Attached files
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| 8-K/A - 8-K/A - TRICO BANCSHARES / | tcbk-20200128.htm |
Exhibit 99.1
| PRESS RELEASE | Contact: Richard P. Smith | ||||
| For Immediate Release | President & CEO (530) 898-0300 | ||||
TRICO BANCSHARES ANNOUNCES QUARTERLY RESULTS
CHICO, CA – (January 28, 2020) – TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $22,890,000 for the quarter ended December 31, 2019, compared to $23,395,000 during the trailing quarter ended September 30, 2019 and $23,211,000 during the quarter ended December 31, 2018. Diluted earnings per share were $0.75 for the fourth quarter of 2019, compared to $0.76 for the third quarter of 2019 and $0.76 for the fourth quarter of 2018.
Financial Highlights
Performance highlights and other developments for the Company as of or for the three and twelve months ended December 31, 2019 included the following:
•For the three and twelve months ended December 31, 2019, the Company’s return on average assets was 1.40% and 1.43%, respectively, and the return on average equity was 10.03% and 10.49%, respectively.
•The Company paid a cash dividend of $0.22 in December 2019, a 16% increase over the $0.19 cash dividend paid in December 2018.
•As of December 31, 2019, the Company reported total loans, total assets and total deposits of $4.31 billion, $6.47 billion and $5.37 billion, respectively.
•The loan to deposit ratio was 80.26% as of December 31, 2019, as compared to 78.98% at September 30, 2019 and 74.95% at December 31, 2018.
•For the current quarter, net interest margin was 4.39% on a tax equivalent basis as compared to 4.49% in the quarter ended December 31, 2018 and decreased 5 basis points from the trailing quarter.
•Non-interest bearing deposits as a percentage of total deposits were 34.14% at December 31, 2019, as compared to 33.56% at September 30, 2019 and 32.80% at December 31, 2018.
•The average rate of interest paid on deposits, including non-interest-bearing deposits, decreased to 0.22% for the fourth quarter of 2019 as compared with 0.23% for the trailing quarter, but increased by 2 basis points from the average rate paid during the same quarter of the prior year.
•Non-performing assets to total assets were 0.30% at December 31, 2019, as compared to 0.31% as of September 30, 2019, and 0.47% at December 31, 2018.
•The balance of nonperforming loans decreased by $1.7 million during the quarter and by $10.6 million for the 2019 year end. Net charge-offs (recoveries) for the fourth quarter 2019 and 2018 were $0.6 million and ($0.2) million, respectively, and for the twelve months ended December 31, 2019 and 2018 were $0.3 million and $0.3 million, respectively.
•The efficiency ratio was 59.92% for the fourth quarter of 2019, as compared to 58.82% in the trailing quarter and 59.11% in the same quarter of the 2018 year.
President and CEO, Rick Smith commented, “As we continue to refine our revenue generating activities and streamline our operational processes, we are pleased to report the results of those efforts through 2019, which are highlighted by average loan growth of over 8.5%, maintaining an efficiency ratio below 60.0% and preserving our low cost of funds. We further benefited from improvement in credit quality. While the headwinds of low interest rates continue to pressure net interest margins into 2020, we continue to benefit from strong loan demand and further improvements in operational efficiencies provided through our continued investment in technology.”
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Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Annual Report on Form 10-K for the year ended December 31, 2019, 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.
- 1 -
Summary Results
For the three and twelve months ended December 31, 2019, the Company’s return on average assets was 1.40% and 1.43%, respectively, and the return on average equity was 10.03% and 10.49%, respectively. For the three and twelve months ended December 31, 2018, the Company’s return on average assets was 1.46% and 1.24%, respectively, and the return on average equity was 11.33% and 10.75%, respectively. While there were no merger and acquisition expenses incurred during the 2019 periods nor during the quarter ended December 31, 2018, $5,227,000 in merger and acquisition expenses were incurred during the twelve months ended December 31, 2018.
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) | 2019 | 2019 | $ Change | % Change | |||||||||||||||||||
| Net interest income | $ | 64,196 | $ | 64,688 | $ | (492) | (0.8) | % | |||||||||||||||
| Reversal of (provision for) loan losses | 298 | 329 | (31) | (9.4) | % | ||||||||||||||||||
| Noninterest income | 14,186 | 14,108 | 78 | 0.6 | % | ||||||||||||||||||
| Noninterest expense | (46,964) | (46,344) | (620) | 1.3 | % | ||||||||||||||||||
| Provision for income taxes | (8,826) | (9,386) | 560 | (6.0) | % | ||||||||||||||||||
| Net income | $ | 22,890 | $ | 23,395 | $ | (505) | (2.2) | % | |||||||||||||||
| Diluted earnings per share | $ | 0.75 | $ | 0.76 | $ | (0.01) | (1.3) | % | |||||||||||||||
| Dividends per share | $ | 0.22 | $ | 0.22 | $ | — | 0.0 | % | |||||||||||||||
| Average common shares | 30,520 | 30,509 | 11 | 0.0 | % | ||||||||||||||||||
| Average diluted common shares | 30,650 | 30,629 | 21 | 0.1 | % | ||||||||||||||||||
| Return on average total assets | 1.40 | % | 1.44 | % | |||||||||||||||||||
| Return on average equity | 10.03 | % | 10.42 | % | |||||||||||||||||||
| Efficiency ratio | 59.92 | % | 58.82 | % | |||||||||||||||||||
| Three Months Ended December 31, | |||||||||||||||||||||||
| (dollars and shares in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| Net interest income | $ | 64,196 | $ | 64,002 | $ | 194 | 0.3 | % | |||||||||||||||
| Reversal of (provision for) loan losses | 298 | (806) | 1,104 | (137.0) | % | ||||||||||||||||||
| Noninterest income | 14,186 | 12,595 | 1,591 | 12.6 | % | ||||||||||||||||||
| Noninterest expense | (46,964) | (45,246) | (1,718) | 3.8 | % | ||||||||||||||||||
| Provision for income taxes | (8,826) | (7,334) | (1,492) | 20.3 | % | ||||||||||||||||||
| Net income | $ | 22,890 | $ | 23,211 | $ | (321) | (1.4) | % | |||||||||||||||
| Diluted earnings per share | $ | 0.75 | $ | 0.76 | $ | (0.01) | (1.3) | % | |||||||||||||||
| Dividends per share | $ | 0.22 | $ | 0.19 | $ | 0.03 | 15.8 | % | |||||||||||||||
| Average common shares | 30,520 | 30,423 | 97 | 0.3 | % | ||||||||||||||||||
| Average diluted common shares | 30,650 | 30,672 | (22) | (0.1) | % | ||||||||||||||||||
| Return on average total assets | 1.40 | % | 1.46 | % | |||||||||||||||||||
| Return on average equity | 10.03 | % | 11.33 | % | |||||||||||||||||||
| Efficiency ratio | 59.92 | % | 59.11 | % | |||||||||||||||||||
| Twelve Months Ended December 31, | |||||||||||||||||||||||
| (dollars and shares in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| Net interest income | $ | 257,069 | $ | 215,346 | $ | 41,723 | 19.4 | % | |||||||||||||||
| Reversal of (provision for) loan losses | 1,690 | (2,583) | 4,273 | (165.4) | |||||||||||||||||||
| Noninterest income | 53,520 | 49,061 | 4,459 | 9.1 | % | ||||||||||||||||||
| Noninterest expense | (185,457) | (168,472) | (16,985) | 10.1 | % | ||||||||||||||||||
| Provision for income taxes | (34,750) | (25,032) | (9,718) | 38.8 | % | ||||||||||||||||||
| Net income | $ | 92,072 | $ | 68,320 | $ | 23,752 | 34.8 | % | |||||||||||||||
| Diluted earnings per share | $ | 3.00 | $ | 2.54 | $ | 0.46 | 18.1 | % | |||||||||||||||
| Dividends per share | $ | 0.82 | $ | 0.70 | $ | 0.12 | 17.1 | % | |||||||||||||||
| Average common shares | 30,478 | 26,593 | 3,885 | 14.6 | % | ||||||||||||||||||
| Average diluted common shares | 30,645 | 26,880 | 3,765 | 14.0 | % | ||||||||||||||||||
| Return on average total assets | 1.43 | % | 1.24 | % | |||||||||||||||||||
| Return on average equity | 10.49 | % | 10.75 | % | |||||||||||||||||||
| Efficiency ratio | 59.71 | % | 63.72 | % | |||||||||||||||||||
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Balance Sheet
Total loans outstanding reached a record high of $4.31 billion as of December 31, 2019, an increase of 7.1% over the trailing twelve month period and an annualized increase of 12.0% over the trailing quarter. In general, cash flows from the maturity, prepayment and sales of investment securities were utilized to fund loan growth.
The retention of earnings generated from changes in the mix of earning assets was the primary driver in total equity increasing to $906,570,000 at December 31, 2019 as compared to $896,665,000 at September 30, 2019, which is inclusive of ($5,222,000) and $1,499,000 in accumulated other comprehensive (loss) income as of the same periods, respectively. As a result, the Company’s book value per share increased to $29.70 per share at December 31, 2019 from $29.39 at September 30, 2019. The Company’s tangible book value per share, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, increased to $21.69 per share at December 31, 2019 from $21.33 per share at September 30, 2019.
Trailing Quarter Balance Sheet Change
| Ending balances | As of December 31, | As of September 30, | $ Change | Annualized % Change | |||||||||||||||||||
| ($‘s in thousands) | 2019 | 2019 | |||||||||||||||||||||
| Total assets | $ | 6,471,181 | $ | 6,384,883 | $ | 86,298 | 5.4 | % | |||||||||||||||
| Total loans | 4,307,366 | 4,182,348 | 125,018 | 12.0 | % | ||||||||||||||||||
| Total investments | 1,345,954 | 1,397,753 | (51,799) | (14.8) | % | ||||||||||||||||||
| Total deposits | $ | 5,366,994 | $ | 5,295,407 | $ | 71,587 | 5.4 | % | |||||||||||||||
Loan growth of $125,018,000 or 12.0% on an annualized basis during the fourth quarter of 2019 provided benefit to the yield on earning assets and net interest margin as prepayments and sales of investment securities were utilized to fund loans and to reduce the need for overnight borrowings from the Federal Home Loan Bank.
Average Trailing Quarter Balance Sheet Change
| Qtrly avg balances | As of December 31, | As of September 30, | $ Change | Annualized % Change | |||||||||||||||||||
| ($‘s in thousands) | 2019 | 2019 | |||||||||||||||||||||
| Total assets | $ | 6,482,832 | $ | 6,452,470 | $ | 30,362 | 1.9 | % | |||||||||||||||
| Total loans | 4,231,347 | 4,142,602 | 88,745 | 8.6 | % | ||||||||||||||||||
| Total investments | 1,356,067 | 1,536,691 | (180,624) | (47.0) | % | ||||||||||||||||||
| Total deposits | $ | 5,385,190 | $ | 5,327,235 | $ | 57,955 | 4.4 | % | |||||||||||||||
The growth in average loans of $88,745,000 or 8.6%, on an annualized basis, during the fourth quarter of 2019 was slightly above the annual year over year growth rate of 7.1% but less than the annualized period ended growth of 12.0% as a significant concentration of the quarterly activity occurred in the later half of the quarter.
Year Over Year Balance Sheet Change
| Ending balances | As of December 31, | |||||||||||||||||||||||||
| ($'s in thousands) | 2019 | 2018 | $ Change | % Change | ||||||||||||||||||||||
| Total assets | $ | 6,471,181 | $ | 6,352,441 | $ | 118,740 | 1.9 | % | ||||||||||||||||||
| Total loans | 4,307,366 | 4,022,014 | 285,352 | 7.1 | % | |||||||||||||||||||||
| Total investments | 1,345,954 | 1,580,096 | (234,142) | (14.8) | % | |||||||||||||||||||||
| Total deposits | $ | 5,366,994 | $ | 5,366,466 | $ | 528 | — | % | ||||||||||||||||||
Total assets grew by $118,740,000 or 1.9% between December 2018 and December 2019. This growth was led by $285,352,000 or 7.1% in loan growth which was funded by the retention of earnings but primarily by cash flows from the maturity, prepayment and sales of investment securities which decreased by $234,142,000 or 14.8% from the year ended 2018.
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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 | |||||||||||||||||||||||
| December 31, | September 30, | ||||||||||||||||||||||
| (dollars in thousands) | 2019 | 2019 | $ Change | % Change | |||||||||||||||||||
| Interest income | $ | 67,918 | $ | 68,889 | $ | (971) | (1.4) | % | |||||||||||||||
| Interest expense | (3,722) | (4,201) | 479 | (11.4) | % | ||||||||||||||||||
Fully tax-equivalent adjustment (FTE) (1) | 272 | 289 | (17) | (5.9) | % | ||||||||||||||||||
| Net interest income (FTE) | $ | 64,468 | $ | 64,977 | $ | (509) | (0.8) | % | |||||||||||||||
| Net interest margin (FTE) | 4.39 | % | 4.44 | % | |||||||||||||||||||
| Acquired loans discount accretion, net: | |||||||||||||||||||||||
| Amount (included in interest income) | $ | 2,218 | $ | 2,360 | $ | (142) | (6.0) | % | |||||||||||||||
| Effect on average loan yield | 0.21 | % | 0.23 | % | |||||||||||||||||||
| Effect on net interest margin (FTE) | 0.16 | % | 0.16 | % | |||||||||||||||||||
| Three Months Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| Interest income | $ | 67,918 | $ | 68,065 | $ | (147) | (0.2) | % | |||||||||||||||
| Interest expense | (3,722) | (4,063) | 341 | (8.4) | % | ||||||||||||||||||
Fully tax-equivalent adjustment (FTE) (1) | 272 | 322 | (50) | (15.5) | % | ||||||||||||||||||
| Net interest income (FTE) | $ | 64,468 | $ | 64,324 | $ | 144 | 0.2 | % | |||||||||||||||
| Net interest margin (FTE) | 4.39 | % | 4.49 | % | |||||||||||||||||||
| Acquired loans discount accretion, net: | |||||||||||||||||||||||
| Amount (included in interest income) | $ | 2,218 | $ | 1,982 | $ | 236 | 11.9 | % | |||||||||||||||
| Effect on average loan yield | 0.21 | % | 0.20 | % | |||||||||||||||||||
| Effect on net interest margin (FTE) | 0.16 | % | 0.14 | % | |||||||||||||||||||
| Twelve Months Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| Interest income | $ | 272,444 | $ | 228,218 | $ | 44,226 | 19.4 | % | |||||||||||||||
| Interest expense | (15,375) | (12,872) | (2,503) | 19.4 | % | ||||||||||||||||||
Fully tax-equivalent adjustment (FTE) (1) | 1,201 | 1,304 | (103) | (7.9) | % | ||||||||||||||||||
| Net interest income (FTE) | $ | 258,270 | $ | 216,650 | $ | 41,620 | 19.2 | % | |||||||||||||||
| Net interest margin (FTE) | 4.47 | % | 4.28 | % | |||||||||||||||||||
| Acquired loans discount accretion, net: | |||||||||||||||||||||||
| Amount (included in interest income) | $ | 8,137 | $ | 5,271 | $ | 2,866 | 54.4 | % | |||||||||||||||
| Effect on average loan yield | 0.20 | % | 0.15 | % | |||||||||||||||||||
| Effect on net interest margin (FTE) | 0.11 | % | 0.10 | % | |||||||||||||||||||
(1)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 effects 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 declining rate environment, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, accelerated and this is evidenced by the increase in discount accretion included in interest income subsequent to the second quarter of 2019. During the three months ended December 31, 2019, September 30, 2019, June 30, 2019, and March 31, 2019, purchased loan discount accretion was $2,218,000, $2,360,000, $1,904,000, and $1,655,000 respectively. Net accretion for the quarter ended March 31, 2019 was reduced by $259,000 from the early repayment of loans purchased at a premium several years ago.
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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 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2019 | September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | |||||||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | $ | 4,231,347 | $ | 56,862 | 5.33 | % | $ | 4,142,602 | $ | 56,999 | 5.46 | % | $ | 4,026,569 | $ | 55,662 | 5.48 | % | |||||||||||||||||||||||||||||||||||
| Investments-taxable | 1,236,717 | 9,246 | 2.97 | % | 1,403,653 | 10,172 | 2.88 | % | 1,378,182 | 8,955 | 2.58 | % | |||||||||||||||||||||||||||||||||||||||||
Investments-nontaxable (1) | 119,350 | 1,179 | 3.92 | % | 133,038 | 1,250 | 3.73 | % | 143,598 | 1,395 | 3.85 | % | |||||||||||||||||||||||||||||||||||||||||
| Total investments | 1,356,067 | 10,425 | 3.05 | % | 1,536,691 | 11,422 | 2.95 | % | 1,521,780 | 10,350 | 2.70 | % | |||||||||||||||||||||||||||||||||||||||||
| Cash at Federal Reserve and other banks | 236,381 | 903 | 1.52 | % | 130,955 | 757 | 2.29 | % | 131,496 | 2,375 | 7.17 | % | |||||||||||||||||||||||||||||||||||||||||
| Total earning assets | 5,823,795 | 68,190 | 4.65 | % | 5,810,248 | 69,178 | 4.72 | % | 5,679,845 | 68,387 | 4.78 | % | |||||||||||||||||||||||||||||||||||||||||
| Other assets, net | 659,037 | 642,222 | 636,492 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 6,482,832 | $ | 6,452,470 | $ | 6,316,337 | |||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,227,854 | 229 | 0.07 | % | $ | 1,240,548 | 284 | 0.09 | % | $ | 1,183,805 | $ | 272 | 0.09 | % | |||||||||||||||||||||||||||||||||||||
| Savings deposits | 1,859,652 | 1,261 | 0.27 | % | 1,861,166 | 1,192 | 0.25 | % | 1,849,788 | 1,132 | 0.24 | % | |||||||||||||||||||||||||||||||||||||||||
| Time deposits | 453,894 | 1,458 | 1.27 | % | 447,669 | 1,574 | 1.39 | % | 459,658 | 1,190 | 1.03 | % | |||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing deposits | 3,541,400 | 2,948 | 0.33 | % | 3,549,383 | 3,050 | 0.34 | % | 3,493,251 | 2,594 | 0.29 | % | |||||||||||||||||||||||||||||||||||||||||
| Other borrowings | 20,247 | 3 | 0.06 | % | 73,350 | 334 | 1.81 | % | 122,755 | 639 | 2.07 | % | |||||||||||||||||||||||||||||||||||||||||
| Junior subordinated debt | 57,205 | 771 | 5.35 | % | 57,156 | 817 | 5.67 | % | 57,019 | 830 | 5.78 | % | |||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 3,618,852 | 3,722 | 0.41 | % | 3,679,889 | 4,201 | 0.45 | % | 3,673,025 | 4,063 | 0.44 | % | |||||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 1,843,790 | 1,777,852 | 1,748,888 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 114,605 | 104,062 | 81,899 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders’ equity | 905,585 | 890,667 | 812,525 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 6,482,832 | $ | 6,452,470 | $ | 6,316,337 | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest rate spread (1) (2) | 4.24 | % | 4.27 | % | 4.34 | % | |||||||||||||||||||||||||||||||||||||||||||||||
Net interest income and margin (1) (3) | $ | 64,468 | 4.39 | % | $ | 64,977 | 4.44 | % | $ | 64,324 | 4.49 | % | |||||||||||||||||||||||||||||||||||||||||
(1)Fully taxable equivalent (FTE)
(2)Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
(3)Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets. All yields and rates are calculated using the specific day counts for the period and the total number of days for the year.
Net interest income (FTE) during the three months ended December 31, 2019 decreased $(509,000) or (0.8)% to $64,468,000 compared to $64,977,000 during the three months ended September 30, 2019. Over the same period net interest margin declined 5 basis points to 4.39% as compared to 4.44% in the trailing quarter. The decline in net interest income (FTE) was due primarily to a decline in yield on interest earning assets, which was 4.65% for the quarter ended December 31, 2019, which represents a decrease of 7 basis points over the trailing quarter and a decrease of 13 basis points over the same quarter in the prior year. The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, decreased by 25 basis points during the current quarter to 4.75% at December 31, 2019, as compared to 5.00% at September 30, 2109 and 5.50% at December 31, 2018. The index decreased by 25 basis points each month in both August and September, 2019. As such, there was minimal immediate change to interest income on loans during the trailing quarter.
As compared to the same quarter in the prior year, average loan yields decreased 15 basis points from 5.48% during the three months ended December 31, 2018 to 5.33% during the three months ended December 31, 2019. Of the 15 basis point decrease in yields on loans during the comparable three month periods ended December 31, 2019 and 2018, 16 basis points was attributable to decreases in market rates while 1 basis point was gained from the accretion of purchased loan discounts.
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The decline in interest expense is attributed primarily to the reduction in average balances of other borrowings during the three months ended December 31, 2019, which had average balances of $20.2 million, $73.4 million and $122.8 million during the quarterly periods ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively. Comparing the quarter ended December 31, 2019 to the same quarter in the prior year, the cost of interest bearing deposits increased by 4 basis points to 0.33% from 0.29% as a direct result of market competition.
The following table shows the components of net interest income and net interest margin on a fully tax-equivalent (FTE) basis for the year-to-date periods indicated:
ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS
(unaudited, dollars in thousands)
| Twelve Months Ended | Twelve Months Ended | ||||||||||||||||||||||||||||||||||
| December 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||||||||||||
| Average Balance | Income/ Expense | Yield/ Rate | Average Balance | Income/ Expense | Yield/ Rate | ||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Loans | $ | 4,111,093 | $ | 223,750 | 5.44 | % | $ | 3,548,498 | $ | 186,117 | 5.24 | % | |||||||||||||||||||||||
| Investments–taxable | 1,360,793 | 41,095 | 3.02 | % | 1,241,829 | 35,702 | 2.87 | % | |||||||||||||||||||||||||||
Investments-nontaxable (1) | 133,733 | 5,203 | 3.89 | % | 142,146 | 5,649 | 3.97 | % | |||||||||||||||||||||||||||
| Total investments | 1,494,526 | 46,298 | 3.10 | % | 1,383,975 | 41,351 | 2.99 | % | |||||||||||||||||||||||||||
| Cash at Federal Reserve and other banks | 171,021 | 3,597 | 2.10 | % | 109,352 | 2,054 | 1.88 | % | |||||||||||||||||||||||||||
| Total earning assets | 5,776,640 | 273,645 | 4.74 | % | 5,041,825 | 229,522 | 4.55 | % | |||||||||||||||||||||||||||
| Other assets, net | 660,455 | 496,323 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 6,437,095 | $ | 5,538,148 | |||||||||||||||||||||||||||||||
| Liabilities and shareholders’ equity | |||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,254,375 | 1,089 | 0.09 | % | $ | 1,075,331 | 945 | 0.09 | % | |||||||||||||||||||||||||
| Savings deposits | 1,883,964 | 4,892 | 0.26 | % | 1,610,202 | 2,803 | 0.17 | % | |||||||||||||||||||||||||||
| Time deposits | 446,142 | 5,735 | 1.29 | % | 378,058 | 3,248 | 0.86 | % | |||||||||||||||||||||||||||
| Total interest-bearing deposits | 3,584,481 | 11,716 | 0.33 | % | 3,063,591 | 6,996 | 0.23 | % | |||||||||||||||||||||||||||
| Other borrowings | 15,484 | 387 | 2.50 | % | 154,372 | 2,745 | 1.78 | % | |||||||||||||||||||||||||||
| Junior subordinated debt | 57,133 | 3,272 | 5.73 | % | 56,950 | 3,131 | 5.50 | % | |||||||||||||||||||||||||||
| Total interest-bearing liabilities | 3,657,098 | 15,375 | 0.42 | % | 3,274,913 | 12,872 | 0.39 | % | |||||||||||||||||||||||||||
| Noninterest-bearing deposits | 1,780,746 | 1,531,383 | |||||||||||||||||||||||||||||||||
| Other liabilities | 121,933 | 74,113 | |||||||||||||||||||||||||||||||||
| Shareholders’ equity | 877,318 | 657,739 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 6,437,095 | $ | 5,538,148 | |||||||||||||||||||||||||||||||
Net interest rate spread (1) (2) | 4.32 | % | 4.16 | % | |||||||||||||||||||||||||||||||
Net interest income and margin (1) (3) | $ | 258,270 | 4.47 | % | $ | 216,650 | 4.30 | % | |||||||||||||||||||||||||||
(1)Fully taxable equivalent (FTE)
(2)Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
(3)Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets. All yields and rates are calculated using the specific day counts for the period and the total number of days for the year.
Net interest income (FTE) during the twelve months ended December 31, 2019 increased $41,620,000 or 19.2% to $258,270,000 compared to $216,650,000 during the twelve months ended December 31, 2018. The increase was substantially attributable to changes in volume of earning assets from the acquisition of FNB Bancorp in July 2018, in addition to organic loan growth experienced during 2019. The yield on interest earning assets was 4.74% and 4.55% for the twelve months ended December 31, 2019 and 2018, respectively. This 19 basis point increase in total earning asset yield was primarily attributable to a 20 basis point increase in loan yields and a 11 basis point increase in yields on total investments. Of the 20 basis point increase in yields on loans, 15 basis points was attributable to increases in market rates while 5 basis points was from accretion of purchased loans.
The increases in yields on earning assets were partially offset by increased funding expenses as the costs of total interest bearing liabilities increased 3 basis points to 0.42% during the twelve months ended December 31, 2019, as compared to 0.39% for the twelve months ended December 31, 2018. During the same period, costs associated with interest bearing deposits increased by 10 basis points to 0.33% as compared to 0.23% in the prior year. The increase in interest expense for the twelve months ended December 31, 2019 as compared to the prior period was due largely to the increases in the average balances of interest-bearing liabilities associated with the acquisition of FNB Bancorp, offset partially by reductions in the average balance of other borrowings.
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Asset Quality and Loan Loss Provisioning
The Company recorded a benefit from the reversal of loan losses of $298,000 and $329,000 during the three months ended December 31, 2019 and September 30, 2019, respectively, as compared to a provision of $806,000 during the three months ended December 31, 2018. The reversal of loan losses during the quarter ended December 31, 2019 was largely driven by a net reduction in calculated specific reserves associated with net reductions in non-performing loans of $1,701,000 and to a lesser extent the loan loss reserves associated with loans impacted by the 2018 wildfires. Additions to other real estate owned were $995,000 during three month period ended December 31, 2019. The amount of required provision reversal was partially offset by loan growth of $125,018,000 during the fourth quarter. Net charge-offs (recoveries) for the quarters ended December 31, 2019 and 2018 were $623,000 and ($172,000), respectively.
For the twelve months ended December 31, 2019 the Company recorded a benefit from the reversal of loan losses of $1,690,000. While year to date loan growth in 2019 totaled $285,352,000, nonperforming loans decreased by $10,630,000, and past due loans decreased by $8,344,000. These reductions were facilitated through loan repayments and performance based upgrades of approximately $6,351,000 and approximately $4,279,000 in sales of nonperforming loans. In addition, the outstanding balances of loans associated with wildfire activity continued to decline as illustrated by their balances of approximately $28.9 million and $10.7 million at December 31, 2018 and 2019, respectively. Net charge-offs (recoveries) for the year ended December 31, 2019 and 2018 were $276,000 and $324,000, respectively.
Provision for Income Taxes
The Company’s effective tax rate was 27.4% for the year ended December 31, 2019 as compared to 26.8% for the same period in the prior year. The increase in effective tax rate is due primarily to a lesser amount of non-taxable income as well as a greater level of non-deductible compensation to covered employees in 2019.
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) | December 31, 2019 | September 30, 2019 | $ Change | % Change | |||||||||||||||||||
| ATM and interchange fees | $ | 5,227 | $ | 5,427 | $ | (200) | (3.7) | % | |||||||||||||||
| Service charges on deposit accounts | 4,268 | 4,327 | (59) | (1.4) | % | ||||||||||||||||||
| Other service fees | 817 | 808 | 9 | 1.1 | % | ||||||||||||||||||
| Mortgage banking service fees | 476 | 483 | (7) | (1.4) | % | ||||||||||||||||||
| Change in value of mortgage servicing rights | (159) | (455) | 296 | (65.1) | % | ||||||||||||||||||
| Total service charges and fees | 10,629 | 10,590 | 39 | 0.4 | % | ||||||||||||||||||
| Increase in cash value of life insurance | 735 | 773 | (38) | (4.9) | % | ||||||||||||||||||
| Asset management and commission income | 775 | 721 | 54 | 7.5 | % | ||||||||||||||||||
| Gain on sale of loans | 1,059 | 1,236 | (177) | (14.3) | % | ||||||||||||||||||
| Lease brokerage income | 247 | 172 | 75 | 43.6 | % | ||||||||||||||||||
| Sale of customer checks | 128 | 126 | 2 | 1.6 | % | ||||||||||||||||||
| Gain (loss) on sale of investment securities | 3 | 107 | (104) | (97.2) | % | ||||||||||||||||||
| Gain (loss) on marketable equity securities | (14) | 22 | (36) | (163.6) | % | ||||||||||||||||||
| Other | 624 | 361 | 263 | 72.9 | % | ||||||||||||||||||
| Total other non-interest income | 3,557 | 3,518 | 39 | 1.1 | % | ||||||||||||||||||
| Total non-interest income | $ | 14,186 | $ | 14,108 | $ | 78 | 0.6 | % | |||||||||||||||
Non-interest income increased $78,000 or 0.6% to $14,186,000 during the three months ended December 31, 2019 compared to$14,108,000 during the trailing quarter September 30, 2019. Similar to the previous quarters of 2019, the value of mortgage servicing rights continued to decline, but to a lesser extent, which is consistent with changes in the rate environment and changes in the other assumptions utilized in determining their fair value. Specifically, continued trends associated with increased prepayment speeds resulting from decreases in the 15 and 30 year mortgage rates, as compared to the first half of 2019, continued to be the largest contributors to the decline in fair value of the mortgage servicing asset. Modest increases in rates during the fourth quarter softened the decline in the fair value of mortgage servicing rates, which decreased $(159,000) during the three months ended December 31, 2019, an improvement of $296,000 as compared to the $(455,000) decline during the trailing three months period ended. This improvement in the value of mortgage servicing assets was partially offset by a $(177,000) decrease in gains from the sale of loans due to a lower volume of mortgage loans sold.
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The following table presents the key components of non-interest income for the current and prior year quarterly periods indicated:
| Three Months Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| ATM and interchange fees | $ | 5,227 | $ | 4,914 | $ | 313 | 6.4 | % | |||||||||||||||
| Service charges on deposit accounts | 4,268 | 4,059 | 209 | 5.1 | % | ||||||||||||||||||
| Other service fees | 817 | 832 | (15) | (1.8) | % | ||||||||||||||||||
| Mortgage banking service fees | 476 | 511 | (35) | (6.8) | % | ||||||||||||||||||
| Change in value of mortgage servicing rights | (159) | (184) | 25 | (13.6) | % | ||||||||||||||||||
| Total service charges and fees | 10,629 | 10,132 | 497 | 4.9 | % | ||||||||||||||||||
| Increase in cash value of life insurance | 735 | 722 | 13 | 1.8 | % | ||||||||||||||||||
| Asset management and commission income | 775 | 737 | 38 | 5.2 | % | ||||||||||||||||||
| Gain on sale of loans | 1,059 | 540 | 519 | 96.1 | % | ||||||||||||||||||
| Lease brokerage income | 247 | 164 | 83 | 50.6 | % | ||||||||||||||||||
| Sale of customer checks | 128 | 122 | 6 | 4.9 | % | ||||||||||||||||||
| Gain (loss) on sale of investment securities | 3 | — | 3 | — | % | ||||||||||||||||||
| Gain (loss) on marketable equity securities | (14) | 28 | (42) | (150.0) | % | ||||||||||||||||||
| Other | 624 | 150 | 474 | 316.0 | % | ||||||||||||||||||
| Total other non-interest income | 3,557 | 2,463 | 1,094 | 44.4 | % | ||||||||||||||||||
| Total non-interest income | $ | 14,186 | $ | 12,595 | $ | 1,591 | 12.6 | % | |||||||||||||||
Non-interest income increased $1,591,000 or 12.6% to $14,186,000 during the three months ended December 31, 2019 compared to $12,595,000 during the same period in 2018. As noted in previous quarters, the increase in non-interest income was largely driven by increases in fees charged for various services and increases in usage associated with both services and interchange transactions. As a result, ATM and interchange fees increased by $313,000 or 6.4% during the the three months ended December 31, 2019 compared to 2018, and service charges on deposit accounts increased by $209,000 or 5.1% over the same period. Other significant increases in non-interest income for the three months ended December 31, 2019 include a $519,000 increase in gain on sale of loans to $1,059,000 and increases in other non-interest income of $474,000 to $624,000.
The following table presents the key components of non-interest income for the current and prior year-to-date periods indicated:
| Twelve Months Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| ATM and interchange fees | $ | 20,639 | $ | 18,249 | $ | 2,390 | 13.1 | % | |||||||||||||||
| Service charges on deposit accounts | 16,657 | 15,467 | 1,190 | 7.7 | % | ||||||||||||||||||
| Other service fees | 3,015 | 2,852 | 163 | 5.7 | % | ||||||||||||||||||
| Mortgage banking service fees | 1,917 | 2,038 | (121) | (5.9) | % | ||||||||||||||||||
| Change in value of mortgage servicing rights | (1,811) | (146) | (1,665) | 1,140.4 | % | ||||||||||||||||||
| Total service charges and fees | 40,417 | 38,460 | 1,957 | 5.1 | % | ||||||||||||||||||
| Increase in cash value of life insurance | 3,029 | 2,718 | 311 | 11.4 | % | ||||||||||||||||||
| Asset management and commission income | 2,877 | 3,151 | (274) | (8.7) | % | ||||||||||||||||||
| Gain on sale of loans | 3,282 | 2,371 | 911 | 38.4 | % | ||||||||||||||||||
| Lease brokerage income | 878 | 678 | 200 | 29.5 | % | ||||||||||||||||||
| Sale of customer checks | 529 | 449 | 80 | 17.8 | % | ||||||||||||||||||
| Gain (loss) on sale of investment securities | 110 | 207 | (97) | (46.9) | % | ||||||||||||||||||
| Gain (loss) on marketable equity securities | 86 | (64) | 150 | (234.4) | % | ||||||||||||||||||
| Other | 2,312 | 1,091 | 1,221 | 111.9 | % | ||||||||||||||||||
| Total other non-interest income | 13,103 | 10,601 | 2,502 | 23.6 | % | ||||||||||||||||||
| Total non-interest income | $ | 53,520 | $ | 49,061 | $ | 4,459 | 9.1 | % | |||||||||||||||
Non-interest income increased $4,459,000 or 9.1% to $53,520,000 during the twelve months ended December 31, 2019 compared to $49,061,000 during the comparable twelve month period in 2018. Non-interest income for the twelve months ended 2019 as compared to the same period in 2018 was impacted by changes in the fair value of the Company’s mortgage servicing assets, which contributed to a $1,665,000 decline. However, this was offset by previously discussed increase in income charged for interchange fees and service charges, which increased by $2,390,000 or 13.1% and $1,190,000 or 7.7%, respectively. Gains from the sale of mortgage loans, which resulted from increased volume, contributed $911,000 to the overall increase in non-interest income during the 2019 year. Other non-interest income was positively impacted by the recognition of $831,000 in life insurance death benefits during the twelve months ended December 31, 2019, compared to none in the equivalent period in 2018.
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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) | December 31, 2019 | September 30, 2019 | $ Change | % Change | |||||||||||||||||||
| Base salaries, net of deferred loan origination costs | $ | 18,594 | $ | 17,656 | $ | 938 | 5.3 | % | |||||||||||||||
| Incentive compensation | 3,042 | 3,791 | (749) | (19.8) | % | ||||||||||||||||||
| Benefits and other compensation costs | 5,683 | 5,452 | 231 | 4.2 | % | ||||||||||||||||||
| Total salaries and benefits expense | 27,319 | 26,899 | 420 | 1.6 | % | ||||||||||||||||||
| Occupancy | 3,670 | 3,711 | (41) | (1.1) | % | ||||||||||||||||||
| Data processing and software | 3,403 | 3,411 | (8) | (0.2) | % | ||||||||||||||||||
| Equipment | 1,724 | 1,679 | 45 | 2.7 | % | ||||||||||||||||||
| Intangible amortization | 1,430 | 1,431 | (1) | (0.1) | % | ||||||||||||||||||
| Advertising | 1,411 | 1,358 | 53 | 3.9 | % | ||||||||||||||||||
| ATM and POS network charges | 1,511 | 1,343 | 168 | 12.5 | % | ||||||||||||||||||
| Professional fees | 859 | 999 | (140) | (14.0) | % | ||||||||||||||||||
| Telecommunications | 753 | 867 | (114) | (13.1) | % | ||||||||||||||||||
| Regulatory assessments and insurance | 93 | 94 | (1) | (1.1) | % | ||||||||||||||||||
| Postage | 195 | 438 | (243) | (55.5) | % | ||||||||||||||||||
| Operational losses | 307 | 228 | 79 | 34.6 | % | ||||||||||||||||||
| Courier service | 269 | 357 | (88) | (24.6) | % | ||||||||||||||||||
| Gain on sale of foreclosed assets | — | (50) | 50 | (100.0) | % | ||||||||||||||||||
| Loss on disposal of fixed assets | — | 2 | (2) | (100.0) | % | ||||||||||||||||||
| Other miscellaneous expense | 4,020 | 3,577 | 443 | 12.4 | % | ||||||||||||||||||
| Total other non-interest expense | 19,645 | 19,445 | 200 | 1.0 | % | ||||||||||||||||||
| Total non-interest expense | $ | 46,964 | $ | 46,344 | $ | 620 | 1.3 | % | |||||||||||||||
| Average full-time equivalent staff | 1,163 | 1,160 | 3 | 0.3 | % | ||||||||||||||||||
Non-interest expense for the quarter ended December 31, 2019 increased $620,000 or 1.3% to $46,964,000 as compared to $46,344,000 during the trailing quarter ended September 30, 2019. Salaries and benefits expenses comprised the largest component of this modest increase, contributing $420,000 or 1.6% to the total change in non-interest expense during the three months ending December 31, 2019 compared to the same period in the prior year.
Increases in base salaries and benefits were primarily attributable to compensation adjustments associated with changes in the Company's management structure. These increases were largely offset by reductions in incentive compensation earned on sales and production related activities which seasonally taper in the fourth quarter of the calendar year.
Regulatory assessment credits issued by the FDIC during the three month periods ended December 31, 2019 and September 30, 2019 totaled $432,000 and $430,000, respectively.
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The following table presents the key components of non-interest expense for the current and prior year quarterly periods indicated:
| Three months ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| Base salaries, net of deferred loan origination costs | $ | 18,594 | $ | 18,346 | $ | 248 | 1.4 | % | |||||||||||||||
| Incentive compensation | 3,042 | 2,021 | 1,021 | 50.5 | % | ||||||||||||||||||
| Benefits and other compensation costs | 5,683 | 4,647 | 1,036 | 22.3 | % | ||||||||||||||||||
| Total salaries and benefits expense | 27,319 | 25,014 | 2,305 | 9.2 | % | ||||||||||||||||||
| Occupancy | 3,670 | 3,565 | 105 | 2.9 | % | ||||||||||||||||||
| Data processing and software | 3,403 | 3,042 | 361 | 11.9 | % | ||||||||||||||||||
| Equipment | 1,724 | 1,713 | 11 | 0.6 | % | ||||||||||||||||||
| Intangible amortization | 1,430 | 1,431 | (1) | (0.1) | % | ||||||||||||||||||
| Advertising | 1,411 | 1,364 | 47 | 3.4 | % | ||||||||||||||||||
| ATM and POS network charges | 1,511 | 1,411 | 100 | 7.1 | % | ||||||||||||||||||
| Professional fees | 859 | 648 | 211 | 32.6 | % | ||||||||||||||||||
| Telecommunications | 753 | 822 | (69) | (8.4) | % | ||||||||||||||||||
| Regulatory assessments and insurance | 93 | 522 | (429) | (82.2) | % | ||||||||||||||||||
| Postage | 195 | 220 | (25) | (11.4) | % | ||||||||||||||||||
| Operational losses | 307 | 497 | (190) | (38.2) | % | ||||||||||||||||||
| Courier service | 269 | 518 | (249) | (48.1) | % | ||||||||||||||||||
| Gain on sale of foreclosed assets | — | (18) | 18 | (100.0) | % | ||||||||||||||||||
| Loss on disposal of fixed assets | — | (21) | 21 | (100.0) | % | ||||||||||||||||||
| Other miscellaneous expense | 4,020 | 4,518 | (498) | (11.0) | % | ||||||||||||||||||
| Total other non-interest expense | 19,645 | 20,232 | (587) | (2.9) | % | ||||||||||||||||||
| Total non-interest expense | $ | 46,964 | $ | 45,246 | $ | 1,718 | 3.8 | % | |||||||||||||||
| Average full-time equivalent staff | 1,163 | 1,134 | 29 | 2.6 | % | ||||||||||||||||||
Non-interest expense increased by $1,718,000 or 3.8% to $46,964,000 during the three months ended December 31, 2019 as compared to $45,246,000 for the three months ended December 31, 2018. This modest increase was driven by salary and benefit increases of $2,305,000 or 9.2% to $27,319,000 during the three months ended December 31, 2019 as compared to $25,014,000 for the same period in 2018. These increases were impacted equally by increased costs associated with production incentives and long term benefit obligation costs. To a lesser extent, increases of $248,000 in based salaries during these comparable fourth quarter periods were the result of annual merit increases as well as compensation adjustments associated with changes in the organizational structure of management.
- 10 -
The following table presents the key components of non-interest expense for the current and prior year to date periods indicated:
| Twelve Months Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2019 | 2018 | $ Change | % Change | |||||||||||||||||||
| Base salaries, net of deferred loan origination costs | $ | 70,218 | $ | 62,422 | $ | 7,796 | 12.5 | % | |||||||||||||||
| Incentive compensation | 13,106 | 11,147 | 1,959 | 17.6 | % | ||||||||||||||||||
| Benefits and other compensation costs | 22,741 | 20,373 | 2,368 | 11.6 | % | ||||||||||||||||||
| Total salaries and benefits expense | 106,065 | 93,942 | 12,123 | 12.9 | % | ||||||||||||||||||
| Occupancy | 14,893 | 12,139 | 2,754 | 22.7 | % | ||||||||||||||||||
| Data processing and software | 13,517 | 11,021 | 2,496 | 22.6 | % | ||||||||||||||||||
| Equipment | 7,022 | 6,651 | 371 | 5.6 | % | ||||||||||||||||||
| Intangible amortization | 5,723 | 3,499 | 2,224 | 63.6 | % | ||||||||||||||||||
| Advertising | 5,633 | 4,578 | 1,055 | 23.0 | % | ||||||||||||||||||
| ATM and POS network charges | 5,447 | 5,271 | 176 | 3.3 | % | ||||||||||||||||||
| Professional fees | 3,754 | 3,546 | 208 | 5.9 | % | ||||||||||||||||||
| Telecommunications | 3,190 | 3,023 | 167 | 5.5 | % | ||||||||||||||||||
| Regulatory assessments and insurance | 1,188 | 1,906 | (718) | (37.7) | % | ||||||||||||||||||
| Merger and acquisition expense | — | 5,227 | (5,227) | (100.0) | % | ||||||||||||||||||
| Postage | 1,258 | 1,154 | 104 | 9.0 | % | ||||||||||||||||||
| Operational losses | 986 | 1,260 | (274) | (21.7) | % | ||||||||||||||||||
| Courier service | 1,308 | 1,287 | 21 | 1.6 | % | ||||||||||||||||||
| Gain on sale of foreclosed assets | (246) | (408) | 162 | (39.7) | % | ||||||||||||||||||
| Loss on disposal of fixed assets | 82 | 185 | (103) | (55.7) | % | ||||||||||||||||||
| Other miscellaneous expense | 15,637 | 14,191 | 1,446 | 10.2 | % | ||||||||||||||||||
| Total other non-interest expense | 79,392 | 74,530 | 4,862 | 6.5 | % | ||||||||||||||||||
| Total non-interest expense | $ | 185,457 | $ | 168,472 | $ | 16,985 | 10.1 | % | |||||||||||||||
| Average full-time equivalent staff | 1,150 | 1,071 | 79 | 7.4 | % | ||||||||||||||||||
Non-interest expense increased by $16,985,000 or 10.1% to $185,457,000 during the twelve months ended December 31, 2019 as compared to the $168,472,000 for the twelve months ended December 31, 2018. Virtually all significant increases in non-interest expense can be attributed to the acquisition of FNB Bancorp that took place in July 2018, which is reflected in all periods during the twelve months ended December 31, 2019, as compared to only six months in the prior year.
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 ATM, online and mobile banking access. Brokerage services are provided by the Bank’s investment services through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more.
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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; the costs or effects of mergers, acquisitions or dispositions we may make; the future operating or financial performance of the Company, including our outlook for future growth, 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 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; unanticipated regulatory or judicial proceedings; cybersecurity threats and the cost of defending against them; 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, 2018, which is on file with the Securities and Exchange Commission (the “SEC”) and 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.
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TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in thousands, except share data)
| Three months ended | |||||||||||||||||||||||||||||
| December 31, 2019 | September 30, 2019 | June 30, 2019 | March 31, 2019 | December 31, 2018 | |||||||||||||||||||||||||
| Revenue and Expense Data | |||||||||||||||||||||||||||||
| Interest income | $ | 67,918 | $ | 68,889 | $ | 68,180 | $ | 67,457 | $ | 68,065 | |||||||||||||||||||
| Interest expense | 3,722 | 4,201 | 3,865 | 3,587 | 4,063 | ||||||||||||||||||||||||
| Net interest income | 64,196 | 64,688 | 64,315 | 63,870 | 64,002 | ||||||||||||||||||||||||
| Provision for (benefit from) loan losses | (298) | (329) | 537 | (1,600) | 806 | ||||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||
| Service charges and fees | 10,629 | 10,590 | 10,128 | 9,070 | 10,132 | ||||||||||||||||||||||||
| Gain on sale of investment securities | 3 | 107 | — | — | — | ||||||||||||||||||||||||
| Other income | 3,554 | 3,411 | 3,295 | 2,733 | 2,463 | ||||||||||||||||||||||||
| Total noninterest income | 14,186 | 14,108 | 13,423 | 11,803 | 12,595 | ||||||||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||||||||
| Salaries and benefits | 27,319 | 26,899 | 26,719 | 25,128 | 25,014 | ||||||||||||||||||||||||
| Occupancy and equipment | 5,394 | 5,390 | 5,490 | 5,641 | 5,278 | ||||||||||||||||||||||||
| Data processing and network | 4,914 | 4,754 | 4,624 | 4,672 | 4,455 | ||||||||||||||||||||||||
| Other noninterest expense | 9,337 | 9,301 | 9,864 | 10,011 | 10,499 | ||||||||||||||||||||||||
| Total noninterest expense | 46,964 | 46,344 | 46,697 | 45,452 | 45,246 | ||||||||||||||||||||||||
| Total income before taxes | 31,716 | 32,781 | 30,504 | 31,821 | 30,545 | ||||||||||||||||||||||||
| Provision for income taxes | 8,826 | 9,386 | 7,443 | 9,095 | 7,334 | ||||||||||||||||||||||||
| Net income | $ | 22,890 | $ | 23,395 | $ | 23,061 | $ | 22,726 | $ | 23,211 | |||||||||||||||||||
| Share Data | |||||||||||||||||||||||||||||
| Basic earnings per share | $ | 0.75 | $ | 0.77 | $ | 0.76 | $ | 0.75 | $ | 0.76 | |||||||||||||||||||
| Diluted earnings per share | $ | 0.75 | $ | 0.76 | $ | 0.75 | $ | 0.74 | $ | 0.76 | |||||||||||||||||||
| Dividends per share | $ | 0.22 | $ | 0.22 | $ | 0.19 | $ | 0.19 | $ | 0.19 | |||||||||||||||||||
| Book value per common share | $ | 29.70 | $ | 29.39 | $ | 28.71 | $ | 28.04 | $ | 27.20 | |||||||||||||||||||
| Tangible book value per common share (1) | $ | 21.69 | $ | 21.33 | $ | 20.60 | $ | 19.86 | $ | 18.97 | |||||||||||||||||||
| Shares outstanding | 30,523,824 | 30,512,187 | 30,502,757 | 30,432,419 | 30,417,223 | ||||||||||||||||||||||||
| Weighted average shares | 30,520,490 | 30,509,057 | 30,458,427 | 30,424,184 | 30,422,687 | ||||||||||||||||||||||||
| Weighted average diluted shares | 30,650,071 | 30,629,027 | 30,642,518 | 30,657,833 | 30,671,723 | ||||||||||||||||||||||||
| Credit Quality | |||||||||||||||||||||||||||||
| Loans past due 30 days or more | $ | 9,024 | $ | 8,089 | $ | 14,580 | $ | 16,761 | $ | 17,368 | |||||||||||||||||||
| Nonperforming originated loans | $ | 10,750 | $ | 11,260 | $ | 14,087 | $ | 13,737 | $ | 19,416 | |||||||||||||||||||
| Total nonperforming loans | $ | 16,864 | $ | 18,565 | $ | 20,585 | $ | 19,565 | $ | 27,494 | |||||||||||||||||||
| Total nonperforming assets | $ | 19,405 | $ | 20,111 | $ | 22,133 | $ | 21,880 | $ | 29,774 | |||||||||||||||||||
| Loans charged-off | $ | 1,098 | $ | 1,522 | $ | 293 | $ | 726 | $ | 424 | |||||||||||||||||||
| Loans recovered | $ | 475 | $ | 520 | $ | 560 | $ | 1,808 | $ | 596 | |||||||||||||||||||
| Selected Financial Ratios | |||||||||||||||||||||||||||||
| Return on average total assets | 1.40 | % | 1.44 | % | 1.45 | % | 1.43 | % | 1.46 | % | |||||||||||||||||||
| Return on average equity | 10.03 | % | 10.42 | % | 10.68 | % | 10.93 | % | 11.33 | % | |||||||||||||||||||
| Average yield on loans | 5.33 | % | 5.46 | % | 5.50 | % | 5.48 | % | 5.48 | % | |||||||||||||||||||
| Average yield on interest-earning assets | 4.65 | % | 4.72 | % | 4.76 | % | 4.77 | % | 4.78 | % | |||||||||||||||||||
| Average rate on interest-bearing deposits | 0.33 | % | 0.34 | % | 0.33 | % | 0.30 | % | 0.29 | % | |||||||||||||||||||
| Average cost of total deposits | 0.22 | % | 0.23 | % | 0.22 | % | 0.20 | % | 0.20 | % | |||||||||||||||||||
| Average rate on borrowings & subordinated debt | 3.96 | % | 3.50 | % | 4.62 | % | 4.75 | % | 3.24 | % | |||||||||||||||||||
| Average rate on interest-bearing liabilities | 0.41 | % | 0.45 | % | 0.42 | % | 0.39 | % | 0.44 | % | |||||||||||||||||||
| Net interest margin (fully tax-equivalent) | 4.39 | % | 4.44 | % | 4.50 | % | 4.52 | % | 4.49 | % | |||||||||||||||||||
| Loans to deposits | 80.26 | % | 78.98 | % | 76.82 | % | 74.29 | % | 74.95 | % | |||||||||||||||||||
| Efficiency ratio | 59.92 | % | 58.82 | % | 60.07 | % | 60.06 | % | 59.11 | % | |||||||||||||||||||
| Supplemental Loan Interest Income Data | |||||||||||||||||||||||||||||
| Discount accretion on acquired loans | $ | 2,218 | $ | 2,360 | $ | 1,904 | $ | 1,655 | $ | 1,982 | |||||||||||||||||||
| All other loan interest income | $ | 54,644 | $ | 54,639 | $ | 53,587 | $ | 52,743 | $ | 53,680 | |||||||||||||||||||
| Total loan interest income | $ | 56,862 | $ | 56,999 | $ | 55,491 | $ | 54,398 | $ | 55,662 | |||||||||||||||||||
(1)Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that result by the shares outstanding at the end of the period. Management believes that tangible book value per common share is meaningful because it is a measure that the Company and investors commonly use to assess shareholder value.
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TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA
(Unaudited. Dollars in thousands)
| Balance Sheet Data | December 31, 2019 | September 30, 2019 | June 30, 2019 | March 31, 2019 | December 31, 2018 | ||||||||||||||||||||||||
| Cash and due from banks | $ | 276,507 | $ | 259,047 | $ | 175,582 | $ | 318,708 | $ | 227,533 | |||||||||||||||||||
| Securities, available for sale | 953,098 | 987,054 | 1,136,946 | 1,116,426 | 1,117,910 | ||||||||||||||||||||||||
| Securities, held to maturity | 375,606 | 393,449 | 412,524 | 431,016 | 444,936 | ||||||||||||||||||||||||
| Restricted equity securities | 17,250 | 17,250 | 17,250 | 17,250 | 17,250 | ||||||||||||||||||||||||
| Loans held for sale | 5,265 | 7,604 | 5,875 | 5,410 | 3,687 | ||||||||||||||||||||||||
| Loans: | |||||||||||||||||||||||||||||
| Commercial loans | 283,707 | 278,458 | 276,045 | 269,163 | 276,548 | ||||||||||||||||||||||||
| Consumer loans | 445,542 | 442,539 | 434,388 | 418,352 | 418,982 | ||||||||||||||||||||||||
| Real estate mortgage loans | 3,328,290 | 3,247,156 | 3,178,730 | 3,129,339 | 3,143,100 | ||||||||||||||||||||||||
| Real estate construction loans | 249,827 | 214,195 | 214,524 | 217,477 | 183,384 | ||||||||||||||||||||||||
| Total loans, gross | 4,307,366 | 4,182,348 | 4,103,687 | 4,034,331 | 4,022,014 | ||||||||||||||||||||||||
| Allowance for loan losses | (30,616) | (31,537) | (32,868) | (32,064) | (32,582) | ||||||||||||||||||||||||
| Total loans, net | 4,276,750 | 4,150,811 | 4,070,819 | 4,002,267 | 3,989,432 | ||||||||||||||||||||||||
| Premises and equipment | 87,086 | 87,424 | 88,534 | 89,275 | 89,347 | ||||||||||||||||||||||||
| Cash value of life insurance | 117,823 | 117,088 | 116,606 | 117,841 | 117,318 | ||||||||||||||||||||||||
| Accrued interest receivable | 18,897 | 18,205 | 20,990 | 20,431 | 19,412 | ||||||||||||||||||||||||
| Goodwill | 220,872 | 220,872 | 220,972 | 220,972 | 220,972 | ||||||||||||||||||||||||
| Other intangible assets | 23,557 | 24,988 | 26,418 | 27,849 | 29,280 | ||||||||||||||||||||||||
| Operating leases, right-of-use | 27,879 | 28,957 | 30,030 | 30,942 | — | ||||||||||||||||||||||||
| Other assets | 70,591 | 72,134 | 72,626 | 73,465 | 75,364 | ||||||||||||||||||||||||
| Total assets | $ | 6,471,181 | $ | 6,384,883 | $ | 6,395,172 | $ | 6,471,852 | $ | 6,352,441 | |||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||
| Noninterest-bearing demand deposits | $ | 1,832,665 | $ | 1,777,357 | $ | 1,780,339 | $ | 1,761,559 | $ | 1,760,580 | |||||||||||||||||||
| Interest-bearing demand deposits | 1,242,274 | 1,222,955 | 1,263,635 | 1,297,672 | 1,252,366 | ||||||||||||||||||||||||
| Savings deposits | 1,851,549 | 1,843,873 | 1,856,749 | 1,925,168 | 1,921,324 | ||||||||||||||||||||||||
| Time certificates | 440,506 | 451,222 | 441,450 | 445,863 | 432,196 | ||||||||||||||||||||||||
| Total deposits | 5,366,994 | 5,295,407 | 5,342,173 | 5,430,262 | 5,366,466 | ||||||||||||||||||||||||
| Accrued interest payable | 2,407 | 2,847 | 2,665 | 2,195 | 1,997 | ||||||||||||||||||||||||
| Operating lease liability | 27,540 | 28,494 | 29,434 | 30,204 | — | ||||||||||||||||||||||||
| Other liabilities | 91,984 | 87,867 | 74,590 | 86,362 | 83,724 | ||||||||||||||||||||||||
| Other borrowings | 18,454 | 16,423 | 13,292 | 12,466 | 15,839 | ||||||||||||||||||||||||
| Junior subordinated debt | 57,232 | 57,180 | 57,132 | 57,085 | 57,042 | ||||||||||||||||||||||||
| Total liabilities | 5,564,611 | 5,488,218 | 5,519,286 | 5,618,574 | 5,525,068 | ||||||||||||||||||||||||
| Common stock | 543,998 | 543,415 | 542,939 | 542,340 | 541,762 | ||||||||||||||||||||||||
| Retained earnings | 367,794 | 351,751 | 335,145 | 319,865 | 303,490 | ||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | (5,222) | 1,499 | (2,198) | (8,927) | (17,879) | ||||||||||||||||||||||||
| Total shareholders’ equity | $ | 906,570 | $ | 896,665 | $ | 875,886 | $ | 853,278 | $ | 827,373 | |||||||||||||||||||
| Quarterly Average Balance Data | |||||||||||||||||||||||||||||
| Average loans | $ | 4,231,347 | $ | 4,142,602 | $ | 4,044.044 | $ | 4,023,864 | $ | 4,026,569 | |||||||||||||||||||
| Average interest-earning assets | $ | 5,823,795 | $ | 5,810,248 | $ | 5,764.966 | $ | 5,759,966 | $ | 5,679,845 | |||||||||||||||||||
| Average total assets | $ | 6,482,832 | $ | 6,452,470 | $ | 6,385.889 | $ | 6,426,227 | $ | 6,316,337 | |||||||||||||||||||
| Average deposits | $ | 5,385,190 | $ | 5,327,235 | $ | 5,370.879 | $ | 5,387,079 | $ | 5,242,139 | |||||||||||||||||||
| Average borrowings and subordinated debt | $ | 77,452 | $ | 130,506 | $ | 75.185 | $ | 72,459 | $ | 179,774 | |||||||||||||||||||
| Average total equity | $ | 905,585 | $ | 890,667 | $ | 866.284 | $ | 843,090 | $ | 812,525 | |||||||||||||||||||
| Capital Ratio Data | |||||||||||||||||||||||||||||
| Total risk based capital ratio | 15.1 | % | 15.2 | % | 14.9 | % | 14.4 | % | 14.4 | % | |||||||||||||||||||
| Tier 1 capital ratio | 14.4 | % | 14.5 | % | 14.2 | % | 13.6 | % | 13.7 | % | |||||||||||||||||||
| Tier 1 common equity ratio | 13.3 | % | 13.4 | % | 13.0 | % | 12.5 | % | 12.5 | % | |||||||||||||||||||
| Tier 1 leverage ratio | 11.6 | % | 11.3 | % | 11.1 | % | 10.6 | % | 10.7 | % | |||||||||||||||||||
| Tangible capital ratio (1) | 10.6 | % | 10.6 | % | 10.2 | % | 9.7 | % | 9.5 | % | |||||||||||||||||||
(1)Tangible capital ratio is calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and total assets and then dividing the adjusted assets by the adjusted equity. Management believes that the tangible capital ratio is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.
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