TRICO BANCSHARES / 10-Q

Item 3. Quantitative and Qualitative Disclosures about Market Risk Based on the changes in interest rates as well as the mix shift of interest earning assets and interest bearing liabilities occurring subsequent to December 31, 2023, the following update of the Company’s assessment of market risk as of March 31, 2024 is being provided. These updates and changes should be read in conjunction with the additional quantitative and qualitative disclosures in our Annual Report on Form 10-K for the year ended December 31, 2023. As of March 31, 2024, the Company's loan portfolio consisted of approximately $6.8 billion in outstanding principal with a weighted average coupon rate of 5.47%. During the three-month periods ending March 31, 2024, December 31, 2023, and March 31, 2023, the weighted average coupon on loan production in the quarter was 7.78%, 7.54% and 6.91%, respectively. Included in the March 31, 2024 total loans are adjustable rate loans totaling $3.6 billion, of which, $974.1 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities with fair values totaling $345.6 million which are subject to repricing on not less than a quarterly basis. Management funds the acquisition of nearly all of its earning assets through its core deposit gathering activities. As of March 31, 2024, non-interest bearing deposits represented 32.6% of total deposits. Further, during the quarter ended March 31, 2024, the cost of interest bearing deposits were 1.83% and the cost of total deposits were 1.21%. With the intent of stabilizing or increasing net interest income, management intends to continue to deploy its excess liquidity and seek to migrate certain earning assets into higher yielding categories (from investment securities and into loans, for example). However, in situations where deposit balances contract, management may rely upon various borrowing facilities or the use of brokered deposits. Through the first quarter of 2024 and during the entire 2023 year, management did not utilize any brokered deposits. Management did however utilize borrowing lines from the FHLB and expects that such borrowings will be needed through the remainder of the year and into 2025. As the rate paid on these borrowed funds are correlated with short-term interest rates, the costs associated with these borrowings will be correlated with the rate adjustment actions by the Federal Reserve, if any. As of March 31, 2024 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was 5.32%. These scenarios assume that 1) interest rates increase or decrease evenly (in a “ramp” fashion) over a twelve-month period and remain at the new levels beyond twelve months or 2) that interest rates change instantaneously (“shock”). The simulation results shown below assume no changes in the structure of the Company’s balance sheet over the twelve months being measured. The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as measured against a flat rate (no interest rate change) instantaneous parallel shock scenario over a twelve month period utilizing a interest sensitivity (GAP) analysis based on the Company's specific mix of interest earning assets and interest bearing liabilities as of March 31, 2024. Interest Rate Risk Simulations: Change in Interest Rates (Basis Points) Estimated Change in Net Interest Income (NII) (as % of NII) Estimated Change in Market Value of Equity (MVE) (as % of MVE) +300 (shock) (7.6) % (8.0) % +200 (shock) (5.3) % (5.6) % +100 (shock) (2.5) % (1.8) % + 0 (flat) — — -100 (shock) 0.3 % (2.5) % -200 (shock) 0.2 % (8.3) % -300 (shock) 0.6 % (17.1) %