TriCo Bancshares (NASDAQ:TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $27,422,000 for the quarter ended September 30, 2021, compared to $28,362,000 during the trailing quarter ended June 30, 2021 and $17,606,000 during the quarter ended September 30, 2020. Diluted earnings per share were $0.92 for the third quarter of 2021, compared to $0.95 for the second quarter of 2021 and $0.59 for the third quarter of 2020.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three and nine months ended September 30, 2021 included the following:

For the three and nine months ended September 30, 2021, the Company's return on average assets was 1.30% and 1.48%, respectively, and the return on average equity was 11.02% and 12.42%, respectively.
Organic loan growth, excluding PPP, totaled $30.7 million (2.6% annualized) for the current quarter and $335.7 million (7.6%) for the trailing twelve-month period.
For the current quarter, net interest margin was 3.50% on a tax equivalent basis as compared to 3.72% in the quarter ended September 30, 2020, and a decrease of 8 basis points from 3.58% in the trailing quarter.
The efficiency ratio was 52.87% for the nine months ended September 30, 2021, as compared to 59.59% for the same period of the prior year.
As of September 30, 2021, the Company reported total loans, total assets and total deposits of $4.89 billion, $8.46 billion and $7.24 billion, respectively. As a direct result of significant deposit growth in the last year, the loan to deposit ratio was 67.54% as of September 30, 2021, as compared to 73.21% at December 31, 2020 and 76.12% at September 30, 2020.
The average rate of interest paid on deposits, including non-interest-bearing deposits, remained at 0.05% for the third quarter of 2021 as compared with 0.05% for the trailing quarter, and decreased by 4 basis points from the average rate paid of 0.09% during the same quarter of the prior year.
The balance of PPP loans outstanding at September 30, 2021 totaled $157.5 million and the balance of SBA fees remaining to be accreted totaled $6.0 million. Approximately 98% of all round one and 25% of all round two PPP loans have been forgiven and repaid by the SBA.
Noninterest income related to service charges and fees was $11.3 million and $32.7 million for the three and nine month periods ended September 30, 2021, an increase of 7.6% and 17.7% when compared to the same periods in 2020.
Gains generated from the origination and sale of mortgage loans were $1,814,000 in the third quarter of 2021 as compared with $2,847,000 and $3,035,000 during the trailing quarter and same quarter of the prior year.
The reversal of provision for credit losses for loans and debt securities was $1.4 million during the quarter ended September 30, 2021, as compared to a reversal of provision expense of $0.3 million during the trailing quarter ended June 30, 2021, and a provision expense totaling $7.6 million for the three month period ended September 30, 2020.
The allowance for credit losses to total loans was 1.72% as of September 30, 2021, compared to 1.93% as of December 31, 2020, and 1.81% as of September 30, 2020. Non-performing assets to total assets were 0.37% at September 30, 2021, as compared to 0.43% as of June 30, 2021, and 0.34% at September 30, 2020.

"Our ability to grow and shift the mix of our earning assets continues to benefit increases in net interest income. While we maintain a positive outlook on the impacts that possible rate increases and Fed balance sheet tapering will have on our asset sensitive structure, our production teams continue to drive increases in the level of organic loan originations and our operational team members remain vigilant in their efforts to create efficiencies," commented Peter Wiese, EVP and Chief Financial Officer. Rick Smith, President and Chief Executive Officer, added: "We are very pleased with the open and transparent lines of communication that have already formed between our legacy employees and the employees of Valley Republic Bank. As we seek to complete the formal close of the merger in the coming months, our excitement and confidence about the benefits this union will provide to our collective communities, customers, and shareholders continues to grow."

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2021, and may differ materially from the results and disclosures in this document due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information.

Summary Results

For the three and nine months ended September 30, 2021, the Company's return on average assets was 1.30% and 1.48%, respectively, while the return on average equity was 11.02% and 12.42%, respectively. For the three and nine months ended September 30, 2020, the Company's return on average assets was 0.95% and 0.79%, respectively, while the return on average equity was 7.79% and 6.13%, respectively.

The following is a summary of the components of the Company's operating results and performance ratios for the periods indicated:

	Three months ended
	September 30,			June 30,
(dollars and shares in thousands)	2021			2021			$ Change			% Change
Net interest income	$	68,233		$	67,083		$	1,150		1.7	%
Reversal of credit losses	1,435			260			1,175			451.9	%
Noninterest income	15,095			15,957			(862		)	(5.4	)%
Noninterest expense	(45,807		)	(44,171		)	(1,636		)	3.7	%
Provision for income taxes	(11,534		)	(10,767		)	(767		)	7.1	%
Net income	$	27,422		$	28,362		$	(940	)	(3.3	)%
Diluted earnings per share	$	0.92		$	0.95		$	(0.03	)	(3.2	)%
Dividends per share	$	0.25		$	0.25		$	—		—	%
Average common shares	29,714			29,719			(5		)	(0.00	)%
Average diluted common shares	29,851			29,904			(53		)	(0.02	)%
Return on average total assets	1.30		%	1.40		%
Return on average equity	11.02		%	11.85		%
Efficiency ratio	54.97		%	53.19		%

	Three months ended September 30,
(dollars and shares in thousands)	2021			2020			$ Change			% Change
Net interest income	$	68,233		$	63,454		$	4,779		7.5	%
Reversal of (provision for) credit losses	1,435			(7,649		)	9,084			(118.8	)%
Noninterest income	15,095			15,137			(42		)	(0.3	)%
Noninterest expense	(45,807		)	(46,714		)	907			(1.9	)%
Provision for income taxes	(11,534		)	(6,622		)	(4,912		)	74.2	%
Net income	$	27,422		$	17,606		$	9,816		55.8	%
Diluted earnings per share	$	0.92		$	0.59		$	0.33		55.9	%
Dividends per share	$	0.25		$	0.22		$	0.03		13.6	%
Average common shares	29,714			29,764			(50		)	(0.2	)%
Average diluted common shares	29,851			29,844			7			—	%
Return on average total assets	1.30		%	0.95		%
Return on average equity	11.02		%	7.79		%
Efficiency ratio	54.97		%	59.44		%

	Nine months ended September 30,
(dollars and shares in thousands)	2021			2020			$ Change			% Change
Net interest income	$	201,756		$	191,305		$	10,451		5.5	%
Reversal of (provision for) credit losses	7,755			(37,963		)	45,718			(120.4	)%
Noninterest income	47,162			38,614			8,548			22.1	%
Noninterest expense	(131,596		)	(137,013		)	5,417			(4.0	)%
Provision for income taxes	(35,644		)	(13,786		)	(21,858		)	158.6	%
Net income	$	89,433		$	41,157		$	48,276		117.3	%
Diluted earnings per share	$	2.99		$	1.37		$	1.62		118.2	%
Dividends per share	$	0.75		$	0.66		$	0.09		13.6	%
Average common shares	29,720			29,971			(251		)	(0.8	)%
Average diluted common shares	29,887			30,083			(196		)	(0.7	)%
Return on average total assets	1.48		%	0.79		%
Return on average equity	12.42		%	6.13		%
Efficiency ratio	52.87		%	59.59		%

SBA Paycheck Protection Program

In March 2020 (Round 1) and subsequently in December 2020 (Round 2), the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis. Tri Counties Bank, through its online portal, facilitated the ability for borrowers to open a new account and submit PPP applications during the entirety of the Programs. The SBA ended PPP and did not accept new borrowing applications, effective May 31, 2021.

The following is a summary of PPP loan related information as of the periods indicated:

(dollars in thousands)	September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020		September 30, 2020
Total number of PPP loans outstanding	1,449		2,209		2,484		2,310		2,924

PPP loan balance (Round 1 origination), gross	$	9,302	$	51,547	$	193,958	$	333,982	$	437,793
PPP loan balance (Round 2 origination), gross	148,159		197,035		176,316		n/a		n/a
Total PPP loans, gross outstanding	$	157,461	$	248,582	$	370,274	$	333,982	$	437,793

PPP deferred loan fees (Round 1 origination)	$	40	$	477	$	2,358	$	7,212	$	11,846
PPP deferred loan fees (Round 2 origination)	5,973		8,513		7,072		n/a		n/a
Total PPP deferred loan fees outstanding	$	6,013	$	8,990	$	9,430	$	7,212	$	11,846

As of September 30, 2021, the total gross balance outstanding of PPP loans was $157,461,000 as compared to total PPP originations of $640,410,000. In connection with the origination of these loans, the Company earned approximately $25,299,000 in loan fees, offset by deferred loan costs of approximately $1,245,000, the net of which will be recognized over the earlier of loan maturity (between 24-60 months), repayment or receipt of forgiveness confirmation. As of September 30, 2021, there was approximately $6,013,000 in net deferred fee income remaining to be recognized. During the three and nine months ended September 30, 2021, the Company recognized $2,984,000 and $10,306,000, respectively in fees on PPP loans as compared with $2,603,000 and $4,959,000 for the three and nine months ended September 30, 2020, respectively.

COVID Deferrals

Following the passage of the CARES Act legislation, the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" was issued by federal bank regulators, which offers temporary relief from troubled debt restructuring accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus. The applicable period for this relief, originally expected to expire on December 31, 2020, was extended through 2021 by way of the Consolidated Appropriations Act.

The following is a summary of COVID related loan customer modifications with outstanding balances as of September 30, 2021:

					Modification Type				Deferral Term
(dollars in thousands)	Modified Loan Balances Outstanding		% of Total Category of Loans		Interest Only Deferral		Principal and Interest Deferral		90 Days		180 Days		Other
Commercial real estate:
CRE non-owner occupied	$	22,264	1.5	%	100.0	%	—	%	17.4	%	65.6	%	17.0	%
CRE owner occupied	1,243		0.2		100.0		—		—		—		100.0
Multifamily	—		—		—		—		—		—		—
Farmland	—		—		—		—		—		—		—
Total commercial real estate loans	23,507		0.7		—		—		16.5		62.2		21.4
Consumer loans	—		—		—		—		—		—		—
Commercial and industrial	550		0.1		100.0		—		—		—		100.0
Construction	—		—		—		—		—		—		—
Agriculture production	—		—		—		—		—		—		—
Leases	—		—		—		—		—		—		—
Total modifications	$	24,057	0.5	%	100.0	%	—	%	16.1	%	60.8	%	23.1	%

Of the remaining balance outstanding as of September 30, 2021, $5,665,000 is related to second deferrals which are expected to conclude their modification period during 2021, and the remainder of deferrals are expected to conclude in the first quarter of 2022. However, as long as the current pandemic and recessionary economic conditions continue, it is possible that additional borrowers may request an initial or subsequent modification to their loan terms.

Balance Sheet

Total loans outstanding, excluding PPP, grew to $4.74 billion as of September 30, 2021, an increase of 7.6% over the same quarter of the prior year, and an annualized increase of 2.6% over the trailing quarter. Investments outstanding increased to $2.33 billion as of September 30, 2021, an increase of 43.6% annualized over the trailing quarter. Average earning assets to total average assets continued to increase to 92.9% at September 30, 2021, as compared to 92.8% and 92.3% at June 30, 2021, and September 30, 2020, respectively. The loan to deposit ratio was 67.5% at September 30, 2021, as compared to 70.7% and 76.1% at June 30, 2021, and September 30, 2020, respectively.

Total shareholders' equity increased by $15,234,000 during the quarter ended September 30, 2021, primarily as a result of net income of $27,422,000, offset by a decrease in accumulated other comprehensive income of $4,440,000, and $7,429,000 in cash dividends paid on common stock. As a result, the Company's book value increased to $33.05 per share at September 30, 2021 as compared to $32.53 and $30.31 at June 30, 2021, and September 30, 2020, respectively. The Company's tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders' equity and dividing that sum by total shares outstanding, was $25.16 per share at September 30, 2021, as compared to $24.60 and $22.24 at June 30, 2021, and September 30, 2020, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	As of September 30,		June 30,		$ Change			Annualized % Change
(dollars in thousands)	2021		2021		$ Change			Annualized % Change
Total assets	$	8,458,030	$	8,170,365	$	287,665		14.1		%
Total loans	4,887,496		4,944,894		(57,398		)	(4.6	)	%
Total loans, excluding PPP	4,736,048		4,705,302		30,746			2.6		%
Total investments	2,333,015		2,103,575		229,440			43.6		%
Total deposits	$	7,236,822	$	6,992,053	$	244,769		14.0		%

Organic loan growth, excluding PPP, of $30,746,000 or 2.6% on an annualized basis was realized during the quarter ended September 30, 2021, primarily within commercial real estate. In addition, investment security growth was $229,440,000 or 43.6% on an annualized basis as excess liquidity, driven by continued strong deposit growth, was put to use in higher yielding earning assets. Earning asset growth was funded by the continued growth of deposit balances which increased during the third quarter of 2021 by $244,769,000 or 14.0% annualized.

Average Trailing Quarter Balance Sheet Change

Qtrly avg balances for the period ended	September 30,		June 30,		$ Change			Annualized % Change
(dollars in thousands)	2021		2021		$ Change			Annualized % Change
Total assets	$	8,348,111	$	8,128,674	$	219,437		10.8		%
Total loans	4,897,922		4,978,465		(80,543		)	(6.5	)	%
Total loans, excluding PPP	4,684,492		4,646,188		38,304			3.3		%
Total investments	2,149,311		2,007,090		142,221			28.3		%
Total deposits	$	7,137,263	$	6,943,081	$	194,182		11.2		%

The decrease in average total loans of $80,543,000, or (6.5)% on an annualized basis, during the third quarter of 2021 was led by the quarter over quarter decline in net PPP loan balances outstanding totaling $88,144,000. As noted above, the significant growth in both ending and average balances of investment securities was a direct result of management's focus on the deployment of excess cash balances which remained elevated due to continued deposit growth during the quarter.

Year Over Year Balance Sheet Change

Ending balances	As of September 30,
(dollars in thousands)	2021		2020		$ Change		% Change
Total assets	$	8,458,030	$	7,449,799	$	1,008,231	13.5	%
Total loans	4,887,496		4,826,338		61,158		1.3	%
Total loans, excluding PPP	4,736,048		4,400,390		335,658		7.6	%
Total investments	2,333,015		1,473,935		859,080		58.3	%
Total deposits	$	7,236,822	$	6,340,588	$	896,234	14.1	%

Net PPP loan balances outstanding have declined by $274,499,000 during the twelve months ended September 30, 2021, meanwhile, non-PPP loan balances (both organic and purchased) have increased by $335,658,000 during the same period. This has led to a beneficial and meaningful shift in the makeup of the loan portfolio, despite total loan balances increasing modestly between September 30, 2021 and September 30, 2020, by $61,158,000 or 1.3%. The Company's organic loan production originations have increased meaningfully over the past year but have also been challenged by an acceleration in payoffs. Specifically, during the twelve months ended September 30, 2021 and September 30, 2020 organic loan originations totaled approximately $1.16 billion and $0.89 billion, respectively; while payoffs of loans totaled $0.84 billion and $0.60 billion, respectively. While pipelines continue to grow, loan originations of $4,086,000 relate to the Company's recently opened loan production offices. Investment securities increased to $2,333,015,000 at September 30, 2021, a change of $859,080,000 or 58.3% from $1,473,935,000 at September 30, 2020.

Net Interest Income and Net Interest Margin

The following is a summary of the components of net interest income for the periods indicated:

	Three months ended
	September 30,				June 30,
(dollars in thousands)	2021				2021				$ Change			% Change
Interest income	$	69,628			$	68,479			$	1,149		1.7		%
Interest expense	(1,395		)		(1,396		)		1			(0.1	)	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾	265				255				10			3.9		%
Net interest income (FTE)	$	68,498			$	67,338			$	1,160		1.7		%
Net interest margin (FTE)	3.50			%	3.58			%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	2,034			$	2,566			$	(532	)
Net interest margin less effect of acquired loan discount accretion⁽¹⁾	3.40			%	3.44			%				(0.04	)	%
PPP loans yield, net:
Amount (included in interest income)	$	3,507			$	3,179			$	328
Net interest margin less effect of PPP loan yield ⁽¹⁾	3.42			%	3.61			%				(0.19	)	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	5,541			$	5,745			$	(204	)
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾	3.31			%	3.47			%				(0.16	)	%

	Three months ended September 30,
(dollars in thousands)	2021				2020				$ Change		% Change
Interest income	$	69,628			$	65,438			$	4,190	6.4		%
Interest expense	(1,395		)		(1,984		)		589		(29.7	)	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾	265				254				11		4.3		%
Net interest income (FTE)	$	68,498			$	63,708			$	4,790	7.5		%
Net interest margin (FTE)	3.50			%	3.72			%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	2,034			$	1,876			$	158
Net interest margin less effect of acquired loan discount accretion⁽¹⁾	3.40			%	3.61			%			(0.21	)	%
PPP loans yield, net:
Amount (included in interest income)	$	3,507			$	2,603			$	904
Net interest margin less effect of PPP loan yield ⁽¹⁾	3.42			%	3.81			%			(0.39	)	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	5,541			$	4,479			$	1,062
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾	3.31			%	3.70			%			(0.39	)	%

Nine months ended

September 30,

(dollars in thousands)