Member FDIC
Dear Fellow Shareholders:
Almost fifty years ago, a group of farmers and businessmen who were frustrated by the lack of attention
and the antics of the big banks (some things never change) got together to start a new bank in Chico,
California. With a lot of enthusiasm, determination, a single branch, and a capital raise of just $1
million, they opened Tri Counties Bank in March 1975 and became one of the more than 14,000 banks
competing in the US at that time. To say that our communities, customers and our Company have seen
much change and challenges over the past fifty years is, of course, a vast understatement. We hope
each of you views this as a testament to the central role that Tri Counties Bank has played in supporting
our customers, communities and employees and just as importantly, that our ability to weather business
cycles continues to give you confidence in our future. During our almost 50 years in business, our
Company has had only two CEOs and we view this continuity and consistency as an important and
strategic asset.
In last year’s letter, I briefly touched on the dramatic rise in interest rates that was underway following
the COVID pandemic. While most investors and industry pundits have moved on to the next headline
event, I recall it now only because I believe there are story lines that have not yet fully played out. Many
have dismissed or forgotten the proximate cause of those higher rates: underlying inflation driven by
billions of dollars of US Government spending and economic stimulus payments. As the Federal Reserve
remains committed to battling inflation and pursuing a soft landing, the lingering effects of higher
interest rates are being manifested across the economy and the banking industry. The full resolution
will likely take years. Let’s all remember that there are generations of bank customers who’ve never
seen a 5.00% rate on a certificate of deposit or the prime rate at 8.50% (for historical perspective, the
last time the prime rate was 8.50% was more than 20 years ago).
Below are a few areas where both borrowers and depositors – our customers – are adapting to higher
interest rates.
Lingering Impact of Rising Rates – A Challenging Market . . . But Opportunity
The dramatic increase in interest rates in 2022 and 2023 was driven by an equally dramatic increase in
inflation. Food, energy, wages and virtually every commodity pushed costs higher for consumers and
businesses. Fortunately, real estate values and overall employment continue to be resilient and are
important signs of economic vitality. Some sectors will continue to be challenged as the effects of
higher interest rates take hold, but these challenges also hold opportunity for TriCo.
Housing affordability, for example, continues to be a struggle in most communities across California and
is an even more pressing challenge for first‐time buyers and families. There’s no question that one of
the most valuable assets a consumer can have today is a 3%, 30‐year mortgage; and deciding to move
up to a bigger or newer house with mortgage rates at 7% or more quickly becomes financially untenable
for many consumers. As the bank for communities both large and small across California, we are ardent
supporters of growth in the supply of housing; it is a key foundational element of all strong
communities.
Since the initial outbreak of COVID in 2020, the continuing pivot to a remote or hybrid workforce simply
means fewer people in the office on any given day – particularly in large, metro areas. As the need for
large office space decreases, there could be downward pressure on rents and, ultimately, on commercial
real estate (CRE) values, particularly in urban markets. Fortunately, community banks are not the
primary source of financing for large office properties, and while a decline in office building values in
large cities can depress values in other CRE segments, we believe our well‐diversified portfolio (across a
variety of segments and California geographies) will continue to perform well.
For the first time in several years, bank depositors faced choices that weren’t solely driven by
convenience. Bank failures in March of 2023 and short‐term interest rate increases of more than 500
basis points resulted in a shift in consumer awareness and behavior. Suddenly, the idea of bank safety
and earning a return on their funds became their primary concerns. These forces continue to affect
bank balance sheets by driving deposit costs higher. While margins will likely be under some pressure
until each bank’s balance sheet adjusts to higher rates, comparatively, we believe our historically strong
deposit franchise will continue to shine. More importantly, our deposit base is a significant source of
strength and positions us well for future organic growth and acquisition opportunities.
While higher interest rates will create challenges and reveal opportunities for TriCo over the next few
years, it’s impossible to ignore the potential impact of government deficits on both the cost and
availability of capital for the private sector. We are hopeful that a more rational fiscal perspective lies
ahead.
Financial Highlights
TriCo Bancshares reported net earnings of $117.4 million, or $3.52 per diluted share for 2023. This
compares with net earnings of $125.4 million and $3.83 per diluted share in 2022. The rise in interest
rates that began in 2022 and continued into 2023 caused a dramatic increase in the cost of deposits for
all banks, including Tri Counties Bank. The main driver of our financial performance and that of most
banks, is net interest income, which is the result of the rate we earn on loans and securities (or interest
income), less interest expense (or the rate we pay for deposits and funds we borrow). In 2023, our top
line revenue, or total interest and dividend income increased 23.3% to more than $356 million, driven
primarily by increasing interest rates. Net interest income, however, increased only 3.1% over 2022 as a
result of rising rates on the cost of deposits and borrowed funds. As interest rates stabilize and as we
contemplate the Federal Reserve maintaining interest rates at a level that is “higher for longer”, we will
likely continue to see pressure on our funding costs and ultimately, our net interest income. Our results
in 2023 were not what we would expect from ourselves in an ordinary environment but, at the same
time, they reflect the core operating strengths and extraordinary potential of our banking franchise and
our conservative banking philosophy.
As I mentioned previously, the changing workplace continues to keep bank investors on edge as they
attempt to understand the impact of real estate value changes on bank loan portfolios. In addition,
interest rates on much of the CRE‐related debt on bank balance sheets will likely reset higher – that is,
the interest rates will adjust to current rates over the next two to three years. We continue to
underwrite conservatively and consider the impact of higher rates and the variability of the real estate
market in our assessment of each borrower. While the broader real estate market is showing an
increase in borrower stress in certain segments, we are not seeing signs of systemic deterioration either
in our portfolio or across the banking industry. Our net charge‐offs, for example, were just 10 basis
points in 2023 and are indicative of what most bankers would describe as “lower than normal” for a
non‐recessionary environment. However, as a reflection of our continued caution, we continue to
maintain an allowance for credit losses of 1.79% of total loans, up from 1.64% at the end of 2022 and a
level that continues to exceed our peer banks. We remain committed to our philosophy of broad
geographic and industry diversification along with strong controls, reserves, and portfolio management.
Always Positioning Ourselves For Our Future
In February of this year, we raised our quarterly dividend to $0.33 per share. This represents an
increase of 10% over the prior quarter and was the 138th consecutive quarterly dividend paid by TriCo.
Dividends have continued to grow consistently – increasing, on average, more than 10% annually over
the last ten years.
TriCo Bancshares Dividend Growth
A few years ago, I wrote to you that our Company had crossed two important milestones – net earnings
of more than $100 million in a single year and, just as important, total shareholders’ equity of more than
$1 billion, both for the first time in our history. The pandemic and economic volatility over the past few
years continue to reinforce the importance and value of staying power. We’ve continued to grow our
capital base – in fact, our growth in shareholders’ equity has exceeded 16.0% annually for the past ten
years to $1.16 billion at the end of 2023. Our stewardship of this critical resource is fundamental to
success in our business, whether it be through our dividend policy or retaining earnings for future
growth and is always top of mind. TriCo’s management continues to ensure that we have adequate
capital and liquidity resources to fund growth and have the staying power to stand alongside our
customers and communities during difficult economic periods.
Humble Beginnings and Continued Determination
While the changes since our founding in 1975 have been numerous – the number of banks in the US
now numbers just over 4,000 ‐ our team is just as enthusiastic about the opportunity of our mission in
2024 and the years ahead. From a single office on Pillsbury Road in 1975 to now serving more than
250,000 customers across 28 counties in California, we are well aware that having our customers
recognize us as the #1 community bank in California is the cornerstone of everything we do. We have
the best employees in the business and are fortunate to have had the trust of our customers and the
communities we serve for almost fifty years. We look forward to celebrating our 50th anniversary with
all of you in March 2025.
As always, and on behalf of our more than 1,200 employees and our board of directors, I thank you for
your continued confidence in, and ongoing support of, TriCo Bancshares.
Richard P. Smith
Chairman, President & Chief Executive Officer
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
_____________________
FORM 10-K
_____________________
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2023
Commission File Number 0-10661
_____________________
(Exact name of Registrant as specified in its charter)
_____________________
California
(State or other jurisdiction
of incorporation or organization)
63 Constitution Drive, Chico, California
(Address of principal executive offices)
94-2792841
(I.R.S. Employer
Identification No.)
95973
(Zip Code)
Registrant’s telephone number, including area code: (530) 898-0300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading
Symbol(s)
TCBK
Name of exchange on which
registered
NASDAQ
Securities registered pursuant to Section 12(g) of the Act: None.
__________________
Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No
Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 periods 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 and posted 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 and
post 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
Non-accelerated filer
☒
☐
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.
☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b)
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market value of the voting common stock held by non-affiliates of the Registrant, as of June 30, 2023, was approximately $1.4 billion.
The number of shares outstanding of Registrant’s common stock, as of February 23, 2024, was 33,268,102.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be disclosed pursuant to Part III of this report either shall be (i) deemed to be incorporated by
reference from selected portions of the Registrant’s definitive proxy statement for the annual meeting of shareholders to be held
on May 23, 2024, if such proxy statement is filed with the Securities and Exchange Commission pursuant to Regulation 14A not
later than 120 days after the end of the Registrant’s most recently completed fiscal year, or (ii) included in an amendment to this
report filed with the Commission on Form 10-K/A not later than the end of such 120 day period.
TABLE OF CONTENTS
Page
Number
PART I
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 1C Cybersecurity
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B Other Information
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accountant Fees and Services
PART IV
Item 15
Exhibits and Financial Statement Schedules
Item 16
Form 10-K Summary
Signatures
2
10
24
25
26
26
27
28
28
28
53
54
110
110
110
110
111
111
111
111
111
112
114
115
The following listing provides a comprehensive reference of common acronyms and terms used throughout the document:
GLOSSARY OF ACRONYMS AND TERMS
ACL
AFS
AOCI
ASC
Allowance for Credit Losses
Available-for-Sale
Accumulated Other Comprehensive Income
Accounting Standards Codification
CARES
Coronavirus Aid, Relief and Economic Security Act
CDs
CDI
CECL
Certificates of Deposit
Core Deposit Intangible
Current Expected Credit Loss
COVID-19
Coronavirus Disease
CRE
CMO
DFPI
FASB
FDIC
FHLB
FRB
FTE
GAAP
HELOC
HTM
LIBOR
NIM
NPA
OCI
PCD
PPP
ROUA
RSU
SBA
SERP
SFR
SOFR
TDR
VRB
XBRL
Commercial Real Estate
Collateralized mortgage obligation
State Department of Financial Protection and Innovation
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
Federal Home Loan Bank
Federal Reserve Board
Fully taxable equivalent
Generally Accepted Accounting Principles (United States of America)
Home equity line of credit
Held-to-Maturity
London Interbank Offered Rate
Net interest margin
Nonperforming assets
Other comprehensive income
Purchase Credit Deteriorated
Paycheck Protection Program
Right-of-Use Asset
Restricted Stock Unit
Small Business Administration
Supplemental Executive Retirement Plan
Single Family Residence
Secured Overnight Financing Rate
Troubled Debt Restructuring
Valley Republic Bancorp
eXtensible Business Reporting Language
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements about TriCo Bancshares (the
“Company,” “TriCo” or “we”) and its subsidiaries for which it claims the protection of the safe harbor provisions contained in the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are based on the current knowledge and belief of the Company’s
management (“Management”) and include information concerning the Company’s possible or assumed future financial condition and results
of operations. When you see any of the words “believes”, “expects”, “anticipates”, “estimates”, or similar expressions, these generally
indicate that we are making forward-looking statements. A number of factors, some of which are beyond the Company’s ability to predict or
control, could cause future results to differ materially from those contemplated.
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 conditions of the United
States economy in general and the strength of the local economies in which we conduct operations; the impact of any future federal
government shutdown and uncertainty regarding the federal government’s debt limit or changes in, trade, monetary and fiscal 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 on the Company's business condition and financial operating results; the impact of changes in financial services
industry policies, laws and regulations; regulatory restrictions affecting our ability to successfully market and price our products to
consumers; the risks related to the development, implementation, use and management of emerging technologies, including artificial
intelligence and machine learning; extreme weather, natural disasters and other catastrophic events that may or may not be caused by
climate change and their effects on the Company's customers and the economic and business environments in which the Company
operates; the impact of a slowing U.S. economy and decreases in housing and commercial real estate prices, potentially increased
unemployment on the performance of our loan portfolio, the market value of our investment securities and possible other-than-temporary
impairment of securities held by us due to changes in credit quality or rates; the availability of, and cost of, sources of funding and the
demand for our products; adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the
impact of supply chain disruptions, commodities prices, inflationary pressures and labor shortages on the economic recovery and our
business; the impacts of international hostilities, wars, terrorism or geopolitical events; adverse developments in the financial services
industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; risks related to the
sufficiency of liquidity; the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings
and capital; the costs or effects of mergers, acquisitions or dispositions we may make, as well as whether we are able to obtain any required
governmental approvals in connection with any such activities, or identify and complete favorable transactions in the future, and/or realize
the anticipated financial and business 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 harm or in the event that regulatory
violations are identified; the ability to execute our business plan in new markets; the future operating or financial performance of the
Company, including our outlook for future growth and changes in the level and direction of our nonperforming assets and charge-offs; the
appropriateness of the allowance for credit losses, including the assumptions made under our current expected credit losses model; any
deterioration in values of California real estate, both residential and commercial; the effectiveness of the Company's asset management
activities managing the mix of earning assets and 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; 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; increasing noninterest expense and its impact on
our financial performance; competition and innovation with respect to financial products and services by banks, financial institutions and
non-traditional competitors including retail businesses and technology companies; the challenges of attracting, integrating and retaining key
employees; the vulnerability of the Company's operational or security systems or infrastructure, the systems of third-party vendors or other
service providers with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing
schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond
to such incidents; the impact of the recent cyber security ransomware incident on our operations and reputation; increased data security
risks due to work from home arrangements and email vulnerability; failure to safeguard personal information, and any resulting litigation; the
effect of a fall in stock market prices on our brokerage and wealth management businesses; the transition from the LIBOR to new interest
rate benchmarks; the emergence or continuation of widespread health emergencies or pandemics; 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. See also factors listed at
Item 1A Risk Factors, in this report. You should carefully consider the factors discussed below, and in our Risk Factors or other disclosures,
in evaluating these forward-looking statements.
Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. All forward-looking statements speak
only as of the date they are made and are based on information available at that time. Forward-looking statements speak only as of the date
they are made, and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur
after the date the forward-looking statements are made, whether as a result of new information, future developments or otherwise, except as
required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised
against placing undue reliance on such statements.
ITEM 1.
BUSINESS
Overview
PART I
TriCo Bancshares is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”).
TriCo's principal business is to serve as the holding company for our wholly-owned subsidiary, Tri Counties Bank, a California-chartered
commercial bank (the “Bank”). TriCo is a California corporation and was incorporated in 1981. Our common stock is traded on the Nasdaq
Global Select Market under the trading symbol "TCBK". The Company and the Bank are headquartered in Chico, California.
As a bank holding company, TriCo is subject to the supervision of the Board of Governors of the Federal Reserve System (the “FRB”) under
the BHC Act. The Bank is subject to the supervision of the California Department of Financial Protection & Innovation (the “DFPI”) and the
Federal Deposit Insurance Corporation (the "FDIC"). See “Regulation and Supervision.”
In addition, TriCo has five capital trusts, which are all wholly-owned trust subsidiaries formed for the purpose of issuing trust preferred
securities (“Trust Preferred Securities”) and lending the proceeds to TriCo. For more information regarding the trust preferred securities
please refer to “Note 14 – Junior Subordinated Debt” to the consolidated financial statements at Part II, Item 8 of this report.
Additional Information
Our executive offices are located at 63 Constitution Drive, Chico, California 95973, and our telephone number is (530) 898-0300. Additional
information concerning the Company can be found on our website at www.tcbk.com. Copies of our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to these reports are available free of charge through the investors
relations page of our website, www.tcbk.com/about/investor-relations, as soon as reasonably practicable after the Company files these
reports with the U.S. Securities and Exchange Commission (“SEC”). The information on our website is not part this annual report.
Tri Counties Bank
The Bank was organized in 1975 and had total assets of approximately $9.9 billion at December 31, 2023. Based in Chico, California, the
Bank offers an extensive and competitive breadth of consumer, small business and commercial banking services through its network of
stand-alone and in-store branches in communities throughout California. The Bank focuses on relationships and personal contact,
emphasizing its Service with Solutions ®. In addition to its California community bank network, the Bank provides advanced online and
mobile banking, a shared nationwide network of over 40,000 surcharge-free ATMs, and bankers available by phone 7 days per week.
The Bank provides a breadth of personal, small business and commercial financial services including accepting demand, savings and time
deposits and making small business, commercial, real estate, and consumer loans, as well as a range of treasury management services
and other customary banking services including safe deposit boxes at some branches. Brokerage services are provided at the Bank’s offices
by Tri Counties Wealth Management Advisors through the Bank’s arrangement with Raymond James Financial Services, Inc., an
independent financial services provider and broker-dealer.
The Bank offers a variety of banking and financial services to both personal, small business and commercial customers. In many instances
the owners or stakeholders of the business and commercial customers are also personal customers. The industries that we serve are
diverse in both number and type and include, but are not limited to, manufacturing, real estate development, retail, wholesale,
transportation, agriculture, commerce, oil & gas, and professional services. The majority of the Bank’s loans are direct loans made to
individuals and businesses in California where its branches or business lending centers are located. At December 31, 2023, the Bank’s
consumer loans net of deferred fees outstanding were $1.3 billion (19.3%), commercial and industrial loans outstanding were $586.5 million
(8.6%), real estate construction loans of $347.2 million (5.1%), and commercial real estate loans were $4.4 billion (64.7%) of total loans. The
Bank takes real estate, listed and unlisted securities, savings and time deposits, automobiles, machinery, equipment, inventory, accounts
receivable and notes receivable secured by property as collateral for loans.
Most of the Bank’s deposits are from individuals and business-related sources. No single person or group of persons provides a material
portion of the Bank’s deposits, the loss of any one or more of which would have a materially adverse effect on the business of the Bank, nor
is a material portion of the Bank’s loans concentrated within a single industry or group of related industries.
Acquisition of Valley Republic Bancorp
On March 25, 2022, the Company acquired Valley Republic Bancorp and its subsidiary Valley Republic Bank ("VRB") in a merger
transaction in which the Company issued approximately 4.1 million shares of common stock valued at approximately $174.4 million based
on the closing stock price of TriCo common stock of $42.48 on March 25, 2022 in addition to approximately $431,000 in cash paid out for
settlement of stock option awards. At the time of the acquisition, VRB merged with and into the Bank. VRB was headquartered in
Bakersfield, California, and operated four branch locations in and around Bakersfield, and a loan production office in Fresno, California.
Human Capital Resources
2 TriCo Bancshares 2023 10-K
At December 31, 2023, we employed 1,231 persons. Full time equivalent employees numbered 1,207. Additionally, we at times will utilize
temporary personnel to supplement our workforce. None of our employees are presently represented by a union or covered under a
collective bargaining agreement. Management believes that its employee relations are good.
Our employees are critical to our success and competition for qualified banking personnel has historically been intense; therefore our
corporate culture is an important element of our board of director's oversight of risk. Senior management is responsible for embodying,
maintaining, and communicating our culture to employees. In that regard, our culture is designed to promote our commitment to improving
the livelihood of our employees and guides us in making decisions throughout the Company. Our culture is designed to adhere to TriCo’s
values of trust, respect, integrity, communication and opportunity. In keeping with that culture, we expect our people to treat each other and
our customers with the highest level of honesty and respect and to do the right thing. We strive to be a force for good in everyday life. We
dedicate resources to promote a safe and inclusive workplace; attract, develop and retain talented, diverse employees; promote our values;
and reward and recognize employees for both the results they deliver and, importantly, how they deliver them. We provide a wide variety of
opportunities for professional growth for all employees with a focus on in-classroom and on-line trainings, on-the-job experience, internal
and external development opportunities and education tuition assistance. We seek to create an engaged workforce through proactive
listening, forward-looking career conversation and constructive dialogue through frequent and ongoing performance discussions as well as
employee engagement and exit surveys.
We focus on attracting and retaining employees by providing compensation and benefits packages that we believe are competitive within
the applicable market, taking into account the position’s location and responsibilities. We provide competitive health and other benefits
focused on physical and financial health, including employer subsidized health insurance, robust wellness initiatives, employee assistance
programs, a 401(k) retirement plan and an employee stock ownership plan. In addition, we offer a portfolio of additional services and tools to
support our employees’ health and well-being.
We encourage our team members to share their talents in their communities through volunteer activities in education, economic
development, human and health services, and community reinvestment. During 2023, our team members logged more than 11,000
volunteer hours, supporting nearly 400 organizations, and more than 3,700 of those hours were for the benefit of community development
efforts to support programs and services to low- or moderate-income communities.
While we believe that the diversity of our employees generally represents and reflects the communities which we serve, we recognize and
continue to promote the need for diversity enhancements in leadership roles throughout the Company. We are dedicated to providing a
workplace for our employees that is inclusive, supportive, and free of any form of discrimination or harassment; rewarding and recognizing
our employees based on their individual results and performance as well as that of their department and the Company overall; and
recognizing and respecting all of the characteristics and differences that make each of our employees unique.
Competition
The banking business in California generally is highly competitive with respect to both loans and deposits. It is dominated by a relatively
small number of national and regional banks with many offices operating over a wide geographic area, with the more metropolitan areas that
we serve having a larger number of national and regional banks than the rest of our footprint. Among the advantages such major banks
have over the Bank are their greater ability to finance investments in technology and marketing campaigns and to allocate their investment
assets to regions of high yield and demand. By virtue of their greater total capitalization, such institutions also have substantially higher
lending limits than the Bank.
In addition to competing with other banks, the Bank competes with savings institutions, credit unions, brokerage firms and the financial
markets for funds. Yields on corporate and government debt securities and other commercial paper may be higher than on deposits, and
therefore affect the ability of commercial banks to attract and hold deposits. We also compete for available funds with money market
instruments and mutual funds. During periods of high or rising interest rates, money market funds have provided substantial competition to
banks for deposits and they may continue to do so in the future. Mutual funds are also a major source of competition for savings dollars.
As the financial services industry becomes increasingly oriented toward technology-driven delivery systems, we face competition from banks
and non-bank institutions without offices in our primary service area. We also increasingly compete with financial technology or “fintech”
companies for loans and other financial services customers.
To compete effectively, the Bank relies substantially on local promotional activity, personal contacts by its officers, directors, employees and
shareholders, extended hours, personalized service and its reputation in the communities it services.
Regulation and Supervision
General
The Company and the Bank are subject to extensive regulation under both federal and state law affecting most aspects of our operations.
This regulation is intended primarily for the protection of customers, depositors, the FDIC deposit insurance fund and the banking system as
a whole, and not for the protection of our shareholders. Set forth below is a summary description of the significant laws and regulations
applicable to the Company and the Bank. The description is qualified in its entirety by reference to the applicable laws and regulations.
Regulatory Agencies
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The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. As a bank holding company, the Company is
regulated under the BHC Act, and is subject to supervision, regulation and examination by the FRB. The Company is also under the
jurisdiction of the SEC and is subject to the disclosure and regulatory requirements of the Securities Act of 1933 and the Securities
Exchange Act of 1934, each administered by the SEC. The Company’s common stock is listed on the Nasdaq Global Select Market
(“Nasdaq”) under the trading symbol “TCBK” and the Company is, therefore, subject to the rules of Nasdaq for listed companies.
The Bank is subject to regulation, supervision and periodic examination by the FDIC, which is the Bank’s primary federal regulator and the
DFPI.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) created the Consumer Financial Protection
Bureau (the “CFPB”) as an independent entity with broad rulemaking, supervisory and enforcement authority over consumer financial
products and services. In addition, the CFPB is authorized to investigate consumer complaints and enforce rules related to consumer
financial products and services. CFPB regulations and guidance apply to all financial institutions, including the Bank. Banks with $10 billion
or more in assets are subject to examination by the CFPB, while banks with less than $10 billion in assets, including the Bank, continue to
be examined for compliance with federal consumer laws by their primary federal banking agency. At December 31, 2023, the Company had
$9.9 billion in total assets. See the Risk Factors section for a discussion of some of the risks the Bank will encounter when it exceeds $10
billion in assets as of a December 31 annual measurement date.
The Bank Holding Company Act
The Company is registered as a bank holding company under the BHC Act. In general, the BHC Act limits the business of bank holding
companies to banking, managing or controlling banks and other activities that the FRB has determined to be so closely related to banking as
to be a proper incident thereto. Qualified bank holding companies that elect to be financial holding companies may engage in any activity, or
acquire and retain the shares of a company engaged in additional activities that are either (i) financial in nature or incidental to such financial
activity or (ii) complementary to a financial activity, and do not pose a substantial risk to the safety and soundness of depository institutions
or the financial system generally, as determined by the FRB. Activities that are financial in nature include securities underwriting and dealing,
insurance underwriting and agency, and making merchant banking investments. The Company currently has not elected to become a
financial holding company.
As a bank holding company, TriCo is required to file reports with the FRB and the FRB periodically examines the Company. A bank holding
company is required by law to serve as a source of financial and managerial strength to its subsidiary bank and, under appropriate
circumstances, to commit resources to support the subsidiary bank.
Bank Acquisitions
We are required to obtain prior FRB approval before acquiring more than 5% of the voting shares, or substantially all of the assets, of a bank
holding company, bank or savings association. In addition, the prior approval of the FDIC and DFPI is required for a California chartered
bank to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve a
proposed bank acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits
expected to be received from the acquisition, capital adequacy and the acquiring institution’s effectiveness in combating money laundering
and its record of addressing the credit needs of the communities it serves, including the needs of low- and moderate-income neighborhoods
under the Community Reinvestment Act of 1997, as amended ("CRA").
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy. Among other initiatives,
the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHC Act and the
Bank Merger Act and adopt a plan for revitalization of such practices. There are many steps that must be taken by the agencies before any
formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are uncertain at this time;
however, the adoption of more expansive or prescriptive standards may have a negative impact on any future acquisition activities.
Safety and Soundness Standards
Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), the federal bank regulatory agencies have
established safety and soundness standards for insured depository institutions covering internal controls, information systems and internal
audit systems; loan documentation; credit underwriting; interest rate exposure; asset growth; compensation (including executive
compensation) fees and benefits; and asset quality, earnings and stock valuation.
If a federal bank regulatory agency determines that a depository institution fails to meet any standard established by the guidelines, the
agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. The agencies may
elect to initiate enforcement actions in certain cases rather than relying on a plan, particularly where and institution has failed to comply with
an acceptable plan or where a failure to meet one or more of the standards could threaten the safe and sound operation of the institution.
Dividends, Distributions and Stock Repurchases
A California corporation such as TriCo may make a distribution to its shareholders to the extent that either the corporation’s retained
earnings meet or exceed the amount of the proposed distribution or the value of the corporation’s assets exceed the amount of its liabilities
plus the amount of shareholders preferences, if any, and certain other conditions are met. It is the FRB’s policy that bank holding companies
should generally pay dividends on common stock only out of income available over the past year, and only if prospective earnings retention
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is consistent with the organization’s expected future needs and financial condition. In addition, a bank holding company’s ability to pay
dividends on its common stock may be limited if it fails to maintain an adequate capital conservation buffer under these capital rules. See
“Regulatory Capital Requirements.”
In certain circumstances, the Company's repurchases of its common stock may be subject to a prior approval or notice requirement under
other regulations, policies or supervisory expectations of the FRB.
In August 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted. Among other things, the IRA imposes a new 1% excise tax on
the fair market value of stock repurchased after December 31, 2022 by publicly traded U.S. corporations. With certain exceptions, the value
of stock repurchased is determined net of stock issued in the year, including shares issued pursuant to compensatory arrangements.
The primary source of funds for payment of dividends by TriCo to its shareholders has been and will be the receipt of dividends and
management fees from the Bank. TriCo’s ability to receive dividends from the Bank is limited by applicable state and federal law. Under the
California Financial Code, funds available for cash dividend payments by a bank are restricted to the lesser of: (i) retained earnings or (ii)
the bank’s net income for its last three fiscal years (less any distributions to shareholders made during such period). However, with the prior
approval of the Commissioner of the DPFI, a bank may pay cash dividends in an amount not to exceed the greatest of the: (1) retained
earnings of the bank; (2) net income of the bank for its last fiscal year; or (3) net income of the bank for its current fiscal year. However, if the
DPFI finds that the shareholders’ equity of the bank is not adequate or that the payment of a dividend would be unsafe or unsound, the
Commissioner may order the bank not to pay a dividend to shareholders.
In addition, the Bank’s ability to pay dividends may be limited if the Bank fails to maintain an adequate capital conservation buffer. See
“Regulatory Capital Requirements.”
The FRB, FDIC and the DPFI have authority to prohibit a bank holding company or a bank from engaging in practices which are considered
to be unsafe and unsound. Depending on the financial condition of TriCo and the Bank and other factors, our regulators could determine that
payment of dividends or other payments or stock repurchases by TriCo or the Bank might constitute an unsafe or unsound practice.
The Community Reinvestment Act
The CRA requires the federal banking regulatory agencies to periodically assess a bank’s record of helping meet the credit needs of its
entire community, including low- and moderate-income neighborhoods. The CRA also requires the agencies to consider a financial
institution’s record of meeting its community credit when evaluating applications for, among other things, domestic branches and mergers or
acquisitions. The federal banking agencies rate depository institutions’ compliance with the CRA. The ratings range from a high of
“outstanding” to a low of “substantial noncompliance.” A less than “satisfactory” rating could result in the suspension of any growth of the
Bank through acquisitions or opening de novo branches until the rating is improved. As of its most recent CRA examination, the Bank’s CRA
rating was “Satisfactory."
On October 24, 2023, the FRB, OCC and FDIC issued a joint final rule to modernize the CRA regulatory framework. The final rule is
intended, among other things, to adapt to changes in the banking industry, including the expanded role of mobile and online banking, and to
tailor performance standards to account for differences in bank size and business models. The final rule introduces new tests under which
the performance of banks with over $2 billion in assets will be assessed. The new rule also includes data collection and reporting
requirements, some of which are applicable only to banks with over $10 billion in assets. Most provisions of the final rule will become
effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027. We continue to evaluate and
adapt as necessary for the impact of the changes.
Consumer Protection Laws and Supervision
The Bank is subject to many federal consumer protection statutes and regulations, some of which are discussed below.
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The Equal Credit Opportunity Act generally prohibits discrimination in any credit transaction, whether for consumer or business
purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of
income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act.
The Truth-in-Lending Act is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare
credit terms more readily and knowledgeably.
The Fair Housing Act regulates many practices, including making it unlawful for any lender to discriminate in its housing-related
lending activities against any person because of race, color, religion, national origin, sex, handicap or familial status.
The Home Mortgage Disclosure Act, which includes a “fair lending” aspect, requires the collection and disclosure of data about
applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-
discrimination statutes.
The Real Estate Settlement Procedures Act requires lenders to provide borrowers with disclosures regarding the nature and cost of
real estate settlements and prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow
accounts.
The CFPB has broad rule making authority for a wide range of consumer financial laws that apply to all banks, including, among other
things, laws relating to fair lending and the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has promulgated
5 TriCo Bancshares 2023 10-K
many mortgage-related rules, including rules related to requirements for "qualified mortgages," standards by which lenders must satisfy
themselves of a borrower's ability to repay a mortgage loan, mortgage servicing standards, disclosure requirements, loan originator
compensation standards, high-cost mortgage requirements, HMDA requirements, and appraisal and escrow standards for higher priced
mortgages. The mortgage-related rules issued by the CFPB have materially restructured the origination, servicing, and securitization of
residential mortgages in the United States. The CFPB has also taken positions on fair lending, including applying the disparate impact
theory in auto financing, which could make it harder for lenders, such as the Bank, to charge different rates or apply different terms to loans
to different customers. The CFPB’ rules and policies have impacted, and will continue to impact, the business practices of mortgage lenders,
including the Bank.
We are also subject to certain state consumer protection laws and state attorneys general and other state officials are empowered to
enforce certain federal consumer protection laws and regulations. State authorities have increased their focus on and enforcement of
consumer protection rules. These federal and state consumer protection laws apply to a broad range of our activities and to various aspects
of our business and include laws relating to interest rates, fair lending, disclosures of credit terms and estimated transaction costs to
consumer borrowers, debt collection practices, the use of and the provision of information to consumer reporting agencies, and the
prohibition of unfair, deceptive, or abusive acts or practices in connection with the offer, sale, or provision of consumer financial products and
services.
Penalties for violations of the above laws may include fines, reimbursements, injunctive relief and other penalties.
Privacy and Data Protection
We are subject to a number of U.S. federal, state, local and foreign laws and regulations relating to consumer privacy and data protection.
Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 ("GLBA") and its implementing regulations and guidance, we are
limited in our ability to disclose certain non-public information about consumers to non-affiliated third parties. Financial institutions, such as
the Bank, are required by statute and regulation to notify consumers of their privacy policies and practices and, in some circumstances,
allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. In addition, such financial institutions
must appropriately safeguard their customers’ nonpublic, personal information.
Like other lenders, the Bank uses credit bureau data in their underwriting activities. Use of such data is regulated under the Fair Credit
Reporting Act (“FCRA”), and the FCRA also regulates reporting information to credit bureaus, prescreening individuals for credit offers,
sharing of information between affiliates, and using affiliate data for marketing purposes. Similar state laws may impose additional
requirements on the Company and the Bank.
Data privacy and data protection are areas of increasing state legislative focus. For example, the California Consumer Privacy Act ("CCPA"),
which became effective on January 1, 2020, applies to for-profit businesses that conduct business in California and meet certain revenue or
data collection thresholds. The CCPA gives consumers the right to request disclosure of information collected about them, and whether that
information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right
to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising these rights. In
addition, the California Privacy Rights Act (“CPRA”), which took effect on January 1, 2023, significantly modified the CCPA, including
imposing additional obligations on covered companies and expanding California consumers’ rights with respect to certain sensitive personal
information. The CCPA and CPRA do not provide a blanket exemption for financial institutions, but instead contain a partial exemption for
information collected by financial institutions where the information is itself subject to the GLBA (e.g., information about individuals who have
obtained personal financial products from the institution). Such information is exempt from the privacy requirements of the CCPA, but, is not
exempt from the private right of action conferred if a business fails to implement and maintain reasonable security to protect certain
categories of information. In California, the CCPA, the CPRA, and their implementing regulations may be interpreted or applied in a manner
inconsistent with our understanding.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several
states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and many states, including
California, have also recently implemented or modified their data breach notification, information security and data privacy requirements. We
expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our
customers are located.
Cybersecurity
Under a rule adopted by federal banking agencies in 2021, banking organizations are required to notify their primary banking regulator
within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially
disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material
portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability
of the United States. Banks' service providers are required to notify any affected bank to or on behalf of which the service provider provides
services "as soon as possible" after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably
likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Recent cyberattacks against banks and other financial institutions that resulted in unauthorized access to confidential customer information
have prompted the federal banking regulators to issue guidance on cybersecurity. Among other things, financial institutions are expected to
design multiple layers of security controls to establish lines of defense and ensure that their risk management processes address the risks
6 TriCo Bancshares 2023 10-K
posed by compromised customer credentials, including security measures to authenticate customers accessing internet-based services. A
financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the
security of third-party service providers that may have access to nonpublic data at the institution. Further, our service providers have
obligations to safeguard their systems and sensitive information and the Company may be bound contractually and/or by regulation to
comply with the same requirements. If the Company or its service providers fail to comply with applicable regulations and contractual
requirements, the Company could be exposed to lawsuits, governmental proceedings or the imposition of fines, among other consequences.
Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the
foreseeable future due to the rapidly evolving nature and sophistication of these threats. as well as due to the expanding use of Internet
banking, mobile banking and other technology-based products and services by us and our customers.
See "Item 1A. Risk Factors" for a further discussion of risks related to cybersecurity, including the Bank's cybersecurity incident in 2023,
and "Item 1C. Cybersecurity" for a further discussion of risk management strategies and governance processes related to cybersecurity.
Regulatory Capital Requirements
The Company and the Bank are subject to the minimum capital requirements of the FRB and FDIC, respectively. Capital requirements may
have an effect on the Company’s and the Bank’s profitability and ability to pay dividends. If the Company or the Bank lacks adequate capital
to increase its assets without violating the minimum capital requirements or if it is forced to reduce the level of its assets in order to satisfy
regulatory capital requirements, its ability to generate earnings would be reduced.
We are subject to the capital framework for U.S. banking organizations known as Basel III. Basel III defines several measures of capital and
establishes capital ratios based on a banking organizations levels of capital relative to risk-weighted assets. The risk-weighting of the asset
depends on the nature of the asset but generally ranges from 0% for U.S. government and agency securities, to 1,250% for certain trading
securitization exposures, resulting in higher risk weights for a variety of asset classes than previous regulations.
Under Basel III, the Company (on a consolidated basis) and the Bank are each subject to the following minimum capital ratios: (1) common
equity Tier 1 capital or “CET1” to risk-weighted assets of 4.5%; (2) Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted
assets of 6.0%; (3) Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets of 8%; and (4) a leverage ratio (Tier 1
capital to average consolidated assets as reported on regulatory financial statements) of 4.0%. The Basel III capital framework includes a
“capital conservation buffer” of 2.5%, composed entirely of CET1, on top of the minimum risk-weighted asset ratios. Banking institutions that
fail to maintain a full capital conservation buffer face constraints on dividends, equity repurchases and discretionary executive compensation
based on the amount of the shortfall and the institution’s “eligible retained income” (that is, trailing net income for four quarters, net of
distributions and tax effects not reflected in net income). The 2.5% capital conservation buffer effectively results in minimum ratios of (i)
CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) total capital to risk-weighted
assets of at least 10.5%.
We believe that we were in compliance with the requirements of the Basel III capital rules applicable to us as of December 31, 2023. For a
discussion of the regulatory capital requirements, see “Note 26 – Regulatory Matters” to the consolidated financial statements at Part II, Item
8 of this report.
Prompt Corrective Action
Prompt Corrective Action regulations of the federal bank regulatory agencies establish five capital categories in descending order based on
an institution’s regulatory capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. Under the Prompt Corrective Action framework, insured depository institutions are required to meet the following minimum
capital level requirements in order to qualify as “well capitalized:” (i) a common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of
8%; (iii) a total capital ratio of 10%; and (iv) a Tier 1 leverage ratio of 5%. An institution may be downgraded to, or deemed to be in, a capital
category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an
unsatisfactory examination rating with respect to certain matters. Institutions classified in one of the three undercapitalized categories are
subject to certain mandatory and discretionary supervisory actions, which include increased monitoring and review, implementation of
capital restoration plans, asset growth restrictions, limitations upon expansion and new business activities, requirements to augment capital,
restrictions upon deposit gathering and interest rates, replacement of senior executive officers and directors, and requiring divestiture or sale
of the institution. The Bank’s capital levels have exceeded the minimums necessary to be considered well capitalized under the current
regulatory framework for prompt corrective action since adoption.
Deposit Insurance
Deposit accounts in the Bank are insured by the FDIC, generally up to a maximum of $250,000 per separately insured depositor. The Bank
pays deposit insurance assessments as determined by the FDIC. The assessment rate for an institution with less than $10.0 billion in
assets, such as the Bank, is based on its risk category, with certain adjustments for any unsecured debt or brokered deposits held by the
bank. The assessment base against which the assessment rate is applied to determine the total assessment due for a given period is the
depository institution’s average total consolidated assets during the assessment period less average tangible equity during that assessment
period. Institutions assigned to higher risk categories (that is, institutions that pose a higher risk of loss to the FDIC’s deposit insurance fund
(the “DIF”)) pay assessments at higher rates than institutions that pose a lower risk. An institution’s risk classification is assigned based on a
combination of its financial ratios and supervisory ratings, reflecting, among other things, its capital levels and the level of supervisory
concern that the institution poses to the regulators. In addition, the FDIC can impose special assessments in certain instances.
7 TriCo Bancshares 2023 10-K
The FDIC, as required under the FDIA, established a plan on September 15, 2020, to restore the DIF reserve ratio to meet or exceed the
statutory minimum of 1.35% within eight years. This plan did not include an increase in the deposit insurance assessment rate. Based on
the FDIC’s recent projections, however, the FDIC determined that the DIF reserve ratio is at risk of not reaching the statutory minimum by
the statutory deadline of September 30, 2028 without increasing the deposit insurance assessment rates. In October 2022, the FDIC
adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning on January
1, 2023. The FDIC also concurrently maintained the Designated Reserve Ratio for the DIF at 2%.
In addition, on November 16, 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF incurred as
a result of recent bank failures and the FDIC's use of the systemic risk exception to cover certain deposits that were otherwise uninsured.
The special assessment was based on estimated uninsured deposits as of December 31, 2022 (excluding the first $5.0 billion) and will be
assessed at a quarterly rate of 3.36 basis points over eight quarterly assessment periods, beginning in the first quarter of 2024. The Bank’s
uninsured deposits were below the threshold and therefore is not required to pay the special assessment. Under the final rule, the estimated
loss pursuant to the systemic risk determination will be periodically adjusted, and the FDIC has retained the ability to cease collection early,
extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. The extent to which
any such additional future assessments will impact our future deposit insurance expense is currently uncertain.
The Bank is generally unable to control the amount of premiums that it is required to pay for FDIC insurance or the amount of credit, if any,
that it may be allowed to offset such assessments. If there are additional bank or financial institution failures or if the FDIC otherwise
determines, the Bank may be required to pay even higher FDIC premiums than the recently increased levels. Increases in FDIC insurance
premiums may have a material and adverse effect on the Company’s earnings and could have a material adverse effect on the value of, or
market for, the Company’s common stock.
The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition is unsafe or
unsound or that the institution has engaged in unsafe or unsound practices that pose a risk to the DIF or that may prejudice the interest of
the bank’s depositors. The termination of deposit insurance for the Bank would also result in the revocation of the Bank’s charter by the
DPFI.
Depositor Preference
The FDIA provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of the
institution, including the claims of the FDIC as subrogee of insured depositors. and certain claims for administrative expenses of the FDIC as
a receiver, will have priority over other general unsecured claims against the institution. If an insured depository institution fails, insured and
uninsured depositors, along with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including depositors
whose deposits are payable only outside of the United States and the parent bank holding company, with respect to any extensions of credit
they have made to such insured depository institution.
Commercial Real Estate Concentrations
Under guidance issued by the federal banking regulators, a financial institution is considered to have a significant commercial real estate
(“CRE”) concentration risk, and will be subject to enhanced supervisory expectations to manage that risk, if (i) total reported loans for
construction, land development and other land (“C&D”) represent 100% or more of the institution’s total capital or (ii) total CRE loans
represent 300% or more of the institution’s total capital and the outstanding balance of the institution’s CRE loan portfolio has increased by
50% or more during the prior 36 months.
As of December 31, 2023, our C&D concentration as a percentage of capital totaled 29.9% and our CRE concentration, net of owner-
occupied loans, as a percentage of capital totaled 328.6%.
Bank Secrecy Act / Anti-Money Laundering
The Bank Secrecy Act of 1970 and the USA Patriot Act of 2001 require financial institutions to develop policies, procedures, and practices to
prevent and deter money laundering ("BSA/AML"), and mandate that every bank have a written, board-approved program that is reasonably
designed to assure and monitor compliance with the BSA/AML laws. The program must, at a minimum: (1) provide for a system of internal
controls to assure ongoing compliance; (2) provide for independent testing for compliance; (3) designate an individual responsible for
coordinating and monitoring day-to-day compliance; and (4) provide training for appropriate personnel. In addition, banks are required to
adopt a customer identification program, performing ongoing customer due diligence to understand the nature and purpose of customer
relationships for the purpose of developing customer risk profiles and file reports regarding known or suspected violations of federal law or
suspicious transactions.
On December 3, 2019, three federal banking agencies and the Financial Crimes Enforcement Network (“FinCEN”) issued a joint statement
clarifying the compliance procedures and reporting requirements that banks must file for customers engaged in the growth or cultivation of
hemp, including a clear statement that banks need not file a SAR on customers engaged in the growth or cultivation of hemp in accordance
with applicable laws and regulations. This statement does not apply to cannabis-related business; thus, the statement only pertains to
customers who are lawfully growing or cultivating hemp and are not otherwise engaged in unlawful or suspicious activity.
8 TriCo Bancshares 2023 10-K
Failure to comply with these requirements could have serious financial, legal and reputational consequences, including causing applicable
bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such
transactions even if approval is not required.
Office of Foreign Assets Control Regulation
The U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, administers and enforces economic and trade sanctions against
targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC
publishes lists of specially designated targets and countries. We are responsible for, among other things, blocking accounts of, and
transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked
transactions after their occurrence.
Transactions with Affiliates
Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors,
principal shareholders (including the Company) or any related interest of such persons. Regulation O requires that such extensions of credit
must be made on substantially the same terms, including interest rates and collateral as, and follow credit underwriting procedures that are
not less stringent than, those prevailing at the time for comparable transactions with persons not affiliated with the bank, and must not
involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and
restrictions on overdrafts to such persons. Regulation W requires that certain transactions between the Bank and its affiliates, including its
holding company, be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable
transactions with or involving non-affiliated companies or, in the absence of comparable transactions, on terms and under circumstances,
including credit standards, that in good faith would be offered to or would apply to non-affiliated companies.
Source of Strength Doctrine
Federal Reserve Board policy and federal law require bank holding companies to act as a source of financial and managerial strength to
their subsidiary banks. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when
the Company may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its
subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event
of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the
capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.
Interchange Fees
Under the Durbin Amendment, adopted as part of the Dodd-Frank Act, the FRB adopted rules establishing standards for assessing whether
the interchange fees that may be charged with respect to certain electronic debit transactions are “reasonable and proportional” to the costs
incurred by issuers for processing such transactions.
Interchange fees, or “swipe” fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment
transactions. FRB rules applicable to financial institutions that have assets of $10 billion or more provide that the maximum permissible
interchange fee for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the
transaction. An upward adjustment of no more than 1 cent to an issuer's debit card interchange fee is allowed if the card issuer develops
and implements policies and procedures reasonably designed to achieve certain fraud-prevention standards. In October 2023, the Federal
Reserve issued a proposed rule under which the maximum permissible interchange fee for an electronic debit transaction would be the sum
of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment
would increase from a maximum of 1 cent to 1.3 cents. The proposal would adopt an approach for future adjustments to the interchange fee
cap, which would occur every other year based on issuer cost data gathered by the FRB from large debit card issuers. The Bank is currently
not subject to these restrictions or those proposed, however if our assets exceed $10 billion or more at December 31, 2024, these rules
would be applicable to the Bank in July 2025.
Effective July 1, 2023, debit card issuers are required to enable all debit card transactions, including card-not-present transactions such as
online payments, to be processed on at least two unaffiliated payment card networks.
Incentive Compensation Policies and Restrictions
In July 2010, the federal banking agencies issued guidance on sound incentive compensation policies that applies to all banking
organizations supervised by the agencies (thereby including both the Company and the Bank). Pursuant to the guidance, to be consistent
with safety and soundness principles, a banking organization’s incentive compensation arrangements should: (1) provide employees with
incentives that appropriately balance risk and reward; (2) be compatible with effective controls and risk management; and (3) be supported
by strong corporate governance including active and effective oversight by the banking organization’s board of directors. Monitoring
methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its
use of incentive compensation.
The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines for specified regulated
entities having at least $1 billion in total assets, such as us, to prohibit incentive-based payment arrangements that encourage inappropriate
risk taking by providing an executive officer, employee, director or principal shareholder with excessive compensation, fees, or benefits or
9 TriCo Bancshares 2023 10-K
that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring
enhanced disclosure to regulators of incentive-based compensation arrangements. The agencies have not yet finalized these rules.
Pursuant to the Dodd-Frank Act, in 2023, effective October 2, 2023, the Nasdaq Stock Market adopted a rule requiring listed companies to
adopt policies to recover or "clawback" of excess incentive-based compensation earned by a current or former executive officer during the
three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that
would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. We adopted
a compensation clawback policy pursuant to the listing standards that is included as Exhibit 97.1 to this report.
The scope and content of the U.S. banking regulators’ policies on executive compensation may continue to evolve in the near future. It
cannot be determined at this time whether compliance with such policies will adversely affect the Company’s ability to hire, retain and
motivate its key employees.
Climate-Related and Other ESG Developments
In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions' and other
companies' risk oversight, disclosures and practices in connection with climate change and other environmental, social and governance
("ESG") matters. For example, in March 2022, the SEC issued a proposed rule on the enhancement and standardization of climate-related
disclosures for investors. The proposed rule would require public issuers, including us, to significantly expand the scope of climate-related
disclosures in their SEC filings. The SEC has also announced plans to propose rules to require enhanced disclosure regarding human
capital management and board diversity for public issuers.
In California, the Climate Corporate Data and Accountability Act (“CCDAA”) requires both public and private U.S. businesses with revenues
greater than $1 billion doing business in California to report their greenhouse gas emissions including scopes 1, 2, and 3, beginning in 2026
(for 2025 data) and also requires reporting companies to get third-party assurance of their reports. The Climate-Related Financial Risk Act
mandates U.S. businesses with annual revenues over $500 million doing business in California to bi-annually disclose climate-related
financial risks and their mitigation strategies beginning January 1, 2026.
Disclosure requirements imposed by different regulators may not always be uniform, which may result in increased complexity, and cost, for
compliance. Additionally, many of our suppliers and business partners may be subject to similar requirements, which may augment or create
additional risks, including risks that may not be known to us.
Although these new disclosure rules do not apply to a banking organization of our size, as the Company continues to grow and expand the
scope of our operations, our regulators generally will expect us to enhance our internal control programs and processes, including with
respect to risk management and stress testing under a variety of adverse scenarios and related capital planning. In the event the federal
banking agencies were to expand the scope of coverage of the new climate risk guidelines to institutions of our size or promulgate new
regulations or supervisory guidance applicable to the Company, we would expect to experience increased compliance costs and other
compliance-related risks.
Impact of Monetary Policies
Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its
deposits and other borrowings, and the interest rate earned by banks on loans, securities and other interest-earning assets, comprises the
major source of banks’ earnings. Thus, the earnings and growth of banks are subject to the influence of economic conditions generally, both
domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the FRB. The FRB
implements national monetary policy, such as seeking to curb inflation and combat recession, by its open-market dealings in United States
government securities, by adjusting the required level of reserves for financial institutions subject to reserve requirements and through
adjustments to the discount rate applicable to borrowings by banks which are members of the FRB. The actions of the FRB in these areas
influence the growth of bank loans, investments and deposits, and also affect interest rates. The nature and timing of any future changes in
such policies and their impact on the Company cannot be predicted. In addition, adverse economic conditions could make a higher provision
for loan losses a prudent course and could cause higher loan loss charge-offs, thus adversely affecting the Company’s net earnings.
ITEM 1A.
RISK FACTORS
An investment in our securities is subject to certain risks. In addition to the other information in this report, investors should carefully
consider the following discussion of significant risk and uncertainties before making investment decisions about our securities. The events
and consequences discussed in these risk factors could, in circumstances we may or may not be able to accurately predict, recognize, or
control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including
components of our financial results) liquidity, and stock price. Any of these risk factors could cause our actual results to differ materially from
our historical results or the results contemplated by the forward-looking statements contained in this report. These risk factors do not
identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or
that we currently do not consider to present significant risks to our operations.
Risks Related to the Nature and Geographic Area of Our Business
10 TriCo Bancshares 2023 10-K
The majority of our assets are loans, which are subject to credits risks.
As a lender, we face a significant risk that we will sustain losses because borrowers, guarantors or related parties may fail to perform in
accordance with the terms of the loans we make or acquire. Our earnings are significantly affected by our ability to properly originate,
underwrite and service loans. Certain of our credit exposures are concentrated in industries that may be more susceptible to the long-term
risks of climate change, natural disasters or global pandemics. To the extent that these risks may have a negative impact on the financial
condition of borrowers, it could also have a material adverse effect on our business, financial condition and results of operations. We have
underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses,
that we believe appropriately address this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying
our respective loan portfolios. Such policies and procedures, however, may not prevent unexpected losses that could adversely affect our
results of operations. We could sustain losses if we incorrectly assess the creditworthiness of our borrowers or fail to detect or respond to
deterioration in asset quality in a timely manner or as a result of deteriorating economic conditions, for example.
Our allowance for credit losses may not be adequate to cover actual losses.
Like other financial institutions, we maintain an allowance for credit losses to provide for loan defaults and non-performance. Our allowance
for credit losses may not be adequate to cover actual loan losses, and future provisions for loan losses would reduce our earnings and could
materially and adversely affect our business, financial condition and results of operations. Our allowance for credit losses is based on prior
experience, as well as an evaluation of the known risks in the current portfolio, composition and growth of the loan portfolio and actual and
forecast economic factors. Determining an appropriate level of allowance is an inherently difficult process and is based on numerous
assumptions. The actual amount of future losses is susceptible to changes in economic, operating and other conditions, including changes
in interest rates, unemployment and economic conditions that may be beyond our control and these losses may exceed current estimates.
Effective January 1, 2020, we implemented a new accounting standard, “Measurement of Credit Losses on Financial Instruments,”
commonly referred to as the “Current Expected Credit Losses” standard, or “CECL.” CECL changed the allowance for credit losses
methodology from an incurred loss concept to an expected loss concept, which is more dependent on future economic forecasts,
assumptions and models than previous methodology, which could result in increases and add volatility to our allowance for credit losses and
future provisions for loan losses. These forecasts, assumptions and models are inherently uncertain and are based upon our management’s
reasonable judgment in light of information currently available.
In addition to periodic reviews completed by management and independent third parties retained by the Bank, Federal and state bank
regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses. While we believe that
our allowance for credit losses is adequate to cover estimated future losses, we cannot assure you that we will not increase the allowance
for credit losses further or that the allowance will be adequate to absorb credit losses we actually incur. Credit losses in excess of our
allowance or addition provisions to our allowance would reduce our net income and capital, potentially materially.
Our business may be adversely affected by business conditions in California.
We conduct most of our business in California. As a result of this geographic concentration, our financial results may be impacted by
economic conditions in California. Deterioration in the economic conditions in California could result in the following consequences, any of
which could have a material adverse effect on our business, financial condition, results of operations and cash flows:
•
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•
•
problem assets and foreclosures may increase,
demand for our products and services may decline,
low cost or non-interest bearing deposits may continue to decrease, and
collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and
reducing the value of assets and collateral associated with our existing loans.
In view of the concentration of our operations and the collateral securing our loan portfolio in California, we may be particularly susceptible
to the adverse effects of any of these consequences, any of which could have a material adverse effect on our business, financial condition,
results of operations and cash flows.
Severe weather, natural disasters and other external events could adversely affect our business.
Our operations and our customer base are primarily located in California where natural and other disasters may occur. California is
vulnerable to natural disasters and other risks, such as earthquakes, fires, droughts and floods, the nature and severity of which may be
impacted by climate change. These types of natural catastrophic events have at times disrupted the local economies, our business and
customers in these regions. Such events could also affect the stability of our deposit base; impair the ability of borrowers to obtain adequate
insurance or repay outstanding loans, impair the value of collateral securing loans and cause significant property damage, result in losses of
revenue and/or cause us to incur additional expenses. In addition, catastrophic events occurring in other regions of the world may have an
impact on our customers and in turn, on us. Our business continuity and disaster recovery plans may not be successful upon the occurrence
of one of these scenarios, and a significant catastrophic event anywhere in the world could materially adversely affect our operating results.
A significant majority of the loans in our portfolio are secured by California real estate and a decline in real estate values could hurt our
business.
11 TriCo Bancshares 2023 10-K
A downturn in real estate values in the markets which we conduct our business in California could hurt our business because most of our
loans are secured by real estate. Real estate values and real estate markets are generally affected by changes in national, regional or local
economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other
governmental statutes, regulations and policies. Real estate values could also be affected by, among other things, earthquakes, drought and
national disasters. As real estate prices decline, the value of real estate collateral securing our loans is reduced. As a result, our ability to
recover on defaulted loans by foreclosing and selling the real estate collateral could then be diminished and we would be more likely to
suffer losses on defaulted loans. As of December 31, 2023, approximately 90.5% of the book value of our loan portfolio consisted of loans
collateralized by various types of real estate. Substantially all of our real estate collateral is located in California; therefore, if there is a
significant adverse decline in real estate values in California, the collateral for our loans will provide less security. Any such decline could
have a material adverse effect on our business, financial condition and results of operations.
We have significant exposure to risks associated with commercial real estate lending.
A substantial portion of our loan portfolio consists of commercial real estate loans. As of December 31, 2023, we had approximately $4.4
billion of commercial real estate loans outstanding, which represented approximately 64.7% of our total loan portfolio. Consequently,
commercial real estate-related credit risks are a significant concern for us. Commercial real estate loans are generally viewed as having
more risk of default than some other types of loans because repayment of the loans often depends on the successful operation of the
property and the income stream of the borrowers. In addition, these loans often involve larger loan balances to single borrowers or groups of
related borrowers compared with other types of loans. In recent years, commercial real estate markets have been particularly impacted by
the economic disruption resulting from the COVID-19 pandemic, which has been a catalyst for the evolution of various remote work options
which could impact the long-term performance of some types of office properties within our commercial real estate portfolio. Accordingly, the
federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market. The adverse
consequences from real estate-related credit risks tend to be cyclical and are often driven by national economic developments that are not
controllable or entirely foreseeable by us or our borrowers.
We are exposed to the risk of environmental liabilities with respect to properties to which we take title.
In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to
these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and
clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean-up
hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be
substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law or contractual claims
by third parties based on damages and costs resulting from environmental contamination emanating from the property. When applicable,
we establish contingent liability reserves for this purpose based on future reasonable and estimable costs developed by qualified soil and
chemical engineering consultants. If we become subject to significant environmental liabilities or if our contingency reserve estimates are
incorrect, our business, financial condition and results of operations could be materially adversely affected.
We face strong competition from financial services companies and other companies that offer similar services, which could materially and
adversely affect our business.
Competition in the banking and financial services industry is intense. Our profitability depends upon our continued ability to successfully
compete. We primarily compete in California for loans, deposits and customers with commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, brokerage firms and Internet-based marketplace lending platforms.
Our competitors include major financial companies whose greater resources may afford them a marketplace advantage by enabling them to
maintain numerous locations and mount extensive promotional and advertising campaigns. Additionally, banks and other financial
institutions with larger capitalization and financial intermediaries that are not subject to bank regulatory restrictions may have larger lending
limits which would allow them to serve the credit needs of larger customers. Areas of competition include interest rates for loans and
deposits, efforts to obtain loan and deposit customers and a range in quality of products and services provided, including new technology-
driven products and services. Technological innovation continues to contribute to greater competition in domestic and international financial
services markets as technological advances enable more companies, such as Internet-based marketplace lenders, financial technology (or
“fintech”) companies that rely on technology to provide financial services, often without many of the regulatory and capital restrictions that
we face. We also face competition from out-of-state financial intermediaries that have opened loan production offices or that solicit deposits
in our market areas. If we are unable to attract and retain banking customers, we may be unable to continue our loan growth and level of
deposits and our business, financial condition and results of operations be adversely affected.
Additionally, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds.
Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. In
addition, the emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers such
as digital assets and blockchain, as well as advances in robotic process automation, could significantly affect the competition for financial
services. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as
the loss of customer deposits and the related income generated from those deposits.
Our ability to compete successfully depends on a number of factors, including, among other things, (i) the ability to develop, maintain and
build long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; (ii) the ability to expand
within our marketplace and with our market position; (iii) the scope, relevance and pricing of products and services offered to meet customer
needs and demands; (iv) the rate at which we introduce new products and services relative to our competitors; (v) customer satisfaction with
our level of service; and (vi) industry and general economic trends. Failure to perform in any of these areas could significantly weaken our
12 TriCo Bancshares 2023 10-K
competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our
business, financial condition and results of operations.
We may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of clearing, counterparty, or other relationships. We have exposure to many
different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including
commercial banks, brokers and dealers, and other institutional clients. Many of these transactions expose us to credit risk in the event of a
default by a counterparty or client. In addition, our credit risk may be exacerbated when the collateral that we hold cannot be realized upon
or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could have a
material adverse effect on our financial condition and results of operations.
We may need to raise additional capital, but it may not be available on acceptable terms or at all.
We are required by federal and state regulators to maintain adequate levels of capital. We may need to raise additional capital in the future
to meet regulatory or other internal requirements. Our ability to raise additional capital, if needed, will depend on, among other things,
conditions in the capital markets at that time, which are outside of our control, and our financial performance.
We cannot provide any assurance that access to such capital will be available to us on acceptable terms or at all. An event that may limit our
access to the capital markets, such as a decline in the confidence of investors or counter-parties participating in the capital markets, may
materially and adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in
the future, we may have to do so when many other financial institutions are also seeking to raise capital and we would then have to compete
with those institutions for investors. The inability to raise additional capital on acceptable terms when needed could have a materially
adverse effect on our business, financial condition, or results of operations.
Adverse changes in economic or market conditions may hurt our businesses.
Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental
monetary policies. Conditions such as an economic recession, pandemics, rising unemployment, inflation, changes in interest rates,
declines in asset values and other factors beyond our control may adversely affect our asset quality, deposit levels and our net income.
Adverse changes in the economy may also have a negative effect on the demand for new loans and the ability of our existing borrowers to
make timely repayments of their loans, which could adversely impact our growth and earnings. Economic and market conditions may also
be affected by political developments in the U.S. and other countries and global conflicts, such as the conflicts in Ukraine and the Middle
East. Uncertainty about the federal fiscal policymaking process, the fiscal outlook of the federal government, and future tax rates is a
concern for businesses, consumers and investors in the United States The COVID-19 pandemic caused, and its lingering impact may
continue to cause, disruptions in the U.S. economy at large, and for small businesses in particular, and has resulted in and may continue to
result in disruptions to our customers’ businesses, and a decrease in consumer confidence and business generally.
If the United States economy weakens or does not improve, our growth and profitability from our lending, deposit and investment operations
could be constrained. Any of these potential outcomes could cause us to suffer losses in our investment securities portfolio, reduce our
liquidity and capital levels, hamper our ability to deliver products and services to our clients and customers, and weaken our results of
operations and financial condition.
The lingering effects of COVID-19 or a similar health crisis or pandemic, could adversely affect or operations or financial performance.
While U.S. and global economies have begun to recover from the COVID-19 pandemic and many health and safety restrictions have been
lifted, certain adverse consequences of the pandemic, including labor shortages, disruptions of global supply chains, and inflationary
pressures, continue to impact the economy and could adversely affect our business.
Our business depends on the willingness and ability of our customers and employees to conduct banking and other financial transactions.
Continued disruptions to our customers caused by the COVID-19 pandemic could result in increased risk of delinquencies, defaults,
foreclosures and losses on our loans, as well as reductions in loan demand, the liquidity of loan guarantors, loan collateral values
(particularly in real estate), loan originations, interest and noninterest income and deposit availability.
The COVID-19 pandemic has also resulted in heightened operational risks. Some of our colleagues continue to work remotely at least part-
time basis, which may create additional cybersecurity risks. The increase in online and remote banking activities may also increase the risk
of fraud in certain instances.
Adverse developments affecting the financial services industry, such as the failure of three banks in the first half of 2023 or concerns
involving liquidity, may have a material effect on the Company’s liquidity, earnings and financial condition.
During the first half of 2023, the financial services industry was negatively affected by three bank failures. These events caused general
uncertainty and concern regarding the adequacy of liquidity within the banking sector as a whole and have decreased investor and customer
confidence in banks, notably with regard to mid-sized and larger regional banks. 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 caused the stock prices of many financial institutions to become volatile, in
particular regional, as well as community banks like us. Notably, the Company’s share price decreased by 17% during the month of March
13 TriCo Bancshares 2023 10-K
2023, consistent with other community banking organizations. According to data published by the FRB, deposits at domestic commercial
banks decreased by approximately $280 billion between the end of February 2023 and the week ended March 29, 2023. The Bank’s
deposits decreased by $162 million during this period, which was a decrease of 2%. As a result of these 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.
The bank failures during 2023 may lead to governmental initiatives intended to prevent future bank failures and stem significant deposit
outflows from the banking sector, including (i) legislation aimed at preventing similar future bank runs and failures and stabilizing confidence
in the banking sector over the long term, (ii) agency rulemaking to modify and enhance relevant regulatory requirements, specifically with
respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound
banking practices, and (iii) enhancement of the agencies’ supervision and examination policies and priorities. The federal banking agencies
may also re-evaluate applicable liquidity risk management standards, such as by reconsidering the mix of assets that are deemed to be
"high-quality liquid assets" and/or how HQLA holdings and cash inflows and outflows are tabulated and weighted for liquidity management
purposes.
Although we cannot predict the terms and scope of any such initiatives, any of the potential changes referenced above could, among other
things, subject us to additional costs, limit the types of financial services and products we may offer, and limit our future growth, any of which
could materially and adversely affect our business, results of operations or financial condition.
Risks Related to Interest Rates
Changes in interest rates may make it difficult for us to improve or maintain our current interest income spread and could result in reduced
earnings and negatively impact our financial performance.
Like other financial institutions, we are subject to risks resulting from changes in interest rates. Our primary source of income is net interest
income, which is the difference between interest earned on loans and leases and investments, and interest paid on deposits and
borrowings. Because of the differences in the maturities and repricing characteristics of our interest-earning assets and interest-bearing
liabilities, changes in interest rates may not produce matching changes in interest income we earn on interest-earning assets and interest
we pay on interest-bearing liabilities. Accordingly, fluctuations in interest rates could adversely affect our interest rate spread and, in turn, our
profitability.
In addition, loan and lease volume and quality and deposit volume and mix can be affected by market interest rates as can the businesses
of our clients. Changes in levels of market interest rates could have a material adverse effect on our net interest spread, asset quality,
origination volume, the value of our loans and investment securities, deposit levels and overall profitability.
Interest rates may be affected by many factors that are beyond the control of our management, including general economic conditions and
the policies of various governmental and regulatory authorities. The actions of the Federal Reserve influence the rates of interest that we
charge on loans and that we pay on borrowings and interest-bearing deposits. Changes in monetary policy, including changes in interest
rates, may negatively affect our ability to originate loans and leases, the value of our assets and our ability to realize gains from the sale of
our assets, all of which ultimately could affect our earnings. The Federal Reserve raised benchmark interest rates in 2022 and 2023 and
may continue to raise or keep interest rates high in response to economic conditions, particularly inflationary pressures. We cannot predict
the nature or timing of future changes in monetary, tax and other policies or the effects that they may have on our activities and financial
results.
Our business is subject to interest rate risk and variations in interest rates may negatively affect our financial performance.
Although we were successful in generating new loans during 2023, increasing interest rates may adversely affect the demand for new loans
and our loan growth. To supplement our organic loan growth, we from time-to-time may purchase loans from third parties that may have
lower yields than those loans that we originate on our own.
Additionally, interest rate increases often result in larger payment requirements for our borrowers with variable rate loans, which increases
the potential for default and could result in a decrease in the demand for loans. At the same time, the marketability of the property securing a
loan may be adversely affected by any reduced demand resulting from higher interest rates. An increase in interest rates that adversely
affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reversal of
income previously recognized, which could have an adverse effect on our results of operations. Further, when we place a loan on
nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue
to incur costs to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. Furthermore, if short-term
market rates rise, in order to retain existing deposit customers and attract new deposit customers we may need to increase rates we pay on
deposit accounts.
Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, loan
origination volume, business, financial condition and results of operations.
Higher or prolonged inflation could have a negative impact on our financial results and operations.
14 TriCo Bancshares 2023 10-K
Inflation may negatively affect us by increasing our labor costs, through higher wages and higher interest rates, which may negatively affect
the market value of securities on our balance sheet, higher interest expenses on our deposits, especially CDs, and a higher cost of our
borrowings. Additionally, higher inflation levels could lead to higher oil and gas prices, which may negatively impact the net operating
income on the properties which we lend on and could impair a borrower's ability to repay their loans.
Elevated inflation and expectations for elevated future inflation can adversely impact economic growth, consumer and business confidence,
and our financial condition and results. In addition, elevated inflation may cause unexpected changes in monetary policies and actions which
may adversely affect confidence, the economy, and our financial condition and results.
Supply chain constraints and a tightening labor markets could potentially exacerbate inflation and sustain it at elevated levels, even as
growth slows. The risk of sustained high inflation would likely be accompanied by monetary policy tightening with potential negative effects
on various elevated asset classes.
Reduction in the value, or impairment of our investment securities, can impact our earnings and common shareholders’ equity.
We maintained a balance of $2.3 billion, or approximately 23.2% of our assets, in investment securities at December 31, 2023. Changes in
market interest rates can affect the fair value of these investment securities, with increasing interest rates generally resulting in a reduction
of value. Although the reduction in value from temporary increases in market rates does not affect our income until the security is sold, it
does result in an unrealized loss recorded in other comprehensive income that can reduce our common stockholders’ equity. Further, we
must periodically test our investment securities for other-than-temporary impairment in value. In assessing whether the impairment of
investment securities is other-than-temporary, we consider the length of time and extent to which the fair value has been less than cost, the
financial condition and near-term prospects of the issuer, and the intent and ability to retain our investment in the security for a period of time
sufficient to allow for any anticipated recovery in fair value in the near term.
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 be required to realize 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.
Risks Related to Regulatory and Legal Matters
We operate in a highly regulated environment and we may be adversely affected by new laws and regulations or changes in existing laws
and regulations. Any additional regulations are expected to increase our cost of operations. Furthermore, regulations may prevent or impair
our ability to pay dividends, engage in acquisitions or operate in other ways.
We are subject to extensive regulation, supervision and examination by the DFPI, FDIC, and the FRB as well as regulations and policies of
the CFPB. See "Item 1. Business - Regulation and Supervision" of this report for information on the regulation and supervision which
governs our activities. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the
imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for credit losses.
Banking regulations or the actions of our banking regulators may limit our growth, earnings and the return to our shareholders by restricting
certain of our activities, such as:
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the payment of dividends to our shareholders,
possible mergers with or acquisitions of or by other institutions,
desired investments,
loans and interest rates on loans,
interest rates paid on deposits,
service charges on deposit account transactions,
the possible expansion or reduction of branch offices, and
the ability to provide new products or services.
We also are subject to regulatory capital requirements. We could be subject to regulatory enforcement actions if any of our regulators
determines for example, that we have violated a law or regulation, engaged in unsafe or unsound banking practice or lack adequate capital.
Federal and state governments and regulators could pass legislation and adopt policies responsive to current credit conditions that would
have an adverse effect on us and our financial performance. We cannot predict what changes, if any, will be made to existing federal and
state legislation and regulations or the effect that such changes may have on our future business and earnings prospects. Any change in
such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material
adverse impact on our operations, including the cost to conduct business.
15 TriCo Bancshares 2023 10-K
Furthermore, The evolving landscape of legislative and regulatory actions, influenced by election cycles, introduces an additional layer of
uncertainty for our operations. Elections can precipitate changes in government policies and regulations across various industries,
potentially impacting our business. Uncertainty regarding potential changes in regulations or policies related to our industry may lead to
increased costs of doing business and operational challenges. Economic conditions, including interest rates, inflation, and consumer
spending, may be influenced by shifts in government leadership and policies, affecting our ability to maintain historical growth rates.
Furthermore, the election process often introduces market volatility, impacting financial markets, currency exchange rates, and commodity
prices. This volatility may pose risks to our financial performance, cost of capital, and access to funding.
The outcomes of elections may directly affect our industry, influencing regulatory frameworks and industry dynamics. Shifts in political power
may shape the competitive landscape, impacting market share and pricing strategies. Unfavorable changes in industry-specific regulations
could result in increased compliance costs and operational challenges. Political events, including elections, can influence consumer and
investor sentiment, affecting demand for our products and services and impacting investor confidence, which may influence our stock price
and access to capital.
Risks Related to Our Growth and Expansion
Goodwill resulting from acquisitions may adversely affect our results of operations.
Our balance sheet contains a substantial level of goodwill and other intangible assets as a result of our acquisitions, including Valley
Republic Bancorp in 2022. Potential impairment of goodwill and amortization of other intangible assets could adversely affect our financial
condition and results of operations. We assess our goodwill and other intangible assets and long-lived assets for impairment annually and
more frequently when required by U.S. GAAP. We are required to record an impairment charge if circumstances indicate that the asset
carrying values exceed their fair values. Our assessment of goodwill, other intangible assets, or long-lived assets could indicate that an
impairment of the carrying value of such assets may have occurred that could result in a material, non-cash write-down of such assets,
which could have a material adverse effect on our results of operations and future earnings.
Potential acquisitions create risks and may disrupt our business and dilute shareholder value.
We intend to continue to explore opportunities for growth through mergers and acquisitions. Acquiring other banks, businesses, or branches
involves various risks commonly associated with acquisitions, including, among other things:
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incurring substantial expenses in pursuing potential acquisitions without completing such acquisitions,
exposure to potential asset quality issues of the target company,
losing key clients as a result of the change of ownership,
the acquired business not performing in accordance with our expectations,
difficulties and expenses arising in connection with the integration of the operations or systems conversion of the acquired business
with our operations,
difficulty in estimating the value of the target company,
potential exposure to unknown or contingent liabilities of the target company,
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potentially losing key employees of the acquired business,
incurring unanticipated costs which could reduce our earnings per share,
assuming potential liabilities of the acquired company as a result of the acquisition,
potential changes in banking or tax laws or regulations that may affect the target company,
potential disruption to our business,
an acquisition may dilute our earnings per share, in both the short and long term, or it may reduce our tangible capital ratios.
Acquisitions may be delayed, impeded, or prohibited due to regulatory issues.
Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and state regulatory agencies. The process
for obtaining these required regulatory approvals has become substantially more difficult since the global financial crisis and more recently
due to political actions. Furthermore, our ability to engage in certain merger or acquisition transactions depends on the bank regulators'
views at the time as to our capital levels, quality of management, and overall condition, in addition to their assessment of a variety of other
factors, including our compliance with laws and regulations. Regulatory approvals could be delayed, impeded, restrictively conditioned or
denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related
to BSA/AML compliance, CRA performance, fair lending laws, fair housing laws, consumer protection laws and other laws and regulations.
We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a result of our inability, or
16 TriCo Bancshares 2023 10-K
perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all. Difficulties
associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, financial
condition and results of operations.
If we cannot attract deposits, our growth may be inhibited.
We plan to increase the level of our assets, including our loan portfolio. Our ability to increase our assets depends in large part on our ability
to attract additional deposits at favorable rates. We intend to seek additional deposits by offering deposit products that are competitive with
those offered by other financial institutions in our markets and by establishing personal relationships with our customers. We cannot assure
that these efforts will be successful. Our inability to attract additional deposits at competitive rates could have a material adverse effect on
our business, financial condition and results of operations.
Our growth and expansion may strain our ability to manage our operations and our financial resources.
Our financial performance and profitability depend on our ability to execute our corporate growth strategy. In addition to seeking deposit and
loan and lease growth in our existing markets, we may pursue expansion opportunities in new markets, enter into new lines of business or
market areas or offer new products or services. Continued growth, however, may present operating and other problems that could adversely
affect our business, financial condition and results of operations. Furthermore, any new line of business or market areas and/or new
products or services could have a significant impact on the effectiveness of our system of internal controls. Accordingly, there can be no
assurance that we will be able to execute our growth strategy or maintain the level of profitability that we have recently experienced.
Our growth may place a strain on our administrative, operational and financial resources and increase demands on our systems and
controls. This business growth may require continued enhancements to and expansion of our operating and financial systems and controls
and may strain or significantly challenge them. In addition, our existing operating and financial control systems and infrastructure may not be
adequate to maintain and effectively monitor future growth. Our continued growth may also increase our need for qualified personnel. We
cannot assure you that we will be successful in attracting, integrating and retaining such personnel.
We will become subject to increased regulation when we have more than $10 billion in total consolidated assets.
An insured depository institution with $10 billion or more in total assets is subject to supervision, examination, and enforcement with respect
to consumer protection laws by the CFPB rather than its primary federal banking regulator. Under its current policies, the CFPB will assert
jurisdiction in the first quarter after an insured depository institution’s call reports show total consolidated assets of $10 billion or more for
four consecutive quarters. The Bank had slightly less than $10 billion in total assets at December 31, 2023, so it is possible that with only
modest growth, the CFPB, instead of the FDIC, may soon have primary examination and enforcement authority over the Bank. As an
independent bureau focused solely on consumer financial protection, the CFPB may interpret or enforce consumer protection laws more
strictly or severely than the FDIC.
Additionally, other regulatory requirements apply to depository institutions and holding companies with $10 billion or more in total
consolidated assets, including a cap on interchange transaction fees for debit cards, as required by Federal Reserve Board regulations,
which would reduce our interchange revenue, and restrictions on proprietary trading and investment and sponsorship in hedge funds and
private equity funds known as the Volcker Rule. See also "Item 1 - Business - Regulation and Supervision - Interchange Fees" in this report.
Further, deposit insurance assessment rates are calculated differently, and may be higher, for insured depository institutions with $10 billion
or more in total consolidated assets.
Risks Relating to Ownership of Our Common Stock
Our ability to pay dividends is subject to legal and regulatory restrictions.
Our ability to pay dividends to our shareholders is limited by California law and the policies and regulations of the FRB. The FRB has issued
a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB’s view that a bank holding
company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and
a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition. See
“Item 1. Business - Regulation and Supervision – Restrictions on Dividends and Distributions.”
As a holding company with no significant assets other than the Bank, our ability to continue to pay dividends depends in large part upon the
Bank’s ability to pay dividends to us. The Bank’s ability to pay dividends or make other capital distributions to us is subject to the restrictions
in the California Financial Code.
Our ability to pay dividends to our shareholders and the ability of the Bank to pay in dividends to us are subject to the requirements that we
and the Bank maintain a sufficient level of capital to be considered a “well capitalized” institution as well as a separate capital conservation
buffer, as further described under “Item 1. Business - Supervision and Regulation — Regulatory Capital Requirements” in this report.
From time to time, we may become a party to financing agreements or other contractual arrangements that have the effect of limiting or
prohibiting us or the Bank from declaring or paying dividends. Our holding company expenses and obligations with respect to our trust
preferred securities and corresponding junior subordinated deferrable interest debentures issued by us may limit or impair our ability to
declare or pay dividends.
17 TriCo Bancshares 2023 10-K
Provisions of our governing documents and federal law may limit the ability of another party to acquire us, which could cause our stock price
to decline.
Various provisions of our articles of incorporation and bylaws could delay or prevent a third party from acquiring us, even if doing so might
be beneficial to our shareholders. These provisions provide for, among other things, specified factors that the Board of Directors shall or
may consider when evaluating an offer to merge, an offer to acquire all assets or a tender offer is received; advance notice provisions for
director nominations and shareholder proposals; and the authority to issue preferred stock by action of the board of directors acting alone,
without obtaining shareholder approval.
The BHC Act and the Change in Bank Control Act of 1978, as amended, together with federal regulations, require that, depending on the
particular circumstances, either FRB approval must be obtained or notice must be furnished to the Federal Reserve Board and not
disapproved prior to any person or entity acquiring “control” of a bank holding company such as TriCo. These provisions may prevent a
merger or acquisition that would be attractive to shareholders and could limit the price investors would be willing to pay in the future for our
common stock
Holders of our junior subordinated debentures have rights that are senior to those of our shareholders.
We have supported our growth through the prior issuance of trust preferred securities from special purpose trusts and accompanying junior
subordinated debentures. At December 31, 2023, we had outstanding trust preferred securities and accompanying junior subordinated
debentures with principal amount of $101.1 million. Payments of the principal and interest on the trust preferred securities are conditionally
guaranteed by us. Further, the accompanying junior subordinated debentures we issued to the trusts are senior to our shares of common
stock. As a result, we must make payments on the junior subordinated debentures before we can pay any dividends on our common stock
and, in the event of our bankruptcy, dissolution or liquidation, the holders of the junior subordinated debentures must be satisfied before any
distributions can be made on our common stock.
Risks Relating to Operations, Technology Systems, Accounting and Internal Controls
If we fail to maintain an effective system of internal and disclosure controls, we may not be able to accurately report our financial results or
prevent fraud. As a result, current and potential shareholders could lose confidence in our financial reporting, which would harm our
business and the trading price of our securities.
Effective internal control over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial
reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or
prevent fraud, our reputation and operating results would be harmed. We continually review and analyze our internal control over financial
reporting for Sarbanes-Oxley Section 404 compliance. As part of that process we may discover material weaknesses or significant
deficiencies in our internal controls. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and
disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain
listed with Nasdaq. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial
information, which would likely have a negative effect on the trading price of our securities.
We experienced a criminal cyberattack in February 2023, which resulted in the temporary interruption of our systems, disclosure of certain
confidential information, litigation and governmental inquiries, all of which could damage our reputation or create additional financial and
legal exposure.
As previously disclosed in the Current Report on Form 8-K we filed on February 14, 2023, the Bank experienced a cybersecurity incident in
February 2023. After detecting unusual network activity, we shut down networked systems by taking them offline, which prevented access to
internal systems, data and telephones for a limited period of time. We immediately launched an investigation and notified law enforcement
and banking regulators. A digital forensics firm was engaged to help determine the scope of the incident and identify potentially impacted
data. We received a demand for ransom from a party claiming responsibility for the incident. The Bank’s core banking systems, including
those that facilitate loan and deposit related transactions, were not affected and the Bank’s resumed customer facing operations within two
days. However, the Bank’s internal 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 restored its systems without paying ransom.
The Bank worked with third-party forensic investigators to understand the nature and scope of the incident and to determine what and how
much information was impacted. The Bank determined that its internal computer network had been infected with malware which prevented
access to certain files on the network. Through its investigation, the Bank determined that an unauthorized actor illegally accessed and
acquired data from certain systems, including the personal information of approximately 86,000 individuals, including certain current and
former customers, individuals related to current and former customers, current and former employees and their dependents, and others.
While the information impacted varied by individual, the types of information that were impacted included name, social security number,
driver’s license number, state identification number, financial account information, medical information, health insurance information, date of
birth, passport number, digital/electronic signature, tax identification number, access credentials, and mother’s maiden name. The Bank
notified and will continue to notify impacted individuals consistent with state and federal requirements and the Bank is offering impacted
individuals credit restoration services and 24 months of credit monitoring services at no cost. The Bank issued a press release regarding this
event and posted notice of this event on its website.
18 TriCo Bancshares 2023 10-K
As a result of the 2023 cyberattack, we have incurred and may continue to incur significant costs or experience other material financial
impacts, which may not be covered by, or may exceed the coverage limits of, our cyber liability insurance, and such costs and impacts may
have a material adverse effect on our business, reputation, financial condition and operating results. These risks may stem from litigation or
governmental inquiries litigation to which we currently are or may become subject in connection with this incident, and the extent of
remediation and other additional costs that may be incurred by us.
We face numerous lawsuits related to the 2023 cyberattack, including three purported class action lawsuits that have been filed in California
Superior Court for the Counties of Contra Costa and Butte, seeking unspecified monetary damages, equitable relief, costs and attorneys’
fees. The lawsuits allege breach of contract, negligence, violations of various privacy laws and a variety of other legal causes of action. We
are currently unable to predict the potential outcome of any of this litigation or whether we may be subject to further private litigation. In
addition, the Company has received inquiries from various government authorities related to the 2023 cyberattack, which could result in
sanctions, fines or penalties. We are responding to these inquiries and cooperating fully. However, we cannot predict the timing or outcome
of any of these inquiries, or whether we may be subject to further governmental inquiries.
Given the uncertainties about any further impacts of the incident, including the inherent uncertainties involved in litigation, contractual
obligations, government investigations and regulatory enforcement decisions, we face the risk that outcomes from these risks could have a
material adverse effect on our reputation, business and/or financial condition. In addition, litigation, government interventions, and negative
media reports and any resulting damage to our reputation or loss of confidence in the security of our systems could adversely affect our
business. It is possible that we could incur losses associated with these proceedings and inquiries, and the Company will continue to
evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has
been incurred and the amount of the loss is reasonably estimable. Ongoing legal and other costs related to these proceedings and inquiries,
as well as any potential future proceedings and inquiries, may be substantial, and losses associated with any adverse judgments,
settlements, penalties or other resolutions of such proceedings and inquiries could be material to our business, reputation, financial
condition and operating results.
We face the risk that failures or breaches, including cyberattacks, of our operational or security systems or of those of our customers or
vendors, could disrupt our business, result in the disclosure of confidential information, damage our reputation, and create significant
financial and legal exposure.
We, our customers, our vendors, and other third parties have been subject to, and are likely to continue to be the target of, persistent
cyberattacks. Despite our efforts to ensure the integrity of our systems, we may not be able to anticipate or to implement effective preventive
measures against all security breaches. Attacker's tools and techniques evolve frequently, and because attacks may originate from a wide
variety of sources, including, but not limited to, state-sponsored parties, organized crime, terrorist organizations, malicious actors,
employees, contractors, or other third parties. Those parties may attempt, for example, to fraudulently induce employees, customers or
other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers and others; may
seek to exploit bugs, errors, misconfigurations or other vulnerabilities in our systems to obtain access to our systems; may seek to obtain
unauthorized access to our systems or confidential information by exploiting insider access or utilizing log-in credentials taken from our
customers, employees, or third-party providers by various illicit means; and may seek to disrupt and damage our business operations and
systems through ransomware or distributed denial of service attacks. Although we devote significant resources to maintain and regularly
upgrade our systems and processes that are designed to protect the security of our computer systems, software, networks, and other
technology assets and the confidentiality, integrity, and availability of information belonging to us and our customers, there is no assurance
that our security measures will be sufficient. We have implemented employee and customer awareness training regarding phishing,
malware, and other cyber risks, however there can no assurances that this training will be effective or sufficient. Furthermore, these risks are
expected to increase in the future as we continue to increase our electronic payments and other internet-based product offerings and
expand our internal usage of web-based products and applications.
Continued geographical turmoil, including the ongoing conflict between Russia and Ukraine, has heightened the risk of cyberattack and has
created new risk for cybersecurity, and similar concerns. For example, the United States government has warned that sanctions imposed
against Russia by the United States in response to its conflict with Ukraine could motivate Russia to engage in malicious cyber activities
against the United States.
If our security systems or those of our third party vendors, contractors and customers are penetrated or circumvented, it could cause serious
negative consequences for us, including significant disruption of our operations, misappropriation or theft of our confidential information or
that of our customers, or damage our computers or systems and those of our customers and counterparties, and could result in violations of
applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer
dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us. If personal,
confidential or proprietary information of customers or others in the Bank’s or such vendors’ or other third-parties’ possession were to be
mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss, as discussed earlier
regarding the Bank's 2023 cyberattack.
Our procedures and safeguards to prevent unauthorized access to confidential information and to defend against cyberattacks seeking to
disrupt our operations must be continually evaluated and enhanced to address the ever-evolving threat landscape and changing
cybersecurity regulations. These preventative actions require the investment of significant resources and management time and attention.
Nevertheless, we may not be able to anticipate, prevent, timely detect and/or effectively remediate all security breaches.
19 TriCo Bancshares 2023 10-K
Any inability to prevent or adequately respond to the issues described above could disrupt the Company’s business, inhibit its ability to
retain existing customers or attract new customers, otherwise harm its reputation and/or result in financial losses, litigation, increased costs
or other adverse consequences that could be material to the Company.
Our reliance on third-party vendors exposes us to risks, including additional cybersecurity risks.
Third-party vendors provide key components of our business infrastructure, including certain data processing and information services. On
our behalf, third parties may transmit confidential, propriety information. Some of these third parties may engage vendors of their own, which
introduces the risk that these "fourth parties" could be the source of operational and/or security failures. Although we require third-party
providers and these fourth-party vendors to maintain certain levels of information security, such providers may remain vulnerable to
breaches, unauthorized access, misuse, computer viruses, or other malicious attacks that could ultimately compromise sensitive
information. Additionally, we do not have control of the cybersecurity systems, breach prevention, and response protocols of our third- or
fourth-party vendors, including through our cybersecurity programs or policies. While the Company may have contractual rights to assess
the effectiveness of many of our providers’ systems and protocols, we do not have the means to know or assess the effectiveness of all of
our providers’ systems and controls at all times. We cannot provide any assurances that actions taken by us, or our third- or fourth-party
vendors, including through our cybersecurity programs or policies, will adequately prevent or substantially mitigate the impacts of
cybersecurity breaches or misuses of confidential information, unauthorized access to our networks or systems or exploits against third-or
fourth-party environments, or that we, or our third- or fourth-party vendors, will be able to effectively identify, investigate, and remediate such
incidents in a timely manner or at all. While we may contractually limit our liability in connection with attacks against third-party providers, we
remain exposed to the risk of loss associated with such vendors.
In addition, a number of our vendors are large national entities with dominant market presence in their respective fields. Their services could
prove difficult to replace in a timely manner if a failure or other service interruption were to occur. Failures of certain vendors to provide
contracted services could adversely affect our ability to deliver products and services to our customers and cause us to incur significant
expense.
These types of third-party relationships are subject to evolving and increasingly demanding regulatory requirements and attention by our
bank regulators. Regulatory guidance requires us to enhance our due diligence, ongoing monitoring and control over our third-party vendors
and subcontractors and other ongoing third-party business relationships. In certain cases, we may be required to renegotiate our
agreements with these vendors and/or their subcontractors to meet these enhanced requirements, which could increase our costs. If our
regulators conclude that we have not exercised adequate oversight and control over our third-party vendors and subcontractors or other
ongoing third-party business relationships, or that such third parties have not performed appropriately, we could be subject to enforcement
actions, including the imposition of civil money penalties or other administrative or judicial penalties or fines as well as requirements for
customer remediation.
We are subject to certain industry standards regarding our credit/debit card-related services. Failure to meet those standards may
significantly impact our ability to offer these services.
We are subject to the PCI-DSS, issued by the Payment Card Industry Security Standards Council. PCI-DSS contains compliance guidelines
with regard to our security surrounding the physical and electronic storage, processing and transmission of cardholder data. Compliance
with PCI-DSS and implementing related procedures, technology and information security measures requires significant resources and
ongoing attention. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and
technology, such as those necessary to achieve compliance with PCI-DSS or with maintenance or adequate support of existing systems
could also disrupt or reduce the efficiency of our operations. Any material interruptions or failures in our payment-related systems or third
parties that we rely upon could have a material adverse effect on our business, results of operations and financial condition. If there are
amendments to PCI-DSS, the cost of compliance could increase, and we may suffer loss of critical data and interruptions or delays in our
operations as a result. If we or our service providers are unable to comply with the standards imposed by PCI-DSS, we may be subject to
fines and restrictions on our ability to offer certain services, which could materially and adversely affect our business.
Our business is highly reliant on technology and our ability and our third-party service providers to manage the operational risks associated
with technology.
Our business involves storing and processing sensitive consumer and business customer data. We depend on internal systems, third party
service providers, cloud services and outsourced technology to support these data storage and processing operations. Despite our efforts to
ensure the security and integrity of our systems, we may not be able to anticipate, detect or recognize threats to our systems or those of
third-party service providers or to implement effective preventive measures against all cybersecurity breaches. Cyberattack techniques
change regularly and can originate from a wide variety of sources, including third parties who are or may be involved in organized crime or
linked to terrorist organizations or hostile foreign governments, and such third parties may seek to gain access to systems directly or using
equipment or security passwords belonging to employees, customers, third-party service providers or other users of our systems. These
risks may increase in the future as we continue to increase our mobile, digital and other internet-based product offerings and expands our
internal usage of web-based products and applications. A cybersecurity breach or cyberattack could persist for a long time before being
detected and could result in theft of sensitive data or disruption of our transaction processing systems.
Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of
our business operations. A breach of customer data security such as the breach of customer data in connection with the February 2023
20 TriCo Bancshares 2023 10-K
cyberattack discussed above, may negatively impact our business reputation and cause a loss of customers. This event has resulted in
increased expenses to contain the event, to notify impacted individuals and provide them with credit monitoring services, and to defend /
respond to litigation. Cybersecurity risk management programs are expensive to maintain and will not protect us from all risks associated
with maintaining the security of customer data and our proprietary data from external and internal intrusions, disaster recovery and failures
in the controls used by our vendors.
Cybersecurity and data privacy are areas of heightened legislative and regulatory focus.
As cybersecurity and data privacy risks for banking organizations and the broader financial system have significantly increased in recent
years, cybersecurity and data privacy issues have become the subject of increasing legislative and regulatory focus. The federal bank
regulatory agencies have proposed enhanced cyber risk management standards, which would apply to a wide range of large financial
institutions and their third-party service providers, including us, and would focus on cyber risk governance and management, management
of internal and external dependencies, incident response, cyber resilience and situational awareness. Several states have also proposed or
adopted cybersecurity legislation and regulations, which require, among other things, notification to affected individuals when there has
been a security breach of their personal data. For more information regarding cybersecurity regulation, refer to "Item 1. Business -
Supervision and Regulation.”
We receive, maintain and store non-public personal information of our customers and counterparties, including, but not limited to, personally
identifiable information and personal financial information. The sharing, use, disclosure, and protection of this information are governed by
federal and state law. Both personally identifiable information and personal financial information is increasingly subject to legislation and
regulation, the intent of which is to protect the privacy of personal information that is collected and handled. For more information regarding
data privacy regulation, refer to “Item 1. Business - Supervision and Regulation.”
We may become subject to new legislation or regulation concerning cybersecurity or the privacy of personally identifiable information and
personal financial information or of any other information we may store or maintain. We could be adversely affected if new legislation or
regulations are adopted or if existing legislation or regulations are modified such that we are required to alter our systems or require
changes to our business practices or privacy policies. If new or existing cybersecurity, data privacy, data protection, data transfer or data
retention laws are implemented, interpreted or applied in a manner inconsistent with our current practices, including as a result of the
network security incident discussed above, we may be subject to fines, litigation or regulatory enforcement actions or ordered to change our
business practices, policies or systems in a manner that adversely impacts our operating results. In addition, any additional laws and
regulatory enforcement measures will result in increased compliance costs.
A failure to implement technological advances could negatively impact our business.
The banking industry is undergoing technological changes with frequent introductions of new technology-driven products and services. In
addition to improving customer services, the effective use of technology increases efficiency and enables financial institutions to reduce
costs. Our future success will depend, in part, on our ability to address the needs of our customers by using technology to provide products
and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations. Many of our
competitors have substantially greater resources than we do to invest in technological improvements. We may not be able to effectively
implement new technology-driven products and services or successfully market such products and services to our customers. In addition,
advances in technology such as digital, mobile, telephone, text, and online banking; e-commerce; and self-service automatic teller machines
and other equipment, as well as changing customer preferences to access our products and services through digital channels, could
decrease the value of our branch network and other assets. We may close or sell certain branches and restructure or reduce our remaining
branches and work force. These actions could lead to losses on assets, expense to reconfigure branches and loss of customers in certain
markets. As a result, our business, financial condition or results of operations may be adversely affected.
Our business is susceptible to fraud and conduct risk.
The Company’s business exposes it to fraud risk from loan and deposit customers, the parties they do business with, as well as from
employees, contractors and vendors. The Company relies on financial and other data from new and existing customers which could turn out
to be fraudulent when accepting such customers, executing their financial transactions and making and purchasing loans and other financial
assets. In times of increased economic stress the Company is at increased risk of fraud losses. The Company believes it has underwriting
and operational controls in place to prevent or detect such fraud, but cannot provide assurance that these controls will be effective in
detecting fraud or that the Company will not experience fraud losses or incur costs or other damage related to such fraud, at levels that
adversely affect financial results or reputation. The Company’s lending customers may also experience fraud in their businesses which could
adversely affect their ability to repay their loans or make use of services. The Company’s and its customers’ exposure to fraud may increase
the Company’s financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in
the allowance for credit losses. In addition, the Company is subject to risk from the conduct of its employees, including the negative impact
that can result from employee misconduct or failure by employees to conduct themselves in accordance with the Company’s policies, all of
which could damage the Company’s reputation and result in loss of customers or other financial loss or expose the Company to increased
regulatory or other risk.
New lines of business, products or services and technological advancements may subject us to additional risks.
From time to time, we implement new lines of business or offer new products and services within existing lines of business. There are
substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In
developing and marketing new lines of business and/or new products and services we invest significant time and resources. Initial
21 TriCo Bancshares 2023 10-K
timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price
and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting
market preferences, may also impact the successful implementation of a new line of business or a new product or service.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven
products and services. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to
provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our
competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new
technology driven products and services or be successful in marketing these products and services to our customers. In addition, our
implementation of certain new technologies, such as those related to artificial intelligence ("AI"), automation and algorithms, in our business
processes may have unintended consequences due to their limitations or our failure to use them effectively. In addition, the growing reliance
on AI technologies by vendors, business partners, and technology solutions or applications introduces additional risks, including but not
limited to: Algorithmic Bias that may result in unintended discriminatory outcomes and harm our reputation, loss of proprietary and
confidential information through use of AI technologies, unauthorized access or breaches of data could compromise the integrity of our
systems with AI dependency, evolving regulations and legal frameworks surrounding AI may pose challenges leading to legal and financial
consequences for non-compliance, and protecting the intellectual property associated with AI technologies may be challenging, and
unauthorized use or infringement by third parties could bring harm to our competitive position or reputation. Furthermore, cloud technologies
are also critical to the operation of our systems, and our reliance on cloud technologies is growing. Failure to successfully keep pace with
technological change affecting the financial services industry could have a material adverse effect on our business, financial condition and
results of operations.
Furthermore, any new line of business, new product or service and/or new technology could have a significant impact on the effectiveness
of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of
business, new products or services and/or new technologies could have a material adverse effect on our business, financial condition and
results of operations.
Our failure to comply with anti-money laundering and anti-terrorism financing laws could have significant adverse consequences for us.
The Bank Secrecy Act of 1970, the Patriot Act and other laws and regulations require financial institutions to institute and maintain an
effective BSA/AML program, file suspicious activity reports and currency transaction reports and comply with other BSA/AML requirements.
Our federal and state banking regulators, regularly review our BSA/AML program FinCEN. If BSA/AML our program is deemed deficient, we
could be subject to liability, including fines, civil money penalties and other regulatory enforcement actions, which may include restrictions on
our business operations and our ability to pay dividends, restrictions on mergers and acquisitions activity, restrictions on expansion, and
restrictions on entering new business lines. Our failure to maintain and implement adequate programs to combat money laundering and
terrorist financing could also have significant reputational consequences for us and, in turn, could have a material adverse effect on our
business, financial condition or results of operations.
We can be negatively affected if we fail to identify and address operational risks associated with the introduction of or changes to products,
services and delivery platforms.
When we launch a new product or service, introduce a new platform for the delivery or distribution of products or services (including mobile
connectivity and cloud computing), or make changes to an existing product, service or delivery platform, it may not fully appreciate or
identify new operational risks that may arise from those changes, or may fail to implement adequate controls to mitigate the risks associated
with those changes. Any significant failure in this regard could diminish our ability to operate one or more of our businesses or result in:
•
•
•
•
•
•
•
potential liability to clients, counterparties and customers;
increased operating expenses;
higher litigation costs, including regulatory fines, penalties and other sanctions;
damage to our reputation;
impairment of our liquidity;
regulatory intervention; or
weaker competitive standing.
Any of the foregoing consequences could materially and adversely affect our businesses and results of operations.
Our business, financial condition and results of operations are subject to risk from changes in customer behavior.
Individual, economic, political, industry-specific conditions and other factors outside of our control, such as fuel prices, energy costs, real
estate values, inflation, taxes or other factors that affect customer income levels, could alter anticipated customer behavior, including
borrowing, repayment, investment and deposit practices. Such a change in these practices could materially adversely affect our ability to
anticipate business needs and meet regulatory requirements. Further, difficult economic conditions may negatively affect consumer
22 TriCo Bancshares 2023 10-K
confidence levels. A decrease in consumer confidence levels would likely aggravate the adverse effects of these difficult market conditions
on us, our customers and others in the financial institutions industry.
Our risk management framework may not be effective in identifying and mitigating every risk to us.
Any inadequacy or lapse in our risk management framework, governance structure, practices, models or reporting systems could expose us
to unexpected losses, and our financial condition or results of operations could be materially and adversely affected. Any such inadequacy
or lapse could:
•
•
•
•
•
•
•
•
•
hinder the timely escalation of material risk issues to our senior management and the Board of Directors;
lead to business decisions that have negative outcomes for us;
require significant resources and time to remediate;
lead to non-compliance with laws, rules and regulations;
attract heightened regulatory scrutiny;
expose us to regulatory investigations or legal proceedings;
subject us to litigation or regulatory fines, penalties or other sanctions;
harm our reputation; or
otherwise diminish confidence in TriCo.
We rely on data to assess many of our various risk exposures. Any deficiencies in the quality or effectiveness of our data gathering, analysis
and validation processes could result in ineffective risk management practices. These deficiencies could also result in inaccurate risk
reporting.
General Risk Factors
We depend on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.
Furthermore, our business could suffer if we fail to attract and retain skilled people.
Our future operating results depend substantially upon the continued service of our executive officers and key personnel. Our future
operating results also depend in significant part upon our ability to attract and retain qualified management, financial, technical, marketing,
sales and support personnel. Competition for qualified personnel is intense, including with respect to compensation and emerging workplace
practices, accommodations and remote work options, and we cannot ensure success in attracting or retaining qualified personnel. Our
current or future approach to in-office and work-from-home arrangements may not meet the needs or expectations of our current or
prospective employees or may not be perceived as favorable as compared to the arrangements offered by competitors, which could
adversely affect our ability to attract and retain employees. There may be only a limited number of persons with the requisite skills to serve
in these positions, and it may be increasingly difficult for us to hire personnel over time. Our business, financial condition or results of
operations could be materially adversely affected by the loss of any of our key employees, or our inability to attract and retain skilled
employees.
Litigation, regulatory actions and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or
requirements resulting in increased expenses.
As a financial institution, we are at times subject to actual and threatened claims, litigation, arbitration, reviews, investigations, and other
proceedings, including proceedings by governments and regulatory authorities, involving a wide range of issues, including labor and
employment, data protection, data security, network security, consumer protection, commercial disputes, goods and services offered by us
and by third parties, and other matters. Litigation matters range from individual actions involving a single plaintiff to class action lawsuits and
can involve claims for substantial or indeterminate alleged damages or for injunctive or other relief. Any of these types of proceedings can
have an adverse effect on us because of legal costs, disruption of our operations, diversion of management resources, negative publicity,
and other factors. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties. We establish accruals
for those matters when a loss is considered probable and the related amount is reasonably estimable. Additionally, when it is practicable and
reasonably possible that it may experience losses in excess of established accruals, the we estimate possible loss contingencies.
Determining legal reserves for possible losses from such matters involves judgment and may not reflect the full range of uncertainties and
unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such
amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material
effect on our business, financial condition and results of operations. In addition, it is possible that a resolution of one or more such
proceedings, including as a result of a settlement, could involve licenses, sanctions, consent decrees, or orders requiring us to make
substantial future payments, preventing us from offering certain products or services, requiring us to change our business practices in a
manner materially adverse to our business, requiring development of non-infringing or otherwise altered products or technologies, damaging
our reputation, or otherwise having a material effect on our operations.
23 TriCo Bancshares 2023 10-K
We contest liability and/or the amount of damages as appropriate in each pending matter. The outcome of pending and future matters could
be material to our results of operations, financial condition and cash flows depending on, among other factors, the level of our earnings for
that period, and could adversely affect our business and reputation. For a discussion of certain legal proceedings, see the risk factor titled
“We experienced a criminal cyberattack in February 2023, which resulted in the temporary interruption of our systems, disclosure of certain
confidential information, litigation and governmental inquiries, all of which could damage our reputation or create additional financial and
legal exposure.”
In addition to litigation and regulatory matters, from time to time, through our operational and compliance controls, we identify compliance
issues that require us to make operational changes and, depending on the nature of the issue, result in financial remediation to impacted
customers. These self-identified issues and voluntary remediation payments could be significant depending on the issue and the number of
customers impacted. They also could generate litigation or regulatory investigations that subject us to additional adverse effects on our
business, results of operations and financial condition.
Climate change could have a material negative impact on us and our clients.
Our business, as well as the operations and activities of our clients, could be negatively impacted by climate change. Climate change
presents both immediate and long-term risks to us and our clients, and these risks are expected to increase over time. Climate change
presents multi-faceted risks, including: operational risk from the physical effects of climate events on the us and our clients’ facilities and
other assets; credit risk from borrowers with significant exposure to climate risk; transition risks associated with the transition to a less
carbon-dependent economy; and reputational risk from stakeholder concerns about our practices related to climate change, our carbon
footprint, and our business relationships with clients who operate in carbon-intensive industries.
The risks associated with climate change are rapidly changing and evolving in an escalating fashion, making them difficult to assess due to
limited data and other uncertainties. We could experience increased expenses resulting from strategic planning, litigation, and technology
and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny, and reduced investor and
stakeholder confidence due to our response to climate change and our climate change strategy, which, in turn, could have a material
negative impact on our business, results of operations, and financial condition. In addition, ongoing legislative or regulatory uncertainties
and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, and reputational risks
and costs.
24 TriCo Bancshares 2023 10-K
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
The Company's information security program is designed with the goal of maintaining the safety and security of our systems and data and
we employ a holistic process for overseeing and managing cybersecurity and related risks. This process is supported by both management
and our board of directors.
Our risk management program is designed to identify, assess, and mitigate risks across various aspects of our company, including financial,
operational, regulatory, reputational, and legal. Cybersecurity is a critical component of this program, given the increasing reliance on
technology and potential of cyber threats. Our Chief Information Security Officer (“CISO”) is primarily responsible for this cybersecurity
component and, as discussed below, periodically reports to the Information Technology/Cybersecurity Committee (“IT/Cybersecurity
Committee”) of our board of directors.
Our objective for managing cybersecurity risk is to avoid or minimize the impacts efforts to penetrate, disrupt or misuse our systems or
information. The structure of our information security program is designed around the National Institute of Standards and Technology
(“NIST”) Cybersecurity Framework (“CSF”), regulatory guidance, and other industry standards. This does not imply that we meet any
particular technical standards, specifications, or requirements, but rather that we use the NIST CSF as a guide to help us identify, assess
and manage cybersecurity risks relevant to our business. In addition, we leverage certain industry and government associations, third-party
benchmarking, audits, and threat intelligence feeds to facilitate and promote program effectiveness. Our CISO and our Chief Information
Officer ("CIO"), along with key members of their teams, regularly collaborate with peer banks, industry groups, law enforcement, and
policymakers to discuss cybersecurity trends and issues and identify best practices. The information security program is periodically
reviewed by such personnel with the goal of addressing changing threats and conditions.
We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for
employees, preparedness simulations and tabletop exercises, and recovery and resilience tests. We engage in regular assessments of our
infrastructure, software systems, and network architecture, using internal cybersecurity experts and third-party specialists.
We engage third parties, including vendors and other external service providers, to support our cybersecurity and data privacy processes
such as risk assessments, program enhancements, and value-added user verification services. These third parties provide security
services, including regular reviews of our security environment to provide an independent, industry-recognized risk rating and internal audits
of our technology and security controls. Further, we deploy technical safeguards that are we believe are designed to help protect our
information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, endpoint detection and
response, logging, monitoring and alerting, anti-malware functionality, email security, network security monitoring and access controls, which
are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence. Our third-party risk management
program includes processes for identifying and managing material cybersecurity risks arising from third-party providers. The program
actively engages with the enterprise-wide risk assessment process and partners with cyber risk management to report relevant risks to the
IT/Cybersecurity Committee of our board of directors. Furthermore, our third-party risk management program includes cybersecurity as an
aspect of its risk assessment of third parties with the objective that key risks are identified and addressed. Moreover, the program also
considers risks associated with certain fourth parties, entities that are partners or subcontractors of our direct third-party vendors, through
assessments carried out internally and by our third-party service providers.
We maintain an Incident Response Plan that provides a documented framework for responding to actual or potential cybersecurity incidents,
including timely notification of and escalation to the appropriate board-approved management committees, as discussed further below, and
to the IT/Cybersecurity Committee of our board of directors. The Incident Response Plan is coordinated through the CISO and key members
of management are embedded into the plan by its design. This pIan facilitates coordination across multiple parts of our organization and is
evaluated at least annually.
Lastly, we leverage internal and external auditors and independent external partners to periodically review our processes, systems, and
controls, including with respect to our information security program, to assess their design and operating effectiveness and make
recommendations to strengthen our risk management program.
Governance
Our CIO and CISO have extensive experience assessing and managing cybersecurity programs and cybersecurity risk. Our CIO and CISO
have served in their positions since joining the Company in June, 2022 and January, 2022, respectively. Our CIO, who reports directly to the
Chief Operating Officer, has 30 years of experience in various technology and security leadership positions across multiple industries
including banking, insurance services, utilities, technology service providers, and as a member of the US Air Force. Prior to joining us, our
CIO served as a CIO for multiple banks leading both technology and cybersecurity. Our CISO, reporting directly to the CIO, has over 35
25 TriCo Bancshares 2023 10-K
years of experience in various technology and security leadership positions across multiple industries including banking, healthcare,
automotive, mining, education, engineering, construction, and dairy product production.
Our board of directors has approved various management committees including the IT/Cybersecurity Committee, which provides oversight
and governance of the technology program and the information security program, as well as oversight and governance of the Company’s
data and its storage. This committee is chaired by the CIO and includes various employees within the enterprise information security
department, including the CIO and CISO, and other key departmental managers from throughout the entire company, including information
technology, risk, compliance, operations and human resources/training. This committee generally meets quarterly to provide oversight of the
risk management strategy, standards, policies, practices, controls, and mitigation and prevention efforts employed to manage security, data
risks and incidents. The committee reports its findings to the management Enterprise Risk Committee. More frequent meetings occur from
time to time in accordance with the Incident Response Plan to facilitate timely informing and monitoring efforts. The CISO reports on key
issues, including significant cybersecurity and/or privacy incidents, discussed at management committee meetings and the actions taken in
connection with those meetings to the IT/Cybersecurity Committee of the board of directors on a quarterly basis (or more frequently as may
be required).
Our Board of Directors has ultimate oversight of cybersecurity risk, which it manages as part of our enterprise risk management program.
That program is utilized in making decisions with respect to company priorities, resource allocations, and oversight structures. The IT/
Cybersecurity Committee of the board of directors regularly reviews our cybersecurity program with management and reports to the Board
of Directors. The IT/Cybersecurity Committee meets at least quarterly (or more frequently as may be required), and receives updates from
the CISO on topics with respect to the cybersecurity program. The IT/Cybersecurity Committee reviews and approves our information
security and technology budgets and strategies annually. Additionally, the Risk Committee of our board of directors reviews our cyber
security risk profile on a quarterly basis. The management IT/Cybersecurity and Risk Committees each provide reports of their activities to
the full board of directors at each board meeting in the event all board members are not present at the relevant board committee meetings.
Cybersecurity Incidents
In February 2023, we experienced a cyberattack that resulted in the temporary interruption of our systems, disclosure of certain confidential
information, litigation and governmental inquiries, the consequences of which may be material. See “Item 1A. Risk Factors - We
experienced a criminal cyberattack in February 2023, which resulted in the temporary interruption of our systems, disclosure of certain
confidential information, litigation and governmental inquiries, all of which could damage our reputation or create additional financial and
legal exposure.” in Item 1A. Risk Factors which is incorporated by reference into this Item 1C.
In addition, we have experienced unrelated incidents involving unauthorized access to certain confidential information and systems.
Typically, these incidents have involved attempts to commit fraud by taking control of a customer’s systems and/or emails, often by
exploiting insider access or using compromised credentials. In other cases, the incidents have involved unauthorized access to certain of
our customers’ private information, including credit card information, financial data, social security numbers or passwords. Some of these
incidents have occurred at third-party providers, including third parties who provide us with various systems and/or services. For example, in
2023, one of our third-party vendors experienced a cybersecurity incident due to a previously unknown (i.e., zero-day) vulnerability in a
popular file sharing software the vendor used called MOVEit Transfer. To date, none of these incidences have materially affected or are
reasonably likely to materially affect the Company or our financial position or results of operations.
Notwithstanding our defensive measures and processes, the threat posed by cyber-attacks is severe. Our internal systems, processes, and
controls are designed to mitigate loss from cyberattacks. We continue to invest in the cybersecurity and resiliency of our networks and to
enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and the information they
contain. For more information regarding the risks we face from cybersecurity threats, see "Risks Related to Operations, Technology
Systems, Accounting and Internal Controls" in Item 1A. Risk Factors which is incorporated by reference into this Item 1C.
ITEM 2.
PROPERTIES
The Company is engaged in the banking business through 63 traditional branches, 6 in-store branches and 8 loan production offices in 31
counties throughout California including the counties of Butte, Colusa, Contra Costa, Del Norte, Fresno, Glenn, Humboldt, Kern, Lake, Los
Angeles, Madera, Mendocino, Merced, Nevada, Orange, Placer, Sacramento, San Diego, San Francisco, San Mateo, Santa Clara, Shasta,
Siskiyou, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Yolo and Yuba. All offices are constructed and equipped to meet prescribed
security requirements.
As of December 31, 2023, the Company owned 31 branch office locations, two administrative buildings that include branch locations, and 10
other buildings that are used as either administrative, operational, or loan production offices. The Company leased 30 branch office
locations, 6 in-store branch locations, 8 loan production offices and 3 other operational buildings. Most of the leases contain multiple
renewal options and provisions for rental increases, principally for changes in the cost of living index, property taxes and maintenance. All of
the Company’s existing facilities are considered to be adequate for the Company’s present and future use. In the opinion of management, all
properties are adequately covered by insurance. See “Note 7 – Premises and Equipment” to the consolidated financial statements at Part II,
Item 8 of this report.
ITEM 3.
LEGAL PROCEEDINGS
26 TriCo Bancshares 2023 10-K
TriCo and its subsidiaries are routinely subject to actual or threatened legal proceedings, including litigation and regulatory matters, arising
in the ordinary course of business. Litigation matters range from individual actions involving a single plaintiff to class action lawsuits and can
involve claims for substantial or indeterminate alleged damages or for injunctive or other relief. See “Item 1A - Risk Factors” and “Item 1C -
Cybersecurity” for a discussion of the Bank’s cybersecurity attack in 2023. Neither the Company nor its subsidiaries are a party to any
pending legal proceedings that are material, nor is their property the subject of any other material pending legal proceeding at this time. All
other legal proceedings are routine and arise out of the ordinary course of the Company's business. None of those proceedings are currently
expected to have a material adverse impact upon the Company’s consolidated financial position, its operations in any material amount not
already accrued, after taking into consideration any applicable insurance.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
27 TriCo Bancshares 2023 10-K
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Common Stock Market Prices and Dividends
The Company’s common stock is traded on the Nasdaq under the symbol “TCBK.” As of February 23, 2024, there were approximately 1,814
shareholders of record of the Company’s common stock. On February 23, 2024, the closing market price was $33.95 per share.
Information regarding restrictions on dividends, as required by this Item, is set forth in Item 1: “Business - Dividends, Distributions and
Regulatory Matters” and in Note 26 - “Regulatory Matters” of the Notes to consolidated financial statements and incorporated into this Item
by reference.
TriCo Bancshares Stock Performance
The following graph presents the cumulative total yearly shareholder return from investing $100 on December 31, 2018, in each of TriCo
common stock, the Russell 3000 Index, and the S&P Western Bank Index. The S&P Western Bank Index includes banks located in
California, Oregon, Washington, Montana, Hawaii and Alaska with market capitalization similar to that of TriCo’s. The amounts shown
assume that any dividends were reinvested.
Index
TriCo Bancshares
Russell 3000 Index
SNL Western Bank Index
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
100.00
100.00
100.00
123.36
129.65
119.27
109.99
154.05
86.36
136.99
191.03
131.33
166.52
151.91
99.76
144.78
188.30
96.00
Period Ending
ITEM 6.
[RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
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 consolidated financial statements of the Company and the related notes at Part II, Item 8 of this report.
In March 2022, the Company closed the acquisition of Valley Republic Bancorp. Historical periods prior to March 25, 2022 reflect results of
legacy Trico Bancshares operations. Subsequent to closing, results reflect all post-acquisition activity. For further information, refer to Note 2
“Business Combinations” of the Notes to Consolidated Financial Statements.
28 TriCo Bancshares 2023 10-K
Index ValueTotal Return PerformanceTriCo BancsharesRussell 3000 IndexS&P Western Bank Index12/31/1812/31/1912/31/2012/31/2112/31/2212/31/23100150200 Financial Overview
In 2023, the Company reported net income of $117.4 million, an $8.1 million or 6.5% decrease from the prior year. Earnings per share on a
diluted basis for the year were $3.52, down 8.1% from the prior year. The current year net income reported was negatively impacted by
noninterest expense. In 2023, noninterest expense was reported at $233.1 million, an increase of $16.5 million or 7.6% increase from the
prior year.
Net interest income on a fully tax equivalent (FTE) basis, a non-GAAP financial measure, was $358.2, an increase of $10.6 million, or 3.1%,
from 2022. The increase in FTE net interest income reflected the benefit of a $69.7 million, or 0.8%, increase in average earning assets in
addition to a 8 basis point increase in the FTE net interest margin to 3.96%. Average earning asset growth included an $690.9 million, or
11.7% increase in average loans and leases, offset by a $195.0 million or 7.3% decrease in average securities. The decrease in average
securities was driven by the redeployment of liquidity from prepayments and maturities into loans during 2023. The net interest margin
expansion was driven by the higher rate environment driving an increase in loan and lease and investment security yields, partially offset by
higher cost of funds from both deposits and borrowings. Total average interest-bearing deposits was $5.0 billion and $4.9 billion during
2023 and 2022, respectively, while average other borrowings totaled $430.1 million and $33.4 million, respectively, during the same periods.
The increase in net interest expense on average interest-bearing liabilities increased by $72.1 million or 758.9% to $81.7 million during 2023
as compared to 2022.
The provision for credit losses increased $5.5 million to $24.0 million, primarily due to elevated qualitative reserves driven by CA
unemployment trends and rising Corporate BBB bond yields, and to a lesser extent, organic loan and lease growth. The allowance for credit
losses (ACL) was $121.5 million, or 1.79% of total loans and leases, at December 31, 2023, compared to $105.7, or 1.64% of total loans
and leases, at December 31, 2022.
Noninterest income was $61.4 million, down $1.6 million, or 2.6%, from the prior year. Noninterest expense was $233.1 million, up $16.5
million, or 7.6%, from the prior year. The year over year changes in noninterest income and noninterest expense were impacted by the VRB
acquisition, completed in March 2022, as well as rising technology and regulatory costs in addition to the rising costs of operations
associated with levels of high inflation. Noninterest income was additionally negatively impacted by a decline in gain on sale of mortgage
loans, as is typically observed during periods of a rising rate environment, totaling $1.1 million, to $1.2 million for the 2023 year.
The tangible common equity to tangible assets ratio, a non-GAAP financial measure, was 8.8% at December 31, 2023, up 120 basis points
from December 31, 2022, primarily due to an increase in tangible common equity related primarily to the retention of 2023 earnings.
29 TriCo Bancshares 2023 10-K
TRICO BANCSHARES
Financial Summary
(In thousands, except per share amounts; unaudited)
Year ended December 31,
Interest income
Interest expense
Net interest income
(Provision for) benefit from loan losses
Noninterest income
Noninterest expense
Income before income taxes
Provision for income taxes
Net income
Share Data
Earnings per share:
Basic
Diluted
Per share:
Dividends paid
Book value at period end
Tangible book value at period end (2)
Average common shares outstanding
Average diluted common shares outstanding
Shares outstanding at period end
Financial Ratios
During the period:
Return on average assets
Return on average equity
Net interest margin(1)
Efficiency ratio
Average equity to average assets
Dividend payout ratio
At period end:
Equity to assets
Total capital to risk-weighted assets
Balance Sheet Data
Total investments
Total loans
Total assets
Total non-interest bearing deposits
Total deposits
Total other borrowings
Total junior subordinated debt
Total shareholders’ equity
Total tangible equity (2)
2023
2022
2021
$
438,354
$
355,505
$
$
$
$
$
$
$
(81,677)
356,677
(23,990)
61,400
(233,182)
160,905
(43,515)
(9,529)
345,976
(18,470)
63,046
(216,645)
173,907
(48,488)
117,390
$
125,419
$
$
$
$
$
$
3.53
3.52
1.20
34.86
25.39
33,267
33,352
33,268
1.19 %
10.65 %
3.96 %
55.77 %
11.17 %
33.99 %
11.70 %
14.70 %
$
$
$
$
$
3.85
3.83
1.10
31.39
21.76
32,584
32,721
33,332
1.28 %
11.67 %
3.88 %
52.97 %
11.00 %
28.54 %
10.54 %
14.19 %
$
2,305,882
$
2,633,269
$
6,794,470
9,910,089
2,722,689
7,834,038
632,582
101,099
1,159,682
6,450,447
9,930,986
3,502,095
8,329,013
264,605
101,040
1,046,416
$
844,688
$
725,304
$
277,047
(5,508)
271,539
6,775
63,664
(178,275)
163,703
(46,048)
117,655
3.96
3.94
1.00
33.64
25.80
29,721
29,882
29,730
1.43 %
12.10 %
3.58 %
53.18 %
11.84 %
25.26 %
11.61 %
15.42 %
2,427,885
4,916,624
8,614,787
2,979,882
7,367,159
50,087
58,079
1,000,184
766,943
(1) Fully taxable equivalent (FTE)
(2) Tangible equity is calculated by subtracting Goodwill and Other intangible assets from total shareholders’ equity. Management believes that tangible
equity is meaningful because it is a measure that the Company and investors commonly use to assess capital adequacy. Tangible book value is
calculated by dividing tangible equity by shares outstanding at period end. See tables below for further details.
As TriCo Bancshares has not commenced any business operations independent of 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
and net interest income may be presented on a fully tax-equivalent (FTE) basis. The presentation of interest income and net interest income
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
within Part II, Item 7 and Item 8 of this report, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion
of net interest income.
In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this
10-K contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures because it believes
that they provide useful and comparative information to assess trends in the Company's core operations reflected in the periods presented
30 TriCo Bancshares 2023 10-K
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:
(dollars in thousands)
Net interest margin
Acquired loans discount accretion, net:
Amount (included in interest income)
Effect on average loan yield
Effect on net interest margin (FTE)
Net interest margin (FTE)
Net interest margin less effect of acquired loan discount accretion (Non-GAAP)
PPP loans yield, net:
Amount (included in interest income)
Effect on net interest margin (FTE)
Net interest margin less effect of PPP loan yield (Non-GAAP)
Acquired loan discount accretion and PPP loan yield, net:
Amount (included in interest income)
Effect on net interest margin (FTE)
Net interest margin less effect of acquired loan discount accretion and PPP yields, net (Non-GAAP)
(dollars in thousands)
Pre-tax pre-provision return on average assets or equity
Net income (GAAP)
Exclude provision for income taxes
Exclude provision for credit losses
Net income before income tax and provision expense (Non-GAAP)
Average assets (GAAP)
Average equity (GAAP)
Return on average assets (GAAP) (annualized)
Pre-tax pre-provision return on average assets (Non-GAAP) (annualized)
Return on average equity (GAAP) (annualized)
Pre-tax pre-provision return on average equity (Non-GAAP) (annualized)
Twelve months ended
December 31,
2023
December 31,
2022
$5,651
0.09 %
0.06 %
3.96 %
3.90 %
$12
— %
3.96 %
$5,663
0.06 %
3.90 %
$5,465
0.09 %
0.06 %
3.88 %
3.81 %
$2,390
0.02 %
3.86 %
$7,855
0.08 %
3.80 %
Twelve months ended
December 31,
2023
December 31,
2022
$117,390
43,515
23,990
$184,895
$125,419
48,488
18,470
$192,377
$9,870,189
$1,102,436
$9,771,601
$1,074,437
1.19 %
1.87 %
10.65 %
16.77 %
1.28 %
1.97 %
11.67 %
17.90 %
31 TriCo Bancshares 2023 10-K
(dollars in thousands)
Return on tangible common equity
Average total shareholders' equity
Exclude average goodwill
Exclude average other intangibles
Average tangible common equity (Non-GAAP)
Net income (GAAP)
Exclude amortization of intangible assets, net of tax effect
Tangible net income available to common shareholders (Non-GAAP)
Return on average equity
Return on average tangible common equity (Non-GAAP)
(dollars in thousands)
Tangible shareholders' equity to tangible assets
Shareholders' equity (GAAP)
Exclude goodwill and other intangible assets, net
Tangible shareholders' equity (Non-GAAP)
Total assets (GAAP)
Exclude goodwill and other intangible assets, net
Total tangible assets (Non-GAAP)
Shareholders' equity to total assets (GAAP)
Tangible shareholders' equity to tangible assets (Non-GAAP)
(dollars in thousands)
Tangible common shareholders' equity per share
Tangible shareholders' equity (Non-GAAP)
Twelve months ended
December 31,
2023
December 31,
2022
$1,102,436
$1,074,437
304,442
13,611
$784,383
$117,390
4,309
$121,699
10.65 %
15.52 %
287,904
15,901
$770,632
$125,419
4,461
$129,880
11.67 %
16.85 %
Three months ended
December 31,
2023
December 31,
2022
$1,159,682
$1,046,416
314,994
$844,688
$9,910,089
314,994
$9,595,095
11.70 %
8.80 %
321,112
$725,304
$9,930,986
321,112
$9,609,874
10.54 %
7.55 %
Three months ended
December 31,
2023
December 31,
2022
$844,688
$725,304
Common shares outstanding at end of period
33,268,102
33,331,513
Common shareholders' equity (book value) per share (GAAP)
Tangible common shareholders' equity (tangible book value) per share (Non-GAAP)
$34.86
$25.39
$31.39
$21.76
Critical Accounting Policies and Estimates
In preparing the consolidated financial statements in accordance with generally accepted accounting principles in the United States of
America (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates.
Our most significant accounting policies and estimates and their related application are discussed below.
Allowance for Credit Losses
The Company’s method for assessing the appropriateness of the allowance for credit losses includes specific allowances for individually
analyzed loans, formula allowance factors for pools of credits, and qualitative considerations which include, among other things, current and
32 TriCo Bancshares 2023 10-K
forecast economic and environmental factors (e.g., interest rates, growth, economic conditions, etc.). Allowance factors for loan pools were
based on historical loss experience by product type and prior risk rating.
Management estimates the ACL 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 has 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 current expected credit 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, and the pace of change in corporate bond yields.
The Company also considers macroeconomic forecasts to estimate the ACL.
There is a greater chance that the Company would suffer a loss from a loan that was risk rated less than satisfactory than if the loan was
last graded satisfactory. As such, the proper risk grading of loans in the portfolio is important to the determination of the calculation of and
determination of adequacy of the allowance for credit losses. Utilizing the historical loss data described above, the Company applies
reserve rates within any unique pool based on its loss and risk grade migration. Therefore, within any given pool, a larger loss estimation
factor is applied to less than satisfactory loans as compared to those that the Company last graded as satisfactory. The resulting allowance
for any pool is the sum of the calculated reserves determined in this manner.
Certain loans are not included in pools of loans that are collectively evaluated. The segregation of these loans is based on the results from
analysis of individually identified credits that meet management’s criteria for individual evaluation. These loans are first reviewed individually
to determine if such loans have a unique risk profile that would warrant individual evaluation. Loans where management has concluded that
it is probable that the borrower will be unable to pay all amounts due under the original contractual terms are removed from the pools of
loans collectively evaluated. They are then specifically reviewed and evaluated individually by management for loss potential by evaluating
sources of repayment, including collateral as applicable, and a specified allowance for credit losses is established where necessary. By
definition, any loan that management has placed on non-accrual is required to be individually evaluated, however, not all individually
evaluated loans need to be placed on non-accrual.
Because current economic conditions and forecasts can change and future events make it inherently difficult to predict the anticipated
amount of estimated credit losses on loans, management's determination of the appropriateness of the ACL, could change significantly. It is
difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of
factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the
same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may move independently of one
another, such that improvement in one or certain factors may offset deterioration in others. Thus, as a result of the significant size of the
loan portfolio, the numerous assumptions in the model, and the high degree of potential change in such assumptions, there is a high degree
of sensitivity to the reported amounts. Management believes that the ACL was adequate as of December 31, 2023.
Other Accounting Policies and Estimates that are Not Considered Critical
On an on-going basis, the Company evaluates its estimates, including those that may materially affect the financial statements and are
related to investments, mortgage servicing rights, fair value measurements, retirement plans, intangible assets and the fair value of acquired
assets and liabilities. 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. The Company’s policies related to these estimates can be found in Note 1 in the financial statements at Part II, Item 8 of this
report.
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.
Results of Operations
Average balances, including 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, certain performance measures
including interest income, net interest income, net interest yield, and efficiency ratio are generally presented on a fully tax-equivalent (FTE)
33 TriCo Bancshares 2023 10-K
basis. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provides additional
clarity in assessing its results.
Net Interest Income
Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally
loans, leases and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits
and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on our average
interest-earning assets and the effective cost of our interest-bearing liabilities. These factors are influenced by the pricing and mix of
interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as local economic conditions,
competition for loans and deposits, the monetary policy of the FRB and market interest rates. For further discussion, refer to “—Risk Factors
– Risks Related to Interest Rates.” Following is a summary of the Company’s net interest income for the periods indicated (dollars in
thousands):
Interest income
Interest expense
Net interest income (not FTE)
FTE adjustment
Net interest income (FTE)
Net interest margin (FTE)
Acquired loans discount accretion:
Purchased loan discount accretion
Effect on average loan yield
Effect of purchased loan discount accretion on net interest margin (FTE)
Year ended December 31,
2023
2022
2021
$
438,354
$
355,505
$
277,047
(81,677)
356,677
1,536
(9,529)
(5,508)
345,976
1,560
271,539
1,071
$
358,213
$
347,536
$
272,610
3.96 %
3.88 %
3.58 %
$
5,651
$
5,465
$
8,091
0.09 %
0.06 %
0.09 %
0.07 %
0.17 %
0.11 %
Net interest income (FTE) during the year ended December 31, 2023 increased $10.7 million or 3.1% to $358.2 million compared against
$347.5 million during the year ended December 31, 2022. The increased amount of net interest income reflects growth in total average loan
balances outstanding and the correlated yields in both loans and investments during 2023. Average loan balances increased by $691
million or 11.7% from December 31, 2022. Meanwhile, the yield on interest earning assets was 4.87% and 3.98% for the years ended
December 31, 2023 and 2022, respectively. This 89 basis point increase in total earning asset yield was primarily attributable to a 58 basis
point increase in total loan yields and a 80 basis point increase in yields on total investments. Of the 58 basis point increase in loan yields, 7
basis points was attributable to increased volume in average loans outstanding, and 51 basis points from elevated interest rates. There was
no change attributed to the accretion of purchased loan fees. The costs of total interest bearing liabilities increased 129 basis points to
1.48% during the year ended December 31, 2023, as compared to 0.19% for the year ended December 31, 2022. During the same period,
costs associated with interest bearing deposits increased by 100 basis points to 1.10% as compared to 0.10% in the prior year. The
increase in interest expense for the year ended December 31, 2023, as compared to the trailing year, was due to the increased rate
environment for both the interest-bearing deposit expense and other borrowings interest expense.
Net interest income (FTE) during the year ended December 31, 2022 increased $74.9 million or 27.5% to $347.5 million compared against
$272.6 million during the year ended December 31, 2021. The increased amount of net interest income reflects growth in both total average
loan and investment balances outstanding and the correlated yields, during 2022. Average loan balances, inclusive of acquisitions,
increased by $1.5 billion or 30.4% from December 31, 2021. The yield on interest earning assets was 3.98% and 3.65% for the years
ended December 31, 2022 and 2021, respectively. This 33 basis point increase in total earning asset yield was primarily attributable to a 11
basis point decrease in total loan yields and a 85 basis point increase in yields on total investments. Of the 11 basis point decrease in yields
on loans, a 3 basis point decline was attributable to decreases in market rates, as well as an 8 basis point benefit from the accretion of
purchased loans. The costs of total interest bearing liabilities increased 6 basis points to 0.19% during the year ended December 31, 2022,
as compared to 0.13% for the year ended December 31, 2021. During the same period, costs associated with interest bearing deposits
increased by 2 basis points to 0.10% as compared to 0.08% in the prior year. The increase in interest expense for the year ended
December 31, 2022, as compared to the trailing year, was due largely to the increased rate environment for both the interest-bearing deposit
expense and other borrowings interest expense.
For more information related to loan interest income, including loan purchase discount accretion, see the Summary of Average Balances,
Yields/Rates and Interest Differential and Note 27 to the consolidated financial statements at Part II, Item 8 of this report. The “Yield” and
“Volume/Rate” tables shown below are useful in illustrating and quantifying the developments that affected net interest income during 2023
and 2022.
Summary of Average Balances, Yields/Rates and Interest Differential – Yield Tables
The following tables present, for the periods indicated, information regarding the Company’s consolidated average assets, liabilities and
34 TriCo Bancshares 2023 10-K
shareholders’ equity, the amounts of interest income from average 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 statutory tax rate
applicable during the period presented (dollars in thousands):
Year ended December 31,
2023
Interest
Income/
Expense
Average
Balance
Rates
Earned
/Paid
Average
Balance
2022
Interest
Income/
Expense
Rates
Earned
/Paid
Average
Balance
2021
Interest
Income/
Expense
Rates
Earned
/Paid
$ 6,555,886 $ 356,698
5.44 % $ 5,841,770 $ 282,985
4.84 % $ 4,625,410 $ 225,626
4.88 %
1,360
12
0.88 %
24,590
2,390
9.72 %
250,391
16,643
6.65 %
Assets:
Loans
PPP Loans
Investment securities—taxable
2,272,301
75,203
3.31 % 2,459,032
60,499
2.46 % 1,914,788
30,352
1.59 %
Investment securities—
nontaxable (1)
Total investments
Cash at Federal Reserve and
other banks
181,766
6,656
3.66 %
190,339
6,759
3.55 %
160,863
4,639
2.88 %
2,454,067
81,859
3.34 % 2,649,371
67,258
2.54 % 2,075,651
34,991
1.69 %
26,469
1,321
4.99 %
452,300
4,432
0.98 %
663,801
858
0.13 %
Total interest-earning assets
9,037,782
439,890
4.87 % 8,968,031
357,065
3.98 % 7,615,253
278,118
3.65 %
Other assets
Total assets
832,407
$ 9,870,189
Liabilities and shareholders’ equity:
803,570
$ 9,771,601
594,420
$ 8,209,673
Interest-bearing demand deposits $ 1,709,930 $ 11,190
0.65 % $ 1,720,932 $
452
0.03 % $ 1,493,922 $
327
0.02 %
Savings deposits
Time deposits
Total interest-bearing
deposits
Other borrowings
Junior subordinated debt
Total interest-bearing
liabilities
Noninterest-bearing deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity $ 9,870,189
Net interest spread (2)
Net interest income and interest margin
(3)
2,805,424
31,444
1.12 % 2,878,189
3,356
0.12 % 2,360,605
473,688
12,453
2.63 %
302,619
881
0.29 % 324,636
1,256
1,735
0.05 %
0.53 %
4,989,042
55,087
1.10 % 4,901,740
4,689
0.10 % 4,179,163
3,318
0.08 %
430,736
19,712
101,064
6,878
4.58 %
6.81 %
33,410
91,138
421
1.26 %
43,236
22
0.05 %
4,419
4.85 %
57,844
2,168
3.75 %
5,520,842
81,677
1.48 % 5,026,288
9,529
0.19 % 4,280,243
5,508
0.13 %
3,068,839
178,072
1,102,436
3,492,713
178,163
1,074,437
$ 9,771,601
2,837,745
119,471
972,214
$ 8,209,673
3.39 %
3.79 %
3.52 %
$ 358,213
3.96 %
$ 347,536
3.88 %
$ 272,610
3.58 %
(1) The fully-taxable equivalent (FTE) adjustment for interest income of non-taxable investment securities was $1,536, $1,560, and $1,070 for the years
ended December 31, 2023, 2022 and 2021, respectively.
(2) Net interest spread represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by dividing net interest income by total average earning assets.
35 TriCo Bancshares 2023 10-K
Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned
and Rates Paid – Volume/Rate Tables
The following table sets forth a summary of the changes in the Company’s 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 applicable to both rate and
volume have been included in the rate variance. Amounts are calculated on a fully taxable equivalent basis:
2023 over 2022
2022 over 2021
Volume
Rate
Total
Volume
Rate
Total
Increase (decrease) in interest income:
Loans
$
32,305 $
39,029 $
71,334 $
114,211 $
(71,105) $
Investment securities—taxable
Investment securities—nontaxable
Cash at Federal Reserve and other banks
Total interest-earning assets
Increase (decrease) in interest expense:
Interest-bearing demand deposits
Savings deposits
Time deposits
Other borrowings
Junior subordinated debt
Total interest-bearing liabilities
(304)
(4,594)
(4,173)
23,234
(3)
(87)
496
5,006
481
5,893
202
19,298
1,062
59,591
10,741
28,175
11,076
14,285
1,978
66,255
(102)
14,704
(3,111)
82,825
10,738
28,088
11,572
19,291
2,459
72,148
8,653
849
(275)
21,494
1,270
3,849
123,438
(44,492)
45
259
(117)
(5)
1,249
1,431
80
1,841
(737)
404
1,002
2,590
43,106
30,147
2,119
3,574
78,946
125
2,100
(854)
399
2,251
4,021
Increase (decrease) in net interest income
$
17,341 $
(6,664) $
10,677 $
122,007 $
(47,082) $
74,925
Year Over Year Balance Sheet Change
Ending balances
($’s in thousands)
Total assets
Total loans
Total loans, excluding PPP
Total investments
Total deposits
Total other borrowings
Provision for Credit Losses
As of December 31,
2023
2022
$ Change
% Change
$
9,910,089 $
9,930,986 $
6,794,470
6,793,334
2,305,882
7,834,038
6,450,447
6,448,845
2,633,269
8,329,013
$
632,582 $
264,605 $
(20,897)
344,023
344,489
(327,387)
(494,975)
367,977
(0.2) %
5.3 %
5.3 %
(12.4) %
(5.9) %
139.1 %
The provision for credit losses during any period is the sum of the allowance for credit losses required at the end of the period and any net
charge-offs during the period, less the allowance for credit losses required at the beginning of the period, and less any recoveries during the
period. See the Tables labeled “Allowance for Credit Losses – December 31, 2023 and 2022” at Note 5 in Item 8 of Part II of this report for
the components that make up the provision for credit losses for the years ended December 31, 2023 and 2022.
The Company recorded a provision for credit losses of $24.0 million during the year ended December 31, 2023, versus $18.5 million during
the trailing year end. The increase in required provisioning during 2023 was largely attributed to elevated qualitative reserves driven by CA
unemployment trends and rising Corporate BBB bond yields, and to a lesser extent, organic loan and lease growth.
The Company recorded a provision for credit losses of $18.5 million during the year ended December 31, 2022, versus a reversal of credit
losses totaling $6.8 million during the trailing year end. The increase in required provisioning during 2022 was largely attributed to the
$10.8 million in day 1 required reserves from loans acquired in connection with the VRB merger in the first quarter of 2022. Additionally, the
Company designated certain loans and leases purchased from VRB as PCD, which required $2.0 million in additional credit reserves as of
the acquisition date. 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 remaining increase in the allowance for credit
losses was the result of changes in loan volume and changes in credit quality associated with levels of classified, past due and non-
performing loans in addition to changes in qualitative factors.
Net charge-offs for the year ended December 31, 2023 totaled $6.6 million, as compared to net recoveries of $0.3 million for the year ended
December 31, 2022. Total nonperforming loans increased by 13 basis points to 0.46% of total loans at December 31, 2023 from 0.33% of
total loans at December 31, 2022. For further details of the change in nonperforming loans during the period ended December 31, 2023 see
the Tables, and associated narratives, labeled “Changes in nonperforming assets during the year ended December 31, 2023” and “Changes
36 TriCo Bancshares 2023 10-K
in nonperforming assets during the three months ended December 31, 2023” under the heading “Asset Quality and Non-Performing Assets”
below.
The following table summarizes the components of the provision for (benefit to) credit losses during the periods indicated (dollars in
thousands):
(dollars in thousands)
Provision for (reversal of) allowance for credit losses
Change in reserve for unfunded loan commitments
Total provision for (reversal of) credit losses
Year ended December 31,
2023
2022
2021
$
$
22,455 $
17,945 $
1,535
525
23,990 $
18,470 $
(7,165)
390
(6,775)
The provision for credit losses is based on management’s evaluation of inherent risks in the loan portfolio and a corresponding analysis of
the allowance for credit losses. Additional discussion on loan quality, our procedures to measure loan impairment, and the allowance for
credit losses is provided under the heading “Asset Quality and Non-Performing Assets” below.
Non-interest Income
The following table summarizes the Company’s non-interest income for the periods indicated (dollars in thousands):
ATM and interchange fees
Service charges on deposit accounts
Other service fees
Mortgage banking service fees
Change in value of mortgage loan servicing rights
Total service charges and fees
Asset management and commission income
Increase in cash value of life insurance
Gain on sale of loans
Lease brokerage income
Sale of customer checks
Loss on sale of investment securities
Gain (loss) on marketable equity securities
Other
Total other non-interest income
Total non-interest income
Year Ended December 31,
2023
2022
2021
$
26,459
$
26,767 $
17,595
4,732
1,808
(506)
50,088
3,150
4,517
1,166
441
1,383
(284)
36
903
16,536
4,274
1,887
301
49,765
3,986
2,858
2,342
820
1,167
—
(340)
2,448
11,312
13,281
$
61,400
$
63,046 $
25,356
14,013
3,570
1,881
(872)
43,948
3,668
2,775
9,580
746
459
—
(86)
2,574
19,716
63,664
Non-interest income decreased $1.6 million or 2.6% to $61.4 million during the year ended December 31, 2023, as compared to $63.0
million during the year ended December 31, 2022. During 2023, total service charges and fees increased $0.3 million which is net of
approximately $0.9 million in waived or reversed fees related to the network outage that occurred in the first quarter of the year. Mortgage
origination related activity has declined year over year due to elevated interest rates, as the income recorded from the sale of loans was
down $1.2 million or 50.2%. Changes in interest rates also led to a decline in fair value of mortgage servicing rights during the twelve
months ended December 31, 2023, which decreased by $0.8 million or 268.1%, as compared to the trailing twelve month period ended.
Other income declined $1.5 million or 63.1%, $0.6 million of which is attributed to fees from the sale of deposits during the fourth quarter of
2022.
Non-interest income decreased by $0.6 million or 1.0% to $63.0 million during the twelve months ended December 31, 2022, compared to
$63.6 million during the same period ended December 31, 2021. Generally, the increases in recurring non-interest income service charges
and fees reflected during 2022 is the result of the VRB merger closing in March of 2022, and therefore, not reflected in 2021 operating
results. As an offset, increases in interest rates during 2022 led to significant declines in mortgage lending related activity, resulting in a
decrease of $7.2 million in gain from the sale of loans, as compared to the trailing year then ended.
37 TriCo Bancshares 2023 10-K
Non-interest Expense
The following table summarizes the Company’s other non-interest expense for the periods indicated (dollars in thousands):
Year Ended December 31,
2023
2022
2021
Base salaries, net of deferred loan origination costs
$
94,564 $
84,861 $
Incentive compensation
Benefits and other compensation costs
Total salaries and benefits expense
Occupancy
Data processing and software
Equipment
Intangible amortization
Advertising
ATM and POS network charges
Professional fees
Telecommunications
Regulatory assessments and insurance
Merger and acquisition expenses
Postage
Operational losses
Courier service
Gain on sale or acquisition of foreclosed assets
Loss (gain) loss on disposal of fixed assets
Other miscellaneous expense
Total other non-interest expense
Total non-interest expense
Average full-time equivalent staff
15,557
25,674
135,795
16,135
18,933
5,644
6,118
3,531
7,080
7,358
2,547
5,276
—
1,236
2,444
1,851
(133)
23
19,344
97,387
17,908
27,083
129,852
15,493
14,660
5,733
6,334
3,694
6,984
4,392
2,298
3,142
6,253
1,147
1,000
2,013
(481)
(1,070)
15,201
86,793
69,844
14,957
21,550
106,351
14,910
13,985
5,358
5,464
2,899
6,040
3,657
2,253
2,581
1,523
710
964
1,214
(233)
(439)
11,038
71,924
$
233,182 $
216,645 $
178,275
1,214
1,169
1,039
Total non-interest expense increased $16.5 million or 7.6% to $233.2 million during the year ended December 31, 2023, as compared to
$216.6 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 this
acquisition totaled $6.2 million for the twelve-month period ended 2022. Regulatory assessment charges also increased by approximately
$1.2 million during 2023 as a result of increases in assessment rates. Other miscellaneous expenses also increased by $4.1 million in 2023
due to, among other things, changes in regulatory requirements which resulted in an estimated $0.8 million in refunds to customers
previously charged non-sufficient funds fees, changes in the valuation of other real estate owned which contributed to $0.9 million in
variance from the prior year, and other increases generally associated with increased operational costs.
Non-interest expense increased by $38.3 million or 21.5% to $216.6 million during the year ended December 31, 2022 as compared to
$178.2 million for the trailing twelve month period. Generally, the increases in recurring non-interest expenses and FTEs during 2022 is the
result of the VRB merger closing in March of 2022, and therefore, not reflected in 2021 operating results.
38 TriCo Bancshares 2023 10-K
The provisions for income taxes applicable to income before taxes for the years ended December 31, 2023, 2022 and 2021 differ from
amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory
federal income tax rate are reconciled as follows:
Federal statutory income tax rate
State income taxes, net of federal tax benefit
Tax-exempt interest on municipal obligations
Tax-exempt life insurance related income
Low income housing and other tax credits
Low income housing tax credit amortization
Compensation and benefits
Non-deductible merger expenses
Other
Effective Tax Rate
Year Ended December 31,
2023
2022
2021
21.0 %
21.0 %
21.0 %
7.9
(0.7)
(0.4)
(6.6)
5.6
0.3
—
(0.1)
27.0 %
7.9
(0.7)
(0.4)
(3.7)
3.6
(0.2)
0.1
0.3
7.9
(0.5)
(0.5)
(2.6)
2.2
(0.1)
0.1
0.6
27.9 %
28.1 %
The effective tax rate on income was 27.0%, 27.9%, and 28.1% in 2023, 2022, and 2021, respectively. The effective tax rate was greater
than the Federal statutory rates of 21% due to the combination of state tax expenses of 7.9%. The impact of Federal and state tax
expenses were partially offset by Federal tax-exempt interest income of $5.6 million, $5.5 million, and $3.1 million, respectively, Federal and
State tax-exempt income of $3.1 million, $3.2 million, and $3.5 million, respectively, from increase in cash value and gain on death benefit of
life insurance, and low income housing tax credits and losses, net of amortization of $1.5 million, $0.2 million, and $0.6 million, respectively.
The low-income housing tax credits and the equity compensation excess tax benefits represent direct reductions in tax expense. The items
noted above resulted in an effective combined Federal and State income tax rate that differed from the combined Federal and State
statutory income tax rate of approximately 29.6% during the three years ended 2023, 2022 and 2021.
Financial Condition
Restricted Equity Securities
Restricted equity securities were $17.2 million at December 31, 2023 and December 31, 2022. The entire balance of restricted equity
securities at December 31, 2023 and 2022 represents the Bank’s investment in the Federal Home Loan Bank of San Francisco (“FHLB”).
FHLB stock is carried at par and does not have a readily determinable fair value. While technically these are considered equity securities,
there is no market for the FHLB stock. Therefore, the shares are considered as restricted investment securities. Management periodically
evaluates FHLB stock for other-than-temporary impairment. Management’s determination of whether these investments are impaired is
based on its assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of
whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets
of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by
the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the
FHLB, (3) the impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the
liquidity position of the FHLB.
As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific
percentages of its outstanding mortgages, total assets, or FHLB advances. The Bank may request redemption at par value of any stock in
excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB.
Loans
The Bank concentrates its lending activities in four principal areas: real estate mortgage loans (residential and commercial loans), consumer
loans, commercial loans (including agricultural loans), and real estate construction loans. The interest rates charged for the loans made by
the Bank vary with the degree of risk, the size and maturity of the loans, the borrower’s relationship with the Bank and prevailing money
market rates indicative of the Bank’s cost of funds.
The majority of the Bank’s loans are direct loans made to individuals, farmers and local businesses. The Bank relies substantially on local
promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions. The Bank
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.
Loan Portfolio Composition
39 TriCo Bancshares 2023 10-K
The following table shows the Company’s loan balances, including net deferred loan fees, at the dates indicated:
(dollars in thousands)
Commercial real estate
Consumer
Commercial and industrial, excluding PPP
SBA PPP loans
Construction
Agriculture production
Leases
Total loans
Allowance for credit losses
Year ended December 31,
2023
2022
2021
4,394,802 $
4,359,083 $
3,306,054
1,313,268
1,240,743
1,071,551
585,319
1,136
347,198
144,497
8,250
568,319
1,602
211,560
61,414
7,726
198,208
61,147
222,281
50,811
6,572
$
$
6,794,470 $
6,450,447 $
4,916,624
(121,522) $
(105,680) $
(85,376)
The Company did not purchase any loans during 2023. During the year ended 2022, the Company acquired loans totaling $773.3 million in
connection with the merger with VRB in March of 2022, inclusive of approximately $68.5 million in loans with credit deterioration. During
2021, the Company purchased pools of SFR 1-4 1st DT (consumer) loans totaling approximately $101.5 million inclusive of loan premiums.
As of December 31, 2023 and 2022, the total remaining balances outstanding from these purchases equaled approximately $664.1 million
and $804.3 million, respectively.
The following table shows the Company’s loan balances, including net deferred loan fees, as a percentage of total loans at the dates
indicated:
(dollars in thousands)
Commercial real estate
Consumer
Commercial and industrial
Construction
Agriculture production
Leases
Total loans
Allowance for credit losses
Year ended December 31,
2023
2022
2021
64.7 %
19.3 %
8.7 %
5.1 %
2.1 %
0.1 %
100 %
1.79 %
67.6 %
19.2 %
8.8 %
3.3 %
1.0 %
0.1 %
100 %
1.64 %
67.2 %
21.8 %
5.3 %
4.5 %
1.1 %
0.1 %
100 %
1.74 %
At December 31, 2023, loans including net deferred loan costs, totaled $6.8 billion which was a 5.3% or $344.0 million increase over the
balance at the end of December 31, 2022. At December 31, 2022, loans including net deferred loan costs, totaled $6.5 billion, which was a
31.2% or $1.5 billion increase over the balance at the end of December 31, 2021.
From time to time the Bank may be presented with the opportunity to purchase individual or pools of loans in whole or in part outside of a
transaction that would be considered a business combination. As of December 31, 2023 and 2022, the outstanding carrying value of
purchased loans that were not acquired in a business combination totaled $159.1 million and $167.0 million, respectively.
Asset Quality and Nonperforming Assets
Nonperforming Assets
The following tables set forth the amount of the Bank’s nonperforming assets as of the dates indicated. “Performing non-accrual 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
40 TriCo Bancshares 2023 10-K
principal and interest is not expected, and are not well secured and in the process of collection:
(dollars in thousands)
Performing nonaccrual loans
Nonperforming nonaccrual loans
Total nonaccrual loans
Loans 90 days past due and still accruing
Total nonperforming loans
Foreclosed assets
Total nonperforming assets
U.S. government, including its agencies and its government-
sponsored agencies, guaranteed portion of nonperforming loans
Nonperforming assets to total assets
Nonperforming loans to total loans
Allowance for credit losses to nonperforming loans
December 31,
2023
2022
2021
2019
2018
$
25,380
$
19,543
$
27,713
$
22,896
$
11,266
6,501
31,881
10
31,891
2,705
34,596
877
0.35 %
0.47 %
381 %
$
$
1,770
21,313
8
21,321
3,439
24,760
225
0.25 %
0.33 %
516 %
$
$
2,637
30,350
—
30,350
2,594
32,944
756
0.38 %
0.61 %
281 %
$
$
3,968
26,864
—
26,864
2,844
29,708
811
0.39 %
0.56 %
342 %
$
$
5,579
16,845
19
16,864
2,541
19,405
992
0.30 %
0.39 %
182 %
$
$
Changes in nonperforming assets during the year ended December 31, 2023
The following table shows the activity in the balance of nonperforming assets for the year ended December 31, 2023:
(in thousands)
Commercial real estate:
CRE non-owner occupied
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Total nonperforming loans
Foreclosed assets
Total nonperforming assets
Balance at
December 31,
2022
Additions
Advances/
Paydowns,
net
Charge-offs/
Write-downs
Transfers to
Foreclosed
Assets
Balance at
December 31,
2023
$
1,739 $
1,268 $
(983) $
— $
— $
4,938
125
1,772
8,574
4,220
3,155
76
7,451
3,526
491
1,279
—
15,884
(13,142)
(3,636)
—
14,843
31,995
943
1,979
345
3,267
9,014
—
4,340
—
(125)
(2,131)
(16,381)
(2,247)
(1,496)
(134)
(3,877)
(6,148)
(424)
(3,298)
—
—
—
(3,636)
—
(67)
(182)
(249)
(3,879)
—
—
—
21,321
3,439
48,616
(30,128)
65
(323)
(7,764)
(631)
(50)
—
—
(50)
(105)
—
—
(105)
—
—
—
—
(155)
155
2,024
3,994
—
14,484
20,502
2,811
3,571
105
6,487
2,513
67
2,321
—
31,890
2,705
$
24,760 $
48,681 $
(30,451) $
(8,395) $
— $
34,595
The table above does not include deposit overdraft charge-offs.
Nonperforming assets increased by $9.8 million (39.7%) to $34.6 million at December 31, 2023 from $24.8 million at December 31, 2022.
The increase in nonperforming assets during 2023 was the result of additions totaling $48.7 million, partially offset by net paydowns, sales
or upgrades of nonperforming loans to performing status totaling $30.1 million, and net charge-offs of $7.8 million.
41 TriCo Bancshares 2023 10-K
Changes in nonperforming assets during the year ended December 31, 2022
The following table shows the activity in the balance of nonperforming assets for the year ended December 31, 2022:
(in thousands)
Commercial real estate:
CRE non-owner occupied
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Total nonperforming loans
Foreclosed assets
Total nonperforming assets
Balance at
December 31,
2021
Additions
Advances/
Paydowns,
net
Charge-offs/
Write-downs
Transfers to
Foreclosed
Assets
Balance at
December 31,
2022
$
7,899 $
2,214 $
(8,374) $
— $
— $
3,861
—
2,498
8,573
2,005
2,578
164
4,747
3,741
464
5,373
—
(3,675)
(4,332)
(3,139)
(19,520)
(1,003)
(2,827)
(35)
(3,865)
(1,933)
(28)
(4,094)
—
—
—
(294)
(294)
—
(22)
(124)
(146)
(697)
—
—
—
(284)
—
(313)
(597)
(378)
(375)
—
(753)
—
—
—
—
1,739
4,938
125
1,772
8,574
4,220
3,155
76
7,451
3,526
491
1,279
—
22,898
(29,440)
(1,137)
203
(708)
—
(1,350)
1,350
21,321
3,439
$
32,944 $
23,101 $
(30,148) $
(1,137) $
— $
24,760
5,036
4,457
3,020
20,412
3,596
3,801
71
7,468
2,415
55
—
—
30,350
2,594
The table above does not include deposit overdraft charge-offs.
Nonperforming assets decreased by $8.1 million or 24.8% to $24.8 million at December 31, 2022 from $32.9 million at December 31, 2021.
The decrease in nonperforming assets during 2022 was the result of net paydowns, sales or upgrades of nonperforming loans to performing
status totaling $29.4 million, which was partially offset by $22.9 million of additions to non-performing loans and net charge-offs of
$1.1 million.
42 TriCo Bancshares 2023 10-K
Changes in nonperforming assets during the three months ended December 31, 2023
The following table shows the activity in the balance of nonperforming assets for the quarter ended December 31, 2023:
(in thousands)
Commercial real estate:
CRE non-owner occupied
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Total nonperforming loans
Foreclosed assets
Total nonperforming assets
Balance at
September 30,
2023
Additions
Advances/
Paydowns,
net
Charge-offs/
Write-downs
(1)
Transfers to
Foreclosed
Assets
Balance at
December 31,
2023
$
1,105 $
921 $
(2) $
— $
— $
3,898
—
11,707
16,710
2,884
3,158
156
6,198
2,950
71
3,870
—
29,799
2,852
247
—
3,009
4,177
53
602
16
671
685
—
1,000
—
6,533
—
(73)
—
(232)
(307)
(126)
(165)
(51)
(342)
(546)
(4)
(2,549)
—
(3,748)
(197)
(28)
—
—
(28)
—
(24)
(16)
(40)
(576)
—
—
—
(644)
(50)
—
—
(50)
—
—
—
—
—
—
—
—
(50)
50
2,024
3,994
—
14,484
20,502
2,811
3,571
105
6,487
2,513
67
2,321
—
31,890
2,705
$
32,651 $
6,533 $
(3,945) $
(644) $
— $
34,595
(1) Charge-offs and write-downs exclude deposit overdraft charge-offs.
Nonperforming assets increased during the fourth quarter by $1.9 million or 5.8% to $34.6 million at December 31, 2023 compared to $32.7
million at September 30, 2023. The increase in nonperforming assets during the fourth quarter of 2023 was the result of new nonperforming
loans of $6.5 million, that were partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $3.7
million, and net charge-offs of $0.6 million in non-performing loans.
43 TriCo Bancshares 2023 10-K
Changes in nonperforming assets during the three months ended December 31, 2022
The following table shows the activity in the balance of nonperforming assets for the quarter ended December 31, 2022:
(in thousands)
Commercial real estate:
CRE non-owner occupied
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Total nonperforming loans
Foreclosed assets
Total nonperforming assets
Balance at
September 30,
2022
Additions
Advances/
Paydowns,
net
Charge-offs/
Write-downs
(1)
Transfers to
Foreclosed
Assets
Balance at
December 31,
2022
$
2,032 $
— $
(293) $
— $
— $
1,778
132
695
4,637
3,255
3,365
61
6,681
660
120
5,373
—
17,471
3,441
3,213
—
1,772
4,985
1,283
486
23
1,792
3,030
379
—
—
10,186
92
(53)
(7)
(695)
(1,048)
(99)
(674)
(7)
(780)
(114)
(8)
(4,094)
—
(6,044)
(313)
—
—
—
—
—
(22)
(1)
(23)
(50)
—
—
—
(73)
—
—
—
—
—
(219)
—
—
(219)
—
—
—
—
(219)
219
1,739
4,938
125
1,772
8,574
4,220
3,155
76
7,451
3,526
491
1,279
—
21,321
3,439
$
20,912 $
10,278 $
(6,357) $
(73) $
— $
24,760
(1) Charge-offs and write-downs exclude deposit overdraft charge-offs.
Nonperforming assets increased during the fourth quarter of 2022 by $3.8 million or 18.4% to $24.7 million at December 31, 2022 compared
to $20.9 million at September 30, 2022. The increase in nonperforming assets during the fourth quarter of 2022 was the result of new
nonperforming loans of $10.2 million, that were partially offset by net paydowns, sales or upgrades of nonperforming loans to performing
status totaling $6.0 million, and net charge-offs of $0.1 million in non-performing loans.
Allowance for Credit Losses - Investment Securities
The Company evaluates available for sale 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. During the years ended December 31, 2023 and 2022, no allowance for credit losses nor impairment
recognized in earnings related to available for sale investment securities was recorded.
Allowance for Credit Losses - Held to Maturity Investment Securities
In addition to credit losses associated with the Company's loan portfolio, the CECL standard requires that loss estimates be developed for
securities classified as held-to-maturity (HTM). As of December 31, 2023, the Company's HTM investment portfolio had a carrying value of
approximately $133.5 million and was comprised of $130.8 million in obligations backed by U.S. government agencies and $2.7 million in
obligations of states and political subdivisions. As the 97.9% of the HTM portfolio consisted of investment securities where payment
performance has an implicit or explicit guarantee from the U.S. government and where no history of credit losses exist, management
believes that indicators for zero loss are present and therefore, no loss reserves were recognized in conjunction with the adoption of the
CECL standard. Further, management 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. Based on this
evaluation, management determined that the expected credit losses associated with these securities is less than significant for financial
reporting purposes. Therefore, during the year ended December 31, 2023 as 2022, no allowance for credit losses related to HTM securities
was recorded.
44 TriCo Bancshares 2023 10-K
Allowance for Credit Losses - 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 the estimated time of default. While the provision for credit losses associated with
unfunded commitments is included in "provision for (benefit from) credit losses" on the consolidated statement of income, the reserve for
unfunded commitments is maintained on the consolidated balance sheet in other liabilities.
The Components of the Allowance for Credit Losses
The following table sets forth the Bank’s allowance for credit losses related to loans as of the dates indicated (dollars in thousands):
(dollars in thousands)
Allowance for credit losses:
2023
2022
2021
2020
2019
December 31,
Qualitative and forecast factor allowance
$
84,291
$
70,777
$
59,855
$
61,935
$
12,146
Quantitative (Cohort) model allowance reserves
Total allowance for credit losses
Allowance for individually evaluated loans
Allowance for PCI loan losses
Total allowance for credit losses
34,139
118,430
3,092
32,489
103,266
2,414
24,539
84,394
982
28,462
90,397
1,450
n/a
n/a
n/a
n/a
17,529
29,675
935
6
$
121,522
$
105,680
$
85,376
$
91,847
$
30,616
Ratio of allowance for credit losses to gross loans
1.79 %
1.64 %
1.74 %
1.93 %
0.71 %
Based on the current conditions of the loan portfolio, management believes that the $121.5 million allowance for credit losses at
December 31, 2023 is adequate to absorb probable losses inherent in the Bank’s loan portfolio. No assurance can be given, however, that
adverse economic conditions or other circumstances will not result in increased losses in the portfolio.
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 includes improving shifts in the magnitude of changes for both the
unemployment and GDP factors leading up to the balance sheet date. Despite continued declines on a year over year comparative basis,
core inflation remains elevated from wage pressures, and higher living costs such as housing, energy and food prices resulting in a rising
rate environment for nearly all of 2023. Management notes the rapid intervals of rate increases by the Federal Reserve may create
repricing risk for certain borrowers and continued inversion of the yield curve, creates informed expectations of the US potentially entering a
recession within 12 months. While projected cuts in interest rates from the Federal Reserve during 2024 may improve this outlook, the
uncertainty associated with the extent and timing of these potential reductions has inhibited a material benefit to forecasted reserve levels.
As a result, management continues to believe that certain credit weaknesses are likely present in the overall economy and that it is
appropriate to cautiously maintain a reserve level that incorporates such risk factors.
The following table summarizes the allocation of the allowance for credit losses between loan types:
(in thousands)
Commercial real estate
Consumer
Commercial and industrial
Construction
Agriculture production
Leases
2023
2022
2021
2020
2019
$
68,864 $
61,381 $
51,140 $
53,693 $
11,995
December 31,
27,453
12,750
8,856
3,589
10
24,639
13,597
5,142
906
15
23,474
25,148
3,862
5,667
1,215
18
4,252
7,540
1,209
5
10,084
4,867
3,388
261
21
Total allowance for credit losses
$
121,522 $
105,680 $
85,376 $
91,847 $
30,616
45 TriCo Bancshares 2023 10-K
The following table summarizes the allocation of the allowance for credit losses between loan types as a percentage of the total allowance
for credit losses:
Commercial real estate
Consumer
Commercial and industrial
Construction
Agriculture production
Leases
December 31,
2023
2022
2021
2020
2019
56.7 %
22.6 %
10.5 %
7.3 %
3.0 %
— %
58.1 %
23.3 %
12.9 %
4.9 %
0.9 %
— %
59.9 %
27.5 %
4.5 %
6.6 %
1.4 %
0.1 %
58.5 %
27.4 %
4.6 %
8.2 %
1.3 %
— %
39.2 %
32.9 %
15.9 %
11.0 %
0.9 %
0.1 %
Total allowance for credit losses
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
The following table summarizes the allocation of the allowance for credit losses between loan types as a percentage of total loans in each of
the loan categories listed:
Commercial real estate
Consumer
Commercial and industrial
Construction
Agriculture production
Leases
Total allowance for credit losses
2023
2022
2021
2020
2019
December 31,
1.57 %
2.09 %
2.17 %
2.55 %
2.48 %
0.12 %
1.79 %
1.41 %
1.99 %
2.39 %
2.43 %
1.48 %
0.19 %
1.64 %
1.55 %
2.19 %
1.49 %
2.55 %
2.39 %
0.27 %
1.74 %
1.82 %
2.62 %
0.81 %
2.65 %
2.74 %
0.13 %
1.93 %
0.42 %
1.05 %
1.81 %
1.36 %
1.82 %
1.63 %
0.71 %
The following tables summarize the net charge-off (recovery) activity in the allowance for credit/loan losses as a percentage of loans for the
years indicated (dollars in thousands):
Ratios:
2023
2022
2021
2020
2019
Year ended December 31,
Net charge-offs (recoveries) during period to average loans
outstanding during period
Commercial real estate:
CRE non-owner occupied
CRE owner occupied
Multifamily
Farmland
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Commercial and industrial
Construction
Agriculture production
Leases
Provision for (benefit from) credit losses to average loans
outstanding during period
Allowance for credit losses to loans at year-end
— %
0.38 %
— %
— %
(0.02) %
(0.01) %
0.50 %
0.60 %
— %
— %
— %
0.35 %
1.79 %
— %
— %
— %
0.01 %
— %
— %
0.20 %
0.17 %
— %
— %
— %
0.29 %
1.64 %
— %
(0.11) %
— %
0.07 %
0.02 %
0.33 %
0.32 %
0.28 %
0.01 %
(0.05) %
— %
(0.15) %
1.74 %
0.01 %
— %
— %
0.12 %
(0.08) %
(0.06) %
0.41 %
0.04 %
— %
(0.05) %
— %
0.92 %
1.93 %
(0.09) %
0.13 %
— %
— %
(0.01) %
(0.26) %
0.54 %
0.64 %
— %
(0.02) %
— %
(0.04) %
0.71 %
Generally, losses are triggered by non-performance by the borrower and calculated based on any difference between the current loan
amount and the current value of the underlying collateral less any estimated costs associated with the disposition of the collateral.
46 TriCo Bancshares 2023 10-K
Foreclosed Assets, Net of Allowance for Losses
The following tables detail the components and summarize the activity in foreclosed assets, net of allowances for losses for the years
indicated (dollars in thousands):
Land & Construction
Residential real estate
Commercial real estate
Total foreclosed assets
Land & Construction
Residential real estate
Commercial real estate
Total foreclosed assets
Balance at
December 31,
2022
Additions
Advances/
Capitalized
Costs/Other
Sales
Valuation
Adjustments
Balance at
December 31,
2023
$
154 $
— $
— $
— $
— $
1,709
1,576
105
50
—
—
(127)
(79)
(14)
(669)
$
3,439 $
155 $
— $
(206) $
(683) $
154
1,673
878
2,705
Balance at
December 31,
2021
Additions
Advances/
Capitalized
Costs/Other
Sales
Valuation
Adjustments
Balance at
December 31,
2022
$
154 $
313 $
— $
(313) $
— $
1,257
1,183
751
283
—
—
(392)
—
93
110
$
2,594 $
1,347 $
— $
(705) $
203 $
154
1,709
1,576
3,439
Deposit Portfolio Composition
The following table shows the Company’s deposit balances at the dates indicated:
(dollars in thousands)
Noninterest-bearing demand
Interest-bearing demand
Savings
Time certificates, over $250,000
Other time certificates
Total deposits
Year ended December 31,
2023
2022
2021
$
2,722,689 $
3,502,095 $
2,979,882
1,731,814
2,682,068
250,180
447,287
1,718,541
2,884,378
46,350
177,649
1,568,682
2,520,959
44,652
252,984
$
7,834,038 $
8,329,013 $
7,367,159
Total uninsured deposits were estimated to be approximately $2.4 billion and $2.7 billion at December 31, 2023 and 2022, respectively.
Long-Term Debt
See Note 13 to the consolidated financial statements at Part II, Item 8 of this report for information about the Company’s other borrowings
and long-term debt.
Junior Subordinated Debt
See Note 14 to the consolidated financial statements at Part II, Item 8 of this report for information about the Company’s junior subordinated
debt.
Equity
See Note 16 and Note 26 in the consolidated financial statements at Part II, Item 8 of this report for a discussion of shareholders’ equity and
regulatory capital, respectively. Management believes that the Company’s capital is adequate to support anticipated growth, meet the cash
dividend requirements of the Company and meet the future risk-based capital requirements of the Bank and the Company.
On February 25, 2021 the Board of Directors approved the authorization to repurchase 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. In connection with approval
of the 2021 Repurchase Plan, the Company’s previous repurchase program adopted on November 12, 2019 (the 2019 Repurchase Plan)
was terminated. The following table shows the repurchases made by the Company during 2023 under the 2021 Plan:
47 TriCo Bancshares 2023 10-K
Period
Total number
of
shares
purchased
Average price
paid per share
Maximum number
of shares remaining that may
yet be purchased under
the 2021 Plan
January 1, 2023 - December 31, 2023
150,000
$46.50
1,209,802
We repurchased no shares of the Company's common stock during the quarter ended December 31, 2023.
Market Risk Management
Overview. The goal for managing the assets and liabilities of the Bank is to maximize shareholder value and earnings while maintaining a
high quality balance sheet without exposing the Bank to undue interest rate risk. The Board of Directors has overall responsibility for the
Company’s interest rate risk management policies. The Bank has an Asset and Liability Management Committee which establishes and
monitors guidelines to control the sensitivity of earnings and the fair value of certain assets and liabilities as may be caused by changes in
interest rates. The Company does not hold any financial instruments that are not maintained in US dollars and is not party to any contracts
that may be settled or repaid in a denomination other than US dollars.
Asset/Liability Management. Activities involved in asset/liability management include but are not limited to lending, accepting and placing
deposits, investing in securities and issuing debt. Interest rate risk is the primary market risk associated with asset/liability management.
Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different amount from
that of interest costs on liabilities. To mitigate interest rate risk, the structure of the balance sheet is managed with the goal that movements
of interest rates on assets and liabilities are correlated and contribute to earnings even in periods of volatile interest rates. The asset/liability
management policy sets limits on the acceptable amount of variance in net interest margin and market value of equity under changing
interest environments. Market value of equity is the net present value of estimated cash flows from the Bank’s assets, liabilities and off-
balance sheet items. The Bank uses simulation models to forecast net interest margin and market value of equity.
Simulation of net interest margin and market value of equity under various interest rate scenarios is the primary tool used to measure
interest rate risk. The Bank estimated the potential impact of changing interest rates on net interest margin and market value of equity using
computer-modeling techniques. A balance sheet forecast is prepared using inputs of actual loan, securities and interest-bearing liability (i.e.
deposits/borrowings) positions as the beginning base.
In the simulation of net interest income and market value of equity, the forecast balance sheet is processed against various interest rate
scenarios. These various interest rate scenarios include a flat rate scenario, which assumes interest rates are unchanged in the future, and
rate ramp and or shock scenarios including -300, -200, -100, +100, +200, and +300 basis points around the flat scenario. At December 31,
2023, the overnight Federal funds rate, the rate primarily used in these interest rate shock scenarios, was 5.25%. These scenarios assume
that 1) interest rates increase or decrease evenly (in a “ramp” fashion) over a twelve-month period and remain at the new levels beyond
twelve months or 2) that interest rates change instantaneously (“shock”). The simulation results shown below assume no changes in the
structure of the Company’s balance sheet over the twelve months being measured.
The following table summarizes the estimated effect on net interest income and market value of equity to changing interest rates as
measured against a flat rate (no interest rate change) instantaneous shock scenario over a twelve month period utilizing the Company's
specific mix of interest earning assets and interest bearing liabilities as of December 31, 2023.
Interest Rate Risk Simulations:
Change in Interest
Rates (Basis Points)
+300 (shock)
+200 (shock)
+100 (shock)
+ 0 (flat)
-100 (shock)
-200 (shock)
-300 (shock)
Estimated
Change in
Net Interest
Income (NII)
(as % of NII)
Estimated
Change in
Market Value of
Equity (MVE)
(as % of MVE)
(8.9) %
(6.0) %
(2.8) %
—
0.7 %
1.1 %
1.9 %
(9.9) %
(7.0) %
(2.5) %
—
(2.0) %
(7.1) %
(17.6) %
These simulations indicate that given a “flat” balance sheet size scenario, and if interest-bearing checking, savings and money market
interest rates track the general interest rate changes by the rate shock values listed above, the Company’s balance sheet is slightly liability
sensitive over a twelve month time horizon for both a rates up and rates down shock scenario. “Asset sensitive” implies that net interest
income increases when interest rates rise and decrease when interest rates decrease. “Liability sensitive” implies that net interest income
decreases when interest rates rise and increase when interest rates decrease. “Neutral sensitivity” implies that net interest income does not
48 TriCo Bancshares 2023 10-K
change when interest rates change. The asset liability management policy limits aggregate market risk, as measured in this fashion, to an
acceptable level within the context of risk-return trade-offs.
The simulation results noted above do not incorporate any management actions that might moderate the negative consequences of interest
rate deviations. In addition, the simulation results noted above contain various assumptions such as a flat balance sheet, and the rate that
deposit interest rates change instantaneously as general interest rates change. Therefore, they do not reflect likely actual results, but serve
as estimates of interest rate risk. More specifically, the Company's pre-existing low cost of funds, and the presumption that depositors will
not accept a negative rate environment, does not allow management the ability to meaningfully adjust the cost of deposits below zero. In
addition, many of the Company's loans and investment securities are considered fixed rate interest earning assets. Therefore, in an
instantaneous upward rate shock scenario, management would expect the cost of interest bearing liabilities to reprice faster than interest
earning assets.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the preceding
tables. For example, although certain of the Company’s assets and liabilities may have similar maturities or repricing time frames, they may
react in different degrees to changes in market interest rates. In addition, the interest rates on certain of the Company’s asset and liability
categories may precede, or lag behind, changes in market interest rates. Also, the actual rates of prepayments on loans and investments
could vary significantly from the assumptions utilized in deriving the results as presented in the preceding tables. Further, a change in U.S.
Treasury rates accompanied by a change in the shape of the treasury yield curve could result in different estimations from those presented
herein. Accordingly, the results in the preceding tables should not be relied upon as indicative of actual results in the event of changing
market interest rates. Additionally, the resulting estimates of changes in market value of equity are not intended to represent, and should not
be construed to represent, estimates of changes in the underlying value of the Company.
Interest rate sensitivity is a function of the repricing characteristics of the Company’s portfolio of assets and liabilities. One aspect of these
repricing characteristics is the time frame within which the interest-bearing assets and liabilities are subject to change in interest rates either
at replacement, repricing or maturity. An analysis of the repricing time frames of interest-bearing assets and liabilities is sometimes called a
“gap” analysis because it shows the gap between assets and liabilities repricing or maturing in each of a number of periods. Another aspect
of these repricing characteristics is the relative magnitude of the repricing for each category of interest earning asset and interest-bearing
liability given various changes in market interest rates. Gap analysis gives no indication of the relative magnitude of repricing given various
changes in interest rates. Interest rate sensitivity management focuses on the maturity of assets and liabilities and their repricing during
periods of changes in market interest rates. Interest rate sensitivity gaps are measured as the difference between the volumes of assets and
liabilities in the Company’s current portfolio that are subject to repricing at various time horizons.
The following interest rate sensitivity table shows the Company’s repricing gaps as of December 31, 2023. In this table transaction deposits,
which may be repriced at will by the Company, have been included in the less than 3-month category. The inclusion of all of the transaction
deposits in the less than 3-month repricing category causes the Company to appear liability sensitive. Because the Company may reprice its
transaction deposits at will, transaction deposits may or may not reprice immediately with changes in interest rates.
Due to the limitations of gap analysis, as described above, the Company does not actively use gap analysis in managing interest rate risk.
Instead, the Company relies on the more sophisticated interest rate risk simulation model described above as its primary tool in measuring
and managing interest rate risk.
49 TriCo Bancshares 2023 10-K
As of December 31, 2023
(dollars in thousands)
Interest-earning assets:
Less than 3
months
3 - 6 months
6 - 12 months
1 - 5 years
Over 5 years
Repricing within:
Cash at Federal Reserve and other banks
$
17,075
$
—
$
—
$
—
$
—
Securities
Loans
Total interest-earning assets
Interest-bearing liabilities
Transaction deposits
Time
Other borrowings
Junior subordinated debt
Total interest-bearing liabilities
Interest sensitivity gap
Cumulative sensitivity gap
As a percentage of earning assets:
Interest sensitivity gap
Cumulative sensitivity gap
Liquidity
464,738
1,405,589
1,887,402
100,408
326,268
426,676
110,049
614,799
724,848
685,277
2,446,744
925,526
756,731
3,132,021
1,682,257
4,454,314
—
—
260,580
632,582
101,099
218,181
148,218
—
—
—
—
—
70,488
—
—
$
$
$
5,448,575
(3,561,173)
(3,561,173)
$
$
$
218,181
208,495
(3,352,678)
$
$
$
148,218
576,630
(2,776,048)
$
$
$
70,488
3,061,533
285,485
$
$
$
—
—
—
—
1,682,257
1,967,742
(39.4) %
(39.4) %
2.3 %
(37.1) %
6.4 %
(30.7) %
33.9 %
3.2 %
18.6 %
21.8 %
Liquidity refers to the Company’s ability to provide funds at an acceptable cost to meet loan demand and deposit withdrawals, as well as
contingency plans to meet unanticipated funding needs or loss of funding sources. These objectives can be met from either the asset or
liability side of the balance sheet. Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term
money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally
summarized as investing activities in the Consolidated Statement of Cash Flows. Net cash from investing activities totaled $28.6 million in
2023. Net increases in loan balances from both originations and purchases used approximately $345.9 million of cash, while proceeds from
the maturity and sales of investment securities, net of purchases, provided approximately $385.6 million of cash.
Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding. These activities are included under
financing activities in the Consolidated Statement of Cash Flows. In 2023, financing activities used funds totaling $176.0 million, resulting
from a decline of $495.0 million in deposits, $39.9 million in dividend payment outflows, and an additional $9.2 million used toward the
repurchase of common stock, partially offset by an increase in cash from short term borrowings totaling $368.0 million. The Company's
primary sources of remaining available liquidity from available borrowings and in transit items include the following for the periods indicated:
(dollars in thousands)
Borrowing capacity at correspondent banks and FRB
Less: borrowings outstanding
Unpledged available-for-sale (AFS) investment securities
Cash held or in transit with FRB
Total primary liquidity
Estimated uninsured deposit balances
December 31, 2023
December 31, 2022
$
$
$
2,921,525 $
(600,000)
1,558,506
51,253
3,931,284 $
2,815,574
(216,700)
1,990,451
56,910
4,646,235
2,371,000 $
2,701,000
At December 31, 2023, the Company's primary sources of liquidity represented 50% of total deposits and 166% of estimated total uninsured
(excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the
Company's held-to-maturity investment securities had a fair value of $125.1 million, including approximately $8.3 million in net unrealized
losses. The Company did not utilize any brokered deposits during 2023 or 2022. While these sources are expected to continue to provide
significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market
conditions.
Liquidity is also provided or used through the results of operating activities. In 2023, operating activities provided cash of $138.9 million,
primarily from net income of $117.4 million. In 2022, operating activities provided cash of $162.9 million, primarily from net income of $125.4
million.
50 TriCo Bancshares 2023 10-K
Loan demand during 2024 will depend in part on economic and competitive conditions. The Company emphasizes the solicitation of non-
interest bearing demand deposits and money market checking deposits, which are the least sensitive to interest rates. The outlook for
deposit balances during 2024 is also subject to actions from the Federal Reserve, heightened competition, the success of the Company’s
sales efforts, as well as the delivery of superior customer service and market conditions. The Federal Reserve's anticipated decrease in
interest rates is expected to relieve some pressure on deposit margin expense, however, the competitive landscape for attracting and
retaining deposit balances will continue to remain challenging during 2024. Therefore, due to concerns such as uncertainty in the general
economic environment, political uncertainty, and loan demand, levels of customer deposits are not certain and forecasted changes in those
balances are subject to significant volatility and uncertainty. Depending on economic conditions, interest rate levels, and a variety of other
conditions, proceeds from the sale or maturity of investment securities may be used to fund loans, or reduce short-term borrowings. At
December 31, 2023, we believe the Company has sufficient liquidity and capital resources to meet its cash flow obligations over the
foreseeable future.
The principal cash requirements of the Company are dividends on common stock when declared. The Company is dependent upon the
payment of cash dividends by the Bank to service its commitments. Shareholder dividends are expected to continue subject to the Board’s
discretion and 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 meet this payment schedule. Dividends from the Bank are subject to certain
regulatory restrictions.
The maturity distribution of certificates of deposit in denominations of $250,000 or more is set forth in the following table. These deposits are
generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if
available.
Certificates of Deposit in Denominations of $250,000 or More
(dollars in thousands)
Time remaining until maturity:
Less than 3 months
3 months to 6 months
6 months to 12 months
More than 12 months
Total
Loan maturities
Amounts as of December 31,
2023
2022
$
7,653 $
8,284
17,662
12,751
$
46,350 $
12,978
6,741
11,451
13,482
44,652
Loan demand also affects the Company’s liquidity position. The following table presents the maturities of loans, net of deferred loan costs, at
December 31, 2023:
51 TriCo Bancshares 2023 10-K
Loans with predetermined interest rates:
Commercial Real Estate
Consumer
Commercial & Industrial
Construction
Agricultural Production
Leases
Within
One Year
After One
But Within
Five Years
After Five But
Within 15
Years
After 15
Years
Total
(dollars in thousands)
$
58,681 $
415,410 $
1,177,462 $
21,758 $
1,673,311
89,992
57,689
10,691
177
—
54,531
168,275
13,509
8,553
7,726
121,461
478,171
53,708
26,041
10,265
—
8,048
11,054
—
—
744,155
287,720
61,295
18,995
7,726
Total loans with predetermined interest rates
217,230
668,004
1,388,937
519,031
2,793,202
Loans with floating interest rates:
Commercial Real Estate
Consumer
Commercial & Industrial
Construction
Agricultural Production
Leases
86,848
30,309
98,532
44,044
32,320
—
513,917
2,023,972
61,035
2,685,772
45,984
151,275
41,890
9,730
—
104,617
315,678
12,572
57,839
360
—
19,822
6,492
9
—
496,588
282,201
150,265
42,419
—
Total loans with floating interest rates
Total loans
292,053
762,796
2,199,360
403,036
3,657,245
$
509,283 $
1,430,800 $
3,588,297 $
922,067 $
6,450,447
Investment maturities
The maturity distribution and yields of the investment portfolio at December 31, 2023 is presented in the following tables. The timing of the
maturities indicated in the tables below is based on final contractual maturities. Most mortgage-backed securities return principal throughout
their contractual lives. As such, the weighted average life of mortgage-backed securities based on outstanding principal balance is usually
significantly shorter than the final contractual maturity indicated below. Yields on tax exempt securities are shown on a tax equivalent basis.
Within
One Year
After One Year
but Through
Five Years
After Five Years
but Through Ten
Years
After Ten
Years
Total
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
(dollars in thousands)
Debt Securities Available for Sale
Obligations of US government
agencies
Obligations of states and political
subdivisions
Corporate bonds
Asset backed securities
Non-agency collateralized mortgage
obligations
Total debt securities available for
sale
Debt Securities Held to Maturity
$ 59,837
0.41 % $ 27,560
2.72 % $ 62,241
2.46 % $ 1,072,098
2.17 % $ 1,221,736
2.11 %
718
3.43 % 12,337
1.87 %
63,579
3.22 %
159,741
3.05 %
236,375
3.03 %
—
—
— %
—
— %
5,601
4.95 %
—
— %
5,601
4.95 %
— %
5,035
3.65 % 214,904
6.76 %
135,344
6.53 %
355,283
6.63 %
21,220
— %
—
— %
8,008
2.20 %
304,281
2.62 %
333,509
2.74 %
$ 81,775
1.54 % $ 44,932
2.58 % $ 354,333
5.16 % $ 1,671,464
2.65 % $ 2,152,504
3.02 %
Obligations of US government
agencies
$
Obligations of states and political
subdivisions
Total debt securities held to maturity $
—
—
—
— % $ 4,722
2.27 % $ 87,506
2.77 % $ 38,595
2.59 % $ 130,823
2.70 %
— %
1,107
4.52 %
1,564
3.59 %
—
— %
2,671
3.98 %
— % $ 5,829
2.70 % $ 89,070
2.79 % $ 38,595
2.59 % $ 133,494
2.73 %
52 TriCo Bancshares 2023 10-K
Off-Balance Sheet Items
The Bank has certain ongoing commitments under leases. See Note 11 of the financial statements at Part II, Item 8 of this report for the
terms. These commitments do not significantly impact operating results. As of December 31, 2023, commitments to extend credit and
commitments related to the Bank’s deposit overdraft privilege product were the Bank’s only financial instruments with off-balance sheet risk.
The Bank has not entered into any material contracts for financial derivative instruments such as futures, swaps, options, etc. Commitments
to extend credit were $2.38 billion and $2.22 billion at December 31, 2023 and 2022, respectively, and represent 35.0% of the total loans
outstanding at year-end 2023 versus 34.3% at December 31, 2022. Commitments related to the Bank’s deposit overdraft privilege product
totaled $121.5 million and $126.6 million at December 31, 2023 and 2022, respectively.
Certain Contractual Obligations
The following chart summarizes certain contractual obligations of the Company as of December 31, 2023:
(dollars in thousands)
Time deposits
Total
Less than
one year
1-3
years
3-5
years
More than
5 years
$
697,467 $
626,979 $
67,506 $
2,982 $
Overnight borrowing at FHLB, fixed rate, as of December 31,
2023 of 5.70%, payable on January 2, 2024
Term borrowing at FHLB, fixed rate, as of December 31, 2023 of
4.75%, payable on April 8, 2024
400,000
400,000
200,000
200,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,779
367
3,226
4,319
—
3,316
—
—
—
20,619
20,619
5,602
4,472
7,615
17,000
25,172
4,408
—
5,902
20,619
20,619
5,602
4,472
7,615
17,000
25,172
28,261
555
14,238
—
—
—
—
—
—
—
5,755
188
1,794
Junior subordinated debt:
TriCo Trust I(1)
TriCo Trust II(2)
North Valley Trust II(3)
North Valley Trust III(4)
North Valley Trust IV(5)
VRB Subordinated - 6%(6)
VRB Subordinated - 5%(7)
Operating lease obligations
Deferred compensation(8)
Supplemental retirement plans(8)
Total contractual obligations
$
1,441,620 $
1,234,716 $
84,878 $
10,617 $
111,409
(1) Junior subordinated debt, adjustable rate of three-month SOFR plus 3.05%, callable in whole or in part by the Company on a quarterly
basis beginning October 7, 2008, matures October 7, 2033.
(2) Junior subordinated debt, adjustable rate of three-month SOFR plus 2.55%, callable in whole or in part by the Company on a quarterly
basis beginning July 23, 2009, matures July 23, 2034.
(3) Junior subordinated debt, adjustable rate of three-month SOFR plus 3.25%, callable in whole or in part by the Company on a quarterly
basis beginning April 24, 2008, matures April 24, 2033.
(4) Junior subordinated debt, adjustable rate of three-month SOFR plus 2.80%, callable in whole or in part by the Company on a quarterly
basis beginning July 23, 2009, matures July 23, 2034.
(5) Junior subordinated debt, adjustable rate of three-month SOFR plus 1.33%, callable in whole or in part by the Company on a quarterly
basis beginning March 15, 2011, matures March 15, 2036.
(6) Junior subordinated debt, fixed rate of 6% until March 29, 2024, then floating rate of three-month SOFR plus 3.52% until maturity in
2029. Redeemable in whole or in part by the Company beginning March 29, 2024.
(7) Junior subordinated debt, fixed rate of 5% until August 27, 2025, then floating rate of 90-day average SOFR plus 4.90% until maturity in
2035. Redeemable in whole or in part by the Company beginning August 27, 2025.
(8) These amounts represent known certain payments to participants under the Company’s deferred compensation and supplemental
retirement plans. See Note 22 in the financial statements at Part II, Item 8 of this report for additional information related to the
Company’s deferred compensation and supplemental retirement plan liabilities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Market Risk Management” under Item 7 of this report which is incorporated herein.
53 TriCo Bancshares 2023 10-K
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm (Moss Adams LLP, San Francisco, California, PCAOB ID: 659)
Page
55
56
56
57
58
60
107
108
54 TriCo Bancshares 2023 10-K
TRICO BANCSHARES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Assets:
Cash and due from banks
Cash at Federal Reserve and other banks
Cash and cash equivalents
Investment securities:
Marketable equity securities
Available for sale debt securities, at fair value (amortized cost of $2,384,325 and $2,742,987)
Held to maturity debt securities, at amortized cost, net of allowance for credit losses of $0
Restricted equity securities
Loans held for sale
Loans
Allowance for credit losses
Total loans, net
Premises and equipment, net
Cash value of life insurance
Accrued interest receivable
Goodwill
Other intangible assets, net
Operating leases, right-of-use
Other assets
Total assets
Liabilities and Shareholders’ Equity:
Liabilities:
Deposits:
Noninterest-bearing demand
Interest-bearing
Total deposits
Accrued interest payable
Operating lease liability
Other liabilities
Other borrowings
Junior subordinated debt
Total liabilities
Commitments and contingencies (Note 15)
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized; zero issued and outstanding at December 31,
2023 and 2022, respectively
Common stock, no par value: 50,000,000 shares authorized; issued and outstanding: 33,268,102 and
33,331,513 at December 31, 2023 and 2022, respectively
Retained earnings
Accumulated other comprehensive loss, net of tax
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
55 TriCo Bancshares 2023 10-K
At December 31,
2023
At December 31,
2022
$
81,626 $
17,075
98,701
2,634
2,152,504
133,494
17,250
458
6,794,470
(121,522)
6,672,948
71,347
136,892
36,768
304,442
10,552
26,133
245,966
96,323
10,907
107,230
2,598
2,452,438
160,983
17,250
1,846
6,450,447
(105,680)
6,344,767
72,327
133,742
31,856
304,442
16,670
26,862
257,975
$
9,910,089 $
9,930,986
$
2,722,689 $
5,111,349
7,834,038
8,445
28,261
145,982
632,582
101,099
3,502,095
4,826,918
8,329,013
1,167
29,004
159,741
264,605
101,040
8,750,407
8,884,570
—
—
697,349
615,502
(153,169)
1,159,682
$
9,910,089 $
697,448
542,873
(193,905)
1,046,416
9,930,986
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Interest and dividend income:
Loans, including fees
Investments:
Taxable securities
Tax exempt securities
Dividends
Interest bearing cash at Federal Reserve and other banks
Total interest and dividend income
Interest expense:
Deposits
Other borrowings
Junior subordinated debt
Total interest expense
Net interest income
Provision for (benefit from) credit losses
Net interest income after provision for (benefit from) credit losses
Noninterest income:
Service charges and fees
Commissions on sale of non-deposit investment products
Increase in cash value of life insurance
Gain on sale of loans
Loss on sale of investment securities
Other
Total noninterest income
Noninterest expense:
Salaries and related benefits
Other
Total noninterest expense
Income before income taxes
Provision for income taxes
Net income
Earnings per share:
Basic
Diluted
Year ended December 31,
2023
2022
2021
$
356,710 $
285,375 $
242,269
73,924
5,120
1,294
1,306
59,395
5,199
1,137
4,399
29,361
3,568
991
858
438,354
355,505
277,047
55,087
19,712
6,878
81,677
356,677
23,990
332,687
4,689
421
4,419
9,529
345,976
18,470
327,506
3,318
22
2,168
5,508
271,539
(6,775)
278,314
50,088
49,765
43,948
4,517
3,150
1,166
(284)
2,763
61,400
135,795
97,387
233,182
160,905
43,515
3,986
2,858
2,342
—
4,095
63,046
129,852
86,793
216,645
173,907
48,488
3,668
2,775
9,580
—
3,693
63,664
106,351
71,924
178,275
163,703
46,048
$
$
$
117,390 $
125,419 $
117,655
3.53 $
3.52 $
3.85 $
3.83 $
3.96
3.94
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available for sale securities arising during the period, after
reclassifications
Change in minimum pension liability, after reclassifications
Change in joint beneficiary agreement liability
Other comprehensive income (loss)
Comprehensive income (loss)
The accompanying notes are an integral part of these consolidated financial statements.
56 TriCo Bancshares 2023 10-K
Year ended December, 31
2023
2022
2021
$
117,390 $
125,419 $
117,655
41,365
(204,376)
(13,788)
(263)
(366)
8,101
1,389
2,602
(113)
40,736
(194,886)
(11,299)
$
158,126 $
(69,467) $
106,356
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except share and per share data)
Shares of
Common
Stock
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
29,727,214 $
530,835 $
381,999 $
12,280 $
925,114
117,655
(11,299)
Balance at January 1, 2021
Net income
Other comprehensive income (loss)
Service condition RSU vesting
Market plus service condition RSU vesting
Stock options exercised
Service condition RSUs released
Market plus service condition RSUs released
Repurchase of common stock
Dividends paid ($1.00 per share)
Balance at December 31, 2021
Net income
Other comprehensive income (loss)
Service condition RSU vesting
Market plus service condition RSU vesting
Stock options exercised
Service condition RSUs released
Market plus service condition RSUs released
Issuance of common stock
Repurchase of common stock
Dividends paid ($1.10 per share)
Balance at December 31, 2022
Net income
Other comprehensive income (loss)
Service condition RSU vesting
Market plus service condition RSU vesting
Service condition RSUs released
Market plus service condition RSUs released
Stock options exercised
Issuance of common stock
Repurchase of common stock
Dividends paid ($1.20 per share)
Balance at December 31, 2023
1,728
910
758
49,675
45,492
19,272
(111,229)
(1,987)
29,730,424
532,244
(2,971)
(29,724)
466,959
125,419
2,883
986
1,190
63,325
50,076
26,338
4,105,518
(644,168)
173,585
(13,440)
33,331,513
697,448
(13,708)
(35,797)
542,873
117,390
2,806
1,319
156
—
81,902
55,928
8,000
—
(209,241)
(4,380)
(4,860)
(39,901)
117,655
(11,299)
1,728
910
758
—
—
(4,958)
(29,724)
981
1,000,184
125,419
(194,886)
(194,886)
2,883
986
1,190
—
—
173,585
(27,148)
(35,797)
(193,905)
1,046,416
40,736
117,390
40,736
2,806
1,319
—
—
156
—
(9,240)
(39,901)
33,268,102 $
697,349 $
615,502 $
(153,169) $
1,159,682
The accompanying notes are an integral part of these consolidated financial statements.
57 TriCo Bancshares 2023 10-K
TRICO BANCSHARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
2023
2022
2021
$
117,390 $
125,419 $
117,655
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment, and amortization
Amortization of intangible assets
Provision for (benefit from) credit losses on loans
Amortization of investment securities premium, net
Loss on sale of investment securities
Originations of loans for resale
Proceeds from sale of loans originated for resale
Gain on sale of loans
Change in market value of mortgage servicing rights
Gain on sale of real estate owned, net
Deferred income tax expense
Gain on transfer of loans to real estate owned
Operating lease payments
Loss (gain) on disposal of fixed assets
Increase in cash value of life insurance
Gain on life insurance death benefit
(Gain) loss on marketable equity securities
Equity compensation vesting expense
Change in value of other real estate
Amortization of operating lease right of use asset
Change in:
Interest receivable
Interest payable
Other assets and liabilities, net
Net cash from operating activities
Investing activities:
Cash acquired in acquisition; net of consideration paid
Maturities and principal repayments of securities available for sale
Maturities and principal repayments of securities held to maturity
Proceeds from sale of available for sale securities
Purchases of securities available for sale
Loan origination and principal collections, net
Loans purchased
Proceeds from sale of real estate owned
Proceeds from sale of premises and equipment
Purchases of premises and equipment
Life insurance proceeds
Net cash from (used in) investing activities
Financing activities:
Net change in deposits
Net change in other borrowings
Repurchase of common stock, net
Dividends paid
Exercise of stock options, net
Net cash (used in) from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
58 TriCo Bancshares 2023 10-K
6,366
6,118
23,990
312
284
(43,313)
45,467
(1,166)
506
(18)
(2,399)
(114)
(6,378)
23
(3,150)
—
(36)
4,125
797
6,364
(4,912)
7,278
(18,647)
138,887
—
321,738
27,260
71,024
(34,468)
(345,902)
(6,423)
224
—
(4,886)
—
28,567
(494,975)
367,977
(9,240)
(39,901)
156
(175,983)
(8,529)
107,230
6,012
6,334
18,470
6,641
—
(71,600)
74,922
(2,342)
(301)
(166)
(8,022)
(316)
(5,904)
(1,070)
(2,858)
(309)
340
3,869
113
6,033
(9,170)
(287)
17,087
162,895
426,883
267,830
38,399
—
(699,035)
(739,037)
(22,845)
873
6,690
(3,623)
641
6,363
5,464
(6,775)
6,685
—
(217,210)
227,938
(9,580)
872
—
(936)
(233)
(4,964)
(439)
(2,775)
(702)
86
2,638
9
5,452
712
(434)
2,381
132,207
—
371,632
83,929
—
(1,190,690)
(45,812)
(108,433)
1,526
2,743
(3,196)
4,490
(723,224)
(883,811)
(253,625)
214,518
(27,148)
(35,797)
1,190
(100,862)
(661,191)
768,421
861,225
23,173
(4,344)
(29,724)
144
850,474
98,870
669,551
768,421
$
98,701 $
107,230 $
Supplemental disclosure of cash flow activity:
Cash paid for interest expense
Cash paid for income taxes
Supplemental disclosure of noncash activities:
Unrealized gain (loss) on securities available for sale
Loans transferred to foreclosed assets
Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes
Obligations incurred in conjunction with leased assets
Business combination (1)
Year ended December 31,
2023
2022
2021
$
$
$
$
$
$
74,399 $
45,300 $
9,290 $
41,000 $
5,942
46,300
58,727 $
(290,157) $
(19,575)
155 $
2,266 $
4,300 $
1,349 $
2,522 $
6,149 $
1,052
2,118
2,883
(1) In the year ended 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.
The accompanying notes are an integral part of these consolidated financial statements.
59 TriCo Bancshares 2023 10-K
TRICO BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2023, 2022 and 2021
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 and retail banking business in 31 California counties. 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 obtained through
acquisition.
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
and its wholly-owned subsidiary. All inter-company accounts and transactions have been eliminated in consolidation. For financial reporting
purposes, the Company’s investments in the Capital Trusts of $1.8 million are accounted for under the equity method and, accordingly, are
included in other assets on the consolidated balance sheets. The subordinated debentures issued and guaranteed by the Company and
held by the Capital Trusts are reflected as debt on the Company’s consolidated balance sheets.
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.
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.
Business Combinations
The Company accounts for acquisitions of businesses using the acquisition method of accounting. Under the acquisition method, assets
acquired and liabilities assumed are recorded at their estimated fair values at the date of acquisition. Management utilizes various valuation
techniques including discounted cash flow analyses to determine these fair values. Any excess of the purchase price over amounts
allocated to the acquired assets, including identifiable intangible assets, and liabilities assumed is recorded as goodwill.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and
federal funds sold. Net cash flows are reported for loan and deposit transactions and other borrowings.
Non-Marketable and Other Equity Securities
Non-marketable and other equity securities include qualified public welfare investments and venture capital/private equity funds. Our
accounting for investments in non-marketable and other equity securities depends on several factors, including the level of ownership,
power to control and the legal structure of the subsidiary making the investment. We base our accounting for such securities on: (i) fair
value accounting, (ii) measurement alternative for other investments without a readily determinable fair value, and (iii) equity method
accounting. During the twelve months ended December 31, 2023 and 2022, the Company recognized an insignificant amount of earnings
and losses in the consolidated statements of net income related to changes in the fair value of non-marketable and other equity securities.
60 TriCo Bancshares 2023 10-K
Debt Securities
The Company classifies its debt securities into one of three categories: trading, available for sale or held to maturity. Trading securities are
bought and held principally for the purpose of selling in the near term and changes in the value of these securities are recorded through
earnings. Held to maturity securities are those securities which the Company has the ability and intent to hold until maturity. These securities
are carried at cost adjusted for amortization of premium and accretion of discount, computed by the effective interest method over their
contractual lives. All other securities not included in trading or held to maturity are classified as available for sale. AFS securities are
recorded at fair value. Unrealized gains and losses, net of the related tax effect, on available for sale securities are reported as a separate
component of other accumulated comprehensive income in shareholders’ equity until realized. Discounts are amortized or accreted over the
expected life of the related investment security as an adjustment to yield using the effective interest method. Premiums on callable debt
securities are generally amortized to the earliest call date of the security with the exception of mortgage backed securities, where estimated
prepayments, if any, are considered. Dividend and interest income are recognized when earned. Realized gains and losses are derived
from the amortized cost of the security sold. The Company did not have any debt securities classified as trading during the three year period
ended December 31, 2023.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued
interest separately in the consolidated balance sheets. A debt security is placed on nonaccrual status at the time any principal or interest
payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security
placed on nonaccrual is reversed against interest income. There was no accrued interest related to debt securities reversed against interest
income for the years ended December 31, 2023, 2022 and 2021.
The Company evaluates available for sale 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 years ended December 31, 2023, 2022 or 2021.
For HTM debt securities, the Company measures expected credit losses on held-to-maturity debt securities on a collective basis by major
security type, then further disaggregated by sector and bond rating. Accrued interest receivable on held-to-maturity (HTM) debt securities is
excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is
adjusted for current condition 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 HTM investment
securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss assumption. Management has
separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data
represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined
that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance
for credit losses has been recognized during the years ended December 31, 2023, 2022 or 2021.
Restricted Equity Securities
Restricted equity securities represent the Company’s investment in the stock of the Federal Home Loan Bank of San Francisco (“FHLB”)
and are carried at par value, which reasonably approximates its fair value. While technically these are considered equity securities, there is
no market for the FHLB stock. Therefore, the shares are considered as restricted investment securities. Management periodically evaluates
FHLB stock for other-than-temporary impairment. Management’s determination of whether these investments are impaired is based on its
assessment of the ultimate recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a
decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net assets of the FHLB
as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to
make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, (3) the
impact of legislative and regulatory changes on institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of
the FHLB.
As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific
percentages of its outstanding mortgages, total assets, or FHLB advances. The Bank may request redemption at par value of any stock in
excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB. Both cash and stock dividends are
reported as income when received.
61 TriCo Bancshares 2023 10-K
Loans Held for Sale
Loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as determined by
aggregate outstanding commitments from investors of current investor yield requirements. Net unrealized losses are recognized through a
valuation allowance by charges to non-interest income.
Mortgage loans held for sale are generally sold with the mortgage servicing rights retained by the Company. Gains or losses on the sale of
loans that are held for sale are recognized at the time of the sale and determined by the difference between net sale proceeds and the net
book value of the loans less the estimated fair value of any retained mortgage servicing rights.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal
amount outstanding, net of deferred loan fees and costs. Loan origination and commitment fees and certain direct loan origination costs are
deferred, and the net amount is amortized as an adjustment to the related loan’s yield over the actual life of the loan. Loans on which the
accrual of interest has been discontinued are designated as nonaccrual loans.
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. 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 Company measures credit losses under ASU 2016-03 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments, which replaced the incurred loss methodology, and is referred to as the current expected credit loss
(CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured
at amortized costs, including loan receivables and held-to-maturity debt securities.
The allowance for credit losses (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, and the pace of change in corporate bond yields.
The Company also considers macroeconomic forecasts to estimate the ACL.
A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the
collateral. The ACL on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell
when applicable, less the amortized cost basis of the financial asset. If the value of underlying collateral is determined to be less than the
recorded amount of the loan, a charge-off will be taken.
PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination which may be determined
through observation of missed payments, downgrade in risk rating, deterioration of a borrower's financial trends or other observable factors
including subjectivity utilized by management. PCD assets 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 consolidated balance sheets, while the allowance for acquired non-PCD assets, such as loans, is
recorded through the provision for credit losses on the consolidated statements of income, 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.
62 TriCo Bancshares 2023 10-K
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 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 these 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
63 TriCo Bancshares 2023 10-K
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.
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.
Real Estate Owned
Real estate owned (REO) includes assets acquired through, or in lieu of, loan foreclosure. REO is held for sale and are initially recorded at
fair value less estimated costs to sell at the date of acquisition, establishing a new cost basis. Physical possession of residential real estate
property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower
conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal
agreement. Any write-downs based on the asset’s fair value less costs to sell at the date of acquisition are charged to the allowance for loan
and lease losses. Any recoveries based on the asset’s fair value less estimated costs to sell in excess of the recorded value of the loan at
the date of acquisition are recorded to the allowance for loan and lease losses. These assets are subsequently accounted for at lower of
cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through
expense. Operating costs after acquisition are expensed. Revenue and expenses from operations and changes in the valuation allowance
are included in other non-interest expense, along with the gain or loss on sale of REO.
Premises and Equipment
Land is carried at cost. Land improvements, buildings and equipment, including those acquired under capital lease, are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization expenses are computed using the straight-line method over the
shorter of the estimated useful lives of the related assets or lease terms. Asset lives range from 3-10 years for furniture and equipment and
15-40 years for land improvements and buildings.
Company Owned Life Insurance
The Company has purchased life insurance policies on certain key executives. Company owned life insurance is recorded at the amount
that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or
other amounts due that are probable at settlement.
As a result of current tax law and the nature of these policies, the Bank records any increase in cash value of these policies as nontaxable
non-interest income. If the Bank decided to surrender any of the policies prior to the death of the insured, such surrender may result in a tax
expense related to the life-to-date cumulative increase in cash value of the policy. If the Bank retains such policies until the death of the
insured, the Bank would receive nontaxable proceeds from the insurance company equal to the death benefit of the policies. The Bank has
entered into Joint Beneficiary Agreements (JBAs) with certain of the insured that provide some level of sharing of the death benefit, less the
cash surrender value, among the Bank and the beneficiaries of the insured upon the receipt of death benefits.
Goodwill, Other Intangible and Long-Lived Assets
Goodwill represents the excess of costs over fair value of net assets of businesses acquired from a business combination. The Company
has an identifiable intangible asset consisting of core deposit intangibles (“CDI”). CDI are amortized over their respective estimated useful
lives and reviewed periodically for impairment. Goodwill and other intangible assets acquired in a business combination and determined to
have an indefinite useful life are not amortized, but instead tested for impairment at least annually. Other intangible assets with estimable
useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed periodically for
impairment.
64 TriCo Bancshares 2023 10-K
As of September 30 of each year, goodwill is tested for impairment, and is tested for impairment more frequently if events and
circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds
the asset’s fair value.
Long-lived assets, such as premises and equipment, and purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be
separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset
and liability sections of the consolidated balance sheet.
Mortgage Servicing Rights
Mortgage servicing rights (“MSR”) represent the Company’s right to a future stream of cash flows based upon the contractual servicing fee
associated with servicing mortgage loans. Our MSR arise from residential and commercial mortgage loans that we originate and sell, but
retain the right to service the loans. The net gain from the retention of the servicing right is included in gain on sale of loans in non-interest
income when the loan is sold. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or
alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model
incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the
discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses. Servicing
fees, when earned, and changes in fair value of the MSR, are recorded in non-interest income.
The Company accounts for MSR at fair value. The determination of fair value of our MSR requires management judgment because they are
not actively traded. The determination of fair value for MSR requires valuation processes which combine the use of discounted cash flow
models and extensive analysis of current market data to arrive at an estimate of fair value. The cash flow and prepayment assumptions
used in our discounted cash flow model are based on empirical data drawn from the historical performance of our MSR, which we believe
are consistent with assumptions used by market participants valuing similar MSR, and from data obtained on the performance of similar
MSR. The key assumptions used in the valuation of MSR include mortgage prepayment speeds and the discount rate. These variables can,
and generally will, change from quarter to quarter as market conditions and projected interest rates change. The key risks inherent with
MSR are prepayment speed and changes in interest rates.
Leases
The Company records a right-of-use asset (“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 is also required to record a lease liability on the
consolidated balance sheets for the present value of future payment commitments. Substantially 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 twelve months or less) within the
ROUA and lease liability. Known or determinable adjustments to the required minimum future lease payments are 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 are not unknown and not determinable at lease commencement and
therefore, are 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. The Company uses
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.
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under credit card
arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded when they are funded.
Low Income Housing Tax Credits
The Company accounts for low income housing tax credits and the related qualified affordable housing projects using the proportional
amortization method. Under the proportional amortization method, the Company amortizes the initial cost of the investment in proportion to
the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of
income tax expense (benefit). Upon entering into a qualified affordable housing project, the Company records, in other liabilities, the entire
amount that it has agreed to invest in the project, and an equal amount, in other assets, representing its investment in the project. As the
Company disburses cash to satisfy its investment obligation, other liabilities are reduced. Over time, as the tax credits and other tax benefits
of the project are realized by the Company, the investment recorded in other assets is reduced using the proportional amortization method.
Income Taxes
65 TriCo Bancshares 2023 10-K
The Company’s accounting for income taxes is based on an asset and liability approach. The Company recognizes the amount of taxes
payable or refundable for the current year, and deferred tax assets and liabilities for the future tax consequences that have been recognized
in its financial statements or tax returns. The measurement of tax assets and liabilities is based on the provisions of enacted tax laws. A
valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax
assets is dependent upon the generation of a sufficient level of future taxable income and recoverable taxes paid in prior years. Although
realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a
tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of
being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Interest and/or
penalties related to income taxes are reported as a component of non-interest income.
Share-Based Compensation
Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of
the awards at the date of grant. The estimate of the fair value of stock options and performance based restricted awards are based on a
Black-Scholes or Monte Carlo model, respectively, while the market price of the common stock at the date of grant is used for time based
restricted awards. Compensation cost is recognized over the required service period, generally defined as the vesting or measurement
period. The Company’s accounting policy is to recognize forfeitures as they occur.
Earnings per Share
Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares
outstanding during the period. There are no unvested share-based payment awards that contain rights to nonforfeitable dividends
(participating securities). Diluted earnings per share reflects 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 solely from outstanding stock options and restricted stock units, and are determined using
the treasury stock method.
Revenue Recognition
The Company records revenue from contracts with customers in accordance with Accounting Standards Codification Topic 606, “Revenue
from Contracts with Customers” (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the
performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the
contract, and recognize revenue when (or as) the Company satisfies a performance obligation.
Most of our revenue-generating transactions are not subject to Topic 606, including revenue generated from financial instruments, such as
our loans and investment securities. In addition, certain non-interest income streams such as fees associated with mortgage servicing rights,
financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. The Company’s non-interest
revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees
based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance
obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore,
does not experience significant contract balances. As of December 31, 2023 and December 31, 2022, the Company did not have any
significant contract balances. The Company has evaluated the nature of its revenue streams and determined that further disaggregation of
revenue into more granular categories beyond what is presented in Note 18 was not necessary. The following are descriptions of revenues
within the scope of ASC 606.
Deposit service charges
The Company earns fees from its deposit customers for account maintenance, transaction-based and overdraft services. Account
maintenance fees consist primarily of account fees and analyzed account fees charged on deposit accounts on a monthly basis. The
performance obligation is satisfied and the fees are recognized on a monthly basis as the service period is completed. Transaction-based
fees on deposit accounts are charged to deposit customers for specific services provided to the customer, such as non-sufficient funds fees,
overdraft fees, and wire fees. The performance obligation is completed as the transaction occurs and the fees are recognized at the time
each specific service is provided to the customer.
Debit and ATM interchange fees
Debit and ATM interchange income represent fees earned when a debit card issued by the Company is used. The Company earns
interchange fees from debit cardholder transactions through the Visa payment network. Interchange fees from cardholder transactions
represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services
provided to the cardholder. The performance obligation is satisfied and the fees are earned when the cost of the transaction is charged to
the cardholders’ debit card. Certain expenses directly associated with the credit and debit card are recorded on a net basis with the
interchange income.
Commission on sale of non-deposit investment products
Commissions on sale of non-deposit investment products consist of fees earned from advisory asset management, trade execution and
administrative fees from investments. Advisory asset management fees are variable, since they are based on the underlying portfolio value,
66 TriCo Bancshares 2023 10-K
which is subject to market conditions and asset flows. Advisory asset management fees are recognized quarterly and are based on the
portfolio values at the end of each quarter. Brokerage accounts are charged commissions at the time of a transaction and the commission
schedule is based upon the type of security and quantity. In addition, revenues are earned from selling insurance and annuity policies. The
amount of revenue earned is determined by the value and type of each instrument sold and is recognized at the time the policy or contract is
written.
Merchant fee income
Merchant fee income represents fees earned by the Company for card payment services provided to its merchant customers. The Company
outsources these services to a third party to provide card payment services to these merchants. The third party provider passes the
payments made by the merchants through to the Company. The Company, in turn, pays the third party provider for the services it provides to
the merchants. These payments to the third party provider are recorded as expenses as a net reduction against fee income. In addition, a
portion of the payment received represents interchange fees which are passed through to the card issuing bank. Income is primarily earned
based on the dollar volume and number of transactions processed. The performance obligation is satisfied and the related fee is earned
when each payment is accepted by the processing network.
Gain/loss on other real estate owned, net
The Company records a gain or loss from the sale of other real estate owned when control of the property transfers to the buyer, which
generally occurs at the time of an executed deed of trust. When the Company finances the sale of other real estate owned to the buyer, the
Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the
transaction price is probable. Once these criteria are met, the other real estate owned asset is derecognized and the gain or loss on sale is
recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on sale, the Company adjusts the
transaction price and related gain or loss on sale if a significant financing component is present. Gains or losses from transactions
associated with other real estate owned are recorded as a component of non-interest expense.
Reclassifications
Certain amounts reported in previous consolidated financial statements have been reclassified and recalculated to conform to the
presentation in this report. These reclassifications did not affect previously reported amounts of net income, total assets or total
shareholders’ equity.
Accounting Standards Adopted in 2023
In March 2022, the FASB issued ASU 2022-02, Financial Instruments — Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures. The amendments in this Update eliminated the TDR recognition and measurement guidance and, instead, required
that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a
continuation of an existing loan. The amendments also enhanced existing disclosure requirements and introduced new requirements related
to certain modifications of receivables made to borrowers experiencing financial difficulty. Furthermore, the amendments in this Update
required that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases
within the scope of Subtopic 326-20. The Company adopted these amendments on January 1, 2023 and has observed no significant impact
on the consolidated financial statements.
Accounting Standards Pending Adoption
FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This ASU was issued to enhance the transparency and decision
usefulness of income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. This ASU is effective for
fiscal years beginning after December 15, 2024. The adoption of this accounting guidance is not expected to have a material impact on the
Company’s consolidated financial statements but will result in the expansion of the income tax disclosures.
FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This ASU was issued to address
stakeholder requests for more detailed information about expenses within each reportable segment and address disclosure requirements
there within. The amendments retain existing disclosure requirements, and expand upon them for both interim and annual reporting periods.
In addition, entities with a single reportable segment must now provide all segment disclosures required, including the new disclosure
requirements. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning
after December 15, 2024. The adoption of this accounting guidance is not expected to have a material impact on the Company’s
consolidated financial statements but will result in inclusion of certain segment reporting requirements not previously required.
FASB issued ASU 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and
Simplification Initiative. This ASU was issued to incorporate 14 of the 27 simplification disclosures released by the SEC which overlapped
with existing, but required incremental information to, GAAP to the FASB for incorporation into the Codification. The timing of these
amendments will coincide with the effective dates of changes by the SEC in Regulations S-X or S-K. The adoption of this accounting
guidance is not expected to have a material impact on the Company’s consolidated financial statements.
FASB issued ASU 2023-02, Investments – Equity Method and Joint Ventures: 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.
67 TriCo Bancshares 2023 10-K
Note 2 - Business Combinations
On March 25, 2022, the Company completed its acquisition of Valley Republic Bancorp (VRB), including the merger of Valley Republic Bank
into Tri Counties Bank, with Tri Counties Bank as the surviving entity, in accordance with the terms of the merger agreement dated as of July
27, 2021. The cash and stock transaction was valued at $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 4,105,518 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):
Fair Value as of
March 25, 2022
173,585
431
174,016
427,314
109,716
771,353
4,658
13,609
10,635
29,744
1,367,029
(1,215,479)
(47,236)
(3,352)
(10,516)
(1,276,583)
90,446
83,570
$
$
Fair value of consideration transferred:
Fair value of shares issued
Cash consideration
Total fair value of consideration transferred
Assets acquired:
Cash and cash equivalents
Securities available for sale
Loans and leases
Premises and equipment
Cash value of life insurance
Core deposit intangible
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Subordinated debt
SERP liability
Other liabilities
Total liabilities assumed
Total net assets acquired
Goodwill recognized
68 TriCo Bancshares 2023 10-K
Note 3 – Investment Securities
The amortized cost and estimated fair values of investment securities classified as available for sale and held to maturity are summarized in
the following tables:
Debt Securities Available for Sale
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Corporate bonds
Asset backed securities
Non-agency collateralized mortgage obligations
Total debt securities available for sale
Debt Securities Held to Maturity
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Total debt securities held to maturity
Amortized
Cost
December 31, 2023
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Estimated
Fair Value
$
1,386,772 $
2 $
(165,037) $
1,221,737
262,879
6,173
359,214
369,287
268
—
255
—
(26,772)
236,375
(571)
(4,188)
(35,778)
5,602
355,281
333,509
$
2,384,325 $
525 $
(232,346) $
2,152,504
$
$
130,823 $
— $
(8,331) $
122,492
2,671
6
(43)
2,634
133,494 $
6 $
(8,374) $
125,126
There was no allowance for credit losses recorded for the held to maturity debt portfolio as of or for the years ended December 31, 2023
and 2022.
Debt Securities Available for Sale
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Corporate bonds
Asset backed securities
Non-agency collateralized mortgage obligations
Total debt securities available for sale
Debt Securities Held to Maturity
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Total debt securities held to maturity
Amortized
Cost
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(in thousands)
Estimated
Fair Value
$
1,568,408 $
3 $
(195,642) $
1,372,769
332,625
6,164
454,943
380,847
401
—
17
—
(39,821)
293,205
(413)
(15,193)
(39,901)
5,751
439,767
340,946
$
2,742,987 $
421 $
(290,970) $
2,452,438
$
$
154,830 $
2 $
(11,013) $
143,819
6,153
13
(47)
6,119
160,983 $
15 $
(11,060) $
149,938
During the year ended December 31, 2023, proceeds from sales of debt securities totaled $71.0 million, resulting in gross losses of $0.3
million. There were no sales of debt securities during the years ended 2022 and 2021, respectively. Investment securities with an
aggregate carrying value of $702.2 million and $595.8 million at December 31, 2023 and 2022, respectively, were pledged as collateral for
specific borrowings, lines of credit and local agency deposits.
The amortized cost and estimated fair value of debt securities at December 31, 2023 by contractual maturity are shown below. Actual
maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties. At December 31, 2023, obligations of U.S. government and agencies with an amortized cost basis totaling $1.4 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 December 31, 2023, the
Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies
to be approximately 6.7 years. Average remaining life is defined as the time span after which the principal balance has been reduced by
half.
69 TriCo Bancshares 2023 10-K
December 31, 2023
(In thousands)
Due in one year
Due after one year through five years
Due after five years through ten years
Due after ten years
Totals
Available for Sale
Held to Maturity
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
Estimated
Fair Value
$
83,239 $
81,775 $
— $
—
47,769
367,733
44,932
354,333
1,885,584
1,671,464
5,829
89,070
38,595
5,640
83,726
35,760
$
2,384,325 $
2,152,504 $
133,494 $
125,126
Gross unrealized losses on investment 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:
December 31, 2023
Debt Securities Available for Sale
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
(in thousands)
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Corporate bonds
Asset backed securities
Non-agency collateralized mortgage obligations
$
224 $
— $ 1,221,320 $
(165,037) $ 1,221,544 $
(165,037)
6,229
—
15,928
44,276
(75)
—
(93)
(583)
216,497
(26,697)
222,726
(26,772)
5,602
264,731
289,233
(571)
5,602
(4,095)
280,659
(571)
(4,188)
(35,195)
333,509
(35,778)
Total debt securities available for sale
$
66,657 $
(751) $ 1,997,383 $
(231,595) $ 2,064,040 $
(232,346)
Debt Securities Held to Maturity
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Total debt securities held to maturity
$
$
— $
— $
122,259 $
(8,331) $
122,259 $
(8,331)
—
—
1,012
(43)
1,012
(43)
— $
— $
123,271 $
(8,374) $
123,271 $
(8,374)
December 31, 2022
Debt Securities Available for Sale
Less than 12 months
12 months or more
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
(in thousands)
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Corporate bonds
Asset backed securities
Non-agency collateralized mortgage obligations
$
766,612 $
(134,234) $
605,615 $
(61,408) $ 1,372,227 $
(195,642)
43,282
(12,917)
219,532
(26,904)
262,814
(39,821)
—
205,329
203,620
—
5,751
(10,238)
231,703
(36,480)
123,075
(413)
(4,955)
(3,421)
5,751
437,032
326,695
(413)
(15,193)
(39,901)
Total securities available for sale
$ 1,218,843 $
(193,869) $ 1,185,676 $
(97,101) $ 2,404,519 $
(290,970)
Debt Securities Held to Maturity
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Total debt securities held to maturity
$
$
— $
— $
143,577 $
(11,013) $
143,577 $
(11,013)
—
—
4,530
(47)
4,530
(47)
— $
— $
148,107 $
(11,060) $
148,107 $
(11,060)
Obligations of U.S. government agencies: Unrealized losses on investments in obligations of U.S. government corporations and agencies
are caused by interest rate increases. 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 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, these investments are not considered other-than-
temporarily impaired. At December 31, 2023, 165 debt securities representing obligations of U.S. government corporations and agencies
had unrealized losses with aggregate depreciation of 11.90% 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
70 TriCo Bancshares 2023 10-K
price less than the amortized cost of the investment. Because 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, these investments are
not considered other-than-temporarily impaired. At December 31, 2023, 153 debt security representing obligations of states and political
subdivisions had unrealized losses with aggregate depreciation of 10.73% 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 as of and for the year ended December 31, 2023. At December 31, 2023, 6 asset backed securities
had unrealized losses with aggregate depreciation of 9.25% 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 in these types of securities. At the time of purchase, each of these securities were rated AA or AAA and through December 31,
2023 have not experienced any deterioration in credit rating. 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, these
investments are not considered other-than-temporarily impaired. At December 31, 2023, 35 asset backed securities had unrealized losses
with aggregate depreciation of 1.47% from the Company’s amortized cost basis.
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 December 31, 2023. At December 31,
2023, 24 asset backed securities had unrealized losses with aggregate depreciation of 9.69% from the Company’s amortized cost basis.
Marketable equity securities: As there were no sales of marketable equity securities, all unrealized gains or losses recognized during the
reporting period were for equity securities still held as of the end of the reporting period.
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:
Debt Securities Held to Maturity
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Total debt securities held to maturity
December 31, 2023
December 31, 2022
AAA/AA/A
BBB/BB/B
AAA/AA/A
BBB/BB/B
(In thousands)
(In thousands)
$
$
130,823
$
2,671
133,494
$
—
—
—
$
$
154,830
$
6,153
160,983
$
—
—
—
71 TriCo Bancshares 2023 10-K
Note 4 – Loans
A summary of loan balances follows:
(in thousands)
Commercial real estate:
CRE non-owner occupied
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Total loans, net of deferred loan fees and discounts
Total principal balance of loans owed, net of charge-offs
Unamortized net deferred loan fees
Discounts to principal balance of loans owed, net of charge-offs
Total loans, net of unamortized deferred loan fees and discounts
Allowance for credit losses
December 31, 2023 December 31, 2022
$
2,217,806 $
2,149,725
956,440
949,502
271,054
984,807
944,537
280,014
4,394,802
4,359,083
883,438
356,813
73,017
790,349
393,666
56,728
1,313,268
1,240,743
586,455
347,198
144,497
8,250
569,921
211,560
61,414
7,726
$
$
$
$
6,794,470 $
6,450,447
6,834,935 $
6,496,210
(15,826)
(24,639)
(15,275)
(30,488)
6,794,470 $
6,450,447
(121,522) $
(105,680)
In March 2020, the Small Business Administration ("SBA") Paycheck Protection Program ("PPP") was created to help small businesses
keep workers employed during the COVID-19 crisis. As of December 31, 2023 and 2022, the total gross balance outstanding of PPP loans,
which are included in commercial and industrial loans above, was $1.1 million and $1.6 million, respectively. During the year ended
December 31, 2023, the Company recognized an insignificant amount of fees on PPP loans, as compared with $2.1 million and $14.1
million for the years ended December 31, 2022 and 2021, respectively. The SBA ended PPP and did not accept new borrowing
applications, effective May 31, 2021.
Note 5 – Allowance for Credit Losses
The ACL was $121.5 million as of December 31, 2023 as compared to $105.7 million at December 31, 2022. The provision for credit losses
on loans of $22.5 million during the year ended December 31, 2023 was comprised of $13.5 million in qualitative reserves, $2.4 million in
quantitative reserves and $6.6 million in net charge-offs. The quantitative components of the ACL increased reserve requirements due
largely to the continued rise in corporate debt yields and increasing uncertainty within global markets. This forecast data continues to evolve
and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet
date. Despite continued declines on a year over year comparative basis, core inflation remains elevated from wage pressures, and higher
living costs such as housing, energy and food prices resulting from a rising rate environment for nearly all of 2023. Management notes the
rapid intervals of rate increases by the Federal Reserve may create repricing risk for certain borrowers and continued inversion of the yield
curve, creates informed expectations of the US potentially entering a recession within 12 months. While projected cuts in interest rates from
the Federal Reserve during 2024 may improve this outlook, the uncertainty associated with the extent and timing of these potential
reductions has inhibited a material benefit to forecasted reserve levels. Furthermore, political uncertainty continues to exist within certain
foreign markets that play a critical role within segments of the U.S economy. As a result, management continues to believe that certain
credit weaknesses are likely present in the overall economy and that it is appropriate to cautiously maintain a reserve level that incorporates
such risk factors.
The remaining increase in the allowance for credit reserves related to quantitative metrics was the result of organic loan growth and
changes in credit quality associated with levels of classified, past due and non-performing loans in addition to changes in qualitative factors.
72 TriCo Bancshares 2023 10-K
The table below sets forth the components of the Company’s allowance for credit losses as of the dates indicated:
(dollars in thousands)
Allowance for credit losses:
Qualitative and forecast factor allowance
Quantitative (Cohort) model allowance
Total allowance for credit losses
Allowance for individually evaluated loans
Total allowance for credit losses
December 31, 2023
December 31, 2022
$
$
84,291 $
34,139
118,430
3,092
121,522 $
70,777
32,489
103,266
2,414
105,680
The following table provides a summary of loans and leases purchased as part of the VRB acquisition with credit deterioration (PCD) at
acquisition:
As of March 25, 2022
(in thousands)
Par value
ACL at acquisition
Non-credit discount
Purchase price
Commercial Real
Estate
Consumer
Commercial and
Industrial
Construction
Agriculture
Production
Total
$
$
27,237 $
3,877 $
2,674 $
25,645 $
9,080 $
(1,573)
(2,305)
(144)
(360)
(81)
(47)
(201)
(232)
(38)
(12)
23,359 $
3,373 $
2,546 $
25,212 $
9,030 $
68,513
(2,037)
(2,956)
63,520
The following tables summarize the activity in the allowance for credit losses, and ending balance of loans, net of unearned fees for the
periods indicated.
(in thousands)
Commercial real estate:
Allowance for Credit Losses – December 31, 2023
Beginning
Balance
Charge-offs
Recoveries
Provision for
(Benefit from)
Credit Losses
Ending
Balance
CRE non-owner occupied
$
30,962 $
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Allowance for credit losses on loans
Reserve for unfunded commitments
14,014
13,132
3,273
61,381
11,268
11,413
1,958
24,639
13,597
5,142
906
15
105,680
4,315
— $
(3,637)
—
—
(3,637)
—
(66)
(558)
(624)
(3,879)
—
—
—
(8,140)
—
— $
4,115 $
2
—
—
2
262
723
190
1,175
316
—
34
—
1,527
—
4,702
1,286
1,015
11,118
2,479
(1,797)
1,581
2,263
2,716
3,714
2,649
(5)
22,455
1,535
Total
$
109,995 $
(8,140) $
1,527 $
23,990 $
35,077
15,081
14,418
4,288
68,864
14,009
10,273
3,171
27,453
12,750
8,856
3,589
10
121,522
5,850
127,372
73 TriCo Bancshares 2023 10-K
(in thousands)
Commercial real estate:
Allowance for Credit Losses – December 31, 2022
Beginning
Balance
ACL on PCD
Loans
Charge-offs
Recoveries
Provision for
(Benefit from)
Credit Losses
Ending
Balance
CRE non-owner occupied
$
25,739 $
746 $
— $
1 $
4,476 $
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Allowance for credit losses on loans
Reserve for unfunded commitments
10,691
12,395
2,315
51,140
10,723
10,510
2,241
23,474
3,862
5,667
1,215
18
85,376
3,790
63
—
764
1,573
144
—
—
144
81
201
38
—
2,037
—
—
—
(294)
(294)
—
(22)
(572)
(594)
(697)
—
—
—
(1,585)
—
2
—
—
3
79
429
235
743
1,157
—
4
—
1,907
—
3,258
737
488
8,959
322
496
54
872
9,194
(726)
(351)
(3)
17,945
525
30,962
14,014
13,132
3,273
61,381
11,268
11,413
1,958
24,639
13,597
5,142
906
15
105,680
4,315
Total
$
89,166 $
2,037 $
(1,585) $
1,907 $
18,470 $
109,995
(in thousands)
Commercial real estate:
Allowance for Credit Losses – December 31, 2021
Beginning
Balance
Charge-offs
Recoveries
Provision for
(Benefit from)
Credit Losses
Ending
Balance
CRE non-owner occupied
$
29,380 $
— $
12 $
(3,653) $
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Allowance for credit losses on loans
Reserve for unfunded commitments
10,861
11,472
1,980
53,693
10,117
11,771
3,260
25,148
4,252
7,540
1,209
5
91,847
3,400
(18)
—
(126)
(144)
(145)
(29)
(577)
(751)
(1,470)
(27)
—
—
(2,392)
—
794
—
—
806
13
1,127
361
1,501
755
—
24
—
3,086
—
(946)
923
461
(3,215)
738
(2,359)
(803)
(2,424)
325
(1,846)
(18)
13
(7,165)
390
Total
$
95,247 $
(2,392) $
3,086 $
(6,775) $
25,739
10,691
12,395
2,315
51,140
10,723
10,510
2,241
23,474
3,862
5,667
1,215
18
85,376
3,790
89,166
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 $1.0 million and non-homogeneous loans, such as commercial real
estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the $1.0 million threshold and
homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores.
Collateral values may be determined by appraisals obtained through Bank approved, licensed appraisers, qualified independent third
parties, public value information (blue book values for autos), sales invoices, or other appropriate means. Appropriate valuations are
obtained at initiation of the credit and periodically (every 3-12 months depending on collateral type) once repayment is questionable and the
loan has been classified.
74 TriCo Bancshares 2023 10-K
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.
The following tables present ending loan balances by loan category and risk grade for the periods indicated:
Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
Prior
Commercial real estate:
CRE non-owner occupied risk ratings
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
Pass
Special Mention
Substandard
Doubtful/Loss
Total CRE non-owner
occupied risk ratings
$ 180,326 $ 413,863 $ 290,210 $ 137,656 $ 206,408 $ 792,875 $ 141,686 $
— $ 2,163,024
—
—
—
1,329
—
—
—
767
—
5,281
17,093
—
—
2,139
—
14,174
12,540
—
1,247
212
—
—
—
—
39,124
15,658
—
$ 180,326 $ 415,192 $ 290,977 $ 142,937 $ 225,640 $ 819,589 $ 143,145 $
— $ 2,217,806
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
— $
—
Commercial real estate:
CRE owner occupied risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
Total CRE owner occupied
risk ratings
$
71,288 $ 196,915 $ 190,384 $ 118,457 $
59,220 $ 268,990 $
23,740 $
— $ 928,994
—
—
—
5,773
2,972
—
1,513
7,835
—
2,754
—
—
703
111
—
2,678
3,107
—
—
—
—
—
—
—
13,421
14,025
—
$
71,288 $ 205,660 $ 199,732 $ 121,211 $
60,034 $ 274,775 $
23,740 $
— $ 956,440
Current period gross charge-offs $
— $
— $
— $
1,380 $
— $
2,228 $
29 $
— $
3,637
75 TriCo Bancshares 2023 10-K
Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
Prior
Commercial real estate:
Multifamily risk ratings
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
Pass
$
28,445 $ 177,032 $ 279,660 $
89,106 $ 104,108 $ 225,446 $
33,470 $
— $ 937,267
Special Mention
Substandard
Doubtful/Loss
—
—
—
—
—
—
11,914
—
—
—
—
—
—
—
—
321
—
—
—
—
—
—
—
—
12,235
—
—
Total multifamily loans
$
28,445 $ 177,032 $ 291,574 $
89,106 $ 104,108 $ 225,767 $
33,470 $
— $ 949,502
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
— $
—
Commercial real estate:
Farmland risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$
21,729 $
46,398 $
37,134 $
16,006 $
16,780 $
41,663 $
50,857 $
— $ 230,567
—
101
—
2,170
813
—
5,802
9,053
—
51
377
—
261
—
—
734
—
13,266
7,859
—
—
—
—
—
9,018
31,469
—
Total farmland loans
$
21,830 $
49,381 $
51,989 $
16,434 $
17,041 $
55,663 $
58,716 $
— $ 271,054
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
— $
—
Consumer loans:
SFR 1-4 1st DT liens risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$ 135,741 $ 189,920 $ 260,870 $ 125,081 $
29,568 $ 126,975 $
— $
4,079 $ 872,234
71
—
—
—
140
—
—
—
1,296
1,490
—
—
—
531
—
1,948
5,265
—
—
—
—
27
436
—
2,046
9,158
—
Total SFR 1st DT liens
$ 135,812 $ 190,060 $ 262,166 $ 126,571 $
30,099 $ 134,188 $
— $
4,542 $ 883,438
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
— $
—
Consumer loans:
SFR HELOCs and Junior Liens risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
Total SFR HELOCs and
Junior Liens
$
297 $
— $
— $
— $
— $
96 $ 343,698 $
6,444 $ 350,535
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,274
3,212
—
138
654
—
2,412
3,866
—
$
297 $
— $
— $
— $
— $
96 $ 349,184 $
7,236 $ 356,813
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
66 $
66
Consumer loans:
Other risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$
34,441 $
9,061 $
8,908 $
7,419 $
6,825 $
4,619 $
659 $
— $
71,932
21
87
—
54
183
—
203
164
—
63
30
—
54
116
—
37
52
—
18
3
—
—
—
—
450
635
—
Total other consumer loans
$
34,549 $
9,298 $
9,275 $
7,512 $
6,995 $
4,708 $
680 $
— $
73,017
Current period gross charge-offs $
376 $
82 $
— $
36 $
39 $
9 $
16 $
— $
558
76 TriCo Bancshares 2023 10-K
Term Loans Amortized Cost Basis by Origination Year - As of December 31, 2023
(in thousands)
2023
2022
2021
2020
2019
Prior
Commercial and industrial loans:
Commercial and industrial risk ratings
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
Pass
Special Mention
Substandard
Doubtful/Loss
Total commercial and
industrial loans
$
70,930 $
83,184 $
51,455 $
9,504 $
10,193 $
7,636 $ 340,858 $
318 $ 574,078
663
2,014
33
—
—
237
782
—
83
103
—
—
4
—
178
762
—
1,126
6,318
—
—
74
—
2,320
10,057
—
$
70,963 $
85,861 $
52,474 $
9,690 $
10,197 $
8,576 $ 348,302 $
392 $ 586,455
Current period gross charge-offs $
153 $
287 $
240 $
2,285 $
— $
— $
896 $
18 $
3,879
Construction loans:
Construction risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$
56,378 $ 136,294 $
85,144 $
47,632 $
4,583 $
6,518 $
— $
—
—
—
10,582
—
—
—
—
—
—
—
—
—
67
—
—
—
—
—
—
—
— $ 336,549
10,582
—
—
—
67
—
Total construction loans
$
56,378 $ 146,876 $
85,144 $
47,632 $
4,650 $
6,518 $
— $
— $ 347,198
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
— $
—
Agriculture production loans:
Agriculture production risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
Total agriculture production
loans
$
945 $
2,749 $
1,595 $
396 $
620 $
8,491 $ 114,935 $
—
—
—
183
—
—
543
—
—
176
—
—
—
—
—
—
—
—
11,302
2,562
—
— $ 129,731
12,204
—
—
—
2,562
—
$
945 $
2,932 $
2,138 $
572 $
620 $
8,491 $ 128,799 $
— $ 144,497
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
— $
—
Leases:
Lease risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
Total leases
$
8,250 $
— $
— $
— $
— $
— $
— $
— $
8,250
—
—
—
$
8,250 $
— $
— $
— $
— $
— $
— $
— $
8,250
Current period gross charge-offs $
— $
— $
— $
— $
— $
— $
— $
— $
—
Total loans outstanding:
Risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$ 608,770 $ 1,255,416 $ 1,205,360 $ 551,257 $ 438,305 $ 1,483,309 $ 1,049,903 $
10,841 $ 6,603,161
125
188
—
20,754
20,212
6,122
19,897
—
—
8,408
2,000
—
18,111
20,070
15,967
165
103,812
2,968
34,992
20,166
1,164
87,497
—
—
—
—
—
Total loans outstanding
$ 609,083 $ 1,282,292 $ 1,245,469 $ 561,665 $ 459,384 $ 1,538,371 $ 1,086,036 $
12,170 $ 6,794,470
Current period gross charge-offs $
529 $
369 $
240 $
3,701 $
39 $
2,237 $
941 $
84 $
8,140
77 TriCo Bancshares 2023 10-K
Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022
(in thousands)
2022
2021
2020
2019
2016
Prior
Commercial real estate:
CRE non-owner occupied risk ratings
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
Pass
Special Mention
Substandard
Doubtful/Loss
Total CRE non-owner
occupied risk ratings
$ 399,910 $ 304,636 $ 152,960 $ 221,659 $ 147,842 $ 748,994 $ 123,794 $
— $ 2,099,795
—
—
—
—
864
—
—
768
—
20,033
—
21,681
1,346
—
—
1,059
4,179
—
—
—
—
—
—
—
43,060
6,870
—
$ 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
$ 210,101 $ 197,787 $ 120,929 $
64,244 $
49,755 $ 251,137 $
43,343 $
— $ 937,296
131
16,296
234
731
—
6,971
3,213
—
5,249
1,893
1,103
10,654
879
157
—
—
25,242
22,269
—
$ 213,445 $ 214,083 $ 126,412 $
66,868 $
50,858 $ 268,762 $
44,379 $
— $ 984,807
Pass
Special Mention
Substandard
Doubtful/Loss
Total CRE owner occupied
risk ratings
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
Doubtful/Loss
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
125
—
—
—
—
—
—
—
—
125
—
Total multifamily loans
$ 159,318 $ 290,170 $
96,937 $ 108,586 $ 106,287 $ 154,250 $
28,989 $
— $ 944,537
Commercial real estate:
Farmland risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$
47,067 $
53,275 $
16,739 $
18,589 $
12,386 $
34,528 $
53,684 $
— $ 236,268
3,139
—
783
—
246
1,772
5,000
765
—
3,158
3,991
7,094
14,275
3,523
—
—
27,434
16,312
—
Total farmland loans
$
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
Special Mention
Substandard
Doubtful/Loss
$ 194,933 $ 265,370 $ 131,922 $
33,395 $
28,545 $ 115,469 $
8 $
2,924 $ 772,566
—
—
—
—
1,531
1,204
—
—
—
282
—
—
3,277
1,004
—
5,854
3,521
—
—
—
—
465
645
—
11,409
6,374
—
Total SFR 1st DT liens
$ 194,933 $ 266,574 $ 133,453 $
33,677 $
32,826 $ 124,844 $
8 $
4,034 $ 790,349
78 TriCo Bancshares 2023 10-K
Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022
(in thousands)
Consumer loans:
2022
2021
2020
2019
2016
Prior
SFR HELOCs and Junior Liens risk ratings
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
Pass
Special Mention
Substandard
Doubtful/Loss
Total SFR HELOCs and
Junior Liens
Consumer loans:
Other risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$
505 $
— $
— $
— $
— $
127 $ 378,939 $
8,462 $ 388,033
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,842
3,072
—
81
638
—
1,923
3,710
—
$
505 $
— $
— $
— $
— $
127 $ 383,853 $
9,181 $ 393,666
$
14,070 $
12,990 $
10,211 $
10,650 $
5,225 $
1,945 $
899 $
— $
55,990
—
—
—
18
—
—
77
42
—
135
92
—
176
—
—
32
96
—
47
23
—
—
—
—
485
253
—
Total other consumer loans
$
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
Special Mention
Substandard
Doubtful/Loss
Total commercial and
industrial loans
Construction loans:
Construction risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
$ 125,710 $
64,966 $
17,746 $
23,131 $
7,628 $
5,051 $ 297,341 $
483 $ 542,056
3,032
1,293
139
21
1,142
5,179
49
14
138
33
768
611
11,547
3,798
—
101
15,694
12,171
—
$ 130,035 $
66,247 $
22,946 $
23,194 $
7,799 $
6,430 $ 312,686 $
584 $ 569,921
$
72,840 $
72,308 $
43,409 $
15,358 $
2,159 $
4,900 $
— $
— $ 210,974
—
—
—
—
—
—
—
—
—
—
457
—
—
—
—
—
129
—
—
—
—
—
—
—
—
586
—
Total construction loans
$
72,840 $
72,308 $
43,409 $
15,815 $
2,159 $
5,029 $
— $
— $ 211,560
Agriculture production loans:
Agriculture production risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
Total agriculture production
loans
$
3,414 $
2,777 $
1,149 $
1,104 $
8,902 $
1,058 $
38,425 $
— $
56,829
—
—
—
—
—
—
—
—
—
—
—
—
90
—
—
31
—
—
1,632
2,832
—
—
—
—
1,753
2,832
—
$
3,414 $
2,777 $
1,149 $
1,104 $
8,992 $
1,089 $
42,889 $
— $
61,414
79 TriCo Bancshares 2023 10-K
Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2022
2022
2021
2020
2019
2016
Prior
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
$
7,726 $
— $
— $
— $
— $
— $
— $
— $
7,726
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
7,726 $
— $
— $
— $
— $
— $
— $
— $
7,726
$ 1,235,594 $ 1,264,279 $ 592,002 $ 496,716 $ 368,729 $ 1,317,334 $ 965,422 $
11,869 $ 6,251,945
6,302
4,506
—
17,236
2,109
26,230
3,210
13,010
3,221
—
—
—
3,681
6,357
—
39,328
31,568
546
127,000
26,409
13,405
1,384
71,502
—
—
—
—
(in thousands)
Leases:
Lease risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
Total leases
Total loans outstanding:
Risk ratings
Pass
Special Mention
Substandard
Doubtful/Loss
Total loans outstanding
$ 1,246,402 $ 1,284,725 $ 607,121 $ 526,167 $ 378,767 $ 1,383,071 $ 1,010,395 $
13,799 $ 6,450,447
Once a loan becomes delinquent and repayment becomes questionable, a Bank collection officer will address collateral shortfalls with the
borrower and attempt to obtain additional collateral. If this is not forthcoming and payment in full is unlikely, the Bank will estimate its
probable loss, using a recent valuation as appropriate to the underlying collateral less estimated costs of sale, and charge the loan down to
the estimated net realizable amount. Depending on the length of time until ultimate collection, the Bank may revalue the underlying collateral
and take additional charge-offs as warranted. Revaluations may occur as often as every 3-12 months depending on the underlying collateral
and volatility of values. Final charge-offs or recoveries are taken when collateral is liquidated and actual loss is known. Unpaid balances on
loans after or during collection and liquidation may also be pursued through lawsuit and attachment of wages or judgment liens on
borrower’s other assets.
The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:
(in thousands)
Commercial real estate:
Analysis of Past Due Loans - As of December 31, 2023
30-59 days
60-89 days
> 90 days
Total Past
Due Loans
Current
Total
CRE non-owner occupied
$
3,876 $
— $
1,382 $
5,258 $
2,212,548 $
2,217,806
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Total
80 TriCo Bancshares 2023 10-K
34
—
635
4,545
141
16
148
305
244
—
593
447
—
—
3,798
3,798
1,449
—
40
1,489
605
—
878
—
247
—
2,052
3,681
490
623
30
1,143
1,654
—
33
—
281
—
6,485
12,024
2,080
639
218
2,937
2,503
—
1,504
447
956,159
949,502
264,569
956,440
949,502
271,054
4,382,778
4,394,802
881,358
356,174
72,799
883,438
356,813
73,017
1,310,331
1,313,268
583,952
347,198
142,993
7,803
586,455
347,198
144,497
8,250
$
6,134 $
6,770 $
6,511 $
19,415 $
6,775,055 $
6,794,470
The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated:
(in thousands)
Commercial real estate:
Analysis of Past Due Loans - As of December 31, 2022
30-59 days
60-89 days
> 90 days
Total Past
Due Loans
Current
Total
CRE non-owner occupied
$
— $
— $
— $
— $
2,149,725 $
2,149,725
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Total
—
159
—
159
24
172
26
222
2,300
—
—
—
98
—
—
98
—
166
34
200
190
—
—
—
75
—
—
75
279
707
55
1,041
283
379
—
—
173
159
—
332
303
1,045
115
1,463
2,773
379
—
—
984,634
944,378
280,014
984,807
944,537
280,014
4,358,751
4,359,083
790,046
392,621
56,613
790,349
393,666
56,728
1,239,280
1,240,743
567,148
211,181
61,414
7,726
569,921
211,560
61,414
7,726
$
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:
As of December 31, 2023
As of December 31, 2022
Non Accrual Loans
Non accrual
with no
allowance for
credit losses
Total non
accrual
Past due 90
days or more
and still
accruing
Non accrual
with no
allowance for
credit losses
Total non
accrual
Past due 90
days or more
and still
accruing
(in thousands)
Commercial real estate:
CRE non-owner occupied
$
2,024 $
2,024 $
— $
1,739 $
1,739 $
CRE owner occupied
Multifamily
Farmland
Total commercial real estate loans
Consumer:
SFR 1-4 1st DT liens
SFR HELOCs and junior liens
Other
Total consumer loans
Commercial and industrial
Construction
Agriculture production
Leases
Sub-total
Less: Guaranteed loans
Total, net
3,994
—
5,996
12,014
2,808
3,281
39
6,128
1,379
67
—
—
19,588
(766)
3,994
—
14,484
20,502
2,811
3,571
105
6,487
2,503
67
2,322
—
31,881
(878)
—
—
—
—
—
—
—
—
10
—
—
—
10
—
4,938
125
1,772
8,574
4,117
2,498
47
6,662
1,224
491
1,279
—
18,230
(105)
4,938
125
1,772
8,574
4,220
3,155
84
7,459
3,518
491
1,279
—
21,321
(225)
$
18,822 $
31,003 $
10 $
18,125 $
21,096 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Interest income on non accrual loans that would have been recognized during the years ended December 31, 2023, 2022, and 2021, if all
such loans had been current in accordance with their original terms, totaled $2.5 million, $1.4 million, and $2.2 million, respectively. Interest
income actually recognized on these loans during the years ended December 31, 2023, 2022, and 2021 was $1.0 million, $0.6 million, and
$0.5 million, respectively.
81 TriCo Bancshares 2023 10-K
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8
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.
(in thousands)
Commercial real estate:
Farmland
Commercial and industrial
Total
For the twelve months ended December 31, 2023
Principal
Forgiveness
Payment Delay /
Term Extension
Combination - Term
Change / Available
Credit Reduction
Combination -
Payment Delay /
Term Reduction
Total % of Loans
Outstanding
$
$
— $
—
— $
— $
152
152 $
— $
60
60 $
1,430
—
1,430
0.53 %
0.08 %
0.61 %
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the twelve
months ended December 31, 2023.
Modification Type
Loan Type
Twelve Months Ended
Financial Effect
Payment Delay / Extension
Commercial and industrial
Added 12 months to the life of the loan, which reduced the payment owed by the borrowers
Payment Delay / Extension
Commercial and industrial
Changed loan terms from fully amortizing to interest-only with balloon, which reduced the
payment owed by the borrowers
Combination - Payment
Delay / Term Reduction
Farmland
Changed loan terms from fully amortizing to interest-only with balloon, and reduced the loan
maturity by 12 months, which reduced the loan payment owed by the borrowers
Combination - Term Change /
Available Credit Reduction
Commercial and industrial
Added 60 months to the life of the loan to avoid balloon repayment and reduced available
credit by $11000
There were no loans with payment defaults by borrowers experiencing financial difficulty during the quarter ended December 31, 2023 which
had material modifications in rate, term or principal forgiveness during the twelve months prior to default.
Note 6 – Real Estate Owned
A summary of the activity in the balance of real estate owned follows:
(in thousands)
Beginning balance, net
Additions/transfers from loans
Dispositions/sales
Valuation adjustments
Ending balance, net
Ending valuation allowance
Ending number of foreclosed assets
Proceeds from sale of real estate owned
Gain on sale of real estate owned
Year ended December 31,
2023
2022
$
3,439 $
155
(206)
(683)
2,705 $
(739) $
9
224 $
19 $
$
$
$
$
2,594
1,349
(707)
203
3,439
(113)
9
873
166
At December 31, 2023, the balance of real estate owned includes 8 foreclosed real estate properties and one land property recorded as a
result of obtaining physical possession of the property. At December 31, 2023, there were no real estate properties with formal foreclosure
proceedings underway.
83 TriCo Bancshares 2023 10-K
Note 7 – Premises and Equipment
(in thousands)
Land and land improvements
Buildings
Furniture and equipment
Less: Accumulated depreciation
Construction in progress
Total premises and equipment
As of December 31,
2023
2022
$
26,032 $
65,467
43,984
135,483
(65,154)
70,329
1,018
$
71,347 $
25,899
64,018
42,850
132,767
(61,657)
71,110
1,217
72,327
Depreciation expense for premises and equipment amounted to $5.8 million, $5.7 million, and $5.9 million during the years ended 2023,
2022, and 2021, respectively.
Note 8 – Cash Value of Life Insurance
A summary of the activity in the balance of cash value of life insurance follows:
(in thousands)
Beginning balance
Acquired policies from business combination
Increase in cash value of life insurance
Gain on death benefit
Insurance proceeds receivable reclassified to other assets
Ending balance
End of period death benefit
Number of policies owned
Insurance companies used
Current and former employees and directors covered
Year ended December 31,
2023
2022
$
133,742 $
117,857
—
3,150
—
—
13,609
2,858
309
(891)
$
$
136,892 $
133,742
224,021 $
223,427
216
14
79
216
14
79
Note 9 – Goodwill and Other Intangible Assets
The following table summarizes the Company’s goodwill intangible as of the dates indicated:
(in thousands)
Goodwill
December 31,
2023
Additions
Reductions
December 31,
2022
$
304,442
$
— $
— $
304,442
Impairment exists when a Company’s carrying value exceeds its fair value. Goodwill is evaluated for impairment annually. At September 30,
2023, the Company had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than
not that the fair value of the Company exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more
likely than not that the fair value of the reporting unit exceeds its carrying value, resulting in no impairment. For each of the years in the three
year period ended December 31, 2023, there were no impairment charges recognized.
84 TriCo Bancshares 2023 10-K
The following table summarizes the Company’s core deposit intangibles (“CDI”) as of the dates indicated:
(in thousands)
Core deposit intangibles, gross
Fully amortized portion
Acquisition of VRB
Core deposit intangibles, gross ending balance
Accumulated amortization, gross
Fully amortized portion
Amortization expense
Accumulated amortization, gross ending balance
Core deposit intangible, net
December 31,
2023
December 31,
2022
$
38,826 $
(2,046)
—
36,780
(22,156)
2,046
(6,118)
(26,228)
$
10,552
$
36,265
(8,074)
10,635
38,826
(23,896)
8,074
(6,334)
(22,156)
16,670
The Company's remaining net CDI balance of $10.6 million as of December 31, 2023 reflects gross balances recorded from the VRB
acquisition on March 25, 2022 totaling $10.6 million and the FNBB acquisition on July 6, 2018 totaling $2.0 million. The following table
summarizes the Company’s estimated core deposit intangible amortization (dollars in thousands):
Years Ended
2024
2025
2026
2027
2028
Thereafter
$
Estimated CDI
Amortization
4,120
1,961
1,527
1,008
797
1,139
$
10,552
Note 10 – Mortgage Servicing Rights
The following tables summarize the activity in, and the main assumptions used to determine the fair value of mortgage servicing rights for
the periods indicated (dollars in thousands):
(in thousands)
Balance at beginning of period
Additions
Change in fair value
Balance at end of period
Contractually specified servicing fees, late fees and ancillary fees earned
Balance of loans serviced at:
Beginning of period
End of period
Period end:
Weighted-average prepayment speed (CPR)
Weighted-average expected life (years)
Weighted-average discount rate
Year ended December 31,
2023
2022
2021
$
6,712
$
5,874
$
400
(506)
6,606
1,808
739,919
714,801
$
$
$
$
537
301
6,712
1,887
770,299
739,919
$
$
$
$
$
$
$
$
5,092
1,654
(872)
5,874
1,881
779,530
770,299
116.0 %
127.0 %
208.0 %
7.8
12.0 %
7.6
12.0 %
5.7
12.0 %
The changes in fair value of MSRs during 2023 were primarily due to changes in mortgage prepayment speeds and changes in principal
balances of the underlying mortgages. The changes in fair value of MSRs during 2022 were primarily due to changes in principal balance
and mortgage prepayment speeds of the MSRs. The changes in fair value of MSRs during 2021 were primarily due to changes in investor
require rate of return, or discount rate, of the MSRs.
85 TriCo Bancshares 2023 10-K
Note 11 - Leases
The following table presents the components of lease expense for the periods indicated:
(in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Year ended December 31,
2023
2022
$
$
5,997 $
329
38
—
5,725
283
26
—
6,364 $
6,034
The following table presents supplemental cash flow information related to leases as of the periods ended:
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
ROUA obtained in exchange for operating lease liabilities
Year ended December 31,
2023
2022
$
$
6,378 $
4,300 $
5,904
6,149
The following table presents the weighted average operating lease term and discount rate as of the periods ended:
Weighted-average remaining lease term
Weighted-average discount rate
At December 31, 2023, future expected operating lease payments are as follows (in thousands):
Periods ending December 31,
2024
2025
2026
2027
2028
Thereafter
Discount for present value of expected cash flows
Lease liability at December 31, 2023
Note 12 – Deposits
A summary of the balances of deposits follows:
(in thousands)
Noninterest-bearing demand
Interest-bearing demand
Savings
Time certificates, $250,000 and over
Other time certificates
Total deposits
Year ended December 31,
2023
2022
7.9 years
3.3 %
8.3 years
3.0 %
$
$
5,755
5,186
4,642
3,951
2,891
10,104
32,529
(4,268)
28,261
December 31,
2023
2022
$
2,722,689 $
3,502,095
1,731,814
2,682,068
250,180
447,287
1,718,541
2,884,378
46,350
177,649
$
7,834,038 $
8,329,013
Overdrawn deposit balances of $1.8 million and $1.8 million were classified as consumer loans at December 31, 2023 and 2022,
respectively.
86 TriCo Bancshares 2023 10-K
At December 31, 2023, the scheduled maturities of time deposits were as follows (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total
Note 13 – Other Borrowings
A summary of the balances of other borrowings follows:
(in thousands)
Overnight borrowing at FHLB, fixed rate, as of December 31, 2023 of 5.70%, payable on January 2, 2024
Term borrowing at FHLB, fixed rate, as of December 31, 2023 of 4.75%, payable on April 8, 2024
Overnight borrowing at FHLB, fixed rate, as of December 31, 2022 of 4.65%, payable on January 3, 2023
Other collateralized borrowings, fixed rate, as of December 31, 2023 and 2022 of 0.05%, payable on January 2, 2024
and January 3, 2023, respectively
Total other borrowings
Scheduled
Maturities
$
626,979
59,053
8,453
1,868
1,114
—
$
697,467
December 31,
2023
2022
$
400,000 $
200,000
—
—
—
216,700
32,582
47,905
$
632,582 $
264,605
Other collateralized borrowings are generally overnight maturity borrowings from non-financial institutions that are collateralized by
securities owned by the Company. As of December 31, 2023, the Company has pledged as collateral and sold under agreements to
repurchase investment securities with fair value of $32.6 million under these other collateralized borrowings.
The Company maintains a collateralized line of credit with the FHLB. Based on the FHLB stock requirements at December 31, 2023, this
line provided for maximum borrowings of $2.5 billion of which $600.0 million was outstanding. As of December 31, 2023, the Company had
designated investment securities with a fair value of $69.2 million and loans with unpaid principal balances totaling $4.6 billion as potential
collateral under this collateralized line of credit with the FHLB.
The Company maintains a collateralized line of credit with the Federal Reserve Bank of San Francisco (“FRB”). As of December 31, 2023,
this line provided for maximum borrowings of $350.0 million of which none was outstanding. As of December 31, 2023, the Company has
loans with unpaid principal balances totaling $444.5 million as potential collateral under this collateralized line of credit with the FRB.
The Company has available unused correspondent banking lines of credit from commercial banks totaling $30.0 million for federal funds
transactions at December 31, 2023.
Note 14 – Junior Subordinated Debt
At December 31, 2023, the Company had five wholly-owned subsidiary business trusts that had issued $63.0 million of trust preferred
securities (the “Capital Trusts”). Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in
the indentures. The trusts used the net proceeds from the offering to purchase a like amount of subordinated debentures (the “Debentures”)
of the Company. The Debentures are the sole assets of the trusts. The Company’s obligations under the subordinated debentures and
related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust
preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the
indentures. The Company has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price
specified in the indentures plus any accrued but unpaid interest to the redemption date. The Company also has a right to defer consecutive
payments of interest on the debentures for up to five years.
The Company organized two of the Capital Trusts. The Company acquired its three other Capital Trusts and assumed their related
Debentures as a result of its acquisition of North Valley Bancorp in 2014. The acquired Debentures were recorded on the Company’s books
at their fair values on the acquisition date. The related fair value discounts to face value of these Debentures will be amortized over the
remaining period in which their values are fully allowed to be included in the Company's capital ratio calculations using the effective interest
method.
87 TriCo Bancshares 2023 10-K
The recorded book values of the Debentures issued by the Capital Trusts are reflected as junior subordinated debt in the Company’s
consolidated balance sheets. The common stock issued by the Capital Trusts and owned by the Company is recorded in other assets in the
Company’s consolidated balance sheets. The recorded book value of the debentures issued by the Capital Trusts, less the recorded book
value of the common stock of the Capital Trusts owned by the Company will continue to qualify as Tier 1 or Tier 2 capital under interim
guidance issued by the Board of Governors of the Federal Reserve System until only five years remain until their scheduled maturity.
In connection with the acquisition of Valley Republic Bancorp the Company assumed $36.0 million in subordinated capital notes, comprised
of $16.0 million that matures in 2029 and $20.0 million that matures in 2035. The notes that mature in 2029 provide for quarterly interest
payments at a fixed rate of 6.00% until March 29, 2024 and then will have a floating rate of three month SOFR plus 3.52% until maturity.
The notes that mature in 2035 provide for quarterly interest payments at a fixed rate of 5.00% until August 27, 2025 and then will have a
floating rate of 90-day average SOFR plus 4.90% until maturity. The acquired subordinated capital notes were recorded on the Company’s
books at their fair values on the acquisition date. The related fair value premiums to face value will be amortized over the remaining maturity
period using the effective interest method.
The following table summarizes the terms and recorded balance of each subordinated debenture as of the date indicated (dollars in
thousands):
Subordinated Debt Series
Maturity
Date
Face
Value
Coupon Rate
(Variable)
3 mo. SOFR +
As of December 31, 2023
December 31,
2022
Current
Coupon Rate
Recorded
Book Value
Recorded
Book Value
TriCo Cap Trust I
TriCo Cap Trust II
North Valley Trust II
North Valley Trust III
North Valley Trust IV
VRB Subordinated - 6%
VRB Subordinated - 5%
10/7/2033
$
7/23/2034
4/24/2033
7/23/2034
3/15/2036
3/29/2029
8/27/2035
$
20,619
20,619
6,186
5,155
10,310
16,000
20,000
98,889
3.05 %
2.55 %
3.25 %
2.80 %
1.33 %
Fixed
Fixed
8.71 % $
20,619 $
8.22 %
8.89 %
8.47 %
6.98 %
6.00 %
5.00 %
20,619
5,602
4,472
7,615
17,000
25,172
20,619
20,619
5,503
4,383
7,393
17,187
25,336
$
101,099 $
101,040
Note 15 – Commitments and Contingencies
Restricted Cash Balances — Reserves (in the form of deposits with the San Francisco Federal Reserve Bank) were not required to be
maintained as of December 31, 2023 and 2022.
Financial Instruments with Off-Balance-Sheet Risk — The Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit,
standby letters of credit, and deposit account overdraft privilege. Those instruments involve, to varying degrees, elements of risk in excess
of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Company
has in particular classes of financial instruments.
The Company’s exposure to loss in the event of nonperformance by the other party to the financial instrument for commitments to extend
credit and standby letters of credit written is represented by the contractual amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company’s exposure to
loss in the event of nonperformance by the other party to the financial instrument for deposit account overdraft privilege is represented by
the overdraft privilege amount disclosed to the deposit account holder.
The following table presents a summary of the Bank’s commitments and contingent liabilities:
(in thousands)
Financial instruments whose amounts represent risk:
Commitments to extend credit:
Commercial loans
Consumer loans
Real estate mortgage loans
Real estate construction loans
Standby letters of credit
Deposit account overdraft privilege
88 TriCo Bancshares 2023 10-K
December 31,
2023
2022
$
788,742 $
656,705
652,110
453,647
331,178
38,449
121,539
760,588
458,896
312,371
26,599
126,634
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates of one year or less or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of credit, is based on Management’s credit evaluation of the
customer. Collateral held varies, but may include accounts receivable, inventory, property, plant and equipment, residential properties, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support private borrowing arrangements. Most standby letters of credit are issued for one year or
less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Collateral requirements vary, but in general follow the requirements for other loan facilities.
Deposit account overdraft privilege amount represents the unused overdraft privilege balance available to the Company’s deposit account
holders who have deposit accounts covered by an overdraft privilege. The Company has established an overdraft privilege for certain of its
deposit account products whereby all holders of such accounts who bring their accounts to a positive balance at least once every thirty days
receive the overdraft privilege. The overdraft privilege allows depositors to overdraft their deposit account up to a predetermined level. The
predetermined overdraft limit is set by the Company based on account type.
Legal Proceedings — The Company is party to various legal and administrative proceedings and claims. While any litigation contains an
element of uncertainty, management believes that neither the Company nor its subsidiaries are a party to any pending legal proceedings
that are material, nor is their property the subject of any other material pending legal proceeding at this time. All other legal proceedings are
routine and arise out of the ordinary course of the Bank’s business. None of those proceedings are currently expected to have a material
adverse impact upon the Company’s and the Bank’s business, their consolidated financial position nor their operations in any material
amount not already accrued, after taking into consideration any applicable insurance and any contingency reserves.
Other Commitments and Contingencies—The Company has entered into employment agreements or change of control agreements with
certain officers of the Company providing severance payments and accelerated vesting of benefits under supplemental retirement
agreements to the officers in the event of a change in control of the Company and termination for other than cause or after a substantial and
material change in the officer’s title, compensation or responsibilities.
The Bank owns 13,396 shares of Class B common stock of Visa Inc. which are convertible into Class A common stock at a conversion ratio
of 1.5875 per Class B share. As of December 31, 2023, the value of the Class A shares was $260.35 per share. Utilizing the conversion
ratio, the value of unredeemed Class A equivalent shares owned by the Bank was $5,537,000 as of December 31, 2023, and has not been
reflected in the accompanying consolidated financial statements. The shares of Visa Class B common stock are restricted and may not be
transferred. Visa Member Banks are required to fund an escrow account to cover settlements, resolution of pending litigation and related
claims. If the funds in the escrow account are insufficient to settle all the covered litigation, Visa may sell additional Class A shares, use the
proceeds to settle litigation, and further reduce the conversion ratio. If funds remain in the escrow account after all litigation is settled, the
Class B conversion ratio will be increased to reflect that surplus.
Mortgage loans sold to investors may be sold with servicing rights retained, with only the standard legal representations and warranties
regarding recourse to the Bank. Management believes that any liabilities that may result from such recourse provisions are not significant.
Note 16 – Shareholders’ Equity
Dividends Paid
The Bank paid to the Company cash dividends in the aggregate amounts of $52.8 million, $64.2 million, and $31.6 million in 2023, 2022,
and 2021, respectively. The Bank is regulated by the Federal Deposit Insurance Corporation (“FDIC”) and the State of California Department
of Financial Protection & Innovation (the “DFPI”). Absent approval from the Commissioner of the DPFI, 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. Under this law, at December 31, 2023, the Bank could have paid dividends of $223.4 million to the
Company without the approval of the Commissioner of the DFPI.
Stock Repurchase Plan
On February 25, 2021 the Board of Directors approved the authorization to repurchase up to 2,000,000 shares of the Company's common
stock (the "2021 Repurchase Plan" or the "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 program is subject to change. The Plan has no expiration date (in accordance with applicable laws and regulations)
and for years ended December 31, 2023, 2022 and 2021, the Company repurchased 150,000, 576,881, and 63,317 shares under this Plan.
As of December 31, 2023, 1,209,802 shares remained available for repurchases under the Plan.
89 TriCo Bancshares 2023 10-K
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 withholding taxes on such shares. During the years ended December 31, 2023, 2022, and 2021, employees tendered 2,506,
39,447, and 28,276 shares, respectively, of the Company's common stock in connection with option exercises. Employees also tendered
56,714, 27,840 and 19,413 shares in connection with other share based awards during December 31, 2023, 2022 and 2021, respectively.
In total, shares of the Company's common stock tendered had market values of $2.3 million, $1.3 million, and $2.1 million for the years
ended December 31, 2023, 2022 and 2021, respectively. The tendered shares were retired. The market value of tendered shares is the last
market trade price at closing on the day an option is exercised or the other share based award vests. Stock repurchased under equity
incentive plans are not included in the total of stock repurchased under the 2021 or 2019 Repurchase Plans.
Note 17 – Stock Options and Other Equity-Based Incentive Instruments
In April 2019, the Company’s Board of Directors adopted the TriCo Bancshares 2019 Equity Incentive Plan (2019 Plan) covering officers,
employees, directors of, and consultants to, the Company. The 2019 Plan was approved by the Company’s shareholders in May 2019.
The 2019 Plan allows the Company to issue equity-based incentives representing up to 1,500,000 shares, such as incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards (which could either be
restricted stock or restricted stock units) (collectively, Awards). The 2019 Plan contains several enhanced corporate governance provisions,
including: expressly providing that executives’ Awards and cash incentive compensation are subject to TriCo’s potential clawback or
recoupment if the Company must restate its financial statements; generally imposing a one year minimum vesting period on Awards;
generally requiring participants to hold at least 50% of the shares acquired under an Award for at least one year; and clarifying that credit for
dividends declared on shares of common stock underlying an Award is subject to the same vesting requirements as the common stock
underlying the Award.
The number of shares available for issuance under the 2019 Plan will be reduced by: (i) one share for each share of common stock issued
pursuant to a stock option; (ii) the total number of stock appreciation rights that are exercised, including any shares of common stock
underlying such Awards that are not actually issued to the participant as the result of a net settlement; (iii) two shares for each share of
common stock issued pursuant to a performance award, a restricted share Award or an RSU Award and (iv) any shares of common stock
used to pay any exercise price or tax withholding obligation with respect to any Award. When Awards made under the 2019 Plan expire or
are forfeited or cancelled, the underlying shares will become available for future Awards under the 2019 Plan. To the extent that a share of
common stock pursuant to an Award that counted as two shares again becomes available for issuance under the 2019 Plan, the number of
shares of common stock available for issuance under the 2019 Plan will increase by two shares. If shares of common stock issued pursuant
to the Plan are repurchased by, or are surrendered or forfeited to the Company at no more than cost, then such shares will again be
available for the grant of Awards under the Plan. Any shares of common stock repurchased by the Company with cash proceeds from the
exercise of options will not, however, be added back to the pool of share available for issuance under the 2019 Plan. Shares awarded and
delivered under the 2019 Plan may be authorized but unissued shares or reacquired shares. Shares tendered to TriCo or withheld from
delivery to a participant as payment of the exercise price or in connection with the “net exercise” of a stock option or to satisfy TriCo’s tax
withholding obligations will not again become available for future Awards under the 2019 Plan. As of December 31, 2023, there were no
outstanding options for the purchase of common shares and 144,487 RSUs were outstanding. The number of shares that remain available
for issuance is not more than 517,773, which could decrease based on the level of the Company's future performance and outcome of
certain vesting requirements.
The 2019 Plan replaced the TriCo Bancshares 2009 Equity Incentive Plan (2009 Plan), which expired on March 26, 2019. As a result of its
expiration, no further awards may be issued under the 2009 Plan, though all awards under the 2009 Plan that were outstanding as of its
expiration continue to be governed by the terms, conditions and procedures set forth in the 2009 Plan and any applicable award agreement.
As of December 31, 2023, 7,500 options for the purchase of common shares remain outstanding under the 2009 Plan.
Stock option activity is summarized in the following table for the dates indicated:
Outstanding at January 1, 2022
Options granted
Options exercised
Options forfeited
Outstanding at December 31, 2022
Options granted
Options exercised
Options forfeited
Outstanding at December 31, 2023
90 TriCo Bancshares 2023 10-K
Number of
Shares
Option Price
per Share
Weighted
Average
Exercise
Price
78,825
$15.34 to $23.21
$
19.28
—
—
—
(63,325)
$15.34 to $19.46
$
18.79
—
—
—
15,500
$19.46 to $23.21
$
21.27
—
(8,000)
—
7,500
—
—
$19.46 $
19.46
—
—
$23.21 $
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 December 31, 2023:
Number of options
Weighted average exercise price
Intrinsic value (in thousands)
Weighted average remaining contractual term (yrs.)
Currently
Exercisable
Currently Not
Exercisable
Total
Outstanding
$
$
7,500
23.21 $
148 $
0.8
—
— $
— $
n/a
7,500
23.21
148
0.8
All options outstanding as of December 31, 2023 are fully vested. The Company did not modify any option grants during the three year
period ended December 31, 2023.
The following table shows the total intrinsic value of options exercised, the total fair value of options vested, total compensation costs for
options recognized in income, total tax benefit and excess tax benefits recognized in income related to compensation costs for options
during the periods indicated:
Intrinsic value of options exercised
Fair value of options that vested
Total compensation costs for options recognized in expense
Total tax benefit recognized in income related to compensation costs for options
Excess tax benefit recognized in income
There were no stock options granted during 2023, 2022 and 2021, respectively.
Restricted stock unit activity is summarized in the following table for the dates indicated:
Year Ended December 31,
2023
2022
2021
$
134,000 $
1,190,000 $
1,476,000
—
—
40,000
—
—
—
—
—
—
—
—
—
Outstanding at January 1, 2023
RSUs granted
Additional market plus service condition RSUs vested
RSUs added through dividend credits
RSUs released through vesting
RSUs forfeited/expired
Outstanding at December 31, 2023
Service Condition Vesting RSUs
Market Plus Service Condition
Vesting RSUs
Number
of RSUs
Weighted Average
Fair Value on
Date of Grant
Number of
RSUs
Weighted Average
Fair Value on
Date of Grant
139,194
114,481
84,066 $
34.52
55,908 $
27.72
—
4,706
(81,902)
(1,577)
144,487
10,301
—
(55,928)
(1,660)
123,102
The Company uses a Monte Carlo simulation model to determine the grant-date fair value of awards with market plus service conditions
(PSU). The weighted average fair value and assumptions used to value the PSU awards granted with market-based performance conditions
are as follows:
Performance share fair value
Risk-free interest rate
Expected volatility
Expected life (years)
Expected dividend yield
December 31,
2023
2022
$
27.73
$
4.16 %
33.86 %
3
3.22 %
40.89
4.10 %
39.01 %
3
2.32 %
The 144,487 of service condition vesting RSUs outstanding as of December 31, 2023 include a feature whereby each RSU outstanding is
credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the
91 TriCo Bancshares 2023 10-K
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. Additional RSUs credited through dividends are subject to the same vesting requirements as the original grant. The Company expects
to recognize $4.0 million of pre-tax compensation costs related to these service condition vesting RSUs between December 31, 2023 and
their vesting dates. The Company did not modify any service condition vesting RSUs during 2023 or 2022.
The Company expects to recognize $2.3 million of pre-tax compensation costs related to the market plus service condition RSUs between
December 31, 2023 and their vesting dates. As of December 31, 2023, the number of market plus service condition vesting RSUs
outstanding that will actually vest, and be released, may be reduced to zero or increased to 184,653 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 2023 or 2022.
The following table shows the compensation costs and excess tax benefits for RSUs recognized in income for the periods indicated:
Total compensation costs recognized in income
Service condition vesting RSUs
Market plus service condition vesting RSUs
Excess tax benefit recognized in income
Service condition vesting RSUs
Market plus service condition vesting RSUs
Note 18 – Non-interest Income and Expense
The components of other non-interest income were as follows:
(in thousands)
ATM and interchange fees
Service charges on deposit accounts
Other service fees
Mortgage banking service fees
Change in value of mortgage loan servicing rights
Total service charges and fees
Asset management and commission income
Increase in cash value of life insurance
Gain on sale of loans
Lease brokerage income
Sale of customer checks
Loss on sale of investment securities
Gain (loss) on marketable equity securities
Other
Total other noninterest income
Total noninterest income
Year Ended December 31,
2023
2022
2021
$
2,807,000 $
2,883,000 $
1,728,000
1,319,000
986,000
910,000
$
924,000 $
1,079,000 $
626,000
594,000
355,000
226,000
Year Ended December 31,
2023
2022
2021
$
26,459 $
26,767 $
17,595
16,536
4,732
1,808
(506)
4,274
1,887
301
25,356
14,013
3,570
1,881
(872)
50,088
49,765
43,948
4,517
3,150
1,166
441
1,383
(284)
36
903
3,986
2,858
2,342
820
1,167
—
(340)
2,448
11,312
13,281
$
61,400 $
63,046 $
3,668
2,775
9,580
746
459
—
(86)
2,574
19,716
63,664
Mortgage banking servicing fee income (expense), net of change in value of mortgage loan servicing rights, totaling $1.3 million, $2.2
million, and $1.0 million were recorded within service charges and fees for the years ended December 31, 2023, 2022, and 2021,
respectively.
92 TriCo Bancshares 2023 10-K
The components of noninterest expense were as follows:
(in thousands)
Year Ended December 31,
2023
2022
2021
Base salaries, net of deferred loan origination costs
$
94,564 $
84,861 $
15,557
25,674
135,795
16,135
18,933
5,644
7,080
—
3,531
7,358
6,118
2,547
5,276
1,851
2,444
1,236
(133)
23
19,344
97,387
17,908
27,083
129,852
15,493
14,660
5,733
6,984
6,253
3,694
4,392
6,334
2,298
3,142
2,013
1,000
1,147
(481)
(1,070)
15,201
86,793
69,844
14,957
21,550
106,351
14,910
13,985
5,358
6,040
1,523
2,899
3,657
5,464
2,253
2,581
1,214
964
710
(233)
(439)
11,038
71,924
$
233,182 $
216,645 $
178,275
Incentive compensation
Benefits and other compensation costs
Total salaries and benefits expense
Occupancy
Data processing and software
Equipment
ATM and POS network charges
Merger and acquisition expense
Advertising
Professional fees
Intangible amortization
Telecommunications
Regulatory assessments and insurance
Courier service
Operational losses
Postage
Gain on sale or acquisition of foreclosed assets
Loss (gain) on disposal of fixed assets
Other miscellaneous expense
Total other noninterest expense
Total noninterest expense
93 TriCo Bancshares 2023 10-K
Note 19 – Income Taxes
The components of consolidated income tax expense are as follows (in thousands):
Current tax expense
Federal
State
Deferred tax expense
Federal
State
Total tax expense
Year Ended December 31,
2023
2022
2021
$
$
26,133 $
34,155 $
19,781
45,914
(1,330)
(1,069)
(2,399)
22,355
56,510
(5,224)
(2,798)
(8,022)
28,763
18,221
46,984
(872)
(64)
(936)
$
43,515 $
48,488 $
46,048
A deferred tax asset or liability is recognized for the tax consequences of temporary differences in the recognition of revenue and expense
for financial and tax reporting purposes. The net change during the year in the deferred tax asset or liability results in a deferred tax expense
or benefit.
The Company recognized, as components of tax expense, tax credits and other tax benefits, and amortization expense relating to our
investments in Qualified Affordable Housing Projects as follows for the periods indicated (in thousands):
Tax credits and other tax benefits – decrease in tax expense
Amortization – increase in tax expense
Year Ended December 31,
2023
2022
2021
$
$
(10,857) $
(6,370) $
(4,224)
9,092 $
6,178 $
3,604
The carrying value of Low Income Housing Tax Credit Funds was $96.9 and $91.0 million as of December 31, 2023 and 2022, respectively.
As of December 31, 2023, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit
Funds in the amount of $63.3 million, and these contributions are expected to be made over the next several years.
The provisions for income taxes applicable to income before taxes for the years ended December 31, 2023, 2022 and 2021 differ from
amounts computed by applying the statutory Federal income tax rates to income before taxes. The effective tax rate and the statutory
federal income tax rate are reconciled as follows:
Year Ended December 31,
2023
2022
2021
21.0 %
21.0 %
21.0 %
7.9
(0.7)
(0.4)
(6.6)
5.6
0.3
—
(0.1)
27.0 %
7.9
(0.7)
(0.4)
(3.7)
3.6
(0.2)
0.1
0.3
7.9
(0.5)
(0.5)
(2.6)
2.2
(0.1)
0.1
0.6
27.9 %
28.1 %
(in thousands)
Federal statutory income tax rate
State income taxes, net of federal tax benefit
Tax-exempt interest on municipal obligations
Tax-exempt life insurance related income
Low income housing tax credits
Low income housing tax credit amortization
Equity compensation
Non-deductible merger expenses
Other
Effective Tax Rate
94 TriCo Bancshares 2023 10-K
The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows for
the years indicated (in thousands):
December 31,
2023
2022
Deferred tax assets:
Allowance for losses and reserve for unfunded commitments
$
37,656 $
32,519
Deferred compensation
Other accrued expenses
Additional unfunded status of the supplemental retirement plans
Operating lease liability
State taxes
Share based compensation
Nonaccrual interest
Acquisition cost basis
Unrealized loss on securities
Tax credits
Net operating loss carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Securities income
Depreciation
Right of use asset
Funded pension liability
Securities accretion
Mortgage servicing rights valuation
Core deposit intangible
Junior subordinated debt
Prepaid expenses and other
Total deferred tax liability
Net deferred tax asset
1,534
3,899
15,434
8,355
3,346
1,050
706
12,046
68,535
852
953
190
1,696
2,720
16,036
8,575
3,649
1,132
643
14,640
85,897
852
2,098
120
154,556
170,577
(777)
(8,364)
(7,726)
(3,999)
(2,265)
(1,946)
(2,814)
(1,171)
(1,170)
(777)
(8,270)
(7,941)
(4,110)
(1,265)
(1,976)
(4,778)
(1,293)
(991)
(30,232)
(31,401)
$
124,324 $
139,176
As part of the merger with FNB Bancorp in 2018 and North Valley Bancorp in 2014, TriCo acquired federal and state net operating loss
carryforwards, capital loss carryforwards, and tax credit carryforwards. These tax attribute carryforwards will be subject to provisions of the
tax law that limit the use of such losses and credits generated by a company prior to the date certain ownership changes occur. The amount
of the Company’s net operating loss carryforwards that are subject to these limitations as of December 31, 2023 were approximately $2.7
million for federal and $4.8 million for California. The amount of the Company’s tax credits that would be subject to these limitations as of
December 31, 2023 are $0.3 million and $0.6 million for federal and California, respectively. Due to the limitation, a significant portion of the
state tax credits will expire regardless of whether the Company generates future taxable income. As such, the Company has recorded the
future benefit of these tax credits on the books at the value which is more likely than not to be realized. These tax loss and tax credit
carryforwards expire at various dates through 2032.
The Company believes that a valuation allowance is not needed to reduce the deferred tax assets as it is more likely than not that the
results of future operations will generate sufficient taxable income to realize the deferred tax assets, including the tax attribute carryforwards
acquired as part of past mergers.
Disclosure of unrecognized tax benefits at December 31, 2023 and 2022 were not considered significant for disclosure purposes.
Management does not expect the unrecognized tax benefit will materially change in the next 12 months. During the years ended
December 31, 2023 and December 31, 2022 the Company did not recognize any significant amounts related to interest and penalties
associated with taxes. The Company files income tax returns in the U.S. federal jurisdiction, and California. With few exceptions, the
Company is no longer subject to U.S. federal and state/local income tax examinations by tax authorities for years before 2020 and 2019,
respectively.
95 TriCo Bancshares 2023 10-K
Note 20 – Earnings per Share
Earnings per share have been computed based on the following:
(in thousands)
Net income
Average number of common shares outstanding
Effect of dilutive stock options and restricted stock
Average number of common shares outstanding used to calculate diluted earnings per share
Equity awards excluded from diluted earnings per share because their effect was antidilutive
Year Ended December 31,
2023
2022
2021
$
117,390 $
125,419 $
117,655
33,261
94
33,355
—
32,584
137
32,721
—
29,721
161
29,882
—
Note 21 – 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, such items, along with net income, are components of comprehensive income. The components
of other comprehensive income and related tax effects are as follows:
(in thousands)
Year Ended December 31,
2023
2022
2021
Unrealized holding gains (losses) on available for sale securities before reclassifications
$
58,444 $
(290,157) $
(19,575)
Amounts reclassified out of accumulated other comprehensive income:
Realized loss (gain) on debt securities
Total amounts reclassified out of accumulated other comprehensive income
Unrealized holding gains (losses) on available for sale securities after reclassifications
Tax effect
Unrealized holding gains (losses) on available for sale securities, net of tax
Change in unfunded status of the supplemental retirement plans before reclassifications
Amounts reclassified out of accumulated other comprehensive income:
Amortization of prior service cost
Amortization of actuarial losses
Total amounts reclassified out of accumulated other comprehensive income
Change in unfunded status of the supplemental retirement plans after reclassifications
Tax effect
Change in unfunded status of the supplemental retirement plans, net of tax
Change in joint beneficiary agreement liability before reclassifications
Tax effect
Change in unfunded status of the supplemental retirement plans, net of tax
284
284
—
—
—
—
58,728
(290,157)
(19,575)
(17,363)
85,781
5,787
41,365
(204,376)
(13,788)
81
11,522
3,497
—
(455)
(455)
(374)
111
(263)
(366)
—
(366)
(28)
8
(20)
11,502
(3,401)
8,101
1,389
—
1,389
(58)
254
196
3,693
(1,091)
2,602
(113)
—
(113)
Total other comprehensive income (loss)
$
40,736 $
(194,886) $
(11,299)
The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows:
(in thousands)
Net unrealized loss on available for sale securities
Tax effect
Unrealized holding loss on available for sale securities, net of tax
Unfunded status of the supplemental retirement plans
Tax effect
Unfunded status of the supplemental retirement plans, net of tax
Joint beneficiary agreement liability, net of tax
Accumulated other comprehensive loss
96 TriCo Bancshares 2023 10-K
Year Ended December 31,
2023
2022
$
(231,821) $
(290,549)
68,534
85,897
(163,287)
(204,652)
13,527
(3,999)
9,528
590
13,901
(4,110)
9,791
956
$
(153,169) $
(193,905)
Note 22 – Retirement Plans
401(k) Plan
The Company sponsors a 401(k) Plan whereby substantially all employees age 21 and over with 90 days of service may participate.
Participants may contribute a portion of their compensation subject to certain limits based on federal tax laws. The Company provides a
discretionary matching contribution equal to 50% of participant’s elective deferrals, up to 4% of eligible compensation. The Company
recorded salaries & benefits expense attributable to the 401(k) Plan matching contributions and 401(k) Plan matching contributions for the
years ended:
(in thousands)
401(k) Plan benefits expense
401(k) Plan contributions made by the Company
Employee Stock Ownership Plan
Year Ended December 31,
2023
2022
2021
$
$
1,767 $
1,541 $
1,524 $
1,214 $
1,211
1,121
Substantially all employees with at least one year of service are covered by a discretionary employee stock ownership plan (ESOP).
Company shares owned by the ESOP are paid dividends and included in the calculation of earnings per share as common shares
outstanding. Contributions are made to the plan at the discretion of the Board of Directors. Expenses related to the Company’s ESOP,
included in benefits and other compensation costs under salaries and benefits expense, and contributions to the plan for the years ended
were:
(in thousands)
ESOP benefits expense
ESOP contributions made by the Company
Deferred Compensation Plans
Year Ended December 31,
2023
2022
2021
$
$
3,075 $
2,824 $
2,977 $
3,535 $
1,888
878
The Company has deferred compensation plans for certain directors and key executives, which allow certain directors and key executives
designated by the Board of Directors of the Company to defer a portion of their compensation. The Company has purchased insurance on
the lives of certain of the participants and intends to hold these policies until death as a cost recovery of the Company’s deferred
compensation obligations of $5.2 million and $5.7 million at December 31, 2023 and 2022, respectively. Earnings credits on deferred
balances included in non-interest expense are included in the following table:
(in thousands)
Year Ended December 31,
2023
2022
2021
Deferred compensation earnings credits included in non-interest expense
$
210 $
187 $
176
Supplemental Retirement Plans
The Company has supplemental retirement plans for certain directors and key executives. These plans are non-qualified defined benefit
plans and are unsecured and unfunded. The Company has purchased insurance on the lives of the participants and intends to hold these
policies until death as a cost recovery of the Company’s retirement obligations. The cash values of the insurance policies purchased to fund
the deferred compensation obligations and the supplemental retirement obligations were $136.9 million and $133.7 million at December 31,
2023 and 2022, respectively.
The Company recorded in other liabilities the additional funded status of the supplemental retirement plans of $13.5 million and $13.9 million
related to the supplemental retirement plans as of December 31, 2023 and 2022, respectively. These amounts represent the amount by
which the projected benefit obligations for these retirement plans exceeded the fair value of plan assets plus amounts previously accrued
related to the plans. The projected benefit obligation is recorded in other liabilities.
At December 31, 2023 and 2022, the additional funded status of the supplemental retirement plans of $13.5 million and $13.9 million were
offset by a reduction of shareholders’ equity accumulated other comprehensive gain of $9.5 million and $9.8 million, respectively,
representing the after-tax impact of the additional funded status of the supplemental retirement plans, and the related deferred tax liability of
$4.0 million and $4.1 million, respectively. Amounts recognized as a component of accumulated other comprehensive income (loss) as of
year-end that have not been recognized as a component of the combined net period benefit cost of the Company’s defined benefit pension
plans are presented in the following table. The Company expects to recognize approximately $0.5 million of the net actuarial loss reported in
the following table as of December 31, 2023 as a component of net periodic benefit cost during 2022.
97 TriCo Bancshares 2023 10-K
(in thousands)
Transition obligation
Prior service cost
Net actuarial (gain) / loss
Amount included in accumulated other comprehensive income (loss)
Deferred tax liability / (benefit)
December 31,
2023
2022
$
— $
—
(13,527)
(13,527)
3,999
—
—
(13,901)
(13,901)
4,109
Amount included in accumulated other comprehensive income (loss), net of tax
$
(9,528) $
(9,792)
Information pertaining to the activity in the supplemental retirement plans, using a measurement date of December 31, is as follows:
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Acquisition of obligations
Service cost
Interest cost
Actuarial (loss)/gain
Plan amendments
Benefits paid
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Fair value of plan assets at end of year
Funded status
Unrecognized net obligation existing at January 1, 1986
Unrecognized net actuarial (loss)/gain
Unrecognized prior service cost
Accumulated other comprehensive loss
Accrued benefit cost
Accumulated benefit obligation
December 31,
2023
2022
$
(40,341) $
(43,834)
—
(138)
(2,016)
81
—
3,769
(3,310)
(1,624)
(1,731)
10,266
(2,141)
2,033
(38,645) $
(40,341)
— $
— $
—
—
(38,645) $
(40,341)
—
—
(13,527)
(13,901)
—
—
13,527
13,901
(38,645) $
(40,341)
(38,645) $
(40,341)
$
$
$
$
$
$
The following table sets forth the net periodic benefit cost recognized for the supplemental retirement plans:
(in thousands)
Net pension cost included the following components:
Service cost-benefits earned during the period
Interest cost on projected benefit obligation
Amortization of net obligation at transition
Amortization of prior service cost
Recognized net actuarial loss
Amortization of loss/(gain)
Recognition of pension service cost to due amendment
Year Ended December 31,
2023
2022
2021
$
138 $
1,624 $
2,016
1,731
—
—
10
(466)
—
—
(28)
(86)
(114)
2,141
1,103
1,518
—
(58)
254
—
—
Net periodic pension cost
$
1,698 $
5,268 $
2,817
98 TriCo Bancshares 2023 10-K
The following table sets forth assumptions used in accounting for the plans:
Discount rate used to calculate benefit obligation
Discount rate used to calculate net periodic pension cost
Average annual increase in executive compensation
Average annual increase in director compensation
Year Ended December 31,
2023
2022
2021
5.01 %
5.23 %
— %
— %
5.23 %
2.74 %
— %
— %
2.74 %
2.40 %
3.25 %
— %
The following table sets forth the expected benefit payments to participants and estimated contributions to be made by the Company under
the supplemental retirement plans for the years indicated:
(in thousands)
2024
2025
2026
2027
2028
2028-2032
Expected Benefit
Payments to
Participants
Estimated
Company
Contributions
$
2,736 $
2,906
2,895
2,916
2,885
2,736
2,906
2,895
2,916
2,885
18,580
18,580
Note 23 – Related Party Transactions
Certain directors, officers, and companies with which they are associated were customers of, and had banking transactions with, the
Company or the Bank in the ordinary course of business.
The following table summarizes the activity in these loans for the periods indicated:
(in thousands)
Balance January 1, 2022
Advances/new loans
Removed/payments
Balance December 31, 2022
Advances/new loans
Removed/payments
Balance December 31, 2023
$
$
6,316
11,960
(6,892)
11,384
—
(9,851)
1,533
Deposits of directors, officers and other related parties to the Bank totaled $29.7 million and $28.4 million at December 31, 2023 and 2022,
respectively.
Note 24 – 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. Securities available-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 as loans held for sale, loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve
application of lower of cost or market accounting or impairment write-downs of individual assets.
The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded
and the observable nature of the assumptions used to determine fair value. These levels are:
Level 1 —
Valuation is based upon quoted prices for identical instruments traded in active markets.
99 TriCo Bancshares 2023 10-K
Level 2 —
Level 3 —
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.
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.
Securities available for sale — 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 nonrecurring 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, loans may require
individual analysis and an allowance for credit losses is established. Loans for which it is probable that payment of interest and principal will
not be made in accordance with the contractual terms of the loan agreement are an example. The fair value of individually evaluated loans
is estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and
discounted cash flows. Those individually evaluated 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. Individually evaluated 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 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 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 asset 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. Additional information regarding mortgage servicing rights can be found in
Note 10 in the consolidated financial statements at Item 1 of this report.
The tables below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands):
100 TriCo Bancshares 2023 10-K
Fair value at December 31, 2023
Marketable equity securities
Debt securities available for sale:
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Corporate bonds
Asset backed securities
Non-agency collateralized mortgage obligations
Loans held for sale
Mortgage servicing rights
Total assets measured at fair value
Fair value at December 31, 2022
Marketable equity securities
Debt securities available for sale:
Obligations of U.S. government agencies
Obligations of states and political subdivisions
Corporate bonds
Asset backed securities
Non-agency collateralized mortgage obligation
Loans held for sale
Mortgage servicing rights
Total
Level 1
Level 2
Level 3
$
2,634 $
2,634
1,221,737
236,375
5,602
355,281
333,509
458
6,606
1,221,737
236,375
5,602
355,281
333,509
458
$
2,162,202 $
2,634 $
2,152,962 $
6,606
6,606
Total
Level 1
Level 2
Level 3
$
2,598 $
2,598 $
— $
1,372,769
293,205
5,751
439,767
340,946
1,846
6,712
—
—
—
—
—
—
—
1,372,769
293,205
5,751
439,767
340,946
1,846
—
—
—
—
—
—
—
—
6,712
6,712
Total assets measured at fair value
$
2,463,594 $
2,598 $
2,454,284 $
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 2023 or
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 years ended December 31, 2023, 2022, and 2021. Had there been any transfer into or out of Level 3 during
2023, 2022, or 2021, 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):
Year ended December 31,
2023: Mortgage servicing rights
2022: Mortgage servicing rights
2021: Mortgage servicing rights
Beginning
Balance
Transfers
into (out of)
Level 3
Change
Included
in Earnings
Issuances
Ending
Balance
$
$
$
6,712
5,874
5,092
— $
— $
— $
(506) $
301 $
(872) $
400 $
537 $
1,654 $
6,606
6,712
5,874
The Company’s method for determining the fair value of mortgage servicing rights is described in Note 1. 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). Note 10 contains additional information regarding mortgage servicing rights.
The following table present quantitative information about recurring Level 3 fair value measurements at December 31, 2023 and 2022:
101 TriCo Bancshares 2023 10-K
December 31, 2023
Mortgage Servicing Rights
December 31, 2022
Mortgage Servicing Rights
Fair Value
(in thousands)
$6,606
Valuation
Technique
Discounted
cash flow
Unobservable
Inputs
Constant
prepayment rate
Range,
Weighted
Average
6%-13%, 7%
Discount rate
10%-14%, 12%
$6,712
Discounted
cash flow
Constant
prepayment rate
7%-14%, 8%
Discount rate
10%-14%, 12%
The tables below present the recorded amount of 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.
December 31, 2023
Fair value:
Individually evaluated loans
Real estate owned
Total assets measured at fair value
December 31, 2022
Fair value:
Individually evaluated loans
Real estate owned
Total assets measured at fair value
Total
Level 1
Level 2
Level 3
4,175
50
4,225
—
—
—
— $
—
— $
Total
Level 1
Level 2
Level 3
5,719
311
6,030
—
—
—
— $
—
— $
4,175
50
4,225
5,719
311
6,030
$
$
$
$
The tables below present the gains (losses) resulting from non-recurring fair value adjustments of assets and liabilities for the periods
indicated, regardless of whether the asset is still being held at fair value at period end (in thousands):
Individually evaluated loans
Real estate owned
Total losses from non-recurring measurements
December 31,
2023
2022
$
$
(4,498) $
(312)
(4,810) $
(2,283)
481
(1,802)
The individually evaluated loan amount above represents collateral dependent loans with unique risk characteristics that have been adjusted
to fair value. When we identify a collateral dependent loan as requiring individual evaluation, we measure the need for credit reserves 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 we determine that the value of the loan is less than the recorded investment in the loan, we
recognize this impairment and adjust the carrying value of the loan to fair value through the allowance for loan and lease 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 real estate owned amounts above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real
estate which the Bank 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 loan and lease 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 non-covered other real estate
owned for fair value adjustments based on the fair value of the real estate.
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
102 TriCo Bancshares 2023 10-K
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 tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value
on a nonrecurring basis at December 31, 2023 and 2022:
December 31, 2023
Individually evaluated loans
Fair Value
(in thousands)
$
4,175
Real estate owned (Commercial)
$
50
December 31, 2022
Individually evaluated loans
Fair Value
(in thousands)
$
5,719
Real estate owned (Residential)
$
311
Valuation Technique
Unobservable Inputs
Sales comparison
approach;
Income approach
Sales comparison
approach;
Income approach
Adjustment for differences
between
comparable sales;
Capitalization rate
Adjustment for differences
between
comparable sales;
Capitalization rate
Valuation Technique
Unobservable Inputs
Sales comparison
approach;
Income approach
Sales comparison
approach
Adjustment for differences
between
comparable sales;
Capitalization rate
Adjustment for differences
between
comparable sales
Range,
Weighted Average
Not meaningful;
N/A
Not meaningful;
N/A
Range,
Weighted Average
Not meaningful;
N/A
Not meaningful;
N/A
The estimated fair values of financial instruments that are reported at amortized cost in the Corporation’s consolidated balance sheets,
segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, were as follows (in thousands):
Financial assets:
Level 1 inputs:
Cash and due from banks
Cash at Federal Reserve and other banks
Level 2 inputs:
Securities held to maturity
Restricted equity securities
Level 3 inputs:
Loans, net
Financial liabilities:
Level 2 inputs:
Deposits
Other borrowings
Level 3 inputs:
December 31, 2023
December 31, 2022
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$
81,626 $
81,626 $
96,323 $
17,075
17,075
10,907
133,494
17,250
125,126
n/a
160,983
17,250
96,323
10,907
149,938
n/a
6,672,948
6,278,577
6,344,767
6,153,155
7,834,038
7,828,554
8,329,013
8,321,517
632,582
632,582
264,605
264,605
Junior subordinated debt
101,099
95,407
101,040
92,613
Off-balance sheet:
Level 3 inputs:
Commitments (1)
Standby letters of credit (1)
Overdraft privilege commitments (1)
103 TriCo Bancshares 2023 10-K
Contract
Amount
Fair
Value
Contract
Amount
Fair
Value
$
2,225,677 $
22,257 $
2,188,560 $
21,886
38,449
121,539
385
1,215
26,599
126,634
266
1,266
The methods and assumptions used to estimate the fair value of each class of financial instruments not measured at fair value are as
follows:
Securities held to maturity - This includes mortgage-backed securities issued by government sponsored entities and municipal bonds. 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.
Restricted equity securities - Consists of FHLB stock whereby carrying value approximates fair value.
Loans - Loans are generally valued by discounting expected cash flows using market inputs with adjustments based on cohort level
assumptions for certain loan types as well as internally developed estimates at a business segment level. Due to the significance of the
unobservable market inputs and assumptions, as well as the absence of a liquid secondary market for most loans, these loans are classified
as Level 3. Certain loans are measured based on observable market prices sourced from external data providers and classified as Level 2.
Nonaccrual loans are written down and reported at their estimated recovery value which approximates their fair value and classified as Level
3.
Deposits - The estimated fair value of deposits with no stated maturity, such as demand deposit accounts, money market accounts, and
savings accounts was the amount payable on demand at the reporting date. The fair value of time deposits was estimated based on a
discounted cash flow technique using Level 3 inputs appropriate to the contractual maturity.
Other borrowings - The cash flows were calculated using the contractual features of the advance and then discounted using observable
market. These are short-term in nature.
Junior subordinated debt - The fair value of structured financings was estimated based on a discounted cash flow technique using
observable market interest rates adjusted for estimated spreads.
(1) Lending related commitments - The fair value of these commitments, including revolving credit facilities, standby letters of credit and
overdrafts are carried at contract value, which approximates fair value but are not actively traded. These instruments generate fees, which
approximate those currently charged to originate similar commitments, which are recognized over the term of the commitment period.
Note 25 – TriCo Bancshares Condensed Financial Statements (Parent Only)
Condensed Balance Sheets
Assets
Cash and cash equivalents
Investment in Tri Counties Bank
Other assets
Total assets
Liabilities and shareholders’ equity
Other liabilities
Junior subordinated debt
Total liabilities
Shareholders’ equity:
Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at December 31, 2023 and
2022
Common stock, no par value: authorized 50,000,000 shares; issued and outstanding 33,268,102 and 33,331,513
shares at December 31, 2023 and 2022, respectively
Retained earnings
Accumulated other comprehensive loss, net
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2023
December 31,
2022
(In thousands)
$
6,356 $
7,987
1,253,492
1,138,429
1,872
1,818
$
1,261,720 $
1,148,234
$
939 $
778
101,099
102,038
101,040
101,818
—
—
697,349
615,502
697,448
542,873
(153,169)
(193,905)
1,159,682
1,046,416
$
1,261,720 $
1,148,234
104 TriCo Bancshares 2023 10-K
Condensed Statements of Income
Net interest expense
Administration expense
Loss before equity in net income of Tri Counties Bank
Equity in net income of Tri Counties Bank:
Distributed
Undistributed
Income tax benefit
Net income
Condensed Statements of Comprehensive Income (Loss)
Net income
Other comprehensive income (loss), net of tax:
Year Ended December 31,
2023
2022
2021
(In thousands)
$
(6,878) $
(4,385) $
(2,128)
(1,096)
(7,974)
52,805
70,202
2,357
(816)
(5,201)
64,188
64,896
1,536
(985)
(3,113)
31,571
88,289
908
$
117,390 $
125,419 $
117,655
Year Ended December 31,
2023
2022
2021
(In thousands)
$
117,390 $
125,419 $
117,655
Increase (decrease) in unrealized gains on available for sale securities arising during the period
41,365
(204,376)
(13,788)
Change in minimum pension liability
Change in joint beneficiary agreement liability
Other comprehensive income (loss)
Comprehensive income (loss)
Condensed Statements of Cash Flows
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed equity in earnings of Tri Counties Bank
Equity compensation vesting expense
Net change in other assets and liabilities
Net cash provided by operating activities
Investing activities:
Sales or maturities of investments
Financing activities:
Issuance of common stock through option exercise
Repurchase of common stock
Cash dividends paid — common
Net cash used for financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
105 TriCo Bancshares 2023 10-K
(263)
(366)
8,101
1,389
2,602
(113)
40,736
(194,886)
(11,299)
$
158,126 $
(69,467) $
106,356
Year Ended December 31,
2023
2022
2021
(In thousands)
$
117,390 $
125,419 $
117,655
(70,202)
(64,896)
(88,289)
4,125
(3,959)
47,354
3,869
(3,834)
60,558
2,638
(6,427)
25,577
—
4,234
—
156
(9,240)
(39,901)
(48,985)
(1,631)
7,987
1,190
(27,148)
(35,797)
(61,755)
3,037
4,950
$
6,356 $
7,987 $
144
(4,344)
(29,724)
(33,924)
(8,347)
13,297
4,950
Note 26 – Regulatory Matters
The Company and the Bank are 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 consolidated financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action specific capital guidelines that involve quantitative measures of assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting practices. These 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 that minimum amounts and ratios of total, Tier 1, and common equity Tier 1capital to risk-
weighted assets, and of Tier 1 capital to average assets be maintained. Under applicable capital requirements both the Company and the
Bank are required to have a common equity Tier 1 capital ratio of 4.5%, a Tier 1 leverage ratio of 4.0%, a Tier 1 risk-based ratio of 6.0% and
a total risk-based ratio of 8.0%. In addition, the Company and the Bank are also required to maintain a capital conservation buffer
consisting of common equity Tier 1 capital above 2.5% of minimum risk based capital ratios to avoid restrictions on certain activities
including payment of dividends, stock repurchases and discretionary bonuses to executive officers. The additional 2.5% buffer, where
applicable, is included in the minimum ratios set forth in the table below. Management believes as of December 31, 2023 and 2022, the
Company and Bank meet all capital adequacy requirements to which they are subject.
Actual
Required for Capital Adequacy
Purposes
Required to be
Considered Well
Capitalized Under Prompt
Corrective Action Regulations
Amount
Ratio
Amount
Ratio
Amount
Ratio
$ 1,196,106
14.73 % $
852,850
10.50 %
N/A
N/A
$ 1,190,542
14.66 % $
852,648
10.50 % $
812,046
10.00 %
$ 1,052,063
12.95 % $
690,402
8.50 %
N/A
$ 1,088,717
13.41 % $
690,239
8.50 % $
649,637
$
994,907
12.25 % $
568,566
7.00 %
N/A
$ 1,088,717
13.41 % $
568,432
7.00 % $
527,830
$ 1,052,063
10.75 % $
391,620
4.00 %
N/A
$ 1,088,717
11.12 % $
391,574
4.00 % $
489,468
N/A
8.00 %
N/A
6.50 %
N/A
5.00 %
Actual
Required for Capital
Adequacy Purposes
Required to be
Considered Well
Capitalized Under Prompt
Corrective Action Regulations
Amount
Ratio
Amount
Ratio
Amount
Ratio
$ 1,115,257
14.19 % $
825,234
10.50 %
N/A
N/A
$ 1,107,941
14.10 % $
825,039
10.50 % $
785,751
10.00 %
(in thousands)
As of December 31, 2023:
Total Capital (to Risk Weighted Assets):
Consolidated
Tri Counties Bank
Tier 1 Capital (to Risk Weighted Assets):
Consolidated
Tri Counties Bank
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated
Tri Counties Bank
Tier 1 Capital (to Average Assets):
Consolidated
Tri Counties Bank
(in thousands)
As of December 31, 2022:
Total Capital (to Risk Weighted Assets):
Consolidated
Tri Counties Bank
Tier 1 Capital (to Risk Weighted Assets):
Consolidated
Tri Counties Bank
$
974,325
12.40 % $
668,047
8.50 %
N/A
$ 1,009,577
12.85 % $
667,888
8.50 % $
628,601
Common equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated
Tri Counties Bank
Tier 1 Capital (to Average Assets):
Consolidated
Tri Counties Bank
$
917,565
11.67 % $
550,156
7.00 %
N/A
$ 1,009,577
12.85 % $
550,026
7.00 % $
510,738
$
974,325
10.14 % $
384,337
4.00 %
N/A
$ 1,009,577
10.51 % $
384,146
4.00 % $
480,183
106 TriCo Bancshares 2023 10-K
N/A
8.00 %
N/A
6.50 %
N/A
5.00 %
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of TriCo Bancshares is responsible for establishing and maintaining effective internal control over financial reporting. Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the
Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in the 2013
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation under the framework in the 2013 Internal Control – Integrated Framework, management of the Company has concluded the
Company maintained effective internal control over financial reporting, as such term is defined in Securities Exchange Act of 1934
Rules 13a-15(f), as of December 31, 2023.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent
limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or
improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected
on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting
process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other financial
information contained in this report. The accompanying consolidated financial statements were prepared in conformity with U.S. generally
accepted accounting principles and include, as necessary, best estimates and judgments by management.
In addition to management’s assessment, Moss Adams LLP, an independent registered public accounting firm, has audited the Company’s
consolidated financial statements as of and for the year ended December 31, 2023, and the Company’s effectiveness of internal control over
financial reporting as of December 31, 2023, dated February 29, 2024, as stated in its report, which is included herein.
/s/ Richard P. Smith
Richard P. Smith
President and Chief Executive Officer
/s/ Peter G. Wiese
Peter G. Wiese
Executive Vice President and Chief Financial Officer
February 29, 2024
107 TriCo Bancshares 2023 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
TriCo Bancshares
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of TriCo Bancshares (and subsidiaries) (the “Company”) as of December
31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated
financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of
America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or
fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
108 TriCo Bancshares 2023 10-K
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Allowance for Credit Losses - Reasonable and Supportable Qualitative Factors
As discussed in Note 1 and Note 5 to the consolidated financial statements, the Company’s allowance for credit losses on loans was $121.5
million as of December 31, 2023, and consists of both historical credit loss experience and management’s estimates of current conditions
and reasonable and supportable forecasts. The Company’s allowance for credit losses on loans is a valuation account that is deducted from
the amortized cost basis of loans to present the net carrying value at the amount expected to be collected on such loans and is a material
and complex estimate requiring significant management judgment in the estimation of expected lifetime losses within the loan portfolio at the
balance sheet date.
We identified the auditing of management’s qualitative forecast factors, which are the most significant components of the reasonable and
supportable forecast, as a critical audit matter. In estimating the allowance for credit losses on loans, the Company utilizes relevant
information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
Estimation of the lifetime expected credit losses on loans requires significant management judgment, particularly as it relates to the
significant forecast components over the forecast period. Auditing these significant management judgments involves especially challenging
auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.
The primary procedures we performed to address this critical audit matter included:
•
•
•
Testing the design, implementation and operating effectiveness of controls relating to management’s calculation of the allowance
for credit losses on loans, including controls over the evaluation of the qualitative forecast factors.
Evaluating the reasonableness and appropriateness of the estimated qualitative forecast factors utilized by management in forming
the reasonable and supportable forecast factors by comparing forecasts to relevant external data, including historical trends.
Testing completeness and accuracy of the data used in the determination of forecast factors within the qualitative allowance for
credit losses on loans and testing the mathematical accuracy of the calculation of the qualitative allowance for credit losses on
loans.
/s/ Moss Adams LLP
Sacramento, California
February 29, 2024
We have served as the Company’s auditor since 2018.
109 TriCo Bancshares 2023 10-K
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of December 31, 2023, the end of the period covered by this Annual Report on Form 10-K, the Company’s Chief Executive Officer and
Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
each concluded that as of December 31, 2023, the Company’s disclosure controls and procedures were effective to ensure that the
information required to be disclosed by the Company in this Annual Report on Form 10-K was recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and instructions for Form 10-K.
(b) Management’s Report on Internal Control over Financial Reporting and Attestation Report of Registered Public Accounting
Firm
Management’s report on internal control over financial reporting is set forth on page 107 of this report and is incorporated herein by
reference. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, has been audited by Moss
Adams LLP, an independent registered public accounting firm, as stated in its report, which is set forth on pages 108 - 109 of this report and
is incorporated herein by reference.
(c) Changes in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the fourth quarter of the year ended December 31,
2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
All information required to be disclosed in a current report on Form 8-K during the fourth quarter of 2023 was so disclosed.
ITEM 9C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
110 TriCo Bancshares 2023 10-K
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item 10 shall either be incorporated herein by reference from the Company’s Proxy Statement for the 2024
annual meeting of shareholders, which will be filed with the Commission pursuant to Regulation 14A or included in an amendment to this
Form 10-K.
ITEM 11.
EXECUTIVE COMPENSATION
Equity Compensation Plans
The following table shows shares reserved for issuance for outstanding options, stock appreciation rights and warrants granted under our
equity compensation plans as of December 31, 2023. All of our equity compensation plans have been approved by shareholders.
Plan category
Equity compensation plans not approved by shareholders
Equity compensation plans approved by shareholders
Total
(a) Number of securities
to
be issued upon exercise
of outstanding options,
options, warrants and
rights
(b) Weighted average
exercise price of
outstanding options,
warrants and rights
(c) Number of securities
remaining available
for issuance under future
equity compensation
plans
(excluding securities
reflected in column (a))
— $
7,500 $
7,500 $
—
23.21
23.21
—
456,222
456,222
The information required by this Item 11 shall either be incorporated herein by reference from the Company’s Proxy Statement for the 2024
annual meeting of shareholders, which will be filed with the Commission pursuant to Regulation 14A or included in an amendment to this
Form 10-K.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this Item 12 shall either be incorporated herein by reference from the Company’s Proxy Statement for the 2024
annual meeting of shareholders, which will be filed with the Commission pursuant to Regulation 14A or included in an amendment to this
Form 10-K.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item 13 shall either be incorporated herein by reference from the Company’s Proxy Statement for the 2024
annual meeting of shareholders, which will be filed with the Commission pursuant to Regulation 14A or included in an amendment to this
Form 10-K.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item 14 shall either be incorporated herein by reference from the Company’s Proxy Statement for the 2024
annual meeting of shareholders, which will be filed with the Commission pursuant to Regulation 14A or included in an amendment to this
Form 10-K.
111 TriCo Bancshares 2023 10-K
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1. All Financial Statements.
The consolidated financial statements of Registrant are included in Part II, Item 8 of this report, and are incorporated herein by
reference.
2. Financial statement schedules.
Schedules have been omitted because they are not applicable or are not required under the instructions contained in Regulation S-
X or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto at
Part II, Item 8 of this report.
3. Exhibits.
The exhibit list required by this item is incorporated by reference to the Exhibit Index filed with this report.
(b) Exhibits filed:
Exhibit No.
Exhibit
2.2
2.3
3.1
3.2
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
Agreement and Plan of Reorganization dated as of December 11, 2017, by and between TriCo Bancshares and FNB
Bancorp (incorporated by reference to Exhibit 2.1 to TriCo’s Current Report on Form 8-K filed on December 11, 2017).
Agreement and Plan of Merger and Reorganization dated as of July 27, 2021, by and between TriCo Bancshares and Valley
Republic Bancorp (incorporated by reference to Exhibit 2.1 to TriCo’s Current Report on Form 8-K filed on July 27, 2021).
Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to TriCo’s Current Report on Form 8-K filed on
March 17, 2009).
Amended and Restated Bylaws of TriCo (incorporated by reference to Exhibit 3.1 to TriCo’s Current Report on Form 8-K
filed May 23, 2023).
Instruments defining the rights of holders of the long-term debt securities of the TriCo and its subsidiaries are omitted
pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. TriCo hereby agrees to furnish copies of these instruments to
the Securities and Exchange Commission upon request.
TriCo Bancshares securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by
reference to Exhibit 4.2 of TriCo’s Annual Report on Form 10- K for the year ended December 31, 2023).
Form of Change of Control Agreement among TriCo, Tri Counties Bank and each of Dan Bailey, Craig Carney, John
Fleshood, Peter Wiese and other executives (incorporated by reference to Exhibit 10.2 to TriCo’s Current Report on Form 8-
K filed on April 14, 2021).
TriCo’s 2009 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to TriCo’s Current Report on
Form 8-K filed April 3, 2013).
Amended and Restated Employment Agreement between TriCo, Tri Counties Savings Bank and Richard Smith dated as of
April 12, 2021 (incorporated by reference to Exhibit 10.1 to TriCo’s Current Report on Form 8-K filed April 13, 2021).
Tri Counties Bank Executive Deferred Compensation Plan restated April 1, 1992, and January 1, 2005 (incorporated by
reference to Exhibit 10.9 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
Tri Counties Bank Deferred Compensation Plan for Directors effective January 1, 2005 (incorporated by reference to Exhibit
10.12 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
2005 Tri Counties Bank Deferred Compensation Plan for Executives and Directors effective January 1, 2005 (incorporated
by reference to Exhibit 10.11 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005).
The Restated 2005 Tri Counties Bank Deferred Compensation Plan for Executives and Directors (Effective January 1,
2021).
Tri Counties Bank Supplemental Retirement Plan for Directors dated September 1, 1987, as restated January 1, 2001, and
amended and restated January 1, 2004 (incorporated by reference to Exhibit 10.12 to TriCo’s Quarterly Report on Form 10-
Q for the quarter ended June 30, 2004).
2004 TriCo Bancshares Supplemental Retirement Plan for Directors effective January 1, 2004 (incorporated by reference to
Exhibit 10.13 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
Tri Counties Bank Supplemental Executive Retirement Plan effective September 1, 1987, as amended and restated
January 1, 2004 (incorporated by reference to Exhibit 10.14 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2004).
2004 TriCo Bancshares Supplemental Executive Retirement Plan effective January 1, 2004 (incorporated by reference to
Exhibit 10.15 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
Form of Joint Beneficiary Agreement effective March 31, 2003 between Tri Counties Bank and each of Craig Carney and
Richard Smith (incorporated by reference to Exhibit 10.14 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003).
112 TriCo Bancshares 2023 10-K
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
21.1
23.1
31.1
31.2
32.1
32.2
97.1
Form of Joint Beneficiary Agreement effective March 31, 2003 between Tri Counties Bank and each of Don Amaral, Craig
Compton, John Hasbrook, and Michael Koehnen (incorporated by reference to Exhibit 10.15 to TriCo’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2003).
Form of Tri Counties Bank Executive Long Term Care Agreement effective June 10, 2003 between Tri Counties Bank and
Craig Carney (incorporated by reference to Exhibit 10.16 to TriCo’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003).
Form of Tri Counties Bank Director Long Term Care Agreement effective June 10, 2003 between Tri Counties Bank and
each of Don Amaral, Craig Compton, John Hasbrook, and Michael Koehnen (incorporated by reference to Exhibit 10.17 to
TriCo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003).
Form of Indemnification Agreement between TriCo and its directors and executive officers (incorporated by reference to
Exhibit 10.1 to TriCo’s Current Report on Form 8-K filed September 10, 2013).
Form of Indemnification Agreement between Tri Counties Bank and its directors and executive officers
Form of Stock Option, Stock Appreciation Right, Restricted Stock Unit Award, and Performance Share Award Agreements,
and Notice of Grant of Stock Option pursuant to TriCo’s 2009 Equity Incentive Plan (incorporated by reference to Exhibit
10.19 to TriCo’s Annual Report on Form 10-K for the year ended December 31, 2017).
TriCo's 2019 Equity Incentive Plan (incorporated by reference to Exhibit 10.26 to TriCo's Annual Report on Form 10-K filed
on March 2, 2019).
Form of Restricted Stock Unit Agreement and Grant Notice for Non-employee Directors pursuant to TriCo's 2019 Equity
Incentive Plan (incorporated by reference to Exhibit 99.1 of TriCo's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2019).
Form of Restricted Stock Unit Agreement and Grant Notice for Employees pursuant to TriCo's 2019 Equity Incentive Plan
(incorporated by reference to Exhibit 99.2 of TriCo's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).
Form of Performance Award Agreement and Grant Notice pursuant to TriCo's 2019 Equity Incentive Plan (incorporated by
reference to Exhibit 99.1 of TriCo's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019).
Form of Restricted Stock Unit Agreement and Grant Notice for Executives pursuant to TriCo's 2019 Equity Incentive Plan
(incorporated by reference to Exhibit 10.26 of TriCo's Annual Report on Form 10-K for the year ended December 31, 2023).
Form of Performance Award and Grant Notice for Executives pursuant to TriCo's 2019 Equity Incentive Plan (incorporated
by reference to Exhibit 10.27 of TriCo's Annual Report on Form 10-K for the year ended December 31, 2023).
Amendment to SERP and Participation Agreement - Richard P. Smith (incorporated by reference to Exhibit 10.1 to TriCo's
Current Report on Form 8-K filed December 28, 2022).
Amendment to SERP and Participation Agreement - Daniel K. Bailey (incorporated by reference to Exhibit 10.2 to TriCo's
Current Report on Form 8-K filed December 28, 2022).
Amendment to SERP and Participation Agreement - Craig B. Carney (incorporated by reference to Exhibit 10.3 to TriCo's
Current Report on Form 8-K filed December 28, 2022).
List of Subsidiaries (incorporated by reference to Exhibit 21.1 of TriCo’s Annual Report on Form 10- K for the year ended
December 31, 2023).
Consent of Moss Adams LLP, Independent Registered Public Accounting Firm
Rule 13a-14(a)/15d-14(a) Certification of CEO
Rule 13a-14(a)/15d-14(a) Certification of CFO
Section 1350 Certification of CEO**
Section 1350 Certification of CFO**
TriCo Compensation Clawback Policy
101.INS
Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)
*
**
Management contract or compensatory plan or arrangement
Furnished herewith. This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934,
or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
(c) Financial statement schedules filed:
See Item 15(a)(2) above.
113 TriCo Bancshares 2023 10-K
ITEM 16.
FORM 10-K SUMMARY
None.
114 TriCo Bancshares 2023 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 29, 2024
TRICO BANCSHARES
By:
/s/ Richard P. Smith
Richard P. Smith, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
Date: February 29, 2024
/s/ Richard P. Smith
Richard P. Smith, Chairman of the Board, President, Chief Executive
Officer and Director (Principal Executive Officer)
Date: February 29, 2024
/s/ Peter G. Wiese
Peter G. Wiese, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 29, 2024
/s/ Kirsten E. Garen
Kirsten E. Garen, Director
Date: February 29, 2024
/s/ Cory W. Giese
Cory W. Giese, Independent Lead Director
Date: February 29, 2024
/s/ John S.A. Hasbrook
John S.A. Hasbrook, Director
Date: February 29, 2024
/s/ Margaret L. Kane
Margaret L. Kane, Director
Date: February 29, 2024
/s/ Michael W. Koehnen
Michael W. Koehnen, Director
Date: February 29, 2024
/s/ Anthony L. Leggio
Anthony L. Leggio, Director
Date: February 29, 2024
/s/ Martin A. Mariani
Martin A. Mariani, Director
Date: February 29, 2024
/s/ Thomas C. McGraw
Thomas C. McGraw, Director
Date: February 29, 2024
/s/ Kimberley H. Vogel
Kimberley H. Vogel, Director
Date: February 29, 2024
/s/ Jon Y. Nakamura
Jon Y. Nakamura, Director
115 TriCo Bancshares 2023 10-K
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