TriCo Bancshares (NASDAQ:TCBK) is a California-based community bank that has demonstrated its ability to navigate challenging economic environments. With a strong presence in Northern and Central California, the bank has built a diversified loan portfolio and deposit base, positioning it well to weather the current economic uncertainties.
Business Overview
TriCo Bancshares, through its subsidiary Tri Counties Bank, provides a comprehensive suite of banking services to individuals and businesses across 33 counties in California. The bank's operations are primarily concentrated in Northern and Central California, with a focus on serving the needs of local communities. TriCo's business model emphasizes relationship banking, fostering deep connections with its customers and understanding their unique financial requirements.The bank's loan portfolio is well-diversified, with commercial real estate, consumer, commercial and industrial, and agricultural loans comprising the majority of its assets. This diversification helps mitigate concentration risks and provides the bank with a balanced revenue stream. TriCo's deposit base is also diverse, with a healthy mix of non-interest-bearing and interest-bearing accounts, including a significant portion of low-cost core deposits.
Financial Performance
TriCo Bancshares has demonstrated resilient financial performance, even in the face of economic headwinds. For the fiscal year ended December 31, 2023, the company reported annual net income of $117.4 million, annual revenue of $499.9 million, annual operating cash flow of $136.7 million, and annual free cash flow of $131.8 million. These figures highlight the bank's ability to generate consistent profitability and strong cash flows, which are essential for supporting its growth and weathering potential challenges.In the first quarter of 2024, TriCo Bancshares continued to deliver solid results. The company reported net income of $27.7 million, a decrease from the $35.8 million reported in the same quarter of the prior year. This decline was primarily attributable to a rise in interest expense, as the bank faced higher funding costs due to the Federal Reserve's rate hike actions. However, the company's net interest margin remained healthy at 3.68%, down from 4.20% in the first quarter of 2023, but still within the bank's target range.
Loan Growth and Asset Quality
TriCo Bancshares has maintained a disciplined approach to loan growth, focusing on high-quality borrowers and prudent underwriting standards. During the first quarter of 2024, the bank's loan portfolio grew by $6.2 million, or 0.4% on an annualized basis, as new originations were largely offset by paydowns and prepayments. This measured growth strategy has allowed the bank to manage its risk exposure while capitalizing on opportunities in its target markets.The bank's asset quality metrics remain strong, with non-performing assets (NPAs) at 0.37% of total assets as of March 31, 2024, up from 0.35% at the end of 2023 but still well below industry averages. The allowance for credit losses (ACL) stood at 1.83% of total loans, providing a robust cushion against potential credit deterioration. TriCo's proactive approach to credit risk management and its diversified loan portfolio have been instrumental in maintaining the bank's solid asset quality.
Deposit Growth and Funding
TriCo Bancshares has demonstrated the ability to attract and retain a stable deposit base, which serves as a reliable source of funding for its lending activities. During the first quarter of 2024, the bank's total deposits increased by $153.6 million, or 7.8% on an annualized basis, driven by growth in both interest-bearing and non-interest-bearing accounts. This deposit growth has enabled the bank to reduce its reliance on more expensive wholesale funding sources, such as borrowings from the Federal Home Loan Bank (FHLB).As of March 31, 2024, TriCo's primary sources of liquidity, including cash, unpledged investment securities, and borrowing capacity, represented 50% of total deposits and 163% of estimated total uninsured deposits (excluding collateralized municipal deposits and intercompany balances). This strong liquidity position provides the bank with the flexibility to support its lending activities and navigate potential market disruptions.
Geographic Diversification
TriCo Bancshares' geographic footprint in Northern and Central California allows the bank to benefit from the economic diversity of the region. While the bank has a significant presence in the agricultural and real estate sectors, its diversified loan portfolio and deposit base help mitigate concentration risks. The bank's ability to serve customers across various industries and communities has been a key driver of its resilience.Regulatory Capital and Risk Management
TriCo Bancshares maintains a strong capital position, well above regulatory requirements. As of March 31, 2024, the bank's total risk-based capital ratio was 14.97%, its tier 1 capital ratio was 13.20%, and its common equity tier 1 capital ratio was 12.49%. These ratios demonstrate the bank's ability to withstand potential economic downturns and support its ongoing growth initiatives.The company's risk management practices are also a key strength. TriCo has implemented robust underwriting standards, proactive credit monitoring, and a disciplined approach to asset-liability management. These measures have enabled the bank to navigate challenging environments and maintain a well-balanced risk profile.