10-Q: TriCo Bancshares Q2 2025: Strong Loan & Deposit Growth

TriCo Bancshares reports increased net income and net interest margin in Q2 2025, driven by robust loan and deposit growth and an improved funding mix.

Summary

• Net income for Q2 2025 was $27.5 million, or $0.84 per diluted share, compared to $26.4 million ($0.80 diluted EPS) in the trailing quarter.
• Net interest income (FTE) increased by $4.0 million (4.82%) to $86.8 million in Q2 2025 compared to the trailing quarter.
• Net interest margin (FTE) was 3.88% in Q2 2025, an increase of 15 basis points from 3.73% in the trailing quarter.
• Loan balances grew by $138.2 million (8.1% annualized) from the trailing quarter, reaching $6.96 billion as of June 30, 2025.
• Deposit balances increased by $170.5 million (8.3% annualized) from the trailing quarter, totaling $8.38 billion as of June 30, 2025.
• The average cost of total deposits decreased by 6 basis points to 1.37% in Q2 2025 compared to 1.43% in the trailing quarter.
• The efficiency ratio improved to 59.00% for Q2 2025, down from 60.42% in the trailing quarter.
• Provision for credit losses increased to $4.7 million in Q2 2025 from $3.7 million in the trailing quarter.
• Non-performing assets increased by $9.9 million (17.3%) to $67.5 million as of June 30, 2025, representing 0.68% of total assets.
• The Allowance for Credit Losses (ACL) to total loans was 1.79% as of June 30, 2025, and the ACL represented 192% of non-performing loans.
• Total assets stood at $9.92 billion and total shareholders' equity at $1.27 billion as of June 30, 2025.
• Book value per share increased to $38.92, and tangible book value per share to $29.40, as of June 30, 2025.
• The company repurchased 379,978 shares with a market value of $15.2 million during Q2 2025.

Sentiment

Score: 7

Explanation: The company demonstrated strong sequential growth in net income, net interest income, and deposits, alongside an improved efficiency ratio and robust capital levels. However, the increase in non-performing assets and the higher provision for credit losses, particularly related to agricultural real estate, present a notable concern. While management believes reserves are adequate and is actively addressing these issues, the trend warrants close monitoring. The year-over-year decline in net income also tempers the positive sequential performance.

Positives

• Net income and diluted earnings per share increased sequentially from the trailing quarter.
• Net interest income and net interest margin showed strong sequential and year-over-year growth, driven by an improved funding mix and lower cost of deposits.
• Experienced robust annualized loan growth of 8.1% and deposit growth of 8.3% from the trailing quarter.
• The average cost of total deposits decreased by 6 basis points to 1.37% in Q2 2025.
• The efficiency ratio improved to 59.00% in Q2 2025, indicating better operational efficiency.
• All regulatory capital ratios (Total Capital, Tier 1 Capital, Common Equity Tier 1 Capital, and Tier 1 Leverage) significantly exceed minimum requirements, with the Bank considered 'well capitalized'.
• Primary liquidity sources increased to $4.28 billion, representing 51% of total deposits and 153% of estimated uninsured deposits.
• Successfully repaid all short-term Federal Home Loan Bank (FHLB) advances, with no FHLB borrowings outstanding as of June 30, 2025.

Negatives

• Net income and diluted earnings per share decreased year-over-year when comparing Q2 2025 to Q2 2024.
• Provision for credit losses significantly increased to $4.7 million in Q2 2025 from $0.4 million in Q2 2024, and from $3.7 million in the trailing quarter.
• Non-performing assets increased by $9.9 million (17.3%) quarter-over-quarter to $67.5 million, primarily concentrated in commercial real estate farmland loans.
• The ratio of non-performing assets to total assets increased to 0.68% from 0.59% in the trailing quarter and 0.36% year-over-year.
• The Allowance for Credit Losses (ACL) to non-performing loans decreased to 192.11% from 234.12% in the trailing quarter.
• Gross unrealized losses on available-for-sale debt securities remain substantial at $190.6 million as of June 30, 2025.
• Net loan charge-offs increased to $8.5 million in Q2 2025.
• Other non-interest expense increased by $0.7 million (18.4%) quarter-over-quarter due to elevated business travel, donations, and non-recurring contract termination costs.

Risks

• Macroeconomic, geopolitical, and other challenges and uncertainties, including those related to actual or potential tariffs and reciprocal actions by other countries or regions.
• Significant volatility and disruptions in financial markets, a resurgence of inflation, increases in unemployment rates, increases in interest rates, and slowing economic growth or recession in the U.S. and other countries.
• The impact of any future federal government shutdown and uncertainty regarding the federal government's debt limit.
• The impact of changes in financial services industry policies, laws, and regulations.
• Regulatory restrictions or adverse regulatory findings affecting the ability to successfully market and price products to consumers.
• Adverse developments in the financial services industry generally, such as bank failures and any related impact on depositor behavior or investor sentiment.
• The impacts of international hostilities, wars, terrorism, or geopolitical events.
• Risks related to the sufficiency of liquidity, including the ability to attract and maintain deposits.
• Risks related to the development, implementation, use, and management of emerging technologies, including artificial intelligence and machine learning.
• Extreme weather, natural disasters, and other catastrophic events and their effects on customers and the economic and business environments.
• Current and future economic and market conditions of the local economies in which operations are conducted.
• Declines in housing and commercial real estate prices and changes in the financial performance and/or condition of borrowers.
• The market value of investment securities and possible other-than-temporary impairment of securities due to changes in credit quality or rates.
• The availability of, and cost of, sources of funding and the demand for products.
• The possibility that recorded goodwill could become impaired, which may have an adverse impact on earnings and capital.
• The costs or effects of mergers, acquisitions, or dispositions, and the ability to obtain required governmental approvals or realize anticipated benefits.
• The volatility of the stock market and its impact on stock price and the ability to conduct acquisitions.
• The regulatory and financial impacts associated with exceeding $10 billion in total assets.
• The ability to execute the business plan in new markets.
• Changes in the level and direction of nonperforming assets and charge-offs and the appropriateness of the allowance for credit losses.
• The effectiveness of managing the mix of earning assets and in improving, resolving, or liquidating lower-quality assets.
• Changes in accounting standards and practices.
• Changes in consumer spending, borrowing, and savings habits.
• The effects of changes in the level or cost of checking or savings account deposits on funding costs and net interest margin.
• Increasing noninterest expense and its impact on financial performance.
• Competition and innovation with respect to financial products and services by banks, financial institutions, and non-traditional competitors.
• The challenges of attracting, integrating, and retaining key employees.
• The impact of the 2023 cybersecurity ransomware incident, including pending litigation, on operations and reputation.
• The vulnerability of operational or security systems or infrastructure, and those of third-party vendors, to unauthorized access, computer viruses, phishing schemes, human error, natural disasters, power loss, and data/security breaches, and the cost to defend against and respond to such incidents.
• Increased data security risks due to work-from-home arrangements and email vulnerability.
• Failure to safeguard personal information, and any resulting litigation.
• The effect of a fall in stock market prices on brokerage and wealth management businesses.
• The emergence or continuation of widespread health emergencies or pandemics.
• Potential judgments, orders, settlements, penalties, fines, and reputational damage resulting from pending or future litigation and regulatory investigations, proceedings, and enforcement actions.
• Uncertainty regarding U.S. trade policies and practices, including tariffs, could weaken economic conditions and adversely impact borrowers' ability to repay loans or the value of collateral.
• Interest rate risk: A +300 basis point instantaneous shock could decrease net interest income by 8.7% and market value of equity by 1.7%; a -300 basis point shock could increase net interest income by 0.9% but decrease market value of equity by 15.5%.

Future Outlook

Management anticipates repayment of certain junior subordinated debt by September 30, 2025. The company expects to continue deploying excess liquidity and utilizing organic deposit growth to support loan growth and potentially expand net interest income and margin. The macroeconomic outlook is improving, with stable economic indicators and potential interest rate cuts by the Federal Reserve, though geopolitical policy risks and tariff uncertainties remain elevated.

Management Comments

• Management believes the primary risks inherent in the portfolio are a general decline in the economy or GDP, a decline in real estate market values, rising unemployment, increasing vacancy rates, and increases inflation or interest rates in the absence of economic improvement or any other such factors.
• Management continues to proactively work with these borrowers to identify actionable and appropriate resolution strategies which are customary for the industries.
• We anticipate that these actionable strategies will further benefit from the continued improvement in agricultural commodity prices, stable water supply, and growing crop demand.
• Management continues to proactively assess the repayment capacity of borrowers that will be subject to rate resets in the near term.
• Management believes the provisioning for this individually analyzed relationship is sufficient relative to expected future losses, if any.
• Management believes that the $124.5 million allowance for loan losses at June 30, 2025 is adequate to absorb expected losses inherent in the Bank's loan portfolio.
• Management intends to primarily utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth, excess liquidity will be utilized for purchases of investment securities to support net interest income growth and net interest margin expansion.
• Management anticipates providing notice of and repayment to the holders of the North Valley Trust II, III and IV as well as the VRB Subordinated debt issued by TriCo, which had a total face value of $57.7 million, recorded book value of $60.0 million, and weighted average rate of 6.54% as of June 30, 2025, prior to September 30, 2025.
• The repayment of this debt will be facilitated through a cash dividend from the Bank to the Company, however, it is not anticipated to have any significant impact on the Bank's liquidity, shareholder equity or regulatory capital positions.

Industry Context

The company operates in the California banking sector, which is subject to regional economic conditions. The discussion of the interest rate environment, deposit migration to interest-bearing products, and competition from various financial institutions and technology companies reflects broader industry trends. The mention of the KBW Regional Banking Index as a benchmark for performance awards indicates its positioning within the regional banking segment. The company's focus on core deposit gathering and managing interest rate risk is typical for regional banks in a fluctuating rate environment.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The company is involved in legal proceedings that arise in the ordinary course of business.
• The outcome of these matters is currently not determinable, but the company does not expect the ultimate costs to resolve them will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
• The impact of the 2023 cybersecurity ransomware incident, including the pending litigation, on operations and reputation is noted as a risk factor.

Stakeholder Impact

• Shareholders: Experienced an increase in book value and tangible book value per share, benefit from an ongoing share repurchase program, and receive consistent dividends. However, diluted EPS decreased year-over-year.
• Employees: Benefit from new equity compensation grants under the 2024 plan, and strategic hiring efforts are focused on loan and deposit production.
• Customers: Continue to be a focus for loan and deposit production, with management assessing repayment capacity and providing concessions where appropriate.
• Creditors: Debt management appears sound with the repayment of short-term FHLB advances and anticipated repayment of junior subordinated debt by September 30, 2025.
• Regulators: The company and its bank subsidiary maintain strong capital positions, exceeding all regulatory capital adequacy requirements and are considered 'well capitalized'.

Next Steps

• Management anticipates providing notice of and repayment to the holders of the North Valley Trust II, III, and IV, as well as the VRB Subordinated debt issued by TriCo, prior to September 30, 2025.
• Management intends to continue to deploy its excess liquidity and/or seek to migrate certain earning assets into higher yielding categories to increase net interest income and expand net interest margin.
• The company may utilize various borrowing facilities or brokered deposits if deposit balances contract.

Key Dates

Recommendation

While TriCo Bancshares shows strong capital ratios, improved net interest margin, and growth in loans and deposits, the notable increase in non-performing assets and the higher provision for credit losses warrant a cautious stance. The year-over-year decline in net income also suggests some headwinds. The stock is likely to be stable given its strong liquidity and capital, but the asset quality concerns prevent a 'buy' recommendation until a clear trend of improvement in non-performing assets is established. Investors should hold and monitor asset quality trends closely.

Keywords

Regional Banking, Financial Results, Loan Growth, Deposit Growth, Net Interest Margin, Credit Quality, Non-Performing Assets, Capital Ratios, Share Repurchase, California Banking, SEC Filing, Quarterly Report, TCBK