TriCo Bancshares Announces Second Quarter 2023 Results

July 26, 2023 at 16:30 PM EDT

Notable Items for Second Quarter 2023

Net income was $24.9 million compared to $35.8 million in the trailing quarter, and compared to $31.4 million in the same quarter of the prior year; Pre-tax pre-provision net revenue was $43.1 million compared to $53.2 million in the trailing quarter, and compared to $45.2 million in the same quarter of the prior year
Loan balances increased by $98.3 million or 6.1% (annualized) versus the prior quarter and deposit balances increased by $69.5 million or 3.5% (annualized) versus the prior quarter and the Bank has not utilized brokered deposits or FRB borrowing facilities
The average cost of total deposits was 0.58% for the quarter as compared to 0.25% in the trailing quarter and 0.04% in the same quarter of the prior year and, as a result, the Company's total cost of deposits have increased 54 basis points since FOMC rate actions began, which translates to a cycle-to-date deposit beta of 10.8%
Balance sheet flexibility remains anchored in readily accessible sources of liquidity including undrawn borrowing capacities, on-balance sheet cash and unpledged investment securities totaling nearly $4.4 billion
Overall credit quality remains within historical norms as non-performing assets represent approximately 0.41% of total assets and the ratio of classified loans to total loans remains below one percent
Average yield on earning assets was 4.78%, an increase of 14 basis points over the 4.64% in the trailing quarter; net interest margin was 3.96%, a change of 25 basis points from 4.21% in the trailing quarter
Operations, as evidenced by the increase in the efficiency ratio from 50.3% in the trailing quarter to 58.7% in the current quarter, were impacted by a variety of both recurring and non-recurring activities

"We were pleased by our ability to grow deposits during the quarter while doing so without the use of brokered funding sources and at rates that were favorable to the Bank. Although nonaccrual and classified loans have increased, they remain below historical averages. Through the Bank's ongoing portfolio review processes and active management, we have not identified any evidence of systemic risk," explained Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "As deposit balances grew and repayment of principal from the investment security portfolio accelerated, excess proceeds were utilized to reduce the balance and costs associated with short-term borrowing. As we look to the second half of 2023, margin preservation and expense control will be our focused priorities."

TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $24.9 million for the quarter ended June 30, 2023, compared to $35.8 million during the trailing quarter ended March 31, 2023, and $31.4 million during the quarter ended June 30, 2022. Diluted earnings per share were $0.75 for the second quarter of 2023, compared to $1.07 for the first quarter of 2023 and $0.93 during the second quarter of 2022.

Financial Highlights

Performance highlights for the Company as of or for the three and six months ended June 30, 2023, included the following:

For the quarter ended June 30, 2023, the Company’s return on average assets was 1.01%, while the return on average equity was 8.98%.
Deposit balances for the quarter ended June 30, 2023, increased by $69.5 million as compared to March 31, 2023. Loan growth for the quarter exceeded deposit growth, resulting in the loan to deposit ratio increasing to 80.5% as of June 30, 2023, as compared to 80.0% as of the trailing quarter.
The efficiency ratio was 54.4% and 55.67% for the six months ended June 30, 2023 and 2022, respectively.
The provision for credit losses for loans and debt securities was approximately $9.7 million during the quarter ended June 30, 2023, as compared to a provision for credit losses of $4.2 million during the trailing quarter ended March 31, 2023, and a provision for credit losses of $2.1 million for the three-month period ended June 30, 2022.
The allowance for credit losses to total loans was 1.80% as of June 30, 2023, compared to 1.69% as of the trailing quarter end, and 1.60% as of June 30, 2022. Non-performing assets to total assets were 0.41% on June 30, 2023, as compared to 0.20% as of March 31, 2023, and 0.15% at June 30, 2022.

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the period ended June 30, 2023, 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.

Summary Results

The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:

	Three months ended
	June 30,			March 31,
(dollars and shares in thousands, except per share data)		2023			2023		$ Change			% Change
Net interest income	$	88,601		$	93,336		$	(4,735	)	(5.1	)%
Provision for credit losses		(9,650	)		(4,195	)		(5,455	)	130.0	%
Noninterest income		15,741			13,635			2,106		15.4	%
Noninterest expense		(61,243	)		(53,794	)		(7,449	)	13.8	%
Provision for income taxes		(8,557	)		(13,149	)		4,592		(34.9	)%
Net income	$	24,892		$	35,833		$	(10,941	)	(30.5	)%
Diluted earnings per share	$	0.75		$	1.07		$	(0.32	)	(29.9	)%
Dividends per share	$	0.30		$	0.30		$	—		—	%
Average common shares		33,219			33,296			(77	)	(0.2	)%
Average diluted common shares		33,302			33,438			(136	)	(0.4	)%
Return on average total assets		1.01	%		1.47	%
Return on average equity		8.98	%		13.36	%
Efficiency ratio		58.69	%		50.29	%

	Three months ended June 30,
(dollars and shares in thousands, except per share data)		2023			2022		$ Change			% Change
Net interest income	$	88,601		$	85,046		$	3,555		4.2	%
Provision for credit losses		(9,650	)		(2,100	)		(7,550	)	359.5	%
Noninterest income		15,741			16,430			(689	)	(4.2	)%
Noninterest expense		(61,243	)		(56,264	)		(4,979	)	8.8	%
Provision for income taxes		(8,557	)		(11,748	)		3,191		(27.2	)%
Net income	$	24,892		$	31,364		$	(6,472	)	(20.6	)%
Diluted earnings per share	$	0.75		$	0.93		$	(0.18	)	(19.4	)%
Dividends per share	$	0.30		$	0.25		$	0.05		20.0	%
Average common shares		33,219			33,561			(342	)	(1.0	)%
Average diluted common shares		33,302			33,705			(403	)	(1.2	)%
Return on average total assets		1.01	%		1.24	%
Return on average equity		8.98	%		11.53	%
Efficiency ratio		58.69	%		55.45	%

	Six months ended June 30,
(dollars and shares in thousands)		2023			2022		$ Change			% Change
Net interest income	$	181,937		$	152,970		$	28,967		18.9	%
Provision for credit losses		(13,845	)		(10,430	)		(3,415	)	32.7	%
Noninterest income		29,376			31,526			(2,150	)	(6.8	)%
Noninterest expense		(115,037	)		(102,711	)		(12,326	)	12.0	%
Provision for income taxes		(21,706	)		(19,617	)		(2,089	)	10.6	%
Net income	$	60,725		$	51,738		$	8,987		17.4	%
Diluted earnings per share	$	1.82		$	1.62		$	0.20		12.4	%
Dividends per share	$	0.60		$	0.50		$	0.10		20.0	%
Average common shares		33,257			31,815			1,442		4.5	%
Average diluted common shares		33,371			31,963			1,408		4.4	%
Return on average total assets		1.24	%		1.10	%
Return on average equity		11.13	%		9.93	%
Efficiency ratio		54.44	%		55.67	%

Balance Sheet

Total loans outstanding, excluding PPP, grew to $6.5 billion as of June 30, 2023, an increase of 7.0% over the prior twelve months, and is entirely related to organic loan growth. As compared to March 31, 2023, total loans outstanding increased by $98.3 million or 6.1% annualized. Investments decreased to $2.49 billion as of June 30, 2023, an annualized decrease of 14.3% over the prior year quarter end. Quarterly average earning assets to quarterly total average assets were 91.6% on June 30, 2023, as compared to 91.4% and 92.2% at December 31, 2022, and June 30, 2022, respectively. The loan-to-deposit ratio was 80.5% on June 30, 2023, as compared to 80.0% and 69.8% at December 31, 2022, and June 30, 2022, respectively. During the current year to date period, and throughout the 2022 fiscal year, the Company held no brokered deposits and relied solely on short-term borrowings to fund cash flow timing differences.

Total shareholders' equity increased by $2.5 million during the quarter ended June 30, 2023, as a result of accumulated other comprehensive losses increasing by $11.9 million and cash dividend payments on common stock of approximately $10.0 million, offset by net income of $24.9 million. As a result, the Company’s book value was $32.86 per share at June 30, 2023, as compared to $32.84 and $31.25 at December 31, 2022 and June 30, 2022, respectively. 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 $23.30 per share at June 30, 2023, as compared to $23.22 and $21.41 at December 31, 2022, and June 30, 2022, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	June 30,		March 31,					Annualized % Change
(dollars in thousands)	2023		2023		$ Change			Annualized % Change
Total assets	$	9,853,421	$	9,842,394	$	11,027		0.4	%
Total loans		6,520,740		6,422,421		98,319		6.1
Total investments		2,485,378		2,577,769		(92,391	)	(14.3	)
Total deposits		8,095,365		8,025,865		69,500		3.5
Total other borrowings	$	392,714	$	434,140	$	(41,426	)	(38.2	)%

Loans outstanding increased by $98.3 million or 6.1% on an annualized basis during the quarter ended June 30, 2023. During the quarter, loan originations/draws totaled approximately $456.0 million while payoffs/repayments of loans totaled $356.0 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $357.0 million and $389.0 million, respectively. While origination volume increased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2022 due in part to disciplined pricing and underwriting, as well as decreased borrower appetite at currently offered lending rates. Management continues to believe that the current loan pipeline is sufficient to support the Company's objectives. Investment security balances decreased $92.4 million or 14.3% on an annualized basis as the result of net prepayments, maturities, and purchases totaling approximating $75.2 million and net decreases in the market value of securities of $16.9 million. Management seeks to utilize excess cash flows from the investment security portfolio to support loan growth or reduce borrowings thus resulting in an improved mix of earning assets. Deposit balances increased by $69.5 million or 3.5% annualized during the period. Net cash flow surpluses during the quarter resulted in a net decrease of $41.4 million in short-term borrowings, which totaled $392.7 million as of the period ended June 30, 2023.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended	June 30,		March 31,					Annualized % Change
(dollars in thousands)	2023		2023		$ Change			Annualized % Change
Total assets	$	9,848,191	$	9,878,927	$	(30,736	)	(1.2	)%
Total loans		6,467,381		6,413,958		53,423		3.3
Total investments		2,525,334		2,587,285		(61,951	)	(9.6	)
Total deposits		7,981,515		8,218,576		(237,061	)	(11.5	)
Total other borrowings	$	477,256	$	277,632	$	199,624		287.6	%

Year Over Year Balance Sheet Change

Ending balances	As of June 30,							% Change
(dollars in thousands)	2023		2022		$ Change			% Change
Total assets	$	9,853,421	$	10,120,611	$	(267,190	)	(2.6	)%
Total loans		6,520,740		6,113,421		407,319		6.7
Total loans, excluding PPP		6,519,316		6,095,667		423,649		7.0
Total investments		2,485,378		2,802,815		(317,437	)	(11.3	)
Total deposits		8,095,365		8,756,775		(661,410	)	(7.6	)
Total other borrowings	$	392,714	$	35,089	$	357,625		1,019.2	%

Non-PPP loan balances increased as a result of organic activities by approximately $423.6 million or 7.0% during the twelve-month period ending June 30, 2023. Over the same period deposit balances have declined by $661.4 million or 7.6%. The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term FHLB borrowings. As of June 30, 2023, short-term borrowings from the FHLB totaled $394.1 million and had an interest rate of 5.11%.

Liquidity

The Company's primary sources of liquidity include the following for the periods indicated:

(dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022
Borrowing capacity at correspondent banks and FRB	$	2,847,052		$	2,853,219		$	2,690,597
Less: borrowings outstanding		(350,000	)		(394,095	)		—
Unpledged available-for-sale (AFS) investment securities		1,813,894			1,883,353			2,192,704
Cash held or in transit with FRB		79,530			67,468			432,190
Total primary liquidity	$	4,390,476		$	4,409,945		$	5,315,491

Estimated uninsured deposit balances

2,522,718

2,312,309

2,950,614

At June 30, 2023, the Company's primary sources of liquidity represented 54.2% of total deposits and 174% 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 $134.4 million, including approximately $10.7 million in net unrealized losses. The Company did not utilize any brokered deposits during 2023 or 2022.

Net Interest Income and Net Interest Margin

During the twelve-month period ended June 30, 2023, the Federal Open Market Committee's (FOMC) actions have resulted in an increase in the Fed Funds Rate by 350 basis points. During the same period the Company's yield on total loans (excluding PPP) increased 68 basis points to 5.38% for the three months ended June 30, 2023, from 4.70% for the three months ended June 30, 2022. Moreover, the tax equivalent yield on the Company's investment security portfolio increased by 88 basis points to 3.24% during the twelve months ended June 30, 2023. The cost of total interest-bearing deposits and total interest-bearing liabilities increased by 88 basis points and 122 basis points, respectively, between the three-month periods ended June 30, 2023 and 2022. Since FOMC rate actions began, the Company's cost of total deposits has increased 54 basis points which translates to a cycle to date deposit beta of 10.80%.

The Company continues to manage its cost of deposits through the use of pricing strategies and delayed changes to the deposit rates offered to the general public. As of June 30, 2023, March 31, 2023, and December 31, 2022, total deposits priced utilizing these strategies totaled $1,070.7 million, $731.9 million and $579.1 million, respectively, and carried weighted average rates of 3.38%, 2.68% and 1.64%, respectively.

The following is a summary of the components of net interest income for the periods indicated:

	Three months ended
	June 30,			March 31,
(dollars in thousands)	2023			2023			Change			% Change
Interest income	$	107,158		$	102,907		$	4,251		4.1	%
Interest expense		(18,557	)		(9,571	)		(8,986	)	93.9	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		379			392			(13	)	(3.3	)%
Net interest income (FTE)	$	88,980		$	93,728		$	(4,748	)	(5.1	)%
Net interest margin (FTE)		3.96	%		4.21	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,471		$	1,397		$	74		5.3	%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.89	%		4.15	%		(0.26	)%
PPP loans yield, net:
Amount (included in interest income)	$	4		$	5		$	(1	)	(20.0	)%
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.96	%		4.21	%		(0.25	)%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,475		$	1,402		$	73		5.2	%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.89	%		4.15	%		(0.26	)%

	Three months ended June 30,
(dollars in thousands)		2023			2022		Change			% Change
Interest income	$	107,158		$	86,955		$	20,203		23.2	%
Interest expense		(18,557	)		(1,909	)		(16,648	)	872.1	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		379			397			(18	)	(4.5	)%
Net interest income (FTE)	$	88,980		$	85,443		$	3,537		4.1	%
Net interest margin (FTE)		3.96	%		3.67	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,471		$	1,677		$	(206	)	(12.3	)%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.89	%		3.60	%		0.29	%
PPP loans yield, net:
Amount (included in interest income)	$	4		$	964		$	(960	)	(99.6	)%
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.96	%		3.64	%		0.32	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,475		$	2,641		$	(1,166	)	(44.1	)%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.89	%		3.57	%		0.32	%

	Six months ended June 30,
(dollars in thousands)		2023			2022		Change			% Change
Interest income	$	210,064		$	156,150		$	53,914		34.5	%
Interest expense		(28,127	)		(3,180	)		(24,947	)	784.5	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		770			680			90		13.2	%
Net interest income (FTE)	$	182,707		$	153,650		$	29,057		18.9	%
Net interest margin (FTE)		4.08	%		3.54	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	2,868		$	3,000		$	(132	)	(4.4	)%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		4.02	%		3.51	%		0.51	%
PPP loans yield, net:
Amount (included in interest income)	$	9		$	2,061		$	(2,052	)	(99.6	)%
Net interest margin less effect of PPP loan yield ⁽¹⁾		4.08	%		3.51	%		0.57	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	2,877		$	5,061		$	(2,184	)	(43.2	)%
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾		4.02	%		3.44	%		0.58	%

(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.

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or the discount is accreted (added to) interest income over the remaining life of the loan. The dollar impact of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining unaccreted discount or unamortized premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. As a result of the increase in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, declined during 2023 as compared to 2022. During the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, purchased loan discount accretion was $1.5 million, $1.4 million, and $1.7 million, respectively.

The following table shows the components of net interest income and net interest margin on a fully tax-equivalent (FTE) basis for the quarterly periods indicated:

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (unaudited, dollars in thousands)
	Three months ended						Three months ended						Three months ended
	June 30, 2023						March 31, 2023						June 30, 2022
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	6,465,903	$	86,743	5.38	%	$	6,412,386	$	82,410	5.21	%	$	5,890,578	$	68,954	4.70	%
PPP loans		1,478		4	1.09	%		1,572		5	1.29	%		37,852		964	10.22	%
Investments-taxable		2,343,511		18,775	3.21	%		2,398,235		18,916	3.20	%		2,536,362		14,350	2.27	%
Investments-nontaxable ⁽¹⁾		181,823		1,641	3.62	%		189,050		1,699	3.64	%		196,104		1,720	3.52	%
Total investments		2,525,334		20,416	3.24	%		2,587,285		20,615	3.23	%		2,732,466		16,070	2.36	%
Cash at Federal Reserve and other banks		29,349		374	5.11	%		26,818		269	4.07	%		669,163		1,364	0.82	%
Total earning assets		9,022,064		107,537	4.78	%		9,028,061		103,299	4.64	%		9,330,059		87,352	3.76	%
Other assets, net		826,127						850,866						791,655
Total assets	$	9,848,191					$	9,878,927					$	10,121,714
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,657,714	$	2,173	0.53	%	$	1,673,114	$	387	0.09	%	$	1,799,205	$	99	0.02	%
Savings deposits		2,768,981		6,936	1.00	%		2,898,463		4,154	0.58	%		3,003,337		529	0.07	%
Time deposits		426,689		2,348	2.21	%		274,805		604	0.89	%		337,007		220	0.26	%
Total interest-bearing deposits		4,853,384		11,457	0.95	%		4,846,382		5,145	0.43	%		5,139,549		848	0.07	%
Other borrowings		477,256		5,404	4.54	%		277,632		2,809	4.10	%		35,253		5	0.06	%
Junior subordinated debt		101,056		1,696	6.73	%		101,044		1,617	6.49	%		100,991		1,056	4.19	%
Total interest-bearing liabilities		5,431,696		18,557	1.37	%		5,225,058		9,571	0.74	%		5,275,793		1,909	0.15	%
Noninterest-bearing deposits		3,128,131						3,372,194						3,603,771
Other liabilities		176,141						194,202						150,696
Shareholders’ equity		1,112,223						1,087,473						1,091,454
Total liabilities and shareholders’ equity	$	9,848,191					$	9,878,927					$	10,121,714
Net interest rate spread^{(1) (2)}					3.41	%					3.90	%					3.61	%
Net interest income and margin^{(1) (3)}			$	88,980	3.96	%			$	93,728	4.21	%			$	85,443	3.67	%

(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.
(3)	Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

Net interest income (FTE) during the three months ended June 30, 2023, decreased $4.7 million or 5.1% to $89.0 million compared to $93.7 million during the three months ended March 31, 2023. In addition, net interest margin declined 25 basis points to 3.96%, compared to the trailing quarter. The decrease in net interest income is primarily attributed to an additional $6.3 million in deposit interest expense and $2.6 million in additional interest expense on other borrowings, both due to increases in interest rates as compared to the trailing quarter. As a partial offset, total interest income also increased as compared to the trailing quarter, up $4.3 million or 4.1%.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 68 basis points from 4.70% during the three months ended June 30, 2022, to 5.38% during the three months ended June 30, 2023. The accretion of discounts from acquired loans added 9 and 11 basis points to loan yields during the quarters ended June 30, 2023 and June 30, 2022, respectively.

The rates paid on interest bearing deposits increased by 52 basis points during the quarter ended June 30, 2023, compared to the trailing quarter. The cost of interest-bearing deposits increased by 88 basis points between the quarter ended June 30, 2023, and the same quarter of the prior year. In addition, the average balance of noninterest-bearing deposits decreased by $244.1 million quarter over quarter. As of June 30, 2023, the ratio of average total noninterest-bearing deposits to total average deposits was 39.2%, as compared to 41.0% and 41.2% at March 31, 2023 and June 30, 2022, respectively.

	Six months ended June 30, 2023						Six months ended June 30, 2022
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	6,439,292	$	169,152	5.30	%	$	5,416,854	$	125,602	4.68	%
PPP loans		1,525		9	1.19	%		44,238		2,061	9.40	%
Investments-taxable		2,370,722		37,691	3.21	%		2,434,045		24,573	2.04	%
Investments-nontaxable ⁽¹⁾		185,417		3,340	3.63	%		170,132		2,945	3.49	%
Total investments		2,556,139		41,031	3.24	%		2,604,177		27,518	2.13	%
Cash at Federal Reserve and other banks		28,090		643	4.62	%		688,257		1,649	0.48	%
Total earning assets		9,025,046		210,835	4.71	%		8,753,526		156,830	3.61	%
Other assets, net		838,425						700,170
Total assets	$	9,863,471					$	9,453,696
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,665,371	$	2,560	0.31	%	$	1,698,815	$	183	0.02	%
Savings deposits		2,833,365		11,090	0.79	%		2,788,374		856	0.06	%
Time deposits		351,166		2,952	1.70	%		319,351		488	0.31	%
Total interest-bearing deposits		4,849,902		16,602	0.69	%		4,806,540		1,527	0.06	%
Other borrowings		377,995		8,212	4.38	%		39,966		10	0.05	%
Junior subordinated debt		101,050		3,314	6.61	%		81,092		1,643	4.09	%
Total interest-bearing liabilities		5,328,947		28,128	1.06	%		4,927,598		3,180	0.13	%
Noninterest-bearing deposits		3,249,488						3,329,459
Other liabilities		185,123						146,073
Shareholders’ equity		1,099,913						1,050,566
Total liabilities and shareholders’ equity	$	9,863,471					$	9,453,696
Net interest rate spread^{(1) (2)}					3.65	%					3.48	%
Net interest income and margin^{(1) (3)}			$	182,707	4.08	%			$	153,650	3.54	%

(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.
(3)	Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

Interest Rates and Earning Asset Composition

During the quarter ended June 30, 2023, market interest rates, including many rates that serve as reference indices for variable rate loans and investment securities continued to increase. As noted above, these rate increases have continued to benefit growth in total interest income. As of June 30, 2023, the Company's loan portfolio consisted of approximately $6.5 billion in outstanding principal with a weighted average coupon rate of 5.15%. During the three-month periods ending June 30, 2023, March 31, 2023, and December 31, 2022, the weighted average coupon on loan production in the quarter was 6.85%, 6.71%, and 6.05%, respectively. Included in the June 30, 2023 loan total are adjustable rate loans totaling $3.8 billion, of which, $859.9 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities with fair values totaling $375.5 million which are subject to repricing on not less than a quarterly basis.

Asset Quality and Credit Loss Provisioning

During the three months ended June 30, 2023, the Company recorded a provision for credit losses of $9.7 million, as compared to $4.2 million during the trailing quarter, and $2.1 million during the first quarter of 2022.

The following table presents details of the provision for credit losses for the periods indicated:

	Three months ended				Six months ended
(dollars in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Addition to allowance for credit losses	$	8,980	$	1,940	$	13,295	$	10,145
Addition to reserve for unfunded loan commitments		670		160		550		285
Total provision for credit losses	$	9,650	$	2,100	$	13,845	$	10,430

The following table presents the activity in the allowance for credit losses on loans for the periods indicated:

	Three months ended						Six months ended
(dollars in thousands)	June 30, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Balance, beginning of period	$	108,407		$	96,049		$	105,680		$	85,376
ACL at acquisition for PCD loans		—			—			—			2,037
Provision for credit losses		8,980			1,940			13,295			10,145
Loans charged-off		(277	)		(401	)		(2,035	)		(1,144	)
Recoveries of previously charged-off loans		219			356			389			1,530
Balance, end of period	$	117,329		$	97,944		$	117,329		$	97,944

The allowance for credit losses (ACL) was $117.3 million as of June 30, 2023, a net increase of $8.9 million over the immediately preceding quarter. The provision for credit losses of $9.0 million during the recent quarter was the net effect of increases in required reserves due to individually analyzed credits, qualitative factors, and quantitative reserves under the cohort model. On a comparative basis, the provision for credit losses of $1.9 million during the three months ended June 30, 2022, was largely the result of loan growth in the period. For the current quarter, the qualitative components of the ACL resulted in a net increase in required reserves totaling approximately $2.9 million due to softening of the California employment data, and increase in the corporate debt yields. Meanwhile, the quantitative component of the ACL increased reserve requirements by approximately $6.0 million over the trailing quarter primarily due to increases in 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, particularly CA unemployment trends. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing and food prices. Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have informed expectations of the US entering a recession within 12 months. As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.

Loans past due 30 days or more increased by $1.6 million during the quarter ended June 30, 2023, to $9.5 million, as compared to $7.9 million at March 31, 2023. Non-performing loans were $37.6 million at June 30, 2023, an increase of $21.6 million from $16.0 million as of March 31, 2023, and an increase of $25.7 million from $11.9 million as of June 30, 2022. The current quarter increase in non-performing assets is nearly entirely attributed to a single relationship. Of the $37.6 million loans designated as non-performing as of June 30, 2023, approximately $31.7 million are current with respect to payments required under their original loan agreements.

The following table illustrates the total loans by risk rating and their respective percentage of total loans for the periods presented:

	June 30,			% of Loans Outstanding		March 31,			% of Loans Outstanding		June 30,			% of Loans Outstanding
(dollars in thousands)		2023		% of Loans Outstanding			2023		% of Loans Outstanding			2022		% of Loans Outstanding
Risk Rating:
Pass	$	6,299,893		96.5	%	$	6,232,962		97.0	%	$	5,960,781		97.5	%
Special Mention		155,678		2.4	%		125,492		2.0	%		105,819		1.7	%
Substandard		65,169		1.0	%		63,967		1.0	%		46,821		0.8	%
Total	$	6,520,740				$	6,422,421				$	6,113,421

Classified loans to total loans		1.00	%				1.00	%				0.77	%
Loans past due 30+ days to total loans		0.15	%				0.12	%				0.10	%

The ratio of classified loans of 1.00% as of June 30, 2023, remained consistent with the trailing quarter, but increased by 23 basis points from June 30, 2022. The Company's criticized loan balances increased during the current quarter by $31.4 million to $220.8 million as of June 30, 2023. The recent increase in special mention loans as a percentage of total loans outstanding is consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic and reflects management's historically conservative approach to credit risk monitoring. The newly criticized special mention loans are spread amongst a handful of relationships, with diversity amongst geographies and collateral types.

There were no properties added or disposed within Other Real Estate Owned during the second quarter of 2023. Total write-downs of $0.5 million were incurred during the current quarter across four properties. As of June 30, 2023, other real estate owned consisted of nine properties with a carrying value of approximately $2.9 million.

Non-performing assets of $40.5 million at June 30, 2023, represented 0.41% of total assets, a change from the $19.5 million or 0.20% and $15.3 million or 0.15% as of March 31, 2023 and June 30, 2022, respectively.

Allocation of Credit Loss Reserves by Loan Type

	As of June 30, 2023				As of March 31, 2023				As of June 30, 2022
(dollars in thousands)	Amount		% of Loans Outstanding		Amount		% of Loans Outstanding		Amount		% of Loans Outstanding
Commercial real estate:
CRE - Non Owner Occupied	$	33,042	1.54	%	$	32,963	1.53	%	$	28,081	1.41	%
CRE - Owner Occupied		20,208	2.08	%		14,559	1.50	%		12,620	1.35	%
Multifamily		14,075	1.48	%		13,873	1.47	%		11,795	1.36	%
Farmland		3,691	1.33	%		3,542	1.29	%		2,954	1.17	%
Total commercial real estate loans		71,016	1.63	%		64,937	1.49	%		55,450	1.37	%
Consumer:
SFR 1-4 1st Liens		13,134	1.58	%		11,920	1.48	%		10,311	1.43	%
SFR HELOCs and Junior Liens		10,608	2.92	%		10,914	2.91	%		11,591	3.01	%
Other		2,771	4.67	%		2,062	3.76	%		2,029	3.41	%
Total consumer loans		26,513	2.12	%		24,896	2.02	%		23,931	2.06	%

Commercial and Industrial		11,647	2.02	%		12,069	2.18	%		9,979	1.97	%
Construction		7,031	2.53	%		5,655	2.50	%		7,522	2.40	%
Agricultural Production		1,105	1.80	%		833	1.77	%		1,046	1.47	%
Leases		17	0.20	%		17	0.20	%		16	0.20	%
Allowance for credit losses		117,329	1.80	%		108,407	1.69	%		97,944	1.60	%
Reserve for unfunded loan commitments		4,865				4,195				4,075
Total allowance for credit losses	$	122,194	1.87	%	$	112,602	1.75	%	$	102,019	1.67	%

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 June 30, 2023, the unamortized discount associated with acquired loans totaled $27.6 million.

Non-interest Income

The following table presents the key components of non-interest income for the current and trailing quarterly periods indicated:

	Three months ended
(dollars in thousands)	June 30, 2023			March 31, 2023			Change			% Change
ATM and interchange fees	$	6,856		$	6,344		$	512		8.1	%
Service charges on deposit accounts		4,581			3,431			1,150		33.5	%
Other service fees		992			1,166			(174	)	(14.9	)%
Mortgage banking service fees		454			465			(11	)	(2.4	)%
Change in value of mortgage servicing rights		85			(209	)		294		(140.7	)%
Total service charges and fees		12,968			11,197			1,771		15.8	%
Increase in cash value of life insurance		788			802			(14	)	(1.7	)%
Asset management and commission income		1,158			934			224		24.0	%
Gain on sale of loans		295			206			89		43.2	%
Lease brokerage income		74			98			(24	)	(24.5	)%
Sale of customer checks		407			288			119		41.3	%
Loss on sale of investment securities		—			(164	)		164		(100.0	)%
(Loss) gain on marketable equity securities		(42	)		42			(84	)	(200.0	)%
Other income		93			232			(139	)	(59.9	)%
Total other non-interest income		2,773			2,438			335		13.7	%
Total non-interest income	$	15,741		$	13,635		$	2,106		15.4	%

Non-interest income increased $2.1 million or 15.4% to $15.7 million during the three months ended June 30, 2023, compared to $13.6 million during the quarter ended March 31, 2023. Total service charges and fees increased by $1.8 million or 15.8% during the period, which is largely a return to normalcy following the waived or reversed fees during the first quarter of 2023 as previously disclosed.

The following table presents the key components of non-interest income for the current and prior year periods indicated:

	Three months ended June 30,
(dollars in thousands)		2023			2022		Change			% Change
ATM and interchange fees	$	6,856		$	6,984		$	(128	)	(1.8	)%
Service charges on deposit accounts		4,581			4,163			418		10.0	%
Other service fees		992			1,279			(287	)	(22.4	)%
Mortgage banking service fees		454			482			(28	)	(5.8	)%
Change in value of mortgage servicing rights		85			136			(51	)	(37.5	)%
Total service charges and fees		12,968			13,044			(76	)	(0.6	)%
Increase in cash value of life insurance		788			752			36		4.8	%
Asset management and commission income		1,158			1,039			119		11.5	%
Gain on sale of loans		295			542			(247	)	(45.6	)%
Lease brokerage income		74			238			(164	)	(68.9	)%
Sale of customer checks		407			441			(34	)	(7.7	)%
Loss on sale of investment securities		—			—			—		—	%
Loss on marketable equity securities		(42	)		(94	)		52		(55.3	)%
Other income		93			468			(375	)	(80.1	)%
Total other non-interest income		2,773			3,386			(613	)	(18.1	)%
Total non-interest income	$	15,741		$	16,430		$	(689	)	(4.2	)%

Non-interest income decreased $0.7 million or 4.2% to $15.7 million during the three months ended June 30, 2023, compared to $16.4 million during the quarter ended June 30, 2022. The declining mortgage related activity resulting from elevated interest rates reduced income recorded from the sale of loans by $0.2 million or 45.6%, and to a lesser extent a smaller change in the fair value of mortgage servicing rights, as compared to the three months ended June 30, 2022. Other non-interest income reductions of $0.4 million were primarily the result of a $0.3 million difference in fair value changes of assets associated with retirement plans where the corresponding offset of those changes are included in benefits and other compensation costs.

	Six months ended June 30,
(dollars in thousands)		2023			2022		Change			% Change
ATM and interchange fees	$	13,200		$	13,227		$	(27	)	(0.2	)%
Service charges on deposit accounts		8,012			7,997			15		0.2	%
Other service fees		2,158			2,161			(3	)	(0.1	)%
Mortgage banking service fees		919			945			(26	)	(2.8	)%
Change in value of mortgage servicing rights		(124	)		410			(534	)	(130.2	)%
Total service charges and fees		24,165			24,740			(575	)	(2.3	)%
Increase in cash value of life insurance		1,590			1,390			200		14.4	%
Asset management and commission income		2,092			1,926			166		8.6	%
Gain on sale of loans		501			1,788			(1,287	)	(72.0	)%
Lease brokerage income		172			396			(224	)	(56.6	)%
Sale of customer checks		695			545			150		27.5	%
Loss on sale of investment securities		(164	)		—			(164	)	n/m
Loss on marketable equity securities		—			(231	)		231		(100.0	)%
Other income		325			972			(647	)	(66.6	)%
Total other non-interest income		5,211			6,786			(1,575	)	(23.2	)%
Total non-interest income	$	29,376		$	31,526		$	(2,150	)	(6.8	)%

Non-interest income decreased $2.2 million or 6.8% to $29.4 million during the three months ended June 30, 2023, as compared to $31.5 million during the six months ended June 30, 2022, for reasons similar to those referenced above.

Non-interest Expense

The following table presents the key components of non-interest expense for the current and trailing quarterly periods indicated:

	Three months ended
(dollars in thousands)	June 30, 2023		March 31, 2023		Change			% Change
Base salaries, net of deferred loan origination costs	$	24,059	$	23,000	$	1,059		4.6	%
Incentive compensation		4,377		2,895		1,482		51.2	%
Benefits and other compensation costs		6,278		6,668		(390	)	(5.8	)%
Total salaries and benefits expense		34,714		32,563		2,151		6.6	%
Occupancy		3,991		4,160		(169	)	(4.1	)%
Data processing and software		4,638		4,032		606		15.0	%
Equipment		1,436		1,383		53		3.8	%
Intangible amortization		1,656		1,656		—		—	%
Advertising		1,016		759		257		33.9	%
ATM and POS network charges		1,902		1,709		193		11.3	%
Professional fees		1,985		1,589		396		24.9	%
Telecommunications		809		595		214		36.0	%
Regulatory assessments and insurance		1,993		792		1,201		151.6	%
Postage		311		299		12		4.0	%
Operational loss		1,090		435		655		150.6	%
Courier service		483		339		144		42.5	%
Gain on sale or acquisition of foreclosed assets		—		—		—		—	%
Loss on disposal of fixed assets		18		—		18		n/m
Other miscellaneous expense		5,201		3,483		1,718		49.3	%
Total other non-interest expense		26,529		21,231		5,298		25.0	%
Total non-interest expense	$	61,243	$	53,794	$	7,449		13.8	%
Average full-time equivalent staff		1,210		1,219		(9	)	(0.7	)%

Non-interest expense for the quarter ended June 30, 2023, increased $7.4 million or 13.8% to $61.2 million as compared to $53.8 million during the trailing quarter ended March 31, 2023. Total salaries and benefits expense increased by $2.2 million or 6.6%, led by $1.5 million of growth in incentive compensation expense related to the achievement of certain loan and deposit volume targets and a $1.1 million or 4.6% increase in salaries which were primarily driven by Company-wide merit increases which became effective in late March of this year. Data processing and software expenses increased by $0.6 million or 15.0% related to ongoing investments in the Company's data management and security infrastructure. Advertising costs increased $0.3 million or 33.9% during the quarter, connected to an increase in media advertising for promotional campaigns. Professional fees for the three months ended June 30, 2023, include approximately $0.7 million in costs associated with third party assistance with contract negotiation, the benefits of which will be realized in future periods. Regulatory assessments increased $1.2 million or 151.6% during the quarter as a result of increases in assessment rates. Management estimates that the near-term future quarterly run rate of these regulatory assessment expenses will be approximately $1.75 million per quarter, but anticipates that these costs will increase further if the economic environment in which the Company operates continues to deteriorate. The Company does not anticipate that it will be subject to the recently announced special assessments as its total uninsured deposits do not exceed $5.0 billion. Operational losses also increased by $0.7 million or 150.6%, primarily as a result of burglary at several ATM machines. Other miscellaneous expenses increased $1.7 million or 49.3%, due primarily to changes in regulatory requirements which is expected to result in an estimated $0.8 million in refunds to customers previously charged non-sufficient funds fees and an additional increase of $0.5 million in provision expense on real estate owned and various other increases across the Company, including travel and entertainment costs.

The following table presents the key components of non-interest expense for the current and prior year quarterly periods indicated:

	Three months ended June 30,
(dollars in thousands)		2023		2022		Change			% Change
Base salaries, net of deferred loan origination costs	$	24,059	$	22,169		$	1,890		8.5	%
Incentive compensation		4,377		4,282			95		2.2	%
Benefits and other compensation costs		6,278		6,491			(213	)	(3.3	)%
Total salaries and benefits expense		34,714		32,942			1,772		5.4	%
Occupancy		3,991		3,996			(5	)	(0.1	)%
Data processing and software		4,638		3,596			1,042		29.0	%
Equipment		1,436		1,453			(17	)	(1.2	)%
Intangible amortization		1,656		1,702			(46	)	(2.7	)%
Advertising		1,016		818			198		24.2	%
ATM and POS network charges		1,902		1,781			121		6.8	%
Professional fees		1,985		1,233			752		61.0	%
Telecommunications		809		564			245		43.4	%
Regulatory assessments and insurance		1,993		779			1,214		155.8	%
Merger and acquisition expenses		—		2,221			(2,221	)	(100.0	)%
Postage		311		313			(2	)	(0.6	)%
Operational loss		1,090		456			634		139.0	%
Courier service		483		486			(3	)	(0.6	)%
Gain on sale or acquisition of foreclosed assets		—		(98	)		98		(100.0	)%
Loss (gain) on disposal of fixed assets		18		5			13		260.0	%
Other miscellaneous expense		5,201		4,017			1,184		29.5	%
Total other non-interest expense		26,529		23,322			3,207		13.8	%
Total non-interest expense	$	61,243	$	56,264		$	4,979		8.8	%
Average full-time equivalent staff		1,210		1,183			27		2.3	%

Total non-interest expense increased $5.0 million or 8.8% to $61.2 million during the three months ended June 30, 2023, as compared to $56.3 million for the quarter ended June 30, 2022. Total salaries and benefits expense increased by $1.8 million or 5.4% to $34.7 million, largely from a net increase of 27 full-time equivalent positions as well as annual merit increases as previously discussed. Professional fees increased by $0.7 million which was directly associated with third party contract negotiation assistance, the benefits of which will be realized in future periods. Other miscellaneous expenses increased $1.2 million or 29.5%, due primarily to changes in regulatory requirements which is expected to result in an estimated $0.8 million in refunds to customers previously charged non-sufficient funds fees and an additional increase of $0.5 million in provision expense on real estate owned and various other increases across the Company, including travel and entertainment costs. Merger and acquisition expenses associated with the VRB merger totaled $2.2 million for the quarter ended June of 2022. The reasons for changes in data processing and software, and operational losses, are consistent with the discussions previously provided.

	Six months ended June 30,
(dollars in thousands)		2023		2022		Change			% Change
Base salaries, net of deferred loan origination costs	$	47,059	$	40,385		$	6,674		16.5	%
Incentive compensation		7,272		6,865			407		5.9	%
Benefits and other compensation costs		12,946		12,463			483		3.9	%
Total salaries and benefits expense		67,277		59,713			7,564		12.7	%
Occupancy		8,151		7,571			580		7.7	%
Data processing and software		8,670		7,109			1,561		22.0	%
Equipment		2,819		2,786			33		1.2	%
Intangible amortization		3,312		2,930			382		13.0	%
Advertising		1,775		1,455			320		22.0	%
ATM and POS network charges		3,611		3,156			455		14.4	%
Professional fees		3,574		2,109			1,465		69.5	%
Telecommunications		1,404		1,085			319		29.4	%
Regulatory assessments and insurance		2,785		1,499			1,286		85.8	%
Merger and acquisition expenses		—		6,253			(6,253	)	(100.0	)%
Postage		610		541			69		12.8	%
Operational loss		1,525		273			1,252		458.6	%
Courier service		822		900			(78	)	(8.7	)%
Gain on sale or acquisition of foreclosed assets		—		(98	)		98		(100.0	)%
Loss (gain) on disposal of fixed assets		18		(1,073	)		1,091		(101.7	)%
Other miscellaneous expense		8,684		6,502			2,182		33.6	%
Total other non-interest expense		47,760		42,998			4,762		11.1	%
Total non-interest expense	$	115,037	$	102,711		$	12,326		12.0	%
Average full-time equivalent staff		1,214		1,133			81		7.1	%

Total non-interest expense increased $12.3 million or 12.0% to $115.0 million during the six months ended June 30, 2023, as compared to $102.7 million for the comparative period in 2022, for reasons primarily associated with the acquisition of Valley Republic Bank in March of 2022 which resulted in expense increases for nearly every identified category. Merger and acquisition expenses associated with the VRB merger totaled $6.2 million for the six-month period ended 2022. The reasons for additional and more specific changes in various costs identified above, and including but not limited to data processing, regulatory assessments, operational losses and other expenses are consistent with the discussions previously provided.

Provision for Income Taxes

The Company’s effective tax rate was 25.6% for the quarter ended June 30, 2023, as compared to 26.8% for the period ended March 31, 2023, and 28.1% for the year ended December 31, 2022. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 29.6% are due to the proportion of non-taxable revenues, non-deductible expenses, and benefits from tax credits as compared to the levels of pre-tax earnings.

About TriCo Bancshares

Established in 1975, Tri Counties Bank is a wholly-owned subsidiary of TriCo Bancshares (NASDAQ: TCBK) headquartered in Chico, California, providing a unique brand of customer Service with Solutions available in traditional stand-alone and in-store bank branches and loan production offices in communities throughout California. Tri Counties Bank provides an extensive and competitive breadth of consumer, small business and commercial banking financial services, along with convenient around-the-clock ATMs, online and mobile banking access. Brokerage services are provided by Tri Counties Advisors through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more.

Forward-Looking Statements

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations impacts on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; regulatory restrictions on our ability to successfully market and price our products to consumers; technological changes; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the impact of a slowing U.S. economy and potentially increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of, and cost of, sources of funding and the demand for our products; adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, commodities prices, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities, terrorism or geopolitical events; adverse developments in the financial services industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; risks related to the sufficiency of liquidity; the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; the costs or effects of mergers, acquisitions or dispositions we may make, as well as whether we are able to obtain any required governmental approvals in connection with any such activities, or identify and complete favorable transactions in the future, and/or realize the contemplated financial business benefits; the regulatory and financial impacts associated with exceeding $10 billion in total assets; the negative impact on our reputation and profitability in the event customers experience economic harm or in the event that regulatory violations are identified; the ability to execute our business plan in new lending markets; the future operating or financial performance of the Company, including our outlook for future growth and changes in the level and direction of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effectiveness of the Company's asset management activities in improving, resolving or liquidating lower-quality assets; the effect of changes in the financial performance and/or condition of our borrowers; changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us due to changes in credit quality or rates; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; the effects of changes in the level or cost of checking or savings account deposits on our funding costs and net interest margin; increasing noninterest expense and its impact on our efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of attracting, integrating and retaining key employees; the vulnerability of the Company's operational or security systems or infrastructure including the impact of the recent cyber security ransomware incident on our operations and reputation, the systems of third-party vendors or other service providers with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond to such incidents; increased data security risks due to work from home arrangements and email vulnerability; failure to safeguard personal information; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the transition away from the London Interbank Offered Rate toward new interest rate benchmarks; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2022, which has been filed with the Securities and Exchange Commission (the “SEC”) and all subsequent filings with the SEC under Sections 13(a), 13(c), 14, and 15(d) of the Securities Act of 1934, as amended. Such filings are also available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We undertake no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited. Dollars in thousands, except share data)
	Three months ended
	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Revenue and Expense Data
Interest income	$	107,158		$	102,907		$	102,989		$	96,366		$	86,955
Interest expense		18,557			9,571			4,089			2,260			1,909
Net interest income		88,601			93,336			98,900			94,106			85,046
Provision for credit losses		9,650			4,195			4,245			3,795			2,100
Noninterest income:
Service charges and fees		12,968			11,197			12,343			12,682			13,044
Loss on sale of investment securities		—			(164	)		—			—			—
Other income		2,773			2,602			3,537			2,958			3,386
Total noninterest income		15,741			13,635			15,880			15,640			16,430
Noninterest expense (2):
Salaries and benefits		34,714			32,563			36,611			33,528			34,370
Occupancy and equipment		5,427			5,543			5,482			5,387			5,449
Data processing and network		6,540			5,741			6,236			5,143			5,468
Other noninterest expense		14,562			9,947			11,140			10,407			10,977
Total noninterest expense		61,243			53,794			59,469			54,465			56,264
Total income before taxes		33,449			48,982			51,066			51,486			43,112
Provision for income taxes		8,557			13,149			14,723			14,148			11,748
Net income	$	24,892		$	35,833		$	36,343		$	37,338		$	31,364
Share Data
Basic earnings per share	$	0.75		$	1.08		$	1.09		$	1.12		$	0.93
Diluted earnings per share	$	0.75		$	1.07		$	1.09		$	1.12		$	0.93
Dividends per share	$	0.30		$	0.30		$	0.30		$	0.30		$	0.25
Book value per common share	$	32.86		$	32.84		$	31.39		$	29.71		$	31.25
Tangible book value per common share (1)	$	23.30		$	23.22		$	21.76		$	19.92		$	21.41
Shares outstanding		33,259,260			33,195,250			33,331,513			33,332,189			33,350,974
Weighted average shares		33,219,168			33,295,750			33,330,029			33,348,322			33,561,389
Weighted average diluted shares		33,301,548			33,437,680			33,467,393			33,463,364			33,705,280
Credit Quality
Allowance for credit losses to gross loans		1.80	%		1.69	%		1.64	%		1.61	%		1.60	%
Loans past due 30 days or more	$	9,483		$	7,891		$	4,947		$	6,471		$	5,920
Total nonperforming loans	$	37,592		$	16,025		$	21,321		$	17,471		$	11,925
Total nonperforming assets	$	40,506		$	19,464		$	24,760		$	20,912		$	15,304
Loans charged-off	$	276		$	1,758		$	174		$	267		$	401
Loans recovered	$	218		$	170		$	66		$	311		$	356
Selected Financial Ratios
Return on average total assets		1.01	%		1.47	%		1.45	%		1.46	%		1.24	%
Return on average equity		8.98	%		13.36	%		14.19	%		13.78	%		11.53	%
Average yield on loans, excluding PPP		5.38	%		5.21	%		5.10	%		4.87	%		4.70	%
Average yield on interest-earning assets		4.78	%		4.64	%		4.52	%		4.12	%		3.76	%
Average rate on interest-bearing deposits		0.95	%		0.43	%		0.18	%		0.08	%		0.07	%
Average cost of total deposits		0.58	%		0.25	%		0.10	%		0.04	%		0.04	%
Average cost of total deposits and other borrowings		0.80	%		0.38	%		0.12	%		0.04	%		0.02	%
Average rate on borrowings & subordinated debt		4.92	%		4.74	%		4.07	%		3.60	%		3.12	%
Average rate on interest-bearing liabilities		1.37	%		0.74	%		0.32	%		0.17	%		0.15	%
Net interest margin (fully tax-equivalent) (1)		3.96	%		4.21	%		4.34	%		4.02	%		3.67	%
Loans to deposits		80.55	%		80.02	%		77.45	%		72.95	%		69.81	%
Efficiency ratio		58.69	%		50.29	%		51.81	%		49.63	%		55.45	%
Supplemental Loan Interest Income Data
Discount accretion on acquired loans	$	1,471		$	1,397		$	1,751		$	714		$	1,677
All other loan interest income (excluding PPP) (1)	$	85,272		$	81,013		$	79,989		$	74,929		$	67,277
Total loan interest income (excluding PPP) (1)	$	86,743		$	82,410		$	81,740		$	75,643		$	68,954

(1)	Non-GAAP measure
(2)	Inclusive of merger related expenses

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited. Dollars in thousands)

Balance Sheet Data	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Cash and due from banks	$	118,792		$	110,335		$	107,230		$	246,509		$	488,868
Securities, available for sale, net		2,323,011			2,408,452			2,455,036			2,482,857			2,608,771
Securities, held to maturity, net		145,117			152,067			160,983			168,038			176,794
Restricted equity securities		17,250			17,250			17,250			17,250			17,250
Loans held for sale		1,058			226			1,846			247			1,216
Loans:
Commercial real estate		4,343,924			4,353,959			4,359,083			4,238,930			4,049,893
Consumer		1,252,225			1,233,797			1,240,743			1,217,297			1,162,989
Commercial and industrial		576,247			553,098			569,921			534,960			507,685
Construction		278,425			225,996			211,560			243,571			313,646
Agriculture production		61,337			47,062			61,414			71,599			71,373
Leases		8,582			8,509			7,726			7,933			7,835
Total loans, gross		6,520,740			6,422,421			6,450,447			6,314,290			6,113,421
Allowance for credit losses		(117,329	)		(108,407	)		(105,680	)		(101,488	)		(97,944	)
Total loans, net		6,403,411			6,314,014			6,344,767			6,212,802			6,015,477
Premises and equipment		72,619			72,096			72,327			73,266			73,811
Cash value of life insurance		135,332			134,544			133,742			132,933			132,857
Accrued interest receivable		32,835			31,388			31,856			27,070			25,861
Goodwill		304,442			304,442			304,442			307,942			307,942
Other intangible assets		13,358			15,014			16,670			18,372			20,074
Operating leases, right-of-use		29,140			30,000			26,862			26,622			27,154
Other assets		257,056			252,566			257,975			262,971			224,536
Total assets	$	9,853,421		$	9,842,394		$	9,930,986		$	9,976,879		$	10,120,611
Deposits:
Noninterest-bearing demand deposits	$	3,073,353		$	3,236,696		$	3,502,095		$	3,678,202		$	3,604,237
Interest-bearing demand deposits		1,751,998			1,635,706			1,718,541			1,749,123			1,796,580
Savings deposits		2,778,118			2,807,796			2,884,378			2,924,674			3,028,787
Time certificates		491,896			345,667			223,999			303,770			327,171
Total deposits		8,095,365			8,025,865			8,329,013			8,655,769			8,756,775
Accrued interest payable		3,655			1,643			1,167			853			755
Operating lease liability		31,377			32,228			29,004			28,717			29,283
Other liabilities		136,464			157,222			159,741			153,110			155,529
Other borrowings		392,714			434,140			264,605			47,068			35,089
Junior subordinated debt		101,065			101,051			101,040			101,024			101,003
Total liabilities		8,760,640			8,752,149			8,884,570			8,986,541			9,078,434
Common stock		695,305			695,168			697,448			696,348			696,441
Retained earnings		578,852			564,538			542,873			516,699			491,705
Accum. other comprehensive loss, net of tax		(181,376	)		(169,461	)		(193,905	)		(222,709	)		(145,969	)
Total shareholders’ equity	$	1,092,781		$	1,090,245		$	1,046,416		$	990,338		$	1,042,177
Quarterly Average Balance Data
Average loans, excluding PPP	$	6,465,903		$	6,412,386		$	6,357,250		$	6,162,267		$	5,890,578
Average interest-earning assets	$	9,022,064		$	9,028,061		$	9,076,450		$	9,320,152		$	9,330,059
Average total assets	$	9,848,191		$	9,878,927		$	9,932,931		$	10,131,118		$	10,121,714
Average deposits	$	7,981,515		$	8,218,576		$	8,545,172		$	8,752,215		$	8,743,320
Average borrowings and subordinated debt	$	578,312		$	378,676		$	186,957		$	139,919		$	136,244
Average total equity	$	1,112,223		$	1,087,473		$	1,016,468		$	1,074,776		$	1,091,454
Capital Ratio Data
Total risk-based capital ratio		14.5	%		14.5	%		14.2	%		14.0	%		14.1	%
Tier 1 capital ratio		12.7	%		12.7	%		12.4	%		12.2	%		12.3	%
Tier 1 common equity ratio		12.0	%		12.0	%		11.7	%		11.4	%		11.5	%
Tier 1 leverage ratio		10.4	%		10.2	%		10.1	%		9.6	%		9.3	%
Tangible capital ratio (1)		8.1	%		8.1	%		7.6	%		6.9	%		7.3	%

(1)	Non-GAAP measure

TRICO BANCSHARES—NON-GAAP FINANCIAL MEASURES

(Unaudited. Dollars in thousands)

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this press release because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:

	Three months ended									Six months ended
(dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Net interest margin
Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,471		$	1,397		$	1,677		$	2,868		$	3,000
Effect on average loan yield		0.09	%		0.09	%		0.11	%		0.09	%		0.11	%
Effect on net interest margin (FTE)		0.07	%		0.06	%		0.07	%		0.06	%		0.07	%
Net interest margin (FTE)		3.96	%		4.21	%		3.67	%		4.08	%		3.54	%
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)		3.89	%		4.15	%		3.60	%		4.02	%		3.47	%
PPP loans yield, net:
Amount (included in interest income)	$	4		$	5		$	964		$	9		$	2,061
Effect on net interest margin (FTE)		—	%		—	%		0.03	%		—	%		0.03	%
Net interest margin less effect of PPP loan yield (Non-GAAP)		3.96	%		4.21	%		3.64	%		4.08	%		3.51	%
Acquired loan discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,475		$	1,402		$	2,641		$	2,877		$	5,061
Effect on net interest margin (FTE)		0.07	%		0.06	%		0.10	%		0.06	%		0.10	%
Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)		3.89	%		4.15	%		3.57	%		4.02	%		3.44	%

	Three months ended									Six months ended
(dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Pre-tax pre-provision return on average assets or equity
Net income (GAAP)	$	24,892		$	35,833		$	31,364		$	60,725		$	51,738
Exclude provision for income taxes		8,557			13,149			11,748			21,706			19,617
Exclude provision (benefit) for credit losses		9,650			4,195			2,100			13,845			10,430
Net income before income tax and provision expense (Non-GAAP)	$	43,099		$	53,177		$	45,212		$	96,276		$	81,785

Average assets (GAAP)	$	9,848,191		$	9,878,927		$	10,121,714		$	9,863,471		$	9,453,696
Average equity (GAAP)	$	1,112,223		$	1,087,473		$	1,091,454		$	1,099,913		$	1,050,566

Return on average assets (GAAP) (annualized)		1.01	%		1.47	%		1.24	%		1.24	%		1.10	%
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)		1.76	%		2.18	%		1.79	%		1.97	%		1.74	%
Return on average equity (GAAP) (annualized)		8.98	%		13.36	%		11.53	%		11.13	%		9.93	%
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)		15.54	%		19.83	%		16.61	%		17.65	%		15.70	%

	Three months ended									Six months ended
(dollars in thousands)	June 30, 2023			March 31, 2023			June 30, 2022			June 30, 2023			June 30, 2022
Return on tangible common equity
Average total shareholders' equity	$	1,112,223		$	1,087,473		$	1,091,454		$	1,099,913		$	1,050,566
Exclude average goodwill		304,442			304,442			307,942			334,565			267,533
Exclude average other intangibles		14,716			15,842			21,040			16			16,845
Average tangible common equity (Non-GAAP)	$	793,065		$	767,189		$	762,472		$	765,332		$	766,188

Net income (GAAP)	$	24,892		$	35,833		$	31,364		$	60,725		$	51,738
Exclude amortization of intangible assets, net of tax effect		1,166			1,166			1,199			2,333			2,064
Tangible net income available to common shareholders (Non-GAAP)	$	26,058		$	36,999		$	32,563		$	63,058		$	53,802

Return on average equity		8.98	%		13.36	%		11.53	%		11.13	%		9.93	%
Return on average tangible common equity (Non-GAAP)		13.18	%		19.56	%		17.13	%		16.62	%		14.16	%

	Three months ended
(dollars in thousands)	June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Tangible shareholders' equity to tangible assets
Shareholders' equity (GAAP)	$	1,092,781		$	1,090,245		$	1,046,416		$	990,338		$	1,042,177
Exclude goodwill and other intangible assets, net		317,800			319,456			321,112			326,314			328,016
Tangible shareholders' equity (Non-GAAP)	$	774,981		$	770,789		$	725,304		$	664,024		$	714,161

Total assets (GAAP)	$	9,853,421		$	9,842,394		$	9,930,986		$	9,976,879		$	10,120,611
Exclude goodwill and other intangible assets, net		317,800			319,456			321,112			326,314			328,016
Total tangible assets (Non-GAAP)	$	9,535,621		$	9,522,938		$	9,609,874		$	9,650,565		$	9,792,595

Shareholders' equity to total assets (GAAP)		11.09	%		11.08	%		10.54	%		9.93	%		10.30	%
Tangible shareholders' equity to tangible assets (Non-GAAP)		8.13	%		8.09	%		7.55	%		6.88	%		7.29	%

	Three months ended
(dollars in thousands)	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022
Tangible common shareholders' equity per share
Tangible s/h equity (Non-GAAP)	$	774,981	$	770,789	$	725,304	$	664,024	$	714,161

Common shares outstanding at end of period		33,259,260		33,195,250		33,331,513		33,332,189		33,350,974

Common s/h equity (book value) per share (GAAP)	$	32.86	$	32.84	$	31.39	$	29.71	$	31.25
Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	$	23.30	$	23.22	$	21.76	$	19.92	$	21.41

View source version on businesswire.com: https://www.businesswire.com/news/home/20230726475602/en/

TriCo Bancshares reports 2nd quarter 2023 earnings results and demonstrates again why core deposits are critical to supporting long-term franchise value and shareholder returns.

Contacts

Peter G. Wiese, EVP & CFO, (530) 898-0300