TriCo Bancshares (TCBK) 8-K Trico Bancshares Announces Quarterly Results

Exhibit 99.1

PRESS RELEASE	Contact: Richard P. Smith
For Immediate Release	President & CEO (530) 898-0300

TRICO BANCSHARES ANNOUNCES QUARTERLY RESULTS

CHICO, CA – (July 25, 2019) – TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $23,061,000 for the quarter ended June 30, 2019, compared to $22,726,000 during the trailing quarter ended March 31, 2019 and $15,029,000 during the quarter ended June 30, 2018. Diluted earnings per share were $0.75 for the second quarter of 2019, compared to $0.74 for the first quarter of 2019 and $0.65 for the second quarter of 2018.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three and six months ended June 30, 2019 included the following:

• For the three and six months ended June 30, 2019, the Company’s return on average assets was 1.44% and 1.43%, respectively, and the return on average equity was 10.65% and 10.71%, respectively.

• As of June 30, 2019, the Company reported total loans, total assets and total deposits of $4.10 billion, $6.40 billion and $5.34 billion, respectively.

• The loan to deposit ratio was 76.8% as of June 30, 2019 as compared to 74.3% at March 31, 2019 and 77.2% at June 30, 2018.

• Net interest margin grew 34 basis points to 4.48% on a tax equivalent basis as compared to 4.14% in the quarter ended June 30, 2018 and increased 2 basis points from the trailing quarter.

• Non-interest bearing deposits as a percentage of total deposits were 33.3% at June 30, 2019, as compared to 32.4% at March 31, 2019 and 33.6% at June 30, 2018.

• The average rate of interest paid on deposits, including noninterest-bearing deposits, remained low but increased slightly to 0.22% for the second quarter of 2019 as compared with 0.20% for the trailing quarter, and an increase of 10 basis points from the average rate paid during the same quarter of the prior year.

• Non-performing assets to total assets were 0.35% at June 30, 2019 as compared to 0.34% as of March 31, 2019 and 0.47% at December 31, 2018.

• The balance of nonperforming loans increased by $1.0 million, however recoveries on previously charged-off loans were $0.3 million and loans past due thirty days or more decreased by $2.18 million during the quarter.

• The efficiency ratio remained flat at 60.15% as compared to the trailing quarter, which had an efficiency ratio of 60.10%.

President and CEO, Rick Smith commented, “We are pleased with our second quarter operating results which were benefited by organic loan growth of nearly 7.0% on an annualized basis as well as our ability to hold operating costs not associated with incentive compensation flat. The strength and depth of our lending team continues to grow and we look forward to further expansion of both new and existing markets. We previously announced that Richard O’Sullivan, our EVP Chief Commercial Lending Officer, will be retiring after 35 years of dedicated service this month. I would like to thank Richard for all that he has done for the Bank, our shareholders and our customers. As part of our succession management efforts we now look toward Dan Bailey, our EVP Chief Banking Officer, to continue to drive our positive momentum and performance levels into the future.”

Summary Results

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)	2019			2019			$ Change			% Change
Net interest income	$	64,315		$	63,870		$	445			0.7	%
(Provision for) reversal of loan losses		(537	)		1,600			(2,137	)		nm
Noninterest income		13,578			11,864			1,714			14.4	%
Noninterest expense		(46,852	)		(45,513	)		(1,339	)		2.9	%
Provision for income taxes		(7,443	)		(9,095	)		1,652			(18.2	%)
Net income	$	23,061		$	22,726		$	335			1.5	%
Diluted earnings per share	$	0.75		$	0.74		$	0.01			1.4	%
Dividends per share	$	0.19		$	0.19			—			0.0	%
Average common shares		30,458			30,424			34			0.1	%
Average diluted common shares		30,643			30,658			(15	)		(0.0	%)
Return on average total assets		1.44	%		1.41	%
Return on average equity		10.65	%		10.78	%
Efficiency ratio		60.15	%		60.10	%

	Three months ended June 30,
(dollars and shares in thousands)	2019			2018			$ Change			% Change
Net interest income	$	64,315		$	45,869		$	18,446			40.2	%
(Provision for) reversal of loan losses		(537	)		638			(1,175	)		nm
Noninterest income		13,578			12,174			1,404			11.5	%
Noninterest expense		(46,852	)		(37,870	)		(8,982	)		23.7	%
Provision for income taxes		(7,443	)		(5,782	)		(1,661	)		28.7	%
Net income	$	23,061		$	15,029		$	8,032			53.4	%
Diluted earnings per share	$	0.75		$	0.65		$	0.10			15.4	%
Dividends per share	$	0.19		$	0.17		$	0.02			11.8	%
Average common shares		30,458			22,983			7,475			32.5	%
Average diluted common shares		30,643			23,276			7,367			31.7	%
Return on average total assets		1.44	%		1.25	%
Return on average equity		10.65	%		11.78	%
Efficiency ratio		60.15	%		65.24	%

	Six months ended June 30,
(dollars and shares in thousands)	2019			2018			$ Change			% Change
Net interest income	$	128,185		$	90,855		$	37,330			41.1	%
Benefit from reversal of provision for loan losses		1,063			874			189			nm
Noninterest income		25,442			24,464			978			4.0	%
Noninterest expense		(92,365	)		(76,032	)		(16,333	)		21.5	%
Provision for income taxes		(16,538	)		(11,222	)		(5,316	)		47.4	%
Net income	$	45,787		$	28,939		$	16,848			58.2	%
Diluted earnings per share	$	1.49		$	1.24		$	0.25			20.2	%
Dividends per share	$	0.19		$	0.17		$	0.02			11.8	%
Average common shares		30,441			22,970			7,471			32.5	%
Average diluted common shares		30,650			23,280			7,370			31.7	%
Return on average total assets		1.43	%		1.21	%
Return on average equity		10.71	%		11.39	%
Efficiency ratio		60.12	%		65.93	%

Balance Sheet

Loan growth of $69,356,000 or 6.9% on an annualized basis during the second quarter of 2019 provided benefit to the yield on earning assets and net interest margin as excess liquidity maintained at the Federal Reserve was utilized to fund loans and facilitate seasonal fluctuations in interest-bearing deposit balances.

Trailing Quarter Balance Sheet Change

Ending balances	As of June 30,		As of March 31,		Organic $ Change			Annualized Organic % Change
($‘s in thousands)	2019		2019
Total assets	$	6,395,172	$	6,471,852	$	(76,680	)		(4.7	%)
Total loans		4,103,687		4,034,331		69,356			6.9	%
Total investments		1,566,720		1,564,692		2,028			0.5	%
Total deposits	$	5,342,173	$	5,430,262	$	(88,089	)		(6.5	%)

The growth in average loans of $20,180,000 or 2.0% on an annualized basis during the second quarter was less than the end of period growth as nearly all of the quarterly growth occurred during the last month of the quarter.

Average Trailing Quarter Balance Sheet Change

Qtrly avg balances	As of June 30,		As of March 31,		Organic $ Change			Annualized Organic % Change
($‘s in thousands)	2019		2019
Total assets	$	6,385,889	$	6,426,227	$	(40,338	)		(2.5	%)
Total loans		4,044,044		4,023,864		20,180			2.0	%
Total investments		1,573,112		1,567,584		5,528			1.4	%
Total deposits	$	5,370,879	$	5,387,079	$	(16,200	)		(1.2	%)

In addition to the balance sheet changes which resulted from the acquisition of FNB Bancorp in July 2018, total assets have grown by $68,819,000 or 1.4% between June 2018 and June 2019. This growth was led by $122,691,000 or 3.9% in organic loan growth which was funded by $273,016,000 or 6.7% in organic deposit growth.

Year Over Year Balance Sheet Change

Ending balances	As of June 30,						Acquired Balances		Organic $ Change			Organic % Change
($‘s in thousands)	2019		2018		$ Change
Total assets	$	6,395,172	$	4,863,153	$	1,532,019	$	1,463,200	$	68,819			1.4	%
Total loans		4,103,687		3,146,313		957,374		834,683		122,691			3.9	%
Total investments		1,566,720		1,251,776		314,944		335,667		(20,723	)		(1.7	%)
Total deposits	$	5,342,173	$	4,077,222	$	1,264,951	$	991,935	$	273,016			6.7	%

Total equity increased to $875,886,000 at June 30, 2019 as compared to $853,278,000 at March 31, 2019 and inclusive of $2,198,000 and $8,927,000 in accumulated other comprehensive loss at the same periods, respectively. As a result, the Company’s book value per share increased to $28.71 at June 30, 2019 from $28.04 per share at March 31, 2019. The Company’s tangible book value per share, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, increased to $20.60 per share at June 30, 2019 from $19.86 per share March 31, 2019. Excluding accumulated other comprehensive losses from total equity for both quarters, tangible book value per share increased to $20.68 at June 30, 2019 from $20.16 at March 31, 2019.

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)	2019			2019			$ Change			% Change
Interest income	$	68,180		$	67,457		$	723			1.1	%
Interest expense		(3,865	)		(3,587	)		(278	)		7.8	%
Fully tax-equivalent adjustment (FTE)(1)		298			322			(24	)		(7.5	%)
Net interest income (FTE)	$	64,613		$	64,192		$	421			0.7	%
Net interest margin (FTE)		4.48	%		4.46	%
Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,904		$	1,655		$	249			15.0	%
Effect on average loan yield		0.19	%		0.17	%		0.02	%
Effect on net interest margin (FTE)		0.13	%		0.12	%		0.01	%
	Three months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
Interest income	$	68,180		$	48,478		$	19,702			40.6	%
Interest expense		(3,865	)		(2,609	)		(1,256	)		48.1	%
Fully tax-equivalent adjustment (FTE)(1)		298			313			(15	)		(4.8	%)
Net interest income (FTE)	$	64,613		$	46,182		$	18,431			39.9	%
Net interest margin (FTE)		4.48	%		4.14	%
Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,904		$	559		$	1,345			240.6	%
Effect on average loan yield		0.19	%		0.07	%		0.12	%
Effect on net interest margin (FTE)		0.13	%		0.05	%		0.08	%
	Six months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
Interest income	$	135,637		$	95,599		$	40,038			41.9	%
Interest expense		(7,452	)		(4,744	)		(2,708	)		57.1	%
Fully tax-equivalent adjustment (FTE)(1)		619			625			(6	)		(1.0	%)
Net interest income (FTE)	$	128,804		$	91,480		$	37,324			40.8	%
Net interest margin (FTE)		4.47	%		4.14	%
Acquired loans discount accretion, net:
Amount (included in interest income)	$	3,559		$	1,191		$	2,368			198.8	%
Effect on average loan yield		0.18	%		0.08	%		0.10	%
Effect on net interest margin (FTE)		0.12	%		0.05	%		0.07	%

⁽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 effects of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining (unaccreted) discount or (unamortized) premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. During the three months ended June 30, 2019, March 31, 2019 and December 31, 2018, purchased loan discount accretion was $1,904,000, $1,655,000, and $1,982,000, respectively. During the three months ended March 31, 2019, loans purchased at net premiums several years ago were repaid prior to expected maturity resulting in approximately $259,000 of accelerated amortization.

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, 2019							March 31, 2019							June 30, 2018
	Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans	$	4,044,044	$	55,491		5.49	%	$	4,023,864	$	54,398		5.41	%	$	3,104,126	$	39,304		5.06	%
Investments–taxable		1,432,550		10,762		3.00	%		1,425,352		10,915		3.06	%		1,122,534		7,736		2.76	%
Investments–nontaxable(1)		140,562		1,358		3.86	%		142,232		1,395		3.92	%		136,126		1,355		3.98	%
Total investments		1,573,112		12,120		3.08	%		1,567,584		12,310		3.14	%		1,258,660		9,091		2.89	%
Cash at Federal Reserve and other banks		147,810		866		2.34	%		168,518		1,071		2.54	%		94,874		396		1.67	%
Total earning assets		5,764,966		68,477		4.75	%		5,759,966		67,779		4.71	%		4,457,660		48,791		4.38	%
Other assets, net		620,923							666,261							356,863
Total assets	$	6,385,889						$	6,426,227						$	4,814,523
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,276,388		289		0.09	%	$	1,273,376		287		0.09	%	$	995,528	$	214		0.09	%
Savings deposits		1,888,234		1,306		0.28	%		1,927,120		1,133		0.24	%		1,393,121		427		0.12	%
Time deposits		441,116		1,403		1.27	%		441,778		1,299		1.18	%		313,556		593		0.76	%
Total interest-bearing deposits		3,605,738		2,998		0.33	%		3,642,274		2,719		0.30	%		2,702,205		1,234		0.18	%
Other borrowings		17,963		37		0.82	%		15,509		13		0.34	%		139,307		586		1.68	%
Junior subordinated debt		57,222		829		5.79	%		56,950		855		6.01	%		56,928		789		5.54	%
Total interest-bearing liabilities		3,680,923		3,864		0.42	%		3,714,733		3,587		0.39	%		2,898,440		2,609		0.36	%
Noninterest-bearing deposits		1,765,141							1,744,805							1,339,905
Other liabilities		73,541							123,599							65,745
Shareholders’ equity		866,284							843,090							510,433
Total liabilities and shareholders’ equity	$	6,385,889						$	6,426,227						$	4,814,523
Net interest rate spread (1) (2)						4.33	%						4.32	%						4.02	%
Net interest income and net interest margin (1) (3)			$	64,613		4.48	%			$	64,192		4.46	%			$	46,182		4.14	%

⁽¹⁾  Fully taxable equivalent (FTE)

⁽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, 2019 increased $421,000 or 0.7% to $64,613,000 compared to $64,192,000 during the three months ended March 31, 2019. The increase in net interest income (FTE) was due primarily to a shift in average balances from excess liquidity maintained with the Federal Reserve yielding 2.34% during the second quarter to loans which yielded 5.49% during the same period. The yield on interest earning assets was 4.75% for the quarter ended June 30, 2019, which represents an increase of 4 basis points over the trailing quarter and an increase of 37 basis points over the same quarter in the prior year.

The index utilized in a significant portion of the Company’s variable rate loans, Wall Street Journal Prime, has increased by 50 basis points to 5.50% at June 30, 2019 as compared to 5.00% at June 30, 2018. The most recent increase of the index was during December 2018, with an increase of 25 basis points. As such, there were minimal changes to loan yields as compared to the trailing quarter. However, as compared to the same quarter in the prior year, average loan yields increased 43 basis points from 5.06% during the three months ended June 30, 2018 to 5.49% during the three months ended June 30, 2019. Of the 43 basis point increase in yields on loans, 31 basis points was attributable to increases in market rates while 12 basis points was from increased accretion of purchased loans.

Despite decreases in the average balances of savings deposits, these benefits to interest income were partially offset by a 3 basis point increase in the cost of interest bearing liabilities which were 0.42% for the second quarter of 2019. The impact of changes in rates and volumes of interest bearing liabilities resulted in an increase in interest expense of $278,000 during the current quarter. Comparing the quarter ended June 30, 2019 to the trailing quarter, the cost of interest bearing deposits increased by 3 basis points to 0.33% and increased 15 basis points from the same quarter in the prior year due in part to differences in market rates associated with deposits acquired from FNB Bancorp and also due to ongoing competitive pressures associated with deposit accounts in many of the markets we serve.

The following table shows the components of net interest income and net interest margin on a fully tax-equivalent (FTE) basis for the year-to-date periods indicated:

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS

(unaudited, dollars in thousands)

	Six Months Ended							Six Months Ended
	June 30, 2019							June 30, 2018
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
Assets
Loans	$	4,033,954	$	109,889		5.45	%	$	3,066,152	$	77,353		5.05	%
Investments–taxable		1,428,951		21,677		3.03	%		1,123,964		15,394		2.74	%
Investments–nontaxable(1)		141,397		2,753		3.89	%		136,143		2,708		3.98	%
Total investments		1,570,348		24,430		3.11	%		1,260,107		18,102		2.87	%
Cash at Federal Reserve and other banks		158,164		1,937		2.45	%		92,869		769		1.66	%
Total earning assets		5,762,466		136,256		4.73	%		4,419,128		96,224		4.35	%
Other assets, net		643,592							358,747
Total assets	$	6,406,058						$	4,777,875
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,274,882		576		0.09	%	$	994,867		425		0.09	%
Savings deposits		1,907,677		2,439		0.26	%		1,382,249		838		0.12	%
Time deposits		441,447		2,703		1.22	%		310,035		1,067		0.69	%
Total interest-bearing deposits		3,624,006		5,718		0.32	%		2,687,151		2,330		0.17	%
Other borrowings		16,736		50		0.60	%		123,544		928		1.50	%
Junior subordinated debt		57,086		1,684		5.90	%		56,905		1,486		5.22	%
Total interest-bearing liabilities		3,697,828		7,452		0.40	%		2,867,600		4,744		0.33	%
Noninterest-bearing deposits		1,754,973							1,336,070
Other liabilities		98,570							65,982
Shareholders’ equity		854,687							508,223
Total liabilities and shareholders’ equity	$	6,406,058						$	4,777,875
Net interest rate spread (1) (2)						4.33	%						4.02	%
Net interest income and net interest margin (1) (3)			$	128,804		4.47	%			$	91,480		4.14	%

⁽¹⁾  Fully taxable equivalent (FTE)

⁽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 six months ended June 30, 2019 increased $37,324,000 or 40.8% to $128,804,000 compared to $91,480,000 during the six months ended June 30, 2018. The increases were nearly all attributable to changes in volume of earning assets which were acquired from FNB Bancorp in July 2018. The yield on interest earning assets was 4.73% and 4.35% for the six months ended June 30, 2019 and 2018, respectively. This 38 basis point increase in earning asset yields were primarily attributable to a 40 basis point increase in loan yields and a 24 basis point increase in yields on investments. Of the 40 basis point increase in yields on loans, 30 basis points was attributable to increases in market rates while 10 basis points was from increased accretion of purchased loans.

The increases in yields on earning assets were partially offset by increased funding costs as the costs of total interest bearing liabilities increased 7 basis points to 0.40% for the first half of 2019 as compared to 0.33% for the first half of 2018. During the same period, costs associated with interest bearing deposits increased by 15 basis points to 0.32% as compared to 0.17% in the prior year. The decline in interest expense for the first half of 2019 as compared to the prior period was due entirely to the decreases in volume associated with overnight borrowings.

Asset Quality and Loan Loss Provisioning

The Company recorded provision for loan losses of $537,000 during the three months ended June 30, 2019 as compared to benefits from the reversal of provisions of $1,600,000 for the trailing quarter as well as $638,000 in the same quarter of the prior year. The need for a provision for loan losses during the quarter ended June 30, 2019 was driven by loan growth of $69,356,000 and a slight increase in total nonperforming loans of $1,020,000 but partially offset by net recoveries of $267,000 and a decline in past due loans of $2,181,000. For the six month ended June 30, 2019 the Company recorded a benefit from the reversal of loan losses of $1,063,000. While year to date loan growth in 2019 totaled $81,673,000, nonperforming loans decreased by $6,909,000, past due loans decreased by $2,788,000 and net recoveries were $1,349,000 during the same period.

Provision for Income Taxes

The Company’s effective tax rate was 24.4% for the quarter ended June 30, 2019 as compared to 27.8% for the same quarter in the prior year. During the second quarter of 2019 the Company received a $696,000 non-taxable death benefit from life insurance proceeds. In addition, the ratio of non-deductible expenses to pre-tax income declined in the year over year comparable second quarter periods.

Non-interest Income

The following table presents the key components of noninterest income for the periods indicated:

	Three months ended
(dollars in thousands)	June 30, 2019			March 31, 2019			$ Change			% Change
ATM and interchange fees	$	5,404		$	4,581		$	823			18.0	%
Service charges on deposit accounts		4,182			3,880			302			7.8	%
Other service fees		619			771			(152	)		(19.7	%)
Mortgage banking service fees		475			483			(8	)		(1.7	%)
Change in value of mortgage servicing rights		(552	)		(645	)		93			(14.4	%)
Total service charges and fees		10,128			9,070			1,058			11.7	%
Increase in cash value of life insurance		746			775			(29	)		(3.7	%)
Asset management and commission income		739			642			97			15.1	%
Gain on sale of loans		575			412			163			39.6	%
Lease brokerage income		239			220			19			8.6	%
Sale of customer checks		135			140			(5	)		(3.6	%)
Gain on sale of foreclosed assets		197			99			98			99.0	%
Gain (loss) on marketable equity securities		42			36			6			16.7	%
Loss on disposal of fixed assets		(42	)		(38	)		(4	)		10.5	%
Other		819			508			311			61.2	%
Total other noninterest income		3,450			2,794			656			23.5	%
Total noninterest income	$	13,578		$	11,864		$	1,714			14.4	%

Noninterest income increased $1,714,000 (14.4%) to $13,578,000 during the three months ended June 30, 2019 compared to the trailing quarter March 31, 2019. The increase in noninterest income was due primarily to a $823,000 (18.0%) increase in ATM and interchange fees which was the result of increased usage. Other noninterest income includes $696,000 and $32,000 in death benefit insurance proceeds during the second and first quarters of 2019, respectively. The declining interest rate environment provided a $163,000 benefit associated with loan sale gains in the second quarter of 2019 as compared to the trailing quarter. However, the fair value of the mortgage servicing asset continued to decrease during the second quarter due to changes in the assumptions utilized in determining the fair value. Specifically, further increases in prepayment speeds resulting from decreases in the 15 and 30 year mortgage rates continued to be the largest contributors to the decline in fair value of the mortgage servicing asset.

	Three months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
ATM and interchange fees	$	5,404		$	4,510		$	894			19.8	%
Service charges on deposit accounts		4,182			3,613			569			15.7	%
Other service fees		619			630			(11	)		(1.7	%)
Mortgage banking service fees		475			511			(36	)		(7.0	%)
Change in value of mortgage servicing rights		(552	)		(36	)		(516	)		1433.3	%
Total service charges and fees		10,128			9,228			900			9.8	%
Increase in cash value of life insurance		746			656			90			13.7	%
Asset management and commission income		739			810			(71	)		(8.8	%)
Gain on sale of loans		575			666			(91	)		(13.7	%)
Lease brokerage income		239			200			39			19.5	%
Sale of customer checks		135			138			(3	)		(2.2	%)
Gain on sale of foreclosed assets		197			17			180			1058.8	%
Gain (loss) on marketable equity securities		42			(23	)		65			(282.6	%)
Loss on disposal of fixed assets		(42	)		(41	)		(1	)		2.4	%
Other		819			523			296			56.6	%
Total other noninterest income		3,450			2,946			504			17.1	%
Total noninterest income	$	13,578		$	12,174		$	1,404			11.5	%

With the exception of the following items the differences in noninterest income for the three months ended June 30, 2019 and 2018 were largely attributable to the acquisition of FNB Bancorp in July 2018. As noted previously, other noninterest income includes $696,000 and $32,000 in death benefit insurance proceeds during the second and first quarters of 2019, respectively.

	Six months ended June 30,
(dollars in thousands)	2019			2018			$ Change			% Change
ATM and interchange fees	$	9,985		$	8,745		$	1,240			14.2	%
Service charges on deposit accounts		8,062			7,392			670			9.1	%
Other service fees		1,390			1,344			46			3.4	%
Mortgage banking service fees		958			1,028			(70	)		(6.8	%)
Change in value of mortgage servicing rights		(1,197	)		75			(1,272	)		(1696.0	%)
Total service charges and fees		19,198			18,584			614			3.3	%
Increase in cash value of life insurance		1,521			1,264			257			20.3	%
Asset management and commission income		1,381			1,686			(305	)		(18.1	%)
Gain on sale of loans		987			1,292			(305	)		(23.6	%)
Lease brokerage income		459			328			131			39.9	%
Sale of customer checks		275			239			36			15.1	%
Gain on sale of foreclosed assets		296			388			(92	)		(23.7	%)
Gain (loss) on marketable equity securities		78			(70	)		148			(211.4	%)
Loss on disposal of fixed assets		(80	)		(54	)		(26	)		48.1	%
Other		1,327			807			520			64.4	%
Total other noninterest income		6,244			5,880			364			6.2	%
Total noninterest income	$	25,442		$	24,464		$	978			4.0	%

Noninterest income increased $978,000 (4.0%) to $25,442,000 during the six months ended June 30, 2019 compared to the comparable six month period in 2018. In addition to the impacts resulting from the FNB Bancorp acquisition, noninterest income for the first half of 2019 as compared to the first half of 2018 were impacted by changes in the fair value of the Company’s mortgage servicing assets which contributed to a $1,272,000 decline, death benefits from life insurance policies contributed to a $728,000 increase in other, and changes in the value of equity securities contributed to a $148,000 increase in noninterest income.

Non-interest Expense

The following table presents the key components of the Company’s noninterest expense for the periods indicated:

	Three months ended
	June 30, 2019		March 31, 2019		$ Change			% Change
Base salaries, net of deferred loan origination costs	$	17,211	$	16,757	$	454			2.7	%
Incentive compensation		3,706		2,567		1,139			44.4	%
Benefits and other compensation costs		5,802		5,804		(2	)		(0.0	%)
Total salaries and benefits expense		26,719		25,128		1,591			6.3	%
Occupancy		3,738		3,774		(36	)		(1.0	%)
Data processing and software		3,354		3,349		5			0.1	%
Equipment		1,752		1,867		(115	)		(6.2	%)
Intangible amortization		1,431		1,431		—			0.0	%
Advertising		1,533		1,331		202			15.2	%
ATM and POS network charges		1,270		1,323		(53	)		(4.0	%)
Professional fees		1,057		839		218			26.0	%
Telecommunications		773		797		(24	)		(3.0	%)
Regulatory assessments and insurance		490		511		(21	)		(4.1	%)
Merger and acquisition expense		—		—		—			nm
Postage		315		310		5			1.6	%
Operational losses		226		225		1			0.4	%
Courier service		412		270		142			52.6	%
Other miscellaneous expense		3,782		4,358		(576	)		(13.2	%)
Total other noninterest expense		20,133		20,385		(252	)		(1.2	%)
Total noninterest expense	$	46,852	$	45,513	$	1,339			2.9	%
Average full time equivalent staff		1,138		1,138		—			0.0	%

Noninterest expense for the quarter ended June 30, 2019 increased $1,339,000 or 2.9% to $46,852,000 as compared to $45,513,000 for the quarter ended March 31, 2019. Increases in salaries were primarily attributable to annual merit increases, and to a lesser extent temporary labor also contributed to the $454,000 or 2.7% increase over the trailing quarter. The increase in incentive compensation cost contributed a $1,139,000 increase in noninterest expense as compared to the trailing quarter and relates directly to loan originations and net loan growth realized the latter half of the second quarter. While other miscellaneous expenses declined by $576,000 in the second quarter of 2019 as compared to the trailing quarter, there were no singularly significant items other than donations expense which decreased by $125,000 during the current period.

	Three months ended June 30,
	2019		2018		$ Change			% Change
Base salaries, net of deferred loan origination costs	$	17,211	$	14,429	$	2,782			19.3	%
Incentive compensation		3,706		2,159		1,547			71.7	%
Benefits and other compensation costs		5,802		4,865		937			19.3	%
Total salaries and benefits expense		26,719		21,453		5,266			24.5	%
Occupancy		3,738		2,720		1,018			37.4	%
Data processing and software		3,354		2,679		675			25.2	%
Equipment		1,752		1,637		115			7.0	%
Intangible amortization		1,431		339		1,092			322.1	%
Advertising		1,533		1,035		498			48.1	%
ATM and POS network charges		1,270		1,437		(167	)		(11.6	%)
Professional fees		1,057		774		283			36.6	%
Telecommunications		773		681		92			13.5	%
Regulatory assessments and insurance		490		417		73			17.5	%
Merger and acquisition expense		—		601		(601	)		(100.0	%)
Postage		315		301		14			4.7	%
Operational losses		226		252		(26	)		(10.3	%)
Courier service		412		224		188			83.9	%
Other miscellaneous expense		3,782		3,320		462			13.9	%
Total other noninterest expense		20,133		16,417		3,716			22.6	%
Total noninterest expense	$	46,852	$	37,870	$	8,982			23.7	%
Average full time equivalent staff		1,138		1,001		137			13.7	%

Salary and benefit expenses increased $5,266,000 (24.5%) to $26,719,000 during the three months ended June 30, 2019 compared to $21,453,000 during the three months ended June 30, 2018. Base salaries, net of deferred loan origination costs increased $2,782,000 (19.3%) to $17,211,000. The increase in base salaries was due primarily to a 13.6% increase in average full time equivalent employees to 1,138 from 1,002 in the year-ago quarter. Commissions and incentive compensation increased $1,547,000 (71.7%) to $3,706,000 during the three months ended June 30, 2019 compared to the year-ago quarter due primarily to organic loan and deposit growth. Benefits and other compensation expense increased $937,000 (19.3%) to $5,802,000 during the three months ended June 30, 2019 due primarily to increases in the average full time equivalent employees, related to the acquisition of FNB Bancorp in July 2018.

	Six months ended June 30,
	2019		2018		$ Change			% Change
Base salaries, net of deferred loan origination costs	$	33,968	$	28,391	$	5,577			19.6	%
Incentive compensation		6,273		4,611		1,662			36.0	%
Benefits and other compensation costs		11,606		10,103		1,503			14.9	%
Total salaries and benefits expense		51,847		43,105		8,742			20.3	%
Occupancy		7,512		5,401		2,111			39.1	%
Data processing and software		6,703		5,193		1,510			29.1	%
Equipment		3,619		3,188		431			13.5	%
Intangible amortization		2,862		678		2,184			322.1	%
Advertising		2,864		1,873		991			52.9	%
ATM and POS network charges		2,593		2,663		(70	)		(2.6	%)
Professional fees		1,896		1,546		350			22.6	%
Telecommunications		1,570		1,382		188			13.6	%
Regulatory assessments and insurance		1,001		847		154			18.2	%
Merger and acquisition expense		—		1,077		(1,077	)		(100.0	%)
Postage		625		659		(34	)		(5.2	%)
Operational losses		451		546		(95	)		(17.4	%)
Courier service		682		491		191			38.9	%
Other miscellaneous expense		8,140		7,383		757			10.3	%
Total other noninterest expense		40,518		32,927		7,591			23.1	%
Total noninterest expense	$	92,365	$	76,032	$	16,333			21.5	%
Average full time equivalent staff		1,138		1,001		137			13.7	%

Noninterest expense increased by $16,333,000 or 21.5% to $92,365,000 during the six months ended June 30, 2019 as compared to the $76,032,000 for the six months ended June 30, 2018. Nearly all of this increase was due to the acquisition of FNB Bancorp, in addition to the aforementioned annual merit increases and incentive compensation costs.

About TriCo Bancshares

Established in 1975, Tri Counties Bank is a wholly-owned subsidiary of TriCo Bancshares (NASDAQ: TCBK) headquartered in Chico, California, providing a unique brand of customer Service with Solutions available in traditional stand-alone and in-store bank branches in communities throughout Northern and Central California. Tri Counties Bank provides an extensive and competitive breadth of consumer, small business and commercial banking financial services, along with convenient around-the-clock ATM, online and mobile banking access. Brokerage services are provided by the Bank’s investment services through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more.

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; mergers and acquisitions; changes in the level of our nonperforming assets and charge-offs; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us; changes in consumer spending, borrowing and savings habits; our ability to attract deposits and other sources of liquidity; changes in the financial performance and/or condition of our borrowers; the impact of competition from other financial service providers; the possibility that any of the anticipated benefits of our recent merger with FNBB will not be realized or will not be realized within the expected time period, or that integration of FNBB’s operations will be more costly or difficult than expected; the challenges of integrating and retaining key employees; unanticipated regulatory or judicial proceedings; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; 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, 2018, which is on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands, except share data)

	Three months ended
	June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018			June 30, 2018
Revenue and Expense Data
Interest income	$	68,180		$	67,457		$	68,065		$	64,554		$	48,478
Interest expense		3,865			3,587			4,063			4,065			2,609
Net interest income		64,315			63,870			64,002			60,489			45,869
Provision for (benefit from) loan losses		537			(1,600	)		806			2,651			(638	)
Noninterest income:
Service charges and fees		10,128			9,070			10,132			9,743			9,228
Gain on sale of investment securities		—			—			—			207			—
Other income		3,450			2,794			2,502			2,236			2,946
Total noninterest income		13,578			11,864			12,634			12,186			12,174
Noninterest expense:
Salaries and benefits		26,719			25,128			25,014			25,823			21,453
Occupancy and equipment		5,490			5,641			5,278			5,056			4,357
Data processing and network		4,624			4,672			4,455			3,981			4,116
Other noninterest expense		10,019			10,072			10,538			12,518			7,944
Total noninterest expense		46,852			45,513			45,285			47,378			37,870
Total income before taxes		30,504			31,821			30,545			22,646			20,811
Provision for income taxes		7,443			9,095			7,334			6,476			5,782
Net income	$	23,061		$	22,726		$	23,211		$	16,170		$	15,029
Share Data
Basic earnings per share	$	0.76		$	0.75		$	0.76		$	0.54		$	0.65
Diluted earnings per share	$	0.75		$	0.74		$	0.76		$	0.53		$	0.65
Dividends per share	$	0.19		$	0.19		$	0.19		$	0.17		$	0.17
Book value per common share	$	28.71		$	28.04		$	27.20		$	26.37		$	22.27
Tangible book value per common share (1)	$	20.60		$	19.86		$	18.97		$	18.10		$	19.28
Shares outstanding		30,502,757			30,432,419			30,417,223			30,417,818			23,004,153
Weighted average shares		30,458,427			30,424,184			30,422,687			30,011,307			22,983,439
Weighted average diluted shares		30,642,518			30,657,833			30,671,723			30,291,225			23,276,471
Credit Quality
Loans past due 30 days or more	$	14,580		$	16,761		$	17,368		$	13,218		$	11,626
Nonperforming originated loans		14,087			13,737			19,416			17,087			17,077
Total nonperforming loans		20,585			19,565			27,494			27,148			25,420
Total nonperforming assets		22,133			21,880			29,774			28,980			26,794
Loans charged-off		293			726			424			1,142			318
Loans recovered	$	560		$	1,808		$	596		$	570		$	507
Selected Financial Ratios
Return on average total assets		1.44	%		1.41	%		1.47	%		1.05	%		1.25	%
Return on average equity		10.65	%		10.78	%		11.43	%		9.11	%		11.78	%
Average yield on loans		5.49	%		5.41	%		5.53	%		5.27	%		5.06	%
Average yield on interest-earning assets		4.75	%		4.71	%		4.82	%		4.61	%		4.38	%
Average rate on interest-bearing deposits		0.33	%		0.30	%		0.30	%		0.25	%		0.18	%
Average cost of total deposits		0.22	%		0.20	%		0.20	%		0.16	%		0.12	%
Average rate on borrowings and subordiated debt		4.61	%		4.79	%		3.27	%		2.63	%		2.80	%
Average rate on interest-bearing liabilities		0.42	%		0.39	%		0.44	%		0.44	%		0.36	%
Net interest margin (fully tax-equivalent)		4.48	%		4.46	%		4.53	%		4.32	%		4.14	%
Loans to deposits		76.82	%		74.29	%		74.95	%		79.08	%		77.17	%
Efficiency ratio		60.15	%		60.10	%		59.09	%		65.19	%		65.24	%
Supplemental Loan Interest Income Data
Discount accretion on acquired loans	$	1,904		$	1,655		$	1,982		$	2,098		$	559
All other loan interest income		53,587			52,743			53,680			51,004			38,745
Total loan interest income	$	55,491		$	54,398		$	55,662		$	53,102		$	39,304

⁽¹⁾  Tangible book value per share is calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that result by the shares outstanding at the end of the period. Management believes that tangible book value per common share is meaningful because it is a measure that the Company and investors commonly use to assess shareholder value.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA

(Unaudited. Dollars in thousands)

	Three months ended
	June 30,			March 31,			December 31,			September 30,			June 30,
Balance Sheet Data	2019			2019			2018			2018			2018
Cash and due from banks	$	175,582		$	318,708		$	227,533		$	226,543		$	184,062
Securities, available for sale		1,136,946			1,116,426			1,117,910			1,058,806			757,075
Securities, held to maturity		412,524			431,016			444,936			459,897			477,745
Restricted equity securities		17,250			17,250			17,250			17,250			16,956
Loans held for sale		5,875			5,410			3,687			3,824			3,601
Loans:
Commercial loans		276,045			269,163			276,548			289,645			237,619
Consumer loans		434,388			418,352			418,982			421,287			350,925
Real estate mortgage loans		3,178,730			3,129,339			3,143,100			3,132,202			2,401,040
Real estate construction loans		214,524			217,477			183,384			184,302			156,729
Total loans, gross		4,103,687			4,034,331			4,022,014			4,027,436			3,146,313
Allowance for loan losses		(32,868	)		(32,064	)		(32,582	)		(31,603	)		(29,524	)
Total loans, net		4,070,819			4,002,267			3,989,432			3,995,833			3,116,789
Premises and equipment		88,534			89,275			89,347			89,290			59,014
Cash value of life insurance		116,606			117,841			117,318			116,596			99,047
Accrued interest receivable		20,990			20,431			19,412			19,592			14,253
Goodwill		220,972			220,972			220,972			220,972			64,311
Other intangible assets		26,418			27,849			29,280			30,711			4,496
Operating leases, right-of-use		30,030			30,942			—			—			—
Other assets		72,626			73,465			75,364			79,551			65,804
Total assets	$	6,395,172		$	6,471,852		$	6,352,441		$	6,318,865		$	4,863,153
Deposits:
Noninterest-bearing demand deposits	$	1,780,339		$	1,761,559		$	1,760,580		$	1,710,505		$	1,369,834
Interest-bearing demand deposits		1,263,635			1,297,672			1,252,366			1,152,705			1,006,331
Savings deposits		1,856,749			1,925,168			1,921,324			1,801,087			1,385,268
Time certificates		441,450			445,863			432,196			428,820			315,789
Total deposits		5,342,173			5,430,262			5,366,466			5,093,117			4,077,222
Accrued interest payable		2,665			2,195			1,997			1,729			1,175
Operating lease liability		29,434			30,204			—			—			—
Other liabilities		74,590			86,362			83,724			82,077			62,623
Other borrowings		13,292			12,466			15,839			282,831			152,839
Junior subordinated debt		57,132			57,085			57,042			56,996			56,950
Total liabilities	$	5,519,286		$	5,618,574		$	5,525,068		$	5,516,750		$	4,350,809
Common stock		542,939			542,340			541,762			541,519			256,590
Retained earnings		335,145			319,865			303,490			287,555			276,877
Accumulated other comprehensive loss		(2,198	)		(8,927	)		(17,879	)		(26,959	)		(21,123	)
Total shareholders’ equity	$	875,886		$	853,278		$	827,373		$	802,115		$	512,344
Average Balance Data
Average loans	$	4,044,044		$	4,023,864		$	4,026,569		$	4,028,462		$	3,104,126
Average interest-earning assets	$	5,764,966		$	5,759,966		$	5,679,845		$	5,638,162		$	4,457,660
Average total assets	$	6,385,889		$	6,426,227		$	6,316,337		$	6,168,344		$	4,814,523
Average deposits	$	5,370,879		$	5,387,079		$	5,242,139		$	5,068,841		$	4,042,110
Average borrowings and subordinated debt	$	75,185		$	72,459		$	179,774		$	303,610		$	196,235
Average total equity	$	866,284		$	843,090		$	812,525		$	709,762		$	510,433
Capital Ratio Data
Total risk based capital ratio		14.9	%		14.4	%		14.4	%		13.9	%		13.9	%
Tier 1 capital ratio		14.2	%		13.6	%		13.7	%		13.2	%		13.1	%
Tier 1 common equity ratio		13.0	%		12.5	%		12.5	%		12.0	%		11.7	%
Tier 1 leverage ratio		11.1	%		10.6	%		10.7	%		10.7	%		10.9	%
Tangible capital ratio(1)		10.2	%		9.7	%		9.5	%		9.1	%		9.3	%

⁽¹⁾  Tangible capital ratio is calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and total assets and then dividing the adjusted assets by the adjusted equity. Management believes that the tangible capital ratio is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy.

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