CHICO, Calif.--(BUSINESS WIRE)--TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $23,657,000 for the quarter ended December 31, 2020, compared to $17,606,000 during the trailing quarter ended September 30, 2020 and $22,890,000 during the quarter ended December 31, 2019. Diluted earnings per share were $0.79 for the fourth quarter of 2020, compared to $0.59 for the third quarter of 2020 and $0.75 for the fourth quarter of 2019.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three and twelve months ended December 31, 2020 included the following:

For the three and twelve months ended December 31, 2020, the Company’s return on average assets was 1.24% and 0.91%, respectively, and the return on average equity was 10.37% and 7.18%, respectively.
As of December 31, 2020, the Company reported total loans, total assets and total deposits of $4.76 billion, $7.64 billion and $6.51 billion, respectively.
The loan to deposit ratio was 73.21% as of December 31, 2020, as compared to 76.12% at September 30, 2020 and 80.26% at December 31, 2019.
For the current quarter, net interest margin was 3.79% on a tax equivalent basis as compared to 4.39% in the quarter ended December 31, 2019, an increase of 7 basis points from the 3.72% in the trailing quarter.
Non-interest bearing deposits as a percentage of total deposits were 39.68% at December 31, 2020, as compared to 39.71% at September 30, 2020 and 34.15% at December 31, 2019.
The average rate of interest paid on deposits, including non-interest-bearing deposits, decreased to 0.07% for the fourth quarter of 2020 as compared with 0.09% for the trailing quarter, and also decreased by 15 basis points from the average rate paid of 0.22% during the same quarter of the prior year.
Total loan deferral modifications made under the CARES Act legislation had decreased to 28 loans totaling $48.4 million as of December 31, 2020 of which only seven loans totaling $5.8 million relate to second deferrals.
Non-performing assets to total assets were 0.39% at December 31, 2020, as compared to 0.34% as of September 30, 2020, and 0.30% at December 31, 2019.
Credit provision expense for loans and debt securities was $4.9 million during the quarter ended December 31, 2020, as compared to provision expense of $7.6 million during the trailing quarter ended September 30, 2020, and a reversal of provision totaling $0.3 million for the three month period ended December 31, 2019.
Allowance for credit losses to total loans increased to 1.93% as of December 31, 2020, an increase of 12 basis points from 1.81% as of September 30, 2020, and a 78 basis point increase from January 1, 2020, following the Company's adoption of CECL.
Gain on sale of loans for the three and twelve months ended December 31, 2020 totaled $3.5 million and $9.1 million, as compared to $1.1 million and $3.3 million for the equivalent periods ended December 31, 2019, respectively.
The efficiency ratio was 55.11% for the fourth quarter of 2020, as compared to 59.44% in the trailing quarter and 59.92% in the same quarter of the 2019 year.

“As we close the doors to 2020 we recognize the challenges that lie ahead and acknowledge, more than ever, the need to focus on the fundamental drivers of value in our industry", commented Peter Wiese, EVP and Chief Financial Officer. Rick Smith, President and CEO added; "There was much accomplished and we have much to be thankful for about 2020, including the successful navigation of round one with PPP, the strongest residential mortgage origination year in the history of the Bank, and the implementation and utilization of new technologies to drive customer engagement, efficiency gains, and cost reductions to name just a few. We will continue to execute on our strategic priorities including organic loan and deposit growth, prudent expense management, active engagement in PPP lending and other programs for borrowers in need, and the deployment of capital through dividends and additional share repurchases."

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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 period ended December 31, 2020, 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 twelve months ended December 31, 2020 the Company’s return on average assets was 1.24% and 0.91%, respectively, and the return on average equity was 10.37% and 7.18%, respectively. 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 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)		2020			2020		$ Change			% Change
Net interest income	$	66,422		$	63,454		$	2,968		4.7	%
Provision for credit losses		(4,850	)		(7,649	)		2,799		(36.6	)%
Noninterest income		16,580			15,137			1,443		9.5	%
Noninterest expense		(45,745	)		(46,714	)		969		(2.1	)%
Provision for income taxes		(8,750	)		(6,622	)		(2,128	)	32.1	%
Net income	$	23,657		$	17,606		$	6,051		34.4	%
Diluted earnings per share	$	0.79		$	0.59		$	0.20		33.9	%
Dividends per share	$	0.22		$	0.22		$	—		—	%
Average common shares		29,757			29,764			(7	)	0.0	%
Average diluted common shares		29,863			29,844			19		0.1	%
Return on average total assets		1.24	%		0.95	%
Return on average equity		10.37	%		7.79	%
Efficiency ratio		55.11	%		59.44	%

	Three months ended December 31,
(dollars and shares in thousands)		2020			2019		$ Change			% Change
Net interest income	$	66,422		$	64,196		$	2,226		3.5	%
(Provision for) reversal of credit losses		(4,850	)		298			(5,148	)	(1,727.5	)%
Noninterest income		16,580			14,186			2,394		16.9	%
Noninterest expense		(45,745	)		(46,964	)		1,219		(2.6	)%
Provision for income taxes		(8,750	)		(8,826	)		76		(0.9	)%
Net income	$	23,657		$	22,890		$	767		3.4	%
Diluted earnings per share	$	0.79		$	0.75		$	0.04		5.3	%
Dividends per share	$	0.22		$	0.22		$	—		—	%
Average common shares		29,757			30,520			(763	)	(2.5	)%
Average diluted common shares		29,863			30,650			(787	)	(2.6	)%
Return on average total assets		1.24	%		1.40	%
Return on average equity		10.37	%		10.03	%
Efficiency ratio		55.11	%		59.92	%

	Twelve months ended December 31,
(dollars and shares in thousands)		2020			2019		$ Change			% Change
Net interest income	$	257,727		$	257,069		$	658		0.3	%
(Provision for) reversal of credit losses		(42,813	)		1,690			(44,503	)	(2,633.3	)%
Noninterest income		55,194			53,520			1,674		3.1	%
Noninterest expense		(182,758	)		(185,457	)		2,699		(1.5	)%
Provision for income taxes		(22,536	)		(34,750	)		12,214		(35.1	)%
Net income	$	64,814		$	92,072		$	(27,258	)	(29.6	)%
Diluted earnings per share	$	2.16		$	3.00		$	(0.84	)	(28.0	)%
Dividends per share	$	0.88		$	0.82		$	0.06		7.3	%
Average common shares		29,917			30,478			(561	)	(1.8	)%
Average diluted common shares		30,028			30,645			(617	)	(2.0	)%
Return on average total assets		0.91	%		1.43	%
Return on average equity		7.18	%		10.49	%
Efficiency ratio		58.40	%		59.71	%

SBA Paycheck Protection Program

In March 2020, the Small Business Administration (SBA) Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis. As a SBA Preferred Lender, the Company was able to provide PPP loans to small business customers. As of December 31, 2020, the total gross balance outstanding of PPP loans was $333,982,000 (approximately 2,300 loans) as compared to total PPP originations of $438,510,000 (approximately 2,900 loans). Included in the balance of outstanding PPP loans as of December 31, 2020 are approximately 630 loans totaling $88,623,000 that have been submitted to and are pending forgiveness by the SBA. In connection with the origination of these loans, the Company earned approximately $15,735,000 in loan fees, offset by deferred loan costs of approximately $763,000, the net of which will be recognized over the earlier of loan maturity, repayment or receipt of forgiveness confirmation. As of December 31, 2020 there was approximately $7,212,000 in net deferred fee income remaining to be recognized. During the three and twelve months ended December 31, 2020, the Company recognized $4,634,000 and $7,760,000, respectively, in fees on PPP loans.

In December 2020, the SBA announced plans for a second round of PPP lending with streamlined requirements for both borrowers and lenders. Effective Friday, January 15, 2021, Tri Counties Bank had launched and was accepting applications via an improved on-line portal which allows borrowers to open a new account and submit PPP applications under the new PPP guidance.

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 Company continues to closely monitor the effects of the pandemic on our loan and deposit customers. Our management team continues to be focused on assessing the risks in our loan portfolio and working with our customers to mitigate where possible, the risk of potential losses. Beginning in April 2020, the Company implemented loan programs to allow certain consumers and businesses impacted by the pandemic to defer loan principal and interest payments.

The following is a summary of COVID related loan customer modifications with outstanding balances as of December 31, 2020:

					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
Commercial real estate:
CRE non-owner occupied	$	19,643	1.28	%	87.1	%	12.9	%	—	%	100.0	%
CRE owner occupied	2,488		0.40		71.0		29.0		71.0		29.0
Multifamily	—		—		—		—		—		—
Farmland	—		—		—		—		—		—
Total commercial real estate loans	22,131		0.8		85.3		14.7		8.0		92.0
Consumer:
SFR 1-4 1st lien	457		0.1		100.0		—		—		100.0
SFR HELOCs and junior liens	—		—		—		—		—		—
Other	—		—		—		—		—		—
Total consumer loans	457		0.1		100.0		—		—		100.0
Commercial and industrial	772		0.2		86.1		13.9		9.0		91.0
Construction	24,998		8.8		100.0		—		—		100.0
Agriculture production	—		—		—		—		—		—
Leases	—		—		—		—		—		—
Total modifications	$	48,358	1.0	%	93.0	%	7.0	%	3.7	%	96.3	%

Total loan modifications associated with CARES Act legislation made during the twelve months ended December 31, 2020 totaled approximately $427,290,000 of which $48,360,000 remained outstanding under their modified terms as of December 31, 2020. During the three months ended September 30, 2020 and December 31, 2020, newly granted deferrals, inclusive of second deferrals, totaled approximately $100,170,000 and $12,720,000, respectively. The remaining balance of loans with modified terms are expected to conclude their modification period during the first half of fiscal 2021, however, as long as the current pandemic and recessionary economic conditions continue, it is anticipated that additional borrowers may request an initial or subsequent modification to their loan terms.

The total loan modifications made under the CARES Act during 2020 are inclusive of 13 loans (10 borrowers) with loan balances totaling $31,660,000 who requested and were granted a second modification and deferral. Eight of these second modifications and deferrals were for a period of three additional months, and six of the 13 loans had concluded their second deferral period and returned to their regular payment terms and are therefore not included in the table above. The remaining borrowers who received a second loan modification have outstanding loan balances totaling $5,840,000 million as of December 31, 2020, of which $2,000,000 has been classified as troubled debt restructurings by Management due to the likelihood of further changes to the contractual loan terms being necessary.

Management believes that its analysis of each borrower receiving a loan modification supports the ability of that borrower to return to their normal payment terms at the conclusion of the modification period. However, management determined that a risk rating downgrade to each credit receiving a deferral modification was prudent until such time that the borrower's actual payment performance supported an upgrade to the pre-modification risk grade.

Balance Sheet

Total loans outstanding excluding PPP grew to $4.44 billion as of December 31, 2020, an increase of 3.0% over the same quarter of the prior year, and an annualized increase of 3.3% over the trailing quarter. Investments outstanding increased to $1.72 billion as of December 31, 2020, an increase of 66.5% annualized over the trailing quarter. Average earning assets to total average assets continued to increase to 92.4% at December 31, 2020, as compared to 92.3% and 89.8% at September 30, 2020, and December 31, 2019, respectively. The Company's loan to deposit ratio was 73.2% at December 31, 2020, as compared to 76.1% and 80.3% at September 30, 2020, and December 31, 2019, respectively.

Total shareholders' equity increased by $22,852,000 during the quarter ended December 31, 2020 primarily as a result of net income of $23,657,000 and an increase in accumulated other comprehensive income of $6,704,000, partially offset by $6,546,000 in cash dividends paid on common stock and $1,523,000 in common stock repurchases. As a result, the Company’s book value increased to $31.12 per share at December 31, 2020 as compared to $30.31 and $29.70 at September 30, 2020, and December 31, 2019, 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 $23.09 per share at December 31, 2020 as compared to $22.24 and $21.69 at September 30, 2020, and December 31, 2019, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	As of December 31,		As of September 30,		$ Change			Annualized % Change
(dollars in thousands)	2020		2020		$ Change			Annualized % Change
Total assets	$	7,639,529	$	7,449,799	$	189,730		10.2	%
Total loans	4,763,127		4,826,338			(63,211	)	(5.2	)%
Total loans, excluding PPP	4,436,357		4,400,390			35,967		3.3	%
Total investments	1,719,102		1,473,935			245,167		66.5	%
Total deposits	$	6,505,934	$	6,340,588	$	165,346		10.4	%

The growth of deposit balances continued during the fourth quarter of 2020, increasing by $165,346,000 or 10.4% annualized. The available liquidity from deposit growth was allocated to fund investment growth during the period, which increased by $245,167,000, or 66.5% annualized. Total loans declined during the fourth quarter of 2020 by $63,211,000 or 5.2% on an annualized basis, largely attributed to the repayment or forgiveness of gross PPP loans outstanding, which declined by $103,811,000 during the quarter. Conversely, non-PPP loan balances increased by $35,967,000 or 3.3% of loan balances, during the quarter ended December 31, 2020.

Average Trailing Quarter Balance Sheet Change

Truly avg balances	As of December 31,		As of September 30,		$ Change			Annualized % Change
(dollars in thousands)	2020		2020		$ Change			Annualized % Change
Total assets	$	7,570,952	$	7,380,961	$	189,991		10.3	%
Total loans	4,767,715		4,827,564			(59,849	)	(5.0	)%
Total loans, excluding PPP	4,363,873		4,389,672			(25,799	)	(2.4	)%
Total investments	1,572,511		1,376,212			196,299		57.1	%
Total deposits	$	6,341,175	$	6,278,638	$	62,537		4.0	%

The decline in average total loans excluding PPP of $25,799,000, or 2.4% on an annualized basis, during the fourth quarter of 2020 was inconsistent with the actual period end growth as compared to the trailing quarter of $35,967,000 or 3.3% due to pay-downs or payoffs occurring early in the quarter as compared to originations occurring late in the quarter. 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 December 31,
(dollars in thousands)	2020		2019		$ Change		% Change
Total assets	$	7,639,529	$	6,471,181	$	1,168,348	18.1	%
Total loans	4,763,127		4,307,366		455,761		10.6	%
Total loans, excluding PPP	4,436,357		4,307,366		128,991		3.0	%
Total investments	1,719,102		1,345,954		373,148		27.7	%
Total deposits	$	6,505,934	$	5,366,994	$	1,138,940	21.2	%

As discussed in previous quarters, the PPP program generated significant increases in volume during the twelve months ended December 31, 2020 for both loan and deposit balances. While excess deposit proceeds are ratably being allocated to the purchase of investment securities with medium term durations to improve overall margin, we expect to maintain above average levels of liquidity through 2021, as the economic impacts of COVID-19 and amount of future stimulus both remain uncertain. Investment securities increased to $1,719,102,000 at December 31, 2020, a change of $373,148,000 or 27.7% from $1,345,954,000 at December 31, 2019.

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)		2020			2020		$ Change		% Change
Interest income	$	68,081		$	65,438		$	2,643	4.0	%
Interest expense		(1,659	)		(1,984	)	325		(16.4	)%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		258			254		4		1.6	%
Net interest income (FTE)	$	66,680		$	63,708		$	2,972	4.7	%
Net interest margin (FTE)		3.79	%		3.72	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,960		$	1,876		$	84
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.68	%		3.61	%			0.07	%
PPP loans yield, net:
Amount (included in interest income)	$	5,676		$	2,603		$	3,073
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.68	%		3.81	%			(0.13	)%
Acquired loans discount accretion and PPP loan yield, net: ⁽¹⁾
Amount (included in interest income)	$	7,636		$	4,479		$	3,157
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.56	%		3.69	%			(0.13	)%

	Three months ended December 31,
(dollars in thousands)		2020			2019		$ Change			% Change
Interest income	$	68,081		$	67,918		$	163		0.2	%
Interest expense		(1,659	)		(3,722	)		2,063		(55.4	)%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		258			272			(14	)	(5.1	)%
Net interest income (FTE)	$	66,680		$	64,468		$	2,212		3.4	%
Net interest margin (FTE)		3.79	%		4.39	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,960		$	2,218		$	(258	)
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.68	%		4.23	%				(0.55	)%

	Twelve months ended December 31,
(dollars in thousands)		2020			2019		$ Change			% Change
Interest income	$	267,184		$	272,444		$	(5,260	)	(1.9	)%
Interest expense		(9,457	)		(15,375	)		5,918		(38.5	)%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		1,069			1,201			(132	)	(11.0	)%
Net interest income (FTE)	$	258,796		$	258,270		$	526		0.2	%
Net interest margin (FTE)		3.96	%		4.47	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	8,171		$	8,137		$	34
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.83	%		4.36	%				(0.53	)%
PPP loans yield, net:
Amount (included in interest income)	$	10,635			—		$	10,635
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.97	%		—					3.97	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	18,806		$	8,137		$	10,669
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾		3.88	%		4.36	%				(0.48	)%

(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 uncertain economic environment and corresponding interest rate volatility, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, increased during the fourth quarter of 2020. During the three months ended December 31, 2020, September 30, 2020, and December 31, 2019, purchased loan discount accretion was $1,960,000, $1,876,000, and $2,218,000, respectively.

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, 2020						September 30, 2020						December 31, 2019
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	4,363,873	$	55,339	5.04	%	$	4,389,672	$	55,436	5.02	%	$	4,231,347	$	56,862	5.46	%
PPP loans	403,842		5,676		5.59	%	437,892		2,603		2.36	%	—		—		—	%
Investments-taxable	1,458,856		6,022		1.64	%	1,261,793		6,376		2.01	%	1,236,717		9,246		2.97	%
Investments-nontaxable ⁽¹⁾	113,656		1,121		3.92	%	114,419		1,102		3.83	%	119,350		1,179		3.92	%
Total investments	1,572,512		7,143		1.81	%	1,376,212		7,478		2.16	%	1,356,067		10,425		3.05	%
Cash at Federal Reserve and other banks	658,355		181		0.11	%	611,719		175		0.11	%	236,381		903		1.52	%
Total earning assets	6,998,582		68,339		3.88	%	6,815,495		65,692		3.83	%	5,823,795		68,190		4.65	%
Other assets, net	572,370						565,466						659,037
Total assets	$	7,570,952					$	7,380,961					$	6,482,832
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,275,550	$	43	0.01	%	$	1,339,797	$	56	0.02	%	$	1,227,854	$	229	0.07	%
Savings deposits	2,145,543		405		0.08	%	2,075,077		484		0.09	%	1,859,652		1,261		0.27	%
Time deposits	362,104		661		0.73	%	387,922		872		0.89	%	453,894		1,458		1.27	%
Total interest-bearing deposits	3,783,197		1,109		0.12	%	3,802,796		1,412		0.15	%	3,541,400		2,948		0.33	%
Other borrowings	32,504		4		0.05	%	33,750		4		0.05	%	20,247		3		0.06	%
Junior subordinated debt	57,581		546		3.77	%	57,475		568		3.93	%	57,205		771		5.35	%
Total interest-bearing liabilities	3,873,282		1,659		0.17	%	3,894,021		1,984		0.20	%	3,618,852		3,722		0.41	%
Noninterest-bearing deposits	2,557,978						2,475,842						1,843,790
Other liabilities	232,224						112,112						114,605
Shareholders’ equity	907,468						898,986						905,585
Total liabilities and shareholders’ equity	$	7,570,952					$	7,380,961					$	6,482,832
Net interest rate spread^{(1) (2)}					3.71	%					3.63	%					4.24	%
Net interest income and margin^{(1) (3)}			$	66,680	3.79	%			$	63,708	3.72	%			$	64,468	4.39	%

(1)	Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.
(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.

Net interest income (FTE) during the three months ended December 31, 2020 increased $2,972,000 or 4.7% to $66,680,000 compared to $63,708,000 during the three months ended September 30, 2020. Over the same period net interest margin increased 7 basis points to 3.79% as compared to 3.72% in the trailing quarter. The 7 basis point increase is attributed to a 2 basis point increase in non-PPP loan yields a 3 basis point decrease in the rate paid on interest-bearing liabilities and an increase in yields on the PPP loans, which earned 5.59% during the three months ended December 31, 2020, as compared to 2.36% during the trailing quarter. The quarterly increase in yield on PPP loans is due to an acceleration of deferred loan fee accretion resulting from approximately $103,633,000 in PPP loans being approved by the SBA for forgiveness. Those increases were partially offset by declines in investment security yields which were 1.81% during the three months ended December 31, 2020, as compared to 2.16% during the trailing quarter.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, decreased 42 basis points from 5.46% during the three months ended December 31, 2019 to 5.04% during the three months ended December 31, 2020. Of the 42 basis point decrease in yields on loans during the comparable three month periods ended December 31, 2020 and 2019, 39 basis points was attributable to decreases in market yields while 3 basis points was lost from the decline in accretion of purchased loan discounts. The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, remained unchanged at 3.25% during the quarter ended December 31, 2020 as compared to the trailing quarter, but has decreased from 4.75% at December 31, 2019.

The decline in interest expense when compared to the trailing quarter is primarily attributed to the reduction in the cost of interest bearing liabilities, which decreased by 3 basis points as of December 31, 2020 to 0.17% from 0.20% at September 30, 2020, as a direct result of the aforementioned declining interest rate environment.

In addition, the growth of noninterest-bearing deposits has benefited the average costs of total deposits. Specifically, the ratio of average total noninterest-bearing deposits to total average deposits grew to 40.3% from 34.2% in the quarter ended December 31, 2020 as compared to the same quarter in the prior year which has allowed the average cost of total deposits to decrease to 0.07% from 0.22% in the comparable periods.

ANALYSIS OF CHANGE IN