TRICO BANCSHARES / 10-Q

Item 1. Financial Statements (unaudited) TRICO BANCSHARES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data; unaudited) March 31, 2023 December 31, 2022 Assets: Cash and due from banks $ 77,933 $ 96,323 Cash at Federal Reserve and other banks 32,402 10,907 Cash and cash equivalents 110,335 107,230 Investment securities: Marketable equity securities 2,640 2,598 Available for sale debt securities, net of allowance for credit losses of $ 0 2,405,812 2,452,438 Held to maturity debt securities, net of allowance for credit losses of $ 0 152,067 160,983 Restricted equity securities 17,250 17,250 Loans held for sale 226 1,846 Loans 6,422,421 6,450,447 Allowance for credit losses ( 108,407 ) ( 105,680 ) Total loans, net 6,314,014 6,344,767 Premises and equipment, net 72,096 72,327 Cash value of life insurance 134,544 133,742 Accrued interest receivable 31,388 31,856 Goodwill 304,442 304,442 Other intangible assets, net 15,014 16,670 Operating leases, right-of-use 30,000 26,862 Other assets 252,566 257,975 Total assets $ 9,842,394 $ 9,930,986 Liabilities and Shareholders’ Equity: Liabilities: Deposits: Noninterest-bearing demand $ 3,236,696 $ 3,502,095 Interest-bearing 4,789,169 4,826,918 Total deposits 8,025,865 8,329,013 Accrued interest payable 1,643 1,167 Operating lease liability 32,228 29,004 Other liabilities 157,222 159,741 Other borrowings 434,140 264,605 Junior subordinated debt 101,051 101,040 Total liabilities 8,752,149 8,884,570 Commitments and contingencies (Note 9) Shareholders’ equity: Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at March 31, 2023 and December 31, 2022 — — Common stock, no par value: 50,000,000 shares authorized; 33,195,250 and 33,331,513 issued and outstanding at March 31, 2023 and December 31, 2022, respectively 695,168 697,448 Retained earnings 564,538 542,873 Accumulated other comprehensive loss, net of tax ( 169,461 ) ( 193,905 ) Total shareholders’ equity 1,090,245 1,046,416 Total liabilities and shareholders’ equity $ 9,842,394 $ 9,930,986 See accompanying notes to unaudited condensed consolidated financial statements. 3 Table of Contents TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data; unaudited) Three months ended March 31, 2023 2022 Interest and dividend income: Loans, including fees $ 82,415 $ 57,745 Investments: Taxable securities 18,622 9,962 Tax exempt securities 1,307 942 Dividends 304 261 Interest bearing cash at Federal Reserve and other banks 259 285 Total interest and dividend income 102,907 69,195 Interest expense: Deposits 5,145 678 Other borrowings 2,809 5 Junior subordinated debt 1,617 588 Total interest expense 9,571 1,271 Net interest income 93,336 67,924 Provision for credit losses 4,195 8,330 Net interest income after credit loss provision 89,141 59,594 Non-interest income: Service charges and fees 11,197 11,696 Gain on sale of loans 206 1,246 Loss on sale of investment securities ( 164 ) — Asset management and commission income 934 887 Increase in cash value of life insurance 802 638 Other 660 629 Total non-interest income 13,635 15,096 Non-interest expense: Salaries and related benefits 32,563 28,597 Other 21,231 17,850 Total non-interest expense 53,794 46,447 Income before provision for income taxes 48,982 28,243 Provision for income taxes 13,149 7,869 Net income $ 35,833 $ 20,374 Per share data: Basic earnings per share $ 1.08 $ 0.68 Diluted earnings per share $ 1.07 $ 0.67 Dividends per share $ 0.30 $ 0.25 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In thousands; unaudited) Three months ended March 31, 2023 2022 Net income $ 35,833 $ 20,374 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available for sale securities arising during the period 24,444 ( 78,397 ) Change in minimum pension liability — 58 Change in joint beneficiary agreements — — Other comprehensive income (loss) 24,444 ( 78,339 ) Comprehensive income (loss) $ 60,277 $ ( 57,965 ) See accompanying notes to unaudited condensed consolidated financial statements. 4 Table of Contents TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In thousands, except share and per share data; unaudited) Shares of Common Stock Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balance at January 1, 2022 29,730,424 $ 532,244 $ 466,959 $ 981 $ 1,000,184 Net income 20,374 20,374 Other comprehensive loss ( 78,339 ) ( 78,339 ) Stock options exercised 3,325 55 55 RSU vesting 565 565 PSU vesting 247 247 RSUs released — Issuance of common stock 4,105,518 173,585 173,585 Repurchase of common stock ( 1,332 ) ( 24 ) ( 32 ) ( 56 ) Dividends paid ($ 0.30 per share) ( 7,433 ) ( 7,433 ) Three months ended March 31, 2022 33,837,935 $ 706,672 $ 479,868 $ ( 77,358 ) $ 1,109,182 Balance at January 1, 2023 33,331,513 $ 697,448 $ 542,873 $ ( 193,905 ) $ 1,046,416 Net income 35,833 35,833 Other comprehensive income 24,444 24,444 Stock options exercised 4,000 78 78 RSU vesting 728 728 PSU vesting 313 313 RSUs released 22,118 — Repurchase of common stock ( 162,381 ) ( 3,399 ) ( 4,196 ) ( 7,595 ) Dividends paid ($ 0.30 per share) ( 9,972 ) ( 9,972 ) Three months ended March 31, 2023 33,195,250 $ 695,168 $ 564,538 $ ( 169,461 ) $ 1,090,245 See accompanying notes to unaudited condensed consolidated financial statements. 5 Table of Contents TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands; unaudited) For the three months ended March 31, 2023 2022 Operating activities: Net income $ 35,833 $ 20,374 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of premises and equipment, and amortization 1,566 1,409 Amortization of intangible assets 1,656 1,228 Provision for credit losses 4,195 8,330 Amortization of investment securities premium, net 174 5,618 Loss on sale of investment securities 164 — Originations of loans for resale ( 6,281 ) ( 30,187 ) Proceeds from sale of loans originated for resale 8,058 33,509 Gain on sale of loans ( 206 ) ( 1,246 ) Change in market value of mortgage servicing rights 209 ( 274 ) Operating lease expense payments ( 1,653 ) ( 1,292 ) Gain on disposal of fixed assets — ( 1,078 ) Increase in cash value of life insurance ( 802 ) ( 638 ) (Gain) loss on marketable equity securities ( 42 ) 137 Equity compensation vesting expense 1,041 812 Change in: Interest receivable 468 ( 83 ) Interest payable 476 ( 801 ) Amortization of operating lease ROUA 1,739 1,374 Other assets and liabilities, net ( 7,640 ) ( 2,347 ) Net cash from operating activities 38,955 34,845 Investing activities: Proceeds from maturities of securities available for sale 56,905 85,298 Proceeds from maturities of securities held to maturity 8,842 12,894 Proceeds from sale of available for sale securities 24,160 — Purchases of securities available for sale — ( 247,354 ) Loan origination and principal collections, net 26,558 ( 161,865 ) Proceeds from sale of premises and equipment — 6,689 Purchases of premises and equipment ( 1,213 ) ( 631 ) Cash acquired from VRB, net of cash consideration paid — 426,883 Net cash from investing activities 115,252 121,914 Financing activities: Net change in deposits ( 303,148 ) 131,839 Net change in other borrowings 169,535 ( 13,903 ) Repurchase of common stock, net of option exercises ( 7,595 ) — Dividends paid ( 9,972 ) ( 7,433 ) Exercise of stock options 78 — Net cash (used by) from financing activities ( 151,102 ) 110,503 Net change in cash and cash equivalents 3,105 267,262 Cash and cash equivalents, beginning of period 107,230 768,421 Cash and cash equivalents, end of period $ 110,335 $ 1,035,683 6 Table of Contents Supplemental disclosure of noncash activities: Unrealized gain (loss) on securities available for sale $ 34,540 $ ( 111,302 ) Loans transferred to held-for-sale — 12,044 Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes 621 55 Obligations incurred in conjunction with leased assets 4,484 521 Loans transferred to foreclosed assets — 313 Supplemental disclosure of cash flow activity: Cash paid for interest expense $ 9,095 $ 1,546 Cash paid for income taxes — — Business combination (1) (1) During the period ended March 31, 2022, the VRB acquisition included fair value tangible assets acquired of $ 1.37 billion, liabilities assumed of $ 1.28 billion, resulting in goodwill of $ 0.09 billion. See accompanying notes to unaudited condensed consolidated financial statements. 7 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Description of Business and Basis of Presentation TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 33 California counties. The consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States of America and general practices in the banking industry. All adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. The financial statements include the accounts of the Company. All inter-company accounts and transactions have been eliminated in consolidation. The Company has five capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including two organized by the Company and three acquired with the acquisition of North Valley Bancorp. For financial reporting purposes, the Company’s investments in the Capital Trusts of $ 1.76 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. See the footnote 'Junior Subordinated Debt' for additional information on borrowings outstanding. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). The Company believes that the disclosures made are adequate to make the information not misleading. Segment and Significant Group Concentration of Credit Risk The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout California. The Company has a diversified loan portfolio within the business segments located in this geographical area. The Company currently classifies all its operation into one business segment that it denotes as community banking. Geographical Descriptions 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; and southern California as that area of the state south of Bakersfield and San Luis Obispo. Reclassification Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity. Cash and Cash Equivalents Net cash flows are reported for loan and deposit transactions and other borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with original maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are considered to be cash equivalents. Allowance for Credit Losses - Securities The Company measures expected credit losses on HTM debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating. Accrued interest receivable on HTM debt securities was considered insignificant at March 31, 2023 and is therefore excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss assumption. 8 Table of Contents Management has 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. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized. The Company evaluates AFS debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. No security credit losses were recognized during the three month periods ended March 31, 2023 and 2022, respectively. Loans Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs. Loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is considered probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest. Accrued interest receivable is not included in the calculation of the allowance for credit losses. Allowance for Credit Losses - Loans The ACL is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate. Management estimates the allowance 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. 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. 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, changes in corporate debt yields, and U.S. gross domestic product. PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination. PCD assets are accounted for in accordance with ASC 326-20 and are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition. The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the balance sheet, while the allowance for acquired non-PCD assets, such as loans, is recorded through the provision for credit losses on the income statement, consistent with originated loans. Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans. The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss: Commercial real estate : Commercial real estate - Non-owner occupied: These commercial properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment. Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties. As such, the risk of loss associated with these properties is primarily driven by general 9 Table of Contents economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay. Ultimately this can affect occupancy, rental rates, or both. Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years . Commercial real estate - Owner occupied: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years . Multifamily: These commercial properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multifamily properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss. Farmland: While the Company has few loans that were originated for the purpose of the acquisition of these commercial properties, loans secured by farmland represent unique risks that are associated with the operation of an agricultural businesses. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by farmland typically represent less risk to the Company than other agriculture loans as the real estate typically provides greater support in the event of default or need for longer term repayment. Consumer loans : SFR 1-4 1st DT Liens: The most significant drivers of potential loss within the Company's residential real estate portfolio relate general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate. SFR HELOCs and Junior Liens: Similar to residential real estate term loans, HELOCs and junior liens performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC. Other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate. Commercial and Industrial: Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits. Construction : While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with the not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset as adjusted for macroeconomic factors. 10 Table of Contents Agriculture Production: Repayment of agricultural loans is dependent upon successful operation of the agricultural business, which is greatly impacted by factors outside the control of the borrower. These factors include adverse weather conditions, including access to water, that may impact crop yields, loss of livestock due to disease or other factors, declines in market prices for agriculture products, changes in foreign exchange, and the impact of government regulations. In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the business. Consequently, agricultural production loans may involve a greater degree of risk than other types of loans. Leases: The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset. Leases typically represent an elevated level of credit risk as compared to loans secured by real estate as the collateral for leases is often subject to a more rapid rate of depreciation or depletion. The ultimate severity of loss is impacted by the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook and the other variables discussed above. Unfunded commitments : The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities. Accounting Standards Recently Issued or Adopted FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements. FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . This ASU addresses feedback received from adopters of CECL, specifically regarding accounting guidance for TDRs and disclosures of gross write-offs by year of loan origination. Accounting guidance for TDRs by creditors will be eliminated under this amendment, while also enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Amendments in this ASU were effective for the Company beginning January 1, 2023 and applied on a prospective basis. The adoption of this accounting guidance did not have a material impact on the Company's consolidated financial statements. Note 2 - Business Combinations On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp, including the merger of Valley Republic Bank into Tri Counties Bank, with Tri Counties Bank as the surviving entity, in accordance with the terms of the merger agreement dated as of July 27, 2021. The cash and stock transaction was valued at approximately $ 174.0 million in aggregate, based on TriCo's closing stock price of $ 42.48 on March 25, 2022. Under the terms of the merger agreement, the Company issued approximately 4.1 million shares, in addition to approximately $ 0.4 million in cash paid out for settlement of stock option awards at VRB. The following table summarizes the consideration paid for VRB and the amounts of assets acquired and liabilities assumed that were recorded at the acquisition date (in thousands): 11 Table of Contents Fair Value as of March 25, 2022 Fair value of consideration transferred: Fair value of shares issued $ 173,585 Cash consideration 431 Total fair value of consideration transferred 174,016 Assets acquired: Cash and cash equivalents 427,314 Securities available for sale 109,716 Loans and leases 771,353 Premises and equipment 4,658 Cash value of life insurance 13,609 Core deposit intangible 10,635 Other assets 29,744 Total assets acquired 1,367,029 Liabilities assumed: Deposits ( 1,215,479 ) Subordinated debt ( 47,236 ) SERP liability ( 3,352 ) Other liabilities ( 10,516 ) Total liabilities assumed ( 1,276,583 ) Total net assets acquired 90,446 Goodwill recognized $ 83,570 Note 3 - Investment Securities The amortized cost, estimated fair values and allowance for credit losses of investments in debt securities are summarized in the following tables: March 31, 2023 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value Debt Securities Available for Sale Obligations of U.S. government agencies $ 1,531,759 $ 5 $ ( 174,329 ) $ — $ 1,357,435 Obligations of states and political subdivisions 308,129 698 ( 28,927 ) — 279,900 Corporate bonds 6,165 — ( 427 ) — 5,738 Asset backed securities 440,259 18 ( 12,913 ) — 427,364 Non-agency collateralized mortgage obligations 375,345 — ( 39,970 ) — 335,375 Total debt securities available for sale $ 2,661,657 $ 721 $ ( 256,566 ) $ — $ 2,405,812 Debt Securities Held to Maturity Obligations of U.S. government agencies $ 148,700 $ 1 $ ( 9,942 ) — 138,759 Obligations of states and political subdivisions 3,367 14 ( 5 ) — 3,376 Total debt securities held to maturity $ 152,067 $ 15 $ ( 9,947 ) $ — $ 142,135 12 Table of Contents December 31, 2022 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value Debt Securities Available for Sale Obligations of U.S. government agencies $ 1,568,408 $ 3 $ ( 195,642 ) $ — $ 1,372,769 Obligations of states and political subdivisions 332,625 401 ( 39,821 ) — 293,205 Corporate bonds 6,164 — ( 413 ) — 5,751 Asset backed securities 454,943 17 ( 15,193 ) — 439,767 Non-agency collateralized mortgage obligations 380,847 — ( 39,901 ) — 340,946 Total debt securities available for sale $ 2,742,987 $ 421 $ ( 290,970 ) $ — $ 2,452,438 Debt Securities Held to Maturity Obligations of U.S. government agencies $ 154,830 $ 2 $ ( 11,013 ) $ — $ 143,819 Obligations of states and political subdivisions 6,153 13 ( 47 ) — 6,119 Total debt securities held to maturity $ 160,983 $ 15 $ ( 11,060 ) $ — $ 149,938 Proceeds from the sale of investment securities totaled $ 24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $ 0.2 million. There were no sales of investment securities during the three months ended March 31, 2022. Investment securities with an aggregate carrying value of $ 648.4 million and $ 595.8 million at March 31, 2023 and December 31, 2022, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits. The amortized cost and estimated fair value of debt securities at March 31, 2023 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2023, obligations of U.S. government corporations and agencies with a cost basis totaling $ 1,502.5 billion consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At March 31, 2023, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately 6.53 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half. As of March 31, 2023, the contractual final maturity for available for sale and held to maturity investment securities is as follows: Debt Securities Available for Sale Held to Maturity (in thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year $ 57,662 $ 56,205 $ — $ — Due after one year through five years 114,294 109,745 5,316 5,157 Due after five years through ten years 407,960 389,802 9,592 9,081 Due after ten years 2,081,741 1,850,060 137,159 127,897 Totals $ 2,661,657 $ 2,405,812 $ 152,067 $ 142,135 Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows: 13 Table of Contents March 31, 2023: Less than 12 months 12 months or more Total (in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Debt Securities Available for Sale Obligations of U.S. government agencies $ 298,264 $ ( 18,024 ) $ 1,058,654 $ ( 156,305 ) $ 1,356,918 $ ( 174,329 ) Obligations of states and political subdivisions 126,230 ( 7,797 ) 105,039 ( 21,130 ) 231,269 ( 28,927 ) Corporate bonds 1,846 ( 135 ) 3,892 ( 292 ) 5,738 ( 427 ) Asset backed securities 112,239 ( 1,994 ) 309,739 ( 10,919 ) 421,978 ( 12,913 ) Non-agency collateralized mortgage obligations 73,343 ( 2,639 ) 248,617 ( 37,331 ) 321,960 ( 39,970 ) Total debt securities available for sale $ 611,922 $ ( 30,589 ) $ 1,725,941 $ ( 225,977 ) $ 2,337,863 $ ( 256,566 ) Debt Securities Held to Maturity Obligations of U.S. government agencies $ 41,389 $ ( 2,252 ) $ 97,370 $ ( 7,690 ) $ 138,759 $ ( 9,942 ) Obligations of states and political subdivisions 1,050 ( 5 ) — — 1,050 ( 5 ) Total debt securities held to maturity $ 42,439 $ ( 2,257 ) $ 97,370 $ ( 7,690 ) $ 139,809 $ ( 9,947 ) December 31, 2022: Less than 12 months 12 months or more Total (in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Debt Securities Available for Sale Obligations of U.S. government agencies $ 605,615 $ ( 61,408 ) $ 766,612 $ ( 134,234 ) $ 1,372,227 $ ( 195,642 ) Obligations of states and political subdivisions 219,532 ( 26,904 ) 43,282 ( 12,917 ) 262,814 ( 39,821 ) Corporate bonds 5,751 ( 413 ) — — 5,751 ( 413 ) Asset backed securities 231,703 ( 4,955 ) 205,329 ( 10,238 ) 437,032 ( 15,193 ) Non-agency collateralized mortgage obligations 123,075 ( 3,421 ) 203,620 ( 36,480 ) 326,695 ( 39,901 ) Total debt securities available for sale $ 1,185,676 ( 97,101 ) $ 1,218,843 $ ( 193,869 ) $ 2,404,519 $ ( 290,970 ) Debt Securities Held to Maturity Obligations of U.S. government agencies $ 143,577 $ ( 11,013 ) $ — $ — $ 143,577 $ ( 11,013 ) Obligations of states and political subdivisions 4,530 ( 47 ) — — 4,530 ( 47 ) Total debt securities held to maturity $ 148,107 $ ( 11,060 ) $ — $ — $ 148,107 $ ( 11,060 ) Obligations of U.S. government agencies: The unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases and illiquidity. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded. At March 31, 2023, 261 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of 10.97 % from the Company’s amortized cost basis. Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2023. At March 31, 2023, 159 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 11.07 % from the Company’s amortized cost basis. Corporate bonds: The unrealized losses on investments in corporate bonds were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2023. At March 31, 2023, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 6.93 % from the Company’s amortized cost basis. Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through March 31, 2023 14 Table of Contents has not experienced any deterioration in credit rating. At March 31, 2023, 47 asset backed securities had unrealized losses with aggregate depreciation of 2.97 % from the Company’s amortized cost basis. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of March 31, 2023. Non-agency collateralized mortgage obligations: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses as of and for the year ended March 31, 2023. At March 31, 2023, 22 asset backed securities had unrealized losses with aggregate depreciation of 11.04 % from the Company’s amortized cost basis. The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating. The Company monitors the credit rating on a monthly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator: March 31, 2023 December 31, 2022 (in thousands) AAA/AA/A BBB/BB/B AAA/AA/A BBB/BB/B Obligations of U.S. government agencies $ 148,700 $ — $ 154,830 $ — Obligations of states and political subdivisions 3,367 — 6,153 — Total debt securities held to maturity $ 152,067 $ — $ 160,983 $ — Note 4 – Loans A summary of loan balances at amortized cost are as follows: (in thousands) March 31, 2023 December 31, 2022 Commercial real estate: CRE non-owner occupied $ 2,161,059 $ 2,149,725 CRE owner occupied 971,210 984,807 Multifamily 946,693 944,537 Farmland 274,997 280,014 Total commercial real estate loans 4,353,959 4,359,083 Consumer: SFR 1-4 1st DT liens 803,407 790,349 SFR HELOCs and junior liens 375,591 393,666 Other 54,799 56,728 Total consumer loans 1,233,797 1,240,743 Commercial and industrial 553,098 569,921 Construction 225,996 211,560 Agriculture production 47,062 61,414 Leases 8,509 7,726 Total loans, net of deferred loan fees and discounts $ 6,422,421 $ 6,450,447 Total principal balance of loans owed, net of charge-offs $ 6,467,936 $ 6,496,210 Unamortized net deferred loan fees ( 16,423 ) ( 15,275 ) Discounts to principal balance of loans owed, net of charge-offs ( 29,092 ) ( 30,488 ) Total loans, net of unamortized deferred loan fees and discounts $ 6,422,421 $ 6,450,447 Allowance for credit losses on loans $ ( 108,407 ) $ ( 105,680 ) 15 Table of Contents Note 5 – Allowance for Credit Losses For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities: Allowance for credit losses – Three months ended March 31, 2023 (in thousands) Beginning Balance Charge-offs Recoveries Provision (benefit) Ending Balance Commercial real estate: CRE non-owner occupied $ 30,962 $ — $ — $ 2,001 $ 32,963 CRE owner occupied 14,014 — — 545 14,559 Multifamily 13,132 — — 741 13,873 Farmland 3,273 — — 269 3,542 Total commercial real estate loans 61,381 — — 3,556 64,937 Consumer: SFR 1-4 1st DT liens 11,268 — — 652 11,920 SFR HELOCs and junior liens 11,413 ( 42 ) 65 ( 522 ) 10,914 Other 1,958 ( 142 ) 51 195 2,062 Total consumer loans 24,639 ( 184 ) 116 325 24,896 Commercial and industrial 13,597 ( 1,574 ) 53 ( 7 ) 12,069 Construction 5,142 — — 513 5,655 Agriculture production 906 — 1 ( 74 ) 833 Leases 15 — — 2 17 Allowance for credit losses on loans 105,680 ( 1,758 ) 170 4,315 108,407 Reserve for unfunded commitments 4,315 — — ( 120 ) 4,195 Total $ 109,995 $ ( 1,758 ) $ 170 $ 4,195 $ 112,602 In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment, gross domestic product, and corporate bond yields. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. 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. 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 flattening or inversion of the yield curve, have boosted expectations of the US entering a recession within 12 months. 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. Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. 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 following table provides a summary of loans and leases purchased as part of the VRB acquisition with credit deterioration at acquisition: As of March 25, 2022 (in thousands) Commercial Real Estate Consumer Commercial and Industrial Construction Agriculture Production Total Par value $ 27,237 $ 3,877 $ 2,674 $ 25,645 $ 9,080 $ 68,513 ACL at acquisition ( 1,573 ) ( 144 ) ( 81 ) ( 201 ) ( 38 ) ( 2,037 ) Non-credit discount ( 2,305 ) ( 360 ) ( 47 ) ( 232 ) ( 12 ) ( 2,956 ) Purchase price $ 23,359 $ 3,373 $ 2,546 $ 25,212 $ 9,030 $ 63,520 16 Table of Contents For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities: Allowance for credit losses – Year ended December 31, 2022 (in thousands) Beginning Balance ACL of PCD Loans Charge-offs Recoveries Provision (benefit) Ending Balance Commercial real estate: CRE non-owner occupied $ 25,739 $ 746 $ — $ 1 $ 4,476 $ 30,962 CRE owner occupied 10,691 63 — 2 3,258 14,014 Multifamily 12,395 — — — 737 13,132 Farmland 2,315 764 ( 294 ) — 488 3,273 Total commercial real estate loans 51,140 1,573 ( 294 ) 3 8,959 61,381 Consumer: SFR 1-4 1st DT liens 10,723 144 — 79 322 11,268 SFR HELOCs and junior liens 10,510 — ( 22 ) 429 496 11,413 Other 2,241 — ( 572 ) 235 54 1,958 Total consumer loans 23,474 144 ( 594 ) 743 872 24,639 Commercial and industrial 3,862 81 ( 697 ) 1,157 9,194 13,597 Construction 5,667 201 — — ( 726 ) 5,142 Agriculture production 1,215 38 — 4 ( 351 ) 906 Leases 18 — — — ( 3 ) 15 Allowance for credit losses on loans 85,376 2,037 ( 1,585 ) 1,907 17,945 105,680 Reserve for unfunded commitments 3,790 — — — 525 4,315 Total $ 89,166 $ 2,037 $ ( 1,585 ) $ 1,907 $ 18,470 $ 109,995 Allowance for credit losses – Three months ended March 31, 2022 (in thousands) Beginning Balance ACL of PCD Loans Charge-offs Recoveries Provision Ending Balance Commercial real estate: CRE non-owner occupied $ 25,739 $ 746 $ — $ — $ 1,570 $ 28,055 CRE owner occupied 10,691 63 — — 1,317 12,071 Multifamily 12,395 — — — ( 408 ) 11,987 Farmland 2,315 764 ( 294 ) — 94 2,879 Total commercial real estate loans 51,140 1,573 ( 294 ) — 2,573 54,992 Consumer: SFR 1-4 1st DT liens 10,723 144 — 40 ( 238 ) 10,669 SFR HELOCs and junior liens 10,510 — — 175 158 10,843 Other 2,241 — ( 119 ) 71 ( 26 ) 2,167 Total consumer loans 23,474 144 ( 119 ) 286 ( 106 ) 23,679 Commercial and industrial 3,862 81 ( 330 ) 887 4,542 9,042 Construction 5,667 201 — — 1,569 7,437 Agriculture production 1,215 38 — 1 ( 371 ) 883 Leases 18 — — — ( 2 ) 16 Allowance for credit losses on loans 85,376 2,037 ( 743 ) 1,174 8,205 96,049 Reserve for unfunded commitments 3,790 — — — 125 3,915 Total $ 89,166 $ 2,037 $ ( 743 ) $ 1,174 $ 8,330 $ 99,964 As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio. The Company analyzes loans individually to classify the loans as to credit risk and grading. This analysis is performed annually for all outstanding balances greater than $ 1 million and non-homogeneous loans, such as commercial real 17 Table of Contents estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the $ 1 million threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores. The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows: • Pass – This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital. • Special Mention – This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention. • Substandard – This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well-defined workout/rehabilitation program. • Doubtful – This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans. • Loss – This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the period indicated: Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023 (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Commercial real estate: CRE non-owner occupied risk ratings Pass $ 29,991 $ 412,225 $ 293,358 $ 152,186 $ 225,912 $ 868,576 $ 120,771 $ — $ 2,103,019 Special Mention — — 7,430 — 19,905 25,555 1,556 — 54,446 Substandard — — 827 743 218 1,806 — — 3,594 Doubtful/Loss — — — — — — — — — Total $ 29,991 $ 412,225 $ 301,615 $ 152,929 $ 246,035 $ 895,937 $ 122,327 $ — $ 2,161,059 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: CRE owner occupied risk ratings Pass $ 17,630 $ 201,342 $ 194,894 $ 121,856 $ 63,323 $ 291,219 $ 33,526 $ — $ 923,790 Special Mention — 131 16,818 232 724 7,794 838 — 26,537 Substandard — 3,153 — 5,217 1,877 10,479 157 — 20,883 Doubtful/Loss — — — — — — — — — Total $ 17,630 $ 204,626 $ 211,712 $ 127,305 $ 65,924 $ 309,492 $ 34,521 $ — $ 971,210 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 18 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023 (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Commercial real estate: Multifamily risk ratings Pass $ 2,849 $ 178,177 $ 289,301 $ 95,352 $ 108,051 $ 239,322 $ 33,524 $ — $ 946,576 Special Mention — — — — — — — — — Substandard — — — — — 117 — — 117 Doubtful/Loss — — — — — — — — — Total $ 2,849 $ 178,177 $ 289,301 $ 95,352 $ 108,051 $ 239,439 $ 33,524 $ — $ 946,693 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Farmland risk ratings Pass $ 14,429 $ 46,353 $ 53,146 $ 16,430 $ 18,037 $ 46,924 $ 52,382 $ — $ 247,701 Special Mention — 3,140 — 304 5,000 3,386 — — 11,830 Substandard — — 775 371 — 10,837 3,483 — 15,466 Doubtful/Loss — — — — — — — — — Total $ 14,429 $ 49,493 $ 53,921 $ 17,105 $ 23,037 $ 61,147 $ 55,865 $ — $ 274,997 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer loans: SFR 1-4 1st DT liens risk ratings Pass $ 15,719 $ 193,110 $ 271,654 $ 127,830 $ 32,755 $ 141,016 $ 8 $ 3,506 $ 785,598 Special Mention — 1,079 — 3,234 280 8,662 — 67 13,322 Substandard — — 1,189 — — 2,667 — 631 4,487 Doubtful/Loss — — — — — — — — — Total $ 15,719 $ 194,189 $ 272,843 $ 131,064 $ 33,035 $ 152,345 $ 8 $ 4,204 $ 803,407 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer loans: SFR HELOCs and Junior Liens Pass $ 360 $ — $ — $ — $ — $ 119 $ 362,806 $ 7,858 $ 371,143 Special Mention — — — — — — 646 23 669 Substandard — — — — — — 3,159 620 3,779 Doubtful/Loss — — — — — — — — — Total $ 360 $ — $ — $ — $ — $ 119 $ 366,611 $ 8,501 $ 375,591 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ 43 $ 43 Consumer loans: Other risk ratings Pass $ 4,305 $ 11,888 $ 12,044 $ 9,376 $ 9,680 $ 6,274 $ 588 $ — $ 54,155 Special Mention — — 13 64 130 200 16 — 423 Substandard — — — 42 70 87 22 — 221 Doubtful/Loss — — — — — — — — — Total $ 4,305 $ 11,888 $ 12,057 $ 9,482 $ 9,880 $ 6,561 $ 626 $ — $ 54,799 Current period gross write-offs $ 96 $ 6 $ — $ — $ 29 $ 7 $ 3 $ — $ 141 19 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023 (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Commercial and industrial loans: Commercial and industrial risk ratings Pass $ 34,754 $ 107,807 $ 64,490 $ 15,801 $ 20,277 $ 11,093 $ 273,269 $ 402 $ 527,893 Special Mention 44 2,750 60 20 29 1,037 9,453 — 13,393 Substandard — 1,223 1,869 3,235 11 298 5,076 100 11,812 Doubtful/Loss — — — — — — — — — Total $ 34,798 $ 111,780 $ 66,419 $ 19,056 $ 20,317 $ 12,428 $ 287,798 $ 502 $ 553,098 Current period gross write-offs $ 6 $ — $ — $ 1,550 $ — $ — $ — $ 18 $ 1,574 Construction loans: Construction risk ratings Pass $ 10,823 $ 93,294 $ 67,911 $ 41,776 $ 4,904 $ 6,736 $ — $ — $ 225,444 Special Mention — — — — — — — — — Substandard — — — — 458 94 — — 552 Doubtful/Loss — — — — — — — — — Total $ 10,823 $ 93,294 $ 67,911 $ 41,776 $ 5,362 $ 6,830 $ — $ — $ 225,996 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agriculture production loans: Agriculture production risk ratings Pass $ 50 $ 3,140 $ 2,567 $ 1,003 $ 929 $ 9,755 $ 21,690 $ — $ 39,134 Special Mention — — — — — 103 4,769 — 4,872 Substandard — — — — — — 3,056 — 3,056 Doubtful/Loss — — — — — — — — — Total $ 50 $ 3,140 $ 2,567 $ 1,003 $ 929 $ 9,858 $ 29,515 $ — $ 47,062 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Leases: Lease risk ratings Pass $ 8,509 $ — $ — $ — $ — $ — $ — $ — $ 8,509 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful/Loss — — — — — — — — — Total $ 8,509 $ — $ — $ — $ — $ — $ — $ — $ 8,509 Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total loans outstanding: Risk ratings Pass $ 139,419 $ 1,247,336 $ 1,249,365 $ 581,610 $ 483,868 $ 1,621,034 $ 898,564 $ 11,766 $ 6,232,962 Special Mention 44 7,100 24,321 3,854 26,068 46,737 17,278 90 125,492 Substandard — 4,376 4,660 9,608 2,634 26,385 14,953 1,351 63,967 Doubtful/Loss — — — — — — — — — Total $ 139,463 $ 1,258,812 $ 1,278,346 $ 595,072 $ 512,570 $ 1,694,156 $ 930,795 $ 13,207 $ 6,422,421 Current period gross write-offs $ 102 $ 6 $ — $ 1,550 $ 29 $ 7 $ 3 $ 61 $ 1,758 20 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022 (in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Commercial real estate: CRE non-owner occupied risk ratings Pass $ 399,910 $ 304,636 $ 152,960 $ 221,659 $ 147,842 $ 748,994 $ 123,794 $ — $ 2,099,795 Special Mention — — — 20,033 — 21,681 1,346 — 43,060 Substandard — 864 768 — 1,059 4,179 — — 6,870 Doubtful/Loss — — — — — — — — — Total $ 399,910 $ 305,500 $ 153,728 $ 241,692 $ 148,901 $ 774,854 $ 125,140 $ — $ 2,149,725 Commercial real estate: CRE owner occupied risk ratings Pass $ 210,101 $ 197,787 $ 120,929 $ 64,244 $ 49,755 $ 251,137 $ 43,343 $ — $ 937,296 Special Mention 131 16,296 234 731 — 6,971 879 — 25,242 Substandard 3,213 — 5,249 1,893 1,103 10,654 157 — 22,269 Doubtful/Loss — — — — — — — — — Total $ 213,445 $ 214,083 $ 126,412 $ 66,868 $ 50,858 $ 268,762 $ 44,379 $ — $ 984,807 Commercial real estate: Multifamily risk ratings Pass $ 159,318 $ 290,170 $ 96,937 $ 108,586 $ 106,287 $ 154,125 $ 28,989 $ — $ 944,412 Special Mention — — — — — — — — — Substandard — — — — — 125 — — 125 Doubtful/Loss — — — — — — — — — Total $ 159,318 $ 290,170 $ 96,937 $ 108,586 $ 106,287 $ 154,250 $ 28,989 $ — $ 944,537 Commercial real estate: Farmland risk ratings Pass $ 47,067 $ 53,275 $ 16,739 $ 18,589 $ 12,386 $ 34,528 $ 53,684 $ — $ 236,268 Special Mention 3,139 783 246 5,000 — 3,991 14,275 — 27,434 Substandard — — 1,772 765 3,158 7,094 3,523 — 16,312 Doubtful/Loss — — — — — — — — — Total $ 50,206 $ 54,058 $ 18,757 $ 24,354 $ 15,544 $ 45,613 $ 71,482 $ — $ 280,014 Consumer loans: SFR 1-4 1st DT liens risk ratings Pass $ 194,933 $ 265,370 $ 131,922 $ 33,395 $ 28,545 $ 115,469 $ 8 $ 2,924 $ 772,566 Special Mention — — 1,531 282 3,277 5,854 — 465 11,409 Substandard — 1,204 — — 1,004 3,521 — 645 6,374 Doubtful/Loss — — — — — — — — — Total $ 194,933 $ 266,574 $ 133,453 $ 33,677 $ 32,826 $ 124,844 $ 8 $ 4,034 $ 790,349 21 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022 (in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Consumer loans: SFR HELOCs and Junior Liens Pass $ 505 $ — $ — $ — $ — $ 127 $ 378,939 $ 8,462 $ 388,033 Special Mention — — — — — — 1,842 81 1,923 Substandard — — — — — — 3,072 638 3,710 Doubtful/Loss — — — — — — — — — Total $ 505 $ — $ — $ — $ — $ 127 $ 383,853 $ 9,181 $ 393,666 Consumer loans: Other risk ratings Pass $ 14,070 $ 12,990 $ 10,211 $ 10,650 $ 5,225 $ 1,945 $ 899 $ — $ 55,990 Special Mention — 18 77 135 176 32 47 — 485 Substandard — — 42 92 — 96 23 — 253 Doubtful/Loss — — — — — — — — — Total $ 14,070 $ 13,008 $ 10,330 $ 10,877 $ 5,401 $ 2,073 $ 969 $ — $ 56,728 Commercial and industrial loans: Commercial and industrial risk ratings Pass $ 125,710 $ 64,966 $ 17,746 $ 23,131 $ 7,628 $ 5,051 $ 297,341 $ 483 $ 542,056 Special Mention 3,032 139 21 49 138 768 11,547 — 15,694 Substandard 1,293 1,142 5,179 14 33 611 3,798 101 12,171 Doubtful/Loss — — — — — — — — — Total $ 130,035 $ 66,247 $ 22,946 $ 23,194 $ 7,799 $ 6,430 $ 312,686 $ 584 $ 569,921 Construction loans: Construction risk ratings Pass $ 72,840 $ 72,308 $ 43,409 $ 15,358 $ 2,159 $ 4,900 $ — $ — $ 210,974 Special Mention — — — — — — — — — Substandard — — — 457 — 129 — — 586 Doubtful/Loss — — — — — — — — — Total $ 72,840 $ 72,308 $ 43,409 $ 15,815 $ 2,159 $ 5,029 $ — $ — $ 211,560 Agriculture production loans: Agriculture production risk ratings Pass $ 3,414 $ 2,777 $ 1,149 $ 1,104 $ 8,902 $ 1,058 $ 38,425 $ — $ 56,829 Special Mention — — — — 90 31 1,632 — 1,753 Substandard — — — — — — 2,832 — 2,832 Doubtful/Loss — — — — — — — — — Total $ 3,414 $ 2,777 $ 1,149 $ 1,104 $ 8,992 $ 1,089 $ 42,889 $ — $ 61,414 22 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022 (in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total Leases: Lease risk ratings Pass $ 7,726 $ — $ — $ — $ — $ — $ — $ — $ 7,726 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful/Loss — — — — — — — — — Total $ 7,726 $ — $ — $ — $ — $ — $ — $ — $ 7,726 Total loans outstanding: Risk ratings Pass $ 1,235,594 $ 1,264,279 $ 592,002 $ 496,716 $ 368,729 $ 1,317,334 $ 965,422 $ 11,869 $ 6,251,945 Special Mention 6,302 17,236 2,109 26,230 3,681 39,328 31,568 546 127,000 Substandard 4,506 3,210 13,010 3,221 6,357 26,409 13,405 1,384 71,502 Doubtful/Loss — — — — — — — — — Total $ 1,246,402 $ 1,284,725 $ 607,121 $ 526,167 $ 378,767 $ 1,383,071 $ 1,010,395 $ 13,799 $ 6,450,447 The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated: Analysis of Past Due Loans - As of March 31, 2023 (in thousands) 30-59 days 60-89 days > 90 days Total Past Due Loans Current Total Commercial real estate: CRE non-owner occupied $ 623 $ — $ — $ 623 $ 2,160,436 $ 2,161,059 CRE owner occupied 156 82 172 410 970,800 971,210 Multifamily — — — — 946,693 946,693 Farmland 150 — — 150 274,847 274,997 Total commercial real estate loans 929 82 172 1,183 4,352,776 4,353,959 Consumer: SFR 1-4 1st DT liens 442 557 356 1,355 802,052 803,407 SFR HELOCs and junior liens — 1,342 793 2,135 373,456 375,591 Other 49 136 121 306 54,493 54,799 Total consumer loans 491 2,035 1,270 3,796 1,230,001 1,233,797 Commercial and industrial 471 1,620 364 2,455 550,643 553,098 Construction — 78 379 457 225,539 225,996 Agriculture production — — — — 47,062 47,062 Leases — — — — 8,509 8,509 Total $ 1,891 $ 3,815 $ 2,185 $ 7,891 $ 6,414,530 $ 6,422,421 23 Table of Contents Analysis of Past Due Loans - As of December 31, 2022 (in thousands) 30-59 days 60-89 days > 90 days Total Past Due Loans Current Total Commercial real estate: CRE non-owner occupied $ — $ — $ — $ — $ 2,149,725 $ 2,149,725 CRE owner occupied — 98 75 173 984,634 984,807 Multifamily 159 — — 159 944,378 944,537 Farmland — — — — 280,014 280,014 Total commercial real estate loans 159 98 75 332 4,358,751 4,359,083 Consumer: SFR 1-4 1st DT liens 24 — 279 303 790,046 790,349 SFR HELOCs and junior liens 172 166 707 1,045 392,621 393,666 Other 26 34 55 115 56,613 56,728 Total consumer loans 222 200 1,041 1,463 1,239,280 1,240,743 Commercial and industrial 2,300 190 283 2,773 567,148 569,921 Construction — — 379 379 211,181 211,560 Agriculture production — — — — 61,414 61,414 Leases — — — — 7,726 7,726 Total $ 2,681 $ 488 $ 1,778 $ 4,947 $ 6,445,500 $ 6,450,447 The following table shows the ending balance of non accrual loans by loan category as of the date indicated: Non Accrual Loans As of March 31, 2023 As of December 31, 2022 (in thousands) Non accrual with no allowance for credit losses Total non accrual Past due 90 days or more and still accruing Non accrual with no allowance for credit losses Total non accrual Past due 90 days or more and still accruing Commercial real estate: CRE non-owner occupied $ 1,671 $ 1,671 $ — $ 1,739 $ 1,739 $ — CRE owner occupied 3,848 3,848 — 4,938 4,938 — Multifamily 117 117 — 125 125 — Farmland 371 371 — 1,772 1,772 — Total commercial real estate loans 6,007 6,007 — 8,574 8,574 — Consumer: SFR 1-4 1st DT liens 3,532 3,532 — 4,117 4,220 — SFR HELOCs and junior liens 2,790 3,373 — 2,498 3,155 — Other 78 139 — 47 84 — Total consumer loans 6,400 7,044 — 6,662 7,459 — Commercial and industrial 95 1,372 189 1,224 3,518 — Construction 457 457 — 491 491 — Agriculture production 957 957 — 1,279 1,279 — Leases — — — — — — Sub-total 13,916 15,837 189 18,230 21,321 — Less: Guaranteed loans ( 75 ) ( 230 ) — ( 105 ) ( 225 ) Total, net $ 13,841 $ 15,607 $ 189 $ 18,125 $ 21,096 $ — Interest income on non accrual loans that would have been recognized during the three months ended March 31, 2023 and 2022, if all such loans had been current in accordance with their original terms, totaled $ 0.32 million and $ 0.17 million, respectively. Interest income actually recognized on these originated loans during the three months ended March 31, 2023 and 2022 was $ 17 thousand and $ 13 thousand, respectively. 24 Table of Contents The following tables present the amortized cost basis of collateral dependent loans by class of loans as of the following periods: As of March 31, 2023 (in thousands) Retail Office Warehouse Other Multifamily Farmland SFR-1st Deed SFR-2nd Deed Automobile/Truck A/R and Inventory Equipment Total Commercial real estate: CRE non-owner occupied $ 749 $ 95 $ — $ 827 $ — $ — $ — $ — $ — $ — $ — $ 1,671 CRE owner occupied 523 75 — 3,250 — — — — — — — 3,848 Multifamily — — — — 117 — — — — — — 117 Farmland — — — — — 371 — — — — — 371 Total commercial real estate loans 1,272 170 — 4,077 117 371 — — — — — 6,007 Consumer: SFR 1-4 1st DT liens — — — — — — 3,532 — — — — 3,532 SFR HELOCs and junior liens — — — — — — 1,705 1,308 — — — 3,013 Other — — — 4 — — — — 124 — 2 130 Total consumer loans — — — 4 — — 5,237 1,308 124 — 2 6,675 Commercial and industrial — — — — — — — — — 1,298 74 1,372 Construction — — — 379 — — 78 — — — — 457 Agriculture production — — — — — — — — — — 957 957 Leases — — — — — — — — — — — — Total $ 1,272 $ 170 $ — $ 4,460 $ 117 $ 371 $ 5,315 $ 1,308 $ 124 $ 1,298 $ 1,033 $ 15,468 As of December 31, 2022 (in thousands) Retail Office Warehouse Other Multifamily Farmland SFR -1st Deed SFR -2nd Deed Automobile/Truck A/R and Inventory Equipment Total Commercial real estate: CRE non-owner occupied $ 777 $ 98 $ — $ 864 $ — $ — $ — $ — $ — $ — $ — $ 1,739 CRE owner occupied 548 75 1,103 3,212 — — — — — — — 4,938 Multifamily — — — — 125 — — — — — — 125 Farmland — — — — — 1,772 — — — — — 1,772 Total commercial real estate loans 1,325 173 1,103 4,076 125 1,772 — — — — — 8,574 Consumer: SFR 1-4 1st DT liens — — — — — — 4,220 — — — — 4,220 SFR HELOCs and junior liens — — — — — — 1,664 1,121 — — — 2,785 Other — — — 5 — — — — 61 — 2 68 Total consumer loans — — — 5 — — 5,884 1,121 61 — 2 7,073 Commercial and industrial — — — 1,874 — — — — — 1,596 48 3,518 Construction — — — 379 — — 112 — — — — 491 Agriculture production — — — — — — — — — — 1,279 1,279 Leases — — — — — — — — — — — — Total $ 1,325 $ 173 $ 1,103 $ 6,334 $ 125 $ 1,772 $ 5,996 $ 1,121 $ 61 $ 1,596 $ 1,329 $ 20,935 25 Table of Contents Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The following tables show the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods presented. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented below. For the three months ended March 31, 2023 (in thousands) Payment Delay/Term Extension Total % of Loans Outstanding Commercial real estate: CRE non-owner occupied $ — — % CRE owner occupied — — Multifamily — — Farmland — — Total commercial real estate loans — — Consumer: SFR 1-4 1st DT liens — — SFR HELOCs and junior liens — — Other — — Total consumer loans — — Commercial and industrial 177 0.03 Construction — — Agriculture production — — Leases — — Total $ 177 0.03 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2023. Weighted Average Months Term Extension Commercial and industrial 12 There were no loans with payment defaults by borrowers experiencing financial difficulty during the quarter ended March 31, 2023 which had material modifications in rate, term or principal forgiveness during the twelve months prior to default. Note 6 - Leases The Company records a ROUA on the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company also records a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company has elected not to include short-term leases (i.e. leases with initial terms of 12 month or less) within the ROUA and lease liability. Known or determinable adjustments to the required minimum future lease payments were included in the calculation of the Company’s ROUA and lease liability. Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, such as changes in the consumer price index, are included as variable lease costs. Additionally, expected variable payments for common area maintenance, taxes and insurance were unknown and not determinable at lease commencement and therefore, were not included in the determination of the Company’s ROUA or lease liability. The value of the ROUA and lease liability is impacted by the amount of the periodic payment required, length of the lease term, and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period. The ROUA value is measured using the amount of lease liability and adjusted for prepaid or accrued lease payments, remaining lease incentives, unamortized direct costs (if any), and impairment (if any). 26 Table of Contents The following table presents the components of lease expense for the periods ended: Three months ended March 31, (in thousands) 2023 2022 Operating lease cost $ 1,609 $ 1,319 Short-term lease cost 118 53 Variable lease cost 12 2 Sublease income — — Total lease cost $ 1,739 $ 1,374 The following table presents supplemental cash flow information related to leases for the periods ended: Three months ended March 31, (in thousands) 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 1,653 $ 1,292 ROUA obtained in exchange for operating lease liabilities $ 4,484 $ 3,867 The following table presents the weighted average operating lease term and discount rate as of the period ended: March 31, 2023 2022 Weighted-average remaining lease term (years) 8.3 8.8 Weighted-average discount rate 3.27 % 2.90 % At March 31, 2023, future expected operating lease payments are as follows: (in thousands) Periods ending December 31, 2023 $ 4,505 2024 5,798 2025 5,229 2026 4,688 2027 4,001 Thereafter 13,071 37,292 Discount for present value of expected cash flows ( 5,064 ) Lease liability at March 31, 2023 $ 32,228 Note 7 - Deposits A summary of the balances of deposits follows: (in thousands) March 31, 2023 December 31, 2022 Noninterest-bearing demand $ 3,236,696 $ 3,502,095 Interest-bearing demand 1,635,706 1,718,541 Savings 2,807,796 2,884,378 Time certificates, $250,000 or more 94,917 46,350 Other time certificates 250,750 177,649 Total deposits $ 8,025,865 $ 8,329,013 Overdrawn deposit balances of $ 1.4 million and $ 1.8 million were classified as consumer loans at March 31, 2023 and December 31, 2022, respectively. 27 Table of Contents Note 8 - Subordinated Debentures The following table summarizes the terms and recorded balances of each debenture as of the date indicated (dollars in thousands): Coupon Rate (Variable) 3 mo. LIBOR + As of March 31, 2023 As of December 31, 2022 Subordinated Debt Series Maturity Date Face Value Current Coupon Rate Recorded Book Value Recorded Book Value TriCo Cap Trust I 10/7/2033 $ 20,619 3.05 % 7.88 % $ 20,619 $ 20,619 TriCo Cap Trust II 7/23/2034 20,619 2.55 % 7.36 % 20,619 20,619 North Valley Trust II 4/24/2033 6,186 3.25 % 8.06 % 5,527 5,503 North Valley Trust III 7/23/2034 5,155 2.80 % 7.61 % 4,404 4,383 North Valley Trust IV 3/15/2036 10,310 1.33 % 6.19 % 7,446 7,393 VRB Subordinated - 6 % 3/29/2029 16,000 Fixed 6.00 % 17,140 17,187 VRB Subordinated - 5 % 8/27/2035 20,000 Fixed 5.00 % 25,296 25,336 $ 98,889 $ 101,051 $ 101,040 The VRB - 6 % Subordinated Debt issuance has a fixed rate of 6.0 % through March 29, 2024, then indexed to the three-month LIBOR plus 3.5 % through the maturity date. The VRB - 5 % Subordinated Debt issuance is fixed at 5.0 % through August 27, 2025, then indexed to the three-month LIBOR plus 4.9 % through the maturity date. Note 9 - Commitments and Contingencies The following table presents a summary of the Bank’s commitments and contingent liabilities: (in thousands) March 31, 2023 December 31, 2022 Financial instruments whose amounts represent risk: Commitments to extend credit: Commercial loans $ 726,505 $ 656,705 Consumer loans 751,193 760,588 Real estate mortgage loans 473,894 458,896 Real estate construction loans 307,152 312,371 Standby letters of credit 24,070 26,599 Deposit account overdraft privilege 129,147 126,634 Note 10 - Shareholders’ Equity Dividends Paid The Bank paid to the Company cash dividends in the aggregate amounts of $ 18.2 million and $ 7.8 million during the three months ended March 31, 2023 and 2022, respectively. The Bank is regulated by the FDIC and the DFPI. Absent approval from the Commissioner of the DFPI, California banking laws generally limit the Bank’s ability to pay dividends to the lesser of (1) retained earnings or (2) net income for the last three fiscal years, less cash distributions paid during such period. Stock Repurchase Plan On February 25, 2021 the Board of Directors authorized the repurchase of up to 2.0 million shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7 % of the shares outstanding as of the approval date. The actual timing of any share repurchases can be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations). During the three months ended March 31, 2023 and 2022, the Company repurchased 150,000 and zero shares with market values of $ 7.0 million and $ 0 , respectively. Stock Repurchased Under Equity Compensation Plans The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares. During the three months ended March 31, 2023 and 2022, exercising option holders tendered zero shares, respectively, of the Company’s common stock in connection with option exercises. 28 Table of Contents Employees also tendered 12,381 and zero shares in connection with the tax withholding requirements of other share based awards during the three months ended March 31, 2023 and 2022, respectively. In total, shares of the Company's common stock tendered had market values of $ 0.62 million and $ 0 during the quarters ended March 31, 2023 and 2022, respectively. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share based award vests. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 Stock Repurchase Plans. Note 11 - Stock Options and Other Equity-Based Incentive Instruments On April 16, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (2019 Plan) which was approved by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. The Company’s 2009 Equity Incentive Plan (2009 Plan) expired on March 26, 2019. While no new awards can be granted under the 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement. Stock option activity during the three months ended March 31, 2023 is summarized in the following table: Number of Shares Weighted Average Exercise Price Outstanding at December 31, 2022 15,500 $ 21.27 Options granted — — Options exercised ( 4,000 ) 19.46 Options forfeited — — Outstanding at March 31, 2023 11,500 $ 21.90 The following table shows the number, weighted-average exercise price, intrinsic value, and weighted average remaining contractual life of options exercisable, options not yet exercisable and total options outstanding as of March 31, 2023: Currently Exercisable Currently Not Exercisable Total Outstanding Number of options 11,500 — 11,500 Weighted average exercise price $ 21.90 $ — $ 21.90 Intrinsic value (in thousands) $ 226 $ — $ 226 Weighted average remaining contractual term (yrs.) 1.0 0 years 1.0 As of March 31, 2023 all options outstanding are fully vested and are expected to be exercised prior to expiration. The Company did not modify any option grants during 2022 or the three months ended March 31, 2023. Activity related to restricted stock unit awards during the three months ended March 31, 2023 is summarized in the following table: Service Condition Vesting RSUs Market Plus Service Condition Vesting RSUs Outstanding at December 31, 2022 139,194 114,481 RSUs granted — — RSUs added through dividend and performance credits 817 — RSUs released ( 22,118 ) — RSUs forfeited/expired — — Outstanding at March 31, 2023 117,893 114,481 The 117,893 of service condition vesting RSUs outstanding as of March 31, 2023 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant. The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities. The 117,893 of service condition vesting RSUs outstanding as of March 31, 2023 are expected to vest, and be released, on a weighted-average basis, over the next 2.1 years. The Company expects to recognize $ 3.1 million of pre-tax compensation costs related to these service condition vesting RSUs between March 31, 2023 and their vesting dates. The Company did not modify any service condition vesting RSUs during 2022 or during the three months ended March 31, 2023. The 114,481 of market plus service condition vesting RSUs outstanding as of March 31, 2023 are expected to vest, and be released, on a weighted-average basis, over the next 2.1 years. The Company expects to recognize $ 1.8 million of pre-tax compensation costs related to these RSUs between March 31, 2023 and their vesting dates. As of March 31, 2023, the number of market plus service condition vesting 29 Table of Contents RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to 171,722 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date. The Company did not modify any market plus service condition vesting RSUs during 2022 or during the three months ended March 31, 2023 . Note 12 - Non-interest Income and Expense The following table summarizes the Company’s non-interest income for the periods indicated: Three months ended March 31, (in thousands) 2023 2022 ATM and interchange fees $ 6,344 $ 6,243 Service charges on deposit accounts 3,431 3,834 Other service fees 1,166 882 Mortgage banking service fees 465 463 Change in value of mortgage servicing rights ( 209 ) 274 Total service charges and fees 11,197 11,696 Increase in cash value of life insurance 802 638 Asset management and commission income 934 887 Gain on sale of loans 206 1,246 Lease brokerage income 98 158 Sale of customer checks 288 104 Loss on sale of investment securities ( 164 ) — Gain (loss) on marketable equity securities 42 ( 137 ) Other 232 504 Total other non-interest income 2,438 3,400 Total non-interest income $ 13,635 $ 15,096 The components of non-interest expense were as follows: Three months ended March 31, (in thousands) 2023 2022 Base salaries, net of deferred loan origination costs $ 23,000 $ 18,216 Incentive compensation 2,895 2,583 Benefits and other compensation costs 6,668 5,972 Total salaries and benefits expense 32,563 26,771 Occupancy 4,160 3,575 Data processing and software 4,032 3,513 Equipment 1,383 1,333 Intangible amortization 1,656 1,228 Advertising 759 637 ATM and POS network charges 1,709 1,375 Professional fees 1,589 876 Telecommunications 595 521 Regulatory assessments and insurance 792 720 Merger and acquisition expense — 4,032 Postage 299 228 Operational (gain) losses 435 ( 183 ) Courier service 339 414 Gain on disposal of fixed assets — ( 1,078 ) Other miscellaneous expense 3,483 2,485 Total other non-interest expense 21,231 19,676 Total non-interest expense $ 53,794 $ 46,447 30 Table of Contents Note 13 - Earnings Per Share Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income that would result from assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units (RSUs), and are determined using the treasury stock method. Earnings per share have been computed based on the following: Three months ended March 31, (in thousands) 2023 2022 Net income $ 35,833 $ 20,374 Average number of common shares outstanding 33,296 30,050 Effect of dilutive stock options and restricted stock 142 152 Average number of common shares outstanding used to calculate diluted earnings per share 33,438 30,202 Options excluded from diluted earnings per share because of their antidilutive effect — — Note 14 – Comprehensive Income (Loss) Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet identified as accumulated other comprehensive income (AOCI), such items, along with net income, are components of other comprehensive income (loss) (OCI). The components of other comprehensive income (loss) and related tax effects are as follows: Three months ended March 31, (in thousands) 2023 2022 Unrealized holding gains (losses) on available for sale securities before reclassifications $ 34,540 $ ( 111,302 ) Amounts reclassified out of AOCI: Realized loss on debt securities 164 — Unrealized holding gains (losses) on available for sale securities after reclassifications 34,704 ( 111,302 ) Tax effect ( 10,260 ) 32,905 Unrealized holding gains (losses) on available for sale securities, net of tax 24,444 ( 78,397 ) Change in unfunded status of the supplemental retirement plans before reclassifications 114 63 Amounts reclassified out of AOCI: Amortization of prior service cost — ( 7 ) Amortization of actuarial losses ( 114 ) 2 Total amounts reclassified out of accumulated other comprehensive (loss) income ( 114 ) ( 5 ) Change in unfunded status of the supplemental retirement plans after reclassifications — 58 Tax effect — — Change in unfunded status of the supplemental retirement plans, net of tax — 58 Change in joint beneficiary agreement liability before reclassifications — — Tax effect — — Change in joint beneficiary agreement liability before reclassifications, net of tax — — Total other comprehensive income (loss) $ 24,444 $ ( 78,339 ) 31 Table of Contents The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows: (in thousands) March 31, 2023 December 31, 2022 Net unrealized gain on available for sale securities $ ( 255,845 ) $ ( 290,549 ) Tax effect 75,637 85,897 Unrealized holding gain on available for sale securities, net of tax ( 180,208 ) ( 204,652 ) Unfunded status of the supplemental retirement plans 13,901 13,901 Tax effect ( 4,110 ) ( 4,110 ) Unfunded status of the supplemental retirement plans, net of tax 9,791 9,791 Joint beneficiary agreement liability 956 956 Tax effect — — Joint beneficiary agreement liability, net of tax 956 956 Accumulated other comprehensive loss $ ( 169,461 ) $ ( 193,905 ) Note 15 - Fair Value Measurement The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, income approach, and/or the cost approach. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Marketable equity securities, debt securities available-for-sale, loans held for sale, and mortgage servicing rights are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application impairment write-downs of individual assets. The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observable nature of the assumptions used to determine fair value. These levels are: Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. Marketable equity securities and debt securities available for sale - Marketable equity securities and debt securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. The Company had no securities classified as Level 3 during any of the periods covered in these financial statements. Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subjected to recurring fair value adjustments as Level 2. Individually evaluated loans - Loans are not recorded at fair value on a recurring basis. However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and is individually evaluated for credit reserves. Loans for which it is probable that payment of interest and principal will not be made in accordance with the original contractual terms of the loan agreement are typically individually evaluated. The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from 32 Table of Contents comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3. Foreclosed assets - Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less cost to sell. When the fair value of foreclosed assets is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense. Mortgage servicing rights - Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3. The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands): Fair value at March 31, 2023 Total Level 1 Level 2 Level 3 Marketable equity securities $ 2,640 $ 2,640 Debt securities available for sale: Obligations of U.S. government corporations and agencies 1,357,435 1,357,435 Obligations of states and political subdivisions 279,900 279,900 Corporate bonds 5,738 5,738 Asset backed securities 427,364 427,364 Non-agency mortgage backed securities 335,375 335,375 Loans held for sale 226 226 Mortgage servicing rights 6,553 6,553 Total assets measured at fair value $ 2,415,231 $ 2,640 $ 2,406,038 $ 6,553 Fair value at December 31, 2022 Total Level 1 Level 2 Level 3 Marketable equity securities $ 2,598 $ 2,598 $ — $ — Debt securities available for sale: Obligations of U.S. government corporations and agencies 1,372,769 — 1,372,769 — Obligations of states and political subdivisions 293,205 — 293,205 — Corporate bonds 5,751 — 5,751 — Asset backed securities 439,767 — 439,767 — Non-agency mortgage backed securities 340,946 340,946 Loans held for sale 1,846 — 1,846 — Mortgage servicing rights 6,712 — — 6,712 Total assets measured at fair value $ 2,463,594 $ 2,598 $ 2,454,284 $ 6,712 Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between any levels during the three months ended March 31, 2023 or the year ended December 31, 2022. The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands): Three months ended March 31, Beginning Balance Transfers into (out of) Level 3 Change Included in Earnings Issuances Ending Balance 2023: Mortgage servicing rights $ 6,712 $ ( 209 ) $ 50 $ 6,553 2022: Mortgage servicing rights $ 5,874 — $ 274 $ 257 $ 6,405 33 Table of Contents Three months ended March 31, The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows. Generally, any significant increases in the mortgage prepayment speed and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustments (and decrease in the fair value measurement). Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement). The following table presents quantitative information about recurring Level 3 fair value measurements at March 31, 2023 and December 31, 2022: As of March 31, 2023: Fair Value (in thousands) Valuation Technique Unobservable Inputs Range, Weighted Average Mortgage Servicing Rights $ 6,553 Discounted cash flow Constant prepayment rate 121 % - 216 %; 130.0 % Discount rate 10 % - 14 %; 12 % As of December 31, 2022: Mortgage Servicing Rights $ 6,712 Discounted cash flow Constant prepayment rate 116 % - 226.0 %; 127.0 % Discount rate 10 % - 14 %; 12 % The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated, that had a write-down or an additional allowance provided during the periods indicated (in thousands): March 31, 2023 Total Level 1 Level 2 Level 3 Fair value: Individually evaluated loans $ 1,223 — — $ 1,223 December 31, 2022 Total Level 1 Level 2 Level 3 Fair value: Individually evaluated loans $ 5,719 — — $ 5,719 Foreclosed assets 311 — — 311 Total assets measured at fair value $ 6,030 — — $ 6,030 The tables below present the losses resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated (in thousands): Three months ended March 31, 2023 2022 Individually evaluated loans $ ( 277 ) $ ( 615 ) Foreclosed assets — ( 294 ) Total losses from non-recurring measurements $ ( 277 ) $ ( 909 ) The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan with unique risk characteristics, the Company evaluates the need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the loan is less than the recorded investment in the loan, the Company recognizes this impairment and adjust the carrying value of the loan to fair value through the allowance for credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully charged-off is zero . The foreclosed assets amount above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real estate which the Company has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at fair value less costs to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate. 34 Table of Contents The Company’s property appraisals are primarily based on the sales comparison approach and income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2023: March 31, 2023 Fair Value (in thousands) Valuation Technique Unobservable Inputs Range, Weighted Average Individually evaluated loans $ 1,223 Sales comparison approach Income approach Adjustment for differences between comparable sales; Capitalization rate Not meaningful N/A The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2022: December 31, 2022 Fair Value (in thousands) Valuation Technique Unobservable Inputs Range, Weighted Average Individually evaluated loans $ 5,719 Sales comparison approach Income approach Adjustment for differences between comparable sales; Capitalization rate Not meaningful N/A Foreclosed assets (Residential real estate) $ 311 Sales comparison approach Adjustment for differences between comparable sales Not meaningful N/A Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including, any mortgage banking operations, deferred tax assets, and premises and equipment. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of these estimates. March 31, 2023 December 31, 2022 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value Financial assets: Level 1 inputs: Cash and due from banks $ 77,933 $ 77,933 $ 96,323 $ 96,323 Cash at Federal Reserve and other banks 32,402 32,402 10,907 10,907 Level 2 inputs: Securities held to maturity 152,067 142,135 160,983 149,938 Restricted equity securities 17,250 N/A 17,250 N/A Level 3 inputs: Loans, net 6,314,014 6,073,450 6,344,767 6,153,155 Financial liabilities: Level 2 inputs: Deposits 8,025,865 8,018,642 8,329,013 8,321,517 Other borrowings 434,140 434,140 264,605 264,605 Level 3 inputs: Junior subordinated debt 101,051 94,442 101,040 92,613 35 Table of Contents (in thousands) Contract Amount Fair Value Contract Amount Fair Value Off-balance sheet: Level 3 inputs: Commitments $ 2,258,744 $ 22,587 $ 2,188,560 $ 21,886 Standby letters of credit 24,070 241 26,599 266 Overdraft privilege commitments 129,147 1,291 126,634 1,266 Note 16 - Regulatory Matters The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The following tables present actual and required capital ratios as of March 31, 2023 and December 31, 2022 for the Company and the Bank under applicable Basel III Capital Rules. The minimum capital amounts presented include the minimum required capital levels as of March 31, 2023 and December 31, 2022 based on the then phased-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. Actual Required for Capital Adequacy Purposes Required to be Considered Well Capitalized As of March 31, 2023: Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $ 1,134,613 14.50 % $ 821,668 10.50 % N/A N/A Tri Counties Bank $ 1,127,852 14.42 % $ 821,470 10.50 % $ 782,352 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 994,155 12.70 % $ 665,160 8.50 % N/A N/A Tri Counties Bank $ 1,029,875 13.16 % $ 665,000 8.50 % $ 625,882 8.00 % Common equity Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 937,300 11.98 % $ 547,779 7.00 % N/A N/A Tri Counties Bank $ 1,029,875 13.16 % $ 547,647 7.00 % $ 508,529 6.50 % Tier 1 Capital (to Average Assets): Consolidated $ 994,155 10.20 % $ 393,017 4.00 % N/A N/A Tri Counties Bank $ 1,029,875 10.57 % $ 392,873 4.00 % $ 491,091 5.00 % 36 Table of Contents Actual Required for Capital Adequacy Purposes Required to be Considered Well Capitalized As of December 31, 2022: Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $ 1,115,257 14.19 % $ 825,234 10.50 % N/A N/A Tri Counties Bank $ 1,107,941 14.10 % $ 825,039 10.50 % $ 785,751 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 974,325 12.40 % $ 668,047 8.50 % N/A N/A Tri Counties Bank $ 1,009,577 12.85 % $ 667,888 8.50 % $ 628,601 8.00 % Common equity Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 917,565 11.67 % $ 550,156 7.00 % N/A N/A Tri Counties Bank $ 1,009,577 12.85 % $ 550,026 7.00 % $ 510,738 6.50 % Tier 1 Capital (to Average Assets): Consolidated $ 974,325 10.14 % $ 384,337 4.00 % N/A N/A Tri Counties Bank $ 1,009,577 10.51 % $ 384,146 4.00 % $ 480,183 5.00 % As of March 31, 2023 and December 31, 2022, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at March 31, 2023 and December 31, 2022, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action. The Basel III Capital Rules require for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio. At March 31, 2023, the Company and the Bank are in compliance with the capital conservation buffer requirement. 37 Table of Contents