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TriCo Bancshares Announces Quarterly ResultsTriCo Bancshares (NASDAQ: TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $13,910,000 for the quarter ended March 31, 2018, compared to $12,079,000 for the quarter ended March 31, 2017. Diluted earnings per share were $0.60 for the quarter ended March 31, 2018, compared to $0.52 for the quarter ended March 31, 2017. Net income before taxes was $19,350,000 and $19,431,000 for the quarters ended March 31, 2018 and 2017, respectively. Net income for the quarter ended March 31, 2018 includes the effect of a change in the Company's Federal tax rate from 35% to 21% that resulted from the Tax Cuts and Jobs Act of 2017 that was effective on January 1, 2018. During the quarter ended March 31, 2018, income tax expense was $2,020,000 lower than it would have been, and net income was $2,020,000 higher than it would have been, had the tax rate not changed. Also, affecting net income during the quarter ended March 31, 2018 was $476,000 of merger and acquisition expenses related to the proposed merger with FNB Bancorp ("FNBB") previously announced on December 11, 2017 compared to no merger and acquisition expense recorded in the quarter ended March 31, 2017. Performance highlights and other developments for the Company during the quarter ended March 31, 2018 included the following:
The following is a summary of the components of the Company's consolidated net income, average common shares, and average diluted common shares outstanding for the periods indicated:
The following is a summary of certain of the Company's consolidated assets and deposits as of the dates indicated:
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. Included in the Company's net interest income is interest income from municipal bonds that is almost entirely exempt from Federal income tax. These municipal bonds are classified as investments - nontaxable, and the Company may present the interest income from these bonds on a fully tax equivalent (FTE) basis. Loans acquired through purchase, or acquisition of other banks, are classified by the Company as Purchased Not Credit Impaired (PNCI), Purchased Credit Impaired - cash basis (PCI - cash basis), or Purchased Credit Impaired - other (PCI - other). Loans not acquired in an acquisition or otherwise "purchased" are classified as "originated". Often, such purchased loans are purchased at a discount to face value, and part of this discount is accreted into (added to) interest income over the remaining life of the loan. A loan may also be purchased at a premium to face value, in which case, the premium is amortized into (subtracted from) 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. Further details regarding interest income from loans, including fair value discount accretion, may be found under the heading "Supplemental Loan Interest Income Data" in the Consolidated Financial Data table at the end of this announcement. Following is a summary of the components of net interest income for the periods indicated (dollars in thousands):
The following table shows the components of net interest income and net interest margin on a fully tax-equivalent (FTE) basis for the periods indicated:
Net interest income (FTE) during the three months ended March 31, 2018 increased $2,680,000 (6.3%) to $45,298,000 compared to $42,618,000 during the three months ended March 31, 2017. The increase in net interest income (FTE) was due primarily to increases in the average balance of loans and investments that were partially offset by an increase in other borrowings, a 3 basis point decrease in yield on loans, and an 8 basis point increase in the average rate paid on interest-bearing liabilities compared to the three months ended March 31, 2017. The 3 basis point decrease in loan yields from 5.06% during the three months ended March 31, 2017 to 5.03% during the three months ended March 31, 2018 was due to a decrease in purchased loan discount accretion from $1,541,000 during the three months ended March 31, 2017 to $632,000 during the three months ended March 31, 2018. This decrease in purchased loan discount accretion reduced loan yields by 14 basis points, and net interest margin by 9 basis points, but was substantially offset by increases in new and renewed loan yields due to increases in market yields. The 8 basis point increase in the average rate paid on interest-bearing liabilities was primarily due to increases in market rates that increased the rates the Company pays on its overnight borrowings and junior subordinated debt. Also affecting net interest margin during the three months ended March 31, 2018, was the decrease in the Federal tax rate from 35% to 21%. This decrease in the Federal tax rate caused the fully tax-equivalent (FTE) yield on the Company's nontaxable investments to decrease from 4.89% during the three months ended March 31, 2017 to 3.97% during the three months ended March 31, 2018, and resulted in net interest income (FTE) being $312,000, or 2 basis points, less than it otherwise would have been. The negative impact on net interest margin from these decreases in average loan and nontaxable investments yields was offset by the positive impact of an increase in average loan balances and a decrease in the average balance of lower yielding interest earning cash compared to the year-ago quarter. The table below that 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 yields and rates for each category of interest earning asset and interest paying liability for the periods indicated:
The Company recorded a reversal of provision for loan losses of $236,000 during the three months ended March 31, 2018 compared to a reversal of provision for loan losses of $1,557,000 during the three months ended March 31, 2017. The $236,000 reversal of provision for loan losses during the three months ended March 31, 2018 was due primarily to a decrease in the balance of performing/unimpaired but substandard loans during the three months ended March 31, 2018. Nonperforming loans were $24,381,000, or 0.79% of loans outstanding as of March 31, 2018, compared to $24,394,000, or 0.81% of loans outstanding as of December 31, 2017, and $19,511,000, or 0.71% of loans outstanding as of March 31, 2017. Net loan charge-offs during the three months ended March 31, 2018 were $114,000. The following table presents the key components of noninterest income for the periods indicated:
Noninterest income increased $587,000 (5.0%) to $12,290,000 during the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase in noninterest income was due to the changes noted in the table above. The $269,000 increase in commissions on nondeposit investment products was due to continued focus in this area. The $253,000 increase in gain on sale of foreclosed assets was due to the sale of six foreclosed properties each of which had increases in property values since they were foreclosed. The $221,000 increase in change in indemnification asset was due to a $221,000 decrease in the indemnification asset during the first quarter of 2017, and no change during the first quarter of 2018 as the Company and the FDIC terminated their loss sharing agreements during the second quarter of 2017. The $220,000 increase in ATM fees and interchange revenue was due primarily to increased interchange revenue. The $160,000 increase in service charges on deposit accounts was due primarily to increased monthly service charges that were partially offset by a decrease in nonsufficient funds fees. The $284,000 decrease in gain on sale of loans was due primarily to decreased residential mortgage refinance activity compared to the year-ago quarter. The $244,000 decrease in other noninterest income was due primarily to a decrease in lease brokerage revenue. The following table presents the key components of the Company's noninterest expense for the periods indicated:
Salary and benefit expenses increased $759,000 (3.6%) to $21,652,000 during the three months ended March 31, 2018 compared to $20,893,000 during the three months ended March 31, 2017. Base salaries, net of deferred loan origination costs increased $572,000 (4.3%) to 13,962,000. The increase in base salaries was due to annual merit increases, and the addition of employees with base salaries above the average base salary that were partially offset by a 1.3% decrease in average full time equivalent employees to 1,002 from 1,015 in the year-ago quarter. Commissions and incentive compensation increased $254,000 (11.6%) to $2,452,000 during the three months ended March 31, 2018 compared to the year-ago quarter due primarily to increases in management, back-office and nondeposit investment product sales incentives that were partially offset by decreased commissions on loans and other sales incentives. Benefits & other compensation expense decreased $67,000 (1.3%) to $5,238,000 during the three months ended March 31, 2018 due primarily to decreases in group medical, workers compensation insurance, retirement (ESOP) expenses, that were partially offset by an increase in employer payroll tax expense. Other noninterest expense increased $1,581,000 (10.6%) to $16,510,000 during the three months ended March 31, 20018 compared to the three months ended March 31, 2017. The increase in other noninterest expense was due to the changes noted in the table above. The $685,000 increase in change in reserve for unfunded commitments was due to an increase in unfunded construction loan commitments. The $118,000 and $373,000 increases in data processing and software expense and ATM & POS network charges, respectively, were due primarily to system enhancements and capacity expansion. The $172,000 decrease in equipment expense was due to decreased equipment rental, repair and maintenance. During the three months ended March 31, 2018, the Company incurred $476,000 of merger related expense associated with the proposed merger with FNBB of which $343,000 is nondeductible for tax purposes. The effective combined Federal and State income tax rate on income was 28.1% and 37.8% for the three months ended March 31, 2018 and 2017, respectively. This decrease in effective combined Federal and State income tax rate was due primarily to a decrease in the Federal tax rate from 35% to 21% effective January 1, 2018. The effective combined Federal and State income tax rate was greater than the Federal statutory tax rate due to State income tax expense of $2,207,000 and $2,134,000, for the three months ended March 31, 2018 and 2017, respectively, that were partially offset by the effects of tax-exempt income of $1,041,000 and $1,041,000, respectively, from investment securities, $608,000 and $792,000, respectively, from increase in cash value of life insurance, low-income housing tax credits of $190,000 and $121,000, respectively, $1,000 and $90,000, respectively, of equity compensation excess tax benefits, and $343,000 of nondeductible merger expense during the three months ended March 31, 2018. The low income housing tax credits and the equity compensation excess tax benefits represent direct reductions in tax expense. The provisions for income taxes applicable to net income before taxes differ from amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory federal income tax rate are reconciled for the periods indicated as follows:
The Company's financial statements are prepared in conformity with generally accepted accounting principles in the United States of America (GAAP). The Company uses certain non-GAAP measures to provide supplemental information regarding performance. Net income and the effective tax rate for the three months ended March 31, 2018 include the effects of $476,000 of expenses related to the proposed merger with FNBB, of which $343,000 is non-deductible for taxes. Net income for the three months ended March 31, 2017 includes no merger related expenses. The Company believes that presenting the effective tax rate, net income, return on average assets (ROAA), return on average equity (ROAE), and earnings per common share, excluding the impact of merger & acquisition expenses, provides additional clarity to the users of the financial statements regarding core financial performance. The following table presents a comparison of the effective tax rate, net income, ROAA, ROAE, and earnings per common share as reported, and as adjusted for the impact of merger & acquisition expenses, for the periods indicated.
Richard P. Smith, President and CEO of the Company commented, "Our Company enjoyed another strong quarter of performance as consistent loan demand continued to provide the catalyst for revenue growth. Total loans grew by 1.8% during the quarter, or 7.2% annualized, and increased 11.2% over the prior year. Additionally, deposit growth also increased during the quarter during a period that normally sees deposit outflows. This performance is reflective of improved economic activity in our Northern California markets and generally to a more robust US and California economy." Smith added, "Other key activities affecting performance in the quarter include the benefits of lower corporate taxes, increased revenues from service charges and fees on deposit accounts and ATM/interchange revenues. Most important we continue to proceed with the approval and integration of our previously announced acquisition of FNB Bank of Northern California." About TriCo Bancshares Established in 1975, Tri Counties Bank is a wholly-owned subsidiary of TriCo Bancshares (NASDAQ: TCBK) headquartered in Chico, California, providing a unique brand of customer Service with Solutions available in traditional stand-alone and in-store bank branches in communities throughout Northern and Central California. Tri Counties Bank provides an extensive and competitive breadth of consumer, small business and commercial banking financial services, along with convenient around-the-clock ATM, online and mobile banking access. Brokerage services are provided by the Bank's investment services through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more. Important Additional Information about the Merger The Company has filed a registration statement on Form S-4 with the SEC (filed on March 21, 2018 and amended on April 18, 2018), which includes a joint proxy statement of the Company and FNBB and a prospectus of the Company, and each party will file other documents regarding the proposed transaction with the SEC. A definitive joint proxy statement/prospectus will also be sent to the Company and FNBB shareholders seeking required shareholder approvals. Before making any voting or investment decision, investors and security holders of the Company and FNBB are urged to carefully read the entire registration statement and joint proxy statement/prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. The documents filed by the Company and FNBB with the SEC may be obtained free of charge at the SEC's website at www.sec.gov. In addition, the documents filed by the Company may be obtained free of charge at the Company's website at https://www.tcbk.com/investor-relations and the documents filed by FNBB may be obtained free of charge at FNBB's website at https://www.fnbnorcal.com/investor-relations-overview. Alternatively, these documents, when available, can be obtained free of charge from the Company upon written request to TriCo Bancshares, Attention: Craig Compton, Secretary, 63 Constitution Drive, Chico, CA 95973 or by calling (800) 922-8742 or from FNBB upon written request to FNB Bancorp, 975 El Camino Real, South San Francisco, CA, 94080, Attention: Corporate Secretary, or by calling (650) 588-6800. This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. This communication is also not a solicitation of any vote in any jurisdiction pursuant to the proposed transactions or otherwise. No offer of securities or solicitation will be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended. The communication is not a substitute for the joint proxy statement/prospectus that the Company and FNBB will file with the SEC. Forward-Looking Statement The statements contained herein that are not historical facts are forward-looking statements based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which the Company conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations; the impact of changes in financial services policies, laws and regulations; technological changes; mergers and acquisitions, including costs or difficulties related to the integration of acquired companies; changes in the level of the Company's nonperforming assets and charge-offs; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by the Company; changes in consumer spending, borrowing and savings habits; ability to attract deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; the impact of competition from financial and bank holding companies and other financial service providers; unanticipated regulatory or judicial proceedings; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and the Company's ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2017, which is on file with the Securities and Exchange Commission (the "SEC") and available in the "Investor Relations" section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. In addition to factors previously disclosed in reports filed by the Company and FNBB with the SEC, risks and uncertainties for the Company, FNBB and the combined company include, but are not limited to: the possibility that any of the anticipated benefits of the proposed merger will not be realized or will not be realized within the expected time period; the risk that integration of FNBB's operations with those of the Company will be materially delayed or will be more costly or difficult than expected; the inability to close the merger in a timely manner; the inability to complete the merger due to the failure of the Company's or FNBB's shareholders to adopt the merger agreement; diversion of management's attention from ongoing business operations and opportunities; the failure to satisfy other conditions to completion of the merger, including receipt of required regulatory and other approvals; the failure of the proposed merger to close for any other reason; the challenges of integrating and retaining key employees; the effect of the announcement of the merger on the Company's, FNBB's or the combined company's respective customer relationships and operating results; the possibility that the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and general competitive, economic, political and market conditions and fluctuations. All forward-looking statements included in this filing are made as of the date hereof and are based on information available at the time of the filing. Except as required by law, neither the Company nor FNBB assumes any obligation to update any forward-looking statement. Proxy Solicitation The Company, FNBB, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from the Company's and FNBB's shareholders in favor of the approval of the merger. Information about the directors and executive officers of the Company and their ownership of the Company's common stock is set forth in the proxy statement for the Company's 2018 annual meeting of shareholders, as previously filed with the SEC on April 18, 2018. Information about the directors and executive officers of FNBB and their ownership of FNBB common stock is set forth in FNBB's Amendment No. 1 on Form 10-K/A, as previously filed with the SEC on April 20, 2018. Shareholders may obtain additional information regarding the interests of such participants by reading the registration statement and the proxy statement/prospectus when they become available.
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