TriBancshares(TCBK) - 2024 Q4 - Annual Report

Part I Item 1. Business TriCo Bancshares, a bank holding company, operates Tri Counties Bank, a California-chartered commercial bank with approximately $9.7 billion in assets as of December 31, 2024, providing comprehensive banking services throughout California under extensive federal and state regulation. - TriCo Bancshares is the holding company for Tri Counties Bank, a California-chartered commercial bank headquartered in Chico, California[19] Loan Portfolio Composition (as of December 31, 2024) | Loan Category | Amount (millions) | Percentage of Total | | :--- | :--- | :--- | | Commercial Real Estate | $4,600 | 67.6% | | Consumer Loans | $1,300 | 18.9% | | Commercial and Industrial | $471.3 | 7.1% | | Real Estate Construction | $279.9 | 4.1% | - As of December 31, 2024, the company employed 1,201 people, with a focus on a corporate culture valuing trust, respect, integrity, communication, and opportunity[27][28] - The company and its bank are subject to extensive regulation by the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC), and the California Department of Financial Protection & Innovation (DFPI)[36][37][38] - The company is approaching the $10 billion total asset threshold, which will subject it to examination by the Consumer Financial Protection Bureau (CFPB) and regulations that cap debit card interchange fees (Durbin Amendment)[39][90] Item 1A. Risk Factors The company identifies several material risks to its business, including credit risk from its loan portfolio heavily concentrated in California real estate, geographic concentration, interest rate fluctuations, operational risks from cybersecurity threats, and increased regulatory burdens from approaching the $10 billion asset threshold. - The company's business is geographically concentrated in California, making it susceptible to local economic conditions, natural disasters, and declines in real estate values[109][110][111] - A substantial portion of the loan portfolio consists of commercial real estate loans, totaling approximately $4.6 billion (67.6% of total loans) as of December 31, 2024, which carries significant credit risk[112] - The company's profitability is highly sensitive to interest rate risk, as changes can affect net interest income, loan origination, and the fair value of financial assets and liabilities[127] - In February 2023, the Bank experienced a criminal cyberattack that temporarily interrupted systems and resulted in the unauthorized access and acquisition of personal information for approximately 75,000 individuals, leading to litigation and governmental inquiries[159][160][161] - Crossing the $10 billion asset threshold will subject the company to increased regulation, including supervision by the CFPB and a cap on debit card interchange fees, which would reduce revenue[147][148] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC. - None[209] Item 1C. Cybersecurity The company outlines its cybersecurity risk management and strategy, guided by the NIST Cybersecurity Framework, with oversight from the CISO and the IT/Cybersecurity Committee of the Board of Directors, referencing the material cyberattack in February 2023 and other incidents. - The company's cybersecurity program is structured around the National Institute of Standards and Technology (NIST) Cybersecurity Framework to identify, assess, and manage risks[212] - Governance includes oversight from the Board of Directors' IT/Cybersecurity Committee, which meets at least quarterly and receives regular updates from the CISO[220] - The company experienced a material cyberattack in February 2023 that resulted in system interruptions and data disclosure, and also noted an incident in 2023 where a third-party vendor was affected by a vulnerability in the MOVEit Transfer file sharing software[221][222] Item 2. Properties As of December 31, 2024, the company operates through a network of 64 traditional branches, 4 in-store branches, and 8 loan production offices across 31 counties in California, owning 31 branch locations and leasing 30, in addition to other administrative and operational facilities. - The company's physical presence includes 64 traditional branches, 4 in-store branches, and 8 loan production offices across California[224] - As of December 31, 2024, the company owned 31 branch office locations and leased 30 branch office locations, along with various other owned and leased administrative and operational buildings[225] Item 3. Legal Proceedings The company is subject to routine legal proceedings in the ordinary course of business, noting litigation related to the 2023 cybersecurity attack but stating no pending legal proceedings are expected to have a material adverse impact. - The company is subject to routine legal proceedings; while litigation from the 2023 cybersecurity attack is mentioned, management does not currently expect any pending proceedings to have a material adverse impact[226] Item 4. Mine Safety Disclosures This item is not applicable to the company. - Not applicable[227] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is traded on the Nasdaq under the symbol "TCBK", with approximately 1,720 shareholders of record as of February 24, 2025, and a stock performance graph comparing its cumulative total shareholder return against the Russell 3000 Index and the S&P Western Bank Index for the five-year period ending December 31, 2024. - The company's common stock trades on the Nasdaq under the symbol "TCBK"[229] Cumulative Total Return (2019-2024) | Index | 12/31/2019 | 12/31/2024 | | :--- | :--- | :--- | | TriCo Bancshares | $100.00 | $123.34 | | Russell 3000 Index | $100.00 | $177.92 | | S&P Western Bank Index | $100.00 | $109.09 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2024, net income decreased 2.1% to $114.9 million, primarily due to a 7.2% decline in net interest income as higher funding costs compressed the net interest margin to 3.71%, partially offset by a significantly lower provision for credit losses, while total assets decreased slightly to $9.7 billion, with deposits growing 3.2% to $8.1 billion, allowing for an 85.8% reduction in higher-cost borrowings, and nonperforming assets increased to 0.48% of total assets, up from 0.35% in the prior year, while the allowance for credit losses remained robust at 1.85% of total loans. Financial Overview For the fiscal year 2024, the company reported a net income of $114.9 million, a 2.1% decrease from the prior year, with diluted EPS down 1.7% to $3.46, primarily driven by higher interest expense causing net interest income to fall, partially mitigated by a lower provision for credit losses, and the tangible common equity to tangible assets ratio improved to 9.72% from 8.80% at the end of 2023. Key Financial Results (Year ended December 31) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Income | $114.9M | $117.4M | $125.4M | | Diluted EPS | $3.46 | $3.52 | $3.83 | | Net Interest Income | $331.4M | $356.7M | $346.0M | | Provision for Credit Losses | $6.6M | $24.0M | $18.5M | | Return on Average Assets | 1.18% | 1.19% | 1.28% | | Return on Average Equity | 9.57% | 10.65% | 11.67% | - The tangible common equity to tangible assets ratio, a non-GAAP measure, increased to 9.72% at December 31, 2024, up from 8.80% at the end of 2023, primarily due to retained earnings[239][246] Results of Operations Net interest income (FTE) for 2024 decreased by 7.2% to $332.5 million, with the net interest margin contracting 25 basis points to 3.71% due to rising funding costs, while the provision for credit losses fell significantly to $6.6 million from $24.0 million in 2023, non-interest income grew 4.9% to $64.4 million, and non-interest expense remained relatively flat, increasing by only 0.4% to $234.1 million, with an effective tax rate of 25.9%. - Net interest income (FTE) decreased by $25.7 million (7.2%) in 2024, driven by a 25 basis point decline in net interest margin to 3.71% as the cost of interest-bearing liabilities rose 85 basis points[259] - The provision for credit losses decreased by $17.4 million to $6.6 million in 2024, primarily due to muted loan growth and more stable qualitative reserve levels compared to 2023[269] - Non-interest income increased by $3.0 million (4.9%) in 2024, mainly from higher service charges on deposit accounts and increased asset management income[273] - Non-interest expense increased by just $0.9 million (0.4%) in 2024, with higher salaries and data processing costs largely offset by lower intangible amortization and operational losses[276] Financial Condition As of December 31, 2024, total assets stood at $9.7 billion, a slight decrease from the prior year, with the loan portfolio stable at $6.8 billion, commercial real estate representing 67.6%, and a key strategic shift involving using a $253.5 million increase in deposits and $269.3 million in investment security repayments to pay down $543.0 million in higher-cost borrowings, while total uninsured deposits were estimated at $2.6 billion. Year-End Balance Sheet Changes (2024 vs. 2023) | Balance Sheet Item | Dec 31, 2024 | Dec 31, 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Assets | $9,673.7M | $9,910.1M | ($236.4M) | (2.4)% | | Total Loans | $6,768.5M | $6,794.5M | ($25.9M) | (0.4)% | | Total Deposits | $8,087.6M | $7,834.0M | $253.5M | 3.2% | | Total Other Borrowings | $89.6M | $632.6M | ($543.0M) | (85.8)% | - The loan portfolio composition remained heavily weighted towards commercial real estate, which constituted 67.6% of total loans at year-end 2024[287] - Total uninsured deposits were estimated to be approximately $2.6 billion as of December 31, 2024[312] Asset Quality and Nonperforming Assets Asset quality metrics showed some deterioration in 2024, with total nonperforming assets (NPAs) increasing by 35.5% to $46.9 million, representing 0.48% of total assets, up from 0.35% in 2023, driven by $27.6 million in new nonperforming loans, despite which the allowance for credit losses (ACL) was strengthened, increasing to $125.4 million, or 1.85% of total loans, which management believes is adequate. Nonperforming Assets (NPA) Trend | Metric | Dec 31, 2024 | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | :--- | | Total NPAs | $46.9M | $34.6M | $24.8M | | NPAs to Total Assets | 0.48% | 0.35% | 0.25% | | Nonperforming Loans to Total Loans | 0.65% | 0.47% | 0.33% | - The increase in nonperforming assets during 2024 was primarily due to $27.6 million in additions of nonperforming loans, partially offset by $11.5 million in paydowns/upgrades and $3.7 million in net charge-offs[292] Allowance for Credit Losses (ACL) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total ACL | $125.4M | $121.5M | | ACL to Gross Loans | 1.85% | 1.79% | Market Risk Management and Liquidity The company manages market risk, primarily interest rate risk, through simulation modeling, with a simulated 100 basis point instantaneous rate increase projected to decrease net interest income by 2.4% as of December 31, 2024, and maintained a strong liquidity position with $4.1 billion in primary liquidity sources, covering 160% of its estimated $2.6 billion in uninsured deposits. Interest Rate Risk Simulation (as of Dec 31, 2024) | Change in Interest Rates (Basis Points) | Estimated Change in Net Interest Income (NII) | | :--- | :--- | | +300 | (7.4)% | | +200 | (5.1)% | | +100 | (2.4)% | | -100 | 0.6% | - The simulation indicates the company's balance sheet is liability-sensitive, meaning net interest income is projected to decrease if interest rates rise and increase if they fall[322] Liquidity Position (as of Dec 31, 2024) | Metric | Amount (billions) | | :--- | :--- | | Total Primary Liquidity | $4.1 | | Estimated Uninsured Deposits | $2.6 | | Liquidity Coverage of Uninsured Deposits | 160% | Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the "Market Risk Management" discussion from Item 7, which details the company's approach to managing interest rate risk through simulation modeling and asset/liability management. - Information regarding market risk is incorporated by reference from the "Market Risk Management" section in Item 7[345] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for the fiscal years ended December 31, 2024, 2023, and 2022, including the Consolidated Balance Sheets, Statements of Income, Comprehensive Income, Changes in Shareholders' Equity, and Cash Flows, along with extensive notes providing detailed explanations of accounting policies and financial data, and Management's Report on Internal Control over Financial Reporting and the corresponding report from the independent registered public accounting firm, Moss Adams LLP. Consolidated Balance Sheet Summary (as of Dec 31) | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $144,956 | $98,701 | | Total loans, net | $6,643,157 | $6,672,948 | | Total investment securities | $2,036,610 | $2,305,882 | | Goodwill | $304,442 | $304,442 | | Total Assets | $9,673,728 | $9,910,089 | | Liabilities & Equity | | | | Total deposits | $8,087,576 | $7,834,038 | | Other borrowings | $89,610 | $632,582 | | Junior subordinated debt | $101,191 | $101,099 | | Total Liabilities | $8,452,821 | $8,750,407 | | Total Shareholders' Equity | $1,220,907 | $1,159,682 | Consolidated Income Statement Summary (Year ended Dec 31) | (In thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net Interest Income | $331,434 | $356,677 | $345,976 | | Provision for Credit Losses | $6,632 | $23,990 | $18,470 | | Noninterest Income | $64,407 | $61,400 | $63,046 | | Noninterest Expense | $234,105 | $233,182 | $216,645 | | Net Income | $114,868 | $117,390 | $125,419 | - The report from the independent auditor, Moss Adams LLP, provides an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting, identifying the Allowance for Credit Losses, specifically the qualitative forecast factors, as a critical audit matter due to the significant management judgment involved[557][563][565] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure. - None[569] Item 9A. Controls and Procedures Based on an evaluation as of December 31, 2024, the company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective, with management's report on internal control over financial reporting and the auditor's attestation included in the report, and no material changes to internal controls identified in the fourth quarter of 2024. - The CEO and CFO concluded that as of December 31, 2024, the company's disclosure controls and procedures were effective[570] - No changes in internal control over financial reporting occurred during the fourth quarter of 2024 that materially affected, or are reasonably likely to materially affect, these controls[572] Item 9B. Other Information All required information was disclosed in current reports on Form 8-K during the fourth quarter of 2024. - All required information was disclosed in Form 8-K filings during the fourth quarter of 2024[573] Part III Items 10-14 Information required for Items 10 through 14, covering Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, Certain Relationships, and Principal Accountant Fees, is incorporated by reference from the company's definitive proxy statement for the 2025 annual meeting of shareholders. - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's Proxy Statement for the 2025 annual meeting of shareholders[576][578][579] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report, with consolidated financial statements included in Item 8 and financial statement schedules omitted as they are not applicable or the required information is included elsewhere, and a detailed index of all filed exhibits is provided. - This section contains the list of financial statements and exhibits filed with the report; financial statement schedules were omitted as they were not applicable[584] Item 16. Form 10-K Summary The company indicates that there is no Form 10-K summary. - None[591]