TRICO BANCSHARES / 10-Q

Item 3. Quantitative and Qualitative Disclosures about Market Risk Based on the changes in interest rates occurring subsequent to December 31, 2021, the following update of the Company’s assessment of market risk as of March 31, 2022 is being provided. These updates and changes should be read in conjunction with the additional quantitative and qualitative disclosures in our Annual Report on Form 10-K for the year ended December 31, 2021. During the quarter ended March 31, 2022, market interest rates, including many rates that serve as reference indices for variable rate loans, increased modestly. However, the loan portfolio yield continues to have a downward bias due to the repricing of loans at lower rates and increased market competition stemming from loan to deposit ratios being at historic lows. As of March 31, 2022, the Company's loan portfolio consisted of approximately $5.9 billion in outstanding principal with a weighted average coupon rate of 4.24%, inclusive of the PPP program loans. Excluding PPP loans, the Company's loan portfolio has approximately $5.8 billion outstanding with a weighted average coupon rate of 4.27% as of March 31, 2022. Included in the March 31, 2022 loan total, exclusive of PPP loans, are variable rate loans totaling $3.4 billion, of which, $800,000,000 are considered floating based on the Wall Street Prime index and an additional $2,550,000 of variable rate loans which are generally tied to the 5-year US Treasury rate and are generally subject to reprice quarterly subsequent to the expiration of a fixed rate period of three months to five years. Management funds the acquisition of nearly all of its earning assets through its core deposit gathering activities. As of March 31, 2022, non-interest bearing deposits represented 41.1% of total deposits. Further, during the quarter ended March 31, 2022, the cost of interest bearing deposits were 0.06% and the cost of total deposits were 0.04%. With the intent of stabilizing or increasing net interest income, management intends to continue to deploy its excess liquidity and seek to migrate certain earning assets into higher yielding categories (from investment securities and into loans, for example). 54 Table of Contents As of March 31, 2022 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was less than 1.00%. Based on the historical nature of these rates in the United States not falling below zero, management believes that a shock scenario that reduces interest rates below zero would not provide meaningful results and therefore, have not been modeled. These scenarios assume that 1) interest rates increase or decrease evenly (in a “ramp” fashion) over a twelve-month period and remain at the new levels beyond twelve months or 2) that interest rates change instantaneously (“shock”). The simulation results shown below assume no changes in the structure of the Company’s balance sheet over the twelve months being measured. The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as measured against a flat rate (no interest rate change) instantaneous shock scenario over a twelve month period utilizing the Company's specific mix of interest earning assets and interest bearing liabilities as of March 31, 2022. Interest Rate Risk Simulations: Change in Interest Rates (Basis Points) Estimated Change in Net Interest Income (NII) (as % of NII) Estimated Change in Market Value of Equity (MVE) (as % of MVE) +200 (shock) 4.0 % 7.1 % +100 (shock) 2.1 % 4.9 % + 0 (flat) — — -100 (shock) (4.4) % (16.2) % -200 (shock) nm nm