Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TCBK > SEC Filings for TCBK > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for TRICO BANCSHARES /

Form 10-Q for TRICO BANCSHARES /


9-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

General

As TriCo Bancshares (referred to in this report as "we", "our" or 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, net interest income, net interest yield, and efficiency ratio are generally presented on a fully tax-equivalent ("FTE") basis. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures 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. 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

There have been no changes to the Company's critical accounting policies during the three months ended March 31, 2014, except for the changes in the Company's accounting policies related to its allowance for loan losses noted under the heading Loans and Allowance for Loan Losses" in Note 1 in Item 1 of Part I of this report.

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 of America. 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 that materially affect the financial statements and are related to the adequacy of the allowance for loan losses, investments, mortgage servicing rights, fair value measurements, retirement plans and intangible assets. 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. The Company's policies related to estimates on the allowance for loan losses, other than temporary impairment of investments and impairment of intangible assets, can be found in Note 1 in Item 1 of Part I of this report.

On September 23, 2011, the California Department of Financial Institutions closed Citizens Bank of Northern California ("Citizens"), Nevada City, California and appointed the FDIC as receiver. That same date, the Bank assumed the banking operations of Citizens from the FDIC under a whole bank purchase and assumption agreement without loss sharing.

On May 28, 2010, the Office of the Comptroller of the Currency closed Granite Community Bank, N.A. ("Granite"), Granite Bay, California and appointed the FDIC as receiver. That same date, the Bank assumed the banking operations of Granite from the FDIC under a whole bank purchase and assumption agreement with loss sharing. Under the terms of the loss sharing agreement, the FDIC will cover a substantial portion of any future losses on loans, related unfunded loan commitments, other real estate owned (OREO)/foreclosed assets and accrued interest on loans for up to 90 days. The FDIC will absorb 80% of losses and share in 80% of loss recoveries on the covered assets acquired from Granite. The loss sharing arrangements for non-single family residential and single family residential loans are in effect for 5 years and 10 years, respectively, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition date.

The Company refers to loans and foreclosed assets that are covered by loss sharing agreements as "covered loans" and "covered foreclosed assets", respectively. In addition, the Company refers to loans purchased or obtained in a business combination as "purchased credit impaired" (PCI) loans, or "purchased non-credit impaired" (PNCI) loans. The Company refers to loans that it originates as "originated" loans. Additional information regarding the Citizens and Granite Bank acquisitions can be found in Note 2 in Item 1 of Part I of this report. Additional information regarding the definitions and accounting for originated, PNCI and PCI loans can be found in Notes 1, 2, 4 and 5 in Item 1 of Part I of this report, and under the heading Asset Quality and Non-Performing Assets below.

Geographical Descriptions

For the purpose of describing the geographical location of the Company's loans, the Company has defined northern California as that area of California north of, and including, Stockton; central California as that area of the State south of Stockton, to and including, Bakersfield; and southern California as that area of the State south of Bakersfield.


Table of Contents

                                TRICO BANCSHARES

                               Financial Summary

              (In thousands, except per share amounts; unaudited)



                                                            Three months ended
                                                                March 31,
                                                          2014             2013

  Net Interest Income (FTE)                            $    26,154      $    24,630
  Benefit from reversal of provision for loan losses         1,355            1,108
  Noninterest income                                         8,295           10,218
  Noninterest expense                                      (23,317 )        (21,601 )
  Provision for income taxes (FTE)                          (5,122 )         (5,878 )

  Net income                                           $     7,365      $     8,477


  Earnings per share:
  Basic                                                $      0.46      $      0.53
  Diluted                                              $      0.45      $      0.53
  Per share:
  Dividends paid                                       $      0.11      $      0.09
  Book value at period end                             $     15.94      $     14.75

  Average common shares outstanding                         16,097           16,002
  Average diluted common shares outstanding                 16,322           16,091
  Shares outstanding at period end                          16,120           16,005

  At period end:
  Loans, net                                           $ 1,648,730      $ 1,492,495
  Total assets                                           2,755,184        2,612,433
  Total deposits                                         2,411,120        2,285,550
  Other borrowings                                           6,719            8,125
  Junior subordinated debt                                  41,238           41,238
  Shareholders' equity                                 $   256,977      $   236,030

  Financial Ratios:
  During the period (annualized):
  Return on assets                                            1.08 %           1.30 %
  Return on equity                                           11.56 %          14.51 %
  Net interest margin1                                        4.10 %           4.05 %
  Efficiency ratio1                                           67.6 %           62.0 %
  Average equity to average assets                            9.31 %           8.95 %
  At period end:
  Equity to assets                                            9.33 %           9.03 %
  Total capital to risk-adjusted assets                      14.83 %          15.19 %

1 Fully taxable equivalent (FTE)


Table of Contents

Results of Operations

Overview

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 FTE net income for the periods indicated (dollars in thousands):

                                                            Three months ended
                                                                March 31,
                                                           2014           2013

    Net Interest Income (FTE)                            $  26,154      $  24,630
    Benefit from reversal of provision for loan losses       1,355          1,108
    Noninterest income                                       8,295         10,218
    Noninterest expense                                    (23,317 )      (21,601 )
    Provision for income taxes (FTE)                        (5,122 )       (5,878 )

    Net income                                           $   7,365      $   8,477

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
                                                    March 31,
                                               2014           2013
                 Interest income             $  27,159      $ 25,806
                 Interest expense               (1,087 )      (1,237 )
                 FTE adjustment                     82            61

                 Net interest income (FTE)   $  26,154      $ 24,630

                 Net interest margin (FTE)        4.10 %        4.05 %

Net interest income (FTE) during the first quarter of 2014 increased $1,524,000 (6.2%) from the same period in 2013 to $26,154,000. The increase in net interest income (FTE) was due primarily to a $242,907,000 (147%) increase in the average balance of investments to $407,848,000, and a $122,666,000 (7.9%) increase in the average balance of loans to $1,671,231,000 that were partially offset by a 54 basis point decrease in the average yield on loans from 6.22% during the three months ended March 31, 2013 to 5.68% during the three months ended March 31, 2014. During much of 2013 and the three months ended March 31, 2014, the Company used a portion of its Fed funds sold to buy investments. The increase in average loan balances was due to organic loan growth and the purchase of $62,698,000 of loans during 2013. The decrease in average loan yields is due primarily to declines in market yields on new and renewed loans compared to yields on repricing, maturing, and paid off loans. The increases in average investment and loan balances added $1,780,000 and $1,907,000 to net interest income (FTE) while the decrease in average loan yields reduced net interest income (FTE) by $2,241,000 when compared to the year-ago quarter. For more information related to loan interest income and loan purchase discount accretion, see Note 30 to the consolidated financial statements at Part I, Item 1 of this report. As noted above, during much of 2013 and the three months ended March 31, 2014, the Company's has deployed some of its excess deposits previously held as Federal funds sold into some higher yielding investments while maintaining an appropriate level of interest rate risk. In addition, during the three months ended March 31, 2014 and some of 2013, the Company noted some increase in loan demand albeit at lower yields than existing loans.


Table of Contents

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
                                                 March 31, 2014                             March 31, 2013
                                                      Interest       Rates                       Interest       Rates
                                        Average        Income/      Earned         Average        Income/      Earned
                                        Balance        Expense       /Paid         Balance        Expense       /Paid
Assets:
Loans                                 $ 1,671,231     $  23,738        5.68 %    $ 1,548,565     $  24,072        6.22 %
Investment securities - taxable           390,230         2,976        3.05 %        156,057         1,187        3.04 %
Investment securities - nontaxable         17,618           218        4.95 %          8,884           162        7.29 %
Cash at Federal Reserve and other
banks                                     473,833           309        0.26 %        721,424           446        0.25 %

Total interest-earning assets           2,552,912        27,241        4.27 %      2,434,930        25,867        4.25 %
Other assets                              184,852                                    174,864

Total assets                          $ 2,737,764                                $ 2,609,794


Liabilities and shareholders'
equity:
Interest-bearing demand deposits      $   546,998           121        0.09 %    $   520,507           141        0.11 %
Savings deposits                          840,221           257        0.12 %        782,173           271        0.14 %
Time deposits                             280,968           404        0.58 %        333,556           513        0.62 %
Other borrowings                            6,461             1        0.06 %          8,188             1        0.05 %
Junior subordinated debt                   41,238           304        2.95 %         41,238           311        3.02 %

Total interest-bearing liabilities      1,715,886         1,087        0.25 %      1,685,662         1,237        0.29 %
Noninterest-bearing deposits              731,731                                    651,303
Other liabilities                          35,262                                     39,150
Shareholders' equity                      254,885                                    233,679

Total liabilities and shareholders'
equity                                $ 2,737,764                                $ 2,609,794

Net interest spread(1)                                                 4.02 %                                     3.96 %
Net interest income and interest
margin(2)                                             $  26,154        4.10 %                    $  24,630        4.05 %

(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 interest 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 table sets forth a summary of the changes in interest income 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 (in thousands).



                                                  Three months ended March 31, 2014
                                                      compared with three months
                                                         ended March 31, 2013
                                                Volume             Rate           Total
 Increase (decrease) in interest income:
 Loans                                        $    1,907        $    (2,241 )    $  (334 )
 Investment securities                             1,939                (94 )      1,845
 Cash at Federal Reserve and other banks            (155 )               18         (137 )

 Total interest-earning assets                     3,691             (2,317 )      1,374

 Increase (decrease) in interest expense:
 Interest-bearing demand deposits                      7                (27 )        (20 )
 Savings deposits                                     20                (34 )        (14 )
 Time deposits                                       (82 )              (27 )       (109 )
 Other borrowings                                     -                  -            -
 Junior subordinated debt                             -                  (7 )         (7 )

 Total interest-bearing liabilities                  (55 )              (95 )       (150 )

 Increase (decrease) in Net Interest Income   $    3,746        $    (2,222 )    $ 1,524


Table of Contents

Provision for Loan Losses

The provision for loan losses during any period is the sum of the allowance for loan losses required at the end of the period and any loan charge offs during the period, less the allowance for loan losses required at the beginning of the period, and less any loan recoveries during the period. See the Tables labeled "Allowance for loan losses - three months ended March 31, 2014 and 2013" at Note 5 in Item 1 of Part I of this report for the components that make up the provision for loan losses for the three months ended March 31, 2014 and 2013.

The Company benefited from a $1,355,000 reversal of provision for loan losses during the three months ended March 31, 2014 versus a benefit of $1,108,000 during the three months ended March 31, 2013. As shown in the Table labeled "Allowance for Loan Losses - three months ended March 31, 2014" at Note 5 in Item 1 of Part I of this report, residential real estate mortgage loans, home equity lines of credit and commercial construction loans experienced a provision for loan losses during the three months ended March 31, 2014. All other categories of loans experienced a reversal of provision for loan losses during the three months ended March 31, 2014. The level of provision, or reversal of provision, for loan losses of each loan category during the three months ended March 31, 2014 was due primarily to a decrease in the required allowance for loan losses as of March 31, 2014 when compared to the required allowance for loan losses as of December 31, 2013, plus net recoveries during the three months ended March 31, 2014. All categories of loans except commercial real estate mortgage loans, home equity loans, and commercial construction loans experienced a decrease in the required allowance for loan losses during the three months ended March 31, 2014. These decreases in required allowance for loan losses were due primarily to reduced impaired loans, improvements in estimated cash flows and collateral values for the remaining and newly impaired loans, and reductions in historical loss factors that, in part, determine the required loan loss allowance for performing loans in accordance with the Company's allowance for loan losses methodology as described under the heading "Loans and Allowance for Loan Losses" at Note 1 in Item 1 of Part I of this report. These same factors were also present, to some extent, for commercial real estate mortgage loans, home equity loans, and commercial construction loans, but were more than offset by the effect of increased loan balances or changes in credit quality within the "pass" category of these loan categories resulting in net provisions for loan losses in these categories during the three months ended March 31, 2014. For details of the change in nonperforming loans during the three months ended March 31, 2014 see the Tables, and associated narratives, labeled "Changes in nonperforming assets during the three months ended March 31, 2014" under the heading "Asset Quality and Non-Performing Assets" below.

The provision for loan losses related to originated and PNCI loans is based on management's evaluation of inherent risks in these loan portfolios and a corresponding analysis of the allowance for loan losses. The provision for loan losses related to PCI loan portfolio is based on changes in estimated cash flows expected to be collected on PCI loans. Additional discussion on loan quality, our procedures to measure loan impairment, and the allowance for loan losses is provided under the heading "Asset Quality and Non-Performing Assets" below.

Management re-evaluates the loss ratios and other assumptions used in its calculation of the allowance for loan losses for its originated and PNCI loan portfolios on a quarterly basis 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. Management also re-evaluates expected cash flows used in its accounting for its PCI loan portfolio, including any required allowance for loan losses, on a quarterly basis and makes changes as appropriate based upon, among other things, changes in loan repayment experience, changes in loss rates experienced, and collateral support for underlying loans.

Noninterest Income

The following table summarizes the Company's noninterest income for the periods
indicated (in thousands):



                                                             Three months ended
                                                                  March 31,
                                                             2014           2013
   Service charges on deposit accounts                     $   2,690      $  3,140
   ATM fees and interchange                                    2,013         1,875
   Other service fees                                            520           559
   Mortgage banking service fees                                 420           416
   Change in value of mortgage servicing rights                 (181 )         (61 )

   Total service charges and fees                              5,462         5,929
   Gain on sale of loans                                         464         2,294
   Commissions on sale of nondeposit investment products         771           761
   Increase in cash value of life insurance                      397           426
   Change in indemnification asset                              (412 )        (101 )
   Gain on disposition of foreclosed assets                    1,227           551
   Other noninterest income                                      386           358

   Total noninterest income                                $   8,295      $ 10,218

Noninterest income decreased $1,923,000 (18.8%) to $8,295,000 in the three months ended March 31, 2014 when compared to the three months ended March 31, 2013. The decrease in noninterest income was due primarily to a $1,830,000 (79.9%) decrease in gain on sale of loans to $464,000, a $450,000 (14.3%) decrease in service charges on deposit accounts, and a $311,000 increase in the negative contribution from change in indemnification asset that were partially offset by a $676,000 (123%) increase in gain on sale of foreclosed assets to $1,227,000. The decrease in gain on sale of loans is primarily due to the increase in residential real estate mortgage rates that occurred in May 2013 that resulted in a significant decrease in mortgage refinance activity, and thus a significant decrease in newly originated mortgages for the Company to sell. The increase in the negative contribution from change in indemnification asset was primarily due to recoveries in the current quarter, and reduced estimated future losses. The decrease in service charges on deposit accounts was primarily due to reduced customer overdrafts and a resulting decrease in non-sufficient funds fees. The increase in gain on sale of foreclosed assets was due to a general increase in property values and sales activity from their lows during the financial crisis that started in 2008.


Table of Contents

Noninterest Expense

The following table summarizes the Company's noninterest expense for the periods
indicated (dollars in thousands):



                                                             Three months ended
                                                                  March 31,
                                                             2014           2013
   Salaries and related benefits:
   Base salaries, net of deferred loan origination costs   $   8,866      $  8,348
   Incentive compensation                                      1,123         1,286
   Benefits and other compensation costs                       3,314         3,327

   Total salaries and related benefits                        13,303        12,961

   Other noninterest expense:
   Occupancy                                                   1,962         1,659
   Equipment                                                   1,036         1,034
   Data processing and software                                1,178         1,078
   ATM network charges                                           643           496
   Telecommunications                                            580           525
   Postage                                                       227           231
   Courier service                                               234           167
   Advertising and marketing                                     342           325
   Assessments                                                   521           606
   Operational losses                                            177           117
   Professional fees                                             739           486
   Foreclosed asset expense                                      158            99
   Provision for foreclosed asset losses                          36            27
   Change in reserve for unfunded commitments                   (185 )        (440 )
   Intangible amortization                                        52            52
   Other                                                       2,314         2,178
. . .
  Add TCBK to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TCBK - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.