Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of consolidated income tax expense are as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Current tax expense
Federal	$	34,155	$	28,763	$	22,104
State	22,355		18,221		14,586
	$	56,510	46,984		36,690
Deferred tax expense
Federal	(5,224)		(872)		(9,500)
State	(2,798)		(64)		(4,654)
	(8,022)		(936)		(14,154)
Total tax expense	$	48,488	$	46,048	$	22,536

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):

	Year Ended December 31,
	2022		2021		2020
Tax credits and other tax benefits – decrease in tax expense	$	(6,370)	$	(4,224)	$	(4,200)
Amortization – increase in tax expense	$	6,178	$	3,604	$	3,581

The carrying value of Low Income Housing Tax Credit Funds was $90,956,000 and $41,295,000 as of December 31, 2022 and 2021, respectively. As of December 31, 2022, the Company has committed to make additional capital contributions to the Low Income Housing Tax Credit Funds in the amount of $65,285,000, 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, 2022, 2021 and 2020 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,
(in thousands)	2022		2021		2020
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes, net of federal tax benefit	7.9		7.9		7.7
Tax-exempt interest on municipal obligations	(0.7)		(0.5)		(0.9)
Tax-exempt life insurance related income	(0.4)		(0.5)		(0.8)
Low income housing tax credits	(3.7)		(2.6)		(4.8)
Low income housing tax credit amortization	3.6		2.2		4.1
Equity compensation	(0.2)		(0.1)		0.4
Non-deductible merger expenses	0.1		0.1		—
Other	0.3		0.6		(0.9)
Effective Tax Rate	27.9	%	28.1	%	25.8	%

The temporary differences, tax effected, which give rise to the Company’s net deferred tax asset recorded in other assets are as follows as of December 31 for the years indicated (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Allowance for losses and reserve for unfunded commitments	$	32,519	$	26,361
Deferred compensation	1,696		1,758
Other accrued expenses	2,720		1,994
Additional unfunded status of the supplemental retirement plans	16,036		13,693
Operating lease liability	8,575		7,769
State taxes	3,649		3,251
Share based compensation	1,132		952
Nonaccrual interest	643		937
Acquisition cost basis	14,640		506
Unrealized loss on securities	85,897		116
Tax credits	852		513
Net operating loss carryforwards	2,098		1,131
Other	120		813
Total deferred tax assets	170,577		59,794
Deferred tax liabilities:
Securities income	(777)		(762)
Depreciation	(8,270)		(6,198)
Right of use asset	(7,941)		(7,588)
Funded pension liability	(4,110)		(709)
Securities accretion	(1,265)		(846)
Mortgage servicing rights valuation	(1,976)		(1,726)
Core deposit intangible	(4,778)		(3,248)
Junior subordinated debt	(1,293)		(1,422)
Prepaid expenses and other	(991)		(488)
Total deferred tax liability	(31,401)		(22,987)
Net deferred tax asset	$	139,176	$	36,807

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. In addition, the 2020 Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided the Company with an opportunity to file amended federal tax returns and generate proposed refunds of approximately $805,000. 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, 2022 were approximately $5,518,000 for federal and $11,187,000 for California. The amount of the Company’s tax credits that would be subject to these limitations as of December 31, 2022 are $395,000 and $648,000 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, 2022 and 2021 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, 2022 and December 31, 2021 the Company did not recognize and 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 2019 and 2018, respectively.