What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-01 · 236 added, 339 removed, 2014 unchanged (22% of the section changed)

3 unchanged sentences

Consolidated Statements of Income for the years ended December 31, 202 3 , 202 2 , and 20 21

Consolidated Statements of Comprehensive Income for the years ended December 31, 20 22, 2021 and 2020

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 20 23, 2022 and 2021

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 20 2 3 , 20 2 2 , and 20 21

2 unchanged sentences

Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , Sacramento, California , PCAOB ID:

Report of Independent Registered Public Accounting Firm ( Moss Adams LLP , San Francisco, California , PCAOB ID:

54 TriCo Bancshares 2023 10-K

9 unchanged sentences

Marketable equity securities 2,634 2,598

Available for sale debt securities 2,452,438 2,207,938

Held to maturity debt securities 160,983 199,759

Available for sale debt securities, at fair value (amortized cost of $ 2,384,325 and $ 2,742,987 )

2,152,504 2,452,438

Held to maturity debt securities, at amortized cost, net of allowance for credit losses of $ 0

133,494 160,983

Restricted equity securities 17,250 17,250

32 unchanged sentences

Retained earnings 615,502 542,873

Accumulated other comprehensive income (loss), net of tax ( 193,905 ) 981

Accumulated other comprehensive loss, net of tax ( 153,169 ) ( 193,905 )

Total shareholders’ equity 1,159,682 1,046,416

27 unchanged sentences

Gain on sale of loans 1,166 2,342 9,580

Gain on sale of investment securities — — 7

Loss on sale of investment securities ( 284 ) — —

Other 2,763 4,095 3,693

12 unchanged sentences

(In thousands)

Year ended December, 31

2023 2022 2021

17 unchanged sentences

Net income 117,655 117,655

Other comprehensive income 17,502 17,502

Other comprehensive income (loss) ( 11,299 ) ( 11,299 )

Service condition RSU vesting 1,728 1,728

8 unchanged sentences

Net income 125,419 125,419

Other comprehensive loss ( 11,299 ) ( 11,299 )

Other comprehensive income (loss) ( 194,886 ) ( 194,886 )

Service condition RSU vesting 2,883 2,883

3 unchanged sentences

Market plus service condition RSUs released 26,338 —

Issuance of common stock 4,105,518 173,585 173,585

Repurchase of common stock ( 644,168 ) ( 13,440 ) ( 13,708 ) ( 27,148 )

3 unchanged sentences

Net income 117,390 117,390

Other comprehensive loss ( 194,886 ) ( 194,886 )

Other comprehensive income (loss) 40,736 40,736

Service condition RSU vesting 2,806 2,806

20 unchanged sentences

Amortization of intangible assets 6,118 6,334 5,464

Provision for (benefit from) credit losses 18,470 ( 6,775 ) 42,813

Provision for (benefit from) credit losses on loans 23,990 18,470 ( 6,775 )

Amortization of investment securities premium, net 312 6,641 6,685

Gain on sale of investment securities — — ( 7 )

Loss on sale of investment securities 284 — —

Originations of loans for resale ( 43,313 ) ( 71,600 ) ( 217,210 )

2 unchanged sentences

Change in market value of mortgage servicing rights 506 ( 301 ) 872

(Gain) loss on sale of real estate owned real estate owned ( 166 ) — 128

Gain on sale of real estate owned, net ( 18 ) ( 166 ) —

Deferred income tax expense ( 2,399 ) ( 8,022 ) ( 936 )

1 unchanged sentence

Operating lease payments ( 6,378 ) ( 5,904 ) ( 4,964 )

(Gain) loss on disposal of fixed assets ( 1,070 ) ( 439 ) 67

Loss (gain) on disposal of fixed assets 23 ( 1,070 ) ( 439 )

Increase in cash value of life insurance ( 3,150 ) ( 2,858 ) ( 2,775 )

3 unchanged sentences

Change in value of other real estate 797 113 9

Amortization of operating lease right of use asset 6,364 6,033 5,452

Interest receivable ( 4,912 ) ( 9,170 ) 712

Interest payable 7,278 ( 287 ) ( 434 )

Amortization of operating lease right of use asset 6,033 5,452 5,393

Other assets and liabilities, net ( 18,647 ) 17,087 2,381

3 unchanged sentences

net of consideration paid — 426,883 —

Proceeds from maturities of securities available for sale 267,830 371,632 167,515

Proceeds from maturities of securities held to maturity 38,399 83,929 89,858

Maturities and principal repayments of securities available for sale 321,738 267,830 371,632

Maturities and principal repayments of securities held to maturity 27,260 38,399 83,929

Proceeds from sale of available for sale securities 71,024 — —

Purchases of securities available for sale ( 34,468 ) ( 699,035 ) ( 1,190,690 )

Net redemption of restricted equity securities — — —

Loan origination and principal collections, net ( 345,902 ) ( 739,037 ) ( 45,812 )

4 unchanged sentences

Life insurance proceeds — 641 4,490

Net cash from investing activities ( 723,224 ) ( 883,811 ) ( 816,333 )

Net cash from (used in) investing activities 28,567 ( 723,224 ) ( 883,811 )

Financing activities:

4 unchanged sentences

Exercise of stock options, net 156 1,190 144

Net cash from financing activities ( 100,862 ) 850,474 1,094,575

Net cash (used in) from financing activities ( 175,983 ) ( 100,862 ) 850,474

Net change in cash and cash equivalents ( 8,529 ) ( 661,191 ) 98,870

1 unchanged sentence

Cash and cash equivalents at end of year $ 98,701 $ 107,230 $ 768,421

Year ended December 31,

2023 2022 2021

Supplemental disclosure of cash flow activity:

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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.

The financial statements include the accounts of the Company and its wholly-owned subsidiary.

All inter-company accounts and transactions have been eliminated in consolidation.

For financial reporting purposes, the Company’s investments in the Capital Trusts of $ 1,757,000 are accounted for under the equity method and, accordingly, are included in other assets on the consolidated balance sheets.

For financial reporting purposes, the Company’s investments in the Capital Trusts of $ 1.8 million are accounted for under the equity method and, accordingly, are included in other assets on the consolidated balance sheets.

The subordinated debentures issued and guaranteed by the Company and held by the Capital Trusts are reflected as debt on the Company’s consolidated balance sheets.

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(i) fair value accounting, (ii) measurement alternative for other investments without a readily determinable fair value, and (iii) equity method accounting.

During the twelve months ended December 31, 2022 and 2021, the Company recognized net unrealized gains of $ 35,000 and $ 718,000 , respectively, in the consolidated statements of net income related to changes in the fair value of non-marketable and other equity securities.

During the twelve months ended December 31, 2023 and 2022, the Company recognized an insignificant amount of earnings and losses in the consolidated statements of net income related to changes in the fair value of non-marketable and other equity securities.

59 TriCo Bancshares 2023 10-K

74 unchanged sentences

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

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

gross domestic product.

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

The Company also considers macroeconomic forecasts to estimate the ACL.

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral.

1 unchanged sentence

If the value of underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken.

Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a troubled debt restructuring (TDR).

The ACL on a TDR is measured using the same method as all other portfolio loans, except when the value of a concession cannot be measured using a method other than the discounted cash flow method.

When the value of a concession is measured using the discounted cash flow method, the ACL is determined by discounting the expected future cash flows at the original interest rate of the loan.

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PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination which may be determined through observation of missed payments, downgrade in risk rating, deterioration of a borrower's financial trends or other observable factors including subjectivity utilized by management.

2 unchanged sentences

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.

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The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:

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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.

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Commercial and industrial:

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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.

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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.

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If the Bank retains such policies until the death of the insured, the Bank would receive nontaxable proceeds from the insurance company equal to the death benefit of the policies.

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entered into Joint Beneficiary Agreements (JBAs) with certain of the insured that provide some level of sharing of the death benefit, less the cash surrender value, among the Bank and the beneficiaries of the insured upon the receipt of death benefits.

The Bank has entered into Joint Beneficiary Agreements (JBAs) with certain of the insured that provide some level of sharing of the death benefit, less the cash surrender value, among the Bank and the beneficiaries of the insured upon the receipt of death benefits.

Goodwill, Other Intangible and Long-Lived Assets

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Other intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed periodically for impairment.

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As of September 30 of each year, goodwill is tested for impairment, and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired.

35 unchanged sentences

Such financial instruments are recorded when they are funded.

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Low Income Housing Tax Credits

4 unchanged sentences

Over time, as the tax credits and other tax benefits of the project are realized by the Company, the investment recorded in other assets is reduced using the proportional amortization method.

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The Company’s accounting for income taxes is based on an asset and liability approach.

35 unchanged sentences

The performance obligation is completed as the transaction occurs and the fees are recognized at the time each specific service is provided to the customer.

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Debit and ATM interchange fees

6 unchanged sentences

Commissions on sale of non-deposit investment products consist of fees earned from advisory asset management, trade execution and administrative fees from investments.

Advisory asset management fees are variable, since they are based on the underlying portfolio value, which is subject to market conditions and asset flows.

Advisory asset management fees are variable, since they are based on the underlying portfolio value,

65 TriCo Bancshares 2023 10-K

which is subject to market conditions and asset flows.

Advisory asset management fees are recognized quarterly and are based on the portfolio values at the end of each quarter.

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Accounting Standards Adopted in 2023

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected if certain criteria are met.

At the time that Update 2020-04 was issued, the UK Financial

Conduct Authority (FCA) had established its intent that it would no longer be necessary to persuade, or compel, banks to submit to LIBOR after December 31, 2021.

As a result, the sunset provision was set for December 31, 2022—12 months after the expected cessation date of all currencies and tenors of LIBOR.

In March 2021, the FCA announced that the intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR would be June 30, 2023, which is beyond the current sunset date of Topic 848.

Because the current relief in Topic 848 may not cover a period of time during which a significant number of modifications may take place, the amendments in this

Update defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024.

As the Company has an insignificant number of instruments that are applicable to this ASU, management has determined that no impact to the valuations of these instruments are applicable for financial reporting purposes.

Accounting Standards Pending Adoption

In March 2022, the FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

The amendments in this Update eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

Furthermore, the amendments in this Update require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

The Company adopted these amendments on January 1, 2023 and has thus far observed no material impact to

The amendments in this Update eliminated the TDR recognition and measurement guidance and, instead, required that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhanced existing disclosure requirements and introduced new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

Furthermore, the amendments in this Update required that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

The Company adopted these amendments on January 1, 2023 and has observed no significant impact on the consolidated financial statements.

Accounting Standards Pending Adoption

FASB issued ASU 2023-09, Improvements to Income Tax Disclosures.

This ASU was issued to enhance the transparency and decision usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information.

This ASU is effective for fiscal years beginning after December 15, 2024.

The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements but will result in the expansion of the income tax disclosures.

FASB issued ASU 2023-07, Segment Reporting:

Improvements to Reportable Segment Disclosures.

This ASU was issued to address stakeholder requests for more detailed information about expenses within each reportable segment and address disclosure requirements there within.

The amendments retain existing disclosure requirements, and expand upon them for both interim and annual reporting periods.

In addition, entities with a single reportable segment must now provide all segment disclosures required, including the new disclosure requirements.

This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements but will result in inclusion of certain segment reporting requirements not previously required.

FASB issued ASU 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative.

This ASU was issued to incorporate 14 of the 27 simplification disclosures released by the SEC which overlapped with existing, but required incremental information to, GAAP to the FASB for incorporation into the Codification.

The timing of these amendments will coincide with the effective dates of changes by the SEC in Regulations S-X or S-K.

The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures:

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.

66 TriCo Bancshares 2023 10-K

deferred fees and costs and the related timing of net interest income recognition as a result of adoption.

Note 2 - Business Combinations

On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp (VRB), 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 $ 174,016,000 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 4,105,518 shares, in addition to approximately $ 431,000 in cash paid out for settlement of stock option awards at VRB.

The acquisition of VRB has been accounted for as a business combination.

The Company recorded the fair values based on the valuations available as of acquisition date, and subject to adjustment up to one year following the merger date of March 25, 2022.

During the fourth quarter of 2022, an adjustment to the initial allocation was based on more detailed information obtain about tax-related matters.

Management believes the purchase price allocation is now finalized as December 31, 2022.

The cash and stock transaction was valued at $ 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 4,105,518 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):

Estimated Fair Value

March 25, 2022 Adjustments Fair Value December 31, 2022

Fair Value as of

March 25, 2022

Fair value of consideration transferred:

55 unchanged sentences

Total debt securities held to maturity $ 160,983 $ 15 $ ( 11,060 ) $ 149,938

There were no sales of debt securities during the years ended December 31, 2022 and 2021, respectively.

During 2020, proceeds from sales of debt securities totaled $ 229,000 , resulting in gross gains of $ 7,000 .

Investment securities with an aggregate carrying value of $ 595,779,000 and $ 423,892,000 at December 31, 2022 and 2021, respectively, were pledged as collateral for specific borrowings, lines of credit and local agency deposits.

During the year ended December 31, 2023, proceeds from sales of debt securities totaled $ 71.0 million, resulting in gross losses of $ 0.3 million.

There were no sales of debt securities during the years ended 2022 and 2021, respectively.

Investment securities with an aggregate carrying value of $ 702.2 million and $ 595.8 million at December 31, 2023 and 2022, respectively, were pledged as collateral for specific borrowings, lines of credit and local agency deposits.

The amortized cost and estimated fair value of debt securities at December 31, 2023 by contractual maturity are shown below.

1 unchanged sentence

At December 31, 2023, obligations of U.S.

government and agencies with an amortized cost basis totaling $ 1,533,255,000 consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages.

government and agencies with an amortized cost basis totaling $ 1.4 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.

4 unchanged sentences

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Debt Securities Available for Sale Held to Maturity

December 31, 2023 Available for Sale Held to Maturity

(In thousands) Amortized

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Obligations of states and political subdivisions 43,282 ( 12,917 ) 219,532 ( 26,904 ) 262,814 ( 39,821 )

Corporate bonds — — 5,751 ( 413 ) 5,751 ( 413 )

Asset backed securities 205,329 ( 10,238 ) 231,703 ( 4,955 ) 437,032 ( 15,193 )

1 unchanged sentence

Total securities available for sale $ 1,218,843 $ ( 193,869 ) $ 1,185,676 $ ( 97,101 ) $ 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:

Unrealized losses on investments in obligations of U.S.

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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.

It is expected that the securities would not be settled at a

69 TriCo Bancshares 2023 10-K

price less than the amortized cost of the investment.

Because 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, these investments are not considered other-than-temporarily impaired.

3 unchanged sentences

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

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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 December 31, 2023.

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In March 2020, the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis.

As of December 31, 2022 and 2021, the total gross balance outstanding of PPP loans, which are included in commercial and industrial loans above, was $ 1,617,000 and $ 63,311,000 , respectively, as compared to total PPP originations of $ 640,410,000 .

As of December 31, 2022, there was approximately $ 15,000 in net deferred fee income remaining to be recognized.

During the year ended December 31, 2022, the Company recognized $ 2,149,000 in fees on PPP loans, as compared with $ 14,148,000 and $ 7,760,000 for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2023 and 2022, the total gross balance outstanding of PPP loans, which are included in commercial and industrial loans above, was $ 1.1 million and $ 1.6 million, respectively.

During the year ended December 31, 2023, the Company recognized an insignificant amount of fees on PPP loans, as compared with $ 2.1 million and $ 14.1 million for the years ended December 31, 2022 and 2021, respectively.

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

Note 5 – Allowance for Credit Losses

The ACL was $ 105,680,000 as of December 31, 2022 as compared to $ 85,376,000 at December 31, 2021.

The provision for credit losses on loans of $ 17,945,000 during the year ended December 31, 2022 was comprised of $ 10,820,000 in day 1 required reserves from loans acquired in connection with the VRB merger in the first quarter of 2022.

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

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

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

The quantitative component of the ACL increased reserve requirements due to loan volume growth and increases in specific reserves.

In addition to the quantitative loan portfolio, credit quality characteristics which are illustrated in the following tabular disclosures, the Company’s expected credit loss methodology (CECL) incorporates the use of qualitative factors.

The qualitative components of the ACL resulted in a net increase in required reserves despite continued improvement in US employment rates, due to increased uncertainty in the global economic markets, US economic policy uncertainty, and the continued rise in corporate debt yields.

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.

Management notes the rapid intervals of rate increases by the Federal Reserve and inversion of the yield curve, have boosted expectations of the US entering a recession within 12 months.

As a result, management continues to believe that certain credit weakness are likely present in the overall economy and that it is appropriate to maintain an allowance for credit losses that incorporates such risk factors.

The ACL was $ 121.5 million as of December 31, 2023 as compared to $ 105.7 million at December 31, 2022.

The provision for credit losses on loans of $ 22.5 million during the year ended December 31, 2023 was comprised of $ 13.5 million in qualitative reserves, $ 2.4 million in quantitative reserves and $ 6.6 million in net charge-offs.

The quantitative components of the ACL increased reserve requirements due largely to the continued rise in corporate debt yields and increasing uncertainty within global markets.

This forecast data continues to evolve and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date.

Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and food prices resulting from a rising rate environment for nearly all of 2023.

Management notes the rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a recession within 12 months.

While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential reductions has inhibited a material benefit to forecasted reserve levels.

Furthermore, political uncertainty continues to exist within certain foreign markets that play a critical role within segments of the U.S economy.

As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.

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

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Qualitative and forecast factor allowance $ 84,291 $ 70,777

Quantitative (Cohort) model allowance reserves 32,489 24,539

Quantitative (Cohort) model allowance 34,139 32,489

Total allowance for credit losses 118,430 103,266

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(in thousands) Beginning

Balance ACL on PCD Loans Charge-offs Recoveries Provision for

Balance Charge-offs Recoveries Provision for

(Benefit from)

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(in thousands) Beginning

Balance Charge-offs Recoveries Provision for

Balance ACL on PCD Loans Charge-offs Recoveries Provision for

(Benefit from)

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(in thousands) Beginning

Balance Impact of CECL Adoption Charge-offs Recoveries Provision for

Balance Charge-offs Recoveries Provision for

(Benefit from)

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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 $ 1,000,000 and non-homogeneous loans, such as commercial real estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation.

Loans below the $ 1,000,000 threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.

This analysis is performed annually for all outstanding balances greater than $ 1.0 million and non-homogeneous loans, such as commercial real estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation.

Loans below the $ 1.0 million threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.

Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third parties, public value information (blue book values for autos), sales invoices, or other appropriate means.

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Total CRE non-owner occupied risk ratings $ 180,326 $ 415,192 $ 290,977 $ 142,937 $ 225,640 $ 819,589 $ 143,145 $ — $ 2,217,806

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Commercial real estate:

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Total CRE owner occupied risk ratings $ 71,288 $ 205,660 $ 199,732 $ 121,211 $ 60,034 $ 274,775 $ 23,740 $ — $ 956,440

Current period gross charge-offs $ — $ — $ — $ 1,380 $ — $ 2,228 $ 29 $ — $ 3,637

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Total multifamily loans $ 28,445 $ 177,032 $ 291,574 $ 89,106 $ 104,108 $ 225,767 $ 33,470 $ — $ 949,502

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Commercial real estate:

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Total farmland loans $ 21,830 $ 49,381 $ 51,989 $ 16,434 $ 17,041 $ 55,663 $ 58,716 $ — $ 271,054

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Consumer loans:

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Total SFR 1st DT liens $ 135,812 $ 190,060 $ 262,166 $ 126,571 $ 30,099 $ 134,188 $ — $ 4,542 $ 883,438

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Consumer loans:

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Total SFR HELOCs and Junior Liens $ 297 $ — $ — $ — $ — $ 96 $ 349,184 $ 7,236 $ 356,813

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ 66 $ 66

Consumer loans:

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Total other consumer loans $ 34,549 $ 9,298 $ 9,275 $ 7,512 $ 6,995 $ 4,708 $ 680 $ — $ 73,017

Current period gross charge-offs $ 376 $ 82 $ — $ 36 $ 39 $ 9 $ 16 $ — $ 558

75 TriCo Bancshares 2023 10-K

8 unchanged sentences

Total commercial and industrial loans $ 70,963 $ 85,861 $ 52,474 $ 9,690 $ 10,197 $ 8,576 $ 348,302 $ 392 $ 586,455

Current period gross charge-offs $ 153 $ 287 $ 240 $ 2,285 $ — $ — $ 896 $ 18 $ 3,879

Construction loans:

5 unchanged sentences

Total construction loans $ 56,378 $ 146,876 $ 85,144 $ 47,632 $ 4,650 $ 6,518 $ — $ — $ 347,198

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Agriculture production loans:

5 unchanged sentences

Total agriculture production loans $ 945 $ 2,932 $ 2,138 $ 572 $ 620 $ 8,491 $ 128,799 $ — $ 144,497

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Lease risk ratings

4 unchanged sentences

Total leases $ 8,250 $ — $ — $ — $ — $ — $ — $ — $ 8,250

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Total loans outstanding:

4 unchanged sentences

Total loans outstanding $ 609,083 $ 1,282,292 $ 1,245,469 $ 561,665 $ 459,384 $ 1,538,371 $ 1,086,036 $ 12,170 $ 6,794,470

Current period gross charge-offs $ 529 $ 369 $ 240 $ 3,701 $ 39 $ 2,237 $ 941 $ 84 $ 8,140

76 TriCo Bancshares 2023 10-K

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Total, net $ 18,822 $ 31,003 $ 10 $ 18,125 $ 21,096 $ —

Interest income on non accrual loans that would have been recognized during the years ended December 31, 2022, 2021, and 2020, if all such loans had been current in accordance with their original terms, totaled $ 1,438,000 , $ 2,226,000 , and $ 1,804,000 , respectively.

Interest income actually recognized on these loans during the years ended December 31, 2022, 2021, and 2020 was $ 579,000 , $ 471,000 , and $ 701,000 , respectively.

Interest income on non accrual loans that would have been recognized during the years ended December 31, 2023, 2022, and 2021, if all such loans had been current in accordance with their original terms, totaled $ 2.5 million, $ 1.4 million, and $ 2.2 million, respectively.

Interest income actually recognized on these loans during the years ended December 31, 2023, 2022, and 2021 was $ 1.0 million, $ 0.6 million, and $ 0.5 million, respectively.

80 TriCo Bancshares 2023 10-K

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81 TriCo Bancshares 2023 10-K

The following tables show certain information regarding Troubled Debt Restructurings that occurred during the periods indicated:

Modifications classified as TDRs can include one or a combination of the following:

rate modifications, term extensions, interest only modifications, either temporary or long-term, payment modifications, and collateral substitutions/additions.

TDR information for the year ended December 31, 2022

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Commercial real estate:

CRE non-owner occupied — $ — $ — $ — — $ — $ —

CRE owner occupied 1 — 130 — — — —

Multifamily — — — — — — —

Farmland 3 1,228 1,440 — — — —

Total commercial real estate loans 4 1,228 1,570 — — — —

SFR 1-4 1st DT liens — — — — — — —

SFR HELOCs and junior liens — — — — 2 146 —

Other — — — — — — —

Total consumer loans — — — — 2 146 —

Commercial and industrial 1 39 39 — 1 22 —

Construction — — — — — — —

Agriculture production 4 7,210 7,210 — — — —

Leases — — — — — — —

Total 9 $ 8,477 $ 8,819 $ — 3 $ 168 $ —

TDR information for the year ended December 31, 2021

(dollars in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

Commercial real estate:

CRE non-owner occupied 5 $ 4,966 $ 4,956 $ 1,020 — $ — $ —

CRE owner occupied 1 740 742 742 — — —

Multifamily — — — — — — —

Farmland 2 701 703 50 3 847 —

Total commercial real estate loans 8 6,407 6,401 1,812 3 847 —

SFR 1-4 1st DT liens — — — — — — —

SFR HELOCs and junior liens 1 200 247 — — — —

Other — — — — — — —

Total consumer loans 1 200 247 — — — —

Commercial and industrial 7 2,476 2,468 709 2 260 ( 5 )

Construction — — — — — — —

Agriculture production — — — — — — —

Leases — — — — — — —

Total 16 $ 9,083 $ 9,116 $ 2,521 5 $ 1,107 $ ( 5 )

77 TriCo Bancshares 2022 10-K

TDR information for the year ended December 31, 2020

(in thousands) Number Pre-mod

balance Post-mod

balance Financial

impact due to

provision Number that

defaulted during

the period Recorded

investment of

defaulted during

the period Financial impact

taken as charge-

offs or additional

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 twelve months ended December 31, 2023

(in thousands) Principal Forgiveness Payment Delay /Term Extension Combination - Term Change / Available Credit Reduction Combination - Payment Delay /Term Reduction Total % of Loans Outstanding

Commercial real estate:

CRE non-owner occupied 1 $ 319 $ 314 $ 314 1 $ 141 $ —

CRE owner occupied 4 1,847 1,877 67 1 950 —

Multifamily — — — — — — —

Farmland $ — $ — $ — $ 1,430 0.53 %

Total commercial real estate loans 10 3,732 3,827 381 3 1,542 —

SFR 1-4 1st DT liens — — — — 3 1,180 —

SFR HELOCs and junior liens 2 172 169 — 2 140 ( 90 )

Other — — — — — — —

Total consumer loans 2 172 169 — 5 1,320 ( 90 )

Commercial and industrial — 152 60 — 0.08 %

Construction — — — — — — —

Agriculture production — — — — — — —

Leases — — — — — — —

Total $ — $ 152 $ 60 $ 1,430 0.61 %

For all new TDRs, an impairment analysis is conducted.

If the loan is determined to be collateral dependent, any additional amount of impairment will be calculated based on the difference between estimated collectible value and the current carrying balance of the loan.

This difference could result in an increased provision and is typically charged off.

If the asset is determined not to be collateral dependent, the impairment is measured on the net present value difference between the expected cash flows of the restructured loan and the cash flows which would have been received under the original terms.

The effect of this could result in a requirement for additional provision to the reserve.

The effect of these required provisions for the period are indicated above.

Typically if a TDR defaults during the period, the loan is then considered collateral dependent and, if it was not already considered collateral dependent, an appropriate provision will be reserved or charge will be taken.

The additional provisions required resulting from default of previously modified TDR’s are noted above.

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2023.

Twelve Months Ended

Modification Type Loan Type Financial Effect

Payment Delay / Extension Commercial and industrial Added 12 months to the life of the loan, which reduced the payment owed by the borrowers

Payment Delay / Extension Commercial and industrial Changed loan terms from fully amortizing to interest-only with balloon, which reduced the payment owed by the borrowers

Combination - Payment Delay / Term Reduction Farmland Changed loan terms from fully amortizing to interest-only with balloon, and reduced the loan maturity by 12 months, which reduced the loan payment owed by the borrowers

Combination - Term Change / Available Credit Reduction Commercial and industrial Added 60 months to the life of the loan to avoid balloon repayment and reduced available credit by $ 11000

There were no loans with payment defaults by borrowers experiencing financial difficulty during the quarter ended December 31, 2023 which had material modifications in rate, term or principal forgiveness during the twelve months prior to default.

Note 6 – Real Estate Owned

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Total premises and equipment $ 71,347 $ 72,327

Depreciation expense for premises and equipment amounted to $ 5,676,000 , $ 5,936,000 , and $ 6,100,000 during the years ended 2022, 2021, and 2020, respectively.

Depreciation expense for premises and equipment amounted to $ 5.8 million, $ 5.7 million, and $ 5.9 million during the years ended 2023, 2022, and 2021, respectively.

Note 8 – Cash Value of Life Insurance

35 unchanged sentences

Core deposit intangible, net $ 10,552 $ 16,670

The Company's remaining CDI balance of $ 16,670,000 as of December 31, 2022 reflects balances recorded from the VRB acquisition on March 25, 2022 totaling $ 10,635,000 , the FNBB acquisition on July 6, 2018 totaling $ 2,046,000 , and the acquisition of three branch offices from Bank of America on March 18, 2016 totaling $ 6,614,000 .

The Company's remaining net CDI balance of $ 10.6 million as of December 31, 2023 reflects gross balances recorded from the VRB acquisition on March 25, 2022 totaling $ 10.6 million and the FNBB acquisition on July 6, 2018 totaling $ 2.0 million.

The following table summarizes the Company’s estimated core deposit intangible amortization (dollars in thousands):

16 unchanged sentences

Weighted-average discount rate 12.0 % 12.0 % 12.0 %

The changes in fair value of MSRs during 2022 were primarily due to changes in mortgage prepayment speeds and expected life estimates of the MSRs.

The changes in fair value of MSRs during 2023 were primarily due to changes in mortgage prepayment speeds and changes in principal balances of the underlying mortgages.

The changes in fair value of MSRs during 2022 were primarily due to changes in principal balance and mortgage prepayment speeds of the MSRs.

34 unchanged sentences

Total deposits $ 7,834,038 $ 8,329,013

Overdrawn deposit balances of $ 1,766,000 and $ 2,324,000 were classified as consumer loans at December 31, 2022 and 2021, respectively.

Overdrawn deposit balances of $ 1.8 million and $ 1.8 million were classified as consumer loans at December 31, 2023 and 2022, respectively.

85 TriCo Bancshares 2023 10-K

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$ 400,000 $ —

Term borrowing at FHLB, fixed rate, as of December 31, 2023 of 4.75 %, payable on April 8, 2024

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

Other collateralized borrowings, fixed rate, as of December 31, 2023 and 2022 of 0.05 %, payable on January 2, 2024 and January 3, 2023, respectively

2 unchanged sentences

Other collateralized borrowings are generally overnight maturity borrowings from non-financial institutions that are collateralized by securities owned by the Company.

As of December 31, 2022, the Company has pledged as collateral and sold under agreements to repurchase investment securities with fair value of $ 47,905,000 under these other collateralized borrowings.

As of December 31, 2023, the Company has pledged as collateral and sold under agreements to repurchase investment securities with fair value of $ 32.6 million under these other collateralized borrowings.

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

Based on the FHLB stock requirements at December 31, 2022, this line provided for maximum borrowings of $ 2,485,905,000 of which $ 216,700,000 was outstanding.

As of December 31, 2022, the Company had designated investment securities with a fair value of $ 80,187,000 and loans with unpaid principal balances totaling $ 4,389,161,000 as potential collateral under this collateralized line of credit with the FHLB.

Based on the FHLB stock requirements at December 31, 2023, this line provided for maximum borrowings of $ 2.5 billion of which $ 600.0 million was outstanding.

As of December 31, 2023, the Company had designated investment securities with a fair value of $ 69.2 million and loans with unpaid principal balances totaling $ 4.6 billion as potential collateral under this collateralized line of credit with the FHLB.

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

As of December 31, 2022, this line provided for maximum borrowings of $ 299,689,000 of which none was outstanding.

As of December 31, 2022, the Company has designated investment securities with fair value of $ 5,000 and loans with unpaid principal balances totaling $ 424,946,000 as potential collateral under this collateralized line of credit with the FRB.

The Company has available unused correspondent banking lines of credit from commercial banks totaling $ 30,000,000 for federal funds transactions at December 31, 2022.

As of December 31, 2023, this line provided for maximum borrowings of $ 350.0 million of which none was outstanding.

As of December 31, 2023, the Company has loans with unpaid principal balances totaling $ 444.5 million as potential collateral under this collateralized line of credit with the FRB.

The Company has available unused correspondent banking lines of credit from commercial banks totaling $ 30.0 million for federal funds transactions at December 31, 2023.

Note 14 – Junior Subordinated Debt

11 unchanged sentences

The related fair value discounts to face value of these Debentures will be amortized over the remaining period in which their values are fully allowed to be included in the Company's capital ratio calculations using the effective interest method.

The recorded book values of the Debentures issued by the Capital Trusts are reflected as junior subordinated debt in the Company’s consolidated balance sheets.

The common stock issued by the Capital Trusts and owned by the Company is recorded in other assets in the

86 TriCo Bancshares 2023 10-K

Company’s consolidated balance sheets.

The recorded book values of the Debentures issued by the Capital Trusts are reflected as junior subordinated debt in the Company’s consolidated balance sheets.

The common stock issued by the Capital Trusts and owned by the Company is recorded in other assets in the Company’s consolidated balance sheets.

The recorded book value of the debentures issued by the Capital Trusts, less the recorded book value of the common stock of the Capital Trusts owned by the Company will continue to qualify as Tier 1 or Tier 2 capital under interim guidance issued by the Board of Governors of the Federal Reserve System until only five years remain until their scheduled maturity.

In connection with the acquisition of Valley Republic Bancorp the Company assumed $ 36.0 million in subordinated capital notes, comprised of $ 16.0 million that matures in 2029 and $ 20.0 million that matures in 2035.

The notes that mature in 2029 provide for quarterly interest payments at a fixed rate of 6.00 % until March 29, 2024 and then will have a floating rate of three month LIBOR plus 3.52 % until maturity.

The notes that mature in 2029 provide for quarterly interest payments at a fixed rate of 6.00 % until March 29, 2024 and then will have a floating rate of three month SOFR plus 3.52 % until maturity.

The notes that mature in 2035 provide for quarterly interest payments at a fixed rate of 5.00 % until August 27, 2025 and then will have a floating rate of 90-day average SOFR plus 4.90 % until maturity.

1 unchanged sentence

The related fair value premiums to face value will be amortized over the remaining maturity period using the effective interest method.

The Company expects a comparable SOFR rate term to replace LIBOR as the benchmark rate index for applicable debentures in 2024.

The following table summarizes the terms and recorded balance of each subordinated debenture as of the date indicated (dollars in thousands):

(Variable) 3 mo.

LIBOR + As of December 31, 2022 December 31, 2021

SOFR + As of December 31, 2023 December 31, 2022

Subordinated Debt Series Maturity

47 unchanged sentences

The predetermined overdraft limit is set by the Company based on account type.

Legal Proceedings — Neither the Company nor its subsidiaries are a party to any other pending legal proceedings that are material, nor is their property the subject of any other material pending legal proceeding at this time.

Legal Proceedings — The Company is party to various legal and administrative proceedings and claims.

While any litigation contains an element of uncertainty, management believes that neither the Company nor its subsidiaries are a party to any pending legal proceedings that are material, nor is their property the subject of any other material pending legal proceeding at this time.

All other legal proceedings are routine and arise out of the ordinary course of the Bank’s business.

None of those proceedings are currently expected to have a material adverse impact upon the Company’s and the Bank’s business, their consolidated financial position nor their operations in any material amount not already accrued, after taking into consideration any applicable insurance.

Other Commitments and Contingencies —The Company has entered into employment agreements or change of control agreements with certain officers of the Company providing severance payments and accelerated vesting of benefits under supplemental retirement agreements to the officers in the event of a change in control of the Company and termination for other than cause or after a substantial and material change in the officer’s title, compensation or responsibilities.

11 unchanged sentences

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of $ 64,188,000 , $ 31,571,000 , and $ 63,419,000 in 2022, 2021, and 2020, respectively.

The Bank paid to the Company cash dividends in the aggregate amounts of $ 52.8 million, $ 64.2 million, and $ 31.6 million in 2023, 2022, and 2021, respectively.

The Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the State of California Department of Financial Protection & Innovation (the “DFPI”).

Absent approval from the Commissioner of the DPFI, 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.

Under this law, at December 31, 2022, the Bank could have paid dividends of $ 157,036,000 to the Company without the approval of the Commissioner of the DFPI.

Under this law, at December 31, 2023, the Bank could have paid dividends of $ 223.4 million to the Company without the approval of the Commissioner of the DFPI.

Stock Repurchase Plan

On February 25, 2021 the Board of Directors approved the authorization to repurchase 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.

On February 25, 2021 the Board of Directors approved the authorization to repurchase up to 2,000,000 shares of the Company's common stock (the "2021 Repurchase Plan" or the "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 program is subject to change.

The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations) and as of and for year ended December 31, 2022, the Company repurchased 576,881 shares.

The Company repurchased 63,317 shares during the year ended December 31, 2021.

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

Under the 2019 Repurchase Plan, during the years ended December 31, 2021 and 2020 the Company had repurchased 223 and 858,717 shares, respectively.

The Plan has no expiration date (in accordance with applicable laws and regulations) and for years ended December 31, 2023, 2022 and 2021, the Company repurchased 150,000 , 576,881 , and 63,317 shares under this Plan.

As of December 31, 2023, 1,209,802 shares remained available for repurchases under the Plan.

88 TriCo Bancshares 2023 10-K

3 unchanged sentences

Employees also tendered 56,714 , 27,840 and 19,413 shares in connection with other share based awards during December 31, 2023, 2022 and 2021, respectively.

In total, shares of the Company's common stock tendered had market values of $ 1,269,000 , $ 2,118,000 , and $ 736,000 for the years ended December 31, 2022, 2021 and 2020, respectively.

In total, shares of the Company's common stock tendered had market values of $ 2.3 million, $ 1.3 million, and $ 2.1 million for the years ended December 31, 2023, 2022 and 2021, respectively.

The tendered shares were retired.

36 unchanged sentences

Options granted — — —

Options exercised ( 63,325 ) $ 15.34 to $ 19.46

Options exercised ( 8,000 ) $ 19.46

Options forfeited — — —

Outstanding at December 31, 2022 15,500 $ 19.46 to $ 23.21

Outstanding at December 31, 2023 7,500 $ 23.21

89 TriCo Bancshares 2023 10-K

5 unchanged sentences

Intrinsic value (in thousands) $ 148 $ — $ 148

Weighted average remaining contractual term (yrs.) 1 year n/a 1 year

Weighted average remaining contractual term (yrs.) 0.8 n/a 0.8

All options outstanding as of December 31, 2023 are fully vested.

25 unchanged sentences

Outstanding at December 31, 2023 144,487 123,102

The 139,194 of service condition vesting RSUs outstanding as of December 31, 2022 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 Company uses a Monte Carlo simulation model to determine the grant-date fair value of awards with market plus service conditions (PSU).

The weighted average fair value and assumptions used to value the PSU awards granted with market-based performance conditions are as follows:

Performance share fair value $ 27.73 $ 40.89

Risk-free interest rate 4.16 % 4.10 %

Expected volatility 33.86 % 39.01 %

Expected life (years) 3 3

Expected dividend yield 3.22 % 2.32 %

The 144,487 of service condition vesting RSUs outstanding as of December 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

90 TriCo Bancshares 2023 10-K

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.

Additional RSUs credited through dividends are subject to the same vesting requirements as the original grant.

The Company expects to recognize $ 3,822,000 of pre-tax compensation costs related to these service condition vesting RSUs between December 31, 2022 and their vesting dates.

The Company expects to recognize $ 4.0 million of pre-tax compensation costs related to these service condition vesting RSUs between December 31, 2023 and their vesting dates.

The Company did not modify any service condition vesting RSUs during 2023 or 2022.

The Company expects to recognize $ 2,110,000 of pre-tax compensation costs related to the market plus service condition RSUs between December 31, 2022 and their vesting dates.

The Company expects to recognize $ 2.3 million of pre-tax compensation costs related to the market plus service condition RSUs between December 31, 2023 and their vesting dates.

As of December 31, 2023, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to 184,653 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 2023 or 2022.

86 TriCo Bancshares 2022 10-K

The following table shows the compensation costs and excess tax benefits for RSUs recognized in income for the periods indicated:

23 unchanged sentences

Sale of customer checks 1,383 1,167 459

Gain on sale of investment securities — — 7

Loss on sale of investment securities ( 284 ) — —

Gain (loss) on marketable equity securities 36 ( 340 ) ( 86 )

2 unchanged sentences

Total noninterest income $ 61,400 $ 63,046 $ 63,664

Mortgage banking servicing fee income (expense), net of change in value of mortgage loan servicing rights, totaling $ 2,188,000 , $ 1,009,000 , and $ 779,000 were recorded within service charges and fees for the years ended December 31, 2022, 2021, and 2020, respectively.

Mortgage banking servicing fee income (expense), net of change in value of mortgage loan servicing rights, totaling $ 1.3 million, $ 2.2 million, and $ 1.0 million were recorded within service charges and fees for the years ended December 31, 2023, 2022, and 2021, respectively.

91 TriCo Bancshares 2023 10-K

21 unchanged sentences

Gain on sale or acquisition of foreclosed assets ( 133 ) ( 481 ) ( 233 )

(Gain) loss on disposal of fixed assets ( 1,070 ) ( 439 ) 67

Loss (gain) on disposal of fixed assets 23 ( 1,070 ) ( 439 )

Other miscellaneous expense 19,344 15,201 11,038

2 unchanged sentences

$ 233,182 $ 216,645 $ 178,275

92 TriCo Bancshares 2023 10-K

Note 19 – Income Taxes

18 unchanged sentences

Amortization – increase in tax expense $ 9,092 $ 6,178 $ 3,604

The carrying value of Low Income Housing Tax Credit Funds was $ 90,956,000 and $ 41,295,000 as of December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit Funds in the amount of $ 65,285,000 , and these contributions are expected to be made over the next several years.

88 TriCo Bancshares 2022 10-K

The carrying value of Low Income Housing Tax Credit Funds was $ 96.9 and $ 91.0 million as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit Funds in the amount of $ 63.3 million, and these contributions are expected to be made over the next several years.

The provisions for income taxes applicable to income before taxes for the years ended December 31, 2023, 2022 and 2021 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes.

13 unchanged sentences

Effective Tax Rate 27.0 % 27.9 % 28.1 %

The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows as of December 31 for the years indicated (in thousands):

93 TriCo Bancshares 2023 10-K

The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows for the years indicated (in thousands):

Deferred tax assets:

26 unchanged sentences

As part of the merger with FNB Bancorp in 2018 and North Valley Bancorp in 2014, TriCo acquired federal and state net operating loss carryforwards, capital loss carryforwards, and tax credit carryforwards.

In addition, the 2020 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided the Company with an opportunity to file amended federal tax returns and generate proposed refunds of approximately $ 805,000 .

These tax attribute carryforwards will be subject to provisions of the tax law that limit the use of such losses and

89 TriCo Bancshares 2022 10-K

credits generated by a company prior to the date certain ownership changes occur.

The amount of the Company’s net operating loss carryforwards that are subject to these limitations as of December 31, 2022 were approximately $ 5,518,000 for federal and $ 11,187,000 for California.

The amount of the Company’s tax credits that would be subject to these limitations as of December 31, 2022 are $ 395,000 and $ 648,000 for federal and California, respectively.

These tax attribute carryforwards will be subject to provisions of the tax law that limit the use of such losses and credits generated by a company prior to the date certain ownership changes occur.

The amount of the Company’s net operating loss carryforwards that are subject to these limitations as of December 31, 2023 were approximately $ 2.7 million for federal and $ 4.8 million for California.

The amount of the Company’s tax credits that would be subject to these limitations as of December 31, 2023 are $ 0.3 million and $ 0.6 million for federal and California, respectively.

Due to the limitation, a significant portion of the state tax credits will expire regardless of whether the Company generates future taxable income.

4 unchanged sentences

Management does not expect the unrecognized tax benefit will materially change in the next 12 months.

During the years ended December 31, 2022 and December 31, 2021 the Company did not recognize and significant amounts related to interest and penalties associated with taxes.

During the years ended December 31, 2023 and December 31, 2022 the Company did not recognize any significant amounts related to interest and penalties associated with taxes.

The Company files income tax returns in the U.S.

2 unchanged sentences

federal and state/local income tax examinations by tax authorities for years before 2020 and 2019, respectively.

94 TriCo Bancshares 2023 10-K

Note 20 – Earnings per Share

6 unchanged sentences

Average number of common shares outstanding used to calculate diluted earnings per share 33,355 32,721 29,882

Options excluded from diluted earnings per share because the effect of these options was antidilutive — — —

90 TriCo Bancshares 2022 10-K

Equity awards excluded from diluted earnings per share because their effect was antidilutive — — —

Note 21 – Comprehensive Income (Loss)

6 unchanged sentences

Amounts reclassified out of accumulated other comprehensive income:

Realized gains on debt securities — — ( 7 )

Realized loss (gain) on debt securities 284 — —

Total amounts reclassified out of accumulated other comprehensive income 284 — —

14 unchanged sentences

Total other comprehensive income (loss) $ 40,736 $ ( 194,886 ) $ ( 11,299 )

The components of accumulated other comprehensive income (loss), included in shareholders’ equity, are as follows:

The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows:

Year Ended December 31,

7 unchanged sentences

Joint beneficiary agreement liability, net of tax 590 956

Accumulated other comprehensive income (loss) $ ( 193,905 ) $ 981

Accumulated other comprehensive loss $ ( 153,169 ) $ ( 193,905 )

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Note 22 – Retirement Plans

7 unchanged sentences

401(k) Plan contributions made by the Company $ 1,524 $ 1,214 $ 1,121

91 TriCo Bancshares 2022 10-K

Employee Stock Ownership Plan

9 unchanged sentences

The Company has deferred compensation plans for certain directors and key executives, which allow certain directors and key executives designated by the Board of Directors of the Company to defer a portion of their compensation.

The Company has purchased insurance on the lives of certain of the participants and intends to hold these policies until death as a cost recovery of the Company’s deferred compensation obligations of $ 5,738,000 and $ 5,945,000 at December 31, 2022 and 2021, respectively.

The Company has purchased insurance on the lives of certain of the participants and intends to hold these policies until death as a cost recovery of the Company’s deferred compensation obligations of $ 5.2 million and $ 5.7 million at December 31, 2023 and 2022, respectively.

Earnings credits on deferred balances included in non-interest expense are included in the following table:

6 unchanged sentences

The Company has purchased insurance on the lives of the participants and intends to hold these policies until death as a cost recovery of the Company’s retirement obligations.

The cash values of the insurance policies purchased to fund the deferred compensation obligations and the supplemental retirement obligations were $ 133,742,000 and $ 117,857,000 at December 31, 2022 and 2021, respectively.

The Company recorded in other liabilities the additional funded status of the supplemental retirement plans of $ 13,901,000 and $ 2,399,000 related to the supplemental retirement plans as of December 31, 2022 and 2021, respectively.

The cash values of the insurance policies purchased to fund the deferred compensation obligations and the supplemental retirement obligations were $ 136.9 million and $ 133.7 million at December 31, 2023 and 2022, respectively.

The Company recorded in other liabilities the additional funded status of the supplemental retirement plans of $ 13.5 million and $ 13.9 million related to the supplemental retirement plans as of December 31, 2023 and 2022, respectively.

These amounts represent the amount by which the projected benefit obligations for these retirement plans exceeded the fair value of plan assets plus amounts previously accrued related to the plans.

The projected benefit obligation is recorded in other liabilities.

At December 31, 2022 and 2021, the additional funded status of the supplemental retirement plans of $ 13,901,000 and $ 2,399,000 were offset by a reduction of shareholders’ equity accumulated other comprehensive gain of $ 9,792,000 and $ 1,690,000 , respectively, representing the after-tax impact of the additional funded status of the supplemental retirement plans, and the related deferred tax liability of $ 4,109,000 and $ 709,000 , respectively.

At December 31, 2023 and 2022, the additional funded status of the supplemental retirement plans of $ 13.5 million and $ 13.9 million were offset by a reduction of shareholders’ equity accumulated other comprehensive gain of $ 9.5 million and $ 9.8 million, respectively, representing the after-tax impact of the additional funded status of the supplemental retirement plans, and the related deferred tax liability of $ 4.0 million and $ 4.1 million, respectively.

Amounts recognized as a component of accumulated other comprehensive income (loss) as of year-end that have not been recognized as a component of the combined net period benefit cost of the Company’s defined benefit pension plans are presented in the following table.

The Company expects to recognize approximately $ 455,000 of the net actuarial loss reported in the following table as of December 31, 2022 as a component of net periodic benefit cost during 2022.

The Company expects to recognize approximately $ 0.5 million of the net actuarial loss reported in the following table as of December 31, 2023 as a component of net periodic benefit cost during 2022.

96 TriCo Bancshares 2023 10-K

(in thousands) 2023 2022

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Amount included in accumulated other comprehensive income (loss), net of tax $ ( 9,528 ) $ ( 9,792 )

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Information pertaining to the activity in the supplemental retirement plans, using a measurement date of December 31, is as follows:

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Net periodic pension cost $ 1,698 $ 5,268 $ 2,817

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The following table sets forth assumptions used in accounting for the plans:

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Average annual increase in director compensation — % — % — %

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The following table sets forth the expected benefit payments to participants and estimated contributions to be made by the Company under the supplemental retirement plans for the years indicated:

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Balance December 31, 2023 $ 1,533

Deposits of directors, officers and other related parties to the Bank totaled $ 28,355,000 and $ 35,310,000 at December 31, 2022 and 2021, respectively.

Deposits of directors, officers and other related parties to the Bank totaled $ 29.7 million and $ 28.4 million at December 31, 2023 and 2022, respectively.

Note 24 – Fair Value Measurement

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Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.

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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.

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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

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New York Stock Exchange, U.S.

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.

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The tables below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):

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Fair value at December 31, 2023 Total Level 1 Level 2 Level 3

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Total assets measured at fair value $ 2,162,202 $ 2,634 $ 2,152,962 $ 6,606

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Fair value at December 31, 2022 Total Level 1 Level 2 Level 3

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The following table present quantitative information about recurring Level 3 fair value measurements at December 31, 2023 and 2022:

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December 31, 2023 Fair Value

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Discount rate 10 %- 14 %, 12 %

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The tables below present the recorded amount of 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.

The gains (losses) represent the amounts recorded during the period regardless of whether the asset is still held at fair value at period end (in thousands):

December 31, 2022 Total Level 1 Level 2 Level 3 Total Gains

December 31, 2023 Total Level 1 Level 2 Level 3

Individually evaluated loans $ 4,175 — — $ 4,175

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Total assets measured at fair value $ 4,225 — — $ 4,225

December 31, 2021 Total Level 1 Level 2 Level 3 Total Gains

December 31, 2022 Total Level 1 Level 2 Level 3

Individually evaluated loans $ 5,719 — — $ 5,719

Real estate owned 311 — — 311

Total assets measured at fair value $ 6,030 — — $ 6,030

The tables below present the gains (losses) resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated, regardless of whether the asset is still being held at fair value at period end (in thousands):

Individually evaluated loans $ ( 4,498 ) $ ( 2,283 )

Real estate owned ( 312 ) 481

Total losses from non-recurring measurements $ ( 4,810 ) $ ( 1,802 )

The individually evaluated loan amount above represents collateral dependent loans with unique risk characteristics that have been adjusted to fair value.

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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.

The real estate owned amounts above represents impaired real estate that has been adjusted to fair value.

Foreclosed assets represent real estate which the Bank has taken control of in partial or full satisfaction of loans.

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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.

Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to

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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.

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Capitalization rate Not meaningful;

Real estate owned (Residential) $ 311 Sales comparison

approach Adjustment for differences between

comparable sales Not meaningful;

Real estate owned (Commercial) $ 50 Sales comparison

Income approach Adjustment for differences between

comparable sales;

Capitalization rate Not meaningful;

December 31, 2022 Fair Value

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Individually evaluated loans $ 5,719 Sales comparison

approach Income

Income approach Adjustment for differences between

comparable sales;

Capitalization rate Not meaningful;

Real estate owned (Residential) $ 311 Sales comparison

approach Adjustment for differences between

comparable sales Capitalization rate Not meaningful;

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comparable sales Not meaningful;

The estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows (in thousands):

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Overdraft privilege commitments (1) 121,539 1,215 126,634 1,266

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The methods and assumptions used to estimate the fair value of each class of financial instruments not measured at fair value are as follows:

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These instruments generate fees, which approximate those currently charged to originate similar commitments, which are recognized over the term of the commitment period.

98 TriCo Bancshares 2022 10-K

Note 25 – TriCo Bancshares Condensed Financial Statements (Parent Only)

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Retained earnings 615,502 542,873

Accumulated other comprehensive income (loss), net ( 193,905 ) 981

Accumulated other comprehensive loss, net ( 153,169 ) ( 193,905 )

Total shareholders’ equity 1,159,682 1,046,416

Total liabilities and shareholders’ equity $ 1,261,720 $ 1,148,234

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Condensed Statements of Income

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Net income $ 117,390 $ 125,419 $ 117,655

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Condensed Statements of Comprehensive Income (Loss)

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Note 27 – Summary of Quarterly Results of Operations (unaudited)

The following tables set forth the results of operations for the four quarters of 2022 and 2021, and is unaudited;

however, in the opinion of Management, it reflects all adjustments (which include only normal recurring adjustments) necessary to present fairly the summarized results for such periods.

2022 Quarters Ended

(dollars in thousands, except per share data) December 31, September 30, June 30, March 31,

Interest and dividend income:

Discount accretion $ 1,751 $ 714 $ 1,677 $ 1,323

All other loan interest income 80,005 75,242 68,241 56,422

Total loan interest income 81,756 75,956 69,918 57,745

Debt securities, dividends and interest bearing cash at banks 21,233 20,410 17,037 11,450

Total interest income 102,989 96,366 86,955 69,195

Interest expense 4,089 2,260 1,909 1,271

Net interest income 98,900 94,106 85,046 67,924

Provision for credit losses 4,245 3,795 2,100 8,330

Net interest income after provision for credit losses 94,655 90,311 82,946 59,594

Noninterest income 15,880 15,640 16,430 15,096

Noninterest expense 59,469 54,465 56,264 46,447

Income before income taxes 51,066 51,486 43,112 28,243

Income tax expense 14,723 14,148 11,748 7,869

Net income $ 36,343 $ 37,338 $ 31,364 $ 20,374

Per common share:

Net income (diluted) $ 1.09 $ 1.12 $ 0.93 $ 0.67

Dividends $ 0.30 $ 0.30 $ 0.25 $ 0.25

2021 Quarters Ended

(dollars in thousands, except per share data) December 31, September 30, June 30, March 31,

Interest and dividend income:

Discount accretion $ 1,780 $ 2,034 $ 2,566 $ 1,712

All other loan interest income 59,024 58,691 57,738 58,724

Total loan interest income 60,804 60,725 60,304 60,436

Debt securities, dividends and interest bearing cash at banks 10,220 8,903 8,175 7,480

Total interest income 71,024 69,628 68,479 67,916

Interest expense 1,241 1,395 1,396 1,476

Net interest income 69,783 68,233 67,083 66,440

Provision for (benefit from reversal of) credit losses 980 ( 1,435 ) ( 260 ) ( 6,060 )

Net interest income after provision for (benefit from) credit losses 68,803 69,668 67,343 72,500

Noninterest income 16,502 15,095 15,957 16,110

Noninterest expense 46,679 45,807 44,171 41,618

Income before income taxes 38,626 38,956 39,129 46,992

Income tax expense 10,404 11,534 10,767 13,343

Net income $ 28,222 $ 27,422 $ 28,362 $ 33,649

Per common share:

Net income (diluted) $ 0.94 $ 0.92 $ 0.95 $ 1.13

Dividends $ 0.25 $ 0.25 $ 0.25 $ 0.25

102 TriCo Bancshares 2022 10-K

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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generally accepted accounting principles and include, as necessary, best estimates and judgments by management.

In addition to management’s assessment, Moss Adams LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements as of and for the year ended December 31, 2022, and the Company’s effectiveness of internal control over financial reporting as of December 31, 2022, dated March 1, 2023, as stated in its report, which is included herein.

In addition to management’s assessment, Moss Adams LLP, an independent registered public accounting firm, has audited the Company’s consolidated financial statements as of and for the year ended December 31, 2023, and the Company’s effectiveness of internal control over financial reporting as of December 31, 2023, dated February 29, 2024, as stated in its report, which is included herein.

/s/ Richard P.

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Executive Vice President and Chief Financial Officer

March 1, 2023

February 29, 2024

106 TriCo Bancshares 2023 10-K

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of TriCo Bancshares (and subsidiaries) (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of TriCo Bancshares (and subsidiaries) (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Critical Audit Matter

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates.

Allowance for Credit Losses - Loan Risk Ratings, Reasonable and Supportable Forecasts and Qualitative Factors

As discussed in Note 1 and Note 5 to the consolidated financial statements, the Company’s allowance for credit losses for loans was $105,680,000 as of December 31, 2022, and consists of both historical credit loss experience and management’s estimates of current conditions and reasonable and supportable forecasts.

The Company’s allowance for credit losses for loans is a valuation account that is deducted from the amortized cost basis of loans to present the net carrying value at the amount expected to be collected on such loans and is a material and complex estimate requiring significant management judgment in the estimation of expected lifetime losses within the loan portfolio at the balance sheet date.

We identified management’s risk rating of loans and the qualitative and environmental factors related to California’s unemployment and unemployment outlook, Global Economic Uncertainty, and US Policy Uncertainty, which are components of the reasonable and supportable forecasts, as critical audit matters.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses - Reasonable and Supportable Qualitative Factors

As discussed in Note 1 and Note 5 to the consolidated financial statements, the Company’s allowance for credit losses on loans was $121.5 million as of December 31, 2023, and consists of both historical credit loss experience and management’s estimates of current conditions and reasonable and supportable forecasts.

The Company’s allowance for credit losses on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net carrying value at the amount expected to be collected on such loans and is a material and complex estimate requiring significant management judgment in the estimation of expected lifetime losses within the loan portfolio at the balance sheet date.

We identified the auditing of management’s qualitative forecast factors, which are the most significant components of the reasonable and supportable forecast, as a critical audit matter.

In estimating the allowance for credit losses on loans, the Company utilizes relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The Company considers relevant credit quality indicators for each loan segment, stratifies loans by risk rating, and estimates losses for each loan cohort based upon their nature, historical experience, and risk profile.

This process requires significant management judgment in the review of the loan portfolio and assignment of risk ratings based upon the characteristics of loans.

In addition, estimation of the lifetime expected credit losses for loans requires significant management judgment, particularly as it relates to forecast components of California’s unemployment and unemployment outlook, Global Economic Uncertainty and US Policy Uncertainty applied over the life of the loans.

Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation and operating effectiveness of controls relating to management’s calculation of the allowance for credit losses on loans, including controls over the review of loans and assignment of risk ratings and evaluation of the environmental and forecast factors related to California’s unemployment and unemployment outlook, Global Economic Uncertainty, and US Policy Uncertainty.

• Performing a sensitivity analysis to identify loan segments that would materially impact the allowance for credit losses due to risk rating changes as well as evaluating the appropriateness of the Company’s loan risk ratings and testing a risk-based targeted selection of loans to obtain substantive evidence that the Company is appropriately rating these loans in accordance with its policies, and that the risk ratings for the loans are reasonable.

• Evaluating the reasonableness and appropriateness of the estimated California unemployment factor and the estimated unemployment outlook forecast factor, the Global Economic Uncertainty outlook factor, and the US Policy Uncertainty outlook factor utilized by management in forming the environmental factor by comparing forecasts to relevant external data, including historical trends.

• Testing the mathematical accuracy and computation of the allowance for credit losses for loans by re-performing or independently calculating significant elements of the allowance and utilizing relevant source documents, including testing the completeness and accuracy of the data used in the calculation.

Business Combination – Valley Republic Bancorp acquired loans valuation

As discussed in Note 1 and Note 2 to the consolidated financial statements, on March 25, 2022, the Company completed the acquisition of Valley Republic Bancorp (VRB).

Total merger consideration, including cash and stock transactions, was approximately $174 million.

The fair value of total assets acquired as a result of the merger totaled $1.4 billion (net of cash consideration), with loans totaling $771 million, and resulting in $83.6 million of acquired goodwill.

The merger was accounted for using the acquisition method of accounting in which assets, liabilities, and consideration exchanged were recorded at their respective fair values at the merger date.

To estimate the fair value of the acquired loans, the Company utilized a discounted cash flow methodology that involved assumptions and judgments as to principal default and loss rates, prepayment rates, and market discount rates.

The acquired loans were recorded at fair value at the acquisition date without carryover of VRB’s previously established allowance for loan losses.

We identified the valuation of acquired loans as a critical audit matter because of the judgments necessary by management to identify purchased loans with deteriorated credit quality since acquisition and to determine the fair value of the loan portfolio acquired, and the related high degree of auditor judgment and the extensive audit effort involved in testing management’s significant estimates and assumptions, including using individuals with specialized skill and knowledge.

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Estimation of the lifetime expected credit losses on loans requires significant management judgment, particularly as it relates to the significant forecast components over the forecast period.

Auditing these significant management judgments involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation and operating effectiveness of controls relating to the completeness and accuracy of acquired loan level data, and the fair value estimate of acquired loans, including significant assumptions and methods utilized in the calculation.

• Testing the completeness and accuracy of acquired loan level data used in the fair value estimate calculation.

• Testing the completeness and accuracy of loans identified as purchase credit deteriorated since origination and evaluating identification criteria utilized by management.

• Utilizing our internal valuation specialists to:

◦ Test management’s approach to the fair value estimate for reasonableness.

◦ Validate the reasonableness of assumptions utilized in the determination of the fair value of acquired loans, including the principal default and loss rates, prepayment rates and market discount rates assumptions.

◦ Independently estimate the fair value of the acquired loans and compare it to the fair value recorded by management.

• Evaluating the reasonableness and appropriateness of the estimated qualitative forecast factors utilized by management in forming the reasonable and supportable forecast factors by comparing forecasts to relevant external data, including historical trends.

• Testing completeness and accuracy of the data used in the determination of forecast factors within the qualitative allowance for credit losses on loans and testing the mathematical accuracy of the calculation of the qualitative allowance for credit losses on loans.

/s/ Moss Adams LLP

Sacramento, California

March 1, 2023

February 29, 2024

We have served as the Company’s auditor since 2018.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data