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TriCo Bancshares Reports First Quarter 2024 Net Income of $27.7 Million, Diluted EPS of $0.83
Executive Commentary:
"The start of the second quarter of 2024 also represents the start of Tri Counties Bank's 50th year of operations. Thinking back to our humble beginnings, we have achieved great success through our consistent delivery of Service with Solutions(R) and we are thankful to be recognized as an industry leading Community Bank in California. Amidst a challenging operating and economic environment, our financial results for the first quarter clearly illustrate our resilience and ability to create shareholder value," explained Rick Smith, President and Chief Executive Officer.
Peter Wiese, EVP and Chief Financial Officer, added, "As changing economic forecasts created short term volatility, we continued to execute a variety of balance sheet and operationally focused strategies which, during the first quarter of 2024, resulted in our ability to grow deposits, reduce borrowings, and improve our efficiency ratio. As the balance of 2024 unfolds, we anticipate that the incremental repricing of earning assets will provide an increasing level of benefit to revenues."
Selected Financial Highlights
For the quarter ended March 31, 2024, the Company's return on average assets was 1.13%, while the return on average equity was 9.50%; for the trailing quarter ended December 31, 2023, the Company's return on average assets was 1.05%, while the return on average equity was 9.43%. Diluted earnings per share were $0.83 for the first quarter of 2024, compared to $0.78 for the trailing quarter and $1.07 during the first quarter of 2023. The loan to deposit ratio decreased to 85.1% as of March 31, 2024, as compared to 86.7% for the trailing quarter end, as a result of deposit growth during the quarter. The efficiency ratio improved to 57.36% for the quarter ended March 31, 2024, as compared to 58.71% for the trailing quarter end, due to management's focus on expense control as well as the absence of non-recurring costs in the quarter. The provision for credit losses was approximately $4.3 million during the quarter ended March 31, 2024, as compared to $6.0 million during the trailing quarter end, reflecting the risks associated with general economic trends and forecasts. The allowance for credit losses (ACL) to total loans was 1.83% as of March 31, 2024, compared to 1.79% as of the trailing quarter end, and 1.69% as of March 31, 2023. Non-performing assets to total assets were 0.37% on March 31, 2024, as compared to 0.35% as of December 31, 2023, and 0.20% at March 31, 2023. At March 31, 2024, the ACL represented 363% of non-performing loans.
Financial results reported in this document are preliminary and unaudited. Final financial results and other disclosures will be reported on Form 10-Q for the period ended March 31, 2024, 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.
Operating Results and Performance Ratios
Three months ended
------------------------------------------------------------------------------------------------------------------
March 31, December 31,
(dollars and shares in thousands, except per share data) 2024 2023 $ Change % Change
-------------------- ------- -------------------- -------------------- ------- -------------------- ---------------------------------------------- -------------------
Net interest income $ 82,736 $ 86,617 $ (3,881 ) (4.5 )%
Provision for credit losses (4,305 ) (5,990 ) 1,685 (28.1 )%
Noninterest income 15,771 16,040 (269 ) (1.7 )%
Noninterest expense (56,504 ) (60,267 ) 3,763 (6.2 )%
Provision for income taxes (9,949 ) (10,325 ) 376 (3.6 )%
-------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------ -------------------- ---------- ---------
Net income $ 27,749 $ 26,075 $ 1,674 6.4 %
==================== ======= ==================== ==================== ======= ==================== ==================== ====== ==================== ========== =========
Diluted earnings per share $ 0.83 $ 0.78 $ 0.05 6.4 %
Dividends per share $ 0.33 $ 0.30 $ 0.03 10.0 %
Average common shares 33,245 33,267 (22 ) (0.1 )%
Average diluted common shares 33,370 33,352 18 0.1 %
Return on average total assets 1.13 % 1.05 %
Return on average equity 9.50 % 9.43 %
Three months ended
March 31,
------------------------------------------------------------------------------------------------------------------
(dollars and shares in thousands, except per share data) 2024 2023 $ Change % Change
-------------------- ------- -------------------- -------------------- ------- -------------------- ----------------------------------------------- -------------------
Net interest income $ 82,736 $ 93,336 $ (10,600 ) (11.4 )%
Provision for credit losses (4,305 ) (4,195 ) (110 ) 2.6 %
Noninterest income 15,771 13,635 2,136 15.7 %
Noninterest expense (56,504 ) (53,794 ) (2,710 ) 5.0 %
Provision for income taxes (9,949 ) (13,149 ) 3,200 (24.3 )%
-------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------- -------------------- ---------- ---------
Net income $ 27,749 $ 35,833 $ (8,084 ) (22.6 )%
==================== ======= ==================== ==================== ======= ==================== ==================== ======= ==================== ========== =========
Diluted earnings per share $ 0.83 $ 1.07 $ (0.24 ) (22.4 )%
Dividends per share $ 0.33 $ 0.30 $ 0.03 10.0 %
Average common shares 33,245 33,296 (51 ) (0.2 )%
Average diluted common shares 33,370 33,438 (68 ) (0.2 )%
Return on average total assets 1.13 % 1.47 %
Return on average equity 9.50 % 13.36 %
Balance Sheet Data
Total loans outstanding was $6.8 billion as of March 31, 2024, an organic increase of 5.9% over March 31, 2023. As compared to December 31, 2023, total loans outstanding increased during the quarter by $6.2 million or 0.4% annualized. As the Company continued with its balance sheet augmentation strategies, investments decreased by $84.3 million and $356.2 million for the three and twelve month periods ended March 31, 2024 and ending the quarter with a balance of $2.22 billion or 22.6% of total assets. Quarterly average earning assets to quarterly total average assets was 92.0% on March 31, 2024, compared to 91.6% at March 31, 2023. The loan-to-deposit ratio was 85.1% on March 31, 2024, as compared to 80.0% at March 31, 2023. The Company did not utilize brokered deposits during 2024 or 2023 and continues to rely on organic deposit growth and short-term borrowings to fund cash flow timing differences.
Total shareholders' equity increased by $3.4 million during the quarter ended March 31, 2024, as net income of $27.7 million was partially offset by a $11.2 million change in accumulated other comprehensive losses, and cash dividend payments on common stock of approximately $10.9 million. As a result, the Company's book value grew to $35.06 per share at March 31, 2024, compared to $32.84 at March 31, 2023. 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 $25.60 per share at March 31, 2024, as compared to $23.22 at March 31, 2023. As noted above, changes in the fair value of available-for-sale investment securities, net of deferred taxes continue to create moderate levels of volatility in tangible book value per share.
Trailing Quarter Balance Sheet Change
Ending balances March 31, December 31, Annualized
% Change
------------------------------------------------- -------------------------------------------------
(dollars in thousands) 2024 2023 $ Change
-------------------- --------- -------------------- -------------------- --------- -------------------- -----------------------------------------------
Total assets $ 9,813,767 $ 9,910,089 $ (96,322 ) (3.9 )%
Total loans 6,800,695 6,794,470 6,225 0.4
Total investments 2,221,555 2,305,882 (84,327 ) (14.6 )
Total deposits 7,987,658 7,834,038 153,620 7.8
Loans outstanding increased by $6.2 million or 0.4% on an annualized basis during the quarter ended March 31, 2024. During the quarter, loan originations/draws totaled approximately $325.5 million while payoffs/repayments of loans totaled $321.3 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $450.0 million and $368.0 million, respectively. While origination volume decreased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2023 due in part to disciplined pricing and underwriting, as well as decreased borrower demand given economic uncertainties. Investment security balances decreased $84.3 million or 14.6% on an annualized basis as the result of net prepayments, and maturities, collectively totaling approximating $66.4 million, in addition to net decreases in the market value of securities of $15.9 million. For the foreseeable future, management intends to utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth or reduce borrowings, thus driving an improved mix of earning assets. Deposit balances increased by $153.6 million or 7.8% annualized during the period, led by growth within time deposits. Proceeds from the call or maturity of investment securities, and growth in deposits, during the quarter supported a net decrease of $240.2 million in short-term borrowings, which totaled $392.4 million at March 31, 2024.
Average Trailing Quarter Balance Sheet Change
Quarterly average balances for the period ended March 31, December 31, Annualized
% Change
------------------------------------------------- -------------------------------------------------
(dollars in thousands) 2024 2023 $ Change
-------------------- --------- -------------------- -------------------- --------- -------------------- ------------------------------------------------
Total assets $ 9,855,797 $ 9,879,355 $ (23,558 ) (1.0 )%
Total loans 6,785,840 6,746,153 39,687 2.4
Total investments 2,266,320 2,295,235 (28,915 ) (5.0 )
Total deposits 7,821,044 7,990,993 (169,949 ) (8.5 )
Year Over Year Balance Sheet Change
Ending balances As of March 31, % Change
----------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2024 2023 $ Change
-------------------- --------- -------------------- -------------------- --------- -------------------- ------------------------------------------------
Total assets $ 9,813,767 $ 9,842,394 $ (28,627 ) (0.3 )%
Total loans 6,800,695 6,422,421 378,274 5.9
Total investments 2,221,555 2,577,769 (356,214 ) (13.8 )
Total deposits 7,987,658 8,025,865 (38,207 ) (0.5 )
Loan balances increased as a result of organic activities by approximately $378.3 million or 5.9% during the twelve-month period ending March 31, 2024. Over the same period deposit balances have declined by $38.2 million or 0.5%. The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term Federal Home Loan Bank (FHLB) borrowings.
Primary Sources of Liquidity
(dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Borrowing capacity at correspondent banks and FRB $ 2,882,859 $ 2,921,525 $ 2,853,219
Less: borrowings outstanding (367,000 ) (600,000 ) (394,095 )
Unpledged available-for-sale (AFS) investment securities 1,435,990 1,558,506 1,883,353
Cash held or in transit with FRB 41,541 51,253 67,468
-------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
$ 3,993,390 $ 3,931,284 $ 4,409,945
Total primary liquidity
==================== ==================== ==================== ==================== ==================== ==================== ==================== ==================== ====================
-------------------------------------------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
On March 31, 2024, the Company's primary sources of liquidity represented 50% of total deposits and 163% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $118.5 million, including approximately $9.3 million in net unrealized losses.
Net Interest Income and Net Interest Margin
During the twelve-month period ended March 31, 2024, the Federal Open Market Committee's (FOMC) actions have resulted in an increase in the Fed Funds Rate by approximately 50 basis points. During the same period the Company's yield on total loans increased 51 basis points to 5.72% for the three months ended March 31, 2024, from 5.21% for the three months ended March 31, 2023. The tax equivalent yield on the Company's investment security portfolio was 3.38% for the quarter ended March 31, 2024, an increase of 17 basis points from the 3.21% for the three months ended March 31, 2023. The cost of total interest-bearing deposits and total interest-bearing liabilities increased by 140 basis points and 150 basis points, respectively, between the three-month periods ended March 31, 2024 and 2023. Since FOMC rate actions began in March 2022, the Company's cost of total deposits has increased 117 basis points which translates to a cycle to date deposit beta of 22.3%.
The Company continues to manage its cost of deposits through the use of various pricing and product mix strategies. As of March 31, 2024, December 31, 2023, and March 31, 2023, deposits priced utilizing these strategies totaled $1.4 billion, $1.3 billion and $0.7 billion, respectively, and carried weighted average rates of 3.75%, 3.60%, and 2.68%, respectively.
Three months ended
March 31, December 31,
----------------------------------------------- -----------------------------------------------
(dollars in thousands) 2024 2023 Change % Change
-------------------- ------- -------------------- -------------------- ------- -------------------- --------------------------- -------------------
Interest income $ 115,417 $ 115,909 $ (492 ) (0.4 )%
Interest expense (32,681 ) (29,292 ) (3,389 ) 11.6 %
Fully tax-equivalent adjustment (FTE) (1) 275 360 (85 ) (23.6 )%
-------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------ - ---------- ---------
Net interest income (FTE) $ 83,011 $ 86,977 $ (3,966 ) (4.6 )%
==================== ======= ==================== ==================== ======= ==================== ==================== ====== = ========== =========
Net interest margin (FTE) 3.68 % 3.81 %
==================== ======= ==================== ==================== ======= ====================
Acquired loans discount accretion, net:
$ 1,332 $ 1,459 $ (127 ) (8.7 )%
Amount (included in interest income)
Three months ended
March 31,
------------------------------------------------------------------------------------------------------------------
(dollars in thousands) 2024 2023 Change % Change
-------------------- ------- -------------------- -------------------- ------- -------------------- ----------------------------------------------- -------------------
Interest income $ 115,417 $ 102,907 $ 12,510 12.2 %
Interest expense (32,681 ) (9,571 ) (23,110 ) 241.5 %
Fully tax-equivalent adjustment (FTE) (1) 275 392 (117 ) (29.8 )%
-------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------- -------------------- ---------- ---------
Net interest income (FTE) $ 83,011 $ 93,728 $ (10,717 ) (11.4 )%
==================== ======= ==================== ==================== ======= ==================== ==================== ======= ==================== ========== =========
Net interest margin (FTE) 3.68 % 4.20 %
==================== ======= ==================== ==================== ======= ====================
Acquired loans discount accretion, net:
$ 1,332 $ 1,397 $ (65 ) (4.7 )%
Amount (included in interest income)
(1) Certain information included herein is presented on a fully tax-equivalent (FTE) basis and / or to present additional financial details which may be desired by users of this financial information. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provide additional clarity in assessing its results, and the presentation of these measures are common practice within the banking industry. See additional information related to non-GAAP measures at the back of this document.
Analysis Of Change In Net Interest Margin On Earning Assets
Three months ended Three months ended Three months ended Three months ended
(dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023
----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------------------------------------------- ----------------------------------------------- ------------------- ------------------------------------------------- ----------------------------------------------- ------------------- ------------------------------------------------- ----------------------------------------------- -------------------
Assets
$ 6,785,840 $ 96,485 5.72 % $ 6,746,153 $ 95,841 5.64 % $ 6,413,958 $ 82,415 5.21 %
Loans
2,127,420 17,829 3.37 % 2,121,652 18,522 3.46 % 2,415,485 18,916 3.18 %
Investments-taxable
138,900 1,192 3.45 % 173,583 1,561 3.57 % 189,050 1,699 3.64 %
Investments-nontaxable (1)
-------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- ---------
2,266,320 19,021 3.38 % 2,295,235 20,083 3.47 % 2,604,535 20,615 3.21 %
Total investments
Cash at Fed Reserve and other banks 14,377 186 5.20 % 23,095 345 5.93 % 26,818 269 4.07 %
-------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- ---------
9,066,537 115,692 5.13 % 9,064,483 116,269 5.09 % 9,045,311 103,299 4.63 %
Total earning assets
Other assets, net 789,260 814,872 850,866
-------------------- --------- -------------------- -------------------- --------- -------------------- -------------------- --------- --------------------
$ 9,855,797 $ 9,879,355 $ 9,878,927
Total assets
==================== ========= ==================== ==================== ========= ==================== ==================== ========= ====================
Liabilities and shareholders' equity
$ 1,710,844 $ 4,947 1.16 % $ 1,755,900 $ 4,714 1.07 % $ 1,673,114 $ 387 0.09 %
Interest-bearing demand deposits
2,651,917 10,900 1.65 % 2,765,679 10,828 1.55 % 2,898,463 4,154 0.58 %
Savings deposits
811,894 7,682 3.81 % 652,709 5,564 3.38 % 274,805 604 0.89 %
Time deposits
-------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- ---------
5,174,655 23,529 1.83 % 5,174,288 21,106 1.62 % 4,846,382 5,145 0.43 %
Total interest-bearing deposits
584,696 7,378 5.08 % 515,959 6,394 4.92 % 277,632 2,809 4.10 %
Other borrowings
101,106 1,774 7.06 % 101,087 1,792 7.03 % 101,044 1,617 6.49 %
Junior subordinated debt
-------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- --------- -------------------- --------- -------------------- -------------------- ------- -------------------- ---------- ---------
5,860,457 32,681 2.24 % 5,791,334 29,292 2.01 % 5,225,058 9,571 0.74 %
Total interest-bearing liabilities
-------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- ---------
2,646,389 2,816,705 3,372,194
Noninterest-bearing deposits
174,359 173,885 194,202
Other liabilities
Shareholders' equity 1,174,592 1,097,431 1,087,473
-------------------- --------- -------------------- -------------------- --------- -------------------- -------------------- --------- --------------------
Total liabilities and shareholders' equity $ 9,855,797 $ 9,879,355 $ 9,878,927
==================== ========= ==================== ==================== ========= ==================== ==================== ========= ====================
Net interest rate spread (1) (2) 2.89 % 3.08 % 3.89 %
(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.
Net interest income (FTE) during the three months ended March 31, 2024, decreased $4.0 million or 4.6% to $83.0 million compared to $87.0 million during the three months ended December 31, 2023. In addition, net interest margin declined 13 basis points to 3.68%, compared to the trailing quarter. The decrease in net interest income is primarily attributed to an additional $2.4 million or 11.5% in deposit interest expense due to changes in product mix as customers continue to be drawn towards higher yielding term deposit accounts. Deposit cost increases during the current quarter were also influenced by continued competitive pricing pressures. Net interest income for the quarter was also impacted by an increase of $1.0 million in other borrowings costs and declines in investment income totaling $1.0 million, with a partial offset from increased loan income of $0.6 million.
As compared to the same quarter in the prior year, average loan yields increased 51 basis points from 5.21% during the three months ended March 31, 2023, to 5.72% during the three months ended March 31, 2024. The accretion of discounts from acquired loans added 6 basis points to loan yields during each of the quarters ended March 31, 2024 and March 31, 2023. The rates paid on interest bearing deposits increased by 21 basis points during the quarter ended March 31, 2024, compared to the trailing quarter. The cost of interest-bearing deposits increased by 140 basis points between the quarter ended March 31, 2024, and the same quarter of the prior year. In addition, the average balance of noninterest-bearing deposits decreased by $170.3 million quarter over quarter and decreased by $725.8 million from three-month average for the period ended March 31, 2023 amidst a continued migration of customer funds to interest-bearing products. As of March 31, 2024, the ratio of average total noninterest-bearing deposits to total average deposits was 33.8%, as compared to 35.2% and 41.0% on December 31, 2023 and March 31, 2023, respectively.
Interest Rates and Earning Asset Composition
As of March 31, 2024, the Company's loan portfolio consisted of approximately $6.8 billion in outstanding principal with a weighted average coupon rate of 5.47%. During the three-month periods ending March 31, 2024, December 31, 2023, and March 31, 2023, the weighted average coupon on loan production in the quarter was 7.78%, 7.54% and 6.91%, respectively. Included in the March 31, 2024 total loans are adjustable rate loans totaling $3.6 billion, of which, $974.1 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities with fair values totaling $345.6 million which are subject to repricing on not less than a quarterly basis.
Asset Quality and Credit Loss Provisioning
During the three months ended March 31, 2024, the Company recorded a provision for credit losses of $4.3 million, as compared to $6.0 million during the trailing quarter, and $4.2 million during the first quarter of 2023.
Three months ended
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(dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023
--------------------------------------------- --------------------------------------------- ---------------------------------------------
Addition to allowance for credit losses $ 4,015 $ 6,040 $ 4,315
Addition to (reversal of) reserve for unfunded loan commitments 290 (50 ) (120 )
-------------------- ----- -------------------- -------------------- ----- -------------------- -------------------- ----- --------------------
Three months ended
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(dollars in thousands) March 31, 2024 March 31, 2023
----------------------------------------------- -----------------------------------------------
Balance, beginning of period $ 121,522 $ 105,680
4,015 4,315
Provision for credit losses
(1,275 ) (1,758 )
Loans charged-off
132 170
Recoveries of previously charged-off loans
-------------------- ------- -------------------- -------------------- ------- --------------------
The allowance for credit losses (ACL) was $124.4 million or 1.83% of total loans as of March 31, 2024. The provision for credit losses on loans of $4.0 million during the recent quarter was the net effect of charge-offs and increases in reserves for qualitative factors and changes in quantitative reserves under the cohort model, inclusive of a $1.6 million decrease in specific reserves for individually evaluated credits. Similar to prior quarters, the provision for credit losses of $4.3 million during the three months ended March 31, 2024, was largely attributed to risks associated with the qualitative components of the ACL model as compared to any significant deterioration in credit quality. For the current quarter, the qualitative components of the ACL that contributed to a net increase in required reserves primarily related to trends in unemployment and general economic trends that are inconsistent with those desired by the FOMC. The quantitative components of the ACL collectively decreased reserve requirements by approximately $1.4 million over the trailing quarter, primarily attributed to the charge-off or improvement in risk grades for credits previously associated with specific reserves.
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 includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and food prices. Management notes the rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a recession within 12 months. While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential reductions has inhibited a change to forecasted reserve levels. As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to maintain a reserve level that incorporates such risk factors.
Loans past due 30 days or more decreased by $2.9 million during the quarter ended March 31, 2024, to $16.5 million, as compared to $19.4 million at December 31, 2023. Of the total $16.5 million in loans identified as past due, approximately $4.7 million is less than 90 days past due, the majority of which is well-secured. Non-performing loans were $34.2 million at March 31, 2024, an increase of $2.4 million from $31.9 million as of December 31, 2023, and an increase of $18.2 million from $16.0 million as of March 31, 2023. The increase in non-performing loans as compared to the trailing quarter is concentrated between non-owner occupied commercial real estate and agriculture lending, specifically the result of declines in commodity prices and therefore, expected revenue available to borrowers from harvest proceeds. Management continues to proactively work with these borrowers to identify actionable and appropriate resolution strategies which are customary for the industries. Of the $34.2 million loans designated as non-performing as of March 31, 2024, approximately $21.3 million are current with respect to payments required under their original loan agreements.
March 31, % of Loans December 31, % of Loans March 31 % of Loans
Outstanding Outstanding Outstanding
(dollars in thousands) 2024 2023
-------------------- --------- -------------------- -------------------- -------------------- --------------------
Risk Rating:
$ 6,616,294 97.3 % $ 6,603,161 97.2 % $ 6,232,962 97.0 %
Pass
108,073 1.6 % 103,812 1.5 % 125,492 2.0 %
Special Mention
76,328 1.1 % 87,497 1.3 % 63,967 1.0 %
Substandard
-------------------- --------- -------------------- -------------------- -------------------- -------------------- -------------------- --------- --------------------
$ 6,800,695 $ 6,794,470 $ 6,422,421
Total
Classified loans to total loans 1.12 % 1.29 % 1.00 %
The ratio of classified loans to total loans of 1.12% as of March 31, 2024 decreased 17 basis points from December 31, 2023 and increased 12 basis points from the comparative quarter ended 2023. The improvement in classified loans outstanding was spread amongst several substandard relationships primarily within commercial real estate. As a percentage of total loans outstanding, classified assets remain consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic and reflect management's historically conservative approach to credit risk monitoring. Further, management has taken action to proactively assess the repayment capacity of borrowers that will likely be subject to rate resets in the near term. To date this analysis as well as management's observations of loans that have experienced a rate reset, have not resulted in the need to provide any concessions to borrowers. The Company's combined criticized loan balances decreased during the quarter by $6.9 million to $184.4 million as of March 31, 2024, and management believes the associated credit risk has been adequately reserved against.
As of March 31, 2024, other real estate owned consisted of 10 properties with a carrying value of approximately $2.5 million, a decrease of $0.2 million from the trailing quarter as a result of deterioration in property values.
Non-performing assets of $36.7 million at March 31, 2024, represented 0.37% of total assets, a change from the $34.6 million or 0.35% and $19.5 million or 0.20% as of December 31, 2023 and March 31, 2023, respectively.
Allocation of Credit Loss Reserves by Loan Type
As of March 31, 2024 As of December 31, 2023 As of March 31, 2023
-------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------
(dollars in thousands) Amount % of Loans Amount % of Loans Amount % of Loans
Outstanding Outstanding Outstanding
----------------------------------------------- ------------------- ----------------------------------------------- ------------------- ----------------------------------------------- -------------------
Commercial real estate:
$ 36,687 1.65 % $ 35,077 1.58 % $ 32,963 1.53 %
CRE - Non Owner Occupied
16,111 1.65 % 15,081 1.58 % 14,559 1.50 %
CRE - Owner Occupied
15,682 1.60 % 14,418 1.52 % 13,873 1.47 %
Multifamily
3,695 1.39 % 4,288 1.58 % 3,542 1.29 %
Farmland
-------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- ---------
72,175 1.62 % 68,864 1.57 % 64,937 1.49 %
Total commercial real estate loans
Consumer:
14,140 1.60 % 14,009 1.59 % 11,920 1.48 %
SFR 1-4 1st Liens
9,942 2.88 % 10,273 2.88 % 10,914 2.91 %
SFR HELOCs and Junior Liens
3,359 4.48 % 3,171 4.34 % 2,062 3.76 %
Other
-------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- ---------
27,441 2.10 % 27,453 2.09 % 24,896 2.02 %
Total consumer loans
Commercial and Industrial 11,867 2.16 % 12,750 2.17 % 12,069 2.18 %
Construction 9,162 2.63 % 8,856 2.55 % 5,655 2.50 %
Agricultural Production 3,708 2.55 % 3,589 2.48 % 833 1.77 %
Leases 41 0.44 % 10 0.12 % 17 0.20 %
-------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- --------- -------------------- ------- -------------------- ---------- ---------
124,394 1.83 % 121,522 1.79 % 108,407 1.69 %
Allowance for credit losses
Reserve for unfunded loan commitments 6,140 5,850 4,195
-------------------- ------- -------------------- -------------------- ------- -------------------- -------------------- ------- --------------------
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 March 31, 2024, the unamortized discount associated with acquired loans totaled $23.3 million, which, when combined with the total allowance for credit losses above, represents 2.26% of total loans.
Non-interest Income
Three months ended Three months ended
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(dollars in thousands) March 31, 2024 December 31, 2023 Change % Change
------------------------------------------------------ ---------------------------------------------- ---------------------------------------------- ------------------------------
ATM and interchange fees $ 6,169 $ 6,531 $ (362 ) (5.5 )%
Service charges on deposit accounts 4,663 4,732 (69 ) (1.5 )%
Other service fees 1,366 1,432 (66 ) (4.6 )%
Mortgage banking service fees 428 444 (16 ) (3.6 )%
Change in value of mortgage servicing rights 11 (291 ) 302 (103.8 )%
-------------------- -------------- -------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- ---------- --------------------
12,637 12,848 (211 ) (1.6 )%
Total service charges and fees
-------------------- -------------- -------------------- -------------------- ------ -------------------- -------------------- ------ -------------------- ---------- --------------------
Increase in cash value of life insurance 803 876 (73 ) (8.3 )%
Asset management and commission income 1,128 1,284 (156 ) (12.1 )%
Gain on sale of loans 261 283 (22 ) (7.8 )%
Lease brokerage income 161 109 52 47.7 %
Sale of customer checks 312 292 20 6.8 %
Loss on sale of investment securities -- (120 ) 120 n/m
(Loss) gain on marketable equity securities (28 ) 117 (145 )