TriCo Bancshares (TCBK) Q3 2026 earnings review
TriCo Bancshares lending profit rises, but underlying deposits stall
TriCo Bancshares, the parent of California's Tri Counties Bank, widened its lending spread while its underlying deposit base stood still. Net interest income rose 8% from a year ago as the bank shifted cash out of maturing bonds into higher-rate business loans. Diluted profit per share climbed 13% to $1.18, lifted by a $2 million credit reserve release and life insurance payouts that offset First Hawaiian merger costs.
| Net interest income | $96.5M +7.8% from a year ago |
|---|---|
| Net interest margin (tax-equivalent) | 4.16% +0.24 percentage points from a year ago |
| Diluted profit per share | $1.18 +13.5% from a year ago |
| Balance sheet and margin outlook | Unchanged bond cash flows to fund loan and margin growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the bank expanded its net interest margin for a fourth straight quarter even after the Federal Reserve raised short-term rates. Excluding merger bills, life insurance gains, and prior-year one-offs, operating profit before credit provisions grew 11% from a year ago by our math. The bad news: underlying deposits rose by just $6 million from last quarter by our math after stripping out returned off-balance-sheet funds, and paper losses on bonds cut tangible book value per share.
The question now is whether the bank can keep funding loan growth without paying more for deposits once its bond runoff slows. Either customer deposits pick up on their own, or the bank will have to raise deposit rates as its loan-to-deposit ratio nears 90%. Next quarter's deposit balances and funding costs will show which way it goes.
🐂 Bull Case
Higher Loan Yields and Lower Deposit Costs Lifted the Margin
TriCo Bancshares, the parent of Tri Counties Bank in California, earns most of its revenue from the spread between loan interest and deposit costs. That spread widened for a fourth straight quarter. Net interest margin — the profit margin on its lending and investing — reached 4.16% on a tax-equivalent basis, up 0.24 percentage points from a year ago.
- Net interest income: $96.5 million, up 7.8% from a year ago and 3.1% from last quarter
- New loan coupon rate: 6.63% in the third quarter, above the total portfolio average of 5.64%
- Non-interest-bearing deposits: 31.4% of total deposits at quarter end, up from 30.5% a year ago
The margin expanded because new loans replaced older, lower-rate ones while the bank kept deposit rates down. Even though the Federal Reserve raised short-term rates by 0.25 percentage points during the quarter, the lender cut its average cost of total deposits by 0.01 percentage points to 1.26%. Meanwhile, staff salaries and benefits fell by 1.8 percentage points of total revenue from a year ago to 33.2%, which helped lift pre-tax profit.
What to watch: the average cost of interest-bearing deposits in the fourth quarter. A rise in deposit rates after the Federal Reserve hike would slow the margin gains that have carried earnings all year.
Bond Cash Flows Fund New Commercial Loans
Chief executive Rick Smith said, "As we prepare for our merger with First Hawaiian Bank, we remain focused on serving our customers and delivering growth and strong financial results." To grow earnings without paying up for expensive funding, the California bank is shifting money out of low-yielding bonds and into higher-yielding business loans.
Total loans rose 5.8% from a year ago to $7.41 billion, led by commercial and industrial loans jumping 31.3% to $595.2 million. Loan growth slowed to $99.1 million from last quarter's $242.9 million "following an outlier quarter of elevated originations". The bank funded those loans by letting $131.8 million of investment securities mature or prepay, and it paid off all remaining short-term borrowings.
What to watch: quarterly gross loan originations in the fourth quarter. A drop below this quarter's $496 million pace would leave the bank with more cash sitting in lower-yielding securities.
🐻 Bear Case
Underlying Deposit Balances Barely Moved
TriCo Bancshares plans to "primarily utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth". On the headline numbers, the bank added $74.6 million in deposits during the third quarter to reach $8.44 billion, up 1.3% from a year ago.
Almost all of that quarterly gain came from a balance-sheet transfer rather than new customer money. In the second quarter, the lender had moved $68.8 million of customer deposits off its balance sheet through a temporary one-way sale, and it brought those deposits back in the third quarter. Stripping out that $68.8 million return, underlying deposits grew by $5.8 million from last quarter by our math.
Because loan growth of 5.8% from a year ago far outpaced deposit growth of 1.3%, the loan-to-deposit ratio climbed to 87.8% from 84.1% a year earlier. That ratio now sits near the top of the 83% to 90% target range the company set at the start of the year.
What to watch: total deposit balances and the loan-to-deposit ratio next quarter. If the ratio reaches 90%, the bank will have to raise deposit rates or slow its lending once bond cash flows taper.
One-Time Gains Masked Slower Profit Growth
Reported net income jumped 11.1% from last quarter to $38.0 million, or $1.18 per diluted share. Two unusual items supplied the entire quarterly increase: a release of credit loss reserves and a payout from life insurance policies.
- Credit loss benefit: $1.9 million gain in Q3, vs a $2.7 million expense in Q2 (a $4.5 million positive swing)
- Life insurance death benefits: $2.2 million in Q3, up from $0.6 million in Q2
- Pre-tax profit before credit provisions: $50.2 million, up 2.6% from last quarter
The company released $1.7 million from its loan loss allowance because of an "improvement in collateral values, including borrowers who have provided additional collateral" and lower delinquency rates. That release lowered the loan loss reserve to 1.73% of total loans from 1.78% in June, even though total loans grew by $99.1 million.
What to watch: the provision for credit losses in the fourth quarter. A return to normal reserve additions for new loans will pull quarterly net income down from this quarter's $38 million level.
Bond Losses Cut Shareholder Book Value
Higher interest rates during the quarter helped TriCo Bancshares earn more on its loans, but they reduced the market value of its fixed-rate bond portfolio. The market value of the bank's investment securities dropped by $60.5 million in the third quarter.
Those paper losses pushed accumulated other comprehensive losses up by $42.6 million after tax. Together with $11.5 million in common dividends, the bond decline outweighed the quarter's $38.0 million profit and cut total shareholders' equity by $15.1 million. As a result, tangible book value per share — net worth excluding goodwill and intangibles — fell 1.5% from last quarter to $31.93.
What to watch: accumulated other comprehensive loss in the fourth quarter. Another rise in long-term interest rates would further reduce tangible book value and the tangible capital ratio before the merger closes.
👓 Other Themes
First Hawaiian Merger Costs Raised the Expense Ratio
TriCo Bancshares agreed in July 2026 to merge with First Hawaiian, Inc. Legal and advisory bills for the deal rose to $3.9 million in the third quarter, or 3.3% of total revenue by our math, up from $0.9 million in the second quarter. Those deal costs pushed total non-interest expense up 10.0% from a year ago to $66.5 million and lifted the efficiency ratio to 56.96%. Excluding the merger bills, operating costs rose 3.6% from a year ago by our math.
California Borrowers Benefit From Expanding Economy
The Federal Reserve raised short-term interest rates by 0.25 percentage points during the third quarter. Management said that unemployment, gross domestic product, and corporate borrowing rates remained "supportive of general economic expansion". In the bank's agricultural loan book, the company expects problem borrowers to benefit from rising crop prices, a steady water supply, and growing crop demand across California.
💲 Other KPIs
Problem assets rose 4.4% from last quarter and 11.1% from a year ago. Non-performing assets — overdue loans that no longer accrue interest plus foreclosed properties — reached 0.79% of total assets, up from 0.76% in June and 0.72% a year earlier. Foreclosed real estate held by the bank rose to $9.4 million across 14 properties from $6.8 million last quarter.
The diluted share count was unchanged from last quarter and down 1.8% from a year ago. TriCo Bancshares bought back 447,211 shares for $21.6 million in the first quarter, then paused buybacks over the last two quarters as it prepared for the First Hawaiian merger. The lower share count added 1.9 percentage points to year-over-year earnings per share growth.
Regulatory capital grew faster than average assets for a fourth straight quarter. The Tier 1 leverage ratio — core capital divided by average assets, excluding unrealized bond losses — rose 0.20 percentage points from June and 0.50 percentage points from a year ago. Retained profit after the $0.36 per share quarterly dividend continued to build regulatory capital.
🔮 Guidance
Unchanged. The bank reiterated its qualitative plan to fund new loans with cash from maturing bonds and customer deposits, and to use any leftover cash to buy securities that lift net interest income and the net interest margin. The company does not publish numerical quarterly or full-year revenue targets. Pre-tax pre-provision return on average assets has climbed from 1.89% a year ago to 1.99% this quarter under this approach.
❓ Key Questions
When does the First Hawaiian merger close?
TriCo Bancshares spent $3.9 million on merger costs this quarter after announcing the deal in July, and First Hawaiian has filed the joint proxy statement. Management did not give a target closing date or an estimate of total remaining deal expenses.
Why did foreclosed real estate jump by $2.6 million?
The bank held 14 foreclosed properties at the end of both June and September, yet their carrying value rose 38% from $6.8 million to $9.4 million. Management did not explain whether it swapped smaller properties for a larger foreclosed asset.
How will the bank fund loans once bond runoff slows?
Underlying deposits grew by $5.8 million this quarter by our math, and the loan-to-deposit ratio is up to 87.8%. If customer deposits stay slow, the lender will have less room to grow loans without paying higher deposit rates.
Why did the Federal Reserve hike not lift deposit costs?
The Federal Reserve raised short-term rates by 0.25 percentage points during the quarter, yet the bank's average cost of interest-bearing deposits dipped to 1.82%. Investors need to know if rate increases on customized deposit accounts will appear with a lag in Q4.