What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-03-01 · 175 added, 158 removed, 742 unchanged (31% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Overview

The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and the Bank’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the consolidated financial statements of the Company and the related notes at Item 8 of this report.

In March 2022, the Company closed the acquisition of Valley Republic Bancorp.

Historical periods prior to March 25, 2022 reflect results of legacy Trico Bancshares operations.

Subsequent to closing, results reflect all post-acquisition activity.

For further information, refer to Note 2 “Business Combinations” of the Notes to Consolidated Financial Statements.

Financial Overview

In 2022, the Company reported net income of $125,419,000, a $7,764,000 or 6.6% increase from the prior year.

Earnings per share on a diluted basis for the year were $3.83, down 2.8% from the prior year.

The current year net income reported was negatively impacted by acquisition-related expenses totaling $6,253,000, compared to $1,523,000 in the prior year.

In 2022, net interest income was reported at $345,976,000, an increase of $74,437,000 or 27.4% from the prior year.

Net interest income on a fully tax equivalent (FTE) basis, a non-GAAP financial measure, was $347,536,000, an increase of $74,926,000, or 27.4%, from 2021.

The increase in FTE net interest income reflected the benefit of a $1,352,778,000, or 17.8%, increase in average earning assets in addition to a 30 basis point increase in the FTE net interest marign to 3.88%.

Average earning asset growth included an $990,559,000, or 20.3%, increase in average loans and leases and an $573,720,000, or 26.3%, increase in average securities.

25 TriCo Bancshares 2022 10-K

balances across earning asset categories reflect organic growth in addition to the late first quarter 2022 VRB acquisition.

The increase in average securities was additionally driven by the redeployment of excess liquidity into securities in the first half of 2022.

The net interest margin expansion was driven by the higher rate environment driving an increase in loan and lease and investment security yields, partially offset by higher cost of funds and the impact of lower accelerated PPP loan fees recognized upon forgiveness payments from the SBA in 2022.

The provision for credit losses increased $25,245,000 to $18,470,000, primarily due to the acquisition of VRB and organic loan and lease growth.

The allowance for credit losses (ACL) was $105,680,000, or 1.64% of total loans and leases, at December 31, 2022, compared to $85,376,000, or 1.74% of total loans and leases, at December 31, 2021.

The increase in the total ACL was primarily driven by loan and lease growth, while the overall risk profile of the loan portfolio continued to improve despite management's observation of future recessionary risks.

Noninterest income was $63,046,000, down $618,000, or 1%, from the prior year.

Noninterest expense was $216,645,000, up $38,370,000, or 21.5%, from the prior year.

The changes in noninterest income and noninterest expense were impacted by the VRB acquisition, completed in March 2022.

Noninterest income was additionally negatively impacted by a decline in gain on sale of mortgage loans totaling of $7,238,000, to $2,342,000 for the 2022 year.

The tangible common equity to tangible assets ratio, a non-GAAP financial measure, was 7.6% at December 31, 2022, down 161 basis points from December 31, 2021, primarily due to a decrease in tangible common equity related to elevated interest rates causing an increase in accumulated other comprehensive loss, partially offset by the retention of earnings.

26 TriCo Bancshares 2022 10-K

TRICO BANCSHARES

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Interest income and net interest income are shown on a non-FTE basis within Item 7 and Item 8 of this report, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion of net interest income.

27 TriCo Bancshares 2022 10-K

Critical Accounting Policies and Estimates

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Actual results could differ significantly from those estimates.

The estimate that is particularly susceptible to significant change is the determination of the provision and allowance for credit losses (ACL).

Our most significant accounting policies and estimates and their related application are discussed below.

Allowance for Credit Losses

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Allowance factors for loan pools were based on historical loss experience by product type and prior risk rating.

Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Management estimates the ACL balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life.

The Company identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period.

The Company has identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period.

In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate.

Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination.

In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets.

In its current expected credit loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets.

These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses.

These variables include, but are not limited to, changes in environmental conditions, such as California unemployment rates, household debt levels and U.S.

These variables include, but are not limited to, changes in environmental conditions, such as California unemployment rates, household debt levels, the pace of change in corporate bond yields, and U.S.

gross domestic product.

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The segregation of these loans is based on the results from analysis of identified credits that meet management’s criteria for specific evaluation.

These loans are first reviewed individually to determine if such loans are considered impaired.

Impaired loans are those where management has concluded that it is probable that the borrower will be unable to pay all amounts due under the original contractual terms and are removed from the pools of loans collectively evaluated.

When, as a result of this evaluation, a loan is identified as impaired they are then specifically reviewed and evaluated individually by management for loss potential by evaluating sources of repayment, including collateral as applicable, and a specified allowance for loan losses is established where necessary.

By definition, any loan that management has placed on non-accrual is considered impaired, however, not all impaired loans need be placed on non-accrual.

These loans are first reviewed individually to determine if such loans have a unique risk profile that would warrant individual evaluation.

Loans where management has concluded that it is probable that the borrower will be unable to pay all amounts due under the original contractual terms are removed from the pools of loans collectively evaluated.

They are then specifically reviewed and evaluated individually by management for loss potential by evaluating sources of repayment, including collateral as applicable, and a specified allowance for credit losses is established where necessary.

By definition, any loan that management has placed on non-accrual is required to be individually evaluated, however, not all individually evaluated loans need be placed on non-accrual.

Because current economic conditions and forecasts can change and future events make it inherently difficult to predict the anticipated amount of estimated credit losses on loans, management's determination of the appropriateness of the ACL, could change significantly.

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For the purpose of describing the geographical location of the Company’s operations, the Company has defined northern California as that area of California north of, and including, Stockton to the east and San Jose to the west;

central California as that area of the state south of Stockton and San Jose, to and including, Bakersfield to the east and San Luis Obispo to the west;

central California as that area of the state south of

28 TriCo Bancshares 2022 10-K

Stockton and San Jose, to and including, Bakersfield to the east and San Luis Obispo to the west;

and southern California as that area of the state south of Bakersfield and San Luis Obispo.

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Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company.

Within Management’s Discussion and Analysis of Financial Condition and Results of Operations, certain performance measures including interest

income, net interest income, net interest yield, and efficiency ratio are generally presented on a fully tax-equivalent (FTE) basis.

The Company believes

the use of these non-generally accepted accounting principles (non-GAAP) measures provides additional clarity in assessing its results.

Within Management’s Discussion and Analysis of Financial Condition and Results of Operations, certain performance measures including interest income, net interest income, net interest yield, and efficiency ratio are generally presented on a fully tax-equivalent (FTE) basis.

The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provides additional clarity in assessing its results.

Net Interest Income

The Company’s primary source of revenue is net interest income, which is the difference between interest income on earning assets and interest expense on interest-bearing liabilities.

Following is a summary of the Company’s net interest income for the periods indicated (dollars in thousands):

Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds).

The level of net interest income is primarily a function of the difference between the effective yield on our average interest-earning assets and the effective cost of our interest-bearing liabilities.

These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates.

For further discussion, refer to “—Risk Factors – Risks Related to Interest Rates.” Following is a summary of the Company’s net interest income for the periods indicated (dollars in thousands):

Year ended December 31,

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Net interest income (FTE) during the year ended December 31, 2022 increased $74,926,000 or 27.5% to $347,536,000 compared against $272,610,000 during the year ended December 31, 2021.

The increase amount of net interest income is reflective of growth in total average loan balances outstanding during 2021, which increased by $229,796,000 or 4.9% from December 31, 2020.

The increased amount of net interest income reflects growth in both total average loan and investment balances outstanding and the correlated yields, during 2022.

Average loan balances, inclusive of acquisitions, increased by $1,496,541,000 or 30.4% from December 31, 2021.

The yield on interest earning assets was 3.98% and 3.65% for the years ended December 31, 2022 and 2021, respectively.

This 46 basis point decrease in total earning asset yield was primarily attributable to a 23 basis point decrease in non-PPP loan yields and a 66 basis point decrease in yields on total investments.

Of the 23 basis point decrease in yields on loans, a 21 basis point decline was attributable to decreases in market rates, in addition to 2 basis point from the accretion of purchased loans.

The costs of total interest bearing liabilities decreased 12 basis points to 0.13% during the year ended December 31, 2021, as compared to 0.25% for the year ended December 31, 2020.

During the same period, costs associated with interest bearing deposits decreased by 10 basis points to 0.08% as compared to 0.18% in the prior year.

The decrease in interest expense for the year ended December 31, 2021, as compared to the trailing year, was due largely to the decreased rate environment benefiting both the interest-bearing deposit expense and other borrowings interest expense.

This 33 basis point increase in total earning asset yield was primarily attributable to a 11 basis point decrease in total loan yields and a 85 basis point increase in yields on total investments.

Of the 11 basis point decrease in yields on loans, a 3 basis point decline was attributable to decreases in market rates, as well as an 8 basis point benefit from the accretion of purchased loans.

The costs of total interest bearing liabilities increased 6 basis points to 0.19% during the year ended December 31, 2022, as compared to 0.13% for the year ended December 31, 2021.

During the same period, costs associated with interest bearing deposits increased by 2 basis points to 0.10% as compared to 0.08% in the prior year.

The increase in interest expense for the year ended December 31, 2022, as compared to the trailing year, was due largely to the increased rate environment for both the interest-bearing deposit expense and other borrowings interest expense.

Net interest income (FTE) during the year ended December 31, 2021 increased $13,814,000 or 5.3% to $272,610,000 compared against $258,796,000 during the year ended December 31, 2020.

The relatively unchanged amount of net interest income is reflective of the declining rate environment during the year ended December 31, 2020, as total average loan balances increased by approximately $534,912,000 in 2020, and excluding PPP loans, average loan balances increased by approximately $250,586,000 compared to December 31, 2019.

The yield on interest earning assets was 4.11% and 4.74% for the year ended December 31, 2020 and 2019, respectively.

The increase amount of net interest income reflects growth in total average loan balances outstanding during 2021, which increased by $229,796,000 or 4.9% from December 31, 2020.

The yield on interest earning assets was 3.65% and 4.11% for the years ended December 31, 2021 and 2020, respectively.

This 46 basis point decrease in total earning asset yield was primarily attributable to a 23 basis point decrease in non-PPP loan yields and a 66 basis point decrease in yields on total investments.

Of the 33 basis point decrease in yields on loans, a 32 basis point decline was attributable to decreases in market rates, offset partially by 1 basis point from the accretion of purchased loans.

The decreases in yields on earning assets are consistent with decreased funding expenses as the costs of total interest bearing liabilities decreased 17 basis points to 0.25% during the year ended December 31, 2020, as compared to 0.42% for the year ended December 31, 2019.

Of the 23 basis point decrease in yields on loans, a 21 basis point decline was attributable to decreases in market rates, in addition to 2 basis points from the accretion of purchased loans.

The costs of total interest bearing liabilities decreased 12 basis points to 0.13% during the year ended December 31, 2021, as compared to 0.25% for the year ended December 31, 2020.

During the same period, costs associated with interest bearing deposits decreased by 10 basis points to 0.08% as compared to 0.18% in the prior year.

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For more information related to loan interest income, including loan purchase discount accretion, see the Summary of Average Balances, Yields/Rates and Interest Differential and Note 27 to the consolidated financial statements at Part II, Item 8 of this report.

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(3) Net interest margin is computed by dividing net interest income by total average earning assets.

30 TriCo Bancshares 2022 10-K

Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid – Volume/Rate Tables

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Increase in net interest income $ 122,007 $ (47,082) $ 74,925 $ 36,269 $ (22,455) $ 13,814

Ending balances As of December 31, $ Change % Change

($’s in thousands) 2021 2020

Year Over Year Balance Sheet Change

Ending balances As of December 31, Acquired Balances Organic

$ Change Organic

($’s in thousands) 2022 2021 $ Change

Total assets $ 9,930,986 $ 8,614,787 $ 1,316,199 $ 1,363,529 $ (47,330) (0.5) %

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Total deposits 8,329,013 7,367,159 961,854 1,215,479 (253,625) (3.4)

Total other borrowings $ 264,605 $ 50,087 $ 214,518 $ — $ 214,518 428.3 %

Provision for Credit Losses

The provision for credit losses during any period is the sum of the allowance for credit losses required at the end of the period and any charge offs during the period, less the allowance for credit losses required at the beginning of the period, and less any recoveries during the period.

The provision for credit losses during any period is the sum of the allowance for credit losses required at the end of the period and any net charge-offs during the period, less the allowance for credit losses required at the beginning of the period, and less any recoveries during the period.

See the Tables labeled “Allowance for Credit Losses – December 31, 2022 and 2021” at Note 5 in Item 8 of Part II of this report for the components that make up the provision for credit losses for the years ended December 31, 2022 and 2021.

The Company adopted and implemented ASU 2016-13, referred to as the Current Expected Credit Loss (CECL), on January 1, 2020 which resulted in an increase in the ACL for loans totaling $18,913,000, including a reclassification of $481,000 from discounts on acquired loans to the allowance for credit losses, as a cumulative effect adjustment from change in accounting policies, with a corresponding decrease in retained earnings, net of $5,449,000 in taxes of $12,983,000.

Management also separately evaluated its held-to-maturity investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years, and based on this evaluation, no loss reserves were recorded for these securities at the time of adoption.

The Company recorded a provision for credit losses of $18,470,000 during the year ended December 31, 2022, versus a reversal of credit losses totaling $6,775,000 during the trailing year end.

The increase in required provisioning during 2022 was largely attributed to the $10,820,000 in day 1 required reserves from loans acquired in connection with the VRB merger in the first quarter of 2022.

Additionally, the Company designated certain loans and leases purchased from VRB as PCD, which required $2,037,000 in additional credit reserves as of the acquisition date.

For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment.

The remaining increase in the allowance for credit reserves was the result of changes in loan volume and changes in credit quality associated with levels of classified, past due and non-performing loans in addition to changes in qualitative factors.

The Company recorded a reversal of credit loses of $6,775,000 during the year ended December 31, 2021, versus a provision for credit losses totaling $42,813,000 during the trailing year end.

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Quantitative reserves calculated using the Company's cohort loss model totaled $25,521,000 at December 31, 2021, a decline of $4,391,000 or 14.7% from the trailing period December 31, 2020.

The Company adopted CECL on January 1, 2020, and recorded total credit provisions of $42,813,000 during 2020 based on the "forward-looking" nature of the accounting guidance, coupled with the severe impact on both domestic and foreign markets from the COVID-19 pandemic.

Specifically, the qualitative factors associated with forecast levels of California unemployment and declines in gross domestic product, alone contributed to a level of calculated required reserves totaling approximately $60,563,000 as of December 31, 2020.

31 TriCo Bancshares 2022 10-K

Net recoveries for the year ended December 31, 2022 totaled $322,000 as compared to $694,000 for the year ended December 31, 2021.

Total nonperforming loans increased 5 basis points to 0.61% of total loans at December 31, 2021 from 0.56% of total loans at December 31, 2020.

For further details of the change in nonperforming loans during the year ended December 31, 2021 see the Tables, and associated narratives, labeled “Changes in nonperforming assets during the year ended December 31, 2021” and “Changes in nonperforming assets during the three months ended December 31, 2021” under the heading “Asset Quality and Non-Performing Assets ” below.

Total nonperforming loans declined by 28 basis points to 0.33% of total loans at December 31, 2022 from 0.61% of total loans at December 31, 2021.

For further details of the change in nonperforming loans during the period ended December 31, 2022 see the Tables, and associated narratives, labeled “Changes in nonperforming assets during the year ended December 31, 2022” and “Changes in nonperforming assets during the three months ended December 31, 2022” under the heading “Asset Quality and Non-Performing Assets ” below.

The following table summarizes the components of the provision for (benefit to) credit losses during the periods indicated (dollars in thousands):

Year ended December 31,

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Change in reserve for unfunded loan commitments

$ 390 $ 625 $ 200

(1) Changes to the reserve for unfunded commitments was recorded in other noninterest expense prior to adoption of CECL on January 1, 2020.

Total provision for (benefit to) credit losses $ 18,470 $ (6,775) $ 42,813

The provision for credit losses is based on management’s evaluation of inherent risks in the loan portfolio and a corresponding analysis of the allowance for credit losses.

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Total non-interest income $ 63,046 $ 63,664 $ 55,194

Non-interest income decreased by $618,000 or 1.0% to $63,046,000 during the twelve months ended December 31, 2022, compared to $63,664,000 during the same period ended December 31, 2021.

Generally, the increases in recurring non-interest income service charges and fees reflected during 2022 is the result of the VRB merger closing in March of 2022, and therefore, not reflected in 2021 operating results.

As an offset, increases in interest rates during 2022 led to significant declines in mortgage lending related activity, resulting in a decrease of $7,238,000 in gain from the sale of loans, as compared to the trailing year then ended.

Non-interest income increased by $8,470,000 or 15.3% to $63,664,000 during the twelve months ended December 31, 2021, compared to $55,194,000 during the same period ended December 31, 2020.

ATM and interchange fees improved $3,696,000 or 17.1% as a result of increased usage due to relaxed social distancing guidelines during the year ended December 31, 2021 when compared to the same period in the prior year.

ATM and interchange fees improved $3,696,000 or 17.1% as a result of increased use due to relaxed social distancing guidelines during the year ended December 31, 2021 when compared to the same period in the prior year.

Additionally, during the year ended 2020, there was substantial downward pressure on interest rates following the COVID-19 pandemic, resulting in a decline in the fair value of mortgage servicing rights totaling $2,634,000 during the period.

Other non-interest income increased $1,574,000 during the twelve months ended December 31, 2021, largely attributed to an increase of $804,000 in the change of fair value of non-readily marketable equity investments and a $204,000 increase in proceeds from life insurance, respectively, as compared to the trailing 12 months ended.

Non-interest income increased $1,674,000 or 3.1% to $55,194,000 during the twelve months ended December 31, 2020, compared to $53,520,000 during the equivalent period in 2019.

This increase was primarily attributed to an increase in gains from the sale of mortgage loans, which resulted from increased volume, and contributed $5,840,000 to the overall increase in non-interest income during the year ended December 31, 2020 as compared to December 31, 2019.

Non-interest income was negatively impacted by changes in the fair value of the Company’s mortgage servicing assets, as noted above, which contributed to a $823,000 decline for the year.

Both the increased gains from the sale of mortgage loans and the decline in fair value of mortgage servicing assets are directly correlated with the elevated levels of mortgage origination volume, which was motivated by the historically low interest rate environment.

Further, fee generative deposit account activity was impacted by reductions in the volume of returned check fees, declining by $2,713,000 to $13,944,000 for the twelve months ended December 31, 2020.

Other non-interest income also declined by $1,312,000 during 2020, partially from decreases in the fair value of assets used to fund acquired deferred compensation plans totaling $514,000, as compared to 2019, as well as

from a $333,000 reduction in one-time death benefits realized during the years ended 2020 and 2019 of $498,000 and $831,000, respectively.

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Non-interest Expense

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Average full-time equivalent staff 1,169 1,039 1,093

Non-interest expense increased by $38,370,000 (21.5%) to $216,645,000 during the year ended December 31, 2022 as compared to $178,275,000 for the trailing twelve month period.

Generally, the increases in recurring non-interest expenses and FTEs during 2022 is the result of the VRB merger closing in March of 2022, and therefore, not reflected in 2021 operating results.

Salaries and benefit expense decreased $5,770,000 (5.1%) to $129,852,000 during the year ended December 31, 2021 as compared to $106,351,000 for the trailing twelve month period.

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Benefits and other compensation costs decreased by $10,385,000 (32.5%) to $21,550,000 during the year ended December 31, 2021 as compared to $31,935,000 for the trailing twelve month period, caused by declines in expenses associated with retirement obligations and insurance costs.

Merger and acquisition expenses associated with the proposed merger with Valley Republic Bancorp, which is pending regulatory approval from the FRB, totaled $1,523,000 during the year ended December 31, 2021.

Merger and acquisition expenses associated with our 2022 acquisition of VRB totaled $1,523,000 during the year ended December 31, 2021 and $6,253,000 in 2022.

Further, during the year ended December 31, 2021, expenses totaling approximately $1,745,000 are attributable to the Company's recently opened loan production offices, of which approximately $1,430,000 relates to salaries and benefits.

During 2018, the FDIC's Deposit Insurance Fund's (DIF) reserves exceeded the minimum set by the Dodd-Frank Act and the Bank with total assets less than $10 billion, was entitled to receive credits to offset a portion of its assessments.

As a result, during the years ended December 31, 2020 and 2019, the Bank received credits of $610,000 and $862,000, respectively, which contributed to the fluctuation in regulatory assessments and insurance during those periods.

There were no credits provided to the Bank during 2021.

Salaries and benefit expense increased $6,056,000 (5.7%) to $112,121,000 during the year ended December 31, 2020 as compared to $106,065,000 for the trailing twelve month period.

Base salaries, net of deferred loan origination costs remained nearly flat, decreasing by $54,000 (0.1%) to $70,164,000 due to a decrease in average full time equivalent employees to 1,093 from 1,150 in the prior year-to-date period, offset by a higher average wage per employee from annual merit increases.

Commissions and incentive compensation decreased $3,084,000 (23.5%) to $10,022,000 during 2020 compared to 2019 primarily due to lesser quantities and volumes of non-PPP loan originations as borrower interaction and business demands for loans experienced disruption from COVID-19 related mandates.

Benefits and other compensation costs increased by $9,194,000 (40.4%) to $31,935,000 during the year

ended December 31, 2020 as compared to $22,741,000 for the trailing twelve month period, caused by increases in expenses associated with retirement obligations and insurance costs.

Total other non-interest expense decreased by $8,755,000 or 11.0% to $70,637,000 during the year ended December 31, 2020 as compared to the $79,392,000 for the year ended December 31, 2019.

Reductions in advertising expenses totaling $2,806,000 or 49.8% to $2,827,000 contributed to this beneficial change, as did declines in miscellaneous expenses totaling $3,619,000 or 23.1% attributed primarily to a $1,681,000 reduction in travel and training expenses as a result of state-wide shelter-in-place restrictions and a reduction of $418,000 in third party services, which were partially offset by the indirect loan documentation and administrative costs associated with PPP lending activity.

During 2018, the FDIC's Deposit Insurance Fund's (DIF) reserves exceeded the minimum set by the Dodd-Frank Act and the Company, with total assets less than $10 billion, was entitled to receive credits to offset a portion of its assessments.

As a result, during the year ended December 31, 2020, the Bank received credits of $610,000, which contributed to the lower regulatory assessments and insurance expense during the period.

There were no credits provided to the Bank during 2021 or 2022.

The provisions for income taxes applicable to income before taxes for the years ended December 31, 2022, 2021 and 2020 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes.

The effective tax rate and the statutory federal income tax rate are reconciled as follows:

The effective tax rate and the statutory

33 TriCo Bancshares 2022 10-K

federal income tax rate are reconciled as follows:

Year Ended December 31,

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real estate mortgage loans (residential and commercial loans), consumer loans, commercial loans (including agricultural loans), and real estate construction loans.

The interest rates charged for the loans made by the Bank vary with

the degree of risk, the size and maturity of the loans, the borrower’s relationship with the Bank and prevailing money market rates indicative of the Bank’s cost of funds.

The interest rates charged for the loans made by the Bank vary with the degree of risk, the size and maturity of the loans, the borrower’s relationship with the Bank and prevailing money market rates indicative of the Bank’s cost of funds.

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

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The Bank 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.

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Loan Portfolio Composition

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Allowance for credit losses $ (105,680) $ (85,376) $ (91,847)

During the years ended 2021 and 2020, the Company purchased pools of SFR 1-4 1st DT (consumer) loans totaling approximately $101,466,000 and $41,126,000, respectively, inclusive of loan premiums.

During the year ended 2022, the Company acquired loans totaling $773,390,000 in connection with the merger with VRB in March of 2022, inclusive of approximately $68,513,000 in loans with credit deterioration.

During 2021, the Company purchased pools of SFR 1-4 1st DT (consumer) loans totaling approximately $101,466,000, inclusive of loan premiums.

As of December 31, 2022 and 2021, the total remaining balances outstanding from these purchases equaled approximately $804,382,000 and $94,973,000, respectively.

There was no credit deterioration identified at acquisition for the purchased loans.

There were no loan purchases made during the year ended December 31, 2019.

During 2020, the Company purchased $41,126,000 in loans, with $30,080,000 outstanding as of December 31, 2022.

The following table shows the Company’s loan balances, including net deferred loan fees, as a percentage of total loans at the dates indicated:

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Allowance for credit losses 1.64 % 1.74 % 1.93 %

At December 31, 2021 loans, including net deferred loan costs, totaled $4,916,624,000 which was a 3.2% ($153,497,000) increase over the balances at the end of 2020.

Total loans, excluding PPP, increased by 9.4% ($419,120,000) during the same period.

At December 31, 2022, loans including net deferred loan costs, totaled $6,450,447,000 which was a 31.2% ($1,533,823,000) increase over the balance at the end of December 31, 2021.

At December 31, 2021 loans, including net deferred loan costs, totaled $4,916,624,000 which was a 3.2% ($153,497,000) increase over the balances at the end of 2020.

Total loans, excluding PPP, increased by 3.0% ($128,991,000) during the same period.

At December 31, 2020 loans, including net deferred loan costs, totaled $4,763,127,000 which was a 10.6% ($455,761,000) increase over the balances at the end of 2019.

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The SBA ended PPP and did not accept new borrowing applications, effective May 31, 2021.

As of December 31, 2021, the total gross balance outstanding of PPP loans was $63,311,000 as compared to total PPP originations of $640,410,000.

As of December 31, 2022 and 2021, the total gross balances outstanding of PPP loans was $1,617,000 and $63,311,000, respectively, as compared to total PPP originations of $640,410,000.

In connection with the origination of these loans, the Company earned approximately $25,299,000 in loan fees, offset by deferred loan costs of approximately $1,245,000, the net of which will be recognized over the earlier of loan maturity (between 24-60 months), repayment or receipt of forgiveness confirmation.

As of December 31, 2021, over 90% of all PPP loans originated have been forgiven and repaid by the SBA and there was approximately $2,164,000 in net deferred fee income remaining to be recognized.

During the year ended December 31, 2021, the Company recognized $14,148,000, respectively in fees on PPP loans as compared with $7,760,000 for the year ended December 31, 2020, respectively.

As of December 31, 2020, the total gross balance outstanding of PPP loans was $333,982,000 as compared to total PPP originations of $438,510,000.

In connection with the origination of these loans, the Company earned approximately $15,735,000 in loan fees, offset by deferred loan costs of approximately $763,000.

As of December 31, 2020 there was approximately $7,212,000 in net deferred fee income remaining to be recognized.

As of December 31, 2022, nearly all PPP loans originated have been forgiven and repaid by the SBA and there was approximately $15,000 in net deferred fee income remaining to be recognized.

During the year ended December 31, 2022, the Company recognized approximately $2,149,000 in fees on PPP loans as compared with $14,148,000 for the year ended December 31, 2021.

From time to time the Bank may be presented with the opportunity to purchase individual or pools of loans in whole or in part outside of a transaction that would be considered a business combination.

As of December 31, 2022 and 2021, the outstanding carrying value of purchased loans that were not acquired in a business combination totaled $167,014,000 and $159,373,000, respectively.

35 TriCo Bancshares 2022 10-K

Asset Quality and Nonperforming Assets

41 unchanged sentences

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

Nonperforming assets increased by $3,236,000 (10.9%) to $32,944,000 at December 31, 2021 from $29,708,000 at December 31, 2020.

The increase in nonperforming assets during 2021 was the result of new nonperforming loans of $20,037,000, which was partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $13,439,000, dispositions of foreclosed assets totaling $1,293,000, and net charge-offs of $2,069,000.

Nonperforming assets decreased by $8,184,000 (24.8%) to $24,760,000 at December 31, 2022 from $32,944,000 at December 31, 2021.

The decrease in nonperforming assets during 2022 was the result of net paydowns, sales or upgrades of nonperforming loans to performing status totaling $29,440,000, which was partially offset by $22,898,000 of additions to non-performing loans and net charge-offs of $1,137,000.

36 TriCo Bancshares 2022 10-K

Changes in nonperforming assets during the year ended December 31, 2021

26 unchanged sentences

37 TriCo Bancshares 2022 10-K

Changes in nonperforming assets during the three months ended December 31, 2022

25 unchanged sentences

Nonperforming assets increased during the fourth quarter of 2022 by $3,848,000 (18.4%) to $24,760,000 at December 31, 2022 compared to $20,912,000 at September 30, 2022.

The increase in nonperforming assets during the fourth quarter of 2021 was the result of new nonperforming loans of $3,858,000, that were partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $1,690,000, dispositions of foreclosed assets totaling $559,000, and net charge-offs of $105,000 in non-performing loans.

The $3,858,000 in new nonperforming loans during the fourth quarter of 2021 was comprised of, most notably, an increase of $1,992,000 and $1,633,000, respectively, on separate farmland relationships, both of which have been individually evaluated for collectability under the collateral methodology.

Reserves of approximately $275,000 have been recorded in connections with these relationships has been recorded as of December 31, 2021.

The increase in nonperforming assets during the fourth quarter of 2022 was the result of new nonperforming loans of $10,186,000, that were partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $6,044,000, and net charge-offs of $73,000 in non-performing loans.

The current quarter change in non-performing assets is nearly entirely attributed to a single CRE relationship, which is considered well-secured as of the current period end.

38 TriCo Bancshares 2022 10-K

Changes in nonperforming assets during the three months ended December 31, 2021

25 unchanged sentences

Nonperforming assets increased during the fourth quarter of 2021 by $1,504,000 (4.8%) to $32,944,000 at December 31, 2020 compared to $31,440,000 at September 30, 2021.

The increase in nonperforming assets during the fourth quarter of 2020 was the result of new nonperforming loans of $7,363,000, that were partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $2,364,000, dispositions of foreclosed assets totaling $609,000, and net charge-offs of $489,000 in non-performing assets.

The $7,363,000 in new nonperforming loans during the fourth quarter of 2020 was comprised of, most notably, an increase of $4,648,000 on one residential construction loan which is considered well secured, $1,337,000 on thirteen home equity lines or loans, $647,000 on five commercial and industrial loans, and finally, $475,000 on two commercial and industrial loans.

COVID Deferrals

Following the passage of the CARES Act legislation, the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus" was issued by federal bank regulators, which offers temporary relief from troubled debt restructuring accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus.

The COVID deferral relief period under the CARES act legislation ended effective January 1, 2022, as such, any further requests for modification from borrowers will be evaluated in accordance with loan modification accounting guidance.

The following is a summary of COVID related loan customer modifications with outstanding balances as of December 31, 2021:

Modification Type Deferral Term

(dollars in thousands) Modified Loan Balances Outstanding % of Total Category of Loans Interest Only Deferral Principal and Interest Deferral 90 Days 180 Days Other

Commercial real estate:

CRE non-owner occupied $ 18,437 1.2 % 100.0 % — % — % 79.5 % 20.5 %

CRE owner occupied — — — — — — —

Multifamily — — — — — — —

Farmland — — — — — — —

Total commercial real estate loans 18,437 0.6 — — — 79.5 20.5

— — — — — — —

Commercial and industrial — — — — — — —

Construction — — — — — — —

Agriculture production — — — — — — —

Leases — — — — — — —

Total modifications $ 18,437 0.4 % 100.0 % — % — % 79.5 % 20.5 %

The remaining balance outstanding as of December 31, 2021 are expected to conclude their modification period during the first half of 2022.

Management believes that its analysis of each borrower receiving a loan modification supports the ability of that borrower to return to their normal payment terms at the conclusion of the modification period.

However, management determined that a risk rating downgrade to each credit receiving a deferral modification was prudent until such time that the borrower's actual payment performance supported an upgrade to the pre-modification risk grade.

Reserves of approximately $275,000 have been recorded in connections with these relationships has been recorded as of December 31, 2021.

39 TriCo Bancshares 2022 10-K

Allowance for Credit Losses - Investment Securities

6 unchanged sentences

Allowance for Credit Losses - Held to Maturity Investment Securities

In addition to credit losses associated with the Company's loan portfolio, the CECL standard requires that loss estimates be developed for securities

classified as held-to-maturity (HTM).

As of January 1, 2020, the date of adoption for ASC 326, the Company's HTM investment portfolio had a carrying value of approximately $375,606,000 and was comprised of $361,785,000 in obligations backed by U.S.

In addition to credit losses associated with the Company's loan portfolio, the CECL standard requires that loss estimates be developed for securities classified as held-to-maturity (HTM).

As of December 31, 2022, the Company's HTM investment portfolio had a carrying value of approximately $160,983,000 and was comprised of $154,830,000 in obligations backed by U.S.

government agencies and $6,153,000 in obligations of states and political subdivisions.

1 unchanged sentence

government and where no history of credit losses exist, management believes that indicators for zero loss are present and therefore, no loss reserves were recognized in conjunction with the adoption of the CECL standard.

Management separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years.

Based on this evaluation, management determined that the expected credit losses associated with these securities is less than significant for financial reporting purposes and therefore, no loss reserves resulted from the adoption and implementation of the CECL standard.

Consistent with the portfolio composition at the date of adoption, as of December 31, 2020, 96.2% of the HTM portfolio consisted of investment securities where payment performance has an implicit or explicit guarantee from the U.S.

government with the remaining balance of the HTM portfolio consisting of obligations of states and political subdivisions.

In addition, the balance of investment securities maintained in the HTM portfolio decreased by $91,043,000 or 24.2% during the year ended December 31, 2020 and management is not aware of any significant changes in credit ratings for the securities held.

Further, management separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years.

Based on this evaluation, management determined that the expected credit losses associated with these securities is less than significant for financial reporting purposes.

Therefore, during the year ended December 31, 2022 no allowance for credit losses related to HTM securities was recorded.

10 unchanged sentences

Allowance for individually evaluated loans 2,414 982 1,450 935 2,194

Allowance for PCD loan losses — — n/a n/a n/a

Allowance for PCI loan losses n/a n/a 6 122 272

Allowance for PCI loan losses n/a n/a n/a 6 122

Total allowance for credit losses $ 105,680 $ 85,376 $ 91,847 $ 30,616 $ 32,582

3 unchanged sentences

The credit quality of the Company’s loan portfolio, as measured by trends in the volume of past due loans, non-accrual loans, net loan charge-offs (recoveries) and risk grades, remained stable throughout the year.

Improved trends in the actual and forecasted levels of unemployment and GDP further contributed to the lower ratio of credit reserves as a percentage of total loans outstanding.

The allowance for credit losses decreased by $6,471,000 during the year ended December 31, 2021 which is reflective of improvement in both the Company's qualitative and quantitative factors.

Qualitative factors improved corollary to the trends in actual and forecast levels of California and national unemployment as well as gross domestic product (GDP).

Quantitative factors improved during the year as a result of:

1) realizing net loan recoveries, as opposed to net charge-offs, which improved the Company's loss experience;

2) reductions in past due loans, and 3) reductions in loan concentrations.

The allowance for credit losses increased by $49,529,000 from the January 1, 2020 CECL adoption date to $91,847,000 at December 31, 2020, primarily reflecting the economic impacts of the COVID-19 pandemic and the response by domestic and global governmental authorities, including quarantines and other social distancing policies aimed at fighting the spread of the virus.

economy contracted into a recession with unusual speed and force in the first half of 2020.

Numerous governmental agencies responded with actions intended to support the economy and reduce the future risks that may be associated a pandemic.

Throughout 2021 but more significantly during the second half of 2021, the easing of social distancing policies and the resumption of in person activities generally resulted in improved financial performance of borrowers and the economy as a whole.

At the same time, the curtailment of stimulus payments, supply chain disruptions, and inflation related impacts have given rise to additional uncertainty and concerns about the timing and extent of full economic recovery.

These factors shaped the supportable forecast used by the Company in its allowance for credit loss modeled estimate at December 31, 2020.

After partial improvements in California unemployment and gross domestic product (GDP) growth in the third and early fourth quarters of 2020, significant increases in COVID-19 infection rates in the latter half of the fourth quarter of 2020 caused both the forecasted levels of unemployment and GDP to deteriorate through the forecast period and thus further extended the expected duration of the current recessionary period.

On a year over year basis, improved trends in the actual and forecasted levels of unemployment and GDP further contributed to the lower ratio of credit reserves as a percentage of total loans outstanding.

One notable exception to the improved qualitative reserves was caused by the observed volatility and increase in corporate debt yields, signaling greater risk of default.

The allowance for credit losses increased by $20,304,000 during the year ended December 31, 2022 which is primarily reflective of the acquisition of VRB during March 2022, organic growth within the loan portfolio improvement in both the Company's qualitative and quantitative factors, and increase in reserve on individually analyzed loans.

Ex-growth in loans outstanding, quantitative factors from the cohort model improved slightly during the year as a result of continued improvement in the Company's loss experience as a percentage of

40 TriCo Bancshares 2022 10-K

total loans outstanding;

2) reductions in past due loans, and 3) avoidance of loan concentrations.

However, specific reserves did increase by $1,432,000 as compared to the previous year end, but still remain at historically modest levels.

As compared to historical norms, inflation remains elevated from continued disruptions in the supply chain, wage pressures, and higher living costs such as housing and food 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 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.

The following table summarizes the allocation of the allowance for credit losses between loan types:

6 unchanged sentences

Leases 15 18 5 21 —

Total allowance for loan losses $ 85,376 $ 91,847 $ 30,616 $ 32,582 $ 30,323

Total allowance for credit losses $ 105,680 $ 85,376 $ 91,847 $ 30,616 $ 32,582

The following table summarizes the allocation of the allowance for credit losses between loan types as a percentage of the total allowance for credit losses:

6 unchanged sentences

Leases — % 0.1 % — % 0.1 % — %

Total allowance for loan losses 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

The following table summarizes the allocation of the allowance for credit losses between loan types as a percentage of total loans and as a percentage of total loans in each of the loan categories listed:

Total allowance for credit losses 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

The following table summarizes the allocation of the allowance for credit losses between loan types as a percentage of total loans in each of the loan categories listed:

2022 2021 2020 2019 2018

5 unchanged sentences

Leases 0.19 % 0.27 % 0.13 % 1.63 % — %

Total allowance for loan losses 1.74 % 1.93 % 0.71 % 1.01 % 1.18 %

Total allowance for credit losses 1.64 % 1.74 % 1.93 % 0.71 % 0.81 %

41 TriCo Bancshares 2022 10-K

The following tables summarize the net charge-off (recovery) activity in the allowance for credit/loan losses as a percentage of loans for the years indicated (dollars in thousands):

3 unchanged sentences

Commercial real estate:

(0.01) % (0.01) %

CRE non-owner occupied — % 0.01 % (0.09) % n/a n/a

CRE owner occupied (0.11) % — % 0.13 % n/a n/a

Multifamily — % — % — % n/a n/a

Farmland 0.07 % 0.12 % — % n/a n/a

(0.01) % 0.01 %

SFR 1-4 1st DT liens 0.02 % (0.08) % (0.01) % n/a n/a

SFR HELOCs and junior liens 0.33 % (0.06) % (0.26) % n/a n/a

Other 0.32 % 0.41 % 0.54 % n/a n/a

CRE non-owner occupied — % — % 0.01 % (0.09) % n/a

CRE owner occupied — % (0.11) % — % 0.13 % n/a

Multifamily — % — % — % — % n/a

Farmland 0.01 % 0.07 % 0.12 % — % n/a

SFR 1-4 1st DT liens — % 0.02 % (0.08) % (0.01) % n/a

SFR HELOCs and junior liens — % 0.33 % (0.06) % (0.26) % n/a

Other 0.20 % 0.32 % 0.41 % 0.54 % n/a

Commercial and industrial 0.17 % 0.28 % 0.04 % 0.64 % 0.26 %

22 unchanged sentences

Total foreclosed assets $ 2,844 $ 1,052 $ — $ (1,458) $ 156 $ 2,594

42 TriCo Bancshares 2022 10-K

Deposit Portfolio Composition

17 unchanged sentences

In connection with approval of the 2021 Repurchase Plan, the Company’s previous repurchase program adopted on November 12, 2019 (the 2019 Repurchase Plan) was terminated.

The following table shows the repurchases made by the Company under the 2021 Plan:

The following table shows the repurchases made by the Company during 2022 under the 2021 Plan:

Period Total number of

4 unchanged sentences

the 2021 Plan

February 25, 2021 - December 31, 2021 63,317 $44.72 1,936,683

January 1, 2022 - December 31, 2022 576,881 $41.67 1,359,802

Market Risk Management

15 unchanged sentences

deposits/borrowings) positions as the beginning base.

43 TriCo Bancshares 2022 10-K

In the simulation of net interest income and market value of equity, the forecast balance sheet is processed against various interest rate scenarios.

These various interest rate scenarios include a flat rate scenario, which assumes interest rates are unchanged in the future, and rate ramp and or shock scenarios including -300, -200, -100, +100, +200, and +300 basis points around the flat scenario.

At December 31, 2021, the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was less than 2.00%.

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 therefor, have not been modeled.

At December 31, 2022, the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was 4.25%.

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”).

11 unchanged sentences

+200 (shock) (1.7) % (2.4) %

+100 (shock) (0.7) % (0.3) %

+ 0 (flat) — —

-100 (shock) (2.2) % (3.9) %

-200 (shock) nm nm

These simulations indicate that given a “flat” balance sheet scenario, and if interest-bearing checking, savings and time deposit interest rates track general interest rate changes by approximately 25%, 50%, and 75%, respectively, the Company’s balance sheet is slightly asset sensitive over a twelve month time horizon for rates up, and slightly sensitive over a twelve month time horizon for rates down.

-200 (shock) (6.5) % (12.9) %

-300 (shock) (9.9) % (26.1) %

These simulations indicate that given a “flat” balance sheet size scenario, and if interest-bearing checking, savings and money market interest rates track the general interest rate changes by the rate shock values listed above, the Company’s balance sheet is slightly liability sensitive over a twelve month time horizon for both a rates up and rates down shock scenario.

“Asset sensitive” implies that net interest income increases when interest rates rise and decrease when interest rates decrease.

2 unchanged sentences

The simulation results noted above do not incorporate any management actions that might moderate the negative consequences of interest rate deviations.

In addition, the simulation results noted above contain various assumptions such as a flat balance sheet, and the rate that deposit interest rates change as general interest rates change.

In addition, the simulation results noted above contain various assumptions such as a flat balance sheet, and the rate that deposit interest rates change instantaneously as general interest rates change.

Therefore, they do not reflect likely actual results, but serve as estimates of interest rate risk.

More specifically, the Company's pre-existing low cost of funds, and the presumption that depositors will not accept a negative rate environment, does not allow management the ability to meaningfully adjust the cost of deposits below zero.

In addition, many of the Company's loans and investment securities are considered fixed rate interest earning assets.

Therefore, in an instantaneous upward rate shock scenario, management would expect the cost of interest bearing liabilities to reprice faster than interest earning assets.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the preceding tables.

4 unchanged sentences

Treasury rates accompanied by a change in the shape of the treasury yield curve could result in different estimations from those presented herein.

Accordingly, the results in the preceding tables should not be relied upon as

indicative of actual results in the event of changing market interest rates.

Accordingly, the results in the preceding tables should not be relied upon as indicative of actual results in the event of changing market interest rates.

Additionally, the resulting estimates of changes in market value of equity are not intended to represent, and should not be construed to represent, estimates of changes in the underlying value of the Company.

6 unchanged sentences

Interest rate sensitivity gaps are measured as the difference between the volumes of assets and liabilities in the Company’s current portfolio that are subject to repricing at various time horizons.

44 TriCo Bancshares 2022 10-K

The following interest rate sensitivity table shows the Company’s repricing gaps as of December 31, 2022.

27 unchanged sentences

These activities are generally summarized as investing activities in the Consolidated Statement of Cash Flows.

Net cash used by investing activities totaled $883,811,000 in 2021.

Net cash used by investing activities, excluding cash acquired from VRB, totaled $1,149,582,000 in 2022.

Net increases in loan balances from both originations and purchases used approximately $761,357,000 of cash, while purchases of investment securities, net of calls and maturities, used approximately $392,806,000 of cash.

Liquidity may also be generated from liabilities through deposit growth and borrowings.

Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding.

These activities are included under financing activities in the Consolidated Statement of Cash Flows.

In 2021, financing activities provided funds totaling $850,474,000, resulting from $861,225,000 in deposits and offset by $29,724,000 in dividend payments and an additional $4,344,000 used to repurchase shares of common stock.

In 2022, financing activities used funds totaling $100,862,000, resulting from a decline of $253,625,000 in deposits, $35,797,000 in dividend payments, and an additional $27,148,000 used toward the repurchase of common stock, partially offset by an increase in cash from short term borrowings totaling $214,518,000.

In addition, at December 31, 2022, the Company had loans and securities available to pledge towards future borrowings from the Federal Home Loan Bank and the Federal Reserve Bank of up to $2,485,905,000 and $299,689,000, respectively.

As of December 31, 2022, the Company had $80,460,000 of other borrowings as described in Note 13 of the consolidated financial statements of the Company and the related notes at Item 8 of this report.

While these sources are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market

While these sources are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market conditions.

Liquidity is also provided or used through the results of operating activities.

In 2021, operating activities provided cash of $132,207,000 and primarily included net income of $117,655,000.

In 2022, operating activities provided cash of $162,895,000 and primarily from net income of $125,419,000.

The Company’s investment securities, excluding held-to-maturity securities, plus cash and cash equivalents in excess of reserve requirements totaled $2,559,668,000 at December 31, 2022, which was 25.8% of total assets at that time.

This was an increase of $892,544,000 from $2,083,815,000 and 27.3% of total assets as of December 31, 2020.

This was a decrease of $416,691,000 from $2,976,359,000 and 34.5% of total assets as of December 31, 2021.

Loan demand during 2023 will depend in part on economic and competitive conditions.

The Company emphasizes the solicitation of non-interest bearing demand deposits and money market checking deposits, which are the least sensitive to interest rates.

The growth of deposit balances is subject to heightened competition, the success of the Company’s sales efforts, delivery of superior customer service and market conditions.

In addition to Federal economic stimulus actions, inclusive of loan programs and direct payments to taxpayers, which contributed to the growth in deposit balances, the Federal Reserve's efforts to manage interest rates has resulted in historic low short-term and long-term interest rates, which could further impact deposit volumes in the future.

Depending on economic conditions, interest rate levels, and a variety of other conditions, deposit growth may be used to fund loans, to reduce short-term borrowings or purchase investment securities.

The outlook for deposit balances during 2023 is subject to actions from the Federal Reserve, heightened competition, the success of the Company’s sales

45 TriCo Bancshares 2022 10-K

efforts, delivery of superior customer service and market conditions.

In addition to the Federal Reserve's increase in interest rates, quantitative tightening through reduction of the Federal balance sheet is expected to place downward pressure on deposits balances during 2023.

Depending on economic conditions, interest rate levels, and a variety of other conditions, proceeds from the sale or maturity of investment securities may be used to fund loans, or reduce short-term borrowings.

However, due to concerns such as uncertainty in the general economic environment, competition and political uncertainty, loan demand and levels of customer deposits are not certain and forecasted changes in those balances are subject to significant volatility and uncertainty.

At December 31, 2022, we believe the Company has sufficient liquidity and capital resources to meet its cash flow obligations over the next 12 months and for the foreseeable future.

The principal cash requirements of the Company are dividends on common stock when declared.

5 unchanged sentences

These deposits are generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if available.

The Bank participates in a program wherein the State of California places time deposits with the Bank at the Bank’s option.

At December 31, 2021, 2020 and 2019, the Bank had $1,000,000, $10,000,000, and $30,000,000, respectively, of these State deposits.

Certificates of Deposit in Denominations of $250,000 or More

7 unchanged sentences

Total $ 46,350 $ 44,652

46 TriCo Bancshares 2022 10-K

Loan maturities

41 unchanged sentences

— — % 6,397 3.08 % 227,870 5.34 % 205,500 4.83 % 439,767 5.07 %

Non-agency collateralized mortgage obligations

— — % 41,352 4.66 % 7,796 2.20 % 291,798 2.49 % 340,946 2.74 %

Total debt securities available for sale

7 unchanged sentences

$ — — % $ 3,730 2.96 % $ 14,721 2.60 % $ 142,532 2.73 % $ 160,983 2.72 %

47 TriCo Bancshares 2022 10-K

Off-Balance Sheet Items

3 unchanged sentences

As of December 31, 2022, commitments to extend credit and commitments related to the Bank’s deposit overdraft privilege product were the Bank’s only financial instruments with off-balance sheet risk.

The Bank has not entered into any

material contracts for financial derivative instruments such as futures, swaps, options, etc.

The Bank has not entered into any material contracts for financial derivative instruments such as futures, swaps, options, etc.

Commitments to extend credit were $2,215,159,000 and $1,607,939,000 at December 31, 2022 and 2021, respectively, and represent 34.3% of the total loans outstanding at year-end 2022 versus 32.7% at December 31, 2021.

7 unchanged sentences

47,905 47,905 — — —

Overnight borrowing at FHLB, fixed rate, as of December 31, 2022 of 4.65%, payable on January 3, 2023 216,700 216,700 — — —

Junior subordinated debt:

9 unchanged sentences

7,393 — — — 7,393

VRB Subordinated - 6%(6) 17,187 — — — 17,187

VRB Subordinated - 5%(7) 25,336 — — — 25,336

Operating lease obligations 33,262 5,522 13,863 7,342 6,535

7 unchanged sentences

(5) Junior subordinated debt, adjustable rate of three-month LIBOR plus 1.33%, callable in whole or in part by the Company on a quarterly basis beginning March 15, 2011, matures March 15, 2036.

(6) Junior subordinated debt, fixed rate of 6% until March 29, 2024, then floating rate of three-month LIBOR plus 3.52% until maturity in 2029.

Redeemable in whole or in part by the Company beginning March 29, 2024.

(7) Junior subordinated debt, fixed rate of 5% until August 27, 2025, then floating rate of 90-day average SOFR plus 4.90% until maturity in 2035.

Redeemable in whole or in part by the Company beginning August 27, 2025.

(8) These amounts represent known certain payments to participants under the Company’s deferred compensation and supplemental retirement plans.

2 unchanged sentences

See “Market Risk Management” under Item 7 of this report which is incorporated herein.

48 TriCo Bancshares 2022 10-K

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis