TriCo Bancshares: A Strong Buy

Positive earnings momentum on the back of strong second quarter results – including a 94% year-over-year earnings growth – have helped TriCo Bancshares ( TCBK - Snapshot Report ) achieve a Zacks #1 Rank (Strong Buy) on September 5. This commercial banking service provider has delivered positive earnings surprises in three of the last four quarters with an average beat of 63.0%.

With a solid return of 28.9% over the last one year and a history of paying quarterly dividends throughout the financial crisis, this stock offers an attractive investment opportunity.

The Rank Driver

Better-than-expected second quarter earnings, decent loan growth and fundamental strength – including strong credit quality – are the primary rank drivers for this stock.

TriCo Bancshares reported its second quarter results on July 27 with earnings per share of 33 cents, beating the Zacks Consensus Estimate of 27 cents by 22.2% and year-ago earnings of 17 cents by 94.0%. Robust results for the reported quarter were primarily aided by higher non-interest income, elevated net interest income and reduced provision for loan losses.

However, on the downside, non-interest expense escalated 21.4% year over year to $24.4 billion. Elevated salaries and benefits expense and higher foreclosed asset expense led to the boost in non-interest expenses.

However, net interest income increased 18.8% to $25.9 billion from $21.8 million in the year-ago quarter. The rise was primarily due to higher yield on loans and the increase in average loan balances.

Non-interest income jumped 28.2% year over year to $10.6 million. Provision for loan losses skidded 39.3% from the year-ago quarter to $3.4 million. Non-interest expense bolstered 21.4% from the year-ago period to $24.4 million.

Credit quality continues to exhibit improvement. Nonperforming originated loans were $69.7 million, sliding down 5.4% from $73.7 million as of June 30, 2011. Net charge-offs for the quarter were $4.2 million compared with $5.2 million in the year-ago quarter.

As of June 30, 2012, TriCo Bancshares's total risk-based capital ratio was 14.3%, Tier 1 capital ratio was 13.0% and Tier 1 leverage ratio was 9.7%. Tangible book value per share came in at $12.91 versus $11.82 in the year-ago quarter.

Earnings Momentum

The Zacks Consensus Estimate for 2012 increased 7.4% to $1.16 per share over the last 60 days. The current estimate implies a year-over-year growth of 0.2%. For 2013, over the same time frame, the Zacks Consensus Estimate surged by 2.4% to $1.29 per share, indicating a year-over-year growth of 10.8%.

Valuation

TriCo Bancshares currently trades at a forward P/E of 13.1x, a 2.3% premium to the peer group average of 12.8x. On a price-to-book basis, the shares are trading at 1.1x, a 15.4% discount to the peer group average of 1.3x. Given the company's strong fundamentals, the valuation looks reasonable.

TriCo Bancshares has a trailing 12-month ROE of 10.2%, in line with the peer group average.

About the Company

Headquartered in Chico, California, TriCo Bancshares is a bank holding company. It operates through 41 traditional branches, 27 in-store branches, and 76 ATMs throughout California through its subsidiary – Tri Counties Bank, which offers an array of commercial banking services. The company, which was founded in 1974, has a market capitalization of roughly $244.5 million.

Marlin Business Services Corp. (MRLN) is also a Zacks #1 Rank bank stock.