News Column

TriCo Bancshares Updates on Quarterly Results

February 8, 2014

TriCo Bancshares, announced earnings of $5,236,000, or $0.32 per diluted share, for the three months ended Dec. 31, 2013.

In a release on Jan. 29, the Company said that these results compare to earnings of $4,722,000, or $0.29 per diluted share reported by the Company for the three months ended Dec. 31, 2012. Diluted earnings per share for the years ended Dec. 31, 2013 and 2012 were $1.69 and $1.18, respectively, on earnings of $27,399,000 and $18,944,000, respectively.

Total assets of the Company increased $134,797,000 (5.2 percent) to $2,744,066,000 at Dec. 31, 2013 from $2,609,269,000 at Dec. 31, 2012. Total loans of the Company increased $107,184,000 (6.8 percent) to $1,672,007,000 at Dec. 31, 2013 from $1,564,823,000 at Dec. 31, 2012. Total deposits of the Company increased $120,781,000 (5.3 percent) to $2,410,483,000 at Dec. 31, 2013 from $2,289,702,000 at Dec. 31, 2012.

Net interest income during the three months ended Dec. 31, 2013 decreased $35,000 (0.1 percent) when compared to the three months ended Sept. 30, 2013, and increased $1,601,000 (6.5 percent) when compared to the three months ended Dec. 31, 2012.

The $1,601,000 increase in net interest income from the year-ago quarter ended Dec. 31, 2012 is primarily due to a $1,197,000 (79.0 percent) increase in interest income from investment securities that was primarily due to a $161,950,000 (87.8 percent) increase in the average balance of investment securities from the year-ago quarter. Interest income from loans increased $225,000 (0.9 percent) to $24,470,000 during the quarter ended Dec. 31, 2013 when compared to the quarter ended Dec. 31, 2012. The increase in interest income from loans was due to a $75,363,000 (4.8 percent) increase in the average balance of loans to $1,649,692,000 that was substantially offset by a 23 basis point decrease in the average yield on loans from 6.16 percent to 5.93 percent. The increases in the average balance of investments and loans were funded primarily by a $109,454,000 increase in the average balance of deposits, including a $65,960,000 increase in the average balance of noninterest- bearing deposits, and by a $109,221,000 decrease in the average balance of Federal funds sold. The decrease in the average yield on loans is primarily due to decreases in market yields on new and renewed loans, and from decreased discount amortization from purchased loans. Loans acquired through purchase or acquisition of other banks are classified as Purchased Not Credit Impaired, Purchased Credit Impaired - cash basis, or Purchased Credit Impaired - 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. Generally, as time goes on, the effect of this discount accretion becomes less and less as these purchased loans mature or payoff early.

The Company provided $172,000 for loan losses in the fourth quarter of 2013 versus a benefit of $393,000 in the third quarter of 2013 and a provision of $1,524,000 in the fourth quarter of 2012. The decrease in provision for loan losses during the fourth quarter of 2013 compared to the fourth quarter of 2012 was primarily the result of improvement in collateral values and estimated cash flows related to nonperforming originated loans and purchased credit impaired loans, reductions in nonperforming originated loans and purchased credit impaired loans, and decreased loss histories for performing originated loans.

The $556,000 decrease in service charges on deposit accounts is due to decreased nonsufficient funds fees. The $90,000 increase in ATM fees and interchange revenue is primarily due to increased interchange revenue as a result of additional resources focused on growing that line of business. The $444,000 increase in change in value of mortgage servicing rights is reflective of the relatively stable mortgage interest rate environment and stable estimated average life of mortgages being serviced during the quarter ended Dec. 31, 2013 when compared to the quarter ended Dec. 31, 2012. During the quarter ended Dec. 31, 2012, mortgage interest rates were falling, refinance activity was increasing, and the average life of mortgages serviced was being reduced. As the average life of mortgages serviced is reduced, so is the estimated future servicing fees reduced that in turn reduces the value of the mortgage servicing rights. The $1,858,000 decrease in gain on sale of loans is the result of the same changes in mortgage interest rates and decrease in refinance activity. The second half of 2012 saw historically low mortgage rates that produced historically high mortgage refinance activity that in turn resulted in gain on sale of loans of $2,493,000 for the Company during the quarter ended Dec. 31, 2012. The high level of mortgage refinance activity allowed the Company to originate and sell a larger number and larger dollar volume of loans, and realize a larger gain on sale of loans. Starting around May 2013, mortgage rates began to rise and refinance activity began to wane. During the third and fourth quarters of 2013, mortgage interest rates began to stabilize at levels above their historic lows, and refinance activity hit historically low levels. As a result gain on sale of loans was $635,000 during the quarter ended Dec. 31, 2013. The $272,000 negative impact from change in indemnification asset is due to improved (lessened) future loss estimates related to loans covered by FDIC loss-sharing agreements. While this item has a negative impact on this revenue item, it is offset by a reduction in the Bank's loan loss provision.

Salary and benefit expenses increased $886,000 (7.2 percent) to $13,224,000 during the three months ended Dec. 31, 2013 compared to the three months ended Dec. 31, 2012. Base salaries increased $508,000 (6.1 percent) to $8,832,000 during the three months ended Dec. 31, 2013. The increase in base salaries was mainly due to annual merit increases and an increase in administrative, central operations, and electronic banking personnel that were partially offset by a reduction in branch personnel. Average full time equivalent personnel decreased from 734 during the quarter ended Dec. 31, 2012 to 730 during the quarter ended Dec. 31, 2013. Incentive and commission related salary expenses decreased $219,000 (18.8 percent) to $943,000 during three months ended Dec. 31, 2013 due primarily to reduced mortgage loan production incentives when compared to the year ago quarter. Benefits expense, including retirement, medical and workers' compensation insurance, and taxes, increased $597,000 (20.9 percent) to $3,449,000 during the three months ended Dec. 31, 2013 primarily due to increased medical insurance costs, employee stock ownership plan expense, and employer payroll taxes.

Other noninterest expenses decreased $1,134,000 (8.9 percent) to $11,654,000 during the three months ended Dec. 31, 2013 when compared to the three months ended Dec. 31, 2012. The decrease in other noninterest expense is primarily due to a $1,520,000 decrease in change in reserve for unfunded commitments to a benefit of $460,000 for the three months ended Dec. 31, 2013 from a charge of $1,060,000 for the three months ended Dec. 31, 2012. This decrease in change in reserve for unfunded commitments was mainly due to improved loss histories for performing originated loans that are used to calculate the required reserve for unfunded commitments. Also helping to reduce other noninterest expense were reductions of $146,000 and $194,000 in provision for foreclosed asset losses and foreclosed asset expenses, respectively, from the year ago quarter. Partially offsetting these reductions in other noninterest income were increases of $229,000 and $164,000 in occupancy and professional fees expenses, respectively. Included in professional fees expense for the three months ended and year ended Dec. 31, 2013 are $309,000 of consulting and legal expenses related to the Company's recently announced agreement to merge with North Valley Bancorp.

On Jan. 21, the Company and North Valley Bancorp announced that they entered into an Agreement and Plan of Merger and Reorganization under which North Valley will merge with and into TriCo Bancshares, with TriCo Bancshares as the surviving corporation. North Valley Bancorp shareholders will receive a fixed exchange ratio of 0.9433 shares of TriCo Bancshares common stock for each share of North Valley common stock. The merger is expected to be completed in the second or third quarter of 2014, subject to approval of the merger by shareholders of both companies, receipt of required regulatory and other approvals and satisfaction of customary closing conditions.

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