TriCo Bancshares Announces Third Quarter 2022 Results

October 26, 2022 at 08:00 AM EDT

Notable Items for Third Quarter 2022

Net interest margin, excluding the benefit from acquired loan discount accretion and PPP loan yield, increased 0.41% to 3.98%

Efficiency ratio improved to 49.6%, largely as a result of revenue growth as non-interest expenses, excluding merger related costs, were relatively unchanged as compared with the prior quarter

Organic loan growth (excluding PPP) for the quarter of $216.7 million or 14.2% annualized, with continued strength in credit quality

Quarterly pre-tax pre-provision net revenues grew to $55.3 million, as compared to $45.2 million inclusive of $2.2 million in merger expenses in the trailing quarter, and $37.5 million in the same quarter of the prior year inclusive of $0.6 million in merger expenses

"Despite the potential for increasing volatility in interest rates and the general economy, the core franchise value of Tri Counties Bank, being anchored in our credit culture and low costs of funds, continues to drive our financial performance," noted Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "Non-interest bearing deposits increased by nearly $74 million during the quarter and, to date during the current rising rate cycle, we have been able to maintain a low deposit Beta. Looking forward, we anticipate deposit Betas will be further pressured due to continued rate increases by the Federal Reserve. These rate increases could also decrease loan pipelines as borrowers reconsider the impact of higher rates on proposed projects."

TriCo Bancshares (NASDAQ: TCBK) (the “Company”), parent company of Tri Counties Bank, today announced net income of $37,338,000 for the quarter ended September 30, 2022, compared to $31,364,000 during the trailing quarter ended June 30, 2022, and $27,422,000 during the quarter ended September 30, 2021. Diluted earnings per share were $1.12 for the third quarter of 2022, compared to $0.93 for the second quarter of 2022 and $0.92 for the third quarter of 2021.

Financial Highlights

Performance highlights and other developments for the Company as of or for the three and nine months ended September 30, 2022, included the following:

For the three and nine months ended September 30, 2022, the Company’s return on average assets was 1.46% and 1.23%, while the return on average equity was 13.78% and 11.25%, respectively. The nine-month ratio was impacted by merger related expenses of $6,253,000 during the 2022 period.

Organic loan growth, excluding PPP and acquired loans, totaled $216.7 million (14.2% annualized) for the current quarter and $824.3 million (17.4% annualized) for the trailing twelve-month period.

As of September 30, 2022, the Company reported total loans, total assets and total deposits of $6.3 billion, $10.0 billion and $8.7 billion, respectively. As a direct result of organic loan growth during the quarter, the loan to deposit ratio has increased to 72.9% as of September 30, 2022, as compared to 69.8% as of the trailing quarter.

The average rate of interest paid on deposits, including non-interest-bearing deposits, of 0.04% has remained unchanged during each of the prior four quarters, and represents a decrease of one basis point from the average rate paid of 0.05% during the same quarter of the prior year.

Noninterest income related to service charges and fees was $12.7 million for the three month period ended September 30, 2022, an increase of 12.6% when compared to the same period in 2021.

The provision for credit losses for loans and debt securities was approximately $3.8 million during the quarter ended September 30, 2022, as compared to a provision expense of $2.1 million during the trailing quarter ended June 30, 2022, and a reversal of provision expense totaling $1.4 million for the three month period ended September 30, 2021.

The allowance for credit losses to total loans was 1.61% as of September 30, 2022, compared to 1.60% as of the trailing quarter end, and 1.72% as of September 30, 2021. Non-performing assets to total assets were 0.21% at September 30, 2022, as compared to 0.15% as of June 30, 2022, and 0.37% at September 30, 2021.

Financial results reported in this document are preliminary. Final financial results and other disclosures will be reported in our Annual Report on Form 10-Q for the period ended September 30, 2022, and may differ materially from the results and disclosures in this document due to, among other things, the completion of final review procedures, the occurrence of subsequent events, or the discovery of additional information.

Summary Results

The following is a summary of the components of the Company’s operating results and performance ratios for the periods indicated:

	Three months ended
	September 30,			June 30,
(dollars and shares in thousands, except per share data)	2022			2022			$ Change			% Change
Net interest income	$	94,106		$	85,046		$	9,060		10.7	%
Provision for credit losses		(3,795	)		(2,100	)		(1,695	)	80.7	%
Noninterest income		15,640			16,430			(790	)	(4.8	) %
Noninterest expense		(54,465	)		(56,264	)		1,799		(3.2	) %
Provision for income taxes		(14,148	)		(11,748	)		(2,400	)	20.4	%
Net income	$	37,338		$	31,364		$	5,974		19.0	%
Diluted earnings per share	$	1.12		$	0.93		$	0.19		20.4	%
Dividends per share	$	0.30		$	0.25		$	0.05		20.0	%
Average common shares		33,348			33,561			(213	)	(0.6	) %
Average diluted common shares		33,463			33,705			(242	)	(0.7	) %
Return on average total assets		1.46	%		1.24	%
Return on average equity		13.78	%		11.53	%
Efficiency ratio		49.63	%		55.45	%

	Three months ended September 30,
(dollars and shares in thousands, except per share data)	2022			2021			$ Change			% Change
Net interest income	$	94,106		$	68,233		$	25,873		37.9	%
(Provision for) reversal of credit losses		(3,795	)		1,435			(5,230	)	(364.5	) %
Noninterest income		15,640			15,095			545		3.6	%
Noninterest expense		(54,465	)		(45,807	)		(8,658	)	18.9	%
Provision for income taxes		(14,148	)		(11,534	)		(2,614	)	22.7	%
Net income	$	37,338		$	27,422		$	9,916		36.2	%
Diluted earnings per share	$	1.12		$	0.92		$	0.20		21.7	%
Dividends per share	$	0.30		$	0.25		$	0.05		20.0	%
Average common shares		33,348			29,714			3,634		12.2	%
Average diluted common shares		33,463			29,851			3,612		12.1	%
Return on average total assets		1.46	%		1.30	%
Return on average equity		13.78	%		11.02	%
Efficiency ratio		49.63	%		54.97	%

	Nine months ended September 30,
(dollars and shares in thousands)	2022			2021			$ Change			% Change
Net interest income	$	247,076		$	201,756		$	45,320		22.5	%
Reversal of (provision for) credit losses		(14,225	)		7,755			(21,980	)	(283.4	) %
Noninterest income		47,166			47,162			4		—	%
Noninterest expense		(157,176	)		(131,596	)		(25,580	)	19.4	%
Provision for income taxes		(33,765	)		(35,644	)		1,879		(5.3	) %
Net income	$	89,076		$	89,433		$	(357	)	(0.4	) %
Diluted earnings per share	$	2.74		$	2.99		$	(0.25	)	(8.4	) %
Dividends per share	$	0.80		$	0.75		$	0.05		6.7	%
Average common shares		32,332			29,720			2,612		8.8	%
Average diluted common shares		32,469			29,887			2,582		8.6	%
Return on average total assets		1.23	%		1.48	%
Return on average equity		11.25	%		12.42	%
Efficiency ratio		53.42	%		52.87	%

Balance Sheet

Total loans outstanding, excluding PPP, grew to $6.31 billion as of September 30, 2022, an increase of 33.3% over the prior twelve months, of which 17.4% was related to organic loan growth. Investments increased to $2.67 billion as of September 30, 2022, an increase of 14.4% annualized over the prior twelve months. Quarterly average earning assets to quarterly total average assets were generally unchanged at 92.0% at September 30, 2022, as compared to 92.2% and 92.9% at June 30, 2022, and September 30, 2021, respectively. The loan to deposit ratio was 72.9% at September 30, 2022, as compared to 69.8% and 67.5% at June 30, 2022, and September 30, 2021, respectively.

Total shareholders' equity decreased by $51,839,000 during the quarter ended September 30, 2022, as a result of an increase in accumulated other comprehensive losses of $76,740,000, share repurchases totaling approximately $2,059,000 and cash dividend payments on common stock of $10,004,000, partially offset by net income of $37,338,000. As a result, the Company’s book value was $29.71 per share at September 30, 2022 as compared to $31.25 and $33.05 at June 30, 2022, and September 30, 2021, respectively. The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $19.92 per share at September 30, 2022, as compared to $21.41 and $25.16 at June 30, 2022, and September 30, 2021, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	September 30,		June 30,					Annualized % Change
(dollars in thousands)	2022		2022		$ Change			Annualized % Change
Total assets	$	9,976,879	$	10,120,611	$	(143,732	)	(5.7	) %
Total loans		6,314,290		6,113,421		200,869		13.1
Total loans, excluding PPP		6,312,348		6,095,667		216,681		14.2
Total investments		2,668,145		2,802,815		(134,670	)	(19.2	)
Total deposits	$	8,655,769	$	8,756,775	$	(101,006	)	(4.6	) %

Organic loan growth, excluding PPP, of $216,681,000 or 14.2% on an annualized basis was realized during the quarter ended September 30, 2022, primarily within commercial real estate. During the quarter, and exclusive of PPP balance changes, loan originations/draws totaled approximately $737.0 million while payoffs/repayments of loans totaled $536.0 million, which compares to origination/draws and payoff/repayments activity during the three months ended June 30, 2022 of $697.0 million and $397.0 million, respectively. While management believes that loan pipelines remain sufficient to support loan growth, loan pipeline activity may moderate as customer awareness of the rising interest rate environment weighs more heavily on their decision making criteria. Investment security balances decreased $134,670,000 or 19.2% on an annualized basis as the result of declines in market values grew, and prepayments or maturities from the portfolio were utilized to augment the Company's overall balance sheet position. Deposit balances also decreased, with a change of $101,006,000 or 4.6% annualized during the period. These deposit balance changes are partially the result of approximately $51.6 million in FDIC insured money market account balances being placed with partner institutions.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended	September 30,		June 30,				Annualized % Change
(dollars in thousands)	2022		2022		$ Change		Annualized % Change
Total assets	$	10,131,118	$	10,121,714	$	9,404	0.4	%
Total loans		6,171,042		5,928,430		242,612	16.4
Total loans, excluding PPP		6,162,267		5,890,578		271,689	18.4
Total investments		2,802,119		2,732,466		69,653	10.2
Total deposits	$	8,752,215	$	8,743,320	$	8,895	0.4	%

Year Over Year Balance Sheet Change

Ending balances	As of September 30,						Acquired Balances		Organic $ Change		Organic % Change
(dollars in thousands)	2022		2021		$ Change		Acquired Balances		Organic $ Change		Organic % Change
Total assets	$	9,976,879	$	8,458,030	$	1,518,849	$	1,363,529	$	155,320	1.8	%
Total loans		6,314,290		4,887,496		1,426,794		773,390		653,404	13.4
Total loans, excluding PPP		6,312,348		4,736,048		1,576,300		751,978		824,322	17.4
Total investments		2,668,145		2,333,015		335,130		109,716		225,414	9.7
Total deposits	$	8,655,769	$	7,236,822	$	1,418,947	$	1,215,479	$	203,468	2.8	%

Non-PPP loan balances have increased as a result of organic activities by approximately $824.3 million during the twelve month period ending September 30, 2022. Investment securities increased to $2.7 billion at September 30, 2022, an organic change of $225.4 million or 9.7% from the prior year. When combined with balances acquired from Valley Republic Bank, this represents an increase of nearly $1.8 billion in earning assets during the last twelve months.

Net Interest Income and Net Interest Margin

The following is a summary of the components of net interest income for the periods indicated:

	Three months ended
	September 30,			June 30,
(dollars in thousands)	2022			2022			Change			% Change
Interest income	$	96,366		$	86,955		$	9,411		10.8	%
Interest expense		(2,260	)		(1,909	)		(351	)	18.4	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		440			397			43		10.8	%
Net interest income (FTE)	$	94,546		$	85,443		$	9,103		10.7	%
Net interest margin (FTE)		4.02	%		3.67	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	714		$	1,677		$	(963	)	(57.4	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.99	%		3.60	%		0.39	%
PPP loans yield, net:
Amount (included in interest income)	$	313		$	964		$	(651	)	(67.5	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		4.02	%		3.65	%		0.37	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,027		$	2,641		$	(1,614	)	(61.1	) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.98	%		3.57	%		0.41	%

	Three months ended September 30,
(dollars in thousands)	2022			2021			Change			% Change
Interest income	$	96,366		$	69,628		$	26,738		38.4	%
Interest expense		(2,260	)		(1,395	)		(865	)	62.0	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		440			265			175		66.0	%
Net interest income (FTE)	$	94,546		$	68,498		$	26,048		38.0	%
Net interest margin (FTE)		4.02	%		3.50	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	714		$	2,034		$	(1,320	)	(64.9	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.99	%		3.40	%		0.59	%
PPP loans yield, net:
Amount (included in interest income)	$	313		$	3,507		$	(3,194	)	(91.1	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		4.02	%		3.42	%		0.60	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,027		$	5,541		$	(4,514	)	(81.5	) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.98	%		3.31	%		0.67	%

	Nine months ended September 30,
(dollars in thousands)	2022			2021			Change			% Change
Interest income	$	252,516		$	206,023		$	46,493		22.6	%
Interest expense		(5,440	)		(4,267	)		(1,173	)	27.5	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		1,120			797			323		40.5	%
Net interest income (FTE)	$	248,196		$	202,553		$	45,643		22.5	%
Net interest margin (FTE)		3.71	%		3.61	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	3,714		$	6,311		$	(2,597	)	(41.2	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.65	%		3.50	%		0.15	%
PPP loans yield, net:
Amount (included in interest income)	$	2,374		$	12,549		$	(10,175	)	(81.1	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.69	%		3.53	%		0.16	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	6,088		$	18,860		$	(12,772	)	(67.7	) %
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾		3.63	%		3.41	%		0.22	%

(1)

Certain information included herein is presented on a fully tax-equivalent (FTE) basis and / or to present additional financial details which may be desired by users of this financial information. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provide additional clarity in assessing its results, and the presentation of these measures are common practice within the banking industry. See additional information related to non-GAAP measures at the back of this document.

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or the discount is accreted (added to) interest income over the remaining life of the loan. Generally, as time goes on, the dollar impact of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining unaccreted discount or unamortized premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. As a result of the increase in interest rates, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, declined throughout 2022. During the three months ended September 30, 2022, June 30, 2022, and September 30, 2021, purchased loan discount accretion was $714,000, $1,677,000, and $2,034,000, respectively.

The following table shows the components of net interest income and net interest margin on a fully tax-equivalent (FTE) basis for the quarterly periods indicated:

ANALYSIS OF CHANGE IN NET INTEREST MARGIN ON EARNING ASSETS (unaudited, dollars in thousands)

	Three months ended						Three months ended						Three months ended
	September 30, 2022						June 30, 2022						September 30, 2021
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	6,162,267	$	75,643	4.87	%	$	5,890,578	$	68,954	4.70	%	$	4,684,492	$	57,218	4.85	%
PPP loans		8,775		313	14.15	%		37,852		964	10.22	%		213,430		3,507	6.52	%
Investments-taxable		2,591,513		17,122	2.62	%		2,536,362		14,350	2.27	%		2,019,283		7,741	1.52	%
Investments-nontaxable ⁽¹⁾		210,606		1,908	3.59	%		196,104		1,720	3.52	%		130,028		1,147	3.50	%
Total investments		2,802,119		19,030	2.69	%		2,732,466		16,070	2.36	%		2,149,311		8,888	1.64	%
Cash at Federal Reserve and other banks		346,991		1,820	2.08	%		669,163		1,364	0.82	%		710,936		280	0.16	%
Total earning assets		9,320,152		96,806	4.12	%		9,330,059		87,352	3.76	%		7,758,169		69,893	3.57	%
Other assets, net		810,966						791,655						589,942
Total assets	$	10,131,118					$	10,121,714					$	8,348,111
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,775,884	$	119	0.03	%	$	1,799,205	$	99	0.02	%	$	1,507,697	$	116	0.03	%
Savings deposits		3,011,145		685	0.09	%		3,003,337		529	0.07	%		2,407,368		328	0.05	%
Time deposits		321,100		188	0.23	%		337,007		220	0.26	%		321,381		411	0.51	%
Total interest-bearing deposits		5,108,129		992	0.08	%		5,139,549		848	0.07	%		4,236,446		855	0.08	%
Other borrowings		38,908		5	0.05	%		35,253		5	0.06	%		48,330		6	0.05	%
Junior subordinated debt		101,011		1,263	4.96	%		100,991		1,056	4.19	%		57,891		534	3.66	%
Total interest-bearing liabilities		5,248,048		2,260	0.17	%		5,275,793		1,909	0.15	%		4,342,667		1,395	0.13	%
Noninterest-bearing deposits		3,644,086						3,603,771						2,900,817
Other liabilities		164,208						150,696						117,601
Shareholders’ equity		1,074,776						1,091,454						987,026
Total liabilities and shareholders’ equity	$	10,131,118					$	10,121,714					$	8,348,111
Net interest rate spread^{(1) (2)}					3.95	%					3.61	%					3.45	%
Net interest income and margin^{(1) (3)}			$	94,546	4.02	%			$	85,443	3.67	%			$	68,498	3.50	%

(1)		Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.
(2)		Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
(3)		Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

Net interest income (FTE) during the three months ended September 30, 2022 increased $9,103,000 or 10.7% to $94,546,000 compared to $85,443,000 during the three months ended June 30, 2022. In addition, net interest margin improved 35 basis points to 4.02%, as compared to the trailing quarter. The increase in net interest income is primarily attributed to an additional $6,038,000 in loan interest and fee income and $2,960,000 in investment income, due to increases in average volume and rates as compared to the trailing quarter, respectively. As a partial offset, increases in interest rates on subordinated debt resulted in an increase in interest expense of $207,000 over the same period.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 2 basis points from 4.85% during the three months ended September 30, 2021, to 4.87% during the three months ended September 30, 2022. The accretion of discounts from acquired loans added 5 and 17 basis points to loan yields during the quarters ended September 30, 2022 and September 30, 2021, respectively. Therefore, the 2 basis point increase in yields on loans during the comparable three month periods ended September 30, 2022 and 2021 was the net effect of a 14 basis point increase in market loan rates, partially offset by a 12 basis point decline in the accretion of discounts.

The rates paid on interest bearing deposits increased by 1 basis point during the quarter ended September 30, 2022 compared to the trailing quarter. The cost of interest-bearing deposits remained flat at 8 basis points between the quarter ended September 30, 2022 and the same quarter of the prior year. In addition, the level of noninterest-bearing deposits continues to benefit the average cost of total deposits which remained flat at 0.04% in both the current and trailing quarter, compared to 0.5% in the third quarter of the prior year. Non-interest bearing deposit balances grew $74.0 million during the three months ended September 30, 2022. As of September 30, 2022, the ratio of average total noninterest-bearing deposits to total average deposits was 41.6% .

	Nine months ended September 30, 2022						Nine months ended September 30, 2021
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	5,668,055	$	201,245	4.75	%	$	4,580,292	$	168,916	4.93	%
PPP loans		32,287		2,374	9.83	%		300,006		12,549	5.59	%
Investments-taxable		2,487,111		41,695	2.24	%		1,838,023		21,324	1.55	%
Investments-nontaxable ⁽¹⁾		183,772		4,853	3.53	%		129,057		3,453	3.58	%
Total investments		2,670,883		46,548	2.33	%		1,967,080		24,777	1.68	%
Cash at Federal Reserve and other banks		573,252		3,469	0.81	%		656,912		578	0.12	%
Total earning assets		8,944,477		253,636	3.79	%		7,504,290		206,820	3.68	%
Other assets, net		737,721						591,983
Total assets	$	9,682,198					$	8,096,273
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,724,787	$	302	0.02	%	$	1,476,987	$	269	0.02	%
Savings deposits		2,863,447		1,541	0.07	%		2,318,169		965	0.06	%
Time deposits		319,940		676	0.28	%		327,562		1,386	0.57	%
Total interest-bearing deposits		4,908,174		2,519	0.07	%		4,122,718		2,620	0.08	%
Other borrowings		39,609		15	0.05	%		40,732		15	0.05	%
Junior subordinated debt		87,804		2,906	4.42	%		57,790		1,632	3.78	%
Total interest-bearing liabilities		5,035,587		5,440	0.14	%		4,221,240		4,267	0.14	%
Noninterest-bearing deposits		3,435,487						2,790,828
Other liabilities		152,186						121,334
Shareholders’ equity		1,058,938						962,871
Total liabilities and shareholders’ equity	$	9,682,198					$	8,096,273
Net interest rate spread^{(1) (2)}					3.65	%					3.54	%
Net interest income and margin^{(1) (3)}			$	248,196	3.71	%			$	202,553	3.61	%

(1)		Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable.
(2)		Net interest spread is the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
(3)		Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of interest-earning assets.

Interest Rates and Earning Asset Composition

During the quarter ended September 30, 2022, market interest rates, including many rates that serve as reference indices for variable rate loans and investment securities continued to increase. As noted above, these rate increases have continued to benefit growth in total interest income. As of September 30, 2022, the Company's loan portfolio consisted of approximately $6.4 billion in outstanding principal with a weighted average coupon rate of 4.65%. Included in the September 30, 2022 loan total are variable rate loans totaling $3.6 billion, of which, $862 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities totaling $402 million which are subject to repricing on not less than a quarterly basis.

Asset Quality and Credit Loss Provisioning

During the three months ended September 30, 2022, the Company recorded a provision for credit losses of $3,795,000, as compared to a $2,100,000 provision during the trailing quarter, and a reversal of provision expense of $1,435,000 during the third quarter of 2021.

The following table presents details of the provision for credit losses for the periods indicated:

	Three months ended
(dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		September 30, 2021
Addition to (reversal of) allowance for credit losses	$	3,500	$	1,940	$	8,205	$	(1,495	)
Addition to reserve for unfunded loan commitments		295		160		125		60
Total provision for (reversal of) credit losses	$	3,795	$	2,100	$	8,330	$	(1,435	)

The following table presents the activity in the allowance for credit losses on loans for the periods indicated:

	Three months ended						Nine months ended
(dollars in thousands)	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Balance, beginning of period	$	97,944		$	86,062		$	85,376		$	91,847
ACL at acquisition for PCD loans		—			—			2,037			—
Provision for (reversal of) credit losses		3,500			(1,495	)		13,645			(7,880	)
Loans charged-off		(267	)		(1,582	)		(1,411	)		(2,195	)
Recoveries of previously charged-off loans		311			1,321			1,841			2,534
Balance, end of period	$	101,488		$	84,306		$	101,488		$	84,306

The allowance for credit losses (ACL) was $101,488,000 as of September 30, 2022, a net increase of $3,544,000 over the immediately preceding quarter. The provision for credit losses of $3,500,000 during the quarter was the net effect of increases in required reserves due to qualitative factors and individually analyzed credits. In addition to the aforementioned quarterly increase, the provision for credit losses of $13,645,000 during the nine months ended September 30, 2022 was comprised of $10,820,000 in association with the loans acquired from Valley Republic Bank in the first quarter of 2022, and a net provision for credit losses of $2,825,000 associated with organic loan portfolio growth and the net changes in quantitative and qualitative factors associated with overall borrower performance. For the quarter, 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, concentration risks in commercial lending and the rapid rise in interest rates. Meanwhile, the quantitative component of the ACL increased reserve requirements over the trailing quarter due to loan volume growth and increases in specific reserves totaling approximately $1,237,000.

The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to evolve and included improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date, particularly CA unemployment trends. Inflation remains elevated from continued disruptions in the supply chain and high energy prices Despite the expected continued benefit to the net interest income of the Company from the elevated rate environment, Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have boosted expectations of the US entering a recession within 12 months and has led to the lowest levels of consumer sentiment in decades. As a result, management continues to believe that certain credit weakness are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates such risk factors.

Loans past due 30 days or more increased by $551,000 during the quarter ended September 30, 2022 to $6,471,000, as compared to $5,920,000 at June 30, 2022. Non-performing loans were $17,471,000 at September 30, 2022, an increase of $5,546,000 from $11,925,000 as of June 30, 2022, and a decrease of $11,319,000 from $28,790,000 as of September 30, 2021. The current quarter change in non-performing assets is nearly entirely attributed to a single agriculture production relationship, which also was the primary contributor to the increase in specific reserves for the quarter.

The following table illustrates the total loans by risk rating and their respective percentage of total loans for the periods presented.

	September 30,			% of Total Loans		June 30,			% of Total Loans		September 30,			% of Total Loans
(dollars in thousands)	2022			% of Total Loans		2022			% of Total Loans		2021			% of Total Loans
Risk Rating:
Pass	$	6,133,805		97.1	%	$	5,960,781		97.5	%	$	4,698,475		96.1	%
Special Mention		126,273		2.0	%		105,819		1.7	%		138,699		2.9	%
Substandard		54,212		0.9	%		46,821		0.8	%		50,322		1.0	%
Total	$	6,314,290				$	6,113,421				$	4,887,496

Classified loans to total loans		0.86	%				0.77	%				1.03	%
Loans past due 30+ days to total loans		0.10	%				0.10	%				0.22	%

The ratio of classified loans increased to 0.86% as of September 30, 2022 as compared to 0.77% in the trailing quarter, but improved by 17 basis points from the equivalent period in 2021. The Company's criticized loan balances increased during the current quarter by approximately $27,846,000 to $180,486,000 as of September 30, 2022. There were no charge-offs incurred in connection with these loans and management continues to work toward resolution with the borrowers.

There were two properties added to other real estate owned totaling $443,000 during the quarter ended September 30, 2022, and two disposals totaling $394,000. As of September 30, 2022, other real estate owned consisted of nine properties with a carrying value of approximately $3,441,000.

Non-performing assets of $20,912,000 at September 30, 2022 represented 0.21% of total assets, a slight change but generally in line with the $15,304,000 or 0.15% and $31,440,000 or 0.37% as of June 30, 2022 and September 30, 2021, respectively.

Allocation of Credit Loss Reserves by Loan Type

	As of September 30, 2022				As of December 31, 2021				As of September 30, 2021
(dollars in thousands)	Amount		% of Loans Outstanding		Amount		% of Loans Outstanding		Amount		% of Loans Outstanding
Commercial real estate:
CRE - Non Owner Occupied	$	29,244	1.42	%	$	25,739	1.61	%	$	25,221	1.65	%
CRE - Owner Occupied		13,525	1.39	%		10,691	1.51	%		10,730	1.53	%
Multifamily		12,749	1.36	%		12,395	1.51	%		12,876	1.55	%
Farmland		3,122	1.12	%		2,315	1.34	%		1,902	1.15	%
Total commercial real estate loans		58,640	1.38	%		51,140	1.55	%		50,729	1.57	%
Consumer:
SFR 1-4 1st Liens		10,671	1.39	%		10,723	1.60	%		10,618	1.60	%
SFR HELOCs and Junior Liens		11,383	2.89	%		10,510	3.11	%		10,431	3.23	%
Other		1,878	3.23	%		2,241	3.34	%		2,442	3.59	%
Total consumer loans		23,932	1.97	%		23,474	2.19	%		23,491	2.22	%

Commercial and Industrial		10,400	1.94	%		3,862	1.49	%		3,427	0.99	%
Construction		6,132	2.52	%		5,667	2.55	%		5,528	2.55	%
Agricultural Production		2,368	3.31	%		1,215	2.39	%		1,119	2.52	%
Leases		16	0.20	%		18	0.27	%		12	0.24	%
Allowance for credit losses		101,488	1.61	%		85,376	1.74	%		84,306	1.72	%
Reserve for unfunded loan commitments		4,370				3,790				3,525
Total allowance for credit losses	$	105,858	1.68	%	$	89,166	1.81	%	$	87,831	1.80	%

For the periods presented in the table above and for purposes of calculating the "% of Loans Outstanding", PPP loans are included in the segment "Commercial and Industrial." PPP loans are fully guaranteed and therefore would not require any loss reserve allocation. Excluding the net outstanding balances of PPP loans from the ratio of the ACL to total loans results in a reserve ratio of approximately 1.61% as of September 30, 2022. In addition to the allowance for credit losses above, the Company has acquired various performing loans whose fair value as of the acquisition date was determined to be less than the principal balance owed on those loans. This difference represents the collective discount of credit, interest rate and liquidity measurements which is expected to be amortized over the life of the loans. As of September 30, 2022, the unamortized discount associated with acquired loans totaled $32,256,000 and, if aggregated with the ACL, would collectively represent 2.11% of total gross loans and 2.12% of total loans less PPP loans.

SBA Paycheck Protection Program

In March 2020 (Round 1) and subsequently in December 2020 (Round 2), the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was created to help small businesses keep workers employed during the COVID-19 crisis. Tri Counties Bank, through its online portal, facilitated the ability for borrowers to open a new deposit account and submit PPP applications during the entirety of the Programs. The SBA ended PPP and did not accept new borrowing applications, effective May 31, 2021. The following is a summary of PPP loan related information as of the periods indicated:

(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2021
Total number of PPP loans outstanding		16		450		1,449

PPP loan balance (TCBK round 1 origination), gross	$	433	$	2,544	$	9,302
PPP loan balance (TCBK round 2 origination), gross		533		60,767		148,159
Acquired PPP loan balance (VRB origination), gross		1,003		—		—
Total PPP loans, gross outstanding	$	1,969	$	63,311	$	157,461

PPP deferred loan fees (Round 1 origination)		—		1		40
PPP deferred loan fees (Round 2 origination)		27		2,163		5,973
Total PPP deferred loan fees (costs) outstanding	$	27	$	2,164	$	6,013

As of September 30, 2022, there was approximately $27,000 in net deferred fee income remaining to be recognized. During the three months ended September 30, 2022, the Company recognized $291,000 in fees on PPP loans as compared with $872,000 and $2,984,000 for the three months ended June 30, 2022 and September 30, 2021, respectively. Based on the payment guarantee provided by the SBA as well as the expected short-term duration of the PPP loans acquired from VRB, the fair value of these loans approximates the principal balance outstanding as of the merger date, and therefore, no purchase discount was recorded.

Non-interest Income

The following table presents the key components of non-interest income for the current and trailing quarterly periods indicated:

	Three months ended
(dollars in thousands)	September 30, 2022			June 30, 2022			Change			% Change
ATM and interchange fees	$	6,714		$	6,984		$	(270	)	(3.9	) %
Service charges on deposit accounts		4,436			4,163			273		6.6	%
Other service fees		1,022			1,279			(257	)	(20.1	) %
Mortgage banking service fees		477			482			(5	)	(1.0	) %
Change in value of mortgage servicing rights		33			136			(103	)	(75.7	) %
Total service charges and fees		12,682			13,044			(362	)	(2.8	) %
Increase in cash value of life insurance		659			752			(93	)	(12.4	) %
Asset management and commission income		1,020			1,039			(19	)	(1.8	) %
Gain on sale of loans		357			542			(185	)	(34.1	) %
Lease brokerage income		252			238			14		5.9	%
Sale of customer checks		326			441			(115	)	(26.1	) %
Gain on sale of investment securities		—			—			—		n/m
Loss on marketable equity securities		(115	)		(94	)		(21	)	22.3	%
Other		459			468			(9	)	(1.9	) %
Total other non-interest income		2,958			3,386			(428	)	(12.6	) %
Total non-interest income	$	15,640		$	16,430		$	(790	)	(4.8	) %

Non-interest income decreased $790,000 or 4.8% to $15,640,000 during the three months ended September 30, 2022, compared to $16,430,000 during the quarter ended June 30, 2022. Gain on sale of mortgage loans declined by $185,000 or 34.1% during the quarter ended September 30, 2022, attributed to the continued rising rate environment and resulting decline in overall mortgage application and origination volumes. The decrease in total service charges and fees is wholly attributable to changes in customer use activities and the ongoing integration of customers acquired from Valley Republic Bank (VRB). Looking forward, during the fourth quarter of 2022, the Company will no longer charge personal and business customers a non-sufficient funds fee for returned checks.

The following table presents the key components of non-interest income for the current and prior year periods indicated:

	Three months ended September 30,
(dollars in thousands)	2022			2021			Change			% Change
ATM and interchange fees	$	6,714		$	6,516		$	198		3.0	%
Service charges on deposit accounts		4,436			3,608			828		22.9	%
Other service fees		1,022			897			125		13.9	%
Mortgage banking service fees		477			476			1		0.2	%
Change in value of mortgage servicing rights		33			(232	)		265		(114.2	) %
Total service charges and fees		12,682			11,265			1,417		12.6	%
Increase in cash value of life insurance		659			644			15		2.3	%
Asset management and commission income		1,020			957			63		6.6	%
Gain on sale of loans		357			1,814			(1,457	)	(80.3	) %
Lease brokerage income		252			183			69		37.7	%
Sale of customer checks		326			107			219		204.7	%
Gain on sale of investment securities		—			—			—		n/m
Loss on marketable equity securities		(115	)		(14	)		(101	)	721.4	%
Other		459			139			320		230.2	%
Total other non-interest income		2,958			3,830			(872	)	(22.8	) %
Total non-interest income	$	15,640		$	15,095		$	545		3.6	%

Generally, the increases in recurring non-interest income items reflects the VRB merger timing. As noted above, decreasing mortgage related activity reduced the gain on sale of loans recorded during the quarter by $1,457,000 or 80.3%, as compared to the three months ended September 30, 2021. Further, changes in the value of mortgage service rights, while lesser in magnitude, typically have an inverse relationship with changes in mortgage banking activities.

	Nine months ended September 30,
(dollars in thousands)	2022			2021			Change			% Change
ATM and interchange fees	$	19,941		$	18,935		$	1,006		5.3	%
Service charges on deposit accounts		12,433			10,339			2,094		20.3	%
Other service fees		3,183			2,682			501		18.7	%
Mortgage banking service fees		1,422			1,406			16		1.1	%
Change in value of mortgage servicing rights		443			(691	)		1,134		(164.1	) %
Total service charges and fees		37,422			32,671			4,751		14.5	%
Increase in cash value of life insurance		2,049			2,062			(13	)	(0.6	) %
Asset management and commission income		2,946			2,738			208		7.6	%
Gain on sale of loans		2,145			7,908			(5,763	)	(72.9	) %
Lease brokerage income		648			542			106		19.6	%
Sale of customer checks		871			342			529		154.7	%
Gain on sale of investment securities		—			—			—		n/m
Loss on marketable equity securities		(346	)		(59	)		(287	)	486.4	%
Other		1,431			958			473		49.4	%
Total other non-interest income		9,744			14,491			(4,747	)	(32.8	) %
Total non-interest income	$	47,166		$	47,162		$	4		—	%

The changes in non-interest income for the nine months ended September 30, 2022 and 2021 are generally consistent with changes in the three month periods discussed above.

Non-interest Expense

The following table presents the key components of non-interest expense for the current and trailing quarterly periods indicated:

	Three months ended
(dollars in thousands)	September 30, 2022			June 30, 2022			Change			% Change
Base salaries, net of deferred loan origination costs	$	22,377		$	22,169		$	208		0.9	%
Incentive compensation		4,832			4,282			550		12.8	%
Benefits and other compensation costs		6,319			6,491			(172	)	(2.6	) %
Total salaries and benefits expense		33,528			32,942			586		1.8	%
Occupancy		3,965			3,996			(31	)	(0.8	) %
Data processing and software		3,449			3,596			(147	)	(4.1	) %
Equipment		1,422			1,453			(31	)	(2.1	) %
Intangible amortization		1,702			1,702			—		—	%
Advertising		990			818			172		21.0	%
ATM and POS network charges		1,694			1,781			(87	)	(4.9	) %
Professional fees		1,172			1,233			(61	)	(4.9	) %
Telecommunications		575			564			11		2.0	%
Regulatory assessments and insurance		828			779			49		6.3	%
Merger and acquisition expenses		—			2,221			(2,221	)	(100.0	) %
Postage		287			313			(26	)	(8.3	) %
Operational loss		492			456			36		7.9	%
Courier service		497			486			11		2.3	%
Gain on sale or acquisition of foreclosed assets		(148	)		(98	)		(50	)	51.0	%
Loss on disposal of fixed assets		4			5			(1	)	(20.0	) %
Other miscellaneous expense		4,008			4,017			(9	)	(0.2	) %
Total other non-interest expense		20,937			23,322			(2,385	)	(10.2	) %
Total non-interest expense	$	54,465		$	56,264		$	(1,799	)	(3.2	) %
Average full-time equivalent staff		1,198			1,183			15		1.3	%

Non-interest expense for the quarter ended September 30, 2022 decreased $1,799,000 or 3.2% to $54,465,000 as compared to $56,264,000 during the trailing quarter ended June 30, 2022. Total salaries and benefits expense increased by $586,000 or 1.8%, led by incentive compensation related expenses of $550,000 or 12.8% compared to the trailing quarter, due to strong overall Company performance and continued loan production and growth. The merger and acquisition expenses from the trailing quarter were entirely associated with the VRB merger, which are not expected to be incurred in future periods.

The following table presents the key components of non-interest expense for the current and prior year quarterly periods indicated:

	Three months ended September 30,
(dollars in thousands)	2022			2021			Change			% Change
Base salaries, net of deferred loan origination costs	$	22,377		$	17,673		$	4,704		26.6	%
Incentive compensation		4,832			3,123			1,709		54.7	%
Benefits and other compensation costs		6,319			5,478			841		15.4	%
Total salaries and benefits expense		33,528			26,274			7,254		27.6	%
Occupancy		3,965			3,771			194		5.1	%
Data processing and software		3,449			3,689			(240	)	(6.5	) %
Equipment		1,422			1,336			86		6.4	%
Intangible amortization		1,702			1,409			293		20.8	%
Advertising		990			966			24		2.5	%
ATM and POS network charges		1,694			1,692			2		0.1	%
Professional fees		1,172			1,090			82		7.5	%
Telecommunications		575			574			1		0.2	%
Regulatory assessments and insurance		828			673			155		23.0	%
Merger and acquisition expenses		—			651			(651	)	n/m
Postage		287			156			131		84.0	%
Operational loss		492			244			248		101.6	%
Courier service		497			286			211		73.8	%
Gain on sale or acquisition of foreclosed assets		(148	)		(144	)		(4	)	2.8	%
(Gain) loss on disposal of fixed assets		4			(19	)		23		(121.1	) %
Other miscellaneous expense		4,008			3,159			849		26.9	%
Total other non-interest expense		20,937			19,533			1,404		7.2	%
Total non-interest expense	$	54,465		$	45,807		$	8,658		18.9	%
Average full-time equivalent staff		1,198			1,049			149		14.2	%

Generally, the increases in recurring non-interest expense items reflect the VRB merger timing of March 25, 2022, and therefore, related expenses for the combined entities, less certain realized cost savings, are only being captured within the most recent three months ended September 30, 2022. Total non-interest expense increased $8,658,000 or 18.9% to $54,465,000 during the three months ended September 30, 2022 as compared to $45,807,000 for the quarter ended September 30, 2021. Total salaries and benefits expense increased by $7,254,000 or 27.6% to $33,528,000, largely from a net increase of 99 full-time equivalent positions following the aforementioned merger with VRB, the build out of other loan production and compliance teams, and the continued strength of organic growth within the loan portfolio driving incentive compensation expense.

	Nine months ended September 30,
(dollars in thousands)	2022			2021			Change			% Change
Base salaries, net of deferred loan origination costs	$	62,762		$	50,721		$	12,041		23.7	%
Incentive compensation		11,697			11,025			672		6.1	%
Benefits and other compensation costs		18,782			16,939			1,843		10.9	%
Total salaries and benefits expense		93,241			78,685			14,556		18.5	%
Occupancy		11,536			11,197			339		3.0	%
Data processing and software		10,558			10,092			466		4.6	%
Equipment		4,208			4,060			148		3.6	%
Intangible amortization		4,632			4,271			361		8.5	%
Advertising		2,445			2,080			365		17.5	%
ATM and POS network charges		4,850			4,489			361		8.0	%
Professional fees		3,281			2,730			551		20.2	%
Telecommunications		1,660			1,719			(59	)	(3.4	) %
Regulatory assessments and insurance		2,327			1,903			424		22.3	%
Merger and acquisition expenses		6,253			651			5,602		860.5	%
Postage		828			478			350		73.2	%
Operational loss		765			665			100		15.0	%
Courier service		1,397			868			529		60.9	%
Gain on sale or acquisition of foreclosed assets		(246	)		(210	)		(36	)	17.1	%
Gain on disposal of fixed assets		(1,069	)		(445	)		(624	)	140.2	%
Other miscellaneous expense		10,510			8,363			2,147		25.7	%
Total other non-interest expense		63,935			52,911			11,024		20.8	%
Total non-interest expense	$	157,176		$	131,596		$	25,580		19.4	%
Average full-time equivalent staff		1,155			1,031			124		12.0	%

The changes in non-interest expense for the nine months ended September 30, 2022 and 2021 are generally consistent with changes in the comparable three month periods discussed above.

Provision for Income Taxes

The Company’s effective tax rate was 27.5% for the nine months ended September 30, 2022, as compared to 28.1% for the year ended December 31, 2021. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 29.6% are due to the proportion of non-taxable revenues, non-deductible expenses, and benefits from tax credits as compared to the levels of pre-tax earnings.

About TriCo Bancshares

Established in 1975, Tri Counties Bank is a wholly-owned subsidiary of TriCo Bancshares (NASDAQ: TCBK) headquartered in Chico, California, providing a unique brand of customer Service with Solutions available in traditional stand-alone and in-store bank branches and loan production offices in communities throughout California. Tri Counties Bank provides an extensive and competitive breadth of consumer, small business and commercial banking financial services, along with convenient around-the-clock ATMs, online and mobile banking access. Brokerage services are provided by Tri Counties Advisors through affiliation with Raymond James Financial Services, Inc. Visit www.TriCountiesBank.com to learn more.

Forward-Looking Statement

The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There can be no assurance that future developments affecting us will be the same as those anticipated by management. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the strength of the United States economy in general and the strength of the local economies in which we conduct operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, market and monetary fluctuations on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; technological changes; weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on economic and business environments in which the Company operates; the continuing adverse impact on the U.S. economy, including the markets in which we operate due to the COVID-19 global pandemic; the impact of a slowing U.S. economy and increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products; adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities or geopolitical events; the costs or effects of mergers, acquisitions or dispositions we may make, whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, and/or our ability to realize the contemplated financial business benefits associated with any such activities; the regulatory and financial impacts associated with exceeding $10 billion in total assets; the negative impact on our reputation and profitability in the event customers experience economic harm or in the event that regulatory violations are identified; the ability to execute our business plan in new lending markets; the future operating or financial performance of the Company, including our outlook for future growth and changes in the level of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the timing and effects of the implementation of the current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effect of changes in accounting standards and practices; possible other-than-temporary impairment of securities held by us due to changes in credit quality or rates; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; the effects of changes in the level or cost of checking or savings account deposits on our funding costs and net interest margin; changes in the financial performance and/or condition of our borrowers; our noninterest expense and the efficiency ratio; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers including retail businesses and technology companies; the challenges of integrating and retaining key employees; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks and the cost to defend against such attacks; breaches in data security, including as a result of work from home arrangements; failure to safeguard personal information; change to U.S. tax policies, including our effective income tax rate; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the discontinuation of the London Interbank Offered Rate and other reference rates; and our ability to manage the risks involved in the foregoing. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2021, which has been filed with the Securities and Exchange Commission (the “SEC”) and all subsequent filings with the SEC under Sections 13(a), 13(c), 14, and 15(d) of the Securities Act of 1934, as amended. Such filings are also available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We undertake no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited. Dollars in thousands, except share data)

	Three months ended
	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Revenue and Expense Data
Interest income	$	96,366		$	86,955		$	69,195		$	71,024		$	69,628
Interest expense		2,260			1,909			1,271			1,241			1,395
Net interest income		94,106			85,046			67,924			69,783			68,233
Provision for (benefit from) credit losses		3,795			2,100			8,330			980			(1,435	)
Noninterest income:
Service charges and fees		12,682			13,044			11,696			11,277			11,265
Gain on sale of investment securities		—			—			—			—			—
Other income		2,958			3,386			3,400			5,225			3,830
Total noninterest income		15,640			16,430			15,096			16,502			15,095
Noninterest expense (2):
Salaries and benefits		33,528			34,370			28,597			27,666			26,274
Occupancy and equipment		5,387			5,449			4,925			5,011			5,107
Data processing and network		5,143			5,468			5,089			5,444			5,381
Other noninterest expense		10,407			10,977			7,836			8,558			9,045
Total noninterest expense		54,465			56,264			46,447			46,679			45,807
Total income before taxes		51,486			43,112			28,243			38,626			38,956
Provision for income taxes		14,148			11,748			7,869			10,404			11,534
Net income	$	37,338		$	31,364		$	20,374		$	28,222		$	27,422
Share Data
Basic earnings per share	$	1.12		$	0.93		$	0.68		$	0.95		$	0.92
Diluted earnings per share	$	1.12		$	0.93		$	0.67		$	0.94		$	0.92
Dividends per share	$	0.30		$	0.25		$	0.25		$	0.25		$	0.25
Book value per common share	$	29.71		$	31.25		$	32.78		$	33.64		$	33.05
Tangible book value per common share (1)	$	19.92		$	21.41		$	23.04		$	25.80		$	25.16
Shares outstanding		33,332,189			33,350,974			33,837,935			29,730,424			29,714,609
Weighted average shares		33,348,322			33,561,389			30,049,919			29,723,791			29,713,558
Weighted average diluted shares		33,463,364			33,705,280			30,201,698			29,870,059			29,850,530
Credit Quality
Allowance for credit losses to gross loans		1.61	%		1.60	%		1.64	%		1.74	%		1.72	%
Loans past due 30 days or more	$	6,471		$	5,920		$	8,402		$	4,332		$	10,539
Total nonperforming loans	$	17,471		$	11,925		$	14,088		$	30,350		$	28,790
Total nonperforming assets	$	20,912		$	15,304		$	16,995		$	32,944		$	31,440
Loans charged-off	$	267		$	401		$	743		$	197		$	1,582
Loans recovered	$	311		$	356		$	1,174		$	552		$	1,321
Selected Financial Ratios
Return on average total assets		1.46	%		1.24	%		0.94	%		1.31	%		1.30	%
Return on average equity		13.78	%		11.53	%		8.19	%		11.20	%		11.02	%
Average yield on loans, excluding PPP		4.87	%		4.70	%		4.65	%		4.73	%		4.85	%
Average yield on interest-earning assets		4.12	%		3.76	%		3.46	%		3.56	%		3.57	%
Average rate on interest-bearing deposits		0.08	%		0.07	%		0.06	%		0.06	%		0.08	%
Average cost of total deposits		0.04	%		0.04	%		0.04	%		0.04	%		0.05	%
Average rate on borrowings & subordinated debt		3.60	%		3.12	%		2.27	%		1.98	%		2.02	%
Average rate on interest-bearing liabilities		0.17	%		0.15	%		0.11	%		0.11	%		0.13	%
Net interest margin (fully tax-equivalent) (1)		4.02	%		3.67	%		3.39	%		3.50	%		3.50	%
Loans to deposits		72.95	%		69.81	%		67.15	%		66.74	%		67.54	%
Efficiency ratio		49.63	%		55.45	%		55.95	%		54.10	%		54.97	%
Supplemental Loan Interest Income Data
Discount accretion on acquired loans	$	714		$	1,677		$	1,323		$	1,780		$	2,034
All other loan interest income (excluding PPP) (1)	$	74,929		$	67,277		$	55,325		$	54,930		$	55,184
Total loan interest income (excluding PPP) (1)	$	75,643		$	68,954		$	56,648		$	56,710		$	57,218

(1)		Non-GAAP measure
(2)		Inclusive of merger related expenses

TRICO BANCSHARES—CONDENSED CONSOLIDATED FINANCIAL DATA (Unaudited. Dollars in thousands)

Balance Sheet Data	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Cash and due from banks	$	246,509		$	488,868		$	1,035,683		$	768,421		$	740,236
Securities, available for sale, net		2,482,857			2,608,771			2,365,708			2,210,876			2,098,786
Securities, held to maturity, net		168,038			176,794			186,748			199,759			216,979
Restricted equity securities		17,250			17,250			17,250			17,250			17,250
Loans held for sale		247			1,216			1,030			3,466			3,072
Loans:
Commercial real estate		4,238,930			4,049,893			3,832,974			3,306,054			3,222,737
Consumer		1,217,297			1,162,989			1,136,712			1,071,551			1,053,653
Commercial and industrial		534,960			507,685			500,882			259,355			345,027
Construction		243,571			313,646			303,960			222,281			216,680
Agriculture production		71,599			71,373			69,339			50,811			44,410
Leases		7,933			7,835			8,108			6,572			4,989
Total loans, gross		6,314,290			6,113,421			5,851,975			4,916,624			4,887,496
Allowance for credit losses		(101,488	)		(97,944	)		(96,049	)		(85,376	)		(84,306	)
Total loans, net		6,212,802			6,015,477			5,755,926			4,831,248			4,803,190
Premises and equipment		73,266			73,811			73,692			78,687			78,968
Cash value of life insurance		132,933			132,857			132,104			117,857			120,932
Accrued interest receivable		27,070			25,861			22,769			19,292			18,425
Goodwill		307,942			307,942			307,942			220,872			220,872
Other intangible assets		18,372			20,074			21,776			12,369			13,562
Operating leases, right-of-use		26,622			27,154			28,404			25,665			26,815
Other assets		262,971			224,536			169,296			109,025			98,943
Total assets	$	9,976,879		$	10,120,611		$	10,118,328		$	8,614,787		$	8,458,030
Deposits:
Noninterest-bearing demand deposits	$	3,678,202		$	3,604,237		$	3,583,269		$	2,979,882		$	2,943,016
Interest-bearing demand deposits		1,749,123			1,796,580			1,788,639			1,568,682			1,519,426
Savings deposits		2,924,674			3,028,787			2,993,873			2,521,011			2,447,706
Time certificates		303,770			327,171			348,696			297,584			326,674
Total deposits		8,655,769			8,756,775			8,714,477			7,367,159			7,236,822
Accrued interest payable		853			755			653			928			1,056
Operating lease liability		28,717			29,283			30,500			26,280			27,290
Other liabilities		153,110			155,529			126,348			112,070			107,282
Other borrowings		47,068			35,089			36,184			50,087			45,601
Junior subordinated debt		101,024			101,003			100,984			58,079			57,965
Total liabilities		8,986,541			9,078,434			9,009,146			7,614,603			7,476,016
Common stock		696,348			696,441			706,672			532,244			531,339
Retained earnings		516,699			491,705			479,868			466,959			446,948
Accum. other comprehensive income (loss)		(222,709	)		(145,969	)		(77,358	)		981			3,727
Total shareholders’ equity	$	990,338		$	1,042,177		$	1,109,182		$	1,000,184		$	982,014
Quarterly Average Balance Data
Average loans, excluding PPP	$	6,162,267		$	5,890,578		$	4,937,865		$	4,759,294		$	4,684,492
Average interest-earning assets	$	9,320,152		$	9,330,059		$	8,153,200		$	7,947,798		$	7,758,169
Average total assets	$	10,131,118		$	10,121,714		$	8,778,256		$	8,546,004		$	8,348,111
Average deposits	$	8,752,215		$	8,743,320		$	7,521,930		$	7,304,659		$	7,137,263
Average borrowings and subordinated debt	$	139,919		$	136,244		$	105,702		$	108,671		$	106,221
Average total equity	$	1,074,776		$	1,091,454		$	1,009,224		$	999,764		$	987,026
Capital Ratio Data
Total risk-based capital ratio		14.0	%		14.1	%		15.0	%		15.4	%		15.4	%
Tier 1 capital ratio		12.2	%		12.3	%		13.1	%		14.2	%		14.2	%
Tier 1 common equity ratio		11.4	%		11.5	%		12.3	%		13.2	%		13.2	%
Tier 1 leverage ratio		9.6	%		9.3	%		10.8	%		9.9	%		9.9	%
Tangible capital ratio (1)		6.9	%		7.3	%		8.0	%		9.2	%		9.1	%

(1)

Non-GAAP measure

TRICO BANCSHARES—NON-GAAP FINANCIAL MEASURES

(Unaudited. Dollars in thousands)

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this press release because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results, and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below:

	Three months ended									Nine months ended
(dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Net interest margin
Acquired loans discount accretion, net:
Amount (included in interest income)	$	714		$	1,677		$	2,034		$	3,714		$	6,311
Effect on average loan yield		0.05	%		0.11	%		0.17	%		0.09	%		0.18	%
Effect on net interest margin (FTE)		0.03	%		0.07	%		0.10	%		0.06	%		0.11	%
Net interest margin (FTE)		4.02	%		3.67	%		3.50	%		3.71	%		3.61	%
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)		3.99	%		3.60	%		3.40	%		3.65	%		3.50	%
PPP loans yield, net:
Amount (included in interest income)	$	313		$	964		$	3,507		$	2,374		$	12,549
Effect on net interest margin (FTE)		0.01	%		0.02	%		0.09	%		0.02	%		0.08	%
Net interest margin less effect of PPP loan yield (Non-GAAP)		4.02	%		3.65	%		3.42	%		3.69	%		3.53	%
Acquired loan discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,027		$	2,641		$	5,541		$	6,088		$	18,860
Effect on net interest margin (FTE)		0.04	%		0.10	%		0.19	%		0.08	%		0.20	%
Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)		3.98	%		3.57	%		3.31	%		3.63	%		3.41	%

	Three months ended									Nine months ended
(dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Pre-tax pre-provision return on average assets or equity
Net income (GAAP)	$	37,338		$	31,364		$	27,422		$	89,076		$	89,433
Exclude income tax expense		14,148			11,748			11,534			33,765			35,644
Exclude provision (benefit) for credit losses		3,795			2,100			(1,435	)		14,225			(7,755	)
Net income before income tax and provision expense (Non-GAAP)	$	55,281		$	45,212		$	37,521		$	137,066		$	117,322

Average assets (GAAP)	$	10,131,118		$	10,121,714		$	8,348,111		$	9,682,198		$	8,096,273
Average equity (GAAP)	$	1,074,776		$	1,091,454		$	987,026		$	1,058,938		$	962,871

Return on average assets (GAAP) (annualized)		1.46	%		1.24	%		1.30	%		1.23	%		1.48	%
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)		2.16	%		1.79	%		1.78	%		1.89	%		1.94	%
Return on average equity (GAAP) (annualized)		13.78	%		11.53	%		11.02	%		11.25	%		12.42	%
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)		20.41	%		16.61	%		15.08	%		17.31	%		16.29	%

	Three months ended									Nine months ended
(dollars in thousands)	September 30, 2022			June 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Return on tangible common equity
Average total shareholders' equity	$	1,074,776		$	1,091,454		$	987,026		$	1,058,938		$	962,871
Exclude average goodwill		307,942			307,942			220,872			281,151			220,872
Exclude average other intangibles		19,433			21,040			14,267			17,717			19,264
Average tangible common equity (Non-GAAP)	$	747,401		$	762,472		$	751,887		$	760,070		$	722,735

Net income (GAAP)	$	37,338		$	31,364		$	27,422		$	89,076		$	89,433
Exclude amortization of intangible assets, net of tax effect		1,199			1,199			992			3,263			3,008
Tangible net income available to common shareholders (Non-GAAP)	$	38,537		$	32,563		$	28,414		$	92,339		$	92,441

Return on average equity		13.78	%		11.53	%		11.02	%		11.25	%		12.42	%
Return on average tangible common equity (Non-GAAP)		20.46	%		17.13	%		14.99	%		16.24	%		17.10	%

	Three months ended
(dollars in thousands)	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Tangible shareholders' equity to tangible assets
Shareholders' equity (GAAP)	$	990,338		$	1,042,177		$	1,109,182		$	1,000,184		$	982,014
Exclude goodwill and other intangible assets, net		326,314			328,016			329,718			233,241			234,434
Tangible shareholders' equity (Non-GAAP)	$	664,024		$	714,161		$	779,464		$	766,943		$	747,580

Total assets (GAAP)	$	9,976,879		$	10,120,611		$	10,118,328		$	8,614,787		$	8,458,030
Exclude goodwill and other intangible assets, net		326,314			328,016			329,718			233,241			234,434
Total tangible assets (Non-GAAP)	$	9,650,565		$	9,792,595		$	9,788,610		$	8,381,546		$	8,223,596

Shareholders' equity to total assets (GAAP)		9.93	%		10.30	%		10.96	%		11.61	%		11.61	%
Tangible shareholders' equity to tangible assets (Non-GAAP)		6.88	%		7.29	%		7.96	%		9.15	%		9.09	%

	Three months ended
(dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021
Tangible common shareholders' equity per share
Tangible s/h equity (Non-GAAP)	$	664,024	$	714,161	$	779,464	$	766,943	$	747,580

Common shares outstanding at end of period		33,332,189		33,350,974		33,837,935		29,730,424		29,714,609

Common s/h equity (book value) per share (GAAP)	$	29.71	$	31.25	$	32.78	$	33.64	$	33.05
Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	$	19.92	$	21.41	$	23.04	$	25.80	$	25.16

View source version on businesswire.com: https://www.businesswire.com/news/home/20221026005147/en/

TriCo Bancshares reports record quarterly revenues and EPS while maintaining stable credit quality, as benefits from the rising rate environment outpace inflationary pressures.

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Peter G. Wiese, EVP & CFO, (530) 898-0300

Saint Marys, OH (45885)

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