0000356171us-gaap:~~FinancialServiceOtherMember2023-01-012023-03-31~~DepositAccountMember2023-01-012023-06-30

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: ~~March 31,~~June 30, 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: ~~33,206,788~~33,263,345 shares outstanding as of ~~May 5,~~August 4, 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
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)


		March 31, 2023		December 31, 2022			June 30, 2023		December 31, 2022
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	77,933	$	96,323	Cash and due from banks	$	93,485	$	96,323
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	32,402		10,907		Cash at Federal Reserve and other banks	25,307		10,907
Cash and cash equivalents	Cash and cash equivalents	110,335		107,230		Cash and cash equivalents	118,792		107,230
Investment securities:	Investment securities:					Investment securities:
Marketable equity securities	Marketable equity securities	2,640		2,598		Marketable equity securities	2,598		2,598
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		Available for sale debt securities, net of allowance for credit losses of $0	2,320,413		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		Held to maturity debt securities, net of allowance for credit losses of $0	145,117		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	226		1,846		Loans held for sale	1,058		1,846
Loans	Loans	6,422,421		6,450,447		Loans	6,520,740		6,450,447
Allowance for credit losses	Allowance for credit losses	(108,407)		(105,680)		Allowance for credit losses	(117,329)		(105,680)
Total loans, net	Total loans, net	6,314,014		6,344,767		Total loans, net	6,403,411		6,344,767
Premises and equipment, net	Premises and equipment, net	72,096		72,327		Premises and equipment, net	72,619		72,327
Cash value of life insurance	Cash value of life insurance	134,544		133,742		Cash value of life insurance	135,332		133,742
Accrued interest receivable	Accrued interest receivable	31,388		31,856		Accrued interest receivable	32,835		31,856
Goodwill	Goodwill	304,442		304,442		Goodwill	304,442		304,442
Other intangible assets, net	Other intangible assets, net	15,014		16,670		Other intangible assets, net	13,358		16,670
Operating leases, right-of-use	Operating leases, right-of-use	30,000		26,862		Operating leases, right-of-use	29,140		26,862
Other assets	Other assets	252,566		257,975		Other assets	257,056		257,975
Total assets	Total assets	$	9,842,394	$	9,930,986	Total assets	$	9,853,421	$	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	$	3,236,696	$	3,502,095	Noninterest-bearing demand	$	3,073,353	$	3,502,095
Interest-bearing	Interest-bearing	4,789,169		4,826,918		Interest-bearing	5,022,012		4,826,918
Total deposits	Total deposits	8,025,865		8,329,013		Total deposits	8,095,365		8,329,013
Accrued interest payable	Accrued interest payable	1,643		1,167		Accrued interest payable	3,655		1,167
Operating lease liability	Operating lease liability	32,228		29,004		Operating lease liability	31,377		29,004
Other liabilities	Other liabilities	157,222		159,741		Other liabilities	136,464		159,741
Other borrowings	Other borrowings	434,140		264,605		Other borrowings	392,714		264,605
Junior subordinated debt	Junior subordinated debt	101,051		101,040		Junior subordinated debt	101,065		101,040
Total liabilities	Total liabilities	8,752,149		8,884,570		Total liabilities	8,760,640		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 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		695,168		697,448
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at June 30, 2023 and December 31, 2022						Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at June 30, 2023 and December 31, 2022	—		—
Common stock, no par value: 50,000,000 shares authorized; 33,259,260 and 33,331,513 issued and outstanding at June 30, 2023 and December 31, 2022, respectively						Common stock, no par value: 50,000,000 shares authorized; 33,259,260 and 33,331,513 issued and outstanding at June 30, 2023 and December 31, 2022, respectively	695,305		697,448
Retained earnings	Retained earnings	564,538		542,873		Retained earnings	578,852		542,873
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax	(169,461)		(193,905)		Accumulated other comprehensive loss, net of tax	(181,376)		(193,905)
Total shareholders’ equity	Total shareholders’ equity	1,090,245		1,046,416		Total shareholders’ equity	1,092,781		1,046,416
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	9,842,394	$	9,930,986	Total liabilities and shareholders’ equity	$	9,853,421	$	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 March 31,				Three months ended June 30,				Six months ended June 30,
		2023		2022				2023		2022		2023		2022
Interest and dividend income:	Interest and dividend income:						Interest and dividend income:
Loans, including fees	Loans, including fees	$	82,415	$	57,745		Loans, including fees	$	86,747	$	69,918	$	169,161	$	127,663
Investments:	Investments:						Investments:
Taxable securities	Taxable securities	18,622		9,962			Taxable securities	18,477		14,036		37,089		23,998
Tax exempt securities	Tax exempt securities	1,307		942			Tax exempt securities	1,262		1,323		2,570		2,265
Dividends	Dividends	304		261			Dividends	298		314		602		575
Interest bearing cash at Federal Reserve and other banks	Interest bearing cash at Federal Reserve and other banks	259		285			Interest bearing cash at Federal Reserve and other banks	374		1,364		643		1,649
Total interest and dividend income	Total interest and dividend income	102,907		69,195			Total interest and dividend income	107,158		86,955		210,065		156,150
Interest expense:	Interest expense:						Interest expense:
Deposits	Deposits	5,145		678			Deposits	11,457		848		16,602		1,527
Other borrowings	Other borrowings	2,809		5			Other borrowings	5,404		5		8,212		10
Junior subordinated debt	Junior subordinated debt	1,617		588			Junior subordinated debt	1,696		1,056		3,314		1,643
Total interest expense	Total interest expense	9,571		1,271			Total interest expense	18,557		1,909		28,128		3,180
Net interest income	Net interest income	93,336		67,924			Net interest income	88,601		85,046		181,937		152,970
Provision for credit losses	Provision for credit losses	4,195		8,330			Provision for credit losses	9,650		2,100		13,845		10,430
Net interest income after credit loss provision	Net interest income after credit loss provision	89,141		59,594			Net interest income after credit loss provision	78,951		82,946		168,092		142,540
Non-interest income:	Non-interest income:						Non-interest income:
Service charges and fees	Service charges and fees	11,197		11,696			Service charges and fees	12,968		13,044		24,165		24,740
Gain on sale of loans	Gain on sale of loans	206		1,246			Gain on sale of loans	295		542		501		1,788
Loss on sale of investment securities	Loss on sale of investment securities	(164)		—			Loss on sale of investment securities	—		—		(164)		—
Asset management and commission income	Asset management and commission income	934		887			Asset management and commission income	1,158		1,039		2,092		1,926
Increase in cash value of life insurance	Increase in cash value of life insurance	802		638			Increase in cash value of life insurance	788		752		1,590		1,390
Other	Other	660		629			Other	532		1,053		1,192		1,682
Total non-interest income	Total non-interest income	13,635		15,096			Total non-interest income	15,741		16,430		29,376		31,526
Non-interest expense:	Non-interest expense:						Non-interest expense:
Salaries and related benefits	Salaries and related benefits	32,563		28,597			Salaries and related benefits	34,714		34,370		67,277		62,967
Other	Other	21,231		17,850			Other	26,529		21,894		47,760		39,744
Total non-interest expense	Total non-interest expense	53,794		46,447			Total non-interest expense	61,243		56,264		115,037		102,711
Income before provision for income taxes	Income before provision for income taxes	48,982		28,243			Income before provision for income taxes	33,449		43,112		82,431		71,355
Provision for income taxes	Provision for income taxes	13,149		7,869			Provision for income taxes	8,557		11,748		21,706		19,617
Net income	Net income	$	35,833	$	20,374		Net income	$	24,892	$	31,364	$	60,725	$	51,738
Per share data:	Per share data:						Per share data:
Basic earnings per share	Basic earnings per share	$	1.08	$	0.68		Basic earnings per share	$	0.75	$	0.93	$	1.83	$	1.63
Diluted earnings per share	Diluted earnings per share	$	1.07	$	0.67		Diluted earnings per share	$	0.75	$	0.93	$	1.82	$	1.62
Dividends per share	Dividends per share	$	0.30	$	0.25		Dividends per share	$	0.30	$	0.25	$	0.60	$	0.50

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(In thousands; unaudited)


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
		2023		2022				2023		2022		2023		2022
Net income	Net income	$	35,833	$	20,374		Net income	$	24,892	$	31,364	$	60,725	$	51,738
Other comprehensive income (loss), net of tax:	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		24,444		(78,397)
Unrealized (losses) gains on available for sale securities arising during the period							Unrealized (losses) gains on available for sale securities arising during the period	(11,915)		(68,611)		12,529		(147,008)
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	—		—			Change in joint beneficiary agreements	—		—		—		—
Other comprehensive income (loss)		24,444		(78,339)
Other comprehensive (loss) income							Other comprehensive (loss) income	(11,915)		(68,611)		12,529		(146,950)
Comprehensive income (loss)	Comprehensive income (loss)	$	60,277	$	(57,965)		Comprehensive income (loss)	$	12,977	$	(37,247)	$	73,254	$	(95,212)

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 Loss		Total
Balance at January 1, 2022		29,730,424	$	532,244	$	466,959	$	981	$	1,000,184
Balance at April 1, 2022											Balance at April 1, 2022	33,837,935	$	706,672	$	479,868	$	(77,358)	$	1,109,182
Net income	Net income				20,374				20,374		Net income				31,364				31,364
Other comprehensive loss	Other comprehensive loss						(78,339)		(78,339)		Other comprehensive loss						(68,611)		(68,611)
Stock options exercised	Stock options exercised	3,325	55						55		Stock options exercised	12,000	201						201
RSU vesting	RSU vesting		565						565		RSU vesting		714						714
PSU vesting	PSU vesting		247						247		PSU vesting		216						216
RSUs released	RSUs released								—		RSUs released	45,482							—
PSUs released											PSUs released	—							—

Issuance of common stock		4,105,518	173,585						173,585
Repurchase of common stock	Repurchase of common stock	(1,332)	(24)		(32)				(56)		Repurchase of common stock	(544,443)	(11,362)		(11,168)				(22,530)
Dividends paid ($0.30 per share)	Dividends paid ($0.30 per share)				(7,433)				(7,433)		Dividends paid ($0.30 per share)				(8,359)				(8,359)
Three months ended March 31, 2022		33,837,935	$	706,672	$	479,868	$	(77,358)	$	1,109,182
Three months ended June 30, 2022											Three months ended June 30, 2022	33,350,974	$	696,441	$	491,705	$	(145,969)	$	1,042,177

Balance at January 1, 2023		33,331,513	$	697,448	$	542,873	$	(193,905)	$	1,046,416
Balance at April 1, 2023											Balance at April 1, 2023	33,195,250	$	695,168	$	564,538	$	(169,461)	$	1,090,245
Net income	Net income				35,833				35,833		Net income				24,892				24,892
Other comprehensive income							24,444		24,444
Other comprehensive loss											Other comprehensive loss						(11,915)		(11,915)
Stock options exercised	Stock options exercised	4,000	78						78		Stock options exercised	4,000	78						78
RSU vesting	RSU vesting		728						728		RSU vesting		626						626
PSU vesting	PSU vesting		313						313		PSU vesting		304						304
RSUs released	RSUs released	22,118							—		RSUs released	45,668							—

PSUs released											PSUs released	55,928							—

Repurchase of common stock	Repurchase of common stock	(162,381)	(3,399)		(4,196)				(7,595)		Repurchase of common stock	(41,586)	(871)		(608)				(1,479)
Dividends paid ($0.30 per share)	Dividends paid ($0.30 per share)				(9,972)				(9,972)		Dividends paid ($0.30 per share)				(9,970)				(9,970)
Three months ended March 31, 2023		33,195,250	$	695,168	$	564,538	$	(169,461)	$	1,090,245
Three months ended June 30, 2023											Three months ended June 30, 2023	33,259,260	$	695,305	$	578,852	$	(181,376)	$	1,092,781

Table of Contents


	Shares of Common Stock	Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at January 1, 2022	29,730,424	532,244		466,959		981		1,000,184
Net income				51,738				51,738
Other comprehensive loss						(146,950)		(146,950)
Stock options exercised	15,325	256						256
RSU vesting		1,279						1,279
PSU vesting		463						463
RSUs released	45,482							—
PSUs released	—							—
Issuance of common stock	4,105,518	173,585						173,585
Repurchase of common stock	(545,775)	(11,386)		(11,200)				(22,586)
Dividends paid ($0.50 per share)				(15,792)				(15,792)
Six months ended June 30, 2022	33,350,974	$	696,441	$	491,705	$	(145,969)	$	1,042,177

Balance at January 1, 2023	33,331,513	$	697,448	$	542,873	$	(193,905)	$	1,046,416
Net income				60,725				60,725
Other comprehensive income						12,529		12,529
Stock options exercised	8,000	156						156
RSU vesting		1,354						1,354
PSU vesting		617						617
RSUs released	67,786							—
PSUs released	55,928							—
Repurchase of common stock	(203,967)	(4,270)		(4,804)				(9,074)
Dividends paid ($0.60 per share)				(19,942)				(19,942)
Six months ended June 30, 2023	33,259,260	$	695,305	$	578,852	$	(181,376)	$	1,092,781

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 three months ended March 31,					For the six months ended June 30,
		2023		2022			2023		2022
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	35,833	$	20,374	Net income	$	60,725	$	51,738
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	1,566		1,409		Depreciation of premises and equipment, and amortization	3,187		2,962
Amortization of intangible assets	Amortization of intangible assets	1,656		1,228		Amortization of intangible assets	3,312		2,930
Provision for credit losses		4,195		8,330
Provision for credit losses on loans						Provision for credit losses on loans	13,295		10,145
Amortization of investment securities premium, net	Amortization of investment securities premium, net	174		5,618		Amortization of investment securities premium, net	572		6,297
Loss on sale of investment securities	Loss on sale of investment securities	164		—		Loss on sale of investment securities	164		—
Originations of loans for resale	Originations of loans for resale	(6,281)		(30,187)		Originations of loans for resale	(19,230)		(50,254)
Proceeds from sale of loans originated for resale	Proceeds from sale of loans originated for resale	8,058		33,509		Proceeds from sale of loans originated for resale	20,373		53,806
Gain on sale of loans	Gain on sale of loans	(206)		(1,246)		Gain on sale of loans	(501)		(1,788)
Change in market value of mortgage servicing rights	Change in market value of mortgage servicing rights	209		(274)		Change in market value of mortgage servicing rights	125		(410)

Provision for losses on foreclosed assets						Provision for losses on foreclosed assets	525		—
(Gain) loss on transfer of loans to foreclosed assets						(Gain) loss on transfer of loans to foreclosed assets	—		(97)

Operating lease expense payments	Operating lease expense payments	(1,653)		(1,292)		Operating lease expense payments	(3,264)		(2,815)
Gain on disposal of fixed assets		—		(1,078)
Loss (gain) on disposal of fixed assets						Loss (gain) on disposal of fixed assets	18		(1,073)
Increase in cash value of life insurance	Increase in cash value of life insurance	(802)		(638)		Increase in cash value of life insurance	(1,590)		(1,390)

(Gain) loss on marketable equity securities		(42)		137
Loss on marketable equity securities						Loss on marketable equity securities	—		232
Equity compensation vesting expense	Equity compensation vesting expense	1,041		812		Equity compensation vesting expense	1,971		1,742
Change in:	Change in:					Change in:
Interest receivable	Interest receivable	468		(83)		Interest receivable	(979)		(3,175)
Interest payable	Interest payable	476		(801)		Interest payable	2,488		(699)
Amortization of operating lease ROUA	Amortization of operating lease ROUA	1,739		1,374		Amortization of operating lease ROUA	3,359		2,930
Other assets and liabilities, net	Other assets and liabilities, net	(7,640)		(2,347)		Other assets and liabilities, net	(28,354)		1,059
Net cash from operating activities	Net cash from operating activities	38,955		34,845		Net cash from operating activities	56,196		72,140
Investing activities:	Investing activities:					Investing activities:
Proceeds from maturities of securities available for sale	Proceeds from maturities of securities available for sale	56,905		85,298		Proceeds from maturities of securities available for sale	159,494		151,486
Proceeds from maturities of securities held to maturity	Proceeds from maturities of securities held to maturity	8,842		12,894		Proceeds from maturities of securities held to maturity	15,756		22,752
Proceeds from sale of available for sale securities	Proceeds from sale of available for sale securities	24,160		—		Proceeds from sale of available for sale securities	24,160		—
Purchases of securities available for sale	Purchases of securities available for sale	—		(247,354)		Purchases of securities available for sale	(34,468)		(654,691)
Loan origination and principal collections, net	Loan origination and principal collections, net	26,558		(161,865)		Loan origination and principal collections, net	(71,939)		(423,606)

Proceeds from sale of premises and equipment	Proceeds from sale of premises and equipment	—		6,689		Proceeds from sale of premises and equipment	—		6,689
Purchases of premises and equipment	Purchases of premises and equipment	(1,213)		(631)		Purchases of premises and equipment	(3,238)		(2,223)
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 from investing activities		115,252		121,914
Net cash from (used by) investing activities						Net cash from (used by) investing activities	89,765		(472,710)
Financing activities:	Financing activities:					Financing activities:
Net change in deposits	Net change in deposits	(303,148)		131,839		Net change in deposits	(233,648)		174,137
Net change in other borrowings	Net change in other borrowings	169,535		(13,903)		Net change in other borrowings	128,109		(14,998)
Repurchase of common stock, net of option exercises	Repurchase of common stock, net of option exercises	(7,595)		—		Repurchase of common stock, net of option exercises	(9,074)		(22,586)
Dividends paid	Dividends paid	(9,972)		(7,433)		Dividends paid	(19,942)		(15,792)
Exercise of stock options	Exercise of stock options	78		—		Exercise of stock options	156		256
Net cash (used by) from financing activities	Net cash (used by) from financing activities	(151,102)		110,503		Net cash (used by) from financing activities	(134,399)		121,017
Net change in cash and cash equivalents	Net change in cash and cash equivalents	3,105		267,262		Net change in cash and cash equivalents	11,562		(279,553)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	107,230		768,421		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	Cash and cash equivalents, end of period	$	118,792	$	488,868

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Supplemental disclosure of noncash activities:
Unrealized gain (loss) on securities available for sale $ 34,540 $ (111,302)
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 621 55
Obligations incurred in conjunction with leased assets 4,484 521
Loans transferred to foreclosed assets — 313
Supplemental disclosure of cash flow activity:
Cash paid for interest expense $ 9,095 $ 1,546
Cash paid for income taxes — —
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.



Supplemental disclosure of noncash activities:
Unrealized gain (loss) on securities available for sale	$	17,787	$	(208,710)
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	2,100		829
Obligations incurred in conjunction with leased assets	4,855		3,867
Loans transferred to foreclosed assets	—		688
Supplemental disclosure of cash flow activity:
Cash paid for interest expense	$	25,639	$	3,353
Cash paid for income taxes	35,300		12,000
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.

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 33 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 $1.76 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance ~~sheet.~~sheets. 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, 2022 (the “2022 Annual Report”). The Company believes that the disclosures made 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 was considered insignificant at ~~March 31,~~June 30, 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 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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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 month~~six-month periods ended ~~March 31,~~June 30, 2023 and 2022, 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 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 corporate debt yields, and U.S. gross domestic product.

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 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 Recently Issued or Adopted

FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The adoption of this accounting guidance is not expected to have a material impact on 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 were effective for the Company beginning January 1, 2023 and applied on a prospective basis. The adoption of this accounting guidance did not have a material impact on the Company's consolidated financial statements.

Note 2 - Business Combinations

On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp, 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 $0.4 million in cash paid out for settlement of stock option awards at VRB.

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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	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	29,744
Total assets acquired	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	90,446
Goodwill recognized	$	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:


		March 31, 2023											June 30, 2023
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit 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	$	1,531,759	$	5	$	(174,329)	$	—	$	1,357,435	Obligations of U.S. government agencies	$	1,497,396	$	—	$	(187,972)	$	—	$	1,309,424
Obligations of states and political subdivisions	Obligations of states and political subdivisions	308,129		698		(28,927)		—		279,900		Obligations of states and political subdivisions	307,961		377		(32,687)		—		275,651
Corporate bonds	Corporate bonds	6,165		—		(427)		—		5,738		Corporate bonds	6,168		—		(667)		—		5,501
Asset backed securities	Asset backed securities	440,259		18		(12,913)		—		427,364		Asset backed securities	464,331		46		(10,910)		—		453,467
Non-agency collateralized mortgage obligations	Non-agency collateralized mortgage obligations	375,345		—		(39,970)		—		335,375		Non-agency collateralized mortgage obligations	317,319		—		(40,949)		—		276,370
Total debt securities available for sale	Total debt securities available for sale	$	2,661,657	$	721	$	(256,566)	$	—	$	2,405,812	Total debt securities available for sale	$	2,593,175	$	423	$	(273,185)	$	—	$	2,320,413
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	$	148,700	$	1	$	(9,942)	—		138,759		Obligations of U.S. government agencies	$	142,466	$	1	$	(10,664)	—		131,803
Obligations of states and political subdivisions	Obligations of states and political subdivisions	3,367		14		(5)		—		3,376		Obligations of states and political subdivisions	2,651		1		(46)		—		2,606
Total debt securities held to maturity	Total debt securities held to maturity	$	152,067	$	15	$	(9,947)	$	—	$	142,135	Total debt securities held to maturity	$	145,117	$	2	$	(10,710)	$	—	$	134,409

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	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
Debt Securities Available for Sale
Obligations of U.S. government agencies	$	1,568,408	$	3	$	(195,642)	$	—	$	1,372,769
Obligations of states and political subdivisions	332,625		401		(39,821)		—		293,205
Corporate bonds	6,164		—		(413)		—		5,751
Asset backed securities	454,943		17		(15,193)		—		439,767
Non-agency collateralized mortgage obligations	380,847		—		(39,901)		—		340,946
Total debt securities available for sale	$	2,742,987	$	421	$	(290,970)	$	—	$	2,452,438
Debt Securities Held to Maturity
Obligations of U.S. government agencies	$	154,830	$	2	$	(11,013)	$	—	$	143,819
Obligations of states and political subdivisions	6,153		13		(47)		—		6,119
Total debt securities held to maturity	$	160,983	$	15	$	(11,060)	$	—	$	149,938

Proceeds from the sale of investment securities totaled $24.2 million for the three and six months ended ~~March 31,~~June 30, 2023, with no resulting ~~in gross realized losses of $0.2 million.~~gain or loss. There were no sales of investment securities during the three and six months ended ~~March 31,~~June 30, 2022. Investment securities with an aggregate carrying value of ~~$648.4~~$624.4 million and $595.8 million at ~~March 31,~~June 30, 2023 and December 31, 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 ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2023, obligations of U.S. government corporations and agencies with a cost basis totaling ~~$1,502.5~~$1.5 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 ~~March 31,~~June 30, 2023, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately ~~6.53~~6.54 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half.

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


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

Due in one year	Due in one year	$	57,662			$	56,205					$	—			$	—		Due in one year	$	91,262			$	88,777			$	—	$	—
Due after one year through five years	Due after one year through five years	114,294		109,745				5,316		5,157		Due after one year through five years		75,911				72,601				6,790				6,485
Due after five years through ten years	Due after five years through ten years	407,960		389,802				9,592		9,081		Due after five years through ten years		406,088				385,442				30,471				27,882
Due after ten years	Due after ten years	2,081,741		1,850,060				137,159		127,897		Due after ten years		2,019,914				1,773,593				107,856				100,042
Totals	Totals	$	2,661,657	$	2,405,812			$	152,067	$	142,135	Totals		$	2,593,175			$	2,320,413			$	145,117			$	134,409

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:

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March 31, 2023:		Less than 12 months				12 months or more				Total
June 30, 2023:														June 30, 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	$	298,264	$	(18,024)	$	1,058,654	$	(156,305)	$	1,356,918	$	(174,329)	Obligations of U.S. government agencies	$	148,377	$	(9,454)	$	1,160,872	$	(178,518)	$	1,309,249	$	(187,972)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	126,230		(7,797)		105,039		(21,130)		231,269		(28,927)		Obligations of states and political subdivisions	42,997		(958)		204,574		(31,729)		247,571		(32,687)
Corporate bonds	Corporate bonds	1,846		(135)		3,892		(292)		5,738		(427)		Corporate bonds	—		—		5,501		(667)		5,501		(667)
Asset backed securities	Asset backed securities	112,239		(1,994)		309,739		(10,919)		421,978		(12,913)		Asset backed securities	88,449		(1,240)		359,902		(9,670)		448,351		(10,910)
Non-agency collateralized mortgage obligations	Non-agency collateralized mortgage obligations	73,343		(2,639)		248,617		(37,331)		321,960		(39,970)		Non-agency collateralized mortgage obligations	61,766		(2,173)		214,604		(38,776)		276,370		(40,949)
Total debt securities available for sale	Total debt securities available for sale	$	611,922	$	(30,589)	$	1,725,941	$	(225,977)	$	2,337,863	$	(256,566)	Total debt securities available for sale	$	341,589	$	(13,825)	$	1,945,453	$	(259,360)	$	2,287,042	$	(273,185)
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	$	41,389	$	(2,252)	$	97,370	$	(7,690)	$	138,759	$	(9,942)	Obligations of U.S. government agencies	$	39,059	$	(2,530)	$	92,743	$	(8,134)	$	131,802	$	(10,664)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	1,050		(5)		—		—		1,050		(5)		Obligations of states and political subdivisions	973		(22)		546		(24)		1,519		(46)
Total debt securities held to maturity	Total debt securities held to maturity	$	42,439	$	(2,257)	$	97,370	$	(7,690)	$	139,809	$	(9,947)	Total debt securities held to maturity	$	40,032	$	(2,552)	$	93,289	$	(8,158)	$	133,321	$	(10,710)


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 ~~March 31,~~June 30, 2023, ~~261~~265 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of ~~10.97%~~12.11% 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 ~~March 31,~~June 30, 2023. At ~~March 31,~~June 30, 2023, ~~159~~172 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of ~~11.07%~~11.61% 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 ~~March 31,~~June 30, 2023. At ~~March 31,~~June 30, 2023, 6 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of ~~6.93%~~10.81% 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 ~~March 31,~~June 30, 2023 has

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~~has~~ not experienced any deterioration in credit rating. At ~~March 31,~~June 30, 2023, 4748 asset backed securities had unrealized losses with aggregate depreciation of ~~2.97%~~2.38% 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 ~~March 31,~~June 30, 2023.

Non-agency collateralized mortgage obligations: The unrealized losses on investments in 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 as of and for the year ended ~~March 31,~~June 30, 2023. At ~~March 31,~~June 30, 2023, 2221 asset backed securities had unrealized losses with aggregate depreciation of ~~11.04%~~12.90% 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:


		March 31, 2023				December 31, 2022					June 30, 2023				December 31, 2022
(in thousands)	(in thousands)	AAA/AA/A		BBB/BB/B		AAA/AA/A		BBB/BB/B		(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	$	148,700	$	—	$	154,830	$	—	Obligations of U.S. government agencies	$	142,466	$	—	$	154,830	$	—
Obligations of states and political subdivisions	Obligations of states and political subdivisions	3,367		—		6,153		—		Obligations of states and political subdivisions	2,651		—		6,153		—
Total debt securities held to maturity	Total debt securities held to maturity	$	152,067	$	—	$	160,983	$	—	Total debt securities held to maturity	$	145,117	$	—	$	160,983	$	—

Note 4 – Loans

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


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	June 30, 2023		December 31, 2022
Commercial real estate:	Commercial real estate:					Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	2,161,059	$	2,149,725	CRE non-owner occupied	$	2,143,146	$	2,149,725
CRE owner occupied	CRE owner occupied	971,210		984,807		CRE owner occupied	972,361		984,807
Multifamily	Multifamily	946,693		944,537		Multifamily	951,590		944,537
Farmland	Farmland	274,997		280,014		Farmland	276,827		280,014
Total commercial real estate loans	Total commercial real estate loans	4,353,959		4,359,083		Total commercial real estate loans	4,343,924		4,359,083
Consumer:	Consumer:					Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	803,407		790,349		SFR 1-4 1st DT liens	829,346		790,349
SFR HELOCs and junior liens	SFR HELOCs and junior liens	375,591		393,666		SFR HELOCs and junior liens	363,600		393,666
Other	Other	54,799		56,728		Other	59,279		56,728
Total consumer loans	Total consumer loans	1,233,797		1,240,743		Total consumer loans	1,252,225		1,240,743
Commercial and industrial	Commercial and industrial	553,098		569,921		Commercial and industrial	576,247		569,921
Construction	Construction	225,996		211,560		Construction	278,425		211,560
Agriculture production	Agriculture production	47,062		61,414		Agriculture production	61,337		61,414
Leases	Leases	8,509		7,726		Leases	8,582		7,726
Total loans, net of deferred loan fees and discounts	Total loans, net of deferred loan fees and discounts	$	6,422,421	$	6,450,447	Total loans, net of deferred loan fees and discounts	$	6,520,740	$	6,450,447
Total principal balance of loans owed, net of charge-offs	Total principal balance of loans owed, net of charge-offs	$	6,467,936	$	6,496,210	Total principal balance of loans owed, net of charge-offs	$	6,565,576	$	6,496,210
Unamortized net deferred loan fees	Unamortized net deferred loan fees	(16,423)		(15,275)		Unamortized net deferred loan fees	(17,182)		(15,275)
Discounts to principal balance of loans owed, net of charge-offs	Discounts to principal balance of loans owed, net of charge-offs	(29,092)		(30,488)		Discounts to principal balance of loans owed, net of charge-offs	(27,654)		(30,488)
Total loans, net of unamortized deferred loan fees and discounts	Total loans, net of unamortized deferred loan fees and discounts	$	6,422,421	$	6,450,447	Total loans, net of unamortized deferred loan fees and discounts	$	6,520,740	$	6,450,447
Allowance for credit losses on loans	Allowance for credit losses on loans	$	(108,407)	$	(105,680)	Allowance for credit losses on loans	$	(117,329)	$	(105,680)

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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 March 31, 2023								Allowance for credit losses – Three months ended June 30, 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	$	30,962	$	—	$	—	$	2,001		$	32,963	CRE non-owner occupied	$	32,963	$	—	$	—	$	79	$	33,042
CRE owner occupied	CRE owner occupied	14,014		—		—		545			14,559		CRE owner occupied	14,559		—		1		5,648		20,208
Multifamily	Multifamily	13,132		—		—		741			13,873		Multifamily	13,873		—		—		202		14,075
Farmland	Farmland	3,273		—		—		269			3,542		Farmland	3,542		—		—		149		3,691
Total commercial real estate loans	Total commercial real estate loans	61,381		—		—		3,556			64,937		Total commercial real estate loans	64,937		—		1		6,078		71,016
Consumer:	Consumer:												Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	11,268		—		—		652			11,920		SFR 1-4 1st DT liens	11,920		—		—		1,214		13,134
SFR HELOCs and junior liens	SFR HELOCs and junior liens	11,413		(42)		65		(522)			10,914		SFR HELOCs and junior liens	10,914		—		37		(343)		10,608
Other	Other	1,958		(142)		51		195			2,062		Other	2,062		(163)		26		846		2,771
Total consumer loans	Total consumer loans	24,639		(184)		116		325			24,896		Total consumer loans	24,896		(163)		63		1,717		26,513
Commercial and industrial	Commercial and industrial	13,597		(1,574)		53		(7)			12,069		Commercial and industrial	12,069		(113)		123		(432)		11,647
Construction	Construction	5,142		—		—		513			5,655		Construction	5,655		—		—		1,376		7,031
Agriculture production	Agriculture production	906		—		1		(74)			833		Agriculture production	833		—		31		241		1,105
Leases	Leases	15		—		—		2			17		Leases	17		—		—		—		17
Allowance for credit losses on loans	Allowance for credit losses on loans	105,680		(1,758)		170		4,315			108,407		Allowance for credit losses on loans	108,407		(276)		218		8,980		117,329
Reserve for unfunded commitments	Reserve for unfunded commitments	4,315		—		—		(120)			4,195		Reserve for unfunded commitments	4,195		—		—		670		4,865
Total	Total	$	109,995	$	(1,758)	$	170	$	4,195		$	112,602	Total	$	112,602	$	(276)	$	218	$	9,650	$	122,194


	Allowance for credit losses – Six months ended June 30, 2023
(in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	30,962	$	—	$	—	$	2,080	$	33,042
CRE owner occupied	14,014		—		1		6,193		20,208
Multifamily	13,132		—		—		943		14,075
Farmland	3,273		—		—		418		3,691
Total commercial real estate loans	61,381		—		1		9,634		71,016
Consumer:
SFR 1-4 1st DT liens	11,268		—		—		1,866		13,134
SFR HELOCs and junior liens	11,413		(42)		102		(865)		10,608
Other	1,958		(305)		77		1,041		2,771
Total consumer loans	24,639		(347)		179		2,042		26,513
Commercial and industrial	13,597		(1,687)		176		(439)		11,647
Construction	5,142		—		—		1,889		7,031
Agriculture production	906		—		32		167		1,105
Leases	15		—		—		2		17
Allowance for credit losses on loans	105,680		(2,034)		388		13,295		117,329
Reserve for unfunded commitments	4,315		—		—		550		4,865
Total	$	109,995	$	(2,034)	$	388	$	13,845	$	122,194

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

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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~~includes 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. ~~As compared to historical norms,~~Despite continued declines on a year over year comparative basis, core inflation remains elevated from ~~continued disruptions in the supply chain,~~ wage pressures, and 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,~~prices. Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have ~~boosted~~formed expectations of the US entering a recession within 12 months. As a result, management continues to believe that certain credit ~~weakness~~weaknesses 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

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	Allowance for credit losses – Year ended December 31, 2022
(in thousands)	Beginning Balance		ACL of PCD Loans		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	25,739	$	746	$	—	$	1	$	4,476	$	30,962
CRE owner occupied	10,691		63		—		2		3,258		14,014
Multifamily	12,395		—		—		—		737		13,132
Farmland	2,315		764		(294)		—		488		3,273
Total commercial real estate loans	51,140		1,573		(294)		3		8,959		61,381
Consumer:
SFR 1-4 1st DT liens	10,723		144		—		79		322		11,268
SFR HELOCs and junior liens	10,510		—		(22)		429		496		11,413
Other	2,241		—		(572)		235		54		1,958
Total consumer loans	23,474		144		(594)		743		872		24,639
Commercial and industrial	3,862		81		(697)		1,157		9,194		13,597
Construction	5,667		201		—		—		(726)		5,142
Agriculture production	1,215		38		—		4		(351)		906
Leases	18		—		—		—		(3)		15
Allowance for credit losses on loans	85,376		2,037		(1,585)		1,907		17,945		105,680
Reserve for unfunded commitments	3,790		—		—		—		525		4,315
Total	$	89,166	$	2,037	$	(1,585)	$	1,907	$	18,470	$	109,995

Allowance for credit losses – Three months ended March 31, 2022
(in thousands) Beginning
Balance ACL of PCD Loans Charge-offs Recoveries Provision Ending Balance
Commercial real estate:
CRE non-owner occupied $ 25,739 $ 746 $ — $ — $ 1,570 $ 28,055
CRE owner occupied 10,691 63 — — 1,317 12,071
Multifamily 12,395 — — — (408) 11,987
Farmland 2,315 764 (294) — 94 2,879
Total commercial real estate loans 51,140 1,573 (294) — 2,573 54,992
Consumer:
SFR 1-4 1st DT liens 10,723 144 — 40 (238) 10,669
SFR HELOCs and junior liens 10,510 — — 175 158 10,843
Other 2,241 — (119) 71 (26) 2,167
Total consumer loans 23,474 144 (119) 286 (106) 23,679
Commercial and industrial 3,862 81 (330) 887 4,542 9,042
Construction 5,667 201 — — 1,569 7,437
Agriculture production 1,215 38 — 1 (371) 883
Leases 18 — — — (2) 16
Allowance for credit losses on loans 85,376 2,037 (743) 1,174 8,205 96,049
Reserve for unfunded commitments 3,790 — — — 125 3,915
Total $ 89,166 $ 2,037 $ (743) $ 1,174 $ 8,330 $ 99,964

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	Allowance for credit losses – Three months ended June 30, 2022
(in thousands)	Beginning Balance		ACL of PCD Loans		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	28,055			$	—	$	—	$	26	$	28,081
CRE owner occupied	12,071				—		1		548		12,620
Multifamily	11,987				—		—		(192)		11,795
Farmland	2,879				—		—		75		2,954
Total commercial real estate loans	54,992		—		—		1		457		55,450
Consumer:
SFR 1-4 1st DT liens	10,669				—		1		(359)		10,311
SFR HELOCs and junior liens	10,843				—		153		595		11,591
Other	2,167				(166)		76		(48)		2,029
Total consumer loans	23,679		—		(166)		230		188		23,931
Commercial and industrial	9,042				(235)		124		1,048		9,979
Construction	7,437				—		—		85		7,522
Agriculture production	883				—		1		162		1,046
Leases	16				—		—		—		16
Allowance for credit losses on loans	96,049		—		(401)		356		1,940		97,944
Reserve for unfunded commitments	3,915				—		—		160		4,075
Total	$	99,964	$	—	$	(401)	$	356	$	2,100	$	102,019


	Allowance for credit losses – Six months ended June 30, 2022
(in thousands)	Beginning Balance		Adoption of CECL		Charge-offs		Recoveries		Provision (benefit)		Ending Balance
Commercial real estate:
CRE non-owner occupied	$	25,739	$	746	$	—	$	—	$	1,596	$	28,081
CRE owner occupied	10,691		63		—		1		1,865		12,620
Multifamily	12,395		—		—		—		(600)		11,795
Farmland	2,315		764		(294)		—		169		2,954
Total commercial real estate loans	51,140		1,573		(294)		1		3,030		55,450
Consumer:
SFR 1-4 1st DT liens	10,723		144		—		41		(597)		10,311
SFR HELOCs and junior liens	10,510		—		—		328		753		11,591
Other	2,241		—		(285)		147		(74)		2,029
Total consumer loans	23,474		144		(285)		516		82		23,931
Commercial and industrial	3,862		81		(565)		1,011		5,590		9,979
Construction	5,667		201		—		—		1,654		7,522
Agriculture production	1,215		38		—		2		(209)		1,046
Leases	18		—		—		—		(2)		16
Allowance for credit losses on loans	85,376		2,037		(1,144)		1,530		10,145		97,944
Reserve for unfunded commitments	3,790		—		—		—		285		4,075
Total	$	89,166	$	2,037	$	(1,144)	$	1,530	$	10,430	$	102,019

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 million and non-homogeneous loans, such as commercial real

~~Table of Contents~~

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

Table of Contents

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.

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 March 31, 2023																										Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2023
(in thousands)	(in thousands)	2023		2022		2021		2020		2019		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	$	29,991	$	412,225	$	293,358	$	152,186	$	225,912	$	868,576	$	120,771	$	—	$	2,103,019								Pass	$	74,480			$	411,202			$	287,950			$	139,902			$	224,859			$	833,291			$	104,382	$	—	$	2,076,066
Special Mention	Special Mention	—		—		7,430		—		19,905		25,555		1,556		—		54,446									Special Mention	—				—				7,422				5,450				17,579				27,217				1,347		—		59,015
Substandard	Substandard	—		—		827		743		218		1,806		—		—		3,594									Substandard	—				—				791				—				2,392				4,670				212		—		8,065
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—									Doubtful/Loss	—				—				—				—				—				—				—		—		—
Total	Total	$	29,991	$	412,225	$	301,615	$	152,929	$	246,035	$	895,937	$	122,327	$	—	$	2,161,059								Total	$	74,480			$	411,202			$	296,163			$	145,352			$	244,830			$	865,178			$	105,941	$	—	$	2,143,146
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-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	$	17,630	$	201,342	$	194,894	$	121,856	$	63,323	$	291,219	$	33,526	$	—	$	923,790	Pass	$	43,483	$	191,817	$	193,284	$	122,066	$	61,481	$	284,127	$	29,719	$	—	$	925,977
Special Mention	Special Mention	—		131		16,818		232		724		7,794		838		—		26,537		Special Mention	73		845		14,981		3,040		717		6,386		—		—		26,042
Substandard	Substandard	—		3,153		—		5,217		1,877		10,479		157		—		20,883		Substandard	—		3,072		1,176		5,185		112		10,644		153		—		20,342
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	17,630	$	204,626	$	211,712	$	127,305	$	65,924	$	309,492	$	34,521	$	—	$	971,210	Total	$	43,556	$	195,734	$	209,441	$	130,291	$	62,310	$	301,157	$	29,872	$	—	$	972,361
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

1821

Table of Contents


		Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023																			Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2023
(in thousands)	(in thousands)	2023		2022		2021		2020		2019		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:
Multifamily risk ratings	Multifamily risk ratings																			Multifamily risk ratings
Pass	Pass	$	2,849	$	178,177	$	289,301	$	95,352	$	108,051	$	239,322	$	33,524	$	—	$	946,576	Pass	$	7,578	$	179,229	$	280,895	$	90,198	$	107,518	$	236,312	$	37,843	$	—	$	939,573
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		11,908		—		—		—		—		—		11,908
Substandard	Substandard	—		—		—		—		—		117		—		—		117		Substandard	—		—		—		—		—		109		—		—		109
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	2,849	$	178,177	$	289,301	$	95,352	$	108,051	$	239,439	$	33,524	$	—	$	946,693	Total	$	7,578	$	179,229	$	292,803	$	90,198	$	107,518	$	236,421	$	37,843	$	—	$	951,590
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Commercial real estate:	Commercial real estate:																			Commercial real estate:
Farmland risk ratings	Farmland risk ratings																			Farmland risk ratings
Pass	Pass	$	14,429	$	46,353	$	53,146	$	16,430	$	18,037	$	46,924	$	52,382	$	—	$	247,701	Pass	$	14,477	$	46,947	$	46,891	$	16,295	$	17,340	$	44,959	$	54,290	$	—	$	241,199
Special Mention	Special Mention	—		3,140		—		304		5,000		3,386		—		—		11,830		Special Mention	—		3,119		4,986		326		5,234		4,834		736		—		19,235
Substandard	Substandard	—		—		775		371		—		10,837		3,483		—		15,466		Substandard	—		—		790		365		—		10,458		4,780		—		16,393
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	14,429	$	49,493	$	53,921	$	17,105	$	23,037	$	61,147	$	55,865	$	—	$	274,997	Total	$	14,477	$	50,066	$	52,667	$	16,986	$	22,574	$	60,251	$	59,806	$	—	$	276,827
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Consumer loans:	Consumer loans:																			Consumer loans:
SFR 1-4 1st DT liens risk ratings	SFR 1-4 1st DT liens risk ratings																			SFR 1-4 1st DT liens risk ratings
Pass	Pass	$	15,719	$	193,110	$	271,654	$	127,830	$	32,755	$	141,016	$	8	$	3,506	$	785,598	Pass	$	52,682	$	191,299	$	269,009	$	126,461	$	31,577	$	138,088	$	—	$	3,542	$	812,658
Special Mention	Special Mention	—		1,079		—		3,234		280		8,662		—		67		13,322		Special Mention	—		1,073		—		3,214		815		6,810		—		34		11,946
Substandard	Substandard	—		—		1,189		—		—		2,667		—		631		4,487		Substandard	—		155		1,332		—		—		2,500		—		755		4,742
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	15,719	$	194,189	$	272,843	$	131,064	$	33,035	$	152,345	$	8	$	4,204	$	803,407	Total	$	52,682	$	192,527	$	270,341	$	129,675	$	32,392	$	147,398	$	—	$	4,331	$	829,346
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Consumer loans:	Consumer loans:																			Consumer loans:
SFR HELOCs and Junior Liens	SFR HELOCs and Junior Liens																			SFR HELOCs and Junior Liens
Pass	Pass	$	360	$	—	$	—	$	—	$	—	$	119	$	362,806	$	7,858	$	371,143	Pass	$	307	$	—	$	—	$	—	$	—	$	110	$	350,621	$	7,487	$	358,525
Special Mention	Special Mention	—		—		—		—		—		—		646		23		669		Special Mention	—		—		—		—		—		—		959		137		1,096
Substandard	Substandard	—		—		—		—		—		—		3,159		620		3,779		Substandard	—		—		—		—		—		—		3,461		518		3,979
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	360	$	—	$	—	$	—	$	—	$	119	$	366,611	$	8,501	$	375,591	Total	$	307	$	—	$	—	$	—	$	—	$	110	$	355,041	$	8,142	$	363,600
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	43	$	43
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Consumer loans:	Consumer loans:																			Consumer loans:
Other risk ratings	Other risk ratings																			Other risk ratings
Pass	Pass	$	4,305	$	11,888	$	12,044	$	9,376	$	9,680	$	6,274	$	588	$	—	$	54,155	Pass	$	13,725	$	10,649	$	10,641	$	8,747	$	8,510	$	5,716	$	654	$	—	$	58,642
Special Mention	Special Mention	—		—		13		64		130		200		16		—		423		Special Mention	—		—		99		17		60		82		18		—		276
Substandard	Substandard	—		—		—		42		70		87		22		—		221		Substandard	90		42		60		30		74		44		21		—		361
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	4,305	$	11,888	$	12,057	$	9,482	$	9,880	$	6,561	$	626	$	—	$	54,799	Total	$	13,815	$	10,691	$	10,800	$	8,794	$	8,644	$	5,842	$	693	$	—	$	59,279
Current period gross write-offs		$	96	$	6	$	—	$	—	$	29	$	7	$	3	$	—	$	141
Current period gross charge-offs																				Current period gross charge-offs	$	72	$	48	$	—	$	36	$	—	$	2	$	5	$	—	$	163

1922

Table of Contents


		Term Loans Amortized Cost Basis by Origination Year – As of March 31, 2023																			Term Loans Amortized Cost Basis by Origination Year – As of June 30, 2023
(in thousands)	(in thousands)	2023		2022		2021		2020		2019		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 and industrial loans:	Commercial and industrial loans:																			Commercial and industrial loans:
Commercial and industrial risk ratings	Commercial and industrial risk ratings																			Commercial and industrial risk ratings
Pass	Pass	$	34,754	$	107,807	$	64,490	$	15,801	$	20,277	$	11,093	$	273,269	$	402	$	527,893	Pass	$	40,481	$	94,564	$	61,113	$	12,857	$	17,544	$	9,489	$	319,172	$	308	$	555,528
Special Mention	Special Mention	44		2,750		60		20		29		1,037		9,453		—		13,393		Special Mention	658		2,999		238		64		26		970		7,116		401		12,472
Substandard	Substandard	—		1,223		1,869		3,235		11		298		5,076		100		11,812		Substandard	—		1,245		1,703		3,029		19		271		1,881		99		8,247
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	34,798	$	111,780	$	66,419	$	19,056	$	20,317	$	12,428	$	287,798	$	502	$	553,098	Total	$	41,139	$	98,808	$	63,054	$	15,950	$	17,589	$	10,730	$	328,169	$	808	$	576,247
Current period gross write-offs		$	6	$	—	$	—	$	1,550	$	—	$	—	$	—	$	18	$	1,574
Current period gross charge-offs																				Current period gross charge-offs	$	63	$	—	$	—	$	—	$	—	$	—	$	50	$	—	$	113


Construction loans:	Construction loans:																			Construction loans:
Construction risk ratings	Construction risk ratings																			Construction risk ratings
Pass	Pass	$	10,823	$	93,294	$	67,911	$	41,776	$	4,904	$	6,736	$	—	$	—	$	225,444	Pass	$	19,561	$	126,026	$	66,947	$	47,431	$	4,822	$	6,572	$	—	$	—	$	271,359
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		6,993		—		—		—		—		—		—		6,993
Substandard	Substandard	—		—		—		—		458		94		—		—		552		Substandard	—		—		—		—		73		—		—		—		73
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	10,823	$	93,294	$	67,911	$	41,776	$	5,362	$	6,830	$	—	$	—	$	225,996	Total	$	19,561	$	133,019	$	66,947	$	47,431	$	4,895	$	6,572	$	—	$	—	$	278,425
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Agriculture production loans:	Agriculture production loans:																			Agriculture production loans:
Agriculture production risk ratings	Agriculture production risk ratings																			Agriculture production risk ratings
Pass	Pass	$	50	$	3,140	$	2,567	$	1,003	$	929	$	9,755	$	21,690	$	—	$	39,134	Pass	$	249	$	3,154	$	2,407	$	882	$	875	$	8,611	$	35,606	$	—	$	51,784
Special Mention	Special Mention	—		—		—		—		—		103		4,769		—		4,872		Special Mention	—		—		—		—		—		296		6,399		—		6,695
Substandard	Substandard	—		—		—		—		—		—		3,056		—		3,056		Substandard	—		—		—		—		—		—		2,858		—		2,858
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	50	$	3,140	$	2,567	$	1,003	$	929	$	9,858	$	29,515	$	—	$	47,062	Total	$	249	$	3,154	$	2,407	$	882	$	875	$	8,907	$	44,863	$	—	$	61,337
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Leases:	Leases:																			Leases:
Lease risk ratings	Lease risk ratings																			Lease risk ratings
Pass	Pass	$	8,509	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$8,509		Pass	$	8,582	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$8,582
Special Mention	Special Mention	—		—		—		—		—		—		—		—		—		Special Mention	—		—		—		—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		—		—		—		Substandard	—		—		—		—		—		—		—		—		—
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	8,509	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	8,509	Total	$	8,582	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	8,582
Current period gross write-offs		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


Total loans outstanding:	Total loans outstanding:																			Total loans outstanding:
Risk ratings	Risk ratings																			Risk ratings
Pass	Pass	$	139,419	$	1,247,336	$	1,249,365	$	581,610	$	483,868	$	1,621,034	$	898,564	$	11,766	$	6,232,962	Pass	$	275,605	$	1,254,887	$	1,219,137	$	564,839	$	474,526	$	1,567,275	$	932,287	$	11,337	$	6,299,893
Special Mention	Special Mention	44		7,100		24,321		3,854		26,068		46,737		17,278		90		125,492		Special Mention	731		15,029		39,634		12,111		24,431		46,595		16,575		572		155,678
Substandard	Substandard	—		4,376		4,660		9,608		2,634		26,385		14,953		1,351		63,967		Substandard	90		4,514		5,852		8,609		2,670		28,696		13,366		1,372		65,169
Doubtful/Loss	Doubtful/Loss	—		—		—		—		—		—		—		—		—		Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	Total	$	139,463	$	1,258,812	$	1,278,346	$	595,072	$	512,570	$	1,694,156	$	930,795	$	13,207	$	6,422,421	Total	$	276,426	$	1,274,430	$	1,264,623	$	585,559	$	501,627	$	1,642,566	$	962,228	$	13,281	$	6,520,740
Current period gross write-offs		$	102	$	6	$	—	$	1,550	$	29	$	7	$	3	$	61	$	1,758
Current period gross charge-offs																				Current period gross charge-offs	$	135	$	48	$	—	$	36	$	—	$	2	$	55	$	—	$	276

2023

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	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

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	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
Consumer loans:
SFR HELOCs and Junior Liens
Pass	$	505	$	—	$	—	$	—	$	—	$	127	$	378,939	$	8,462	$	388,033
Special Mention	—		—		—		—		—		—		1,842		81		1,923
Substandard	—		—		—		—		—		—		3,072		638		3,710
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	505	$	—	$	—	$	—	$	—	$	127	$	383,853	$	9,181	$	393,666


Consumer loans:
Other risk ratings
Pass	$	14,070	$	12,990	$	10,211	$	10,650	$	5,225	$	1,945	$	899	$	—	$	55,990
Special Mention	—		18		77		135		176		32		47		—		485
Substandard	—		—		42		92		—		96		23		—		253
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	14,070	$	13,008	$	10,330	$	10,877	$	5,401	$	2,073	$	969	$	—	$	56,728


Commercial and industrial loans:
Commercial and industrial risk ratings
Pass	$	125,710	$	64,966	$	17,746	$	23,131	$	7,628	$	5,051	$	297,341	$	483	$	542,056
Special Mention	3,032		139		21		49		138		768		11,547		—		15,694
Substandard	1,293		1,142		5,179		14		33		611		3,798		101		12,171
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	130,035	$	66,247	$	22,946	$	23,194	$	7,799	$	6,430	$	312,686	$	584	$	569,921


Construction loans:
Construction risk ratings
Pass	$	72,840	$	72,308	$	43,409	$	15,358	$	2,159	$	4,900	$	—	$	—	$	210,974
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		457		—		129		—		—		586
Doubtful/Loss	—		—		—		—		—		—		—		—		—
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

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	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
Leases:
Lease risk ratings
Pass	$	7,726	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7,726
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	7,726	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7,726


Total loans outstanding:
Risk ratings
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	6,302		17,236		2,109		26,230		3,681		39,328		31,568		546		127,000
Substandard	4,506		3,210		13,010		3,221		6,357		26,409		13,405		1,384		71,502
Doubtful/Loss	—		—		—		—		—		—		—		—		—
Total	$	1,246,402	$	1,284,725	$	607,121	$	526,167	$	378,767	$	1,383,071	$	1,010,395	$	13,799	$	6,450,447

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 March 31, 2023													Analysis of Past Due Loans - As of June 30, 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	$	623	$	—	$	—	$	623	$	2,160,436	$	2,161,059	CRE non-owner occupied	$	304	$	—	$	347	$	651	$	2,142,495	$	2,143,146
CRE owner occupied	CRE owner occupied	156		82		172		410		970,800		971,210		CRE owner occupied	191		—		250		441		971,920		972,361
Multifamily	Multifamily	—		—		—		—		946,693		946,693		Multifamily	—		—		—		—		951,590		951,590
Farmland	Farmland	150		—		—		150		274,847		274,997		Farmland	150		—		1,508		1,658		275,169		276,827
Total commercial real estate loans	Total commercial real estate loans	929		82		172		1,183		4,352,776		4,353,959		Total commercial real estate loans	645		—		2,105		2,750		4,341,174		4,343,924
Consumer:	Consumer:													Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	442		557		356		1,355		802,052		803,407		SFR 1-4 1st DT liens	1		106		1,484		1,591		827,755		829,346
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—		1,342		793		2,135		373,456		375,591		SFR HELOCs and junior liens	1,918		391		327		2,636		360,964		363,600
Other	Other	49		136		121		306		54,493		54,799		Other	181		76		99		356		58,923		59,279
Total consumer loans	Total consumer loans	491		2,035		1,270		3,796		1,230,001		1,233,797		Total consumer loans	2,100		573		1,910		4,583		1,247,642		1,252,225
Commercial and industrial	Commercial and industrial	471		1,620		364		2,455		550,643		553,098		Commercial and industrial	158		160		1,399		1,717		574,530		576,247
Construction	Construction	—		78		379		457		225,539		225,996		Construction	400		—		—		400		278,025		278,425
Agriculture production	Agriculture production	—		—		—		—		47,062		47,062		Agriculture production	—		—		33		33		61,304		61,337
Leases	Leases	—		—		—		—		8,509		8,509		Leases	—		—		—		—		8,582		8,582
Total	Total	$	1,891	$	3,815	$	2,185	$	7,891	$	6,414,530	$	6,422,421	Total	$	3,303	$	733	$	5,447	$	9,483	$	6,511,257	$	6,520,740

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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
As of March 31, 2023 As of December 31, 2022
(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:
CRE non-owner occupied $ 1,671 $ 1,671 $ — $ 1,739 $ 1,739 $ —
CRE owner occupied 3,848 3,848 — 4,938 4,938 —
Multifamily 117 117 — 125 125 —
Farmland 371 371 — 1,772 1,772 —
Total commercial real estate loans 6,007 6,007 — 8,574 8,574 —
Consumer:
SFR 1-4 1st DT liens 3,532 3,532 — 4,117 4,220 —
SFR HELOCs and junior liens 2,790 3,373 — 2,498 3,155 —
Other 78 139 — 47 84 —
Total consumer loans 6,400 7,044 — 6,662 7,459 —
Commercial and industrial 95 1,372 189 1,224 3,518 —
Construction 457 457 — 491 491 —
Agriculture production 957 957 — 1,279 1,279 —
Leases — — — — — —
Sub-total 13,916 15,837 189 18,230 21,321 —
Less: Guaranteed loans (75) (230) — (105) (225)
Total, net $ 13,841 $ 15,607 $ 189 $ 18,125 $ 21,096 $ —


	Non Accrual Loans
	As of June 30, 2023						As of December 31, 2022
(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:
CRE non-owner occupied	$	1,230	$	1,230	$	—	$	1,739	$	1,739	$	—
CRE owner occupied	9,090		18,871		—		4,938		4,938		—
Multifamily	110		110		—		125		125		—
Farmland	2,594		2,230		—		1,772		1,772		—
Total commercial real estate loans	13,024		22,441		—		8,574		8,574		—
Consumer:
SFR 1-4 1st DT liens	3,082		3,393		—		4,117		4,220		—
SFR HELOCs and junior liens	3,182		3,489		—		2,498		3,155		—
Other	90		129		—		47		84		—
Total consumer loans	6,354		7,011		—		6,662		7,459		—
Commercial and industrial	6,371		7,504		32		1,224		3,518		—
Construction	73		73		—		491		491		—
Agriculture production	563		563		—		1,279		1,279		—
Leases	—		—		—		—		—		—
Sub-total	26,385		37,592		32		18,230		21,321		—
Less: Guaranteed loans	(798)		(964)		—		(105)		(225)
Total, net	$	25,587	$	36,628	$	32	$	18,125	$	21,096	$	—

Interest income on non accrual loans that would have been recognized during the three months ended ~~March 31,~~June 30, 2023 and 2022, if all such loans had been current in accordance with their original terms, totaled ~~$0.32~~$0.96 million and ~~$0.17~~$0.24 million, respectively. Interest income actually recognized on these originated loans during the three months ended ~~March 31,~~June 30, 2023 and 2022 was ~~$17 thousand~~$0.7 million and ~~$13 thousand,~~$0.01 million, respectively.

Interest income on non accrual loans that would have been recognized during the six months ended June 30, 2023 and 2022, if all such loans had been current in accordance with their original terms, totaled $1.3 million and $0.4 million, respectively. Interest income actually recognized on these originated loans during the six months ended June 30, 2023 and 2022 was $0.7 million and $0.01 million, 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 March 31, 2023																							As of June 30, 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	$	749	$	95	$	—	$	827	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	1,671	CRE non-owner occupied	$	136	$	304	$	—	$	791	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,231
CRE owner occupied	CRE owner occupied	523		75		—		3,250		—		—		—		—		—		—		—			3,848		CRE owner occupied	505		75		—		18,291		—		—		—		—		—		—		—		18,871
Multifamily	Multifamily	—		—		—		—		117		—		—		—		—		—		—			117		Multifamily	—		—		—		—		109		—		—		—		—		—		—		109
Farmland	Farmland	—		—		—		—		—		371		—		—		—		—		—			371		Farmland	—		—		—		—		—		2,594		—		—		—		—		—		2,594
Total commercial real estate loans	Total commercial real estate loans	1,272		170		—		4,077		117		371		—		—		—		—		—			6,007		Total commercial real estate loans	641		379		—		19,082		109		2,594		—		—		—		—		—		22,805
Consumer:	Consumer:																							Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		—		—		—		—		—		3,532		—		—		—		—			3,532		SFR 1-4 1st DT liens	—		—		—		—		—		—		3,394		—		—		—		—		3,394
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—		—		—		—		—		—		1,705		1,308		—		—		—			3,013		SFR HELOCs and junior liens	—		—		—		—		—		—		1,958		1,224		—		—		—		3,182
Other	Other	—		—		—		4		—		—		—		—		124		—		2			130		Other	—		—		—		3		—		—		—		—		91		—		26		120
Total consumer loans	Total consumer loans	—		—		—		4		—		—		5,237		1,308		124		—		2			6,675		Total consumer loans	—		—		—		3		—		—		5,352		1,224		91		—		26		6,696
Commercial and industrial	Commercial and industrial	—		—		—		—		—		—		—		—		—		1,298		74			1,372		Commercial and industrial	—		—		—		—		—		—		—		—		—		6,651		853		7,504
Construction	Construction	—		—		—		379		—		—		78		—		—		—		—			457		Construction	—		—		—		—		—		—		73		—		—		—		—		73
Agriculture production	Agriculture production	—		—		—		—		—		—		—		—		—		—		957			957		Agriculture production	—		—		—		—		—		—		—		—		—		—		563		563
Leases	Leases	—		—		—		—		—		—		—		—		—		—		—			—		Leases	—		—		—		—		—		—		—		—		—		—		—		—
Total	Total	$	1,272	$	170	$	—	$	4,460	$	117	$	371	$	5,315	$	1,308	$	124	$	1,298	$	1,033		$	15,468	Total	$	641	$	379	$	—	$	19,085	$	109	$	2,594	$	5,425	$	1,224	$	91	$	6,651	$	1,442	$	37,641


	As of December 31, 2022
(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:
CRE non-owner occupied	$	777	$	98	$	—	$	864	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	1,739
CRE owner occupied	548		75		1,103		3,212		—		—		—		—		—		—		—		4,938
Multifamily	—		—		—		—		125		—		—		—		—		—		—		125
Farmland	—		—		—		—		—		1,772		—		—		—		—		—		1,772
Total commercial real estate loans	1,325		173		1,103		4,076		125		1,772		—		—		—		—		—		8,574
Consumer:
SFR 1-4 1st DT liens	—		—		—		—		—		—		4,220		—		—		—		—		4,220
SFR HELOCs and junior liens	—		—		—		—		—		—		1,664		1,121		—		—		—		2,785
Other	—		—		—		5		—		—		—		—		61		—		2		68
Total consumer loans	—		—		—		5		—		—		5,884		1,121		61		—		2		7,073
Commercial and industrial	—		—		—		1,874		—		—		—		—		—		1,596		48		3,518
Construction	—		—		—		379		—		—		112		—		—		—		—		491
Agriculture production	—		—		—		—		—		—		—		—		—		—		1,279		1,279
Leases	—		—		—		—		—		—		—		—		—		—		—		—
Total	$	1,325	$	173	$	1,103	$	6,334	$	125	$	1,772	$	5,996	$	1,121	$	61	$	1,596	$	1,329	$	20,935

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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 the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods presented. The percentage of the 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					For the three and six months ended June 30, 2023
(in thousands)	(in thousands)	Payment Delay/Term Extension		Total % of Loans Outstanding		(in thousands)		Payment Delay/Term Extension		Total % of Loans Outstanding
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	—		—		CRE owner occupied		—		—
Multifamily	Multifamily	—		—		Multifamily		—		—
Farmland	Farmland	—		—		Farmland		—		—
Total commercial real estate loans	Total commercial real estate loans	—		—		Total commercial real estate loans		—		—
Consumer:	Consumer:					Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—		—		SFR 1-4 1st DT liens		—		—
SFR HELOCs and junior liens	SFR HELOCs and junior liens	—		—		SFR HELOCs and junior liens		—		—
Other	Other	—		—		Other		—		—
Total consumer loans	Total consumer loans	—		—		Total consumer loans		—		—
Commercial and industrial	Commercial and industrial	177		0.03		Commercial and industrial		177		0.03
Construction	Construction	—		—		Construction		—		—
Agriculture production	Agriculture production	—		—		Agriculture production		—		—
Leases	Leases	—		—		Leases		—		—
Total	Total	$	177	0.03	%	Total		$	177	0.03	%

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the ~~quarter~~three and six months ended ~~March 31,~~June 30, 2023.


						Weighted Average Months Term Extension
Commercial and industrial						12

There were no loans with payment defaults by borrowers experiencing financial difficulty during the quarter ended ~~March 31,~~June 30, 2023 which had material modifications in rate, term or principal forgiveness during the twelve months prior to 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).

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


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022
Operating lease cost	Operating lease cost	$	1,609	$	1,319		Operating lease cost	$	1,493	$	1,469	$	3,102	$	2,788
Short-term lease cost	Short-term lease cost	118		53			Short-term lease cost	118		80		236		133
Variable lease cost	Variable lease cost	12		2			Variable lease cost	9		7		21		9
Sublease income	Sublease income	—		—			Sublease income	—		—		—		—
Total lease cost	Total lease cost	$	1,739	$	1,374		Total lease cost	$	1,620	$	1,556	$	3,359	$	2,930

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


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		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	$	1,653	$	1,292		Operating cash flows for operating leases	$	1,611	$	1,523	$	3,264	$	2,815
ROUA obtained in exchange for operating lease liabilities	ROUA obtained in exchange for operating lease liabilities	$	4,484	$	3,867		ROUA obtained in exchange for operating lease liabilities	$	370	$	—	$	4,855	$	3,867

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


		March 31,					June 30,
		2023		2022			2023		2022
Weighted-average remaining lease term (years)	Weighted-average remaining lease term (years)	8.3		8.8		Weighted-average remaining lease term (years)	8.1		8.7
Weighted-average discount rate	Weighted-average discount rate	3.27	%	2.90	%	Weighted-average discount rate	3.29	%	2.91	%

At ~~March 31,~~June 30, 2023, future expected operating lease payments are as follows:


(in thousands)	(in thousands)			(in thousands)
Periods ending December 31,	Periods ending December 31,			Periods ending December 31,
2023	2023	$	4,505	2023	$	3,073
2024	2024	5,798		2024	5,879
2025	2025	5,229		2025	5,311
2026	2026	4,688		2026	4,770
2027	2027	4,001		2027	4,083
Thereafter	Thereafter	13,071		Thereafter	13,093
		37,292			36,209
Discount for present value of expected cash flows	Discount for present value of expected cash flows	(5,064)		Discount for present value of expected cash flows	(4,832)
Lease liability at March 31, 2023		$	32,228
Lease liability at June 30, 2023				Lease liability at June 30, 2023	$	31,377

Note 7 - Deposits

A summary of the balances of deposits follows:


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	June 30, 2023		December 31, 2022
Noninterest-bearing demand	Noninterest-bearing demand	$	3,236,696	$	3,502,095	Noninterest-bearing demand	$	3,073,353	$	3,502,095
Interest-bearing demand	Interest-bearing demand	1,635,706		1,718,541		Interest-bearing demand	1,752,086		1,718,541
Savings	Savings	2,807,796		2,884,378		Savings	2,778,118		2,884,378
Time certificates, $250,000 or more	Time certificates, $250,000 or more	94,917		46,350		Time certificates, $250,000 or more	125,244		46,350
Other time certificates	Other time certificates	250,750		177,649		Other time certificates	366,564		177,649
Total deposits	Total deposits	$	8,025,865	$	8,329,013	Total deposits	$	8,095,365	$	8,329,013

Overdrawn deposit balances of ~~$1.4~~$1.3 million and $1.8 million were classified as consumer loans at ~~March 31,~~June 30, 2023 and December 31, 2022, respectively.

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Note 8 - Borrowings

Other Borrowings

At June 30, 2023 other borrowings included a $150.0 million term borrowing with an interest rate of 5.11% and maturing in October 2023 and a $200.0 million term borrowing with an interest rate of 4.75% and maturing in April 2024.

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 +		As of March 31, 2023				As of December 31, 2022						Coupon Rate (Variable) 3 mo. LIBOR +		As of June 30, 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	%	7.88	%	$	20,619	$	20,619	TriCo Cap Trust I	10/7/2033	$	20,619	3.05	%	8.31	%	$	20,619	$	20,619
TriCo Cap Trust II	TriCo Cap Trust II	7/23/2034	20,619		2.55	%	7.36	%	20,619		20,619		TriCo Cap Trust II	7/23/2034	20,619		2.55	%	7.82	%	20,619		20,619
North Valley Trust II	North Valley Trust II	4/24/2033	6,186		3.25	%	8.06	%	5,527		5,503		North Valley Trust II	4/24/2033	6,186		3.25	%	8.55	%	5,551		5,503
North Valley Trust III	North Valley Trust III	7/23/2034	5,155		2.80	%	7.61	%	4,404		4,383		North Valley Trust III	7/23/2034	5,155		2.80	%	8.07	%	4,426		4,383
North Valley Trust IV	North Valley Trust IV	3/15/2036	10,310		1.33	%	6.19	%	7,446		7,393		North Valley Trust IV	3/15/2036	10,310		1.33	%	6.88	%	7,502		7,393
VRB Subordinated - 6%	VRB Subordinated - 6%	3/29/2029	16,000		Fixed		6.00	%	17,140		17,187		VRB Subordinated - 6%	3/29/2029	16,000		Fixed		6.00	%	17,093		17,187
VRB Subordinated - 5%	VRB Subordinated - 5%	8/27/2035	20,000		Fixed		5.00	%	25,296		25,336		VRB Subordinated - 5%	8/27/2035	20,000		Fixed		5.00	%	25,255		25,336
			$	98,889					$	101,051	$	101,040			$	98,889					$	101,065	$	101,040

The VRB - 6% Subordinated Debt issuance has a fixed rate of 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 5.0% through August 27, 2025, then indexed to the three-month LIBOR plus 4.9% through the maturity date.

Note 9 - Commitments and Contingencies

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


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	June 30, 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	$	726,505	$	656,705	Commercial loans	$	764,278	$	656,705
Consumer loans	Consumer loans	751,193		760,588		Consumer loans	701,542		760,588
Real estate mortgage loans	Real estate mortgage loans	473,894		458,896		Real estate mortgage loans	487,346		458,896
Real estate construction loans	Real estate construction loans	307,152		312,371		Real estate construction loans	371,943		312,371
Standby letters of credit	Standby letters of credit	24,070		26,599		Standby letters of credit	26,916		26,599
Deposit account overdraft privilege	Deposit account overdraft privilege	129,147		126,634		Deposit account overdraft privilege	125,067		126,634

Note 10 - Shareholders’ Equity

Dividends Paid

The Bank paid to the Company cash dividends in the aggregate amounts of ~~$18.2~~$11.6 million and ~~$7.8~~$27.7 million during the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively, and $29.8 million and $35.5 million during the equivalent six months 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 2.0 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 can be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021

Table of Contents

Repurchase Plan is subject to change. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations). During the three and six months ended ~~March 31,~~June 30, 2023, the Company repurchased zero and 150,000 shares with market values totaling $0 and $6,974,000, respectively. During the three and six months ended June 30, 2022, the Company repurchased ~~150,000 and zero~~526,749 shares with market values of ~~$7.0 million and $0,~~$21,750,000, respectively.

Stock Repurchased Under Equity Compensation Plans

The Company's shareholder-approved equity compensation plans permit 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 ~~March 31,~~June 30, 2023 and 2022, exercising option holders tendered ~~zero~~2,506 and 3,687 shares, respectively, of the Company’s common stock in connection with option exercises.

~~Table~~ During the six months ended June 30, 2023 and 2022, exercising option holders tendered 2,506 and 5,019 shares, respectively, of ~~Contents~~

the Company’s common stock in connection with option exercises. Employees also tendered ~~12,381~~39,080 and ~~zero~~14,007 shares in connection with the tax withholding requirements of other share based awards during the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively and 51,461 and 14,007 during the six months ended June 30, 2023 and 2022, respectively. In total, shares of the Company's common stock tendered had market values of ~~$0.62~~$1.5 million and $0$0.8 million during the quarters ended ~~March 31,~~June 30, 2023 and 2022, ~~respectively.~~respectively, and $2.1 million and $0.8 million during the year to date periods then ended. 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 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.

Stock option activity during the ~~three~~six months ended ~~March 31,~~June 30, 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, 2022	Outstanding at December 31, 2022	15,500	$	21.27	Outstanding at December 31, 2022	15,500	$	21.27
Options granted	Options granted	—	—		Options granted	—	—
Options exercised	Options exercised	(4,000)	19.46		Options exercised	(8,000)	19.46
Options forfeited	Options forfeited	—	—		Options forfeited	—	—
Outstanding at March 31, 2023		11,500	$	21.90
Outstanding at June 30, 2023					Outstanding at June 30, 2023	7,500	$	23.21

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 ~~March 31,~~June 30, 2023:


		Currently Exercisable		Currently Not Exercisable		Total Outstanding			Currently Exercisable		Currently Not Exercisable		Total Outstanding
Number of options	Number of options	11,500		—		11,500		Number of options	7,500		—		7,500
Weighted average exercise price	Weighted average exercise price	$	21.90	$	—	$	21.90	Weighted average exercise price	$	23.21	$	—	$	23.21
Intrinsic value (in thousands)	Intrinsic value (in thousands)	$	226	$	—	$	226	Intrinsic value (in thousands)	$	75	$	—	$	75
Weighted average remaining contractual term (yrs.)	Weighted average remaining contractual term (yrs.)	1.0		0 years		1.0		Weighted average remaining contractual term (yrs.)	1.3		0 years		1.3

As of ~~March 31,~~June 30, 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 2022 or the ~~three~~six months ended ~~March 31,~~June 30, 2023.

Activity related to restricted stock unit awards during the ~~three~~six months ended ~~March 31,~~June 30, 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, 2022	Outstanding at December 31, 2022	139,194	114,481	Outstanding at December 31, 2022	139,194	114,481
RSUs granted	RSUs granted	—	—	RSUs granted	83,200	65,911
RSUs added through dividend and performance credits	RSUs added through dividend and performance credits	817	—	RSUs added through dividend and performance credits	2,263	—
RSUs released	RSUs released	(22,118)	—	RSUs released	(67,786)	(55,928)
RSUs forfeited/expired	RSUs forfeited/expired	—	—	RSUs forfeited/expired	(450)	(440)
Outstanding at March 31, 2023		117,893	114,481
Outstanding at June 30, 2023				Outstanding at June 30, 2023	156,421	124,024

Table of Contents

The ~~117,893~~156,421 of service condition vesting RSUs outstanding as of ~~March 31,~~June 30, 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 ~~117,893~~156,421 of service condition vesting RSUs outstanding as of ~~March 31,~~June 30, 2023 are expected to vest, and be released, on a weighted-average basis, over the next ~~2.1~~2.3 years. The Company expects to recognize ~~$3.1~~$5.5 million of pre-tax compensation costs related to these service condition vesting RSUs between ~~March 31,~~June 30, 2023 and their vesting dates. The Company did not modify any service condition vesting RSUs during 2022 or during the ~~three~~six months ended ~~March 31,~~June 30, 2023.

The ~~114,481~~124,024 of market plus service condition vesting RSUs outstanding as of ~~March 31,~~June 30, 2023 are expected to vest, and be released, on a weighted-average basis, over the next ~~2.1~~2.4 years. The Company expects to recognize ~~$1.8~~$3.0 million of pre-tax compensation costs related to these RSUs between ~~March 31,~~June 30, 2023 and their vesting dates. As of ~~March 31,~~June 30, 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 ~~171,722~~186,036 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 2022 or during the ~~three~~six months ended ~~March 31,~~June 30, 2023.

Note 12 - Non-interest Income and Expense

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


		Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2023		2022			(in thousands)	2023		2022		2023		2022
ATM and interchange fees	ATM and interchange fees	$	6,344	$	6,243		ATM and interchange fees	$	6,856	$	6,984	$	13,200	$	13,227
Service charges on deposit accounts	Service charges on deposit accounts	3,431		3,834			Service charges on deposit accounts	4,581		4,163		8,012		7,997
Other service fees	Other service fees	1,166		882			Other service fees	992		1,279		2,158		2,161
Mortgage banking service fees	Mortgage banking service fees	465		463			Mortgage banking service fees	454		482		919		945
Change in value of mortgage servicing rights	Change in value of mortgage servicing rights	(209)		274			Change in value of mortgage servicing rights	85		136		(124)		410
Total service charges and fees	Total service charges and fees	11,197		11,696			Total service charges and fees	12,968		13,044		24,165		24,740
Increase in cash value of life insurance	Increase in cash value of life insurance	802		638			Increase in cash value of life insurance	788		752		1,590		1,390
Asset management and commission income	Asset management and commission income	934		887			Asset management and commission income	1,158		1,039		2,092		1,926
Gain on sale of loans	Gain on sale of loans	206		1,246			Gain on sale of loans	295		542		501		1,788
Lease brokerage income	Lease brokerage income	98		158			Lease brokerage income	74		238		172		396
Sale of customer checks	Sale of customer checks	288		104			Sale of customer checks	407		441		695		545
Loss on sale of investment securities	Loss on sale of investment securities	(164)		—			Loss on sale of investment securities	—		—		(164)		—
Gain (loss) on marketable equity securities		42		(137)
(Loss) gain on marketable equity securities							(Loss) gain on marketable equity securities	(42)		(94)		—		(231)
Other	Other	232		504			Other	93		468		325		972
Total other non-interest income	Total other non-interest income	2,438		3,400			Total other non-interest income	2,773		3,386		5,211		6,786
Total non-interest income	Total non-interest income	$	13,635	$	15,096		Total non-interest income	$	15,741	$	16,430	$	29,376	$	31,526

Table of Contents

The components of non-interest expense were as follows:
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


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
Base salaries, net of deferred loan origination costs	$	24,059	$	22,169	$	47,059	$	40,385
Incentive compensation	4,377		4,282		7,272		6,865
Benefits and other compensation costs	6,278		6,491		12,946		12,463
Total salaries and benefits expense	34,714		32,942		67,277		59,713
Occupancy	3,991		3,996		8,151		7,571
Data processing and software	4,638		3,596		8,670		7,109
Equipment	1,436		1,453		2,819		2,786
Intangible amortization	1,656		1,702		3,312		2,930
Advertising	1,016		818		1,775		1,455
ATM and POS network charges	1,902		1,781		3,611		3,156
Professional fees	1,985		1,233		3,574		2,109
Telecommunications	809		564		1,404		1,085
Regulatory assessments and insurance	1,993		779		2,785		1,499
Merger and acquisition expense	—		2,221		—		6,253
Postage	311		313		610		541
Operational losses	1,090		456		1,525		273
Courier service	483		486		822		900
Gain on sale or acquisition of foreclosed assets	—		(98)		—		(98)
Gain on disposal of fixed assets	18		5		18		(1,073)
Other miscellaneous expense	5,201		4,017		8,684		6,502
Total other non-interest expense	26,529		23,322		47,760		42,998
Total non-interest expense	$	61,243	$	56,264	$	115,037	$	102,711

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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 March 31,					Three months ended June 30,
(in thousands)	(in thousands)	2023		2022		(in thousands)	2023		2022
Net income	Net income	$	35,833	$	20,374	Net income	$	24,892	$	31,364
Average number of common shares outstanding	Average number of common shares outstanding	33,296		30,050		Average number of common shares outstanding	33,219		33,561
Effect of dilutive stock options and restricted stock	Effect of dilutive stock options and restricted stock	142		152		Effect of dilutive stock options and restricted stock	83		144
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	33,438		30,202		Average number of common shares outstanding used to calculate diluted earnings per share	33,302		33,705
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	—		—


	Six months ended June 30,
(in thousands)	2023		2022
Net income	$	60,725	$	51,738
Average number of common shares outstanding	33,257		31,815
Effect of dilutive stock options and restricted stock	114		148
Average number of common shares outstanding used to calculate diluted earnings per share	33,371		31,963
Options excluded from diluted earnings per share because of their antidilutive effect	—		—

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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 March 31,
(in thousands) 2023 2022
Unrealized holding gains (losses) on available for sale securities before reclassifications $ 34,540 $ (111,302)
Amounts reclassified out of AOCI:
Realized loss on debt securities 164 —
Unrealized holding gains (losses) on available for sale securities after reclassifications 34,704 (111,302)
Tax effect (10,260) 32,905
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 114 63
Amounts reclassified out of AOCI:
Amortization of prior service cost — (7)
Amortization of actuarial losses (114) 2
Total amounts reclassified out of accumulated other comprehensive (loss) income (114) (5)
Change in unfunded status of the supplemental retirement plans after reclassifications — 58
Tax effect — —
Change in unfunded status of the supplemental retirement plans, net of tax — 58
Change in joint beneficiary agreement liability before reclassifications — —
Tax effect — —
Change in joint beneficiary agreement liability before reclassifications, net of tax — —
Total other comprehensive income (loss) $ 24,444 $ (78,339)

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	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
Unrealized holding gains (losses) on available for sale securities before reclassifications	$	(16,916)	$	(97,408)	$	17,624	$	(208,710)
Amounts reclassified out of AOCI:
Realized loss on debt securities	—		—		164		—



Unrealized holding gains (losses) on available for sale securities after reclassifications	(16,916)		(97,408)		17,788		(208,710)
Tax effect	5,001		28,797		(5,259)		61,702
Unrealized holding gains (losses) on available for sale securities, net of tax	(11,915)		(68,611)		12,529		(147,008)
Change in unfunded status of the supplemental retirement plans before reclassifications	114		29		228		92
Amounts reclassified out of AOCI:
Amortization of prior service cost	—		(7)		—		(14)
Amortization of actuarial losses	(114)		2		(228)		4

Total amounts reclassified out of accumulated other comprehensive (loss) income	(114)		(5)		(228)		(10)
Change in unfunded status of the supplemental retirement plans after reclassifications	—		24		—		82
Tax effect	—		(24)		—		(24)
Change in unfunded status of the supplemental retirement plans, net of tax	—		—		—		58


Change in joint beneficiary agreement liability before reclassifications, net of tax	—		—		—		—
Total other comprehensive income (loss)	$	(11,915)	$	(68,611)	$	12,529	$	(146,950)

The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows:


(in thousands)	(in thousands)	March 31, 2023		December 31, 2022		(in thousands)	June 30, 2023		December 31, 2022
Net unrealized gain on available for sale securities	Net unrealized gain on available for sale securities	$	(255,845)	$	(290,549)	Net unrealized gain on available for sale securities	$	(272,761)	$	(290,549)
Tax effect	Tax effect	75,637		85,897		Tax effect	80,638		85,897
Unrealized holding gain on available for sale securities, net of tax	Unrealized holding gain on available for sale securities, net of tax	(180,208)		(204,652)		Unrealized holding gain on available for sale securities, net of tax	(192,123)		(204,652)
Unfunded status of the supplemental retirement plans	Unfunded status of the supplemental retirement plans	13,901		13,901		Unfunded status of the supplemental retirement plans	13,901		13,901
Tax effect	Tax effect	(4,110)		(4,110)		Tax effect	(4,110)		(4,110)
Unfunded status of the supplemental retirement plans, net of tax	Unfunded status of the supplemental retirement plans, net of tax	9,791		9,791		Unfunded status of the supplemental retirement plans, net of tax	9,791		9,791
Joint beneficiary agreement liability	Joint beneficiary agreement liability	956		956		Joint beneficiary agreement liability	956		956
Tax effect	Tax effect	—		—		Tax effect	—		—
Joint beneficiary agreement liability, net of tax	Joint beneficiary agreement liability, net of tax	956		956		Joint beneficiary agreement liability, net of tax	956		956
Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(169,461)	$	(193,905)	Accumulated other comprehensive loss	$	(181,376)	$	(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:

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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 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 March 31, 2023 Total Level 1 Level 2 Level 3
Marketable equity securities $ 2,640 $ 2,640
Debt securities available for sale:
Obligations of U.S. government corporations and agencies 1,357,435 1,357,435
Obligations of states and political subdivisions 279,900 279,900
Corporate bonds 5,738 5,738
Asset backed securities 427,364 427,364
Non-agency mortgage backed securities 335,375 335,375
Loans held for sale 226 226
Mortgage servicing rights 6,553 6,553
Total assets measured at fair value $ 2,415,231 $ 2,640 $ 2,406,038 $ 6,553

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Fair value at June 30, 2023	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,598	$	2,598
Debt securities available for sale:
Obligations of U.S. government corporations and agencies	1,309,424				1,309,424
Obligations of states and political subdivisions	275,651				275,651
Corporate bonds	5,501				5,501
Asset backed securities	453,467				453,467
Non-agency mortgage backed securities	276,370				276,370
Loans held for sale	1,058				1,058
Mortgage servicing rights	6,741						6,741
Total assets measured at fair value	$	2,330,810	$	2,598	$	2,321,471	$	6,741


Fair value at December 31, 2022	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,598	$	2,598	$	—	$	—
Debt securities available for sale:
Obligations of U.S. government corporations and agencies	1,372,769		—		1,372,769		—
Obligations of states and political subdivisions	293,205		—		293,205		—
Corporate bonds	5,751		—		5,751		—
Asset backed securities	439,767		—		439,767		—
Non-agency mortgage backed securities	340,946				340,946
Loans held for sale	1,846		—		1,846		—
Mortgage servicing rights	6,712		—		—		6,712
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 ~~three~~six months ended ~~March 31,~~June 30, 2023 or the year ended December 31, 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 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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Three months ended June 30,	Beginning Balance		Transfers into (out of) Level 3	Change Included in Earnings		Issuances		Ending Balance
2023: Mortgage servicing rights	$	6,553		$	84	$	104	$	6,741
2022: Mortgage servicing rights	$	6,405	—	$	136	$	126	$	6,667

~~Three~~Six months ended ~~March 31,~~June 30,

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 ~~March 31,~~June 30, 2023 and December 31, 2022:

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As of ~~March 31,~~June 30, 2023:

Fair Value
(in thousands)

Valuation
Technique

Unobservable
Inputs

Range,
Weighted
Average

Mortgage Servicing Rights

~~6,553~~6,741

Discounted cash flow

Constant prepayment rate

~~121%~~6% - ~~216%~~12%; ~~130.0%~~7.8%

Discount rate

10% - 14%; 12%

As of December 31, 2022:

Mortgage Servicing Rights

6,712

Discounted cash flow

Constant prepayment rate

~~116%~~7% - ~~226.0%~~13.6%; ~~127.0%~~7.6%

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):


March 31, 2023		Total		Level 1	Level 2	Level 3
June 30, 2023								June 30, 2023	Total		Level 1		Level 2		Level 3
Fair value:	Fair value:							Fair value:
Individually evaluated loans	Individually evaluated loans	$	1,223	—	—	$	1,223	Individually evaluated loans	$	3,730	—		—		$	3,730
Foreclosed assets								Foreclosed assets	1,449		—		—		1,449
Total assets measured at fair value								Total assets measured at fair value	$	5,179	$	—	$	—	$	5,179


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

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,					Three months ended June 30,				Six months ended June 30,
		2023		2022			2023		2022		2023		2022
Individually evaluated loans	Individually evaluated loans	$	(277)	$	(615)	Individually evaluated loans	$	(6,754)	$	—	$	(7,031)	$	(615)
Foreclosed assets	Foreclosed assets	—		(294)		Foreclosed assets	(525)		(98)		(525)		(392)
Total losses from non-recurring measurements	Total losses from non-recurring measurements	$	(277)	$	(909)	Total losses from non-recurring measurements	$	(7,279)	$	(98)	$	(7,556)	$	(1,007)

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 ~~March 31,~~June 30, 2023:

~~March 31,~~June 30, 2023

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

~~1,223~~3,730

Sales comparison
approach
Income approach

Adjustment for differences between
comparable sales;
Capitalization rate

Not meaningful
N/A

Foreclosed assets (Residential real estate)

1,449

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, 2022:

December 31, 2022

Fair Value
(in thousands)

Valuation
Technique

Unobservable Inputs

Range,
Weighted Average

Individually evaluated loans

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.


		March 31, 2023				December 31, 2022					June 30, 2023				December 31, 2022
(in thousands)	(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:	Financial assets:									Financial assets:
Level 1 inputs:	Level 1 inputs:									Level 1 inputs:
Cash and due from banks	Cash and due from banks	$	77,933	$	77,933	$	96,323	$	96,323	Cash and due from banks	$	93,485	$	93,485	$	96,323	$	96,323
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	32,402		32,402		10,907		10,907		Cash at Federal Reserve and other banks	25,307		25,307		10,907		10,907
Level 2 inputs:	Level 2 inputs:									Level 2 inputs:
Securities held to maturity	Securities held to maturity	152,067		142,135		160,983		149,938		Securities held to maturity	145,117		134,409		160,983		149,938
Restricted equity securities	Restricted equity securities	17,250		N/A		17,250		N/A		Restricted equity securities	17,250		N/A		17,250		N/A

Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Loans, net	Loans, net	6,314,014		6,073,450		6,344,767		6,153,155		Loans, net	6,403,411		6,103,731		6,344,767		6,153,155
Financial liabilities:	Financial liabilities:									Financial liabilities:
Level 2 inputs:	Level 2 inputs:									Level 2 inputs:
Deposits	Deposits	8,025,865		8,018,642		8,329,013		8,321,517		Deposits	8,095,365		8,087,270		8,329,013		8,321,517
Other borrowings	Other borrowings	434,140		434,140		264,605		264,605		Other borrowings	392,714		392,714		264,605		264,605
Level 3 inputs:	Level 3 inputs:									Level 3 inputs:
Junior subordinated debt	Junior subordinated debt	101,051		94,442		101,040		92,613		Junior subordinated debt	101,065		94,425		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	$	2,258,744	$	22,587	$	2,188,560	$	21,886	Commitments	$	2,325,109	$	23,251	$	2,188,560	$	21,886
Standby letters of credit	Standby letters of credit	24,070		241		26,599		266		Standby letters of credit	26,916		269		26,599		266
Overdraft privilege commitments	Overdraft privilege commitments	129,147		1,291		126,634		1,266		Overdraft privilege commitments	125,067		1,250		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 ~~March 31,~~June 30, 2023 and December 31, 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 ~~March 31,~~June 30, 2023 and December 31, 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 March 31, 2023:		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of June 30, 2023:														As of June 30, 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	$	1,134,613	14.50	%	$	821,668	10.50	%	N/A		N/A		Consolidated	$	1,152,530	14.47	%	$	836,038	10.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	1,127,852	14.42	%	$	821,470	10.50	%	$	782,352	10.00	%	Tri Counties Bank	$	1,147,002	14.41	%	$	835,843	10.50	%	$	796,041	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	$	994,155	12.70	%	$	665,160	8.50	%	N/A		N/A		Consolidated	$	1,010,295	12.69	%	$	676,793	8.50	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	1,029,875	13.16	%	$	665,000	8.50	%	$	625,882	8.00	%	Tri Counties Bank	$	1,047,217	13.16	%	$	676,635	8.50	%	$	636,833	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	$	937,300	11.98	%	$	547,779	7.00	%	N/A		N/A		Consolidated	$	953,407	11.97	%	$	557,359	7.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	1,029,875	13.16	%	$	547,647	7.00	%	$	508,529	6.50	%	Tri Counties Bank	$	1,047,217	13.16	%	$	557,229	7.00	%	$	517,427	6.50	%
Tier 1 Capital (to Average Assets):	Tier 1 Capital (to Average Assets):													Tier 1 Capital (to Average Assets):
Consolidated	Consolidated	$	994,155	10.20	%	$	393,017	4.00	%	N/A		N/A		Consolidated	$	1,010,295	10.41	%	$	388,260	4.00	%	N/A		N/A
Tri Counties Bank	Tri Counties Bank	$	1,029,875	10.57	%	$	392,873	4.00	%	$	491,091	5.00	%	Tri Counties Bank	$	1,047,217	10.79	%	$	388,217	4.00	%	$	485,271	5.00	%

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	Actual				Required for Capital Adequacy Purposes			Required to be Considered Well Capitalized
As of December 31, 2022:	Amount		Ratio			Amount		Ratio		Amount		Ratio
	(dollars in thousands)
Total Capital (to Risk Weighted Assets):
Consolidated	$	1,115,257	14.19	%		$	825,234	10.50	%	N/A		N/A
Tri Counties Bank	$	1,107,941	14.10	%		$	825,039	10.50	%	$	785,751	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	974,325	12.40	%		$	668,047	8.50	%	N/A		N/A
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):
Consolidated	$	917,565	11.67	%		$	550,156	7.00	%	N/A		N/A
Tri Counties Bank	$	1,009,577	12.85	%		$	550,026	7.00	%	$	510,738	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	974,325	10.14	%		$	384,337	4.00	%	N/A		N/A
Tri Counties Bank	$	1,009,577	10.51	%		$	384,146	4.00	%	$	480,183	5.00	%

As of ~~March 31,~~June 30, 2023 and December 31, 2022, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at ~~March 31,~~June 30, 2023 and December 31, 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 ~~March 31,~~June 30, 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~~Statements in this report that are not historical facts are forward-looking statements that are based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. ~~Such~~Forward-looking 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, fiscal and ~~fiscal~~tax policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the impacts of inflation, interest rate, market and monetary fluctuations ~~impacts~~ on ~~the Company's~~our 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;~~products; 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;~~shortages; 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~~adversely 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 timely obtain any required governmental approvals in connection with any such ~~mergers, acquisitions or dispositions,~~activities, or identify and complete favorable transactions in the future, and/or realize the contemplated financial business ~~benefits associated with any such activities;~~benefits; 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~~risk of reputational harm ~~or in the event that~~resulting from regulatory violations, ~~are identified; the~~lawsuits customer harm, security breaches or otherwise; our ability to execute our business plan in new ~~lending~~ markets; ~~the~~our 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 judgments we make and the ~~timing~~effects changes and ~~effects of the implementation of the~~adjustments to our current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effectiveness of ~~the Company's~~our 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; ~~our~~increasing noninterest expense and ~~the~~its impact on our 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; the~~ vulnerability of ~~the Company's~~our operational or security systems or infrastructure, the systems of third-party vendors or other service providers with whom ~~the Company contracts,~~we conduct business, and ~~the Company's~~our 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 incidents; the effects of the recent cybersecurity ransomware incident on our operations and reputation and our ongoing assessment of the incident; increased data security risks due to work from home arrangements and email vulnerability; failure to safeguard personal information; ~~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 transition away from ~~the London Interbank Offered Rate~~LIBOR toward new interest rate benchmarks; the costs and effects of litigation and of unexpected or adverse outcomes in such litigation; 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, 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~~and the ~~SEC.~~SEC's website at www.sec.gov. 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.

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

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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 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, 2022.

Geographical Descriptions

Financial Highlights

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

•For the quarter ended ~~March 31,~~June 30, 2023, the Company’s return on average assets was ~~1.47%~~1.01%, while the return on average equity was ~~13.36%.~~

•Net income was $35.8 million compared to $36.3 million in the trailing quarter, and compared to $20.4 million in the same quarter of the prior year; Pre-tax pre-provision net revenue was $53.2 million compared to $55.3 million in the trailing quarter, and compared to $36.6 million in the same quarter of the prior year.8.98%

•Deposit balances for the quarter ended ~~March 31,~~June 30, 2023, ~~decreased~~increased by ~~$303.1~~$69.5 million as compared to ~~December~~March 31, ~~2022. The deposit contraction during~~2023. Loan growth for the quarter ~~resulted~~exceeded deposit growth, resulting in the loan to deposit ratio increasing to ~~80.0%~~80.5% as of ~~March 31,~~June 30, 2023, as compared to ~~77.4%~~80.0% as of the trailing ~~quarter. The Bank did not utilize brokered deposits or FRB borrowing facilities during the 2022 or 2023 periods.~~quarter

•The efficiency ratio was ~~50.3%~~58.7% for the three months ended ~~March 31,~~June 30, 2023, as compared to ~~51.8%~~50.3% for the trailing ~~quarter.~~quarter

•The provision for credit losses for loans and debt securities was approximately ~~$4.2~~$9.7 million during the quarter ended ~~March 31,~~June 30, 2023, as compared to a provision for credit losses of $4.2 million during the trailing quarter ended ~~December~~March 31, ~~2022,~~2023, and a provision for credit losses of ~~$8.3~~$2.1 million for the three-month period ended ~~March 31, 2022.~~June 30, 2022

•The allowance for credit losses to total loans was ~~1.69%~~1.80% as of ~~March 31,~~June 30, 2023, compared to ~~1.64%~~1.69% as of the trailing quarter end, and ~~1.64%~~1.60% as of ~~March 31,~~June 30, 2022. Non-performing assets to total assets were ~~0.20% at March 31,~~0.41% on June 30, 2023, as compared to ~~0.25%~~0.20% as of ~~December 31, 2022, and 0.17% at~~ March 31, ~~2022.~~2023, and 0.15% at June 30, 2022

•~~Average yields on earning assets were 4.64%, an increase of 12 basis points over the 4.52%~~Net income was $24.9 million compared to $35.8 million in the trailing quarter, and ~~an increase~~compared to $31.4 million in the same quarter of ~~118 basis points over March 31, 2022;~~the prior year; Pre-tax pre-provision net ~~interest margin~~revenue was ~~4.21%, a change of 13 basis points from 4.34%~~$43.1 million compared to $53.2 million in the trailing quarter, and compared to $45.2 million in the same quarter of the prior year

•The average cost of total deposits was 0.58% for the quarter as compared to 0.25% in the trailing quarter and 0.04% in the same quarter of the prior year and, as a ~~change~~result, the Company's total cost of 82deposits have increased 54 basis points ~~from 3.39% as~~since FOMC rate actions began, which translates to a cycle-to-date deposit beta of ~~quarter ended March 31, 2022.~~10.8%

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

•As of June 30, 2023, the allowance for credit losses represented 1.80% of total loans, or 312% of non-performing loans. Overall credit quality remains within historical norms as non-performing assets represent approximately 0.41% of total assets and the ratio of classified loans to total loans remains below one percent

•Average yield on earning assets was 4.78%, an increase of 14 basis points over the 4.64% in the trailing quarter; net interest margin was 3.96%, a change of 25 basis points from 4.21% in the trailing quarter

•Operations, as evidenced by the growth in the efficiency ratio from 50.3% in the trailing quarter to 58.7% in the current quarter, were impacted by a variety of both recurring and non-recurring activities

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TRICO BANCSHARES

Financial Summary

(In thousands, except per share amounts; unaudited)


		Three months ended March 31,				Three months ended June 30,								Six months ended June 30,
			2023				2022				2023			2022			2023			2022
Net interest income	Net interest income		$	93,336			$	67,924		Net interest income	$	88,601		$	85,046		$	181,937		$	152,970
Provision for credit losses	Provision for credit losses		(4,195)				(8,330)			Provision for credit losses	(9,650)			(2,100)			(13,845)			(10,430)
Non-interest income	Non-interest income		13,635				15,096			Non-interest income	15,741			16,430			29,376			31,526
Non-interest expense	Non-interest expense		(53,794)				(46,447)			Non-interest expense	(61,243)			(56,264)			(115,037)			(102,711)
Provision for income taxes	Provision for income taxes		(13,149)				(7,869)			Provision for income taxes	(8,557)			(11,748)			(21,706)			(19,617)
Net income	Net income		$	35,833			$	20,374		Net income	$	24,892		$	31,364		$	60,725		$	51,738
Per Share Data:	Per Share Data:									Per Share Data:
Basic earnings per share	Basic earnings per share		$	1.08			$	0.68		Basic earnings per share	$	0.75		$	0.93		$	1.83		$	1.63
Diluted earnings per share	Diluted earnings per share		$	1.07			$	0.67		Diluted earnings per share	$	0.75		$	0.93		$	1.82		$	1.62
Dividends paid	Dividends paid		$	0.30			$	0.25		Dividends paid	$	0.30		$	0.25		$	0.60		$	0.50
Book value at period end	Book value at period end		$	32.84			$	32.78		Book value at period end							$	32.86		$	31.25
Average common shares outstanding	Average common shares outstanding		33,296				30,050			Average common shares outstanding	33,219			33,561			33,257			31,815
Average diluted common shares outstanding	Average diluted common shares outstanding		33,438				30,202			Average diluted common shares outstanding	33,302			33,705			33,371			31,963
Shares outstanding at period end	Shares outstanding at period end		33,195				33,838			Shares outstanding at period end							33,259			33,351
At period end:	At period end:									At period end:
Loans	Loans		$	6,422,421			$	5,851,975		Loans							$	6,520,740		$	6,113,421
Total investment securities	Total investment securities		$	2,577,769			$	2,569,706		Total investment securities							$	2,485,378		$	2,802,815
Total assets	Total assets		$	9,842,394			$	10,118,328		Total assets							$	9,853,421		$	10,120,611
Total deposits	Total deposits		$	8,025,865			$	8,714,477		Total deposits							$	8,095,365		$	8,756,775
Other borrowings	Other borrowings		$	434,140			$	36,184		Other borrowings							$	392,714		$	35,089
Shareholders’ equity	Shareholders’ equity		$	1,090,245			$	1,109,182		Shareholders’ equity							$	1,092,781		$	1,042,177
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)		1.47		%		0.94		%	Return on average assets (annualized)	1.01		%	1.24		%	1.24		%	1.10		%
Return on average equity (annualized)	Return on average equity (annualized)		13.36		%		8.19		%	Return on average equity (annualized)	8.98		%	11.53		%	11.13		%	9.93		%
Net interest margin(1) (annualized)	Net interest margin(1) (annualized)		4.21		%		3.39		%	Net interest margin(1) (annualized)	3.96		%	3.67		%	4.08		%	3.54		%
Efficiency ratio	Efficiency ratio		50.29		%		55.95		%	Efficiency ratio	58.69		%	55.45		%	54.44		%	55.67		%
Average equity to average assets	Average equity to average assets		11.00		%		11.50		%	Average equity to average assets	11.29		%	10.78		%	11.15		%	11.11		%
At end of period:	At end of period:									At end of period:
Equity to assets	Equity to assets		11.08		%		10.96		%	Equity to assets							11.09		%	10.30		%
Total capital to risk-adjusted assets	Total capital to risk-adjusted assets		14.50		%		14.96		%	Total capital to risk-adjusted assets							14.47		%	14.13		%

(1) Fully Taxable Equivalent (FTE)

The Company announced net income of ~~$35.8~~$24.9 million for the quarter ended ~~March 31,~~June 30, 2023, compared to ~~$36.3~~$35.8 million during the trailing quarter ended ~~December~~March 31, ~~2022,~~2023, and ~~$20.4~~$31.4 million during the quarter ended ~~March 31,~~June 30, 2022. Diluted earnings per share were $0.75 for the second quarter of 2023, compared to $1.07 for the first quarter of 2023 ~~compared to $1.09 for~~and $0.93 during the ~~fourth~~second quarter of ~~2022 and $0.67 during the first quarter of 2022..~~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


		Three months ended												Three months ended
(in thousands)	(in thousands)	March 31, 2023			March 31, 2022			Change			% Change		(in thousands)	June 30, 2023			March 31, 2023			Change			% Change
Interest income	Interest income	$	102,907		$	69,195		$	33,712		48.7	%	Interest income	$	107,158		$	102,907		$	4,251		4.1	%
Interest expense	Interest expense	(9,571)			(1,271)			(8,300)			653.0	%	Interest expense	(18,557)			(9,571)			(8,986)			93.9	%
Fully tax-equivalent adjustment (FTE) (1)	Fully tax-equivalent adjustment (FTE) (1)	392			283			109			38.5	%	Fully tax-equivalent adjustment (FTE) (1)	379			392			(13)			(3.3)	%
Net interest income (FTE)	Net interest income (FTE)	$	93,728		$	68,207		$	25,521		37.4	%	Net interest income (FTE)	$	88,980		$	93,728		$	(4,748)		(5.1)	%
Net interest margin (FTE)	Net interest margin (FTE)	4.21		%	3.39		%						Net interest margin (FTE)	3.96		%	4.21		%

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)	$	1,397		$	1,323		$	74		5.6	%	Amount (included in interest income)	$	1,471		$	1,397		$	74		5.3	%
Net interest margin less effect of acquired loan discount accretion(1)	Net interest margin less effect of acquired loan discount accretion(1)	4.15		%	3.32		%	0.83		%			Net interest margin less effect of acquired loan discount accretion(1)	3.89		%	4.15		%	(0.26)		%

PPP loans yield, net:	PPP loans yield, net:												PPP loans yield, net:
Amount (included in interest income)	Amount (included in interest income)	$	5		$	1,097		$	(1,092)		(99.5)	%	Amount (included in interest income)	$	4		$	5		$	(1)		(20.0)	%
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)	3.96		%	4.21		%	(0.25)		%

Acquired loans discount accretion and PPP loan yield, net: (1)	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)	$	1,402		$	2,420		$	(1,018)		(42.1)	%	Amount (included in interest income)	$	1,475		$	1,402		$	73		5.2	%
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		%			Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)	3.89		%	4.15		%	(0.26)		%


	Three months ended June 30,
(in thousands)	2023			2022			$ Change			% Change
Interest income	$	107,158		$	86,955		$	20,203		23.2	%
Interest expense	(18,557)			(1,909)			(16,648)			872.1	%
Fully tax-equivalent adjustment (FTE) (1)	379			397			(18)			(4.5)	%
Net interest income (FTE)	$	88,980		$	85,443		$	3,537		4.1	%
Net interest margin (FTE)	3.96		%	3.67		%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	1,471		$	1,677		$	(206)		(12.3)	%
Net interest margin less effect of acquired loan discount accretion(1)	3.89		%	3.60		%	0.29		%
PPP loans yield, net:
Amount (included in interest income)	$	4		$	964		$	(960)		(99.6)	%
Net interest margin less effect of PPP loan yield (1)	3.96		%	3.64		%	0.32		%
Acquired loans discount accretion and PPP loan yield, net: (1)
Amount (included in interest income)	$	1,475		$	2,641		$	(1,166)		(44.1)	%
Net interest margin less effect of acquired loan discount accretion and PPP loan yield (1)	3.89		%	3.57		%	0.32		%

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	Six months ended June 30,
(in thousands)	2023			2022			$ Change			% Change
Interest income	$	210,064		$	156,150		$	53,914		34.5	%
Interest expense	(28,127)			(3,180)			(24,947)			784.5	%
Fully tax-equivalent adjustment (FTE) (1)	770			680			90			13.2	%
Net interest income (FTE)	$	182,707		$	182,707		$	29,057		—	%
Net interest margin (FTE)	4.08		%	3.54		%

Acquired loans discount accretion, net:
Amount (included in interest income)	$	2,868		$	3,000		$	(132)		(4.4)	%


Net interest margin less effect of acquired loan discount accretion(1)	4.02		%	3.51		%	0.51		%

PPP loans yield, net:
Amount (included in interest income)	$	9		$	2,061		$	(2,052)		(99.6)	%

Net interest margin less effect of PPP loan yield (1)	4.08		%	3.51		%	0.57		%
Acquired loans discount accretion and PPP loan yield, net:
Amount (included in interest income)	$	2,877		$	5,061		$	(2,184)		(43.2)	%
Net interest margin less effect of acquired loans discount and PPP loan yield (1)	4.02		%	3.44		%	0.58		%

(1)Certain information included herein is presented on a ~~FTE~~fully tax-equivalent (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 ~~this~~these non-generally accepted accounting principles (non-GAAP) ~~measure provides~~measures provide additional clarity in assessing its results, and the presentation of these measures ~~is a~~are common practice within the banking industry. See additional information related to non-GAAP measures at the back of this document.

Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or the discount is accreted (added to) interest income over the remaining life of the loan. ~~Generally, as time goes on, the~~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. ~~The~~As a result of the increase in interest rates, the prepayment ~~speed~~rate of portfolio loans, inclusive of those acquired at a premium or discount, ~~is heavily influenced by the rate of change in interest rates.~~declined during 2023 as compared to 2022. During the three months ended June 30, 2023, March 31, 2023, ~~December 31, 2022,~~ and ~~March 31,~~June 30, 2022, purchased loan discount accretion was $1.5 million, $1.4 million, ~~$1.8 million,~~ and ~~$1.3~~$1.7 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
		March 31, 2023						March 31, 2022							June 30, 2023						June 30, 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	$	6,412,386	$	82,410	5.21	%	$	4,937,865	$	56,648	4.65	%	Loans, excluding PPP	$	6,465,903	$	86,743	5.38	%	$	5,890,578	$	68,954	4.70	%
PPP loans	PPP loans	1,572		5		1.29	%	50,695		1,097		8.78	%	PPP loans	1,478		4		1.09	%	37,852		964		10.22	%
Investment securities - taxable	Investment securities - taxable	2,398,235		18,916		3.20	%	2,313,204		10,223		1.79	%	Investment securities - taxable	2,343,511		18,775		3.21	%	2,536,362		14,350		2.27	%
Investment securities - nontaxable(1)	Investment securities - nontaxable(1)	189,050		1,699		3.64	%	143,873		1,225		3.45	%	Investment securities - nontaxable(1)	181,823		1,641		3.62	%	196,104		1,720		3.52	%
Total investments	Total investments	2,587,285		20,615		3.23	%	2,457,077		11,448		1.89	%	Total investments	2,525,334		20,416		3.24	%	2,732,466		16,070		2.36	%
Cash at Federal Reserve and other banks	Cash at Federal Reserve and other banks	26,818		269		4.07	%	707,563		285		0.16	%	Cash at Federal Reserve and other banks	29,349		374		5.11	%	669,163		1,364		0.82	%
Total interest-earning assets	Total interest-earning assets	9,028,061		103,299		4.64	%	8,153,200		69,478		3.46	%	Total interest-earning assets	9,022,064		107,537		4.78	%	9,330,059		87,352		3.76	%
Other assets	Other assets	850,866						625,056						Other assets	826,127						791,655
Total assets	Total assets	$	9,878,927					$	8,778,256					Total assets	$	9,848,191					$	10,121,714
Liabilities and shareholders’ equity:	Liabilities and shareholders’ equity:													Liabilities and shareholders’ equity:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	1,673,114	$	387	0.09	%	$	1,597,309	$	84	0.02	%	Interest-bearing demand deposits	$	1,657,714	$	2,173	0.53	%	$	1,799,205	$	99	0.02	%
Savings deposits	Savings deposits	2,898,463		4,154		0.58	%	2,571,023		327		0.05	%	Savings deposits	2,768,981		6,936		1.00	%	3,003,337		529		0.07	%
Time deposits	Time deposits	274,805		604		0.89	%	301,499		268		0.36	%	Time deposits	426,689		2,348		2.21	%	337,007		220		0.26	%
Total interest-bearing deposits	Total interest-bearing deposits	4,846,382		5,145		0.43	%	4,469,831		679		0.06	%	Total interest-bearing deposits	4,853,384		11,457		0.95	%	5,139,549		848		0.07	%
Other borrowings	Other borrowings	277,632		2,809		4.10	%	44,731		5		0.05	%	Other borrowings	477,256		5,404		4.54	%	35,253		5		0.06	%
Junior subordinated debt	Junior subordinated debt	101,044		1,617		6.49	%	60,971		587		3.90	%	Junior subordinated debt	101,056		1,696		6.73	%	100,991		1,056		4.19	%
Total interest-bearing liabilities	Total interest-bearing liabilities	5,225,058		9,571		0.74	%	4,575,533		1,271		0.11	%	Total interest-bearing liabilities	5,431,696		18,557		1.37	%	5,275,793		1,909		0.15	%
Noninterest-bearing deposits	Noninterest-bearing deposits	3,372,194						3,052,099						Noninterest-bearing deposits	3,128,131						3,603,771
Other liabilities	Other liabilities	194,202						141,400						Other liabilities	176,141						150,696
Shareholders’ equity	Shareholders’ equity	1,087,473						1,009,224						Shareholders’ equity	1,112,223						1,091,454
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	9,878,927					$	8,778,256					Total liabilities and shareholders’ equity	$	9,848,191					$	10,121,714
Net interest spread(2)	Net interest spread(2)					3.90	%					3.35	%	Net interest spread(2)					3.41	%					3.61	%
Net interest income and interest margin(3)	Net interest income and interest margin(3)			$	93,728	4.21	%			$	68,207	3.39	%	Net interest income and interest margin(3)			$	88,980	3.96	%			$	85,443	3.67	%

(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,~~June 30, 2023, ~~decreased $5.6~~increased $3.5 million ~~or 5.6%~~ to ~~$93.7~~$89.0 million as compared to ~~$99.3 million during~~ the ~~three months ended December 31, 2022. In addition,~~same quarter in the prior year. This increase also contributed to a 29 basis point increase in net interest margin ~~declined 13 basis points to 4.21%,~~with was 3.96% for the current three month period as compared to 3.67% in the ~~trailing quarter.~~quarter ended June 30, 2022. The ~~decrease~~increase in net interest income is primarily attributed to an additional ~~$3.0~~$3.3 million in ~~deposit~~ interest ~~expense~~income contributed by the volume mix shift from cash and ~~$2.4 million in additional~~securities to loans while the rising rate environment benefited earning assets but was nearly entirely offset by the rate impact on interest ~~expense on other borrowings, both due to increases~~bearing liabilities and an increase 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%.~~expense.

As compared to the same quarter in the prior year, average loan yields, excluding PPP, increased 5668 basis points from ~~4.65%~~4.70% during the three months ended ~~March 31,~~June 30, 2022, to ~~5.21%~~5.38% during the three months ended ~~March 31,~~June 30, 2023. The accretion of discounts from acquired loans added ~~9 and~~ 7 basis points to loan yields during each of the quarters ended ~~March 31,~~June 30, 2023 and ~~March 31, 2022, respectively.~~ June 30, 2022.

The rates paid on interest bearing deposits increased by 2552 basis points during the quarter ended ~~March 31,~~June 30, 2023, compared to the trailing quarter. The cost of interest-bearing deposits increased by 3788 basis points between the quarter ended ~~March 31,~~June 30, 2023, and the same quarter of the prior year. In addition, the ~~level~~average balance of noninterest-bearing deposits decreased by ~~$290.3~~$476.6 million from the same quarter ~~over quarter but remains $320.1 million above quarter ended March 31, 2022.~~in the prior year. As of ~~March 31,~~June 30, 2023, the ratio of average total noninterest-bearing deposits to total average deposits was ~~41.0%~~39.2%, as compared to ~~42.9%~~41.0% and ~~40.6%~~41.2% at ~~December 31, 2022 and~~ March 31, 2023 and June 30, 2022, respectively.

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	Six months ended June 30, 2023						Six months ended June 30, 2022
	Average Balance		Income/ Expense		Yield/ Rate		Average Balance		Income/ Expense		Yield/ Rate
Assets
Loans, excluding PPP	$	6,439,292	$	169,152	5.30	%	$	5,416,854	$	125,602	4.68	%
PPP loans	1,525		9		1.19	%	44,238		2,061		9.40	%
Investments-taxable	2,370,722		37,691		3.21	%	2,434,045		24,573		2.04	%
Investments-nontaxable (1)	185,417		3,340		3.63	%	170,132		2,945		3.49	%
Total investments	2,556,139		41,031		3.24	%	2,604,177		27,518		2.13	%
Cash at Federal Reserve and other banks	28,090		643		4.62	%	688,257		1,649		0.48	%
Total earning assets	9,025,046		210,835		4.71	%	8,753,526		156,830		3.61	%
Other assets, net	838,425						700,170
Total assets	$	9,863,471					$	9,453,696
Liabilities and shareholders’ equity
Interest-bearing demand deposits	$	1,665,371	$	2,560	0.31	%	$	1,698,815	$	183	0.02	%
Savings deposits	2,833,365		11,090		0.79	%	2,788,374		856		0.06	%
Time deposits	351,166		2,952		1.70	%	319,351		488		0.31	%
Total interest-bearing deposits	4,849,902		16,602		0.69	%	4,806,540		1,527		0.06	%
Other borrowings	377,995		8,212		4.38	%	39,966		10		0.05	%
Junior subordinated debt	101,050		3,314		6.61	%	81,092		1,643		4.09	%
Total interest-bearing liabilities	5,328,947		28,128		1.06	%	4,927,598		3,180		0.13	%
Noninterest-bearing deposits	3,249,488						3,329,459
Other liabilities	185,123						146,073
Shareholders’ equity	1,099,913						1,050,566
Total liabilities and shareholders’ equity	$	9,863,471					$	9,453,696
Net interest rate spread (1) (2)					3.65	%					3.48	%
Net interest income and margin (1) (3)			$	182,707	4.08	%			$	153,650	3.54	%

(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.

Changes in net interest income and net interest margin during the comparable six month periods ended June 30, 2023 and 2022 were impacted by changes in both volume and rates. However, changes in net interest income associated with volume were predominantly impacted by the addition of earning assets and interest bearing liabilities acquired in connection with the merger of Valley Republic Bancorp in March of 2022.

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.

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

Table of Contents


	Three months ended June 30, 2023 compared with three months ended June 30, 2022
(in thousands)	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	5,831	$	10,998	$	16,829
Investment securities	(1,220)		5,565		4,345
Cash at Federal Reserve and other banks	(1,312)		323		(989)
Total interest-earning assets	3,299		16,886		20,185
Increase (decrease) in interest expense:
Interest-bearing demand deposits	(7)		2,081		2,074
Savings deposits	(41)		6,448		6,407
Time deposits	58		2,069		2,127
Other borrowings	55		5,345		5,400
Junior subordinated debt	1		639		640
Total interest-bearing liabilities	66		16,582		16,648
Increase (decrease) in net interest income	$	3,233	$	304	$	3,537

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 ~~March 31,~~June 30, 2023 increased ~~$25.5~~$3.5 million to ~~$93.7~~$88.9 million compared to ~~$68.2~~$85.4 million during the three months ended ~~March 31,~~June 30, 2022. The overall increase in net interest income (FTE) was due to increases in ~~both~~ average ~~investment and~~ loan balances, which resulted in improvements totaling ~~$0.8~~$5.8 million, and ~~$16.1 million, respectively,~~higher yields within investments and ~~higher yields~~loans further improving those earnings by ~~$8.4~~$5.6 million and ~~$8.6~~$11.0 million, respectively. Increasing interest rates boosted interest expenses on on interest-bearing liabilities, most significantly deposits and other borrowings, resulting in a net increase of ~~$3.8~~$10.6 million and ~~$2.8~~$5.3 million, respectively.


	Six months ended June 30, 2023 compared with six months ended June 30, 2022
(in thousands)	Volume		Rate		Total
Increase (decrease) in interest income:
Loans, including PPP	$	10,959	$	30,538	$	41,497
Investment securities(1)	(190)		13,703		13,513
Cash at Federal Reserve and other banks	(792)		(214)		(1,006)
Total interest-earning assets	9,977		44,027		54,004
Increase (decrease) in interest expense:
Interest-bearing demand deposits	(2)		2,379		2,377
Savings deposits	7		10,227		10,234
Time deposits	25		2,439		2,464
Other borrowings	42		8,160		8,202
Junior subordinated debt	204		1,466		1,670
Total interest-bearing liabilities	276		24,671		24,947
Increase (decrease) in net interest income	$	9,701	$	19,356	$	29,057

Net interest income (FTE) during the six months ended June 30, 2023 increased $29.1 million to $182.7 million compared to $153.6 million during the six months ended June 30, 2022. The overall increase in net interest income (FTE) was due to increases in average loan balances, which resulted in improvements totaling $11.0 million, and higher yields within investments and loans further improving those earnings by $13.7 million and $30.5 million, respectively. Increasing interest rates boosted interest expenses on on interest-bearing liabilities, most significantly deposits and other borrowings, resulting in a net increase of $15.0 million and $8.2 million, respectively.

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Asset Quality and Credit Loss Provisioning

During the three months ended ~~March 31,~~June 30, 2023, the Company recorded a provision for credit losses of ~~$4.2~~$9.7 million, as compared to $4.2 million during the trailing quarter, and ~~$8.3~~$2.1 million million during the first quarter of 2022.

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


		Three months ended				Three months ended			Six months ended
(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022			March 31, 2022			(dollars in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Addition to (reversal of) allowance for credit losses	Addition to (reversal of) allowance for credit losses	$	4,315	$	4,300		$	8,205		Addition to (reversal of) allowance for credit losses	$	8,980	$	1,940	$	13,295	$	10,145
Addition to (reversal of) reserve for unfunded loan commitments	Addition to (reversal of) reserve for unfunded loan commitments	(120)		(55)			125			Addition to (reversal of) reserve for unfunded loan commitments	670		160		550		285
Total provision for (reversal of) credit losses	Total provision for (reversal of) credit losses	$	4,195	$	4,245		$	8,330		Total provision for (reversal of) credit losses	$	9,650	$	2,100	$	13,845	$	10,430

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


	Three months ended		Six months ended
(dollars in thousands)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Balance, beginning of period	$	108,407	$	96,049	$	105,680	$	85,376
ACL at acquisition for PCD loans	—		—		—		2,037
Provision for credit losses	8,980		1,940		13,295		10,145
Loans charged-off	(277)		(401)		(2,035)		(1,144)
Recoveries of previously charged-off loans	219		356		389		1,530
Balance, end of period	$	117,329	$	97,944	$	117,329	$	97,944

The allowance for credit losses (ACL) was ~~$108.4~~$117.3 million as of ~~March 31,~~June 30, 2023, a net increase of ~~$2.7~~$8.9 million over the immediately preceding quarter. The ~~addition to the allowance~~provision for credit losses of ~~$4.3~~$9.0 million during the recent quarter was the net effect of ~~changes~~increases in required reserves due to ~~qualitative factors,~~ individually analyzed credits, qualitative factors, and quantitative reserves under the cohort model. On a comparative basis, the provision for credit losses of ~~$8.2~~$1.9 million during the three months ended ~~March 31,~~June 30, 2022, was largely the result of ~~day 1 required reserves from loans acquired~~loan growth 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~~$2.9 million due to ~~increased uncertainty~~softening of the California employment data, and increase in ~~US economic policy, and~~ the ~~ramifications on local and statewide unemployment rates.~~corporate debt yields. Meanwhile, the quantitative component of the ACL ~~decreased~~increased reserve requirements by approximately ~~$1.9~~$6.0 million over the trailing quarter primarily due to ~~a decline~~increases 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
(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
reserves.

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~~includes 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. ~~As compared to historical norms,~~Despite continued declines on a year over year comparative basis, core inflation remains elevated from ~~continued disruptions in the supply chain,~~ wage pressures, and 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,~~prices. Management notes the rapid intervals of rate increases by the Federal Reserve and flattening or inversion of the yield curve, have ~~boosted~~informed expectations of the US entering a recession within 12 months. As a result, management continues to believe that certain credit ~~weakness~~weaknesses 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 ~~$2.9~~$1.6 million during the quarter ended ~~March 31,~~June 30, 2023, to ~~$7.9~~$9.5 million, as compared to ~~$4.9 million at 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 $16.0~~$7.9 million at March 31, 2023. Non-performing loans were $37.6 million at June 30, 2023, ~~a decrease~~an increase of ~~$5.3~~$21.6 million from ~~$21.3 million as of December 31, 2022, and a decrease of $1.9 million from $14.1~~$16.0 million as of March 31, 2023, and an increase of $25.7 million from $11.9 million as of June 30, 2022. The current quarter increase in non-performing assets is nearly entirely attributed to a single relationship. Of the ~~$16.0~~$37.6 million loans designated as non-performing as of June 30, 2023, approximately ~~$10.2~~$31.7 million are ~~less than 30 days past due as of March 31, 2023.~~current with respect to payments required under their original loan agreements. .

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


		March 31,			% of Loans Outstanding		December 31,			% of Loans Outstanding		March 31,			% of Loans Outstanding								June 30,			% of Loans Outstanding			March 31,			% of Loans Outstanding		June 30,			% of Loans Outstanding
(dollars in thousands)	(dollars in thousands)	2023					2022					2022					(dollars in thousands)	2023	% of Loans Outstanding		2023		% of Loans Outstanding					2022	% of Loans Outstanding
Risk Rating:	Risk Rating:																			Risk Rating:
Pass	Pass	$	6,232,962		97.1	%	$	6,251,945		96.9	%	$	5,682,026		97.1	%						Pass	$	6,299,893		96.5	%		$	6,232,962		97.0	%	$	5,960,781		97.5	%
Special Mention	Special Mention	125,492			2.0	%	127,000			2.0	%	120,684			2.1	%						Special Mention	155,678			2.4	%		125,492			2.0	%	105,819			1.7	%
Substandard	Substandard	63,967			1.0	%	71,502			1.1	%	49,265			0.8	%						Substandard	65,169			1.0	%		63,967			1.0	%	46,821			0.8	%
Total	Total	$	6,422,421				$	6,450,447				$	5,851,975									Total	$	6,520,740					$	6,422,421				$	6,113,421

Classified loans to total loans	Classified loans to total loans	1.00		%			1.11		%			0.84		%								Classified loans to total loans	1.00		%				1.00		%			0.77		%
Loans past due 30+ days to total loans	Loans past due 30+ days to total loans	0.12		%			0.08		%			0.14		%								Loans past due 30+ days to total loans	0.15		%				0.12		%			0.10		%

The ratio of classified loans ~~decreased to~~of 1.00% as of ~~March 31,~~June 30, 2023, ~~as compared to 1.11% in~~remained consistent with the trailing quarter, but increased by 1623 basis points from ~~the equivalent period in~~June 30, 2022. The Company's criticized loan balances ~~decreased~~increased during the current quarter by ~~$9.0~~$31.4 million to ~~$189.5~~$220.8 million as of ~~March 31,~~June 30, 2023. The recent increase in special mention loans as a percentage of total loans outstanding is consistent with volumes

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experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic and reflects management's historically conservative approach to credit risk monitoring. The newly criticized special mention loans are spread amongst a handful of relationships, with diversity amongst geographies and collateral types.

There were no ~~changes to~~properties added or disposed within Other Real Estate Owned ~~balances~~ during the ~~first~~second quarter of 2023. Total write-downs of $0.5 million were incurred during the current quarter across four properties. As of ~~March 31,~~June 30, 2023, other real estate owned consisted of nine properties with a carrying value of approximately ~~$3.4~~$2.9 million.

Non-performing assets of $40.5 million at June 30, 2023, represented 0.41% of total assets, a change from the $19.5 million ator 0.20% and $15.3 million or 0.15% as of March 31, 2023 ~~represented 0.20% of total assets, generally in line with the $24.8 million or 0.25%~~ and ~~$17.0 million or 0.17% as of December 31, 2022 and March 31,~~June 30, 2022, respectively.

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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 March 31,									Three months ended June 30,
(in thousands)	(in thousands)	2023		2022		$ Change		% Change		(in thousands)	2023		2022		$ Change		% Change
ATM and interchange fees	ATM and interchange fees	$	6,344	$	6,243	$	101	1.6	%	ATM and interchange fees	$	6,856	$	6,984	$	(128)	(1.8)	%
Service charges on deposit accounts	Service charges on deposit accounts	3,431		3,834		(403)		(10.5)	%	Service charges on deposit accounts	4,581		4,163		418		10.0	%
Other service fees	Other service fees	1,166		882		284		32.2	%	Other service fees	992		1,279		(287)		(22.4)	%
Mortgage banking service fees	Mortgage banking service fees	465		463		2		0.4	%	Mortgage banking service fees	454		482		(28)		(5.8)	%
Change in value of mortgage servicing rights	Change in value of mortgage servicing rights	(209)		274		(483)		(176.3)	%	Change in value of mortgage servicing rights	85		136		(51)		(37.5)	%
Total service charges and fees	Total service charges and fees	11,197		11,696		(499)		(4.3)	%	Total service charges and fees	12,968		13,044		(76)		(0.6)	%
Increase in cash value of life insurance	Increase in cash value of life insurance	802		638		164		25.7	%	Increase in cash value of life insurance	788		752		36		4.8	%
Asset management and commission income	Asset management and commission income	934		887		47		5.3	%	Asset management and commission income	1,158		1,039		119		11.5	%
Gain on sale of loans	Gain on sale of loans	206		1,246		(1,040)		(83.5)	%	Gain on sale of loans	295		542		(247)		(45.6)	%
Lease brokerage income	Lease brokerage income	98		158		(60)		(38.0)	%	Lease brokerage income	74		238		(164)		(68.9)	%
Sale of customer checks	Sale of customer checks	288		104		184		176.9	%	Sale of customer checks	407		441		(34)		(7.7)	%
Gain on sale of investment securities	Gain on sale of investment securities	(164)		—		(164)		n/m		Gain on sale of investment securities	—		—		—		n/m
Gain on marketable equity securities		42		(137)		179		(130.7)	%
Loss on marketable equity securities										Loss on marketable equity securities	(42)		(94)		52		(55.3)	%
Other	Other	232		504		(272)		(54.0)	%	Other	93		468		(375)		(80.1)	%
Total other non-interest income	Total other non-interest income	2,438		3,400		(962)		(28.3)	%	Total other non-interest income	2,773		3,386		(613)		(18.1)	%
Total non-interest income	Total non-interest income	$	13,635	$	15,096	$	(1,461)	(9.7)	%	Total non-interest income	$	15,741	$	16,430	$	(689)	(4.2)	%

Non-interest income decreased ~~$1.5~~$0.7 million or ~~9.7%~~4.2% to ~~$13.6~~$15.7 million during the three months ended ~~March 31,~~June 30, 2023, compared to ~~$15.1~~$16.4 million during the quarter ended ~~March 31,~~June 30, 2022. Total service charges and fees declined by $0.5 million or 4.3% during the period, of which $0.9 million is due to waived or reversed fees related to the network outage disclosed in the Company's 8-K filed with the SEC on February 14, 2023. In addition, theThe declining mortgage related activity resulting from elevated interest rates reduced income recorded from the sale of loans by ~~$1.0~~$0.2 million or ~~83.5%~~45.6%, and to a lesser extent a smaller change in the fair value of mortgage servicing rights, as compared to the three months ended ~~March 31,~~June 30, 2022.

Other non-interest income reductions of $0.4 million were primarily the result of a $0.3 million difference in fair value changes of assets associated with retirement plans where the corresponding offset of those changes are included in benefits and other compensation costs.

4551

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	Six months ended June 30,
(in thousands)	2023		2022		$ Change		% Change
ATM and interchange fees	$	13,200	$	13,227	$	(27)	(0.2)	%
Service charges on deposit accounts	8,012		7,997		15		0.2	%
Other service fees	2,158		2,161		(3)		(0.1)	%
Mortgage banking service fees	919		945		(26)		(2.8)	%
Change in value of mortgage servicing rights	(124)		410		(534)		(130.2)	%
Total service charges and fees	24,165		24,740		(575)		(2.3)	%
Increase in cash value of life insurance	1,590		1,390		200		14.4	%
Asset management and commission income	2,092		1,926		166		8.6	%
Gain on sale of loans	501		1,788		(1,287)		(72.0)	%
Lease brokerage income	172		396		(224)		(56.6)	%
Sale of customer checks	695		545		150		27.5	%
Gain on sale of investment securities	(164)		—		(164)		n/m
Loss on marketable equity securities	—		(231)		231		(100.0)	%
Other	325		972		(647)		(66.6)	%
Total other non-interest income	5,211		6,786		(1,575)		(23.2)	%
Total non-interest income	$	29,376	$	31,526	$	(2,150)	(6.8)	%

Non-interest income decreased $2.2 million or 6.8% to $29.4 million during the three months ended June 30, 2023, as compared to $31.5 million during the six months ended June 30, 2022, for reasons similar to those referenced above.

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Non-interest Expense

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


		Three months ended March 31,									Three months ended June 30,
(in thousands)	(in thousands)	2023		2022		$ Change		% Change		(in thousands)	2023		2022		$ Change		% Change
Base salaries, net of deferred loan origination costs	Base salaries, net of deferred loan origination costs	$	23,000	$	18,216	$	4,784	26.3	%	Base salaries, net of deferred loan origination costs	$	24,059	$	22,169	$	1,890	8.5	%
Incentive compensation	Incentive compensation	2,895		2,583		312		12.1	%	Incentive compensation	4,377		4,282		95		2.2	%
Benefits and other compensation costs	Benefits and other compensation costs	6,668		5,972		696		11.7	%	Benefits and other compensation costs	6,278		6,491		(213)		(3.3)	%
Total salaries and benefits expense	Total salaries and benefits expense	32,563		26,771		5,792		21.6	%	Total salaries and benefits expense	34,714		32,942		1,772		5.4	%
Occupancy	Occupancy	4,160		3,575		585		16.4	%	Occupancy	3,991		3,996		(5)		(0.1)	%
Data processing and software	Data processing and software	4,032		3,513		519		14.8	%	Data processing and software	4,638		3,596		1,042		29.0	%
Equipment	Equipment	1,383		1,333		50		3.8	%	Equipment	1,436		1,453		(17)		(1.2)	%
Intangible amortization	Intangible amortization	1,656		1,228		428		34.9	%	Intangible amortization	1,656		1,702		(46)		(2.7)	%
Advertising	Advertising	759		637		122		19.2	%	Advertising	1,016		818		198		24.2	%
ATM and POS network charges	ATM and POS network charges	1,709		1,375		334		24.3	%	ATM and POS network charges	1,902		1,781		121		6.8	%
Professional fees	Professional fees	1,589		876		713		81.4	%	Professional fees	1,985		1,233		752		61.0	%
Telecommunications	Telecommunications	595		521		74		14.2	%	Telecommunications	809		564		245		43.4	%
Regulatory assessments and insurance	Regulatory assessments and insurance	792		720		72		10.0	%	Regulatory assessments and insurance	1,993		779		1,214		155.8	%
Merger and acquisition expense	Merger and acquisition expense	—		4,032		(4,032)		(100.0)	%	Merger and acquisition expense	—		2,221		(2,221)		(100.0)	%
Postage	Postage	299		228		71		31.1	%	Postage	311		313		(2)		(0.6)	%
Operational losses (gain)	Operational losses (gain)	435		(183)		618		(337.7)	%	Operational losses (gain)	1,090		456		634		139.0	%
Courier service	Courier service	339		414		(75)		(18.1)	%	Courier service	483		486		(3)		(0.6)	%

Gain on sale or acquisition of foreclosed assets										Gain on sale or acquisition of foreclosed assets	—		(98)		98		n/m
Loss on disposal of fixed assets	Loss on disposal of fixed assets	—		(1,078)		1,078		(100.0)	%	Loss on disposal of fixed assets	18		5		13		260.0	%
Other miscellaneous expense	Other miscellaneous expense	3,483		2,485		998		40.2	%	Other miscellaneous expense	5,201		4,017		1,184		29.5	%
Total other non-interest expense	Total other non-interest expense	21,231		19,676		1,555		7.9	%	Total other non-interest expense	26,529		23,322		3,207		13.8	%
Total non-interest expense	Total non-interest expense	$	53,794	$	46,447	$	7,347	15.8	%	Total non-interest expense	$	61,243	$	56,264	$	4,979	8.8	%
Average full time equivalent staff	Average full time equivalent staff	1,219		1,084		135		12.5	%	Average full time equivalent staff	1,210		1,183		27		2.3	%

Generally, the increases in recurring non-interest expense items reflect the VRB merger 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 March 31, 2023. Total non-interest expense increased ~~$7.3~~$5.0 million or ~~15.8%~~8.8% to ~~$53.8~~$61.2 million during the three months ended ~~March 31,~~June 30, 2023, as compared to ~~$46.4~~$56.3 million for the quarter ended ~~March 31,~~June 30, 2022. Total salaries and benefits expense increased by ~~$5.8~~$1.8 million or ~~21.6%~~5.4% to ~~$32.6~~$34.7 million, largely from a net increase of ~~135~~27 full-time equivalent positions ~~99 of which resulted from~~as well as annual merit increases as previously discussed. Data processing and software expenses increased by $1.0 million related to ongoing investments in the ~~aforementioned merger with VRB.~~Company's data management and security infrastructure. Professional fees increased by $0.7 million which was directly associated with third party contract negotiation assistance, the ~~cybersecurity incident disclosed~~benefits of which will be realized in ~~the Company's 8-K filed~~future periods. Merger and acquisition expenses associated with the ~~SEC~~VRB merger totaled $2.2 million for the quarter ended June of 2022. Other miscellaneous expenses increased $1.2 million or 29.5%, due primarily to changes in regulatory requirements which is expected to result in an estimated $0.8 million in refunds to customers previously charged non-sufficient funds fees and an additional increase of $0.5 million in provision expense on ~~February 14, 2023. While management has accrued~~real estate owned and various other increases across the Company, including travel and entertainment costs.

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	Six months ended June 30,
(in thousands)	2023		2022		$ Change		% Change
Base salaries, net of deferred loan origination costs	$	47,059	$	40,385	$	6,674	16.5	%
Incentive compensation	7,272		6,865		407		5.9	%
Benefits and other compensation costs	12,946		12,463		483		3.9	%
Total salaries and benefits expense	67,277		59,713		7,564		12.7	%
Occupancy	8,151		7,571		580		7.7	%
Data processing and software	8,670		7,109		1,561		22.0	%
Equipment	2,819		2,786		33		1.2	%
Intangible amortization	3,312		2,930		382		13.0	%
Advertising	1,775		1,455		320		22.0	%
ATM and POS network charges	3,611		3,156		455		14.4	%
Professional fees	3,574		2,109		1,465		69.5	%
Telecommunications	1,404		1,085		319		29.4	%
Regulatory assessments and insurance	2,785		1,499		1,286		85.8	%
Merger and acquisition expense	—		6,253		(6,253)		(100.0)	%
Postage	610		541		69		12.8	%
Operational losses	1,525		273		1,252		458.6	%
Courier service	822		900		(78)		(8.7)	%
Gain on sale or acquisition of foreclosed assets	—		(98)		98		(100.0)	%
Loss (gain) on disposal of fixed assets	18		(1,073)		1,091		(101.7)	%
Other miscellaneous expense	8,684		6,502		2,182		33.6	%
Total other non-interest expense	47,760		42,998		4,762		11.1	%
Total non-interest expense	$	115,037	$	102,711	$	12,326	12.0	%
Average full-time equivalent staff	1,214		1,133		81		7.1	%

Total non-interest expense increased $12.3 million or 12.0% to $115.0 million during the six months ended June 30, 2023, as compared to $102.7 million for the comparative period in 2022, for reasons primarily associated with the acquisition of Valley Republic Bank in March of 2022 which resulted in expense increases for nearly every identified category. Merger and acquisition expenses associated with the VRB merger totaled $6.2 million for the six-month period ended 2022. The reasons for additional and more specific changes in various costs ~~incurred through~~identified above, and including but not limited to data processing, regulatory assessments, operational losses and other expenses are consistent with the balance sheet date that are probable and reasonably estimable, additional expenses will be incurred in future periods as management works to complete its investigation of the incident. See also "Part II - Other Information - Item 1A — Risk Factors beginning on page 57.

discussions previously provided.

Provision for Income Taxes

The Company’s effective tax rate was ~~26.8%~~25.6% for the quarter ended ~~March 31,~~June 30, 2023, as compared to ~~27.9%~~26.8% for the period ended March 31, 2023, and 28.1% for the year ended December 31, 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	June 30,		March 31,				Annualized % Change
(dollars in thousands)	2023		2023		$ Change
Total assets	$	9,853,421	$	9,842,394	$	11,027	0.4	%
Total loans	6,520,740		6,422,421		98,319		6.1
Total investments	2,485,378		2,577,769		(92,391)		(14.3)
Total deposits	8,095,365		8,025,865		69,500		3.5
Other borrowings	392,714		434,140		(41,426)		(38.2)

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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

Loans outstanding ~~declined~~increased by ~~$28.0~~$98.3 million or ~~1.7%~~6.1% on an annualized basis during the quarter ended ~~March 31,~~June 30, 2023. During the quarter, loan originations/draws totaled approximately ~~$357.0~~$456.0 million while payoffs/repayments of loans totaled ~~$389.0~~$356.0 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of ~~$470.0~~$357.0 million and ~~$343.0~~$389.0 million, respectively. While ~~management believes~~origination volume increased from the previous quarter, activity levels continue to be lower relative to the comparative period in 2022 due in part to disciplined pricing and underwriting, as well as decreased borrower appetite at currently offered lending rates. Management continues to believe that the current loan pipeline ~~remains~~is sufficient to support the Company's ~~objectives, origination activity continues to moderate due to customer sensitivity from the rising interest rate environment and the Company's continued focus on disciplined underwriting.~~objectives. Investment security balances decreased ~~$55.5~~$92.4 million or ~~8.4%~~14.3% on an annualized basis as the result of ~~prepayments/~~net prepayments, maturities, and purchases totaling approximating ~~$65.8~~$75.2 million and ~~proceeds from sale of $24.2 million, partially offset by increases~~net decreases in the market value of securities of ~~$34.6~~$16.9 million. Management seeks to utilize excess cash flows from the investment security portfolio to support loan growth or reduce borrowings thus resulting in an improved mix of earning assets. Deposit balances ~~decreased~~increased by ~~$303.1~~$69.5 million or ~~14.6%~~3.5% annualized during the period. ~~Cash~~Net cash flow ~~needs were supported by~~surpluses during the quarter resulted in a net ~~increases~~decrease of $41.4 million in short-term ~~FHLB advances~~borrowings, which totaled ~~$434.1~~$392.7 million as of the ~~quarter~~period ended ~~March 31,~~June 30, 2023.

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


Ending balances	Ending balances	As of March 31,						% Change		Ending balances	As of June 30,						% Change
(dollars in thousands)	(dollars in thousands)	2023		2022		$ Change				(dollars in thousands)	2023		2022		$ Change
Total assets	Total assets	$	9,842,394	$	10,118,328	$	(275,934)	(2.7)	%	Total assets	$	9,853,421	$	10,120,611	$	(267,190)	(2.6)	%
Total loans	Total loans	6,422,421		5,851,975		570,446		9.7		Total loans	6,520,740		6,113,421		407,319		6.7
Total loans, excluding PPP	Total loans, excluding PPP	6,420,903		5,795,370		625,533		10.8		Total loans, excluding PPP	6,519,316		6,095,667		423,649		7.0
Total investments	Total investments	2,577,769		2,569,706		8,063		0.3		Total investments	2,485,378		2,802,815		(317,437)		(11.3)
Total deposits	Total deposits	8,025,865		8,714,477		(688,612)		(7.9)		Total deposits	8,095,365		8,756,775		(661,410)		(7.6)
Total other borrowings	Total other borrowings	434,140		36,184		397,956		1,099.8		Total other borrowings	392,714		35,089		357,625		1,019.2	%

Non-PPP loan balances increased as a result of organic activities by approximately ~~$625.5~~$423.6 million or ~~10.8%~~7.0%. during the twelve-month period ending ~~March 31,~~June 30, 2023. Over the same period deposit balances have declined by ~~$688.6~~$661.4 million or ~~7.9%~~7.6%. The Company has offset these declines through the deployment of excess cash balances, runoff of investment security balances, and proceeds from short-term FHLB borrowings. As of ~~March 31,~~June 30, 2023, short-term borrowings from the FHLB totaled $394.1 million and had an interest rate of 5.11%.

Investment Securities

Investment securities available for sale decreased ~~$46.6~~$132.0 million to ~~$2.4~~$2.3 billion as of ~~March 31,~~June 30, 2023, compared to December 31, 2022. The decrease is attributed to ~~$56.9~~$159.4 million in calls and principal repayments, partially offset by ~~$34.7~~$17.7 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,~~June 30, 2023, resulting in ~~gross realized losses of $0.16 million.~~no gain or loss. There were no sales of investment securities during the three months ended March 31, 2022.

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


		March 31, 2023				December 31, 2022					June 30, 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	$	1,357,435	56.4	%	$	1,372,769	56.0	%	Obligations of U.S. government agencies	$	1,309,424	56.4	%	$	1,372,769	56.0	%
Obligations of states and political subdivisions	Obligations of states and political subdivisions	279,900		11.6	%	293,205		12.0	%	Obligations of states and political subdivisions	275,651		11.9	%	293,205		12.0	%
Corporate bonds	Corporate bonds	5,738		0.3	%	5,751		0.2	%	Corporate bonds	5,501		0.3	%	5,751		0.2	%
Asset backed securities	Asset backed securities	427,364		17.8	%	439,767		17.9	%	Asset backed securities	453,467		19.5	%	439,767		17.9	%
Non-agency mortgage backed		335,375		13.9	%	340,946		13.9	%
Non-agency collateralized mortgage obligations										Non-agency collateralized mortgage obligations	276,370		11.9	%	340,946		13.9	%
Total debt securities available for sale	Total debt securities available for sale	$	2,405,812	100.0	%	$	2,452,438	100.0	%	Total debt securities available for sale	$	2,320,413	100.0	%	$	2,452,438	100.0	%

~~Table of Contents~~


	June 30, 2023				December 31, 2022
(in thousands)	Amortized Cost		%		Amortized Cost		%
Debt securities held to maturity:
Obligations of U.S. government and agencies	$	142,466	98.2	%	$	154,830	96.2	%
Obligations of states and political subdivisions	2,651		1.8	%	6,153		3.8	%
Total debt securities held to maturity	$	145,117	100.0	%	$	160,983	100.0	%

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 ~~$8.9~~$15.9 million to ~~$152.1~~$145.1 million as of ~~March 31,~~June 30, 2023, as compared to December 31, 2022. This decrease is attributable to calls and principal repayments of ~~$8.8~~$15.8 million, and amortization of net purchase premiums of $0.1 million.

Table of Contents

Loans

The Company 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 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, and local or regional businesses which service a variety of industries. The Company relies substantially 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)	March 31, 2023				December 31, 2022				(in thousands)	June 30, 2023				December 31, 2022
Commercial real estate	Commercial real estate	$	4,353,959	67.8	%	$	4,359,083	67.6	%	Commercial real estate	$	4,343,924	66.6	%	$	4,359,083	67.6	%
Consumer	Consumer	1,233,797		19.2	%	1,240,743		19.2	%	Consumer	1,252,225		19.2	%	1,240,743		19.2	%
Commercial and industrial	Commercial and industrial	553,098		8.6	%	569,921		8.8	%	Commercial and industrial	576,247		8.8	%	569,921		8.8	%
Construction	Construction	225,996		3.5	%	211,560		3.3	%	Construction	278,425		4.3	%	211,560		3.3	%
Agriculture production	Agriculture production	47,062		0.7	%	61,414		1.0	%	Agriculture production	61,337		0.9	%	61,414		1.0	%
Leases	Leases	8,509		0.1	%	7,726		0.1	%	Leases	8,582		0.1	%	7,726		0.1	%
Total loans	Total loans	$	6,422,421	100.0	%	$	6,450,447	100.0	%	Total loans	$	6,520,740	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)	(in thousands)	March 31, 2023			December 31, 2022			(in thousands)	June 30, 2023			December 31, 2022
Performing nonaccrual loans	Performing nonaccrual loans	$	13,840		$	19,543		Performing nonaccrual loans	$	32,145		$	19,543
Nonperforming nonaccrual loans	Nonperforming nonaccrual loans	1,996			1,770			Nonperforming nonaccrual loans	5,415			1,770
Total nonaccrual loans	Total nonaccrual loans	15,836			21,313			Total nonaccrual loans	37,560			21,313
Loans 90 days past due and still accruing	Loans 90 days past due and still accruing	189			8			Loans 90 days past due and still accruing	32			8
Total nonperforming loans	Total nonperforming loans	16,025			21,321			Total nonperforming loans	37,592			21,321
Foreclosed assets	Foreclosed assets	3,439			3,439			Foreclosed assets	2,914			3,439
Total nonperforming assets	Total nonperforming assets	$	19,464		$	24,760		Total nonperforming assets	$	40,506		$	24,760
Nonperforming assets to total assets	Nonperforming assets to total assets	0.20		%	0.25		%	Nonperforming assets to total assets	0.41		%	0.25		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.25		%	0.33		%	Nonperforming loans to total loans	0.58		%	0.33		%
Allowance for credit losses to nonperforming loans	Allowance for credit losses to nonperforming loans	676		%	516		%	Allowance for credit losses to nonperforming loans	312		%	516		%

4856

Table of Contents

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


(in thousands)	(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		(in thousands)	Balance at March 31, 2023		New NPA / Valuation Adjustments	Pay-downs /Sales /Upgrades	Charge-offs/ (1) Write-downs	Transfers to Foreclosed Assets	Balance at June 30, 2023
Commercial real estate:	Commercial real estate:									Commercial real estate:
CRE non-owner occupied	CRE non-owner occupied	$	1,739	—	(68)	—	—	$	1,671	CRE non-owner occupied	$	1,671	347	(788)	—	—	$	1,230
CRE owner occupied	CRE owner occupied	4,938		97	(1,187)	—	—	3,848		CRE owner occupied	3,848		15,219	(196)	—	—	18,871
Multifamily	Multifamily	125		—	(8)	—	—	117		Multifamily	117		—	(7)	—	—	110
Farmland	Farmland	1,772		—	(1,401)	—	—	371		Farmland	371		2,230	(371)	—	—	2,230
Total commercial real estate loans	Total commercial real estate loans	8,574		97	(2,664)	—	—	6,007		Total commercial real estate loans	6,007		17,796	(1,362)	—	—	22,441
Consumer	Consumer									Consumer
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	4,220		406	(1,095)	—	—	3,531		SFR 1-4 1st DT liens	3,531		311	(449)	—	—	3,393
SFR HELOCs and junior liens	SFR HELOCs and junior liens	3,155		427	(166)	(43)	—	3,373		SFR HELOCs and junior liens	3,373		537	(421)	—	—	3,489
Other	Other	76		110	(2)	(45)	—	139		Other	139		155	(74)	(91)	—	129
Total consumer loans	Total consumer loans	7,451		943	(1,263)	(88)	—	7,043		Total consumer loans	7,043		1,003	(944)	(91)	—	7,011
Commercial and industrial	Commercial and industrial	3,526		292	(683)	(1,574)	—	1,561		Commercial and industrial	1,561		6,651	(595)	(113)	—	7,504
Construction	Construction	491		—	(34)	—	—	457		Construction	457		—	(384)	—	—	73
Agriculture production	Agriculture production	1,279		—	(322)	—	—	957		Agriculture production	957		33	(427)	—	—	563
Leases	Leases	—		—	—	—	—	—		Leases	—		—	—	—	—	—
Total nonperforming loans	Total nonperforming loans	21,321		1,332	(4,966)	(1,662)	—	16,025		Total nonperforming loans	16,025		25,483	(3,712)	(204)	—	37,592
Foreclosed assets	Foreclosed assets	3,439		—	—	—	—	3,439		Foreclosed assets	3,439		—	—	(525)	—	2,914
Total nonperforming assets	Total nonperforming assets	$	24,760	1,332	(4,966)	(1,662)	—	$	19,464	Total nonperforming assets	$	19,464	25,483	(3,712)	(729)	—	$	40,506

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

Nonperforming assets ~~decreased~~increased during the three months ended ~~March 31,~~June 30, 2023 by ~~$5.3~~$21.0 million or ~~21.4%~~108.2% to $40.5 million compared to $19.5 million ~~compared to $24.8 million~~ at ~~December~~March 31, ~~2022.~~2023. The ~~decrease~~increase in nonperforming assets during the ~~first~~second quarter of 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 ~~totaled $1.3~~totaling $25.5 million. This increase is entirely attributed to a single relationship. Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the loan loss reserves associated with these loans is sufficient as of ~~March 31,~~June 30, 2023.

~~Loan charge-offs~~

Table of Contents

Changes in nonperforming assets during the ~~three~~six months ended ~~March 31,~~June 30, 2023

~~In the first quarter of 2023, the Company recorded $1.7 million in loan charge-offs and $0.01 million in~~


(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 June 30, 2023
Commercial real estate:
CRE non-owner occupied	$	1,739	347	(856)	—	—	$	1,230
CRE owner occupied	4,938		15,316	(1,383)	—	—	18,871
Multifamily	125		—	(15)	—	—	110
Farmland	1,772		2,230	(1,772)	—	—	2,230
Total commercial real estate loans	8,574		17,893	(4,026)	—	—	22,441
Consumer
SFR 1-4 1st DT liens	4,220		717	(1,544)	—	—	3,393
SFR HELOCs and junior liens	3,155		964	(587)	(43)	—	3,489
Other	76		265	(76)	(136)	—	129
Total consumer loans	7,451		1,946	(2,207)	(179)	—	7,011
Commercial and industrial	3,526		6,943	(1,278)	(1,687)	—	7,504
Construction	491		—	(418)	—	—	73
Agriculture production	1,279		33	(749)	—	—	563
Leases	—		—	—	—	—	—
Total nonperforming loans	21,321		26,815	(8,678)	(1,866)	—	37,592
Foreclosed assets	3,439		—	—	(525)	—	2,914
Total nonperforming assets	$	24,760	26,815	(8,678)	(2,391)	—	$	40,506

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

Nonperforming assets increased during the six months ended June 30, 2023 by $15.8 million or 64.0% to $40.5 million compared to $24.8 million at December 31, 2022. The increase in nonperforming assets during the six months ended 2023 was primarily the result of nonperforming loans added during the period totaling $26.8 million, partially offset by loan pay-downs/upgrades, which totaled $8.7 million during the quarter and charge-offs ~~less $0.1 million in loan recoveries and $0.1 million in deposit overdraft recoveries, which collectively resulted in $1.6 million in net charge-offs.~~

~~(in thousands)~~

of $1.9 million.

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)	March 31, 2023			December 31, 2022			March 31, 2022			(in thousands)	June 30, 2023			December 31, 2022			June 30, 2022
Allowance for credit losses:	Allowance for credit losses:										Allowance for credit losses:
Qualitative and forecast factor allowance	Qualitative and forecast factor allowance	$	75,467		$	70,777		$	64,334		Qualitative and forecast factor allowance	$	78,334		$	70,777		$	65,516
Cohort model allowance reserves	Cohort model allowance reserves	32,054			32,489			30,880			Cohort model allowance reserves	32,002			32,489			31,965
Allowance for individually evaluated loans	Allowance for individually evaluated loans	886			2,414			835			Allowance for individually evaluated loans	6,993			2,414			463

Total allowance for credit losses	Total allowance for credit losses	$	108,407		$	105,680		$	96,049		Total allowance for credit losses	$	117,329		$	105,680		$	97,944
Allowance for credit losses for loans / total loans	Allowance for credit losses for loans / total loans	1.69		%	1.64		%	1.64		%	Allowance for credit losses for loans / total loans	1.80		%	1.64		%	1.60		%

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 ~~$108.4~~$117.3 million allowance for loan losses at ~~March 31,~~June 30, 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.

4958

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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 credit losses on loans as of the dates indicated:


(in thousands)	(in thousands)	March 31, 2023				December 31, 2022			March 31, 2022				(in thousands)	June 30, 2023				December 31, 2022			June 30, 2022
Commercial real estate	Commercial real estate	$	64,937	59.9	%	61,381	58.1	%	$	54,992	57.3	%	Commercial real estate	$	71,016	60.5	%	61,381	58.1	%	$	55,450	56.6	%
Consumer	Consumer	24,896		23.0	%	24,639	23.3	%	23,852		24.8	%	Consumer	26,513		22.6	%	24,639	23.3	%	23,931		24.4	%
Commercial and industrial	Commercial and industrial	12,069		11.1	%	13,597	12.9	%	8,869		9.2	%	Commercial and industrial	11,647		9.9	%	13,597	12.9	%	9,979		10.2	%
Construction	Construction	5,655		5.2	%	5,142	4.8	%	7,437		7.7	%	Construction	7,031		6.0	%	5,142	4.8	%	7,522		7.7	%
Agriculture production	Agriculture production	833		0.7	%	906	0.8	%	883		0.9	%	Agriculture production	1,105		0.9	%	906	0.8	%	1,046		1.1	%
Leases	Leases	17		0.1	%	15	0.1	%	16		0.1	%	Leases	17		0.1	%	15	0.1	%	16		—	%
Total allowance for credit losses	Total allowance for credit losses	$	108,407	100.0	%	105,680	100.0	%	$	96,049	100.0	%	Total allowance for credit losses	$	117,329	100.0	%	105,680	100.0	%	$	97,944	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)	March 31, 2023		December 31, 2022		March 31, 2022	(in thousands)				June 30, 2023			December 31, 2022	June 30, 2022
Commercial real estate	Commercial real estate	1.49	%	1.41	%			1.43	%	Commercial real estate		1.63	%		1.41	%	1.37	%
Consumer	Consumer	2.02	%	1.99	%			2.10	%	Consumer		2.12	%		1.99	%	2.06	%
Commercial and industrial	Commercial and industrial	2.18	%	2.39	%			1.77	%	Commercial and industrial		2.02	%		2.39	%	1.97	%
Construction	Construction	2.50	%	2.43	%			2.45	%	Construction		2.53	%		2.43	%	2.40	%
Agriculture production	Agriculture production	1.77	%	1.48	%			1.27	%	Agriculture production		1.80	%		1.48	%	1.47	%
Leases	Leases	0.20	%	0.19	%			0.20	%	Leases		0.20	%		0.19	%	0.20	%
Total loans	Total loans	1.69	%	1.64	%			1.64	%	Total loans		1.80	%		1.64	%	1.60	%

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


		Three months ended March 31,						Three months ended June 30,					Six months ended June 30,
(in thousands)	(in thousands)	2023			2022				(in thousands)	2023			2022			2023			2022
Allowance for credit losses:	Allowance for credit losses:								Allowance for credit losses:
Balance at beginning of period	Balance at beginning of period	$	105,680		$	85,376			Balance at beginning of period	$	108,407		$	96,049		$	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	4,315			8,205				Provision for (reversal of) loan losses	8,980			1,940			13,295			10,145
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	—			—				CRE owner occupied	—			—			—			—
Multifamily	Multifamily	—			—				Multifamily	—			—			—			—
Farmland	Farmland	—			(294)				Farmland	—			—			—			(294)
Consumer:	Consumer:								Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—			—				SFR 1-4 1st DT liens	—			—			—			—
SFR HELOCs and junior liens	SFR HELOCs and junior liens	(42)			—				SFR HELOCs and junior liens	—			—			(42)			—
Other	Other	(142)			(119)				Other	(163)			(166)			(305)			(285)
Commercial and industrial	Commercial and industrial	(1,574)			(330)				Commercial and industrial	(113)			(235)			(1,687)			(565)
Construction	Construction	—			—				Construction	—			—			—			—
Agriculture production	Agriculture production	—			—				Agriculture production	—			—			—			—
Leases	Leases	—			—				Leases	—			—			—			—
Total loans charged-off	Total loans charged-off	(1,758)			(743)				Total loans charged-off	(276)			(401)			(2,034)			(1,144)
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	—			—				CRE non-owner occupied	—			—			—			—
CRE owner occupied	CRE owner occupied	—			—				CRE owner occupied	1			1			1			1
Multifamily	Multifamily	—			—				Multifamily	—			—			—			—
Farmland	Farmland	—			—				Farmland	—			—			—			—
Consumer:	Consumer:								Consumer:
SFR 1-4 1st DT liens	SFR 1-4 1st DT liens	—			40				SFR 1-4 1st DT liens	—			1			—			41
SFR HELOCs and junior liens	SFR HELOCs and junior liens	65			175				SFR HELOCs and junior liens	37			153			102			328
Other	Other	51			71				Other	26			76			77			147
Commercial and industrial	Commercial and industrial	53			887				Commercial and industrial	123			124			176			1,011
Construction	Construction	—			—				Construction	—			—			—			—
Agriculture production	Agriculture production	1			1				Agriculture production	31			1			32			2
Leases	Leases	—			—				Leases	—			—			—			—
Total recoveries of previously charged-off loans	Total recoveries of previously charged-off loans	170			1,174				Total recoveries of previously charged-off loans	218			356			388			1,530
Net recoveries		(1,588)			431
Net (charge-offs) recoveries									Net (charge-offs) recoveries	(58)			(45)			(1,646)			386
Balance at end of period	Balance at end of period	$	108,407		$	96,049			Balance at end of period	$	117,329		$	97,944		$	117,329		$	97,944
Average total loans	Average total loans	$	6,413,958		$	4,988,560			Average total loans	$	6,467,381		$	5,928,430		$	6,440,817		$	5,461,092
Ratios (annualized):	Ratios (annualized):								Ratios (annualized):
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		%		Net (charge-offs) recoveries during period to average loans outstanding during period	—		%	—		%	(0.05)		%	0.01		%
Provision for credit losses to average loans outstanding during period	Provision for credit losses to average loans outstanding during period	0.27		%	0.66		%		Provision for credit losses to average loans outstanding during period	0.56		%	0.13		%	0.41		%	0.37		%

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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 ~~three~~six months ended ~~March 31,~~June 30, 2023:


(in thousands)	(in thousands)	Balance at December 31, 2022		Sales		Valuation Adjustments		Transfers from Loans		Balance at March 31, 2023		(in thousands)	Balance at December 31, 2022		Sales		Valuation Adjustments		Transfers from Loans		Balance at June 30, 2023
Land & construction	Land & construction	$	154	$	—	$	—	$	—	$	154	Land & construction	$	154	$	—	$	—	$	—	$	154
Residential real estate	Residential real estate	1,709		—		—		—		1,709		Residential real estate	1,709		—		(80)		—		1,629
Commercial real estate	Commercial real estate	1,576		—		—		—		1,576		Commercial real estate	1,576		—		(445)		—		1,131
Total foreclosed assets	Total foreclosed assets	$	3,439	$	—	$	—	$	—	$	3,439	Total foreclosed assets	$	3,439	$	—	$	(525)	$	—	$	2,914

Deposits

During the ~~three~~six months ended ~~March 31,~~June 30, 2023, the Company’s deposits decreased by ~~$303.1~~$233.6 million to ~~$8.7~~$8.1 billion at quarter end. There were no brokered deposits included in the deposit balances as of ~~March~~June 30, 2023 and December 31, 2022, respectively.

The following table sets forth the estimated deposits exceeding the FDIC insurance limit (excluding collateralized municipal deposits and intercompany balances) as of the dates indicated:


(in thousands)	June 30, 2023		December 31, 2022
Estimated uninsured deposit balances	$	2,523,000	$	2,701,000

The following table indicates the contractual maturity schedule of the Company's uninsured time deposits in excess of $250,000 as of the dates indicated:


(in thousands)	June 30, 2023
Three months or less	$	13,170
Over three through six months	23,815
Over six months through twelve months	11,026
Over twelve months	15,983
	$	63,994

Non-interest bearing deposits represent 37.9% and 42.0% of total deposits outstanding as of June 30, 2023 and December 31, 2022, 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 six months ended ~~March 31,~~June 30, 2023, ~~and 2022,~~ the Company repurchased ~~150,000~~zero and ~~zero~~150,000 shares with market values of ~~$7.0 million~~$0 and ~~$0,~~$6,974,000, respectively. During the three and six months ended June 30, 2022, the Company repurchased 526,749 shares with market values of $21,750,000, respectively.

Total shareholders' equity increased by ~~$43.8~~$2.5 million during the quarter ended ~~March 31,~~June 30, 2023, as a result of ~~an improvement in~~ accumulated other comprehensive losses ~~of $24.4~~increasing by $11.9 million and ~~net income of $35.8 million, partially offset by~~ cash dividend payments on common stock of approximately ~~$9.9~~$10.0 million, offset by net income of $24.9 million. As a result, the Company’s book value was ~~$32.84~~$32.86 per share at ~~March 31,~~June 30, 2023, as compared to ~~$31.39~~$32.84 and ~~$32.78~~$31.25 at December 31, 2022 and ~~March 31,~~June 30, 2022, respectively. The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was ~~$23.22~~$23.30 per share at ~~March 31,~~June 30, 2023, as compared to ~~$21.76~~$23.22 and ~~$23.04~~$21.41 at December 31, 2022, and ~~March 31,~~June 30, 2022,

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respectively.

Trailing Quarter Balance Sheet Change


		March 31, 2023				December 31, 2022					June 30, 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	14.5	%	10.5	%	14.2	%	10.5	%	Total risk based capital	14.5	%	10.5	%	14.2	%	10.5	%
Tier I capital	Tier I capital	12.7	%	8.5	%	12.4	%	8.5	%	Tier I capital	12.7	%	8.5	%	12.4	%	8.5	%
Common equity Tier 1 capital	Common equity Tier 1 capital	12.0	%	7.0	%	11.7	%	7.0	%	Common equity Tier 1 capital	12.0	%	7.0	%	11.7	%	7.0	%
Leverage	Leverage	10.2	%	4.0	%	10.1	%	4.0	%	Leverage	10.4	%	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.

As of ~~March 31,~~June 30, 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 primary sources of liquidity include the following for the periods indicated:


(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022		(dollars in thousands)	June 30, 2023		March 31, 2023		June 30, 2022
Borrowing capacity at correspondent banks and FRB	Borrowing capacity at correspondent banks and FRB	$	2,853,219	$	2,815,594	Borrowing capacity at correspondent banks and FRB	$	2,847,052	$	2,853,219	$	2,690,597
Less: borrowings outstanding	Less: borrowings outstanding	(394,095)		(216,700)		Less: borrowings outstanding	(350,000)		(394,095)		—
Unpledged available-for-sale investment securities		1,883,353		1,990,451
Unpledged available-for-sale (AFS) investment securities						Unpledged available-for-sale (AFS) investment securities	1,813,894		1,883,353		2,192,704
Cash held or in transit with FRB	Cash held or in transit with FRB	67,468		56,910		Cash held or in transit with FRB	79,530		67,468		432,190
Total primary liquidity	Total primary liquidity	$	4,409,945	$	4,862,738.3	Total primary liquidity	$	4,390,476	$	4,409,945	$	5,315,491


Estimated uninsured deposit balances			$	2,522,718					$	2,312,309					$	2,950,614

At ~~March 31,~~June 30, 2023, the Company's primary sources of liquidity represented ~~54.9%~~54.2% of total deposits and ~~190.7%~~174% of estimated total uninsured deposits, respectively. As a secondary ~~source~~sources of liquidity, the Company's held-to-maturity investment securities had a fair value of ~~$142.1~~$134.4 million, including approximately ~~$9.9~~$10.7 million in net unrealized ~~losses~~losses. The Company did not utilize any brokered deposits during 2023 or ~~0.6% of after tax total shareholders' equity.~~2022.

The Company’s profitability during the first ~~three~~six months of 2023 generated cash flows from operations of ~~$39.0~~$56.2 million compared to ~~$34.8~~$72.1 million during the first ~~three~~six months of 2022. Net cash from investing activities was ~~$115.3~~$89.8 million for the ~~three~~six months ended ~~March 31,~~June 30, 2023, compared to net cash used by investing activities of ~~$121.9~~$472.7 million during the ~~three~~six months ending 2022. Financing activities used ~~$151.1~~$134.4 million during the ~~three~~six months ended ~~March 31,~~June 30, 2023, compared to providing ~~$110.5~~$121.0 million during the ~~three~~six months ended ~~March 31,~~June 30, 2022. During the ~~three~~six months ended ~~March 31,~~June 30, 2023 deposit balance decreases of ~~$303.1~~$233.6 million was the largest detractor of funding, which attributed to the increase in other borrowings of ~~$169.5~~$128.1 million during the same 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 are otherwise consistent with similar balances or totals as of December 31, 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 ~~$10.0~~$19.9 million and ~~$7.4~~$15.8 million of cash during the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, 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
(dollars in thousands) March 31,
2023 December 31,
2022 March 31,
2022
Net interest margin
Acquired loans discount accretion, net:
Amount (included in interest income) $1,397 $1,751 $1,323
Effect on average loan yield 0.09 % 0.11 % 0.11 %
Effect on net interest margin (FTE) 0.06 % 0.07 % 0.07 %
Net interest margin (FTE) 4.21 % 4.34 % 3.39 %
Net interest margin less effect of acquired loan discount accretion (Non-GAAP) 4.15 % 4.27 % 3.32 %
PPP loans yield, net:
Amount (included in interest income) $5 $16 $1,097
Effect on net interest margin (FTE) — % — % 0.03 %
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:
Amount (included in interest income) $1,402 $1,767 $2,420
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) 4.15 % 4.27 % 3.29 %


	Three months ended						Six months ended
(dollars in thousands)	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Net interest margin
Acquired loans discount accretion, net:
Amount (included in interest income)	$1,471		$1,397		$1,677		$2,868		$3,000
Effect on average loan yield	0.09	%	0.09	%	0.11	%	0.09	%	0.11	%
Effect on net interest margin (FTE)	0.07	%	0.06	%	0.07	%	0.06	%	0.07	%
Net interest margin (FTE)	3.96	%	4.21	%	3.67	%	4.08	%	3.54	%
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)	3.89	%	4.15	%	3.60	%	4.02	%	3.47	%
PPP loans yield, net:
Amount (included in interest income)	$4		$5		$964		$9		$2,061
Effect on net interest margin (FTE)	—	%	—	%	0.03	%	—	%	0.03	%
Net interest margin less effect of PPP loan yield (Non-GAAP)	3.96	%	4.21	%	3.64	%	4.08	%	3.51	%
Acquired loan discount accretion and PPP loan yield, net:
Amount (included in interest income)	$1,475		$1,402		$2,641		$2,877		$5,061
Effect on net interest margin (FTE)	0.07	%	0.06	%	0.10	%	0.06	%	0.10	%
Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)	3.89	%	4.15	%	3.57	%	4.02	%	3.44	%


		Three months ended						Three months ended						Six months ended
(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022			(dollars in thousands)	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 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)	$35,833		$36,343		$20,374			Net income (GAAP)	$24,892		$35,833		$31,364		$60,725		$51,738
Exclude provision for income taxes	Exclude provision for income taxes	13,149		14,723		7,869			Exclude provision for income taxes	8,557		13,149		11,748		21,706		19,617
Exclude provision (benefit) for credit losses	Exclude provision (benefit) for credit losses	4,195		4,245		8,330			Exclude provision (benefit) for credit losses	9,650		4,195		2,100		13,845		10,430
Net income before income tax and provision expense (Non-GAAP)	Net income before income tax and provision expense (Non-GAAP)	$53,177		$55,311		$36,573			Net income before income tax and provision expense (Non-GAAP)	$43,099		$53,177		$45,212		$96,276		$81,785

Average assets (GAAP)	Average assets (GAAP)	$9,878,927		$9,932,931		$8,778,256			Average assets (GAAP)	$9,848,191		$9,878,927		$10,121,714		$9,863,471		$9,453,696
Average equity (GAAP)	Average equity (GAAP)	$1,087,473		$1,016,468		$1,009,224			Average equity (GAAP)	$1,112,223		$1,087,473		$1,091,454		$1,099,913		$1,050,566

Return on average assets (GAAP) (annualized)	Return on average assets (GAAP) (annualized)	1.47	%	1.45	%	0.94	%		Return on average assets (GAAP) (annualized)	1.01	%	1.47	%	1.24	%	1.24	%	1.10	%
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)	Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)	2.18	%	2.21	%	1.69	%		Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)	1.76	%	2.18	%	1.79	%	1.97	%	1.74	%
Return on average equity (GAAP) (annualized)	Return on average equity (GAAP) (annualized)	13.36	%	14.19	%	8.19	%		Return on average equity (GAAP) (annualized)	8.98	%	13.36	%	11.53	%	11.13	%	9.93	%
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)	Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)	19.83	%	21.59	%	14.70	%		Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)	15.54	%	19.83	%	16.61	%	17.65	%	15.70	%

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		Three months ended						Three months ended						Six months ended
(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022		March 31, 2022			(dollars in thousands)	June 30, 2023		March 31, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Return on tangible common equity	Return on tangible common equity								Return on tangible common equity
Average total shareholders' equity	Average total shareholders' equity	$1,087,473		$1,016,468		$1,009,224			Average total shareholders' equity	$1,112,223		$1,087,473		$1,091,454		$1,099,913		$1,050,566
Exclude average goodwill	Exclude average goodwill	304,442		306,192		226,676			Exclude average goodwill	304,442		304,442		307,942		334,565		267,533
Exclude average other intangibles	Exclude average other intangibles	15,842		17,521		12,604			Exclude average other intangibles	14,716		15,842		21,040		16		16,845
Average tangible common equity (Non-GAAP)	Average tangible common equity (Non-GAAP)	$767,189		$692,755		$769,944			Average tangible common equity (Non-GAAP)	$793,065		$767,189		$762,472		$765,332		$766,188

Net income (GAAP)	Net income (GAAP)	$35,833		$36,343		$20,374			Net income (GAAP)	$24,892		$35,833		$31,364		$60,725		$51,738
Exclude amortization of intangible assets, net of tax effect	Exclude amortization of intangible assets, net of tax effect	1,166		1,199		865			Exclude amortization of intangible assets, net of tax effect	1,166		1,166		1,199		2,333		2,064
Tangible net income available to common shareholders (Non-GAAP)	Tangible net income available to common shareholders (Non-GAAP)	$36,999		$37,542		$21,239			Tangible net income available to common shareholders (Non-GAAP)	$26,058		$36,999		$32,563		$63,058		$53,802

Return on average equity	Return on average equity	13.36	%	14.19	%	8.19	%		Return on average equity	8.98	%	13.36	%	11.53	%	11.13	%	9.93	%
Return on average tangible common equity (Non-GAAP)	Return on average tangible common equity (Non-GAAP)	19.56	%	21.50	%	11.19	%		Return on average tangible common equity (Non-GAAP)	13.18	%	19.56	%	17.13	%	16.62	%	14.16	%


		Three months ended											Three months ended
(dollars in thousands)	(dollars in thousands)	March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022		(dollars in thousands)	June 30, 2023		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 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)	$1,090,245		$1,046,416		$990,338		$1,042,177		$1,109,182		Shareholders' equity (GAAP)	$1,092,781		$1,090,245		$1,046,416		$990,338		$1,042,177
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	319,456		321,112		326,314		328,016		329,718		Exclude goodwill and other intangible assets, net	317,800		319,456		321,112		326,314		328,016
Tangible shareholders' equity (Non-GAAP)	Tangible shareholders' equity (Non-GAAP)	$770,789		$725,304		$664,024		$714,161		$779,464		Tangible shareholders' equity (Non-GAAP)	$774,981		$770,789		$725,304		$664,024		$714,161

Total assets (GAAP)	Total assets (GAAP)	$9,842,394		$9,930,986		$9,976,879		$10,120,611		$10,118,328		Total assets (GAAP)	$9,853,421		$9,842,394		$9,930,986		$9,976,879		$10,120,611
Exclude goodwill and other intangible assets, net	Exclude goodwill and other intangible assets, net	319,456		321,112		326,314		328,016		329,718		Exclude goodwill and other intangible assets, net	317,800		319,456		321,112		326,314		328,016
Total tangible assets (Non-GAAP)	Total tangible assets (Non-GAAP)	$9,522,938		$9,609,874		$9,650,565		$9,792,595		$9,788,610		Total tangible assets (Non-GAAP)	$9,535,621		$9,522,938		$9,609,874		$9,650,565		$9,792,595

Shareholders' equity to total assets (GAAP)	Shareholders' equity to total assets (GAAP)	11.08	%	10.54	%	9.93	%	10.30	%	10.96	%	Shareholders' equity to total assets (GAAP)	11.09	%	11.08	%	10.54	%	9.93	%	10.30	%
Tangible shareholders' equity to tangible assets (Non-GAAP)	Tangible shareholders' equity to tangible assets (Non-GAAP)	8.09	%	7.55	%	6.88	%	7.29	%	7.96	%	Tangible shareholders' equity to tangible assets (Non-GAAP)	8.13	%	8.09	%	7.55	%	6.88	%	7.29	%


		Three months ended						Three months ended
(dollars in thousands)	(dollars in thousands)	March 31, 2023	December 31, 2022	September 30, 2022	June 30, 2022	March 31, 2022	(dollars in thousands)	June 30, 2023	March 31, 2023	December 31, 2022	September 30, 2022	June 30, 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)	$770,789	$725,304	$664,024	$714,161	$779,464	Tangible s/h equity (Non-GAAP)	$774,981	$770,789	$725,304	$664,024	$714,161

Common shares outstanding at end of period	Common shares outstanding at end of period	33,195,250	33,331,513	33,332,189	33,350,974	33,837,935	Common shares outstanding at end of period	33,259,260	33,195,250	33,331,513	33,332,189	33,350,974

Common s/h equity (book value) per share (GAAP)	Common s/h equity (book value) per share (GAAP)	$32.84	$31.39	$29.71	$31.25	$32.78	Common s/h equity (book value) per share (GAAP)	$32.86	$32.84	$31.39	$29.71	$31.25
Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	$23.22	$21.76	$19.92	$21.41	$23.04	Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)	$23.30	$23.22	$21.76	$19.92	$21.41

*****************

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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, 2022, the following update of the Company’s assessment of market risk as of ~~March 31,~~June 30, 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, 2022.

During the quarter ended ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2023, the Company's loan portfolio consisted of approximately ~~$6.4~~$6.5 billion in outstanding principal with a weighted average coupon rate of ~~5.0%~~5.2%. During the three-month periods ending June 30, 2023, March 31, 2023 and December 31, 2022, the weighted average coupon on loan production in the quarter was ~~6.55%~~6.9%, 6.7% and ~~6.25%~~6.90%, respectively. Included in the ~~March 31,~~June 30, 2023 loan total are variable rate loans totaling ~~$3.6~~$3.8 billion, of which, ~~$810.8~~$859.9 million are considered floating based on the Wall Street Prime index. In addition, the Company holds certain investment securities totaling ~~$384.1~~$375.5 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 ~~March 31,~~June 30, 2023, non-interest bearing deposits represented ~~40.3%~~38.0% of total deposits. Further, during the quarter ended ~~March 31,~~June 30, 2023, the cost of interest bearing deposits were ~~0.43%~~0.95% and the cost of total deposits were ~~0.25%~~0.58%. With the intent of stabilizing or increasing net interest income, management intends to continue to deploy its excess liquidity and seek to migrate certain earning assets into higher yielding categories (from investment 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~~half 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~~2023 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 ~~March 31,~~June 30, 2023 the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was ~~4.83%~~5.08%. 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 significant 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 ~~March 31,~~June 30, 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)	(3.5)	%	(6.3)	%	+300 (shock)	(4.4)	%	(4.2)	%
+200 (shock)	+200 (shock)	(2.5)	%	(4.0)	%	+200 (shock)	(3.1)	%	(2.2)	%
+100 (shock)	+100 (shock)	(1.2)	%	(1.0)	%	+100 (shock)	(1.4)	%	(0.1)	%
+ 0 (flat)	+ 0 (flat)	—		—		+ 0 (flat)	—		—
-100 (shock)	-100 (shock)	(2.1)	%	(3.9)	%	-100 (shock)	(1.1)	%	(4.4)	%
-200 (shock)	-200 (shock)	(4.6)	%	(11.0)	%	-200 (shock)	(2.6)	%	(11.9)	%
-300 (shock)	-300 (shock)	(6.6)	%	(23.4)	%	-300 (shock)	(3.8)	%	(21.5)	%

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 ~~March 31,~~June 30, 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 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 ~~March 31,~~June 30, 2023.

During the three months ended ~~March 31,~~June 30, 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 2022 Annual Report on Form 10-K, which could materially affect our business, financial condition, or results of operations. The following risk factors represents a material update and addition to the risk factors previously disclosed in our 2022 Annual Report on Form 10-K and/or Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2023.

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~~During the first ~~quarter~~half of 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 were not directly affected by these bank failures, the 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.

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 a manner that fully protects depositors by utilizing the Deposit Insurance Fund, including the use of ~~Bridge Banks~~bridge banks to assume all of the deposit obligations of the failed banks, while leaving unsecured lenders and equity holders of such institutions exposed to losses. In addition, in an effort to strengthen public confidence in the banking system and to protect depositors, the Federal Reserve ~~Bank~~Board announced it would make available additional funding to eligible depository institutions under a Bank Term Funding Program to help assure banks have the ~~ability~~liquidity to meet the needs of all their depositors. ~~In an effort to strengthen public confidence in the banking system and protect depositors, regulators~~Regulators announced that any losses to the Deposit Insurance Fund ~~to support uninsured depositors~~resulting from the recent failures will be recovered by a special assessment on banks, as 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 the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

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 either available for sale or held to maturity securities portfolios, contingent liquidity, CRE loan composition and concentration, capital ~~position~~requirements 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 and supplemented on beginning on page 57 of the Company's Form 10-Q filed with the SEC on May 10, 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~~initially disclosed in the Current Report 8-K filed by us on February 14, 2023, the Bank experienced a cybersecurity ~~incident, where~~incident. After detecting unusual network activity, ~~was detected, and~~ management shut down networked systems by taking them offline, 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

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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~~system/server access as well as 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 Company was able to restore its systems without paying ransom.

~~The~~While the threat actor posted data on the "dark web" it claimed to have extracted from the Bank's internal systems, the Bank continues to work with third-party forensic investigators to understand the nature and scope of the incident and to determine what and how much information ~~was accessed~~(including personal information) of customers, employees and ~~who~~businesses 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 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~~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 our reputation, business and/or financial condition. 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 security of our systems could adversely affect our business. As cyber threats and the sophistication of threat actors continue to evolve, we have been and will likely continue to enhance our 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)
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


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)
April 1, 2023 - June 30, 2023	—	—		—	1,209,802
Total	—	$	—	—

(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.

Item 5 - Other Information

(1)During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6 – Exhibits

EXHIBIT INDEX


Exhibit No.						Exhibit

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

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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: ~~May 10,~~August 7, 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			3741
Item 3 – Quantitative and Qualitative Disclosures about Market Risk			5665
Item 4 – Controls and Procedures			5665
PART II – OTHER INFORMATION			5766
Item 1 – Legal Proceedings			5766
Item 1A – Risk Factors			5766
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			5867
Item 6 – Exhibits			5968
Signatures			6069


Supplemental disclosure of noncash activities:
Unrealized gain (loss) on securities available for sale	$	34,540	$	(111,302)
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	621		55
Obligations incurred in conjunction with leased assets	4,484		521
Loans transferred to foreclosed assets	—		313
Supplemental disclosure of cash flow activity:
Cash paid for interest expense	$	9,095	$	1,546
Cash paid for income taxes	—		—
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.


Fair value at March 31, 2023	Total		Level 1		Level 2		Level 3
Marketable equity securities	$	2,640	$	2,640
Debt securities available for sale:
Obligations of U.S. government corporations and agencies	1,357,435				1,357,435
Obligations of states and political subdivisions	279,900				279,900
Corporate bonds	5,738				5,738
Asset backed securities	427,364				427,364
Non-agency mortgage backed securities	335,375				335,375
Loans held for sale	226				226
Mortgage servicing rights	6,553						6,553
Total assets measured at fair value	$	2,415,231	$	2,640	$	2,406,038	$	6,553