Notable Items for Third Quarter 2023

Net income was $30.6 million compared to $24.9 million in the trailing quarter, and compared to $37.3 million in the same quarter of the prior year; Pre-tax pre-provision net revenue was $46.2 million compared to $43.1 million in the trailing quarter, and compared to $55.3 million in the same quarter of the prior year
Return on average assets was 1.23% for the current quarter as compared to 1.01% in the trailing quarter and 1.46% in the same quarter of the prior year
The Bank continues to operate a balance sheet without the utilization of brokered deposits or FRB borrowings
Loan balances increased $187.9 million or 2.9% while deposit balances declined $85.7 million or 1.1% from the trailing quarter
The average cost of total deposits was 0.86% for the quarter as compared to 0.58% in the trailing quarter and 0.04% in the same quarter of the prior year and, as a result, the Company's total cost of deposits have increased 82 basis points since FOMC rate actions began in March 2022, which translates to a cycle-to-date deposit beta of 15.6%
Balance sheet flexibility remains anchored in readily accessible sources of liquidity including undrawn borrowing capacities, on-balance sheet cash and unpledged investment securities totaling in excess of $4.1 billion
Overall credit quality remains within historical norms as non-performing assets represent approximately 0.33% of total assets and the ratio of classified loans to total loans remains low and manageable.
Average yield on earning assets was 4.94%, an increase of 16 basis points over the 4.78% in the trailing quarter; net interest margin was 3.88% in the recent quarter, narrowing only 8 basis points from 3.96% in the trailing quarter

"Led by both margin and non-interest expenses, operating results for the quarter were improved over both the immediately preceding quarter and general market expectations," explained Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "We continue to be mindful about the unique economic circumstances in which we are operating and the need for long-term strategic perseverance consistent with the characteristic strengths for which we are known including consistency in shareholder returns, a conservative credit culture, expense control and depth and strength of our TriCo Team."

TriCo Bancshares (NASDAQ:TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $30.6 million for the quarter ended September 30, 2023, compared to $24.9 million during the trailing quarter ended June 30, 2023, and $37.3 million during the quarter ended September 30, 2022. Diluted earnings per share were $0.92 for the third quarter of 2023, compared to $0.75 for the second quarter of 2023 and $1.12 during the third quarter of 2022.

Financial Highlights

Performance highlights for the Company as of or for the three and nine months ended September 30, 2023, included the following:

For the quarter ended September 30, 2023, the Company's return on average assets was 1.23%, while the return on average equity was 10.91%.
The loan to deposit ratio increased to 83.8% as of September 30, 2023, as compared to 80.6% as of the trailing quarter.
The efficiency ratio was 54.8% and 53.4% for the nine months ended September 30, 2023 and 2022, respectively.
The provision for credit losses was approximately $4.2 million during the quarter ended September 30, 2023, as compared to a provision for credit losses of $9.7 million during the trailing quarter ended June 30, 2023, and a provision for credit losses of $3.8 million for the three-month period ended September 30, 2022.
The allowance for credit losses to total loans was 1.73% as of September 30, 2023, compared to 1.80% as of the trailing quarter end, and 1.61% as of September 30, 2022. Non-performing assets to total assets were 0.33% on September 30, 2023, as compared to 0.41% as of June 30, 2023, and 0.21% at September 30, 2022.
While total classified loans increased to 1.2% of total loans, criticized loans as a percentage of total loans decreased by 0.8% ($44.6 million) to 2.6% as a result of loan repayments and improved borrower performance, including a negligible level of past due loans.

Financial results reported in this document are preliminary and unaudited. Final financial results and other disclosures will be reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2023, 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)		2023			2023		$ Change			% Change
Net interest income	$	88,123		$	88,601		$	(478	)	(0.5	)%
Provision for credit losses		(4,155	)		(9,650	)		5,495		(56.9	)%
Noninterest income		15,984			15,741			243		1.5	%
Noninterest expense		(57,878	)		(61,243	)		3,365		(5.5	)%
Provision for income taxes		(11,484	)		(8,557	)		(2,927	)	34.2	%
Net income	$	30,590		$	24,892		$	5,698		22.9	%
Diluted earnings per share	$	0.92		$	0.75		$	0.17		22.7	%
Dividends per share	$	0.30		$	0.30		$	—		—	%
Average common shares		33,263			33,219			44		0.1	%
Average diluted common shares		33,319			33,302			17		0.1	%
Return on average total assets		1.23	%		1.01	%
Return on average equity		10.91	%		8.98	%
Efficiency ratio		55.59	%		58.69	%

	Three months ended September 30,
(dollars and shares in thousands, except per share data)		2023			2022		$ Change			% Change
Net interest income	$	88,123		$	94,106		$	(5,983	)	(6.4	)%
Provision for credit losses		(4,155	)		(3,795	)		(360	)	9.5	%
Noninterest income		15,984			15,640			344		2.2	%
Noninterest expense		(57,878	)		(54,465	)		(3,413	)	6.3	%
Provision for income taxes		(11,484	)		(14,148	)		2,664		(18.8	)%
Net income	$	30,590		$	37,338		$	(6,748	)	(18.1	)%
Diluted earnings per share	$	0.92		$	1.12		$	(0.20	)	(17.9	)%
Dividends per share	$	0.30		$	0.30		$	—		—	%
Average common shares		33,263			33,348			(85	)	(0.3	)%
Average diluted common shares		33,319			33,463			(144	)	(0.4	)%
Return on average total assets		1.23	%		1.46	%
Return on average equity		10.91	%		13.78	%
Efficiency ratio		55.59	%		49.63	%

	Nine months ended September 30,
(dollars and shares in thousands)		2023			2022		$ Change			% Change
Net interest income	$	270,060		$	247,076		$	22,984		9.3	%
Provision for credit losses		(18,000	)		(14,225	)		(3,775	)	26.5	%
Noninterest income		45,360			47,166			(1,806	)	(3.8	)%
Noninterest expense		(172,915	)		(157,176	)		(15,739	)	10.0	%
Provision for income taxes		(33,190	)		(33,765	)		575		(1.7	)%
Net income	$	91,315		$	89,076		$	2,239		2.5	%
Diluted earnings per share	$	2.75		$	2.74		$	0.01		0.4	%
Dividends per share	$	0.90		$	0.80		$	0.10		12.5	%
Average common shares		33,259			32,332			927		2.9	%
Average diluted common shares		33,356			32,469			887		2.7	%
Return on average total assets		1.24	%		1.23	%
Return on average equity		11.06	%		11.25	%
Efficiency ratio		54.82	%		53.42	%

Balance Sheet

Total loans outstanding grew to $6.7 billion as of September 30, 2023, an organic based increase of 6.2% over the prior twelve months. As compared to June 30, 2023, total loans outstanding increased by $187.9 million or 11.5% annualized. Investments decreased to $2.33 billion as of September 30, 2023, an annualized decrease of 12.6% over the prior year quarter end. Quarterly average earning assets to quarterly total average assets were 91.7% on September 30, 2023, as compared to 91.6% and 92.0% at December 31, 2022, and September 30, 2022, respectively. The loan-to-deposit ratio was 83.8% on September 30, 2023, as compared to 80.6% and 73.0% at December 31, 2022, and September 30, 2022, respectively. During the current year to date period, and throughout the 2022 fiscal year, the Company held no brokered deposits and relied solely on short-term borrowings to fund cash flow timing differences.

Total shareholders' equity decreased by $22.4 million during the quarter ended September 30, 2023, as a result of accumulated other comprehensive losses increasing by $44.0 million and cash dividend payments on common stock of approximately $10.0 million, offset by net income of $30.6 million. As a result, the Company's book value was $32.18 per share at September 30, 2023, as compared to $32.86 and $29.71 at December 31, 2022 and September 30, 2022, respectively. The Company's tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders' equity and dividing that sum by total shares outstanding, was $22.67 per share at September 30, 2023, as compared to $23.30 and $19.92 at December 31, 2022, and September 30, 2022, respectively. As noted above, despite the consistent retention of earnings in each quarter of the Company's history, recent changes in the balance of unrealized losses on available-for-sale investment securities, net of deferred taxes, has been the primary driver of decreases in tangible book value per share.

Trailing Quarter Balance Sheet Change

Ending balances	September 30,		June 30,					Annualized % Change
(dollars in thousands)		2023		2023	$ Change			Annualized % Change
Total assets	$	9,897,006	$	9,853,421	$	43,585		1.8	%
Total loans		6,708,666		6,520,740		187,926		11.5
Total investments		2,333,162		2,485,378		(152,216	)	(24.5	)
Total deposits		8,009,643		8,095,365		(85,722	)	(4.2	)
Total other borrowings	$	537,975	$	392,714	$	145,261		148.0	%

Loans outstanding increased by $187.9 million or 11.5% on an annualized basis during the quarter ended September 30, 2023. During the quarter, loan originations/draws totaled approximately $495.0 million while payoffs/repayments of loans totaled $308.0 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $456.0 million and $356.0 million, respectively. While origination volume increased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2022 due in part to disciplined pricing and underwriting, as well as decreased borrower appetite at currently offered lending rates. Investment security balances decreased $152.2 million or 24.5% on an annualized basis as the result of net prepayments, maturities, and purchases totaling approximating $89.7 million and net decreases in the market value of securities of $62.5 million. Management seeks to utilize excess cash flows from the investment security portfolio to support loan growth or reduce borrowings thus resulting in an improved mix of earning assets. Deposit balances decreased by $85.7 million or 4.2% annualized during the period. Funding for the net cash outflows of loans, investment securities and deposits during the quarter were supported by a net increase of $145.3 million in short-term borrowings, which totaled $538.0 million at September 30, 2023.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended	September 30,		June 30,					Annualized % Change
(dollars in thousands)		2023		2023	$ Change			Annualized % Change
Total assets	$	9,874,240	$	9,848,191	$	26,049		1.1	%
Total loans		6,597,400		6,467,381		130,019		8.0
Total investments		2,429,335		2,525,334		(95,999	)	(15.2	)
Total deposits		8,043,101		7,981,515		61,586		3.1
Total other borrowings	$	449,274	$	477,256	$	(27,982	)	(23.5	)%

Year Over Year Balance Sheet Change

Ending balances	As of September 30,							% Change
(dollars in thousands)		2023		2022	$ Change			% Change
Total assets	$	9,897,006	$	9,976,879	$	(79,873	)	(0.8	)%
Total loans		6,708,666		6,314,290		394,376		6.2
Total loans, excluding PPP		6,707,530		6,312,348		395,182		6.3
Total investments		2,333,162		2,668,145		(334,983	)	(12.6	)
Total deposits		8,009,643		8,655,769		(646,126	)	(7.5	)
Total other borrowings	$	537,975	$	47,068	$	490,907		1,043.0	%

Non-PPP loan balances increased as a result of organic activities by approximately $395.2 million or 6.3% during the twelve-month period ending September 30, 2023. Over the same period deposit balances have declined by $646.1 million or 7.5%. The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term FHLB borrowings. As of September 30, 2023 and June 30, 2023, short-term borrowings from the FHLB totaled $500.0 and $394.1 million and had a weighted average interest rate of 5.14 and 5.11%, respectively.

Liquidity

The Company's primary sources of liquidity include the following for the periods indicated:

(dollars in thousands)	September 30, 2023			June 30, 2023			September 30, 2022
Borrowing capacity at correspondent banks and FRB	$	2,927,065		$	2,847,052		$	2,720,468
Less: borrowings outstanding		(500,000	)		(350,000	)		—
Unpledged available-for-sale (AFS) investment securities		1,702,265			1,813,894			2,040,802
Cash held or in transit with FRB		72,049			79,530			199,994
Total primary liquidity	$	4,201,379		$	4,390,476		$	4,961,264

Estimated uninsured deposit balances	$	2,406,552		$	2,522,718		$	2,898,347

At September 30, 2023, the Company's primary sources of liquidity represented 52.5% of total deposits and 175% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $124.0 million, including approximately $15.0 million in net unrealized losses. The Company did not utilize any brokered deposits during 2023 or 2022.

Net Interest Income and Net Interest Margin

During the twelve-month period ended September 30, 2023, the Federal Open Market Committee's (FOMC) actions have resulted in an increase in the Fed Funds Rate by approximately 225 basis points. During the same period the Company's yield on total loans (excluding PPP) increased 65 basis points to 5.52% for the three months ended September 30, 2023, from 4.87% for the three months ended September 30, 2022. Moreover, the tax equivalent yield on the Company's investment security portfolio was 3.39%, an increase of 70 basis points from the 2.69% for the three months ended September 30, 2022. The cost of total interest-bearing deposits and total interest-bearing liabilities increased by 128 basis points and 154 basis points, respectively, between the three month periods ended September 30, 2023 and 2022. Since FOMC rate actions began in March 2022, the Company's cost of total deposits has increased 82 basis points which translates to a cycle to date deposit beta of 15.6%.

The Company continues to manage its cost of deposits through the use of various pricing and product mix strategies. As of September 30, 2023, June 30, 2023, and December 31, 2022, deposits priced utilizing these strategies totaled $1,232.4 million, $1,070.7 million and $579.1 million, respectively, and carried weighted average rates of 3.53%, 3.38%, and 1.64%, respectively.

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)		2023			2023		Change			% Change
Interest income	$	112,380		$	107,158		$	5,222		4.9	%
Interest expense		(24,257	)		(18,557	)		(5,700	)	30.7	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		405			379			26		6.9	%
Net interest income (FTE)	$	88,528		$	88,980		$	(452	)	(0.5	)%
Net interest margin (FTE)		3.88	%		3.96	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,324		$	1,471		$	(147	)	(10.0	)%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.82	%		3.89	%		(0.07	)%
PPP loans yield, net:
Amount (included in interest income)	$	2		$	4		$	(2	)	(50.0	)%
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.88	%		3.96	%		(0.08	)%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,326		$	1,475		$	(149	)	(10.1	)%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.82	%		3.89	%		(0.07	)%

	Three months ended September 30,
(dollars in thousands)		2023			2022		Change			% Change
Interest income	$	112,380		$	96,366		$	16,014		16.6	%
Interest expense		(24,257	)		(2,260	)		(21,997	)	973.3	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		405			440			(35	)	(8.0	)%
Net interest income (FTE)	$	88,528		$	94,546		$	(6,018	)	(6.4	)%
Net interest margin (FTE)		3.88	%		4.02	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,324		$	714		$	610		85.4	%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.82	%		3.99	%		(0.17	)%
PPP loans yield, net:
Amount (included in interest income)	$	2		$	313		$	(311	)	(99.4	)%
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.88	%		4.02	%		(0.14	)%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,326		$	1,027		$	299		29.1	%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.82	%		3.98	%		(0.16	)%

	Nine months ended September 30,
(dollars in thousands)		2023			2022		Change			% Change
Interest income	$	322,445		$	252,516		$	69,929		27.7	%
Interest expense		(52,385	)		(5,440	)		(46,945	)	863.0	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		1,176			1,120			56		5.0	%
Net interest income (FTE)	$	271,236		$	248,196		$	23,040		9.3	%
Net interest margin (FTE)		4.01	%		3.71	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	4,192		$	3,714		$	478		12.9	%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.95	%		3.65	%		0.30	%
PPP loans yield, net:
Amount (included in interest income)	$	11		$	2,374		$	(2,363	)	(99.5	)%
Net interest margin less effect of PPP loan yield ⁽¹⁾		4.01	%		3.69	%		0.32	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	4,203		$	6,088		$	(1,885	)	(31.0	)%
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾		3.95	%		3.63	%		0.32	%

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. 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 during 2023 as compared to 2022. During the three months ended September 30, 2023, June 30, 2023, and September 30, 2022, purchased loan discount accretion was $1.3 million, $1.5 million, and $0.7 million, 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, 2023						June 30, 2023						September 30, 2022
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	6,596,116	$	91,705	5.52	%	$	6,465,903	$	86,743	5.38	%	$	6,162,267	$	75,643	4.87	%
PPP loans		1,284		2	0.62	%		1,478		4	1.09	%		8,775		313	14.15	%
Investments-taxable		2,246,569		18,990	3.35	%		2,343,511		18,775	3.21	%		2,591,513		17,122	2.62	%
Investments-nontaxable ⁽¹⁾		182,766		1,755	3.81	%		181,823		1,641	3.62	%		210,606		1,908	3.59	%
Total investments		2,429,335		20,745	3.39	%		2,525,334		20,416	3.24	%

TriCo Bancshares Announces Third Quarter 2023 Results