Notable Items for Second Quarter 2022

Results for the quarter reflect the full operational impact of the March 25, 2022 merger with Valley Republic Bancorp.
Organic loan growth, excluding PPP, for the quarter of $300.3 million or 20.7% annualized and credit quality continued to show improvement, while organic deposit growth for the quarter was $42.3 million or 1.9% annualized
Net interest margin, excluding the benefit from acquired loan discount accretion and PPP loan yield, increased 0.28% to 3.57%
Quarterly pre-tax pre-provision net revenues grew to $45.2 million, inclusive of $2.2 million in merger expenses, as compared to $36.6 million, inclusive of $4.0 million in merger expenses, in the trailing quarter and $38.9 million in the same quarter of the prior year

"While we continue to build on the strength of our core franchise, we are cautiously optimistic despite the potential volatility which may be forthcoming for the financial services industry," noted Rick Smith, President and Chief Executive Officer. Peter Wiese, EVP and Chief Financial Officer added, "We are pleased with the increase in rates, as well as the mix shift of our average earning assets, which facilitated meaningful expansion of net interest margin and the growth in revenues for the quarter."

TriCo Bancshares (NASDAQ:TCBK) (the "Company"), parent company of Tri Counties Bank, today announced net income of $31,364,000 for the quarter ended June 30, 2022, compared to $20,374,000 during the trailing quarter ended March 31, 2022, and $28,362,000 during the quarter ended June 30, 2021. Diluted earnings per share were $0.93 for the second quarter of 2022, compared to $0.67 for the first quarter of 2022 and $0.95 for the second quarter of 2021.

Financial Highlights

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

For the three and six months ended June 30, 2022, the Company's return on average assets was 1.24% and 1.10%, while the return on average equity was 11.53% and 9.93%, respectively. These ratios were impacted by merger related expenses of $2,221,000 and $6,253,000 for the respective periods in 2022.
Organic loan growth, excluding PPP and acquired loans, totaled $300.3 million (20.7% annualized) for the current quarter and $638.4 million (13.6% annualized) for the trailing twelve-month period.
For the current quarter, net interest margin, less the effect of acquired loan discount accretion and PPP yields (non-GAAP), on a tax equivalent basis was 3.57%, an increase of 28 basis points from 3.29% in the trailing quarter.
The efficiency ratio was 55.45% for the three months ended June 30, 2022, as compared to 55.95% for the trailing quarter.
As of June 30, 2022, the Company reported total loans, total assets and total deposits of $6.1 billion, $10.1 billion and $8.8 billion, respectively. As a direct result of organic loan growth during the quarter, the loan to deposit ratio has increased to 69.8% as of June 30, 2022, as compared to 67.2% as of the trailing quarter.
The average rate of interest paid on deposits, including non-interest-bearing deposits, equaled 0.04% during the second quarter of 2022, consistent with 0.04% during the trailing quarter, and representing 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 $13.0 million for the three month period ended June 30, 2022, an increase of 19.3% when compared to the same period in 2021.
The provision for credit losses for loans and debt securities was approximately $2.1 million during the quarter ended June 30, 2022, as compared to a provision expense of $8.3 million during the trailing quarter ended March 31, 2022, and a reversal of provision expense totaling $0.3 million for the three month period ended June 30, 2021.
The allowance for credit losses to total loans was 1.60% as of June 30, 2022, compared to 1.64% as of the trailing quarter end, and 1.74% as of June 30, 2021. Non-performing assets to total assets were 0.15% at June 30, 2022, as compared to 0.17% as of March 31, 2022, and 0.43% at June 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 June 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
	June 30,			March 31,
(dollars and shares in thousands, except per share data)	2022			2022			$ Change			% Change
Net interest income	$	85,046		$	67,924		$	17,122		25.2	%
Provision for credit losses		(2,100	)		(8,330	)		6,230		(74.8	) %
Noninterest income		16,430			15,096			1,334		8.8	%
Noninterest expense		(56,264	)		(46,447	)		(9,817	)	21.1	%
Provision for income taxes		(11,748	)		(7,869	)		(3,879	)	49.3	%
Net income	$	31,364		$	20,374		$	10,990		53.9	%
Diluted earnings per share	$	0.93		$	0.67		$	0.26		38.8	%
Dividends per share	$	0.25		$	0.25		$	—		—	%
Average common shares		33,561			30,050			3,511		11.7	%
Average diluted common shares		33,705			30,202			3,503		11.6	%
Return on average total assets		1.24	%		0.94	%
Return on average equity		11.53	%		8.19	%
Efficiency ratio		55.45	%		55.95	%

	Three months ended June 30,
(dollars and shares in thousands, except per share data)	2022			2021			$ Change			% Change
Net interest income	$	85,046		$	67,083		$	17,963		26.8	%
(Provision for) reversal of credit losses		(2,100	)		260			(2,360	)	(907.7	) %
Noninterest income		16,430			15,957			473		3.0	%
Noninterest expense		(56,264	)		(44,171	)		(12,093	)	27.4	%
Provision for income taxes		(11,748	)		(10,767	)		(981	)	9.1	%
Net income	$	31,364		$	28,362		$	3,002		10.6	%
Diluted earnings per share	$	0.93		$	0.95		$	(0.02	)	(2.1	) %
Dividends per share	$	0.25		$	0.25		$	—		—	%
Average common shares		33,561			29,719			3,842		12.9	%
Average diluted common shares		33,705			29,904			3,801		12.7	%
Return on average total assets		1.24	%		1.40	%
Return on average equity		11.53	%		11.85	%
Efficiency ratio		55.45	%		53.19	%

	Six months ended June 30,
(dollars and shares in thousands)	2022			2021			$ Change			% Change
Net interest income	$	152,970		$	133,523		$	19,447		14.6	%
Reversal of (provision for) credit losses		(10,430	)		6,320			(16,750	)	(265.0	) %
Noninterest income		31,526			32,067			(541	)	(1.7	) %
Noninterest expense		(102,711	)		(85,789	)		(16,922	)	19.7	%
Provision for income taxes		(19,617	)		(24,110	)		4,493		(18.6	) %
Net income	$	51,738		$	62,011		$	(10,273	)	(16.6	) %
Diluted earnings per share	$	1.62		$	2.07		$	(0.45	)	(21.7	) %
Dividends per share	$	0.50		$	0.50		$	—		—	%
Average common shares		31,815			29,723			2,092		7.0	%
Average diluted common shares		31,963			29,904			2,059		6.9	%
Return on average total assets		1.10	%		1.57	%
Return on average equity		9.93	%		13.16	%
Efficiency ratio		55.67	%		51.81	%

Balance Sheet

Total loans outstanding, excluding PPP, grew to $6.10 billion as of June 30, 2022, an increase of 29.5% over the prior twelve months, of which 13.6% was related to organic loan growth. Investments increased to $2.80 billion as of June 30, 2022, an increase of 33.2% annualized over the prior twelve months. Quarterly average earning assets to quarterly total average assets were generally unchanged at 92.2% at June 30, 2022, as compared to 92.9% and 92.8% at March 31, 2022, and June 30, 2021, respectively. The loan to deposit ratio was 69.8% at June 30, 2022, as compared to 67.2% and 70.7% at March 31, 2022, and June 30, 2021, respectively.

Total shareholders' equity decreased by $67,005,000 during the quarter ended June 30, 2022, as a result of an increase in accumulated other comprehensive losses of $68,611,000, share repurchases totaling approximately $21,750,000, and cash dividend payments on common stock of $8,360,000, partially offset by net income of $31,364,000. As a result, the Company's book value was $31.25 per share at June 30, 2022 as compared to $32.78 and $32.53 at March 31, 2022, and June 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 $21.41 per share at June 30, 2022, as compared to $23.04 and $24.60 at March 31, 2022, and June 30, 2021, respectively.

Trailing Quarter Balance Sheet Change

Ending balances	June 30,		March 31,				Annualized % Change
(dollars in thousands)	2022		2022		$ Change		Annualized % Change
Total assets	$	10,120,611	$	10,118,328	$	2,283	0.1	%
Total loans		6,113,421		5,851,975		261,446	17.9
Total loans, excluding PPP		6,095,667		5,795,370		300,297	20.7
Total investments		2,802,815		2,569,706		233,109	36.3
Total deposits	$	8,756,775	$	8,714,477	$	42,298	1.9	%

Organic loan growth, excluding PPP, of $300,297,000 or 20.7% on an annualized basis was realized during the quarter ended June 30, 2022, primarily within commercial real estate. During the quarter, and exclusive of PPP balance changes, loan originations totaled approximately $697 million while payoffs of loans totaled $397 million, which compares to origination and payoff activity during the three months ended March 31, 2022 of $396 million and $225 million, respectively. While management believes that loan pipelines are robust, loan activity during the quarter is reflective of increased customer awareness of the rising interest rate environment. Investment security growth was $233,109,000 or 36.3% on an annualized basis as excess liquidity from strong deposit growth during the trailing 12 month period was put to use in higher yielding earning assets. Deposit balances increased, with an organic change of $42,298,000 or 1.9% annualized during the period.

Average Trailing Quarter Balance Sheet Change

Quarterly average balances for the period ended	June 30,		March 31,				Acquired Balances		Organic $ Change		Organic % Change
(dollars in thousands)	2022		2022		$ Change		Acquired Balances		Organic $ Change		Organic % Change
Total assets	$	10,121,714	$	8,778,256	$	1,343,458	$	1,302,928	$	40,530	1.8	%
Total loans		5,928,430		4,988,560		939,870		739,017		200,853	16.1
Total loans, excluding PPP		5,890,578		4,937,865		952,713		718,557		234,156	19.0
Total investments		2,732,466		2,457,077		275,389		104,840		170,549	27.8
Total deposits	$	8,743,320	$	7,521,930	$	1,221,390	$	1,161,458	$	59,932	3.2	%

Year Over Year Balance Sheet Change

Ending balances	As of June 30,						Acquired Balances		Organic $ Change		Organic % Change
(dollars in thousands)	2022		2021		$ Change		Acquired Balances		Organic $ Change		Organic % Change
Total assets	$	10,120,611	$	8,170,365	$	1,950,246	$	1,363,529	$	586,717	7.2	%
Total loans		6,113,421		4,944,894		1,168,527		773,390		395,137	8.0
Total loans, excluding PPP		6,095,667		4,705,302		1,390,365		751,978		638,387	13.6
Total investments		2,802,815		2,103,575		699,240		109,716		589,524	28.0
Total deposits	$	8,756,775	$	6,992,053	$	1,764,722	$	1,215,479	$	549,243	7.9	%

Non-PPP loan balances have increased as a result of organic activities by approximately $638,387,000 during the twelve month period ending June 30, 2022. This, combined with earning assets acquired in the merger with Valley Republic Bank, has led to a long-term beneficial and meaningful shift in the makeup of the loan portfolio. Specifically, during the twelve months ended June 30, 2022 and excluding PPP balance changes, loan originations totaled approximately $2.2 billion while payoffs of loans totaled $1.6 billion. Investment securities increased to $2,802,815,000 at June 30, 2022, an organic change of $589,524,000 or 28.0% from the prior year.

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
	June 30,			March 31,
(dollars in thousands)	2022			2022			Change			% Change
Interest income	$	86,955		$	69,195		$	17,760		25.7	%
Interest expense		(1,909	)		(1,271	)		(638	)	50.2	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		397			283			114		40.3	%
Net interest income (FTE)	$	85,443		$	68,207		$	17,236		25.3	%
Net interest margin (FTE)		3.67	%		3.39	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,677		$	1,323		$	354		26.8	%
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.60	%		3.32	%		0.28	%
PPP loans yield, net:
Amount (included in interest income)	$	964		$	1,097		$	(133	)	(12.1	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.65	%		3.36	%		0.29	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	2,641		$	2,420		$	221		9.1	%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.57	%		3.29	%		0.28	%

	Three months ended June 30,
(dollars in thousands)	2022			2021			Change			% Change
Interest income	$	86,955		$	68,479		$	18,476		27.0	%
Interest expense		(1,909	)		(1,396	)		(513	)	36.7	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		397			255			142		55.7	%
Net interest income (FTE)	$	85,443		$	67,338		$	18,105		26.9	%
Net interest margin (FTE)		3.67	%		3.58	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,677		$	2,566		$	(889	)	(34.6	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.60	%		3.44	%		0.16	%
PPP loans yield, net:
Amount (included in interest income)	$	964		$	3,179		$	(2,215	)	(69.7	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.65	%		3.57	%		0.08	%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	2,641		$	5,745		$	(3,104	)	(54.0	) %
Net interest margin less effect of acquired loan discount accretion and PPP loan yield ⁽¹⁾		3.57	%		3.43	%		0.14	%

	Six months ended June 30,
(dollars in thousands)	2022			2021			Change			% Change
Interest income	$	156,150		$	136,395		$	19,755		14.5	%
Interest expense		(3,180	)		(2,872	)		(308	)	10.7	%
Fully tax-equivalent adjustment (FTE) ⁽¹⁾		680			532			148		27.8	%
Net interest income (FTE)	$	153,650		$	134,055		$	19,595		14.6	%
Net interest margin (FTE)		3.54	%		3.66	%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	3,000		$	4,278		$	(1,278	)	(29.9	) %
Net interest margin less effect of acquired loan discount accretion⁽¹⁾		3.51	%		3.54	%		(0.03	) %
PPP loans yield, net:
Amount (included in interest income)	$	2,061		$	9,042		$	(6,981	)	(77.2	) %
Net interest margin less effect of PPP loan yield ⁽¹⁾		3.51	%		3.59	%		(0.08	) %
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	5,061		$	13,320		$	(8,259	)	(62.0	) %
Net interest margin less effect of acquired loans discount and PPP loan yield ⁽¹⁾		3.44	%		3.46	%		(0.02	) %

(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 the first two quarters of 2022. During the three months ended June 30, 2022, March 31, 2022, and June 30, 2021, purchased loan discount accretion was $1,677,000, $1,323,000, and $2,566,000, 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
	June 30, 2022						March 31, 2022						June 30, 2021
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	5,890,578	$	68,954	4.70	%	$	4,937,865	$	56,648	4.65	%	$	4,646,188	$	57,125	4.93	%
PPP loans		37,852		964	10.22	%		50,695		1,097	8.78	%		332,277		3,179	3.84	%
Investments-taxable		2,536,362		14,350	2.27	%		2,313,204		10,223	1.79	%		1,875,056		7,189	1.54	%
Investments-nontaxable ⁽¹⁾		196,104		1,720	3.52	%		143,873		1,225	3.45	%		132,034		1,106	3.36	%
Total investments		2,732,466		16,070	2.36	%		2,457,077		11,448	1.89	%		2,007,090		8,295	1.66	%
Cash at Federal Reserve and other banks		669,163		1,364	0.82	%		707,563		285	0.16	%		559,026		135	0.10	%
Total earning assets		9,330,059		87,352	3.76	%		8,153,200		69,478	3.46	%		7,544,581		68,734	3.65	%
Other assets, net		791,655						625,056						584,093
Total assets	$	10,121,714					$	8,778,256					$	8,128,674
Liabilities and shareholders' equity
Interest-bearing demand deposits	$	1,799,205	$	99	0.02	%	$	1,597,309	$	84	0.02	%	$	1,490,247	$	77	0.02	%
Savings deposits		3,003,337		529	0.07	%		2,571,023		327	0.05	%		2,316,889		308	0.05	%
Time deposits		337,007		220	0.26	%		301,499		268	0.36	%		324,867		443	0.55	%
Total interest-bearing deposits		5,139,549		848	0.07	%		4,469,831		679	0.06	%		4,132,003		828	0.08	%
Other borrowings		35,253		5	0.06	%		44,731		5	0.05	%		40,986		5	0.05	%
Junior subordinated debt		100,991		1,056	4.19	%		60,971		587	3.90	%		57,788		563	3.91	%
Total interest-bearing liabilities		5,275,793		1,909	0.15	%		4,575,533		1,271	0.11	%		4,230,777		1,396	0.13	%
Noninterest-bearing deposits		3,603,771						3,052,099						2,811,078
Other liabilities		150,696						141,400						126,674
Shareholders' equity		1,091,454						1,009,224						960,145
Total liabilities and shareholders' equity	$	10,121,714					$	8,778,256					$	8,128,674
Net interest rate spread^{(1) (2)}					3.61	%					3.35	%					3.52	%
Net interest income and margin^{(1) (3)}			$	85,443	3.67	%			$	68,207	3.39	%			$	67,338	3.58	%

(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 June 30, 2022 increased $17,236,000 or 25.3% to $85,443,000 compared to $68,207,000 during the three months ended March 31, 2022. In addition, net interest margin improved 28 basis points to 3.67%, as compared to the trailing quarter. The increase in net interest income is primarily attributed to an additional $4,622,000 in investment revenues and $1,079,000 in revenues on cash balances due to increases in average volume and rates, respectively. As a partial offset, increases in the average balance and rates on subordinated debt resulted in an increase in interest expense of $469,000 over the trailing quarter.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, decreased 23 basis points from 4.93% during the three months ended June 30, 2021, to 4.70% during the three months ended June 30, 2022. The accretion of discounts from acquired loans added 11 and 22 basis points to loan yields during the quarters ended June 30, 2022 and June 30, 2021, respectively. Therefore, of the 23 basis point decrease in yields on loans during the comparable three month periods ended June 30, 2022 and 2021, 12 basis points was attributable to changes in competitive market rates, while 11 basis points resulted from less accretion of discounts.

The rates paid on interest bearing deposits generally remained flat during the quarter ended June 30, 2022 compared to the trailing quarter. The cost of interest-bearing deposits decreased by 1 basis point during the quarter ended June 30, 2022, to 0.07% from 0.08% during 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 second quarter of the prior year. Specifically, the ratio of average total noninterest-bearing deposits to total average deposits was 41.2% and 40.6% as of June 30, 2022 and March 31, 2022, respectively, as compared to 40.5% for the quarter ended June 30, 2021.

	Six months ended June 30, 2022						Six months ended June 30, 2021
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	5,416,854	$	125,602	4.68	%	$	4,527,329	$	111,698	4.98	%
PPP loans		44,238		2,061	9.40	%		344,011		9,042	5.30	%
Investments-taxable		2,434,045		24,573	2.04	%		1,763,140		13,583	1.55	%
Investments-nontaxable ⁽¹⁾		170,132		2,945	3.49	%		128,564		2,306	3.62	%
Total investments		2,604,177		27,518	2.13	%		1,891,704		15,889	1.69	%
Cash at Federal Reserve and other banks		688,257		1,649	0.48	%		629,952		298	0.10	%
Total earning assets		8,753,526		156,830	3.61	%		7,392,996		136,927	3.73	%
Other assets, net		700,170						575,138
Total assets	$	9,453,696					$	7,968,134
Liabilities and shareholders' equity
Interest-bearing demand deposits	$	1,698,815	$	183	0.02	%	$	1,461,377	$	153	0.02	%
Savings deposits		2,788,374		856	0.06	%		2,272,830		637	0.06	%
Time deposits		319,351		488	0.31	%		330,703		975	0.59	%
Total interest-bearing deposits		4,806,540		1,527	0.06	%		4,064,910		1,765	0.09	%
Other borrowings		39,966		10	0.05	%		36,870		9	0.05	%
Junior subordinated debt		81,092		1,643	4.09	%		57,739		1,098	3.83	%
Total interest-bearing liabilities		4,927,598		3,180	0.13	%		4,159,519

TriCo Bancshares Announces Second Quarter 2022 Results