What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-09 compared with 2022-08-08 · 262 added, 154 removed, 596 unchanged (41% of the section changed)

9 unchanged sentences

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;

inflation, interest rate, market and monetary fluctuations on the Company's business condition and financial operating results;

the impact of changes in financial services industry policies, laws and regulations;

2 unchanged sentences

the continuing adverse impact on the U.S.

economy, including the markets in which we operate, due to the length, severity, magnitude and duration of the COVID-19 global pandemic, and the impact of a slowing U.S.

economy, including the markets in which we operate due to the COVID-19 global pandemic;

the impact of a slowing U.S.

economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products;

the costs or effects of mergers, acquisitions or dispositions we may make, such as our recently completed acquisition of Valley Republic Bancorp, including the impact of international hostilities or geopolitical events, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;

the possibility that the merger between us and Valley will not close when expected or at all because required regulatory, shareholder, or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated (and the risk that required regulatory approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed transaction);

the occurrence of any event, change, or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between the Company and Valley;

the risk that any announcements relating to the merger could have adverse effects on the market price of the common stock of either or both parties to the transaction;

changes in the economy, which could materially impact credit quality trends and the ability to generate loans and gather deposits, including the pace of the recovery following the COVID-19 pandemic;

the ability of us to execute our business plan in new lending markets;

the future operating or financial performance of the Company, including our outlook for future growth, changes in the level of our nonperforming assets and charge-offs;

adverse developments with respect to U.S.

or global economic conditions and other uncertainties, including the impact of supply chain disruptions, inflationary pressures and labor shortages on the economic recovery and our business;

the impacts of international hostilities or geopolitical events;

the costs or effects of mergers, acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, and/or our ability to realize the contemplated financial business benefits associated with any such activities;

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 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;

1 unchanged sentence

the effect of changes in accounting standards and practices;

possible other-than-temporary impairment of securities held by us;

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 deposits and other sources of liquidity;

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;

changes in the financial performance and/or condition of our borrowers;

4 unchanged sentences

a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks;

breaches in data security, including as a result of work from home arrangements;

failure to safeguard personal information;

change to U.S.

tax policies, including our effective income tax rate;

the effect of a fall in stock market prices on our brokerage and wealth management businesses;

the discontinuation of the London Interbank Offered Rate and other reference rates;

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 under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, which is on file with the Securities and Exchange Commission (the “SEC”) and available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC.

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, 2021, 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.

As TriCo Bancshares (referred to in this report as “we”, “our” or the “Company”) has not commenced any business operations independent of Tri Counties Bank (the “Bank”), the following discussion pertains primarily to the Bank.

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Interest income and net interest income are shown on a non-FTE basis in the Part I - Financial Information section of this Form 10-Q, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion of net interest income.

The Company's results for the quarter ended June 30, 2022 reflect the full operational impact of the March 25, 2022 merger with Valley Republic Bancorp.

The Company's results for the quarter ended September 30, 2022 reflect the full operational impact of the March 25, 2022 merger with VRB, whereas the results for the nine months ended September 30, 2022 do not include the operating results of VRB for the days prior to the merger date.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an on-going basis, the Company evaluates its estimates, including those that materially affect the financial statements and are related to the adequacy of the allowance for loan losses, investments, mortgage servicing rights, fair value measurements, retirement plans and intangible assets.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the

circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

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Financial Highlights

Performance highlights and other developments for the Company as of or for the three and six months ended June 30, 2022, included the following:

• For the three and six months ended June 30, 2022, the Company’s return on average assets was 1.24% and 1.10%, while the return on average equity was 11.53% and 9.93%, respectively.

These ratios were impacted by merger related expenses of $2,221,000 and $6,253,000 for the respective periods in 2022.

Performance highlights and other developments for the Company as of or for the three and nine months ended September 30, 2022, included the following:

• For the three and nine months ended September 30, 2022, the Company’s return on average assets was 1.46% and 1.23%, while the return on average equity was 13.78% and 11.25%, respectively.

The nine-month ratio was impacted by merger related expenses of $6,253,000 during the 2022 period.

• Organic loan growth, excluding PPP and acquired loans, totaled $216.7 million (14.2% annualized) for the current quarter and $824.3 million (17.4% annualized) for the trailing twelve-month period.

• For the current quarter, net interest margin, less the effect of acquired loan discount accretion and PPP yields ( non-GAAP ), on a tax equivalent basis was 3.57%, an increase of 28 basis points from 3.29% in the trailing quarter.

• The efficiency ratio was 55.45% for the three months ended June 30, 2022, as compared to 55.95% for the trailing quarter.

• As of June 30, 2022, the Company reported total loans, total assets and total deposits of $6.1 billion, $10.1 billion and $8.8 billion, respectively.

As a direct result of organic loan growth during the quarter, the loan to deposit ratio has increased to 69.8% as of June 30, 2022, as compared to 67.2% as of the trailing quarter.

• The average rate of interest paid on deposits, including non-interest-bearing deposits, equaled 0.04% during the second quarter of 2022, consistent with 0.04% during the trailing quarter, and representing a decrease of one basis point from the average rate paid of 0.05% during the same quarter of the prior year.

• Noninterest income related to service charges and fees was $13.0 million for the three month period ended June 30, 2022, an increase of 19.3% when compared to the same period in 2021.

• The provision for credit losses for loans and debt securities was approximately $2.1 million during the quarter ended June 30, 2022, as compared to a provision expense of $8.3 million during the trailing quarter ended March 31, 2022, and a reversal of provision expense totaling $0.3 million for the three month period ended June 30, 2021.

• The allowance for credit losses to total loans was 1.60% as of June 30, 2022, compared to 1.64% as of the trailing quarter end, and 1.74% as of June 30, 2021.

Non-performing assets to total assets were 0.15% at June 30, 2022, as compared to 0.17% as of March 31, 2022, and 0.43% at June 30, 2021.

• As of September 30, 2022, the Company reported total loans, total assets and total deposits of $6.3 billion, $10.0 billion and $8.7 billion, respectively.

As a direct result of organic loan growth during the quarter, the loan to deposit ratio has increased to 72.9% as of September 30, 2022, as compared to 69.8% as of the trailing quarter.

• The average rate of interest paid on deposits, including non-interest-bearing deposits, of 0.04% has remained unchanged during each of the prior four quarters, and represents a decrease of one basis point from the average rate paid of 0.05% during the same quarter of the prior year.

• Noninterest income related to service charges and fees was $12.7 million for the three month period ended September 30, 2022, an increase of 12.6% when compared to the same period in 2021.

• The provision for credit losses for loans and debt securities was approximately $3.8 million during the quarter ended September 30, 2022, as compared to a provision expense of $2.1 million during the trailing quarter ended June 30, 2022, and a reversal of provision expense totaling $1.4 million for the three month period ended September 30, 2021.

• The allowance for credit losses to total loans was 1.61% as of September 30, 2022, compared to 1.60% as of the trailing quarter end, and 1.72% as of September 30, 2021.

Non-performing assets to total assets were 0.21% at September 30, 2022, as compared to 0.15% as of June 30, 2022, and 0.37% at September 30, 2021.

TRICO BANCSHARES

2 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

32 unchanged sentences

(1) Fully Taxable Equivalent (FTE)

The Company announced net income of $31,364,000 for the quarter ended June 30, 2022, compared to $20,374,000 during the trailing quarter ended March 31, 2022, and $28,362,000 during the quarter ended June 30, 2021.

Diluted earnings per share were $0.93 for the second quarter of 2022, compared to $0.67 for the first quarter of 2022 and $0.95 for the second quarter of 2021.

The Company reported net income of $37,338,000 for the quarter ended September 30, 2022, compared to $31,364,000 during the trailing quarter ended June 30, 2022, and $27,422,000 during the quarter ended September 30, 2021.

Diluted earnings per share were $1.12 for the third quarter of 2022, compared to $0.93 for the second quarter of 2022 and $0.92 for the third quarter of 2021.

Results of Operations

4 unchanged sentences

Three months ended

(in thousands) June 30,

2022 March 31,

(in thousands) September 30,

2022 June 30,

2022 Change % Change

17 unchanged sentences

3.98 % 3.57 % 0.41 %

Three months ended

Three months ended September 30, 2022

(dollars in thousands) 2022 2021 Change % Change

17 unchanged sentences

3.98 % 3.31 % 0.67 %

Six months ended

Nine months ended September 30, 2022

(dollars in thousands) 2022 2021 Change % Change

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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.

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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 the first two quarters of 2022.

During the three months ended June 30, 2022, March 31, 2022, and June 30, 2021, purchased loan discount accretion was $1,677,000, $1,323,000, and $2,566,000, respectively.

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 throughout 2022.

During the three months ended September 30, 2022, June 30, 2022, and September 30, 2021, purchased loan discount accretion was $714,000, $1,677,000, and $2,034,000, respectively.

Summary of Average Balances, Yields/Rates and Interest Differential

4 unchanged sentences

For the three months ended

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Balance Interest

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(3) Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of i nterest-earning assets, then annualized based on the number of days in the given period .

As compared to the same quarter in the prior year, average loan yields, excluding PPP, decreased 23 basis points from 4.93% during the three months ended June 30, 2021, to 4.70% during the three months ended June 30, 2022.

The accretion of discounts from acquired loans added 11 and 22 basis points to loan yields during the quarters ended June 30, 2022 and June 30, 2021, respectively.

Therefore, of the 23 basis point decrease in yields on loans during the comparable three month periods ended June 30, 2022 and 2021, 12 basis points was attributable to changes in competitive market rates, while 11 basis points resulted from less accretion of discounts.

The rates paid on interest bearing deposits generally remained flat during the quarter ended June 30, 2022 as compared to the trailing quarter.

The cost of interest-bearing deposits decreased by 1 basis point during the quarter ended June 30, 2022, to 0.07% from 0.08% during the same quarter of the prior year.

In addition, the level of noninterest-bearing deposits continues to benefit the average cost of total deposits which decreased to at 0.04% in current quarter, as compared to 0.05% in the second quarter of the prior year.

Six months ended June 30, 2022 Six months ended June 30, 2021

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 2 basis points from 4.85% during the three months ended September 30, 2021, to 4.87% during the three months ended September 30, 2022.

The accretion of discounts from acquired loans added 5 and 17 basis points to loan yields during the quarters ended September 30, 2022 and September 30, 2021, respectively.

Therefore, the 2 basis point increase in yields on loans during the comparable three month periods ended September 30, 2022 and 2021 was the net effect of a 14 basis point increase in market loan rates, partially offset by a 12 basis point decline in the accretion of discounts.

The rates paid on interest bearing deposits increased by 1 basis point during the quarter ended September 30, 2022 compared to the trailing quarter.

The cost of interest-bearing deposits remained flat at 8 basis points between the quarter ended September 30, 2022 and the same quarter of the prior year.

In addition, the level of noninterest-bearing deposits continues to benefit the average cost of total deposits which remained flat at 0.04% in both the current and trailing quarter, compared to 0.5% in the third quarter of the prior year.

Non-interest bearing deposit balances grew $74.0 million during the three months ended September 30, 2022.

As of September 30, 2022, the ratio of average total noninterest-bearing deposits to total average deposits was 41.6%.

Nine months ended September 30, 2022 Nine months ended September 30, 2021

Balance Income/

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Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components.

Three months ended June 30, 2022

compared with three months ended June 30, 2021

Three months ended September 30, 2022

compared with three months ended September 30, 2021

(in thousands) Volume Rate Total

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Increase (decrease) in net interest income $ 43,746 $ (17,698) $ 26,048

Six months ended June 30, 2022 compared with six months ended June 30, 2021

Nine months ended September 30, 2022 compared with nine months ended September 30, 2021

(in thousands) Volume Rate Total

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The following commentary regarding net interest income, interest income and interest expense may be best understood while referencing the Summary of Average Balances, Yields/Rates and Interest Differential and the Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid shown above.

Net interest income (FTE) during the three months ended June 30, 2022 increased $18,105,000 or 26.9% to $85,443,000 compared to $67,338,000 during the three months ended June 30, 2021.

The overall increase in net interest income (FTE) was due to largely an increase in average investment and loan balances, which resulted in improvements in net interest income totaling $8,885,000 and $20,827,000, respectively, despite lower yields offsetting those earnings by $1,110,000 and $11,213,000, respectively.

In addition, interest income on loans was impacted by a $2,215,000 decrease in PPP related income during the comparable periods.

Following the VRB merger during the first quarter of 2022, larger average balances of subordinated debt has resulted in $422,000 of additional interest expense.

Net interest income (FTE) during the six months ended June 30, 2022 increased $19,595,000 or 14.6% to $153,650,000 compared to $134,055,000 during the six months ended June 30, 2021.

The overall increase in net interest income (FTE) was due to largely an increase in average investment and loan balances, which resulted in improvements in net interest income totaling $11,904,000 and $60,627,000, respectively, despite lower yields offsetting those earnings by $275,000 and $53,704,000, respectively.

In addition, interest income on loans was impacted by a $6,981,000 decrease in PPP related income during the comparable periods.

Net interest income (FTE) during the three months ended September 30, 2022 increased $26,048,000 or 27.6% to $94,546,000 compared to $68,498,000 during the three months ended September 30, 2021.

The overall increase in net interest income (FTE) was due to largely an increase in average investment and loan balances, which resulted in improvements in net interest income totaling $8,193,000 and $36,188,000, respectively, despite lower yields on loans partially offsetting those earnings by $20,957,000.

In addition, interest income on cash reserves improved by $1,686,000 due to the increase in rates.

Following the VRB merger during the first quarter of 2022, larger average balances of subordinated debt has resulted in $729,000 of additional net interest expense.

Net interest income (FTE) during the nine months ended September 30, 2022 increased $45,643,000 or 22.5% to $248,196,000 compared to $202,553,000 during the nine months ended September 30, 2021.

The overall increase in net interest income (FTE) was due to largely an increase in average investment and loan balances, which resulted in improvements in net interest income totaling $12,020,000 and $86,269,000, respectively, despite lower yields on loans partially offsetting those earnings by $64,115,000.

Following the VRB merger during the first quarter of 2022, larger average balances of subordinated debt has resulted in $1,274,000 of additional net interest expense.

Asset Quality and Credit Loss Provisioning

During the three months ended June 30, 2022, the Company recorded a provision for credit losses of $2,100,000, as compared to a $8,330,000 provision during the trailing quarter, and a reversal of provision expense of $260,000 during the second quarter of 2021.

During the three months ended September 30, 2022, the Company recorded a provision for credit losses of $3,795,000, as compared to a $2,100,000 provision during the trailing quarter, and a reversal of provision expense of $1,435,000 during the third quarter of 2021.

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

Three months ended

(dollars in thousands) June 30, 2022 March 31, 2022 December 31, 2021 June 30, 2021

(dollars in thousands) September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021

Addition to (reversal of) allowance for credit losses $ 3,500 $ 1,940 $ 8,205 $ 715 $ (1,495)

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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, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Three months ended Nine months ended

(dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Balance, beginning of period $ 97,944 $ 86,062 $ 85,376 $ 91,847

4 unchanged sentences

Balance, end of period $ 101,488 $ 84,306 $ 101,488 $ 84,306

The allowance for credit losses (ACL) was $97,944,000 as of June 30, 2022, a net increase of $1,895,000 over the immediately preceding quarter.

The provision for credit losses of $1,940,000 during the quarter was the net effect of increases in required reserves due to loan growth and net charge-offs totaling $45,000.

By comparison, the provision for credit losses of $10,145,000 during the six-months ended June 30, 2022 was generally comprised of $10,820,000 in association with the loans acquired from Valley Republic Bank and a net reversal of credit losses of $675,000.

The qualitative components of the ACL resulted in a net decline in required reserves due to continued improvement in US employment rates and tempered by a weaker outlook of US GDP.

Meanwhile, the quantitative component of the ACL increased reserve requirements over the trailing quarter due to loan volume growth partially offset by decreases in reserves associated with specifically evaluated loans.

The allowance for credit losses (ACL) was $101,488,000 as of September 30, 2022, a net increase of $3,544,000 over the immediately preceding quarter.

The provision for credit losses of $3,500,000 during the quarter was the net effect of increases in required reserves due to qualitative factors and individually analyzed credits.

In addition to the aforementioned quarterly increase, the provision for credit losses of $13,645,000 during the nine months ended September 30, 2022 was comprised of $10,820,000 in association with the loans acquired from Valley Republic Bank in the first quarter of 2022, and a net provision for credit losses of $2,825,000 associated with organic loan portfolio growth and the net changes in quantitative and qualitative factors associated with overall borrower performance.

For the quarter, the qualitative components of the ACL resulted in a net increase in required reserves, despite continued improvement in US employment rates, due to increased uncertainty in the global economic markets, concentration risks in commercial lending and the rapid rise in interest rates.

Meanwhile, the quantitative component of the ACL increased reserve requirements over the trailing quarter due to loan volume growth and increases in specific reserves totaling approximately $1,237,000.

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 included 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.

However, management notes that the majority of economic forecasts utilized in the ACL calculation have remained directionally consistent with preceding quarters, as general economic conditions continue to improve, albeit at a pace slower than expected due to unforeseen disruptions in the supply chain and increasing energy prices.

In addition, management notes that the actual and forecast increases in inflation that were previously identified by the Federal Reserve Board as "transitory", combined with overseas conflicts and leading to the rise in short-term interest rates and flattening or inversion of the yield curve, may be further indication of future economic contraction.

Inflation remains elevated from continued disruptions in the supply chain and high energy prices Despite the expected continued benefit to the net interest income of the Company from the elevated rate environment, Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have boosted expectations of the US entering a recession within 12 months and has led to the lowest levels of consumer sentiment in decades.

As a result, management continues to believe that certain credit weakness 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 decreased by $2,482,000 during the quarter ended June 30, 2022 to $5,920,000, as compared to $8,402,000 at March 31, 2022.

Non-performing loans were $11,925,000 at June 30, 2022, a decrease of $2,163,000 and $20,780,000 from $14,088,000 and $32,705,000 as of March 31, 2022 and June 30, 2021, respectively.

Loans past due 30 days or more increased by $551,000 during the quarter ended September 30, 2022 to $6,471,000, as compared to $5,920,000 at June 30, 2022.

Non-performing loans were $17,471,000 at September 30, 2022, an increase of $5,546,000 from $11,925,000 as of June 30, 2022, and a decrease of $11,319,000 from $28,790,000 as of September 30, 2021.

The current quarter change in non-performing assets is nearly entirely attributed to a single agriculture production relationship, which also was the primary contributor to the increase in specific reserves for the quarter.

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

June 30, % of Total Loans March 31, % of Total Loans June 30, % of Total Loans

September 30, % of Total Loans June 30, % of Total Loans September 30, % of Total Loans

(dollars in thousands) 2022 2022 2021

5 unchanged sentences

Loans past due 30+ days to total loans 0.10 % 0.10 % 0.22 %

The ratio of classified loans to total loans improved to 0.77% as of June 30, 2022 as compared to both 0.84% and 1.18% for the trailing quarter and same quarter of the prior year, respectively.

The Company's criticized loan balances decreased during the current quarter by approximately $17,309,000 to $152,640,000 as of June 30, 2022.

The improvement in criticized loans was the result of active management by the credit department, as there were no loan sales during the period.

The five largest criticized credits upgraded or paid off totaled approximately $8,800,000, and there were no charge-offs incurred in connection with the successful management of these credits.

There was one property added to other real estate owned totaling $375,000 during the quarter ended June 30, 2022, and no disposals.

As of June 30, 2022, other real estate owned consisted of nine properties with a carrying value of approximately $3,379,000.

Non-performing assets of $15,304,000 at June 30, 2022 represented 0.15% of total assets, a decrease from the $16,995,000 or 0.17% and $34,952,000 or 0.43% as of March 31, 2022 and June 30, 2021, respectively.

The improvement in non-performing assets during the current quarter was spread amongst several lending relationships.

The ratio of classified loans increased to 0.86% as of September 30, 2022 as compared to 0.77% in the trailing quarter, but improved by 17 basis points from the equivalent period in 2021.

The Company's criticized loan balances increased during the current quarter by approximately $27,846,000 to $180,486,000 as of September 30, 2022.

There were no charge-offs incurred in connection with these loans and management continues to work toward resolution with the borrowers.

There were two properties added to other real estate owned totaling $443,000 during the quarter ended September 30, 2022, and two disposals totaling $394,000.

As of September 30, 2022, other real estate owned consisted of nine properties with a carrying value of approximately $3,441,000.

Non-performing assets of $20,912,000 at September 30, 2022 represented 0.21% of total assets, a slight change but generally in line with the $15,304,000 or 0.15% and $31,440,000 or 0.37% as of June 30, 2022 and September 30, 2021, respectively.

SBA Paycheck Protection Program and COVID Deferrals

4 unchanged sentences

The following is a summary of PPP loan related information as of the periods indicated:

(dollars in thousands) June 30, 2022 December 31, 2021 June 30, 2021

(dollars in thousands) September 30, 2022 December 31, 2021 September 30, 2021

Total number of PPP loans outstanding 16 450 1,449

6 unchanged sentences

Total PPP deferred loan fees (costs) outstanding $ 27 $ 2,164 $ 6,013

As of September 30, 2022, there was approximately $27,000 in net deferred fee income remaining to be recognized.

During the three months ended September 30, 2022, the Company recognized $291,000 in fees on PPP loans as compared with $872,000 and $2,984,000 for the three months ended June 30, 2022 and September 30, 2021, respectively.

Based on the payment guarantee provided by the SBA as well as the expected short-term duration of the PPP loans acquired from VRB, the fair value of these loans approximates the principal balance outstanding as of the merger date, and therefore, no purchase discount was recorded.

Non-interest Income

1 unchanged sentence

Three months ended

September 30,

(in thousands) 2022 2021 $ Change % Change

15 unchanged sentences

Total non-interest income $ 15,640 $ 15,095 $ 545 3.6 %

Non-interest income increased $473,000 or 3.0% to $16,430,000 during the three months ended June 30, 2022, compared to $15,957,000 during the quarter ended June 30, 2021.

Generally, the quarter over quarter changes are reflective of increases following the VRB merger on March 25, 2022.

As an outlier, the gain on sale of mortgage loans declined by $2,305,000 or 81.0% during the quarter ended June 30, 2022, attributed to the rapidly rising rate environment and resulting decline in mortgage application and origination volumes as compared to the equivalent period in 2021.

Six months ended June 30,

Non-interest income increased $545,000 or 3.6% to $15,640,000 during the three months ended September 30, 2022, compared to $15,095,000 during the quarter ended September 30, 2021.

Generally, the increases in recurring non-interest income items reflects the VRB merger timing.

As noted above, decreasing mortgage related activity reduced the gain on sale of loans recorded during the quarter by $1,457,000 or 80.3%, as compared to the three months ended September 30, 2021.

Further, changes in the value of mortgage service rights, while lesser in magnitude, typically have an inverse relationship with changes in mortgage banking activities.

Nine months ended September 30,

(in thousands) 2022 2021 $ Change % Change

15 unchanged sentences

Total non-interest income $ 47,166 $ 47,162 $ 4 — %

The changes in non-interest income for the six months ended June 30, 2022 and 2021 are generally consistent with changes in the three months periods discussed above.

The changes in non-interest income for the nine months ended September 30, 2022 and 2021 are generally consistent with changes in the three months periods discussed above.

Non-interest Expense

1 unchanged sentence

Three months ended

September 30,

(in thousands) 2022 2021 $ Change % Change

22 unchanged sentences

Average full time equivalent staff 1,198 1,049 149 14.2 %

Non-interest expense increased by $12,093,000 or 27.4% to $56,264,000 during the three months ended June 30, 2022 as compared to $44,171,000 for the three months ended June 30, 2021.

Total salaries and benefits expense increased by $5,861,000 or 21.6% to $32,942,000 for the three months ended June 30, 2022 as compared to $27,081,000 for the quarterly period ended June 30, 2021 as a direct result of increases in full-time equivalent staffing similarly increasing by 16.0%, or 163 FTE, following the acquisition with VRB (representing 99 FTE) during the first quarter of 2021, new loan production offices in Southern California opened during the third quarter of 2021, and other staffing increases resulting from organic growth.

Merger and acquisition expenses associated with the merger with VRB totaled $2,221,000 during the current quarter.

Six months ended June 30,

Generally, the increases in recurring non-interest expense items reflect the VRB merger timing of March 25, 2022, and therefore, related expenses for the combined entities, less certain realized cost savings, are only being captured within the most recent three months ended September 30, 2022.

Total non-interest expense increased $8,658,000 or 18.9% to $54,465,000 during the three months ended September 30, 2022 as compared to $45,807,000 for the quarter ended September 30, 2021.

Total salaries and benefits expense increased by $7,254,000 or 27.6% to $33,528,000, largely from a net increase of 99 full-time equivalent positions following the aforementioned merger with VRB, the build out of other loan production and compliance teams, and the continued strength of organic growth within the loan portfolio driving incentive compensation expense.

Nine months ended September 30,

(in thousands) 2022 2021 $ Change % Change

22 unchanged sentences

Average full-time equivalent staff 1,155 1,031 124 12.0 %

The changes in non-interest expense for the six months ended June 30, 2022 and 2021 are generally consistent with changes in the comparable three months periods discussed above.

The Company’s effective tax rate was 27.5% for the six months ended June 30, 2022, as compared to 28.1% for the year ended December 31, 2021.

The changes in non-interest expense for the nine months ended September 30, 2022 and 2021 are generally consistent with changes in the comparable three months periods discussed above.

The Company’s effective tax rate was 27.5% for the nine months ended September 30, 2022, as compared to 28.1% for the year ended December 31, 2021.

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.

2 unchanged sentences

The following is a comparison of the quarterly change in certain assets and liabilities:

Ending balances June 30, March 31, Annualized

Ending balances September 30, June 30, Annualized

(dollars in thousands) 2022 2022 $ Change

4 unchanged sentences

Total deposits $ 8,655,769 $ 8,756,775 $ (101,006) (4.6) %

Organic loan growth, excluding PPP, of $300,297,000 or 20.7% on an annualized basis was realized during the quarter ended June 30, 2022, primarily within commercial real estate.

During the quarter, and exclusive of PPP balance changes, loan originations totaled approximately $697 million while payoffs of loans totaled $397 million, which compares to origination and payoff activity during the three months ended March 31, 2022 of $396 million and $225 million, respectively.

While management believes that loan pipelines are robust,

loan activity during the quarter is reflective of increased customer awareness of the rising interest rate environment.

Investment security growth was $233,109,000 or 36.3% on an annualized basis as excess liquidity from strong deposit growth during the trailing 12 month period was put to use in higher yielding earning assets.

Deposit balances increased, with an organic change of $42,298,000 or 1.9% annualized during the period.

Organic loan growth, excluding PPP, of $216,681,000 or 14.2% on an annualized basis was realized during the quarter ended September 30, 2022, primarily within commercial real estate.

During the quarter, and exclusive of PPP balance changes, loan originations/draws totaled approximately $737.0 million while payoffs/repayments of loans totaled $536.0 million, which compares to origination/draws and payoff/repayments activity during the three months ended June 30, 2022 of $697.0 million and $397.0 million, respectively.

management believes that loan pipelines remain sufficient to support loan growth, loan pipeline activity may moderate as customer awareness of the rising interest rate environment weighs more heavily on their decision making criteria.

Investment security balances decreased $134,670,000 or 19.2% on an annualized basis as the result of declines in market values grew, and prepayments or maturities from the portfolio were utilized to augment the Company's overall balance sheet position.

Deposit balances also decreased, with a change of $101,006,000 or 4.6% annualized during the period.

The following is a comparison of the year over year change in certain assets and liabilities:

Ending balances As of June 30, Acquired Balances Organic

Ending balances As of September 30, 2022 Acquired Balances Organic

$ Change Organic

5 unchanged sentences

Total deposits $ 8,655,769 $ 7,236,822 $ 1,418,947 $ 1,215,479 $ 203,468 2.8 %

Non-PPP loan balances have increased as a result of organic activities by approximately $638,387,000 during the twelve month period ending June 30, 2022.

This, combined with earning assets acquired in the merger with Valley Republic Bank, has led to a long-term beneficial and meaningful shift in the makeup of the loan portfolio.

Specifically, during the twelve months ended June 30, 2022 and excluding PPP balance changes, loan originations totaled approximately $2.2 billion while payoffs of loans totaled $1.6 billion.

Investment securities increased to $2,802,815,000 at June 30, 2022, an organic change of $589,524,000 or 28.0% from the prior year.

Non-PPP loan balances have increased as a result of organic activities by approximately $824.3 million during the twelve month period ending September 30, 2022.

Investment securities increased to $2.7 billion at September 30, 2022, an organic change of $225.4 million or 9.7% from the prior year.

When combined with balances acquired from Valley Republic Bank, this represents an increase of nearly $1.8 billion in earning assets during the last twelve months.

Investment Securities

Investment securities available for sale increased $398,127,000 to $2,606,065,000 as of June 30, 2022, compared to December 31, 2021.

Investment securities available for sale increased $272,327,000 to $2,480,265,000 as of September 30, 2022, compared to December 31, 2021.

This increase is primarily supported by deposit growth and available cash reserves.

There were no sales of investment securities during the three and six months ended June 30, 2022 and 2021, respectively.

The following table presents the available for sale debt securities portfolio by major type as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

There were no sales of investment securities during the three and nine months ended September 30, 2022 and 2021, respectively.

The following table presents the available for sale debt securities portfolio by major type as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

(in thousands) Fair Value % Fair Value %

7 unchanged sentences

Total debt securities available for sale $ 2,480,265 100.0 % $ 2,207,938 100.0 %

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in thousands) Amortized

5 unchanged sentences

Total debt securities held to maturity $ 168,038 100.0 % $ 199,759 100.0 %

Investment securities held to maturity decreased $22,965,000 to $176,794,000 as of June 30, 2022, as compared to December 31, 2021.

Investment securities held to maturity decreased $31,721,000 to $168,038,000 as of September 30, 2022, as compared to December 31, 2021.

This decrease is attributable to calls and principal repayments of $31,421,000, and amortization of net purchase premiums of $6,564,000.

3 unchanged sentences

The majority of the Company’s loans are direct loans made to individuals, farmers and local businesses.

The Company relies substantially on local promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions.

The Company relies substantially

on local promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions.

The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment.

The following table shows the Company’s loan balances, net deferred loan costs and discounts, as of the dates indicated:

(in thousands) June 30, 2022 December 31, 2021

(in thousands) September 30, 2022 December 31, 2021

Commercial real estate $ 4,238,930 67.1 % $ 3,306,054 67.2 %

8 unchanged sentences

“Performing nonaccrual loans” are loans that may be current for both principal and interest payments, or are less than 90 days past due, but for which payment in full of both principal and interest is not expected, and are not well secured and in the process of collection:

(in thousands) June 30,

(in thousands) September 30,

2022 December 31,

9 unchanged sentences

Allowance for credit losses to nonperforming loans 581 % 294 %

Changes in nonperforming assets during the three months ended June 30, 2022

Changes in nonperforming assets during the three months ended September 30, 2022

(in thousands) Balance at

March 31, 2022 New NPA /

June 30, 2022 New NPA /

Adjustments Pay-downs

/Upgrades Charge-offs/ (1)

Assets Balance at June 30, 2022

Assets Balance at September 30, 2022

Commercial real estate:

16 unchanged sentences

(1) The table above does not include deposit overdraft charge-offs.

Nonperforming assets decreased during the three months ended June 30, 2022 by $1,689,000 or 9.9% to $15,304,000 at June 30, 2022 compared to $16,995,000 at March 31, 2022.

The decrease in nonperforming assets during the second quarter of 2022 was primarily the result of pay-downs on non-performing loans, which totaled $2,566,000 during the quarter.

The nonperforming loans added during the period totaled just $1,075,000.

Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the credit loss reserves associated with these loans is sufficient as of June 30, 2022.

Loan charge-offs during the three months ended June 30, 2022

In the second quarter of 2022, the Company recorded $298,000 in loan charge-offs and $103,000 in deposit overdraft charge-offs less $319,000 in loan recoveries and $37,000 in deposit overdraft recoveries, which collectively resulted in $45,000 of net charge-offs.

Changes in nonperforming assets during the six months ended June 30, 2022

Nonperforming assets increased during the three months ended September 30, 2022 by $5,608,000 or 36.6% to $20,912,000 at September 30, 2022 compared to $15,304,000 at June 30, 2022.

The increase in nonperforming assets during the third quarter of 2022 was primarily the result of nonperforming loans added during the period totaling $7,266,000.

Loan charge-offs during the three months ended September 30, 2022

In the third quarter of 2022, the Company recorded $142,000 in loan charge-offs and $125,000 in deposit overdraft charge-offs less $281,000 in loan recoveries and $29,000 in deposit overdraft recoveries, which collectively resulted in $44,000 of net recoveries.

Changes in nonperforming assets during the nine months ended September 30, 2022

(in thousands) Balance at

2 unchanged sentences

/Upgrades Charge-offs/ (1)

Assets Balance at

June 30, 2022

Assets Balance at September 30, 2022

Commercial real estate:

17 unchanged sentences

The following table sets forth the allowance for credit losses as of the dates indicated:

(in thousands) June 30,

(in thousands) September 30,

2022 December 31,

2021 June 30,

2021 September 30,

Allowance for credit losses:

5 unchanged sentences

For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see “Asset Quality and Loan Loss Provisioning” at “Results of Operations” , above.

Based on the current conditions of the loan portfolio, management believes that the $97,944,000 allowance for loan losses at June 30, 2022 is adequate to absorb probable losses inherent in the Bank’s loan portfolio.

Based on the current conditions of the loan portfolio, management believes that the $101,488,000 allowance for loan losses at September 30, 2022 is adequate to absorb probable losses inherent in the Bank’s loan portfolio.

No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

The following table summarizes the allocation of the allowance for credit losses between loan types and by percentage of the total allowance for loan losses as of the dates indicated:

(in thousands) June 30, 2022 December 31, 2021 June 30, 2021

(in thousands) September 30, 2022 December 31, 2021 September 30, 2021

Commercial real estate $ 58,640 57.8 % 51,140 59.9 % $ 50,729 60.2 %

6 unchanged sentences

The following table summarizes the allocation of the allowance for credit losses as a percentage of the total loans for each loan category as of the dates indicated:

(in thousands) June 30, 2022 December 31, 2021 June 30, 2021

(in thousands) September 30, 2022 December 31, 2021 September 30, 2021

Commercial real estate 1.38 % 1.55 % 1.57 %

7 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in thousands) 2022 2021 2022 2021

35 unchanged sentences

Ratios (annualized):

Net recoveries during period to average loans outstanding during period — % 0.02 % 0.01 % 0.03 %

Net recoveries (charge-offs) during period to average loans outstanding during period — % (0.02) % 0.02 % 0.01 %

Provision for credit losses (benefit from reversal of) to average loans outstanding during period 0.11 % (0.12) % 0.48 % (0.32) %

Foreclosed Assets, Net of Allowance for Losses

The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the six months ended June 30, 2022:

The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the nine months ended September 30, 2022:

(in thousands) Balance at

1 unchanged sentence

Adjustments Transfers

from Loans Balance at June 30, 2022

from Loans Balance at September 30, 2022

Land & construction $ 155 $ — $ — $ 313 $ 468

2 unchanged sentences

Total foreclosed assets $ 2,594 $ (394) $ 110 $ 1,131 $ 3,441

During the three and six months ended June 30, 2022, the Company’s deposits increased by $42,298,000 and $1,389,616,000 to $8,756,775,000 at quarter end.

Included in the June 30, 2022 and December 31, 2021 certificate of deposit balances is zero and $1,000,000, respectively, from the State of California.

During the three months ended September 30, 2022, the Company’s deposits decreased by $101,006,000.

During the 12-month period ended September 30, 2022, the Company's deposits have increased by $1,418,947,000, including $1,215,479,000 that were acquired through the VRB merger.

Off-Balance Sheet Arrangements

6 unchanged sentences

The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations).

Concurrently with the announcement of the completion of the VRB merger, the Company announced the resumption of its 2021 Repurchase Plan planned activities.

During the three and six month period ended June 30, 2022, the Company repurchased 526,749 shares with a market value of $21,750,000, respectively.

Total shareholders' equity decreased by $67,005,000 during the quarter ended June 30, 2022, as a result of an increase in accumulated other comprehensive losses of $68,611,000, share repurchases totaling approximately $21,750,000, and cash dividend payments on common stock of $8,360,000, partially offset by net income of $31,364,000.

As a result, the Company’s book value was $31.25 per share at June 30, 2022 as compared to $32.78 and $32.53 at March 31, 2022, and June 30, 2021, 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 $21.41 per share at June 30, 2022, as compared to $23.04 and $24.60 at March 31, 2022, and June 30, 2021, respectively.

During the three and nine month period ended September 30, 2022, the Company repurchased 45,132 and 571,881 shares with a market value of $2,059,000 and $23,809,000, respectively.

Management's decisions as to the timing and extent of share repurchases is influenced by a variety of factors, including but not limited to;

the market ask price for TCBK stock, internal capital adequacy projections and projected regulatory capital ratios.

Total shareholders' equity decreased by $51,839,000 during the quarter ended September 30, 2022, as a result of an increase in accumulated other comprehensive losses of $76,740,000, share repurchases totaling approximately $2,059,000 and cash dividend payments on common stock of $10,004,000, partially offset by net income of $37,338,000.

As a result, the Company’s book value was $29.71 per share at September 30, 2022 as compared to $31.25 and $33.05 at June 30, 2022, and September 30, 2021, respectively.

Changes in the book value were also impacted by the issuance of common stock associated with the acquisition of VRB.

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 $19.92 per share at September 30, 2022, as compared to $21.41 and $25.16 at June 30, 2022, and September 30, 2021, respectively.

Trailing Quarter Balance Sheet Change

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Ratio Minimum

5 unchanged sentences

See Note 10 and Note 16 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources.

As of June 30, 2022, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depositary shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings.

As of September 30, 2022, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depository shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings.

Each issuance under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued.

1 unchanged sentence

Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings and compliance with current and prospective covenants in credit agreements.

The Company’s principal source of asset liquidity is cash at the Federal Reserve Bank of San Francisco (“Federal Reserve”) and other banks and marketable investment securities available for sale.

As of June 30, 2022, Federal Reserve cash reserve ratios continue to be temporarily reduced to zero as a response to the worldwide COVID-19 pandemic and on-going impact on supply chains and the energy markets.

The Company’s profitability during the first six months of 2022 generated cash flows from operations of $72,140,000 compared to $58,806,000 during the first six months of 2021.

Net cash used by investing activities was $472,710,000 for the six months ended June 30, 2022, compared to net cash used by investing activities of $570,986,000 during the six months ending 2021.

Financing activities provided $121,017,000 during the six months ended June 30, 2022, compared to $482,369,000 used during the six months ended June 30, 2021.

During the six months ended June 30, 2022 cash acquired in connection with the VRB merger of $426,883,000 and deposit balance increases of $174,137,000 were the largest contributor to the source of funding that facilitated net organic loan growth of $423,407,000 and net organic investment security growth of $282,464,000, inclusive of changes in the fair value of available for sale investment securities, compared to an increase of deposit balances of $486,119,000 during the same period in 2021.

The Company’s principal source of asset liquidity is cash maintained at the Federal Reserve Bank of San Francisco (“Federal Reserve”) and other banks and marketable investment securities classified as available for sale.

As of September 30, 2022, Federal Reserve required cash reserve ratios continue to be temporarily reduced to zero as a response to the worldwide COVID-19 pandemic and on-going impact on supply chains and the energy markets.

The Company’s profitability during the first nine months of 2022 generated cash flows from operations of $107,991,000 compared to $99,919,000 during the first nine months of 2021.

Net cash used by investing activities was $648,487,000 for the nine months ended September 30, 2022, compared to net cash used by investing activities of $752,929,000 during the nine months ending 2021.

Financing activities provided $18,584,000 during the nine months ended September 30, 2022, compared to $723,695,000 used during the nine months ended September 30, 2021.

During the nine months ended September 30, 2022 cash acquired in connection with the VRB merger of $426,883,000 and proceeds from the maturity of available for sale securities of $212,501,000 were the largest contributors to the source of funding that facilitated net organic loan growth of approximately $626,000,000 and net organic investment security growth of approximately $162,000,000, inclusive of changes in the fair value of available for sale investment securities, compared to an increase of deposit balances of $730,888,000 during the same period in 2021.

The changes in contractual obligations of the Company and Bank, to include but not limited to term subordinated debt, operating leases, deferred compensation and supplemental retirement plans as well as off-balance sheet commitments such as unfunded loans and letters of credit.

These contractual obligations increased as a result of the merger with VRB during the quarter ended March 31, 2022, but organically, remained otherwise consistent with similar balances or totals as of December 31, 2021.

The Company maintains a collateralized line of credit with the FHLB.

Based on the FHLB stock requirements at June 30, 2022, this line provided for maximum borrowings of $2.42 billion of which none was outstanding.

As of June 30, 2022, the Company had designated investment securities with a fair value of $58,638,000 and loans totaling $3.97 billion as potential collateral under this collateralized line of credit with the FHLB.

The Company maintains a collateralized line of credit with the Federal Reserve Bank of San Francisco (“FRB”).

As of June 30, 2022, this line provided for maximum borrowings of $243,529,000 of which none was outstanding.

As of March 31, 2021, the Company has designated investment securities with fair value of $5,300 and loans totaling $347,786,000 as potential collateral under this collateralized line of credit with the FRB.

The following table identified certain liquidity source and capacity available to the Company as of the dates indicated:

(in thousands) September 30, 2022 December 31, 2021

FHLB advances

Borrowing capacity $ 2,434,714 $ 2,251,285

Amount utilized — —

Letters of credit — —

Amount available 2,434,714 2,251,285

FRB discount window

Borrowing capacity $ 255,603 $ 184,694

Amount utilized — —

Amount available 255,603 184,694

Unsecured lines of credit available $ 60,000 $ 60,000

Unencumbered debt securities $ 2,071,334 $ 1,984,241

The Company is dependent upon the payment of cash dividends by the Bank to service its commitments, which have historically included dividends to shareholders, scheduled debt service payments, and general operations.

2 unchanged sentences

However, the Company and its ability to generate liquidity through either the issuance of stock or debt, also serves as a potential source of strength for the Bank.

Dividends paid by the Company to holders of its common stock used $15,792,000 and $14,862,000 of cash during the six months ended June 30, 2022 and 2021, respectively.

Dividends paid by the Company to holders of its common stock used $25,796,000 and $22,291,000 of cash during the nine months ended September 30, 2022 and 2021, respectively.

The Company’s liquidity is dependent on dividends received from the Bank.

Dividends from the Bank are subject to certain regulatory restrictions.

TRICO BANCSHARES—NON-GAAP FINANCIAL MEASURES

Dollars in thousands)

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this filing contains certain non-GAAP financial measures.

Management has presented these non-GAAP financial measures in this filing 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 Nine months ended

(dollars in thousands) September 30,

2022 June 30,

2022 September 30,

2021 September 30,

2022 September 30,

Net interest margin

Acquired loans discount accretion, net:

Amount (included in interest income) $714 $1,677 $2,034 $3,714 $6,311

Effect on average loan yield 0.05 % 0.11 % 0.17 % 0.09 % 0.18 %

Effect on net interest margin (FTE) 0.03 % 0.07 % 0.10 % 0.06 % 0.11 %

Net interest margin (FTE) 4.02 % 3.67 % 3.50 % 3.71 % 3.61 %

Net interest margin less effect of acquired loan discount accretion (Non-GAAP) 3.99 % 3.60 % 3.40 % 3.65 % 3.50 %

PPP loans yield, net:

Amount (included in interest income) $313 $964 $3,507 $2,374 $12,549

Effect on net interest margin (FTE) 0.01 % 0.02 % 0.09 % 0.02 % 0.08 %

Net interest margin less effect of PPP loan yield (Non-GAAP) 4.02 % 3.65 % 3.42 % 3.69 % 3.53 %

Acquired loan discount accretion and PPP loan yield, net:

Amount (included in interest income) $1,027 $2,641 $5,541 $6,088 $18,860

Effect on net interest margin (FTE) 0.04 % 0.10 % 0.19 % 0.08 % 0.20 %

Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP) 3.98 % 3.57 % 3.31 % 3.63 % 3.41 %

Three months ended Nine months ended

(dollars in thousands) September 30,

2022 June 30,

2022 September 30,

2021 September 30,

2022 September 30,

Pre-tax pre-provision return on average assets or equity

Net income (GAAP) $37,338 $31,364 $27,422 $89,076 $89,433

Exclude income tax expense 14,148 11,748 11,534 33,765 35,644

Exclude provision (benefit) for credit losses 3,795 2,100 (1,435) 14,225 (7,755)

Net income before income tax and provision expense (Non-GAAP) $55,281 $45,212 $37,521 $137,066 $117,322

Average assets (GAAP) $10,131,118 $10,121,714 $8,348,111 $9,682,198 $8,096,273

Average equity (GAAP) $1,074,776 $1,091,454 $987,026 $1,058,938 $962,871

Return on average assets (GAAP) (annualized) 1.46 % 1.24 % 1.30 % 1.23 % 1.48 %

Pre-tax pre-provision return on average assets (Non-GAAP) (annualized) 2.16 % 1.79 % 1.78 % 1.89 % 1.94 %

Return on average equity (GAAP) (annualized) 13.78 % 11.53 % 11.02 % 11.25 % 12.42 %

Pre-tax pre-provision return on average equity (Non-GAAP) (annualized) 20.41 % 16.61 % 15.08 % 17.31 % 16.29 %

Three months ended Nine months ended

(dollars in thousands) September 30,

2022 June 30,

2022 September 30,

2021 September 30,

2022 September 30,

Return on tangible common equity

Average total shareholders' equity $1,074,776 $1,091,454 $987,026 $1,058,938 $962,871

Exclude average goodwill 307,942 307,942 220,872 281,151 220,872

Exclude average other intangibles 19,433 21,040 14,267 17,717 19,264

Average tangible common equity (Non-GAAP) $747,401 $762,472 $751,887 $760,070 $722,735

Net income (GAAP) $37,338 $31,364 $27,422 $89,076 $89,433

Exclude amortization of intangible assets, net of tax effect 1,199 1,199 992 3,263 3,008

Tangible net income available to common shareholders (Non-GAAP) $38,537 $32,563 $28,414 $92,339 $92,441

Return on average equity 13.78 % 11.53 % 11.02 % 11.25 % 12.42 %

Return on average tangible common equity (Non-GAAP) 20.46 % 17.13 % 14.99 % 16.24 % 17.10 %

Three months ended

(dollars in thousands) September 30,

2022 June 30,

2022 March 31,

2022 December 31,

2021 September 30,

Tangible shareholders' equity to tangible assets

Shareholders' equity (GAAP) $990,338 $1,042,177 $1,109,182 $1,000,184 $982,014

Exclude goodwill and other intangible assets, net 326,314 328,016 329,718 233,241 234,434

Tangible shareholders' equity (Non-GAAP) $664,024 $714,161 $779,464 $766,943 $747,580

Total assets (GAAP) $9,976,879 $10,120,611 $10,118,328 $8,614,787 $8,458,030

Exclude goodwill and other intangible assets, net 326,314 328,016 329,718 233,241 234,434

Total tangible assets (Non-GAAP) $9,650,565 $9,792,595 $9,788,610 $8,381,546 $8,223,596

Shareholders' equity to total assets (GAAP) 9.93 % 10.30 % 10.96 % 11.61 % 11.61 %

Tangible shareholders' equity to tangible assets (Non-GAAP) 6.88 % 7.29 % 7.96 % 9.15 % 9.09 %

Three months ended

(dollars in thousands) September 30,

2022 June 30,

2022 March 31,

2022 December 31,

2021 September 30,

Tangible common shareholders' equity per share

Tangible s/h equity (Non-GAAP) $664,024 $714,161 $779,464 $766,943 $747,580

Common shares outstanding at end of period 33,332,189 33,350,974 33,837,935 29,730,424 29,714,609

Common s/h equity (book value) per share (GAAP) $29.71 $31.25 $32.78 $33.64 $33.05

Tangible common shareholders' equity (tangible book value) per share (Non-GAAP) $19.92 $21.41 $23.04 $25.80 $25.16

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What changed 10-Q

Item 2. Management’s Discussion and Analysis