TriCo Bancshares Announces Quarterly Results

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CHICO, Calif., July 27, 2021--(BUSINESS WIRE)--TriCo Bancshares (NASDAQ: TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $28,362,000 for the quarter ended June 30, 2021, compared to $33,649,000 during the trailing quarter ended March 31, 2021 and $7,430,000 during the quarter ended June 30, 2020. Diluted earnings per share were $0.95 for the second quarter of 2021, compared to $1.13 for the first quarter of 2021 and $0.25 for the second quarter of 2020.

Financial Highlights

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

  • For the three and six months ended June 30, 2021, the Company’s return on average assets was 1.40% and 1.57%, respectively, and the return on average equity was 11.85% and 13.16%, respectively.

  • Organic loan growth, excluding PPP, totaled $99.2 million (8.6% annualized) for the current quarter and $327.3 million (7.5%) for the trailing twelve-month period.

  • For the current quarter, net interest margin was 3.58% on a tax equivalent basis as compared to 4.10% in the quarter ended June 30, 2020, and a decrease of 16 basis points from 3.74% in the trailing quarter.

  • The efficiency ratio was 53.19% as of June 30, 2021, as compared to 50.42% in the trailing quarter and 59.69% in the same quarter of the prior year.

  • As of June 30, 2021, the Company reported total loans, total assets and total deposits of $4.94 billion, $8.17 billion and $6.99 billion, respectively. As a direct result of the considerable deposit growth in the last 6 quarters, the loan to deposit ratio was 70.72% as of June 30, 2021, as compared to 73.21% at December 31, 2020 and 76.84% at June 30, 2020.

  • Non-interest bearing deposits as a percentage of total deposits were 40.67% at June 30, 2021, as compared to 39.68% at December 31, 2020 and 39.81% at June 30, 2020.

  • The average rate of interest paid on deposits, including non-interest-bearing deposits, decreased to 0.05% for the second quarter of 2021 as compared with 0.06% for the trailing quarter, and decreased by 7 basis points from the average rate paid of 0.12% during the same quarter of the prior year.

  • The balance of PPP loans outstanding at June 30, 2021 totaled $248.6 million and the balance of SBA fees remaining to be accreted totaled $9.0 million. In addition, nearly 90% of all round one PPP loans have been forgiven and repaid.

  • Noninterest income related to service charges and fees was $10.9 million and $21.4 million for the three and six month periods ended June 30, 2021, representing an increase of 33.8% and 23.8% when compared to the same periods in 2020.

  • The reversal of provision for credit losses for loans and debt securities was $0.3 million during the quarter ended June 30, 2021, as compared to a reversal of provision expense of $6.1 million during the trailing quarter ended March 31, 2021, and a provision expense totaling $22.2 million for the three month period ended June 30, 2020.

  • The allowance for credit losses to total loans was 1.74% as of June 30, 2021, compared to 1.93% as of December 31, 2020, and 1.15% as January 1, 2020, following the Company's adoption of CECL. Non-performing assets to total assets were 0.43% at June 30, 2021, as compared to 0.39% as of March 31, 2021, and 0.31% at June 30, 2020.

"The low rate and high liquidity environment in which we currently operate necessitates our continued focus on high quality earning asset growth. Our team's ability to execute our growth strategies while maintaining or improving the efficiency of our operations, as we scale towards $10 billion in total assets, will be critical to our long-term success. We believe that our year-to-date results for 2021 are a reflection of our accomplishments," commented Peter Wiese, EVP and Chief Financial Officer. Rick Smith, President and CEO added; "We are very pleased with the level of non-PPP organic loan growth that has been generated to date, and we remain optimistic regarding expected production and growth the latter half of the year. Additionally, our new loan production offices, located in San Diego, Irvine, and Pasadena will officially open in late Q3. We are pleased with the level of talent we have been able to add to the organization in the southern California geography as well as our legacy footprint, both of which should augment our performance in the latter part of 2021 and beyond."

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 June 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 six months ended June 30, 2021, the Company’s return on average assets was 1.40% and 1.57%, respectively, while the return on average equity was 11.85% and 13.16%, respectively. For the three and six months ended June 30, 2020, the Company’s return on average assets was 0.43% and 0.70%, respectively, while the return on average equity was 3.39% and 5.06%, 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

June 30,

March 31,

(dollars and shares in thousands)

2021

2021

$ Change

% Change

Net interest income

$

67,083

$

66,440

$

643

1.0

%

Reversal of credit losses

260

6,060

(5,800)

(95.7)

%

Noninterest income

15,957

16,110

(153)

(0.9)

%

Noninterest expense

(44,171)

(41,618)

(2,553)

6.1

%

Provision for income taxes

(10,767)

(13,343)

2,576

(19.3)

%

Net income

$

28,362

$

33,649

$

(5,287)

(15.7)

%

Diluted earnings per share

$

0.95

$

1.13

$

(0.18)

(15.9)

%

Dividends per share

$

0.25

$

0.25

$

%

Average common shares

29,719

29,727

(8)

(0.03)

%

Average diluted common shares

29,904

29,905

(1)

0.00

%

Return on average total assets

1.40

%

1.75

%

Return on average equity

11.85

%

14.51

%

Efficiency ratio

53.19

%

50.42

%

Three months ended
June 30,

(dollars and shares in thousands)

2021

2020

$ Change

% Change

Net interest income

$

67,083

$

64,659

$

2,424

3.7

%

Reversal of (provision for) credit losses

260

(22,244)

22,504

(101.2)

%

Noninterest income

15,957

11,657

4,300

36.9

%

Noninterest expense

(44,171)

(45,550)

1,379

(3.0)

%

Provision for income taxes

(10,767)

(1,092)

(9,675)

886.0

%

Net income

$

28,362

$

7,430

$

20,932

281.7

%

Diluted earnings per share

$

0.95

$

0.25

$

0.70

280.0

%

Dividends per share

$

0.25

$

0.22

$

0.03

13.6

%

Average common shares

29,719

29,754

(35)

(0.1)

%

Average diluted common shares

29,904

29,883

21

0.1

%

Return on average total assets

1.40

%

0.43

%

Return on average equity

11.85

%

3.39

%

Efficiency ratio

53.19

%

59.89

%

Six months ended
June 30,

(dollars and shares in thousands)

2021

2020

$ Change

% Change

Net interest income

$

133,523

$

127,851

$

5,672

4.4

%

Reversal of (provision for) credit losses

6,320

(30,313)

36,633

(120.8)

%

Noninterest income

32,067

23,477

8,590

36.6

%

Noninterest expense

(85,789)

(90,300)

4,511

(5.0)

%

Provision for income taxes

(24,110)

(7,164)

(16,946)

236.5

%

Net income

$

62,011

$

23,551

$

38,460

163.3

%

Diluted earnings per share

$

2.07

$

0.78

$

1.29

165.4

%

Dividends per share

$

0.50

$

0.44

$

0.06

13.6

%

Average common shares

29,723

30,074

(351)

(1.2)

%

Average diluted common shares

29,904

30,203

(299)

(1.0)

%

Return on average total assets

1.57

%

0.70

%

Return on average equity

13.16

%

5.06

%

Efficiency ratio

51.81

%

59.82

%

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)

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Total number of PPP loans outstanding

2,209

2,484

2,310

2,924

2,900

PPP loan balance (Round 1 origination), gross

$

51,547

$

193,958

$

333,982

$

437,793

$

436,731

PPP loan balance (Round 2 origination), gross

197,035

176,316

n/a

n/a

n/a

Total PPP loans, gross outstanding

$

248,582

$

370,274

$

333,982

$

437,793

$

436,731

PPP deferred loan fees (Round 1 origination)

$

477

$

2,358

$

7,212

$

11,846

$

13,300

PPP deferred loan fees (Round 2 origination)

8,513

7,072

n/a

n/a

n/a

Total PPP deferred loan fees outstanding

$

8,990

$

9,430

$

7,212

$

11,846

$

13,300

As of June 30, 2021, the total gross balance outstanding of PPP loans was $248,582,000 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 June 30, 2021 there was approximately $8,990,000 in net deferred fee income remaining to be recognized. During the three and six months ended June 30, 2021, the Company recognized $2,344,000 and $7,304,000, respectively in fees on PPP loans.

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 June 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

$

23,811

1.6

%

94.4

%

5.6

%

%

81.5

%

18.5

%

CRE owner occupied

2,943

0.5

100.0

57.1

42.9

Multifamily

26,311

3.2

100.0

100.0

Farmland

Total commercial real estate loans

53,065

1.7

97.5

2.5

23.7

89.3

10.7

Consumer loans

Commercial and industrial

557

0.1

100.0

100.0

Construction

Agriculture production

Leases

...

Total modifications

$

53,622

1.1

%

95.7

%

2.5

%

%

88.4

%

11.6

%

Of the remaining balance outstanding as of June 30, 2021, $33,350,000 is related to second deferrals which are expected to conclude their modification period by November, 2021 and $2,525,595 is related to third deferrals expected to conclude in October, 2021. The remaining balance of loans with modified terms are scheduled to conclude their modification period during fiscal 2021. 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 $4.71 billion as of June 30, 2021, an increase of 7.5% over the same quarter of the prior year, and an annualized increase of 8.6% over the trailing quarter. Investments outstanding increased to $2.10 billion as of June 30, 2021, an increase of 28.7% annualized over the trailing quarter. Average earning assets to total average assets continued to increase to 92.8% at June 30, 2021, as compared to 92.7% and 90.6% at March 31, 2021, and June 30, 2020, respectively. The loan to deposit ratio was 70.7% at June 30, 2021, as compared to 72.4% and 76.8% at March 31, 2021, and June 30, 2020, respectively.

Total shareholders' equity increased by $24,241,000 during the quarter ended June 30, 2021, primarily as a result of net income of $28,362,000, plus an increase in accumulated other comprehensive income of $5,206,000, offset by $7,431,000 in cash dividends paid on common stock. As a result, the Company’s book value increased to $32.53 per share at June 30, 2021 as compared to $31.71 and $29.76 at March 31, 2021, and June 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 $24.60 per share at June 30, 2021, as compared to $23.72 and $21.64 at March 31, 2021, and June 30, 2020, respectively.

Trailing Quarter Balance Sheet Change

Ending balances

As of June 30,

March 31,

$ Change

Annualized
% Change

(dollars in thousands)

2021

2021

Total assets

$

8,170,365

$

8,031,612

$

138,753

6.9

%

Total loans

4,944,894

4,966,977

(22,083)

(1.8)

%

Total loans, excluding PPP

4,705,302

4,606,133

99,169

8.6

%

Total investments

2,103,575

1,962,780

140,795

28.7

%

Total deposits

$

6,992,053

$

6,863,400

$

128,653

7.5

%

Organic loan growth, excluding PPP, of $99,169,000 or 8.6% on an annualized basis was realized during the quarter ended June 30, 2021, primarily within commercial real estate. In addition, investment security growth was $140,795,000 or 28.7% 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 second quarter of 2021 by $128,653,000 or 7.5% annualized. SBA forgiveness outpaced net new loan origination activity, resulting in a $22,083,000 or 1.8% annualized decrease in total loans during the second quarter as compared to the trailing quarter.

Average Trailing Quarter Balance Sheet Change

Qtrly avg balances

As of June 30,

As of March 31,

$ Change

Annualized
% Change

(dollars in thousands)

2021

2021

Total assets

$

8,128,674

$

7,808,912

$

319,762

16.4

%

Total loans

4,978,465

4,763,025

215,440

18.1

%

Total loans, excluding PPP

4,646,188

4,407,150

239,038

21.7

%

Total investments

2,007,090

1,775,035

232,055

52.3

%

Total deposits

$

6,943,081

$

6,653,754

$

289,327

17.4

%

The increase in average total loans of $215,440,000, or 18.1% on an annualized basis, during the second quarter of 2021 was benefited by both the timing of organic loan origination activity early in the quarter as well as the Company's purchase of a pool of single family residential mortgages totaling approximately $101,466,000 which occurred on the final day of the first quarter, and thus minimally impacted the March 31, 2021 average balances while fully benefiting the average balances in the second 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 June 30,

(dollars in thousands)

2021

2020

$ Change

% Change

Total assets

$

8,170,365

$

7,360,071

$

810,294

11.0

%

Total loans

4,944,894

4,801,405

143,489

3.0

%

Total loans, excluding PPP

4,705,302

4,377,974

327,328

7.5

%

Total investments

2,103,575

1,353,728

749,847

55.4

%

Total deposits

$

6,992,053

$

6,248,258

$

743,795

11.9

%

As discussed in previous quarters, the PPP program generated significant increases in volume during the twelve months ended June 30, 2021 for both loan and deposit balances. Other forms of stimulus payments have further elevated deposit levels during the same period. 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 $2,103,575,000 at June 30, 2021, a change of $749,847,000 or 55.4% from $1,353,728,000 at June 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

June 30,

March 31,

(dollars in thousands)

2021

2021

$ Change

% Change

Interest income

$

68,479

$

67,916

$

563

0.8

%

Interest expense

(1,396)

(1,476)

80

(5.4)

%

Fully tax-equivalent adjustment (FTE) (1)

255

277

(22)

(7.9)

%

Net interest income (FTE)

$

67,338

$

66,717

$

621

0.9

%

Net interest margin (FTE)

3.58

%

3.74

%

Acquired loans discount accretion, net:

Amount (included in interest income)

$

2,566

$

1,712

$

854

Net interest margin less effect of acquired loan discount accretion(1)

3.44

%

3.64

%

(0.20)

%

PPP loans yield, net:

Amount (included in interest income)

$

3,179

$

5,863

$

(2,684)

Net interest margin less effect of PPP loan yield (1)

3.61

%

3.59

%

0.02

%

Acquired loans discount accretion and PPP loan yield, net:

Amount (included in interest income)

$

5,745

$

7,575

$

(1,830)

Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)

3.47

%

3.49

%

(0.02)

%

Three months ended
June 30,

(dollars in thousands)

2021

2020

$ Change

% Change

Interest income

$

68,479

$

67,148

$

1,331

2.0

%

Interest expense

(1,396)

(2,489)

1,093

(43.9)

%

Fully tax-equivalent adjustment (FTE) (1)

255

286

(31)

(10.8)

%

Net interest income (FTE)

$

67,338

$

64,945

$

2,393

3.7

%

Net interest margin (FTE)

3.58

%

4.10

%

Acquired loans discount accretion, net:

Amount (included in interest income)

$

2,566

$

2,587

$

(21)

Net interest margin less effect of acquired loan discount accretion(1)

3.44

%

3.94

%

(0.50)

%

PPP loans yield, net:

Amount (included in interest income)

$

3,179

$

2,356

$

823

Net interest margin less effect of PPP loan yield (1)

3.61

%

4.14

%

(0.53)

%

Acquired loans discount accretion and PPP loan yield, net:

Amount (included in interest income)

$

5,745

$

4,943

$

802

Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)

3.47

%

3.98

%

(0.51)

%

Six months ended
June 30,

(dollars in thousands)

2021

2020

$ Change

% Change

Interest income

$

136,395

$

133,665

$

2,730

2.0

%

Interest expense

(2,872)

(5,814)

2,942

(50.6)

%

Fully tax-equivalent adjustment (FTE) (1)

532

557

(25)

(4.5)

%

Net interest income (FTE)

$

134,055

$

128,408

$

5,647

4.4

%

Net interest margin (FTE)

3.66

%

4.22

%

Acquired loans discount accretion, net:

Amount (included in interest income)

$

4,278

$

4,335

$

(57)

Net interest margin less effect of acquired loan discount accretion(1)

3.54

%

4.08

%

(0.54)

%

PPP loans yield, net:

Amount (included in interest income)

$

9,042

$

2,356

$

6,686

Net interest margin less effect of PPP loan yield (1)

3.59

%

4.25

%

(0.66)

%

Acquired loans discount accretion and PPP loan yield, net:

Amount (included in interest income)

$

13,320

$

6,691

$

6,629

Net interest margin less effect of acquired loans discount and PPP loan yield (1)

3.46

%

4.11

%

(0.65)

%

  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 dollar impact 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 decrease in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, increased during the second quarter of 2021. During the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, purchased loan discount accretion was $2,566,000, $1,712,000, and $2,587,000, 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

June 30, 2021

March 31, 2021

June 30, 2020

Average
Balance

Income/
Expense

Yield/
Rate

Average
Balance

Income/
Expense

Yield/
Rate

Average
Balance

Income/
Expense

Yield/
Rate

Assets

Loans, excluding PPP

$

4,646,188

$

57,125

4.93

%

$

4,407,150

$

54,573

5.02

%

$

4,363,481

$

56,053

5.23

%

PPP loans

332,277

3,179

3.84

%

355,875

5,863

6.68

%

292,569

2,356

3.24

%

Investments-taxable

1,875,056

7,189

1.54

%

1,649,980

6,394

1.57

%

1,251,873

7,689

2.47

%

Investments-nontaxable (1)

132,034

1,106

3.36

%

125,055

1,200

3.89

%

119,860

1,238

4.15

%

Total investments

2,007,090

8,295

1.66

%

1,775,035

7,594

1.74

%

1,371,733

8,927

2.62

%

Cash at Federal Reserve and other banks

559,026

135

0.10

%

701,666

163

0.09

%

338,082

98

0.12

%

Total earning assets

7,544,581

68,734

3.65

%

7,239,726

68,193

3.82

%

6,365,865

67,434

4.26

%

Other assets, net

584,093

569,186

661,870

Total assets

$

8,128,674

$

7,808,912

$

7,027,735

Liabilities and shareholders’ equity

Interest-bearing demand deposits

$

1,490,247

$

77

0.02

%

$

1,430,943

$

76

0.02

%

$

1,293,007

$

64

0.02

%

Savings deposits

2,316,889

308

0.05

%

2,228,281

329

0.06

%

1,968,374

644

0.13

%

Time deposits

324,867

443

0.55

%

336,605

532

0.64

%

409,242

1,105

1.09

%

Total interest-bearing deposits

4,132,003

828

0.08

%

3,995,829

937

0.10

%

3,670,623

1,813

0.20

%

Other borrowings

40,986

5

0.05

%

32,709

4

0.05

%

26,313

4

0.06

%

Junior subordinated debt

57,788

563

3.91

%

57,688

535

3.76

%

57,372

672

4.71

%

Total interest-bearing liabilities

4,230,777

1,396

0.13

%

4,086,226

1,476

0.15

%

3,754,308

2,489

0.27

%

Noninterest-bearing deposits

2,811,078

2,657,925

2,266,671

Other liabilities

126,674

123,986

126,351

Shareholders’ equity

960,145

940,775

880,405

Total liabilities and shareholders’ equity

$

8,128,674

$

7,808,912

$

7,027,735

Net interest rate spread (1) (2)

3.52

%

3.67

%

3.99

%

Net interest income and margin (1) (3)

$

67,338

3.58

%

$

66,717

3.74

%

$

64,945

4.10

%

  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 June 30, 2021 increased $621,000 or 0.9% to $67,338,000 compared to $66,717,000 during the three months ended March 31, 2021. Over the same period, net interest margin decreased 16 basis points to 3.58% as compared to 3.74% in the trailing quarter. The 16 basis point decrease is primarily attributed to a 9 basis point decrease in non-PPP loan yields, as well as a 284 basis point decline in PPP loans, which yielded 3.84% as of June 30, 2021 as compared to 6.68% for the trailing quarter ended March 31, 2021. The quarterly decrease in yield on PPP loans was due to a deceleration of deferred loan fee accretion stemming from nearly 90% of the Round 1 PPP loans being forgiven by the SBA and repaid. The aforementioned yield decline was partially offset by a 2 basis point improvement in the rate paid on interest-bearing liabilities.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, decreased 30 basis points from 5.23% during the three months ended June 30, 2020, to 4.93% during the three months ended June 30, 2021. The 30 basis point decrease in yields on loans during the comparable three month periods ended June 30, 2021 and 2020 was entirely attributable to decreases in market rates. Loan fees as the accretion of discounts from acquired loans added 17 basis points to loan yields during the quarter ended June 30, 2021 and 24 basis points during the quarter ended June 30, 2020. The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, has remained unchanged at 3.25% since March 15, 2020, when it was reduced from 4.25%.

The decline in interest expense when compared to both the trailing quarter and the same quarter from the prior year was primarily attributed to reductions in the rates offered on deposit products. As a result, the cost of interest-bearing deposits decreased by 2 basis points as of June 30, 2021, to 0.08% from 0.10% at March 31, 2021. In addition, the growth of noninterest-bearing deposits continues to benefit the average cost of total deposits as compared to historical periods. Specifically, the ratio of average total noninterest-bearing deposits to total average deposits was 40.5% and 39.9% as of June 30, 2021 and March 31, 2021, respectively, as compared to 38.2% in the quarter ended June 30, 2020. As a result, the average cost of total deposits decreased to 0.05% at June 30, 2021, compared to 0.12% in the same period of 2020.

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS

(unaudited, dollars in thousands)

Six months ended June 30, 2021

Six months ended June 30, 2020

Average
Balance

Income/
Expense

Yield/
Rate

Average
Balance

Income/
Expense

Yield/
Rate

Assets

Loans, excluding PPP

$

4,527,329

$

111,698

4.98

%

$

4,346,419

$

112,311

5.20

%

PPP loans

344,011

9,042

5.30

%

146,285

2,356

3.24

%

Investments-taxable

1,763,140

13,583

1.55

%

1,235,672

16,261

2.65

%

Investments-nontaxable (1)

128,564

2,306

3.62

%

118,992

2,413

4.08

%

Total investments

1,891,704

15,889

1.69

%

1,354,664

18,674

2.77

%

Cash at Federal Reserve and other banks

629,952

298

0.10

%

266,752

881

0.66

%

Total earning assets

7,392,996

136,927

3.73

%

6,114,120

134,222

4.41

%

Other assets, net

575,138

653,006

Total assets

$

7,968,134

$

6,767,126

Liabilities and shareholders’ equity

Interest-bearing demand deposits

$

1,461,377

$

153

0.02

%

$

1,269,452

$

233

0.04

%

Savings deposits

2,272,830

637

0.06

%

1,918,918

1,706

0.18

%

Time deposits

330,703

975

0.59

%

419,638

2,425

1.16

%

Total interest-bearing deposits

4,064,910

1,765

0.09

%

3,608,008

4,364

0.24

%

Other borrowings

36,870

9

0.05

%

24,552

9

0.07

%

Junior subordinated debt

57,739

1,098

3.83

%

57,324

1,441

5.06

%

Total interest-bearing liabilities

4,159,519

2,872

0.14

%

3,689,884

5,814

0.32

%

Noninterest-bearing deposits

2,734,922

2,059,242

Other liabilities

123,233

123,481

Shareholders’ equity

950,460

894,519

Total liabilities and shareholders’ equity

$

7,968,134

$

6,767,126

Net interest rate spread (1) (2)

3.59

%

4.09

%

Net interest income and margin (1) (3)

$

134,055

3.66

%

$

128,408

4.22

%

  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.

Interest Rates and Loan Portfolio Composition

During the quarter ended June 30, 2021, market interest rates, including many rates that serve as reference indices for variable rate loans, showed signs of upward improvement during April and May before ultimately retreating in June of 2021. This prolonged retraction in rates continues to apply downward pressure on the portfolio. As of June 30, 2021, the Company's loan portfolio consisted of approximately $4.9 billion in outstanding principal with a weighted average coupon rate of 4.25%, inclusive of the PPP program loans. Excluding PPP loans, the Company's loan portfolio has approximately $4.7 billion outstanding with a weighted average coupon rate of 4.42% as of June 30, 2021. Included in the June 30, 2021 loan total, exclusive of PPP loans, are variable rate loans totaling $3.0 billion of which 88.9% or $2.7 billion were at their floor rate. The remaining variable rate loans totaling $340.0 million, which carried a weighted average coupon rate of 4.89% as of June 30, 2021, are subject to further rate adjustment. If those remaining variable rate loans were to collectively, through future rate adjustments, be reduced to their respective floors, they would have a weighted average coupon rate of approximately 4.29% which would result in the reduction of the weighted average coupon rate of the total loan portfolio, exclusive of PPP loans, from 4.42% to approximately 4.38%.

As of December 31, 2020, the Company's loan portfolio consisted of approximately $4.80 billion in outstanding principal with a weighted average coupon rate of 4.35%, inclusive of the PPP program loans. Excluding PPP loans, the Company's loan portfolio has approximately $4.47 billion outstanding with a weighted average coupon rate of 4.60% as of December 31, 2020. Included in the December 31, 2020 loan total, exclusive of PPP loans, are variable rate loans totaling $3.02 billion of which 88.2% or $2.66 billion were at their floor rate. The remaining variable rate loans totaling $357.0 million, which carried a weighted average coupon rate of 5.03% as of December 31, 2020, are subject to further rate adjustment. If those remaining variable rate loans were to collectively, through future rate adjustments, be reduced to their respective floors, they would have a weighted average coupon rate of approximately 4.36% which would result in the reduction of the weighted average coupon rate of the total loan portfolio, exclusive of PPP loans, from 4.60% to approximately 4.55%.

Asset Quality and Credit Loss Provisioning

During the three months ended June 30, 2021, the Company recorded a reversal of provision for credit losses of $260,000, as compared to a reversal of provision for credit losses of $6,060,000 during the trailing quarter, and a provision expense of $22,244,000 during the second quarter of 2020.

The following table presents details of the provision for credit losses for the periods indicated:

Three months ended

(dollars in thousands)

June 30, 2021

March 31, 2021

December 31, 2020

September 30, 2020

June 30, 2020

Addition to (reversal of) allowance for credit losses

$

(145)

$

(6,240)

$

4,450

$

7,649

$

22,089

Addition to (reversal of) reserve for unfunded loan commitments

(115)

180

400

155

Total provision for credit losses

$

(260)

$

(6,060)

$

4,850

$

7,649

$

22,244

The following table presents the activity in the allowance for credit losses on loans for the periods indicated:

Three months ended

Six months ended

(dollars in thousands)

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Balance, beginning of period

$

85,941

$

57,911

$

91,847

$

30,616

Impact from adoption of ASU 2016-13

18,913

Provision for (reversal of) credit losses

(145)

22,089

(6,385)

30,089

Loans charged-off

(387)

(491)

(613)

(1,001)

Recoveries of previously charged-off loans

653

230

1,213

1,122

Balance, end of period

$

86,062

$

79,739

$

86,062

$

79,739

The allowance for credit losses (ACL) was $86,062,000 as of June 30, 2021, a net increase of $121,000 over the immediately preceding quarter. The reversal of allowance for credit losses of $145,000 was necessary as the net recoveries totaling $266,000 during the quarter were in excess of the required changes in quantitative and qualitative reserve components. More specifically, the portfolio-wide qualitative indicator associated with the forecast levels of US unemployment reduced the required credit reserves by $2,294,000, while the qualitative factors associated with portfolio concentration risks, stemming from second quarter loan growth, added approximately $1,708,000 to the credit expense on loans as of June 30, 2021.

The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to evolve and included significant shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Management noted that the majority of economic forecasts utilized in the ACL calculation seem to have rebounded slightly in the current quarter, coinciding with the widespread availability of vaccines, continued easing of occupancy and social distancing restrictions, and continued government stimulus efforts.

Loans past due 30 days or more decreased by $1,258,000 during the quarter ended June 30, 2021 to $9,292,000, as compared to $10,550,000 at March 31, 2021. Non-performing loans were $32,705,000 at June 30, 2021, an increase of $3,764,000 and $11,975,000, respectively, from $28,941,000 and $20,730,000 as of March 31, 2021, and June 30, 2020, respectively.

The following table illustrates the total loans by risk rating and their respective percentage of total loans for the periods presented.

June 30,

% of Total
Loans

March 31,

% of Total
Loans

June 30,

% of Total
Loans

(dollars in thousands)

2021

2021

2020

Risk Rating:

Pass

$

4,756,381

96.2

%

$

4,765,180

95.9

%

$

4,698,393

97.9

%

Special Mention

130,232

2.6

%

143,677

2.9

%

61,883

1.3

%

Substandard

58,281

1.2

%

58,120

1.2

%

41,129

0.9

%

Total

$

4,944,894

$

4,966,977

$

4,801,405

Classified loans to total loans

1.18

%

1.17

%

0.86

%

Loans past due 30+ days to total loans

0.19

%

0.19

%

0.35

%

The Company's loan portfolio for non-classified loans (loans graded special mention or better) remains consistent for the quarter ended June 30, 2021, as compared to the trailing quarter March 31, 2021, representing 98.8% of total loans outstanding, respectively. Loans risk graded special mention decreased by approximately $13,445,000 during the quarter ended June 30, 2021 as compared to the trailing quarter, while loans risk graded substandard increased modestly by $161,000 over the same period of the prior year. The reduction in special mention risk graded credits was largely the result of two relationships being upgraded, totaling $9,747,000. The total balance of substandard risk graded credits remained consistent as of the current and trailing quarters; although, the Company did benefit from the payoff of one credit, which was subsequently offset by a separate credit that was downgraded to substandard.

There was one addition to other real estate owned totaling approximately $101,000 during the quarter ended June 30, 2021 and there was one sale for proceeds of approximately $184,000, which generated a net gain of $15,000 for the quarter. As of June 30, 2021, other real estate owned consisted of six properties with a carrying value of approximately $2,248,000.

Allocation of Credit Loss Reserves by Loan Type

As of June 30, 2021

As of December 31, 2020

As of June 30, 2020

(dollars in thousands)

Amount

% of Loans
Outstanding

Amount

% of Loans
Outstanding

Amount

% of Loans
Outstanding

Commercial real estate:

CRE - Non Owner Occupied

$

26,028

1.70

%

$

29,380

1.91

%

$

26,091

1.63

%

CRE - Owner Occupied

10,463

1.59

%

10,861

1.74

%

8,710

1.50

%

Multifamily

13,196

1.59

%

11,472

1.79

%

8,581

1.49

%

Farmland

1,950

1.13

%

1,980

1.30

%

1,468

0.97

%

Total commercial real estate loans

51,637

1.62

%

53,693

1.82

%

44,850

1.54

%

Consumer:

SFR 1-4 1st Liens

10,629

1.61

%

10,117

1.83

%

8,015

1.58

%

SFR HELOCs and Junior Liens

10,701

3.29

%

11,771

3.59

%

12,108

3.38

%

Other

2,620

3.73

%

3,260

4.20

%

3,042

3.73

%

Total consumer loans

23,950

2.27

%

25,148

2.62

%

23,165

2.45

%

Commercial and Industrial

4,511

1.00

%

4,252

0.81

%

4,018

0.63

%

Construction

4,951

2.47

%

7,540

2.65

%

6,775

2.43

%

Agricultural Production

1,007

2.40

%

1,209

2.74

%

919

2.59

%

Leases

6

0.12

%

5

0.13

%

12

0.68

%

Allowance for credit losses

86,062

1.74

%

91,847

1.93

%

79,739

1.66

%

Reserve for unfunded loan commitments

3,465

3,400

3,000

Total allowance for credit losses

$

89,527

1.81

%

$

95,247

2.00

%

$

82,739

1.72

%

For the periods presented in the table above and for purposes of calculating the "% of Loans Outstanding", PPP loans are included in the segment "Commercial and Industrial." PPP loans are fully guaranteed and therefore would not require any loss reserve allocation. Excluding the net outstanding balances of PPP loans from the ratio of the ACL to total loans results in a reserve ratio of approximately 1.83% as of June 30, 2021. In addition to the allowance for credit losses above, the Company has acquired various performing loans whose fair value as of the acquisition date was determined to be less than the principal balance owed on those loans. This difference represents the collective discount of credit, interest rate and liquidity measurements which is expected to be amortized over the life of the loans. As of June 30, 2021, the unamortized discount associated with acquired loans totaled $20,087,000 and if aggregated with the ACL would collectively represent 2.14% of total gross loans and 2.26% of total loans less PPP loans.

Non-interest Income

The following table presents the key components of non-interest income for the current and trailing quarterly periods indicated:

Three months ended

(dollars in thousands)

June 30, 2021

March 31, 2021

$ Change

% Change

ATM and interchange fees

$

6,558

$

5,861

$

697

11.9

%

Service charges on deposit accounts

3,462

3,269

193

5.9

%

Other service fees

914

871

43

4.9

%

Mortgage banking service fees

467

463

4

0.9

%

Change in value of mortgage servicing rights

(471)

12

(483)

(4025.0)

%

Total service charges and fees

10,930

10,476

454

4.3

%

Increase in cash value of life insurance

745

673

72

10.7

%

Asset management and commission income

947

834

113

13.5

%

Gain on sale of loans

2,847

3,247

(400)

(12.3)

%

Lease brokerage income

249

110

139

126.4

%

Sale of customer checks

116

119

(3)

(2.5)

%

Gain on sale of investment securities

n/m

Gain (loss) on marketable equity securities

8

(53)

61

(115.1)

%

Other

115

704

(589)

(83.7)

%

Total other non-interest income

5,027

5,634

(607)

(10.8)

%

Total non-interest income

$

15,957

$

16,110

$

(153)

(0.9)

%

Non-interest income decreased $153,000 or 0.9% to $15,957,000 during the three months ended June 30, 2021 compared to $16,110,000 during the trailing quarter March 31, 2021. Changes in the value of mortgage servicing rights and gain on sale of mortgage loans declined by $483,000 and $400,000, respectively, during the recent quarter ended. Interest rates trended higher during April and May of 2021, before reversing in June of 2021 and ending the second quarter near flat, which contributed to the decline in total mortgage origination and refinance activity during the three months ended June 30, 2021. Other income decreased by $589,000 during the period, primarily due to changes in the valuation of certain fully funded deferred compensation plans. Following the relaxed social distancing guidelines, increased debit card usage benefited ATM and interchange fees during the three months ended June 30, 2021, increasing by $697,000.

The following table presents the key components of non-interest income for the current and prior year periods indicated:

Three months ended June 30,

(dollars in thousands)

2021

2020

$ Change

% Change

ATM and interchange fees

$

6,558

$

5,165

$

1,393

27.0

%

Service charges on deposit accounts

3,462

3,046

416

13.7

%

Other service fees

914

734

180

24.5

%

Mortgage banking service fees

467

459

8

1.7

%

Change in value of mortgage servicing rights

(471)

(1,236)

765

(61.9)

%

Total service charges and fees

10,930

8,168

2,762

33.8

%

Increase in cash value of life insurance

745

710

35

4.9

%

Asset management and commission income

947

661

286

43.3

%

Gain on sale of loans

2,847

1,736

1,111

64.0

%

Lease brokerage income

249

127

122

96.1

%

Sale of customer checks

116

88

28

31.8

%

Gain on sale of investment securities

n/m

Gain on marketable equity securities

8

25

(17)

(68.0)

%

Other

115

142

(27)

(19.0)

%

Total other non-interest income

5,027

3,489

1,538

44.1

%

Total non-interest income

$

15,957

$

11,657

$

4,300

36.9

%

In addition to the discussion above within the non-interest income for the three months ended June 30, 2021, deposit account related fee revenue increased $416,000 or 13.7% during the three months ended June 30, 2021 when compared to the same period in the prior year as a result of the level of economic and monetary transaction activity increasing as the COVID related restrictions throughout our footprint have been relaxed.

The following table presents the key components of non-interest income for the current and prior year periods indicated:

Six months ended June 30,

(dollars in thousands)

2021

2020

$ Change

% Change

ATM and interchange fees

$

12,419

$

10,276

$

2,143

20.9

%

Service charges on deposit accounts

6,731

7,092

(361)

(5.1)

%

Other service fees

1,785

1,492

293

19.6

%

Mortgage banking service fees

930

928

2

0.2

%

Change in value of mortgage servicing rights

(459)

(2,494)

2,035

(81.6)

%

Total service charges and fees

21,406

17,294

4,112

23.8

%

Increase in cash value of life insurance

1,418

1,430

(12)

(0.8)

%

Asset management and commission income

1,781

1,577

204

12.9

%

Gain on sale of loans

6,094

2,627

3,467

132.0

%

Lease brokerage income

359

320

39

12.2

%

Sale of customer checks

235

212

23

10.8

%

Gain on sale of investment securities

n/m

Gain (loss) on marketable equity securities

(45)

72

(117)

(162.5)

%

Other

819

(55)

874

(1,589.1)

%

Total other non-interest income

10,661

6,183

4,478

72.4

%

Total non-interest income

$

32,067

$

23,477

$

8,590

36.6

%

The changes in non-interest income for the six months ended June 30, 2021 and 2020 are generally consistent with the changes in the comparable three month periods discussed above.

Non-interest Expense

The following table presents the key components of non-interest expense for the current and trailing quarterly periods indicated:

Three months Ended

(dollars in thousands)

June 30, 2021

March 31, 2021

$ Change

% Change

Base salaries, net of deferred loan origination costs

$

17,537

$

15,511

$

2,026

13.1

%

Incentive compensation

4,322

3,580

742

20.7

%

Benefits and other compensation costs

5,222

6,239

(1,017)

(16.3)

%

Total salaries and benefits expense

27,081

25,330

1,751

6.9

%

Occupancy

3,700

3,726

(26)

(0.7)

%

Data processing and software

3,201

3,202

(1)

%

Equipment

1,207

1,517

(310)

(20.4)

%

Intangible amortization

1,431

1,431

%

Advertising

734

380

354

93.2

%

ATM and POS network charges

1,551

1,246

305

24.5

%

Professional fees

1,046

594

452

76.1

%

Telecommunications

564

581

(17)

(2.9)

%

Regulatory assessments and insurance

618

612

6

1.0

%

Postage

124

198

(74)

(37.4)

%

Operational losses

212

209

3

1.4

%

Courier service

288

294

(6)

(2.0)

%

Gain on sale or acquisition of foreclosed assets

(15)

(51)

36

(70.6)

%

Gain on disposal of fixed assets

(426)

(426)

n/a

Other miscellaneous expense

2,855

2,349

506

21.5

%

Total other non-interest expense

17,090

16,288

802

4.9

%

Total non-interest expense

$

44,171

$

41,618

$

2,553

6.1

%

Average full-time equivalent staff

1,020

1,025

(5)

(0.5)

%

Non-interest expense for the quarter ended June 30, 2021 increased $2,553,000 or 6.1% to $44,171,000 as compared to $41,618,000 during the trailing quarter ended March 31, 2021. Salaries, net of deferred loan origination costs, increased by $2,026,000 to $17,537,000 for the three months ended June 30, 2021 due to an increase in the number of work days in the current versus trailing quarter, annual merit adjustments which averaged slightly more than 3.0% and were effective April 1st, as well as growth in vacation accruals which approximated $675,000. Incentive compensation increased by $742,000 or 20.7% to $4,322,000 during the quarter ended June 30, 2021 as compared to the trailing period due to the organic loan growth and strong overall Company performance during the quarter. Benefits and other compensation costs decreased by $1,017,000 to $5,222,000 during the quarter, primarily as a result of decreases in expenses associated with retirement obligations and group insurance costs. A gain on disposal of fixed assets was recorded during the quarter totaling $426,000 related to the sale of a former retail branch building.

The following table presents the key components of non-interest expense for the current and prior year quarterly periods indicated:

Three months ended June 30,

(dollars in thousands)

2021

2020

$ Change

% Change

Base salaries, net of deferred loan origination costs

$

17,537

$

17,277

$

260

1.5

%

Incentive compensation

4,322

2,395

1,927

80.5

%

Benefits and other compensation costs

5,222

7,383

(2,161)

(29.3)

%

Total salaries and benefits expense

27,081

27,055

26

0.1

%

Occupancy

3,700

3,398

302

8.9

%

Data processing and software

3,201

3,657

(456)

(12.5)

%

Equipment

1,207

1,350

(143)

(10.6)

%

Intangible amortization

1,431

1,431

%

Advertising

734

531

203

38.2

%

ATM and POS network charges

1,551

1,210

341

28.2

%

Professional fees

1,046

741

305

41.2

%

Telecommunications

564

639

(75)

(11.7)

%

Regulatory assessments and insurance

618

360

258

71.7

%

Postage

124

283

(159)

(56.2)

%

Operational losses

212

184

28

15.2

%

Courier service

288

337

(49)

(14.5)

%

Gain on sale or acquisition of foreclosed assets

(15)

(16)

1

(6.3)

%

(Gain) loss on disposal of fixed assets

(426)

15

(441)

(2940.0)

%

Other miscellaneous expense

2,855

4,375

(1,520)

(34.7)

%

Total other non-interest expense

17,090

18,495

(1,405)

(7.6)

%

Total non-interest expense

$

44,171

$

45,550

$

(1,379)

(3.0)

%

Average full-time equivalent staff

1,020

1,140

(120)

(10.5)

%

Non-interest expense decreased by $1,379,000 or 3.0% to $44,171,000 during the three months ended June 30, 2021 as compared to $45,550,000 for the three months ended June 30, 2020. For reasons similar to those discussed above, benefits and other compensation expense decreased by $2,161,000 during the three months ended June 30, 2021. Other miscellaneous expenses decreased by $1,520,000 during the three months ended June 30, 2021, due specifically to the absence of indirect loan documentation and administrative costs incurred in conjunction with the PPP loan program incurred during the three months ended June 30, 2020. Incentive compensation costs increased during the three months ended June 30, 2021, as compared to the same period in 2020, as a result of strong Company performance.

The following table presents the key components of non-interest income for the current and prior year periods indicated:

Six months ended June 30,

(dollars in thousands)

2021

2020

$ Change

% Change

Base salaries, net of deferred loan origination costs

$

33,048

$

34,900

$

(1,852)

(5.3)

%

Incentive compensation

7,902

5,496

2,406

43.8

%

Benefits and other compensation costs

11,461

13,931

(2,470)

(17.7)

%

Total salaries and benefits expense

52,411

54,327

(1,916)

(3.5)

%

Occupancy

7,426

7,273

153

2.1

%

Data processing and software

6,403

7,024

(621)

(8.8)

%

Equipment

2,724

2,862

(138)

(4.8)

%

Intangible amortization

2,862

2,862

%

Advertising

1,114

1,196

(82)

(6.9)

%

ATM and POS network charges

2,797

2,583

214

8.3

%

Professional fees

1,640

1,444

196

13.6

%

Telecommunications

1,145

1,364

(219)

(16.1)

%

Regulatory assessments and insurance

1,230

455

775

170.3

%

Postage

322

573

(251)

(43.8)

%

Operational losses

421

405

16

4.0

%

Courier service

582

668

(86)

(12.9)

%

Gain on sale or acquisition of foreclosed assets

(66)

(57)

(9)

15.8

%

(Gain) loss on disposal of fixed assets

(426)

15

(441)

(2940.0)

%

Other miscellaneous expense

5,204

7,306

(2,102)

(28.8)

%

Total other non-interest expense

33,378

35,973

(2,595)

(7.2)

%

Total non-interest expense

$

85,789

$

90,300

$

(4,511)

(5.0)

%

Average full-time equivalent staff

1,022

1,141

(119)

(10.4)

%

Provision for Income Taxes

The Company’s effective tax rate was 28.0% for the six months ended June 30, 2021, as compared to 25.8% for the year ended December 31, 2020. The reduced effective tax rate in the prior year was made possible through the provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") which provided the Company with an opportunity to file amended tax returns and generate proposed refunds of approximately $805,000. Other differences between the Company's effective tax rate and applicable federal and state statutory rates are due to the proportion of non-taxable revenue and low income housing tax credits as compared to the levels of pre-tax earnings.

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 ATMs, online and mobile banking access. Brokerage services are provided by Tri Counties Advisors through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more.

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 our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution 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 we conduct 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; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the continuing adverse impact on the U.S. economy, including the markets in which we operate due to the COVID-19 global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; the costs or effects of mergers, acquisitions or dispositions we may make; the ability to execute our business plan in new lending markets, the future operating or financial performance of the Company, including our outlook for future growth and changes in the level of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the timing and effects of the implementation of the current expected credit losses model; 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 us; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; our noninterest expense and the efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of integrating and retaining key employees; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks; change to U.S. tax policies, including our effective income tax rate; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the discontinuation of the London Interbank Offered Rate and other reference rates; and our 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, 2020, which has been filed with the Securities and Exchange Commission (the "SEC") and are 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. We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands, except share data)

Three months ended

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

Revenue and Expense Data

Interest income

$

68,479

$

67,916

$

68,081

$

65,438

$

67,148

Interest expense

1,396

1,476

1,659

1,984

2,489

Net interest income

67,083

66,440

66,422

63,454

64,659

Provision for (benefit from) credit losses

(260)

(6,060)

4,850

7,649

22,244

Noninterest income:

Service charges and fees

10,930

10,476

10,218

10,469

8,168

Gain on sale of investment securities

7

Other income

5,027

5,634

6,362

4,661

3,489

Total noninterest income

15,957

16,110

16,580

15,137

11,657

Noninterest expense:

Salaries and benefits

27,081

25,330

28,473

29,321

27,055

Occupancy and equipment

4,907

5,243

5,108

4,989

4,748

Data processing and network

4,752

4,448

4,455

4,875

4,867

Other noninterest expense

7,431

6,597

7,709

7,529

8,880

Total noninterest expense

44,171

41,618

45,745

46,714

45,550

Total income before taxes

39,129

46,992

32,407

24,228

8,522

Provision for income taxes

10,767

13,343

8,750

6,622

1,092

Net income

$

28,362

$

33,649

$

23,657

$

17,606

$

7,430

Share Data

Basic earnings per share

$

0.95

$

1.13

$

0.80

$

0.59

$

0.25

Diluted earnings per share

$

0.95

$

1.13

$

0.79

$

0.59

$

0.25

Dividends per share

$

0.25

$

0.25

$

0.22

$

0.22

$

0.22

Book value per common share

$

32.53

$

31.71

$

31.12

$

30.31

$

29.76

Tangible book value per common share (1)

$

24.60

$

23.72

$

23.09

$

22.24

$

21.64

Shares outstanding

29,716,294

29,727,122

29,727,214

29,769,389

29,759,209

Weighted average shares

29,718,603

29,727,182

29,756,831

29,763,898

29,753,699

Weighted average diluted shares

29,903,560

29,904,974

29,863,478

29,844,396

29,883,193

Credit Quality

Allowance for credit losses to gross loans

1.74

%

1.73

%

1.93

%

1.81

%

1.66

%

Loans past due 30 days or more

$

9,292

$

10,550

$

6,767

$

10,522

$

16,622

Total nonperforming loans

$

32,705

$

28,941

$

26,864

$

22,963

$

20,730

Total nonperforming assets

$

34,952

$

31,250

$

29,708

$

25,020

$

22,652

Loans charged-off

$

387

$

226

$

560

$

194

$

491

Loans recovered

$

653

$

560

$

382

$

381

$

230

Selected Financial Ratios

Return on average total assets

1.40

%

1.75

%

1.24

%

0.95

%

0.43

%

Return on average equity

11.85

%

14.51

%

10.37

%

7.79

%

3.39

%

Average yield on loans, excluding PPP

4.93

%

5.02

%

5.04

%

5.02

%

5.17

%

Average yield on interest-earning assets

3.65

%

3.82

%

3.88

%

3.83

%

4.26

%

Average rate on interest-bearing deposits

0.08

%

0.10

%

0.12

%

0.15

%

0.20

%

Average cost of total deposits

0.05

%

0.06

%

0.07

%

0.09

%

0.12

%

Average rate on borrowings & subordinated debt

2.31

%

2.42

%

2.43

%

2.49

%

3.25

%

Average rate on interest-bearing liabilities

0.13

%

0.15

%

0.17

%

0.20

%

0.27

%

Net interest margin (fully tax-equivalent) (1)

3.58

%

3.74

%

3.79

%

3.72

%

4.10

%

Loans to deposits

70.72

%

72.37

%

73.21

%

76.12

%

76.84

%

Efficiency ratio

53.19

%

50.42

%

55.11

%

59.44

%

59.69

%

Supplemental Loan Interest Income Data

Discount accretion on acquired loans

$

2,566

$

1,712

$

1,960

$

1,876

$

2,587

All other loan interest income (excluding PPP) (1)

$

54,559

$

52,861

$

53,379

$

53,560

$

53,466

Total loan interest income (excluding PPP) (1)

$

57,125

$

54,573

$

55,339

$

55,436

$

56,053

(1) Non-GAAP measure

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands)

Balance Sheet Data

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

Cash and due from banks

$

639,740

$

609,522

$

669,551

$

652,582

$

705,852

Securities, available for sale, net

1,850,547

1,685,076

1,417,289

1,145,989

999,313

Securities, held to maturity, net

235,778

260,454

284,563

310,696

337,165

Restricted equity securities

17,250

17,250

17,250

17,250

17,250

Loans held for sale

5,723

3,995

6,268

6,570

8,352

Loans:

Commercial real estate

3,194,336

3,108,624

2,951,902

2,936,422

2,905,485

Consumer

1,050,609

1,041,213

952,108

926,835

945,669

Commercial and industrial

452,069

551,077

526,327

633,897

634,481

Construction

200,714

221,613

284,842

284,933

278,566

Agriculture production

41,967

39,753

44,164

40,613

35,441

Leases

5,199

4,697

3,784

3,638

1,763

Total loans, gross

4,944,894

4,966,977

4,763,127

4,826,338

4,801,405

Allowance for credit losses

(86,062)

(85,941)

(91,847)

(87,575)

(79,739)

Total loans, net

4,858,832

4,881,036

4,671,280

4,738,763

4,721,666

Premises and equipment

79,178

82,338

83,731

84,856

85,292

Cash value of life insurance

120,287

119,543

118,870

120,026

119,254

Accrued interest receivable

18,923

19,442

20,004

19,557

20,337

Goodwill

220,872

220,872

220,872

220,872

220,872

Other intangible assets

14,971

16,402

17,833

19,264

20,694

Operating leases, right-of-use

26,365

27,540

27,846

28,879

29,842

Other assets

81,899

88,142

84,172

84,495

74,182

Total assets

$

8,170,365

$

8,031,612

$

7,639,529

$

7,449,799

$

7,360,071

Deposits:

Noninterest-bearing demand deposits

$

2,843,783

$

2,766,510

$

2,581,517

$

2,517,819

$

2,487,120

Interest-bearing demand deposits

1,486,321

1,465,915

1,414,908

1,346,716

1,318,951

Savings deposits

2,337,557

2,302,927

2,164,942

2,099,780

2,043,593

Time certificates

324,392

328,048

344,567

376,273

398,594

Total deposits

6,992,053

6,863,400

6,505,934

6,340,588

6,248,258

Accrued interest payable

1,026

970

1,362

1,571

1,734

Operating lease liability

26,707

27,780

27,973

28,894

29,743

Other liabilities

85,388

102,955

94,597

91,902

98,684

Other borrowings

40,559

36,226

26,914

27,055

38,544

Junior subordinated debt

57,852

57,742

57,635

57,527

57,422

Total liabilities

7,203,585

7,089,073

6,714,415

6,547,537

6,474,385

Common stock

531,038

531,367

530,835

531,075

530,422

Retained earnings

427,575

408,211

381,999

365,611

354,645

Accum. other comprehensive income

8,167

2,961

12,280

5,576

619

Total shareholders’ equity

$

966,780

$

942,539

$

925,114

$

902,262

$

885,686

Quarterly Average Balance Data

Average loans, excluding PPP

$

4,646,188

$

4,407,150

$

4,363,873

$

4,389,672

$

4,363,481

Average interest-earning assets

$

7,544,581