Notable Items for Fourth Quarter 2022

Net interest margin increased by 0.32% to 4.34% from the third quarter of 2022 and, excluding the benefit from PPP and acquired loan discount accretion, increased by 0.29% to 4.27%
The average cost of total deposits grew to 0.10% for the quarter as compared to 0.04% in the trailing quarter and the same quarter of the prior year
Organic loan growth was $136.2 million for the quarter or 8.6% annualized and $760.4 million for the year or 15.5%
Deposit balances declined by $326.8 million for the quarter or 15.1% and $253.6 million for the year or 3.4%, which led to the Company remaining under $10.0 billion in total assets as of year end
Inclusive of $2.1 million in retirement benefit expenses recorded in the current quarter, pre-tax pre-provision net revenue remained flat at $55.3 million compared to the trailing quarter, and increased by $15.7 million compared to $39.6 million in the same quarter of the prior year

"We are pleased with the record performance and growth that the 2022 year represents for TriCo, and our capital ratios, loss reserves, and sources of liquidity allow us to remain confident that we will continue to thrive through whatever challenges 2023 may bring," noted Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "Through 2022, TriCo maintained its best in class Betas for the cost of total deposits. Looking forward, the pace of margin and net interest income growth may slow through the course of 2023. Despite the potential challenges ahead, it is appropriate to celebrate our team driven success and to thank the many stakeholders whom continue to make that success possible."

TriCo Bancshares (NASDAQ:TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $36,343,000 for the quarter ended December 31, 2022, compared to $37,338,000 during the trailing quarter ended September 30, 2022, and $28,222,000 during the quarter ended December 31, 2021. Diluted earnings per share were $1.09 for the fourth quarter of 2022, compared to $1.12 for the third quarter of 2022 and $0.94 during the fourth quarter of 2021.

Financial Highlights

Performance highlights for the Company as of or for the three and twelve months ended December 31, 2022, included the following:

For the three and twelve months ended December 31, 2022, the Company's return on average assets was 1.45% and 1.28%, while the return on average equity was 14.19% and 11.67%, respectively. The twelve month ratio was impacted by merger related expenses of $6,253,000 during 2022.
Organic loan growth, excluding PPP and acquired loans, totaled $136.5 million (8.6% annualized) for the current quarter and $841.4 million (17.3% annualized) for the trailing twelve-month period.
As of December 31, 2022, the Company reported total loans, total assets and total deposits of $6.5 billion, $9.9 billion and $8.3 billion, respectively. The combination of organic loan growth and deposit contraction during the quarter resulted in the loan to deposit ratio increasing to 77.4% as of December 31, 2022, as compared to 73.0% as of the trailing quarter.
The quarterly average rate of interest paid on deposits, including non-interest-bearing deposits, of 0.10% represents an increase of 6 basis points from both the trailing quarter and same quarter of the prior year.
Noninterest income related to service charges and fees was $12.3 million for the three month period ended December 31, 2022, an increase of 9.5% when compared to the same period in 2021.
The provision for credit losses for loans and debt securities was approximately $4.2 million during the quarter ended December 31, 2022, as compared to a provision expense of $3.8 million during the trailing quarter ended September 30, 2022, and a reversal of provision expense totaling $1.0 million for the three month period ended December 31, 2021.
The allowance for credit losses to total loans was 1.64% as of December 31, 2022, compared to 1.61% as of the trailing quarter end, and 1.74% as of December 31, 2021. Non-performing assets to total assets were 0.25% at December 31, 2022, as compared to 0.21% as of September 30, 2022, and 0.38% at December 31, 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-K for the period ended December 31, 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
	December 31,			September 30,
(dollars and shares in thousands, except per share data)		2022			2022		$ Change			% Change
Net interest income	$	98,900		$	94,106		$	4,794		5.1	%
Provision for credit losses		(4,245	)		(3,795	)		(450	)	11.9	%
Noninterest income		15,880			15,640			240		1.5	%
Noninterest expense		(59,469	)		(54,465	)		(5,004	)	9.2	%
Provision for income taxes		(14,723	)		(14,148	)		(575	)	4.1	%
Net income	$	36,343		$	37,338		$	(995	)	(2.7	) %
Diluted earnings per share	$	1.09		$	1.12		$	(0.03	)	(2.7	) %
Dividends per share	$	0.30		$	0.30		$	—		—	%
Average common shares		33,330			33,348			(18	)	(0.1	) %
Average diluted common shares		33,467			33,463			4		—	%
Return on average total assets		1.45	%		1.46	%
Return on average equity		14.19	%		13.78	%
Efficiency ratio		51.81	%		49.63	%

	Three months ended December 31,
(dollars and shares in thousands, except per share data)		2022			2021		$ Change			% Change
Net interest income	$	98,900		$	69,783		$	29,117		41.7	%
(Provision for) reversal of credit losses		(4,245	)		(980	)		(3,265	)	333.2	%
Noninterest income		15,880			16,502			(622	)	(3.8	) %
Noninterest expense		(59,469	)		(46,679	)		(12,790	)	27.4	%
Provision for income taxes		(14,723	)		(10,404	)		(4,319	)	41.5	%
Net income	$	36,343		$	28,222		$	8,121		28.8	%
Diluted earnings per share	$	1.09		$	0.94		$	0.15		16.0	%
Dividends per share	$	0.30		$	0.25		$	0.05		20.0	%
Average common shares		33,330			29,724			3,606		12.1	%
Average diluted common shares		33,467			29,870			3,597		12.0	%
Return on average total assets		1.45	%		1.31	%
Return on average equity		14.19	%		11.20	%
Efficiency ratio		51.81	%		54.10	%

	Twelve months ended December 31,
(dollars and shares in thousands)		2022			2021		$ Change			% Change
Net interest income	$	345,976		$	271,539		$	74,437		27.4	%
Reversal of (provision for) credit losses		(18,470	)		6,775			(25,245	)	(372.6	) %
Noninterest income		63,046			63,664			(618	)	(1.0	) %
Noninterest expense		(216,645	)		(178,275	)		(38,370	)	21.5	%
Provision for income taxes		(48,488	)		(46,048	)		(2,440	)	5.3	%
Net income	$	125,419		$	117,655		$	7,764		6.6	%
Diluted earnings per share	$	3.83		$	3.94		$	(0.11	)	(2.8	) %
Dividends per share	$	1.10		$	1.00		$	0.10		10.0	%
Average common shares		32,584			29,721			2,863		9.6	%
Average diluted common shares		32,721			29,882			2,839		9.5	%
Return on average total assets		1.28	%		1.43	%
Return on average equity		11.67	%		12.10	%
Efficiency ratio		52.97	%		53.18	%

Balance Sheet

Total loans outstanding, excluding PPP, grew to $6.45 billion as of December 31, 2022, an increase of 32.8% over the prior twelve months, of which 17.3% was related to organic loan growth. Investments increased to $2.63 billion as of December 31, 2022, an increase of 8.5% annualized over the prior year quarter end. Quarterly average earning assets to quarterly total average assets were generally unchanged at 91.4% at December 31, 2022, as compared to 92.0% and 93.0% at September 30, 2022, and December 31, 2021, respectively. The loan to deposit ratio was 77.4% at December 31, 2022, as compared to 73.0% and 66.7% at September 30, 2022, and December 31, 2021, respectively.

Total shareholders' equity increased by $56.1 million during the quarter ended December 31, 2022, as a result of an improvement in accumulated other comprehensive losses of $28.8 million and net income of $36.3 million, partially offset by cash dividend payments on common stock of approximately $9,999,000. As a result, the Company's book value was $31.39 per share at December 31, 2022 as compared to $29.71 and $33.64 at September 30, 2022, and December 31, 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 $21.76 per share at December 31, 2022, as compared to $19.92 and $25.80 at September 30, 2022, and December 31, 2021, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	December 31,		September 30,					Annualized % Change
(dollars in thousands)		2022		2022	$ Change			Annualized % Change
Total assets	$	9,930,986	$	9,976,879	$	(45,893	)	(1.8	) %
Total loans		6,450,447		6,314,290		136,157		8.6
Total loans, excluding PPP		6,448,845		6,312,348		136,497		8.6
Total investments		2,633,269		2,668,145		(34,876	)	(5.2	)
Total deposits		8,329,013		8,655,769		(326,756	)	(15.1	)
Total other borrowings	$	264,605	$	47,068	$	217,537		1,848.7	%

Organic loan growth, excluding PPP, of $136.5 million or 8.6% on an annualized basis was realized during the quarter ended December 31, 2022, primarily within commercial real estate. During the quarter, and exclusive of PPP balance changes, loan originations/draws totaled approximately $479.0 million while payoffs/repayments of loans totaled $343.0 million, which compares to origination/draws and payoff/repayments activity during the three months ended September 30, 2022 of $737.0 million and $536.0 million, respectively. While management believes the loan pipeline remain sufficient to support projected loan growth, loan pipeline activity has moderated due to customer sensitivity from the rising interest rate environment and Company's continued focus on disciplined underwriting. Investment security balances decreased $34.9 million or 5.2% on an annualized basis as the result of prepayments/maturities totaling approximating $62.0 million, partially offset by increases in the market value of securities. Management seeks to utilize excess cash flows from the investment security portfolio to support loan growth or reduce borrowings thus resulting in an improved the mix of earning assets. Deposit balances also decreased, with a change of $326.8 million or 15.1% annualized during the period. Cash flow needs were supported by net short-term FHLB advances totaling $216.7 million as of and for the quarter ended December 31, 2022.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended	December 31,		September 30,					Annualized % Change
(dollars in thousands)		2022		2022	$ Change			Annualized % Change
Total assets	$	9,932,931	$	10,131,118	$	(198,187	)	(7.8	) %
Total loans		6,358,998		6,171,042		187,956		12.2
Total loans, excluding PPP		6,357,250		6,162,267		194,983		12.7
Total investments		2,624,062		2,802,119		(178,057	)	(25.4	)
Total deposits		8,545,172		8,752,215		(207,043	)	(9.5	)
Total other borrowings	$	85,927	$	38,908	$	47,019		483.4	%

Year Over Year Balance Sheet Change

Ending balances	As of December 31,						Acquired Balances		Organic $ Change			Organic % Change
(dollars in thousands)		2022		2021	$ Change		Acquired Balances		Organic $ Change			Organic % Change
Total assets	$	9,930,986	$	8,614,787	$	1,316,199	$	1,363,529	$	(47,330	)	(0.5	) %
Total loans		6,450,447		4,916,624		1,533,823		773,390		760,433		15.5
Total loans, excluding PPP		6,448,845		4,855,477		1,593,368		751,978		841,390		17.3
Total investments		2,633,269		2,427,885		205,384		109,716		95,668		3.9
Total deposits		8,329,013		7,367,159		961,854		1,215,479		(253,625	)	(3.4	)
Total other borrowings	$	264,605	$	50,087	$	214,518	$	—	$	214,518		428.3	%

Non-PPP loan balances increased as a result of organic activities by approximately $841.4 million or 17.3% during the twelve month period ending December 31, 2022. Investment securities increased to $2.6 billion at December 31, 2022, an organic change of $95.7 million or 3.9% from the prior year. When combined with balances acquired from Valley Republic Bank, this represents an increase of approximately $1.7 billion in earning assets during the last twelve months and an increase of more than $1.1 billion in average earning assets during the same period.

Net Interest Income and Net Interest Margin

During the year ended December 31, 2022 the Federal Open Market Committee's (FOMC) actions have resulted in seven rate hike events for a cumulative increase in the Fed Funds Rate of 4.25%. During the same period the Company's yield on total loans (excluding PPP) increased 37 basis points to 5.10% for the three months ended December 31, 2022, from 4.73% for the three months ended December 31, 2021. Moreover, the tax equivalent yield on the Company's investment security portfolio increased by 1.44% to 3.13% during the year ended December 31, 2022. The cost of total interest-bearing deposits and total interest-bearing liabilities increased by 12 basis points and 21 basis points respectively between the three month periods ended December 31, 2022 and 2021.

As is common within the banking industry and more specific to the Company's history of deposit cost changes in a rising rate environment, management has observed a lagging or delayed reaction to changes in its deposit costs, particularly during periods of time when the Fed Funds Rate is 3.50% or less. The Company is able to better manage its cost of deposits through the use of exception based pricing strategies and delayed changes to the deposit rates offered to the general public. More specifically, the Company only recently, during December 2022, increased certain of the rates offered to deposit customers. Since FOMC rate actions began, the Company's total cost of deposits have increased 6 basis points which translates to a cycle to date deposit Beta of 1.41%.

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

	Three months ended
	December 31,			September 30,
(dollars in thousands)		2022			2022		Change			% Change
Interest income	$	102,989		$	96,366		$	6,623		6.9	%
Interest expense		(4,089	)		(2,260	)		(1,829	)	80.9	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		440			440			—		—	%
Net interest income (FTE)	$	99,340		$	94,546		$	4,794		5.1	%
Net interest margin (FTE)		4.34	%		4.02	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,751		$	714		$	1,037		145.2	%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		4.27	%		3.99	%		0.28	%
PPP loans yield, net:
Amount (included in interest income)	$	16		$	313		$	(297	)	(94.9	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		4.34	%		4.02	%		0.32	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,767		$	1,027		$	740		72.1	%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		4.27	%		3.98	%		0.29	%

	Three months ended December 31,
(dollars in thousands)		2022			2021		Change			% Change
Interest income	$	102,989		$	71,024		$	31,965		45.0	%
Interest expense		(4,089	)		(1,241	)		(2,848	)	229.5	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		440			274			166		60.6	%
Net interest income (FTE)	$	99,340		$	70,057		$	29,283		41.8	%
Net interest margin (FTE)		4.34	%		3.50	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,751		$	1,780		$	(29	)	(1.6	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		4.27	%		3.41	%		0.86	%
PPP loans yield, net:
Amount (included in interest income)	$	16		$	4,094		$	(4,078	)	(99.6	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		4.34	%		3.34	%		1.00	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	1,767		$	5,874		$	(4,107	)	(69.9	) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		4.27	%		3.25	%		1.02	%

	Twelve months ended December 31,
(dollars in thousands)		2022			2021		Change			% Change
Interest income	$	355,505		$	277,047		$	78,458		28.3	%
Interest expense		(9,529	)		(5,508	)		(4,021	)	73.0	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		1,560			1,071			489		45.7	%
Net interest income (FTE)	$	347,536		$	272,610		$	74,926		27.5	%
Net interest margin (FTE)		3.88	%		3.58	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	5,465		$	8,091		$	(2,626	)	(32.5	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.81	%		3.47	%		0.34	%
PPP loans yield, net:
Amount (included in interest income)	$	2,390		$	16,643		$	(14,253	)	(85.6	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.86	%		3.48	%		0.38	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	7,855		$	24,734		$	(16,879	)	(68.2	) %
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾		3.80	%		3.37	%		0.43	%

⁽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 during 2022 as compared to 2021. During the three months ended December 31, 2022, September 30, 2022, and December 31, 2021, purchased loan discount accretion was $1,751,000, $714,000, and $1,780,000, 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
	December 31, 2022						September 30, 2022						December 31, 2021
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	6,357,250	$	81,740	5.10	%	$	6,162,267	$	75,643	4.87	%	$	4,759,294	$	56,710	4.73	%
PPP loans		1,748		16	3.63	%		8,775		313	14.15	%		103,163		4,094	15.74	%
Investments-taxable		2,414,236		18,804	3.09	%		2,591,513		17,122	2.62	%		2,261,161		9,028	1.58	%
Investments-nontaxable ⁽¹⁾		209,826		1,906	3.60	%		210,606		1,908	3.59	%		141,421		1,186	3.33	%
Total investments		2,624,062		20,710	3.13	%		2,802,119		19,030	2.69	%		2,402,582		10,214	1.69	%
Cash at Federal Reserve and other banks		93,390		963	4.09	%		346,991		1,820	2.08	%		682,759		280	0.16	%
Total earning assets		9,076,450		103,429	4.52	%		9,320,152		96,806	4.12	%		7,947,798		71,298	3.56	%
Other assets, net		856,481						810,966						598,206
Total assets	$	9,932,931					$	10,131,118					$	8,546,004
Liabilities and shareholders' equity
Interest-bearing demand deposits	$	1,709,494	$	150	0.03	%	$	1,775,884	$	119	0.03	%	$	1,544,176	$	58	0.01	%
Savings deposits		2,921,935		1,815	0.25	%		3,011,145		685	0.09	%		2,486,532		291	0.05	%
Time deposits		251,218		205	0.32	%		321,100		188	0.23	%		315,953		349	0.44	%
Total interest-bearing deposits		4,882,647		2,170	0.18	%		5,108,129		992	0.08	%		4,346,661		698	0.06	%
Other borrowings		85,927		406	1.87	%		38,908		5	0.05	%		50,667		7	0.05	%
Junior subordinated debt		101,030		1,513	5.94	%		101,011		1,263	4.96	%		58,004		536	3.67	%
Total interest-bearing liabilities		5,069,604		4,089	0.32	%		5,248,048		2,260	0.17	%		4,455,332		1,241	0.11	%
Noninterest-bearing deposits		3,662,525						3,644,086						2,957,998
Other liabilities		184,334						164,208						132,910
Shareholders' equity		1,016,468						1,074,776						999,764
Total liabilities and shareholders' equity	$	9,932,931					$	10,131,118					$	8,546,004
Net interest rate spread^{(1) (2)}					4.20	%					3.95	%					3.45	%
Net interest income and margin^{(1) (3)}			$	99,340	4.34	%			$	94,546	4.02	%			$	70,057	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 December 31, 2022 increased $4.8 million or 5.1% to $99.3 million compared to $94.5 million during the three months ended September 30, 2022. In addition, net interest margin improved 32 basis points to 4.34%, as compared to the trailing quarter. The increase in net interest income is primarily attributed to an additional $5.8 million in loan interest and fee income and $1.7 million 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 deposits and subordinated debt led to an increase of $1.2 million and $250,000, respectively, in interest expense over the same period.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 37 basis points from 4.73% during the three months ended December 31, 2021, to 5.10% during the three months ended December 31, 2022. The accretion of discounts from acquired loans added 11 and 15 basis points to loan yields during the quarters ended December 31, 2022 and December 31, 2021, respectively. Therefore, the 37 basis point increase in yields on loans during the comparable three month periods ended December 31, 2022 and 2021 was the net effect of a 41 basis point increase in market loan rates, partially offset by a 4 basis point decline in the accretion of discounts.

The rates paid on interest bearing deposits increased by 10 basis points during the quarter ended December 31, 2022 compared to the trailing quarter. The cost of interest-bearing deposits increased by 12 basis points between the quarter ended December 31, 2022 and the same quarter of the prior year. In addition, the level of noninterest-bearing deposits increased by approximately $18.0 million quarter over quarter and continues to benefit the average cost of total deposits, which increased by 6 basis points as compared to the trailing quarter, and fourth quarter of prior year. As of December 31, 2022, the ratio of average total noninterest-bearing deposits to total average deposits was 42.9%.

	Twelve months ended December 31, 2022						Twelve months ended December 31, 2021
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	5,841,770	$	282,985	4.84	%	$	4,625,410	$	225,626	4.88	%
PPP loans		24,590		2,390	9.72	%		250,391		16,643	6.65	%
Investments-taxable		2,459,032		60,499	2.46	%		1,914,788		30,352	1.59	%
Investments-nontaxable ⁽¹⁾		190,339		6,759	3.55	%		160,863		4,639	2.88	%
Total investments		2,649,371		67,258	2.54	%		2,075,651		34,991	1.69	%
Cash at Federal Reserve and other banks		452,300		4,432	0.98	%		663,801		858	0.13	%
Total earning assets		8,968,031		357,065	3.98	%		7,615,253		278,118	3.65	%
Other assets, net		803,570						594,420
Total assets	$	9,771,601					$	8,209,673
Liabilities and shareholders' equity
Interest-bearing demand deposits	$	1,720,932	$	452	0.03	%	$	1,493,922	$	327

TriCo Bancshares Announces Fourth Quarter 2022 Results