
67,083
$
66,440
$
643
1.0
%
Reversal of credit losses
260
6,060
(5,800)
(95.7)
%
Noninterest income
15,957
16,110
(153)
(0.9)
%
Noninterest expense
(44,171)
(41,618)
(2,553)
6.1
%
Provision for income taxes
(10,767)
(13,343)
2,576
(19.3)
%
Net income
$
28,362
$
33,649
$
(5,287)
(15.7)
%
Diluted earnings per share
$
0.95
$
1.13
$
(0.18)
(15.9)
%
Dividends per share
$
0.25
$
0.25
$
—
—
%
Average common shares
29,719
29,727
(8)
(0.03)
%
Average diluted common shares
29,904
29,905
(1)
0.00
%
Return on average total assets
1.40
%
1.75
%
Return on average equity
11.85
%
14.51
%
Efficiency ratio
53.19
%
50.42
%
Three months ended June 30,
(dollars and shares in thousands)
2021
2020
$ Change
% Change
Net interest income
$
67,083
$
64,659
$
2,424
3.7
%
Reversal of (provision for) credit
losses
260
(22,244)
22,504
(101.2)
%
Noninterest income
15,957
11,657
4,300
36.9
%
Noninterest expense
(44,171)
(45,550)
1,379
(3.0)
%
Provision for income taxes
(10,767)
(1,092)
(9,675)
886.0
%
Net income
$
28,362
$
7,430
$
20,932
281.7
%
Diluted earnings per share
$
0.95
$
0.25
$
0.70
280.0
%
Dividends per share
$
0.25
$
0.22
$
0.03
13.6
%
Average common shares
29,719
29,754
(35)
(0.1)
%
Average diluted common shares
29,904
29,883
21
0.1
%
Return on average total assets
1.40
%
0.43
%
Return on average equity
11.85
%
3.39
%
Efficiency ratio
53.19
%
59.89
%
Six months ended June 30,
(dollars and shares in thousands)
2021
2020
$ Change
% Change
Net interest income
$
133,523
$
127,851
$
5,672
4.4
%
Reversal of (provision for) credit
losses
6,320
(30,313)
36,633
(120.8)
%
Noninterest income
32,067
23,477
8,590
36.6
%
Noninterest expense
(85,789)
(90,300)
4,511
(5.0)
%
Provision for income taxes
(24,110)
(7,164)
(16,946)
236.5
%
Net income
$
62,011
$
23,551
$
38,460
163.3
%
Diluted earnings per share
$
2.07
$
0.78
$
1.29
165.4
%
Dividends per share
$
0.50
$
0.44
$
0.06
13.6
%
Average common shares
29,723
30,074
(351)
(1.2)
%
Average diluted common shares
29,904
30,203
(299)
(1.0)
%
Return on average total assets
1.57
%
0.70
%
Return on average equity
13.16
%
5.06
%
Efficiency ratio
51.81
%
59.82
%
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
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)
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
Total number of PPP loans outstanding
2,209
2,484
2,310
2,924
2,900
PPP loan balance (Round 1 origination),
gross
$
51,547
$
193,958
$
333,982
$
437,793
$
436,731
PPP loan balance (Round 2 origination),
gross
197,035
176,316
n/a
n/a
n/a
Total PPP loans, gross outstanding
$
248,582
$
370,274
$
333,982
$
437,793
$
436,731
PPP deferred loan fees (Round 1
origination)
$
477
$
2,358
$
7,212
$
11,846
$
13,300
PPP deferred loan fees (Round 2
origination)
8,513
7,072
n/a
n/a
n/a
Total PPP deferred loan fees
outstanding
$
8,990
$
9,430
$
7,212
$
11,846
$
13,300
As of June 30, 2021, the total gross balance outstanding of PPP
loans was $248,582,000 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 June 30, 2021 there was approximately $8,990,000 in net deferred
fee income remaining to be recognized. During the three and six
months ended June 30, 2021, the Company recognized $2,344,000 and
$7,304,000, respectively in fees on PPP loans.
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 June 30, 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
$
23,811
1.6
%
94.4
%
5.6
%
—
%
81.5
%
18.5
%
CRE owner occupied
2,943
0.5
100.0
—
—
57.1
42.9
Multifamily
26,311
3.2
100.0
—
—
100.0
—
Farmland
—
—
—
—
—
—
—
Total commercial real estate loans
53,065
1.7
97.5
2.5
23.7
89.3
10.7
Consumer loans
—
—
—
—
—
—
—
Commercial and industrial
557
0.1
100.0
—
—
—
100.0
Construction
—
—
—
—
—
—
—
Agriculture production
—
—
—
—
—
—
—
Leases
—
—
—
—
—
—
—
Total modifications
$
53,622
1.1
%
95.7
%
2.5
%
—
%
88.4
%
11.6
%
Of the remaining balance outstanding as of June 30, 2021,
$33,350,000 is related to second deferrals which are expected to
conclude their modification period by November, 2021 and $2,525,595
is related to third deferrals expected to conclude in October,
2021. The remaining balance of loans with modified terms are
scheduled to conclude their modification period during fiscal 2021.
However, as long as the current pandemic and recessionary economic
conditions continue, it is possible that additional borrowers may
request an initial or subsequent modification to their loan
terms.
Balance Sheet
Total loans outstanding, excluding PPP, grew to $4.71 billion as
of June 30, 2021, an increase of 7.5% over the same quarter of the
prior year, and an annualized increase of 8.6% over the trailing
quarter. Investments outstanding increased to $2.10 billion as of
June 30, 2021, an increase of 28.7% annualized over the trailing
quarter. Average earning assets to total average assets continued
to increase to 92.8% at June 30, 2021, as compared to 92.7% and
90.6% at March 31, 2021, and June 30, 2020, respectively. The loan
to deposit ratio was 70.7% at June 30, 2021, as compared to 72.4%
and 76.8% at March 31, 2021, and June 30, 2020, respectively.
Total shareholders' equity increased by $24,241,000 during the
quarter ended June 30, 2021, primarily as a result of net income of
$28,362,000, plus an increase in accumulated other comprehensive
income of $5,206,000, offset by $7,431,000 in cash dividends paid
on common stock. As a result, the Company’s book value increased to
$32.53 per share at June 30, 2021 as compared to $31.71 and $29.76
at March 31, 2021, and June 30, 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 $24.60 per share at June 30, 2021, as compared to
$23.72 and $21.64 at March 31, 2021, and June 30, 2020,
respectively.
Trailing Quarter Balance Sheet Change
Ending balances
As of June 30,
March 31,
$ Change
Annualized % Change
(dollars in thousands)
2021
2021
Total assets
$
8,170,365
$
8,031,612
$
138,753
6.9
%
Total loans
4,944,894
4,966,977
(22,083)
(1.8)
%
Total loans, excluding PPP
4,705,302
4,606,133
99,169
8.6
%
Total investments
2,103,575
1,962,780
140,795
28.7
%
Total deposits
$
6,992,053
$
6,863,400
$
128,653
7.5
%
Organic loan growth, excluding PPP, of $99,169,000 or 8.6% on an
annualized basis was realized during the quarter ended June 30,
2021, primarily within commercial real estate. In addition,
investment security growth was $140,795,000 or 28.7% on an
annualized basis as excess liquidity, driven by continued strong
deposit growth, was put to use in higher yielding earning assets.
Earning asset growth was funded by the continued growth of deposit
balances which increased during the second quarter of 2021 by
$128,653,000 or 7.5% annualized. SBA forgiveness outpaced net new
loan origination activity, resulting in a $22,083,000 or 1.8%
annualized decrease in total loans during the second quarter as
compared to the trailing quarter.
Average Trailing Quarter Balance Sheet Change
Qtrly avg balances
As of June 30,
As of March 31,
$ Change
Annualized % Change
(dollars in thousands)
2021
2021
Total assets
$
8,128,674
$
7,808,912
$
319,762
16.4
%
Total loans
4,978,465
4,763,025
215,440
18.1
%
Total loans, excluding PPP
4,646,188
4,407,150
239,038
21.7
%
Total investments
2,007,090
1,775,035
232,055
52.3
%
Total deposits
$
6,943,081
$
6,653,754
$
289,327
17.4
%
The increase in average total loans of $215,440,000, or 18.1% on
an annualized basis, during the second quarter of 2021 was
benefited by both the timing of organic loan origination activity
early in the quarter as well as the Company's purchase of a pool of
single family residential mortgages totaling approximately
$101,466,000 which occurred on the final day of the first quarter,
and thus minimally impacted the March 31, 2021 average balances
while fully benefiting the average balances in the second quarter.
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 June 30,
(dollars in thousands)
2021
2020
$ Change
% Change
Total assets
$
8,170,365
$
7,360,071
$
810,294
11.0
%
Total loans
4,944,894
4,801,405
143,489
3.0
%
Total loans, excluding PPP
4,705,302
4,377,974
327,328
7.5
%
Total investments
2,103,575
1,353,728
749,847
55.4
%
Total deposits
$
6,992,053
$
6,248,258
$
743,795
11.9
%
As discussed in previous quarters, the PPP program generated
significant increases in volume during the twelve months ended June
30, 2021 for both loan and deposit balances. Other forms of
stimulus payments have further elevated deposit levels during the
same period. While excess deposit proceeds are ratably being
allocated to the purchase of investment securities with medium term
durations to improve overall margin, we expect to maintain above
average levels of liquidity through 2021, as the economic impacts
of COVID-19 and amount of future stimulus both remain uncertain.
Investment securities increased to $2,103,575,000 at June 30, 2021,
a change of $749,847,000 or 55.4% from $1,353,728,000 at June 30,
2020.
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
June 30,
March 31,
(dollars in thousands)
2021
2021
$ Change
% Change
Interest income
$
68,479
$
67,916
$
563
0.8
%
Interest expense
(1,396)
(1,476)
80
(5.4)
%
Fully tax-equivalent adjustment (FTE)
(1)
255
277
(22)
(7.9)
%
Net interest income (FTE)
$
67,338
$
66,717
$
621
0.9
%
Net interest margin (FTE)
3.58
%
3.74
%
Acquired loans discount accretion,
net:
Amount (included in interest income)
$
2,566
$
1,712
$
854
Net interest margin less effect of
acquired loan discount accretion(1)
3.44
%
3.64
%
(0.20)
%
PPP loans yield, net:
Amount (included in interest income)
$
3,179
$
5,863
$
(2,684)
Net interest margin less effect of PPP
loan yield (1)
3.61
%
3.59
%
0.02
%
Acquired loans discount accretion and PPP
loan yield, net:
Amount (included in interest income)
$
5,745
$
7,575
$
(1,830)
Net interest margin less effect of
acquired loan discount accretion and PPP loan yield (1)
3.47
%
3.49
%
(0.02)
%
Three months ended June 30,
(dollars in thousands)
2021
2020
$ Change
% Change
Interest income
$
68,479
$
67,148
$
1,331
2.0
%
Interest expense
(1,396)
(2,489)
1,093
(43.9)
%
Fully tax-equivalent adjustment (FTE)
(1)
255
286
(31)
(10.8)
%
Net interest income (FTE)
$
67,338
$
64,945
$
2,393
3.7
%
Net interest margin (FTE)
3.58
%
4.10
%
Acquired loans discount accretion,
net:
Amount (included in interest income)
$
2,566
$
2,587
$
(21)
Net interest margin less effect of
acquired loan discount accretion(1)
3.44
%
3.94
%
(0.50)
%
PPP loans yield, net:
Amount (included in interest income)
$
3,179
$
2,356
$
823
Net interest margin less effect of PPP
loan yield (1)
3.61
%
4.14
%
(0.53)
%
Acquired loans discount accretion and PPP
loan yield, net:
Amount (included in interest income)
$
5,745
$
4,943
$
802
Net interest margin less effect of
acquired loan discount accretion and PPP loan yield (1)
3.47
%
3.98
%
(0.51)
%
Six months ended June 30,
(dollars in thousands)
2021
2020
$ Change
% Change
Interest income
$
136,395
$
133,665
$
2,730
2.0
%
Interest expense
(2,872)
(5,814)
2,942
(50.6)
%
Fully tax-equivalent adjustment (FTE)
(1)
532
557
(25)
(4.5)
%
Net interest income (FTE)
$
134,055
$
128,408
$
5,647
4.4
%
Net interest margin (FTE)
3.66
%
4.22
%
Acquired loans discount accretion,
net:
Amount (included in interest income)
$
4,278
$
4,335
$
(57)
Net interest margin less effect of
acquired loan discount accretion(1)
3.54
%
4.08
%
(0.54)
%
PPP loans yield, net:
Amount (included in interest income)
$
9,042
$
2,356
$
6,686
Net interest margin less effect of PPP
loan yield (1)
3.59
%
4.25
%
(0.66)
%
Acquired loans discount accretion and PPP
loan yield, net:
Amount (included in interest income)
$
13,320
$
6,691
$
6,629
Net interest margin less effect of
acquired loans discount and PPP loan yield (1)
3.46
%
4.11
%
(0.65)
%
- Information is presented on a fully tax-equivalent (FTE) basis.
The Company believes the use of this non-generally accepted
accounting principles (non-GAAP) measure provides additional
clarity in assessing its results, and the presentation of these
measures on a FTE basis is a common practice within the banking
industry.
Loans may be acquired at a premium or discount to par value, in
which case, the premium is amortized (subtracted from) or accreted
(added to) interest income over the remaining life of the loan.
Generally, as time goes on, the dollar impact of loan discount
accretion and loan premium amortization decrease as the purchased
loans mature or pay off early. Upon the early pay off of a loan,
any remaining unaccreted discount or unamortized premium is
immediately taken into interest income; and as loan payoffs may
vary significantly from quarter to quarter, so may the impact of
discount accretion and premium amortization on interest income. As
a result of the decrease in interest rates, the prepayment rate of
portfolio loans, inclusive of those acquired at a premium or
discount, increased during the second quarter of 2021. During the
three months ended June 30, 2021, March 31, 2021, and June 30,
2020, purchased loan discount accretion was $2,566,000, $1,712,000,
and $2,587,000, respectively.
The following table shows the components of net interest income
and net interest margin on a fully tax-equivalent (FTE) basis for
the quarterly periods indicated:
ANALYSIS OF CHANGE IN NET
INTEREST MARGIN ON EARNING ASSETS
(unaudited, dollars in
thousands)
Three months ended
Three months ended
Three months ended
June 30, 2021
March 31, 2021
June 30, 2020
Average Balance
Income/ Expense
Yield/ Rate
Average Balance
Income/ Expense
Yield/ Rate
Average Balance
Income/ Expense
Yield/ Rate
Assets
Loans, excluding PPP
$
4,646,188
$
57,125
4.93
%
$
4,407,150
$
54,573
5.02
%
$
4,363,481
$
56,053
5.23
%
PPP loans
332,277
3,179
3.84
%
355,875
5,863
6.68
%
292,569
2,356
3.24
%
Investments-taxable
1,875,056
7,189
1.54
%
1,649,980
6,394
1.57
%
1,251,873
7,689
2.47
%
Investments-nontaxable (1)
132,034
1,106
3.36
%
125,055
1,200
3.89
%
119,860
1,238
4.15
%
Total investments
2,007,090
8,295
1.66
%
1,775,035
7,594
1.74
%
1,371,733
8,927
2.62
%
Cash at Federal Reserve and other
banks
559,026
135
0.10
%
701,666
163
0.09
%
338,082
98
0.12
%
Total earning assets
7,544,581
68,734
3.65
%
7,239,726
68,193
3.82
%
6,365,865
67,434
4.26
%
Other assets, net
584,093
569,186
661,870
Total assets
$
8,128,674
$
7,808,912
$
7,027,735
Liabilities and shareholders’ equity
Interest-bearing demand deposits
$
1,490,247
$
77
0.02
%
$
1,430,943
$
76
0.02
%
$
1,293,007
$
64
0.02
%
Savings deposits
2,316,889
308
0.05
%
2,228,281
329
0.06
%
1,968,374
644
0.13
%
Time deposits
324,867
443
0.55
%
336,605
532
0.64
%
409,242
1,105
1.09
%
Total interest-bearing deposits
4,132,003
828
0.08
%
3,995,829
937
0.10
%
3,670,623
1,813
0.20
%
Other borrowings
40,986
5
0.05
%
32,709
4
0.05
%
26,313
4
0.06
%
Junior subordinated debt
57,788
563
3.91
%
57,688
535
3.76
%
57,372
672
4.71
%
Total interest-bearing liabilities
4,230,777
1,396
0.13
%
4,086,226
1,476
0.15
%
3,754,308
2,489
0.27
%
Noninterest-bearing deposits
2,811,078
2,657,925
2,266,671
Other liabilities
126,674
123,986
126,351
Shareholders’ equity
960,145
940,775
880,405
Total liabilities and shareholders’
equity
$
8,128,674
$
7,808,912
$
7,027,735
Net interest rate spread (1) (2)
3.52
%
3.67
%
3.99
%
Net interest income and margin (1) (3)
$
67,338
3.58
%
$
66,717
3.74
%
$
64,945
4.10
%
- Fully taxable equivalent (FTE). All yields and rates are
calculated using specific day counts for the period and year as
applicable.
- Net interest spread is the average yield earned on
interest-earning assets minus the average rate paid on
interest-bearing liabilities.
- Net interest margin is computed by calculating the difference
between interest income and interest expense, divided by the
average balance of interest-earning assets.
Net interest income (FTE) during the three months ended June 30,
2021 increased $621,000 or 0.9% to $67,338,000 compared to
$66,717,000 during the three months ended March 31, 2021. Over the
same period, net interest margin decreased 16 basis points to 3.58%
as compared to 3.74% in the trailing quarter. The 16 basis point
decrease is primarily attributed to a 9 basis point decrease in
non-PPP loan yields, as well as a 284 basis point decline in PPP
loans, which yielded 3.84% as of June 30, 2021 as compared to 6.68%
for the trailing quarter ended March 31, 2021. The quarterly
decrease in yield on PPP loans was due to a deceleration of
deferred loan fee accretion stemming from nearly 90% of the Round 1
PPP loans being forgiven by the SBA and repaid. The aforementioned
yield decline was partially offset by a 2 basis point improvement
in the rate paid on interest-bearing liabilities.
As compared to the same quarter in the prior year, average loan
yields, excluding PPP, decreased 30 basis points from 5.23% during
the three months ended June 30, 2020, to 4.93% during the three
months ended June 30, 2021. The 30 basis point decrease in yields
on loans during the comparable three month periods ended June 30,
2021 and 2020 was entirely attributable to decreases in market
rates. Loan fees as the accretion of discounts from acquired loans
added 17 basis points to loan yields during the quarter ended June
30, 2021 and 24 basis points during the quarter ended June 30,
2020. The index utilized in a significant portion of the Company’s
variable rate loans, Wall Street Journal Prime, has remained
unchanged at 3.25% since March 15, 2020, when it was reduced from
4.25%.
The decline in interest expense when compared to both the
trailing quarter and the same quarter from the prior year was
primarily attributed to reductions in the rates offered on deposit
products. As a result, the cost of interest-bearing deposits
decreased by 2 basis points as of June 30, 2021, to 0.08% from
0.10% at March 31, 2021. In addition, the growth of
noninterest-bearing deposits continues to benefit the average cost
of total deposits as compared to historical periods. Specifically,
the ratio of average total noninterest-bearing deposits to total
average deposits was 40.5% and 39.9% as of June 30, 2021 and March
31, 2021, respectively, as compared to 38.2% in the quarter ended
June 30, 2020. As a result, the average cost of total deposits
decreased to 0.05% at June 30, 2021, compared to 0.12% in the same
period of 2020.
ANALYSIS OF CHANGE IN NET
INTEREST MARGIN ON EARNING ASSETS
(unaudited, dollars in
thousands)
Six months ended June 30,
2021
Six months ended June 30,
2020
Average Balance
Income/ Expense
Yield/ Rate
Average Balance
Income/ Expense
Yield/ Rate
Assets
Loans, excluding PPP
$
4,527,329
$
111,698
4.98
%
$
4,346,419
$
112,311
5.20
%
PPP loans
344,011
9,042
5.30
%
146,285
2,356
3.24
%
Investments-taxable
1,763,140
13,583
1.55
%
1,235,672
16,261
2.65
%
Investments-nontaxable (1)
128,564
2,306
3.62
%
118,992
2,413
4.08
%
Total investments
1,891,704
15,889
1.69
%
1,354,664
18,674
2.77
%
Cash at Federal Reserve and other
banks
629,952
298
0.10
%
266,752
881
0.66
%
Total earning assets
7,392,996
136,927
3.73
%
6,114,120
134,222
4.41
%
Other assets, net
575,138
653,006
Total assets
$
7,968,134
$
6,767,126
Liabilities and shareholders’ equity
Interest-bearing demand deposits
$
1,461,377
$
153
0.02
%
$
1,269,452
$
233
0.04
%
Savings deposits
2,272,830
637
0.06
%
1,918,918
1,706
0.18
%
Time deposits
330,703
975
0.59
%
419,638
2,425
1.16
%
Total interest-bearing deposits
4,064,910
1,765
0.09
%
3,608,008
4,364
0.24
%
Other borrowings
36,870
9
0.05
%
24,552
9
0.07
%
Junior subordinated debt
57,739
1,098
3.83
%
57,324
1,441
5.06
%
Total interest-bearing liabilities
4,159,519
2,872
0.14
%
3,689,884
5,814
0.32
%
Noninterest-bearing deposits
2,734,922
2,059,242
Other liabilities
123,233
123,481
Shareholders’ equity
950,460
894,519
Total liabilities and shareholders’
equity
$
7,968,134
$
6,767,126
Net interest rate spread (1) (2)
3.59
%
4.09
%
Net interest income and margin (1) (3)
$
134,055
3.66
%
$
128,408
4.22
%
- Fully taxable equivalent (FTE). All yields and rates are
calculated using specific day counts for the period and year as
applicable.
- Net interest spread is the average yield earned on
interest-earning assets minus the average rate paid on
interest-bearing liabilities.
- Net interest margin is computed by calculating the difference
between interest income and interest expense, divided by the
average balance of interest-earning assets.
Interest Rates and Loan Portfolio
Composition
During the quarter ended June 30, 2021, market interest rates,
including many rates that serve as reference indices for variable
rate loans, showed signs of upward improvement during April and May
before ultimately retreating in June of 2021. This prolonged
retraction in rates continues to apply downward pressure on the
portfolio. As of June 30, 2021, the Company's loan portfolio
consisted of approximately $4.9 billion in outstanding principal
with a weighted average coupon rate of 4.25%, inclusive of the PPP
program loans. Excluding PPP loans, the Company's loan portfolio
has approximately $4.7 billion outstanding with a weighted average
coupon rate of 4.42% as of June 30, 2021. Included in the June 30,
2021 loan total, exclusive of PPP loans, are variable rate loans
totaling $3.0 billion of which 88.9% or $2.7 billion were at their
floor rate. The remaining variable rate loans totaling $340.0
million, which carried a weighted average coupon rate of 4.89% as
of June 30, 2021, are subject to further rate adjustment. If those
remaining variable rate loans were to collectively, through future
rate adjustments, be reduced to their respective floors, they would
have a weighted average coupon rate of approximately 4.29% which
would result in the reduction of the weighted average coupon rate
of the total loan portfolio, exclusive of PPP loans, from 4.42% to
approximately 4.38%.
As of December 31, 2020, the Company's loan portfolio consisted
of approximately $4.80 billion in outstanding principal with a
weighted average coupon rate of 4.35%, inclusive of the PPP program
loans. Excluding PPP loans, the Company's loan portfolio has
approximately $4.47 billion outstanding with a weighted average
coupon rate of 4.60% as of December 31, 2020. Included in the
December 31, 2020 loan total, exclusive of PPP loans, are variable
rate loans totaling $3.02 billion of which 88.2% or $2.66 billion
were at their floor rate. The remaining variable rate loans
totaling $357.0 million, which carried a weighted average coupon
rate of 5.03% as of December 31, 2020, are subject to further rate
adjustment. If those remaining variable rate loans were to
collectively, through future rate adjustments, be reduced to their
respective floors, they would have a weighted average coupon rate
of approximately 4.36% which would result in the reduction of the
weighted average coupon rate of the total loan portfolio, exclusive
of PPP loans, from 4.60% to approximately 4.55%.
Asset Quality and Credit Loss
Provisioning
During the three months ended June 30, 2021, the Company
recorded a reversal of provision for credit losses of $260,000, as
compared to a reversal of provision for credit losses of $6,060,000
during the trailing quarter, and a provision expense of $22,244,000
during the second quarter of 2020.
The following table presents details of the provision for credit
losses for the periods indicated:
Three months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
Addition to (reversal of) allowance for
credit losses
$
(145)
$
(6,240)
$
4,450
$
7,649
$
22,089
Addition to (reversal of) reserve for
unfunded loan commitments
(115)
180
400
—
155
Total provision for credit losses
$
(260)
$
(6,060)
$
4,850
$
7,649
$
22,244
The following table presents the activity in the allowance for
credit losses on loans for the periods indicated:
Three months ended
Six months ended
(dollars in thousands)
June 30, 2021
June 30, 2020
June 30, 2021
June 30, 2020
Balance, beginning of period
$
85,941
$
57,911
$
91,847
$
30,616
Impact from adoption of ASU 2016-13
—
—
—
18,913
Provision for (reversal of) credit
losses
(145)
22,089
(6,385)
30,089
Loans charged-off
(387)
(491)
(613)
(1,001)
Recoveries of previously charged-off
loans
653
230
1,213
1,122
Balance, end of period
$
86,062
$
79,739
$
86,062
$
79,739
The allowance for credit losses (ACL) was $86,062,000 as of June
30, 2021, a net increase of $121,000 over the immediately preceding
quarter. The reversal of allowance for credit losses of $145,000
was necessary as the net recoveries totaling $266,000 during the
quarter were in excess of the required changes in quantitative and
qualitative reserve components. More specifically, the
portfolio-wide qualitative indicator associated with the forecast
levels of US unemployment reduced the required credit reserves by
$2,294,000, while the qualitative factors associated with portfolio
concentration risks, stemming from second quarter loan growth,
added approximately $1,708,000 to the credit expense on loans as of
June 30, 2021.
The Company utilizes a forecast period of approximately eight
quarters and obtains the forecast data from publicly available
sources as of the balance sheet date. This forecast data continues
to evolve and included significant shifts in the magnitude of
changes for both the unemployment and GDP factors leading up to the
balance sheet date. Management noted that the majority of economic
forecasts utilized in the ACL calculation seem to have rebounded
slightly in the current quarter, coinciding with the widespread
availability of vaccines, continued easing of occupancy and social
distancing restrictions, and continued government stimulus
efforts.
Loans past due 30 days or more decreased by $1,258,000 during
the quarter ended June 30, 2021 to $9,292,000, as compared to
$10,550,000 at March 31, 2021. Non-performing loans were
$32,705,000 at June 30, 2021, an increase of $3,764,000 and
$11,975,000, respectively, from $28,941,000 and $20,730,000 as of
March 31, 2021, and June 30, 2020, respectively.
The following table illustrates the total loans by risk rating
and their respective percentage of total loans for the periods
presented.
June 30,
% of Total Loans
March 31,
% of Total Loans
June 30,
% of Total Loans
(dollars in thousands)
2021
2021
2020
Risk Rating:
Pass
$
4,756,381
96.2
%
$
4,765,180
95.9
%
$
4,698,393
97.9
%
Special Mention
130,232
2.6
%
143,677
2.9
%
61,883
1.3
%
Substandard
58,281
1.2
%
58,120
1.2
%
41,129
0.9
%
Total
$
4,944,894
$
4,966,977
$
4,801,405
Classified loans to total loans
1.18
%
1.17
%
0.86
%
Loans past due 30+ days to total loans
0.19
%
0.19
%
0.35
%
The Company's loan portfolio for non-classified loans (loans
graded special mention or better) remains consistent for the
quarter ended June 30, 2021, as compared to the trailing quarter
March 31, 2021, representing 98.8% of total loans outstanding,
respectively. Loans risk graded special mention decreased by
approximately $13,445,000 during the quarter ended June 30, 2021 as
compared to the trailing quarter, while loans risk graded
substandard increased modestly by $161,000 over the same period of
the prior year. The reduction in special mention risk graded
credits was largely the result of two relationships being upgraded,
totaling $9,747,000. The total balance of substandard risk graded
credits remained consistent as of the current and trailing
quarters; although, the Company did benefit from the payoff of one
credit, which was subsequently offset by a separate credit that was
downgraded to substandard.
There was one addition to other real estate owned totaling
approximately $101,000 during the quarter ended June 30, 2021 and
there was one sale for proceeds of approximately $184,000, which
generated a net gain of $15,000 for the quarter. As of June 30,
2021, other real estate owned consisted of six properties with a
carrying value of approximately $2,248,000.
Allocation of Credit Loss Reserves by
Loan Type
As of June 30, 2021
As of December 31, 2020
As of June 30, 2020
(dollars in thousands)
Amount
% of Loans Outstanding
Amount
% of Loans Outstanding
Amount
% of Loans Outstanding
Commercial real estate:
CRE - Non Owner Occupied
$
26,028
1.70
%
$
29,380
1.91
%
$
26,091
1.63
%
CRE - Owner Occupied
10,463
1.59
%
10,861
1.74
%
8,710
1.50
%
Multifamily
13,196
1.59
%
11,472
1.79
%
8,581
1.49
%
Farmland
1,950
1.13
%
1,980
1.30
%
1,468
0.97
%
Total commercial real estate loans
51,637
1.62
%
53,693
1.82
%
44,850
1.54
%
Consumer:
SFR 1-4 1st Liens
10,629
1.61
%
10,117
1.83
%
8,015
1.58
%
SFR HELOCs and Junior Liens
10,701
3.29
%
11,771
3.59
%
12,108
3.38
%
Other
2,620
3.73
%
3,260
4.20
%
3,042
3.73
%
Total consumer loans
23,950
2.27
%
25,148
2.62
%
23,165
2.45
%
Commercial and Industrial
4,511
1.00
%
4,252
0.81
%
4,018
0.63
%
Construction
4,951
2.47
%
7,540
2.65
%
6,775
2.43
%
Agricultural Production
1,007
2.40
%
1,209
2.74
%
919
2.59
%
Leases
6
0.12
%
5
0.13
%
12
0.68
%
Allowance for credit losses
86,062
1.74
%
91,847
1.93
%
79,739
1.66
%
Reserve for unfunded loan commitments
3,465
3,400
3,000
Total allowance for credit losses
$
89,527
1.81
%
$
95,247
2.00
%
$
82,739
1.72
%
For the periods presented in the table above and for purposes of
calculating the "% of Loans Outstanding", PPP loans are included in
the segment "Commercial and Industrial." PPP loans are fully
guaranteed and therefore would not require any loss reserve
allocation. Excluding the net outstanding balances of PPP loans
from the ratio of the ACL to total loans results in a reserve ratio
of approximately 1.83% as of June 30, 2021. In addition to the
allowance for credit losses above, the Company has acquired various
performing loans whose fair value as of the acquisition date was
determined to be less than the principal balance owed on those
loans. This difference represents the collective discount of
credit, interest rate and liquidity measurements which is expected
to be amortized over the life of the loans. As of June 30, 2021,
the unamortized discount associated with acquired loans totaled
$20,087,000 and if aggregated with the ACL would collectively
represent 2.14% of total gross loans and 2.26% of total loans less
PPP loans.
Non-interest Income
The following table presents the key components of non-interest
income for the current and trailing quarterly periods
indicated:
Three months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
$ Change
% Change
ATM and interchange fees
$
6,558
$
5,861
$
697
11.9
%
Service charges on deposit accounts
3,462
3,269
193
5.9
%
Other service fees
914
871
43
4.9
%
Mortgage banking service fees
467
463
4
0.9
%
Change in value of mortgage servicing
rights
(471)
12
(483)
(4025.0)
%
Total service charges and fees
10,930
10,476
454
4.3
%
Increase in cash value of life
insurance
745
673
72
10.7
%
Asset management and commission income
947
834
113
13.5
%
Gain on sale of loans
2,847
3,247
(400)
(12.3)
%
Lease brokerage income
249
110
139
126.4
%
Sale of customer checks
116
119
(3)
(2.5)
%
Gain on sale of investment securities
—
—
—
n/m
Gain (loss) on marketable equity
securities
8
(53)
61
(115.1)
%
Other
115
704
(589)
(83.7)
%
Total other non-interest income
5,027
5,634
(607)
(10.8)
%
Total non-interest income
$
15,957
$
16,110
$
(153)
(0.9)
%
Non-interest income decreased $153,000 or 0.9% to $15,957,000
during the three months ended June 30, 2021 compared to $16,110,000
during the trailing quarter March 31, 2021. Changes in the value of
mortgage servicing rights and gain on sale of mortgage loans
declined by $483,000 and $400,000, respectively, during the recent
quarter ended. Interest rates trended higher during April and May
of 2021, before reversing in June of 2021 and ending the second
quarter near flat, which contributed to the decline in total
mortgage origination and refinance activity during the three months
ended June 30, 2021. Other income decreased by $589,000 during the
period, primarily due to changes in the valuation of certain fully
funded deferred compensation plans. Following the relaxed social
distancing guidelines, increased debit card usage benefited ATM and
interchange fees during the three months ended June 30, 2021,
increasing by $697,000.
The following table presents the key components of non-interest
income for the current and prior year periods indicated:
Three months ended June 30,
(dollars in thousands)
2021
2020
$ Change
% Change
ATM and interchange fees
$
6,558
$
5,165
$
1,393
27.0
%
Service charges on deposit accounts
3,462
3,046
416
13.7
%
Other service fees
914
734
180
24.5
%
Mortgage banking service fees
467
459
8
1.7
%
Change in value of mortgage servicing
rights
(471)
(1,236)
765
(61.9)
%
Total service charges and fees
10,930
8,168
2,762
33.8
%
Increase in cash value of life
insurance
745
710
35
4.9
%
Asset management and commission income
947
661
286
43.3
%
Gain on sale of loans
2,847
1,736
1,111
64.0
%
Lease brokerage income
249
127
122
96.1
%
Sale of customer checks
116
88
28
31.8
%
Gain on sale of investment securities
—
—
—
n/m
Gain on marketable equity securities
8
25
(17)
(68.0)
%
Other
115
142
(27)
(19.0)
%
Total other non-interest income
5,027
3,489
1,538
44.1
%
Total non-interest income
$
15,957
$
11,657
$
4,300
36.9
%
In addition to the discussion above within the non-interest
income for the three months ended June 30, 2021, deposit account
related fee revenue increased $416,000 or 13.7% during the three
months ended June 30, 2021 when compared to the same period in the
prior year as a result of the level of economic and monetary
transaction activity increasing as the COVID related restrictions
throughout our footprint have been relaxed.
The following table presents the key components of non-interest
income for the current and prior year periods indicated:
Six months ended June 30,
(dollars in thousands)
2021
2020
$ Change
% Change
ATM and interchange fees
$
12,419
$
10,276
$
2,143
20.9
%
Service charges on deposit accounts
6,731
7,092
(361)
(5.1)
%
Other service fees
1,785
1,492
293
19.6
%
Mortgage banking service fees
930
928
2
0.2
%
Change in value of mortgage servicing
rights
(459)
(2,494)
2,035
(81.6)
%
Total service charges and fees
21,406
17,294
4,112
23.8
%
Increase in cash value of life
insurance
1,418
1,430
(12)
(0.8)
%
Asset management and commission income
1,781
1,577
204
12.9
%
Gain on sale of loans
6,094
2,627
3,467
132.0
%
Lease brokerage income
359
320
39
12.2
%
Sale of customer checks
235
212
23
10.8
%
Gain on sale of investment securities
—
—
—
n/m
Gain (loss) on marketable equity
securities
(45)
72
(117)
(162.5)
%
Other
819
(55)
874
(1,589.1)
%
Total other non-interest income
10,661
6,183
4,478
72.4
%
Total non-interest income
$
32,067
$
23,477
$
8,590
36.6
%
The changes in non-interest income for the six months ended June
30, 2021 and 2020 are generally consistent with the changes in the
comparable three month periods discussed above.
Non-interest Expense
The following table presents the key components of non-interest
expense for the current and trailing quarterly periods
indicated:
Three months Ended
(dollars in thousands)
June 30, 2021
March 31, 2021
$ Change
% Change
Base salaries, net of deferred loan
origination costs
$
17,537
$
15,511
$
2,026
13.1
%
Incentive compensation
4,322
3,580
742
20.7
%
Benefits and other compensation costs
5,222
6,239
(1,017)
(16.3)
%
Total salaries and benefits expense
27,081
25,330
1,751
6.9
%
Occupancy
3,700
3,726
(26)
(0.7)
%
Data processing and software
3,201
3,202
(1)
—
%
Equipment
1,207
1,517
(310)
(20.4)
%
Intangible amortization
1,431
1,431
—
—
%
Advertising
734
380
354
93.2
%
ATM and POS network charges
1,551
1,246
305
24.5
%
Professional fees
1,046
594
452
76.1
%
Telecommunications
564
581
(17)
(2.9)
%
Regulatory assessments and insurance
618
612
6
1.0
%
Postage
124
198
(74)
(37.4)
%
Operational losses
212
209
3
1.4
%
Courier service
288
294
(6)
(2.0)
%
Gain on sale or acquisition of foreclosed
assets
(15)
(51)
36
(70.6)
%
Gain on disposal of fixed assets
(426)
—
(426)
n/a
Other miscellaneous expense
2,855
2,349
506
21.5
%
Total other non-interest expense
17,090
16,288
802
4.9
%
Total non-interest expense
$
44,171
$
41,618
$
2,553
6.1
%
Average full-time equivalent staff
1,020
1,025
(5)
(0.5)
%
Non-interest expense for the quarter ended June 30, 2021
increased $2,553,000 or 6.1% to $44,171,000 as compared to
$41,618,000 during the trailing quarter ended March 31, 2021.
Salaries, net of deferred loan origination costs, increased by
$2,026,000 to $17,537,000 for the three months ended June 30, 2021
due to an increase in the number of work days in the current versus
trailing quarter, annual merit adjustments which averaged slightly
more than 3.0% and were effective April 1st, as well as growth in
vacation accruals which approximated $675,000. Incentive
compensation increased by $742,000 or 20.7% to $4,322,000 during
the quarter ended June 30, 2021 as compared to the trailing period
due to the organic loan growth and strong overall Company
performance during the quarter. Benefits and other compensation
costs decreased by $1,017,000 to $5,222,000 during the quarter,
primarily as a result of decreases in expenses associated with
retirement obligations and group insurance costs. A gain on
disposal of fixed assets was recorded during the quarter totaling
$426,000 related to the sale of a former retail branch
building.
The following table presents the key components of non-interest
expense for the current and prior year quarterly periods
indicated:
Three months ended June 30,
(dollars in thousands)
2021
2020
$ Change
% Change
Base salaries, net of deferred loan
origination costs
$
17,537
$
17,277
$
260
1.5
%
Incentive compensation
4,322
2,395
1,927
80.5
%
Benefits and other compensation costs
5,222
7,383
(2,161)
(29.3)
%
Total salaries and benefits expense
27,081
27,055
26
0.1
%
Occupancy
3,700
3,398
302
8.9
%
Data processing and software
3,201
3,657
(456)
(12.5)
%
Equipment
1,207
1,350
(143)
(10.6)
%
Intangible amortization
1,431
1,431
—
—
%
Advertising
734
531
203
38.2
%
ATM and POS network charges
1,551
1,210
341
28.2
%
Professional fees
1,046
741
305
41.2
%
Telecommunications
564
639
(75)
(11.7)
%
Regulatory assessments and insurance
618
360
258
71.7
%
Postage
124
283
(159)
(56.2)
%
Operational losses
212
184
28
15.2
%
Courier service
288
337
(49)
(14.5)
%
Gain on sale or acquisition of foreclosed
assets
(15)
(16)
1
(6.3)
%
(Gain) loss on disposal of fixed
assets
(426)
15
(441)
(2940.0)
%
Other miscellaneous expense
2,855
4,375
(1,520)
(34.7)
%
Total other non-interest expense
17,090
18,495
(1,405)
(7.6)
%
Total non-interest expense
$
44,171
$
45,550
$
(1,379)
(3.0)
%
Average full-time equivalent staff
1,020
1,140
(120)
(10.5)
%
Non-interest expense decreased by $1,379,000 or 3.0% to
$44,171,000 during the three months ended June 30, 2021 as compared
to $45,550,000 for the three months ended June 30, 2020. For
reasons similar to those discussed above, benefits and other
compensation expense decreased by $2,161,000 during the three
months ended June 30, 2021. Other miscellaneous expenses decreased
by $1,520,000 during the three months ended June 30, 2021, due
specifically to the absence of indirect loan documentation and
administrative costs incurred in conjunction with the PPP loan
program incurred during the three months ended June 30, 2020.
Incentive compensation costs increased during the three months
ended June 30, 2021, as compared to the same period in 2020, as a
result of strong Company performance.
The following table presents the key components of non-interest
income for the current and prior year periods indicated:
Six months ended June 30,
(dollars in thousands)
2021
2020
$ Change
% Change
Base salaries, net of deferred loan
origination costs
$
33,048
$
34,900
$
(1,852)
(5.3)
%
Incentive compensation
7,902
5,496
2,406
43.8
%
Benefits and other compensation costs
11,461
13,931
(2,470)
(17.7)
%
Total salaries and benefits expense
52,411
54,327
(1,916)
(3.5)
%
Occupancy
7,426
7,273
153
2.1
%
Data processing and software
6,403
7,024
(621)
(8.8)
%
Equipment
2,724
2,862
(138)
(4.8)
%
Intangible amortization
2,862
2,862
—
—
%
Advertising
1,114
1,196
(82)
(6.9)
%
ATM and POS network charges
2,797
2,583
214
8.3
%
Professional fees
1,640
1,444
196
13.6
%
Telecommunications
1,145
1,364
(219)
(16.1)
%
Regulatory assessments and insurance
1,230
455
775
170.3
%
Postage
322
573
(251)
(43.8)
%
Operational losses
421
405
16
4.0
%
Courier service
582
668
(86)
(12.9)
%
Gain on sale or acquisition of foreclosed
assets
(66)
(57)
(9)
15.8
%
(Gain) loss on disposal of fixed
assets
(426)
15
(441)
(2940.0)
%
Other miscellaneous expense
5,204
7,306
(2,102)
(28.8)
%
Total other non-interest expense
33,378
35,973
(2,595)
(7.2)
%
Total non-interest expense
$
85,789
$
90,300
$
(4,511)
(5.0)
%
Average full-time equivalent staff
1,022
1,141
(119)
(10.4)
%
Provision for Income
Taxes
The Company’s effective tax rate was 28.0% for the six months
ended June 30, 2021, as compared to 25.8% for the year ended
December 31, 2020. The reduced effective tax rate in the prior year
was made possible through the provisions of the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”) which provided the
Company with an opportunity to file amended tax returns and
generate proposed refunds of approximately $805,000. Other
differences between the Company's effective tax rate and applicable
federal and state statutory rates are due to the proportion of
non-taxable revenue and low income housing tax credits as compared
to the levels of pre-tax earnings.
About TriCo Bancshares
Established in 1975, Tri Counties Bank is a wholly-owned
subsidiary of TriCo Bancshares (NASDAQ: TCBK) headquartered in
Chico, California, providing a unique brand of customer Service
with Solutions available in traditional stand-alone and in-store
bank branches in communities throughout Northern and Central
California. Tri Counties Bank provides an extensive and competitive
breadth of consumer, small business and commercial banking
financial services, along with convenient around-the-clock ATMs,
online and mobile banking access. Brokerage services are provided
by Tri Counties Advisors through affiliation with Raymond James
Financial Services, Inc. Visit www.TriCountiesBank.com to learn
more.
Forward-Looking
Statement
The statements contained herein that are not historical facts
are forward-looking statements based on management’s current
expectations and beliefs concerning future developments and their
potential effects on the Company. Such statements involve inherent
risks and uncertainties, many of which are difficult to predict and
are generally beyond our control. There can be no assurance that
future developments affecting us will be the same as those
anticipated by management. We caution readers that a number of
important factors could cause actual results to differ materially
from those expressed in, or implied or projected by, such
forward-looking statements. These risks and uncertainties include,
but are not limited to, the following: the strength of the United
States economy in general and the strength of the local economies
in which we conduct operations; the effects of, and changes in,
trade, monetary and fiscal policies and laws, including interest
rate policies of the Board of Governors of the Federal Reserve
System; inflation, interest rate, market and monetary fluctuations;
the impact of changes in financial services policies, laws and
regulations; technological changes; weather, natural disasters and
other catastrophic events that may or may not be caused by climate
change and their effects on economic and business environments in
which the Company operates; the continuing adverse impact on the
U.S. economy, including the markets in which we operate due to the
COVID-19 global pandemic, and the impact of a slowing U.S. economy
and increased unemployment on the performance of our loan
portfolio, the market value of our investment securities, the
availability of sources of funding and the demand for our products;
the costs or effects of mergers, acquisitions or dispositions we
may make; the ability to execute our business plan in new lending
markets, the future operating or financial performance of the
Company, including our outlook for future growth and changes in the
level of our nonperforming assets and charge-offs; the
appropriateness of the allowance for credit losses, including the
timing and effects of the implementation of the current expected
credit losses model; any deterioration in values of California real
estate, both residential and commercial; the effect of changes in
accounting standards and practices; possible other-than-temporary
impairment of securities held by us; changes in consumer spending,
borrowing and savings habits; our ability to attract and maintain
deposits and other sources of liquidity; changes in the financial
performance and/or condition of our borrowers; our noninterest
expense and the efficiency ratio; competition and innovation with
respect to financial products and services by banks, financial
institutions and non-traditional providers including retail
businesses and technology companies; the challenges of integrating
and retaining key employees; the costs and effects of litigation
and of unexpected or adverse outcomes in such litigation; a failure
in or breach of our operational or security systems or
infrastructure, or those of our third-party vendors or other
service providers, including as a result of cyber-attacks and the
cost to defend against such attacks; change to U.S. tax policies,
including our effective income tax rate; the effect of a fall in
stock market prices on our brokerage and wealth management
businesses; the discontinuation of the London Interbank Offered
Rate and other reference rates; and our ability to manage the risks
involved in the foregoing. Additional factors that could cause
results to differ materially from those described above can be
found in our Annual Report on Form 10-K for the year ended December
31, 2020, which has been filed with the Securities and Exchange
Commission (the “SEC”) and are available in the “Investor
Relations” section of our website, https://www.tcbk.com/investor-relations and in
other documents we file with the SEC. Annualized, pro forma,
projections and estimates are not forecasts and may not reflect
actual results. We are under no obligation (and expressly disclaim
any such obligation) to update or alter our forward-looking
statements, whether as a result of new information, future events,
or otherwise, except as required by law.
TRICO BANCSHARES—CONDENSED
CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in thousands,
except share data)
Three months ended
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
Revenue and Expense Data
Interest income
$
68,479
$
67,916
$
68,081
$
65,438
$
67,148
Interest expense
1,396
1,476
1,659
1,984
2,489
Net interest income
67,083
66,440
66,422
63,454
64,659
Provision for (benefit from) credit
losses
(260)
(6,060)
4,850
7,649
22,244
Noninterest income:
Service charges and fees
10,930
10,476
10,218
10,469
8,168
Gain on sale of investment securities
—
—
—
7
—
Other income
5,027
5,634
6,362
4,661
3,489
Total noninterest income
15,957
16,110
16,580
15,137
11,657
Noninterest expense:
Salaries and benefits
27,081
25,330
28,473
29,321
27,055
Occupancy and equipment
4,907
5,243
5,108
4,989
4,748
Data processing and network
4,752
4,448
4,455
4,875
4,867
Other noninterest expense
7,431
6,597
7,709
7,529
8,880
Total noninterest expense
44,171
41,618
45,745
46,714
45,550
Total income before taxes
39,129
46,992
32,407
24,228
8,522
Provision for income taxes
10,767
13,343
8,750
6,622
1,092
Net income
$
28,362
$
33,649
$
23,657
$
17,606
$
7,430
Share Data
Basic earnings per share
$
0.95
$
1.13
$
0.80
$
0.59
$
0.25
Diluted earnings per share
$
0.95
$
1.13
$
0.79
$
0.59
$
0.25
Dividends per share
$
0.25
$
0.25
$
0.22
$
0.22
$
0.22
Book value per common share
$
32.53
$
31.71
$
31.12
$
30.31
$
29.76
Tangible book value per common share
(1)
$
24.60
$
23.72
$
23.09
$
22.24
$
21.64
Shares outstanding
29,716,294
29,727,122
29,727,214
29,769,389
29,759,209
Weighted average shares
29,718,603
29,727,182
29,756,831
29,763,898
29,753,699
Weighted average diluted shares
29,903,560
29,904,974
29,863,478
29,844,396
29,883,193
Credit Quality
Allowance for credit losses to gross
loans
1.74
%
1.73
%
1.93
%
1.81
%
1.66
%
Loans past due 30 days or more
$
9,292
$
10,550
$
6,767
$
10,522
$
16,622
Total nonperforming loans
$
32,705
$
28,941
$
26,864
$
22,963
$
20,730
Total nonperforming assets
$
34,952
$
31,250
$
29,708
$
25,020
$
22,652
Loans charged-off
$
387
$
226
$
560
$
194
$
491
Loans recovered
$
653
$
560
$
382
$
381
$
230
Selected Financial Ratios
Return on average total assets
1.40
%
1.75
%
1.24
%
0.95
%
0.43
%
Return on average equity
11.85
%
14.51
%
10.37
%
7.79
%
3.39
%
Average yield on loans, excluding PPP
4.93
%
5.02
%
5.04
%
5.02
%
5.17
%
Average yield on interest-earning
assets
3.65
%
3.82
%
3.88
%
3.83
%
4.26
%
Average rate on interest-bearing
deposits
0.08
%
0.10
%
0.12
%
0.15
%
0.20
%
Average cost of total deposits
0.05
%
0.06
%
0.07
%
0.09
%
0.12
%
Average rate on borrowings &
subordinated debt
2.31
%
2.42
%
2.43
%
2.49
%
3.25
%
Average rate on interest-bearing
liabilities
0.13
%
0.15
%
0.17
%
0.20
%
0.27
%
Net interest margin (fully tax-equivalent)
(1)
3.58
%
3.74
%
3.79
%
3.72
%
4.10
%
Loans to deposits
70.72
%
72.37
%
73.21
%
76.12
%
76.84
%
Efficiency ratio
53.19
%
50.42
%
55.11
%
59.44
%
59.69
%
Supplemental Loan Interest Income
Data
Discount accretion on acquired loans
$
2,566
$
1,712
$
1,960
$
1,876
$
2,587
All other loan interest income (excluding
PPP) (1)
$
54,559
$
52,861
$
53,379
$
53,560
$
53,466
Total loan interest income (excluding PPP)
(1)
$
57,125
$
54,573
$
55,339
$
55,436
$
56,053
(1) Non-GAAP measure
TRICO BANCSHARES—CONDENSED
CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in
thousands)
Balance Sheet Data
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
Cash and due from banks
$
639,740
$
609,522
$
669,551
$
652,582
$
705,852
Securities, available for sale, net
1,850,547
1,685,076
1,417,289
1,145,989
999,313
Securities, held to maturity, net
235,778
260,454
284,563
310,696
337,165
Restricted equity securities
17,250
17,250
17,250
17,250
17,250
Loans held for sale
5,723
3,995
6,268
6,570
8,352
Loans:
Commercial real estate
3,194,336
3,108,624
2,951,902
2,936,422
2,905,485
Consumer
1,050,609
1,041,213
952,108
926,835
945,669
Commercial and industrial
452,069
551,077
526,327
633,897
634,481
Construction
200,714
221,613
284,842
284,933
278,566
Agriculture production
41,967
39,753
44,164
40,613
35,441
Leases
5,199
4,697
3,784
3,638
1,763
Total loans, gross
4,944,894
4,966,977
4,763,127
4,826,338
4,801,405
Allowance for credit losses
(86,062)
(85,941)
(91,847)
(87,575)
(79,739)
Total loans, net
4,858,832
4,881,036
4,671,280
4,738,763
4,721,666
Premises and equipment
79,178
82,338
83,731
84,856
85,292
Cash value of life insurance
120,287
119,543
118,870
120,026
119,254
Accrued interest receivable
18,923
19,442
20,004
19,557
20,337
Goodwill
220,872
220,872
220,872
220,872
220,872
Other intangible assets
14,971
16,402
17,833
19,264
20,694
Operating leases, right-of-use
26,365
27,540
27,846
28,879
29,842
Other assets
81,899
88,142
84,172
84,495
74,182
Total assets
$
8,170,365
$
8,031,612
$
7,639,529
$
7,449,799
$
7,360,071
Deposits:
Noninterest-bearing demand deposits
$
2,843,783
$
2,766,510
$
2,581,517
$
2,517,819
$
2,487,120
Interest-bearing demand deposits
1,486,321
1,465,915
1,414,908
1,346,716
1,318,951
Savings deposits
2,337,557
2,302,927
2,164,942
2,099,780
2,043,593
Time certificates
324,392
328,048
344,567
376,273
398,594
Total deposits
6,992,053
6,863,400
6,505,934
6,340,588
6,248,258
Accrued interest payable
1,026
970
1,362
1,571
1,734
Operating lease liability
26,707
27,780
27,973
28,894
29,743
Other liabilities
85,388
102,955
94,597
91,902
98,684
Other borrowings
40,559
36,226
26,914
27,055
38,544
Junior subordinated debt
57,852
57,742
57,635
57,527
57,422
Total liabilities
7,203,585
7,089,073
6,714,415
6,547,537
6,474,385
Common stock
531,038
531,367
530,835
531,075
530,422
Retained earnings
427,575
408,211
381,999
365,611
354,645
Accum. other comprehensive income
8,167
2,961
12,280
5,576
619
Total shareholders’ equity
$
966,780
$
942,539
$
925,114
$
902,262
$
885,686
Quarterly Average Balance Data
Average loans, excluding PPP
$
4,646,188
$
4,407,150
$
4,363,873
$
4,389,672
$
4,363,481
Average interest-earning assets
$
7,544,581
$
7,239,726
$
6,998,582
$
6,815,495
$
6,365,865
Average total assets
$
8,128,674
$
7,808,912
$
7,570,952
$
7,380,961
$
7,027,735
Average deposits
$
6,943,081
$
6,653,754
$
6,341,175
$
6,278,638
$
5,937,294
Average borrowings and subordinated
debt
$
98,774
$
90,397
$
90,085
$
91,225
$
83,685
Average total equity
$
960,145
$
940,775
$
907,468
$
898,986
$
880,405
Capital Ratio Data
Total risk based capital ratio
15.3
%
15.1
%
15.2
%
15.2
%
15.2
%
Tier 1 capital ratio
14.1
%
13.9
%
14.0
%
14.0
%
13.9
%
Tier 1 common equity ratio
13.0
%
12.9
%
12.9
%
12.9
%
12.8
%
Tier 1 leverage ratio
9.9
%
10.0
%
9.9
%
10.0
%
10.3
%
Tangible capital ratio (1)
9.2
%
9.1
%
9.3
%
9.2
%
9.1
%
(1) Non-GAAP measure
TRICO BANCSHARES—NON-GAAP FINANCIAL
MEASURES
(Unaudited. Dollars in thousands)
In addition to results presented in accordance with generally
accepted accounting principles in the United States of America
(GAAP), this press release contains certain non-GAAP financial
measures. Management has presented these non-GAAP financial
measures in this press release because it believes that they
provide useful and comparative information to assess trends in the
Company's core operations reflected in the current quarter's
results, and facilitate the comparison of our performance with the
performance of our peers. However, these non-GAAP financial
measures are supplemental and are not a substitute for any analysis
based on GAAP. Where applicable, comparable earnings information
using GAAP financial measures is also presented. Because not all
companies use the same calculations, our presentation may not be
comparable to other similarly titled measures as calculated by
other companies. For a reconciliation of these non-GAAP financial
measures, see the tables below:
Three months ended
Six months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
June 30, 2020
June 30, 2021
June 30, 2020
Net interest margin
Acquired loans discount accretion,
net:
Amount (included in interest income)
$
2,566
$
1,712
$
2,587
$
4,278
$
4,335
Effect on average loan yield
0.17
%
0.16
%
0.24
%
0.18
%
0.20
%
Effect on net interest margin (FTE)
0.14
%
0.10
%
0.16
%
0.12
%
0.14
%
Net interest margin (FTE)
3.58
%
3.74
%
4.10
%
3.66
%
4.22
%
Net interest margin less effect of
acquired loan discount accretion (Non-GAAP)
3.44
%
3.64
%
3.94
%
3.54
%
4.08
%
PPP loans yield, net:
Amount (included in interest income)
$
3,179
$
5,863
$
2,356
$
9,042
$
2,356
Effect on net interest margin (FTE)
(0.03)
%
0.15
%
(0.04)
%
0.07
%
(0.03)
%
Net interest margin less effect of PPP
loan yield (Non-GAAP)
3.61
%
3.59
%
4.14
%
3.59
%
4.25
%
Acquired loan discount accretion and PPP
loan yield, net:
Amount (included in interest income)
$
5,745
$
7,575
$
4,943
$
13,320
$
6,691
Effect on net interest margin (FTE)
0.11
%
0.25
%
0.12
%
0.19
%
0.11
%
Net interest margin less effect of
acquired loan discount accretion and PPP yields, net (Non-GAAP)
3.47
%
3.49
%
3.98
%
3.46
%
4.11
%
Three months ended
Six months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
June 30, 2020
June 30, 2021
June 30, 2020
Pre-tax pre-provision return on average
assets or equity
Net income (GAAP)
$
28,362
33,649
$
7,430
$
62,011
$
23,551
Exclude income tax expense
10,767
13,343
1,092
24,110
7,164
Exclude provision (benefit) for credit
losses
(260)
(6,060)
22,244
(6,320)
30,313
Net income before income tax and provision
expense (Non-GAAP)
$
38,869
$
40,932
$
30,766
$
79,801
$
61,028
Average assets (GAAP)
$
8,128,674
$
7,808,912
$
7,027,735
$
7,968,134
$
6,767,126
Average equity (GAAP)
960,145
940,775
880,405
950,460
894,519
Return on average assets (GAAP)
(annualized)
1.40
%
1.75
%
0.43
%
1.57
%
0.70
%
Pre-tax pre-provision return on average
assets (Non-GAAP) (annualized)
1.94
%
2.13
%
1.76
%
2.03
%
1.81
%
Return on average equity (GAAP)
(annualized)
11.85
%
14.51
%
3.39
%
13.16
%
5.06
%
Pre-tax pre-provision return on average
equity (Non-GAAP) (annualized)
16.42
%
17.65
%
14.05
%
16.98
%
13.68
%
Three months ended
Six months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
June 30, 2020
June 30, 2021
June 30, 2020
Return on tangible common
equity
Average total shareholders' equity
$
960,145
$
940,775
$
880,405
$
950,460
$
894,519
Exclude average goodwill
220,872
220,872
220,872
220,872
220,872
Exclude average other intangibles
15,687
17,118
22,842
19,264
21,410
Average tangible common equity
(Non-GAAP)
$
723,586
$
702,785
$
636,691
$
710,324
$
652,237
Net income (GAAP)
$
28,362
$
33,649
$
7,430
$
62,011
$
23,551
Exclude amortization of intangible assets,
net of tax effect
1,008
1,008
1,008
2,016
2,016
Tangible net income available to common
shareholders (Non-GAAP)
$
29,370
34,657
$
8,438
$
64,027
$
25,567
Return on average equity
11.85
%
14.51
%
3.39
%
13.16
%
5.06
%
Return on average tangible common equity
(Non-GAAP)
16.46
%
20.00
%
5.33
%
9.01
%
7.88
%
Three months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
Tangible common shareholders' equity to
tangible assets
Shareholders' equity (GAAP)
$
966,780
$
942,539
$
925,114
$
902,262
$
885,686
Exclude goodwill and other intangible
assets, net
235,843
237,274
238,705
240,136
241,566
Tangible s/h equity (Non-GAAP)
$
730,937
$
705,265
$
686,409
$
662,126
$
644,120
Total assets (GAAP)
$
8,170,365
$
8,031,612
$
7,639,529
$
7,449,799
$
7,360,071
Exclude goodwill and other intangible
assets, net
235,843
237,274
238,705
240,136
241,566
Total tangible assets (Non-GAAP)
$
7,934,522
$
7,794,338
$
7,400,824
$
7,209,663
$
7,118,505
Common s/h equity to total assets
(GAAP)
11.83
%
11.74
%
12.11
%
12.11
%
12.03
%
Tangible common shareholders' equity to
tangible assets (Non-GAAP)
9.21
%
9.05
%
9.27
%
9.18
%
9.05
%
Three months ended
(dollars in thousands)
June 30, 2021
March 31, 2021
December 31, 2020
September 30, 2020
June 30, 2020
Tangible common shareholders' equity
per share
Tangible s/h equity (Non-GAAP)
$
730,937
$
705,265
$
686,409
$
662,126
$
644,120
Tangible assets (Non-GAAP)
7,934,522
7,794,338
7,400,824
7,209,663
7,118,505
Common shares outstanding at end of
period
29,716,294
29,727,122
29,727,214
29,769,389
29,759,209
Common s/h equity (book value) per share
(GAAP)
$
32.53
$
31.71
$
31.12
$
30.31
$
29.76
Tangible common shareholders' equity
(tangible book value) per share (Non-GAAP)
$
24.60
$
23.72
$
23.09
$
22.24
$
21.64
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210727006150/en/
Peter G. Wiese EVP & Chief Financial Officer (530)
898-0300
TriCo Bancshares (NASDAQ:TCBK)
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