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| TCBK > SEC Filings for TCBK > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
As TriCo Bancshares (the "Company") has not commenced any business operations independent of Tri Counties Bank (the "Bank"), the following discussion pertains primarily to the Bank. Average balances, including such balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company. Within Management's Discussion and Analysis of Financial Condition and Results of Operations, interest income and net interest income are generally presented on a fully tax-equivalent (FTE) basis. The presentation of interest income and net interest income on a FTE basis is a common practice within the banking industry. Interest income and net interest income are shown on a non-FTE basis in the Part I - Financial Information section of this Form 10-Q, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion of net interest income.
Critical Accounting Policies and Estimates The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to the adequacy of the allowance for loan losses, intangible assets, and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. (See caption "Allowance for Loan Losses" for a more detailed discussion).
Results of Operations
The following discussion and analysis is designed to provide a better
understanding of the significant changes and trends related to the Company and
the Bank's financial condition, operating results, asset and liability
management, liquidity and capital resources and should be read in conjunction
with the Condensed Consolidated Financial Statements of the Company and the
Notes thereto located at Item 1 of this report.
Following is a summary of the components of fully taxable equivalent ("FTE") net income for the periods indicated (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
-----------------------------------------------
2008 2007 2008 2007
-----------------------------------------------
Net Interest Income (FTE) 22,889 $22,031 $67,464 $66,005
Provision for loan losses 2,600 700 15,500 1,682
Noninterest income 6,792 6,847 20,922 20,476
Noninterest expense 16,589 16,752 52,006 51,155
Provision for income taxes (FTE) 4,257 4,633 8,323 13,652
-----------------------------------------------
Net income $6,235 $6,793 $12,557 $19,992
===============================================
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The Company had quarterly earnings of $6,235,000 for the three months ended September 30, 2008. This represents a decrease of $558,000 (8.2%) when compared with earnings of $6,793,000 for the quarter ended September 30, 2007. Diluted earnings per share for the quarter ended September 30, 2008 decreased 7.1% to $0.39 compared to $0.42 for the quarter ended September 30, 2007. The decrease in earnings from the prior year quarter was primarily due to a $1,900,000 increase in provision for loans losses.
The Company reported earnings of $12,557,000 for the nine months ended September 30, 2008. These results represent a decrease of $7,435,000 (37.2%) when compared with earnings of $19,992,000 for the nine months ended September 30, 2007. Diluted earnings per share for the nine months ended September 30, 2008 decreased 36.1% to $0.78 compared to $1.22 for the nine months ended September 30, 2007. The decrease in earnings from the nine month period ended September 30, 2007 was primarily due to a $13,818,000 increase in provision for loan losses.
Net Interest Income
The Company's primary source of revenue is net interest income, or the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. Following is a summary of the
components of net interest income for the periods indicated (dollars in
thousands):
Three months ended Nine months ended
September 30, September 30,
----------------------------------------------
2008 2007 2008 2007
-----------------------------------------------
Interest income $29,971 $32,442 $91,433 $95,089
Interest expense (7,252) (10,602) (24,488) (29,713)
FTE adjustment 170 191 519 629
-----------------------------------------------
Net interest income (FTE) $22,889 $22,031 $67,464 $66,005
===============================================
Average interest-earning assets $1,806,010 $1,721,547 $1,814,103 $1,704,342
Net interest margin (FTE) 5.07% 5.12% 4.96% 5.16%
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The Company's primary source of revenue is net interest income, or the difference between interest income on interest-earning assets and interest expense in interest-bearing liabilities.
Net interest income (FTE) during the third quarter of 2008 increased $858,000 (3.9 %) from the same period in 2007 to $22,889,000. The increase in net interest income (FTE) was due to an $84,463,000 (4.9%) increase in average balances of interest-earning assets to $1,806,010,000 that was substantially offset by a 0.05% decrease in net interest margin (FTE) to 5.07%.
Net interest income (FTE) during the first nine months of 2008 increased $1,459,000 (2.2%) from the same period in 2007 to $67,464,000. The increase in net interest income (FTE) was due to a $109,761,000 (6.4%) increase in average balances of interest-earning assets to $1,814,103,000 that was partially offset by a 0.20% decrease in net interest margin (FTE) to 4.96%.
Interest and Fee Income
Interest and fee income (FTE) for the third quarter of 2008 decreased $2,492,000
(7.6%) from the third quarter of 2007. The decrease was due to a 0.90% decrease
in the yield on average interest-earning assets to 6.68% that was partially
offset by an $84,463,000 (4.9%) increase in average interest-earning assets to
$1,806,010,000. The growth in interest-earning assets was due to a $31,590,000
(21%) increase in average loan balances to $1,549,009,000 and an increase of
$53,253,000 (26.1%) in average balances of investments to $256,926,000. The
decrease in the yield on average interest-earning assets was mainly due to a
1.01% decrease in yield on loans to 6.92%. The decrease in loan yields from the
third quarter of 2007 was mainly due to a 3.25% decrease in the prime lending
rate from 8.25% at June 30, 2007 to 5.00% at September 30, 2008.
Interest and fee income (FTE) for the nine months ended September 30, 2008 decreased $3,766,000 (3.9%) from the same period of 2007. The decrease was due to a 0.73% decrease in the yield on average interest-earning assets to 6.76% that was partially offset by a $109,761,000 (6.4%) increase in average interest-earning assets to $1,814,103,000. The growth in interest-earning assets was due to a $38,706,000 (2.6%) increase in average loan balances to $1,543,571,000 and an increase of $71,240,000 (35.8%) in average balances of investments to $270,339,000. The decrease in the yield on average interest-earning assets was mainly due to a 0.79% decrease in yield on loans to 7.04%. The decrease in loan yields from the nine months ended September 30, 2007 was mainly due to a 3.25% decrease in the prime lending rate from 8.25% at June 30, 2007 to 5.00% at September 30, 2008.
Interest Expense
Interest expense decreased $3,350,000 (31.6%) to $7,252,000 in the third quarter
of 2008 compared to the third quarter of 2007. The average balance of
interest-bearing liabilities increased $74,375,000 (5.6%) to $1,408,323,000 in
the third quarter of 2008 compared to the third quarter of 2007. The increase in
the average balance of interest-bearing liabilities was due primarily to
increases of $49,536,000 (9.0%) in the average balance of time deposits from the
third quarter of 2007. The average rate paid on interest-bearing liabilities in
the quarter ended September 30, 2008 decreased 1.12% to 2.06% compared to the
quarter ended September 30, 2007 as a result of lower market rates for almost
all types of interest-bearing liabilities.
Interest expense decreased $5,225,000 (17.6%) to $24,488,000 for the nine months ended September 30, 2008 compared to $29,713,000 for the nine months ended September 30, 2007. The average balance of interest-bearing liabilities increased $97,066,000 (7.4%) to $1,410,614,000 for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007. The increase in the average balance of interest-bearing liabilities was due primarily to increases of $43,994,000 (70.8%) and $40,544,000 (81.7%) in the average balances of Federal funds purchased and other borrowings, respectively, from the nine months ended September 30, 2007. The average rate paid on interest-bearing liabilities in the nine month period ended September 30, 2008 decreased 0.71% to 2.31% compared to the nine months ended September 30, 2007 as a result of lower market rates for almost all types of interest-bearing liabilities.
Net Interest Margin (FTE)
The following table summarizes the components of the Company's net interest
margin for the periods indicated:
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2008 2007 2008 2007
---------------------------------------------
Yield on interest-earning assets 6.68% 7.58% 6.76% 7.49%
Rate paid on interest-bearing
Liabilities 2.06% 3.18% 2.31% 3.02%
---------------------------------------------
Net interest spread 4.62% 4.40% 4.45% 4.47%
Impact of all other net
noninterest-bearing funds 0.45% 0.72% 0.51% 0.69%
---------------------------------------------
Net interest margin 5.07% 5.12% 4.96% 5.16%
=============================================
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Net interest margin for the three months ended September 30, 2008 decreased 0.05% compared to the three months ended September 30, 2007. This decrease in net interest margin was mainly due to an 0.27% decrease in the impact of net noninterest-bearing funds to 0.45% from 0.72% in the three months ended September 30, 2007 that was partially offset by a 0.22% increase in net interest spread as the average yield on interest-earning assets decreased 0.90% while the average rate paid on interest-bearing liabilities decreased 1.12% from the three months ended September 30, 2007.
Net interest margin for the nine months ended September 30, 2008 decreased 0.20% compared to the nine months ended September 30, 2007. This decrease in net interest margin was due to a 0.18% decrease in the impact of net noninterest-bearing funds to 0.51% from 0.69% in the nine months ended September 30, 2007, and a 0.02% decrease in net interest spread as the average yield on interest-earning assets decreased 0.73% while the average rate paid on interest-bearing liabilities decreased 0.71% from the nine months ended September 30, 2007.
Summary of Average Balances, Yields/Rates and Interest Differential The following table presents, for the periods indicated, information regarding the Company's consolidated average assets, liabilities and shareholders' equity, the amounts of interest income from average interest-earning assets and resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual loans only to the extent cash payments have been received and applied to interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands).
For the three months ended
---------------------------------------------------------------
September 30, 2008 September 30, 2007
----------------------------- -----------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $1,549,009 $26,790 6.92% $1,517,419 $30,009 7.93%
Investment securities - taxable 232,419 2,894 4.98% 174,472 1,983 4.55%
Investment securities - nontaxable 24,507 457 7.46% 29,201 545 7.47%
Federal funds sold 75 - 1.19% 455 6 5.27%
----------------------------- -----------------------------
Total interest-earning assets 1,806,010 30,141 6.68% 1,721,547 32,633 7.58%
------- ------
Other assets 168,382 170,445
---------- ----------
Total assets $1,974,392 $1,891,992
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $226,843 239 0.42% 220,582 114 0.21%
Savings deposits 376,594 1,041 1.11% 388,315 1,761 1.81%
Time deposits 597,765 4,496 3.01% 548,229 6,203 4.53%
Federal funds purchased 84,851 430 2.03% 70,602 922 5.22%
Other borrowings 81,032 473 2.33% 64,982 768 4.73%
Junior subordinated debt 41,238 573 5.56% 41,238 834 8.09%
---------------------------- ----------------------------
Total interest-bearing liabilities 1,408,323 7,252 2.06% 1,333,948 10,602 3.18%
------ ------
Noninterest-bearing deposits 344,233 342,667
Other liabilities 30,625 33,297
Shareholders' equity 191,211 182,080
---------- ----------
Total liabilities and shareholders' equity $1,974,392 $1,891,992
========== ==========
Net interest spread(1) 4.62% 4.40%
Net interest income and interest margin(2) $22,889 5.07% $22,031 5.12%
==================== ===================
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For the nine months ended
---------------------------------------------------------------
September 30, 2008 Septembere 30, 2007
----------------------------- ------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
----------------------------- ------------------------------
Assets:
Loans $1,543,571 $81,531 7.04% $1,504,865 $88,404 7.83%
Investment securities - taxable 244,833 8,989 4.90% 168,363 5,548 4.39%
Investment securities - nontaxable 25,506 1,429 7.47% 30,736 1,752 7.60%
Federal funds sold 193 3 2.07% 378 14 4.94%
----------------------------- -----------------------------
Total interest-earning assets 1,814,103 91,952 6.76% 1,704,342 95,718 7.49%
------- ------
Other assets 169,092 171,978
---------- ----------
Total assets $1,983,195 $1,876,320
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $220,366 460 0.28% $225,402 343 0.20%
Savings deposits 385,624 3,715 1.28% 384,366 4,418 1.53%
Time deposits 567,089 14,428 3.39% 550,783 18,255 4.42%
Federal funds purchased 106,109 1,953 2.45% 62,115 2,458 5.28%
Other borrowings 90,188 2,060 3.05% 49,644 1,764 4.74%
Junior subordinated debt 41,238 1,872 6.05% 41,238 2,475 8.00%
------------------------------ -----------------------------
Total interest-bearing liabilities 1,410,614 24,488 2.31% 1,313,548 29,713 3.02%
------ ------
Noninterest-bearing deposits 348,483 351,050
Other liabilities 31,882 33,309
Shareholders' equity 192,216 178,413
---------- ----------
Total liabilities and shareholders' equity $1,983,195 $1,876,320
========== ==========
Net interest spread(1) 4.45% 4.47%
Net interest income and interest margin(2) $67,464 4.96% $66,005 5.16%
================ =================
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(1) Net interest spread represents the average yield earned on interest-earning
assets minus the average rate paid on interest-bearing liabilities.
(2) Net interest margin is computed by calculating the difference between
interest income and expense, divided by the average balance of
interest-earning assets.
Summary of Changes in Interest Income and Expense due to Changes in Average
Asset and Liability Balances and Yields Earned and Rates Paid
The following tables set forth a summary of the changes in interest income (FTE)
and interest expense from changes in average asset and liability balances
(volume) and changes in average interest rates for the periods indicated.
Changes not solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components (dollars in thousands).
Three months ended September 30, 2008
compared with three months
ended September 30, 2007
-------------------------------------
Volume Rate Total
-------------------------------------
Increase (decrease) in interest income:
Loans $626 ($3,935) ($3,309)
Investment securities 571 252 823
Federal funds sold (5) (1) (6)
-------------------------------------
Total interest-earning assets 1,192 (3,684) (2,492)
-------------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 3 122 125
Savings deposits (53) (667) (720)
Time deposits 561 (2,268) (1,707)
Federal funds purchased 186 (678) (492)
Other borrowings 190 (485) (295)
Junior subordinated debt - (261) (261)
-------------------------------------
Total interest-bearing liabilities 887 (4,237) (3,350)
-------------------------------------
Increase in Net Interest Income $305 $553 $858
=====================================
Nine months ended September 30, 2008
compared with nine months ended
September 30, 2007
-------------------------------------
Volume Rate Total
-------------------------------------
Increase (decrease) in interest income:
Loans $2,273 ($9,146) ($6,873)
Investment securities 2,220 898 3,118
Federal funds sold (7) (4) (11)
-------------------------------------
Total interest-earning assets 4,486 (8,252) (3,766)
-------------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits (8) 125 117
Savings deposits 14 (717) (703)
Time deposits 541 (4,368) (3,827)
Federal funds purchased 1,742 (2,247) (505)
Other borrowings 1,441 (1,145) 296
Junior subordinated debt - (603) (603)
-------------------------------------
Total interest-bearing liabilities 3,730 (8,955) (5,225
-------------------------------------
Increase in Net Interest Income $756 $703 $1,459
=====================================
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Provision for Loan Losses
The Company provided $2,600,000 for loan losses in the third quarter of 2008
versus $700,000 in the third quarter of 2007. In the third quarter of 2008, the
Company recorded $2,293,000 of net loan charge-offs versus $560,000 of net loan
charge-offs in the third quarter of 2007. In addition, net charge-offs of
$1,000,000 on home equity lines and loans and $910,000 on auto indirect loans
were taken during the third quarter of 2008.
The Company provided $15,500,000 for loan losses during the nine months ended September 30, 2008 versus $1,682,000 during the nine months ended September 30, 2007. In the nine months ended September 30, 2008, the Company recorded $8,243,000 of net loan charge-offs versus $1,457,000 of net loan charge-offs in the nine months ended September 30, 2007. During the second quarter of 2008, the Company re-appraised all of its larger residential development projects. As a result of this effort, the Company charged-off $1,007,000 on a twenty-eight unit residential condominium project and $640,000 on a twenty-seven lot residential construction project. In addition to the re-appraisal effort during the second quarter of 2008 which resulted in charge-offs of $1,647,000, the Company charged-off $1,078,000 on a thirty-two lot residential construction project during the first quarter of 2008. In addition, net charge-offs of $2,198,000 on home equity lines and loans and $1,891,000 on auto indirect loans were taken during the nine months ended September 30, 2008.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended Nine months ended
. . .
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