~~0000356171tcbk:AccountsReceivableAndInventoryMember2021-12-31~~0000356171us-gaap:FinancialServiceOtherMember2023-01-012023-03-31

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

FORM 10-Q

___________________


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended: ~~September 30, 2022~~March 31, 2023


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from to

Commission File Number: 000-10661

___________________

(Exact Name of Registrant as Specified in Its Charter)

___________________


CA						94-2792841
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification Number)

63 Constitution Drive

Chico, California 95973

(Address of Principal Executive Offices)(Zip Code)

(530) 898-0300

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common Stock

TCBK

The NASDAQ Stock Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☒

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:

Common stock, no par value: ~~33,327,189~~33,206,788 shares outstanding as of ~~November 4, 2022.~~May 5, 2023.

Table of Contents

TriCo Bancshares

FORM 10-Q

TABLE OF CONTENTS

Table of Contents

GLOSSARY OF ACRONYMS AND TERMS

The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:


ACL			Allowance for Credit Losses
AFS			Available-for-Sale
AOCI			Accumulated Other Comprehensive Income
ASC			Accounting Standards Codification
CARES			Coronavirus Aid, Relief and Economic Security Act
CDs			Certificates of Deposit
CDI			Core Deposit Intangible
CECL			Current Expected Credit Loss
COVID-19			Coronavirus Disease
CRE			Commercial Real Estate
~~CMO~~			~~Collateralized mortgage obligation~~
DFPI			State Department of Financial Protection and Innovation
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
FHLB			Federal Home Loan Bank
FRB			Federal Reserve Board
FTE			Fully taxable equivalent
GAAP			Generally Accepted Accounting Principles (United States of America)
HELOC			Home equity line of credit
HTM			Held-to-Maturity
NPA			Nonperforming assets
OCI			Other Comprehensive Income
PCD			Purchase Credit Deteriorated
PPP			Paycheck Protection Program
ROUA			Right-of-Use Asset
RSU			Restricted Stock Unit
SBA			Small Business Administration
SERP			Supplemental Executive Retirement Plan
SFR			Single Family Residence
TDR			Troubled Debt Restructuring
VRB			Valley Republic Bancorp
XBRL			eXtensible Business Reporting Language

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

TRICO BANCSHARES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data; unaudited)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	91,377	$	57,032	Cash and due from banks	$	77,933	$	96,323
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	155,132		711,389		Cash at Federal Reserve and other banks	32,402		10,907
Cash and cash equivalents	Cash and cash equivalents	246,509		768,421		Cash and cash equivalents	110,335		107,230
Investment securities:	Investment securities:					Investment securities:
Marketable equity securities	Marketable equity securities	2,592		2,938		Marketable equity securities	2,640		2,598
Available for sale debt securities, net of allowance for credit losses of $—		2,480,265		2,207,938
Held to maturity debt securities, net of allowance for credit losses of $—		168,038		199,759
Available for sale debt securities, net of allowance for credit losses of $0						Available for sale debt securities, net of allowance for credit losses of $0	2,405,812		2,452,438
Held to maturity debt securities, net of allowance for credit losses of $0						Held to maturity debt securities, net of allowance for credit losses of $0	152,067		160,983
Restricted equity securities	Restricted equity securities	17,250		17,250		Restricted equity securities	17,250		17,250
Loans held for sale	Loans held for sale	247		3,466		Loans held for sale	226		1,846
Loans	Loans	6,314,290		4,916,624		Loans	6,422,421		6,450,447
Allowance for credit losses	Allowance for credit losses	(101,488)		(85,376)		Allowance for credit losses	(108,407)		(105,680)
Total loans, net	Total loans, net	6,212,802		4,831,248		Total loans, net	6,314,014		6,344,767
Premises and equipment, net	Premises and equipment, net	73,266		78,687		Premises and equipment, net	72,096		72,327
Cash value of life insurance	Cash value of life insurance	132,933		117,857		Cash value of life insurance	134,544		133,742
Accrued interest receivable	Accrued interest receivable	27,070		19,292		Accrued interest receivable	31,388		31,856
Goodwill	Goodwill	307,942		220,872		Goodwill	304,442		304,442
Other intangible assets, net	Other intangible assets, net	18,372		12,369		Other intangible assets, net	15,014		16,670
Operating leases, right-of-use	Operating leases, right-of-use	26,622		25,665		Operating leases, right-of-use	30,000		26,862
Other assets	Other assets	262,971		109,025		Other assets	252,566		257,975
Total assets	Total assets	$	9,976,879	$	8,614,787	Total assets	$	9,842,394	$	9,930,986
Liabilities and Shareholders’ Equity:	Liabilities and Shareholders’ Equity:					Liabilities and Shareholders’ Equity:
Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Noninterest-bearing demand	Noninterest-bearing demand	$	3,678,202	$	2,979,882	Noninterest-bearing demand	$	3,236,696	$	3,502,095
Interest-bearing	Interest-bearing	4,977,567		4,387,277		Interest-bearing	4,789,169		4,826,918
Total deposits	Total deposits	8,655,769		7,367,159		Total deposits	8,025,865		8,329,013
Accrued interest payable	Accrued interest payable	853		928		Accrued interest payable	1,643		1,167
Operating lease liability	Operating lease liability	28,717		26,280		Operating lease liability	32,228		29,004
Other liabilities	Other liabilities	153,110		112,070		Other liabilities	157,222		159,741
Other borrowings	Other borrowings	47,068		50,087		Other borrowings	434,140		264,605
Junior subordinated debt	Junior subordinated debt	101,024		58,079		Junior subordinated debt	101,051		101,040
Total liabilities	Total liabilities	8,986,541		7,614,603		Total liabilities	8,752,149		8,884,570
Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)					Commitments and contingencies (Note 9)
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at September 30, 2022 and December 31, 2021		—		—
Common stock, no par value: 50,000,000 shares authorized; 33,332,189 and 29,730,424 issued and outstanding at September 30, 2022 and December 31, 2021, respectively		696,348		532,244
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at March 31, 2023 and December 31, 2022						Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at March 31, 2023 and December 31, 2022	—		—
Common stock, no par value: 50,000,000 shares authorized; 33,195,250 and 33,331,513 issued and outstanding at March 31, 2023 and December 31, 2022, respectively						Common stock, no par value: 50,000,000 shares authorized; 33,195,250 and 33,331,513 issued and outstanding at March 31, 2023 and December 31, 2022, respectively	695,168		697,448
Retained earnings	Retained earnings	516,699		466,959		Retained earnings	564,538		542,873
Accumulated other comprehensive (loss) income, net of tax		(222,709)		981
Accumulated other comprehensive loss, net of tax						Accumulated other comprehensive loss, net of tax	(169,461)		(193,905)
Total shareholders’ equity	Total shareholders’ equity	990,338		1,000,184		Total shareholders’ equity	1,090,245		1,046,416
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	9,976,879	$	8,614,787	Total liabilities and shareholders’ equity	$	9,842,394	$	9,930,986

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data; unaudited)


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Interest and dividend income:	Interest and dividend income:									Interest and dividend income:
Loans, including fees	Loans, including fees	$	75,956	$	60,725	$	203,619	$	181,465	Loans, including fees	$	82,415	$	57,745
Investments:	Investments:									Investments:
Taxable securities	Taxable securities	16,864		7,483		40,862		20,594		Taxable securities	18,622		9,962
Tax exempt securities	Tax exempt securities	1,468		882		3,733		2,656		Tax exempt securities	1,307		942
Dividends	Dividends	258		258		833		730		Dividends	304		261
Interest bearing cash at Federal Reserve and other banks	Interest bearing cash at Federal Reserve and other banks	1,820		280		3,469		578		Interest bearing cash at Federal Reserve and other banks	259		285
Total interest and dividend income	Total interest and dividend income	96,366		69,628		252,516		206,023		Total interest and dividend income	102,907		69,195
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	992		855		2,519		2,620		Deposits	5,145		678
Other borrowings	Other borrowings	5		6		15		15		Other borrowings	2,809		5
Junior subordinated debt	Junior subordinated debt	1,263		534		2,906		1,632		Junior subordinated debt	1,617		588
Total interest expense	Total interest expense	2,260		1,395		5,440		4,267		Total interest expense	9,571		1,271
Net interest income	Net interest income	94,106		68,233		247,076		201,756		Net interest income	93,336		67,924
Provision for (reversal of) credit losses		3,795		(1,435)		14,225		(7,755)
Net interest income after credit loss provision (reversal)		90,311		69,668		232,851		209,511
Provision for credit losses										Provision for credit losses	4,195		8,330
Net interest income after credit loss provision										Net interest income after credit loss provision	89,141		59,594
Non-interest income:	Non-interest income:									Non-interest income:
Service charges and fees	Service charges and fees	12,682		11,265		37,422		32,671		Service charges and fees	11,197		11,696
Gain on sale of loans	Gain on sale of loans	357		1,814		2,145		7,908		Gain on sale of loans	206		1,246
Gain on sale of investment securities		—		—		—		—
Loss on sale of investment securities										Loss on sale of investment securities	(164)		—
Asset management and commission income	Asset management and commission income	1,020		957		2,946		2,738		Asset management and commission income	934		887
Increase in cash value of life insurance	Increase in cash value of life insurance	659		644		2,049		2,062		Increase in cash value of life insurance	802		638
Other	Other	922		415		2,604		1,783		Other	660		629
Total non-interest income	Total non-interest income	15,640		15,095		47,166		47,162		Total non-interest income	13,635		15,096
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and related benefits	Salaries and related benefits	33,528		26,274		96,495		78,685		Salaries and related benefits	32,563		28,597
Other	Other	20,937		19,533		60,681		52,911		Other	21,231		17,850
Total non-interest expense	Total non-interest expense	54,465		45,807		157,176		131,596		Total non-interest expense	53,794		46,447
Income before provision for income taxes	Income before provision for income taxes	51,486		38,956		122,841		125,077		Income before provision for income taxes	48,982		28,243
Provision for income taxes	Provision for income taxes	14,148		11,534		33,765		35,644		Provision for income taxes	13,149		7,869
Net income	Net income	$	37,338	$	27,422	$	89,076	$	89,433	Net income	$	35,833	$	20,374
Per share data:	Per share data:									Per share data:
Basic earnings per share	Basic earnings per share	$	1.12	$	0.92	$	2.76	$	3.01	Basic earnings per share	$	1.08	$	0.68
Diluted earnings per share	Diluted earnings per share	$	1.12	$	0.92	$	2.74	$	2.99	Diluted earnings per share	$	1.07	$	0.67
Dividends per share	Dividends per share	$	0.30	$	0.25	$	0.80	$	0.75	Dividends per share	$	0.30	$	0.25

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands; unaudited)


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
		2022		2021		2022		2021			2023		2022
Net income	Net income	$	37,338	$	27,422	$	89,076	$	89,433	Net income	$	35,833	$	20,374
Other comprehensive loss, net of tax:
Unrealized losses on available for sale securities arising during the period		(76,740)		(4,440)		(223,748)		(7,924)
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities arising during the period										Unrealized gains (losses) on available for sale securities arising during the period	24,444		(78,397)
Change in minimum pension liability	Change in minimum pension liability	—		—		58		—		Change in minimum pension liability	—		58
Change in joint beneficiary agreements	Change in joint beneficiary agreements	—		—		—		(629)		Change in joint beneficiary agreements	—		—
Other comprehensive loss		(76,740)		(4,440)		(223,690)		(8,553)
Other comprehensive income (loss)										Other comprehensive income (loss)	24,444		(78,339)
Comprehensive income (loss)	Comprehensive income (loss)	$	(39,402)	$	22,982	$	(134,614)	$	80,880	Comprehensive income (loss)	$	60,277	$	(57,965)

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands, except share and per share data; unaudited)


		Shares of Common Stock	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total			Shares of Common Stock	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at June 30, 2021		29,716,294	$	531,038	$	427,575	$	8,167	$	966,780
Balance at January 1, 2022											Balance at January 1, 2022	29,730,424	$	532,244	$	466,959	$	981	$	1,000,184
Net income	Net income				27,422				27,422		Net income				20,374				20,374
Other comprehensive loss	Other comprehensive loss						(4,440)		(4,440)		Other comprehensive loss						(78,339)		(78,339)
Stock options exercised	Stock options exercised	4,000	58						58		Stock options exercised	3,325	55						55
RSU vesting	RSU vesting		485						485		RSU vesting		565						565
PSU vesting	PSU vesting		252						252		PSU vesting		247						247
RSUs released	RSUs released	2,689							—		RSUs released								—
PSUs released		19,272							—

Issuance of common stock											Issuance of common stock	4,105,518	173,585						173,585
Repurchase of common stock	Repurchase of common stock	(27,646)	(494)		(620)				(1,114)		Repurchase of common stock	(1,332)	(24)		(32)				(56)
Dividends paid ($0.25 per share)					(7,429)				(7,429)
Three months ended September 30, 2021		29,714,609	$	531,339	$	446,948	$	3,727	$	982,014
Dividends paid ($0.30 per share)											Dividends paid ($0.30 per share)				(7,433)				(7,433)
Three months ended March 31, 2022											Three months ended March 31, 2022	33,837,935	$	706,672	$	479,868	$	(77,358)	$	1,109,182

Balance at June 30, 2022		33,350,974	$	696,441	$	491,705	$	(145,969)	$	1,042,177
Balance at January 1, 2023											Balance at January 1, 2023	33,331,513	$	697,448	$	542,873	$	(193,905)	$	1,046,416
Net income	Net income				37,338				37,338		Net income				35,833				35,833
Other comprehensive loss							(76,740)		(76,740)
Other comprehensive income											Other comprehensive income						24,444		24,444
Stock options exercised	Stock options exercised	44,000	856						856		Stock options exercised	4,000	78						78
RSU vesting	RSU vesting		746						746		RSU vesting		728						728
PSU vesting	PSU vesting		223						223		PSU vesting		313						313
RSUs released	RSUs released	2,752							—		RSUs released	22,118							—
PSUs released		26,338							—
Issuance of common stock		—							—

Repurchase of common stock	Repurchase of common stock	(91,875)	(1,918)		(2,340)				(4,258)		Repurchase of common stock	(162,381)	(3,399)		(4,196)				(7,595)
Dividends paid ($0.30 per share)	Dividends paid ($0.30 per share)				(10,004)				(10,004)		Dividends paid ($0.30 per share)				(9,972)				(9,972)
Three months ended September 30, 2022		33,332,189	$	696,348	$	516,699	$	(222,709)	$	990,338
Three months ended March 31, 2023											Three months ended March 31, 2023	33,195,250	$	695,168	$	564,538	$	(169,461)	$	1,090,245

~~Table of Contents~~

~~TRICO BANCSHARES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~(In thousands, except share and per share data; unaudited)~~

Shares of
Common
Stock Common
Stock Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total
Balance at January 1, 2021 29,727,214 $ 530,835 $ 381,999 $ 12,280 $ 925,114
Net income 89,433 89,433
Other comprehensive loss (8,553) (8,553)
Stock options exercised 5,675 86 86
RSU vesting 1,242 1,242
PSU vesting 658 658
RSUs released 45,401 —
PSUs released 19,272 —
Repurchase of common stock (82,953) (1,482) (2,193) (3,675)
Dividends paid ($0.75 per share) (22,291) (22,291)
Nine months ended September 30, 2021 29,714,609 $ 531,339 $ 446,948 $ 3,727 $ 982,014
Balance at January 1, 2022 29,730,424 $ 532,244 $ 466,959 $ 981 $ 1,000,184
Net income 89,076 89,076
Other comprehensive loss (223,690) (223,690)
Stock options exercised 59,325 1,112 1,112
RSU vesting 2,025 2,025
PSU vesting 686 686
RSUs released 48,234 —
PSUs released 26,338 —
Issuance of common stock 4,105,518 173,585 173,585
Repurchase of common stock (637,650) (13,304) (13,540) (26,844)
Dividends paid ($0.80 per share) (25,796) (25,796)
Nine months ended September 30, 2022 33,332,189 $ 696,348 $ 516,699 $ (222,709) $ 990,338

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

TRICO BANCSHARES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)


		For the nine months ended September 30,					For the three months ended March 31,
		2022		2021			2023		2022
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	89,076	$	89,433	Net income	$	35,833	$	20,374
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization	Depreciation of premises and equipment, and amortization	4,489		4,923		Depreciation of premises and equipment, and amortization	1,566		1,409
Amortization of intangible assets	Amortization of intangible assets	4,632		4,271		Amortization of intangible assets	1,656		1,228
Provision for (reversal of) credit losses on loans		13,645		(7,880)
Provision for credit losses						Provision for credit losses	4,195		8,330
Amortization of investment securities premium, net	Amortization of investment securities premium, net	6,564		4,702		Amortization of investment securities premium, net	174		5,618

Loss on sale of investment securities						Loss on sale of investment securities	164		—
Originations of loans for resale	Originations of loans for resale	(62,192)		(175,127)		Originations of loans for resale	(6,281)		(30,187)
Proceeds from sale of loans originated for resale	Proceeds from sale of loans originated for resale	66,973		184,896		Proceeds from sale of loans originated for resale	8,058		33,509
Gain on sale of loans	Gain on sale of loans	(2,145)		(7,908)		Gain on sale of loans	(206)		(1,246)
Change in market value of mortgage servicing rights	Change in market value of mortgage servicing rights	(443)		691		Change in market value of mortgage servicing rights	209		(274)
Provision for losses on foreclosed assets		113		—
Gain on transfer of loans to foreclosed assets		(224)		(133)
Gain on sale of foreclosed assets		(22)		(68)

Operating lease expense payments	Operating lease expense payments	(4,351)		(3,690)		Operating lease expense payments	(1,653)		(1,292)
Gain on disposal of fixed assets	Gain on disposal of fixed assets	(1,069)		(445)		Gain on disposal of fixed assets	—		(1,078)
Increase in cash value of life insurance	Increase in cash value of life insurance	(2,049)		(2,062)		Increase in cash value of life insurance	(802)		(638)
Gain on life insurance death benefit		(309)		—
Loss on marketable equity securities		346		59

(Gain) loss on marketable equity securities						(Gain) loss on marketable equity securities	(42)		137
Equity compensation vesting expense	Equity compensation vesting expense	2,711		1,900		Equity compensation vesting expense	1,041		812
Change in:	Change in:					Change in:
Interest receivable	Interest receivable	(4,384)		1,579		Interest receivable	468		(83)
Interest payable	Interest payable	(601)		(306)		Interest payable	476		(801)
Amortization of operating lease ROUA	Amortization of operating lease ROUA	4,432		4,038		Amortization of operating lease ROUA	1,739		1,374
Other assets and liabilities, net	Other assets and liabilities, net	(7,201)		1,046		Other assets and liabilities, net	(7,640)		(2,347)
Net cash from operating activities	Net cash from operating activities	107,991		99,919		Net cash from operating activities	38,955		34,845

Investing activities:	Investing activities:					Investing activities:
Proceeds from maturities of securities available for sale	Proceeds from maturities of securities available for sale	212,501		263,865		Proceeds from maturities of securities available for sale	56,905		85,298
Proceeds from maturities of securities held to maturity	Proceeds from maturities of securities held to maturity	31,421		66,880		Proceeds from maturities of securities held to maturity	8,842		12,894

Proceeds from sale of available for sale securities						Proceeds from sale of available for sale securities	24,160		—
Purchases of securities available for sale	Purchases of securities available for sale	(699,035)		(960,668)		Purchases of securities available for sale	—		(247,354)
Loan origination and principal collections, net	Loan origination and principal collections, net	(603,581)		(21,869)		Loan origination and principal collections, net	26,558		(161,865)
Loans purchased		(21,292)		(102,710)
Proceeds from sale of other real estate owned		416		944

Proceeds from sale of premises and equipment	Proceeds from sale of premises and equipment	6,689		2,743		Proceeds from sale of premises and equipment	—		6,689
Purchases of premises and equipment	Purchases of premises and equipment	(3,130)		(2,114)		Purchases of premises and equipment	(1,213)		(631)
Proceeds from conversion of life insurance		641		—
Cash acquired from VRB, net of cash consideration paid	Cash acquired from VRB, net of cash consideration paid	426,883		—		Cash acquired from VRB, net of cash consideration paid	—		426,883
Net cash used by investing activities		(648,487)		(752,929)

Net cash from investing activities						Net cash from investing activities	115,252		121,914
Financing activities:	Financing activities:					Financing activities:
Net change in deposits	Net change in deposits	73,131		730,888		Net change in deposits	(303,148)		131,839
Net change in other borrowings	Net change in other borrowings	(3,019)		18,687		Net change in other borrowings	169,535		(13,903)
Repurchase of common stock, net of option exercises	Repurchase of common stock, net of option exercises	(26,844)		(3,675)		Repurchase of common stock, net of option exercises	(7,595)		—
Dividends paid	Dividends paid	(25,796)		(22,291)		Dividends paid	(9,972)		(7,433)
Exercise of stock options	Exercise of stock options	1,112		86		Exercise of stock options	78		—
Net cash (used by) from financing activities						Net cash (used by) from financing activities	(151,102)		110,503
Net change in cash and cash equivalents						Net change in cash and cash equivalents	3,105		267,262
Cash and cash equivalents, beginning of period						Cash and cash equivalents, beginning of period	107,230		768,421
Cash and cash equivalents, end of period						Cash and cash equivalents, end of period	$	110,335	$	1,035,683

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Net cash from financing activities		18,584		723,695
Net change in cash and cash equivalents		(521,912)		70,685
Cash and cash equivalents, beginning of period		768,421		669,551
Cash and cash equivalents, end of period		$	246,509	$	740,236
Supplemental disclosure of noncash activities:	Supplemental disclosure of noncash activities:					Supplemental disclosure of noncash activities:
Unrealized loss on securities available for sale		$	(317,659)	$	(11,249)
Unrealized gain (loss) on securities available for sale						Unrealized gain (loss) on securities available for sale	$	34,540	$	(111,302)
Loans transferred to held-for-sale	Loans transferred to held-for-sale	12,044		—		Loans transferred to held-for-sale	—		12,044
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	2,444		835		Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes	621		55
Obligations incurred in conjunction with leased assets	Obligations incurred in conjunction with leased assets	4,609		2,883		Obligations incurred in conjunction with leased assets	4,484		521
Loans transferred to foreclosed assets	Loans transferred to foreclosed assets	1,131		549		Loans transferred to foreclosed assets	—		313
Supplemental disclosure of cash flow activity:	Supplemental disclosure of cash flow activity:					Supplemental disclosure of cash flow activity:
Cash paid for interest expense	Cash paid for interest expense	5,515		4,573		Cash paid for interest expense	$	9,095	$	1,546
Cash paid for income taxes	Cash paid for income taxes	36,000		38,500		Cash paid for income taxes	—		—
Business combination (1)						Business combination (1)

(1) During the period ended March 31, 2022, the VRB acquisition included fair value tangible assets acquired of $1.37 billion, liabilities assumed of $1.28 billion, resulting in goodwill of $0.09 billion.						(1) During the period ended March 31, 2022, the VRB acquisition included fair value tangible assets acquired of $1.37 billion, liabilities assumed of $1.28 billion, resulting in goodwill of $0.09 billion.

See accompanying notes to unaudited condensed consolidated financial statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Summary of Significant Accounting Policies

Description of Business and Basis of Presentation

TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 3133 California counties. The consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States of America and general practices in the banking industry. All adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. The financial statements include the accounts of the Company. All inter-company accounts and transactions have been eliminated in consolidation.

The Company has five capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including two organized by the Company and three acquired with the acquisition of North Valley Bancorp. For financial reporting purposes, the Company’s investments in the Capital Trusts of ~~$1,754,000~~$1.76 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. See the footnote 'Junior Subordinated Debt' for additional information on borrowings outstanding.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Annual Report”). The Company believes that the disclosures made ~~herein~~ are adequate to make the information not misleading.

Segment and Significant Group Concentration of Credit Risk

The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout California. The Company has a diversified loan portfolio within the business segments located in this geographical area. The Company currently classifies all its operation into one business segment that it denotes as community banking.

Geographical Descriptions

For the purpose of describing the geographical location of the Company’s operations, the Company has defined northern California as that area of California north of, and including, Stockton to the east and San Jose to the west; central California as that area of the state south of Stockton and San Jose, to and including, Bakersfield to the east and San Luis Obispo to the west; and southern California as that area of the state south of Bakersfield and San Luis Obispo.

Reclassification

Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity.

Cash and Cash Equivalents

Net cash flows are reported for loan and deposit transactions and other borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with original maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are considered to be cash equivalents.

Allowance for Credit Losses - Securities

The Company measures expected credit losses on HTM debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating. Accrued interest receivable on HTM debt securities ~~totaled~~ was considered insignificant at ~~September 30, 2022~~March 31, 2023 and is therefore excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current ~~condition~~conditions and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss assumption.

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~~assumption.~~ Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized.

The Company evaluates AFS debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. No security credit losses were recognized during the three ~~and nine~~ month periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

Loans

Loans that management has the intent and ability to hold until maturity or payoff are reported at principle amount outstanding, net of deferred loan fees and costs. Loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is considered probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest. Accrued interest receivable is not included in the calculation of the allowance for credit losses.

Allowance for Credit Losses - Loans

The ACL is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are ~~charged off~~charged-off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate.

Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life. The Company identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate. Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination. In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels, changes in ~~the effective yield of BBB US Corporate~~corporate debt yields, and U.S. gross domestic product.

A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The ACL on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. If the value of underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR. The ACL on a TDR is measured using the same method as all other portfolio loans, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the ACL is determined by discounting the expected future cash flows at the original interest rate of the loan.

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PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination. PCD assets are accounted for in accordance with ASC 326-20 and are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition. The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the balance sheet, while the allowance for acquired non-PCD assets, such as loans, is recorded through the provision for credit losses on the income statement, consistent with originated loans. Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans.

The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss:

Commercial real estate:

Commercial real estate - Non-owner occupied: These commercial properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment. Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties. As such, the risk of loss associated with these properties is primarily driven by general

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economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay. Ultimately this can affect occupancy, rental rates, or both. Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.

Commercial real estate - Owner occupied: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years.

Multifamily: These commercial properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multifamily properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss.

Farmland: While the Company has few loans that were originated for the purpose of the acquisition of these commercial properties, loans secured by farmland represent unique risks that are associated with the operation of an agricultural businesses. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by farmland typically represent less risk to the Company than other agriculture loans as the real estate typically provides greater support in the event of default or need for longer term repayment.

Consumer loans:

SFR 1-4 1st DT Liens: The most significant drivers of potential loss within the Company's residential real estate portfolio relate general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

SFR HELOCs and Junior Liens: Similar to residential real estate term loans, HELOCs and junior liens performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC.

Other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate.

Commercial and Industrial:

Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be

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difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits.

Construction:

While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with the not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset as adjusted for macroeconomic factors.

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Agriculture Production:

Repayment of agricultural loans is dependent upon successful operation of the agricultural business, which is greatly impacted by factors outside the control of the borrower. These factors include adverse weather conditions, including access to water, that may impact crop yields, loss of livestock due to disease or other factors, declines in market prices for agriculture products, changes in foreign exchange, and the impact of government regulations. In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the business. Consequently, agricultural production loans may involve a greater degree of risk than other types of loans.

Leases:

The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset. Leases typically represent an elevated level of credit risk as compared to loans secured by real estate as the collateral for leases is often subject to a more rapid rate of depreciation or depletion. The ultimate severity of loss is impacted by the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook and the other variables discussed above.

Unfunded commitments:

The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities.

Accounting Standards ~~Pending Adoption~~Recently Issued or Adopted

FASB issued ASU ~~2022-03,~~2023-02, ~~Fair Value Measurement~~Investments – Equity Method and Joint Ventures (Topic ~~820)~~323): ~~Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.~~ Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.This ASU ~~clarifies~~permits reporting entities to elect to account for their tax equity investments, regardless of the ~~guidance when measuring~~tax credit program from which the ~~fair value of an equity security subject to contractual restrictions that prohibit~~income tax credits are received, using the ~~sale of an equity security, and to introduce new disclosure requirements there within. Amendments in this~~proportional amortization method if certain conditions are met. This ASU ~~are~~is effective for ~~the Company~~fiscal years, and interim periods within those fiscal years, beginning after December ~~31, 2023, with early~~15, 2023. The adoption ~~permitted. Management~~of this accounting guidance is ~~evaluating~~not expected to have a material impact on the ~~extent to which this standard will impact the~~Company’s consolidated financial statements.

FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This ASU addresses feedback received from adopters of CECL, specifically regarding accounting guidance for TDRs and disclosures of gross write-offs by year of loan origination. Accounting guidance for TDRs by creditors will be eliminated under this amendment, while also enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Amendments in this ASU ~~are~~were effective for the Company beginning ~~after December 31, 2022, with early~~January 1, 2023 and applied on a prospective basis. The adoption ~~permitted. Management is evaluating~~of this accounting guidance did not have a material impact on the ~~extent to which this will impact the~~Company's consolidated financial statements.

~~FASB issued ASU 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.~~ This ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform by providing optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The election to apply the optional relief for existing fair value and cash flow hedge accounting relationships may be made on a hedge-by-hedge basis and across multiple reporting periods. Amendments in this ASU are effective for the Company through December 31, 2022. As the Company has an insignificant number of instruments that are applicable to this ASU, management has determined that no impact to the valuations of these instruments are applicable for financial reporting purposes.

Note 2 - Business Combinations

On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp, ~~(VRB),~~ including the merger of Valley Republic Bank into Tri Counties Bank, with Tri Counties Bank as the surviving entity, in accordance with the terms of the merger agreement dated as of July 27, 2021. The cash and stock transaction was valued at approximately $174.0 million in aggregate, based on TriCo's closing stock price of $42.48 on March 25, 2022. Under the terms of the merger agreement, the Company issued approximately 4.1 million shares, in addition to approximately ~~$431,000~~$0.4 million in cash paid out for settlement of stock option awards at VRB.

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VRB was headquartered in Bakersfield, California, and had four branch locations at acquisition in and around Bakersfield, which all now operate as branches for Tri Counties Bank, and a loan production office in Fresno, California. The Company's overlapping Bakersfield branch was consolidated into the acquired VRB branch during the quarter ended June 30, 2022, and the Company anticipates the VRB loan production office in Fresno will be consolidated with the nearby legacy loan production office during the third quarter of 2022.

The acquisition of VRB has been accounted for as a business combination. We recorded the fair values based on the valuations available as of reporting date. In accordance with business combination accounting guidance, we will continue to evaluate these fair values for up to one year following the merger date of March 25, 2022. While management believes the information available and presented below provide a reasonable basis for estimating fair value, we may obtain additional information and evidence during the measurement period that could result in changes to the estimated fair value amounts. Valuations subject to change include, but are not limited to, loans and leases, deposits, deferred tax items, and certain other assets and liabilities.

The following table summarizes the consideration paid for VRB and the amounts of assets acquired and liabilities assumed that were recorded at the acquisition date (in thousands):

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~~Valley Republic Bancorp~~Fair Value as of
March 25, 2022

Fair value of consideration transferred:

Fair value of shares issued

173,585

Cash consideration

431

Total fair value of consideration transferred

174,016

Assets acquired:

Cash and cash equivalents

427,314

Securities available for sale

109,716

Loans and leases

771,353

Premises and equipment

4,658

Cash value of life insurance

13,609

Core deposit intangible

10,635

Other assets

~~26,244~~29,744

Total assets acquired

~~1,363,529~~1,367,029

Liabilities assumed:

Deposits

(1,215,479)

Subordinated debt

(47,236)

SERP liability

(3,352)

Other liabilities

(10,516)

Total liabilities assumed

(1,276,583)

Total net assets acquired

~~86,946~~90,446

Goodwill recognized

~~87,070~~83,570

Note 3 - Investment Securities

The amortized cost, estimated fair values and allowance for credit losses of investments in debt securities are summarized in the following tables:


		September 30, 2022						March 31, 2023
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
Debt Securities Available for Sale	Debt Securities Available for Sale										Debt Securities Available for Sale
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	1,603,933	$	1	$	(214,019)		$	1,389,915	Obligations of U.S. government agencies	$	1,531,759	$	5	$	(174,329)	$	—	$	1,357,435
Obligations of states and political subdivisions	Obligations of states and political subdivisions	332,809		8		(49,694)			283,123		Obligations of states and political subdivisions	308,129		698		(28,927)		—		279,900
Corporate bonds	Corporate bonds	6,161		—		(303)			5,858		Corporate bonds	6,165		—		(427)		—		5,738
Asset backed securities	Asset backed securities	467,033		102		(13,334)			453,801		Asset backed securities	440,259		18		(12,913)		—		427,364
Non-agency collateralized mortgage obligations	Non-agency collateralized mortgage obligations	388,380		—		(40,812)			$	347,568	Non-agency collateralized mortgage obligations	375,345		—		(39,970)		—		335,375
Total debt securities available for sale	Total debt securities available for sale	$	2,798,316	$	111	$	(318,162)		$	2,480,265	Total debt securities available for sale	$	2,661,657	$	721	$	(256,566)	$	—	$	2,405,812
Debt Securities Held to Maturity											Debt Securities Held to Maturity
Obligations of U.S. government agencies											Obligations of U.S. government agencies	$	148,700	$	1	$	(9,942)	—		138,759
Obligations of states and political subdivisions											Obligations of states and political subdivisions	3,367		14		(5)		—		3,376
Total debt securities held to maturity											Total debt securities held to maturity	$	152,067	$	15	$	(9,947)	$	—	$	142,135

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				December 31, 2022

(in thousands)											(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
Debt Securities Available for Sale											Debt Securities Available for Sale
Obligations of U.S. government agencies											Obligations of U.S. government agencies	$	1,568,408	$	3	$	(195,642)	$	—	$	1,372,769
Obligations of states and political subdivisions											Obligations of states and political subdivisions	332,625		401		(39,821)		—		293,205
Corporate bonds											Corporate bonds	6,164		—		(413)		—		5,751
Asset backed securities											Asset backed securities	454,943		17		(15,193)		—		439,767
Non-agency collateralized mortgage obligations											Non-agency collateralized mortgage obligations	380,847		—		(39,901)		—		340,946
Total debt securities available for sale											Total debt securities available for sale	$	2,742,987	$	421	$	(290,970)	$	—	$	2,452,438
Debt Securities Held to Maturity	Debt Securities Held to Maturity										Debt Securities Held to Maturity
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	161,581		$	3	$	(14,435)	$	147,149	Obligations of U.S. government agencies	$	154,830	$	2	$	(11,013)	$	—	$	143,819
Obligations of states and political subdivisions	Obligations of states and political subdivisions	6,457			—		(142)		6,315		Obligations of states and political subdivisions	6,153		13		(47)		—		6,119
Total debt securities held to maturity	Total debt securities held to maturity	$	168,038		$	3	$	(14,577)	$	153,464	Total debt securities held to maturity	$	160,983	$	15	$	(11,060)	$	—	$	149,938

December 31, 2021
(in thousands) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
Debt Securities Available for Sale
Obligations of U.S. government agencies $ 1,260,226 $ 8,193 $ (11,030) $ 1,257,389
Obligations of states and political subdivisions 187,197 5,832 (785) 192,244
Corporate bonds 6,722 34 — 6,756
Asset backed securities 408,329 2,354 (1,131) 409,552
Non-agency collateralized mortgage obligations 345,856 — (3,859) 341,997
Total debt securities available for sale $ 2,208,330 $ 16,413 $ (16,805) $ 2,207,938
Debt Securities Held to Maturity
Obligations of U.S. government agencies 192,068 8,131 — 200,199
Obligations of states and political subdivisions 7,691 250 — 7,941
Total debt securities held to maturity $ 199,759 $ 8,381 $ — $ 208,140

Proceeds from the sale of investment securities totaled $24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $0.2 million. There were no sales of investment securities during the three ~~and nine~~ months ended ~~September 30, 2022 and 2021, respectively.~~March 31, 2022. Investment securities with an aggregate carrying value of ~~$578,794,000~~$648.4 million and ~~$423,892,000~~$595.8 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits.

The amortized cost and estimated fair value of debt securities at ~~September 30, 2022~~March 31, 2023 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At ~~September 30, 2022,~~March 31, 2023, obligations of U.S. government corporations and agencies with a cost basis totaling ~~$1,570,291,000~~$1,502.5 billion consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At ~~September 30, 2022,~~March 31, 2023, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately ~~6.51~~6.53 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.

As of ~~September 30, 2022,~~March 31, 2023, the contractual final maturity for available for sale and held to maturity investment securities is as follows:

Debt Securities Available for Sale Held to Maturity
(in thousands) Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value
Due in one year $ 32,699 $ 31,842 $ — $ —
Due after one year through five years 148,616 142,018 1,569 1,548
Due after five years through ten years 420,159 397,387 15,377 14,569
Due after ten years 2,196,842 1,909,018 151,092 137,347
Totals $ 2,798,316 $ 2,480,265 $ 168,038 $ 153,464

~~Table of Contents~~


Debt Securities	Available for Sale				Held to Maturity
(in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value

Due in one year	$	57,662	$	56,205	$	—	$	—
Due after one year through five years	114,294		109,745		5,316		5,157
Due after five years through ten years	407,960		389,802		9,592		9,081
Due after ten years	2,081,741		1,850,060		137,159		127,897
Totals	$	2,661,657	$	2,405,812	$	152,067	$	142,135

Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:

September 30, 2022: Less than 12 months 12 months or more Total
(in thousands) Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss Fair
Value Unrealized
Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies $ 537,215 $ (95,003) $ 852,554 $ (119,016) $ 1,389,769 $ (214,019)
Obligations of states and political subdivisions 27,993 (8,728) 253,108 (40,966) 281,101 (49,694)
Corporate bonds — — 5,858 (303) 5,858 (303)
Asset backed securities 130,298 (6,102) 303,548 (7,232) 433,846 (13,334)
Non-agency collateralized mortgage obligations 122,255 (23,629) 209,647 (17,183) 331,902 (40,812)
Total debt securities available for sale $ 817,761 $ (133,462) $ 1,624,715 $ (184,700) $ 2,442,476 $ (318,162)
Debt Securities Held to Maturity
Obligations of U.S. government agencies $ — $ — $ 146,904 $ (14,435) $ 146,904 $ (14,435)
Obligations of states and political subdivisions — — $ 5,257 $ (142) 5,257 (142)
Total debt securities held to maturity $ — $ — $ 152,161 $ (14,577) $ 152,161 $ (14,577)

Table of Contents


December 31, 2021:		Less than 12 months				12 months or more				Total
March 31, 2023:														March 31, 2023:	Less than 12 months				12 months or more				Total
(in thousands)	(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Debt Securities Available for Sale	Debt Securities Available for Sale													Debt Securities Available for Sale
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	947,108	$	(9,737)	$	44,086	$	(1,293)	$	991,194	$	(11,030)	Obligations of U.S. government agencies	$	298,264	$	(18,024)	$	1,058,654	$	(156,305)	$	1,356,918	$	(174,329)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	56,154		(785)		—		—		56,154		(785)		Obligations of states and political subdivisions	126,230		(7,797)		105,039		(21,130)		231,269		(28,927)
Corporate bonds														Corporate bonds	1,846		(135)		3,892		(292)		5,738		(427)
Asset backed securities	Asset backed securities	62,792		(259)		109,748		(872)		172,540		(1,131)		Asset backed securities	112,239		(1,994)		309,739		(10,919)		421,978		(12,913)
Non-agency collateralized mortgage obligations	Non-agency collateralized mortgage obligations	327,045		(3,859)		—		—		327,045		(3,859)		Non-agency collateralized mortgage obligations	73,343		(2,639)		248,617		(37,331)		321,960		(39,970)
Total debt securities available for sale	Total debt securities available for sale	$	1,393,099	$	(14,640)	$	153,834	$	(2,165)	$	1,546,933	$	(16,805)	Total debt securities available for sale	$	611,922	$	(30,589)	$	1,725,941	$	(225,977)	$	2,337,863	$	(256,566)
Debt Securities Held to Maturity														Debt Securities Held to Maturity
Obligations of U.S. government agencies														Obligations of U.S. government agencies	$	41,389	$	(2,252)	$	97,370	$	(7,690)	$	138,759	$	(9,942)
Obligations of states and political subdivisions														Obligations of states and political subdivisions	1,050		(5)		—		—		1,050		(5)
Total debt securities held to maturity														Total debt securities held to maturity	$	42,439	$	(2,257)	$	97,370	$	(7,690)	$	139,809	$	(9,947)


December 31, 2022:	Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	605,615	$	(61,408)	$	766,612	$	(134,234)	$	1,372,227	$	(195,642)
Obligations of states and political subdivisions	219,532		(26,904)		43,282		(12,917)		262,814		(39,821)
Corporate bonds	5,751		(413)		—		—		5,751		(413)
Asset backed securities	231,703		(4,955)		205,329		(10,238)		437,032		(15,193)
Non-agency collateralized mortgage obligations	123,075		(3,421)		203,620		(36,480)		326,695		(39,901)
Total debt securities available for sale	$	1,185,676	(97,101)		$	1,218,843	$	(193,869)	$	2,404,519	$	(290,970)
Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	143,577	$	(11,013)	$	—	$	—	$	143,577	$	(11,013)
Obligations of states and political subdivisions	4,530		(47)		—		—		4,530		(47)
Total debt securities held to maturity	$	148,107	$	(11,060)	$	—	$	—	$	148,107	$	(11,060)

Obligations of U.S. government agencies: The unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases and illiquidity. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded. At ~~September 30, 2022, 170~~March 31, 2023, 261 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of ~~13.35%~~10.97% from the Company’s amortized cost basis.

Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of ~~September 30, 2022.~~March 31, 2023. At ~~September 30, 2022, 218~~March 31, 2023, 159 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of ~~15.02%~~11.07% from the Company’s amortized cost basis.

Corporate bonds: The unrealized losses on investments in corporate bonds were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of ~~September 30, 2022.~~March 31, 2023. At ~~September 30, 2022,~~March 31, 2023, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of ~~4.92%~~6.93% from the Company’s amortized cost basis.

Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through ~~September 30,~~March 31, 2023

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~~2022~~ has not experienced any deterioration in credit rating. At ~~September 30, 2022, 46~~March 31, 2023, 47 asset backed securities had unrealized losses with aggregate depreciation of ~~2.98%~~2.97% from the Company’s amortized cost basis. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses recorded as of ~~September 30, 2022.~~March 31, 2023.

Non-agency collateralized mortgage obligations: The unrealized losses on investments in ~~non-agency collateralized mortgage obligations~~asset backed securities were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no allowance for credit losses ~~recorded~~ as of ~~September 30, 2022.~~and for the year ended March 31, 2023. At ~~September 30, 2022,~~March 31, 2023, 22 ~~debt~~asset backed securities ~~representing corporate bonds~~ had unrealized losses with aggregate depreciation of ~~10.95%~~11.04% from the Company’s amortized cost basis.

The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating. The Company monitors the credit rating on a monthly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator:


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		AAA/AA/A		BBB/BB/B		AAA/AA/A		BBB/BB/B
		(In thousands)				(In thousands)
Debt Securities Held to Maturity
(in thousands)										(in thousands)	AAA/AA/A		BBB/BB/B		AAA/AA/A		BBB/BB/B
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	161,581	$	—	$	192,068	$	—	Obligations of U.S. government agencies	$	148,700	$	—	$	154,830	$	—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	6,457		—		7,691		—		Obligations of states and political subdivisions	3,367		—		6,153		—
Total debt securities held to maturity	Total debt securities held to maturity	$	168,038	$	—	$	199,759	$	—	Total debt securities held to maturity	$	152,067	$	—	$	160,983	$	—

Note 4 – Loans

A summary of loan balances at amortized cost are as follows:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Commercial real estate:	Commercial real estate:					Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	2,062,406	$	1,603,141	CRE non-owner occupied	$	2,161,059	$	2,149,725
CRE owner occupied	CRE owner occupied	969,588		706,307		CRE owner occupied	971,210		984,807
Multifamily	Multifamily	927,557		823,500		Multifamily	946,693		944,537
Farmland	Farmland	279,379		173,106		Farmland	274,997		280,014
Total commercial real estate loans	Total commercial real estate loans	4,238,930		3,306,054		Total commercial real estate loans	4,353,959		4,359,083
Consumer:	Consumer:					Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	765,029		666,960		SFR 1-4 1st DT liens	803,407		790,349
SFR HELOCs and junior liens	SFR HELOCs and junior liens	394,136		337,513		SFR HELOCs and junior liens	375,591		393,666
Other	Other	58,132		67,078		Other	54,799		56,728
Total consumer loans	Total consumer loans	1,217,297		1,071,551		Total consumer loans	1,233,797		1,240,743
Commercial and industrial	Commercial and industrial	534,960		259,355		Commercial and industrial	553,098		569,921
Construction	Construction	243,571		222,281		Construction	225,996		211,560
Agriculture production	Agriculture production	71,599		50,811		Agriculture production	47,062		61,414
Leases	Leases	7,933		6,572		Leases	8,509		7,726
Total loans, net of deferred loan fees and discounts	Total loans, net of deferred loan fees and discounts	$	6,314,290	$	4,916,624	Total loans, net of deferred loan fees and discounts	$	6,422,421	$	6,450,447
Total principal balance of loans owed, net of charge-offs	Total principal balance of loans owed, net of charge-offs	$	6,361,329	$	4,946,653	Total principal balance of loans owed, net of charge-offs	$	6,467,936	$	6,496,210
Unamortized net deferred loan fees	Unamortized net deferred loan fees	(14,783)		(13,922)		Unamortized net deferred loan fees	(16,423)		(15,275)
Discounts to principal balance of loans owed, net of charge-offs	Discounts to principal balance of loans owed, net of charge-offs	(32,256)		(16,107)		Discounts to principal balance of loans owed, net of charge-offs	(29,092)		(30,488)
Total loans, net of unamortized deferred loan fees and discounts	Total loans, net of unamortized deferred loan fees and discounts	$	6,314,290	$	4,916,624	Total loans, net of unamortized deferred loan fees and discounts	$	6,422,421	$	6,450,447
Allowance for credit losses on loans	Allowance for credit losses on loans	$	(101,488)	$	(85,376)	Allowance for credit losses on loans	$	(108,407)	$	(105,680)

~~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~~

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~~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. PPP loan balances included in commercial and industrial loan totals above were $1,942,000 and $61,147,000, net of approximately $27,000 and $2,164,000 in deferred fee income as of September 30, 2022 and December 31, 2021, respectively. 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.

Note 5 – Allowance for Credit Losses

For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities:


		Allowance for credit losses – Three months ended September 30, 2022								Allowance for credit losses – Three months ended March 31, 2023
(in thousands)	(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance		(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:	Commercial real estate:												Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	28,081	$	—	$	1	$	1,162		$	29,244	CRE non-owner occupied	$	30,962	$	—	$	—	$	2,001	$	32,963
CRE owner occupied	CRE owner occupied	12,620		—		1		904			13,525		CRE owner occupied	14,014		—		—		545		14,559
Multifamily	Multifamily	11,795		—		—		954			12,749		Multifamily	13,132		—		—		741		13,873
Farmland	Farmland	2,954		—		—		168			3,122		Farmland	3,273		—		—		269		3,542
Total commercial real estate loans	Total commercial real estate loans	55,450		—		2		3,188			58,640		Total commercial real estate loans	61,381		—		—		3,556		64,937
Consumer:	Consumer:												Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	10,311		—		38		322			10,671		SFR 1-4 1st DT liens	11,268		—		—		652		11,920
SFR HELOCs and junior liens	SFR HELOCs and junior liens	11,591		—		98		(306)			11,383		SFR HELOCs and junior liens	11,413		(42)		65		(522)		10,914
Other	Other	2,029		(185)		53		(19)			1,878		Other	1,958		(142)		51		195		2,062
Total consumer loans	Total consumer loans	23,931		(185)		189		(3)			23,932		Total consumer loans	24,639		(184)		116		325		24,896
Commercial and industrial	Commercial and industrial	9,979		(82)		119		384			10,400		Commercial and industrial	13,597		(1,574)		53		(7)		12,069
Construction	Construction	7,522		—		—		(1,390)			6,132		Construction	5,142		—		—		513		5,655
Agriculture production	Agriculture production	1,046		—		1		1,321			2,368		Agriculture production	906		—		1		(74)		833
Leases	Leases	16		—		—		—			16		Leases	15		—		—		2		17
Allowance for credit losses on loans	Allowance for credit losses on loans	$	97,944	$	(267)	$	311	$	3,500		$	101,488	Allowance for credit losses on loans	105,680		(1,758)		170		4,315		108,407
Reserve for unfunded commitments	Reserve for unfunded commitments	4,075		—		—		295			4,370		Reserve for unfunded commitments	4,315		—		—		(120)		4,195
Total	Total	$	102,019	$	(267)	$	311	$	3,795		$	105,858	Total	$	109,995	$	(1,758)	$	170	$	4,195	$	112,602

Allowance for credit losses – Nine months ended September 30, 2022
(in thousands) Beginning
Balance ACL on PCD Loans Charge-offs Recoveries Provision (benefit) Ending
Balance
Commercial real estate:
CRE non-owner occupied $ 25,739 $ 746 $ — $ 1 $ 2,758 $ 29,244
CRE owner occupied 10,691 63 — 2 2,769 13,525
Multifamily 12,395 — — — 354 12,749
Farmland 2,315 764 (294) — 337 3,122
Total commercial real estate loans 51,140 1,573 (294) 3 6,218 58,640
Consumer:
SFR 1-4 1st DT liens 10,723 144 — 79 (275) 10,671
SFR HELOCs and junior liens 10,510 — — 426 447 11,383
Other 2,241 — (470) 200 (93) 1,878
Total consumer loans 23,474 144 (470) 705 79 23,932
Commercial and industrial 3,862 81 (647) 1,130 5,974 10,400
Construction 5,667 201 — — 264 6,132
Agriculture production 1,215 38 — 3 1,112 2,368
Leases 18 — — — (2) 16
Allowance for credit losses on loans $ 85,376 $ 2,037 $ (1,411) $ 1,841 $ 13,645 $ 101,488
Reserve for unfunded commitments 3,790 — — — 580 4,370
Total $ 89,166 $ 2,037 $ (1,411) $ 1,841 $ 14,225 $ 105,858

~~Table of Contents~~

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 loan portfolio growth and changes in individually analyzed credits, which increased the provision need by approximately $3,218,000 and $1,356,000, respectively, while net decreases in qualitative factors and improvement in overall portfolio credit quality reduced the provisioning need by approximately $1,030,000. 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. Net recoveries for the three and nine months ended September 30, 2022 were approximately $44,000 and $430,000, respectively while during the same three and nine month periods of 2021, the Company recorded $261,000 in net charge-offs and $339,000 in recoveries, respectively.

In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, including California unemployment, gross domestic product, and corporate bond yields. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results.

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~~As compared to historical norms, inflation remains elevated from continued disruptions in the supply chain, wage pressures, and ~~volatile energy~~higher living costs such as housing and food 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.~~months. 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.

Purchased loans and leases that reflect a more-than-insignificant deterioration of credit from origination are considered PCD. For PCD loans and leases, the initial estimate of expected credit losses is recognized in the ACL on the date of acquisition using the same methodology as other loans and leases held-for-investment. The following table provides a summary of loans and leases purchased as part of the VRB acquisition with credit deterioration at acquisition:


	As of March 25, 2022
(in thousands)	Commercial Real Estate		Consumer		Commercial and Industrial		Construction		Agriculture Production		Total
Par value	$	27,237	$	3,877	$	2,674	$	25,645	$	9,080	$	68,513
ACL at acquisition	(1,573)		(144)		(81)		(201)		(38)		(2,037)
Non-credit discount	(2,305)		(360)		(47)		(232)		(12)		(2,956)
Purchase price	$	23,359	$	3,373	$	2,546	$	25,212	$	9,030	$	63,520

1816

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		Allowance for credit losses – Year ended December 31, 2021								Allowance for credit losses – Year ended December 31, 2022
(in thousands)	(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)			Ending Balance		(in thousands)	Beginning Balance		ACL of PCD Loans		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:	Commercial real estate:												Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	29,380	$	—	$	12	$	(3,653)		$	25,739	CRE non-owner occupied	$	25,739	$	746	$	—	$	1	$	4,476	$	30,962
CRE owner occupied	CRE owner occupied	10,861		(18)		794		(946)			10,691		CRE owner occupied	10,691		63		—		2		3,258		14,014
Multifamily	Multifamily	11,472		—		—		923			12,395		Multifamily	12,395		—		—		—		737		13,132
Farmland	Farmland	1,980		(126)		—		461			2,315		Farmland	2,315		764		(294)		—		488		3,273
Total commercial real estate loans	Total commercial real estate loans	53,693		(144)		806		(3,215)			51,140		Total commercial real estate loans	51,140		1,573		(294)		3		8,959		61,381
Consumer:	Consumer:												Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	10,117		(145)		13		738			10,723		SFR 1-4 1st DT liens	10,723		144		—		79		322		11,268
SFR HELOCs and junior liens	SFR HELOCs and junior liens	11,771		(29)		1,127		(2,359)			10,510		SFR HELOCs and junior liens	10,510		—		(22)		429		496		11,413
Other	Other	3,260		(577)		361		(803)			2,241		Other	2,241		—		(572)		235		54		1,958
Total consumer loans	Total consumer loans	25,148		(751)		1,501		(2,424)			23,474		Total consumer loans	23,474		144		(594)		743		872		24,639
Commercial and industrial	Commercial and industrial	4,252		(1,470)		755		325			3,862		Commercial and industrial	3,862		81		(697)		1,157		9,194		13,597
Construction	Construction	7,540		(27)		—		(1,846)			5,667		Construction	5,667		201		—		—		(726)		5,142
Agriculture production	Agriculture production	1,209		—		24		(18)			1,215		Agriculture production	1,215		38		—		4		(351)		906
Leases	Leases	5		—		—		13			18		Leases	18		—		—		—		(3)		15
Allowance for credit losses on loans	Allowance for credit losses on loans	$	91,847	$	(2,392)	$	3,086	$	(7,165)		$	85,376	Allowance for credit losses on loans	85,376		2,037		(1,585)		1,907		17,945		105,680
Reserve for unfunded commitments	Reserve for unfunded commitments	3,400		—		—		390			3,790		Reserve for unfunded commitments	3,790		—		—		—		525		4,315
Total	Total	$	95,247	$	(2,392)	$	3,086	$	(6,775)		$	89,166	Total	$	89,166	$	2,037	$	(1,585)	$	1,907	$	18,470	$	109,995


		Allowance for credit losses – Three months ended September 30, 2021											Allowance for credit losses – Three months ended March 31, 2022
(in thousands)	(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision		Ending Balance		(in thousands)	Beginning Balance		ACL of PCD Loans		Charge-offs		Recoveries		Provision		Ending Balance
Commercial real estate:	Commercial real estate:											Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	26,028	$	—	$	10	$	(817)	$	25,221	CRE non-owner occupied	$	25,739	$	746	$	—	$	—	$	1,570	$	28,055
CRE owner occupied	CRE owner occupied	10,463		(18)		793		(508)		10,730		CRE owner occupied	10,691		63		—		—		1,317		12,071
Multifamily	Multifamily	13,196		—		—		(320)		12,876		Multifamily	12,395		—		—		—		(408)		11,987
Farmland	Farmland	1,950		(126)		—		78		1,902		Farmland	2,315		764		(294)		—		94		2,879
Total commercial real estate loans	Total commercial real estate loans	51,637		(144)		803		(1,567)		50,729		Total commercial real estate loans	51,140		1,573		(294)		—		2,573		54,992
Consumer:	Consumer:											Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	10,629		(145)		1		133		10,618		SFR 1-4 1st DT liens	10,723		144		—		40		(238)		10,669
SFR HELOCs and junior liens	SFR HELOCs and junior liens	10,701		—		63		(333)		10,431		SFR HELOCs and junior liens	10,510		—		—		175		158		10,843
Other	Other	2,620		(181)		97		(94)		2,442		Other	2,241		—		(119)		71		(26)		2,167
Total consumer loans	Total consumer loans	23,950		(326)		161		(294)		23,491		Total consumer loans	23,474		144		(119)		286		(106)		23,679
Commercial and industrial	Commercial and industrial	4,511		(1,112)		355		(327)		3,427		Commercial and industrial	3,862		81		(330)		887		4,542		9,042
Construction	Construction	4,951		—		—		577		5,528		Construction	5,667		201		—		—		1,569		7,437
Agriculture production	Agriculture production	1,007		—		2		110		1,119		Agriculture production	1,215		38		—		1		(371)		883
Leases	Leases	6		—		—		6		12		Leases	18		—		—		—		(2)		16
Allowance for credit losses on loans	Allowance for credit losses on loans	$	86,062	$	(1,582)	$	1,321	$	(1,495)	$	84,306	Allowance for credit losses on loans	85,376		2,037		(743)		1,174		8,205		96,049
Reserve for unfunded commitments	Reserve for unfunded commitments	3,465		—		—		60		3,525		Reserve for unfunded commitments	3,790		—		—		—		125		3,915
Total	Total	$	89,527	$	(1,582)	$	1,321	$	(1,435)	$	87,831	Total	$	89,166	$	2,037	$	(743)	$	1,174	$	8,330	$	99,964

~~Table of Contents~~

Allowance for credit losses – Nine months ended September 30, 2021
(in thousands) Beginning
Balance Charge-offs Recoveries Provision Ending Balance
Commercial real estate:
CRE non-owner occupied $ 29,380 $ — $ 12 $ (4,171) $ 25,221
CRE owner occupied 10,861 (18) 794 (907) 10,730
Multifamily 11,472 — — 1,404 12,876
Farmland 1,980 (126) — 48 1,902
Total commercial real estate loans 53,693 (144) 806 (3,626) 50,729
Consumer:
SFR 1-4 1st DT liens 10,117 (145) 12 634 10,618
SFR HELOCs and junior liens 11,771 — 860 (2,200) 10,431
Other 3,260 (460) 262 (620) 2,442
Total consumer loans 25,148 (605) 1,134 (2,186) 23,491
Commercial and industrial 4,252 (1,446) 570 51 3,427
Construction 7,540 — — (2,012) 5,528
Agriculture production 1,209 — 24 (114) 1,119
Leases 5 — — 7 12
Allowance for credit losses on loans 91,847 (2,195) 2,534 (7,880) 84,306
Reserve for unfunded commitments 3,400 — — 125 3,525
Total $ 95,247 $ (2,195) $ 2,534 $ (7,755) $ 87,831

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio. The Company analyzes loans individually to classify the loans as to credit risk and grading. This analysis is performed annually for all outstanding balances greater than ~~$1,000,000~~$1 million and non-homogeneous loans, such as commercial real

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estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the ~~$1,000,000~~$1 million threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.

The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows:

•Pass – This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital.

•Special Mention – This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention.

•Substandard – This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well-defined workout/rehabilitation program.

•Doubtful – This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans.

•Loss – This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified.

~~Table of Contents~~

Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the period indicated:


		Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2022																			Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023
(in thousands)	(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:	Commercial real estate:																			Commercial real estate:
CRE non-owner occupied risk ratings	CRE non-owner occupied risk ratings																			CRE non-owner occupied risk ratings
Pass	Pass	$	314,435	$	309,032	$	151,529	$	225,181	$	152,544	$	761,494	$	108,941	$	—	$	2,023,156	Pass	$	29,991	$	412,225	$	293,358	$	152,186	$	225,912	$	868,576	$	120,771	$	—	$	2,103,019
Special Mention	Special Mention	—		—		—		8,650		—		22,079		1,345		—		32,074		Special Mention	—		—		7,430		—		19,905		25,555		1,556		—		54,446
Substandard	Substandard	—		900		792		—		1,066		4,418		—		—		7,176		Substandard	—		—		827		743		218		1,806		—		—		3,594
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total CRE non-owner occupied risk ratings		$	314,435	$	309,932	$	152,321	$	233,831	$	153,610	$	787,991	$	110,286	$	—	$	2,062,406
Total																				Total	$	29,991	$	412,225	$	301,615	$	152,929	$	246,035	$	895,937	$	122,327	$	—	$	2,161,059
Current period gross write-offs																				Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Commercial real estate:	Commercial real estate:																			Commercial real estate:
CRE owner occupied risk ratings	CRE owner occupied risk ratings																			CRE owner occupied risk ratings
Pass	Pass	$	187,346	$	193,426	$	132,676	$	69,125	$	50,770	$	267,391	$	34,869	$	—	$	935,603	Pass	$	17,630	$	201,342	$	194,894	$	121,856	$	63,323	$	291,219	$	33,526	$	—	$	923,790
Special Mention	Special Mention	—		16,904		236		—		—		7,217		—		—		24,357		Special Mention	—		131		16,818		232		724		7,794		838		—		26,537
Substandard	Substandard	3,230		723		—		117		1,130		3,326		1,102		—		9,628		Substandard	—		3,153		—		5,217		1,877		10,479		157		—		20,883
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total CRE owner occupied risk ratings		$	190,576	$	211,053	$	132,912	$	69,242	$	51,900	$	277,934	$	35,971	$	—	$	969,588
Total																				Total	$	17,630	$	204,626	$	211,712	$	127,305	$	65,924	$	309,492	$	34,521	$	—	$	971,210
Current period gross write-offs																				Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial real estate:
Multifamily risk ratings
Pass $ 153,679 $ 285,798 $ 97,578 $ 88,771 $ 105,714 $ 165,961 $ 29,924 $ — $ 927,425
Special Mention — — — — — — — — —
Substandard — — — — — 132 — — 132
Doubtful/Loss — — — — — — — — —
Total multifamily loans $ 153,679 $ 285,798 $ 97,578 $ 88,771 $ 105,714 $ 166,093 $ 29,924 $ — $ 927,557

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																					Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023
(in thousands)																				(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:	Commercial real estate:																			Commercial real estate:
Farmland risk ratings
Multifamily risk ratings																				Multifamily risk ratings
Pass	Pass	$	43,021	$	53,913	$	16,940	$	23,810	$	13,611	$	39,521	$	49,444	$	—	$	240,260	Pass	$	2,849	$	178,177	$	289,301	$	95,352	$	108,051	$	239,322	$	33,524	$	—	$	946,576
Special Mention	Special Mention	2,284		777		239		—		—		1,433		21,431		—		26,164		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		335		1,520		3,155		7,026		919		—		12,955		Substandard	—		—		—		—		—		117		—		—		117
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total farmland loans		$	45,305	$	54,690	$	17,514	$	25,330	$	16,766	$	47,980	$	71,794	$	—	$	279,379
Total																				Total	$	2,849	$	178,177	$	289,301	$	95,352	$	108,051	$	239,439	$	33,524	$	—	$	946,693
Current period gross write-offs																				Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Consumer loans:
SFR 1-4 1st DT liens risk ratings
Commercial real estate:																				Commercial real estate:
Farmland risk ratings																				Farmland risk ratings
Pass	Pass	$	154,671	$	269,240	$	136,710	$	33,821	$	30,232	$	122,402	$	10	$	3,242	$	750,328	Pass	$	14,429	$	46,353	$	53,146	$	16,430	$	18,037	$	46,924	$	52,382	$	—	$	247,701
Special Mention	Special Mention	—		—		—		283		3,297		3,708		—		441		7,729		Special Mention	—		3,140		—		304		5,000		3,386		—		—		11,830
Substandard	Substandard	—		1,209		—		—		1,025		4,123		—		615		6,972		Substandard	—		—		775		371		—		10,837		3,483		—		15,466
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total SFR 1st DT liens		$	154,671	$	270,449	$	136,710	$	34,104	$	34,554	$	130,233	$	10	$	4,298	$	765,029
Total																				Total	$	14,429	$	49,493	$	53,921	$	17,105	$	23,037	$	61,147	$	55,865	$	—	$	274,997
Current period gross write-offs																				Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass	$	15,719	$	193,110	$	271,654	$	127,830	$	32,755	$	141,016	$	8	$	3,506	$	785,598
Special Mention	—		1,079		—		3,234		280		8,662		—		67		13,322
Substandard	—		—		1,189		—		—		2,667		—		631		4,487
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	15,719	$	194,189	$	272,843	$	131,064	$	33,035	$	152,345	$	8	$	4,204	$	803,407
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Consumer loans:
SFR HELOCs and Junior Liens
Pass	$	360	$	—	$	—	$	—	$	—	$	119	$	362,806	$	7,858	$	371,143
Special Mention	—		—		—		—		—		—		646		23		669
Substandard	—		—		—		—		—		—		3,159		620		3,779
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	360	$	—	$	—	$	—	$	—	$	119	$	366,611	$	8,501	$	375,591
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	43	$	43




Consumer loans:
Other risk ratings
Pass	$	4,305	$	11,888	$	12,044	$	9,376	$	9,680	$	6,274	$	588	$	—	$	54,155
Special Mention	—		—		13		64		130		200		16		—		423
Substandard	—		—		—		42		70		87		22		—		221
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	4,305	$	11,888	$	12,057	$	9,482	$	9,880	$	6,561	$	626	$	—	$	54,799
Current period gross write-offs	$	96	$	6	$	—	$	—	$	29	$	7	$	3	$	—	$	141

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	Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial and industrial loans:
Commercial and industrial risk ratings
Pass	$	34,754	$	107,807	$	64,490	$	15,801	$	20,277	$	11,093	$	273,269	$	402	$	527,893
Special Mention	44		2,750		60		20		29		1,037		9,453		—		13,393
Substandard	—		1,223		1,869		3,235		11		298		5,076		100		11,812
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	34,798	$	111,780	$	66,419	$	19,056	$	20,317	$	12,428	$	287,798	$	502	$	553,098
Current period gross write-offs	$	6	$	—	$	—	$	1,550	$	—	$	—	$	—	$	18	$	1,574


Construction loans:
Construction risk ratings
Pass	$	10,823	$	93,294	$	67,911	$	41,776	$	4,904	$	6,736	$	—	$	—	$	225,444
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		458		94		—		—		552
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	10,823	$	93,294	$	67,911	$	41,776	$	5,362	$	6,830	$	—	$	—	$	225,996
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Agriculture production loans:
Agriculture production risk ratings
Pass	$	50	$	3,140	$	2,567	$	1,003	$	929	$	9,755	$	21,690	$	—	$	39,134
Special Mention	—		—		—		—		—		103		4,769		—		4,872
Substandard	—		—		—		—		—		—		3,056		—		3,056
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	50	$	3,140	$	2,567	$	1,003	$	929	$	9,858	$	29,515	$	—	$	47,062
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Leases:
Lease risk ratings
Pass	$	8,509	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$8,509
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	8,509	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	8,509
Current period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—




Total loans outstanding:
Risk ratings
Pass	$	139,419	$	1,247,336	$	1,249,365	$	581,610	$	483,868	$	1,621,034	$	898,564	$	11,766	$	6,232,962
Special Mention	44		7,100		24,321		3,854		26,068		46,737		17,278		90		125,492
Substandard	—		4,376		4,660		9,608		2,634		26,385		14,953		1,351		63,967
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	139,463	$	1,258,812	$	1,278,346	$	595,072	$	512,570	$	1,694,156	$	930,795	$	13,207	$	6,422,421
Current period gross write-offs	$	102	$	6	$	—	$	1,550	$	29	$	7	$	3	$	61	$	1,758

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022
(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Commercial real estate:
CRE non-owner occupied risk ratings
Pass	$	399,910	$	304,636	$	152,960	$	221,659	$	147,842	$	748,994	$	123,794	$	—	$	2,099,795
Special Mention	—		—		—		20,033		—		21,681		1,346		—		43,060
Substandard	—		864		768		—		1,059		4,179		—		—		6,870
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	399,910	$	305,500	$	153,728	$	241,692	$	148,901	$	774,854	$	125,140	$	—	$	2,149,725


Commercial real estate:
CRE owner occupied risk ratings
Pass	$	210,101	$	197,787	$	120,929	$	64,244	$	49,755	$	251,137	$	43,343	$	—	$	937,296
Special Mention	131		16,296		234		731		—		6,971		879		—		25,242
Substandard	3,213		—		5,249		1,893		1,103		10,654		157		—		22,269
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	213,445	$	214,083	$	126,412	$	66,868	$	50,858	$	268,762	$	44,379	$	—	$	984,807


Commercial real estate:
Multifamily risk ratings
Pass	$	159,318	$	290,170	$	96,937	$	108,586	$	106,287	$	154,125	$	28,989	$	—	$	944,412
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		125		—		—		125
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	159,318	$	290,170	$	96,937	$	108,586	$	106,287	$	154,250	$	28,989	$	—	$	944,537


Commercial real estate:
Farmland risk ratings
Pass	$	47,067	$	53,275	$	16,739	$	18,589	$	12,386	$	34,528	$	53,684	$	—	$	236,268
Special Mention	3,139		783		246		5,000		—		3,991		14,275		—		27,434
Substandard	—		—		1,772		765		3,158		7,094		3,523		—		16,312
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	50,206	$	54,058	$	18,757	$	24,354	$	15,544	$	45,613	$	71,482	$	—	$	280,014


Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass	$	194,933	$	265,370	$	131,922	$	33,395	$	28,545	$	115,469	$	8	$	2,924	$	772,566
Special Mention	—		—		1,531		282		3,277		5,854		—		465		11,409
Substandard	—		1,204		—		—		1,004		3,521		—		645		6,374
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	194,933	$	266,574	$	133,453	$	33,677	$	32,826	$	124,844	$	8	$	4,034	$	790,349

Table of Contents


		Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2022																			Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022
(in thousands)	(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Consumer loans:	Consumer loans:																			Consumer loans:
SFR HELOCs and Junior Liens	SFR HELOCs and Junior Liens																			SFR HELOCs and Junior Liens
Pass	Pass	$	420	$	—	$	—	$	—	$	—	$	136	$	378,609	$	8,522	$	387,687	Pass	$	505	$	—	$	—	$	—	$	—	$	127	$	378,939	$	8,462	$	388,033
Special Mention	Special Mention	—		—		—		—		—		—		1,783		82		1,865		Special Mention	—		—		—		—		—		—		1,842		81		1,923
Substandard	Substandard	—		—		—		—		—		—		3,814		770		4,584		Substandard	—		—		—		—		—		—		3,072		638		3,710
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total SFR HELOCs and Junior Liens		$	420	$	—	$	—	$	—	$	—	$	136	$	384,206	$	9,374	$	394,136
Total																				Total	$	505	$	—	$	—	$	—	$	—	$	127	$	383,853	$	9,181	$	393,666

Consumer loans:
Other risk ratings
Pass $ 11,538 $ 13,996 $ 11,175 $ 11,977 $ 5,657 $ 2,118 $ 873 $ — $ 57,334
Special Mention 2 4 104 143 184 113 43 — 593
Substandard — — 42 43 1 96 23 — 205
Doubtful/Loss — — — — — — — — —
Total other consumer loans $ 11,540 $ 14,000 $ 11,321 $ 12,163 $ 5,842 $ 2,327 $ 939 $ — $ 58,132


Commercial and industrial loans:
Commercial and industrial risk ratings
Consumer loans:																				Consumer loans:
Other risk ratings																				Other risk ratings
Pass	Pass	$	115,676	$	68,377	$	25,530	$	25,839	$	9,157	$	7,005	$	260,876	$	761	$	513,221	Pass	$	14,070	$	12,990	$	10,211	$	10,650	$	5,225	$	1,945	$	899	$	—	$	55,990
Special Mention	Special Mention	3,354		150		22		1,590		169		29		14,374		—		19,688		Special Mention	—		18		77		135		176		32		47		—		485
Substandard	Substandard	—		24		—		—		35		710		1,180		102		2,051		Substandard	—		—		42		92		—		96		23		—		253
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total commercial and industrial loans		$	119,030	$	68,551	$	25,552	$	27,429	$	9,361	$	7,744	$	276,430	$	863	$	534,960
Total																				Total	$	14,070	$	13,008	$	10,330	$	10,877	$	5,401	$	2,073	$	969	$	—	$	56,728


Construction loans:
Construction risk ratings
Commercial and industrial loans:																				Commercial and industrial loans:
Commercial and industrial risk ratings																				Commercial and industrial risk ratings
Pass	Pass	$	43,353	$	85,108	$	52,726	$	42,886	$	2,642	$	5,186	$	—	$	—	$	231,901	Pass	$	125,710	$	64,966	$	17,746	$	23,131	$	7,628	$	5,051	$	297,341	$	483	$	542,056
Special Mention	Special Mention	—		—		—		11,455		—		—		—		—		11,455		Special Mention	3,032		139		21		49		138		768		11,547		—		15,694
Substandard	Substandard	—		—		—		84		—		131		—		—		215		Substandard	1,293		1,142		5,179		14		33		611		3,798		101		12,171
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total construction loans		$	43,353	$	85,108	$	52,726	$	54,425	$	2,642	$	5,317	$	—	$	—	$	243,571
Total																				Total	$	130,035	$	66,247	$	22,946	$	23,194	$	7,799	$	6,430	$	312,686	$	584	$	569,921


Agriculture production loans:
Agriculture production risk ratings
Construction loans:																				Construction loans:
Construction risk ratings																				Construction risk ratings
Pass	Pass	$	1,837	$	2,635	$	1,288	$	1,204	$	8,947	$	1,181	$	41,865	$	—	$	58,957	Pass	$	72,840	$	72,308	$	43,409	$	15,358	$	2,159	$	4,900	$	—	$	—	$	210,974
Special Mention	Special Mention	—		—		—		—		104		33		2,211		—		2,348		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		1,804		—		—		—		8,490		—		10,294		Substandard	—		—		—		457		—		129		—		—		586
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total agriculture production loans		$	1,837	$	2,635	$	3,092	$	1,204	$	9,051	$	1,214	$	52,566	$	—	$	71,599
Total																				Total	$	72,840	$	72,308	$	43,409	$	15,815	$	2,159	$	5,029	$	—	$	—	$	211,560


Agriculture production loans:
Agriculture production risk ratings
Pass	$	3,414	$	2,777	$	1,149	$	1,104	$	8,902	$	1,058	$	38,425	$	—	$	56,829
Special Mention	—		—		—		—		90		31		1,632		—		1,753
Substandard	—		—		—		—		—		—		2,832		—		2,832
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	3,414	$	2,777	$	1,149	$	1,104	$	8,992	$	1,089	$	42,889	$	—	$	61,414

Table of Contents


		Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2022																			Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022
(in thousands)	(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total		(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
Leases:	Leases:																			Leases:
Lease risk ratings	Lease risk ratings																			Lease risk ratings
Pass	Pass	$	7,933	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$7,933		Pass	$	7,726	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7,726
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		—		—		Substandard	—		—		—		—		—		—		—		—		—
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total leases		$	7,933	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7,933
Total																				Total	$	7,726	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7,726


Total loans outstanding:	Total loans outstanding:																			Total loans outstanding:
Risk ratings	Risk ratings																			Risk ratings
Pass	Pass	$	1,033,909	$	1,281,525	$	626,152	$	522,614	$	379,274	$	1,372,395	$	905,411	$	12,525	$	6,133,805	Pass	$	1,235,594	$	1,264,279	$	592,002	$	496,716	$	368,729	$	1,317,334	$	965,422	$	11,869	$	6,251,945
Special Mention	Special Mention	5,640		17,835		601		22,121		3,754		34,612		41,187		523		126,273		Special Mention	6,302		17,236		2,109		26,230		3,681		39,328		31,568		546		127,000
Substandard	Substandard	3,230		2,856		2,973		1,764		6,412		19,962		15,528		1,487		54,212		Substandard	4,506		3,210		13,010		3,221		6,357		26,409		13,405		1,384		71,502
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total loans outstanding		$	1,042,779	$	1,302,216	$	629,726	$	546,499	$	389,440	$	1,426,969	$	962,126	$	14,535	$	6,314,290
Total																				Total	$	1,246,402	$	1,284,725	$	607,121	$	526,167	$	378,767	$	1,383,071	$	1,010,395	$	13,799	$	6,450,447

~~Table of Contents~~

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2021
(in thousands) 2021 2020 2019 2018 2016 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Commercial real estate:
CRE non-owner occupied risk ratings
Pass $ 275,305 $ 127,299 $ 199,764 $ 133,046 $ 224,581 $ 543,430 $ 49,899 $ — $ 1,553,324
Special Mention — — 8,386 399 4,390 20,612 1,732 — 35,519
Substandard — — — 1,382 739 12,177 — — 14,298
Doubtful/Loss — — — — — — — — —
Total CRE non-owner occupied risk ratings $ 275,305 $ 127,299 $ 208,150 $ 134,827 $ 229,710 $ 576,219 $ 51,631 $ — $ 1,603,141

Commercial real estate:
CRE owner occupied risk ratings
Pass $ 178,092 $ 104,571 $ 63,979 $ 48,721 $ 55,399 $ 203,431 $ 22,745 $ — $ 676,938
Special Mention 15,515 — — 289 2,964 3,833 — — 22,601
Substandard — — 858 1,214 455 4,241 — — 6,768
Doubtful/Loss — — — — — — — — —
Total CRE owner occupied risk ratings $ 193,607 $ 104,571 $ 64,837 $ 50,224 $ 58,818 $ 211,505 $ 22,745 $ — $ 706,307

Commercial real estate:
Multifamily risk ratings
Pass $ 278,942 $ 100,752 $ 71,822 $ 109,374 $ 85,932 $ 146,984 $ 25,236 $ — $ 819,042
Special Mention — — — — — — — — —
Substandard — — 4,305 — — 153 — — 4,458
Doubtful/Loss — — — — — — — — —
Total multifamily loans $ 278,942 $ 100,752 $ 76,127 $ 109,374 $ 85,932 $ 147,137 $ 25,236 $ — $ 823,500

Commercial real estate:
Farmland risk ratings
Pass $ 43,601 $ 17,399 $ 20,223 $ 15,119 $ 9,129 $ 18,455 $ 37,612 $ — $ 161,538
Special Mention — — — — 1,197 2,519 1,491 — 5,207
Substandard — — 2,895 — 578 1,371 1,517 — 6,361
Doubtful/Loss — — — — — — — — —
Total farmland loans $ 43,601 $ 17,399 $ 23,118 $ 15,119 $ 10,904 $ 22,345 $ 40,620 $ — $ 173,106

Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass $ 268,743 $ 159,860 $ 40,661 $ 30,880 $ 36,197 $ 113,519 $ — $ 3,527 $ 653,387
Special Mention — — 286 3,282 416 1,476 — 383 5,843
Substandard 1,103 — — 1,089 256 4,758 — 524 7,730
Doubtful/Loss — — — — — — — — —
Total SFR 1st DT liens $ 269,846 $ 159,860 $ 40,947 $ 35,251 $ 36,869 $ 119,753 $ — $ 4,434 $ 666,960

~~Table of Contents~~

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2021
(in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Consumer loans:
SFR HELOCs and Junior Liens
Pass $ 494 $ — $ — $ — $ — $ 185 $ 317,381 $ 9,675 $ 327,735
Special Mention — — — — — 53 3,655 832 4,540
Substandard — — — — — 2 4,164 1,072 5,238
Doubtful/Loss — — — — — — — — —
Total SFR HELOCs and Junior Liens $ 494 $ — $ — $ — $ — $ 240 $ 325,200 $ 11,579 $ 337,513

Consumer loans:
Other risk ratings
Pass $ 20,920 $ 15,939 $ 17,316 $ 8,016 $ 2,137 $ 1,079 $ 612 $ — $ 66,019
Special Mention — 46 157 233 98 51 69 — 654
Substandard — 53 96 94 67 85 10 — 405
Doubtful/Loss — — — — — — — — —
Total other consumer loans $ 20,920 $ 16,038 $ 17,569 $ 8,343 $ 2,302 $ 1,215 $ 691 $ — $ 67,078

Commercial and industrial loans:
Commercial and industrial risk ratings
Pass $ 92,972 $ 17,933 $ 27,335 $ 11,335 $ 6,355 $ 6,774 $ 89,358 $ 860 $ 252,922
Special Mention — 2,417 69 152 71 80 116 — 2,905
Substandard — — 146 152 804 414 1,832 180 3,528
Doubtful/Loss — — — — — — — — —
Total commercial and industrial loans $ 92,972 $ 20,350 $ 27,550 $ 11,639 $ 7,230 $ 7,268 $ 91,306 $ 1,040 $ 259,355

Construction loans:
Construction risk ratings
Pass $ 66,318 $ 79,567 $ 58,383 $ 4,849 $ 1,716 $ 8,148 $ — $ — $ 218,981
Special Mention — — — — — — — — —
Substandard 2,675 472 — — — 153 — — 3,300
Doubtful/Loss — — — — — — — — —
Total construction loans $ 68,993 $ 80,039 $ 58,383 $ 4,849 $ 1,716 $ 8,301 $ — $ — $ 222,281

Agriculture production loans:
Agriculture production risk ratings
Pass $ 2,068 $ 878 $ 1,393 $ 801 $ 940 $ 853 $ 43,686 $ — $ 50,619
Special Mention — — — 150 — 42 — — 192
Substandard — — — — — — — — —
Doubtful/Loss — — — — — — — — —
Total agriculture production loans $ 2,068 $ 878 $ 1,393 $ 951 $ 940 $ 895 $ 43,686 $ — $ 50,811

~~Table of Contents~~

Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2021
(in thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total
Pass $ 6,572 $ — $ — $ — $ — $ — $ — $ — $ 6,572
Special Mention — — — — — — — — —
Substandard — — — — — — — — —
Doubtful/Loss — — — — — — — — —
Total leases $ 6,572 $ — $ — $ — $ — $ — $ — $ — $ 6,572

Total loans outstanding:
Risk ratings
Pass $ 1,234,027 $ 624,198 $ 500,876 $ 362,141 $ 422,386 $ 1,042,858 $ 586,529 $ 14,062 $ 4,787,077
Special Mention 15,515 2,463 8,898 4,505 9,136 28,666 7,063 1,215 77,461
Substandard 3,778 525 8,300 3,931 2,899 23,354 7,523 1,776 52,086
Doubtful/Loss — — — — — — — — —
Total loans outstanding $ 1,253,320 $ 627,186 $ 518,074 $ 370,577 $ 434,421 $ 1,094,878 $ 601,115 $ 17,053 $ 4,916,624

~~Table of Contents~~

The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:

Analysis of Past Due Loans - As of September 30, 2022
(in thousands) 30-59 days 60-89 days > 90 days Total Past
Due Loans Current Total
Commercial real estate:
CRE non-owner occupied $ 113 $ 166 $ 224 $ 503 $ 2,061,903 $ 2,062,406
CRE owner occupied 689 — 75 764 968,824 969,588
Multifamily — — — — 927,557 927,557
Farmland 336 438 — 774 278,605 279,379
Total commercial real estate loans 1,138 604 299 2,041 4,236,889 4,238,930
Consumer:
SFR 1-4 1st DT liens 15 114 616 745 764,284 765,029
SFR HELOCs and junior liens 1,257 53 964 2,274 391,862 394,136
Other 63 44 42 149 57,983 58,132
Total consumer loans 1,335 211 1,622 3,168 1,214,129 1,217,297
Commercial and industrial 669 280 140 1,089 533,871 534,960
Construction — — 85 85 243,486 243,571
Agriculture production — — 88 88 71,511 71,599
Leases — — — — 7,933 7,933
Total $ 3,142 $ 1,095 $ 2,234 $ 6,471 $ 6,307,819 $ 6,314,290


		Analysis of Past Due Loans - As of December 31, 2021													Analysis of Past Due Loans - As of March 31, 2023
(in thousands)	(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total		(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	226	$	37	$	—	$	263	$	1,602,878	$	1,603,141	CRE non-owner occupied	$	623	$	—	$	—	$	623	$	2,160,436	$	2,161,059
CRE owner occupied	CRE owner occupied	271		127		273		671		705,636		706,307		CRE owner occupied	156		82		172		410		970,800		971,210
Multifamily	Multifamily	—		—		—		—		823,500		823,500		Multifamily	—		—		—		—		946,693		946,693
Farmland	Farmland	—		—		575		575		172,531		173,106		Farmland	150		—		—		150		274,847		274,997
Total commercial real estate loans	Total commercial real estate loans	497		164		848		1,509		3,304,545		3,306,054		Total commercial real estate loans	929		82		172		1,183		4,352,776		4,353,959
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		13		362		375		666,585		666,960		SFR 1-4 1st DT liens	442		557		356		1,355		802,052		803,407
SFR HELOCs and junior liens	SFR HELOCs and junior liens	36		361		1,212		1,609		335,904		337,513		SFR HELOCs and junior liens	—		1,342		793		2,135		373,456		375,591
Other	Other	109		7		28		144		66,934		67,078		Other	49		136		121		306		54,493		54,799
Total consumer loans	Total consumer loans	145		381		1,602		2,128		1,069,423		1,071,551		Total consumer loans	491		2,035		1,270		3,796		1,230,001		1,233,797
Commercial and industrial	Commercial and industrial	146		245		166		557		258,798		259,355		Commercial and industrial	471		1,620		364		2,455		550,643		553,098
Construction	Construction	—		90		—		90		222,191		222,281		Construction	—		78		379		457		225,539		225,996
Agriculture production	Agriculture production	48		—		—		48		50,763		50,811		Agriculture production	—		—		—		—		47,062		47,062
Leases	Leases	—		—		—		—		6,572		6,572		Leases	—		—		—		—		8,509		8,509
Total	Total	$	836	$	880	$	2,616	$	4,332	$	4,912,292	$	4,916,624	Total	$	1,891	$	3,815	$	2,185	$	7,891	$	6,414,530	$	6,422,421

2723

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	Analysis of Past Due Loans - As of December 31, 2022
(in thousands)	30-59 days		60-89 days		> 90 days		Total Past Due Loans		Current		Total
Commercial real estate:
CRE non-owner occupied	$	—	$	—	$	—	$	—	$	2,149,725	$	2,149,725
CRE owner occupied	—		98		75		173		984,634		984,807
Multifamily	159		—		—		159		944,378		944,537
Farmland	—		—		—		—		280,014		280,014
Total commercial real estate loans	159		98		75		332		4,358,751		4,359,083
Consumer:
SFR 1-4 1st DT liens	24		—		279		303		790,046		790,349
SFR HELOCs and junior liens	172		166		707		1,045		392,621		393,666
Other	26		34		55		115		56,613		56,728
Total consumer loans	222		200		1,041		1,463		1,239,280		1,240,743
Commercial and industrial	2,300		190		283		2,773		567,148		569,921
Construction	—		—		379		379		211,181		211,560
Agriculture production	—		—		—		—		61,414		61,414
Leases	—		—		—		—		7,726		7,726
Total	$	2,681	$	488	$	1,778	$	4,947	$	6,445,500	$	6,450,447

The following table shows the ending balance of non accrual loans by loan category as of the date indicated:


		Non Accrual Loans													Non Accrual Loans
		As of September 30, 2022						As of December 31, 2021							As of March 31, 2023						As of December 31, 2022
(in thousands)	(in thousands)	Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing		Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing		(in thousands)	Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing		Non accrual with no allowance for credit losses		Total non accrual		Past due 90 days or more and still accruing
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	2,032	$	2,032	$	—	$	7,899	$	7,899	$	—	CRE non-owner occupied	$	1,671	$	1,671	$	—	$	1,739	$	1,739	$	—
CRE owner occupied	CRE owner occupied	1,703		1,778		—		4,763		5,036		—		CRE owner occupied	3,848		3,848		—		4,938		4,938		—
Multifamily	Multifamily	132		132		—		4,457		4,457		—		Multifamily	117		117		—		125		125		—
Farmland	Farmland	813		695		—		452		3,020		—		Farmland	371		371		—		1,772		1,772		—
Total commercial real estate loans	Total commercial real estate loans	4,680		4,637		—		17,571		20,412		—		Total commercial real estate loans	6,007		6,007		—		8,574		8,574		—
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	3,103		3,255		—		3,594		3,595		—		SFR 1-4 1st DT liens	3,532		3,532		—		4,117		4,220		—
SFR HELOCs and junior liens	SFR HELOCs and junior liens	2,945		3,365		—		3,285		3,801		—		SFR HELOCs and junior liens	2,790		3,373		—		2,498		3,155		—
Other	Other	6		61		—		48		71		—		Other	78		139		—		47		84		—
Total consumer loans	Total consumer loans	6,054		6,681		—		6,927		7,467		—		Total consumer loans	6,400		7,044		—		6,662		7,459		—
Commercial and industrial	Commercial and industrial	462		655		5		1,904		2,416		—		Commercial and industrial	95		1,372		189		1,224		3,518		—
Construction	Construction	120		120		—		15		55		—		Construction	457		457		—		491		491		—
Agriculture production	Agriculture production	—		5,373		—		—		—		—		Agriculture production	957		957		—		1,279		1,279		—
Leases	Leases	—		—		—		—		—		—		Leases	—		—		—		—		—		—
Sub-total	Sub-total	11,316		17,466		5		26,417		30,350		—		Sub-total	13,916		15,837		189		18,230		21,321		—
Less: Guaranteed loans	Less: Guaranteed loans	(110)		(147)		—		(713)		(775)				Less: Guaranteed loans	(75)		(230)		—		(105)		(225)
Total, net	Total, net	$	11,206	$	17,319	$	5	$	25,704	$	29,575	$	—	Total, net	$	13,841	$	15,607	$	189	$	18,125	$	21,096	$	—

Interest income on non accrual loans that would have been recognized during the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ if all such loans had been current in accordance with their original terms, totaled ~~$497,000~~$0.32 million and ~~$412,000,~~$0.17 million, respectively. Interest income actually recognized on these originated loans during the three months ended ~~September 30,~~March 31, 2023 and 2022 was $17 thousand and ~~2021 was $272,000 and $117,000, respectively.~~

Interest income on non accrual loans that would have been recognized during the nine months ended September 30, 2022 and 2021, if all such loans had been current in accordance with their original terms, totaled $901,000 and $1,472,000, respectively. Interest income actually recognized on these originated loans during the nine months ended September 30, 2022 and 2021 was $285,000 and $293,000,$13 thousand, respectively.

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The following tables present the amortized cost basis of collateral dependent loans by class of loans as of the following periods:


		As of September 30, 2022																							As of March 31, 2023
(in thousands)	(in thousands)	Retail		Office		Warehouse		Other		Multifamily		Farmland		SFR-1st Deed		SFR-2nd Deed		Automobile/Truck		A/R and Inventory		Equipment			Total		(in thousands)	Retail		Office		Warehouse		Other		Multifamily		Farmland		SFR-1st Deed		SFR-2nd Deed		Automobile/Truck		A/R and Inventory		Equipment		Total
Commercial real estate:	Commercial real estate:																										Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	1,031	$	101	$	—	$	900	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	2,032	CRE non-owner occupied	$	749	$	95	$	—	$	827	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,671
CRE owner occupied	CRE owner occupied	573		75		1,131		—		—		—		—		—		—		—		—			1,779		CRE owner occupied	523		75		—		3,250		—		—		—		—		—		—		—		3,848
Multifamily	Multifamily	—		—		—		—		132		—		—		—		—		—		—			132		Multifamily	—		—		—		—		117		—		—		—		—		—		—		117
Farmland	Farmland	—		—		—		—		—		813		—		—		—		—		—			813		Farmland	—		—		—		—		—		371		—		—		—		—		—		371
Total commercial real estate loans	Total commercial real estate loans	1,604		176		1,131		900		132		813		—		—		—		—		—			4,756		Total commercial real estate loans	1,272		170		—		4,077		117		371		—		—		—		—		—		6,007
Consumer:	Consumer:																							Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		—		—		—		—		—		3,255		—		—		—		—			3,255		SFR 1-4 1st DT liens	—		—		—		—		—		—		3,532		—		—		—		—		3,532
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—		—		—		—		—		—		1,503		1,442		—		—		—			2,945		SFR HELOCs and junior liens	—		—		—		—		—		—		1,705		1,308		—		—		—		3,013
Other	Other	—		—		—		5		—		—		—		—		43		—		2			50		Other	—		—		—		4		—		—		—		—		124		—		2		130
Total consumer loans	Total consumer loans	—		—		—		5		—		—		4,758		1,442		43		—		2			6,250		Total consumer loans	—		—		—		4		—		—		5,237		1,308		124		—		2		6,675
Commercial and industrial	Commercial and industrial	—		—		—		—		—		—		—		—		—		604		50			654		Commercial and industrial	—		—		—		—		—		—		—		—		—		1,298		74		1,372
Construction	Construction	—		—		—		—		—		—		120		—		—		—		—			120		Construction	—		—		—		379		—		—		78		—		—		—		—		457
Agriculture production	Agriculture production	—		—		—		88		—		—		—		—		—		1,804		3,481			5,373		Agriculture production	—		—		—		—		—		—		—		—		—		—		957		957
Leases	Leases	—		—		—		—		—		—		—		—		—		—		—			—		Leases	—		—		—		—		—		—		—		—		—		—		—		—
Total	Total	$	1,604	$	176	$	1,131	$	993	$	132	$	813	$	4,878	$	1,442	$	43	$	2,408	$	3,533		$	17,153	Total	$	1,272	$	170	$	—	$	4,460	$	117	$	371	$	5,315	$	1,308	$	124	$	1,298	$	1,033	$	15,468


		As of December 31, 2021																								As of December 31, 2022
(in thousands)	(in thousands)	Retail		Office		Warehouse		Other		Multifamily			Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory		Equipment			Total		(in thousands)	Retail		Office		Warehouse		Other		Multifamily		Farmland		SFR -1st Deed		SFR -2nd Deed		Automobile/Truck		A/R and Inventory		Equipment		Total
Commercial real estate:	Commercial real estate:																											Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	2,591	$	1,253	$	1,545	$	7,272	$	—		$	—	$	—	$	—	$	—	$	—	$	—		$	12,661	CRE non-owner occupied	$	777	$	98	$	—	$	864	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,739
CRE owner occupied	CRE owner occupied	—		—		—		—		—			—		—		—		—		—		—			—		CRE owner occupied	548		75		1,103		3,212		—		—		—		—		—		—		—		4,938
Multifamily	Multifamily	—		—		—		—		4,458			—		—		—		—		—		—			4,458		Multifamily	—		—		—		—		125		—		—		—		—		—		—		125
Farmland	Farmland	—		—		—		—		—		—	1,027		—		—		—		—		—			1,027		Farmland	—		—		—		—		—		1,772		—		—		—		—		—		1,772
Total commercial real estate loans	Total commercial real estate loans	2,591		1,253		1,545		7,272		4,458			1,027		—		—		—		—		—			18,146		Total commercial real estate loans	1,325		173		1,103		4,076		125		1,772		—		—		—		—		—		8,574
Consumer:	Consumer:																								Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		—		—		—		—			—		3,589		—		—		—		—			3,589		SFR 1-4 1st DT liens	—		—		—		—		—		—		4,220		—		—		—		—		4,220
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—		—		—		—		—			—		1,649		1,636		—		—		—			3,285		SFR HELOCs and junior liens	—		—		—		—		—		—		1,664		1,121		—		—		—		2,785
Other	Other	—		—		—		43		—			—		—		—		5		—		5			53		Other	—		—		—		5		—		—		—		—		61		—		2		68
Total consumer loans	Total consumer loans	—		—		—		43		—			—		5,238		1,636		5		—		5			6,927		Total consumer loans	—		—		—		5		—		—		5,884		1,121		61		—		2		7,073
Commercial and industrial	Commercial and industrial	—		—		—		—		—			—		—		—		—		2,162		112			2,274		Commercial and industrial	—		—		—		1,874		—		—		—		—		—		1,596		48		3,518
Construction	Construction	—		—		—		—		—			—		15		—		—		—		—			15		Construction	—		—		—		379		—		—		112		—		—		—		—		491
Agriculture production	Agriculture production	—		—		—		—		—			—		—		—		—		—		—			—		Agriculture production	—		—		—		—		—		—		—		—		—		—		1,279		1,279
Leases	Leases	—		—		—		—		—			—		—		—		—		—		—			—		Leases	—		—		—		—		—		—		—		—		—		—		—		—
Total	Total	$	2,591	$	1,253	$	1,545	$	7,315	$	4,458		$	1,027	$	5,253	$	1,636	$	5	$	2,162	$	117		$	27,362	Total	$	1,325	$	173	$	1,103	$	6,334	$	125	$	1,772	$	5,996	$	1,121	$	61	$	1,596	$	1,329	$	20,935

2925

Table of Contents

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The following tables show ~~certain information regarding TDRs that occurred during~~ the ~~periods indicated:~~

TDR information for the three months ended September 30, 2022
(dollars in thousands) Number Pre-mod
outstanding
principal
balance Post-mod
outstanding
principal
balance Financial
impact due to
TDR taken as
additional
provision Number that
defaulted during
the period Recorded
investment of
TDRs that
defaulted during
the period Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Commercial real estate:
CRE non-owner occupied — $ — $ — $ — — $ — $ —
CRE owner occupied — — — — — — —
Multifamily — — — — — — —
Farmland — — — — — — —
Total commercial real estate loans — — — — — — —
Consumer:
SFR 1-4 1st DT liens — — — — — — —
SFR HELOCs and junior liens — — — — — — —
Other — — — — — — —
Total consumer loans — — — — — — —
Commercial and industrial — — — — — — —
Construction — — — — — — —
Agriculture production 4 7,210 7,210 — — — —
Leases — — — — — — —
Total 4 $ 7,210 $ 7,210 $ — — $ — $ —

TDR information for the three months ended September 30, 2021
(dollars in thousands) Number Pre-mod
outstanding
principal
balance Post-mod
outstanding
principal
balance Financial
impact due to
TDR taken as
additional
provision Number that
defaulted during
the period Recorded
investment of
TDRs that
defaulted during
the period Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Commercial real estate:
CRE non-owner occupied 3 $ 3,943 $ 3,938 $ — — $ — $ —
CRE owner occupied — — — — — — —
Multifamily — — — — — — —
Farmland 1 50 50 50 — — —
Total commercial real estate loans 4 3,993 3,988 50 — — —
Consumer:
SFR 1-4 1st DT liens — — — — — — —
SFR HELOCs and junior liens — — — — — — —
Other — — — — — — —
Total consumer loans — — — — — — —
Commercial and industrial 2 160 159 106 — — —
Construction — — — — — — —
Agriculture production — — — — — — —
Leases — — — — — — —
Total 6 $ 4,153 $ 4,147 $ 156 — $ — $ —

~~Table~~amortized cost basis of ~~Contents~~

TDR Information for the nine months ended September 30, 2022
(dollars in thousands) Number Pre-mod
outstanding
principal
balance Post-mod
outstanding
principal
balance Financial
impact due to
TDR taken as
additional
provision Number that
defaulted during
the period Recorded
investment of
TDRs that
defaulted during
the period Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Commercial real estate:
CRE non-owner occupied — $ — $ — $ — — $ — $ —
CRE owner occupied — — — — — — —
Multifamily — — — — — — —
Farmland 3 1,228 1,440 — — — —
Total commercial real estate loans 3 1,228 1,440 — — — —
Consumer:
SFR 1-4 1st DT liens — — — — — — —
SFR HELOCs and junior liens — — — — 2 146 —
Other — — — — — — —
Total consumer loans — — — — 2 146 —
Commercial and industrial — — — — 1 22 —
Construction — — — — — — —
Agriculture production 4 7,210 7,210 — — — —
Leases — — — — — — —
Total 7 $ 8,438 $ 8,650 $ — 3 $ 168 $ —

TDR Information for the nine months ended September 30, 2021
(dollars in thousands) Number Pre-mod
outstanding
principal
balance Post-mod
outstanding
principal
balance Financial
impact due to
TDR taken as
additional
provision Number that
defaulted during
the period Recorded
investment of
TDRs that
defaulted during
the period Financial impact
due to the
default of
previous TDR
taken as charge-
offs or additional
provisions
Commercial real estate:
CRE non-owner occupied — $ 4,966 $ 4,956 $ 1,020 — $ — $ —
CRE owner occupied — 740 742 742 — — —
Multifamily — — — — — — —
Farmland — 50 50 50 — 847 —
Total commercial real estate loans — 5,756 5,748 1,812 — 847 —
Consumer:
SFR 1-4 1st DT liens — — — — — — —
SFR HELOCs and junior liens — — — — — — —
Other — — — — — — —
Total consumer loans — — — — — — —
Commercial and industrial — 2,476 2,469 709 — 260 (5)
Construction — — — — — — —
Agriculture production — — — — — — —
Leases — — — — — — —
Total — $ 8,232 $ 8,217 $ 2,521 — $ 1,107 $ (5)

~~The Company also modified the terms of select~~ loans ~~in an effort to assist borrowers~~ that were ~~not related to the COVID-19 pandemic. If the borrower was~~both experiencing financial difficulty and ~~a concession was granted,~~modified during the ~~Company considered such modifications as troubled debt restructurings. Modifications classified as TDRs can include one or a combination~~periods presented. The percentage of the ~~following: rate modifications, term extensions, interest only modifications, either temporary or long-term, payment modifications, and collateral substitutions/additions.~~ amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented below.


	For the three months ended March 31, 2023
(in thousands)	Payment Delay/Term Extension		Total % of Loans Outstanding
Commercial real estate:
CRE non-owner occupied	$	—	—	%
CRE owner occupied	—		—
Multifamily	—		—
Farmland	—		—
Total commercial real estate loans	—		—
Consumer:
SFR 1-4 1st DT liens	—		—
SFR HELOCs and junior liens	—		—
Other	—		—
Total consumer loans	—		—
Commercial and industrial	177		0.03
Construction	—		—
Agriculture production	—		—
Leases	—		—
Total	$	177	0.03	%

The ~~objective of~~following table presents the ~~modifications was to increase loan repayments by customers and thereby reduce net charge-offs. The modified loans are included in~~

~~Table of Contents~~

~~impaired loans for purposes of determining the level of the allowance for credit losses.~~

For all new TDRs, an impairment analysis is conducted. If the loan is determined to be collateral dependent, any additional amount of impairment will be calculated based on the difference between estimated collectible value and the current carrying balance of the loan. This difference could result in an increased provision and is typically charged off. If the asset is determined not to be collateral dependent, the impairment is measured on the net present value difference between the expected cash flows of the restructured loan and the cash flows which would have been received under the original terms. Thefinancial effect of ~~this could result in a requirement for additional provision~~loan modifications made to ~~the reserve. The effect of these required provisions for the period are indicated above.~~

~~Typically if a TDR defaults~~borrowers experiencing financial difficulty during the ~~period,~~quarter ended March 31, 2023.


						Weighted Average Months Term Extension
Commercial and industrial						12

There were no loans with payment defaults by borrowers experiencing financial difficulty during the ~~loan is then considered collateral dependent and, if it was not already considered collateral dependent, an appropriate provision will be reserved~~quarter ended March 31, 2023 which had material modifications in rate, term or ~~charge will be taken. The additional provisions required resulting from default of previously modified TDR’s are noted above. Loans that defaulted within~~principal forgiveness during the twelve ~~month period subsequent~~months prior to ~~modification were not considered significant for financial reporting purposes.~~default.

Note 6 - Leases

The Company records a ROUA on the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company also records a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company has elected not to include short-term leases (i.e. leases with initial terms of 12 month or less) within the ROUA and lease liability. Known or determinable adjustments to the required minimum future lease payments were included in the calculation of the Company’s ROUA and lease liability. Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, such as changes in the consumer price index, are included as variable lease costs. Additionally, expected variable payments for common area maintenance, taxes and insurance were unknown and not determinable at lease commencement and therefore, were not included in the determination of the Company’s ROUA or lease liability.

The value of the ROUA and lease liability is impacted by the amount of the periodic payment required, length of the lease term, and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period. The ROUA value is measured using the amount of lease liability and adjusted for prepaid or accrued lease payments, remaining lease incentives, unamortized direct costs (if any), and impairment (if any).

Table of Contents

The following table presents the components of lease expense for the periods ended:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022
Operating lease cost	Operating lease cost	$	1,415	$	1,328	$	4,203	$	3,854	Operating lease cost	$	1,609	$	1,319
Short-term lease cost	Short-term lease cost	76		57		210		180		Short-term lease cost	118		53
Variable lease cost	Variable lease cost	9		8		18		5		Variable lease cost	12		2
Sublease income	Sublease income	—		—		—		(24)		Sublease income	—		—
Total lease cost	Total lease cost	$	1,500	$	1,393	$	4,431	$	4,015	Total lease cost	$	1,739	$	1,374

The following table presents supplemental cash flow information related to leases for the periods ended:


		Three months ended September 30,				Nine months ended September 30,					Three months ended March 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:									Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	1,536	$	1,261	$	4,351	$	3,690	Operating cash flows for operating leases	$	1,653	$	1,292
ROUA obtained in exchange for operating lease liabilities	ROUA obtained in exchange for operating lease liabilities	$	—	$	1,575	$	4,609	$	2,883	ROUA obtained in exchange for operating lease liabilities	$	4,484	$	3,867

The following table presents the weighted average operating lease term and discount rate as of the period ended:


		September 30,					March 31,
		2022		2021			2023		2022
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)	8.3		9.3		Weighted-average remaining lease term (years)	8.3		8.8
Weighted-average discount rate	Weighted-average discount rate	2.91	%	2.92	%	Weighted-average discount rate	3.27	%	2.90	%

~~Table of Contents~~

At ~~September 30, 2022,~~March 31, 2023, future expected operating lease payments are as follows:
(in thousands)
Periods ending December 31,
2022 $ 1,444
2023 5,287
2024 4,882
2025 4,262
2026 3,867
Thereafter 12,997
32,739
Discount for present value of expected cash flows (4,022)
Lease liability at September 30, 2022 $ 28,717


(in thousands)
Periods ending December 31,
2023	$	4,505
2024	5,798
2025	5,229
2026	4,688
2027	4,001
Thereafter	13,071
	37,292
Discount for present value of expected cash flows	(5,064)
Lease liability at March 31, 2023	$	32,228

Note 7 - Deposits

A summary of the balances of deposits follows:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Noninterest-bearing demand	Noninterest-bearing demand	$	3,678,202	$	2,979,882	Noninterest-bearing demand	$	3,236,696	$	3,502,095
Interest-bearing demand	Interest-bearing demand	1,749,123		1,568,682		Interest-bearing demand	1,635,706		1,718,541
Savings	Savings	2,924,674		2,520,959		Savings	2,807,796		2,884,378
Time certificates, $250,000 or more	Time certificates, $250,000 or more	46,688		44,652		Time certificates, $250,000 or more	94,917		46,350
Other time certificates	Other time certificates	257,082		252,984		Other time certificates	250,750		177,649
Total deposits	Total deposits	$	8,655,769	$	7,367,159	Total deposits	$	8,025,865	$	8,329,013

Certificate of deposit balances of zero and $1,000,000 from the State of California were included in time certificates, over $250,000, at September 30, 2022 and December 31, 2021, respectively. The Company participated in a deposit program offered by the State of California whereby the State made deposits at the Company’s request subject to collateral and credit worthiness constraints, generally more favorable than other wholesale funding sources available to the Company. Overdrawn deposit balances of ~~$1,803,000~~$1.4 million and ~~$2,324,000~~$1.8 million were classified as consumer loans at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

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Note 8 - Subordinated Debentures

The following table summarizes the terms and recorded balances of each debenture as of the date indicated (dollars in thousands):


					Coupon Rate (Variable) 3 mo. LIBOR +		September 30, 2022				December 31, 2021						Coupon Rate (Variable) 3 mo. LIBOR +		As of March 31, 2023				As of December 31, 2022
Subordinated Debt Series	Subordinated Debt Series	Maturity Date	Face Value				Current Coupon Rate		Recorded Book Value		Recorded Book Value		Subordinated Debt Series	Maturity Date	Face Value				Current Coupon Rate		Recorded Book Value		Recorded Book Value
TriCo Cap Trust I	TriCo Cap Trust I	10/7/2033	$	20,619	3.05	%	5.56	%	$	20,619	$	20,619	TriCo Cap Trust I	10/7/2033	$	20,619	3.05	%	7.88	%	$	20,619	$	20,619
TriCo Cap Trust II	TriCo Cap Trust II	7/23/2034	20,619		2.55	%	5.33	%	20,619		20,619		TriCo Cap Trust II	7/23/2034	20,619		2.55	%	7.36	%	20,619		20,619
North Valley Trust II	North Valley Trust II	4/24/2033	6,186		3.25	%	6.03	%	5,479		5,403		North Valley Trust II	4/24/2033	6,186		3.25	%	8.06	%	5,527		5,503
North Valley Trust III	North Valley Trust III	7/23/2034	5,155		2.80	%	5.58	%	4,361		4,291		North Valley Trust III	7/23/2034	5,155		2.80	%	7.61	%	4,404		4,383
North Valley Trust IV	North Valley Trust IV	3/15/2036	10,310		1.33	%	4.62	%	7,335		7,147		North Valley Trust IV	3/15/2036	10,310		1.33	%	6.19	%	7,446		7,393
VRB Subordinated - 6%	VRB Subordinated - 6%	3/29/2029	16,000		Fixed		6.00	%	17,234		—		VRB Subordinated - 6%	3/29/2029	16,000		Fixed		6.00	%	17,140		17,187
VRB Subordinated - 5%	VRB Subordinated - 5%	8/27/2035	20,000		Fixed		5.00	%	25,377		—		VRB Subordinated - 5%	8/27/2035	20,000		Fixed		5.00	%	25,296		25,336
			$	98,889					$	101,024	$	58,079			$	98,889					$	101,051	$	101,040

The VRB - 6% Subordinated Debt issuance has a fixed rate of ~~6.00%~~6.0% through March 29, 2024, then indexed to the three-month LIBOR plus 3.5% through the maturity date. The VRB - 5% Subordinated Debt issuance is fixed at ~~5.00%~~5.0% through August 27, 2025, then indexed to the three-month LIBOR plus 4.9% through the maturity date.

~~Table of Contents~~

Note 9 - Commitments and Contingencies

The following table presents a summary of the Bank’s commitments and contingent liabilities:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Financial instruments whose amounts represent risk:	Financial instruments whose amounts represent risk:					Financial instruments whose amounts represent risk:
Commitments to extend credit:	Commitments to extend credit:					Commitments to extend credit:
Commercial loans	Commercial loans	$	673,956	$	409,950	Commercial loans	$	726,505	$	656,705
Consumer loans	Consumer loans	746,498		628,791		Consumer loans	751,193		760,588
Real estate mortgage loans	Real estate mortgage loans	451,296		333,764		Real estate mortgage loans	473,894		458,896
Real estate construction loans	Real estate construction loans	325,485		213,563		Real estate construction loans	307,152		312,371
Standby letters of credit	Standby letters of credit	26,459		21,871		Standby letters of credit	24,070		26,599
Deposit account overdraft privilege	Deposit account overdraft privilege	125,205		125,670		Deposit account overdraft privilege	129,147		126,634

Note 10 - Shareholders’ Equity

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of ~~$16,860,000~~$18.2 million and ~~$7,058,000~~$7.8 million during the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $52,365,000 and $23,197,000, respectively, during the equivalent nine month periods then ended.~~respectively. The Bank is regulated by the FDIC and the DFPI. Absent approval from the Commissioner of the DFPI, California banking laws generally limit the Bank’s ability to pay dividends to the lesser of (1) retained earnings or (2) net income for the last three fiscal years, less cash distributions paid during such period.

Stock Repurchase Plan

On February 25, 2021 the Board of Directors authorized the repurchase of up to ~~2,000,000~~2.0 million shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases ~~will~~can be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations) ~~and during~~. During the three months ended March 31, 2023 and ~~nine month periods ending September 30,~~ 2022, the Company repurchased ~~45,132~~150,000 and ~~571,881~~zero shares with a market ~~value~~values of ~~$2,059,000~~$7.0 million and ~~$23,809,000,~~$0, respectively. During the three and nine month periods ending September 30, 2021, the Company repurchased 17,963 and 63,317 shares with a market value of $730,000 and $2,831,000, respectively. As of September 30, 2022, approximately 1,364,000 shares remained available for repurchase under the 2021 Repurchase Plan.

In connection with approval of the 2021 Repurchase Plan, the Company’s previous repurchase program adopted on November 12, 2019 (the 2019 Repurchase Plan) was terminated. Under the 2019 Repurchase Plan, the Company repurchased 223 shares during the nine months ended September 30, 2021.

Stock Repurchased Under Equity Compensation Plans

The Company's shareholder-approved equity compensation plans permit ~~award recipients the option~~employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares. During the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, equity award~~exercising option holders tendered ~~32,910 and~~ zero shares, respectively, of the Company’s common stock in connection with option exercises. ~~During the nine months ended September 30, 2022 and 2021, equity award holders tendered 37,929 and zero shares, respectively,~~

Table of ~~the Company’s common stock in connection with option exercises. Equity holders~~Contents

Employees also tendered ~~13,833~~12,381 and ~~9,683~~zero shares in connection with the tax withholding requirements of other share based awards during the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and 27,840 and 19,413 during the nine months ended September 30, 2022 and 2021,~~ respectively. In total, shares of the Company's common stock tendered had market values of ~~$2,199,000~~$0.62 million and ~~$384,000~~$0 during the quarters ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $3,029,000 and $836,000 during the year to date periods ended September 30, 2022 and 2021,~~ respectively. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share based award vests. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 ~~or 2019~~ Stock Repurchase Plans.

Note 11 - Stock Options and Other Equity-Based Incentive Instruments

On April 16, 2019, the Board of Directors adopted the 2019 Equity Incentive Plan (2019 Plan) which was approved by shareholders on May 21, 2019. The 2019 Plan allows for up to 1,500,000 shares to be issued in connection with equity-based incentives. The Company’s 2009 Equity Incentive Plan (2009 Plan) expired on March 26, 2019. While no new awards can be granted under the 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement.

~~Table of Contents~~

Stock option activity during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 is summarized in the following table:


		Number of Shares	Weighted Average Exercise Price			Number of Shares	Weighted Average Exercise Price
Outstanding at December 31, 2021		78,825	$	19.28
Outstanding at December 31, 2022					Outstanding at December 31, 2022	15,500	$	21.27
Options granted	Options granted	—	—		Options granted	—	—
Options exercised	Options exercised	(59,325)	18.74		Options exercised	(4,000)	19.46
Options forfeited	Options forfeited	—	—		Options forfeited	—	—
Outstanding at September 30, 2022		19,500	$	20.90
Outstanding at March 31, 2023					Outstanding at March 31, 2023	11,500	$	21.90

The following table shows the number, weighted-average exercise price, intrinsic value, and weighted average remaining contractual life of options exercisable, options not yet exercisable and total options outstanding as of ~~September 30, 2022:~~March 31, 2023:


		Currently Exercisable		Currently Not Exercisable		Total Outstanding			Currently Exercisable		Currently Not Exercisable		Total Outstanding
Number of options	Number of options	19,500		—		19,500		Number of options	11,500		—		11,500
Weighted average exercise price	Weighted average exercise price	$	20.90	$	—	$	20.90	Weighted average exercise price	$	21.90	$	—	$	21.90
Intrinsic value (in thousands)	Intrinsic value (in thousands)	$	463	$	—	$	463	Intrinsic value (in thousands)	$	226	$	—	$	226
Weighted average remaining contractual term (yrs.)	Weighted average remaining contractual term (yrs.)	1.1		n/a		1.1		Weighted average remaining contractual term (yrs.)	1.0		0 years		1.0

As of ~~September 30, 2022~~March 31, 2023 all options outstanding are fully vested and are expected to be exercised prior to expiration. The Company did not modify any option grants during ~~2021~~2022 or the ~~nine~~three months ended ~~September 30, 2022.~~

March 31, 2023.

Activity related to restricted stock unit awards during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 is summarized in the following table:


		Service Condition Vesting RSUs	Market Plus Service Condition Vesting RSUs		Service Condition Vesting RSUs	Market Plus Service Condition Vesting RSUs
Outstanding at December 31, 2021		103,517	99,763
Outstanding at December 31, 2022				Outstanding at December 31, 2022	139,194	114,481
RSUs granted	RSUs granted	57,932	11,531	RSUs granted	—	—
RSUs added through dividend and performance credits	RSUs added through dividend and performance credits	2,078	4,751	RSUs added through dividend and performance credits	817	—
RSUs released	RSUs released	(48,234)	(26,338)	RSUs released	(22,118)	—
RSUs forfeited/expired	RSUs forfeited/expired	(1,421)	(1,572)	RSUs forfeited/expired	—	—
Outstanding at September 30, 2022		113,872	88,135
Outstanding at March 31, 2023				Outstanding at March 31, 2023	117,893	114,481

The ~~113,872~~117,893 of service condition vesting RSUs outstanding as of ~~September 30, 2022~~March 31, 2023 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant. The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities. The ~~113,872~~117,893 of service condition vesting RSUs outstanding as of ~~September 30, 2022~~March 31, 2023 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.9~~2.1 years. The Company expects to recognize ~~$3,348,000~~$3.1 million of pre-tax compensation costs related to these service condition vesting RSUs between ~~September 30, 2022~~March 31, 2023 and their vesting dates. The Company did not modify any service condition vesting RSUs during ~~2021~~2022 or during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.

The ~~88,135~~114,481 of market plus service condition vesting RSUs outstanding as of ~~September 30, 2022~~March 31, 2023 are expected to vest, and be released, on a weighted-average basis, over the next ~~1.8~~2.1 years. The Company expects to recognize ~~$1,309,000~~$1.8 million of pre-tax compensation costs related to these RSUs between ~~September 30, 2022~~March 31, 2023 and their vesting dates. As of ~~September 30, 2022,~~March 31, 2023, the number of market plus service condition vesting

Table of Contents

RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to ~~132,203~~171,722 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date. The Company did not modify any market plus service condition vesting RSUs during ~~2021~~2022 or during the ~~nine~~three months ended ~~September 30, 2022.~~

March 31, 2023.

~~Table of Contents~~

Note 12 - Non-interest Income and Expense

The following table summarizes the Company’s non-interest income for the periods indicated:
Three months ended
September 30, Nine months ended
September 30,
(in thousands) 2022 2021 2022 2021
ATM and interchange fees $ 6,714 $ 6,516 $ 19,941 $ 18,935
Service charges on deposit accounts 4,436 3,608 12,433 10,339
Other service fees 1,022 897 3,183 2,682
Mortgage banking service fees 477 476 1,422 1,406
Change in value of mortgage servicing rights 33 (232) 443 (691)
Total service charges and fees 12,682 11,265 37,422 32,671
Increase in cash value of life insurance 659 644 2,049 2,062
Asset management and commission income 1,020 957 2,946 2,738
Gain on sale of loans 357 1,814 2,145 7,908
Lease brokerage income 252 183 648 542
Sale of customer checks 326 107 871 342
Gain on sale of investment securities — — — —
Loss on marketable equity securities (115) (14) (346) (59)
Other 459 139 1,431 958
Total other non-interest income 2,958 3,830 9,744 14,491
Total non-interest income $ 15,640 $ 15,095 $ 47,166 $ 47,162


	Three months ended March 31,
(in thousands)	2023		2022
ATM and interchange fees	$	6,344	$	6,243
Service charges on deposit accounts	3,431		3,834
Other service fees	1,166		882
Mortgage banking service fees	465		463
Change in value of mortgage servicing rights	(209)		274
Total service charges and fees	11,197		11,696
Increase in cash value of life insurance	802		638
Asset management and commission income	934		887
Gain on sale of loans	206		1,246
Lease brokerage income	98		158
Sale of customer checks	288		104
Loss on sale of investment securities	(164)		—
Gain (loss) on marketable equity securities	42		(137)
Other	232		504
Total other non-interest income	2,438		3,400
Total non-interest income	$	13,635	$	15,096

The components of non-interest expense were as follows:
Three months ended
September 30, Nine months ended
September 30,
(in thousands) 2022 2021 2022 2021
Base salaries, net of deferred loan origination costs $ 22,377 $ 17,673 $ 62,762 $ 50,721
Incentive compensation 4,832 3,123 11,697 11,025
Benefits and other compensation costs 6,319 5,478 18,782 16,939
Total salaries and benefits expense 33,528 26,274 93,241 78,685
Occupancy 3,965 3,771 11,536 11,197
Data processing and software 3,449 3,689 10,558 10,092
Equipment 1,422 1,336 4,208 4,060
Intangible amortization 1,702 1,409 4,632 4,271
Advertising 990 966 2,445 2,080
ATM and POS network charges 1,694 1,692 4,850 4,489
Professional fees 1,172 1,090 3,281 2,730
Telecommunications 575 574 1,660 1,719
Regulatory assessments and insurance 828 673 2,327 1,903
Merger and acquisition expense — 651 6,253 651
Postage 287 156 828 478
Operational losses 492 244 765 665
Courier service 497 286 1,397 868
Gain on sale or acquisition of foreclosed assets (148) (144) (246) (210)
Loss (gain) on disposal of fixed assets 4 (19) (1,069) (445)
Other miscellaneous expense 4,008 3,159 10,510 8,363
Total other non-interest expense 20,937 19,533 63,935 52,911
Total non-interest expense $ 54,465 $ 45,807 $ 157,176 $ 131,596


	Three months ended March 31,
(in thousands)	2023		2022
Base salaries, net of deferred loan origination costs	$	23,000	$	18,216
Incentive compensation	2,895		2,583
Benefits and other compensation costs	6,668		5,972
Total salaries and benefits expense	32,563		26,771
Occupancy	4,160		3,575
Data processing and software	4,032		3,513
Equipment	1,383		1,333
Intangible amortization	1,656		1,228
Advertising	759		637
ATM and POS network charges	1,709		1,375
Professional fees	1,589		876
Telecommunications	595		521
Regulatory assessments and insurance	792		720
Merger and acquisition expense	—		4,032
Postage	299		228
Operational (gain) losses	435		(183)
Courier service	339		414

Gain on disposal of fixed assets	—		(1,078)
Other miscellaneous expense	3,483		2,485
Total other non-interest expense	21,231		19,676
Total non-interest expense	$	53,794	$	46,447

3630

Table of Contents

Note 13 - Earnings Per Share

Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustments to income that would result from assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units (RSUs), and are determined using the treasury stock method. Earnings per share have been computed based on the following:


		Three months ended September 30,					Three months ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
Net income	Net income	$	37,338	$	27,422	Net income	$	35,833	$	20,374
Average number of common shares outstanding	Average number of common shares outstanding	33,348		29,714		Average number of common shares outstanding	33,296		30,050
Effect of dilutive stock options and restricted stock	Effect of dilutive stock options and restricted stock	115		137		Effect of dilutive stock options and restricted stock	142		152
Average number of common shares outstanding used to calculate diluted earnings per share	Average number of common shares outstanding used to calculate diluted earnings per share	33,463		29,851		Average number of common shares outstanding used to calculate diluted earnings per share	33,438		30,202
Options excluded from diluted earnings per share because of their antidilutive effect	Options excluded from diluted earnings per share because of their antidilutive effect	—		—		Options excluded from diluted earnings per share because of their antidilutive effect	—		—

Nine months ended September 30,
(in thousands) 2022 2021
Net income $ 89,076 $ 89,433
Average number of common shares outstanding 32,332 29,720
Effect of dilutive stock options and restricted stock 137 167
Average number of common shares outstanding used to calculate diluted earnings per share 32,469 29,887
Options excluded from diluted earnings per share because of their antidilutive effect — —

Note 14 – Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet identified as accumulated other comprehensive income (AOCI), such items, along with net income, are components of other comprehensive income (loss) (OCI).

The components of other comprehensive income (loss) and related tax effects are as follows:


		Three months ended September 30,				Nine months ended September 30, 2022					Three months ended March 31,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022
Unrealized holding losses on available for sale securities before reclassifications		$	(109,341)	$	(6,304)	$	(317,659)	$	(11,249)
Unrealized holding gains (losses) on available for sale securities before reclassifications										Unrealized holding gains (losses) on available for sale securities before reclassifications	$	34,540	$	(111,302)
Amounts reclassified out of AOCI:	Amounts reclassified out of AOCI:									Amounts reclassified out of AOCI:
Realized gains on debt securities		—		—		—		—
Realized loss on debt securities										Realized loss on debt securities	164		—

Unrealized holding losses on available for sale securities after reclassifications		(109,341)		(6,304)		(317,659)		(11,249)
Unrealized holding gains (losses) on available for sale securities after reclassifications										Unrealized holding gains (losses) on available for sale securities after reclassifications	34,704		(111,302)
Tax effect	Tax effect	32,601		1,864		93,911		3,325		Tax effect	(10,260)		32,905
Unrealized holding losses on available for sale securities, net of tax		(76,740)		(4,440)		(223,748)		(7,924)
Unrealized holding gains (losses) on available for sale securities, net of tax										Unrealized holding gains (losses) on available for sale securities, net of tax	24,444		(78,397)
Change in unfunded status of the supplemental retirement plans before reclassifications	Change in unfunded status of the supplemental retirement plans before reclassifications	5		(49)		97		(147)		Change in unfunded status of the supplemental retirement plans before reclassifications	114		63
Amounts reclassified out of AOCI:	Amounts reclassified out of AOCI:									Amounts reclassified out of AOCI:
Amortization of prior service cost	Amortization of prior service cost	(7)		(14)		(21)		(43)		Amortization of prior service cost	—		(7)
Amortization of actuarial losses	Amortization of actuarial losses	2		63		6		190		Amortization of actuarial losses	(114)		2

Total amounts reclassified out of accumulated other comprehensive (loss) income	Total amounts reclassified out of accumulated other comprehensive (loss) income	(5)		49		(15)		147		Total amounts reclassified out of accumulated other comprehensive (loss) income	(114)		(5)
Change in unfunded status of the supplemental retirement plans after reclassifications	Change in unfunded status of the supplemental retirement plans after reclassifications	—		—		82		—		Change in unfunded status of the supplemental retirement plans after reclassifications	—		58
Tax effect	Tax effect			—		(24)		—		Tax effect	—		—
Change in unfunded status of the supplemental retirement plans, net of tax	Change in unfunded status of the supplemental retirement plans, net of tax	—		—		58		—		Change in unfunded status of the supplemental retirement plans, net of tax	—		58
Change in joint beneficiary agreement liability before reclassifications	Change in joint beneficiary agreement liability before reclassifications	—		—		—		(629)		Change in joint beneficiary agreement liability before reclassifications	—		—
Tax effect	Tax effect	—		—		—		—		Tax effect	—		—
Change in joint beneficiary agreement liability before reclassifications, net of tax	Change in joint beneficiary agreement liability before reclassifications, net of tax	—		—		—		(629)		Change in joint beneficiary agreement liability before reclassifications, net of tax	—		—
Total other comprehensive loss		$	(76,740)	$	(4,440)	$	(223,690)	$	(8,553)
Total other comprehensive income (loss)										Total other comprehensive income (loss)	$	24,444	$	(78,339)

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The components of accumulated other comprehensive ~~(loss) income,~~loss, included in shareholders’ equity, are as follows:
(in thousands) September 30,
2022 December 31,
2021
Net unrealized loss on available for sale securities $ (318,051) $ (392)
Tax effect 94,027 116
Unrealized holding loss on available for sale securities, net of tax (224,024) (276)
Unfunded status of the supplemental retirement plans 2,481 2,399
Tax effect (733) (709)
Unfunded status of the supplemental retirement plans, net of tax 1,748 1,690
Joint beneficiary agreement liability (433) (433)
Tax effect — —
Joint beneficiary agreement liability, net of tax (433) (433)
Accumulated other comprehensive (loss) income $ (222,709) $ 981


(in thousands)	March 31, 2023		December 31, 2022
Net unrealized gain on available for sale securities	$	(255,845)	$	(290,549)
Tax effect	75,637		85,897
Unrealized holding gain on available for sale securities, net of tax	(180,208)		(204,652)
Unfunded status of the supplemental retirement plans	13,901		13,901
Tax effect	(4,110)		(4,110)
Unfunded status of the supplemental retirement plans, net of tax	9,791		9,791
Joint beneficiary agreement liability	956		956
Tax effect	—		—
Joint beneficiary agreement liability, net of tax	956		956
Accumulated other comprehensive loss	$	(169,461)	$	(193,905)

Note 15 - Fair Value Measurement

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, income approach, and/or the cost approach. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Marketable equity securities, debt securities available-for-sale, loans held for sale, and mortgage servicing rights are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application impairment write-downs of individual assets.

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observable nature of the assumptions used to determine fair value. These levels are:

Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Marketable equity securities and debt securities available for sale - Marketable equity securities and debt securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. The Company had no securities classified as Level 3 during any of the periods covered in these financial statements.

Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subjected to recurring fair value adjustments as Level 2.

Individually evaluated loans - Loans are not recorded at fair value on a recurring basis. However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and is individually evaluated for credit reserves. Loans for which it is probable that payment of interest and principal will not be made in accordance with the original contractual terms of the loan agreement are typically individually evaluated. The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further

~~Table of Contents~~

impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from

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comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Foreclosed assets - Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less cost to sell. When the fair value of foreclosed assets is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense.

Mortgage servicing rights - Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3.

The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):


Fair value at September 30, 2022		Total		Level 1		Level 2		Level 3
Fair value at March 31, 2023										Fair value at March 31, 2023	Total		Level 1		Level 2		Level 3
Marketable equity securities	Marketable equity securities	$	2,592	$	2,592	$	—	$	—	Marketable equity securities	$	2,640	$	2,640
Debt securities available for sale:	Debt securities available for sale:									Debt securities available for sale:
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	1,389,915		—		1,389,915		—		Obligations of U.S. government corporations and agencies	1,357,435				1,357,435
Obligations of states and political subdivisions	Obligations of states and political subdivisions	283,123		—		283,123		—		Obligations of states and political subdivisions	279,900				279,900
Corporate bonds	Corporate bonds	5,858		—		5,858		—		Corporate bonds	5,738				5,738
Asset backed securities	Asset backed securities	453,801		—		453,801		—		Asset backed securities	427,364				427,364
Non-agency collateralized mortgage obligations		347,568		—		347,568		—
Non-agency mortgage backed securities										Non-agency mortgage backed securities	335,375				335,375
Loans held for sale	Loans held for sale	247		—		247		—		Loans held for sale	226				226
Mortgage servicing rights	Mortgage servicing rights	6,798		—		—		6,798		Mortgage servicing rights	6,553						6,553
Total assets measured at fair value	Total assets measured at fair value	$	2,489,902	$	2,592	$	2,480,512	$	6,798	Total assets measured at fair value	$	2,415,231	$	2,640	$	2,406,038	$	6,553


Fair value at December 31, 2021		Total		Level 1		Level 2		Level 3
Fair value at December 31, 2022										Fair value at December 31, 2022	Total		Level 1		Level 2		Level 3
Marketable equity securities	Marketable equity securities	$	2,938	$	2,938	$	—	$	—	Marketable equity securities	$	2,598	$	2,598	$	—	$	—
Debt securities available for sale:	Debt securities available for sale:									Debt securities available for sale:
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	1,257,389		—		1,257,389		—		Obligations of U.S. government corporations and agencies	1,372,769		—		1,372,769		—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	192,244		—		192,244		—		Obligations of states and political subdivisions	293,205		—		293,205		—
Corporate bonds	Corporate bonds	6,756		—		6,756		—		Corporate bonds	5,751		—		5,751		—
Asset backed securities	Asset backed securities	409,552		—		409,552		—		Asset backed securities	439,767		—		439,767		—
Non-agency collateralized mortgage obligations		341,997		—		341,997		—
Non-agency mortgage backed securities										Non-agency mortgage backed securities	340,946				340,946
Loans held for sale	Loans held for sale	3,466		—		3,466		—		Loans held for sale	1,846		—		1,846		—
Mortgage servicing rights	Mortgage servicing rights	5,874		—		—		5,874		Mortgage servicing rights	6,712		—		—		6,712
Total assets measured at fair value	Total assets measured at fair value	$	2,220,216	$	2,938	$	2,211,404	$	5,874	Total assets measured at fair value	$	2,463,594	$	2,598	$	2,454,284	$	6,712

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between any levels during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023 or the year ended December 31, ~~2021.~~2022.

The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands):
Three months ended September 30, Beginning
Balance Transfers
into (out of)
Level 3 Change
Included
in Earnings Issuances Ending
Balance
2022: Mortgage servicing rights $ 6,667 — $ 33 $ 98 $ 6,798
2021: Mortgage servicing rights $ 5,603 — $ (233) $ 366 $ 5,736


Three months ended March 31,	Beginning Balance		Transfers into (out of) Level 3	Change Included in Earnings		Issuances		Ending Balance
2023: Mortgage servicing rights	$	6,712		$	(209)	$	50	$	6,553
2022: Mortgage servicing rights	$	5,874	—	$	274	$	257	$	6,405

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Nine months ended September 30, Beginning
Balance Transfers
into (out of)
Level 3 Change
Included
in Earnings Issuances Ending
Balance
2022: Mortgage servicing rights $ 5,874 — $ 443 $ 481 $ 6,798
2021: Mortgage servicing rights $ 5,092 — $ (691) $ 1,335 $ 5,736

Three months ended March 31,

The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows. Generally, any significant increases in the mortgage prepayment speed and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustments (and decrease in the fair value measurement). Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement).

The following table presents quantitative information about recurring Level 3 fair value measurements at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

As of ~~September 30, 2022:~~March 31, 2023:

Fair Value
(in thousands)

Valuation
Technique

Unobservable
Inputs

Range,
Weighted
Average

Mortgage Servicing Rights

~~6,798~~6,553

Discounted cash flow

Constant prepayment rate

7%121% - ~~14%~~216%; ~~7.5%~~130.0%

Discount rate

10% - 14%; 12%

As of December 31, ~~2021:~~2022:

Mortgage Servicing Rights

~~5,874~~6,712

Discounted cash flow

Constant prepayment rate

~~11%~~116% - ~~15.8%~~226.0%; ~~12.5%~~127.0%

Discount rate

10% - 14%; 12%

The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated, that had a write-down or an additional allowance provided during the periods indicated (in thousands):
September 30, 2022 Total Level 1 Level 2 Level 3 Total Gains (Losses)
Fair value:
Individually evaluated loans $ 5,216 — — $ 5,216 $ (1,567)
Foreclosed assets 770 — — 770 13
Total assets measured at fair value $ 5,986 $ — $ — $ 5,986 $ (1,554)


December 31, 2021		Total		Level 1	Level 2	Level 3		Total Losses
March 31, 2023										March 31, 2023	Total		Level 1	Level 2	Level 3
Fair value:	Fair value:									Fair value:
Individually evaluated loans	Individually evaluated loans	$	3,683	—	—	$	3,683	$	(1,105)	Individually evaluated loans	$	1,223	—	—	$	1,223


December 31, 2022	Total		Level 1	Level 2	Level 3
Fair value:
Individually evaluated loans	$	5,719	—	—	$	5,719
Foreclosed assets	311		—	—	311
Total assets measured at fair value	$	6,030	—	—	$	6,030

September 30, 2021 Total Level 1 Level 2 Level 3 Total Losses
Fair value:
Individually evaluated loans $ 2,942 — — $ 2,942 $ (1,604)
Foreclosed assets 447 — — 447 21
Total assets measured at fair value $ 3,389 — — $ 3,389 $ (1,583)
The tables below present the losses resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated (in thousands):


	Three months ended March 31,
	2023		2022
Individually evaluated loans	$	(277)	$	(615)
Foreclosed assets	—		(294)
Total losses from non-recurring measurements	$	(277)	$	(909)

The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan with unique risk characteristics, the Company evaluates the need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the loan is less than the recorded investment in the loan, the Company recognizes this impairment and adjust the carrying value of the loan to fair value through the allowance for credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully charged-off is zero.

The foreclosed assets amount above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real estate which the Company has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at fair value less costs to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate.

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The Company’s property appraisals are primarily based on the sales comparison approach and income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at ~~September 30, 2022:~~March 31, 2023:

~~September 30, 2022~~March 31, 2023

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

~~5,216~~1,223

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales;
Capitalization rate

Not meaningful
N/A

~~Foreclosed assets (Residential real estate)~~

~~770~~

Sales comparison
approach

Adjustment for differences between
comparable sales

Not meaningful
N/A

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, ~~2021:~~2022:

December 31, ~~2021~~2022

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

~~3,683~~5,719

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales;
Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

311

Sales comparison
approach

Adjustment for differences between
comparable sales

Not meaningful
N/A

Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including, any mortgage banking operations, deferred tax assets, and premises and equipment. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of these estimates.
September 30, 2022 December 31, 2021
(in thousands) Carrying
Amount Fair
Value Carrying
Amount Fair
Value
Financial assets:
Level 1 inputs:
Cash and due from banks $ 91,377 $ 91,377 $ 57,032 $ 57,032
Cash at Federal Reserve and other banks 201,240 201,240 711,389 711,389
Level 2 inputs:
Securities held to maturity 168,038 153,463 199,759 208,140
Restricted equity securities 17,250 N/A 17,250 N/A
Level 3 inputs:
Loans, net 6,212,802 6,125,823 4,831,248 4,880,044
Financial liabilities:
Level 2 inputs:
Deposits 8,655,769 8,648,844 7,367,159 7,366,422
Other borrowings 47,068 47,068 50,087 50,087
Level 3 inputs:
Junior subordinated debt 101,024 106,631 58,079 57,173


	March 31, 2023				December 31, 2022
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Level 1 inputs:
Cash and due from banks	$	77,933	$	77,933	$	96,323	$	96,323
Cash at Federal Reserve and other banks	32,402		32,402		10,907		10,907
Level 2 inputs:
Securities held to maturity	152,067		142,135		160,983		149,938
Restricted equity securities	17,250		N/A		17,250		N/A

Level 3 inputs:
Loans, net	6,314,014		6,073,450		6,344,767		6,153,155
Financial liabilities:
Level 2 inputs:
Deposits	8,025,865		8,018,642		8,329,013		8,321,517
Other borrowings	434,140		434,140		264,605		264,605
Level 3 inputs:
Junior subordinated debt	101,051		94,442		101,040		92,613

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(in thousands)	(in thousands)	Contract Amount		Fair Value		Contract Amount		Fair Value		(in thousands)	Contract Amount		Fair Value		Contract Amount		Fair Value
Off-balance sheet:	Off-balance sheet:									Off-balance sheet:
Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Commitments	Commitments	$	2,197,235	$	21,972	$	1,586,068	$	15,861	Commitments	$	2,258,744	$	22,587	$	2,188,560	$	21,886
Standby letters of credit	Standby letters of credit	26,459		265		21,871		219		Standby letters of credit	24,070		241		26,599		266
Overdraft privilege commitments	Overdraft privilege commitments	125,205		1,252		125,670		1,257		Overdraft privilege commitments	129,147		1,291		126,634		1,266

Note 16 - Regulatory Matters

The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The following tables present actual and required capital ratios as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 for the Company and the Bank under applicable Basel III Capital Rules. The minimum capital amounts presented include the minimum required capital levels as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 based on the then phased-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


		Actual				Required for Capital Adequacy Purposes				Required to be Considered Well Capitalized					Actual				Required for Capital Adequacy Purposes				Required to be Considered Well Capitalized
As of September 30, 2022:		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2023:														As of March 31, 2023:	Amount		Ratio		Amount		Ratio		Amount		Ratio
		(dollars in thousands)													(dollars in thousands)
Total Capital (to Risk Weighted Assets):	Total Capital (to Risk Weighted Assets):													Total Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	1,081,212	13.97	%	$	812,434	10.50	%	N/A		N/A		Consolidated	$	1,134,613	14.50	%	$	821,668	10.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	1,072,238	13.86	%	$	812,026	10.50	%	$	773,358	10.00	%	Tri Counties Bank	$	1,127,852	14.42	%	$	821,470	10.50	%	$	782,352	10.00	%
Tier 1 Capital (to Risk Weighted Assets):	Tier 1 Capital (to Risk Weighted Assets):													Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	941,748	12.17	%	$	657,685	8.50	%	N/A		N/A		Consolidated	$	994,155	12.70	%	$	665,160	8.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	975,455	12.61	%	$	657,354	8.50	%	$	618,686	8.00	%	Tri Counties Bank	$	1,029,875	13.16	%	$	665,000	8.50	%	$	625,882	8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):	Common equity Tier 1 Capital (to Risk Weighted Assets):													Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	885,089	11.44	%	$	541,623	7.00	%	N/A		N/A		Consolidated	$	937,300	11.98	%	$	547,779	7.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	975,455	12.61	%	$	541,351	7.00	%	$	502,683	6.50	%	Tri Counties Bank	$	1,029,875	13.16	%	$	547,647	7.00	%	$	508,529	6.50	%
Tier 1 Capital (to Average Assets):	Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Consolidated	Consolidated	$	941,748	9.61	%	$	392,056	4.00	%	N/A		N/A		Consolidated	$	994,155	10.20	%	$	393,017	4.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	975,455	9.96	%	$	391,814	4.00	%	$	489,767	5.00	%	Tri Counties Bank	$	1,029,875	10.57	%	$	392,873	4.00	%	$	491,091	5.00	%

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		Actual				Required for Capital Adequacy Purposes			Required to be Considered Well Capitalized					Actual								Required for Capital Adequacy Purposes	Required to be Considered Well Capitalized
As of December 31, 2021:		Amount		Ratio			Amount		Ratio			Amount			Ratio
As of December 31, 2022:																	As of December 31, 2022:	Amount		Ratio			Amount		Ratio		Amount		Ratio
		(dollars in thousands)									(dollars in thousands)
Total Capital (to Risk Weighted Assets):	Total Capital (to Risk Weighted Assets):																Total Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	893,294	15.42	%		$	608,258	10.50	%		N/A			N/A		Consolidated	$	1,115,257	14.19	%		$	825,234	10.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	884,255	15.28	%		$	607,610	10.50	%		$	578,676		10.00	%	Tri Counties Bank	$	1,107,941	14.10	%		$	825,039	10.50	%	$	785,751	10.00	%
Tier 1 Capital (to Risk Weighted Assets):	Tier 1 Capital (to Risk Weighted Assets):																Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	820,654	14.17	%		$	492,399	8.50	%		N/A			N/A		Consolidated	$	974,325	12.40	%		$	668,047	8.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	811,713	14.03	%		$	491,875	8.50	%		$	462,941		8.00	%	Tri Counties Bank	$	1,009,577	12.85	%		$	667,888	8.50	%	$	628,601	8.00	%
Common equity Tier 1 Capital (to Risk Weighted Assets):	Common equity Tier 1 Capital (to Risk Weighted Assets):																Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	Consolidated	$	764,319	13.19	%		$	405,505	7.00	%		N/A			N/A		Consolidated	$	917,565	11.67	%		$	550,156	7.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	811,713	14.03	%		$	405,073	7.00	%		$	376,140		6.50	%	Tri Counties Bank	$	1,009,577	12.85	%		$	550,026	7.00	%	$	510,738	6.50	%
Tier 1 Capital (to Average Assets):	Tier 1 Capital (to Average Assets):																Tier 1 Capital (to Average Assets):
Consolidated	Consolidated	$	820,654	9.88	%		$	332,205	4.00	%		N/A			N/A		Consolidated	$	974,325	10.14	%		$	384,337	4.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	811,713	9.77	%		$	332,196	4.00	%		$	415,245		5.00	%	Tri Counties Bank	$	1,009,577	10.51	%		$	384,146	4.00	%	$	480,183	5.00	%

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action.

The Basel III Capital Rules require for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio. At ~~September 30, 2022,~~March 31, 2023, the Company and the Bank are in compliance with the capital conservation buffer requirement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Cautionary Statements Regarding Forward-Looking Information

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 impacts on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; regulatory restrictions on our ability to successfully market and price our products to consumers; 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 lingering effects of the COVID-19 global pandemic; the impact of a slowing U.S. economy and potentially increased unemployment on the performance of our loan portfolio, the market value of our investment securities, the availability of, and cost 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, commodities prices, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities, terrorism or geopolitical events; the quality and quantity of our deposits; adverse developments in the financial services industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; risks related to the sufficiency of liquidity; the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; the costs or effects of mergers, acquisitions or dispositions we may make, as well as whether we are able to obtain any required governmental approvals in connection with any such mergers, acquisitions or dispositions, or identify and complete favorable transactions in the future, 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 and direction 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 effectiveness of the Company's asset management activities in improving, resolving or liquidating lower-quality assets; the effect of changes in the financial performance and/or condition of our borrowers; 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 attracting, 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~~the vulnerability of ~~our~~the Company's operational or security systems or infrastructure, ~~or those~~the systems of ~~our~~ third-party vendors or other service providers ~~including as a result of cyber-attacks~~with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond to such ~~attacks; breaches in~~incidents; increased data security ~~including as a result of~~risks due to work from home ~~arrangements;~~arrangements and email vulnerability; failure to safeguard personal information; ~~change~~changes 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~~transition away from the London Interbank Offered Rate ~~and other reference rates;~~toward new interest rate benchmarks; 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,~~2022, 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.

General

As TriCo Bancshares (referred to in this report as “we”, “our” or the “Company”) has not commenced any business operations independent of Tri Counties Bank (the “Bank”), the following discussion pertains primarily to the Bank. Average balances, including such balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company. Within Management’s Discussion and Analysis of Financial Condition and Results of Operations, interest income, net interest income, and net interest yield are generally presented on a FTE basis. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provides additional clarity in assessing its results, and the presentation of these measures on a FTE basis is a common practice within the banking industry. Interest income and net interest income are shown on a non-FTE basis in the Part I - Financial Information section of this Form 10-Q, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion of net interest income.

The Company's results for the quarter ended September 30, 2022 reflect the full operational impact of the March 25, 2022 merger with VRB, whereas the results for the nine months ended September 30, 2022 do not include the operating results of VRB for the days prior to the merger date.

Critical Accounting Policies and Estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of

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America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those that materially affect the financial statements and are related to the adequacy of the allowance for loan losses, investments, mortgage servicing rights, fair value measurements, retirement plans and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A detailed discussion related to the Company’s accounting policies including those related to estimates on the allowance for credit losses ~~other than temporary impairment of investments~~related to loans and investment securities, and impairment of intangible assets, can be found in Note 1 of the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Geographical Descriptions

Financial Highlights

Performance highlights and other developments for the Company as of or for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023 included the following:

•For the ~~three and nine months~~quarter ended ~~September 30, 2022,~~March 31, 2023, the Company’s return on average assets was ~~1.46% and 1.23%~~1.47%, 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.~~13.36%.

•~~Organic loan growth, excluding PPP and acquired loans, totaled $216.7~~Net income was $35.8 million ~~(14.2% annualized) for~~compared to $36.3 million in the ~~current~~trailing 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~~$20.4 million in the ~~trailing quarter.~~

•~~The average rate of interest paid on deposits, including non-interest-bearing deposits, of 0.04% has remained unchanged during each~~same quarter of the prior ~~four quarters,~~year; Pre-tax pre-provision net revenue was $53.2 million compared to $55.3 million in the trailing quarter, and ~~represents a decrease of one basis point from the average rate paid of 0.05% during~~compared to $36.6 million in the same quarter of the prior year.

•~~Noninterest income related~~Deposit balances for the quarter ended March 31, 2023, decreased by $303.1 million as compared to ~~service charges and fees~~December 31, 2022. The deposit contraction during the quarter resulted in the loan to deposit ratio increasing to 80.0% as of March 31, 2023, as compared to 77.4% as of the trailing quarter. The Bank did not utilize brokered deposits or FRB borrowing facilities during the 2022 or 2023 periods.

•The efficiency ratio was ~~$12.7 million~~50.3% for the three ~~month period~~months ended ~~September 30, 2022, an increase of 12.6% when~~March 31, 2023, as compared to 51.8% for the ~~same period in 2021.~~trailing quarter.

•The provision for credit losses for loans and debt securities was approximately ~~$3.8~~$4.2 million during the quarter ended ~~September 30, 2022,~~March 31, 2023, as compared to a provision ~~expense~~for credit losses of ~~$2.1~~$4.2 million during the trailing quarter ended ~~June 30,~~December 31, 2022, and a ~~reversal~~provision for credit losses of ~~provision expense totaling $1.4~~$8.3 million for the ~~three month~~three-month period ended ~~September 30, 2021.~~March 31, 2022.

•The allowance for credit losses to total loans was ~~1.61%~~1.69% as of ~~September 30, 2022,~~March 31, 2023, compared to ~~1.60%~~1.64% as of the trailing quarter end, and ~~1.72%~~1.64% as of ~~September 30, 2021.~~March 31, 2022. Non-performing assets to total assets were ~~0.21%~~0.20% at ~~September 30, 2022,~~March 31, 2023, as compared to ~~0.15%~~0.25% as of ~~June 30,~~December 31, 2022, and ~~0.37%~~0.17% at ~~September 30, 2021.~~March 31, 2022.

•Average yields on earning assets were 4.64%, an increase of 12 basis points over the 4.52% in the trailing quarter and an increase of 118 basis points over March 31, 2022; net interest margin was 4.21%, a change of 13 basis points from 4.34% in the trailing quarter and a change of 82 basis points from 3.39% as of quarter ended March 31, 2022.

•Balance sheet flexibility anchored in readily accessible sources of liquidity including undrawn borrowing capacities, on-balance sheet cash and unpledged investment securities totaling in excess of $4.4 billion

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TRICO BANCSHARES

Financial Summary

(In thousands, except per share amounts; unaudited)


		Three months ended September 30,						Nine months ended September 30,							Three months ended March 31,
		2022			2021			2022			2021					2023			2022
Net interest income	Net interest income	$	94,106		$	68,233		$	247,076		$	201,756		Net interest income		$	93,336		$	67,924
Reversal of (provision for) credit losses		(3,795)			1,435			(14,225)			7,755
Provision for credit losses														Provision for credit losses		(4,195)			(8,330)
Non-interest income	Non-interest income	15,640			15,095			47,166			47,162			Non-interest income		13,635			15,096
Non-interest expense	Non-interest expense	(54,465)			(45,807)			(157,176)			(131,596)			Non-interest expense		(53,794)			(46,447)
Provision for income taxes	Provision for income taxes	(14,148)			(11,534)			(33,765)			(35,644)			Provision for income taxes		(13,149)			(7,869)
Net income	Net income	$	37,338		$	27,422		$	89,076		$	89,433		Net income		$	35,833		$	20,374
Per Share Data:	Per Share Data:													Per Share Data:
Basic earnings per share	Basic earnings per share	$	1.12		$	0.92		$	2.76		$	3.01		Basic earnings per share		$	1.08		$	0.68
Diluted earnings per share	Diluted earnings per share	$	1.12		$	0.92		$	2.74		$	2.99		Diluted earnings per share		$	1.07		$	0.67
Dividends paid	Dividends paid	$	0.30		$	0.25		$	0.80		$	0.75		Dividends paid		$	0.30		$	0.25
Book value at period end	Book value at period end							$	29.71		$	33.05		Book value at period end		$	32.84		$	32.78
Average common shares outstanding	Average common shares outstanding	33,348			29,714			32,332			29,720			Average common shares outstanding		33,296			30,050
Average diluted common shares outstanding	Average diluted common shares outstanding	33,463			29,851			32,469			29,887			Average diluted common shares outstanding		33,438			30,202
Shares outstanding at period end	Shares outstanding at period end							33,332			29,715			Shares outstanding at period end		33,195			33,838
At period end:	At period end:													At period end:
Loans	Loans							$	6,314,290		$	4,887,496		Loans		$	6,422,421		$	5,851,975
Total investment securities	Total investment securities							$	2,668,145		$	2,333,015		Total investment securities		$	2,577,769		$	2,569,706
Total assets	Total assets							$	9,976,879		$	8,458,030		Total assets		$	9,842,394		$	10,118,328
Total deposits	Total deposits							$	8,655,769		$	7,236,822		Total deposits		$	8,025,865		$	8,714,477
Other borrowings	Other borrowings							$	47,068		$	45,601		Other borrowings		$	434,140		$	36,184
Shareholders’ equity	Shareholders’ equity							$	990,338		$	982,014		Shareholders’ equity		$	1,090,245		$	1,109,182
Financial Ratios:	Financial Ratios:													Financial Ratios:
During the period:	During the period:													During the period:
Return on average assets (annualized)	Return on average assets (annualized)	1.46		%	1.30		%	1.23		%	1.48		%	Return on average assets (annualized)		1.47		%	0.94		%
Return on average equity (annualized)	Return on average equity (annualized)	13.78		%	11.02		%	11.25		%	12.42		%	Return on average equity (annualized)		13.36		%	8.19		%
Net interest margin(1) (annualized)	Net interest margin(1) (annualized)	4.02		%	3.50		%	3.71		%	3.61		%	Net interest margin(1) (annualized)		4.21		%	3.39		%
Efficiency ratio	Efficiency ratio	49.63		%	54.97		%	53.42		%	52.87		%	Efficiency ratio		50.29		%	55.95		%
Average equity to average assets	Average equity to average assets	10.61		%	11.82		%	10.94		%	11.89		%	Average equity to average assets		11.00		%	11.50		%
At end of period:	At end of period:													At end of period:
Equity to assets	Equity to assets							9.93		%	11.61		%	Equity to assets		11.08		%	10.96		%
Total capital to risk-adjusted assets	Total capital to risk-adjusted assets							13.97		%	15.41		%	Total capital to risk-adjusted assets		14.50		%	14.96		%

(1) Fully Taxable Equivalent (FTE)

The Company ~~reported~~announced net income of ~~$37,338,000~~$35.8 million for the quarter ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$31,364,000~~$36.3 million during the trailing quarter ended ~~June 30,~~December 31, 2022, and ~~$27,422,000~~$20.4 million during the quarter ended ~~September 30, 2021.~~March 31, 2022. Diluted earnings per share were ~~$1.12~~$1.07 for the ~~third~~first quarter of ~~2022,~~2023, compared to ~~$0.93~~$1.09 for the ~~second~~fourth quarter of 2022 and ~~$0.92 for~~$0.67 during the ~~third~~first quarter of ~~2021.~~2022..

Results of Operations

The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and the Bank’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report.

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Net Interest Income

The Company’s primary source of revenue is net interest income, or the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Following is a summary of the components of FTE net income for the periods ~~indicated.~~indicated

Three months ended
(in thousands) September 30,
2022 June 30,
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: (1)
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, 2022
(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 %

~~Table of Contents~~


		Nine months ended September 30, 2022												Three months ended
(dollars in thousands)		2022			2021			Change			% Change
(in thousands)													(in thousands)	March 31, 2023			March 31, 2022			Change			% Change
Interest income	Interest income	$	252,516		$	206,023		$	46,493		22.6	%	Interest income	$	102,907		$	69,195		$	33,712		48.7	%
Interest expense	Interest expense	(5,440)			(4,267)			(1,173)			27.5	%	Interest expense	(9,571)			(1,271)			(8,300)			653.0	%
Fully tax-equivalent adjustment (FTE) (1)	Fully tax-equivalent adjustment (FTE) (1)	1,120			797			323			40.5	%	Fully tax-equivalent adjustment (FTE) (1)	392			283			109			38.5	%
Net interest income (FTE)	Net interest income (FTE)	$	248,196		$	202,553		$	45,643		22.5	%	Net interest income (FTE)	$	93,728		$	68,207		$	25,521		37.4	%
Net interest margin (FTE)	Net interest margin (FTE)	3.71		%	3.61		%						Net interest margin (FTE)	4.21		%	3.39		%

Acquired loans discount accretion, net:	Acquired loans discount accretion, net:												Acquired loans discount accretion, net:
Amount (included in interest income)	Amount (included in interest income)	$	3,714		$	6,311		$	(2,597)		(41.2)	%	Amount (included in interest income)	$	1,397		$	1,323		$	74		5.6	%

Net interest margin less effect of acquired loan discount accretion(1)	Net interest margin less effect of acquired loan discount accretion(1)	3.65		%	3.50		%	0.15		%			Net interest margin less effect of acquired loan discount accretion(1)	4.15		%	3.32		%	0.83		%

PPP loans yield, net:	PPP loans yield, net:												PPP loans yield, net:
Amount (included in interest income)	Amount (included in interest income)	$	2,374		$	12,549		$	(10,175)		(81.1)	%	Amount (included in interest income)	$	5		$	1,097		$	(1,092)		(99.5)	%
Net interest margin less effect of PPP loan yield (1)													Net interest margin less effect of PPP loan yield (1)	4.21		%	3.36		%	0.85		%

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:
Acquired loans discount accretion and PPP loan yield, net: (1)													Acquired loans discount accretion and PPP loan yield, net: (1)
Amount (included in interest income)	Amount (included in interest income)	$	6,088		$	18,860		$	(12,772)		(67.7)	%	Amount (included in interest income)	$	1,402		$	2,420		$	(1,018)		(42.1)	%
Net interest margin less effect of acquired loans discount and PPP loan yield (1)		3.63		%	3.41		%	0.22		%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)													Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)	4.15		%	3.29		%	0.86		%

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

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~~The prepayment ~~rate~~speed of portfolio loans, inclusive of those acquired at a premium or discount, ~~declined throughout 2022.~~is heavily influenced by the rate of change in interest rates. During the three months ended ~~September 30, 2022, June 30,~~March 31, 2023, December 31, 2022, and ~~September 30, 2021,~~March 31, 2022, purchased loan discount accretion was ~~$714,000, $1,677,000,~~$1.4 million, $1.8 million, and ~~$2,034,000,~~$1.3 million, respectively.

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Summary of Average Balances, Yields/Rates and Interest Differential

The following table presents, for the three month periods indicated, information regarding the Company’s consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income from average interest-earning assets and resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual loans only to the extent cash payments have been received and applied to interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands).


		For the three months ended													For the three months ended
		September 30, 2022						September 30, 2021							March 31, 2023						March 31, 2022
		Average Balance		Interest Income/ Expense		Rates Earned /Paid		Average Balance		Interest Income/ Expense		Rates Earned /Paid			Average Balance		Interest Income/ Expense		Rates Earned /Paid		Average Balance		Interest Income/ Expense		Rates Earned /Paid
Assets:	Assets:													Assets:
Loans, excluding PPP	Loans, excluding PPP	$	6,162,267	$	75,643	4.87	%	$	4,684,492	$	57,218	4.85	%	Loans, excluding PPP	$	6,412,386	$	82,410	5.21	%	$	4,937,865	$	56,648	4.65	%
PPP loans	PPP loans	8,775		313		14.15	%	213,430		3,507		6.52	%	PPP loans	1,572		5		1.29	%	50,695		1,097		8.78	%
Investment securities - taxable	Investment securities - taxable	2,591,513		17,122		2.62	%	2,019,283		7,741		1.52	%	Investment securities - taxable	2,398,235		18,916		3.20	%	2,313,204		10,223		1.79	%
Investment securities - nontaxable(1)	Investment securities - nontaxable(1)	210,606		1,908		3.59	%	130,028		1,147		3.50	%	Investment securities - nontaxable(1)	189,050		1,699		3.64	%	143,873		1,225		3.45	%
Total investments	Total investments	2,802,119		19,030		2.69	%	2,149,311		8,888		1.64	%	Total investments	2,587,285		20,615		3.23	%	2,457,077		11,448		1.89	%
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	346,991		1,820		2.08	%	710,936		280		0.16	%	Cash at Federal Reserve and other banks	26,818		269		4.07	%	707,563		285		0.16	%
Total interest-earning assets	Total interest-earning assets	9,320,152		96,806		4.12	%	7,758,169		69,893		3.57	%	Total interest-earning assets	9,028,061		103,299		4.64	%	8,153,200		69,478		3.46	%
Other assets	Other assets	810,966						589,942						Other assets	850,866						625,056
Total assets	Total assets	$	10,131,118					$	8,348,111					Total assets	$	9,878,927					$	8,778,256
Liabilities and shareholders’ equity:	Liabilities and shareholders’ equity:													Liabilities and shareholders’ equity:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	1,775,884	$	119	0.03	%	$	1,507,697	$	116	0.03	%	Interest-bearing demand deposits	$	1,673,114	$	387	0.09	%	$	1,597,309	$	84	0.02	%
Savings deposits	Savings deposits	3,011,145		685		0.09	%	2,407,368		328		0.05	%	Savings deposits	2,898,463		4,154		0.58	%	2,571,023		327		0.05	%
Time deposits	Time deposits	321,100		188		0.23	%	321,381		411		0.51	%	Time deposits	274,805		604		0.89	%	301,499		268		0.36	%
Total interest-bearing deposits	Total interest-bearing deposits	5,108,129		992		0.08	%	4,236,446		855		0.08	%	Total interest-bearing deposits	4,846,382		5,145		0.43	%	4,469,831		679		0.06	%
Other borrowings	Other borrowings	38,908		5		0.05	%	48,330		6		0.05	%	Other borrowings	277,632		2,809		4.10	%	44,731		5		0.05	%
Junior subordinated debt	Junior subordinated debt	101,011		1,263		4.96	%	57,891		534		3.66	%	Junior subordinated debt	101,044		1,617		6.49	%	60,971		587		3.90	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,248,048		2,260		0.17	%	4,342,667		1,395		0.13	%	Total interest-bearing liabilities	5,225,058		9,571		0.74	%	4,575,533		1,271		0.11	%
Noninterest-bearing deposits	Noninterest-bearing deposits	3,644,086						2,900,817						Noninterest-bearing deposits	3,372,194						3,052,099
Other liabilities	Other liabilities	164,208						117,601						Other liabilities	194,202						141,400
Shareholders’ equity	Shareholders’ equity	1,074,776						987,026						Shareholders’ equity	1,087,473						1,009,224
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	10,131,118					$	8,348,111					Total liabilities and shareholders’ equity	$	9,878,927					$	8,778,256
Net interest spread(2)	Net interest spread(2)					3.95	%					3.45	%	Net interest spread(2)					3.90	%					3.35	%
Net interest income and interest margin(3)	Net interest income and interest margin(3)			$	94,546	4.02	%			$	68,498	3.50	%	Net interest income and interest margin(3)			$	93,728	4.21	%			$	68,207	3.39	%

(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 represents 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, then annualized based on the number of days in the given period.

Net interest income (FTE) during the three months ended March 31, 2023, decreased $5.6 million or 5.6% to $93.7 million compared to $99.3 million during the three months ended December 31, 2022. In addition, net interest margin declined 13 basis points to 4.21%, compared to the trailing quarter. The decrease in net interest income is primarily attributed to an additional $3.0 million in deposit interest expense and $2.4 million in additional interest expense on other borrowings, both due to increases in interest rates as compared to the trailing quarter, respectively. Total interest income was effectively unchanged as compared to the trailing quarter, down $0.1 million or 0.1%.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 256 basis points from ~~4.85%~~4.65% during the three months ended ~~September 30, 2021,~~March 31, 2022, to ~~4.87%~~5.21% during the three months ended ~~September 30, 2022.~~March 31, 2023. The accretion of discounts from acquired loans added 59 and 177 basis points to loan yields during the quarters ended ~~September 30,~~March 31, 2023 and March 31, 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 125 basis ~~point~~points during the quarter ended ~~September 30, 2022~~March 31, 2023, compared to the trailing quarter. The cost of interest-bearing deposits ~~remained flat at 8~~increased by 37 basis points between the quarter ended ~~September 30, 2022~~March 31, 2023, 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~~decreased by $290.3 million quarter ~~compared to 0.5% in the third~~over quarter ~~of the prior year. Non-interest bearing deposit balances grew $74.0~~but remains $320.1 million ~~during the three months~~above quarter ended ~~September 30,~~March 31, 2022. As of ~~September 30, 2022,~~March 31, 2023, the ratio of average total noninterest-bearing deposits to total average deposits was ~~41.6%.~~41.0%, as compared to 42.9% and 40.6% at December 31, 2022 and March 31, 2022, respectively.

4942

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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.~~

Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid

The following table sets forth, for the period identified, a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components.

~~Table of Contents~~


	Three months ended March 31, 2023 compared with three months ended March 31, 2022
(in thousands)	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	16,063	$	8,607	$	24,670
Investment securities	771		8,396		9,167
Cash at Federal Reserve and other banks	(272)		256		(16)
Total interest-earning assets	16,562		17,259		33,821
Increase (decrease) in interest expense:
Interest-bearing demand deposits	4		299		303
Savings deposits	41		3,786		3,827
Time deposits	(24)		360		336
Other borrowings	29		2,775		2,804
Junior subordinated debt	391		639		1,030
Total interest-bearing liabilities	441		7,859		8,300
Increase (decrease) in net interest income	$	16,121	$	9,400	$	25,521

Three months ended September 30, 2022
compared with three months ended September 30, 2021
(in thousands) Volume Rate Total
Increase (decrease) in interest income:
Loans, including PPP $ 36,188 $ (20,957) $ 15,231
Investment securities(1)
8,193 1,949 10,142
Cash at Federal Reserve and other banks (146) 1,686 1,540
Total interest-earning assets 44,235 (17,322) 26,913
Increase (decrease) in interest expense:
Interest-bearing demand deposits 20 (17) 3
Savings deposits 75 282 357
Time deposits — (223) (223)
Other borrowings (1) — (1)
Junior subordinated debt 395 334 729
Total interest-bearing liabilities 489 376 865
Increase (decrease) in net interest income $ 43,746 $ (17,698) $ 26,048

Nine months ended September 30, 2022 compared with nine months ended September 30, 2021
(in thousands) Volume Rate Total
Increase (decrease) in interest income:
Loans, including PPP $ 86,269 $ (64,115) $ 22,154
Investment securities(1)
12,020 9,751 21,771
Cash at Federal Reserve and other banks (100) 2,991 2,891
Total interest-earning assets 98,189 (51,373) 46,816
Increase (decrease) in interest expense:
Interest-bearing demand deposits 50 (17) 33
Savings deposits 327 249 576
Time deposits (43) (667) (710)
Other borrowings (1) 1 —
Junior subordinated debt 1,135 139 1,274
Total interest-bearing liabilities 1,468 (295) 1,173
Increase (decrease) in net interest income $ 96,721 $ (51,078) $ 45,643

The following commentary regarding net interest income, interest income and interest expense may be best understood while referencing the Summary of Average Balances, Yields/Rates and Interest Differential and the Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid shown above.

Net interest income (FTE) during the three months ended ~~September 30, 2022~~March 31, 2023 increased ~~$26,048,000 or 27.6%~~$25.5 million to ~~$94,546,000~~$93.7 million compared to ~~$68,498,000~~$68.2 million during the three months ended ~~September 30, 2021.~~March 31, 2022. The overall increase in net interest income (FTE) was due to ~~largely an increase~~increases in both average investment and loan balances, which resulted in improvements ~~in net interest income~~ totaling ~~$8,193,000~~$0.8 million and ~~$36,188,000,~~$16.1 million, respectively, ~~despite lower~~and higher yields ~~on loans partially offsetting~~further improving those earnings by ~~$20,957,000. In addition,~~$8.4 million and $8.6 million, respectively. Increasing interest ~~income~~rates boosted interest expenses on ~~cash reserves improved by $1,686,000 due to the~~on interest-bearing liabilities, most significantly deposits and other borrowings, resulting in a net increase ~~in rates. Following the VRB merger during the first quarter~~ of ~~2022, larger average balances of subordinated debt has resulted in $729,000 of additional net interest expense.~~

Net interest income (FTE) during the nine months ended September 30, 2022 increased $45,643,000 or 22.5% to $248,196,000 compared to $202,553,000 during the nine months ended September 30, 2021. The overall increase in net interest income (FTE) was due to largely an increase in average investment$3.8 million and loan balances, which resulted in improvements in net interest income totaling $12,020,000 and $86,269,000, respectively, despite lower yields on loans partially offsetting those earnings by $64,115,000. Following the VRB merger during the first quarter of 2022, larger average balances of subordinated debt has resulted in $1,274,000 of additional net interest expense.$2.8 million, respectively.

~~Table of Contents~~

Asset Quality and Credit Loss Provisioning

During the three months ended ~~September 30, 2022,~~March 31, 2023, the Company recorded a provision for credit losses of ~~$3,795,000,~~$4.2 million, as compared to ~~a $2,100,000 provision~~$4.2 million during the trailing quarter, and ~~a reversal of provision expense of $1,435,000~~$8.3 million during the ~~third~~first quarter of ~~2021.~~2022.

The following table presents details of the provision for ~~(reversal of)~~ credit losses for the periods indicated:


		Three months ended								Three months ended
(dollars in thousands)	(dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021			September 30, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Addition to (reversal of) allowance for credit losses	Addition to (reversal of) allowance for credit losses	$	3,500	$	1,940	$	8,205	$	715		$	(1,495)	Addition to (reversal of) allowance for credit losses	$	4,315	$	4,300	$	8,205
Addition to reserve for unfunded loan commitments		295		160		125		265			60
Addition to (reversal of) reserve for unfunded loan commitments													Addition to (reversal of) reserve for unfunded loan commitments	(120)		(55)		125
Total provision for (reversal of) credit losses	Total provision for (reversal of) credit losses	$	3,795	$	2,100	$	8,330	$	980		$	(1,435)	Total provision for (reversal of) credit losses	$	4,195	$	4,245	$	8,330

The allowance for credit losses (ACL) was $108.4 million as of March 31, 2023, a net increase of $2.7 million over the immediately preceding quarter. The addition to the allowance for credit losses of $4.3 million during the quarter was the net effect of changes in required reserves due to qualitative factors, individually analyzed credits and quantitative reserves under the cohort model. On a comparative basis, the provision for credit losses of $8.2 million during the three months ended March 31, 2022 was largely the result of day 1 required reserves from loans acquired in connection with the Valley Republic Bank merger in the same period. For the current quarter, the qualitative components of the ACL resulted in a net increase in required reserves totaling approximately $4.7 million due to increased uncertainty in US economic policy, and the ramifications on local and statewide unemployment rates. Meanwhile, the quantitative component of the ACL decreased reserve requirements by approximately $1.9 million over the trailing quarter due to a decline in needed specific reserves on loans.

Table of Contents

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.


	Three months ended
(dollars in thousands)	March 31, 2023		March 31, 2022
Balance, beginning of period	$	105,680	$	85,376
ACL at acquisition for PCD loans	—		2,037
Provision for (reversal of) credit losses	4,315		8,205
Loans charged-off	(1,758)		(743)
Recoveries of previously charged-off loans	170		1,174
Balance, end of period	$	108,407	$	96,049

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~~As compared to historical norms, inflation remains elevated from continued disruptions in the supply chain, wage pressures, and ~~high energy~~higher living costs such as housing and food 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.~~months. 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~~$2.9 million during the quarter ended ~~September 30, 2022~~March 31, 2023 to ~~$6,471,000,~~$7.9 million, as compared to ~~$5,920,000~~$4.9 million at ~~June 30, 2022.~~December 31, 2022 but decreased by $0.5 million compared to the March 31, 2022 past due balance of $8.4 million. Non-performing loans were ~~$17,471,000~~$16.0 million at ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$5,546,000~~$5.3 million from ~~$11,925,000~~$21.3 million as of ~~June 30,~~December 31, 2022, and a decrease of ~~$11,319,000~~$1.9 million from ~~$28,790,000~~$14.1 million as of ~~September~~March 31, 2022. Of the $16.0 million loans designated as non-performing, approximately $10.2 million are less than 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.

~~Table~~days past due as of ~~Contents~~

March 31, 2023.

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								March 31,			% of Loans Outstanding			December 31,			% of Loans Outstanding		March 31,			% of Loans Outstanding
(dollars in thousands)	(dollars in thousands)	2022					2022					2021					(dollars in thousands)	2023	% of Loans Outstanding		2022		% of Loans Outstanding					2022	% of Loans Outstanding
Risk Rating:	Risk Rating:																			Risk Rating:
Pass	Pass	$	6,133,805		97.1	%	$	5,960,781		97.5	%	$	4,698,475		96.1	%						Pass	$	6,232,962		97.1	%		$	6,251,945		96.9	%	$	5,682,026		97.1	%
Special Mention	Special Mention	126,273			2.0	%	105,819			1.7	%	138,699			2.9	%						Special Mention	125,492			2.0	%		127,000			2.0	%	120,684			2.1	%
Substandard	Substandard	54,212			0.9	%	46,821			0.8	%	50,322			1.0	%						Substandard	63,967			1.0	%		71,502			1.1	%	49,265			0.8	%
Total	Total	$	6,314,290				$	6,113,421				$	4,887,496									Total	$	6,422,421					$	6,450,447				$	5,851,975

Classified loans to total loans	Classified loans to total loans	0.86		%			0.77		%			1.03		%								Classified loans to total loans	1.00		%				1.11		%			0.84		%
Loans past due 30+ days to total loans	Loans past due 30+ days to total loans	0.10		%			0.10		%			0.22		%								Loans past due 30+ days to total loans	0.12		%				0.08		%			0.14		%

The ratio of classified loans ~~increased~~decreased to ~~0.86%~~1.00% as of ~~September 30, 2022~~March 31, 2023 as compared to ~~0.77%~~1.11% in the trailing quarter, but ~~improved~~increased by 1716 basis points from the equivalent period in ~~2021.~~2022. The Company's criticized loan balances ~~increased~~decreased during the current quarter by ~~approximately $27,846,000~~$9.0 million to ~~$180,486,000~~$189.5 million as of ~~September 30, 2022.~~ March 31, 2023.

There were no ~~charge-offs incurred in connection with these loans and management continues~~changes to ~~work toward resolution with the borrowers.~~

~~There were two properties added to other real estate owned totaling $443,000~~Other Real Estate Owned balances during the first quarter ~~ended September 30, 2022, and two disposals totaling $394,000.~~of 2023. As of ~~September 30, 2022,~~March 31, 2023, other real estate owned consisted of nine properties with a carrying value of approximately ~~$3,441,000.~~$3.4 million.

Non-performing assets of ~~$20,912,000~~$19.5 million at ~~September 30, 2022~~March 31, 2023 represented ~~0.21%~~0.20% of total assets, ~~a slight change but~~ generally in line with the ~~$15,304,000~~$24.8 million or ~~0.15%~~0.25% and ~~$31,440,000~~$17.0 million or ~~0.37%~~0.17% as of ~~June 30,~~December 31, 2022 and ~~September 30, 2021,~~March 31, 2022, respectively.

~~SBA Paycheck Protection Program and COVID Deferrals~~

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:

~~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.

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Non-interest Income

The following table summarizes the Company’s non-interest income for the periods indicated (in thousands):


		Three months ended September 30,									Three months ended March 31,
(in thousands)	(in thousands)	2022		2021		$ Change		% Change		(in thousands)	2023		2022		$ Change		% Change
ATM and interchange fees	ATM and interchange fees	$	6,714	$	6,516	$	198	3.0	%	ATM and interchange fees	$	6,344	$	6,243	$	101	1.6	%
Service charges on deposit accounts	Service charges on deposit accounts	4,436		3,608		828		22.9	%	Service charges on deposit accounts	3,431		3,834		(403)		(10.5)	%
Other service fees	Other service fees	1,022		897		125		13.9	%	Other service fees	1,166		882		284		32.2	%
Mortgage banking service fees	Mortgage banking service fees	477		476		1		0.2	%	Mortgage banking service fees	465		463		2		0.4	%
Change in value of mortgage servicing rights	Change in value of mortgage servicing rights	33		(232)		265		(114.2)	%	Change in value of mortgage servicing rights	(209)		274		(483)		(176.3)	%
Total service charges and fees	Total service charges and fees	12,682		11,265		1,417		12.6	%	Total service charges and fees	11,197		11,696		(499)		(4.3)	%
Increase in cash value of life insurance	Increase in cash value of life insurance	659		644		15		2.3	%	Increase in cash value of life insurance	802		638		164		25.7	%
Asset management and commission income	Asset management and commission income	1,020		957		63		6.6	%	Asset management and commission income	934		887		47		5.3	%
Gain on sale of loans	Gain on sale of loans	357		1,814		(1,457)		(80.3)	%	Gain on sale of loans	206		1,246		(1,040)		(83.5)	%
Lease brokerage income	Lease brokerage income	252		183		69		37.7	%	Lease brokerage income	98		158		(60)		(38.0)	%
Sale of customer checks	Sale of customer checks	326		107		219		204.7	%	Sale of customer checks	288		104		184		176.9	%
Gain on sale of investment securities	Gain on sale of investment securities	—		—		—		n/m		Gain on sale of investment securities	(164)		—		(164)		n/m
(Loss) gain on marketable equity securities		(115)		(14)		(101)		721.4	%
Gain on marketable equity securities										Gain on marketable equity securities	42		(137)		179		(130.7)	%
Other	Other	459		139		320		230.2	%	Other	232		504		(272)		(54.0)	%
Total other non-interest income	Total other non-interest income	2,958		3,830		(872)		(22.8)	%	Total other non-interest income	2,438		3,400		(962)		(28.3)	%
Total non-interest income	Total non-interest income	$	15,640	$	15,095	$	545	3.6	%	Total non-interest income	$	13,635	$	15,096	$	(1,461)	(9.7)	%

Non-interest income ~~increased $545,000~~decreased $1.5 million or ~~3.6%~~9.7% to ~~$15,640,000~~$13.6 million during the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$15,095,000~~$15.1 million during the quarter ended ~~September 30, 2021. Generally,~~March 31, 2022. Total service charges and fees declined by $0.5 million or 4.3% during the ~~increases~~period, of which $0.9 million is due to waived or reversed fees related to the network outage disclosed in ~~recurring non-interest income items reflects~~ the ~~VRB merger timing. As noted above, decreasing~~Company's 8-K filed with the SEC on February 14, 2023. In addition, the declining mortgage related activity resulting from elevated interest rates reduced income recorded from the ~~gain on~~ sale of loans ~~recorded during the quarter~~ by ~~$1,457,000~~$1.0 million or ~~80.3%~~83.5%, 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.~~March 31, 2022.

Nine months ended September 30,
(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 months periods discussed above.~~

5445

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Non-interest Expense

The following table summarizes the Company’s non-interest expense for the periods indicated:


		Three months ended September 30,									Three months ended March 31,
(in thousands)	(in thousands)	2022		2021		$ Change		% Change		(in thousands)	2023		2022		$ Change		% Change
Base salaries, net of deferred loan origination costs	Base salaries, net of deferred loan origination costs	$	22,377	$	17,673	$	4,704	26.6	%	Base salaries, net of deferred loan origination costs	$	23,000	$	18,216	$	4,784	26.3	%
Incentive compensation	Incentive compensation	4,832		3,123		1,709		54.7	%	Incentive compensation	2,895		2,583		312		12.1	%
Benefits and other compensation costs	Benefits and other compensation costs	6,319		5,478		841		15.4	%	Benefits and other compensation costs	6,668		5,972		696		11.7	%
Total salaries and benefits expense	Total salaries and benefits expense	33,528		26,274		7,254		27.6	%	Total salaries and benefits expense	32,563		26,771		5,792		21.6	%
Occupancy	Occupancy	3,965		3,771		194		5.1	%	Occupancy	4,160		3,575		585		16.4	%
Data processing and software	Data processing and software	3,449		3,689		(240)		(6.5)	%	Data processing and software	4,032		3,513		519		14.8	%
Equipment	Equipment	1,422		1,336		86		6.4	%	Equipment	1,383		1,333		50		3.8	%
Intangible amortization	Intangible amortization	1,702		1,409		293		20.8	%	Intangible amortization	1,656		1,228		428		34.9	%
Advertising	Advertising	990		966		24		2.5	%	Advertising	759		637		122		19.2	%
ATM and POS network charges	ATM and POS network charges	1,694		1,692		2		0.1	%	ATM and POS network charges	1,709		1,375		334		24.3	%
Professional fees	Professional fees	1,172		1,090		82		7.5	%	Professional fees	1,589		876		713		81.4	%
Telecommunications	Telecommunications	575		574		1		0.2	%	Telecommunications	595		521		74		14.2	%
Regulatory assessments and insurance	Regulatory assessments and insurance	828		673		155		23.0	%	Regulatory assessments and insurance	792		720		72		10.0	%
Merger and acquisition expense	Merger and acquisition expense	—		651		(651)		n/m		Merger and acquisition expense	—		4,032		(4,032)		(100.0)	%
Postage	Postage	287		156		131		84.0	%	Postage	299		228		71		31.1	%
Operational losses		492		244		248		101.6	%
Operational losses (gain)										Operational losses (gain)	435		(183)		618		(337.7)	%
Courier service	Courier service	497		286		211		73.8	%	Courier service	339		414		(75)		(18.1)	%
Gain on sale or acquisition of foreclosed assets		(148)		(144)		(4)		2.8	%
Loss (gain) on disposal of fixed assets		4		(19)		23		(121.1)	%

Loss on disposal of fixed assets										Loss on disposal of fixed assets	—		(1,078)		1,078		(100.0)	%
Other miscellaneous expense	Other miscellaneous expense	4,008		3,159		849		26.9	%	Other miscellaneous expense	3,483		2,485		998		40.2	%
Total other non-interest expense	Total other non-interest expense	20,937		19,533		1,404		7.2	%	Total other non-interest expense	21,231		19,676		1,555		7.9	%
Total non-interest expense	Total non-interest expense	$	54,465	$	45,807	$	8,658	18.9	%	Total non-interest expense	$	53,794	$	46,447	$	7,347	15.8	%
Average full time equivalent staff	Average full time equivalent staff	1,198		1,049		149		14.2	%	Average full time equivalent staff	1,219		1,084		135		12.5	%

Generally, the increases in recurring non-interest expense items reflect the VRB merger ~~timing of~~closing on March 25, 2022, and therefore, related expenses for the combined entities, less certain realized cost savings, are largely only being captured within the most recent three months ended ~~September 30, 2022.~~March 31, 2023. Total non-interest expense increased ~~$8,658,000~~$7.3 million or ~~18.9%~~15.8% to ~~$54,465,000~~$53.8 million during the three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$45,807,000~~$46.4 million for the quarter ended ~~September 30, 2021.~~March 31, 2022. Total salaries and benefits expense increased by ~~$7,254,000~~$5.8 million or ~~27.6%~~21.6% to ~~$33,528,000,~~$32.6 million, largely from a net increase of 99135 full-time equivalent positions, ~~following~~99 of which resulted from the aforementioned merger with ~~VRB,~~VRB. Professional fees increased by $0.7 million which was directly associated with 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.~~

~~Table of Contents~~

Nine months ended September 30,
(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 expense 6,253 651 5,602 n/m
Postage 828 478 350 73.2 %
Operational losses 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~~cybersecurity incident disclosed in the ~~comparable three months~~Company's 8-K filed with the SEC on February 14, 2023. While management has accrued for costs incurred through the balance sheet date that are probable and reasonably estimable, additional expenses will be incurred in future periods ~~discussed above.~~as management works to complete its investigation of the incident. See also "Part II - Other Information - Item 1A — Risk Factors beginning on page 57.

Income Taxes

The Company’s effective tax rate was ~~27.5%~~26.8% for the ~~nine months~~quarter ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~28.1%~~27.9% for the year ended December 31, ~~2021.~~2022. 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.

Financial Condition

For financial reporting purposes, the Company does not separately track the changes in assets and liabilities based on branch location or regional geography. The following is a comparison of the quarterly change in certain assets and liabilities:

Ending balances September 30, June 30, Annualized
% Change
(dollars in thousands) 2022 2022 $ 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) %

Table of Contents


Ending balances	March 31,		December 31,				Annualized % Change
(dollars in thousands)	2023		2022		$ Change
Total assets	$	9,842,394	$	9,930,986	$	(88,592)	(3.6)	%
Total loans	6,422,421		6,450,447		(28,026)		(1.7)
Total investments	2,577,769		2,633,269		(55,500)		(8.4)
Total deposits	8,025,865		8,329,013		(303,148)		(14.6)
Other borrowings	434,140		264,605		169,535		256.3

~~Organic loan growth, excluding PPP, of $216,681,000~~Loans outstanding declined by $28.0 million or ~~14.2%~~1.7% on an annualized basis ~~was realized~~ during the quarter ended ~~September 30, 2022, primarily within commercial real estate.~~March 31, 2023. During the quarter, ~~and exclusive of PPP balance changes,~~ loan originations/draws totaled approximately ~~$737.0~~$357.0 million while payoffs/repayments of loans totaled ~~$536.0~~$389.0 million, which compares to ~~origination/~~originations/draws and ~~payoff/~~payoffs/repayments ~~activity~~ during the ~~three months~~trailing quarter ended ~~June 30, 2022~~ of ~~$697.0~~$470.0 million and ~~$397.0~~$343.0 million, respectively. While

~~Table of Contents~~

management believes ~~that~~the loan ~~pipelines remain~~pipeline remains sufficient to support ~~loan growth, loan pipeline~~the Company's objectives, origination activity ~~may~~continues to moderate asdue to customer ~~awareness of~~sensitivity from the rising interest rate environment ~~weighs more heavily~~and the Company's continued focus on ~~their decision making criteria.~~disciplined underwriting. Investment security balances decreased ~~$134,670,000~~$55.5 million or ~~19.2%~~8.4% on an annualized basis as the result of ~~declines~~prepayments/maturities totaling approximating $65.8 million and proceeds from sale of $24.2 million, partially offset by increases in the market ~~values grew, and prepayments or maturities~~value of securities of $34.6 million. Management seeks to utilize excess cash flows from the investment security portfolio ~~were utilized~~ to ~~augment the Company's overall balance sheet position.~~support loan growth or reduce borrowings thus resulting in an improved mix of earning assets. Deposit balances ~~also~~ decreased ~~with a change of $101,006,000~~by $303.1 million or ~~4.6%~~14.6% annualized during the period. Cash flow needs were supported by net increases in short-term FHLB advances which totaled $434.1 million as of the quarter ended March 31, 2023.

The following is a comparison of the year over year change in certain assets and liabilities:


Ending balances	Ending balances	As of September 30, 2022						Acquired Balances					Organic $ Change			Organic % Change		Ending balances	As of March 31,										% Change
(dollars in thousands)	(dollars in thousands)	2022		2021		$ Change				(dollars in thousands)		2023								2022					$ Change
Total assets	Total assets	$	9,976,879	$	8,458,030	$	1,518,849			$	1,363,529				$	155,320			1.8		%	Total assets	$	9,842,394		$	10,118,328	$	(275,934)	(2.7)	%
Total loans	Total loans	6,314,290		4,887,496		1,426,794		773,390					653,404			13.4		Total loans	6,422,421					5,851,975			570,446		9.7
Total loans, excluding PPP	Total loans, excluding PPP	6,312,348		4,736,048		1,576,300		751,978					824,322			17.4		Total loans, excluding PPP	6,420,903					5,795,370			625,533		10.8
Total investments	Total investments	2,668,145		2,333,015		335,130		109,716					225,414			9.7		Total investments	2,577,769					2,569,706			8,063		0.3
Total deposits	Total deposits	$	8,655,769	$	7,236,822	$	1,418,947	$	1,215,479				$	203,468		2.8	%	Total deposits	8,025,865					8,714,477			(688,612)		(7.9)
Total other borrowings																		Total other borrowings	434,140					36,184			397,956		1,099.8

Non-PPP loan balances ~~have~~ increased as a result of organic activities by approximately ~~$824.3~~$625.5 million or 10.8% during the ~~twelve month~~twelve-month period ending ~~September 30, 2022. Investment securities increased to $2.7 billion at September 30, 2022, an organic change of $225.4~~March 31, 2023. Over the same period deposit balances have declined by $688.6 million or ~~9.7%~~7.9%. The Company has offset these declines through the deployment of excess cash balances and proceeds from short-term FHLB borrowings. As of March 31, 2023, short-term borrowings from the ~~prior year. When combined with balances acquired from Valley Republic Bank, this represents~~FHLB totaled $394.1 million and had an ~~increase~~interest rate of ~~nearly $1.8 billion in earning assets during the last twelve months.~~5.11%.

Investment Securities

Investment securities available for sale ~~increased $272,327,000~~decreased $46.6 million to ~~$2,480,265,000~~$2.4 billion as of ~~September 30, 2022,~~March 31, 2023, compared to December 31, ~~2021. This increase~~2022. The decrease is ~~primarily supported~~attributed to $56.9 million in calls and principal repayments, partially offset by ~~deposit growth and available cash reserves.~~$34.7 million in market value appreciation. In addition, proceeds from the sale of investment securities totaled $24.2 million for the three months ended March 31, 2023, resulting in gross realized losses of $0.16 million. There were no sales of investment securities during the three ~~and nine~~ months ended ~~September 30, 2022 and 2021, respectively.~~March 31, 2022.

The following table presents the available for sale debt securities portfolio by major type as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(in thousands)	(in thousands)	Fair Value		%		Fair Value		%		(in thousands)	Fair Value		%		Fair Value		%
Debt securities available for sale:	Debt securities available for sale:									Debt securities available for sale:
Obligations of U.S. government agencies	Obligations of U.S. government agencies	$	1,389,915	56.0	%	$	1,257,389	57.0	%	Obligations of U.S. government agencies	$	1,357,435	56.4	%	$	1,372,769	56.0	%
Obligations of states and political subdivisions	Obligations of states and political subdivisions	283,123		11.5	%	192,244		8.7	%	Obligations of states and political subdivisions	279,900		11.6	%	293,205		12.0	%
Corporate bonds	Corporate bonds	5,858		0.2	%	6,756		0.3	%	Corporate bonds	5,738		0.3	%	5,751		0.2	%
Asset backed securities	Asset backed securities	453,801		18.3	%	409,552		18.5	%	Asset backed securities	427,364		17.8	%	439,767		17.9	%
Non-agency collateralized mortgage obligations		347,568		14.0	%	341,997		15.5	%
Non-agency mortgage backed										Non-agency mortgage backed	335,375		13.9	%	340,946		13.9	%
Total debt securities available for sale	Total debt securities available for sale	$	2,480,265	100.0	%	$	2,207,938	100.0	%	Total debt securities available for sale	$	2,405,812	100.0	%	$	2,452,438	100.0	%

September 30, 2022 December 31, 2021
(in thousands) Amortized
Cost % Amortized
Cost %
Debt securities held to maturity:
Obligations of U.S. government and agencies $ 161,581 96.2 % $ 192,068 96.1 %
Obligations of states and political subdivisions 6,457 3.8 % 7,691 3.9 %
Total debt securities held to maturity $ 168,038 100.0 % $ 199,759 100.0 %

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	March 31, 2023				December 31, 2022
(in thousands)	Amortized Cost		%		Amortized Cost		%
Debt securities held to maturity:
Obligations of U.S. government and agencies	$	148,700	97.8	%	$	154,830	96.2	%
Obligations of states and political subdivisions	3,367		2.2	%	6,153		3.8	%
Total debt securities held to maturity	$	152,067	100.0	%	$	160,983	100.0	%

Investment securities held to maturity decreased ~~$31,721,000~~$8.9 million to ~~$168,038,000~~$152.1 million as of ~~September 30, 2022,~~March 31, 2023, as compared to December 31, ~~2021.~~2022. This decrease is attributable to calls and principal repayments of ~~$31,421,000,~~$8.8 million, and amortization of net purchase premiums of ~~$6,564,000.~~$0.1 million.

Loans

The Company ~~concentrates~~focuses its primary lending activities in six principal areas: commercial real estate loans, consumer loans, commercial and industrial loans, construction loans, agriculture production loans and leases. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and ~~maturity~~duration of the loans, the borrower’s relationship with the Company and prevailing money market rates indicative of the Company’s cost of funds.

The majority of the Company’s loans are direct loans made to individuals, ~~farmers~~ and local ~~businesses.~~or regional businesses which service a variety of industries. The Company relies substantially

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on local promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions. The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment.

The following table shows the Company’s loan balances, net deferred loan costs and discounts, as of the dates indicated:


(in thousands)	(in thousands)	September 30, 2022				December 31, 2021				(in thousands)	March 31, 2023				December 31, 2022
Commercial real estate	Commercial real estate	$	4,238,930	67.1	%	$	3,306,054	67.2	%	Commercial real estate	$	4,353,959	67.8	%	$	4,359,083	67.6	%
Consumer	Consumer	1,217,297		19.3	%	1,071,551		21.8	%	Consumer	1,233,797		19.2	%	1,240,743		19.2	%
Commercial and industrial	Commercial and industrial	534,960		8.5	%	259,355		5.3	%	Commercial and industrial	553,098		8.6	%	569,921		8.8	%
Construction	Construction	243,571		3.9	%	222,281		4.5	%	Construction	225,996		3.5	%	211,560		3.3	%
Agriculture production	Agriculture production	71,599		1.1	%	50,811		1.1	%	Agriculture production	47,062		0.7	%	61,414		1.0	%
Leases	Leases	7,933		0.1	%	6,572		0.1	%	Leases	8,509		0.1	%	7,726		0.1	%
Total loans	Total loans	$	6,314,290	100.0	%	$	4,916,624	100.0	%	Total loans	$	6,422,421	100.0	%	$	6,450,447	100.0	%

Nonperforming Assets

The following tables set forth the amount of the Company’s NPAs as of the dates indicated. “Performing nonaccrual loans” are loans that may be current for both principal and interest payments, or are less than 90 days past due, but for which payment in full of both principal and interest is not expected, and are not well secured and in the process of collection:

(in thousands) September 30,
2022 December 31,
2021
Performing nonaccrual loans $ 15,215 $ 27,713
Nonperforming nonaccrual loans 2,251 2,637
Total nonaccrual loans 17,466 30,350
Loans 90 days past due and still accruing 5 —
Total nonperforming loans 17,471 30,350
Foreclosed assets 3,441 2,594
Total nonperforming assets $ 20,912 $ 32,944
Nonperforming assets to total assets 0.21 % 0.38 %
Nonperforming loans to total loans 0.27 % 0.62 %
Allowance for credit losses to nonperforming loans 581 % 294 %


(in thousands)	March 31, 2023			December 31, 2022
Performing nonaccrual loans	$	13,840		$	19,543
Nonperforming nonaccrual loans	1,996			1,770
Total nonaccrual loans	15,836			21,313
Loans 90 days past due and still accruing	189			8
Total nonperforming loans	16,025			21,321
Foreclosed assets	3,439			3,439
Total nonperforming assets	$	19,464		$	24,760
Nonperforming assets to total assets	0.20		%	0.25		%
Nonperforming loans to total loans	0.25		%	0.33		%
Allowance for credit losses to nonperforming loans	676		%	516		%

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Changes in nonperforming assets during the three months ended ~~September 30, 2022~~March 31, 2023


(in thousands)	(in thousands)	Balance at June 30, 2022		New NPA / Valuation Adjustments		Pay-downs /Sales /Upgrades		Charge-offs/ (1) Write-downs		Transfers to Foreclosed Assets		Balance at September 30, 2022		(in thousands)	Balance at December 31, 2022		New NPA / Valuation Adjustments	Pay-downs /Sales /Upgrades	Charge-offs/ (1) Write-downs	Transfers to Foreclosed Assets	Balance at March 31, 2023
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	2,161	$	—	$	(129)	$	—	$	—	$	2,032	CRE non-owner occupied	$	1,739	—	(68)	—	—	$	1,671
CRE owner occupied	CRE owner occupied	1,441		648		(27)		—		(284)		1,778		CRE owner occupied	4,938		97	(1,187)	—	—	3,848
Multifamily	Multifamily	140		—		(8)		—		—		132		Multifamily	125		—	(8)	—	—	117
Farmland	Farmland	363		335		(3)		—		—		695		Farmland	1,772		—	(1,401)	—	—	371
Total commercial real estate loans	Total commercial real estate loans	4,105		983		(167)		—		(284)		4,637		Total commercial real estate loans	8,574		97	(2,664)	—	—	6,007
Consumer	Consumer													Consumer
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	3,323		349		(258)		—		(159)		3,255		SFR 1-4 1st DT liens	4,220		406	(1,095)	—	—	3,531
SFR HELOCs and junior liens	SFR HELOCs and junior liens	3,315		479		(429)		—		—		3,365		SFR HELOCs and junior liens	3,155		427	(166)	(43)	—	3,373
Other	Other	108		15		(2)		(60)		—		61		Other	76		110	(2)	(45)	—	139
Total consumer loans	Total consumer loans	6,746		843		(689)		(60)		(159)		6,681		Total consumer loans	7,451		943	(1,263)	(88)	—	7,043
Commercial and industrial	Commercial and industrial	954		67		(279)		(82)		—		660		Commercial and industrial	3,526		292	(683)	(1,574)	—	1,561
Construction	Construction	120		—		—		—		—		120		Construction	491		—	(34)	—	—	457
Agriculture production	Agriculture production	—		5,373		—		—		—		5,373		Agriculture production	1,279		—	(322)	—	—	957
Leases	Leases	—		—		—		—		—		—		Leases	—		—	—	—	—	—
Total nonperforming loans	Total nonperforming loans	11,925		7,266		(1,135)		(142)		(443)		17,471		Total nonperforming loans	21,321		1,332	(4,966)	(1,662)	—	16,025
Foreclosed assets	Foreclosed assets	3,379		13		(394)		—		443		3,441		Foreclosed assets	3,439		—	—	—	—	3,439
Total nonperforming assets	Total nonperforming assets	$	15,304	$	7,279	$	(1,529)	$	(142)	$	—	$	20,912	Total nonperforming assets	$	24,760	1,332	(4,966)	(1,662)	—	$	19,464

(1) The table above does not include deposit overdraft charge-offs.

Nonperforming assets ~~increased~~decreased during the three months ended ~~September 30, 2022~~March 31, 2023 by ~~$5,608,000~~$5.3 million or ~~36.6%~~21.4% to ~~$20,912,000 at September 30, 2022~~$19.5 million compared to ~~$15,304,000~~$24.8 million at ~~June 30,~~December 31, 2022. The ~~increase~~decrease in nonperforming assets during the ~~third~~first quarter of ~~2022~~2023 was primarily the result of nonperforming loan pay-downs/upgrades, which totaled $5.0 million during the quarter and charge-offs of $1.7 million. The nonperforming loans added during the period ~~totaling $7,266,000.~~totaled $1.3 million. Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the ~~credit~~loan loss reserves associated with these loans is sufficient as of ~~September 30, 2022.~~March 31, 2023.

Loan charge-offs during the three months ended ~~September 30, 2022~~March 31, 2023

In the ~~third~~first quarter of ~~2022,~~2023, the Company recorded ~~$142,000~~$1.7 million in loan charge-offs and ~~$125,000~~$0.01 million in deposit overdraft charge-offs less ~~$281,000~~$0.1 million in loan recoveries and ~~$29,000~~$0.1 million in deposit overdraft recoveries, which collectively resulted in ~~$44,000 of~~$1.6 million in net ~~recoveries.~~charge-offs.

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~~Changes in nonperforming assets during the nine months ended September 30, 2022~~

(in thousands) Balance at
December 31, 2021 New NPA /
Valuation
Adjustments Pay-downs
/Sales
/Upgrades
Charge-offs/ (1)
Write-downs
Transfers to
Foreclosed
Assets Balance at September 30, 2022
Commercial real estate:
CRE non-owner occupied $ 7,899 $ 2,214 $ (8,081) $ — $ — $ 2,032
CRE owner occupied 5,036 648 (3,622) — (284) 1,778
Multifamily 4,457 — (4,325) — — 132
Farmland 3,020 726 (2,444) (294) (313) 695
Total commercial real estate loans 20,412 3,588 (18,472) (294) (597) 4,637
Consumer
SFR 1-4 1st DT liens 3,596 722 (904) — (159) 3,255
SFR HELOCs and junior liens 3,801 2,092 (2,153) — (375) 3,365
Other 71 141 (28) (123) — 61
Total consumer loans 7,468 2,955 (3,085) (123) (534) 6,681
Commercial and industrial 2,415 711 (1,819) (647) — 660
Construction 55 85 (20) — — 120
Agriculture production — 5,373 — — — 5,373
Leases — — — — — —
Total nonperforming loans 30,350 12,712 (23,396) (1,064) (1,131) 17,471
Foreclosed assets 2,594 110 (393) — 1,131 3,442
Total nonperforming assets $ 32,944 $ 12,822 $ (23,789) $ (1,064) $ — $ 20,913

(in thousands)

The Components of the Allowance for Credit Losses for Loans

The following table sets forth the allowance for credit losses for loans as of the dates indicated:


(in thousands)	(in thousands)	September 30, 2022			December 31, 2021			September 30, 2021			(in thousands)	March 31, 2023			December 31, 2022			March 31, 2022
Allowance for credit losses:	Allowance for credit losses:										Allowance for credit losses:
Qualitative and forecast factor allowance	Qualitative and forecast factor allowance	$	67,825		$	59,855		$	58,998		Qualitative and forecast factor allowance	$	75,467		$	70,777		$	64,334
Cohort model allowance reserves	Cohort model allowance reserves	31,844			24,539			24,475			Cohort model allowance reserves	32,054			32,489			30,880
Allowance for individually evaluated loans	Allowance for individually evaluated loans	1,819			982			833			Allowance for individually evaluated loans	886			2,414			835

Total allowance for credit losses	Total allowance for credit losses	$	101,488		$	85,376		$	84,306		Total allowance for credit losses	$	108,407		$	105,680		$	96,049
Allowance for credit losses for loans / total loans	Allowance for credit losses for loans / total loans	1.61		%	1.74		%	1.72		%	Allowance for credit losses for loans / total loans	1.69		%	1.64		%	1.64		%

For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see “Asset Quality and Loan Loss Provisioning” at “Results of Operations”, above. Based on the current conditions of the loan portfolio, management believes that the ~~$101,488,000~~$108.4 million allowance for loan losses at ~~September 30, 2022~~March 31, 2023 is adequate to absorb probable losses inherent in the Bank’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio.

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The following table summarizes the allocation of the allowance for credit losses between loan types and by percentage of the total allowance for ~~loan~~credit losses on loans as of the dates indicated:

(in thousands) September 30, 2022 December 31, 2021 September 30, 2021
Commercial real estate $ 58,640 57.8 % 51,140 59.9 % $ 50,729 60.2 %
Consumer 23,932 23.6 % 23,474 27.5 % 23,491 27.9 %
Commercial and industrial 10,400 10.2 % 3,862 4.5 % 3,427 4.1 %
Construction 6,132 6.0 % 5,667 6.7 % 5,528 6.6 %
Agriculture production 2,368 2.3 % 1,215 1.4 % 1,119 1.2 %
Leases 16 0.1 % 18 — % 12 — %
Total allowance for credit losses $ 101,488 100.0 % 85,376 100.0 % $ 84,306 100.0 %

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(in thousands)	March 31, 2023				December 31, 2022			March 31, 2022
Commercial real estate	$	64,937	59.9	%	61,381	58.1	%	$	54,992	57.3	%
Consumer	24,896		23.0	%	24,639	23.3	%	23,852		24.8	%
Commercial and industrial	12,069		11.1	%	13,597	12.9	%	8,869		9.2	%
Construction	5,655		5.2	%	5,142	4.8	%	7,437		7.7	%
Agriculture production	833		0.7	%	906	0.8	%	883		0.9	%
Leases	17		0.1	%	15	0.1	%	16		0.1	%
Total allowance for credit losses	$	108,407	100.0	%	105,680	100.0	%	$	96,049	100.0	%

The following table summarizes the allocation of the allowance for credit losses as a percentage of the total loans for each loan category as of the dates indicated:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021			September 30, 2021			(in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Commercial real estate	Commercial real estate	1.38	%		1.55	%		1.57	%	Commercial real estate	1.49	%	1.41	%		1.43	%
Consumer	Consumer	1.97	%		2.19	%		2.22	%	Consumer	2.02	%	1.99	%		2.10	%
Commercial and industrial	Commercial and industrial	1.94	%		1.49	%		0.99	%	Commercial and industrial	2.18	%	2.39	%		1.77	%
Construction	Construction	2.52	%		2.55	%		2.55	%	Construction	2.50	%	2.43	%		2.45	%
Agriculture production	Agriculture production	3.31	%		2.39	%		2.52	%	Agriculture production	1.77	%	1.48	%		1.27	%
Leases	Leases	0.20	%		0.27	%		0.24	%	Leases	0.20	%	0.19	%		0.20	%
Total loans	Total loans	1.61	%		1.74	%		1.72	%	Total loans	1.69	%	1.64	%		1.64	%

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The following table summarizes the activity in the allowance for credit losses for the periods indicated:


		Three months ended September 30,						Nine months ended September 30,							Three months ended March 31,
(in thousands)	(in thousands)	2022			2021			2022			2021			(in thousands)	2023			2022
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
Balance at beginning of period	Balance at beginning of period	$	97,944		$	86,062		$	85,376		$	91,847		Balance at beginning of period	$	105,680		$	85,376
ACL on PCD loans	ACL on PCD loans	—			—			2,037			—			ACL on PCD loans	—			2,037
Provision for (reversal of) loan losses	Provision for (reversal of) loan losses	3,500			(1,495)			13,645			(7,880)			Provision for (reversal of) loan losses	4,315			8,205
Loans charged-off:	Loans charged-off:													Loans charged-off:
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	—			—			—			—			CRE non-owner occupied	—			—
CRE owner occupied	CRE owner occupied	—			(18)			—			(18)			CRE owner occupied	—			—
Multifamily	Multifamily	—			—			—			—			Multifamily	—			—
Farmland	Farmland	—			(126)			(294)			(126)			Farmland	—			(294)
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—			(145)			—			(145)			SFR 1-4 1st DT liens	—			—
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—			—			—			—			SFR HELOCs and junior liens	(42)			—
Other	Other	(185)			(181)			(470)			(460)			Other	(142)			(119)
Commercial and industrial	Commercial and industrial	(82)			(1,112)			(647)			(1,446)			Commercial and industrial	(1,574)			(330)
Construction	Construction	—			—			—			—			Construction	—			—
Agriculture production	Agriculture production	—			—			—			—			Agriculture production	—			—
Leases	Leases	—			—			—			—			Leases	—			—
Total loans charged-off	Total loans charged-off	(267)			(1,582)			(1,411)			(2,195)			Total loans charged-off	(1,758)			(743)
Recoveries of previously charged-off loans:	Recoveries of previously charged-off loans:													Recoveries of previously charged-off loans:
Commercial real estate:	Commercial real estate:													Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	1			10			1			12			CRE non-owner occupied	—			—
CRE owner occupied	CRE owner occupied	1			793			2			794			CRE owner occupied	—			—
Multifamily	Multifamily	—			—			—			—			Multifamily	—			—
Farmland	Farmland	—			—			—			—			Farmland	—			—
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	38			1			79			12			SFR 1-4 1st DT liens	—			40
SFR HELOCs and junior liens	SFR HELOCs and junior liens	98			63			426			860			SFR HELOCs and junior liens	65			175
Other	Other	53			97			200			262			Other	51			71
Commercial and industrial	Commercial and industrial	119			355			1,130			570			Commercial and industrial	53			887
Construction	Construction	—			—			—			—			Construction	—			—
Agriculture production	Agriculture production	1			2			3			24			Agriculture production	1			1
Leases	Leases	—			—			—			—			Leases	—			—
Total recoveries of previously charged-off loans	Total recoveries of previously charged-off loans	311			1,321			1,841			2,534			Total recoveries of previously charged-off loans	170			1,174
Net recoveries	Net recoveries	44			(261)			430			339			Net recoveries	(1,588)			431
Balance at end of period	Balance at end of period	$	101,488		$	84,306		$	101,488		$	84,306		Balance at end of period	$	108,407		$	96,049
Average total loans	Average total loans	$	6,171,042		$	4,897,922		$	5,700,342		$	4,880,298		Average total loans	$	6,413,958		$	4,988,560
Ratios (annualized):	Ratios (annualized):													Ratios (annualized):
Net recoveries (charge-offs) during period to average loans outstanding during period		—		%	(0.02)		%	0.02		%	0.01		%
Provision for credit losses (benefit from reversal of) to average loans outstanding during period		0.11		%	(0.12)		%	0.48		%	(0.32)		%
Net (charge-offs) recoveries during period to average loans outstanding during period														Net (charge-offs) recoveries during period to average loans outstanding during period	(0.10)		%	0.03		%
Provision for credit losses to average loans outstanding during period														Provision for credit losses to average loans outstanding during period	0.27		%	0.66		%

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Foreclosed Assets, Net of Allowance for Losses

The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


(in thousands)	(in thousands)	Balance at December 31, 2021		Sales		Valuation Adjustments		Transfers from Loans		Balance at September 30, 2022		(in thousands)	Balance at December 31, 2022		Sales		Valuation Adjustments		Transfers from Loans		Balance at March 31, 2023
Land & construction	Land & construction	$	155	$	—	$	—	$	313	$	468	Land & construction	$	154	$	—	$	—	$	—	$	154
Residential real estate	Residential real estate	1,258		(394)		—		534		1,398		Residential real estate	1,709		—		—		—		1,709
Commercial real estate	Commercial real estate	1,181		—		110		284		1,575		Commercial real estate	1,576		—		—		—		1,576
Total foreclosed assets	Total foreclosed assets	$	2,594	$	(394)	$	110	$	1,131	$	3,441	Total foreclosed assets	$	3,439	$	—	$	—	$	—	$	3,439

Deposits

During the three months ended ~~September 30, 2022,~~March 31, 2023, the Company’s deposits decreased by ~~$101,006,000. During~~$303.1 million to $8.7 billion at quarter end. There were no brokered deposits included in the ~~12-month period ended September 30,~~deposit balances as of March 31, 2023 and December 31, 2022, ~~the Company's deposits have increased by $1,418,947,000, including $1,215,479,000 that were acquired through the VRB merger.~~respectively.

Off-Balance Sheet Arrangements

See Note 9 to the condensed consolidated financial statements at Item 1 of Part I of this report for information about the Company’s commitments and contingencies including off-balance-sheet arrangements.

Capital Resources

The current and projected capital position of the Company and the impact of capital plans and long-term strategies are reviewed regularly by Management.

On February 25, 2021 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases will be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The Company may repurchase its outstanding shares of common stock from time to time in open market or privately-negotiated transactions, including block trades, or pursuant to 10b5-1 trading plans. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations).

Concurrently with the announcement of the completion of the VRB merger, the Company announced the resumption of its 2021 Repurchase Plan planned activities. During the three ~~and nine month period~~months ended ~~September 30,~~March 31, 2023 and 2022, the Company repurchased ~~45,132~~150,000 and ~~571,881~~zero shares with a market ~~value~~values of ~~$2,059,000~~$7.0 million and ~~$23,809,000,~~$0, respectively. Management's decisions as to the timing and extent of share repurchases is influenced by a variety of factors, including but not limited to; the market ask price for TCBK stock, internal capital adequacy projections and projected regulatory capital ratios.

Total shareholders' equity ~~decreased~~increased by ~~$51,839,000~~$43.8 million during the quarter ended ~~September 30, 2022,~~March 31, 2023, as a result of an ~~increase~~improvement in accumulated other comprehensive losses of ~~$76,740,000, share repurchases totaling approximately $2,059,000~~$24.4 million and net income of $35.8 million, partially offset by cash dividend payments on common stock of ~~$10,004,000, partially offset by net income of $37,338,000.~~approximately $9.9 million. As a result, the Company’s book value was ~~$29.71~~$32.84 per share at ~~September 30, 2022~~March 31, 2023, as compared to ~~$31.25~~$31.39 and ~~$33.05~~$32.78 at ~~June 30,~~December 31, 2022, and ~~September 30, 2021,~~March 31, 2022, respectively. ~~Changes in the book value were also impacted by the issuance of common stock associated with the acquisition of VRB.~~ 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~~$23.22 per share at ~~September 30, 2022,~~March 31, 2023, as compared to ~~$21.41~~$21.76 and ~~$25.16~~$23.04 at ~~June 30,~~December 31, 2022, and ~~September 30, 2021,~~March 31, 2022, respectively.

Trailing Quarter Balance Sheet Change


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
		Ratio		Minimum Regulatory Requirement		Ratio		Minimum Regulatory Requirement			Ratio		Minimum Regulatory Requirement		Ratio		Minimum Regulatory Requirement
Total risk based capital	Total risk based capital	14.0	%	10.5	%	15.4	%	10.5	%	Total risk based capital	14.5	%	10.5	%	14.2	%	10.5	%
Tier I capital	Tier I capital	12.2	%	8.5	%	14.2	%	8.5	%	Tier I capital	12.7	%	8.5	%	12.4	%	8.5	%
Common equity Tier 1 capital	Common equity Tier 1 capital	11.4	%	7.0	%	13.2	%	7.0	%	Common equity Tier 1 capital	12.0	%	7.0	%	11.7	%	7.0	%
Leverage	Leverage	9.6	%	4.0	%	9.9	%	4.0	%	Leverage	10.2	%	4.0	%	10.1	%	4.0	%

See Note 10 and Note 16 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources.

~~Table of Contents~~

As of ~~September 30, 2022,~~March 31, 2023, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depository shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings. Each issuance under the shelf

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registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. The registration statement does not limit the amount of securities that may be issued thereunder. Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings and compliance with current and prospective covenants in credit agreements.

Liquidity

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


(dollars in thousands)	March 31, 2023		December 31, 2022
Borrowing capacity at correspondent banks and FRB	$	2,853,219	$	2,815,594
Less: borrowings outstanding	(394,095)		(216,700)
Unpledged available-for-sale investment securities	1,883,353		1,990,451
Cash held or in transit with FRB	67,468		56,910
Total primary liquidity	$	4,409,945	$	4,862,738.3

At March 31, 2023, the Company's primary sources of liquidity represented 54.9% of total deposits and 190.7% of estimated total uninsured deposits, respectively. As a secondary source of ~~asset~~ liquidity, ~~is cash maintained at~~ the ~~Federal Reserve Bank of San Francisco (“Federal Reserve”) and other banks and marketable~~Company's held-to-maturity investment securities ~~classified as available for sale. As~~had a fair value of September 30, 2022, Federal Reserve required cash reserve ratios continue to be temporarily reduced to zero as a response to the worldwide COVID-19 pandemic and on-going impact on supply chains and the energy markets. $142.1 million, including approximately $9.9 million in net unrealized losses or 0.6% of after tax total shareholders' equity.

The Company’s profitability during the first ~~nine~~three months of ~~2022~~2023 generated cash flows from operations of ~~$107,991,000~~$39.0 million compared to ~~$99,919,000~~$34.8 million during the first ~~nine~~three months of ~~2021.~~2022. Net cash ~~used by~~from investing activities was ~~$648,487,000~~$115.3 million for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to net cash used by investing activities of ~~$752,929,000~~$121.9 million during the ~~nine~~three months ending ~~2021.~~2022. Financing activities ~~provided $18,584,000~~used $151.1 million during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$723,695,000 used~~providing $110.5 million during the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. During the ~~nine~~three months ended ~~September 30, 2022 cash acquired in connection with the VRB merger~~March 31, 2023 deposit balance decreases of ~~$426,883,000 and proceeds from the maturity of available for sale securities of $212,501,000 were~~$303.1 million was the largest ~~contributors~~detractor of funding, which attributed to the ~~source~~increase in other borrowings of funding that facilitated net organic loan growth of approximately $626,000,000 and net organic investment security growth of approximately $162,000,000, inclusive of changes in the fair value of available for sale investment securities, compared to an increase of deposit balances of $730,888,000$169.5 million during the same ~~period in 2021.~~period.

The changes in contractual obligations of the Company and Bank, to include but not limited to term subordinated debt, operating leases, deferred compensation and supplemental retirement plans as well as off-balance sheet commitments such as unfunded loans and letters of credit. These contractual obligations ~~increased as a result of the merger with VRB during the quarter ended March 31, 2022, but organically, remained~~are otherwise consistent with similar balances or totals as of December 31, ~~2021.~~

~~The following table identified certain liquidity source and capacity available to the Company as of the dates indicated:~~

(in thousands) September 30, 2022 December 31, 2021
FHLB advances
Borrowing capacity $ 2,434,714 $ 2,251,285
Amount utilized — —
Letters of credit — —
Amount available 2,434,714 2,251,285
FRB discount window
Borrowing capacity $ 255,603 $ 184,694
Amount utilized — —
Amount available 255,603 184,694
Unsecured lines of credit available $ 60,000 $ 60,000
Unencumbered debt securities $ 2,071,334 $ 1,984,241
2022.

The Company is dependent upon the payment of cash dividends by the Bank to service its commitments, which have historically included dividends to shareholders, scheduled debt service payments, and general operations. Shareholder dividends are expected to continue subject to the Board’s discretion and management's continuing evaluation of capital levels, earnings, asset quality and other factors. The Company expects that the cash dividends paid by the Bank to the Company will be sufficient to cover the Company's cash flow needs. However, the Company and its ability to generate liquidity through either the issuance of stock or debt, also serves as a potential source of strength for the Bank. Dividends paid by the Company to holders of its common stock used ~~$25,796,000~~$10.0 million and ~~$22,291,000~~$7.4 million of cash during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. The Company’s liquidity is dependent on dividends received from the Bank. Dividends from the Bank are subject to certain regulatory restrictions.

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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 filing contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this filing 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					Three months ended
(dollars in thousands)	(dollars in thousands)	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Net interest margin	Net interest margin											Net interest margin
Acquired loans discount accretion, net:	Acquired loans discount accretion, net:											Acquired loans discount accretion, net:
Amount (included in interest income)	Amount (included in interest income)	$714		$1,677		$2,034		$3,714		$6,311		Amount (included in interest income)	$1,397		$1,751		$1,323
Effect on average loan yield	Effect on average loan yield	0.05	%	0.11	%	0.17	%	0.09	%	0.18	%	Effect on average loan yield	0.09	%	0.11	%	0.11	%
Effect on net interest margin (FTE)	Effect on net interest margin (FTE)	0.03	%	0.07	%	0.10	%	0.06	%	0.11	%	Effect on net interest margin (FTE)	0.06	%	0.07	%	0.07	%
Net interest margin (FTE)	Net interest margin (FTE)	4.02	%	3.67	%	3.50	%	3.71	%	3.61	%	Net interest margin (FTE)	4.21	%	4.34	%	3.39	%
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)	Net interest margin less effect of acquired loan discount accretion (Non-GAAP)	3.99	%	3.60	%	3.40	%	3.65	%	3.50	%	Net interest margin less effect of acquired loan discount accretion (Non-GAAP)	4.15	%	4.27	%	3.32	%
PPP loans yield, net:	PPP loans yield, net:											PPP loans yield, net:
Amount (included in interest income)	Amount (included in interest income)	$313		$964		$3,507		$2,374		$12,549		Amount (included in interest income)	$5		$16		$1,097
Effect on net interest margin (FTE)	Effect on net interest margin (FTE)	0.01	%	0.02	%	0.09	%	0.02	%	0.08	%	Effect on net interest margin (FTE)	—	%	—	%	0.03	%
Net interest margin less effect of PPP loan yield (Non-GAAP)	Net interest margin less effect of PPP loan yield (Non-GAAP)	4.02	%	3.65	%	3.42	%	3.69	%	3.53	%	Net interest margin less effect of PPP loan yield (Non-GAAP)	4.21	%	4.34	%	3.36	%
Acquired loan discount accretion and PPP loan yield, net:	Acquired loan discount accretion and PPP loan yield, net:											Acquired loan discount accretion and PPP loan yield, net:
Amount (included in interest income)	Amount (included in interest income)	$1,027		$2,641		$5,541		$6,088		$18,860		Amount (included in interest income)	$1,402		$1,767		$2,420
Effect on net interest margin (FTE)	Effect on net interest margin (FTE)	0.04	%	0.10	%	0.19	%	0.08	%	0.20	%	Effect on net interest margin (FTE)	0.06	%	0.07	%	0.10	%
Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)	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	%	Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)	4.15	%	4.27	%	3.29	%


		Three months ended						Nine months ended					Three months ended
(dollars in thousands)	(dollars in thousands)	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Pre-tax pre-provision return on average assets or equity	Pre-tax pre-provision return on average assets or equity											Pre-tax pre-provision return on average assets or equity
Net income (GAAP)	Net income (GAAP)	$37,338		$31,364		$27,422		$89,076		$89,433		Net income (GAAP)	$35,833		$36,343		$20,374
Exclude income tax expense		14,148		11,748		11,534		33,765		35,644
Exclude provision for income taxes												Exclude provision for income taxes	13,149		14,723		7,869
Exclude provision (benefit) for credit losses	Exclude provision (benefit) for credit losses	3,795		2,100		(1,435)		14,225		(7,755)		Exclude provision (benefit) for credit losses	4,195		4,245		8,330
Net income before income tax and provision expense (Non-GAAP)	Net income before income tax and provision expense (Non-GAAP)	$55,281		$45,212		$37,521		$137,066		$117,322		Net income before income tax and provision expense (Non-GAAP)	$53,177		$55,311		$36,573

Average assets (GAAP)	Average assets (GAAP)	$10,131,118		$10,121,714		$8,348,111		$9,682,198		$8,096,273		Average assets (GAAP)	$9,878,927		$9,932,931		$8,778,256
Average equity (GAAP)	Average equity (GAAP)	$1,074,776		$1,091,454		$987,026		$1,058,938		$962,871		Average equity (GAAP)	$1,087,473		$1,016,468		$1,009,224

Return on average assets (GAAP) (annualized)	Return on average assets (GAAP) (annualized)	1.46	%	1.24	%	1.30	%	1.23	%	1.48	%	Return on average assets (GAAP) (annualized)	1.47	%	1.45	%	0.94	%
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)	Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)	2.16	%	1.79	%	1.78	%	1.89	%	1.94	%	Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)	2.18	%	2.21	%	1.69	%
Return on average equity (GAAP) (annualized)	Return on average equity (GAAP) (annualized)	13.78	%	11.53	%	11.02	%	11.25	%	12.42	%	Return on average equity (GAAP) (annualized)	13.36	%	14.19	%	8.19	%
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)	Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)	20.41	%	16.61	%	15.08	%	17.31	%	16.29	%	Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)	19.83	%	21.59	%	14.70	%

6554

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		Three months ended						Nine months ended					Three months ended
(dollars in thousands)	(dollars in thousands)	September 30, 2022		June 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022
Return on tangible common equity	Return on tangible common equity											Return on tangible common equity
Average total shareholders' equity	Average total shareholders' equity	$1,074,776		$1,091,454		$987,026		$1,058,938		$962,871		Average total shareholders' equity	$1,087,473		$1,016,468		$1,009,224
Exclude average goodwill	Exclude average goodwill	307,942		307,942		220,872		281,151		220,872		Exclude average goodwill	304,442		306,192		226,676
Exclude average other intangibles	Exclude average other intangibles	19,433		21,040		14,267		17,717		19,264		Exclude average other intangibles	15,842		17,521		12,604
Average tangible common equity (Non-GAAP)	Average tangible common equity (Non-GAAP)	$747,401		$762,472		$751,887		$760,070		$722,735		Average tangible common equity (Non-GAAP)	$767,189		$692,755		$769,944

Net income (GAAP)	Net income (GAAP)	$37,338		$31,364		$27,422		$89,076		$89,433		Net income (GAAP)	$35,833		$36,343		$20,374
Exclude amortization of intangible assets, net of tax effect	Exclude amortization of intangible assets, net of tax effect	1,199		1,199		992		3,263		3,008		Exclude amortization of intangible assets, net of tax effect	1,166		1,199		865
Tangible net income available to common shareholders (Non-GAAP)	Tangible net income available to common shareholders (Non-GAAP)	$38,537		$32,563		$28,414		$92,339		$92,441		Tangible net income available to common shareholders (Non-GAAP)	$36,999		$37,542		$21,239

Return on average equity	Return on average equity	13.78	%	11.53	%	11.02	%	11.25	%	12.42	%	Return on average equity	13.36	%	14.19	%	8.19	%
Return on average tangible common equity (Non-GAAP)	Return on average tangible common equity (Non-GAAP)	20.46	%	17.13	%	14.99	%	16.24	%	17.10	%	Return on average tangible common equity (Non-GAAP)	19.56	%	21.50	%	11.19	%


		Three months ended											Three months ended
(dollars in thousands)	(dollars in thousands)	September 30, 2022		June 30, 2022		March 31, 2022		December 31, 2021		September 30, 2021		(dollars in thousands)	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Tangible shareholders' equity to tangible assets	Tangible shareholders' equity to tangible assets											Tangible shareholders' equity to tangible assets
Shareholders' equity (GAAP)	Shareholders' equity (GAAP)	$990,338		$1,042,177		$1,109,182		$1,000,184		$982,014		Shareholders' equity (GAAP)	$1,090,245		$1,046,416		$990,338		$1,042,177		$1,109,182
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	326,314		328,016		329,718		233,241		234,434		Exclude goodwill and other intangible assets, net	319,456		321,112		326,314		328,016		329,718
Tangible shareholders' equity (Non-GAAP)	Tangible shareholders' equity (Non-GAAP)	$664,024		$714,161		$779,464		$766,943		$747,580		Tangible shareholders' equity (Non-GAAP)	$770,789		$725,304		$664,024		$714,161		$779,464

Total assets (GAAP)	Total assets (GAAP)	$9,976,879		$10,120,611		$10,118,328		$8,614,787		$8,458,030		Total assets (GAAP)	$9,842,394		$9,930,986		$9,976,879		$10,120,611		$10,118,328
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	326,314		328,016		329,718		233,241		234,434		Exclude goodwill and other intangible assets, net	319,456		321,112		326,314		328,016		329,718
Total tangible assets (Non-GAAP)	Total tangible assets (Non-GAAP)	$9,650,565		$9,792,595		$9,788,610		$8,381,546		$8,223,596		Total tangible assets (Non-GAAP)	$9,522,938		$9,609,874		$9,650,565		$9,792,595		$9,788,610

Shareholders' equity to total assets (GAAP)	Shareholders' equity to total assets (GAAP)	9.93	%	10.30	%	10.96	%	11.61	%	11.61	%	Shareholders' equity to total assets (GAAP)	11.08	%	10.54	%	9.93	%	10.30	%	10.96	%
Tangible shareholders' equity to tangible assets (Non-GAAP)	Tangible shareholders' equity to tangible assets (Non-GAAP)	6.88	%	7.29	%	7.96	%	9.15	%	9.09	%	Tangible shareholders' equity to tangible assets (Non-GAAP)	8.09	%	7.55	%	6.88	%	7.29	%	7.96	%


		Three months ended						Three months ended
(dollars in thousands)	(dollars in thousands)	September 30, 2022	June 30, 2022	March 31, 2022	December 31, 2021	September 30, 2021	(dollars in thousands)	March 31, 2023	December 31, 2022	September 30, 2022	June 30, 2022	March 31, 2022
Tangible common shareholders' equity per share	Tangible common shareholders' equity per share						Tangible common shareholders' equity per share
Tangible s/h equity (Non-GAAP)	Tangible s/h equity (Non-GAAP)	$664,024	$714,161	$779,464	$766,943	$747,580	Tangible s/h equity (Non-GAAP)	$770,789	$725,304	$664,024	$714,161	$779,464

Common shares outstanding at end of period	Common shares outstanding at end of period	33,332,189	33,350,974	33,837,935	29,730,424	29,714,609	Common shares outstanding at end of period	33,195,250	33,331,513	33,332,189	33,350,974	33,837,935

Common s/h equity (book value) per share (GAAP)	Common s/h equity (book value) per share (GAAP)	$29.71	$31.25	$32.78	$33.64	$33.05	Common s/h equity (book value) per share (GAAP)	$32.84	$31.39	$29.71	$31.25	$32.78
Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	$19.92	$21.41	$23.04	$25.80	$25.16	Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	$23.22	$21.76	$19.92	$21.41	$23.04

~~*****************~~

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Based on the changes in interest rates occurring subsequent to December 31, ~~2021,~~2022, the following update of the Company’s assessment of market risk as of ~~September 30, 2022~~March 31, 2023 is being provided. These updates and changes should be read in conjunction with the additional quantitative and qualitative disclosures in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

During the quarter ended ~~September 30, 2022,~~March 31, 2023, 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,~~March 31, 2023, the Company's loan portfolio consisted of approximately $6.4 billion in outstanding principal with a weighted average coupon rate of ~~4.65%~~5.0%. During the three-month periods ending March 31, 2023 and December 31, 2022, the weighted average coupon on loan production in the quarter was 6.55% and 6.25%, respectively. Included in the ~~September 30, 2022~~March 31, 2023 loan total are variable rate loans totaling $3.6 billion, of which, ~~$862~~$810.8 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities totaling ~~$402~~$384.1 million which are subject to repricing on not less than a quarterly basis.

Management funds the acquisition of nearly all of its earning assets through its core deposit gathering activities. As of ~~September 30, 2022,~~March 31, 2023, non-interest bearing deposits ~~increased by approximately $74,000,000 from the trailing quarter end, and~~ represented ~~42.5%~~40.3% of total deposits. Further, during the quarter ended ~~September 30, 2022,~~March 31, 2023, the cost of interest bearing deposits were ~~0.08%~~0.43% and the cost of total deposits were ~~0.04%~~0.25%. With the intent of ~~maximizing~~stabilizing or increasing net interest income, ~~and maintaining healthy credit quality,~~ management intends to continue to ~~carefully~~ deploy ~~any~~its excess liquidity and seek to migrate certain earning assets into higher yielding categories ~~when available (shifting proceeds from~~(from investment ~~security prepayment or maturity~~securities and into loans, for example). However, in situations where deposit balances contract, management relies upon various borrowing facilities or the use of brokered deposits. Through the first quarter of 2023 and during the entire 2022 year, management did not utilize any brokered deposits. Management did however utilize borrowing lines from the FHLB and expects that such borrowings will be needed and likely continue to grow through the remainder of the year and into 2024. As the rate paid on these borrowed funds are correlated with short-term interest rates, the costs associated with these borrowings, particularly in a rising rate environment, are also expected to increase.

As of ~~September 30, 2022~~March 31, 2023 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was ~~3.08%~~4.83%. These scenarios assume that 1) interest rates increase or decrease evenly (in a “ramp” fashion) over a twelve-month period and remain at the new levels beyond twelve months or 2) that interest rates change instantaneously (“shock”). The simulation results shown below assume no changes in the structure of the Company’s balance sheet over the twelve months being measured.

The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as measured against a flat rate (no interest rate change) instantaneous parallel shock scenario over a twelve month period utilizing a interest sensitivity (GAP) analysis based on the Company's specific mix of interest earning assets and interest bearing liabilities as of ~~September 30, 2022.~~March 31, 2023.

Interest Rate Risk Simulations:


Change in Interest Rates (Basis Points)	Change in Interest Rates (Basis Points)	Estimated Change in Net Interest Income (NII) (as % of NII)		Estimated Change in Market Value of Equity (MVE) (as % of MVE)		Change in Interest Rates (Basis Points)	Estimated Change in Net Interest Income (NII) (as % of NII)		Estimated Change in Market Value of Equity (MVE) (as % of MVE)
+300 (shock)	+300 (shock)	0.5	%	(2.5)	%	+300 (shock)	(3.5)	%	(6.3)	%
+200 (shock)	+200 (shock)	0.4	%	(1.2)	%	+200 (shock)	(2.5)	%	(4.0)	%
+100 (shock)	+100 (shock)	—	%	0.3	%	+100 (shock)	(1.2)	%	(1.0)	%
+ 0 (flat)	+ 0 (flat)	—	%	—	%	+ 0 (flat)	—		—
-100 (shock)	-100 (shock)	(4.6)	%	(6.5)	%	-100 (shock)	(2.1)	%	(3.9)	%
-200 (shock)	-200 (shock)	(9.9)	%	(16.6)	%	-200 (shock)	(4.6)	%	(11.0)	%
-300 (shock)	-300 (shock)	(14.0)	%	(30.1)	%	-300 (shock)	(6.6)	%	(23.4)	%

Basic assumptions include prepayment speeds on mortgage-related assets, cash flows and maturities of other investment securities, loan and deposit volumes and pricing. These assumptions are inherently subjective and may not be realized and, as a result, actual results will differ from our projections. More specifically, non-maturity deposit assumptions include savings accounts that reprice in the third month of the time horizon while all other non-maturity deposits are scheduled to reprice in the sixtieth month. In addition, variances in the timing, magnitude and frequency of interest rate changes, overall market conditions including volumes and pricing, and changes in management strategies, among other factors, will also result in variances between the projected and actual results.

These projections are based on the current interest rate environment and a static balance sheet mix of earning assets and interest sensitive liabilities. While market interest rates have been volatile in recent months, the impact of those changes on the Company's mix of assets and liabilities may not correlate directly to changes in the Company's net interest income or market value of equity. In addition, the Company's ability to reprice deposit costs downward in a falling interest rate scenario is generally constrained under the assumption that negative deposit rates will not be introduced.

Item 4. Controls and Procedures

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of ~~September 30, 2022.~~March 31, 2023. Disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are controls and procedures designed to reasonably assure

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that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2022.~~March 31, 2023.

During the three months ended ~~September 30, 2022,~~March 31, 2023, there were no changes in our internal controls or in other factors that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II – OTHER INFORMATION

Item 1 - Legal Proceedings

Due to the nature of our business, we are involved in legal proceedings that arise in the ordinary course of our business. While the outcome of these matters is currently not determinable, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Item 1A - Risk Factors

The following risk factor represents a material update and addition to the risk factors previously disclosed in the Company’s 2022 Annual Report on Form 10-K. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our ~~2021~~2022 Annual Report on Form 10-K, which could materially affect our business, financial condition, or results of operations. In

Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on the Company’s operations, earnings and financial condition.

Late in the first quarter of ~~2022,~~2023, the financial services industry was negatively affected by several bank failures. These recent events have caused general uncertainty and concern regarding the adequacy of liquidity within the banking sector as a whole and have decreased confidence in banks among depositors and investors. Although we ~~identified~~were not directly affected by these bank failures, the ~~following additional risk factor:~~resulting speed and ease in which news or rumors, including social media commentary, led depositors to withdraw or attempt to withdraw their funds from these and other financial institutions as well as caused the stock prices of many financial institutions to become volatile, in particular regional, as well as community banks like the Company. As a result of these recent events, customers may choose to maintain deposits with larger financial institutions or in other higher yielding alternatives, which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.

~~Instability~~In response to these failures and the resulting market reaction, the Secretary of the Treasury approved actions enabling the FDIC to complete its resolutions of the failed banks in ~~global economic conditions~~a manner that fully protects depositors by utilizing the Deposit Insurance Fund, including the use of Bridge Banks to assume all of the deposit obligations of the failed banks, while leaving unsecured lenders and ~~geopolitical matters,~~equity holders of such institutions exposed to losses. In addition, the Federal Reserve Bank announced it would make available additional funding to eligible depository institutions under a Bank Term Funding Program to help assure banks have the ability to meet the needs of all their depositors. In an effort to strengthen public confidence in the banking system and protect depositors, regulators announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as ~~well as volatility~~required by law, which is expected to increase the cost of our FDIC insurance assessments. However, it is uncertain whether these steps by the government will be sufficient to calm the financial markets, reduce the risk of significant depositor withdrawals at other institutions and thereby reduce the risk of additional bank failures. As a result of this uncertainty, we face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity, and increased credit risk which, individually or in ~~financial markets,~~the aggregate, could have a material adverse effect on ~~the Company’s~~our business, financial condition and results of ~~operations and financial condition.~~operations.

~~Instability~~Banking regulators have signaled further review of regulatory requirements and the potential for changes to laws or regulations governing banks and bank holding companies. Changes resulting from these events could include increased regulatory focus on deposit composition, the level of uninsured deposits, the level of unrealized losses in ~~global economic conditions~~either available for sale or held to maturity securities portfolios, contingent liquidity, CRE loan composition and ~~geopolitical matters,~~concentration, capital position and general oversight or supervisory or internal control structures regarding the foregoing. Changes in regulatory requirements could impact our ability to achieve our strategic objectives and may result in changes to our balance sheet position or business which could, in turn, negatively impact our profitability.

If we are required to sell securities to meet liquidity needs, we could realize significant losses.

As a result of increases in interest rates over the last year, the market values of previously issued government and other debt securities have declined in value, resulting in unrealized losses in our securities portfolio. While we anticipate that the scheduled cash flows generated from our investment portfolio will be adequate to support the liquidity needs of the Company, if we were required to sell these securities to expedite the generation of cash flows to meet liquidity needs, we may incur significant losses, which could impair our capital and financial condition and adversely affect our results of operations. Further, while we have taken actions to maximize our sources of liquidity, there is no guarantee that such sources will be available or sufficient in the event of sudden liquidity needs.

The following risk factor updates and supplements the risk factor regarding cyberattacks appearing on page 18 of the Company’s Form 10-K filed with the SEC on March 1, 2023.

We were subject to a cyberattack, which could damage our reputation, result in the disclosure of confidential information, or create additional financial and legal exposure.

As previously disclosed in the Current Report 8-K filed by us on February 14, 2023, the Bank experienced a cybersecurity incident, where unusual network activity was detected, and management shut down networked systems which prevented access to internal systems, data and telephones for a limited period of time. Upon discovering the incident, the Bank immediately launched an investigation. A digital forensics firm was engaged to help determine the scope of the incident and identify potentially impacted data. We received a demand for

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ransom from a party claiming responsibility for the incident and the Bank promptly notified law enforcement and banking regulators. The Bank believes that its core banking systems, including those that facilitate loan or deposit related transactions, were not affected by this incident as evidenced by the Bank’s general ability to resume customer facing operations within two days. However, the Bank’s internal system access as well as ~~volatility~~communication capabilities, including e-mail correspondence and telephones, required approximately one week of time for the restoration process to be completed in a safe and secure environment.

The Bank continues to work with third-party forensic investigators to understand the nature and scope of the incident and to determine what information was accessed and who was impacted. The investigation is on-going.

While we continue to evaluate the full impact of this incident, we remain subject to a number of risks and uncertainties, including legal, reputational, and financial ~~markets,~~risks, the results of our ongoing investigation of this security incident, any potential regulatory inquiries and/or litigation to which we may become subject in connection with this incident, and the extent of remediation and other additional costs that may be incurred by us. To date, we do not believe such financial consequences will be material, however the cybersecurity incident is still under investigation. Although the Company has insurance coverage, including cybersecurity insurance, the amount of coverage maintained may not cover all losses. We anticipate that we will incur additional expenses in future periods, including the notification of those impacted by the cybersecurity incident in accordance with applicable laws. Given the uncertainties about the impact of the incident and the inherent uncertainties involved in litigation, contractual obligations, government investigations and regulatory enforcement decisions, any outcomes from these risks could have a material adverse effect on ~~the Company’s results of operations and~~our reputation, business and/or financial condition. ~~The macroeconomic environment~~In addition, litigation, regulatory interventions, and media reports of perceived security vulnerabilities and any resulting damage to our reputation or loss of confidence in the ~~United States is susceptible to global events and volatility in financial markets. For example, trade negotiations between the U.S. and other nations remain uncertain and~~security of our systems could adversely impact economic and market conditions for the Company and its clients and counterparties. In addition, global demand for products may exceed supply during the economic recovery from the COVID-19 pandemic, and such shortages may cause inflation, adversely impact consumer and business confidence, and adversely affect the economy as well as the Company’s financial condition and results.

Specifically, on February 24, 2022, Russian military forces invaded Ukraine, and sustained conflict and disruption in the region is likely. Although the length, impact and outcome of the ongoing war in Ukraine is highly unpredictable, this conflict could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as increase in cyberattacks and espionage. The extent and duration of the military action, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. Any of the above-mentioned factors could affect our ~~business, financial condition~~business. As cyber threats and ~~operating results. Any such disruptions may also magnify~~ the ~~impact~~sophistication of ~~other risks described in this Quarterly Report on Form 10-Q~~threat actors continue to evolve, we have been and will likely continue to enhance our ~~Form 10-K for the year ended December 31, 2021.~~

protective measures and will expend resources to investigate and remediate any information security vulnerabilities or incidents.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

The following table shows the repurchases made by the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Exchange Act) during the periods indicated:
Period
(a) Total number of
shares purchased (1)
(b) Average price
paid per share (c) Total number of shares
purchased as of part
of publicly announced
plans or programs
(d) Maximum number
of shares that may
yet be purchased under
the plans or programs at period end (2)
July 1-31, 2022 52,184 $ 45.85 17,795 1,392,139
August 1-31, 2022 40,145 47.35 6,233 1,385,906
September 1-30, 2022 21,104 45.63 21,104 1,364,802
Total 113,433 45,132


Period	(a) Total number of shares purchased (1)	(b) Average price paid per share		(c) Total number of shares purchased as of part of publicly announced plans or programs	(d) Maximum number of shares that may yet be purchased under the plans or programs at period end (2)
January 1-31, 2023	—	$	—	—	1,359,802
February 1-28, 2023	48,475	50.69		36,094	1,323,708
March 1-31, 2023	113,906	45.11		113,906	1,209,802
Total	162,381	$	46.77	150,000

(1)Includes shares purchased by the Company’s Employee Stock Ownership Plan in open market purchases and shares tendered by employees pursuant to various other equity incentive plans. See Notes 10 and 11 to the condensed consolidated financial statements at Item 1 of Part I of this report, for a discussion of the Company’s stock repurchased under equity compensation plans.

(2)Does not include shares that may be purchased by the Company’s Employee Stock Ownership Plan and pursuant to various other equity incentive plans. See Note 10 to the condensed consolidated financial statements at Item 1 of Part I of this report, for a discussion of the Company’s stock repurchase plan.

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Item 6 – Exhibits

EXHIBIT INDEX


Exhibit No.						Exhibit

~~2.1~~						Agreement and Plan of Reorganization dated as of July 27, 2021, by and between TriCo Bancshares and Valley Republic Bancorp (incorporated by reference to Exhibit in TriCo's current report on Form 8-K filed on July 28, 2021).

31.1						Rule 13a-14(a)/15d-14(a) Certification of CEO

31.2						Rule 13a-14(a)/15d-14(a) Certification of CFO

32.1						Section 1350 Certification of CEO

32.2						Section 1350 Certification of CFO

101.INS						XBRL Instance Document

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

*Management contract or compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


			TRICO BANCSHARES
			(Registrant)

Date: ~~November 9, 2022~~May 10, 2023			/s/ Peter G. Wiese
			Peter G. Wiese
			Executive Vice President and Chief Financial Officer
			(Duly authorized officer and principal financial and chief accounting officer)

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			Page
PART I – FINANCIAL INFORMATION			3
Item 1 – Financial Statements (Unaudited)			3
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			4437
Item 3 – Quantitative and Qualitative Disclosures about Market Risk			6756
Item 4 – Controls and Procedures			6756
PART II – OTHER INFORMATION			6957
Item 1 – Legal Proceedings			6957
Item 1A – Risk Factors			6957
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			6958
Item 6 – Exhibits			7059
Signatures			7160


September 30, 2022:	Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	537,215	$	(95,003)	$	852,554	$	(119,016)	$	1,389,769	$	(214,019)
Obligations of states and political subdivisions	27,993		(8,728)		253,108		(40,966)		281,101		(49,694)
Corporate bonds	—		—		5,858		(303)		5,858		(303)
Asset backed securities	130,298		(6,102)		303,548		(7,232)		433,846		(13,334)
Non-agency collateralized mortgage obligations	122,255		(23,629)		209,647		(17,183)		331,902		(40,812)
Total debt securities available for sale	$	817,761	$	(133,462)	$	1,624,715	$	(184,700)	$	2,442,476	$	(318,162)

Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	—	$	—	$	146,904	$	(14,435)	$	146,904	$	(14,435)
Obligations of states and political subdivisions	—		—		$	5,257	$	(142)	5,257		(142)
Total debt securities held to maturity	$	—	$	—	$	152,161	$	(14,577)	$	152,161	$	(14,577)


	TDR information for the three months ended September 30, 2022
(dollars in thousands)	Number	Pre-mod outstanding principal balance		Post-mod outstanding principal balance		Financial impact due to TDR taken as additional provision		Number that defaulted during the period	Recorded investment of TDRs that defaulted during the period		Financial impact due to the default of previous TDR taken as charge- offs or additional provisions
Commercial real estate:
CRE non-owner occupied	—	$	—	$	—	$	—	—	$	—	$	—
CRE owner occupied	—	—		—		—		—	—		—
Multifamily	—	—		—		—		—	—		—
Farmland	—	—		—		—		—	—		—
Total commercial real estate loans	—	—		—		—		—	—		—
Consumer:
SFR 1-4 1st DT liens	—	—		—		—		—	—		—
SFR HELOCs and junior liens	—	—		—		—		—	—		—
Other	—	—		—		—		—	—		—
Total consumer loans	—	—		—		—		—	—		—
Commercial and industrial	—	—		—		—		—	—		—
Construction	—	—		—		—		—	—		—
Agriculture production	4	7,210		7,210		—		—	—		—
Leases	—	—		—		—		—	—		—
Total	4	$	7,210	$	7,210	$	—	—	$	—	$	—


	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	%


(in thousands)	Balance at December 31, 2021		New NPA / Valuation Adjustments		Pay-downs /Sales /Upgrades		Charge-offs/ (1) Write-downs		Transfers to Foreclosed Assets		Balance at September 30, 2022
Commercial real estate:
CRE non-owner occupied	$	7,899	$	2,214	$	(8,081)	$	—	$	—	$	2,032
CRE owner occupied	5,036		648		(3,622)		—		(284)		1,778
Multifamily	4,457		—		(4,325)		—		—		132
Farmland	3,020		726		(2,444)		(294)		(313)		695
Total commercial real estate loans	20,412		3,588		(18,472)		(294)		(597)		4,637
Consumer
SFR 1-4 1st DT liens	3,596		722		(904)		—		(159)		3,255
SFR HELOCs and junior liens	3,801		2,092		(2,153)		—		(375)		3,365
Other	71		141		(28)		(123)		—		61
Total consumer loans	7,468		2,955		(3,085)		(123)		(534)		6,681
Commercial and industrial	2,415		711		(1,819)		(647)		—		660
Construction	55		85		(20)		—		—		120
Agriculture production	—		5,373		—		—		—		5,373
Leases	—		—		—		—		—		—
Total nonperforming loans	30,350		12,712		(23,396)		(1,064)		(1,131)		17,471
Foreclosed assets	2,594		110		(393)		—		1,131		3,442
Total nonperforming assets	$	32,944	$	12,822	$	(23,789)	$	(1,064)	$	—	$	20,913