TRICO BANCSHARES / 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS Cautionary Statements Regarding Forward-Looking Information The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations impacts on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; regulatory restrictions on our ability to successfully market and price our products to consumers; technological changes; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the continuing adverse impact on the U.S. economy, including the markets in which we operate due to the lingering effects of the COVID-19 global pandemic; the impact of a slowing U.S. economy and potentially increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of, and cost of, sources of funding and the demand for our products; adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, commodities prices, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities, terrorism or geopolitical events; the quality and quantity of our deposits; adverse developments in the financial services industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; risks related to the sufficiency of liquidity; the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; the costs or effects of mergers, acquisitions or dispositions we may make, as well as whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, or identify and complete favorable transactions in the future, and/or realize the contemplated financial business benefits associated with any such activities; the regulatory and financial impacts associated with exceeding $10 billion in total assets; the negative impact on our reputation and profitability in the event customers experience economic harm or in the event that regulatory violations are identified; the ability to execute our business plan in new lending markets; the future operating or financial performance of the Company, including our outlook for future growth and changes in the level and direction of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effectiveness of the Company's asset management activities in improving, resolving or liquidating lower-quality assets; the effect of changes in the financial performance and/or condition of our borrowers; changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us due to changes in credit quality or rates; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; the effects of changes in the level or cost of checking or savings account deposits on our funding costs and net interest margin; our noninterest expense and the efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of attracting, integrating and retaining key employees; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; the vulnerability of the Company's operational or security systems or infrastructure, the systems of third-party vendors or other service providers with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond to such incidents; increased data security risks due to work from home arrangements and email vulnerability; failure to safeguard personal information; changes to U.S. tax policies, including our effective income tax rate; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the transition away from the London Interbank Offered Rate toward new interest rate benchmarks; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2022, which has been filed with the Securities and Exchange Commission (the “SEC”) and all subsequent filings with the SEC under Sections 13(a), 13(c), 14, and 15(d) of the Securities Act of 1934, as amended. Such filings are also available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We undertake no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. General As TriCo Bancshares (referred to in this report as “we”, “our” or the “Company”) has not commenced any business operations independent of Tri Counties Bank (the “Bank”), the following discussion pertains primarily to the Bank. Average balances, including such balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company. Within Management’s Discussion and Analysis of Financial Condition and Results of Operations, interest income, net interest income, and net interest yield are generally presented on a FTE basis. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provides additional clarity in assessing its results, and the presentation of these measures on a FTE basis is a common practice within the banking industry. Interest income and net interest income are shown on a non-FTE basis in the Part I - Financial Information section of this Form 10-Q, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion of net interest income. Critical Accounting Policies and Estimates The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of 38 Table of Contents America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those that materially affect the financial statements and are related to the adequacy of the allowance for loan losses, investments, mortgage servicing rights, fair value measurements, retirement plans and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A detailed discussion related to the Company’s accounting policies including those related to estimates on the allowance for credit losses related to loans and investment securities, and impairment of intangible assets, can be found in Note 1 of the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2022. 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. Financial Highlights Performance highlights and other developments for the Company as of or for the three months ended March 31, 2023 included the following: • For the quarter ended March 31, 2023, the Company’s return on average assets was 1.47%, while the return on average equity was 13.36%. • Net income was $35.8 million compared to $36.3 million in the trailing quarter, and compared to $20.4 million in the same quarter of the prior year; Pre-tax pre-provision net revenue was $53.2 million compared to $55.3 million in the trailing quarter, and compared to $36.6 million in the same quarter of the prior year. • Deposit balances for the quarter ended March 31, 2023, decreased by $303.1 million as compared to December 31, 2022. The deposit contraction during the quarter resulted in the loan to deposit ratio increasing to 80.0% as of March 31, 2023, as compared to 77.4% as of the trailing quarter. The Bank did not utilize brokered deposits or FRB borrowing facilities during the 2022 or 2023 periods. • The efficiency ratio was 50.3% for the three months ended March 31, 2023, as compared to 51.8% for the trailing quarter. • The provision for credit losses for loans and debt securities was approximately $4.2 million during the quarter ended March 31, 2023, as compared to a provision for credit losses of $4.2 million during the trailing quarter ended December 31, 2022, and a provision for credit losses of $8.3 million for the three-month period ended March 31, 2022. • The allowance for credit losses to total loans was 1.69% as of March 31, 2023, compared to 1.64% as of the trailing quarter end, and 1.64% as of March 31, 2022. Non-performing assets to total assets were 0.20% at March 31, 2023, as compared to 0.25% as of December 31, 2022, and 0.17% at March 31, 2022. • Average yields on earning assets were 4.64%, an increase of 12 basis points over the 4.52% in the trailing quarter and an increase of 118 basis points over March 31, 2022; net interest margin was 4.21%, a change of 13 basis points from 4.34% in the trailing quarter and a change of 82 basis points from 3.39% as of quarter ended March 31, 2022. • Balance sheet flexibility anchored in readily accessible sources of liquidity including undrawn borrowing capacities, on-balance sheet cash and unpledged investment securities totaling in excess of $4.4 billion 39 Table of Contents TRICO BANCSHARES Financial Summary (In thousands, except per share amounts; unaudited) Three months ended March 31, 2023 2022 Net interest income $ 93,336 $ 67,924 Provision for credit losses (4,195) (8,330) Non-interest income 13,635 15,096 Non-interest expense (53,794) (46,447) 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 paid $ 0.30 $ 0.25 Book value at period end $ 32.84 $ 32.78 Average common shares outstanding 33,296 30,050 Average diluted common shares outstanding 33,438 30,202 Shares outstanding at period end 33,195 33,838 At period end: Loans $ 6,422,421 $ 5,851,975 Total investment securities $ 2,577,769 $ 2,569,706 Total assets $ 9,842,394 $ 10,118,328 Total deposits $ 8,025,865 $ 8,714,477 Other borrowings $ 434,140 $ 36,184 Shareholders’ equity $ 1,090,245 $ 1,109,182 Financial Ratios: During the period: Return on average assets (annualized) 1.47 % 0.94 % Return on average equity (annualized) 13.36 % 8.19 % Net interest margin (1) (annualized) 4.21 % 3.39 % Efficiency ratio 50.29 % 55.95 % Average equity to average assets 11.00 % 11.50 % At end of period: Equity to assets 11.08 % 10.96 % Total capital to risk-adjusted assets 14.50 % 14.96 % (1) Fully Taxable Equivalent (FTE) The Company announced net income of $35.8 million for the quarter ended March 31, 2023, compared to $36.3 million during the trailing quarter ended December 31, 2022, and $20.4 million during the quarter ended March 31, 2022. Diluted earnings per share were $1.07 for the first quarter of 2023, compared to $1.09 for the fourth quarter of 2022 and $0.67 during the first quarter of 2022.. Results of Operations The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and the Bank’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report. 40 Table of Contents Net Interest Income The Company’s primary source of revenue is net interest income, or the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Following is a summary of the components of FTE net income for the periods indicated Three months ended (in thousands) March 31, 2023 March 31, 2022 Change % Change Interest income $ 102,907 $ 69,195 $ 33,712 48.7 % Interest expense (9,571) (1,271) (8,300) 653.0 % Fully tax-equivalent adjustment (FTE) (1) 392 283 109 38.5 % Net interest income (FTE) $ 93,728 $ 68,207 $ 25,521 37.4 % Net interest margin (FTE) 4.21 % 3.39 % Acquired loans discount accretion, net: Amount (included in interest income) $ 1,397 $ 1,323 $ 74 5.6 % Net interest margin less effect of acquired loan discount accretion (1) 4.15 % 3.32 % 0.83 % PPP loans yield, net: Amount (included in interest income) $ 5 $ 1,097 $ (1,092) (99.5) % Net interest margin less effect of PPP loan yield (1) 4.21 % 3.36 % 0.85 % Acquired loans discount accretion and PPP loan yield, net: (1) Amount (included in interest income) $ 1,402 $ 2,420 $ (1,018) (42.1) % Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1) 4.15 % 3.29 % 0.86 % (1) Certain information included herein is presented on a FTE basis and/or to present additional financial details which may be desired by users of this financial information. The Company believes the use of this non-generally accepted accounting principles (non-GAAP) measure provides additional clarity in assessing its results, and the presentation of these measures is a common practice within the banking industry. Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or the discount is accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the dollar impact of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining unaccreted discount or unamortized premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. The prepayment speed of portfolio loans, inclusive of those acquired at a premium or discount, is heavily influenced by the rate of change in interest rates. During the three months ended March 31, 2023, December 31, 2022, and March 31, 2022, purchased loan discount accretion was $1.4 million, $1.8 million, and $1.3 million, respectively. 41 Table of Contents Summary of Average Balances, Yields/Rates and Interest Differential The following table presents, for the three month periods indicated, information regarding the Company’s consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income from average interest-earning assets and resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual loans only to the extent cash payments have been received and applied to interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands). For the three months ended March 31, 2023 March 31, 2022 Average Balance Interest Income/ Expense Rates Earned /Paid Average Balance Interest Income/ Expense Rates Earned /Paid Assets: Loans, excluding PPP $ 6,412,386 $ 82,410 5.21 % $ 4,937,865 $ 56,648 4.65 % PPP loans 1,572 5 1.29 % 50,695 1,097 8.78 % Investment securities - taxable 2,398,235 18,916 3.20 % 2,313,204 10,223 1.79 % Investment securities - nontaxable (1) 189,050 1,699 3.64 % 143,873 1,225 3.45 % Total investments 2,587,285 20,615 3.23 % 2,457,077 11,448 1.89 % Cash at Federal Reserve and other banks 26,818 269 4.07 % 707,563 285 0.16 % Total interest-earning assets 9,028,061 103,299 4.64 % 8,153,200 69,478 3.46 % Other assets 850,866 625,056 Total assets $ 9,878,927 $ 8,778,256 Liabilities and shareholders’ equity: Interest-bearing demand deposits $ 1,673,114 $ 387 0.09 % $ 1,597,309 $ 84 0.02 % Savings deposits 2,898,463 4,154 0.58 % 2,571,023 327 0.05 % Time deposits 274,805 604 0.89 % 301,499 268 0.36 % Total interest-bearing deposits 4,846,382 5,145 0.43 % 4,469,831 679 0.06 % Other borrowings 277,632 2,809 4.10 % 44,731 5 0.05 % Junior subordinated debt 101,044 1,617 6.49 % 60,971 587 3.90 % Total interest-bearing liabilities 5,225,058 9,571 0.74 % 4,575,533 1,271 0.11 % Noninterest-bearing deposits 3,372,194 3,052,099 Other liabilities 194,202 141,400 Shareholders’ equity 1,087,473 1,009,224 Total liabilities and shareholders’ equity $ 9,878,927 $ 8,778,256 Net interest spread (2) 3.90 % 3.35 % Net interest income and interest margin (3) $ 93,728 4.21 % $ 68,207 3.39 % (1) Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable. (2) Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. (3) Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of i nterest-earning assets, then annualized based on the number of days in the given period . Net interest income (FTE) during the three months ended March 31, 2023, decreased $5.6 million or 5.6% to $93.7 million compared to $99.3 million during the three months ended December 31, 2022. In addition, net interest margin declined 13 basis points to 4.21%, compared to the trailing quarter. The decrease in net interest income is primarily attributed to an additional $3.0 million in deposit interest expense and $2.4 million in additional interest expense on other borrowings, both due to increases in interest rates as compared to the trailing quarter, respectively. Total interest income was effectively unchanged as compared to the trailing quarter, down $0.1 million or 0.1%. As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 56 basis points from 4.65% during the three months ended March 31, 2022, to 5.21% during the three months ended March 31, 2023. The accretion of discounts from acquired loans added 9 and 7 basis points to loan yields during the quarters ended March 31, 2023 and March 31, 2022, respectively. The rates paid on interest bearing deposits increased by 25 basis points during the quarter ended March 31, 2023, compared to the trailing quarter. The cost of interest-bearing deposits increased by 37 basis points between the quarter ended March 31, 2023, and the same quarter of the prior year. In addition, the level of noninterest-bearing deposits decreased by $290.3 million quarter over quarter but remains $320.1 million above quarter ended March 31, 2022. As of March 31, 2023, the ratio of average total noninterest-bearing deposits to total average deposits was 41.0%, as compared to 42.9% and 40.6% at December 31, 2022 and March 31, 2022, respectively. 42 Table of Contents Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid The following table sets forth, for the period identified, a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components. Three months ended March 31, 2023 compared with three months ended March 31, 2022 (in thousands) Volume Rate Total Increase (decrease) in interest income: Loans, including PPP $ 16,063 $ 8,607 $ 24,670 Investment securities 771 8,396 9,167 Cash at Federal Reserve and other banks (272) 256 (16) Total interest-earning assets 16,562 17,259 33,821 Increase (decrease) in interest expense: Interest-bearing demand deposits 4 299 303 Savings deposits 41 3,786 3,827 Time deposits (24) 360 336 Other borrowings 29 2,775 2,804 Junior subordinated debt 391 639 1,030 Total interest-bearing liabilities 441 7,859 8,300 Increase (decrease) in net interest income $ 16,121 $ 9,400 $ 25,521 The following commentary regarding net interest income, interest income and interest expense may be best understood while referencing the Summary of Average Balances, Yields/Rates and Interest Differential and the Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid shown above. Net interest income (FTE) during the three months ended March 31, 2023 increased $25.5 million to $93.7 million compared to $68.2 million during the three months ended March 31, 2022. The overall increase in net interest income (FTE) was due to increases in both average investment and loan balances, which resulted in improvements totaling $0.8 million and $16.1 million, respectively, and higher yields further improving those earnings by $8.4 million and $8.6 million, respectively. Increasing interest rates boosted interest expenses on on interest-bearing liabilities, most significantly deposits and other borrowings, resulting in a net increase of $3.8 million and $2.8 million, respectively. Asset Quality and Credit Loss Provisioning During the three months ended March 31, 2023, the Company recorded a provision for credit losses of $4.2 million, as compared to $4.2 million during the trailing quarter, and $8.3 million during the first quarter of 2022. The following table presents details of the provision for credit losses for the periods indicated: Three months ended (dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Addition to (reversal of) allowance for credit losses $ 4,315 $ 4,300 $ 8,205 Addition to (reversal of) reserve for unfunded loan commitments (120) (55) 125 Total provision for (reversal of) credit losses $ 4,195 $ 4,245 $ 8,330 The allowance for credit losses (ACL) was $108.4 million as of March 31, 2023, a net increase of $2.7 million over the immediately preceding quarter. The addition to the allowance for credit losses of $4.3 million during the quarter was the net effect of changes in required reserves due to qualitative factors, individually analyzed credits and quantitative reserves under the cohort model. On a comparative basis, the provision for credit losses of $8.2 million during the three months ended March 31, 2022 was largely the result of day 1 required reserves from loans acquired in connection with the Valley Republic Bank merger in the same period. For the current quarter, the qualitative components of the ACL resulted in a net increase in required reserves totaling approximately $4.7 million due to increased uncertainty in US economic policy, and the ramifications on local and statewide unemployment rates. Meanwhile, the quantitative component of the ACL decreased reserve requirements by approximately $1.9 million over the trailing quarter due to a decline in needed specific reserves on loans. 43 Table of Contents The following table presents the activity in the allowance for credit losses on loans for the periods indicated: Three months ended (dollars in thousands) March 31, 2023 March 31, 2022 Balance, beginning of period $ 105,680 $ 85,376 ACL at acquisition for PCD loans — 2,037 Provision for (reversal of) credit losses 4,315 8,205 Loans charged-off (1,758) (743) Recoveries of previously charged-off loans 170 1,174 Balance, end of period $ 108,407 $ 96,049 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. Loans past due 30 days or more increased by $2.9 million during the quarter ended March 31, 2023 to $7.9 million, as compared to $4.9 million at December 31, 2022 but decreased by $0.5 million compared to the March 31, 2022 past due balance of $8.4 million. Non-performing loans were $16.0 million at March 31, 2023, a decrease of $5.3 million from $21.3 million as of December 31, 2022, and a decrease of $1.9 million from $14.1 million as of March 31, 2022. Of the $16.0 million loans designated as non-performing, approximately $10.2 million are less than 30 days past due as of March 31, 2023. The following table illustrates the total loans by risk rating and their respective percentage of total loans for the periods presented. March 31, % of Loans Outstanding December 31, % of Loans Outstanding March 31, % of Loans Outstanding (dollars in thousands) 2023 2022 2022 Risk Rating: Pass $ 6,232,962 97.1 % $ 6,251,945 96.9 % $ 5,682,026 97.1 % Special Mention 125,492 2.0 % 127,000 2.0 % 120,684 2.1 % Substandard 63,967 1.0 % 71,502 1.1 % 49,265 0.8 % Total $ 6,422,421 $ 6,450,447 $ 5,851,975 Classified loans to total loans 1.00 % 1.11 % 0.84 % Loans past due 30+ days to total loans 0.12 % 0.08 % 0.14 % The ratio of classified loans decreased to 1.00% as of March 31, 2023 as compared to 1.11% in the trailing quarter, but increased by 16 basis points from the equivalent period in 2022. The Company's criticized loan balances decreased during the current quarter by $9.0 million to $189.5 million as of March 31, 2023. There were no changes to Other Real Estate Owned balances during the first quarter of 2023. As of March 31, 2023, other real estate owned consisted of nine properties with a carrying value of approximately $3.4 million. Non-performing assets of $19.5 million at March 31, 2023 represented 0.20% of total assets, generally in line with the $24.8 million or 0.25% and $17.0 million or 0.17% as of December 31, 2022 and March 31, 2022, respectively. 44 Table of Contents Non-interest Income The following table summarizes the Company’s non-interest income for the periods indicated (in thousands): Three months ended March 31, (in thousands) 2023 2022 $ Change % Change ATM and interchange fees $ 6,344 $ 6,243 $ 101 1.6 % Service charges on deposit accounts 3,431 3,834 (403) (10.5) % Other service fees 1,166 882 284 32.2 % Mortgage banking service fees 465 463 2 0.4 % Change in value of mortgage servicing rights (209) 274 (483) (176.3) % Total service charges and fees 11,197 11,696 (499) (4.3) % Increase in cash value of life insurance 802 638 164 25.7 % Asset management and commission income 934 887 47 5.3 % Gain on sale of loans 206 1,246 (1,040) (83.5) % Lease brokerage income 98 158 (60) (38.0) % Sale of customer checks 288 104 184 176.9 % Gain on sale of investment securities (164) — (164) n/m Gain on marketable equity securities 42 (137) 179 (130.7) % Other 232 504 (272) (54.0) % Total other non-interest income 2,438 3,400 (962) (28.3) % Total non-interest income $ 13,635 $ 15,096 $ (1,461) (9.7) % Non-interest income decreased $1.5 million or 9.7% to $13.6 million during the three months ended March 31, 2023, compared to $15.1 million during the quarter ended March 31, 2022. Total service charges and fees declined by $0.5 million or 4.3% during the period, of which $0.9 million is due to waived or reversed fees related to the network outage disclosed in the Company's 8-K filed with the SEC on February 14, 2023. In addition, the declining mortgage related activity resulting from elevated interest rates reduced income recorded from the sale of loans by $1.0 million or 83.5%, as compared to the three months ended March 31, 2022. 45 Table of Contents Non-interest Expense The following table summarizes the Company’s non-interest expense for the periods indicated: Three months ended March 31, (in thousands) 2023 2022 $ Change % Change Base salaries, net of deferred loan origination costs $ 23,000 $ 18,216 $ 4,784 26.3 % Incentive compensation 2,895 2,583 312 12.1 % Benefits and other compensation costs 6,668 5,972 696 11.7 % Total salaries and benefits expense 32,563 26,771 5,792 21.6 % Occupancy 4,160 3,575 585 16.4 % Data processing and software 4,032 3,513 519 14.8 % Equipment 1,383 1,333 50 3.8 % Intangible amortization 1,656 1,228 428 34.9 % Advertising 759 637 122 19.2 % ATM and POS network charges 1,709 1,375 334 24.3 % Professional fees 1,589 876 713 81.4 % Telecommunications 595 521 74 14.2 % Regulatory assessments and insurance 792 720 72 10.0 % Merger and acquisition expense — 4,032 (4,032) (100.0) % Postage 299 228 71 31.1 % Operational losses (gain) 435 (183) 618 (337.7) % Courier service 339 414 (75) (18.1) % Loss on disposal of fixed assets — (1,078) 1,078 (100.0) % Other miscellaneous expense 3,483 2,485 998 40.2 % Total other non-interest expense 21,231 19,676 1,555 7.9 % Total non-interest expense $ 53,794 $ 46,447 $ 7,347 15.8 % Average full time equivalent staff 1,219 1,084 135 12.5 % Generally, the increases in recurring non-interest expense items reflect the VRB merger closing on March 25, 2022, and therefore, related expenses for the combined entities, less certain realized cost savings, are largely only being captured within the most recent three months ended March 31, 2023. Total non-interest expense increased $7.3 million or 15.8% to $53.8 million during the three months ended March 31, 2023 as compared to $46.4 million for the quarter ended March 31, 2022. Total salaries and benefits expense increased by $5.8 million or 21.6% to $32.6 million, largely from a net increase of 135 full-time equivalent positions, 99 of which resulted from the aforementioned merger with VRB. Professional fees increased by $0.7 million which was directly associated with the cybersecurity incident disclosed in the Company's 8-K filed with the SEC on February 14, 2023. While management has accrued for costs incurred through the balance sheet date that are probable and reasonably estimable, additional expenses will be incurred in future periods as management works to complete its investigation of the incident. See also "Part II - Other Information - Item 1A — Risk Factors beginning on page 57. Income Taxes The Company’s effective tax rate was 26.8% for the quarter ended March 31, 2023, as compared to 27.9% for the year ended December 31, 2022. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 29.6% are due to the proportion of non-taxable revenues, non-deductible expenses, and benefits from tax credits as compared to the levels of pre-tax earnings. Financial Condition For financial reporting purposes, the Company does not separately track the changes in assets and liabilities based on branch location or regional geography. The following is a comparison of the quarterly change in certain assets and liabilities: 46 Table of Contents Ending balances March 31, December 31, Annualized % Change (dollars in thousands) 2023 2022 $ Change Total assets $ 9,842,394 $ 9,930,986 $ (88,592) (3.6) % Total loans 6,422,421 6,450,447 (28,026) (1.7) Total investments 2,577,769 2,633,269 (55,500) (8.4) Total deposits 8,025,865 8,329,013 (303,148) (14.6) Other borrowings 434,140 264,605 169,535 256.3 Loans outstanding declined by $28.0 million or 1.7% on an annualized basis during the quarter ended March 31, 2023. During the quarter, loan originations/draws totaled approximately $357.0 million while payoffs/repayments of loans totaled $389.0 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $470.0 million and $343.0 million, respectively. While management believes the loan pipeline remains sufficient to support the Company's objectives, origination activity continues to moderate due to customer sensitivity from the rising interest rate environment and the Company's continued focus on disciplined underwriting. Investment security balances decreased $55.5 million or 8.4% on an annualized basis as the result of prepayments/maturities totaling approximating $65.8 million and proceeds from sale of $24.2 million, partially offset by increases in the market value of securities of $34.6 million. Management seeks to utilize excess cash flows from the investment security portfolio to support loan growth or reduce borrowings thus resulting in an improved mix of earning assets. Deposit balances decreased by $303.1 million or 14.6% annualized during the period. Cash flow needs were supported by net increases in short-term FHLB advances which totaled $434.1 million as of the quarter ended March 31, 2023. The following is a comparison of the year over year change in certain assets and liabilities: Ending balances As of March 31, % Change (dollars in thousands) 2023 2022 $ Change Total assets $ 9,842,394 $ 10,118,328 $ (275,934) (2.7) % Total loans 6,422,421 5,851,975 570,446 9.7 Total loans, excluding PPP 6,420,903 5,795,370 625,533 10.8 Total investments 2,577,769 2,569,706 8,063 0.3 Total deposits 8,025,865 8,714,477 (688,612) (7.9) Total other borrowings 434,140 36,184 397,956 1,099.8 Non-PPP loan balances increased as a result of organic activities by approximately $625.5 million or 10.8% during the twelve-month period ending March 31, 2023. Over the same period deposit balances have declined by $688.6 million or 7.9%. The Company has offset these declines through the deployment of excess cash balances and proceeds from short-term FHLB borrowings. As of March 31, 2023, short-term borrowings from the FHLB totaled $394.1 million and had an interest rate of 5.11%. Investment Securities Investment securities available for sale decreased $46.6 million to $2.4 billion as of March 31, 2023, compared to December 31, 2022. The decrease is attributed to $56.9 million in calls and principal repayments, partially offset by $34.7 million in market value appreciation. In addition, 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 $0.16 million. There were no sales of investment securities during the three months ended March 31, 2022. The following table presents the available for sale debt securities portfolio by major type as of March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 (in thousands) Fair Value % Fair Value % Debt securities available for sale : Obligations of U.S. government agencies $ 1,357,435 56.4 % $ 1,372,769 56.0 % Obligations of states and political subdivisions 279,900 11.6 % 293,205 12.0 % Corporate bonds 5,738 0.3 % 5,751 0.2 % Asset backed securities 427,364 17.8 % 439,767 17.9 % Non-agency mortgage backed 335,375 13.9 % 340,946 13.9 % Total debt securities available for sale $ 2,405,812 100.0 % $ 2,452,438 100.0 % 47 Table of Contents March 31, 2023 December 31, 2022 (in thousands) Amortized Cost % Amortized Cost % Debt securities held to maturity : Obligations of U.S. government and agencies $ 148,700 97.8 % $ 154,830 96.2 % Obligations of states and political subdivisions 3,367 2.2 % 6,153 3.8 % Total debt securities held to maturity $ 152,067 100.0 % $ 160,983 100.0 % Investment securities held to maturity decreased $8.9 million to $152.1 million as of March 31, 2023, as compared to December 31, 2022. This decrease is attributable to calls and principal repayments of $8.8 million, and amortization of net purchase premiums of $0.1 million. Loans The Company focuses its primary lending activities in six principal areas: commercial real estate loans, consumer loans, commercial and industrial loans, construction loans, agriculture production loans and leases. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and duration of the loans, the borrower’s relationship with the Company and prevailing money market rates indicative of the Company’s cost of funds. The majority of the Company’s loans are direct loans made to individuals, and local or regional businesses which service a variety of industries. The Company relies substantially on local promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions. The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment. The following table shows the Company’s loan balances, net deferred loan costs and discounts, as of the dates indicated: (in thousands) March 31, 2023 December 31, 2022 Commercial real estate $ 4,353,959 67.8 % $ 4,359,083 67.6 % Consumer 1,233,797 19.2 % 1,240,743 19.2 % Commercial and industrial 553,098 8.6 % 569,921 8.8 % Construction 225,996 3.5 % 211,560 3.3 % Agriculture production 47,062 0.7 % 61,414 1.0 % Leases 8,509 0.1 % 7,726 0.1 % Total loans $ 6,422,421 100.0 % $ 6,450,447 100.0 % Nonperforming Assets The following tables set forth the amount of the Company’s NPAs as of the dates indicated. “Performing nonaccrual loans” are loans that may be current for both principal and interest payments, or are less than 90 days past due, but for which payment in full of both principal and interest is not expected, and are not well secured and in the process of collection: (in thousands) March 31, 2023 December 31, 2022 Performing nonaccrual loans $ 13,840 $ 19,543 Nonperforming nonaccrual loans 1,996 1,770 Total nonaccrual loans 15,836 21,313 Loans 90 days past due and still accruing 189 8 Total nonperforming loans 16,025 21,321 Foreclosed assets 3,439 3,439 Total nonperforming assets $ 19,464 $ 24,760 Nonperforming assets to total assets 0.20 % 0.25 % Nonperforming loans to total loans 0.25 % 0.33 % Allowance for credit losses to nonperforming loans 676 % 516 % 48 Table of Contents Changes in nonperforming assets during the three months ended March 31, 2023 (in thousands) Balance at December 31, 2022 New NPA / Valuation Adjustments Pay-downs /Sales /Upgrades Charge-offs/ (1) Write-downs Transfers to Foreclosed Assets Balance at March 31, 2023 Commercial real estate: CRE non-owner occupied $ 1,739 — (68) — — $ 1,671 CRE owner occupied 4,938 97 (1,187) — — 3,848 Multifamily 125 — (8) — — 117 Farmland 1,772 — (1,401) — — 371 Total commercial real estate loans 8,574 97 (2,664) — — 6,007 Consumer SFR 1-4 1st DT liens 4,220 406 (1,095) — — 3,531 SFR HELOCs and junior liens 3,155 427 (166) (43) — 3,373 Other 76 110 (2) (45) — 139 Total consumer loans 7,451 943 (1,263) (88) — 7,043 Commercial and industrial 3,526 292 (683) (1,574) — 1,561 Construction 491 — (34) — — 457 Agriculture production 1,279 — (322) — — 957 Leases — — — — — — Total nonperforming loans 21,321 1,332 (4,966) (1,662) — 16,025 Foreclosed assets 3,439 — — — — 3,439 Total nonperforming assets $ 24,760 1,332 (4,966) (1,662) — $ 19,464 (1) The table above does not include deposit overdraft charge-offs. Nonperforming assets decreased during the three months ended March 31, 2023 by $5.3 million or 21.4% to $19.5 million compared to $24.8 million at December 31, 2022. The decrease in nonperforming assets during the first quarter of 2023 was primarily the result of nonperforming loan pay-downs/upgrades, which totaled $5.0 million during the quarter and charge-offs of $1.7 million. The nonperforming loans added during the period totaled $1.3 million. Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the loan loss reserves associated with these loans is sufficient as of March 31, 2023. Loan charge-offs during the three months ended March 31, 2023 In the first quarter of 2023, the Company recorded $1.7 million in loan charge-offs and $0.01 million in deposit overdraft charge-offs less $0.1 million in loan recoveries and $0.1 million in deposit overdraft recoveries, which collectively resulted in $1.6 million in net charge-offs. (in thousands) The Components of the Allowance for Credit Losses for Loans The following table sets forth the allowance for credit losses for loans as of the dates indicated: (in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Allowance for credit losses: Qualitative and forecast factor allowance $ 75,467 $ 70,777 $ 64,334 Cohort model allowance reserves 32,054 32,489 30,880 Allowance for individually evaluated loans 886 2,414 835 Total allowance for credit losses $ 108,407 $ 105,680 $ 96,049 Allowance for credit losses for loans / total loans 1.69 % 1.64 % 1.64 % For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see “Asset Quality and Loan Loss Provisioning” at “Results of Operations” , above. Based on the current conditions of the loan portfolio, management believes that the $108.4 million allowance for loan losses at March 31, 2023 is adequate to absorb probable losses inherent in the Bank’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio. 49 Table of Contents The following table summarizes the allocation of the allowance for credit losses between loan types and by percentage of the total allowance for credit losses on loans as of the dates indicated: (in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Commercial real estate $ 64,937 59.9 % 61,381 58.1 % $ 54,992 57.3 % Consumer 24,896 23.0 % 24,639 23.3 % 23,852 24.8 % Commercial and industrial 12,069 11.1 % 13,597 12.9 % 8,869 9.2 % Construction 5,655 5.2 % 5,142 4.8 % 7,437 7.7 % Agriculture production 833 0.7 % 906 0.8 % 883 0.9 % Leases 17 0.1 % 15 0.1 % 16 0.1 % Total allowance for credit losses $ 108,407 100.0 % 105,680 100.0 % $ 96,049 100.0 % The following table summarizes the allocation of the allowance for credit losses as a percentage of the total loans for each loan category as of the dates indicated: (in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Commercial real estate 1.49 % 1.41 % 1.43 % Consumer 2.02 % 1.99 % 2.10 % Commercial and industrial 2.18 % 2.39 % 1.77 % Construction 2.50 % 2.43 % 2.45 % Agriculture production 1.77 % 1.48 % 1.27 % Leases 0.20 % 0.19 % 0.20 % Total loans 1.69 % 1.64 % 1.64 % 50 Table of Contents The following table summarizes the activity in the allowance for credit losses for the periods indicated: Three months ended March 31, (in thousands) 2023 2022 Allowance for credit losses: Balance at beginning of period $ 105,680 $ 85,376 ACL on PCD loans — 2,037 Provision for (reversal of) loan losses 4,315 8,205 Loans charged-off: Commercial real estate: CRE non-owner occupied — — CRE owner occupied — — Multifamily — — Farmland — (294) Consumer: SFR 1-4 1st DT liens — — SFR HELOCs and junior liens (42) — Other (142) (119) Commercial and industrial (1,574) (330) Construction — — Agriculture production — — Leases — — Total loans charged-off (1,758) (743) Recoveries of previously charged-off loans: Commercial real estate: CRE non-owner occupied — — CRE owner occupied — — Multifamily — — Farmland — — Consumer: SFR 1-4 1st DT liens — 40 SFR HELOCs and junior liens 65 175 Other 51 71 Commercial and industrial 53 887 Construction — — Agriculture production 1 1 Leases — — Total recoveries of previously charged-off loans 170 1,174 Net recoveries (1,588) 431 Balance at end of period $ 108,407 $ 96,049 Average total loans $ 6,413,958 $ 4,988,560 Ratios (annualized): Net (charge-offs) recoveries during period to average loans outstanding during period (0.10) % 0.03 % Provision for credit losses to average loans outstanding during period 0.27 % 0.66 % 51 Table of Contents Foreclosed Assets, Net of Allowance for Losses The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the three months ended March 31, 2023: (in thousands) Balance at December 31, 2022 Sales Valuation Adjustments Transfers from Loans Balance at March 31, 2023 Land & construction $ 154 $ — $ — $ — $ 154 Residential real estate 1,709 — — — 1,709 Commercial real estate 1,576 — — — 1,576 Total foreclosed assets $ 3,439 $ — $ — $ — $ 3,439 Deposits During the three months ended March 31, 2023, the Company’s deposits decreased by $303.1 million to $8.7 billion at quarter end. There were no brokered deposits included in the deposit balances as of March 31, 2023 and December 31, 2022, respectively. Off-Balance Sheet Arrangements See Note 9 to the condensed consolidated financial statements at Item 1 of Part I of this report for information about the Company’s commitments and contingencies including off-balance-sheet arrangements. Capital Resources The current and projected capital position of the Company and the impact of capital plans and long-term strategies are reviewed regularly by Management. On February 25, 2021 the Board of Directors authorized the repurchase of up to 2,000,000 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 will 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 Company may repurchase its outstanding shares of common stock from time to time in open market or privately-negotiated transactions, including block trades, or pursuant to 10b5-1 trading plans. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations). Concurrently with the announcement of the completion of the VRB merger, the Company announced the resumption of its 2021 Repurchase Plan planned activities. During the three 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. Total shareholders' equity increased by $43.8 million during the quarter ended March 31, 2023, as a result of an improvement in accumulated other comprehensive losses of $24.4 million and net income of $35.8 million, partially offset by cash dividend payments on common stock of approximately $9.9 million. As a result, the Company’s book value was $32.84 per share at March 31, 2023, as compared to $31.39 and $32.78 at December 31, 2022, and March 31, 2022, respectively. The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $23.22 per share at March 31, 2023, as compared to $21.76 and $23.04 at December 31, 2022, and March 31, 2022, respectively. Trailing Quarter Balance Sheet Change March 31, 2023 December 31, 2022 Ratio Minimum Regulatory Requirement Ratio Minimum Regulatory Requirement Total risk based capital 14.5 % 10.5 % 14.2 % 10.5 % Tier I capital 12.7 % 8.5 % 12.4 % 8.5 % Common equity Tier 1 capital 12.0 % 7.0 % 11.7 % 7.0 % Leverage 10.2 % 4.0 % 10.1 % 4.0 % See Note 10 and Note 16 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources. As of March 31, 2023, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depository shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings. Each issuance under the shelf 52 Table of Contents registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. The registration statement does not limit the amount of securities that may be issued thereunder. Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings and compliance with current and prospective covenants in credit agreements. Liquidity The Company's primary sources of liquidity include the following for the periods indicated: (dollars in thousands) March 31, 2023 December 31, 2022 Borrowing capacity at correspondent banks and FRB $ 2,853,219 $ 2,815,594 Less: borrowings outstanding (394,095) (216,700) Unpledged available-for-sale investment securities 1,883,353 1,990,451 Cash held or in transit with FRB 67,468 56,910 Total primary liquidity $ 4,409,945 $ 4,862,738.3 At March 31, 2023, the Company's primary sources of liquidity represented 54.9% of total deposits and 190.7% of estimated total uninsured deposits, respectively. As a secondary source of liquidity, the Company's held-to-maturity investment securities had a fair value of $142.1 million, including approximately $9.9 million in net unrealized losses or 0.6% of after tax total shareholders' equity. The Company’s profitability during the first three months of 2023 generated cash flows from operations of $39.0 million compared to $34.8 million during the first three months of 2022. Net cash from investing activities was $115.3 million for the three months ended March 31, 2023, compared to net cash used by investing activities of $121.9 million during the three months ending 2022. Financing activities used $151.1 million during the three months ended March 31, 2023, compared to providing $110.5 million during the three months ended March 31, 2022. During the three months ended March 31, 2023 deposit balance decreases of $303.1 million was the largest detractor of funding, which attributed to the increase in other borrowings of $169.5 million during the same period. The changes in contractual obligations of the Company and Bank, to include but not limited to term subordinated debt, operating leases, deferred compensation and supplemental retirement plans as well as off-balance sheet commitments such as unfunded loans and letters of credit. These contractual obligations are otherwise consistent with similar balances or totals as of December 31, 2022. The Company is dependent upon the payment of cash dividends by the Bank to service its commitments, which have historically included dividends to shareholders, scheduled debt service payments, and general operations. Shareholder dividends are expected to continue subject to the Board’s discretion and management's continuing evaluation of capital levels, earnings, asset quality and other factors. The Company expects that the cash dividends paid by the Bank to the Company will be sufficient to cover the Company's cash flow needs. However, the Company and its ability to generate liquidity through either the issuance of stock or debt, also serves as a potential source of strength for the Bank. Dividends paid by the Company to holders of its common stock used $10.0 million and $7.4 million of cash during the three months ended March 31, 2023 and 2022, respectively. The Company’s liquidity is dependent on dividends received from the Bank. Dividends from the Bank are subject to certain regulatory restrictions. 53 Table of Contents TRICO BANCSHARES—NON-GAAP FINANCIAL MEASURES (Unaudited. Dollars in thousands) In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this filing contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this filing because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results, and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below: Three months ended (dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Net interest margin Acquired loans discount accretion, net: Amount (included in interest income) $1,397 $1,751 $1,323 Effect on average loan yield 0.09 % 0.11 % 0.11 % Effect on net interest margin (FTE) 0.06 % 0.07 % 0.07 % Net interest margin (FTE) 4.21 % 4.34 % 3.39 % Net interest margin less effect of acquired loan discount accretion (Non-GAAP) 4.15 % 4.27 % 3.32 % PPP loans yield, net: Amount (included in interest income) $5 $16 $1,097 Effect on net interest margin (FTE) — % — % 0.03 % Net interest margin less effect of PPP loan yield (Non-GAAP) 4.21 % 4.34 % 3.36 % Acquired loan discount accretion and PPP loan yield, net: Amount (included in interest income) $1,402 $1,767 $2,420 Effect on net interest margin (FTE) 0.06 % 0.07 % 0.10 % Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP) 4.15 % 4.27 % 3.29 % Three months ended (dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Pre-tax pre-provision return on average assets or equity Net income (GAAP) $35,833 $36,343 $20,374 Exclude provision for income taxes 13,149 14,723 7,869 Exclude provision (benefit) for credit losses 4,195 4,245 8,330 Net income before income tax and provision expense (Non-GAAP) $53,177 $55,311 $36,573 Average assets (GAAP) $9,878,927 $9,932,931 $8,778,256 Average equity (GAAP) $1,087,473 $1,016,468 $1,009,224 Return on average assets (GAAP) (annualized) 1.47 % 1.45 % 0.94 % Pre-tax pre-provision return on average assets (Non-GAAP) (annualized) 2.18 % 2.21 % 1.69 % Return on average equity (GAAP) (annualized) 13.36 % 14.19 % 8.19 % Pre-tax pre-provision return on average equity (Non-GAAP) (annualized) 19.83 % 21.59 % 14.70 % 54 Table of Contents Three months ended (dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022 Return on tangible common equity Average total shareholders' equity $1,087,473 $1,016,468 $1,009,224 Exclude average goodwill 304,442 306,192 226,676 Exclude average other intangibles 15,842 17,521 12,604 Average tangible common equity (Non-GAAP) $767,189 $692,755 $769,944 Net income (GAAP) $35,833 $36,343 $20,374 Exclude amortization of intangible assets, net of tax effect 1,166 1,199 865 Tangible net income available to common shareholders (Non-GAAP) $36,999 $37,542 $21,239 Return on average equity 13.36 % 14.19 % 8.19 % Return on average tangible common equity (Non-GAAP) 19.56 % 21.50 % 11.19 % Three months ended (dollars in thousands) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Tangible shareholders' equity to tangible assets Shareholders' equity (GAAP) $1,090,245 $1,046,416 $990,338 $1,042,177 $1,109,182 Exclude goodwill and other intangible assets, net 319,456 321,112 326,314 328,016 329,718 Tangible shareholders' equity (Non-GAAP) $770,789 $725,304 $664,024 $714,161 $779,464 Total assets (GAAP) $9,842,394 $9,930,986 $9,976,879 $10,120,611 $10,118,328 Exclude goodwill and other intangible assets, net 319,456 321,112 326,314 328,016 329,718 Total tangible assets (Non-GAAP) $9,522,938 $9,609,874 $9,650,565 $9,792,595 $9,788,610 Shareholders' equity to total assets (GAAP) 11.08 % 10.54 % 9.93 % 10.30 % 10.96 % Tangible shareholders' equity to tangible assets (Non-GAAP) 8.09 % 7.55 % 6.88 % 7.29 % 7.96 % Three months ended (dollars in thousands) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Tangible common shareholders' equity per share Tangible s/h equity (Non-GAAP) $770,789 $725,304 $664,024 $714,161 $779,464 Common shares outstanding at end of period 33,195,250 33,331,513 33,332,189 33,350,974 33,837,935 Common s/h equity (book value) per share (GAAP) $32.84 $31.39 $29.71 $31.25 $32.78 Tangible common shareholders' equity (tangible book value) per share (Non-GAAP) $23.22 $21.76 $19.92 $21.41 $23.04 55 Table of Contents