KBRA Places Ratings for TriCo Bancshares on Watch Upgrade Following Merger Announcement

KBRA places the senior unsecured debt rating of BBB+ and the subordinated debt rating of BBB for Chico, California-based TriCo Bancshares (NASDAQ: TCBK) ("TriCo" or "the company") on Watch Upgrade following the announcement on July 13, 2026 that First Hawaiian, Inc. (NASDAQ: FHB) (“First Hawaiian”) has entered into a definitive agreement to acquire TCBK in an all-stock transaction expected to close by year-end 2026, subject to shareholder and regulatory approvals. Moreover, KBRA affirms the short-term debt rating of K2 for TriCo. In addition, KBRA places the ratings for its subsidiary, Tri Counties Bank, on Watch Upgrade, including the the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2.

Key Credit Considerations

The transaction is valued at approximately $2.0 billion, representing 1.98x TCBK’s tangible book value, and is expected to generate approximately 6% EPS accretion in 2027 with fully phased-in cost savings, while resulting in manageable tangible book value dilution of 4.7% and an estimated crossover earnback period of 2.8 years. Upon closing, existing FHB and TCBK shareholders are expected to own approximately 65% and 35% of the combined company, respectively.

First Hawaiian is Hawaii’s oldest and largest financial institution, with a franchise that dates to 1858 and a broad commercial and consumer banking platform. At 1Q26, FHB reflected approximately $24 billion of assets, $14.4 billion of loans, and $20.8 billion of deposits. While predominantly associated with its Hawaii franchise, FHB has maintained mainland lending operations for decades, including an Irvine-based auto dealer platform and broader commercial relationships. Approximately 24% of FHB’s loans were mainland-based at 1Q26, though the company lacked a meaningful mainland retail deposit and branch franchise. TriCo provides immediate scale in California through 68 branches across 31 counties, particularly in Northern California and the Central Valley. On a pro forma basis, the combined company will have approximately $34 billion in assets, $22 billion in loans, $29 billion in deposits and 117 branches, creating the sixth-largest bank headquartered in the Western U.S. by deposits. The transaction materially expands FHB’s mainland presence, with approximately 49% of pro forma loans and 29% of deposits located on the mainland.

FHB has managed the CET1 ratio in the 12%-13% range over the last decade, and KBRA views TCBK’s capital position as adequate, supported by the overall risk profile and earnings strength combined with strong loss-absorbing capacity derived from the LLR – TCBK and FHB reported 1Q26 CET1 ratios of 13.3% and 13.1%, respectively. Pro forma capital is expected to remain strong, with a CET1 ratio of approximately 12.4% at closing. Management expects the combined company to generate over 125 bps of CET1 capital annually after fully phased-in cost savings, supporting organic growth, dividends and opportunistic share repurchases. While FHB’s TCE ratio screens comparatively low due, in part, to a sizeable negative AOCI position, the transaction should be modestly accretive to the ratio given TCBK’s comparatively stronger tangible capitalization.

TCBK operates a relationship-oriented commercial and retail banking franchise concentrated in Northern and Central California and maintains a strong local market position. Its deposit base is granular and low cost, with noninterest-bearing demand deposits representing approximately 30% of total deposits and a 1Q26 deposit cost of 1.26%. FHB’s deposit base is similarly attractive, and the combined franchise is expected to maintain a strong funding profile, with a comparatively favorable pro forma deposit cost of approximately 1.23%, roughly 31% noninterest-bearing deposits, 93% core deposit funding, no brokered deposits, and a loan-to-deposit ratio of approximately 74% (though we anticipate the combined loan-to-deposit ratio could drift upward on accelerated asset growth across TriCo’s CA footprint, given TCBK’s constrained posture over the past several years as the entity managed under the $10 billion threshold).

TCBK’s loan portfolio is comparatively CRE-heavy, with CRE and multifamily loans representing approximately 69% of loans, followed by residential mortgage at 12% and C&I at 9%. Following the transaction, pro forma CRE and multifamily exposure is expected to represent approximately 45% of loans, followed by residential mortgage at 23%, C&I at 15%, consumer and other loans at 12%, and construction and development at 5%. Both companies display conservative credit cultures and strong historical asset quality, in our view. TCBK reported a ten-year average NCO ratio of approximately 0.03%, and ahead of the merger announcement FHB conducted a detailed credit review covering more than 80% of commercial loans above $2.5 million and 100% of criticized and classified loans above $500,000. The transaction incorporates a preliminary credit mark of $135 million, equivalent to 1.8% of TCBK’s gross loans.

Management expects TCBK’s California franchise and local leadership to serve as the platform for FHB’s mainland growth strategy, while FHB will provide a broader product suite spanning treasury management, wealth and private banking, specialty finance, international banking, SBA lending, merchant services and commercial and consumer cards for deployment across TCBK’s customer base. First Hawaiian intends to retain the Tri Counties Bank brand on the mainland and does not expect any branch closures related to the transaction. Four current TriCo directors, including Chairman, President and CEO Rick Smith, are expected to join the First Hawaiian and First Hawaiian Bank boards. Smith, Dan Bailey and Peter Wiese are also expected to hold senior leadership positions in the combined organization, supporting management and customer continuity, reducing execution risk, and bolstering KBRA’s view of the combined entity.

Rating Sensitivities

Following merger close (expected by YE26), we will assess the combined financial profile, as well as merger integration planning and execution. The Watch Upgrade is reflective of our view that the acquisition enhances diversification and presents opportunities for synergies and cross-sell across TCBK and FHB’s product sets and customers bases, with pre-existing growth constraints on both TCBK ($10 billion threshold) and FHB (concentration in highly competitive HI banking market) abated. Furthermore, we view execution risk as partially mitigated by both entities' historical track records as well as the retention of key TCBK senior leadership on the ground in California. Additionally, in the unlikely event that the proposed merger does not receive regulatory approval - an outcome KBRA currently views as improbable given recent regulatory approval trends - the ratings would be reassessed.

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