KBRA Affirms Ratings for TriCo Bancshares

23 Aug 2024   |   New York

Contacts

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.

To access rating and relevant documents, click here.

Methodologies

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1004908

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