KBRA Affirms Ratings for TriCo Bancshares

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Chico, California-based TriCo Bancshares (NASDAQ: TCBK)("TriCo" or "the company"). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for the lead subsidiary, Tri Counties Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are underpinned by TCBK’s robust funding profile, anchored by a granular retail-based deposit franchise with historically low betas. The company’s relationship-based business model is supported by a durable noninterest bearing deposit base (32% of total deposits at 2Q24) which bolsters its attractive deposit funding costs. At just 1.21% in 1H24, TCBK’s cost of deposits remained well below the KBRA-rated median of 2.40%. The company has demonstrated consistent earnings performance, including a five-year average ROA of 1.19%, largely driven by a historically above peer NIM (3.7% in 1H24) that benefits from solid loan yields and modest noninterest income sources (16% of operating revenue at 2Q24). More recently, earnings have been supported by manageable provision expense levels attributable to comparatively healthy asset quality performance and management’s long-tenured experience and implementation of a conservative credit culture given the current economic uncertainties. While we recognize TriCo’s relatively elevated investor CRE exposure (289% of risk-based capital), we consider TCBK’s loan underwriting standards to be conservative, having produced favorable long-term asset quality performance highlighted by nominal credit losses. KBRA considers TCBK’s management team to be highly experienced with in-depth operating knowledge of the bank’s key markets. Bolstered by strong internal capital generation and muted loan growth, the company reflected improved capital measures, including the CET1 and TCE ratios of 12.7% and 9.1%, respectively, at 2Q24. Given the company’s overall risk profile and earnings strength combined with strong loss absorption capacity derived from the LLR (1.83% of loans at 2Q24), KBRA views TCBK’s capital position as adequate in the rating category.

Rating Sensitivities

An upgrade is not expected in the intermediate term, though additional diversification of fee income that is more in line with higher-rated peers, and maintenance of solid profitability and asset quality measures, along with comparatively strong capitalization could lead to positive rating momentum over time. Moreover, a downgrade is unlikely, though any material degradation in the credit profile or a substantial decline in regulatory capital levels or earnings performance metrics could pressure the ratings.

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