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                               Commission File Number 0-10661
ended December 31, 2007
                                TriCo Bancshares
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

               California                                        94-2792841
--------------------------------------------------------------------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

63 Constitution Drive, Chico, California                             95973
--------------------------------------------------------------------------------
(Address of principal executive offices)                          (Zip Code)

Registrant's telephone number, including area code:(530) 898-0300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock, without par value
                         -------------------------------
                                (Title of Class)

Indicate by check mark whether the Registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Act.

                                YES      NO   X
                                   -----    -----

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   X
                                   -----    -----

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  X   NO
                                   -----    -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in  Part  III of the  Form  10-K or any
amendment to this Form 10-K.


Indicate by check mark whether the Registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer or a smaller reporting company.  See
the definitions of "large accelerated  filer,"  "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Act (check one).

 Large accelerated filer -----      Accelerated filer    X
                                                      -----
 Non-accelerated filer  -----      Smaller reporting company -----

Indicate by check mark whether the  Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                YES      NO   X
                                   -----    -----


The aggregate market value of the voting common stock held by  non-affiliates of
the Registrant,  as of March 7, 2008, was approximately  $182,342,000  (based on
the closing  sales price of the  Registrant's  common  stock on the date).  This
computation  excludes a total of 4,398,226 shares that are beneficially owned by
the officers and directors of Registrant  who may be deemed to be the affiliates
of Registrant under applicable rules of the Securities and Exchange Commission.

The number of shares  outstanding of  Registrant's  common stock, as of March 7,
2008, was 15,744,950 shares of common stock, without par value.

The following  documents are  incorporated  herein by reference into Part III of
this Form 10-K: Registrant's Proxy Statement for use in connection with its 2008
Annual Meeting of Shareholders.  Except with respect to information specifically
incorporated by reference in the Form 10-K, the Proxy Statement is not deemed to
be filed as part hereof.




                                TABLE OF CONTENTS

                                                                     Page Number
PART I

Item 1        Business                                                       2
Item 1A       Risk Factors                                                  10
Item 1B       Unresolved Staff Comments                                     17
Item 2        Properties                                                    17
Item 3        Legal Proceedings                                             17
Item 4        Submission of Matters to a Vote of Security Holders           17

PART II

Item 5        Market for Registrant's Common Equity, Related Stockholder
                 Matters and Issuer Purchases of Equity Securities          18
Item 6        Selected Financial Data                                       20
Item 7        Management's Discussion and Analysis of
                 Financial Condition and Results of Operations              21
Item 7A       Quantitative and Qualitative Disclosures About Market Risk    40
Item 8        Financial Statements and Supplementary Data                   41
Item 9        Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure                        75
Item 9A       Controls and Procedures                                       75
Item 9B       Other Information                                             76

PART III

Item 10       Directors, Executive Officers and Corporate Governance        77
Item 11       Executive Compensation                                        77
Item 12       Security Ownership of Certain Beneficial Owners
                and Management and Related Stockholder Matters              77
Item 13       Certain Relationships and Related Transactions,
              and Director Independence                                     77
Item 14       Principal Accountant Fees and Services                        77

PART IV

Item 15       Exhibits and Financial Statement Schedules                    77

              Signatures                                                    81


FORWARD-LOOKING STATEMENTS

In addition to historical information,  this Annual Report on Form 10-K contains
forward-looking  statements  about TriCo Bancshares (the "Company") 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  Management's  current  knowledge  and belief 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.  These factors  include
those listed at Item 1A Risk Factors, in this report.





                                     PART I

ITEM 1. BUSINESS

Information About TriCo Bancshares' Business

TriCo  Bancshares (the "Company",  "TriCo",  "we" or "our") was  incorporated in
California  on October 13, 1981.  It was organized at the direction of the board
of directors of Tri Counties Bank (the "Bank") for the purpose of forming a bank
holding  company.  On September 7, 1982, the  shareholders  of Tri Counties Bank
became the  shareholders  of TriCo and Tri  Counties  Bank became a wholly owned
subsidiary of TriCo.  At that time,  TriCo became a bank holding company subject
to the  supervision  of the Board of  Governors  of the Federal  Reserve  System
("FRB")  under the Bank Holding  Company Act of 1956,  as amended.  Tri Counties
Bank  remains  subject  to the  supervision  of  the  California  Department  of
Financial  Institutions and the Federal Deposit Insurance  Corporation ("FDIC").
On July 31, 2003, the Company formed a subsidiary  business trust, TriCo Capital
Trust I, to issue trust  preferred  securities.  On June 22,  2004,  the Company
formed a  subsidiary  business  trust,  TriCo  Capital  Trust II, to issue trust
preferred  securities.  See Note 8 in the financial statements at Item 8 of this
report  for a  discussion  about  the  Company's  issuance  of  trust  preferred
securities.  Tri Counties Bank, TriCo Capital Trust I and TriCo Capital Trust II
currently are the only  subsidiaries  of TriCo and TriCo is not  conducting  any
business operations  independent of Tri Counties Bank, TriCo Capital Trust I and
TriCo Capital Trust II.

For  financial  reporting  purposes,  the  financial  statements of the Bank are
consolidated into the financial statements of the Company. Historically,  issuer
trusts,  such as TriCo  Capital  Trust I and TriCo Capital Trust II, that issued
trust preferred  securities have been consolidated by their parent companies and
trust  preferred  securities  have been  treated as eligible  for Tier 1 capital
treatment by bank holding companies under FRB rules and regulations  relating to
minority interests in equity accounts of consolidated subsidiaries. Applying the
provisions of the Financial  Accounting  Standards Board Revised  Interpretation
No. 46 (FIN 46R), the Company is no longer  permitted to consolidate such issuer
trusts  beginning on December 31, 2003.  Although the FRB has stated in its July
2, 2003  Supervisory  Letter that trust preferred  securities will be treated as
Tier 1 capital until notice is given to the  contrary,  the  Supervisory  Letter
also  indicates  that the FRB will  review the  regulatory  implications  of any
accounting  treatment  changes and will provide further guidance if necessary or
warranted.

On April 4, 2003,  TriCo acquired North State National Bank, a national  banking
organization  located in Chico,  California  ("North  State"),  by the merger of
North State into the Bank. At the time of the acquisition, North State had total
assets of $140  million,  investment  securities  of $41  million,  loans of $76
million,  and deposits of $126 million.  The acquisition was accounted for using
the purchase  method of  accounting.  The amount of goodwill  recorded as of the
merger date,  which  represented the excess of the total purchase price over the
estimated fair value of net assets acquired,  was  approximately  $15.5 million.
The Company recorded a core deposit  intangible,  which represents the excess of
the  fair  value  of  North  State's  deposits  over  their  book  value  on the
acquisition date, of approximately $3.4 million. This core deposit intangible is
being amortized over a seven-year  average life. TriCo paid $13,090,057 in cash,
issued  723,512  shares of TriCo common  stock,  and issued  options to purchase
79,587  shares of TriCo common stock at an average  exercise  price of $6.22 per
share in exchange for all of the 1,234,375 common shares and options to purchase
79,937 common shares of North State outstanding as of April 4, 2003.

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  our  website  at  Investor  Relations---"SEC
Filings"  and  "Annual  Reports"  as soon as  reasonably  practicable  after the
Company  files these  reports to the  Securities  and Exchange  Commission.  The
information on our website is not incorporated into this annual report.

                                       2


Business of Tri Counties Bank

Tri Counties Bank was incorporated as a California  banking  corporation on June
26, 1974, and received its certificate of authority to begin banking  operations
on March 11, 1975. Tri Counties Bank engages in the general  commercial  banking
business in the California counties of Butte,  Contra Costa, Del Norte,  Fresno,
Glenn, Kern, Lake, Lassen,  Madera,  Mendocino,  Merced,  Napa, Nevada,  Placer,
Sacramento, Shasta, Siskiyou, Stanislaus, Sutter, Tehama, Tulare, Yolo and Yuba.
Tri  Counties  Bank  currently  operates  from 32  traditional  branches  and 25
in-store branches.

General Banking Services

The Bank conducts a commercial  banking  business  including  accepting  demand,
savings and time  deposits  and making  commercial,  real  estate,  and consumer
loans. It also offers  installment  note collection,  issues  cashier's  checks,
sells  travelers  checks and  provides  safe deposit  boxes and other  customary
banking services.  Brokerage  services are provided at the Bank's offices by the
Bank's association with Raymond James Financial  Services,  Inc., an independent
financial  services  provider and  broker-dealer.  The Bank does not offer trust
services or international banking services.

The Bank has  emphasized  retail  banking  since it  opened.  Most of the Bank's
customers are retail  customers and small to medium-sized  businesses.  The Bank
emphasizes serving the needs of local businesses,  farmers and ranchers, retired
individuals and wage earners.  The majority of the Bank's loans are direct loans
made to individuals and businesses in northern and central  California where its
branches are located.  At December  31, 2007,  the total of the Bank's  consumer
installment loans net of deferred fees outstanding was $535,819,000 (34.5%), the
total of commercial loans outstanding was $164,815,000 (10.6%), and the total of
real estate loans including  construction loans of $135,319,000 was $851,332,000
(54.9%). 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 attracted 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.

In order to attract  loan and deposit  business  from  individuals  and small to
medium-sized  businesses,  branches of the Bank set lobby  hours to  accommodate
local demands.  In general,  lobby hours are from 9:00 a.m. to 5:00 p.m.  Monday
through Thursday,  and from 9:00 a.m. to 6:00 p.m. on Friday.  Some Bank offices
also  utilize  drive-up  facilities  operating  from 9:00 a.m. to 6:00 p.m.  The
supermarket  branches  are open  from  9:00 a.m.  to 7:00  p.m.  Monday  through
Saturday and 11:00 a.m. to 5:00 p.m. on Sunday.

The Bank offers  24-hour  ATMs at almost all branch  locations.  The 64 ATMs are
linked to several  national and regional  networks  such as CIRRUS and STAR.  In
addition, banking by telephone on a 24-hour toll-free number is available to all
customers.  This service allows a customer to obtain  account  balances and most
recent transactions,  transfer moneys between accounts,  make loan payments, and
obtain interest rate information.

In  February  1998,  the Bank became the first bank in the  Northern  Sacramento
Valley to offer banking services on the Internet.  This banking service provides
customers one more tool for access to their accounts.

Other Activities

The  Bank may in the  future  engage  in other  businesses  either  directly  or
indirectly  through  subsidiaries  acquired  or  formed by the Bank  subject  to
regulatory constraints. See "Regulation and Supervision."

                                       3


Employees

At December 31, 2007,  the Company and the Bank employed 716 persons,  including
eight executive officers.  Full time equivalent employees were 645. No employees
of the Company or the Bank are presently represented by a union or covered under
a  collective  bargaining  agreement.  Management  believes  that  its  employee
relations are excellent.

Competition

The banking business in California generally,  and in the Bank's primary service
area of Northern and Central California specifically, 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.  Among the  advantages  such major banks have over the Bank is
their  ability to finance wide  ranging  advertising  campaigns  and to allocate
their investment  assets to regions of high yield and demand. By virtue of their
greater total capitalization such institutions have substantially higher lending
limits than does the Bank.

In addition to competing  with savings  institutions,  commercial  banks compete
with other  financial  markets for funds as a result of the  deregulation of the
financial services industry.  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.  Commercial banks
also compete for available funds with money market instruments and mutual funds.
During past periods of high  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.

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 to
compete effectively.

Regulation and Supervision

As a consequence of the extensive regulation of commercial banking activities in
California and the United  States,  the business of the Company and the Bank are
particularly  susceptible  to  changes  in state  and  federal  legislation  and
regulations, which may have the effect of increasing the cost of doing business,
limiting  permissible  activities  or  increasing  competition.  Following  is a
summary of some of the laws and  regulations  which  effect the  business.  This
summary  should  be read  with  the  management's  discussion  and  analysis  of
financial condition and results of operations included at Item 7 of this report.

As a registered  bank holding company under the Bank Holding Company Act of 1956
(the "BHC Act"), the Company is subject to the regulation and supervision of the
FRB.  The BHC Act  requires the Company to file reports with the FRB and provide
additional  information  requested  by the FRB.  The  Company  must  receive the
approval of the FRB before it may acquire all or substantially all of the assets
of any bank,  or ownership or control of the voting shares of any bank if, after
giving effect to such  acquisition  of shares,  the Company would own or control
more than 5 percent of the voting shares of such bank.

The Company and any subsidiaries it may acquire or organize will be deemed to be
affiliates  of the Bank within the Federal  Reserve  Act.  That Act  establishes
certain  restrictions,  which  limit the extent to which the Bank can supply its
funds to the  Company  and other  affiliates.  The  Company  is also  subject to
restrictions  on the  underwriting  and the  public  sale  and  distribution  of
securities.  It is prohibited  from engaging in certain tie-in  arrangements  in
connection  with  any  extension  of  credit,  sale or  lease  of  property,  or
furnishing of services.

The Company is generally  prohibited  from  engaging in, or acquiring  direct or
indirect control of, any company engaged in non-banking  activities,  unless the
FRB by order or regulation has found such activities to be so closely related to
banking or managing or  controlling  banks as to be a proper  incident  thereto.
Notwithstanding this prohibition, under the Financial Services Modernization Act
of 1999, the Company may engage in any activity,  and may acquire and retain the
shares of any company  engaged in any  activity,  that the FRB, in  coordination
with the Secretary of the Treasury,  determines  (by  regulation or order) to be
financial in nature or incidental  to such  financial  activities.  Furthermore,
such law dictates  several  activities  that are  considered  to be financial in
nature, and therefore are not subject to FRB approval.

                                       4


The Bank, as a state-chartered  bank, is subject to regulation,  supervision and
regular  examination  by the  California  Department  of Financial  Institutions
("DFI")  and is  also  subject  to the  regulations  of the  FDIC.  Federal  and
California  statutes  and  regulations  relate  to many  aspects  of the  Bank's
operations,  some of which are described below. The DFI regulates the number and
location of branch  offices and may permit a bank to maintain  branches  only to
the extent  allowable under state law for state banks.  California law presently
permits a bank to locate a branch in any locality in California.

Gramm-Leach-Bliley Act

The  Gramm-Leach-Bliley Act is subdivided into seven titles, by functional area.
Title I acts to facilitate  affiliations  among banks,  insurance  companies and
securities  firms.  Title II narrows the  exemptions  from the  securities  laws
previously  enjoyed by banks,  requires the FRB and the  Securities and Exchange
Commission  ("SEC") to work together to draft rules governing certain securities
activities  of banks  and  creates  a new,  voluntary  investment  bank  holding
company.  Title III restates the proposition  that the states are the functional
regulators for all insurance  activities,  including the insurance activities by
depository  institutions.  The law encourages  the states to develop  uniform or
reciprocal rules for the licensing of insurance  agents.  Title IV prohibits the
creation  of  additional  unitary  thrift  holding  companies.  Title V  imposes
significant  requirements on financial  institutions  related to the transfer of
nonpublic  personal  information.  These provisions  require each institution to
develop and distribute to accountholders an information  disclosure  policy, and
requires that the policy allow  customers to, and for the institution to honor a
customer's request to, "opt-out" of the proposed transfer of specified nonpublic
information to third parties. Title VI reforms the Federal Home Loan Bank system
to allow broader access among  depository  institutions  to the systems  advance
programs,  and to improve  the  corporate  governance  and  capital  maintenance
requirements for the system. Title VII addresses a multitude of issues including
disclosure  of  ATM  surcharging  practices,   disclosure  of  agreements  among
non-governmental  entities and insured  depository  institutions which donate to
non-governmental  entities  regarding  donations  made in  connection  with  the
Community  Reinvestment  Act and  disclosure by the  recipient  non-governmental
entities of how such funds are used. Additionally, the law extends the period of
time between Community Reinvestment Act examinations of community banks.

The  Company  has  undertaken  efforts  to  comply  with all  provisions  of the
Gramm-Leach-Bliley   Act  and  all  implementing   regulations,   including  the
development   of   appropriate   policies   and   procedures   to   meet   their
responsibilities  in connection  with the privacy  provisions of Title V of that
act.

Safety and Soundness Standards

The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
implemented  certain  specific  restrictions  on  transactions  and required the
regulators  to adopt  overall  safety and  soundness  standards  for  depository
institutions  related to internal control,  loan underwriting and documentation,
and asset growth.  Among other things,  FDICIA limits the interest rates paid on
deposits by undercapitalized  institutions, the use of brokered deposits and the
aggregate  extension  of  credit by a  depository  institution  to an  executive
officer,  director,  principal  stockholder  or related  interest,  and  reduces
deposit insurance coverage for deposits offered by undercapitalized institutions
for deposits by certain employee benefits accounts.

                                       5


Section 39 to the  Federal  Deposit  Insurance  Act  requires  the  agencies  to
establish  safety and  soundness  standards for insured  financial  institutions
covering:

        o internal controls, information systems and internal audit systems;
        o loan documentation;
        o credit underwriting;
        o interest rate exposure;
        o asset growth;
        o compensation, fees and benefits;
        o asset quality, earnings and stock valuation; and
        o excessive   compensation  for  executive  officers,   directors  or
          principal shareholders which could lead to material financial loss.

If an  agency  determines  that  an  institution  fails  to  meet  any  standard
established by the guidelines,  the agency may require the financial institution
to submit to the  agency  an  acceptable  plan to  achieve  compliance  with the
standard.  If the  agency  requires  submission  of a  compliance  plan  and the
institution  fails to  timely  submit  an  acceptable  plan or to  implement  an
accepted  plan,  the  agency  must  require  the   institution  to  correct  the
deficiency.  An  institution  must file a  compliance  plan  within 30 days of a
request to do so from the institution's  primary federal  regulatory agency. The
agencies may elect to initiate  enforcement  action in certain cases rather than
rely on an existing plan  particularly  where failure to meet one or more of the
standards could threaten the safe and sound operation of the institution.

Restrictions on Dividends and Other Distributions

The power of the board of directors of an insured depository  institution,  such
as the Bank,  to declare a cash dividend or other  distribution  with respect to
capital is subject to  statutory  and  regulatory  restrictions  which limit the
amount available for such  distribution  depending upon the earnings,  financial
condition  and  cash  needs  of the  institution,  as well as  general  business
conditions.   FDICIA  prohibits  insured  depository  institutions  from  paying
management fees to any controlling  persons or, with certain limited exceptions,
making capital distributions,  including dividends,  if, after such transaction,
the institution would be  undercapitalized.  Additionally,  under FDICIA, a bank
may not make any capital  distribution,  including the payment of dividends,  if
after   making   such   distribution   the   bank   would   be  in  any  of  the
"under-capitalized"   categories  under  the  FDIC's  Prompt  Corrective  Action
regulations.

Under  the  Financial  Institution's  Supervisory  Act,  the  FDIC  also has the
authority to prohibit a bank from engaging in business  practices  that the FDIC
considers to be unsafe or unsound. It is possible,  depending upon the financial
condition  of a bank and  other  factors  that the FDIC  could  assert  that the
payment of dividends or other  payments in some  circumstances  might be such an
unsafe or unsound practice and thereby prohibit such payment.

Under  California  law,  dividends  and other  distributions  by the Company are
subject to  declaration  by the board of directors at its  discretion out of net
assets.  Dividends  cannot be declared and paid when such payment would make the
Company insolvent. FRB policy prohibits a bank holding company from declaring or
paying a cash  dividend  which  would  impose  undue  pressure on the capital of
subsidiary   banks  or  would  be  funded  only  through   borrowings  or  other
arrangements  that  might  adversely  affect  the  holding  company's  financial
position.  The policy  further  declares that a bank holding  company should not
continue its existing rate of cash  dividends on its common stock unless its net
income is  sufficient to fully fund each  dividend and its  prospective  rate of
earnings  retention appears consistent with its capital needs, asset quality and
overall  financial  condition.  Other FRB  policies  forbid the  payment by bank
subsidiaries  to  their  parent   companies  of  management   fees,   which  are
unreasonable  in amount or exceed a fair market value of the  services  rendered
(or, if no market exists, actual costs plus a reasonable profit).

In  addition,  the FRB has  authority to prohibit  banks that it regulates  from
engaging  in  practices,  which in the opinion of the FRB are unsafe or unsound.
Such  practices may include the payment of dividends  under some  circumstances.
Moreover,  the payment of dividends may be  inconsistent  with capital  adequacy
guidelines.  The Company may be subject to  assessment to restore the capital of
the Bank should it become impaired.

                                       6


Consumer Protection Laws and Regulations

The bank regulatory  agencies are focusing greater  attention on compliance with
consumer  protection laws and their  implementing  regulations.  Examination and
enforcement have become more intense in nature,  and insured  institutions  have
been advised to monitor carefully compliance with such laws and regulations. The
Company is subject to many federal consumer  protection statues and regulations,
some of which are discussed below.

The  Community  Reinvestment  Act of  1977  is  intended  to  encourage  insured
depository  institutions,  while operating safely and soundly,  to help meet the
credit needs of their  communities.  This act  specifically  directs the federal
regulatory  agencies to assess a bank's  record of helping meet the credit needs
of its  entire  community,  including  low- and  moderate-income  neighborhoods,
consistent with safe and sound practices. This act further requires the agencies
to take a financial  institution's  record of meeting its community credit needs
into account when  evaluating  applications  for,  among other things,  domestic
branches,  mergers or acquisitions,  or holding company formations. The agencies
use the  Community  Reinvestment  Act  assessment  factors in order to provide a
rating  to  the  financial  institution.  The  ratings  range  from  a  high  of
"outstanding" to a low of "substantial noncompliance."

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.  As a result of the such  act,  all  creditors  must use the same
credit  terminology  to  express  rates  and  payments,   including  the  annual
percentage rate, the finance charge, the amount financed, the total payments and
the payment schedule, among other things.

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. A number of lending  practices have been found by the courts to
be, or may be  considered,  illegal under this Act,  including some that are not
specifically  mentioned in the Act itself. The Home Mortgage Disclosure Act grew
out of public concern over credit shortages in certain urban  neighborhoods  and
provides public  information that will help show whether financial  institutions
are serving the housing  credit needs of the  neighborhoods  and  communities in
which they are  located.  This act also  includes a "fair  lending"  aspect that
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.

Finally,  the Real Estate Settlement  Procedures Act requires lenders to provide
borrowers  with  disclosures  regarding  the  nature  and  cost of  real  estate
settlements.  Also,  this  act  prohibits  certain  abusive  practices,  such as
kickbacks, and places limitations on the amount of escrow accounts.

Penalties  under the above  laws may  include  fines,  reimbursements  and other
penalties. Due to heightened regulatory concern related to compliance with these
acts generally, the Company may incur additional compliance costs or be required
to expend additional funds for investments in their local community.

                                       7


USA Patriot Act of 2001

The USA Patriot Act was enacted in 2001 to combat money laundering and terrorist
financing.   The  impact  of  the  Patriot  Act  on  financial  institutions  is
significant  and wide  ranging.  The Patriot Act  contains  sweeping  anti-money
laundering and financial  transparency  laws and requires  various  regulations,
including:

        o due diligence requirements for financial institutions that administer,
          maintain,  or manage private bank accounts or  correspondent  accounts
          for non-U.S. persons,
        o standards for verifying customer identification at account opening,
        o rules to promote cooperation among financial institutions, regulators,
          and law  enforcement  entities  to  assist  in the  identification  of
          parties that may be involved in terrorism or money laundering,
        o reports  to be filed by  non-financial  trades and  business  with the
          Treasury   Department's   Financial  Crimes  Enforcement  Network  for
          transactions exceeding $10,000, and
        o the filing of suspicious  activities reports by securities brokers and
          dealers if they  believe a customer  may be  violating  U.S.  laws and
          regulations.

Capital Requirements

Federal regulation imposes upon all financial  institutions a variable system of
risk-based capital guidelines designed to make capital requirements sensitive to
differences in risk profiles among banking  organizations,  to take into account
off-balance sheet exposures and to promote  uniformity in the definition of bank
capital uniform nationally.

The Bank and the Company are subject to the minimum capital  requirements of the
FDIC and the FRB, respectively. As a result of these requirements, the growth in
assets is  limited  by the  amount of its  capital  accounts  as  defined by the
respective  regulatory  agency.  Capital  requirements  may  have an  effect  on
profitability  and the payment of  dividends on the common stock of the Bank and
the Company. If an entity is unable to increase its assets without violating the
minimum  capital  requirements  or is forced to reduce  assets,  its  ability to
generate earnings would be reduced.

The FRB, and the FDIC have  adopted  guidelines  utilizing a risk-based  capital
structure. Qualifying capital is divided into two tiers. Tier 1 capital consists
generally of common stockholders'  equity,  qualifying  noncumulative  perpetual
preferred stock,  qualifying  cumulative perpetual preferred stock (up to 25% of
total  Tier 1  capital)  and  minority  interests  in  the  equity  accounts  of
consolidated  subsidiaries,  less goodwill and certain other intangible  assets.
Tier 2 capital  consists of, among other  things,  allowance  for loan and lease
losses up to 1.25% of weighted risk assets,  perpetual  preferred stock,  hybrid
capital  instruments,  perpetual debt,  mandatory  convertible  debt securities,
subordinated  debt  and  intermediate-term   preferred  stock.  Tier  2  capital
qualifies  as part of total  capital  up to a maximum of 100% of Tier 1 capital.
Amounts  in excess of these  limits may be issued  but are not  included  in the
calculation  of  risk-based  capital  ratios.  Under  these  risk-based  capital
guidelines,  the Bank and the Company are required to maintain  capital equal to
at  least 8% of its  assets,  of which at least 4% must be in the form of Tier 1
capital.

The  guidelines  also  require  the  Company  and the Bank to maintain a minimum
leverage ratio of 4% of Tier 1 capital to total assets (the  "leverage  ratio").
The leverage ratio is determined by dividing an institution's  Tier 1 capital by
its quarterly  average total assets,  less goodwill and certain other intangible
assets.  The  leverage  ratio  constitutes  a minimum  requirement  for the most
well-run banking organizations.  See Note 19 in the financial statements at Item
8 of this report for a discussion  about the  Company's  risk-based  capital and
leverage ratios.

Prompt Corrective Action

Prompt  Corrective  Action  Regulations of the federal bank regulatory  agencies
establish  five  capital  categories  in  descending  order  (well  capitalized,
adequately  capitalized,  undercapitalized,  significantly  undercapitalized and
critically undercapitalized), assignment to which depends upon the institution's
total risk-based  capital ratio,  Tier 1 risk-based  capital ratio, and leverage
ratio.  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 has been classified
as well-capitalized since adoption of these regulations.

                                       8


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.

Insurance of Deposits

The Bank's deposit accounts are insured up to applicable limits per depositor by
the FDIC. The FDIC issues regulations and generally supervises the operations of
its insured banks. This supervision and regulation is intended primarily for the
protection of depositors, not shareholders.

As of December  31,  2007,  the deposit  insurance  premium rate was $0.0125 per
$100.00 in deposits.  The FDIC is able to increase deposit insurance premiums as
it sees fit every six months. This could result in a significant increase in the
cost of doing business for the Bank in the future.

Securities Laws

The Company is subject to the periodic reporting  requirements of the Securities
and Exchange Act of 1934, as amended, which include filing annual, quarterly and
other  current  reports  with  the  Securities  and  Exchange  Commission.   The
Sarbanes-Oxley  Act was enacted in 2002 to protect  investors by  improving  the
accuracy and  reliability of corporate  disclosures  made pursuant to securities
laws. Among other things, this act:

        o prohibits  a  registered   public   accounting  firm  from  performing
          specified nonaudit services contemporaneously with a mandatory audit,
        o requires the chief executive officer and chief financial officer of an
          issuer to  certify  each  annual or  quarterly  report  filed with the
          Securities and Exchange Commission,
        o requires  an  issuer  to  disclose  all  material   off-balance  sheet
          transactions that may have a material effect on an issuer's  financial
          status, and
        o prohibits  insider  transactions  in an issuer's stock during lock-out
          periods of an issuer's pension plans.

The Company is also  required to comply  with the rules and  regulations  of The
NASDAQ Stock Market, Inc., on which its common stock is listed.

                                       9


ITEM 1A. RISK FACTORS

In analyzing whether to make or continue an investment in the Company, investors
should consider, among other factors, the following:

The types of loans in our  portfolio  have a higher  degree of credit risk and a
downturn in our real estate markets could hurt our business.

We  generally  invest a greater  proportion  of our  assets in loans  secured by
commercial  real  estate,  commercial  loans and  consumer  loans  than  savings
institutions  that invest a greater  proportion of their assets in loans secured
by single-family  residences.  Commercial real estate loans and commercial loans
generally  involve  a higher  degree of credit  risk than  residential  mortgage
lending due  primarily  to the large  amounts  loaned to  individual  borrowers.
Losses  incurred on loans to a small number of  borrowers  could have a material
adverse  impact on our income  and  financial  condition.  In  addition,  unlike
residential  mortgage loans,  commercial and commercial real estate loans depend
on the cash flow from the  property or the  business  to service the debt.  Cash
flow may be  significantly  affected by general  economic  conditions.  Consumer
lending is riskier than residential  mortgage lending because consumer loans are
either  unsecured or secured by assets that  depreciate  in value.  See Item 7 -
Loans of this report for  information  as to the percentage of loans invested in
commercial real estate, commercial and consumer loans.

In  addition,  a downturn in our real  estate  markets  could hurt our  business
because  many 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 and acts of nature.  If real estate  prices
decline,  the  value of real  estate  collateral  securing  our  loans  could be
reduced.  Our ability to recover on defaulted  loans by foreclosing  and selling
the real estate  collateral would then be diminished and we would be more likely
to suffer  losses on defaulted  loans.  As of December  31, 2007,  approximately
80.3% 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.  If there is a  significant  decline in real  estate
values in  California,  the collateral for our loans will provide less security.
Real estate  values could also be affected by, among other  things,  earthquakes
and national disasters particular to California.  Any such downturn could have a
material  adverse  effect  on our  business,  financial  condition,  results  of
operations and cash flows.

Decreasing interest rates could hurt our profits.

Our ability to earn a profit, like that of most financial institutions,  depends
on our net interest income,  which is the difference between the interest income
we earn on our interest-earning  assets, such as mortgage loans and investments,
and the interest  expense we pay on our  interest-bearing  liabilities,  such as
deposits.  Our  profitability  depends  on our  ability to manage our assets and
liabilities  during  periods of  changing  market  interest  rates.  A sustained
decrease in market  interest  rates could  adversely  affect our earnings.  When
interest rates  decline,  borrowers  tend to refinance  higher-rate,  fixed-rate
loans  at lower  rates.  Under  those  circumstances,  we  would  not be able to
reinvest those prepayments in assets earning interest rates as high as the rates
on the prepaid loans on investment securities.  In addition, our commercial real
estate  and  commercial  loans,  which  carry  interest  rates  that  adjust  in
accordance with changes in the prime rate, will adjust to lower rates.

An economic downturn in California could hurt our profits.

We conduct most of our business in northern and central California.  As a result
of this  geographic  concentration,  our  results are  effected by the  economic
conditions in California.  Deterioration in economic  conditions 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:

        o problem assets and foreclosures may increase,
        o demand for our products and services may decline,
        o low cost or non-interest bearing deposits may decrease, and
        o 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.

                                       10


In view of the  concentration of our operations and the collateral  securing our
loan portfolio in both northern and central  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.

Strong competition in California could hurt our profits.

Competition  in the  banking and  financial  services  industry is intense.  Our
profitability  depends upon our continued  ability to successfully  compete.  We
compete  exclusively in northern and central California for loans,  deposits and
customers with commercial banks,  savings and loan associations,  credit unions,
finance  companies,   mutual  funds,  insurance  companies,  and  brokerage  and
investment banking firms. In particular,  our competitors  include several 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 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 to provide
financial  services.  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,  results  of  operations  and cash flows may be
adversely affected.

We operate in a highly regulated environment and we may be adversely affected by
changes in laws and  regulations.  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
California Department of Financial Institutions, or the DFI, the Federal Deposit
Insurance Corporation, and the Board of Governors of the Federal Reserve System.
See Item 1 - 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 loan losses.
Banking  regulations,  designed primarily for the protection of depositors,  may
limit our growth and the return to you, our investors, by restricting certain of
our activities, such as:

        o the payment of dividends to its shareholders,
        o possible mergers with or acquisitions of or by other institutions,
        o desired investments,
        o loans and interest rates on loans,
        o interest rates paid on deposits,
        o the possible expansion of branch offices, and
        o the ability to provide securities or trust services.

We  also  are  subject  to  capitalization   guidelines  set  forth  in  federal
legislation  and could be subject to  enforcement  actions to the extent that we
are found by regulatory examiners to be undercapitalized. 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 impact on our operations.

We are exposed to risks in connection with the loans we make.

A significant source of risk for us arises from the possibility that losses will
be  sustained  because  borrowers,  guarantors  and related  parties may fail to
perform in accordance  with the terms of their loans. We have  underwriting  and
credit  monitoring  procedures and credit policies,  including the establishment
and review of the allowance for loan losses,  that we believe to be  appropriate
to minimize 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.

                                       11


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.

There are potential risks associated with future acquisitions and expansions.

We intend to continue to explore expanding our branch system through opening new
bank  branches and in-store  branches in existing or new markets in northern and
central  California.  In the ordinary course of business,  we evaluate potential
branch  locations that would bolster our ability to cater to the small business,
individual and residential lending markets in California.  Any given new branch,
if and when opened, will have expenses in excess of revenues for varying periods
after  opening that may  adversely  affect our results of  operations or overall
financial condition.

In  addition,  to the extent  that we acquire  other  banks in the  future,  our
business  may be  negatively  impacted  by  certain  risks  inherent  with  such
acquisitions. These risks include:

        o incurring  substantial  expenses  in pursuing  potential  acquisitions
          without completing such acquisitions,
        o losing key clients as a result of the change of ownership to us,
        o the  acquired   business  not   performing  in  accordance   with  our
          expectations,
        o difficulties  arising  in  connection  with  the  integration  of  the
          operations of the acquired business with our operations,
        o needing to make significant investments and infrastructure,  controls,
          staff,   emergency  backup   facilities  or  other  critical  business
          functions that become strained by our growth,
        o management  needing  to divert  attention  from  other  aspects of our
          business,
        o potentially losing key employees of the acquired business,
        o incurring  unanticipated  costs which could  reduce our  earnings  per
          share,
        o assuming potential  liabilities of the acquired company as a result of
          the acquisition, and
        o an  acquisition  may dilute our earnings per share,  in both the short
          and long term, or it may reduce our tangible capital ratios.

As result of these risks, any given  acquisition,  if and when consummated,  may
adversely affect our results of operations or financial condition.  In addition,
because the  consideration  for an  acquisition  may involve  cash,  debt or the
issuance of shares of our stock and may  involve  the payment of a premium  over
book and  market  values,  existing  shareholders  may  experience  dilution  in
connection with any acquisition.

Compliance  with  changing   regulation  of  corporate   governance  and  public
disclosure may result in additional risks and expenses.

Changing laws,  regulations and standards  relating to corporate  governance and
public  disclosure,  including the Sarbanes-Oxley Act of 2002 and new Securities
and   Exchange   Commission   regulations,    are   creating   uncertainty   for
publicly-traded  companies such as TriCo. These laws,  regulations and standards
are subject to varying  interpretations  in many cases and,  as a result,  their
application  in  practice  may evolve  over time as new  guidance is provided by
regulatory and governing  bodies,  which could result in continuing  uncertainty
regarding  compliance matters and higher costs necessitated by ongoing revisions
to disclosure and  governance  practices.  We are committed to maintaining  high
standards  of  corporate  governance  and public  disclosure.  As a result,  our
efforts to comply with evolving  laws,  regulations  and standards have resulted
in, and are likely to continue to result in, increased  expenses and a diversion
of management  time and  attention.  In  particular,  our efforts to comply with
Section  404 of the  Sarbanes-Oxley  Act of  2002  and the  related  regulations
regarding   management's  required  assessment  of  its  internal  control  over
financial  reporting and its external  auditors'  audit of that  assessment  has
required the commitment of significant  financial and managerial  resources.  We
expect  these  efforts  to  require  the  continued  commitment  of  significant
resources.  Further, the members of our board of directors, members of our audit
or  compensation  and  management  succession  committees,  our chief  executive
officer,  our chief financial officer and certain other executive officers could
face an increased risk of personal  liability in connection with the performance
of their duties.  It may also become more difficult and more expensive to obtain
director and officer liability  insurance.  As a result,  our ability to attract
and retain executive officers and qualified board and committee members could be
more difficult.

                                       12


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.  Continued  growth,  however,  may present operating and other problems
that  could  adversely  affect our  business,  financial  condition,  results of
operations and cash flows.  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 depend on key  personnel  and the loss of one or more of those key  personnel
may materially and adversely affect our prospects.

Competition  for qualified  employees  and personnel in the banking  industry is
intense and there are a limited  number of qualified  persons with knowledge of,
and experience in, the California  community  banking  industry.  The process of
recruiting  personnel with the combination of skills and attributes  required to
carry out our strategies is often lengthy.  Our success depends to a significant
degree  upon our  ability  to  attract  and retain  qualified  management,  loan
origination, finance, administrative, marketing and technical personnel and upon
the continued contributions of our management and personnel. In particular,  our
success has been and continues to be highly  dependent upon the abilities of our
senior management team of Messrs. Smith, O'Sullivan,  Bailey, Hagstrom, Reddish,
Carney,  Miller and Rios,  who have  expertise in banking and  experience in the
California  markets we serve and have  targeted  for future  expansion.  We also
depend upon a number of other key executives  who are California  natives or are
long-time  residents and who are integral to implementing our business plan. The
loss of the services of any one of our senior executive management team or other
key executives could have a material  adverse effect on our business,  financial
condition, results of operations and cash flows.

Our business is subject to interest rate risk and  variations in interest  rates
may negatively affect our financial performance.

A substantial portion of our income is derived from the differential or "spread"
between the  interest  earned on loans,  securities  and other  interest-earning
assets,  and interest paid on deposits,  borrowings  and other  interest-bearing
liabilities.  Because  of  the  differences  in  the  maturities  and  repricing
characteristics of our interest-earning assets and interest-bearing liabilities,
changes in interest rates do not produce  equivalent  changes in interest income
earned  on  interest-earning   assets  and  interest  paid  on  interest-bearing
liabilities.  Accordingly, fluctuations in interest rates could adversely affect
our interest  rate spread and, in turn,  our  profitability.  In addition,  loan
origination  volumes are  affected by market  interest  rates.  Rising  interest
rates, generally,  are associated with a lower volume of loan originations while
lower  interest  rates are usually  associated  with  higher loan  originations.
Conversely,  in rising  interest rate  environments,  loan  repayment  rates may
decline and in falling  interest rate  environments,  loan  repayment  rates may
increase.  Although we have been successful in generating new loans during 2007,
the  continuation of historically  low long-term  interest rate levels may cause
additional refinancing of commercial real estate and 1-4 family residence loans,
which may  depress  our loan  volumes  or cause  rates on loans to  decline.  In
addition,  an increase  in the general  level of  short-term  interest  rates on
variable rate loans may adversely affect the ability of certain borrowers to pay
the  interest on and  principal of their  obligations  or reduce the amount they
wish to borrow.  Additionally,  as  short-term  market rates have risen over the
past eighteen months, although we have increased the rates we paid on borrowings
and other  interest-bearing  liabilities,  we have not proportionally  increased
interest  rates we paid on deposits.  If short-term  rates  continue to rise, in
order to retain existing deposit  customers and attract new deposit customers we
may need to increase rates we pay on deposit accounts.  Because we have deferred
increasing  rates  we paid  on  deposit  accounts  during  a  period  of  rising
short-term market rates, we may need to accelerate the pace of rate increases on
our deposit  accounts as compared to the pace of future  increases in short-term
market  rates.  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,  results of operations and
cash flows.

                                       13


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 you 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,  results  of
operations and cash flows.

Our allowance for loan losses may not be adequate to cover actual losses.

A significant  source of risk arises from the  possibility  that losses could be
sustained because borrowers, guarantors, and related parties may fail to perform
in  accordance  with the  terms of their  loans.  The  underwriting  and  credit
monitoring policies and procedures that we have adopted to address this risk may
not prevent  unexpected  losses that could have a material adverse effect on our
business,  financial condition, results of operations and cash flows. Unexpected
losses may arise from a wide  variety of specific or systemic  factors,  many of
which are beyond  our  ability  to  predict,  influence,  or  control.  Like all
financial institutions,  we maintain an allowance for loan losses to provide for
loan  defaults and  non-performance.  Our  allowance  for loan losses may not be
adequate to cover  actual loan  losses,  and future  provisions  for loan losses
could materially and adversely affect our business, financial condition, results
of  operations  and cash  flows.  The  allowance  for loan losses  reflects  our
estimate of the probable  losses in our loan  portfolio at the relevant  balance
sheet date. Our allowance for loan 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 economic  factors.  The  determination  of an
appropriate level of loan loss allowance is an inherently  difficult process and
is based on numerous assumptions.  The amount of future losses is susceptible to
changes  in  economic,  operating  and other  conditions,  including  changes in
interest  rates,  that may be beyond  our  control  and these  losses may exceed
current estimates. Federal and state regulatory agencies, as an integral part of
their examination process, review our loans and allowance for loan losses. While
we believe  that our  allowance  for loan losses is  adequate  to cover  current
losses,  we cannot  assure you that we will not increase the  allowance for loan
losses  further  or  that  regulators  will  not  require  us to  increase  this
allowance.  Either of these  occurrences could have a material adverse affect on
our business, financial condition and results of operations.

We rely on communications,  information, operating and financial control systems
technology from third-party service providers, and we may suffer an interruption
in those systems that may result in lost business.  We may not be able to obtain
substitute  providers on terms that are as favorable if our  relationships  with
our existing service providers are interrupted.

We rely heavily on third-party service providers for much of our communications,
information,  operating and financial control systems technology. Any failure or
interruption  or breach in security of these systems could result in failures or
interruptions in our customer relationship management,  general ledger, deposit,
servicing and loan origination  systems. We cannot assure you that such failures
or  interruptions  will not  occur  or,  if they do  occur,  that  they  will be
adequately addressed by us or the third parties on which we rely. The occurrence
of any failures or  interruptions  could have a material  adverse  effect on our
business,  financial condition,  results of operations and cash flows. If any of
our  third-party  service  providers   experience   financial,   operational  or
technological  difficulties,  or  if  there  is  any  other  disruption  in  our
relationships  with them,  we may be required to locate  alternative  sources of
such services,  and we cannot assure you that we could  negotiate terms that are
as favorable to us, or could obtain services with similar functionality as found
in our existing systems without the need to expend substantial resources,  if at
all.  Any of these  circumstances  could have a material  adverse  effect on our
business, financial condition, results of operations and cash flows.

                                       14


Our future  ability to pay  dividends is subject to  restrictions.  As a result,
capital  appreciation,  if any,  of our common  stock may be your sole source of
gains in the future.

Since  we are a  holding  company  with no  significant  assets  other  than Tri
Counties  Bank,  we  currently  depend  upon  dividends  from  the  Bank  for  a
substantial portion of our revenues. Our ability to continue to pay dividends in
the future will  continue to depend in large part upon our receipt of  dividends
or other  capital  distributions  from Tri  Counties  Bank.  The  ability of Tri
Counties  Bank to pay  dividends or make other  capital  distributions  to us is
subject to the  regulatory  authority of the DFI. As of December  31, 2007,  the
Bank could have paid approximately  $48.3 million in dividends without the prior
approval of the Federal  Reserve or the DFI. The amount that Tri  Counties  Bank
may pay in  dividends is further  restricted  due to the fact that the Bank must
maintain  a  certain  minimum  amount  of  capital  to  be  considered  a  "well
capitalized"   institution  as  further   described   under  Item  1  -  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
Tri  Counties  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.  Finally,  our
ability to pay dividends is also subject to the  restrictions  of the California
Corporations Code.

Only a limited  trading  market  exists for our common stock which could lead to
price volatility.

Our  common  stock is quoted on the NASDAQ  Global  Select  Market  and  trading
volumes have been modest.  The limited  trading  market for our common stock may
cause  fluctuations  in the market value of our common stock to be  exaggerated,
leading to price volatility in excess of that which would occur in a more active
trading market of our common stock. In addition, even if a more active market in
our common stock develops, we cannot assure you that such a market will continue
or that shareholders will be able to sell their shares.

If we fail to maintain an effective  system of internal and disclosure  control,
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  and  disclosure  controls 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 control
as defined under standards  adopted by the Public Company  Accounting  Oversight
Board, or PCAOB, that require remediation. Material weakness is a deficiency, or
combination of deficiencies,  in internal control over financial reporting, such
that  there is a  reasonable  possibility  that a material  misstatement  of the
company's  annual or  interim  financial  statements  will not be  prevented  or
detected  in  a  timely  basis.   Significant  deficiency  is  a  deficiency  or
combination of deficiencies,  in internal control over financial  reporting that
is less severe than material  weakness,  yet important enough to merit attention
by those responsible for the oversight of the company's financial reporting.

As a result of weaknesses that may be identified in our internal control, we may
also  identify  certain  deficiencies  in some of our  disclosure  controls  and
procedures that we believe require remediation.  If we discover  weaknesses,  we
will make efforts to improve our internal and disclosure control. However, there
is no assurance  that we will be successful.  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 The
NASDAQ Global Select Market.  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.

                                       15


Anti-takeover  provisions 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:

        o specified  actions that the Board of Directors  shall or may take when
          an offer to merge, an offer to acquire all assets or a tender offer is
          received,
        o a  shareholder  rights  plan  which  could  deter a  tender  offer  by
          requiring a potential acquisitor to pay a substantial premium over the
          market price of our common stock,
        o advance  notice  requirements  for proposals that can be acted upon at
          shareholder meetings, and
        o the  authorization  to issue preferred stock by action of the board of
          directors acting alone, thus without obtaining shareholder approval.

The Bank Holding Company Act of 1956, as amended, and the Change in Bank Control
Act of 1978,  as amended,  together  with  federal  regulations,  require  that,
depending on the particular circumstances,  either Federal Reserve approval must
be  obtained  or  notice  must  be  furnished  to the  Federal  Reserve  and not
disapproved prior to any person or entity acquiring  "control" of a state member
bank,  such as Tri  Counties  Bank.  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.

We are exposed to 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 claims by third
parties based on damages and costs  resulting from  environmental  contamination
emanating from the property.  If we become subject to significant  environmental
liabilities,  our business,  financial condition, results of operations and cash
flows could be materially adversely affected.

We could sustain losses if our asset quality declines.

Our earnings are  significantly  affected by our ability to properly  originate,
underwrite and service loans.  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.  Problems with asset quality
could cause our  interest  income and net  interest  margin to decrease  and our
provisions for loan losses to increase, which could adversely affect our results
of operations and financial condition.

Our recent results may not be indicative of our future results.

We may not be able to sustain our  historical  rate of growth or may not even be
able to grow our business at all. Various factors,  such as economic conditions,
regulatory and legislative  considerations  and competition,  may also impede or
prohibit  our  ability  to  expand  our  market  presence.  If we  experience  a
significant decrease in our historical rate of growth, our results of operations
and financial  condition may be adversely  affected due to a high  percentage of
our operating costs being fixed expenses.

                                       16


The amount of common stock owned by, and other  compensation  arrangements with,
our  officers and  directors  may make it more  difficult to obtain  shareholder
approval of potential takeovers that they oppose.

As of March  7,  2008,  directors  and  executive  officers  beneficially  owned
approximately 20.23% of our common stock and our ESOP owned approximately 7.68%.
Agreements  with our senior  management  also provide for  significant  payments
under certain  circumstances  following a change in control.  These compensation
arrangements,  together with the common stock and option  ownership of our board
of  directors  and  management,  could make it  difficult or expensive to obtain
majority support for shareholder proposals or potential acquisition proposals of
us that our directors and officers oppose.

We may issue  additional  common stock or other equity  securities in the future
which could dilute the ownership interest of existing shareholders

In order to maintain our capital at desired or regulatorily-required  levels, or
to fund future  growth,  our board of directors  may decide from time to time to
issue  additional  shares of  common  stock,  or  securities  convertible  into,
exchangeable  for or representing  rights to acquire shares of our common stock.
The sale of these shares may significantly  dilute your ownership  interest as a
shareholder.  New investors in the future may also have rights,  preferences and
privileges  senior to our current  shareholders  which may adversely  impact our
current shareholders.

Holders of our junior  subordinated  debentures  have  rights that are senior to
those of our common stockholders.

We have supported our continued  growth through the issuance of trust  preferred
securities  from special  purpose trusts and  accompanying  junior  subordinated
debentures.  At December 31, 2007, we had outstanding trust preferred securities
and accompanying junior subordinated  debentures totaling $41,238,000.  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 any
dividends  can be paid 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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company is engaged in the banking business through 57 offices in 23 counties
in  Northern  and  Central  California  including  nine  offices  each in Butte,
Sacramento,  and  Shasta  Counties,  four in  Stanislaus  County,  three each in
Placer,  Siskiyou,  and Sutter  Counties,  two in Glenn County,  and one each in
Contra Costa, Del Norte, Fresno, Kern, Lake, Lassen, Madera, Mendocino,  Merced,
Napa,  Nevada,   Tehama,  Tulare,  Yolo  and  Yuba  Counties.  All  offices  are
constructed and equipped to meet prescribed security requirements.

The Company owns 18 branch office locations and one administrative  building and
leases 39 branch office locations and 3 administrative  facilities.  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.

ITEM 3. LEGAL PROCEEDINGS

Neither the  Company nor its  subsidiaries,  are party to any  material  pending
legal  proceeding,  nor is their  property the subject of any  material  pending
legal  proceeding,  except  routine  legal  proceedings  arising in the ordinary
course  of their  business.  None of these  proceedings  is  expected  to have a
material  adverse  impact upon the Company's  business,  consolidated  financial
position or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the shareholders  during the fourth
quarter of 2007.

                                       17


                                     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 Global Select Market System
("NASDAQ")  under the symbol "TCBK." The following  table shows the high and the
low closing  sale prices for the common  stock for each  quarter in the past two
years, as reported by NASDAQ:
          =============================================================
             2007:                              High               Low
          -------------------------------------------------------------
          Fourth quarter                       $23.80            $19.30
          Third quarter                        $24.73            $19.77
          Second quarter                       $26.29            $21.43
          First quarter                        $27.85            $23.10

             2006:
          --------------
          Fourth quarter                       $27.90            $24.61
          Third quarter                        $27.38            $23.05
          Second quarter                       $28.32            $24.95
          First quarter                        $28.32            $22.39
          =============================================================

As of March 7, 2008 there were approximately 1,682 shareholders of record of the
Company's common stock. On March 7, 2008, the closing sales price was $16.07.

The Company has paid cash  dividends on its common stock in every  quarter since
March 1990,  and it is currently  the intention of the Board of Directors of the
Company to continue payment of cash dividends on a quarterly basis.  There is no
assurance,  however,  that any  dividends  will be paid since they are dependent
upon earnings,  financial condition and capital  requirements of the Company and
the Bank.  As of December 31, 2007,  $48,282,000  was  available  for payment of
dividends  by the  Company  to  its  shareholders,  under  applicable  laws  and
regulations.  The Company paid cash  dividends of $0.13 per common share in each
of the quarters ended December 31, 2007,  September 30, 2007, June 30, 2007, and
March 31,  2007,  and  $0.12  per  common  share in each of the  quarters  ended
December 31, 2006, September 30, 2006, June 30, 2006, and March 31, 2006.

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, 2007.  All of our equity  compensation  plans have been
approved by shareholders.



                                      (a)                                   (c) Number of securities
                              Number of securities           (b)             remaining available for
                               to be issued upon       Weighted average       issuance under equity
                                  exercise of         exercise price of         compensation plans
                              outstanding options,   outstanding options,     (excluding securities
Plan category                 warrants and rights    warrants and rights    reflected in column (a))
-----------------------------------------------------------------------------------------------------
                                                                               
Equity compensation plans
  not approved by shareholders            -                     -                       -
Equity compensation plans
  approved by shareholders        1,351,181                $14.68                 215,380
                                  --------------------------------------------------------
Total                             1,351,181                $14.68                 215,380



                                       18


Stock Repurchase Plan

The  Company  adopted  a  stock  repurchase  plan on  August  21,  2007  for the
repurchase of up to 500,000  shares of the  Company's  common stock from time to
time as market  conditions  allow. The 500,000 shares  authorized for repurchase
under this plan represented  approximately  3.2% of the Company's  approximately
15,815,000  common shares  outstanding  as of August 21, 2007.  This plan has no
stated expiration date for the repurchases. As of December 31, 2007, the Company
had not  purchased  any shares under this plan.  The  following  table shows the
repurchases made by the Company or any affiliated  purchaser (as defined in Rule
10b-18(a)(3) under the Exchange Act) during the fourth quarter of 2007:




Period          (a) Total number of   (b) Average price  (c) Total number of    (d) Maximum number of
                    shares purchased      paid per share     shares purchased       shares that may yet
                                                             as part of publicly    be purchased under the
                                                             announced plans or     plans or programs
                                                             programs
----------------------------------------------------------------------------------------------------------
                                                                                
Oct. 1-31, 2007                 -                -                     -                  500,000
Nov. 1-30, 2007                 -                -                     -                  500,000
Dec. 1-31, 2007                 -                -                     -                  500,000
-----------------------------------------------------------------------------------------------------------
Total                           -                -                     -                  500,000



                                       19


ITEM 6. SELECTED FINANCIAL DATA

The  following  selected  consolidated  financial  data  are  derived  from  our
consolidated  financial statements.  This data should be read in connection with
our consolidated financial statements and the related notes located at Item 8 of
this report.

 


                                                           TRICO BANCSHARES
                                                           Financial Summary
                                               (in thousands, except per share amounts)

       =============================================================================================================
         Year ended December 31,                      2007         2006         2005         2004         2003
        ------------------------------------------------------------------------------------------------------------
                                                                                               

         Interest income                             $127,268     $120,323      $98,756      $84,932       $73,969
         Interest expense                              40,582       34,445       20,529       13,363        13,089
         -----------------------------------------------------------------------------------------------------------
         Net interest income                           86,686       85,878       78,227       71,569        60,880
         Provision for loan losses                      3,032        1,289        2,169        2,901         1,058
         Noninterest income                            27,590       26,255       24,890       24,794        22,909
         Noninterest expense                           68,906       66,726       62,110       60,828        55,719
         -----------------------------------------------------------------------------------------------------------
         Income before income taxes                    42,338       44,118       38,838       32,634        27,012
         Provision for income taxes                    16,645       17,288       15,167       12,452        10,124
         -----------------------------------------------------------------------------------------------------------
              Net income                              $25,693      $26,830      $23,671      $20,182       $16,888
         -----------------------------------------------------------------------------------------------------------

         Earnings per share(2):
              Basic                                     $1.62        $1.70        $1.51        $1.29         $1.11
         Diluted                                         1.57         1.64         1.45         1.24          1.07
         Per share(2):
              Dividends paid                            $0.52        $0.48        $0.45        $0.43         $0.40
              Book value at December 31                 11.87        10.69         9.52         8.79          8.16
              Tangible book value at December 31        10.82         9.60         8.25         7.45          6.79

         Average common shares outstanding(2)          15,898       15,812       15,708       15,660        15,282
         Average diluted common shares outstanding(2)  16,364       16,383       16,331       16,270        15,757
         Shares outstanding at December 31             15,912       15,857       15,708       15,723        15,668
         At December 31:
         Loans, net                                $1,534,635   $1,492,965   $1,368,809   $1,158,442      $969,570
         Total assets                               1,980,621    1,919,966    1,841,275    1,627,506     1,469,638
         Total deposits                             1,545,223    1,599,149    1,496,797    1,348,833     1,236,823
         Debt financing and notes payable             116,126       39,911       31,390       28,152        22,887
         Junior subordinated debt                      41,238       41,238       41,238       41,238        20,619
         Shareholders' equity                         188,878      169,436      149,493      138,132       127,960

         Financial Ratios:

         For the year:
              Return on assets                           1.36%        1.44%        1.38%        1.33%        1.27%
              Return on equity                          14.20%       16.61%       16.30%       15.20%       14.24%
              Net interest margin(1)                     5.07%        5.14%        5.14%        5.32%        5.23%
              Net loan losses to average loans           0.17%        0.04%        0.04%        0.12%        0.34%
              Efficiency ratio(1)                       59.86%       58.99%       59.64%       62.46%       65.62%
              Average equity to average assets           9.55%        8.68%        8.49%        8.72%        8.91%
         At December 31:
              Equity to assets                           9.54%        8.82%        8.12%        8.50%        8.71%
              Total capital to risk-adjusted assets     11.90%       11.44%       10.79%       11.86%       11.56%
              Allowance for loan losses to loans         1.12%        1.12%        1.17%        1.24%        1.31%


(1) Fully taxable equivalent
(2) Per share figures retroactively adjusted to reflect 2-for-1 stock split in
the form of a stock dividend effective April 30, 2004


                                       20


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company's  discussion and analysis of its financial condition and results of
operations  is intended  to provide a better  understanding  of the  significant
changes and trends  relating to the Company's  financial  condition,  results of
operations, liquidity, interest rate sensitivity, off balance sheet arrangements
and certain contractual  obligations.  The following  discussion is based on the
Company's   consolidated  financial  statements  which  have  been  prepared  in
accordance with accounting principles generally accepted in the United States of
America. Please read the Company's audited consolidated financial statements and
the related notes included as Item 8 of this report.

Critical Accounting Policies and Estimates

The Company's  discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America.  The preparation of these financial  statements
requires the Company to make  estimates and  judgments  that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent  assets and liabilities.  On an on-going basis, the Company evaluates
its estimates,  including those that materially affect the financial  statements
and are related to the adequacy of the allowance  for loan losses,  investments,
mortgage  servicing  rights,  and  intangible  assets.  The  Company  bases  its
estimates on historical  experience  and on various other  assumptions  that are
believed to be reasonable under the circumstances, the results of which form the
basis for making  judgments  about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these  estimates  under  different  assumptions  or  conditions.  The  Company's
policies  related to estimates  on the  allowance  for loan  losses,  other than
temporary  impairment of investments and impairment of intangible assets, can be
found in Note 1 to the Company's audited  consolidated  financial statements and
the related notes included as Item 8 of this report.

The Company  used the  intrinsic  value  method to account for its stock  option
plans (in accordance with the provisions of Accounting  Principles Board Opinion
No. 25).  Under this method,  compensation  expense is recognized  for awards of
options to purchase shares of common stock to employees under compensatory plans
only if the fair  market  value of the stock at the option  grant date (or other
measurement  date, if later) is greater than the amount the employee must pay to
acquire  the  stock.  Statement  of  Financial  Accounting  Standards  No.  123,
Accounting  for  Stock-Based  Compensation  (SFAS 123)  permitted  companies  to
continue using the intrinsic  value method or to adopt a fair value based method
to account  for stock  option  plans.  The fair value  based  method  results in
recognizing as expense over the vesting period the fair value of all stock-based
awards  on the  date of  grant.  The  Company  elected  to  continue  to use the
intrinsic  value method.  In December 2004, the Financial  Accounting  Standards
Board (FASB)  issued FASB  Statement of Financial  Accounting  Standards No. 123
(revised 2004), Share-Based Payment (SFAS 123R), which replaces SFAS No. 123 and
supersedes  APB Opinion No. 25. SFAS 123R requires all  share-based  payments to
employees,  including grants of employee stock options,  to be recognized in the
financial statements based on their fair values beginning with the first interim
reporting  period of the Company's  fiscal year  beginning  after June 15, 2005,
with early adoption encouraged.  The pro forma disclosures  previously permitted
under  SFAS  123  no  longer  will  be an  alternative  to  financial  statement
recognition.  The Company  adopted SFAS 123R on January 1, 2006 using a modified
version of prospective application ("modified prospective  application").  Under
modified prospective application,  as it is applicable to the Company, SFAS 123R
applies to new grants and to grants  modified,  repurchased,  or cancelled after
January 1, 2006.  Additionally,  compensation cost for the portion of grants for
which the  requisite  service  has not been  rendered  (generally  referring  to
non-vested grants) that are outstanding as of January 1, 2006 must be recognized
as the remaining  requisite  service is rendered during the period of and/or the
periods after the adoption of SFAS 123R. The  attribution of  compensation  cost
for  those  earlier  grants  will be based on the  same  method  and on the same
grant-date  fair  values  previously  determined  for the pro forma  disclosures
required for companies that did not adopt the fair value  accounting  method for
stock-based employee compensation.

As the Company has not  commenced  any business  operations  independent  of the
Bank, the following discussion pertains primarily to the Bank. 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,
interest  income and net  interest  income are  generally  presented  on a fully
tax-equivalent (FTE) basis.

                                       21


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 Item 8 of this report.

Results of Operations

Net Income

Following is a summary of the Company's net income for the past three years:

                                              Year ended December 31,
         -------------------------------------------------------------------
         Components of Net Income          2007         2006         2005
          (dollars in thousands,
            except per share amounts)    -----------------------------------
         Net interest income *           $87,529      $86,857      $79,258
         Provision for loan losses        (3,032)      (1,289)      (2,169)
         Noninterest income               27,590       26,255       24,890
         Noninterest expense             (68,906)     (66,726)     (62,110)
         Taxes *                         (17,488)     (18,267)     (16,198)
                                         -----------------------------------
         Net income                      $25,693      $26,830      $23,671
                                         ===================================
         Net income per average            $1.57        $1.64        $1.45
           fully-diluted share
         Net income as a percentage of     14.20%       16.61%       16.30%
            average shareholders' equity
         Net income as a percentage of      1.36%        1.44%        1.38%
            average total assets
        ====================================================================
         * Fully tax-equivalent (FTE)

Earnings in 2007  decreased  $1,137,000  (4.2%) from 2006.  Net interest  income
(FTE) grew  $672,000  (0.8%) due to a  $35,511,000  (2.1%)  increase  in average
earning assets while net interest margin decreased 0.07% to 5.07%. The loan loss
provision  increased  $1,743,000  in 2007  from  2006,  and  noninterest  income
increased  $1,335,000 (5.1%) while noninterest expense also increased $2,180,000
(3.3%).

Earnings in 2006 increased  $3,159,000  (13.4%) from 2005.  Net interest  income
(FTE) grew  $7,599,000  (9.6%) due to a $146,430,000  (9.5%) increase in average
earning assets while net interest  margin was unchanged at 5.14%.  The loan loss
provision decreased $880,000 in 2006 from 2005, and noninterest income increased
$1,365,000 (5.5%) while noninterest expense also increased $4,616,000 (7.4%).

The Company's return on average total assets was 1.36% in 2007 compared to 1.44%
and 1.38% in 2006 and 2005,  respectively.  Return on average equity in 2007 was
14.20% compared to 16.61% and 16.30% in 2006 and 2005, respectively.

Net Interest Income

The Company's  primary  source of revenue is net interest  income,  which is the
difference  between  interest  income on earning assets and interest  expense on
interest-bearing  liabilities.  Net  interest  income (FTE)  increased  $672,000
(0.8%) to  $87,529,000  from 2006 to 2007. Net interest  income (FTE)  increased
$7,599,000 (9.6%) to $86,857,000 from 2005 to 2006.

Following is a summary of the Company's  net interest  income for the past three
years :

                                                 Year ended December 31,
       -----------------------------------------------------------------------
       Components of Net Interest Income       2007         2006        2005
        (dollars in thousands)               ---------------------------------
       Interest income                       $127,268    $120,323     $98,756
       Interest expense                       (40,582)    (34,445)    (20,529)
       FTE adjustment                             843         979       1,031
                                             ---------------------------------
       Net interest income (FTE)              $87,529     $86,857     $79,258
       =======================================================================
       Net interest margin (FTE)                5.07%        5.14%       5.14%
       =======================================================================

                                       22


Interest  income (FTE)  increased  $6,809,000  (5.6%) from 2006 to 2007, the net
effect of higher  average  balances  of those  assets and  higher  earning-asset
yields.  The total yield on earning assets increased from 7.18% in 2006 to 7.43%
in 2007.  The average  yield on loans  increased 19 basis points to 7.78% during
2007.  The  increase  in  average  yield on  interest-earning  assets  increased
interest income (FTE) by $3,305,000,  while the increase in average  balances of
interest-earning assets added $3,504,000 to interest income (FTE) during 2007.

Interest expense increased $6,137,000 (17.8%) in 2007 from 2006, due to a 0.44%
increase in the average rate paid on interest-bearing liabilities to 3.05% and a
$11,385,000 (0.9%) increase in the average balance of interest-bearing
liabilities. The increase in the average rate paid on interest-bearing
liabilities increased interest expense by $4,932,000 from 2006 to 2007, while
the increase in average balances of interest-bearing liabilities increased
interest expense by $1,205,000 in 2007.

Interest income (FTE) increased  $21,515,000  (21.6%) from 2005 to 2006, the net
effect of higher  average  balances  of those  assets and  higher  earning-asset
yields.  The total yield on earning assets increased from 6.47% in 2005 to 7.18%
in 2006.  The average  yield on loans  increased 69 basis points to 7.59% during
2006.  The  increase  in  average  yield on  interest-earning  assets  increased
interest income (FTE) by $10,288,000,  while the increase in average balances of
interest-earning assets added $11,227,000 to interest income (FTE) during 2006.

Interest expense increased $13,916,000 (67.8%) in 2006 from 2005, due to a 0.91%
increase in the average rate paid on interest-bearing liabilities to 2.61% and a
$111,053,000   (9.2%)  increase  in  the  average  balance  of  interest-bearing
liabilities.   The  increase  in  the  average  rate  paid  on  interest-bearing
liabilities  increased  interest  expense by $8,692,000 from 2005 to 2006, while
the  increase in average  balances  of  interest-bearing  liabilities  increased
interest expense by $5,224,000 in 2006.

Net Interest Margin

Following is a summary of the Company's  net interest  margin for the past three
years:

                                                   Year ended December 31,
      --------------------------------------------------------------------------
      Components of Net Interest Margin           2007       2006      2005
                                                --------------------------------
      Yield on earning assets                     7.43%      7.18%     6.47%
      Rate paid on interest-bearing liabilities   3.05%      2.61%     1.70%
                                                --------------------------------
      Net interest spread                         4.38%      4.56%     4.76%
      Impact of all other net
         noninterest-bearing funds                0.69%      0.58%     0.38%
                                                --------------------------------
      Net interest margin (FTE)                   5.07%      5.14%     5.14%
     ===========================================================================

During  2005,  short-term  interest  rates  continued  to rise  while  long-term
interest rates remained  steady or decreased  slightly.  As a result the average
yield the Company was able to earn on  interest-earning  assets did not increase
as fast as the rate it paid on interest-bearing liabilities, thus decreasing net
interest  margin.  During  the first  half of 2006,  short-term  interest  rates
continued to rise while long-term interest rates remained  relatively stable. As
a result the  average  yield the  Company  was able to earn on  interest-earning
assets  did  not  increase  as fast  as the  rate  it  paid on  interest-bearing
liabilities  however,  the positive impact of all other net  noninterest-bearing
funds resulted in no change in net interest  margin (FTE) from 2005.  During the
first three  quarters of 2007,  the  Company was able to maintain  net  interest
margin  when  compared  to 2006 as market  interest  rates  remained  relatively
stable.  However,  during the fourth quarter of 2007, the Federal funds rate and
the prime rate of lending  began to  decrease  while  competition  for  deposits
prevented  deposit  rates from  decreasing  similarly.  As a result,  during the
fourth  quarter  of 2007,  the  average  yield the  Company  was able to earn on
interest-earning  assets  decreased  faster  than  the  average  rate it paid on
interest-bearing  liabilities  causing the net interest  margin (FTE) for all of
2007 to be reduced from 2006 levels.

                                       23


Summary of Average Balances, Yields/Rates and Interest Differential

The following tables present,  for the past three years,  information  regarding
the Company's consolidated average assets, liabilities and 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  current   statutory  tax  rate  (dollars  in
thousands):




                                                        Year ended December 31, 2007
                                              -----------------------------------------------
                                                                   Interest        Rates
                                                   Average         income/         earned/
                                                   balance         expense         paid
                                              -----------------------------------------------
                                                                             
     Assets
     Loans                                         $1,511,331      $117,639        7.78%
     Investment securities - taxable                  183,493         8,158        4.45%
     Investment securities - nontaxable                30,032         2,297        7.65%
     Federal funds sold                                   362            17        4.70%
                                                 ------------    ----------
     Total earning assets                           1,725,218       128,111        7.43%
                                                                 ----------
     Other assets                                     169,296
                                                 ------------
          Total assets                             $1,894,514
                                                   ==========
     Liabilities and shareholders' equity
     Interest-bearing demand deposits                $224,279           452        0.20%
     Savings deposits                                 385,702         6,238        1.62%
     Time deposits                                    558,247        24,733        4.43%
     Federal funds purchased                           55,334         2,880        5.20%
     Other borrowings                                  63,835         2,983        4.67%
     Junior subordinated debt                          41,238         3,296        7.99%
                                                 ------------    ----------
            Total interest-bearing liabilities      1,328,635        40,582        3.05%
                                                                 ----------
     Noninterest-bearing demand                       351,815
     Other liabilities                                 33,066
     Shareholders' equity                             180,998
                                                 ------------
            Total liabilities and shareholders'    $1,894,514
              equity                               ==========
     Net interest spread (1)                                                       4.38
     Net interest income and interest margin (2)                    $87,529        5.07%
                                                                 ==========       ======


                                                        Year ended December 31, 2006
                                              -----------------------------------------------
                                                                   Interest        Rates
                                                   Average         income/         earned/
                                                   balance         expense         paid
                                              -----------------------------------------------
     Assets
     Loans                                         $1,447,163      $109,769        7.59%
     Investment securities - taxable                  206,989         8,749        4.23%
     Investment securities - nontaxable                34,400         2,728        7.93%
     Federal funds sold                                 1,155            56        4.85%
                                                 ------------    ----------
     Total earning assets                           1,689,707       121,302        7.18%
                                                                  ---------
     Other assets                                     171,343
                                                 ------------
          Total assets                             $1,861,050
                                                 ============
     Liabilities and shareholders' equity
     Interest-bearing demand deposits                $236,881           477        0.20%
     Savings deposits                                 395,744         3,556        0.90%
     Time deposits                                    527,019        21,427        4.07%
     Federal funds purchased                           81,237         4,116        5.07%
     Other borrowings                                  35,131         1,667        4.75%
     Junior subordinated debt                          41,238         3,202        7.76%
                                                 ------------    ----------           -
            Total interest-bearing liabilities      1,317,250        34,445        2.61%
                                                                 ----------
     Noninterest-bearing demand                       352,617
     Other liabilities                                 29,641
     Shareholders' equity                             161,542
                                                 ------------
            Total liabilities and shareholders'    $1,861,050
              equity                             ============
     Net interest spread (1)                                                       4.56%
     Net interest income and interest margin (2)                    $86,857        5.14%
                                                                 ==========       ======

     (1)  Net  interest   spread   represents   the  average   yield  earned  on
          interest-earning assets less the average rate paid on interest-bearing
          liabilities.
     (2)  Net interest margin is computed by diving net interest income by total
          average earning assets.



                                       24





                                                        Year ended December 31, 2005
                                              -----------------------------------------------
                                                                   Interest        Rates
                                                   Average         income/         earned/
                                                   balance         expense         paid
                                              -----------------------------------------------
                                                                             

     Assets
     Loans                                         $1,251,699       $86,379        6.90%
     Investment securities - taxable                  256,217        10,574        4.13%
     Investment securities - nontaxable                34,557         2,809        8.13%
     Federal funds sold                                   804            25        3.11%
                                                   ----------   -----------
     Total earning assets                           1,543,277        99,787        6.47%
                                                                 ----------
     Other assets                                     166,098
                                                   ----------
          Total assets                             $1,709,375
                                                   ==========
     Liabilities and shareholders' equity
     Interest-bearing demand deposits                $243,619           492        0.20%
     Savings deposits                                 465,586         3,435        0.74%
     Time deposits                                    374,989        10,975        2.93%
     Federal funds purchased                           51,114         1,784        3.49%
     Other borrowings                                  29,651         1,361        4.59%
     Junior subordinated debt                          41,238         2,482        6.02%
                                                   ----------    ----------
            Total interest-bearing liabilities      1,206,197        20,529        1.70%
                                                                 ----------
     Noninterest-bearing demand                       332,224
     Other liabilities                                 25,757
     Shareholders' equity                             145,197
                                                   ----------
            Total liabilities and shareholders'    $1,709,375
              equity                               ==========
     Net interest spread (1)                                                       4.76%
     Net interest income and interest margin (2)                    $79,258        5.14%
                                                                  ==========     ========
     (1)  Net  interest   spread   represents   the  average   yield  earned  on
          interest-earning assets less the average rate paid on interest-bearing
          liabilities.
     (2)  Net interest margin is computed by diving net interest income by total
          average earning assets.



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

The  following  table  sets  forth 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 past three
years. The rate/volume variance has been included in the rate variance.  Amounts
are calculated on a fully taxable equivalent basis:

 

                                                            2007 over 2006                     2006 over 2005
                                            --------------------------------------------------------------------------
                                                             Yield/                               Yield/
                                              Volume          Rate       Total      Volume        Rate        Total
                                            --------------------------------------------------------------------------
                                                 (dollars in thousands)
                                                                                              
Increase (decrease) in interest income:
    Loans                                   $4,867         $3,003      $7,870      $13,489        $9,901     $23,390
    Investment securities                   (1,325)           303      (1,022)      (2,273)          367      (1,906)
    Federal funds sold                         (38)            (1)        (39)          11            20          31
                                            --------------------------------------------------------------------------
      Total                                  3,504          3,305       6,809       11,227        10,288      21,515
                                            --------------------------------------------------------------------------
Increase (decrease) in interest expense:
    Demand deposits (interest-bearing)         (25)             -         (25)         (14)           (1)        (15)
    Savings deposits                           (90)         2,772       2,682         (515)          636         121
    Time deposits                            1,270          2,036       3,306        4,450         6,002      10,452
    Federal funds purchased                 (1,312)            76      (1,236)       1,051         1,281       2,332
    Junior subordinated debt                     -             94          94            -           720         720
    Other borrowings                         1,362            (46)      1,316          252            54         306
                                            --------------------------------------------------------------------------
      Total                                  1,205          4,932       6,137        5,224         8,692      13,916
                                            --------------------------------------------------------------------------
Increase (decrease) in net interest
  income:                                   $2,299        ($1,627)       $672       $6,003        $1,596      $7,599
                                            ==========================================================================

                                       25


Provision for Loan Losses

In 2007, the Bank provided  $3,032,000 for loan losses compared to $1,289,000 in
2006. Net loan  charge-offs  increased  $2,014,000  (335%) to $2,615,000  during
2007. The 2007 charge-offs represented 0.17% of average loans outstanding versus
0.04% in 2006.  Nonperforming  loans net of  government  agency  guarantees as a
percentage  of total loans were 0.48% and 0.30% at  December  31, 2007 and 2006,
respectively.  The ratio of allowance for loan losses to nonperforming loans was
231% at the end of 2007 versus 375% at the end of 2006.

In 2006, the Bank provided  $1,289,000 for loan losses compared to $2,169,000 in
2005. Net loan charge-offs  increased  $133,000 (28.4%) to $601,000 during 2006.
The 2006 charge-offs represented 0.04% of average loans outstanding versus 0.04%
in 2005. Nonperforming loans net of government agency guarantees as a percentage
of total loans were 0.30% and 0.21% at December 31, 2006 and 2005, respectively.
The ratio of allowance  for loan losses to  nonperforming  loans was 375% at the
end of 2006 versus 548% at the end of 2005.

Noninterest Income

The following table summarizes the Company's noninterest income for the past
three years:

                                                       Year ended December 31,
      --------------------------------------------------------------------------
      Components of  Noninterest Income              2007      2006        2005
        (dollars in thousands)                   -------------------------------
      Service charges on deposit accounts         $15,449   $14,461     $13,619
      ATM fees and interchange                      4,068     3,581       3,139
      Other service fees                            2,173     2,167       2,055
      Amortization of mortgage servicing rights                   -        (661)
      Change in value of mortgage servicing rights   (490)     (400)          -
      Gain on sale of loans                           994     1,224       1,679
      Commissions on sale of
          nondeposit investment products            2,331     1,946       2,242
      Increase in cash value of life insurance      1,445     1,767       1,507
      Other noninterest income                      1,620     1,509       1,310
                                                  ------------------------------
      Total noninterest income                    $27,590   $26,255     $24,890
     ===========================================================================

Noninterest  income increased  $1,335,000 (5.1%) to $27,590,000 in 2007. Service
charges on deposit  accounts were up $988,000  (6.8%) due to growth in number of
customers.  ATM fees and  interchange,  and other  service fees were up $487,000
(13.6%) and $6,000  (0.3%) due to  expansion  of the  Company's  ATM network and
customer  base through  de-novo  branch  expansion.  Overall,  mortgage  banking
activities,  which includes amortization of mortgage servicing rights,  mortgage
servicing fees, change in value of mortgage  servicing rights,  and gain on sale
of loans, accounted for $1,502,000 of noninterest income in the 2007 compared to
$1,782,000 in 2006. The decreased  contribution from mortgage banking activities
is due to the continued slow pace of mortgage refinance activity. Commissions on
sale of nondeposit investment products increased $385,000 (19.8%) in 2007 due to
increased  resources  focused in that area and better demand for these products.
Increase  in cash value of life  insurance  decreased  $322,000  (18.2%)  due to
decreased earning rates on the related life insurance policies.

Noninterest  income increased  $1,365,000 (5.5%) to $26,255,000 in 2006. Service
charges on deposit  accounts were up $842,000  (6.2%) due to growth in number of
customers.  ATM fees and  interchange,  and other  service fees were up $442,000
(14.1%) and $112,000  (5.5%) due to expansion of the  Company's  ATM network and
customer  base through  de-novo  branch  expansion.  Overall,  mortgage  banking
activities,  which includes amortization of mortgage servicing rights,  mortgage
servicing fees, change in value of mortgage  servicing rights,  and gain on sale
of loans, accounted for $1,782,000 of noninterest income in the 2006 compared to
$1,946,000 in 2005. The decreased  contribution from mortgage banking activities
is due to the continued slow pace of mortgage refinance activity. Commissions on
sale of nondeposit investment products decreased $296,000 (13.2%) in 2006 due to
lower  demand for annuity  products.  Increase  in cash value of life  insurance
increased  $260,000  (17.3%) due to increased  earning rates on the related life
insurance policies.

                                       26


Securities Transactions

During 2007 the Company did not sell any investment securities.  During 2007 the
Company received  proceeds from maturities of securities  totaling  $49,256,000,
and used $78,822,000 to purchase securities.

During 2006 the Company  recorded a gain of $12,000 from the sale of  securities
with a book value of $10,767,000.  In addition, during 2006 the Company received
proceeds from maturities of securities totaling  $52,043,000,  and used $896,000
to purchase securities.

Noninterest Expense

The following table summarizes the Company's other  noninterest  expense for the
past three years:

      --------------------------------------------------------------------------
                                                       Year ended December 31,
      Components of  Noninterest Expense             2007     2006         2005
        (dollars in thousands)                  --------------------------------
      Salaries and benefits                       $38,066    $36,455    $33,926
      Other noninterest expense:
        Equipment and data processing               6,300      5,926      5,783
        Occupancy                                   4,786      4,450      4,041
        Advertising                                 2,186      2,090      1,732
        ATM network charges                         1,857      1,839      1,644
        Telecommunications                          1,706      1,573      1,521
        Professional fees                           1,516      1,652      1,247
        Courier service                             1,223      1,308      1,151
        Postage                                       916      1,006        889
        Intangible amortization                       490      1,395      1,381
        Operational losses                            454        374        225
        Assessments                                   331        326        312
        Change in reserve for unfunded commitments    241         36        281
        Other                                       8,834      8,296      7,977
                                                 -------------------------------
      Total other noninterest expenses             30,840     30,271     28,184
                                                 -------------------------------
      Total noninterest expense                   $68,906    $66,726    $62,110
     ===========================================================================
      Average full time equivalent staff              638        623        604
      Noninterest expense to revenue (FTE)         59.86%      58.99%     59.64%

Salary and benefit expenses  increased  $1,611,000 (4.4%) to $38,066,000 in 2007
compared to 2006. Base salaries net of deferred loan origination costs increased
$1,794,000  (7.9%) to  $24,582,000  in 2007.  The increase in base  salaries was
mainly due to an increase in average  full time  equivalent  employees  from 623
during 2006 to 638 during  2007,  and annual  salary  increases.  Incentive  and
commission  related salary expenses  decreased $825,000 (17.8%) to $3,808,000 in
2007.  The decrease in incentive  and  commission  expenses was due primarily to
decreases in related  income  generation  from gain on sale of loans,  and other
performance based incentive programs.  Benefits expense,  including  retirement,
medical and  workers'  compensation  insurance,  and taxes,  increased  $642,000
(7.1%) to $9,676,000 during 2007. Also, included in salaries and benefit expense
in 2007 was  $477,000  for  expensing  of  employee  stock  options  compared to
$382,000 in 2006.

Salary and benefit expenses  increased  $2,529,000 (7.5%) to $36,455,000 in 2006
compared to 2005. Base salaries  increased  $1,878,000  (9.0%) to $22,788,000 in
2006.  The  increase in base  salaries  was mainly due to an increase in average
full time  equivalent  employees  from 604 during 2005 to 623 during  2006,  and
annual  salary  increases.  Incentive and  commission  related  salary  expenses
decreased  $420,000  (8.3%) to $4,633,000 in 2006. The decrease in incentive and
commission  expenses was due primarily to decreases in related income generation
from gain on sale of loans,  and commissions on sale of non-deposit  investments
products.   Benefits  expense,   including  retirement,   medical  and  workers'
compensation  insurance,  and taxes,  increased  $690,000  (8.7%) to  $8,652,000
during 2006. Also, included in salaries and benefit expense in 2006 was $382,000
for expensing of employee stock options compared to no such expense in 2005.

Other noninterest expenses increased $569,000 (1.9%) to $30,840,000 in 2007. The
increase was mainly due to new branches opened in 2006 and inflation that were
partially offset by a $905,000 decrease in intangible amortization.

                                       27


Other noninterest  expenses increased  $2,087,000 (7.4%) to $30,271,000 in 2006.
The  increase  was  mainly  due to new  branches  opened in 2005 and  2006,  and
inflation.  The increase in professional  fees was mainly due to increased audit
expense and legal fees related to loan collection efforts.

Provision for Taxes

The effective tax rate on income was 39.3%,  39.2%, and 39.1% in 2007, 2006, and
2005,  respectively.  The  effective  tax rate  was  greater  than  the  federal
statutory  tax rate due to state tax  expense  of  $4,277,000,  $4,462,000,  and
$3,993,000,  respectively,  in these  years.  Tax-exempt  income of  $1,454,000,
$1,749,000,  and  $1,778,000,  respectively,  from  investment  securities,  and
$1,445,000,  $1,767,000,  and  $1,507,000,  respectively,  from increase in cash
value of life insurance in these years helped to reduce the effective tax rate.

Financial Ratios

The following table shows the Company's key financial ratios for the past three
years:

                                                    Year ended December 31,
                                                    2007      2006      2005
                                                 ----------------------------
     Return on average total assets                1.36%      1.44%     1.38%
     Return on average shareholders' equity       14.20%     16.61%    16.30%
     Shareholders' equity to total assets          9.54%      8.82%     8.12%
     Common shareholders' dividend payout ratio   32.19%     28.31%    29.88%
     ========================================================================

Loans

The Bank concentrates its lending activities in four principal areas: commercial
loans (including agricultural loans), consumer loans, real estate mortgage loans
(residential  and commercial  loans and mortgage loans originated for sale), and
real estate  construction  loans.  At December 31, 2007,  these four  categories
accounted for approximately  10%, 35%, 46%, and 9% of the Bank's loan portfolio,
respectively,  as compared to 10%, 35%, 45%, and 10%, at December 31, 2006.  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.

At  December  31,  2007  loans,  including  net  deferred  loan  costs,  totaled
$1,551,966,000 which was a 2.8% ($42,087,000)  increase over the balances at the
end of 2006.  Demand for commercial real estate (real estate mortgage) loans was
relatively  strong during 2007.  Other loan categories that showed modest growth
were home equity loans and  non-real  estate  secured  agriculture  loans.  Real
estate  construction  loans declined  during 2007 as did auto dealer loans.  The
average loan-to-deposit ratio in 2007 was 99.4 % compared to 95.7% in 2006.

At  December  31,  2006  loans,  including  net  deferred  loan  costs,  totaled
$1,509,879,000 which was a 9.0% ($124,844,000) increase over the balances at the
end of 2005.  Demand for home equity  loans and auto loans (both  classified  as
consumer loans) was strong in the first three quarters of 2006.  Residential and
commercial  real estate  mortgage loan and  construction  loan activity was also
strong in the first three quarters of 2006.  Non-real estate secured  commercial
loan growth improved from 2005 levels. Agriculture related loan growth continued
to be relatively  weak in 2006.  The average  loan-to-deposit  ratio in 2006 was
95.7% compared to 88.4% in 2005.

                                       28


Loan Portfolio Composite

The following  table shows the Company's loan  balances,  including net deferred
loan costs, for the past five years:




                                                                         December 31,
                                             2007          2006            2005           2004           2003
                                          -----------------------------------------------------------------------
                                                                                           
 (dollars in thousands)
Commercial, financial and agricultural     $164,815      $153,105       $143,175       $140,332        $142,252
Consumer installment                        535,819       525,513        508,233        410,198         320,248
Real estate mortgage                        716,013       679,661        623,511        544,373         458,369
Real estate construction                    135,319       151,600        110,116         78,064          61,591
                                         ------------------------------------------------------------------------
    Total loans                          $1,551,966    $1,509,879     $1,385,035     $1,172,967        $982,460
                                         ========================================================================


Classified Assets

The  Company  closely  monitors  the  markets in which it  conducts  its lending
operations  and  continues  its strategy to control  exposure to loans with high
credit risk.  Asset reviews are performed  using grading  standards and criteria
similar to those employed by bank regulatory  agencies.  Assets receiving lesser
grades  fall  under  the  "classified  assets"  category,   which  includes  all
nonperforming  assets and potential problem loans, and receive an elevated level
of attention to ensure collection.

The following is a summary of classified assets on the dates indicated:

                              At December 31, 2007       At December 31, 2006
                            -----------------------    -------------------------
                             Gross  Guaranteed  Net     Gross  Guaranteed   Net
( dollars in thousands)     ----------------------------------------------------
Classified loans            $18,570   $5,948  $12,622   $13,116  $6,514   $6,602
Other classified assets         187        -      187         -       -        -
                            ----------------------------------------------------
Total classified assets     $18,757   $5,948  $12,809   $13,116  $6,514   $6,602
                            ====================================================
Allowance for loan losses/Classified loans     137.3%                     256.2%

Classified  assets,  net of  guarantees  of the U.S.  Government,  including its
agencies and its  government-sponsored  agencies at December 31, 2007, increased
$6,207,000 (94.0%) to $12,809,000 from $6,602,000 at December 31, 2006.

Nonperforming Assets

Loans on which the accrual of interest has been  discontinued  are designated as
nonaccrual loans. Accrual of interest on loans is generally  discontinued either
when reasonable  doubt exists as to the full,  timely  collection of interest or
principal or when a loan becomes  contractually past due by 90 days or more with
respect  to  interest  or  principal.  When  loans are 90 days past due,  but in
Management's  judgment are well secured and in the process of  collection,  they
may not be classified as nonaccrual. 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 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 loans are estimated to be
fully  collectible as to both principal and interest.  The  reclassification  of
loans as nonaccrual does not  necessarily  reflect  management's  judgment as to
whether they are collectible.

Interest income on nonaccrual loans which would have been recognized  during the
year ended  December 31, 2007,  if all such loans had been current in accordance
with  their  original  terms,  totaled  $1,480,000.   Interest  income  actually
recognized on these loans in 2007 was $859,000.

The  Bank's  policy  is to place  loans 90 days or more  past due on  nonaccrual
status.  In some instances  when a loan is 90 days past due management  does not
place  it on  nonaccrual  status  because  the loan is well  secured  and in the
process of  collection.  A loan is considered to be in the process of collection
if, based on a probable  specific  event,  it is expected  that the loan will be
repaid or brought current. Generally, this collection period would not exceed 30
days.  Loans where the collateral has been  repossessed  are classified as other
real estate owned ("OREO") or, if the collateral is personal property,  the loan
is classified as other assets on the Company's financial statements.

                                       29


Management considers both the adequacy of the collateral and the other resources
of the  borrower  in  determining  the steps to be taken to  collect  nonaccrual
loans.   Alternatives  that  are  considered  are  foreclosure,   collecting  on
guarantees, restructuring the loan or collection lawsuits.

The following tables set forth the amount of the Bank's nonperforming assets net
of  guarantees  of  the  U.S.   government,   including  its  agencies  and  its
government-sponsored agencies, as of the dates indicated:

                                                  December 31, 2007
                                              -------------------------
                                                Gross  Guaranteed  Net
  (dollars in thousands)                      -------------------------
Performing nonaccrual loans                    $9,098   $5,814   $3,284
Nonperforming, nonaccrual loans                 4,227        -    4,227
                                              -------------------------
     Total nonaccrual loans                    13,325    5,814    7,511
Loans 90 days past due and still accruing           -        -        -
                                              -------------------------
     Total nonperforming loans                 13,325    5,814    7,511
Other real estate owned                           187        -      187
                                              -------------------------
     Total nonperforming loans and OREO       $13,512   $5,814   $7,698
                                              =========================
Nonperforming loans to total loans                               0.48%
Allowance for loan losses/nonperforming loans                     231%
Nonperforming assets to total assets                             0.39%




                                                  December 31, 2006             December 31, 2005
                                              -----------------------------------------------------
(dollars in thousands):                         Gross Guaranteed  Net       Gross Guaranteed   Net
                                              -----------------------------------------------------
                                                                           

Performing nonaccrual loans                   $10,255   $6,372   $3,883     $9,315  $6,933   $2,382
Nonperforming, nonaccrual loans                   561        -      561        579       -      579
                                              -----------------------------------------------------
     Total nonaccrual loans                    10,816    6,372    4,444      9,894   6,933    2,961
Loans 90 days past due and still accruing          68        -       68          -       -        -
                                              -----------------------------------------------------
     Total nonperforming loans                 10,884    6,372    4,512      9,894   6,933    2,961
Other real estate owned                             -        -        -          -       -        -
                                              -----------------------------------------------------
     Total nonperforming loans and OREO       $10,884   $6,372   $4,512     $9,894  $6,933   $2,961
                                              =====================================================
Nonperforming loans to total loans                               0.30%                        0.21%
Allowance for loan losses/nonperforming loans                     375%                         548%
Nonperforming assets to total assets                             0.24%                        0.16%

                                                  December 31, 2004             December 31, 2003
                                              -----------------------------------------------------
(dollars in thousands):                         Gross Guaranteed  Net       Gross Guaranteed   Net
                                              -----------------------------------------------------
Performing nonaccrual loans                   $11,043   $7,442   $3,601    $10,997  $7,936   $3,061
Nonperforming, nonaccrual loans                 1,418      174    1,244      2,551   1,252    1,299
                                              -----------------------------------------------------
     Total nonaccrual loans                    12,461    7,616    4,845     13,548   9,188    4,360
Loans 90 days past due and still accruing          61        -       61         34       -       34
                                              -----------------------------------------------------
     Total nonperforming loans                 12,522    7,616    4,906     13,582   9,188    4,394
Other real estate owned                             -        -        -        932       -      932
                                              -----------------------------------------------------
     Total nonperforming loans and OREO       $12,522   $7,616   $4,906    $14,514   9,188   $5,326
                                              =====================================================
Nonperforming loans to total loans                               0.42%                        0.45%
Allowance for loan losses/nonperforming loans                     296%                         293%
Nonperforming assets to total assets                             0.30%                        0.36%


During  2007,  nonperforming  assets  net  of  government  guarantees  increased
$3,186,000  (70.6%) to  $7,698,000.  Nonperforming  loans  increased  $2,999,000
(66.5%)  to  $7,511,000.  The  ratio of  nonperforming  loans to total  loans at
December 31, 2007 was 0.48% versus 0.30% at the end of 2006.  Classifications of
nonperforming  loans  as a  percent  of total  loans at the end of 2007  were as
follows:  secured by real estate,  65%; loans to farmers,  1%; commercial loans,
1%; and consumer loans, 33%.

During  2006,  nonperforming  assets  net  of  government  guarantees  increased
$1,551,000  (52.4%) to  $4,512,000.  Nonperforming  loans  increased  $1,551,000
(52.4%)  to  $4,512,000.  The  ratio of  nonperforming  loans to total  loans at
December 31, 2006 was 0.30% versus 0.21% at the end of 2005.  Classifications of
nonperforming  loans  as a  percent  of total  loans at the end of 2006  were as
follows:  secured by real estate,  89%; loans to farmers,  1%; commercial loans,
1%; and consumer loans, 9%.

                                       30


Allowance for Loan Losses

Credit  risk is inherent in the  business of lending.  As a result,  the Company
maintains  an  allowance  for loan  losses  to  absorb  losses  inherent  in the
Company's loan and lease portfolio.  This is maintained through periodic charges
to earnings.  These charges are shown in the consolidated  income  statements as
provision for loan losses. All specifically identifiable and quantifiable losses
are  immediately  charged off against the allowance.  However,  for a variety of
reasons,  not all losses are immediately known to the Company and, of those that
are known,  the full extent of the loss may not be quantifiable at that point in
time.  The balance of the Company's  allowance for loan losses is meant to be an
estimate of these unknown but probable losses inherent in the portfolio.

For the remainder of this discussion,  "loans" shall include all loans and lease
contracts, which are a part of the Bank's portfolio.

Assessment of the Adequacy of the Allowance for Loan Losses

The Company  formally  assesses  the  adequacy of the  allowance  on a quarterly
basis.  Determination  of the  adequacy is based on ongoing  assessments  of the
probable  risk in the  outstanding  loan and  lease  portfolio,  and to a lesser
extent the Company's loan and lease commitments.  These assessments  include the
periodic  re-grading  of credits  based on changes  in their  individual  credit
characteristics including delinquency,  seasoning,  recent financial performance
of the borrower,  economic  factors,  changes in the interest rate  environment,
growth  of the  portfolio  as a  whole  or by  segment,  and  other  factors  as
warranted.  Loans are initially  graded when  originated.  They are re-graded as
they are renewed, when there is a new loan to the same borrower, when identified
facts demonstrate  heightened risk of nonpayment,  or if they become delinquent.
Re-grading of larger problem loans occurs at least  quarterly.  Confirmation  of
the quality of the grading  process is obtained by  independent  credit  reviews
conducted by consultants specifically hired for this purpose and by various bank
regulatory agencies.

The Company's method for assessing the appropriateness of the allowance includes
specific  allowances for identified problem loans and leases,  formula allowance
factors for pools of credits, and allowances for changing  environmental factors
(e.g.,  interest  rates,  growth,  economic  conditions,  etc.).  Allowances for
identified  problem loans are based on specific analysis of individual  credits.
Allowance  factors for loan pools are based on the  previous 5 years  historical
loss experience by product type.  Allowances for changing  environmental factors
are management's  best estimate of the probable impact these changes have had on
the loan portfolio as a whole.

The Components of the Allowance for Loan Losses

As noted  above,  the  overall  allowance  consists of a specific  allowance,  a
formula  allowance,  and an  allowance  for  environmental  factors.  The  first
component,  the specific  allowance,  results  from the  analysis of  identified
credits that meet management's criteria for specific evaluation. These loans are
reviewed  individually  to  determine  if such  loans are  considered  impaired.
Impaired loans are those where management has concluded that it is probable that
the borrower will be unable to pay all amounts due under the contractual  terms.
Loans specifically reviewed,  including those considered impaired, are evaluated
individually  by  management  for  loss  potential  by  evaluating   sources  of
repayment,  including  collateral as applicable,  and a specified  allowance for
loan losses is established where necessary.

The second  component,  the formula  allowance,  is an estimate of the  probable
losses that have occurred across the major loan categories in the Company's loan
portfolio. This analysis is based on loan grades by pool and the loss history of
these pools. This analysis covers the Company's entire loan portfolio  including
unused commitments but excludes any loans, which were analyzed  individually and
assigned a specific allowance as discussed above. The total amount allocated for
this component is determined by applying loss estimation  factors to outstanding
loans  and loan  commitments.  The  loss  factors  are  based  primarily  on the
Company's  historical  loss  experience  tracked  over a  five-year  period  and
adjusted as  appropriate  for the input of current  trends and  events.  Because
historical loss  experience  varies for the different  categories of loans,  the
loss  factors  applied to each  category  also differ.  In addition,  there is a
greater  chance that the Company has suffered a loss from a loan that was graded
less than satisfactory than if the loan was last graded satisfactory. Therefore,
for any given category,  a larger loss estimation factor is applied to less than
satisfactory  loans than to those that the Company last graded as  satisfactory.
The resulting formula allowance is the sum of the allocations determined in this
manner.

                                       31


The third component,  the environmental factor allowance, is a component that is
not  allocated to specific  loans or groups of loans,  but rather is intended to
absorb losses that may not be provided for by the other components.

There are several  primary  reasons that the other  components  discussed  above
might not be  sufficient  to absorb the losses  present in  portfolios,  and the
environmental  factor  allowance  is used to provide  for the  losses  that have
occurred because of them.

The first  reason is that  there are  limitations  to any  credit  risk  grading
process.  The volume of loans makes it  impractical to re-grade every loan every
quarter.  Therefore,  it is possible that some  currently  performing  loans not
recently  graded will not be as strong as their last grading and an insufficient
portion of the  allowance  will have been  allocated  to them.  Grading and loan
review often must be done  without  knowing  whether all  relevant  facts are at
hand.  Troubled  borrowers may  deliberately  or  inadvertently  omit  important
information from reports or conversations  with lending officers regarding their
financial condition and the diminished strength of repayment sources.

The second  reason is that the loss  estimation  factors are based  primarily on
historical loss totals.  As such, the factors may not give sufficient  weight to
such considerations as the current general economic and business conditions that
affect the Company's  borrowers  and specific  industry  conditions  that affect
borrowers in that industry. The factors might also not give sufficient weight to
other  environmental  factors such as changing economic  conditions and interest
rates,  portfolio  growth,  entrance  into new  markets or  products,  and other
characteristics as may be determined by Management.

Specifically,  in assessing how much environmental factor allowance needed to be
provided at December 31, 2007, management considered the following:

        o with  respect  to  loans  to  the  agriculture  industry,   management
          considered the effects on borrowers of weather conditions and overseas
          market conditions for exported products as well as commodity prices in
          general;
        o with respect to changes in the interest rate  environment,  management
          considered  the recent  changes in  interest  rates and the  resultant
          economic impact it may have had on borrowers with high leverage and/or
          low profitability; and
        o with  respect  to loans to  borrowers  in new  markets  and  growth in
          general,  management considered the relatively short seasoning of such
          loans and the lack of experience with such borrowers.

Each of these  considerations  was assigned a factor and applied to a portion or
all of the loan  portfolio.  Since these factors are not derived from experience
and are applied to large non-homogeneous groups of loans, they are available for
use across the portfolio as a whole.

                                       32


The  following  table sets forth the Bank's  allowance for loan losses as of the
dates indicated:

                                                 December 31,
                            --------------------------------------------------
                              2007       2006       2005      2004       2003
 (dollars in thousands)     --------------------------------------------------
Specific allowance          $1,791       $894       $754      $820     $1,003
Formula allowance            9,888      8,957      8,582     7,015      6,106
Environmental factors        5,652      7,063      6,890     6,690      5,781
  allowance                ----------------------------------------------------
    Total allowance        $17,331    $16,914    $16,226   $14,525    $12,890
                           ===================================================
Allowance for loan losses     1.12%      1.12%      1.17%     1.24%      1.31%

Based on the current conditions of the loan portfolio,  management believes that
the  $17,331,000  allowance  for loan losses at December 31, 2007 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 following table  summarizes,  for the years  indicated,  the activity in the
allowance for loan losses:



                                                                               December 31,
                                           ------------------------------------------------------------------------------
                                                2007             2006              2005              2004           2003
(dollars in thousands)                     ------------------------------------------------------------------------------
                                                                                                    

Balance, beginning of year                    $16,914           $16,226          $14,525           $12,890        $13,686
Addition through merger                             -                 -                -                 -            928
Provision charged to operations                 3,032             1,289            2,169             2,901          1,058
Loans charged off:
   Commercial, financial and agricultural        (438)             (162)            (220)             (901)        (1,142)
   Consumer installment                        (3,320)           (1,625)          (1,459)             (731)          (475)
   Real estate mortgage                             -                 -                -                 -         (2,136)
                                           -------------------------------------------------------------------------------
     Total loans charged-off                   (3,758)           (1,787)          (1,679)           (1,632)        (3,753)
                                           -------------------------------------------------------------------------------
Recoveries:
   Commercial, financial and  agricultural        179               269              396                70            206
   Consumer installment                           907               872              774               175             79
   Real estate mortgage                            57                45               41               121            686
                                           -------------------------------------------------------------------------------
     Total recoveries                           1,143             1,186            1,211               366            971
                                           -------------------------------------------------------------------------------
Net loans charged-off                          (2,615)             (601)            (468)           (1,266)        (2,782)
                                           -------------------------------------------------------------------------------
Balance, year end                             $17,331           $16,914          $16,226           $14,525        $12,890
                                           ===============================================================================
Average total  loans                       $1,511,331        $1,447,163       $1,251,699        $1,060,556       $827,673
                                           -------------------------------------------------------------------------------

Ratios:
Net charge-offs during period to average
   loans outstanding during period              0.17%            0.04%             0.04%            0.12%           0.34%
Provision for loan losses to
   average loans outstanding                    0.20%            0.09%             0.17%            0.27%           0.13%
Allowance to loans at year end                  1.12%            1.12%             1.17%            1.24%           1.31%
                                           -------------------------------------------------------------------------------


                                       33


The following  tables  summarize the allocation of the allowance for loan losses
between loan types:



                                              December 31, 2007         December 31, 2006           December 31, 2005
                                            ------------------------  -----------------------    ----------------------
                                                       Percent of               Percent of                 Percent of
                                                       loans in each            loans in each              loans in each
                                                       category to              category to                category to
  (dollars in thousands)                    Amount     total loans    Amount    total loans      Amount    total loans
                                                                                             
Balance at end of period applicable to:
Commercial, financial and agricultural      $2,010        10.6%       $1,806        10.2%        $1,930       10.3%
Consumer installment                         6,796        34.5%        6,278        34.8%         6,099       36.7%
Real estate mortgage                         7,170        46.1%        7,222        45.0%         6,967       45.0%
Real estate construction                     1,355         8.8%        1,608        10.0%         1,230        8.0%
                                           -------      -------      -------      -------       -------      ------
                                           $17,331       100.0%      $16,914       100.0%       $16,226      100.0%
                                           =======      =======      =======      =======       =======      ======


                                              December 31, 2004            December 31, 2003
                                            ------------------------  -----------------------
                                                       Percent of               Percent of
                                                       loans in each            loans in each
                                                       category to              category to
                                             Amount    total loans     Amount   total loans
Balance at end of period applicable to:
Commercial, financial and agricultural        $2,180        11.9%      $2,634      14.5%
Consumer installment                           5,067        35.0%       3,946      32.5%
Real estate mortgage                           6,366        46.4%       5,564      46.7%
Real estate construction                         912         6.7%         746       6.3%
                                            --------      -------     -------     ------
                                             $14,525       100.0%     $12,890     100.0%
                                            ========      =======     ========    ======


Other Real Estate Owned

The other real estate owned (OREO) balance was $187,000 and $0 at December 31,
2007 and 2006, respectively. OREO properties may consist of a mixture of land,
single family residences, and commercial buildings.

Intangible Assets

At  December  31,  2007  and  2006,  the  Bank had  intangible  assets  totaling
$16,695,000 and  $17,185,000,  respectively.  Intangible  assets at December 31,
2007 and 2006 were comprised of the following:

                                          December 31,
                                     2007             2006
 (dollars in thousands)            -------------------------
Core-deposit intangible             $1,176            $1,666
Goodwill                            15,519            15,519
                                   -------------------------
  Total intangible assets          $16,695           $17,185
                                   =========================

The core-deposit intangible assets resulted from the Bank's 1997 acquisitions of
certain  Wells Fargo  branches  and Sutter  Buttes  Savings  Bank,  and the 2003
acquisition of North State National Bank. At December 31, 2007 the  core-deposit
intangible  assets related to the Wells Fargo branches and Sutter Buttes Savings
Bank were fully amortized. The goodwill intangible asset resulted from the North
State National Bank acquisition.  Amortization of core deposit intangible assets
amounting to $490,000,  $1,395,000,  and $1,381,000, was recorded in 2007, 2006,
and 2005, respectively.

                                       34


Deposits

Deposits  at  December  31,  2007  decreased  $53,926,000  (3.4%)  over the 2006
year-end balances to  $1,545,223,000.  Savings deposits  increased in 2007 while
all other categories of deposits decreased in 2007. Included in the December 31,
2007   certificate  of  deposit  balances  is  $40,000,000  from  the  State  of
California.  The Bank  participates in a deposit program offered by the State of
California  whereby the State may make deposits at the Bank's request subject to
collateral and credit  worthiness  constraints.  The  negotiated  rates on these
State  deposits are  generally  favorable  to other  wholesale  funding  sources
available to the Bank.

Deposits  at  December  31,  2006  increased  $102,352,000  (6.8%) over the 2005
year-end   balances  to   $1,599,149,000.   Noninterest-bearing   deposits   and
certificates  of  deposits  increased  in 2006  while  all other  categories  of
deposits  decreased in 2006.  Included in the December 31, 2006  certificate  of
deposit balances is $20,000,000 from the State of California.

Long-Term Debt

See Note 7 to the consolidated financial statements at Item 8 of this report for
a discussion about the Company's other borrowings, including long-term debt.

Junior Subordinated Debt

See Note 8 to the consolidated financial statements at Item 8 of this report for
a discussion  about the Company's  issuance of junior  subordinated  debt during
2007 and 2006.

Equity

See Note 10 and Note 19 in the  consolidated  financial  statements at 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.

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
(ALCO) which  establishes and monitors  guidelines to control the sensitivity of
earnings to changes in interest rates.

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, net income 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, net income and market value of equity.

Simulation of net interest  margin,  net income and market value of equity under
various  interest  rate  scenarios is the primary tool used to measure  interest
rate risk. Using computer-modeling  techniques, the Bank is able to estimate the
potential impact of changing  interest rates on net interest margin,  net income
and market value of equity. 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.

                                       35


In the simulation of net interest  margin and net income under various  interest
rate scenarios,  the forecast balance sheet is processed  against seven interest
rate  scenarios.  These  seven  interest  rate  scenarios  include  a flat  rate
scenario,  which assumes  interest  rates are  unchanged in the future,  and six
additional rate ramp scenarios ranging from +300 to -300 basis points around the
flat scenario in 100 basis point  increments.  These ramp scenarios  assume that
interest  rates  increase  or  decrease  evenly  (in a  "ramp"  fashion)  over a
twelve-month period and remain at the new levels beyond twelve months.

The following table  summarizes the effect on net interest income and net income
due to changing interest rates as measured against a flat rate (no interest rate
change)  scenario.  The simulation  results shown below assume no changes in the
structure of the Company's  balance sheet over the twelve months being  measured
(a "flat"  balance  sheet  scenario),  and that deposit rates will track general
interest rate changes by approximately 50%:

     Interest Rate Risk  Simulation of Net Interest  Income and Net Income as of
     December 31, 2007

                                 Estimated Change in     Estimated Change in
     Change in Interest       Net Interest Income (NII)     Net Income (NI)
     Rates (Basis Points)       (as % of "flat" NII)      (as % of "flat" NI)
     +300 (ramp)                      (2.57%)                  (5.70%)
     +200 (ramp)                      (1.73%)                  (3.85%)
     +100 (ramp)                      (0.95%)                  (2.11%)
     +   0 (flat)                          -                        -
     -100 (ramp)                       0.76%                    1.69%
     -200 (ramp)                       1.97%                    4.38%
     -300 (ramp)                       4.08%                    9.08%

In the  simulation  of  market  value of  equity  under  various  interest  rate
scenarios,  the forecast balance sheet is processed  against seven interest rate
scenarios.  These seven interest rate  scenarios  include the flat rate scenario
described  above,  and six additional rate shock scenarios  ranging from +300 to
-300 basis points around the flat scenario in 100 basis point increments.  These
rate shock scenarios assume that interest rates increase or decrease immediately
(in a "shock" fashion) and remain at the new level in the future.

The  following  table  summarizes  the  effect on market  value of equity due to
changing interest rates as measured against a flat rate (no change) scenario:

Interest Rate Risk Simulation of Market Value of Equity as of December 31, 2007

                                               Estimated Change in
     Change in Interest                   Market Value of Equity (MVE)
     Rates (Basis Points)                     (as % of "flat" MVE)
     +300 (shock)                                    (5.28%)
     +200 (shock)                                    (3.54%)
     +100 (shock)                                    (1.68%)
     +   0 (flat)                                         -
     -100 (shock)                                     1.21%
     -200 (shock)                                     1.39%
     -300 (shock)                                    (0.46%)

These  results  indicate  that given a "flat"  balance  sheet  scenario,  and if
deposit rates track  general  interest  rate changes by  approximately  50%, the
Company's balance sheet is slightly liability sensitive.  "Liability  sensitive"
implies that  earnings  decrease  when  interest  rates rise,  and increase when
interest rates decrease. The magnitude of all the simulation results noted above
is within the Bank's policy  guidelines.  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.

                                       36


The simulation  results noted above do not incorporate  any management  actions,
which 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 as general
interest rates change. Therefore, they do not reflect likely actual results, but
serve as conservative estimates of interest rate risk.

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 Bank'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 Bank'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  table.  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 Bank.

Interest rate sensitivity is a function of the repricing  characteristics of the
Bank'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
Bank's current portfolio that are subject to repricing at various time horizons.

The following interest rate sensitivity table shows the Bank's repricing gaps as
of December 31, 2007. In this table transaction deposits,  which may be repriced
at will by the Bank, 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 Bank to appear  liability  sensitive.  Because the Bank may
reprice its transaction  deposits at will,  transaction  deposits may or may not
reprice  immediately with changes in interest rates. In recent years of moderate
interest  rate  changes  the  Bank's  earnings  have  reacted  as though the gap
position  is  slightly   asset   sensitive   mainly  because  the  magnitude  of
interest-bearing  liability  repricing  has  been  less  than the  magnitude  of
interest-earning asset repricing.  This difference in the magnitude of asset and
liability  repricing is mainly due to the Bank's strong core deposit base, which
although they may be repriced within three months,  historically,  the timing of
their  repricing  has been longer than three  months and the  magnitude of their
repricing has been minimal.

                                       37


Due to the limitations of gap analysis,  as described  above,  the Bank does not
actively  use gap analysis in managing  interest  rate risk.  Instead,  the Bank
relies on the more  sophisticated  interest rate risk simulation model described
above as its primary tool in measuring and managing interest rate risk.



Interest Rate Sensitivity - December 31, 2007                             Repricing within:
                                             ----------------------------------------------------------------------------
                                             Less than 3          3 - 6           6 - 12            1 - 5            Over
                                             months              months           months            years          5 years
(dollars in thousands)                       ----------------------------------------------------------------------------
                                                                                                     
Interest-earning  assets:
    Federal funds sold                              $ -              $ -              $ -              $ -            $ -
    Securities                                   17,182           15,509           30,310          143,197         26,229
    Loans                                       615,678           71,879          120,426          577,200        166,783
                                             ----------------------------------------------------------------------------
Total interest-earning assets                  $632,860          $87,388         $150,736         $720,397       $193,012
                                             ----------------------------------------------------------------------------
Interest-bearing liabilities
    Transaction deposits                       $600,185              $ -              $ -              $ -            $ -
    Time                                        326,682          126,725           76,389           36,551             11
    Federal funds purchased                      56,000                -                -                -              -
    Other borrowings                             93,479           20,020            1,542            1,085              -
    Junior subordinated debt                     41,238                -                -                -              -
                                             ----------------------------------------------------------------------------
Total interest-bearing liabilities           $1,117,584         $146,745          $77,931          $37,636            $11
                                             ----------------------------------------------------------------------------

Interest sensitivity gap                      ($484,724)        ($59,357)         $72,805         $682,761       $193,001
Cumulative sensitivity gap                    ($484,724)       ($544,081)       ($471,276)        $211,485       $404,486
As a percentage of earning assets:
 Interest sensitivity gap                      (27.16%)         (3.33%)             4.08%          38.26%          10.82%
 Cumulative sensitivity gap                    (27.16%)        (30.49%)           (26.41%)         11.85%          22.67%


Liquidity

Liquidity refers to the Bank'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  used  by  investing  activities  totaled  approximately
$76,640,000 in 2007. Increased securities and loan balances were responsible for
the major use of funds in this category.

Liquidity is generated from  liabilities  through deposit growth and borrowings.
These  activities are included under  financing  activities in the  Consolidated
Statement of Cash Flows. In 2007,  financing  activities provided funds totaling
$30,287,000.  During  2007,  a net  decrease  in  deposit  balances  used  funds
amounting  to  $53,926,000  while  an  increase  in  borrowings  provided  funds
amounting to  $94,282,000.  The Bank also had  available  correspondent  banking
lines of credit totaling $50,000,000 at year-end 2007. In addition,  at December
31,  2007,  the Company had loans and  securities  available  to pledge  towards
future  borrowings from the Federal Home Loan Bank of up to $282,673,000.  As of
December  31, 2007,  the Company had  $116,126,000  of long-term  debt and other
borrowings as described in Note 7 of the  consolidated  financial  statements of
the Company and the related notes at Item 8 of this report.  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 2007, operating activities provided cash of
$32,137,000.

The Bank classifies its entire investment portfolio as available for sale (AFS).
The AFS  securities  plus  cash  and  cash  equivalents  in  excess  of  reserve
requirements totaled $310,837,000 at December 31, 2007, which was 15.7% of total
assets at that time. This was up from $294,192,000 and 15.3% at the end of 2006.

The  maturity  distribution  of  certificates  of  deposit in  denominations  of
$100,000  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.  The Bank
participates in a program  wherein the State of California  places time deposits
with the Bank at the Bank's  option.  At December 31, 2007,  2006 and 2005,  the
Bank had $40,000,000, $20,000,000 and $20,000,000,  respectively, of these State
deposits.

                                       38


Certificates of Deposit in Denominations of $100,000 or More

                                         Amounts as of December 31,
                                  -----------------------------------------
                                      2007          2006            2005
(dollars in thousands)            -----------------------------------------
Time remaining until maturity:
Less than 3 months                 $171,594       $125,088        $83,280
3 months to 6 months                 51,729         77,585         43,125
6 months to 12 months                26,968         37,171         30,416
More than 12 months                  12,686         14,306         38,958
                                  -----------------------------------------
  Total                            $262,977       $254,150       $195,779
                                  =========================================
Loan demand also affects the Bank's  liquidity  position.  The  following  table
presents the  maturities of loans,  net of deferred loan costs,  at December 31,
2007:




                                                                After
                                                                One But
                                                 Within         Within         After 5
                                                One Year        5 Years         Years          Total
   (dollars in thousands)                      --------------------------------------------------------
                                                                                    
Loans with predetermined interest rates:
  Commercial, financial and agricultural          $17,311        $34,112         $3,365        $54,788
  Consumer installment                             65,031        117,509         60,814        243,354
  Real estate mortgage                             31,408        111,768        128,989        272,165
  Real estate construction                         46,648         14,027          4,257         64,932
                                               -------------------------------------------------------
                                                 $160,398       $277,416       $197,425       $635,239
                                               -------------------------------------------------------
Loans with floating interest rates:
  Commercial, financial and agricultural          $65,296        $34,940         $9,790       $110,026
  Consumer installment                            292,464              -              -        292,464
  Real estate mortgage                             22,215         70,229        351,406        443,850
  Real estate construction                         39,288         14,276         16,823         70,387
                                                ------------------------------------------------------
                                                 $419,263       $119,445       $378,019       $916,727
                                                -------------------------------------------------------
     Total loans                                 $579,661       $396,861       $575,444     $1,551,966
                                                =======================================================


The maturity distribution and yields of the investment portfolio at December 31,
2007 is presented in the following table. The timing of the maturities indicated
in  the   table   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.  At December 31, 2007,  the Bank had no
held-to-maturity securities.



                                                         After One Year    After Five Years
                                          Within         but Through       but Through        After Ten
                                         One Year        Five Years        Ten Years          Years              Total
                                       -----------------------------------------------------------------------------------
                                       Amount  Yield     Amount Yield     Amount  Yield     Amount Yield     Amount  Yield
 (dollars in thousands)                -----------------------------------------------------------------------------------
                                                                                       
Securities Available-for-Sale
------------------------------
Obligations of US government
  corporations and agencies              $438   4.97%   $11,645   4.21%   $98,000  3.97%    $93,691  5.70%   $203,774  4.78%
Obligations of states and
  political subdivisions                  606   6.71%     1,743   7.41%    10,498   7.81%    14,801  7.05%     27,648  7.35%
Corporate bonds                             -   -             -   -             -   -         1,005  6.49%      1,005  6.49%
                                      -------------------------------------------------------------------------------------
Total securities available-for-sale    $1,044   5.98%   $13,388   4.62%  $108,498   4.34%  $109,497  5.89%   $232,427  5.09%
                                      =====================================================================================


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. 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.

                                       39


Off-Balance Sheet Items

The Bank has certain ongoing commitments under operating and capital leases. See
Note 5 of the financial statements at Item 8 of this report for the terms. These
commitments do not significantly  impact operating  results.  As of December 31,
2007 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  $690,633,000 and $623,133,000 at December 31,
2007 and 2006, respectively,  and represent 44.5% of the total loans outstanding
at year-end 2007 versus 41.3% at December 31, 2006.  Commitments  related to the
Bank's deposit overdraft  privilege product totaled  $33,517,000 and $33,290,000
at December 31, 2007 and 2006, respectively.

Certain Contractual Obligations

The following chart summarizes certain contractual obligations of the Company as
of December 31, 2007:


                                                              Less than        1-3          3-5       More than
(dollars in thousands)                              Total      one year        years        years       5 years
                                                   ------------------------------------------------------------
                                                                                            

Federal funds purchased                             $56,000      $56,000            -          -            -
FHLB loan, fixed rate of 5.41%
   payable on April 7, 2008, callable
   in its entirety by FHLB on a quarterly
   basis beginning April 7, 2003                     20,000       20,000            -          -            -
FHLB loan, fixed rate of 5.35%
   payable on December 9, 2008                        1,500        1,500            -          -            -
FHLB loan, fixed rate of 5.77%
   payable on February 23, 2009                       1,000            -        1,000          -            -
Capital lease obligation on premises,
   effective rate of 13% payable
   monthly in varying amounts
   through December 1, 2009                             168            -         168           -            -
Other collateralized borrowings,
   fixed rate of 3.45% payable on January 2, 2008    43,458       43,458           -           -            -
Repurchase  Agreement,  adjustable rate of three-
   month LIBOR less 0.29% until  August 30, 2009
   with a floor rate of 0.00% and a cap rate of
   4.72% after which, rate is fixed at 4.72% and
   is callable  in  its entirety by counterparty
  on a quarterly basis, matures on August 30, 2012   50,000           -            -       50,000           -
Junior subordinated debt, adjustable rate
   of three-month LIBOR plus 3.05%,
   callable in whole or in part by the
   Company on a quarterly basis beginning
   October 7, 2008, matures October 7, 2033          20,619            -            -           -       20,619
Junior subordinated debt, adjustable rate
   of three-month LIBOR plus 2.55%,
   callable in whole or in part by the
   Company on a quarterly basis beginning
   July 23, 2009, matures July 23, 2034              20,619            -            -           -       20,619
Operating lease obligations                           5,755        1,950        2,513         901          391
Deferred compensation(1)                              6,284          621        1,214         957        3,492
Supplemental retirement plans(1)                      4,779          583        1,167       1,019        2,010
                                                  ------------------------------------------------------------
Total contractual obligations                      $230,182     $124,112       $6,062     $52,877      $47,131
                                                  ============================================================


(1)  These amounts  represent known certain  payments to participants  under the
     Company's deferred compensation and supplemental retirement plans. See Note
     14 in the  financial  statements  at 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.

                                       40


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS
                                                                         Page

     Consolidated Balance Sheets as of December 31, 2007 and 2006          42
     Consolidated Statements of Income for
       the years ended December 31, 2007, 2006, and 2005                   43
     Consolidated Statements of Changes in Shareholders' Equity
       for the years ended December 31, 2007, 2006, and 2005               44
     Consolidated Statements of Cash Flows for the years ended
       December 31, 2007, 2006, and 2005                                   45
     Notes to Consolidated Financial Statements                            46
     Management's Report of Internal Control over Financial Reporting      72
     Independent Registered Public Accounting Firm's Reports               73

                                       41



                                TRICO BANCSHARES
                           CONSOLIDATED BALANCE SHEETS


                                                             At December 31,
                                                            2007         2006
      (in thousands, except share data)                 ------------------------
     Assets:
     Cash and due from banks                                $88,798     $102,220
     Federal funds sold                                           -          794
                                                        ------------------------
     Cash and cash equivalents                               88,798      103,014
     Securities available-for-sale                          232,427      198,361
     Federal Home Loan Bank stock, at cost                    8,766        8,320
     Loans, net of allowance for loan losses
          of $17,331 and $16,914                          1,534,635    1,492,965
     Foreclosed assets, net of allowance for losses
          of $180 and $180                                      187            -
     Premises and equipment, net                             20,492       21,830
     Cash value of life insurance                            44,981       43,536
     Accrued interest receivable                              8,554        8,727
     Goodwill                                                15,519     15,519
     Other intangible assets, net                             1,176        1,666
     Other assets                                            25,086       26,028
                                                        ------------------------
         Total assets                                    $1,980,621   $1,919,966
                                                        ========================
     Liabilities and Shareholders' Equity:
     Liabilities:
     Deposits:
         Noninterest-bearing demand                        $378,680     $420,025
         Interest-bearing                                 1,166,543    1,179,124
                                                        ------------------------
     Total deposits                                       1,545,223    1,599,149
     Federal funds purchased                                 56,000       38,000
     Accrued interest payable                                 7,871        7,548
     Reserve for unfunded commitments                         2,090        1,849
     Other liabilities                                       23,195       22,835
     Other borrowings                                       116,126       39,911
     Junior subordinated debt                                41,238       41,238
                                                        ------------------------
         Total liabilities                                1,791,743    1,750,530
                                                        ------------------------
     Commitments and contingencies (Notes 5, 9, 14 and 16)
     Shareholders' equity:
     Common stock, no par value: 50,000,000 shares authorized;
     issued and outstanding:
       15,911,550 at December 31, 2007                       78,775
       15,857,207 at December 31, 2006                                    73,739
     Retained earnings                                      111,655      100,218
     Accumulated other comprehensive loss, net               (1,552)     (4,521)
                                                        ------------------------
         Total shareholders' equity                         188,878      169,436
                                                        ------------------------
        Total liabilities and shareholders'             $1,980,621   $1,919,966
          equity                                        ========================

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       42


                                TRICO BANCSHARES
                        CONSOLIDATED STATEMENTS OF INCOME


                                                     Years ended December 31,
                                               ---------------------------------
                                                   2007       2006        2005
  (in thousands, except per share data)        --------------------------------
Interest and dividend income:
     Loans, including fees                      $117,639   $109,769    $86,379
     Debt securities:
         Taxable                                   7,712      8,373     10,268
         Tax exempt                                1,454      1,749      1,778
     Dividends                                       446        376        306
     Federal funds sold                               17         56         25
                                               ---------------------------------
         Total interest and dividend income      127,268    120,323      98,756
                                               ---------------------------------
Interest expense:
     Deposits                                     31,423     25,460      14,902
     Federal funds purchased                       2,880      4,116       1,784
     Other borrowings                              2,983      1,667       1,361
     Junior subordinated debt                      3,296      3,202       2,482
                                               ---------------------------------
         Total interest expense                   40,582      34,445     20,529
                                               ---------------------------------
Net interest income                               86,686     85,878      78,227

Provision for loan losses                          3,032      1,289       2,169
                                               ---------------------------------
Net interest income after provision for loan      83,654     84,589      76,058
  losses                                       ---------------------------------
Noninterest income:
     Service charges and fees                     21,200     19,809      18,152
     Gain on sale of loans                           994      1,224       1,679
     Commissions on sale of non-deposit            2,331      1,946       2,242
       investment products
     Increase in cash value of life insurance      1,445      1,767       1,507
     Other                                         1,620      1,509       1,310
                                               ---------------------------------
         Total noninterest income                 27,590     26,255      24,890
                                               ---------------------------------
Noninterest expense:
     Salaries and related benefits                38,066     36,455      33,926
     Other                                        30,840     30,271      28,184
                                               ---------------------------------
         Total noninterest expense                68,906     66,726      62,110
                                               ---------------------------------
Income before income taxes                        42,338     44,118      38,838
                                               ---------------------------------
     Provision for income taxes                   16,645     17,288      15,167
                                               ---------------------------------
Net income                                       $25,693    $26,830     $23,671
                                               =================================
Earnings per share:
     Basic                                         $1.62      $1.70       $1.51
     Diluted                                       $1.57      $1.64       $1.45

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       43






                                TRICO BANCSHARES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                  Years Ended December 31, 2007, 2006 and 2005

                                                                                          Accumulated
                                                      Shares of                           Other
                                                       Common      Common      Retained   Comprehensive
                                                        Stock      Stock       Earnings   (Loss) Income   Total
 (in thousands, except share data)                --------------------------------------------------------------
                                                                                          

Balance at December 31, 2004                       15,723,317     $70,699      $67,785        ($352)    $138,132
Comprehensive income:
   Net income                                                                   23,671                    23,671
   Change in net unrealized loss on
       Securities available for sale, net                                                    (3,336)      (3,336)
   Change in minimum pension liability, net                                                    (137)        (137)
                                                                                                         --------
       Total comprehensive income                                                                         20,198
Stock options exercised                               136,289         972                                    972
Tax benefit of stock options exercised                                425                                    425
Repurchase of common stock                           (151,771)       (684)      (2,477)                   (3,161)
Dividends paid ($0.45 per share)                                                (7,073)                   (7,073)
                                                  ---------------------------------------------------------------
Balance at December 31, 2005                       15,707,835     $71,412      $81,906      ($3,825)    $149,493
Comprehensive income:
   Net income                                                                   26,830                    26,830
   Change in net unrealized loss on
       Securities available for sale, net                                                       519         519
                                                                                                          ------
       Total comprehensive income                                                                         27,349
Adjustment to initially apply FASB
   Statement No. 158, net of tax                                                             (1,215)      (1,215)
Stock option vesting                                                  662                                    662
Stock options exercised                               190,287       1,646                                  1,646
Tax benefit of stock options exercised                                205                                    205
Repurchase of common stock                            (40,915)       (186)        (923)                   (1,109)
Dividends paid ($0.48 per share)                                                (7,595)                   (7,595)
                                                  ---------------------------------------------------------------
Balance at December 31, 2006                       15,857,207     $73,739     $100,218      ($4,521)    $169,436
Comprehensive income:
   Net income                                                                   25,693                    25,693
   Change in net unrealized gain on
       Securities available for sale, net                                                     2,983        2,983
   Change in minimum pension liability, net                                                     (14)         (14)
                                                                                                         --------
       Total comprehensive income                                                                         28,662
Stock option vesting                                                  782                                    782
Stock options exercised                               382,350       4,080                                  4,080
Tax benefit of stock options exercised                              1,731                                  1,731
Repurchase of common stock                           (328,007)     (1,557)      (5,986)                   (7,543)
Dividends paid ($0.52 per share)                                                (8,270)                   (8,270)
                                                  ---------------------------------------------------------------
Balance at December 31, 2007                       15,911,550     $78,775      $111,655     ($1,552)    $188,878
                                                  ===============================================================


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       44





                                TRICO BANCSHARES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                              Years Ended December 31,
                                                                ---------------------------------------------
                                                                     2007            2006             2005
  (in thousands)                                                ---------------------------------------------
                                                                                             
Operating activities:
   Net income                                                     $25,693          $26,830          $23,671
   Adjustments to reconcile net income to net cash provided
     by operating activities:
       Depreciation of premises and equipment, and amortization     3,719            3,710            3,821
       Amortization of intangible assets                              490            1,395            1,381
       Provision for loan losses                                    3,032            1,289            2,169
       Amortization of investment securities premium, net             647              898            1,236
       Gain on sale of investments                                      -              (12)               -
       Originations of loans for resale                           (63,777)         (69,707)         (76,542)
       Proceeds from sale of loans originated for resale           64,106           70,257           77,398
       Gain on sale of loans                                         (994)          (1,224)          (1,679)
       Amortization of mortgage servicing rights                        -                -              661
       Change in market value of mortgage servicing rights            490              400                -
       Loss on sale of fixed assets                                     6               28               94
       Increase in cash value of life insurance                    (1,445)          (1,767)          (1,507)
       Stock option vesting expense                                   782              662                -
       Stock option excess tax benefits                            (1,731)            (205)            (425)
       Deferred income tax benefit                                   (506)          (1,679)          (2,223)
       Change in:
         Interest receivable                                          173           (1,086)          (1,168)
         Interest payable                                             323            3,042            1,225
         Other assets and liabilities, net                          1,129               37            1,382
                                                                --------------------------------------------
         Net cash provided by operating activities                 32,137           32,868           29,494
                                                                --------------------------------------------
Investing activities:
   Proceeds from maturities of securities available-for-sale       49,256           52,043           58,755
   Proceeds from sale of securities available-for-sale                  -           10,779                -
   Purchases of securities available-for-sale                     (78,822)            (896)         (40,013)
   Purchase of Federal Home Loan Bank stock                          (446)            (718)            (821)
   Loan originations and principal collections, net               (44,889)        (125,445)        (212,536)
Proceeds from sale of premises and equipment                           12                5               24
   Purchases of premises and equipment                             (1,751)          (3,781)          (4,766)
                                                                --------------------------------------------
         Net cash used by investing activities                    (76,640)         (68,013)        (199,357)
                                                                --------------------------------------------
Financing activities:
   Net (decrease) increase in deposits                            (53,926)         102,352          147,964
   Net change in federal funds purchased                           18,000          (58,800)          50,400
   Increase in long-term other borrowings                          50,000                -                -
   Payments of principal on long-term other borrowings                (67)             (58)             (51)
   Net change in short-term other borrowings                       26,282            8,579            3,289
   Stock option excess tax benefits                                 1,731              205              425
   Repurchase of common stock                                      (4,167)               -           (3,161)
   Dividends paid                                                  (8,270)          (7,595)          (7,073)
   Exercise of stock options                                          704              537              972
                                                                 -------------------------------------------
         Net cash provided by financing activities                 30,287           45,220          192,765
                                                                 -------------------------------------------
Net change in cash and cash equivalents                           (14,216)          10,075           22,902
                                                                 -------------------------------------------
Cash and cash equivalents and beginning of year                   103,014           92,939           70,037
                                                                 -------------------------------------------
Cash and cash equivalents at end of year                          $88,798         $103,014          $92,939
                                                                 ===========================================
Supplemental disclosure of noncash activities:
   Unrealized gain (loss) on securities available for sale         $5,147             $895          ($5,757)
   Loans transferred to other real estate                             187                -                -
   Market value of shares tendered by employes in-lieu of
     cash to pay for exercise of options and/or related taxes       3,376            1,109                -
Supplemental disclosure of cash flow activity:
   Cash paid for interest expense                                  40,259           31,403           19,304
   Cash paid for income taxes                                      16,300           19,825           16,215


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       45


TRICO BANCSHARES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2007, 2006 and 2005

Note 1 - Summary of Significant Accounting Policies

Principles of Consolidation
The consolidated  financial  statements include the accounts of the Company, and
its  wholly-owned  subsidiary,  Tri Counties Bank (the "Bank").  All significant
intercompany accounts and transactions have been eliminated in consolidation.

Nature of Operations
The Company  operates 32 branch  offices and 25 in-store  branch  offices in the
California  counties of Butte,  Contra Costa, Del Norte,  Fresno,  Glenn,  Kern,
Lake, Lassen,  Madera,  Mendocino,  Merced,  Napa, Nevada,  Placer,  Sacramento,
Shasta,  Siskiyou,  Stanislaus,  Sutter,  Tehama,  Tulare,  Yolo and  Yuba.  The
Company's  operating  policy since its inception has emphasized  retail banking.
Most of the Company's  customers are retail  customers and small to medium sized
businesses.

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.  On an on-going basis,  the Company  evaluates its
estimates,  including  those  related to the adequacy of the  allowance for loan
losses,  investments,  intangible assets,  income taxes and  contingencies.  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  allowance  for loan  losses,  goodwill  and  other  intangible
assessments,  income taxes, and the valuation of mortgage  servicing rights, are
the only accounting estimates that materially affect the Company's  consolidated
financial statements.

Significant Group Concentration of Credit Risk
The Company grants agribusiness,  commercial, consumer, and residential loans to
customers  located  throughout the northern San Joaquin  Valley,  the Sacramento
Valley  and  northern  mountain  regions  of  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

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.

Investment Securities
The Company  classifies its debt and marketable  equity  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.  Held-to-maturity  securities are those  securities which the Company
has the  ability and intent to hold until  maturity.  All other  securities  not
included in trading or held-to-maturity are classified as available-for-sale. In
2007 and 2006,  the Company  did not have any  securities  classified  as either
held-to-maturity or trading.

Available-for-sale  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
(loss) in shareholders' equity until realized.

Premiums and  discounts  are  amortized or accreted over the life of the related
investment  security  as an  adjustment  to yield using the  effective  interest
method.  Dividend and interest income are recognized when earned. Realized gains
and losses for  securities  are included in earnings  and are derived  using the
specific  identification  method for  determining  the cost of securities  sold.
Unrealized  losses  due to  fluctuations  in fair  value of  securities  held to
maturity  or  available  for sale are  recognized  through  earnings  when it is
determined that an other than temporary decline in value has occurred.

Federal Home Loan Bank Stock
The Bank is a member of the Federal  Home Loan Bank of San  Francisco  ("FHLB"),
and as a condition of membership,  it is required to purchase stock.  The amount
of FHLB  stock  required  to be  purchased  is based on the  borrowing  capacity
desired by the Bank. While technically  these are considered equity  securities,
there is no market for the FHLB stock.  Therefore,  the shares are considered as
restricted investment securities. Such investment is carried at cost.

                                       46


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
income.  At December 31, 2007 and 2006, the Company's  balance of loans held for
sale was immaterial.

Mortgage  loans held for sale are  generally  sold with the  mortgage  servicing
rights  retained by the Company.  The carrying  value of mortgage  loans sold is
reduced by the cost allocated to the associated mortgage servicing rights. Gains
or losses on sales of  mortgage  loans are  recognized  based on the  difference
between the selling price and the carrying  value of the related  mortgage loans
sold.

Loans
Loans are reported at the principal amount  outstanding,  net of unearned income
and the allowance for loan losses.  Loan  origination  and  commitment  fees and
certain  direct  loan  origination  costs are  deferred,  and the net  amount is
amortized as an adjustment  of 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.  Accrual of  interest  on loans is  generally
discontinued  either  when  reasonable  doubt  exists  as to  the  full,  timely
collection  of interest or principal or when a loan becomes  contractually  past
due by 90 days or more with respect to interest or principal.  When loans are 90
days past due, but in Management's  judgment are well secured and in the process
of  collection,  they may be  classified  as  accrual.  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 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
loans are estimated to be fully  collectible  as to both principal and interest.
All impaired loans are classified as nonaccrual loans.

Reserve for Unfunded Commitments
The reserve for unfunded  commitments  is  established  through a provision  for
losses - unfunded  commitments charged to noninterest  expense.  The reserve for
unfunded  commitments is an amount that Management  believes will be adequate to
absorb  probable  losses  inherent in  existing  commitments,  including  unused
portions of  revolving  lines of credits  and other  loans,  standby  letters of
credits,  and unused  deposit  account  overdraft  privilege.  The  reserve  for
unfunded  commitments is based on evaluations of the  collectibility,  and prior
loss experience of unfunded commitments. The evaluations take into consideration
such  factors as changes in the nature and size of the loan  portfolio,  overall
loan portfolio quality, loan concentrations,  specific problem loans and related
unfunded  commitments,  and  current  economic  conditions  that may  affect the
borrower's or depositor's ability to pay.

Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans and deposit related overdrafts are charged against the
allowance for loan losses when Management  believes that the  collectibility  of
the  principal  is unlikely  or, with  respect to  consumer  installment  loans,
according to an  established  delinquency  schedule.  The allowance is an amount
that Management  believes will be adequate to absorb probable losses inherent in
existing  loans  and  leases,   based  on  evaluations  of  the  collectibility,
impairment and prior loss experience of loans and leases.  The evaluations  take
into  consideration  such  factors  as  changes  in the  nature  and size of the
portfolio,  overall portfolio  quality,  loan  concentrations,  specific problem
loans, and current economic conditions that may affect the borrower's ability to
pay. The Company defines a loan as impaired when it is probable the Company will
be unable to collect all amounts due according to the  contractual  terms of the
loan  agreement.  Impaired  loans are  measured  based on the  present  value of
expected future cash flows discounted at the loan's original  effective interest
rate. As a practical  expedient,  impairment may be measured based on the loan's
observable  market  price or the fair  value  of the  collateral  if the loan is
collateral  dependent.  When the measure of the  impaired  loan is less than the
recorded  investment in the loan, the impairment is recorded through a valuation
allowance.

Credit  risk is inherent in the  business of lending.  As a result,  the Company
maintains  an  allowance  for loan  losses  to  absorb  losses  inherent  in the
Company's  loan  portfolio.  This is  maintained  through  periodic  charges  to
earnings.  These  charges are shown in the  Consolidated  Income  Statements  as
provision for loan losses. All specifically identifiable and quantifiable losses
are  immediately  charged off against the allowance.  However,  for a variety of
reasons,  not all losses are immediately known to the Company and, of those that
are known,  the full extent of the loss may not be quantifiable at that point in
time.  The balance of the Company's  allowance for loan losses is meant to be an
estimate of these unknown but probable  losses  inherent in the  portfolio.  For
purposes of this discussion, "loans" shall include all loans and lease contracts
that are part of the Company's portfolio.

The Company  formally  assesses  the  adequacy of the  allowance  on a quarterly
basis.  Determination  of the  adequacy is based on ongoing  assessments  of the
probable  risk in the  outstanding  loan  portfolio,  and to a lesser extent the
Company's loan commitments. These assessments include the periodic re-grading of
credits based on changes in their individual  credit  characteristics  including
delinquency,  seasoning,  recent financial performance of the borrower, economic
factors, changes in the interest rate environment,  growth of the portfolio as a
whole or by segment, and other factors as warranted.  Loans are initially graded
when  originated.  They are  re-graded as they are renewed,  when there is a new
loan to the same borrower,  when identified facts demonstrate heightened risk of
nonpayment,  or if they become  delinquent.  Re-grading of larger  problem loans
occur at least quarterly.  Confirmation of the quality of the grading process is
obtained by  independent  credit reviews  conducted by consultants  specifically
hired for this purpose and by various bank regulatory agencies.

                                       47


The Company's method for assessing the appropriateness of the allowance for loan
losses and the reserve for unfunded commitments includes specific allowances for
identified problem loans and leases as determined by SFAS 114, formula allowance
factors for pools of credits, and allowances for changing  environmental factors
(e.g., interest rates, growth, economic conditions, etc.). Allowance factors for
loan  pools are based on the  previous 5 years  historical  loss  experience  by
product type.  Allowances  for specific  loans are based on SFAS 114 analysis of
individual   credits.   Allowances  for  changing   environmental   factors  are
Management's  best estimate of the probable impact these changes have had on the
loan portfolio as a whole.

Based on the current conditions of the loan portfolio,  Management believes that
the  allowance for loan losses and the reserve for unfunded  commitments,  which
collectively  stand at  $19,421,000 at December 31, 2007, are adequate to absorb
probable losses  inherent in the Company'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.

Mortgage Servicing Rights
Mortgage  servicing  rights (MSRs)  represent  the  Company's  right to a future
stream of cash flows based upon the  contractual  servicing fee associated  with
servicing mortgage loans. Our MSRs arise from residential mortgage loans that we
originate  and sell,  but retain the right to  service  the loans.  For sales of
residential  mortgage  loans, a portion of the cost of  originating  the loan is
allocated  to the  servicing  right  based  on fair  values  of the loan and the
servicing  right.  The net gain from the  retention  of the  servicing  right is
included in gain on sale of loans in  noninterest  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.  MSRs are  included in other
assets. Servicing fees are recorded in noninterest income when earned.

Effective with the Company's early adoption of SFAS 156, beginning as of January
1, 2006 MSRs are carried at fair value,  with changes in fair value  reported in
noninterest  income  in the  period  in which the  change  occurs.  On or before
December  31, 2005,  MSRs were carried at the lower of amortized  cost or market
value.  The  cumulative  effect  related  to the  adoption  of  this  change  in
accounting from lower of amortized cost or market value to fair value on January
1, 2006 was immaterial.

The determination of fair value of our MSRs requires management judgment because
they are not actively traded.  The determination of fair value for MSRs 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
MSRs,   which  we  believe  are  consistent  with  assumptions  used  by  market
participants  valuing similar MSRs, and from data obtained on the performance of
similar MSRs. The key assumptions used in the valuation of MSRs 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 MSRs are prepayment speed and changes
in interest rates.

The following tables summarize the activity in, and the main assumptions we used
to  determine  the fair  value of  mortgage  servicing  rights  for the  periods
indicated:
                                         --------------------------
                                           Years ended December 31,
                                             2007         2006
(dollars in thousands)                    -------------------------
Mortgage servicing rights:
Balance at beginning of period               $3,912        $3,638
Additions                                       665           674
Change in fair value                           (490)         (400)
                                          -------------------------
Balance at end of period                     $4,087        $3,912
                                          =========================
Servicing fees received                        $997          $957
Balance of loans serviced at:
     Beginning of period                   $389,636      $373,163
     End of period                         $406,743      $389,636
Weighted-average prepayment speed (CPR)        12.7%         12.7%
Discount rate                                  10.0%         10.0%

The changes in fair value of MSRs that occurred during 2007 and 2006 were mainly
due to changes in estimate life of the MSRs.

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.

                                       48


Premises and Equipment
Land is carried at cost. 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 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.

Foreclosed Assets
Assets acquired  through,  or in lieu of, loan foreclosure 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. Revenue and expenses from operations and changes in the
valuation allowance are included in other noninterest expense.

Goodwill and Other Intangible Assets
Goodwill  represents the excess of costs over fair value of assets of businesses
acquired.  Goodwill and other intangible  assets acquired in a purchase business
combination and determined to have an indefinite  useful life are not amortized,
but instead  tested for  impairment at least  annually.  Intangible  assets with
estimable  useful lives are amortized  over their  respective  estimated  useful
lives to their estimated residual values, and reviewed for impairment.

As of the date of  adoption,  the Company  had  identifiable  intangible  assets
consisting of core deposit premiums and minimum pension liability.  Core deposit
premiums are amortized  using an accelerated  method over a period of ten years.
Intangible  assets related to minimum  pension  liability are adjusted  annually
based upon actuarial estimates.

The following table summarizes the Company's goodwill  intangible as of December
31, 2007 and 2006.

                              December 31,                          December 31,
                               2006      Additions    Reductions       2007
    (dollar in thousands)    ---------------------------------------------------
   Goodwill                    $15,519        -             -         $15,519
                             ===================================================

The following  table  summarizes  the Company's  core deposit  intangibles as of
December 31, 2007 and 2006.

                                  December 31,                      December 31,
                                    2006     Additions   Reductions    2007
     (dollar in thousands)       -----------------------------------------------
   Core deposit intangibles        $13,643          -      ($10,278)    $3,365
   Accumulated amortization        (11,977)   $10,278         ($490)    (2,189)
                                 -----------------------------------------------
   Core deposit intangibles, net    $1,666    $10,278      ($10,768)    $1,176
                                 ===============================================

Core deposit  intangibles are amortized over their expected  useful lives.  Such
lives are  periodically  reassessed  to  determine  if any  amortization  period
adjustments  are  indicated.   The  following  table  summarizes  the  Company's
estimated core deposit  intangible  amortization for each of the five succeeding
years:

                                                  Estimated Core Deposit
                                                  Intangible Amortization
                   Years Ended                     (dollar in thousands)
                  ------------                    -----------------------
                      2008                                 $523
                      2009                                 $328
                      2010                                 $260
                      2011                                  $65
                   Thereafter                                 -

Impairment of Long-Lived Assets and Goodwill
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 balance sheet.

                                       49


On December 31 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.  This  determination  is made at
the  reporting  unit  level  and  consists  of two  steps.  First,  the  Company
determines  the fair value of a reporting  unit and  compares it to its carrying
amount.  Second,  if the  carrying  amount of a reporting  unit exceeds its fair
value, an impairment loss is recognized for any excess of the carrying amount of
the reporting unit's goodwill over the implied fair value of that goodwill.  The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit in a manner similar to a purchase price allocation.  The residual
fair value after this allocation is the implied fair value of the reporting unit
goodwill.

Income Taxes
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.

Stock-Based Compensation
Prior to January 1, 2006, employee compensation expense under stock option plans
was reported  only if options  were granted  below market price at grant date in
accordance  with the  intrinsic  value  method of  Accounting  Principles  Board
Opinion (APB) No. 25,  "Accounting  for Stock Issued to Employees,"  and related
interpretations.  The Company  adopted the  provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), on
January 1, 2006.  SFAS 123R  eliminates  the ability to account for  stock-based
compensation  using APB 25 and requires that such  transactions be recognized as
compensation  cost in the income  statement  based on their  fair  values on the
measurement date, which, for the Company,  is the date of the grant. The Company
transitioned to fair-value based accounting for stock-based compensation using a
modified   version   of   prospective    application    ("modified   prospective
application").  Under modified prospective  application,  as it is applicable to
the  Company,   SFAS  123R  applies  to  new  awards  and  to  awards  modified,
repurchased, or cancelled after January 1, 2006. Additionally, compensation cost
for the portion of awards for which the requisite  service has not been rendered
(generally  referring to non-vested  awards) that were outstanding as of January
1, 2006 will be recognized as the remaining requisite service is rendered during
the  period  of  and/or  the  periods  after  the  adoption  of SFAS  123R.  The
attribution of  compensation  cost for those earlier awards is based on the same
method and on the same grant-date fair values previously  determined for the pro
forma disclosures  required for companies that did not previously adopt the fair
value accounting method for stock-based employee compensation.


SFAS No.  123R,  requires pro forma  disclosures  of net income and earnings per
share for all periods prior to the adoption of the fair value accounting  method
for stock-based employee  compensation.  The pro forma disclosures  presented in
Note 11 use the fair value  method of SFAS 123 to measure  compensation  expense
for stock-based employee compensation plans for years prior to 2006.

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.  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 are determined using the treasury stock method.

Earnings per share have been computed based on the following:

                                                      Years ended December 31,
                                                   -----------------------------
                                                     2007       2006      2005
 (in thousands)                                    -----------------------------
Net income                                         $25,693    $26,830   $23,671

Average number of common shares outstanding         15,898     15,812    15,708
Effect of dilutive stock options                       466        571       623
Average number of common shares outstanding        -----------------------------
   used to calculate diluted earnings per share     16,364     16,383    16,331
                                                   =============================

There were 307,050 options excluded from the computation of diluted earnings per
share for the year ended  December 31, 2007 because the effect of these  options
was antidilutive. There were no options excluded from the computation of diluted
earnings  per  share  for  the  years  ended   December  31,  2006,   and  2005,
respectively, because the effect of these options was antidilutive.

                                       50


Comprehensive Income
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:



                                                                                        Years Ended December 31,
                                                                                  ---------------------------------
                                                                                     2007        2006         2005
 (in thousands)                                                                   ---------------------------------
                                                                                                      
Unrealized holding gains (losses) on available-for-sale securities                 $5,147        $895      ($5,757)
Tax effect                                                                         (2,164)       (376)       2,421
                                                                                  ---------------------------------
   Unrealized holding gains (losses) on available-for-sale securities, net of tax   2,983         519       (3,336)
                                                                                  ---------------------------------
Change in minimum pension liability                                                   (24)          -         (292)
Tax effect                                                                             10           -          155
                                                                                  ---------------------------------
   Change in minimum pension liability, net of tax                                    (14)          -         (137)
                                                                                  ----------------------------------
                                                                                   $2,969        $519      ($3,473)
                                                                                  ==================================


In September 2006, the Financial  Accounting  Standards Board (FASB) issued FASB
Statement of Financial Accounting  Standards No. 158, Employers'  Accounting for
Defined  Benefit  Pension and Other  Postretirement  Plans, an amendment of FASB
Statements No. 87, 88 106, and 132(R) (SFAS 158). SFAS 158 became  effective for
the Company on December  31, 2006.  The Company was  required to  recognize  the
funded  status  of its  defined  benefit  post-retirement  benefit  plans in its
consolidated  financial  statements  for the year ended  December 31, 2006,  and
recorded a corresponding reduction of $1,215,000 (after tax) to the December 31,
2006 balance of accumulated other  comprehensive  loss in shareholders'  equity.
The impact of the  adoption  of SFAS 158 is included in the amounts in the table
below   related  to  minimum   pension   liability.   See   "Recent   Accounting
Pronouncements"  below and Note 14 for further  discussion  of the impact of the
adoption of SFAS 158.

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




                                                                                         December 31,
                                                                                  --------------------------
                                                                                     2007             2006
  (in thousands)                                                                  --------------------------
                                                                                               

Net unrealized gains (losses) on available-for-sale securities                     $1,292          ($3,855)
Tax effect                                                                           (543)           1,621
                                                                                   ------------------------
  Unrealized holding gains (losses) on available-for-sale securities, net of tax      749           (2,234)
                                                                                   ------------------------
Minimum pension liability                                                          (3,970)          (3,946)
Tax effect                                                                          1,669            1,659
                                                                                   ------------------------
 Minimum pension liability, net of tax                                             (2,301)          (2,287)
                                                                                   ------------------------
Accumulated other comprehensive loss                                              ($1,552)         ($4,521)
                                                                                  =========================


Recent Accounting Pronouncements
In February  2006,  the FASB  issued  FASB  Statement  of  Financial  Accounting
Standards  No. 155,  Accounting  for Certain  Hybrid  Financial  Instruments  an
amendment of FASB  Statements  No. 133 and 140 (SFAS 155).  SFAS 155 amends SFAS
133, Accounting for Derivative  Instruments and Hedging Activities and SFAS 140,
Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments
of  Liabilities.  SFAS 155 (i) permits fair value  remeasurement  for any hybrid
financial  instrument that contains an embedded  derivative that otherwise would
require   bifurcation,   (ii)   clarifies   which   interest-only   strips   and
principal-only  strips are not subject to the  requirements  of SFAS 133,  (iii)
establishes a requirement to evaluate interests in securitized  financial assets
to  identify  interests  that are  freestanding  derivatives  or that are hybrid
financial instruments that contain an embedded derivative requiring bifurcation,
(iv) clarifies that  concentrations  of credit risk in the form of subordination
are  not  embedded  derivatives,  and  (v)  amends  SFAS  140 to  eliminate  the
prohibition  on a qualifying  special  purpose  entity from holding a derivative
financial  instrument that pertains to a beneficial  interest other than another
derivative  financial  instrument.  SFAS 155 is  effective  for the  Company  on
January  1,  2007  and  did  not  have a  significant  impact  on the  Company's
consolidated financial statements.

In  September  2006,  the FASB issued FASB  Statement  of  Financial  Accounting
Standards No. 157,  Fair Value  Measurements  (SFAS 157).  SFAS 157 defines fair
value,  establishes a framework for measuring  fair value in generally  accepted
accounting  principles,  and expands  disclosures about fair value measurements.
SFAS 157 is effective  for the Company on January 1, 2008 and is not expected to
have a significant impact on the Company's consolidated financial statements.

                                       51


In  September  2006,  the FASB issued FASB  Statement  of  Financial  Accounting
Standards No. 158,  Employers'  Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88 106, and 132(R)
(SFAS  158).  SFAS 158  requires  an employer to  recognize  the  overfunded  or
underfunded  status of  defined  benefit  postretirement  plans as an asset or a
liability in its statement of financial position.  The funded status is measured
as the difference  between plan assets at fair value and the benefit  obligation
(the projected benefit  obligation for pension plans or the accumulated  benefit
obligation for other postretirement benefit plans). An employer is also required
to measure the funded status of a plan as of the date of its year-end  statement
of financial  position  with  changes in the funded  status  recognized  through
comprehensive  income. SFAS 158 also requires certain disclosures  regarding the
effects on net  periodic  benefit  cost for the next fiscal year that arise from
delayed recognition of gains or losses,  prior service costs or credits, and the
transition asset or obligation. The Company was required to recognize the funded
status of its defined benefit  post-retirement benefit plans in its consolidated
financial  statements  for the year ended  December  31,  2006.  The Company had
previously   recognized   the  funded  status  of  its  Executive  and  Director
Supplemental  Retirement plans in prior consolidated  financial statements.  The
Company  has  no  other  defined  benefit  post-retirement  benefit  plans.  The
requirement to measure plan assets and benefit obligations as of the date of the
year-end  statement  of  financial  position  is  effective  for  the  Company's
consolidated  financial  statements  beginning  with the fiscal year ended after
December 15, 2008.  The Company  currently  uses December 31 as the  measurement
date for its defined benefit post-retirement benefit plans.

In February  2007,  the FASB  issued  FASB  Statement  of  Financial  Accounting
Standards  No. 159, The Fair Value  Option for  Financial  Assets and  Financial
Liabilities - Including an amendment to FASB Statement No. 115 (SFAS 159).  SFAS
159 permits entities to choose to measure many financial instruments and certain
other items at fair value.  The objective is to improve  financial  reporting by
providing  entities  with the  opportunity  to mitigate  volatility  in reported
earnings caused by measuring related assets and liabilities  differently without
having to apply complex hedge accounting  provisions.  SFAS 159 is effective for
the Company on January 1, 2008 and is not expected to have a significant  impact
on the Company's consolidated financial statements.

In June  2006,  the FASB  issued  FASB  Interpretation  No. 48,  Accounting  for
Uncertainty in Income Taxes, an  interpretation  of FASB Statement 109 (FIN 48).
FIN 48  prescribes a recognition  threshold and a measurement  attribute for the
financial  statement  recognition  and  measurement  of a tax position  taken or
expected  to be taken in a tax return.  Benefits  from tax  positions  should be
recognized in the financial statements only when it is more likely than not that
the tax position will be sustained upon  examination by the  appropriate  taxing
authority  that would have full  knowledge  of all relevant  information.  A tax
position that meets the  more-likely-than-not  recognition threshold is measured
at the largest  amount of benefit that is greater than fifty  percent  likely of
being realized upon ultimate settlement. Tax positions that previously failed to
meet the more-likely-than-not  recognition threshold should be recognized in the
first  subsequent  financial  reporting  period in which that  threshold is met.
Previously recognized tax positions that no longer meet the more-likely-than-not
recognition  threshold should be derecognized in the first subsequent  financial
reporting  period in which that threshold is no longer met. FIN 48 also provides
guidance on the  accounting  for and  disclosure of  unrecognized  tax benefits,
interest and penalties.  FIN 48 was effective for the Company on January 1, 2007
and did not have a significant  impact on the Company's  consolidated  financial
statements.

FASB  Emerging  Issues  Task Force  ("EITF")  Issue No.  06-4,  "Accounting  for
Deferred  Compensation and  Postretirement  Benefit Aspects of Endorsement Split
Dollar Life  Insurance  Arrangements."  EITF 06-4 requires the  recognition of a
liability  and  related  compensation  expense  for bank  owned  life  insurance
policies with joint beneficiary agreements that provide a benefit to an employee
that  extends  to  post-retirement  periods.  Under EITF  06-4,  life  insurance
policies purchased for the purpose of providing such benefits do not effectively
settle an entity's  obligation  to the  employee.  Accordingly,  the entity must
recognize a liability and related  compensation  expense  during the  employee's
active  service  period  based on the future  cost of  insurance  to be incurred
during the  employee's  retirement.  If the  entity  has  agreed to provide  the
employee with a death  benefit,  then the liability for the future death benefit
should  be  recognized  by  following  the  guidance  in SFAS  106,  "Employer's
Accounting for Postretirement Benefits Other Than Pensions." The Company expects
to adopt EITF 06-4  effective  as of  January 1, 2008 as a change in  accounting
principle  through  a  cumulative-effect  adjustment  to  retained  earnings  of
approximately $522,000 net of tax.

In November 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan
Commitments  Recorded at Fair Value through Earnings (SAB 109). SAB 109 provides
guidance on the accounting for written loan  commitments  recorded at fair value
under generally accepted  accounting  principles (GAAP).  Specifically,  the SAB
revises  the  Staff's  views on  incorporating  expected  net future  cash flows
related to loan servicing  activities in the fair value measurement of a written
loan   commitment.   SAB  109,  which   supersedes SAB   105,   Application  of
Accounting Principles to Loan Commitments, requires the expected net future cash
flows  related  to the  associated  servicing  of the  loan be  included  in the
measurement of all written loan commitments that are accounted for at fair value
through  earnings.  SAB 109 is  effective  on  January 1,  2008 for the Company.
Adoption of SAB 109 is not expected to have a material  impact on the  Company's
financial statements.


Reclassifications
Certain amounts  previously  reported in the 2006 and 2005 financial  statements
have  been   reclassified   to   conform   to  the  2007   presentation.   These
reclassifications  did not  affect  previously  reported  net  income  or  total
shareholders' equity.

                                       52


Note 2 - Restricted Cash Balances

Reserves (in the form of deposits with the Federal  Reserve Bank) of $10,388,000
and $7,183,000  were maintained to satisfy  Federal  regulatory  requirements at
December  31, 2007 and 2006.  These  reserves  are included in cash and due from
banks in the accompanying balance sheets.

Note 3 - Investment Securities

The amortized  cost and estimated  fair values of investments in debt and equity
securities are summarized in the following tables:



                                                                                  December 31, 2007
                                                             --------------------------------------------------------
                                                                               Gross           Gross      Estimated
                                                              Amortized     Unrealized      Unrealized      Fair
                                                                Cost           Gains          Losses        Value
 (in thousands)                                               ------------------------------------------------------
                                                                                                
Securities Available-for-Sale
-----------------------------
Obligations of U.S. government corporations and agencies       $202,885        $1,702            ($813)   $203,774
Obligations of states and political subdivision                  27,250           414              (16)     27,648
Corporate debt securities                                         1,000             5                -       1,005
                                                             ------------------------------------------------------
    Total securities available-for-sale                        $231,135        $2,121            ($829)   $232,427
                                                             ======================================================

                                                                                 December 31, 2006
                                                             ------------------------------------------------------
                                                                               Gross           Gross      Estimated
                                                              Amortized     Unrealized      Unrealized      Fair
                                                                Cost           Gains          Losses        Value
  (in thousands)                                             ------------------------------------------------------
Securities Available-for-Sale
-----------------------------
Obligations of U.S. government corporations and agencies       $168,581          $240          ($4,693)   $164,128
Obligations of states and political subdivisions                 32,635           628              (30)     33,233
Corporate debt securities                                         1,000             -                -       1,000
                                                              ----------------------------------------------------
    Total securities available-for-sale                        $202,216          $868          ($4,723)   $198,361
                                                              ====================================================



The amortized cost and estimated  fair value of debt  securities at December 31,
2007 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, 2007,
obligations  of U.S.  government  corporations  and  agencies  with a cost basis
totaling  $202,885,000  consist almost  entirely of  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, 2007, the Company  estimates the average remaining life of
these  mortgage-backed  securities  issued by U.S.  government  corporations and
agencies to be approximately 3.8 years. Average remaining life is defined as the
time span after which the principal balance has been reduced by half.

                                                        Estimated
                                        Amortized       Fair Cost Value
                                      ---------------------------------
Investment  Securities                          (in thousands)
----------------------
Due in one year                            $1,038            $1,044
Due after one year through five years      13,352            13,388
Due after five years through ten years    108,882           108,498
Due after ten years                       107,863           109,497
                                      ---------------------------------
Totals                                   $231,135           $232,427
                                      =================================

                                       53


Proceeds from sales of investment securities were as follows:

                      Gross        Gross         Gross
For the Year        Proceeds       Gains        Losses
-------------------------------------------------------
                              (in thousands)
     2007                 --           --           --
     2006            $10,779         $107         ($95)
     2005                 --           --           --

Investment  securities  with an aggregate  carrying  value of  $212,687,000  and
$160,436,000  at  December  31,  2007 and 2006,  respectively,  were  pledged as
collateral for specific borrowings, lines of credit and local agency deposits.

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:



                                                   Less than 12 months   12 months or more          Total
                                                   -------------------   -----------------     ------------------

                                                   Fair    Unrealized    Fair    Unrealized    Fair    Unrealized
                                                   Value      Loss       Value      Loss       Value      Loss
 (in thousands)                                    --------------------------------------------------------------
                                                                                        
December 31, 2007
Securities Available-for-Sale:
Obligations of U.S. government
  corporations and agencies                        $5,280       ($3)    $85,377     ($811)    $90,657     ($814)
Obligations of states and political subdivisions    1,645       (12)      1,245        (3)      2,890       (15)
                                                   --------------------------------------------------------------
Total securities available-for-sale                $6,925      ($15)    $86,622      ($814)   $93,547     ($829)
                                                   ==============================================================


                                                   Less than 12 months   12 months or more          Total
                                                   -------------------   -----------------     ------------------

                                                   Fair    Unrealized    Fair    Unrealized    Fair    Unrealized
                                                   Value      Loss       Value      Loss       Value      Loss
 (in thousands)                                    --------------------------------------------------------------

December 31, 2006
Securities Available-for-Sale:
Obligations of U.S. government
  corporations and agencies                        $3,697      ($16)   $147,372   ($4,677)   $151,069   ($4,693)
Obligations of states and political subdivisions    1,646       (11)      1,260       (19)      2,906       (30)
                                                   --------------------------------------------------------------
Total securities available-for-sale                $5,343      ($27)   $148,632   ($4,696)   $153,975   ($4,723)
                                                   ==============================================================



Obligations of U.S. government  corporations and agencies: The unrealized losses
on investments in obligations of U.S. government  corporations and agencies were
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 has the ability and intent to hold these
investments until a market price recovery or maturity, these investments are not
considered  other-than-temporarily  impaired.  At  December  31,  2007,  38 debt
securities representing obligations of U.S. government corporations and agencies
had  unrealized  losses with  aggregate  depreciation  of .9% 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
interest rate increases. 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  has the  ability  and intent to hold these
investments until a market price recovery or maturity, these investments are not
considered  other-than-temporarily  impaired.  At  December  31,  2007,  3  debt
securities  representing  obligations of states and political  subdivisions  had
unrealized  losses  with  aggregate  depreciation  of  .5%  from  the  Company's
amortized cost basis.

                                       54


Note 4 - Loans

A summary of the balances of loans follows:
                                                     December 31,
                                             -------------------------
                                                2007           2006
  (in thousands)                             -------------------------
Mortgage loans on real estate:
   Residential 1-4 family                     $112,732       $111,459
   Commercial                                  607,147        571,628
                                             -------------------------
     Total mortgage loan on real estate        719,879        683,087
                                             -------------------------
Consumer:
   Home equity lines of credit                 309,362        282,099
   Home equity loans                            84,010         92,242
   Auto Indirect                               122,141        131,716
   Other                                        15,892         14,927
                                             -------------------------
     Total consumer loans                      531,405        520,984
                                             -------------------------
Commercial                                     164,734        153,054
                                             -------------------------
Construction:
   Residential 1-4 family                       27,464         38,821
   Other construction                          108,647        113,518
                                             -------------------------
     Total construction                        136,111        152,339
                                             -------------------------
Total loans                                  1,552,129      1,509,464
                                             -------------------------
Less:  Allowance for loan losses               (17,331)       (16,914)
       Net deferred loan (fees) costs             (163)           415
                                            --------------------------
Total loans, net                            $1,534,635     $1,492,965
                                            ==========================

Loans with an aggregate  carrying  value of  $485,638,000  and  $460,387,000  at
December  31,  2007 and 2006,  respectively,  were  pledged  as  collateral  for
specific borrowings and lines of credit.

The  following  tables  summarize the activity in the allowance for loan losses,
reserve for unfunded  commitments,  and allowance for losses (which is comprised
of the allowance for loan losses and the reserve for unfunded  commitments)  for
the periods indicated (dollars in thousands):

                                                Years Ended December 31,
                                           ----------------------------------
                                              2007        2006        2005
                                           ----------------------------------
     Allowance for loan losses:
     Balance at beginning of year           $16,914     $16,226      $14,525
     Provision for loan losses                3,032       1,289        2,169
     Loans charged off                       (3,758)     (1,787)      (1,679)
     Recoveries of previously
       charged-off loans                      1,143       1,186        1,211
                                           ----------------------------------
       Net charge-offs                       (2,615)       (601)        (468)
                                           ----------------------------------
     Balance at end of year                 $17,331     $16,914      $16,226
                                           ==================================
     Reserve for unfunded commitments:
     Balance at beginning of year            $1,849      $1,813       $1,532
     Provision for losses -
       Unfunded commitments                     241          36          281
                                           ----------------------------------
     Balance at end of year                  $2,090      $1,849       $1,813
                                           ==================================
     Balance at end of year:
     Allowance for loan losses              $17,331     $16,914      $16,226
     Reserve for unfunded commitments        $2,090       1,849        1,813
                                           ----------------------------------
     Allowance for losses                   $19,421     $18,763      $18,039
                                           ==================================
     As a percentage of total loans:
     Allowance for loan losses                 1.12%       1.12%       1.17%
     Reserve for unfunded commitments          0.13%       0.12%       0.13%
                                           ----------------------------------
     Allowance for losses                      1.25%       1.24%       1.30%
                                           ==================================

                                       55

Loans  classified  as  nonaccrual,  net of  guarantees  of the U.S.  government,
including  its  agencies  and its  government-sponsored  agencies,  amounted  to
approximately $7,511,000, $4,444,000, and $2,961,000 at December 31, 2007, 2006,
and 2005,  respectively.  These nonaccrual loans were classified as impaired and
are included in the recorded  balance in impaired loans for the respective years
shown below. If interest on those loans had been accrued, such income would have
been  approximately  $621,000,  $357,000,  and $957,000 in 2007,  2006 and 2005,
respectively.  Loans 90 days past due and still  accruing,  net of guarantees of
the  U.S.  government,  including  its  agencies  and  its  government-sponsored
agencies,  amounted to approximately  $0, $68,000,  and $0 at December 31, 2007,
2006, and 2005, respectively.

As of December 31, the Company's  recorded  investment in impaired loans, net of
guarantees of the U.S.  government,  and the related valuation allowance were as
follows :

                                                            2007
                                           -------------------------------------
                                             Recorded                 Valuation
                                            Investment                Allowance
  (in thousands)                           -------------------------------------
Impaired loans -
  Valuation allowance required                 $7,511                  $1,395
  No valuation allowance required                  --                      --
                                           -------------------------------------
    Total impaired loans                       $7,511                  $1,395
                                           =====================================

                                                            2006
                                           -------------------------------------
                                             Recorded                 Valuation
                                            Investment                Allowance
                                           -------------------------------------
Impaired loans -
  Valuation allowance required                 $4,444                    $883
  No valuation allowance required                  --                      --
                                          --------------------------------------
    Total impaired loans                       $4,444                    $883
                                          ======================================

This  valuation  allowance  is included in the  allowance  for loan losses shown
above for the respective year. The average recorded investment in impaired loans
was $5,978,000, $3,703,000 and $3,903,000 for the years ended December 31, 2007,
2006 and 2005, respectively.  The Company recognized interest income on impaired
loans of $859,000, $761,000, and $736,000 for the years ended December 31, 2007,
2006 and 2005, respectively.

Note 5 - Premises and Equipment

Premises and equipment were comprised of:

                                             December 31,
                                    ------------------------------
                                      2007                  2006
 (in thousands)                     ------------------------------
Premises                             $18,966              $18,183
Furniture and equipment               23,248               22,915
                                    ------------------------------
                                      42,214               41,098
Less:  Accumulated depreciation      (25,536)             (23,088)
                                    ------------------------------
                                      16,678               18,010
Land and land improvements             3,814                3,820
                                    ------------------------------
                                     $20,492              $21,830
                                    ==============================

Depreciation of premises and equipment amounted to $3,071,000,  $3,209,000,  and
$3,210,000 in 2007, 2006, and 2005, respectively.

The  Company  leases  one  building  for which the lease is  accounted  for as a
capital  lease.  The cost  basis of the  building  under this  capital  lease is
$831,000 with accumulated  depreciation of $773,000 and $745,000 at December 31,
2007 and 2006, respectively. The cost basis and accumulated depreciation of this
building  under  capital  lease are  recorded  in the  balance of  premises  and
equipment. Depreciation related to this building under capital lease is included
in the depreciation of premises and equipment noted above.

                                       56


At December 31, 2007, future minimum  commitments under  non-cancelable  capital
and operating  leases with initial or remaining terms of one year or more are as
follows:

                                                  Capital       Operating
                                                  Leases        Leases
                                                 ------------------------
                                                   (in thousands)
        2008                                        $95         $1,950
        2009                                         96          1,397
        2010                                         -           1,116
        2011                                         -             628
        2012                                         -             273
        Thereafter                                   -             391
                                                 ------------------------
        Future minimum lease payments               191          $5,755
        Less amount representing interest            23          =======
                                                  -----
        Present value of future lease payments    $168
                                                  =====
Rent expense under operating leases was $2,273,000 in 2007,  $2,175,000 in 2006,
and $1,855,000 in 2005.

Note 6 - Deposits

A summary of the balances of deposits follows:
                                                         December 31,
                                                 --------------------------
                                                     2007           2006
                                                 --------------------------
                                                        (in thousands)
        Noninterest-bearing demand                  $378,680       $420,025
        Interest-bearing demand                      216,952        230,671
        Savings                                      383,233        374,611
        Time certificates, $100,000 and over         262,977        254,150
        Other time certificates                      303,381        319,692
                                                 ---------------------------
          Total deposits                          $1,545,223     $1,599,149
                                                 ===========================

Certificate of deposit balances of $40,000,000 and $20,000,000 from the State of
California  were included in time  certificates,  $100,000 and over, at December
31, 2007 and 2006,  respectively.  The Bank  participates  in a deposit  program
offered by the State of  California  whereby the State may make  deposits at the
Bank's request  subject to collateral  and credit  worthiness  constraints.  The
negotiated rates on these State deposits are generally more favorable than other
wholesale funding sources available to the Bank.

Overdrawn  deposit  balances of $ 1,512,000 and  $1,336,000  were  classified as
consumer loans at December 31, 2007 and 2006, respectively.

At December 31, 2007, the scheduled maturities of time deposits were as follows:

                                     Scheduled Maturities
                                        (in thousands)
                                     --------------------
          2008                            $529,796
          2009                              20,371
          2010                               5,657
          2011                               1,265
          2012                               9,258
          Thereafter                            11
                                     --------------------
            Total                        $566,358
                                     ====================

                                       57


Note 7 - Other Borrowings

A summary of the balances of other borrowings follows:


                                                                                               December 31,
                                                                                     --------------------------
                                                                                          2007          2006
                                                                                     --------------------------
                                                                                                   
Borrowing under security repurchase agreement,  rate of 3-month LIBOR less 0.29%           (in thousands)
     with a floor of 0% and a cap of  4.72%,  adjustable  on a  quarterly  basis
     until  August 30, 2009 From August 30, 2009 until final  maturity on August
     30, 2012,  rate is fixed at 4.72% and principal is callable in its entirety
     by counterparty on a quarterly basis.                                             $50,000       $     -
FHLB loan,  fixed  rate of  5.41%  payable  on April 7,  2008,  callable  in its
     entirety by FHLB on a quarterly basis beginning April 7, 2003                      20,000        20,000
FHLB loan, fixed rate of 5.35% payable on December 9, 2008                               1,500         1,500
FHLB loan, fixed rate of 5.77% payable on February 23, 2009                              1,000         1,000
Capital lease  obligation on premises,  effective rate of 13% payable monthly in
     varying amounts through December 1, 2009                                              168           235
Other collateralized borrowings, fixed rate of 3.45% payable on January 2, 2008         43,458         17,176
                                                                                     --------------------------
Total other borrowings                                                                $116,126        $39,911
                                                                                     ==========================


During August 2007,  the Company  entered into a security  repurchase  agreement
with principal  balance of $50,000,000 and terms as described above. The Company
did not enter into any other  repurchase  agreements  during  2007 or 2006.  The
average  balance  of  repurchase  agreements  for 2007 was  $16,986,000  with an
average rate of 4.72%.

The Company maintains a collateralized line of credit with the Federal Home Loan
Bank of San  Francisco.  Based on the FHLB stock  requirements  at December  31,
2007,  this line  provided  for  maximum  borrowings  of  $361,173,000  of which
$78,500,000  was  outstanding,  leaving  $282,673,000  available.  The  total of
borrowings  from the FHLB at  December  31,  2007  consists  of the  $22,500,000
described  in the  table  above,  and  $56,000,000  of  borrowings  that  mature
overnight and are classified as federal funds purchased.

At  December  31,  2007,  the Company had  $43,458,000  of other  collateralized
borrowings.  Other  collateralized  borrowings are generally  overnight maturity
borrowings from non-financial institutions that are collateralized by securities
owned by the Company.

The Company  maintains a collateralized  line of credit with the Federal Reserve
Bank of San  Francisco.  Based on the  collateral  pledged at December 31, 2007,
this  line  provided  for  maximum  borrowings  of  $5,438,000  of  which $0 was
outstanding, leaving $5,438,000 available.

The Company has  available  unused  correspondent  banking  lines of credit from
commercial banks totaling $50,000,000 for federal funds transactions at December
31, 2007.

                                       58


Note 8 - Junior Subordinated Debt

On July 31, 2003, the Company formed a subsidiary  business trust, TriCo Capital
Trust I, to issue trust preferred securities.  Concurrently with the issuance of
the trust preferred  securities,  the trust issued 619 shares of common stock to
the Company for $1,000 per share or an aggregate of $619,000.  In addition,  the
Company  issued a Junior  Subordinated  Debenture  to the Trust in the amount of
$20,619,000.  The terms of the  Junior  Subordinated  Debenture  are  materially
consistent  with the terms of the  trust  preferred  securities  issued by TriCo
Capital  Trust I. Also on July 31,  2003,  TriCo  Capital  Trust I completed  an
offering of 20,000 shares of cumulative  trust preferred  securities for cash in
an  aggregate  amount  of  $20,000,000.   The  trust  preferred  securities  are
mandatorily  redeemable  upon  maturity on October 7, 2033 with an interest rate
that resets  quarterly at three-month  LIBOR plus 3.05%,  or 4.16% for the first
quarterly  interest  period.  TriCo  Capital Trust I has the right to redeem the
trust  preferred  securities  on or after October 7, 2008.  The trust  preferred
securities  were issued through an  underwriting  syndicate to which the Company
paid underwriting fees of $7.50 per trust preferred  security or an aggregate of
$150,000.  The net proceeds of  $19,850,000  were used to finance the opening of
new branches,  improve bank services and  technology,  repurchase  shares of the
Company's  common stock under its  repurchase  plan and  increase the  Company's
capital. The trust preferred securities have not been and will not be registered
under the Securities  Act of 1933, as amended,  or applicable  state  securities
laws  and were  sold  pursuant  to an  exemption  from  registration  under  the
Securities  Act of 1933.  The trust  preferred  securities may not be offered or
sold in the United States absent  registration  or an applicable  exemption from
the  registration  requirements  of the Securities Act of 1933, as amended,  and
applicable state securities laws.

The $20,619,000 of junior subordinated debentures issued by TriCo Capital Trust
I were reflected as junior subordinated debt in the consolidated balance sheets
at December 31, 2007 and 2006. The common stock issued by TriCo Capital Trust I
was recorded in other assets in the consolidated balance sheets at December 31,
2007 and 2006.

On June 22, 2004, the Company formed a second subsidiary  business trust,  TriCo
Capital Trust II, to issue trust  preferred  securities.  Concurrently  with the
issuance  of the trust  preferred  securities,  the trust  issued  619 shares of
common stock to the Company for $1,000 per share or an aggregate of $619,000. In
addition, the Company issued a Junior Subordinated Debenture to the Trust in the
amount  of  $20,619,000.  The terms of the  Junior  Subordinated  Debenture  are
materially consistent with the terms of the trust preferred securities issued by
TriCo Capital Trust II. Also on June 22, 2004,  TriCo Capital Trust II completed
an offering of 20,000 shares of cumulative  trust preferred  securities for cash
in an  aggregate  amount of  $20,000,000.  The trust  preferred  securities  are
mandatorily redeemable upon maturity on July 23, 2034 with an interest rate that
resets  quarterly  at  three-month  LIBOR  plus  2.55%,  or 4.10%  for the first
quarterly  interest  period.  TriCo Capital Trust II has the right to redeem the
trust  preferred  securities  on or after  July 23,  2009.  The trust  preferred
securities  were issued through an  underwriting  syndicate to which the Company
paid underwriting fees of $2.50 per trust preferred  security or an aggregate of
$50,000. The net proceeds of $19,950,000 were used to finance the opening of new
branches,  improve  bank  services  and  technology,  repurchase  shares  of the
Company's  common stock under its  repurchase  plan and  increase the  Company's
capital. The trust preferred securities have not been and will not be registered
under the Securities  Act of 1933, as amended,  or applicable  state  securities
laws  and were  sold  pursuant  to an  exemption  from  registration  under  the
Securities  Act of 1933.  The trust  preferred  securities may not be offered or
sold in the United States absent  registration  or an applicable  exemption from
the  registration  requirements  of the Securities Act of 1933, as amended,  and
applicable state securities laws.

The $20,619,000 of junior subordinated  debentures issued by TriCo Capital Trust
II were reflected as junior subordinated debt in the consolidated balance sheets
at December 31, 2007 and 2006. The common stock issued by TriCo Capital Trust II
was recorded in other assets in the consolidated  balance sheets at December 31,
2007 and 2006.

The debentures  issued by TriCo Capital Trust I and TriCo Capital Trust II, less
the common  securities  of TriCo  Capital  Trust I and TriCo  Capital  Trust II,
continue to qualify as Tier 1 or Tier 2 capital under interim guidance issued by
the Board of Governors of the Federal Reserve System (Federal Reserve Board).

Note 9 - Commitments and Contingencies (See also Notes 5 and 16)

The  Company  has  entered  into  employment  agreements  or change  of  control
agreements with certain officers of the Company providing  severance payments 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  Company is a  defendant  in legal  actions  arising  from  normal  business
activities.  Management  believes,  after consultation with legal counsel,  that
these  actions  are  without  merit  or that  the  ultimate  liability,  if any,
resulting  from them  will not  materially  affect  the  Company's  consolidated
financial position or results from operations.

                                       59


Note 10 - Shareholders' Equity

Dividends Paid
The  Bank  paid to the  Company  cash  dividends  in the  aggregate  amounts  of
$13,941,000,  $8,995,000,  and $11,190,000 in 2007, 2006 and 2005, respectively.
The Bank is regulated by the Federal Deposit  Insurance  Corporation  (FDIC) and
the State of California Department of Financial Institutions. California banking
laws 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 regulation,  at December 31,
2007, the Bank may pay dividends of $48,282,000.

Shareholders' Rights Plan
On June 25, 2001, the Company  announced that its Board of Directors adopted and
entered  into a  Shareholder  Rights  Plan  designed  to  protect  and  maximize
shareholder  value and to assist the Board of  Directors  in  ensuring  fair and
equitable  benefit to all  shareholders in the event of a hostile bid to acquire
the Company.

The Company  adopted this Rights Plan to protect  stockholders  from coercive or
otherwise unfair takeover  tactics.  In general terms, the Rights Plan imposes a
significant  penalty  upon any person or group that  acquires 15% or more of the
Company's  outstanding  common stock without  approval of the Company's Board of
Directors.  The Rights Plan was not adopted in response to any known  attempt to
acquire control of the Company.

Under the Rights  Plan, a dividend of one  Preferred  Stock  Purchase  Right was
declared  for each  common  share held of record as of the close of  business on
July 10, 2001.  No separate  certificates  evidencing  the Rights will be issued
unless and until they become exercisable.

The Rights  generally  will not become  exercisable  unless an acquiring  entity
accumulates or initiates a tender offer to purchase 15% or more of the Company's
common stock. In that event, each Right will entitle the holder,  other than the
unapproved acquirer and its affiliates,  to purchase either the Company's common
stock or shares in an acquiring entity at one-half of market value.

The Right's initial  exercise price,  which is subject to adjustment,  is $49.00
per Right. The Company's Board of Directors generally will be entitled to redeem
the Rights at a  redemption  price of $.01 per Right until an  acquiring  entity
acquires a 15% position. The Rights expire on July 10, 2011.

Stock Repurchase Plan
On August 21, 2007,  the Board of  Directors  adopted a plan to  repurchase,  as
conditions  warrant,  up to 500,000 shares of the Company's  common stock on the
open  market.  The  timing of  purchases  and the  exact  number of shares to be
purchased will depend on market  conditions.  The 500,000 shares  authorized for
repurchase under this stock repurchase plan  represented  approximately  3.2% of
the Company's  15,814,662  outstanding common shares as of August 21, 2007. This
stock  repurchase  plan has no  expiration  date.  As of December 31, 2007,  the
Company had repurchased no shares under this plan.

                                       60


Note 11 - Stock Options

In May 2001,  the Company  adopted the TriCo  Bancshares  2001 Stock Option Plan
(2001 Plan) covering officers, employees,  directors of, and consultants to, the
Company.  Under the 2001  Plan,  the option  price  cannot be less than the fair
market  value of the  Common  Stock at the date of grant  except  in the case of
substitute options. Options for the 2001 Plan expire on the tenth anniversary of
the  grant  date.   Vesting   schedules  under  the  2001  Plan  are  determined
individually for each grant.

In May 1995,  the Company  adopted the TriCo  Bancshares  1995  Incentive  Stock
Option Plan (1995 Plan) covering key employees.  Under the 1995 Plan, the option
price  cannot be less than the fair market value of the Common Stock at the date
of grant. Options for the 1995 Plan expire on the tenth anniversary of the grant
date. Vesting schedules under the 1995 Plan are determined individually for each
grant.

As of December 31, 2007, options for the purchase of 215,380 and 0 common shares
remained available for grant under the 2001 and 1995 Plans, respectively.  Stock
option activity is summarized in the following table:

                                                             Weighted   Weighted
                                                              Average    Average
                              Number          Option Price   Exercise Fair Value
                             Of Shares        Per Share       Price    of Grants
Outstanding at
   December 31, 2004        1,661,547    $2.62  to  $17.40   $10.52
     Options granted          112,000   $19.35  to  $20.58   $19.87      $4.30
     Options exercised       (136,289)   $2.62  to  $17.40    $7.14
     Options forfeited           (496)   $5.65  to   $5.65    $5.65
Outstanding at
   December 31, 2005        1,636,762    $5.65  to  $20.58   $11.44
     Options granted           87,000   $24.46  to  $25.91   $25.16      $8.50
     Options exercised       (190,287)   $6.13  to  $17.40    $8.66
     Options forfeited           (994)  $11.80  to  $11.80   $11.80
Outstanding at
   December 31, 2006        1,532,481    $5.65  to  $25.91   $12.57
     Options granted          220,050   $21.58  to  $22.54   $22.52      $7.70
     Options exercised       (382,350)   $5.65  to  $19.35   $10.67
     Options forfeited        (19,000)  $12.71  to  $19.35   $16.03
Outstanding at
   December 31, 2007        1,351,181    $5.65  to  $25.91   $14.68

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,
2007:



                                                   Currently    Currently Not      Total
(dollars in thousands except exercise price)       Exercisable  Exercisable     Outstanding

                                                                         
Number of options                                  1,031,827      319,354       1,351,181
Weighted average exercise price                       $12.49       $21.76          $14.68
Intrinsic value (thousands)                           $7,031            -           7,031
Weighted average remaining contractual term (yrs.)      2.83         8.71            4.22


The 319,354  options that are not currently  exercisable as of December 31, 2007
are expected to vest, on a weighted-average basis, over the next 3.01 years, and
the Company is expected to recognize  $1,998,000 of pre-tax  compensation  costs
related to these options as they vest.

                                       61


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,  and total tax benefit  recognized  in income  related to
compensation costs for options during the periods indicated:

                                                    Years Ended December 31,
                                                2007         2006         2005
                                             -----------------------------------
Intrinsic value of options exercised         $2,765,000   $3,446,000  $1,984,000
Fair value of options that vested              $782,000     $662,000    $675,000
Total compensation costs for options
 recognized in income                          $782,000     $662,000          $0
Total tax benefit recognized in income
 related to compensation costs for options     $264,000     $188,000          $0

The Company did not modify any option grants in 2007, 2006, or 2005.

Had  compensation  cost  for the  Company's  option  plans  been  determined  in
accordance  with SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:

                                                                  2005
(in thousands, except per share amounts)                        -------
Net income                                As reported           $23,671
                                            Pro forma           $23,267
Basic earnings per share                  As reported            $1.51
                                            Pro forma            $1.48
Diluted earnings per share                As reported            $1.45
                                            Pro forma            $1.42
Stock-based employee compensation
   cost, net of related tax effects,      As reported                $0
   included in net income                   Pro forma              $404

The fair  value  of the  Company's  stock  option  grants  is  estimated  on the
measurement date,  which, for the Company,  is the date of grant. The fair value
of stock options is estimated using the Black-Scholes  option-pricing model. The
Company  estimated  expected  market price  volatility  and expected term of the
options  based  on  historical  data and  other  factors.  The  weighted-average
assumptions  used to determine the fair value of options granted are detailed in
the table below:

                                                    Years Ended December 31,
Assumptions used to value option grants:        2007          2006         2005
                                               ---------------------------------
Average expected terms (years)                  8.1           7.1          6.5
Volatility                                     32.4%         32.6%        21.2%
Annual rate of dividends                        2.31%         1.91%        2.22%
Discount rate                                   4.81%         4.86%        3.90%

                                       62


Note 12 - Other Noninterest Income and Expenses

The components of other noninterest income were as follows:

                                                 Years Ended December 31,
                                             2007           2006         2005
         (in thousands)                    -----------------------------------
        Sale of customer checks              $210           $210         $218
        Lease brokerage income                267            247          301
        Commission rebates                    626            653          498
        Other                                 517            399          293
                                           -----------------------------------
        Total other noninterest income     $1,620         $1,509       $1,310
                                           ===================================
Mortgage  loan  servicing  fees,  net of change in fair value of  mortgage  loan
servicing rights,  totaling $508,000,  $558,000, and $267,000,  were recorded in
service  charges and fees  noninterest  income for the years ended  December 31,
2007, 2006, and 2005, respectively.

The components of salaries and benefits expense were as follows:



                                                               Years Ended December 31,
                                                              2007       2006        2005
  (in thousands)                                           --------------------------------
                                                                           
Base salaries, net of deferred loan origination costs      $24,582     $22,788     $20,910
Incentive compensation                                       3,808       4,633       5,053
Benefits and other compensation costs                        9,676       9,034       7,963
                                                          ---------------------------------
     Total salaries and benefits expense                   $38,066     $36,455     $33,926
                                                          =================================


The components of other noninterest expense were as follows:

                                                      Years Ended December 31,
                                                  2007         2006        2005
 (in thousands)                                ---------------------------------
Equipment and data processing                   $6,300      $5,926      $5,783
Occupancy                                        4,786       4,450       4,041
Advertising                                      2,186       2,090       1,732
ATM network charges                              1,857       1,839       1,644
Telecommunications                               1,706       1,573       1,521
Professional fees                                1,516       1,652       1,247
Courier service                                  1,223       1,308       1,151
Postage                                            916       1,006         889
Intangible amortization                            490       1,395       1,381
Operational losses                                 454         374         225
Assessments                                        331         326         312
Change in reserve for unfunded commitments         241          36         281
Other                                            8,834       8,296       7,977
                                               ---------------------------------
     Total other noninterest expense           $30,840     $30,271     $28,184
                                               =================================

Note 13 - Income Taxes

The components of consolidated income tax expense are as follows:
                               ------------------------------------------
                                 2007             2006            2005
   (in thousands)              ------------------------------------------
Current tax expense
     Federal                    $12,750         $14,155        $12,937
     State                        4,401           4,812          4,453
                               -----------------------------------------
                                 17,151          18,967         17,390
                               -----------------------------------------
Deferred tax benefit
     Federal                       (337)         (1,329)        (1,763)
     State                         (169)           (350)          (460)
                               -----------------------------------------
                                   (506)         (1,679)        (2,223)
                               -----------------------------------------
Total tax expense               $16,645         $17,288        $15,167
                               =========================================

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.

                                       63


Taxes  recorded  directly  to  shareholders'  equity  are  not  included  in the
preceding table.  These taxes (benefits)  relating to changes in minimum pension
liability amounting to ($10,000) in 2007,  ($880,000) in 2006, and ($155,000) in
2005,  unrealized gains and losses on  available-for-sale  investment securities
amounting to $2,164,000 in 2007, $376,000 in 2006, and ($2,421,000) in 2005, and
benefits  related to employee stock options of ($1,731,000) in 2007,  ($205,000)
in 2006, and ($425,000) in 2005, were recorded directly to shareholders' equity.

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:

                                                        2007              2006
  (in thousands)                                    ----------------------------
Deferred tax assets:
  Allowance for losses                                $8,166            $7,889
  Deferred compensation                                3,477             3,442
  Accrued pension liability                            3,104             2,705
  Additional minimum pension liability                 1,669             1,659
  State taxes                                          1,434             1,651
  Intangible amortization                              1,070             1,324
  Stock option expense                                   448               207
  Nonaccrual interest                                    261               150
  OREO write downs                                        76                76
  Capital lease                                           46                63
  Unrealized loss on securities                            -             1,621
                                                     ---------------------------
    Total deferred tax assets                         19,751            20,787
                                                     ---------------------------
Deferred tax liabilities:
  Securities income                                   (1,134)             (947)
  Unrealized gain on securities                         (543)                -
  Depreciation                                          (543)             (860)
  Core deposit premium                                  (494)             (700)
  Merger related fixed asset valuations                 (379)             (379)
  Securities accretion                                  (123)             (146)
  Mortgage servicing rights valuation                   (558)             (110)
  Other, net                                            (297)             (317)
                                                     ---------------------------
   Total deferred tax liability                       (4,071)           (3,459)
                                                     ---------------------------
Net deferred tax asset                               $15,680           $17,328
                                                     ===========================

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.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. The Company had no unrecognized
tax benefits  which would require an adjustment to the January 1, 2007 beginning
balance of retained  earnings.  The Company had no unrecognized  tax benefits at
January 1, 2007 and at December 31, 2007.

The Company  recognizes  interest accrued and penalties  related to unrecognized
tax benefits in tax expense.  During the years ended  December 31, 2007 and 2006
the Company recognized no interest and penalties.

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 or state/local  income tax  examinations  by tax  authorities  for years
before 2004.

The provisions for income taxes  applicable to income before taxes for the years
ended December 31, 2007, 2006 and 2005 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:

                                                       Years Ended December 31,
                                                    ----------------------------
                                                     2007        2006       2005
                                                    ----------------------------
Federal statutory income tax rate                   35.0%       35.0%      35.0%
State income taxes, net of federal tax benefit       6.6         6.6        6.7
Tax-exempt interest on municipal obligations        (1.1)       (1.3)      (1.5)
Increase in cash value of insurance policies        (1.2)       (1.4)      (1.4)
Other                                                 -           0.3       0.3
                                                    ----------------------------
Effective Tax Rate                                  39.3%       39.2%      39.1%
                                                    ============================

                                       64


Note 14 - 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 does not  contribute to the 401(k) Plan.  The Company did not
incur any expenses attributable to the 401(k) Plan during 2007, 2006, and 2005.

Employee Stock Ownership Plan
Substantially  all employees  with at least one year of service are covered by a
discretionary  employee stock ownership plan (ESOP).  Contributions  are made to
the plan at the discretion of the Board of Directors.  Contributions to the plan
totaling  $1,560,000  in 2007,  $1,498,000 in 2006,  and  $1,279,000 in 2005 are
included in salary expense.  Company shares owned by the ESOP are paid dividends
and included in the  calculation  of earnings per share  exactly as other common
shares outstanding.

Deferred Compensation Plans
The Company has deferred  compensation  plans for directors and key  executives,
which allow 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 the  participants  and intends to hold these  policies
until  death  as  a  cost  recovery  of  the  Company's  deferred   compensation
obligations  of  $8,269,000,  and  $8,187,000  at  December  31,  2007 and 2006,
respectively.  Earnings credits on deferred  balances totaling $742,000 in 2007,
$724,000 in 2006, and $599,000 in 2005 are included in noninterest expense.

Supplemental Retirement Plans
The Company has supplemental  retirement plans for 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  retirement
obligations  were  $44,981,000  and  $43,536,000  at December 31, 2007 and 2006,
respectively.

The  Company  recorded  in  other  liabilities  an  additional  minimum  pension
liability of $3,970,000 and $3,946,000  related to the  supplemental  retirement
plans as of December 31, 2007 and 2006,  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,  2006,  the Company  adopted  SFAS 158,  which was  previously
discussed  in Note 1. The  incremental  impact  of  adoption  of SFAS 158 was an
increase in additional  minimum  liability of $2,095,000,  which was offset by a
reduction of  shareholders'  equity of  $1,215,000,  representing  the after-tax
impact of the adoption, and the related deferred tax asset of $880,000.

At December  31, 2007 and 2006,  the  additional  minimum  pension  liability of
$3,970,000 and  $3,946,000  were offset by a reduction of  shareholders'  equity
accumulated other comprehensive loss of $2,301,000 and $2,287,000, respectively,
representing the after-tax impact of the additional  minimum pension  liability,
and the related  deferred tax asset of $1,669,000 and $1,659,000,  respectively.
The Company  expects to recognize  approximately  $148,000 of the net  actuarial
loss reported in the  following  table as of December 31, 2007 as a component of
net  periodic  benefit cost during 2008.  Amounts  recognized  as a component of
accumulated  other  comprehensive  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.

                                                                 December 31,
                                                              2007         2006
  (in thousands)                                           ---------------------
Net actuarial loss                                         ($2,823)     ($2,616)
Deferred tax benefit                                         1,187        1,100
                                                           ---------------------
Amount included in accumulated other comprehensive loss,   ($1,636)     ($1,516)
  net of tax                                               =====================

                                       65


Information  pertaining to the activity in the  supplemental  retirement  plans,
using a measurement date of December 31, is as follows:

                                                               December 31,
                                                           2007        2006
  (in thousands)                                        -----------------------
Change in benefit obligation:
Benefit obligation at beginning of year                 ($10,378)     ($9,865)
Service cost                                                (599)        (555)
Interest cost                                               (583)        (528)
Amendments                                                     -            -
Actuarial gain/(loss)                                       (320)          40
Benefits paid                                                527          530
                                                        -----------------------
Benefit obligation at end of year                       ($11,353)    ($10,378)
                                                        =======================
Change in plan assets:
Fair value of plan assets at beginning of year           $    --      $    --
                                                        -----------------------
Fair value of plan assets at end of year                 $    --      $    --
                                                        =======================
Funded status                                            ($11,353)    ($10,378)
Unrecognized net obligation existing at January 1, 1986        23           25
Unrecognized net actuarial loss                             2,823        2,616
Unrecognized prior service cost                             1,124        1,305
Accumulated other comprehensive income                     (3,970)      (3,946)
                                                         ----------------------
Accrued benefit cost                                     ($11,353)    ($10,378)
                                                         ======================
Accumulated benefit obligation                            ($8,588)     ($8,830)

The following table sets forth the net periodic  benefit cost recognized for the
supplemental retirement plans:

                                                        Years Ended December 31,
                                                         2007     2006   2005
  (in thousands)                                       -------------------------
Net pension cost included the following components:
Service cost-benefits earned during the period           $599     $555   $417
Interest cost on projected benefit obligation             583      528    533
Amortization of net obligation at transition                2        2      6
Amortization of prior service cost                        181      201    224
Recognized net actuarial loss                             113      134     94
                                                       -----------------------
Net periodic pension cost                              $1,478   $1,420 $1,274
                                                       =======================

The following table sets forth assumptions used in accounting for the plans:

                                                        Years Ended December 31,
                                                           2007    2006   2005
                                                         -----------------------
Discount rate used to calculate benefit obligation         6.00%   5.75%  5.50%
Discount rate used to calculate net periodic pension cost  5.75%   5.50%  6.25%
Average annual increase in executive compensation          4.00%   5.00%  5.00%
Average annual increase in director compensation           2.50%   2.50%  2.50%

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:
                                          Expected Benefit        Estimated
                                          Payments to             Company
       Years Ended                        Participants            Contributions
       -----------                        -------------------------------------
                                                     (in thousands)
          2008                                 $587                   $587
          2009                                  616                    616
          2010                                  616                    616
          2011                                  772                    772
          2012                                  772                    772
        2013-2017                            $3,981                 $3,981

                                       66


Note 15 - 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.  It is the  Company's  policy  that all loans and
commitments to lend to officers and directors be made on substantially  the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable transactions with other borrowers of the Bank.

The following table summarizes the activity in these loans for 2007 and 2006 (in
thousands):

Balance December 31, 2005                     $10,146
Advances/new loans                              5,726
Removed/payments                               (9,335)
                                              --------
Balance December 31, 2006                       6,537
Advances/new loans                              3,909
Removed/payments                               (5,228)
                                              --------
Balance December 31, 2007                      $5,218
                                              ========

Note 16 - 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.


                                                           December 31,
                                                        2007         2006
  (in thousands)                                      ---------------------
Financial instruments whose amounts represent risk:
  Commitments to extend credit:
    Commercial loans                                   $141,914    $107,360
    Consumer loans                                      464,154     408,317
    Real estate mortgage loans                           23,326      37,859
    Real estate construction loans                       56,212      63,262
    Standby letters of credit                             5,027       6,335
  Deposit account overdraft privilege                    33,517      33,290

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 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.

                                       67


Note 17 - Disclosure of Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial  instrument  for which it is practical to estimate  that
value.  Cash and due from banks, fed funds purchased and sold,  accrued interest
receivable  and payable,  and short-term  borrowings  are considered  short-term
instruments. For these short-term instruments their carrying amount approximates
their fair value.

Securities
For all  securities,  fair  values are based on quoted  market  prices or dealer
quotes. See Note 3 for further analysis.

Loans
The fair  value of  variable  rate  loans is the  current  carrying  value.  The
interest rates on these loans are regularly  adjusted to market rates.  The fair
value of other types of fixed rate loans is estimated by discounting  the future
cash flows using current rates at which similar loans would be made to borrowers
with similar credit ratings for the same remaining maturities. The allowance for
loan losses is a reasonable estimate of the valuation allowance needed to adjust
computed fair values for credit quality of certain loans in the portfolio.

Deposit Liabilities and Long-Term Debt
The fair value of demand deposits,  savings  accounts,  and certain money market
deposits is the amount payable on demand at the reporting date.  These values do
not consider the estimated fair value of the Company's core deposit  intangible,
which is a significant unrecognized asset of the Company. The fair value of time
deposits and debt is based on the discounted value of contractual cash flows.

Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments is estimated  using the fees currently  charged to
enter into similar  agreements,  taking into account the remaining  terms of the
agreements and the present credit  worthiness of the counter parties.  For fixed
rate loan commitments,  fair value also considers the difference between current
levels of interest rates and the committed  rates.  The fair value of letters of
credit is based on fees  currently  charged  for  similar  agreements  or on the
estimated  cost to terminate them or otherwise  settle the  obligation  with the
counter parties at the reporting date.

Fair values for financial  instruments are management's  estimates of the values
at which the  instruments  could be exchanged in a transaction  between  willing
parties.  These estimates are subjective and may vary significantly from amounts
that would be realized in actual  transactions.  In addition,  other significant
assets are not  considered  financial  assets  including,  any mortgage  banking
operations,  deferred tax assets, and premises and equipment.  Further,  the tax
ramifications  related to the realization of the unrealized gains and losses can
have a  significant  effect  on the  fair  value  estimates  and  have  not been
considered in any of these estimates. The estimated fair values of the Company's
financial instruments are as follows:




                                                  December 31, 2007                  December 31, 2006
                                            ---------------------------       -----------------------------
                                             Carrying           Fair            Carrying           Fair
                                              Amount           Value             Amount            Value
  (in thousands)                            ---------------------------       -----------------------------
                                                                                      
Financial assets:
  Cash and due from banks                     $88,798          $88,798          $102,220          $102,220
  Federal funds sold                                -                -               794               794
  Securities available-for-sale               232,427          232,427           198,361           198,361
  Federal Home Loan Bank stock, at cost         8,766            8,766             8,320             8,320
  Loans, net                                1,534,635        1,554,266         1,492,965         1,492,617
  Cash value of life insurance                 44,981           44,981            43,536            43,536
  Accrued interest receivable                   8,554            8,554             8,727             8,727
Financial liabilities:
  Deposits                                  1,545,223        1,483,542         1,599,149         1,489,411
  Accrued interest payable                      7,871            7,871             7,548             7,548
  Federal funds purchased                      56,000           56,000            38,000            38,000
  Other borrowings                            116,126          120,088            39,911            40,119
  Junior subordinated debt                     41,238           41,238            41,238            41,238

                                             Contract           Fair            Contract            Fair
                                               Amount           Value            Amount             Value
Off-balance sheet:                          ----------------------------      -----------------------------
 Commitments                                 $685,606           $6,856          $616,798            $6,168
 Standby letters of credit                      5,027               50             6,335                63
 Overdraft privilege commitments               33,517              335            33,290               333



                                       68


Note 18 - TriCo Bancshares Financial Statements



TriCo Bancshares (Parent Only) Balance Sheets
                                                                                 December 31,
                                                                          --------------------------
                                                                              2007           2006
                                                                          --------------------------
                                                                                       
  (in thousands)
Assets
Cash and Cash equivalents                                                    $1,405          $1,472
Investment in Tri Counties Bank                                             227,946         208,410
Other assets                                                                  1,427           1,430
                                                                          --------------------------
   Total assets                                                            $230,778        $211,312
                                                                          ==========================
Liabilities and shareholders' equity
Other liabilities                                                              $662            $638
Junior subordinated debt                                                     41,238          41,238
                                                                          --------------------------
   Total liabilities                                                        $41,900         $41,876
                                                                          ==========================
Shareholders' equity:
Common stock, no par value: authorized 50,000,000 shares;
 issued and outstanding 15,911,550 and 15,857,207 shares, respectively      $78,775         $73,739
Retained earnings                                                           111,655         100,218
Accumulated other comprehensive loss, net                                    (1,552)         (4,521)
                                                                          ---------------------------
    Total shareholders' equity                                             $188,878        $169,436
                                                                          ---------------------------
    Total liabilities and shareholders' equity                             $230,778        $211,312
                                                                          ===========================




                                                                               Years ended December 31,
                                                                    --------------------------------------
                                                                      2007           2006           2005
                                                                    --------------------------------------
                                                                                          
  (in thousands)
Statements of Income
Dividend income                                                         $18            $18           $18
Interest expense                                                     (3,296)        (3,202)       (2,482)
Administration expense                                                 (701)          (584)         (536)
                                                                    --------------------------------------
Loss before equity in net income of Tri Counties Bank                (3,980)        (3,768)       (3,000)
Equity in net income of Tri Counties Bank:
   Distributed                                                       13,941          8,995        11,190
   Undistributed                                                     14,055         20,014        14,213
Income tax benefit                                                    1,677          1,589         1,268
                                                                    --------------------------------------
 Net income                                                         $25,693        $26,830       $23,671
                                                                    ======================================


                                                                           Years ended December 31,
                                                                    --------------------------------------
 (in thousands)                                                       2007           2006          2005
Statements of Cash Flows                                            --------------------------------------
Operating activities:
   Net income                                                       $25,693         $26,830      $23,671
   Adjustments to reconcile net income to net cash provided
      by operating activities:
    Undistributed equity in Tri Counties Bank                        (14,055)        (20,014)     (14,213)
    Stock option vesting expense                                        782             662            --
    Stock option excess tax benefits                                 (1,731)           (205)        (425)
    Net change in other assets and liabilities                         (754)           (167)        (127)
                                                                    --------------------------------------
     Net cash provided by operating activities                        9,935           7,106        8,906
Investing activities: None
Financing activities:
   Issuance of common stock through option exercise                     704             537          972
   Stock option excess tax benefits                                   1,731             205          425
   Repurchase of common stock                                        (4,167)             --       (3,161)
   Cash dividends paid  --  common                                   (8,270)         (7,595)      (7,073)
                                                                    -------------------------------------
     Net cash used for financing activities                         (10,002)         (6,853)      (8,837)
                                                                    -------------------------------------
     Increase (decrease) in cash and cash equivalents                   (67)            253           69
Cash and cash equivalents at beginning of year                        1,472           1,219        1,150
                                                                    -------------------------------------
Cash and cash equivalents at end of year                             $1,405          $1,472       $1,219
                                                                    =====================================

                                       69



Note 19 - Regulatory Matters

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  the Company to  maintain  minimum  amounts and ratios (set forth in the
table below) of total and Tier 1 capital to risk-weighted  assets, and of Tier 1
capital to average assets.  Management  believes,  as of December 31, 2007, that
the Company meets all capital adequacy requirements to which it is subject.

As of December 31, 2007, the most recent  notification from the FDIC categorized
the  Bank  as  well  capitalized  under  the  regulatory  framework  for  prompt
corrective  action. To be categorized as well capitalized the Bank must maintain
minimum total  risk-based,  Tier 1 risk-based and Tier 1 leverage  ratios as set
forth  in the  table  below.  There  are no  conditions  or  events  since  that
notification that Management  believes have changed the institution's  category.
The Bank's actual capital amounts and ratios are also presented in the table.




                                                                                                             Minimum
                                                                                                           To Be Well
                                                                                                        Capitalized Under
                                                                                   Minimum              Prompt Corrective
                                                        Actual               Capital Requirement        Action Provisions
                                               ---------------------------------------------------------------------------
                                                  Amount       Ratio           Amount      Ratio         Amount      Ratio
 (dollars in thousands)                        ---------------------------------------------------------------------------
                                                                                                   

As of December 31, 2007:
Total Capital (to Risk Weighted Assets):
  Consolidated                                  $232,747        11.90%          $156,501    8.0%         N/A         N/A
  Tri Counties Bank                             $231,815        11.86%          $156,387    8.0%        $195,484     10.0%
Tier 1 Capital (to Risk Weighted Assets):
  Consolidated                                  $213,326        10.90%          $78,251     4.0%        N/A          N/A
  Tri Counties Bank                             $212,394        10.87%          $78,194     4.0%        $117,290     6.0%
Tier 1 Capital (to Average Assets):
   Consolidated                                 $213,326        11.16%          $76,429     4.0%         N/A         N/A
   Tri Counties Bank                            $212,394        11.12%          $76,366     4.0%        $95,458      5.0%

As of December 31, 2006:
Total Capital (to Risk Weighted Assets):
  Consolidated                                  $215,144        11.44%          $150,487    8.0%         N/A         N/A
  Tri Counties Bank                             $214,118        11.39%          $150,373    8.0%        $187,966     10.0%
Tier 1 Capital (to Risk Weighted Assets):
  Consolidated                                  $196,381        10.44%          $75,244     4.0%        N/A          N/A
  Tri Counties Bank                             $195,355        10.39%          $75,186     4.0%        $112,780     6.0%
Tier 1 Capital (to Average Assets):
  Consolidated                                  $196,381        10.49%          $74,914     4.0%         N/A         N/A
  Tri Counties Bank                             $195,355        10.44%          $74,851     4.0%        $93,564      5.0%


                                       70



Note 20 - Summary of Quarterly Results of Operations (unaudited)

The following  table sets forth the results of operations  for the four quarters
of 2007 and 2006, and is unaudited;  however,  in the opinion of Management,  it
reflects  all  adjustments  (which  include only normal  recurring  adjustments)
necessary to present fairly the summarized results for such periods.



                                                                    2007 Quarters Ended
                                                    --------------------------------------------------------
                                                     December 31,  September 30,    June 30,       March 31,
 (dollars in thousands, except per share data)      --------------------------------------------------------
                                                                                       

Interest income                                        $32,179        $32,442        $31,986       $30,661
Interest expense                                        10,869         10,602          9,895         9,216
                                                     ---------       --------       --------      --------
Net interest income                                     21,310         21,840         22,091        21,445
Provision for loan losses                                1,350            700            500           482
                                                     ---------       --------       --------      --------
Net interest income after
  provision for loan losses                             19,960         21,140         21,591        20,963
Noninterest income                                       7,114          6,847          7,029         6,600
Noninterest expense                                     17,751         16,752         17,443        16,960
                                                      --------       --------       --------      --------
Income before income taxes                               9,323         11,235         11,177        10,603
Income tax expense                                       3,622          4,442          4,422         4,159
                                                     ---------      ---------      ---------      --------
Net income                                            $  5,701       $  6,793       $  6,755      $  6,444
                                                      ========       ========       ========      ========
Per common share:
  Net income (diluted)                                $   0.35       $   0.42       $   0.41      $   0.39
                                                      ========       ========       ========      ========
  Dividends                                           $   0.13       $   0.13       $   0.13      $   0.13
                                                      =========      ========       ========      ========


                                                                    2006 Quarters Ended
                                                    ------------------------------------------------------
                                                     December 31,   September 30,   June 30,     March 31,
  dollars in thousands, except per share data)      ------------------------------------------------------
Interest income                                        $31,545        $31,421        $29,379       $27,978
Interest expense                                         9,821          9,576          8,275         6,773
                                                     ---------      ---------       --------      --------
Net interest income                                     21,724         21,845         21,104        21,205
Provision for loan losses                                    -            235            554           500
                                                     ---------      ---------       --------      --------
Net interest income after
  provision for loan losses                             21,724         21,610        20,550         20,705
Noninterest income                                       6,628          6,649          6,531         6,448
Noninterest expense                                     17,002         17,026         16,276        16,422
                                                      --------       --------       --------      --------
Income before income taxes                              11,350         11,233         10,805        10,731
Income tax expense                                       4,432          4,413          4,248         4,196
                                                      --------       --------       --------      --------
Net income                                            $  6,918       $  6,820       $  6,557      $  6,535
                                                      ========       ========       ========      ========
Per common share:
  Net income (diluted)                                $   0.42       $   0.42       $   0.40      $   0.40
                                                      ========       ========       ========      ========
  Dividends                                           $   0.12       $   0.12       $   0.12      $   0.12
                                                      ========       ========       ========      ========


                                       71


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 Internal  Control -  Integrated  Framework
issued by the Committee of Sponsoring  Organizations of the Treadway Commission.
Based on this  evaluation  under the framework in 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, 2007.

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.

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, 2007,  and the  Company's  effectiveness  of internal  control over
financial reporting as of December 31, 2007, as stated in its reports, which are
included herein.



/s/ Richard P. Smith
---------------------
Richard P. Smith
President and Chief Executive Officer



/s/ Thomas J. Reddish
---------------------
Thomas J. Reddish
Executive Vice President and Chief Financial Officer


March 11, 2008

                                       72


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
TriCo Bancshares

We have audited the accompanying  consolidated balance sheet of TriCo Bancshares
and  subsidiary,  (the  Company)  as  of  December  31,  2007  and  the  related
consolidated  statements  of income,  changes in  shareholders'  equity and cash
flows for the year then ended.  We have also audited TriCo  Bancshares  internal
control over  financial  reporting  as of December  31, 2007,  based on criteria
established in Internal  Control - Integrated  Framework issued by the Committee
of  Sponsoring   Organizations  of  the  Treadway  Commission  (COSO).   TriCo's
management  is  responsible  for these  financial  statements,  for  maintaining
effective internal control over financial  reporting,  and for its assessment of
the   effectiveness   of  internal   control  over  financial   reporting.   Our
responsibility  is to express an opinion on these  financial  statements  and an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement  and whether  effective  internal
control over  financial  reporting was maintained in all material  respects.  An
audit includes examining,  on a test basis,  evidence supporting the amounts and
disclosures in the financial  statements.  An audit also includes  assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. An audit of internal
control over financial reporting includes obtaining an understanding of internal
control over financial  reporting,  assessing the risk that a material  weakness
exists,  testing  and  evaluating  the design  and  operating  effectiveness  of
internal  control  based  on  the  assessed  risk,  and  performing  such  other
procedures as we considered necessary in the circumstances.  We believe that our
audit provides a reasonable basis for our opinion.

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 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
the  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.

In our opinion,  the 2007 consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
TriCo Bancshares and subsidiary as of December 31, 2007 and the results of their
operations and cash flows for the year then ended in conformity  with accounting
principles  generally  accepted in the United  States of America.  Also,  in our
opinion  TriCo  Bancshares  maintained,  in  all  material  respects,  effective
internal  control over  financial  reporting  as of December 31, 2007,  based on
criteria  established in Internal  Control - Integrated  Framework issued by the
COSO.

As  discussed  in  Notes1  and  11 to  the  consolidated  financial  statements,
effective  January 1, 2006,  the Company  changed its method of  accounting  for
share-based payment arrangements to conform to Statement of Financial Accounting
Standard (SFAS) No. 123(R), Share-Based Payments.


/s/ Moss Adams, LLP
--------------------
Stockton, California
March 12, 2008
                                       73


Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
TriCo Bancshares:

We have audited the accompanying  consolidated balance sheet of TriCo Bancshares
and subsidiary as of December 31, 2006, and the related consolidated  statements
of income, changes shareholders' equity, and cash flows for each of the years in
the two-year  period  ended  December 31,  2006.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of TriCo Bancshares and
subsidiary as of  December 31,  2006,  and the results of their  operations  and
their cash flows for each of the years in the two-year period ended December 31,
2006, in conformity with U.S. generally accepted accounting principles.


/s/ KPMG, LLP
---------------------
Sacramento, California
March 13, 2007

                                       74


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

On March 15, 2007,  our audit  committee  dismissed  our  principal  independent
auditor,  KPMG,  LLP,  and  engaged  the  services  of Moss Adams LLP as our new
principal independent auditor on March 15, 2007, for the year ended December 31,
2007.  During the years  ended  December  31, 2005 and 2006,  and the  following
interim  period  through  March 15,  2007,  we did not  consult  with Moss Adams
regarding any of the matters or events set forth in Item  304(a)(2)(i)  and (ii)
of Regulation S-K.

During the years ended  December 31, 2005 and 2006,  and the  following  interim
period  through March 15, 2007,  there were no  disagreements  between TriCo and
KPMG on any matter of accounting  principles or practices,  financial  statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to KPMG's satisfaction,  would have caused KPMG to make reference to the subject
matter of the  disagreement  in  connection  with its  reports on our  financial
statements for such periods. Also, none of the reportable events described under
Item  304(a)(1)(v)  of Regulation S-K occurred  within the two most recent years
ended December 31, 2005 and 2006 or within the following  interim period through
March 15, 2007.

The audit reports of KPMG on our consolidated financial statements as of and for
the years ended  December 31, 2005 and 2006 did not contain any adverse  opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or  accounting  principles.  We requested  KPMG to furnish us with a
letter addressed to the Securities and Exchange  Commission stating whether they
agreed  with the above  statements.  A copy of that  letter  was filed  with the
Commission on a Form 8-K filed on March 21, 2007.


ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of December 31, 2007,  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, 2007,  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

The  Company's  management  is  responsible  for  establishing  and  maintaining
effective  internal  control  over  financial  reporting  (as  defined  in  Rule
13a-15(f) under the Securities Exchange Act of 1934 as amended) for the Company.
The Company's  internal  control over  financial  reporting is under the general
oversight of the Board of Directors acting through the Audit Committee, which is
composed  entirely  of  independent  directors.  Moss Adams LLP,  the  Company's
independent  registered  public  accounting  firm,  has direct and  unrestricted
access to the Audit  Committee  at all  times,  with no  members  of  management
present,  to  discuss  its  audit and any  other  matters  that have come to its
attention  that may affect the  Company's  accounting,  financial  reporting  or
internal  controls.  The Audit Committee  meets  periodically  with  management,
internal  auditors and Moss Adams LLP to determine  that each is fulfilling  its
responsibilities  and to support  actions to identify,  measure and control risk
and augment  internal  control over financial  reporting.  Internal control over
financial  reporting,  however,  cannot provide absolute  assurance of achieving
financial reporting objectives because of its inherent limitations.

Under the supervision and with the  participation  of management,  including the
Company's  Chief  Executive  Officer and Chief  Financial  Officer,  the Company
conducted an evaluation of the  effectiveness of internal control over financial
reporting as of December 31, 2007 based on the framework in "Internal  Control -
Integrated Framework" issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based upon that evaluation,  management concluded that the
Company's internal control over financial reporting was effective as of December
31, 2007.  Management's  report on internal control over financial  reporting is
set forth on page 72 of this report and is incorporated herein by reference. The
effectiveness of the Company's  internal control over financial  reporting as of
December 31, 2007 has been audited by Moss Adams LLP, an independent  registered
public  accounting firm, as stated in its report,  which is set forth on page 73
of this report and is incorporated herein by reference.

                                       75


(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,  2007,  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 2007 was so disclosed.

                                       76


                                    PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The  information  required by this Item 10 is  incorporated  herein by reference
from the Company's  Proxy Statement for the annual meeting of shareholders to be
held on May 20,  2008,  which  will be filed  with the  Commission  pursuant  to
Regulation 14A.

ITEM 11.  EXECUTIVE COMPENSATION

The  information  required by this Item 11 is  incorporated  herein by reference
from the Company's  Proxy Statement for the annual meeting of shareholders to be
held on May 20,  2008,  which  will be filed  with the  Commission  pursuant  to
Regulation 14A.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The  information  required by this Item 12 is  incorporated  herein by reference
from the Company's  Proxy Statement for the annual meeting of shareholders to be
held on May 20,  2008,  which  will be filed  with the  Commission  pursuant  to
Regulation 14A.

ITEM  13.  CERTAIN   RELATIONSHIPS  AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
INDEPENDENCE

The  information  required by this Item 13 is  incorporated  herein by reference
from the Company's  Proxy Statement for the annual meeting of shareholders to be
held on May 20,  2008,  which  will be filed  with the  Commission  pursuant  to
Regulation 14A.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The  information  required by this Item 14 is  incorporated  herein by reference
from the Company's  Proxy Statement for the annual meeting of shareholders to be
held on May 20,  2008,  which  will be filed  with the  Commission  pursuant  to
Regulation 14A.

                                     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 beginning
     at page  41 of  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  Item 8 of this
     report.

3. Exhibits.

     The following  documents are included or  incorporated by reference in this
     annual report on Form 10-K, and this list includes the Exhibit Index.

                                       77


Exhibit No.                                         Exhibit Index

     3.1* Restated Articles of Incorporation dated May 9, 2003, filed as Exhibit
          3.1 to TriCo's  Quarterly  Report on Form 10-Q for the  quarter  ended
          March 31, 2003.

     3.2* Bylaws  of TriCo  Bancshares,  as  amended,  filed as  Exhibit  3.2 to
          TriCo's Form S-4  Registration  Statement  dated January 16, 2003 (No.
          333-102546).

     4*   Certificate  of  Determination  of  Preferences  of  Series  AA Junior
          Participating   Preferred  Stock  filed  as  Exhibit  3.3  to  TriCo's
          Quarterly  Report on Form 10-Q for the  quarter  ended  September  30,
          2001.

    10.1* Rights  Agreement  dated  June 25,  2001,  between  TriCo  and  Mellon
          Investor  Services  LLC filed as Exhibit 1 to  TriCo's  Form 8-A dated
          July 25, 2001.

     10.2*Form of Change of  Control  Agreement  dated as of  August  23,  2005,
          between TriCo, Tri Counties Bank and each of Bruce Belton, Dan Bailey,
          Craig  Carney,  Gary  Coelho,  W.R.  Hagstrom,  Rick  Miller,  Richard
          O'Sullivan,  Thomas  Reddish,  and Ray Rios filed as  Exhibit  10.2 to
          TriCo's  Quarterly Report on Form 10-Q for the quarter ended September
          30, 2005.

     10.6*TriCo's  1995  Incentive  Stock  Option  Plan filed as Exhibit  4.1 to
          TriCo's  Form S-8  Registration  Statement  dated August 23, 1995 (No.
          33-62063).

     10.7*TriCo's 2001 Stock Option Plan,  as amended,  filed as Exhibit 10.7 to
          TriCo's  Quarterly  Report on Form 10-Q for the quarter ended June 30,
          2005.

     10.8*Amended Employment  Agreement between TriCo and Richard Smith dated as
          of August 23, 2005 filed as Exhibit 10.8 to TriCo's  Quarterly  Report
          on Form 10-Q for the quarter ended September 30, 2005.

     10.9*Tri Counties Bank Executive Deferred  Compensation Plan restated April
          1,  1992,  and  January  1,  2005  filed as  Exhibit  10.9 to  TriCo's
          Quarterly  Report on Form 10-Q for the  quarter  ended  September  30,
          2005.

    10.10*Tri Counties Bank Deferred  Compensation Plan for Directors  effective
          January 1, 2005 filed as Exhibit 10.10 to TriCo's  Quarterly Report on
          Form 10-Q for the quarter ended September 30, 2005.

    10.11*2005 Tri Counties Bank Deferred  Compensation  Plan for Executives and
          Directors  effective January 1, 2005 filed as Exhibit 10.11 to TriCo's
          Quarterly  Report on Form 10-Q for the  quarter  ended  September  30,
          2005.

    10.13*Tri Counties Bank  Supplemental  Retirement  Plan for Directors  dated
          September  1, 1987,  as  restated  January 1, 2001,  and  amended  and
          restated  January 1, 2004 filed as Exhibit 10.12 to TriCo's  Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2004.

    10.14*2004  TriCo  Bancshares  Supplemental  Retirement  Plan for  Directors
          effective  January 1, 2004 filed as Exhibit 10.13 to TriCo's Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2004.

    10.15*Tri Counties Bank  Supplemental  Executive  Retirement  Plan effective
          September 1, 1987,  as amended and  restated  January 1, 2004 filed as
          Exhibit 10.14 to TriCo's Quarterly Report on Form 10-Q for the quarter
          ended June 30, 2004.

    10.16*2004 TriCo Bancshares Supplemental Executive Retirement Plan effective
          January 1, 2004 filed as Exhibit 10.15 to TriCo's  Quarterly Report on
          Form 10-Q for the quarter ended June 30, 2004.

    10.17*Form of Joint Beneficiary  Agreement  effective March 31, 2003 between
          Tri Counties Bank and each of George Barstow, Dan Bailey, Dan Bay, Ron
          Bee, Craig Carney,  Robert Elmore, Greg Gill, Richard Miller,  Richard
          O'Sullivan,  Thomas Reddish,  Jerald Sax, and Richard Smith,  filed as
          Exhibit 10.14 to TriCo's Quarterly Report on Form 10-Q for the quarter
          ended September 30, 2003.

                                       78


    10.18*Form of Joint Beneficiary  Agreement  effective March 31, 2003 between
          Tri Counties Bank and each of Don Amaral,  Dan Bailey,  William Casey,
          Craig  Compton,  John Hasbrook,  Michael  Koehnen,  Wendell  Lundberg,
          Donald Murphy,  Carroll Taresh, and Alex Vereshagin,  filed as Exhibit
          10.15 to TriCo's  Quarterly  Report on Form 10-Q for the quarter ended
          September 30, 2003.

    10.19*Form of Tri-Counties Bank Executive Long Term Care Agreement effective
          June 10, 2003 between Tri Counties Bank and each of Dan Bailey,  Craig
          Carney, Richard Miller, Richard O'Sullivan,  and Thomas Reddish, filed
          as  Exhibit  10.16 to  TriCo's  Quarterly  Report on Form 10-Q for the
          quarter ended September 30, 2003.

    10.20*Form of Tri-Counties Bank Director Long Term Care Agreement  effective
          June 10, 2003  between Tri Counties  Bank and each of Don Amaral,  Dan
          Bailey, William Casey, Craig Compton, John Hasbrook,  Michael Koehnen,
          Donald Murphy, Carroll Taresh, and Alex Vereschagin,  filed as Exhibit
          10.17 to TriCo's  Quarterly  Report on Form 10-Q for the quarter ended
          September 30, 2003.

    10.21*Form  of  Indemnification   Agreement  between  TriCo   Bancshares/Tri
          Counties  Bank  and  each of the  directors  of  TriCo  Bancshares/Tri
          Counties  Bank  effective  on the date  that  each  director  is first
          elected,  filed as Exhibit 10.18 to TriCo'S Annual Report on Form 10-K
          for the year ended December 31, 2003.

    10.22*Form  of  Indemnification   Agreement  between  TriCo   Bancshares/Tri
          Counties  Bank and each of Dan Bailey,  Craig Carney,  W.R.  Hagstrom,
          Rick Miller, Richard O'Sullivan, Thomas Reddish, Ray Rios, and Richard
          Smith filed as Exhibit 10.21 to TriCo's  Quarterly Report on Form 10-Q
          for the quarter ended June 30, 2004.

     21.1 Tri Counties  Bank, a California  banking  corporation,  TriCo Capital
          Trust I, a Delaware  business  trust,  and TriCo  Capital  Trust II, a
          Delaware business trust, are the only subsidiaries of Registrant

     23.1 Independent Registered Public Accounting Firm's Consent

     23.2 Independent Registered Public Accounting Firm's Consent

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

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

     32.1 Section 1350 Certification of CEO

     32.2 Section 1350 Certification of CFO

       * Previously filed and incorporated by reference.

                                       79



(c) Exhibits filed:

     See Exhibit Index under Item 15(a)(3) above for the list of exhibits
     required to be filed by Item 601 of regulation S-K with this report.

(d) Financial statement schedules filed:

     See Item 15(a)(2) above.

                                       80


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:  March 11, 2008                        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:  March 11, 2008                  /s/ Richard P. Smith
                                       ----------------------------------------
                                       Richard P. Smith, President, Chief
                                       Executive Officer and Director
                                       (Principal Executive Officer)



Date:  March 11, 2008                  /s/ Thomas J. Reddish
                                       ----------------------------------------
                                       Thomas J. Reddish, Executive Vice
                                       President and Chief Financial Officer
                                       (Principal Financial and Accounting
                                       Officer)



Date:  March 11, 2008                  /s/ Donald J. Amaral
                                       ----------------------------------------
                                       Donald J. Amaral, Director



Date:  March 11, 2008                  /s/ William J. Casey
                                       ----------------------------------------
                                       William J. Casey, Director and Chairman
                                       of the Board



Date:  March 11, 2008                  /s/ Craig S. Compton
                                       ----------------------------------------
                                       Craig S. Compton, Director



Date:  March 11, 2008                  /s/ L. Gage Chrysler
                                       ----------------------------------------
                                       L. Gage Chrysler, Director



Date:  March 11, 2008                  /s/ John S.A. Hasbrook
                                       ----------------------------------------
                                       John S.A. Hasbrook, Director

                                       81



Date:  March 11, 2008                  /s/ Michael W. Koehnen
                                       ----------------------------------------
                                       Michael W. Koehnen, Director



Date:  March 11, 2008                  /s/ Donald E. Murphy
                                       ----------------------------------------
                                       Donald E. Murphy, Director and
                                       Vice Chairman of the Board



Date:  March 11, 2008                  /s/ Steve G. Nettleton
                                       ----------------------------------------
                                       Steve G. Nettleton, Director



Date:  March 11, 2008                  /s/ Carroll R. Taresh
                                       ----------------------------------------
                                       Carroll R. Taresh, Director



Date:  March 11, 2008                  /s/ Alex A. Vereschagin
                                       ----------------------------------------
                                       Alex A. Vereschagin, Jr., Director

                                       82



Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in Registration  Statement Nos. No.
No. 033-62063,  No. 333-66064 and No. 333-115455 on Form S-8 of our report dated
March 11,  2008,  relating  to the  consolidated  financial  statements  and the
effectiveness of internal controls over financial  reporting,  appearing in this
Annual Report on Form 10-K of TriCo  Bancshares  for the year ended December 31,
2007.


/s/ Moss Adams, LLP
--------------------
Stockton, California
March 12, 2008


Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors
TriCo Bancshares:

We consent to the incorporation by reference in the registration statement (Nos.
333-115455,  033-62063,  and  333-66064)  on Form  S-8 of TriCo  Bancshares  and
subsidiary of our report dated March 13, 2007, with respect to the  consolidated
balance sheet of TriCo  Bancshares  and  subsidiary as of December 31, 2006, and
the related consolidated  statements of income, changes in shareholders' equity,
and cash flows for each of the years in the two-year  period ended  December 31,
2006, which report appears in the December 31, 2007,  annual report on Form 10-K
of TriCo Bancshares.


/s/ KPMG, LLP
----------------------
Sacramento, California
March 12, 2008

                                       83


Exhibit 31.1

Rule 13a-14/15d-14 Certification of CEO

I, Richard P. Smith, certify that;

   1.     I have reviewed this annual report on Form 10-K of TriCo Bancshares;
   2.     Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report;
    3.    Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report;
    4.    The registrant's  other  certifying  officer and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange Act Rules  13a-15(e) and  15d-15(e))  and internal
          control  over  financial  reporting  (as defined in Exchange Act Rules
          13a-15(f) and 15d-15(f)) for the registrant and we have:
          a.   Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision to ensure that material  information  relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this annual report is being prepared;
          b.   Designed  such  internal  control over  financial  reporting,  or
               caused such  internal  control  over  financial  reporting  to be
               designed under our supervision,  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;
           c.  Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls  and   procedures  and  presented  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures,  as of the  end of the  period  covered  by this
               report based on such evaluations; and

          d.   Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's fourth quarter that has materially  affected,  or is
               reasonably likely to materially affect, the registrant's internal
               control over financial reporting; and
    5.    The registrant's other certifying officer and I have disclosed,  based
          on our most recent  evaluation  of  internal  control  over  financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's board of directors:
          a.   All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal control over financial  reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               information; and
          b.   Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal control over financial reporting.



Date:  March 11, 2008                    /s/ Richard P. Smith
                                        ---------------------------------------
                                        Richard P. Smith
                                        President and Chief Executive Officer

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Exhibit 31.2

Rule 13a-14/15d-14 Certification of CFO

I, Thomas J. Reddish, certify that;

   1.     I have reviewed this annual report on Form 10-K of TriCo Bancshares;
   2.     Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report;
    3.    Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report;
    4.    The registrant's  other  certifying  officer and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange Act Rules  13a-15(e) and  15d-15(e))  and internal
          control  over  financial  reporting  (as defined in Exchange Act Rules
          13a-15(f) and 15d-15(f)) for the registrant and we have:
          a.   Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision to ensure that material  information  relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this annual report is being prepared;
          b.   Designed  such  internal  control over  financial  reporting,  or
               caused such  internal  control  over  financial  reporting  to be
               designed under our supervision,  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;
           c.  Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls  and   procedures  and  presented  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures,  as of the  end of the  period  covered  by this
               report based on such evaluations; and
          d.   Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's fourth quarter that has materially  affected,  or is
               reasonably likely to materially affect, the registrant's internal
               control over financial reporting; and
    5.    The registrant's other certifying officer and I have disclosed,  based
          on our most recent  evaluation  of  internal  control  over  financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's board of directors:
          a.   All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal control over financial  reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               information; and
          b.   Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal control over financial reporting.



Date: March 11, 2008                    /s/ Thomas J. Reddish
                                        ----------------------------
                                        Thomas J. Reddish
                                        Executive Vice President and
                                          Chief Financial Officer

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Exhibit 32.1

Section 1350 Certification of CEO

In connection with the Annual Report of TriCo Bancshares (the "Company") on Form
10-K for the year  ended  December  31,  2007 as filed with the  Securities  and
Exchange  Commission  on the date hereof (the  "Report"),  I,  Richard P. Smith,
President and Chief Executive  Officer of the Company,  certify,  pursuant to 18
U.S.C.  Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
Act of 2002, that:

     (1)  The Report fully  complies with the  requirements  of section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and
     (2)  The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.

      /s/ Richard P. Smith
     -------------------------------------
     Richard P. Smith
     President and Chief Executive Officer

A signed  original of this  written  statement  required by Section 906 has been
provided  to TriCo  Bancshares  and will be  retained  by TriCo  Bancshares  and
furnished to the Securities and Exchange Commission or its staff upon request.



Exhibit 32.2

Section 1350 Certification of CFO

In connection with the Annual Report of TriCo Bancshares (the "Company") on Form
10-K for the year  ended  December  31,  2007 as filed with the  Securities  and
Exchange  Commission  on the date hereof (the  "Report"),  I, Thomas J. Reddish,
Executive Vice President and Chief  Financial  Officer of the Company,  certify,
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

     (1)  The Report fully  complies with the  requirements  of section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and
     (2)  The  information  contained  in the  Report  fairly  presents,  in all
          material respects,  the financial  condition and results of operations
          of the Company.

       /s/ Thomas J. Reddish
      ------------------------------------
      Thomas J. Reddish
      Executive Vice President and Chief Financial Officer

A signed  original of this  written  statement  required by Section 906 has been
provided  to TriCo  Bancshares  and will be  retained  by TriCo  Bancshares  and
furnished to the Securities and Exchange Commission or its staff upon request.


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