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| TCBK > SEC Filings for TCBK > Form 10-Q on 10-Nov-2009 | All Recent SEC Filings |
10-Nov-2009
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
Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2009 2008 2009 2008
---------------------------------------------
Net Interest Income (FTE) $23,257 $22,889 $69,696 $67,464
Provision for loan losses 8,000 2,600 23,650 15,500
Noninterest income 7,793 6,792 22,404 20,922
Noninterest expense 19,377 16,589 55,922 52,006
Provision for income taxes (FTE) 1,418 4,257 4,879 8,323
--------------------------------------------
Net income $2,255 $6,235 $7,649 $12,557
============================================
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The Company had quarterly earnings of $2,255,000, or $0.14 per diluted share, for the three months ended September 30, 2009. This represents a decrease of $3,980,000 (63.8%) when compared with earnings of $6,235,000 for the quarter ended September 30, 2008. Diluted earnings per share for the quarter ended September 30, 2009 decreased 64.1% to $0.14 compared to $0.39 for the quarter ended September 30, 2008.
The Company reported earnings of $7,649,000, or $0.48 per diluted share, for the nine months ended September 30, 2009. These results represent a decrease of $4,908,000 (39.1%) when compared with earnings of $12,557,000 for the nine months ended September 30, 2008. Diluted earnings per share for the nine months ended September 30, 2009 decreased 38.5% to $0.48 compared to $0.78 for the nine months ended September 30, 2008.
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,
-----------------------------------------------
2009 2008 2009 2008
-----------------------------------------------
Interest income $27,889 $29,971 $85,203 $91,433
Interest expense (4,784) (7,252) (15,954) (24,488)
FTE adjustment 152 170 447 519
-----------------------------------------------
Net interest income (FTE) $23,257 $22,889 $69,696 $67,464
===============================================
Average interest-earning assets $1,969,043 $1,806,010 $1,930,147 $1,814,103
Net interest margin (FTE) 4.72% 5.07% 4.81% 4.96%
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Net interest income (FTE) during the third quarter of 2009 increased $368,000 (1.6%) from the same period in 2008 to $23,257,000. The increase in net interest income (FTE) was due to a $163,033,000 (9.0%) increase in average balances of interest-earning assets to $1,969,043,000 that was partially offset by a 0.35% decrease in net interest margin (FTE) to 4.72% from the quarter ended September 30, 2008.
Net interest income (FTE) during the first nine months of 2009 increased $2,232,000 (3.3%) from the same period in 2008 to $69,696,000. The increase in net interest income (FTE) was due to a $116,044,000 (6.4%) increase in average balances of interest-earning assets to $1,930,147,000 that was partially offset by a 0.15% decrease in net interest margin (FTE) to 4.81% from the nine month period ended September 30, 2008.
Interest and Fee Income
Interest and fee income (FTE) for the third quarter of 2009 decreased $2,100,000
(7.0%) from the third quarter of 2008. The decrease was due to a 0.98% decrease
in the yield on average interest-earning assets to 5.70% that was partially
offset by a $163,033,000 (9.0%) increase in average interest-earning assets to
$1,969,043,000. The growth in average interest-earning assets was mainly due to
a $161,347,000 increase in average balance of interest-earning cash at the
Federal Reserve and other banks. The decrease in the yield on average
interest-earning assets was mainly due to a 0.44% decrease in yield on loans to
6.48% and the large increase in interest-bearing cash balances that earned only
0.25% during the quarter.
Interest and fee income (FTE) for the nine months ended September 30, 2009 decreased $6,302,000 (6.9%) from the same period of 2008. The decrease was due to a 0.84% decrease in the yield on average interest-earning assets to 5.92% that was partially offset by a $116,044,000 (6.4%) increase in average interest-earning assets to $1,930,147,000. The growth in interest-earning assets was primarily due to a $105,817,000 increase in average balance of interest-earning cash at the Federal Reserve and other banks. The decrease in the yield on average interest-earning assets was mainly due to a 0.55% decrease in yield on loans to 6.49% and the large increase in interest-bearing cash balances that earned only 0.22% during the nine months ended September 30, 2009. The decrease in loan yields from the nine months ended September 30, 2008 was mainly due to a 4.00% decrease in the prime lending rate from 7.25% at December 31, 2007 to 3.25% at December 31, 2008.
Interest Expense
Interest expense decreased $2,468,000 (34.0%) to $4,784,000 in the third quarter
of 2009 compared to the third quarter of 2008. The average balance of
interest-bearing liabilities increased $99,474,000 (7.1%) to $1,507,797,000 in
the third quarter of 2009 compared to the third quarter of 2008. The increase in
the average balance of interest-bearing liabilities was due primarily to an
increase in interest-bearing deposits of $194,326,000 (16.2%) that was partially
offset by a decrease of $94,582,000 (57.2%) in the average balances of Federal
funds purchased and other borrowings from the third quarter of 2008. The average
rate paid on interest-bearing liabilities in the quarter ended September 30,
2009 decreased 0.79% to 1.27% compared to the quarter ended September 30, 2008
as a result of lower market rates for almost all types of interest-bearing
liabilities.
Interest expense decreased $8,534,000 (34.8%) to $15,954,000 for the nine months ended September 30, 2009 compared to $24,488,000 for the nine months ended September 30, 2008. The average balance of interest-bearing liabilities increased $69,146,000 (4.9%) to $1,479,760,000 for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. The increase in the average balance of interest-bearing liabilities was due primarily to an increase in interest-bearing deposits of $191,146,000 (16.3%) that was partially offset by a decrease of $122,000,000 (62.2%) in the average balances of Federal funds purchased and other borrowings from the nine months ended September 30, 2008. The average rate paid on interest-bearing liabilities in the nine month period ended September 30, 2009 decreased 0.87% to 1.44% compared to the nine months ended September 30, 2008 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,
----------------------------------------------
2009 2008 2009 2008
----------------------------------------------
Yield on interest-earning assets 5.70% 6.68% 5.92% 6.76%
Rate paid on interest-bearing
Liabilities 1.27% 2.06% 1.44% 2.31%
----------------------------------------------
Net interest spread 4.43% 4.62% 4.48% 4.45%
Impact of all other net
noninterest-bearing funds 0.29% 0.45% 0.33% 0.51%
----------------------------------------------
Net interest margin 4.72% 5.07% 4.81% 4.96%
==============================================
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Net interest margin for the three months ended September 30, 2009 decreased 0.35% compared to the three months ended September 30, 2008. This decrease in net interest margin was mainly due to a 0.16% decrease in the impact of net noninterest-bearing funds to 0.29% and a decrease of 0.19% in net interest spread compared to the three months ended September 30, 2008. The average yield on interest-earning assets decreased 0.98% while the average rate paid on interest-bearing liabilities decreased 0.79% from the three months ended September 30, 2008.
Net interest margin for the nine months ended September 30, 2009 decreased 0.15% compared to the nine months ended September 30, 2008. This decrease in net interest margin was mainly due to a 0.18% decrease in the impact of net noninterest-bearing funds to 0.33% offset by an increase of 0.03% in net interest spread compared to the nine months ended September 30, 2008. The average yield on interest-earning assets decreased 0.84% while the average rate paid on interest-bearing liabilities decreased 0.87% from the nine months ended September 30, 2008.
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, 2009 September 30, 2008
------------------------------- -----------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
------------------------------- ------------------------------
Assets:
Loans $1,538,239 $24,909 6.48% $1,549,009 $26,790 6.92%
Investment securities - taxable 249,254 2,635 4.23% 232,419 2,894 4.98%
Investment securities - nontaxable 20,128 396 7.87% 24,507 457 7.46%
Cash at Federal Reserve and other banks 161,422 101 0.25% 75 - 1.19%
------------------------------- --------------------------------
Total interest-earning assets 1,969,043 28,041 5.70% 1,806,010 30,141 6.68%
------- ------
Other assets 130,010 168,382
---------- ----------
Total assets $2,099,053 $1,974,392
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $305,767 $565 0.74% $226,843 $239 0.42%
Savings deposits 456,839 752 0.66% 376,594 1,041 1.11%
Time deposits 632,922 2,869 1.81% 597,765 4,496 3.01%
Federal funds purchased - - - 84,851 430 2.03%
Other borrowings 71,031 250 1.41% 81,032 473 2.33%
Junior subordinated debt 41,238 348 3.38% 41,238 573 5.56%
-------------------------------- ---------------------------------
Total interest-bearing liabilities 1,507,797 4,784 1.27% 1,408,323 7,252 2.06%
----- -----
Noninterest-bearing deposits 348,808 344,233
Other liabilities 38,995 30,625
Shareholders' equity 203,452 191,211
---------- -----------
Total liabilities and shareholders'equity $2,099,052 $1,974,392
========== ===========
Net interest spread(1) 4.43% 4.62%
Net interest income and interest margin(2) $23,257 4.72% $22,889 5.07%
=============== =================
|
(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.
For the nine months ended
-------------------------------------------------------------------
September 30, 2009 September 30, 2008
-------------------------------- -------------------------------
Interest Rates Interest Rates
Average Income/ Earned Average Income/ Earned
Balance Expense Paid Balance Expense Paid
-------------------------------- --------------------------------
Assets:
Loans $1,553,372 $75,640 6.49% $1,543,571 $81,531 7.04%
Investment securities - taxable 249,059 8,614 4.61% 244,833 8,989 4.90%
Investment securities - nontaxable 21,706 1,218 7.48% 25,506 1,429 7.47%
Cash at Federal Reserve and other banks 106,010 178 0.22% 193 3 2.07%
------------------------------- --------------------------------
Total interest-earning assets 1,930,147 85,650 5.92% 1,814,103 91,952 6.76%
------- -------
Other assets 149,003 169,092
---------- -----------
Total assets $2,079,150 $1,983,195
========== ==========
Liabilities and shareholders' equity:
Interest-bearing demand deposits $282,688 $1,351 0.64% $220,366 $460 0.28%
Savings deposits 430,594 2,404 0.74% 385,624 3,715 1.28%
Time deposits 650,943 10,411 2.13% 567,089 14,428 3.39%
Federal funds purchased - - - 106,109 1,953 2.45%
Other borrowings 74,297 604 1.08% 90,188 2,060 3.05%
Junior subordinated debt 41,238 1,184 3.83% 41,238 1,872 6.05%
------------------------------- --------------------------------
Total interest-bearing liabilities 1,479,760 15,954 1.44% 1,410,614 24,488 2.31%
------ ------
Noninterest-bearing deposits 358,718 348,483
Other liabilities 37,612 31,882
Shareholders' equity 203,060 192,216
---------- -----------
Total liabilities and shareholders' equity $2,079,150 $1,983,195
========== ===========
Net interest spread(1) 4.48% 4.45%
Net interest income and interest margin(2) $69,696 4.81% $67,464 4.96%
================ ===================
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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, 2009
compared with three months
ended September 30, 2008
-------------------------------------
Volume Rate Total
-------------------------------------
Increase (decrease) in interest income:
Loans ($186) ($1,695) ($1,881)
Investment securities 128 (448) (320)
Cash at Federal Reserve and other banks 480 (379) 101
-------------------------------------
Total interest-earning assets 422 (2,522) (2,100)
-------------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 83 243 326
Savings deposits 223 (512) (289)
Time deposits 265 (1,892) (1,627)
Federal funds purchased (431) 1 (430)
Other borrowings (58) (165) (223)
Junior subordinated debt - (225) (225)
-------------------------------------
Total interest-bearing liabilities 82 (2,550) (2,468)
-------------------------------------
Increase in Net Interest Income $340 $28 $368
=====================================
Nine months ended September 30, 2009
compared with nine months ended
September 30, 2008
-------------------------------------
Volume Rate Total
-------------------------------------
Increase (decrease) in interest income:
Loans $517 ($6,408) ($5,891)
Investment securities (58) (528) (586)
Cash at Federal Reserve and other banks 1,643 (1,468) 175
-------------------------------------
Total interest-earning assets 2,102 (8,404) (6,302)
-------------------------------------
Increase (decrease) in interest expense:
Interest-bearing demand deposits 131 760 891
Savings deposits 432 (1,743) (1,311)
Time deposits 2,132 (6,149) (4,017)
Federal funds purchased (1,950) (3) (1,953)
Other borrowings (364) (1,092) (1,456)
Junior subordinated debt - (688) (688)
-------------------------------------
Total interest-bearing liabilities 381 (8,915) (8,534)
-------------------------------------
Increase in Net Interest Income $1,721 $511 $2,232
=====================================
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Provision for Loan Losses
The Company provided $8,000,000 for loan losses in the third quarter of 2009 versus $7,850,000 in the second quarter of 2009 and $2,600,000 in the third quarter of 2008. The allowance for loan losses increased $927,000 from the second quarter of 2009. The provision for loan losses and increase in the allowance for loan and lease losses during the third quarter of 2009 were primarily the result of changes in the make-up of the loan portfolio and the Bank's loss factors in reaction to increased losses in the Construction and Commercial & Industrial (C&I) loan portfolios. Management re-evaluates its loss ratios and assumptions quarterly and makes changes as appropriate based upon, among other things, changes in loss rates experienced, collateral support for underlying loans, changes and trends in the economy, and changes in the loan mix.
In the third quarter of 2009, the Company recorded $7,471,000 in loan charge-offs less $398,000 in recoveries resulting in $7,073,000 of net loan charge-offs versus $2,293,000 of net loan charge-offs in the third quarter of 2008. Primary causes of the charges taken in the third quarter of 2009 were net charge-offs of $2,382,000 in construction loans, $2,008,000, in home equity lines and loans, $748,000 in auto indirect loans, and $1,474,000 in C&I loans. The $2,382,000 in charge-offs in construction loans were primarily the result of a $1,804,000 charge taken on a land acquisition and development loan in the San Joaquin Valley of California, a $219,000 charge taken on a land development loan in the Sacramento Valley of California, and a $200,000 charge on a condominium . . .
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