TRICO BANCSHARES / 10-Q

Item 1. Financial Statements (unaudited) TRICO BANCSHARES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data; unaudited) September 30, 2024 December 31, 2023 Assets: Cash and due from banks $ 110,141 $ 81,626 Cash at Federal Reserve and other banks 209,973 17,075 Cash and cash equivalents 320,114 98,701 Investment securities: Marketable equity securities 2,690 2,634 Available for sale debt securities, at fair value (amortized cost of $ 2,159,708 and $ 2,384,325 ) 1,979,270 2,152,504 Held to maturity debt securities, at amortized cost, net of allowance for credit losses of $ 0 117,259 133,494 Restricted equity securities 17,250 17,250 Loans held for sale 1,995 458 Loans 6,683,891 6,794,470 Allowance for credit losses ( 123,760 ) ( 121,522 ) Total loans, net 6,560,131 6,672,948 Premises and equipment, net 70,423 71,347 Cash value of life insurance 139,312 136,892 Accrued interest receivable 33,061 36,768 Goodwill 304,442 304,442 Other intangible assets, net 7,462 10,552 Operating leases, right-of-use 24,716 26,133 Other assets 245,765 245,966 Total assets $ 9,823,890 $ 9,910,089 Liabilities and Shareholders’ Equity: Liabilities: Deposits: Noninterest-bearing demand $ 2,547,736 $ 2,722,689 Interest-bearing 5,489,355 5,111,349 Total deposits 8,037,091 7,834,038 Accrued interest payable 11,664 8,445 Operating lease liability 26,668 28,261 Other liabilities 141,521 145,982 Other borrowings 266,767 632,582 Junior subordinated debt 101,164 101,099 Total liabilities 8,584,875 8,750,407 Commitments and contingencies (Note 9) Shareholders’ equity: Preferred stock, no par value: 1,000,000 shares authorized, zero issued and outstanding at September 30, 2024 and December 31, 2023 — — Common stock, no par value: 50,000,000 shares authorized; 33,000,508 and 33,268,102 issued and outstanding at September 30, 2024 and December 31, 2023, respectively 693,176 697,349 Retained earnings 662,816 615,502 Accumulated other comprehensive loss, net of tax ( 116,977 ) ( 153,169 ) Total shareholders’ equity 1,239,015 1,159,682 Total liabilities and shareholders’ equity $ 9,823,890 $ 9,910,089 See accompanying notes to unaudited condensed consolidated financial statements. 3 Table of Contents TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data; unaudited) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Interest and dividend income: Loans, including fees $ 98,085 $ 91,707 $ 292,799 $ 260,868 Investments: Taxable securities 16,812 18,657 50,878 55,746 Tax exempt securities 897 1,350 2,729 3,920 Dividends 376 333 1,143 935 Interest bearing cash at Federal Reserve and other banks 1,177 333 2,247 976 Total interest and dividend income 117,347 112,380 349,796 322,445 Interest expense: Deposits 30,688 17,379 83,238 33,981 Other borrowings 2,144 5,106 13,640 13,318 Junior subordinated debt 1,904 1,772 5,574 5,086 Total interest expense 34,736 24,257 102,452 52,385 Net interest income 82,611 88,123 247,344 270,060 Provision for credit losses 220 4,155 4,930 18,000 Net interest income after credit loss provision 82,391 83,968 242,414 252,060 Non-interest income: Service charges and fees 12,782 13,075 38,215 37,240 Gain on sale of loans 549 382 1,198 883 (Loss) gain on sale or exchange of investment securities 2 — ( 43 ) ( 164 ) Asset management and commission income 1,502 1,141 3,989 3,233 Increase in cash value of life insurance 786 684 2,420 2,274 Other 874 702 2,353 1,894 Total non-interest income 16,495 15,984 48,132 45,360 Non-interest expense: Salaries and related benefits 35,550 34,463 105,255 101,740 Other 23,937 23,415 69,075 71,175 Total non-interest expense 59,487 57,878 174,330 172,915 Income before provision for income taxes 39,399 42,074 116,216 124,505 Provision for income taxes 10,348 11,484 30,382 33,190 Net income $ 29,051 $ 30,590 $ 85,834 $ 91,315 Per share data: Basic earnings per share $ 0.88 $ 0.92 $ 2.59 $ 2.75 Diluted earnings per share $ 0.88 $ 0.92 $ 2.58 $ 2.74 Dividends per share $ 0.33 $ 0.30 $ 0.99 $ 0.90 CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS) (In thousands; unaudited) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net income $ 29,051 $ 30,590 $ 85,834 $ 91,315 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available for sale securities arising during the period 44,538 ( 44,040 ) 36,192 ( 31,511 ) Change in minimum pension liability — — — — Change in joint beneficiary agreements — — — — Other comprehensive income (loss) 44,538 ( 44,040 ) 36,192 ( 31,511 ) Comprehensive income (loss) $ 73,589 $ ( 13,450 ) $ 122,026 $ 59,804 See accompanying notes to unaudited condensed consolidated financial statements. 4 Table of Contents TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (In thousands, except share and per share data; unaudited) Shares of Common Stock Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Balance at July 1, 2023 33,259,260 $ 695,305 $ 578,852 $ ( 181,376 ) $ 1,092,781 Net income 30,590 30,590 Other comprehensive income (loss) ( 44,040 ) ( 44,040 ) RSU vesting 728 728 PSU vesting 355 355 RSUs released 5,061 — Repurchase of common stock ( 997 ) ( 19 ) ( 15 ) ( 34 ) Dividends paid ($ 0.30 per share) ( 9,979 ) ( 9,979 ) Three months ended September 30, 2023 33,263,324 $ 696,369 $ 599,448 $ ( 225,416 ) $ 1,070,401 Balance at July 1, 2024 32,989,327 $ 691,878 $ 644,687 $ ( 161,515 ) $ 1,175,050 Net income 29,051 29,051 Other comprehensive income (loss) 44,538 44,538 Stock options exercised 7,500 174 174 RSU vesting 809 809 PSU vesting 348 348 RSUs released 5,232 — PSUs released — — Repurchase of common stock ( 1,551 ) ( 33 ) ( 34 ) ( 67 ) Dividends paid ($ 0.33 per share) ( 10,888 ) ( 10,888 ) Three months ended September 30, 2024 33,000,508 $ 693,176 $ 662,816 $ ( 116,977 ) $ 1,239,015 Balance at January 1, 2023 33,331,513 $ 697,448 $ 542,873 $ ( 193,905 ) $ 1,046,416 Net income 91,315 91,315 Other comprehensive income (loss) ( 31,511 ) ( 31,511 ) Stock options exercised 8,000 156 156 RSU vesting 2,082 2,082 PSU vesting 972 972 RSUs released 72,847 — PSUs released 55,928 — Repurchase of common stock ( 204,964 ) ( 4,289 ) ( 4,819 ) ( 9,108 ) Dividends paid ($ 0.90 per share) ( 29,921 ) ( 29,921 ) Nine months ended September 30, 2023 33,263,324 $ 696,369 $ 599,448 $ ( 225,416 ) $ 1,070,401 Balance at January 1, 2024 33,268,102 $ 697,349 $ 615,502 $ ( 153,169 ) $ 1,159,682 Net income 85,834 85,834 Other comprehensive income (loss) 36,192 36,192 Stock options exercised 7,500 174 174 RSU vesting 2,428 2,428 PSU vesting 1,122 1,122 RSUs released 69,043 — PSUs released 32,248 — Repurchase of common stock ( 376,385 ) ( 7,897 ) ( 5,754 ) ( 13,651 ) Dividends paid ($ 0.99 per share) ( 32,766 ) ( 32,766 ) Nine months ended September 30, 2024 33,000,508 $ 693,176 $ 662,816 $ ( 116,977 ) $ 1,239,015 See accompanying notes to unaudited condensed consolidated financial statements. 5 Table of Contents TRICO BANCSHARES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands; unaudited) For the nine months ended September 30, 2024 2023 Operating activities: Net income $ 85,834 $ 91,315 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of premises and equipment, and amortization 4,562 4,829 Amortization of intangible assets 3,090 4,902 Provision for credit losses on loans 4,670 16,415 Amortization of investment securities premium, net 511 433 Loss on sale of investment securities 43 164 Originations of loans for resale ( 48,197 ) ( 33,389 ) Proceeds from sale of loans originated for resale 47,476 35,179 Gain on sale of loans ( 1,198 ) ( 883 ) Change in fair market value of mortgage servicing rights 468 215 Provision for losses on foreclosed assets — 679 Gain on transfer of loans to foreclosed assets ( 38 ) ( 114 ) Loss (gain) on sale of foreclosed assets 26 ( 38 ) Change in the market value of foreclosed assets 262 — Operating lease expense payments ( 4,658 ) ( 4,840 ) Loss on disposal of fixed assets 12 22 Increase in cash value of life insurance ( 2,420 ) ( 2,274 ) Loss (gain) on marketable and trading equity securities ( 121 ) 81 Equity compensation vesting expense 3,550 3,054 Change in: Interest receivable 3,707 ( 2,739 ) Interest payable 3,219 5,521 Amortization of operating lease ROUA 4,481 4,861 Other assets and liabilities, net ( 19,812 ) ( 21,016 ) Net cash from operating activities 85,467 102,377 Investing activities: Proceeds from maturities of securities available for sale 315,627 243,245 Proceeds from maturities of securities held to maturity 16,074 21,754 Proceeds from sale of available for sale securities 31,534 24,160 Purchases of securities available for sale ( 122,873 ) ( 34,468 ) Loan origination and principal collections, net 107,690 ( 258,183 ) Loans purchased — ( 6,423 ) Proceeds from sale of other real estate owned 149 165 Purchases of premises and equipment ( 3,250 ) ( 3,885 ) Net cash from investing activities 344,951 ( 13,635 ) Financing activities: Net change in deposits 203,053 ( 319,370 ) Net change in other borrowings ( 365,815 ) 273,370 Repurchase of common stock, net of option exercises ( 13,651 ) ( 9,108 ) Dividends paid ( 32,766 ) ( 29,921 ) Exercise of stock options 174 156 Net cash used by financing activities ( 209,005 ) ( 84,873 ) Net change in cash and cash equivalents 221,413 3,869 Cash and cash equivalents, beginning of period 98,701 107,230 Cash and cash equivalents, end of period $ 320,114 $ 111,099 6 Table of Contents Supplemental disclosure of noncash activities: Unrealized gain (loss) on securities available for sale $ 51,383 $ ( 44,738 ) Market value of shares tendered in-lieu of cash to pay for exercise of options and/or related taxes 1,168 2,134 Obligations incurred in conjunction with leased assets 2,226 4,311 Loans transferred to foreclosed assets 458 105 Supplemental disclosure of cash flow activity: Cash paid for interest expense $ 99,233 $ 46,864 Cash paid for income taxes 27,200 39,800 See accompanying notes to unaudited condensed consolidated financial statements. 7 Table of Contents NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Description of Business and Basis of Presentation TriCo Bancshares (the “Company” or “we”) is a California corporation organized to act as a bank holding company for Tri Counties Bank (the “Bank”). The Company and the Bank are headquartered in Chico, California. The Bank is a California-chartered bank that is engaged in the general commercial banking business in 31 California counties. The consolidated financial statements are prepared in accordance with accounting policies generally accepted in the United States of America and general practices in the banking industry. All adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. The financial statements include the accounts of the Company. All inter-company accounts and transactions have been eliminated in consolidation. The Company has five capital subsidiary business trusts (collectively, the “Capital Trusts”) that issued trust preferred securities, including two organized by the Company and three acquired with the acquisition of North Valley Bancorp. For financial reporting purposes, the Company’s investments in the Capital Trusts of $ 1.8 million are accounted for under the equity method and, accordingly, are not consolidated and are included in other assets on the consolidated balance sheet. See the Note 8 - footnote Junior Subordinated Debt for additional information on borrowings outstanding. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”). The Company believes that the disclosures made are adequate to make the information not misleading. Segment and Significant Group Concentration of Credit Risk The Company grants agribusiness, commercial, consumer, and residential loans to customers located throughout California. The Company has a diversified loan portfolio within the business segments located in this geographical area. The Company currently classifies all its operation into one business segment that it denotes as community banking. Geographical Descriptions For the purpose of describing the geographical location of the Company’s operations, the Company has defined northern California as that area of California north of, and including, Stockton to the east and San Jose to the west; central California as that area of the state south of Stockton and San Jose, to and including, Bakersfield to the east and San Luis Obispo to the west; and southern California as that area of the state south of Bakersfield and San Luis Obispo. Reclassification Some items in the prior year consolidated financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity. Cash and Cash Equivalents Net cash flows are reported for loan and deposit transactions and other borrowings. For purposes of the consolidated statement of cash flows, cash, due from banks with original maturities less than 90 days, interest-earning deposits in other banks, and Federal funds sold are considered to be cash equivalents. Allowance for Credit Losses - Securities The Company measures expected credit losses on HTM debt securities on a collective basis by major security type, then further disaggregated by sector and bond rating. Accrued interest receivable on HTM debt securities was considered insignificant at September 30, 2024 and December 31, 2023 and is therefore excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts based on current and expected changes in credit ratings and default rates. Based on the implied guarantees of the U. S. Government or its agencies related to certain of these investment securities, and the absence of any historical or expected losses, substantially all qualify for a zero loss 8 Table of Contents assumption. Management has separately evaluated its HTM investment securities from obligations of state and political subdivisions utilizing the historical loss data represented by similar securities over a period of time spanning nearly 50 years. As a result of this evaluation, management determined that the expected credit losses associated with these securities is not significant for financial reporting purposes and therefore, no allowance for credit losses has been recognized for any period reported. The Company evaluates AFS debt securities in an unrealized loss position to determine whether the decline in the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit losses on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Both the allowance for credit losses and the adjustment to net income may be reversed if conditions change. However, if the Company intends to sell an impaired available for sale debt security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the security's amortized cost basis. In evaluating available for sale debt securities in unrealized loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers' financial condition, among other factors. Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectability of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. No security credit losses were recognized during the nine month periods ended September 30, 2024 and 2023, respectively. Loans Loans that management has the intent and ability to hold until maturity or payoff are reported at principal amount outstanding, net of deferred loan fees and costs. Loans are placed in nonaccrual status when reasonable doubt exists as to the full, timely collection of interest or principal, or a loan becomes contractually past due by 90 days or more with respect to interest or principal and is not well secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against interest income. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is considered probable. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of Management, the loan is estimated to be fully collectible as to both principal and interest. Accrued interest receivable is not included in the calculation of the allowance for credit losses. Allowance for Credit Losses - Loans The ACL is a valuation account that is deducted from the loan's amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the recorded loan balance is confirmed as uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Regardless of the determination that a charge-off is appropriate for financial accounting purposes, the Company manages its loan portfolio by continually monitoring, where possible, a borrower's ability to pay through the collection of financial information, delinquency status, borrower discussion and the encouragement to repay in accordance with the original contract or modified terms, if appropriate. Management estimates the allowance balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life. The Company identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period. In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate. Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination. In its loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets. These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to changes in environmental conditions, such as California unemployment rates, household debt levels, changes in corporate debt yields, and U.S. gross domestic product. PCD assets are assets acquired at a discount that is due, in part, to credit quality deterioration since origination. PCD assets are accounted for in accordance with ASC 326-20 and are initially recorded at fair value, by taking the sum of the present value of expected future cash flows and an allowance for credit losses, at acquisition. The allowance for credit losses for PCD assets is recorded through a gross-up of reserves on the balance sheet, while the allowance for acquired non-PCD assets, such as loans, is recorded through the provision for credit losses on the income statement, consistent with originated loans. Subsequent to acquisition, the allowance for credit losses for PCD loans will generally follow the same forward-looking estimation, provision, and charge-off process as non-PCD acquired and originated loans. The Company has identified the following portfolio segments to evaluate and measure the allowance for credit loss: Commercial real estate : Commercial real estate - Non-owner occupied: These commercial properties typically consist of buildings which are leased to others for their use and rely on rents as the primary source of repayment. Property types are predominantly office, retail, or light industrial but the portfolio also has some special use properties. As such, the risk of loss associated with these properties is primarily driven by general 9 Table of Contents economic changes or changes in regional economies and the impact of such on a tenant’s ability to pay. Ultimately this can affect occupancy, rental rates, or both. Additional risk of loss can come from new construction resulting in oversupply, the costs to hold or operate the property, or changes in interest rates. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years . Commercial real estate - Owner occupied: These credits are primarily susceptible to changes in the financial condition of the business operated by the property owner. This may be driven by changes in, among other things, industry challenges, factors unique to the operating geography of the borrower, change in the individual fortunes of the business owner, general economic conditions and changes in business cycles. When default is driven by issues related specifically to the business owner, collateral values tend to provide better repayment support and may result in little or no loss. Alternatively, when default is driven more by general economic conditions, the underlying collateral may have devalued more and thus result in larger losses in the event of default. The terms on these loans at origination typically have maturities from five to ten years with amortization periods from fifteen to thirty years . Multifamily: These commercial properties are generally comprised of more than four rentable units, such as apartment buildings, with each unit intended to be occupied as the primary residence for one or more persons. Multifamily properties are also subject to changes in general or regional economic conditions, such as unemployment, ultimately resulting in increased vacancy rates or reduced rents or both. In addition, new construction can create an oversupply condition and market competition resulting in increased vacancy, reduced market rents, or both. Due to the nature of their use and the greater likelihood of tenant turnover, the management of these properties is more intensive and therefore is more critical to the preclusion of loss. Farmland: While the Company has few loans that were originated for the purpose of the acquisition of these commercial properties, loans secured by farmland represent unique risks that are associated with the operation of an agricultural businesses. The valuation of farmland can vary greatly over time based on the property's access to resources including but not limited to water, crop prices, foreign exchange rates, government regulation or restrictions, and the nature of ongoing capital investment needed to maintain the quality of the property. Loans secured by farmland typically represent less risk to the Company than other agriculture loans as the real estate typically provides greater support in the event of default or need for longer term repayment. Consumer loans : SFR 1-4 1st DT Liens: The most significant drivers of potential loss within the Company's residential real estate portfolio relate general, regional, or individual changes in economic conditions and their effect on employment and borrowers cash flow. Risk in this portfolio is best measured by changes in borrower credit score and loan-to-value. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the value of homes and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate. SFR HELOCs and Junior Liens: Similar to residential real estate term loans, HELOCs and junior liens performance is also primarily driven by borrower cash flows based on employment status. However, HELOCs carry additional risks associated with the fact that most of these loans are secured by a deed of trust in a position that is junior to the primary lien holder. Furthermore, the risk that as the borrower's financial strength deteriorates, the outstanding balance on these credit lines may increase as they may only be canceled by the Company if certain limited criteria are met. In addition to the allowance for credit losses maintained as a percent of the outstanding loan balance, the Company maintains additional reserves for the unfunded portion of the HELOC. Other: The majority of consumer loans are secured by automobiles, with the remainder primarily unsecured revolving debt (credit cards). These loans are susceptible to three primary risks; non-payment due to income loss, over-extension of credit and, when the borrower is unable to pay, shortfall in collateral value, if any. Typically non-payment is due to loss of job and will follow general economic trends in the marketplace driven primarily by rises in the unemployment rate. Loss of collateral value can be due to market demand shifts, damage to collateral itself or a combination of those factors. Credit card loans are unsecured and while collection efforts are pursued in the event of default, there is typically limited opportunity for recovery. Loss estimates are based on the general movement in credit score, economic outlook and its effects on employment and the Bank’s historical loss experience adjusted to reflect the economic outlook and the unemployment rate. Commercial and Industrial: Repayment of these loans is primarily based on the cash flow of the borrower, and secondarily on the underlying collateral provided by the borrower. A borrower's cash flow may be unpredictable, and collateral securing these loans may fluctuate in value. Most often, collateral includes accounts receivable, inventory, or equipment. Collateral securing these loans may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. Actual and forecast changes in gross domestic product are believed to be corollary to losses associated with these credits. Construction : While secured by real estate, construction loans represent a greater level of risk than term real estate loans due to the nature of the additional risks associated with the not only the completion of construction within an estimated time period and budget, but also the need to either sell the building or reach a level of stabilized occupancy sufficient to generate the cash flows necessary to support debt service and operating costs. The Company seeks to mitigate the additional risks associated with construction lending by requiring borrowers to comply with lower loan to value ratios and additional covenants as well as strong tertiary support of guarantors. The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset as adjusted for macroeconomic factors. 10 Table of Contents Agriculture Production: Repayment of agricultural loans is dependent upon successful operation of the agricultural business, which is greatly impacted by factors outside the control of the borrower. These factors include adverse weather conditions, including access to water, that may impact crop yields, loss of livestock due to disease or other factors, declines in market prices for agriculture products, changes in foreign exchange, and the impact of government regulations. In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the business. Consequently, agricultural production loans may involve a greater degree of risk than other types of loans. Leases: The loss forecasting model applies the historical rate of loss for similar loans over the expected life of the asset. Leases typically represent an elevated level of credit risk as compared to loans secured by real estate as the collateral for leases is often subject to a more rapid rate of depreciation or depletion. The ultimate severity of loss is impacted by the type of collateral securing the exposure, the size of the exposure, the borrower’s industry sector, any guarantors and the geographic market. Assumptions of expected loss are conditioned to the economic outlook and the other variables discussed above. Unfunded commitments : The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at time of default. The reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities. Accounting Standards Update Accounting standards adopted in the current period Standard Summary of Guidance Effects on financial statements None Accounting standards yet to be adopted Standard Summary of Guidance Effects on financial statements ASU 2023-07 - Segment Reporting (Topic 280): Improvement to Reportable Segments • Requires disclosure of the position and title of the chief operating decision maker (CODM) and significant segment expenses that the CODM is regularly provided. • Requires the disclosure of other segment items representing the difference between segment revenue and expense and the profit and loss measure of the segment. • Allows for the CODM to use more than one measure of segment profit and loss, as long as one measure is consistent with GAAP. • Effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. • Early adoption is permitted. • The amendments are to be applied retrospectively to all periods presented and segment expense categories should be based on the categories identified at adoption. • TriCo does not expect adoption of the standard to have a material impact on its consolidated financial statements. ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures • Requires a tabular rate reconciliation using both percentages and reporting currency amounts between the reported amount of income tax expense (or benefit) to the amount of statutory federal income tax at current rates for specified categories using specified disaggregation criteria. • The amount of net income taxes paid for federal, state, and foreign taxes, as well as the amount paid to any jurisdiction that net taxes exceed a 5% quantitative threshold. • The amendments will require the disclosure of pre-tax income disaggregated between domestic and foreign, as well as income tax expense disaggregated by federal, state, and foreign. • The amendment also eliminates certain disclosures related to unrecognized tax benefits and certain temporary differences. • Effective for fiscal years beginning after December 15, 2024. • Early adoption is permitted in any annual period where financial statements have not yet been issued. • The amendments should be applied on a prospective basis but retrospective application is permitted. • TriCo does not expect adoption of the standard to have a material impact on its consolidated financial statements. 11 Table of Contents Note 2 - Investment Securities The amortized cost, estimated fair values and allowance for credit losses of investments in debt securities are summarized in the following tables: September 30, 2024 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Debt Securities Available for Sale Obligations of U.S. government agencies $ 1,234,038 $ 76 $ ( 132,117 ) $ 1,101,997 Obligations of states and political subdivisions 249,709 159 ( 20,526 ) 229,342 Corporate bonds 6,179 20 ( 335 ) 5,864 Asset backed securities 364,561 492 ( 1,513 ) 363,540 Non-agency collateralized mortgage obligations 305,221 352 ( 27,046 ) 278,527 Total debt securities available for sale $ 2,159,708 $ 1,099 $ ( 181,537 ) $ 1,979,270 Debt Securities Held to Maturity Obligations of U.S. government agencies $ 114,558 $ 4 $ ( 5,253 ) 109,309 Obligations of states and political subdivisions 2,701 6 ( 29 ) 2,678 Total debt securities held to maturity $ 117,259 $ 10 $ ( 5,282 ) $ 111,987 December 31, 2023 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Debt Securities Available for Sale Obligations of U.S. government agencies $ 1,386,772 $ 2 $ ( 165,037 ) $ 1,221,737 Obligations of states and political subdivisions 262,879 268 ( 26,772 ) 236,375 Corporate bonds 6,173 — ( 571 ) 5,602 Asset backed securities 359,214 255 ( 4,188 ) 355,281 Non-agency collateralized mortgage obligations 369,287 — ( 35,778 ) 333,509 Total debt securities available for sale $ 2,384,325 $ 525 $ ( 232,346 ) $ 2,152,504 Debt Securities Held to Maturity Obligations of U.S. government agencies $ 130,823 $ — $ ( 8,331 ) $ 122,492 Obligations of states and political subdivisions 2,671 6 ( 43 ) 2,634 Total debt securities held to maturity $ 133,494 $ 6 $ ( 8,374 ) $ 125,126 Proceeds from the sale of available for sale investment securities totaled $ 28.6 million and $ 24.2 million for the nine months ended September 30, 2024 and 2023, respectively, resulting in gross realized losses of $ 2.9 million and $ 0.2 million, respectively. In addition, during the nine months ended September 30, 2024, the Company participated in and completed an exchange offering with Visa, which resulted in a gain of $ 2.9 million. See further discussion in Note 9 - Commitments and Contingencies . There were no sales of investment securities during the three months ended September 30, 2024 or 2023. Investment securities with an aggregate carrying value of $ 761.6 million and $ 702.2 million at September 30, 2024 and December 31, 2023, respectively, were pledged as collateral for specific borrowings, lines of credit or local agency deposits. The amortized cost and estimated fair value of debt securities at September 30, 2024 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 September 30, 2024, obligations of U.S. government corporations and agencies with a cost basis totaling $ 1.3 billion consist almost entirely of residential real estate mortgage-backed securities whose contractual maturity, or principal repayment, will follow the repayment of the underlying mortgages. For purposes of the following table, the entire outstanding balance of these mortgage-backed securities issued by U.S. government corporations and agencies is categorized based on final maturity date. At September 30, 2024, the Company estimates the average remaining life of these mortgage-backed securities issued by U.S. government corporations and agencies to be approximately 6.67 years. Average remaining life is defined as the time span after which the principal balance has been reduced by half. 12 Table of Contents As of September 30, 2024, the contractual final maturity for available for sale and held to maturity investment securities is as follows: Debt Securities Available for Sale Held to Maturity (in thousands) Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year $ 6,625 $ 6,421 $ 1,137 $ 1,143 Due after one year through five years 62,174 60,553 3,453 3,361 Due after five years through ten years 239,924 231,415 87,693 83,990 Due after ten years 1,850,985 1,680,881 24,976 23,493 Totals $ 2,159,708 $ 1,979,270 $ 117,259 $ 111,987 Based on an evaluation of available information including security type, counterparty credit quality, past events, current conditions, and reasonable and supportable forecasts that are relevant to collectability of cash flows, as of September 30, 2024, the Company has concluded that it expects to receive all contractual cash flows from each security held in its AFS and HTM debt securities portfolio. There was no allowance for credit losses related to investment securities as of September 30, 2024 or December 31, 2023. Gross unrealized losses on debt securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows: September 30, 2024: Less than 12 months 12 months or more Total (in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Debt Securities Available for Sale Obligations of U.S. government agencies $ 7 $ ( 1 ) $ 1,092,624 $ ( 132,116 ) $ 1,092,631 $ ( 132,117 ) Obligations of states and political subdivisions — — 216,428 ( 20,526 ) 216,428 ( 20,526 ) Corporate bonds — — 4,598 ( 335 ) 4,598 ( 335 ) Asset backed securities 107,510 ( 164 ) 109,099 ( 1,349 ) 216,609 ( 1,513 ) Non-agency collateralized mortgage obligations — — 245,023 ( 27,046 ) 245,023 ( 27,046 ) Total debt securities available for sale $ 107,517 $ ( 165 ) $ 1,667,772 $ ( 181,372 ) $ 1,775,289 $ ( 181,537 ) Debt Securities Held to Maturity Obligations of U.S. government agencies $ — $ — $ 109,144 $ ( 5,253 ) $ 109,144 $ ( 5,253 ) Obligations of states and political subdivisions 506 ( 3 ) 1,029 ( 26 ) 1,535 ( 29 ) Total debt securities held to maturity $ 506 $ ( 3 ) $ 110,173 $ ( 5,279 ) $ 110,679 $ ( 5,282 ) December 31, 2023: Less than 12 months 12 months or more Total (in thousands) Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Debt Securities Available for Sale Obligations of U.S. government agencies $ 224 $ — $ 1,221,320 $ ( 165,037 ) $ 1,221,544 $ ( 165,037 ) Obligations of states and political subdivisions 6,229 ( 75 ) 216,497 ( 26,697 ) 222,726 ( 26,772 ) Corporate bonds — — 5,602 ( 571 ) 5,602 ( 571 ) Asset backed securities 15,928 ( 93 ) 264,731 ( 4,095 ) 280,659 ( 4,188 ) Non-agency collateralized mortgage obligations 44,276 ( 583 ) 289,233 ( 35,195 ) 333,509 ( 35,778 ) Total debt securities available for sale $ 66,657 $ ( 751 ) $ 1,997,383 $ ( 231,595 ) $ 2,064,040 $ ( 232,346 ) Debt Securities Held to Maturity Obligations of U.S. government agencies $ — $ — $ 122,259 $ ( 8,331 ) $ 122,259 $ ( 8,331 ) Obligations of states and political subdivisions — — 1,012 ( 43 ) 1,012 ( 43 ) Total debt securities held to maturity $ — $ — $ 123,271 $ ( 8,374 ) $ 123,271 $ ( 8,374 ) Obligations of U.S. government agencies: The unrealized losses on investments in obligations of U.S. government agencies are caused by interest rate increases and illiquidity. The contractual cash flows of these securities are guaranteed by U.S. Government Sponsored Entities (principally Fannie Mae and Freddie Mac). It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities 13 Table of Contents and there has been no credit losses recorded as of September 30, 2024. At September 30, 2024, 144 debt securities representing obligations of U.S. government agencies had unrealized losses with aggregate depreciation of 10.79 % from the Company’s amortized cost basis. Obligations of states and political subdivisions: The unrealized losses on investments in obligations of states and political subdivisions were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no credit losses recorded as of September 30, 2024. At September 30, 2024, 148 debt securities representing obligations of states and political subdivisions had unrealized losses with aggregate depreciation of 8.66 % from the Company’s amortized cost basis. Corporate bonds: The unrealized losses on investments in corporate bonds were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no credit losses recorded as of September 30, 2024. At September 30, 2024, 5 debt securities representing corporate bonds had unrealized losses with aggregate depreciation of 6.81 % from the Company’s amortized cost basis. Asset backed securities: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors for these types of securities. At the time of purchase, each of these securities was rated AA or AAA and through September 30, 2024 has not experienced any deterioration in credit rating. At September 30, 2024, 24 asset backed securities had unrealized losses with aggregate depreciation of 0.69 % from the Company’s amortized cost basis. The Company continues to monitor these securities for changes in credit rating or other indications of credit deterioration. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no credit losses recorded as of September 30, 2024. Non-agency collateralized mortgage obligations: The unrealized losses on investments in asset backed securities were caused by increases in required yields by investors in these types of securities. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. Because management believes the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell and more likely than not will not be required to sell, there is no impairment on these securities and there has been no credit losses recorded as of September 30, 2024. At September 30, 2024, 18 asset backed securities had unrealized losses with aggregate depreciation of 9.94 % from the Company’s amortized cost basis. The Company monitors credit quality of debt securities held-to-maturity through the use of credit rating. The Company monitors the credit rating on a monthly basis. The following table summarizes the amortized cost of debt securities held-to-maturity at the dates indicated, aggregated by credit quality indicator: September 30, 2024 December 31, 2023 (in thousands) AAA/AA/A BBB/BB/B AAA/AA/A BBB/BB/B Obligations of U.S. government agencies $ 114,558 $ — $ 130,823 $ — Obligations of states and political subdivisions 2,701 — 2,671 — Total debt securities held to maturity $ 117,259 $ — $ 133,494 $ — 14 Table of Contents Note 3 – Loans A summary of loan balances at amortized cost are as follows: (in thousands) September 30, 2024 December 31, 2023 Commercial real estate: CRE non-owner occupied $ 2,251,705 $ 2,217,806 CRE owner occupied 947,278 956,440 Multifamily 1,020,466 949,502 Farmland 268,075 271,054 Total commercial real estate loans 4,487,524 4,394,802 Consumer: SFR 1-4 1st DT liens 865,756 883,438 SFR HELOCs and junior liens 355,341 356,813 Other 62,866 73,017 Total consumer loans 1,283,963 1,313,268 Commercial and industrial 484,763 586,455 Construction 276,095 347,198 Agriculture production 144,123 144,497 Leases 7,423 8,250 Total loans, net of deferred loan fees and discounts $ 6,683,891 $ 6,794,470 Total principal balance of loans owed, net of charge-offs $ 6,720,629 $ 6,834,935 Unamortized net deferred loan fees ( 15,298 ) ( 15,826 ) Discounts to principal balance of loans owed, net of charge-offs ( 21,440 ) ( 24,639 ) Total loans, net of unamortized deferred loan fees and discounts $ 6,683,891 $ 6,794,470 Allowance for credit losses on loans $ ( 123,760 ) $ ( 121,522 ) 15 Table of Contents Note 4 – Allowance for Credit Losses For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities: Allowance for credit losses – Three months ended September 30, 2024 (in thousands) Beginning Balance Charge-offs Recoveries Provision (benefit) Ending Balance Commercial real estate: CRE non-owner occupied $ 37,155 $ — $ — $ ( 949 ) $ 36,206 CRE owner occupied 15,873 — 1 ( 492 ) 15,382 Multifamily 15,973 — — ( 238 ) 15,735 Farmland 4,031 — — ( 15 ) 4,016 Total commercial real estate loans 73,032 — 1 ( 1,694 ) 71,339 Consumer: SFR 1-4 1st DT liens 14,604 — — ( 238 ) 14,366 SFR HELOCs and junior liens 10,087 — 196 ( 98 ) 10,185 Other 2,983 ( 170 ) 63 77 2,953 Total consumer loans 27,674 ( 170 ) 259 ( 259 ) 27,504 Commercial and industrial 12,128 ( 274 ) 106 2,493 14,453 Construction 7,466 — — ( 347 ) 7,119 Agriculture production 3,180 — 1 131 3,312 Leases 37 — — ( 4 ) 33 Allowance for credit losses on loans 123,517 ( 444 ) 367 320 123,760 Reserve for unfunded commitments 6,210 — — ( 100 ) 6,110 Total $ 129,727 $ ( 444 ) $ 367 $ 220 $ 129,870 Allowance for credit losses – Nine months ended September 30, 2024 (in thousands) Beginning Balance Charge-offs Recoveries Provision (benefit) Ending Balance Commercial real estate: CRE non-owner occupied $ 35,077 $ — $ — $ 1,129 $ 36,206 CRE owner occupied 15,081 — 2 299 15,382 Multifamily 14,418 — — 1,317 15,735 Farmland 4,288 — — ( 272 ) 4,016 Total commercial real estate loans 68,864 — 2 2,473 71,339 Consumer: SFR 1-4 1st DT liens 14,009 ( 26 ) — 383 14,366 SFR HELOCs and junior liens 10,273 ( 41 ) 296 ( 343 ) 10,185 Other 3,171 ( 538 ) 184 136 2,953 Total consumer loans 27,453 ( 605 ) 480 176 27,504 Commercial and industrial 12,750 ( 1,274 ) 389 2,588 14,453 Construction 8,856 — — ( 1,737 ) 7,119 Agriculture production 3,589 ( 1,450 ) 26 1,147 3,312 Leases 10 — — 23 33 Allowance for credit losses on loans 121,522 ( 3,329 ) 897 4,670 123,760 Reserve for unfunded commitments 5,850 — — 260 6,110 Total $ 127,372 $ ( 3,329 ) $ 897 $ 4,930 $ 129,870 In determining the allowance for credit losses, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. Individual loan credit quality indicators including loan grade and borrower repayment performance have been statistically correlated with historical credit losses and various econometrics, 16 Table of Contents including California unemployment, gross domestic product, and corporate bond yields. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. The Company utilizes a forecast period of approximately eight quarters and obtains the forecast data from publicly available sources as of the balance sheet date. This forecast data continues to evolve and includes improving shifts in the magnitude of changes for both the unemployment and GDP factors leading up to the balance sheet date. Core inflation is slowing but prices remain elevated relative to wage increases, as reflected by higher living costs such as housing, energy and general services. Actions by the Federal Reserve to cut rates during 2024 and beyond may help improve this outlook overall, but the uncertainty associated with the extent and timing of these potential reductions has inhibited a material change to forecasted reserve levels. Furthermore, geopolitical risks remain elevated and appear to be getting worse, which may lead to further negative effects on domestic economic outcomes. As a result, management continues to believe that certain credit weaknesses are present in the overall economy and that it is appropriate to maintain a reserve level that incorporates such risk factors. For the periods indicated, the following tables summarize the activity in the allowance for credit losses on loans which is recorded as a contra asset, and the reserve for unfunded commitments which is recorded on the balance sheet within other liabilities: Allowance for credit losses – Year ended December 31, 2023 (in thousands) Beginning Balance Charge-offs Recoveries Provision (benefit) Ending Balance Commercial real estate: CRE non-owner occupied $ 30,962 $ — $ — $ 4,115 $ 35,077 CRE owner occupied 14,014 ( 3,637 ) 2 4,702 15,081 Multifamily 13,132 — — 1,286 14,418 Farmland 3,273 — — 1,015 4,288 Total commercial real estate loans 61,381 ( 3,637 ) 2 11,118 68,864 Consumer: SFR 1-4 1st DT liens 11,268 — 262 2,479 14,009 SFR HELOCs and junior liens 11,413 ( 66 ) 723 ( 1,797 ) 10,273 Other 1,958 ( 558 ) 190 1,581 3,171 Total consumer loans 24,639 ( 624 ) 1,175 2,263 27,453 Commercial and industrial 13,597 ( 3,879 ) 316 2,716 12,750 Construction 5,142 — — 3,714 8,856 Agriculture production 906 — 34 2,649 3,589 Leases 15 — — ( 5 ) 10 Allowance for credit losses on loans 105,680 ( 8,140 ) 1,527 22,455 121,522 Reserve for unfunded commitments 4,315 — — 1,535 5,850 Total $ 109,995 $ ( 8,140 ) $ 1,527 $ 23,990 $ 127,372 17 Table of Contents Allowance for credit losses – Three months ended September 30, 2023 (in thousands) Beginning Balance Charge-offs Recoveries Provision (benefit) Ending Balance Commercial real estate: CRE non-owner occupied $ 33,042 $ — $ — $ 681 $ 33,723 CRE owner occupied 20,208 ( 3,608 ) — ( 2,097 ) 14,503 Multifamily 14,075 — — 164 14,239 Farmland 3,691 — — 519 4,210 Total commercial real estate loans 71,016 ( 3,608 ) — ( 733 ) 66,675 Consumer: SFR 1-4 1st DT liens 13,134 — 262 139 13,535 SFR HELOCs and junior liens 10,608 — 314 ( 759 ) 10,163 Other 2,771 ( 133 ) 52 230 2,920 Total consumer loans 26,513 ( 133 ) 628 ( 390 ) 26,618 Commercial and industrial 11,647 ( 1,616 ) 91 2,168 12,290 Construction 7,031 — — 1,066 8,097 Agriculture production 1,105 — 1 1,019 2,125 Leases 17 — — ( 10 ) 7 Allowance for credit losses on loans 117,329 ( 5,357 ) 720 3,120 115,812 Reserve for unfunded commitments 4,865 — — 1,035 5,900 Total $ 122,194 $ ( 5,357 ) $ 720 $ 4,155 $ 121,712 Allowance for credit losses – Nine months ended September 30, 2023 (in thousands) Beginning Balance Charge-offs Recoveries Provision (benefit) Ending Balance Commercial real estate: CRE non-owner occupied $ 30,962 $ — $ — $ 2,761 $ 33,723 CRE owner occupied 14,014 ( 3,608 ) 1 4,096 14,503 Multifamily 13,132 — — 1,107 14,239 Farmland 3,273 — — 937 4,210 Total commercial real estate loans 61,381 ( 3,608 ) 1 8,901 66,675 Consumer: SFR 1-4 1st DT liens 11,268 — 262 2,005 13,535 SFR HELOCs and junior liens 11,413 ( 42 ) 416 ( 1,624 ) 10,163 Other 1,958 ( 438 ) 129 1,271 2,920 Total consumer loans 24,639 ( 480 ) 807 1,652 26,618 Commercial and industrial 13,597 ( 3,303 ) 267 1,729 12,290 Construction 5,142 — — 2,955 8,097 Agriculture production 906 — 33 1,186 2,125 Leases 15 — — ( 8 ) 7 Allowance for credit losses on loans 105,680 ( 7,391 ) 1,108 16,415 115,812 Reserve for unfunded commitments 4,315 — — 1,585 5,900 Total $ 109,995 $ ( 7,391 ) $ 1,108 $ 18,000 $ 121,712 As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including, but not limited to, trends relating to (i) the level of criticized and classified loans, (ii) net charge-offs, (iii) non-performing loans, and (iv) delinquency within the portfolio. The Company analyzes loans individually to classify the loans as to credit risk and grading. This analysis is performed annually for all outstanding balances greater than $ 1 million and non-homogeneous loans, such as commercial real estate loans, unless other indicators, such as delinquency, trigger more frequent evaluation. Loans below the $ 1 million threshold and homogenous in nature are evaluated as needed for proper grading based on delinquency and borrower credit scores. 18 Table of Contents The Company utilizes a risk grading system to assign a risk grade to each of its loans. Loans are graded on a scale ranging from Pass to Loss. A description of the general characteristics of the risk grades is as follows: • Pass – This grade represents loans ranging from acceptable to very little or no credit risk. These loans typically meet most if not all policy standards in regard to: loan amount as a percentage of collateral value, debt service coverage, profitability, leverage, and working capital. • Special Mention – This grade represents “Other Assets Especially Mentioned” in accordance with regulatory guidelines and includes loans that display some potential weaknesses which, if left unaddressed, may result in deterioration of the repayment prospects for the asset or may inadequately protect the Company’s position in the future. These loans warrant more than normal supervision and attention. • Substandard – This grade represents “Substandard” loans in accordance with regulatory guidelines. Loans within this rating typically exhibit weaknesses that are well defined to the point that repayment is jeopardized. Loss potential is, however, not necessarily evident. The underlying collateral supporting the credit appears to have sufficient value to protect the Company from loss of principal and accrued interest, or the loan has been written down to the point where this is true. There is a definite need for a well-defined workout/rehabilitation program. • Doubtful – This grade represents “Doubtful” loans in accordance with regulatory guidelines. An asset classified as Doubtful has all the weaknesses inherent in a loan classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and financing plans. • Loss – This grade represents “Loss” loans in accordance with regulatory guidelines. A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan, even though some recovery may be affected in the future. The portion of the loan that is graded loss should be charged off no later than the end of the quarter in which the loss is identified. Based on the most recent analysis performed, the risk category of loans by class of loans is as follows for the period indicated: Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2024 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (in thousands) 2024 2023 2022 2021 2020 Prior Commercial real estate: CRE non-owner occupied risk ratings Pass $ 85,786 $ 179,495 $ 417,796 $ 271,527 $ 153,621 $ 937,565 $ 158,727 $ — $ 2,204,517 Special Mention — — 1,595 — — 28,361 436 — 30,392 Substandard — — — — — 16,796 — — 16,796 Doubtful/Loss — — — — — — — — — Total $ 85,786 $ 179,495 $ 419,391 $ 271,527 $ 153,621 $ 982,722 $ 159,163 $ — $ 2,251,705 Year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: CRE owner occupied risk ratings Pass $ 56,032 $ 74,060 $ 196,922 $ 180,017 $ 106,181 $ 272,791 $ 32,701 $ — $ 918,704 Special Mention 1,646 — 1,651 1,742 208 3,260 — — 8,507 Substandard — — 8,027 5,420 3,527 3,093 — — 20,067 Doubtful/Loss — — — — — — — — — Total $ 57,678 $ 74,060 $ 206,600 $ 187,179 $ 109,916 $ 279,144 $ 32,701 $ — $ 947,278 Year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 19 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2024 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (in thousands) 2024 2023 2022 2021 2020 Prior Commercial real estate: Multifamily risk ratings Pass $ 30,509 $ 28,045 $ 175,965 $ 294,983 $ 119,176 $ 317,604 $ 40,955 $ — $ 1,007,237 Special Mention — — — 12,316 — 209 — — 12,525 Substandard — — 502 — — 202 — — 704 Doubtful/Loss — — — — — — — — — Total $ 30,509 $ 28,045 $ 176,467 $ 307,299 $ 119,176 $ 318,015 $ 40,955 $ — $ 1,020,466 Year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Farmland risk ratings Pass $ 8,447 $ 18,332 $ 45,362 $ 21,187 $ 15,384 $ 50,085 $ 43,544 $ — $ 202,341 Special Mention — 2,708 2,911 8,331 425 3,763 1,506 — 19,644 Substandard — 83 — 21,123 — 12,846 12,038 — 46,090 Doubtful/Loss — — — — — — — — — Total $ 8,447 $ 21,123 $ 48,273 $ 50,641 $ 15,809 $ 66,694 $ 57,088 $ — $ 268,075 Year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer loans: SFR 1-4 1st DT liens risk ratings Pass $ 42,829 $ 122,899 $ 177,574 $ 245,529 $ 116,777 $ 141,713 $ — $ 3,982 $ 851,303 Special Mention — 67 — — — 904 — 168 1,139 Substandard — 253 353 3,504 2,107 6,620 — 477 13,314 Doubtful/Loss — — — — — — — — — Total $ 42,829 $ 123,219 $ 177,927 $ 249,033 $ 118,884 $ 149,237 $ — $ 4,627 $ 865,756 Year-to-date gross charge-offs $ — $ 26 $ — $ — $ — $ — $ — $ — $ 26 Consumer loans: SFR HELOCs and junior liens risk ratings Pass $ 252 $ — $ — $ — $ — $ 77 $ 338,631 $ 6,183 $ 345,143 Special Mention — — — — — — 5,126 235 5,361 Substandard — — — — — — 4,381 456 4,837 Doubtful/Loss — — — — — — — — — Total $ 252 $ — $ — $ — $ — $ 77 $ 348,138 $ 6,874 $ 355,341 Year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ 41 $ — $ 41 Consumer loans: Other risk ratings Pass $ 10,102 $ 24,078 $ 6,501 $ 6,817 $ 5,555 $ 8,002 $ 612 $ — $ 61,667 Special Mention — 92 35 231 110 8 15 — 491 Substandard — 82 166 114 2 342 2 — 708 Doubtful/Loss — — — — — — — — — Total $ 10,102 $ 24,252 $ 6,702 $ 7,162 $ 5,667 $ 8,352 $ 629 $ — $ 62,866 Year-to-date gross charge-offs $ 285 $ 67 $ 16 $ 74 $ 28 $ 56 $ 12 $ — $ 538 20 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of September 30, 2024 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (in thousands) 2024 2023 2022 2021 2020 Prior Commercial and industrial loans: Commercial and industrial risk ratings Pass $ 60,316 $ 61,459 $ 66,387 $ 46,857 $ 5,087 $ 10,539 $ 213,784 $ 161 $ 464,590 Special Mention 143 100 1,530 67 282 1 3,082 — 5,205 Substandard 429 — 1,555 847 43 636 11,384 74 14,968 Doubtful/Loss — — — — — — — — — Total $ 60,888 $ 61,559 $ 69,472 $ 47,771 $ 5,412 $ 11,176 $ 228,250 $ 235 $ 484,763 Year-to-date gross charge-offs $ 186 $ — $ 178 $ 93 $ — $ — $ 817 $ — $ 1,274 Construction loans: Construction risk ratings Pass $ 21,043 $ 103,279 $ 94,936 $ 29,098 $ 6,676 $ 7,585 $ — $ — $ 262,617 Special Mention — — 13,419 — — — — — 13,419 Substandard — — — — — 59 — — 59 Doubtful/Loss — — — — — — — — — Total $ 21,043 $ 103,279 $ 108,355 $ 29,098 $ 6,676 $ 7,644 $ — $ — $ 276,095 Year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agriculture production loans: Agriculture production risk ratings Pass $ 639 $ 1,379 $ 2,495 $ 1,028 $ 214 $ 7,530 $ 122,624 $ — $ 135,909 Special Mention — — 138 400 107 227 7,204 — 8,076 Substandard — — — 96 — 15 27 — 138 Doubtful/Loss — — — — — — — — — Total $ 639 $ 1,379 $ 2,633 $ 1,524 $ 321 $ 7,772 $ 129,855 $ — $ 144,123 Year-to-date gross charge-offs $ — $ — $ 173 $ — $ — $ — $ 1,277 $ — $ 1,450 Leases: Lease risk ratings Pass $ 7,423 $ — $ — $ — $ — $ — $ — $ — $ 7,423 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful/Loss — — — — — — — — — Total $ 7,423 $ — $ — $ — $ — $ — $ — $ — $ 7,423 Year-to-date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total loans outstanding: Risk ratings Pass $ 323,378 $ 613,026 $ 1,183,938 $ 1,097,043 $ 528,671 $ 1,753,491 $ 951,578 $ 10,326 $ 6,461,451 Special Mention 1,789 2,967 21,279 23,087 1,132 36,733 17,369 403 104,759 Substandard 429 418 10,603 31,104 5,679 40,609 27,832 1,007 117,681 Doubtful/Loss — — — — — — — — — Total $ 325,596 $ 616,411 $ 1,215,820 $ 1,151,234 $ 535,482 $ 1,830,833 $ 996,779 $ 11,736 $ 6,683,891 Year-to-date gross charge-offs $ 471 $ 93 $ 367 $ 167 $ 28 $ 56 $ 2,147 $ — $ 3,329 21 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2023 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (in thousands) 2023 2022 2021 2020 2019 Prior Commercial real estate: CRE non-owner occupied risk ratings Pass $ 180,326 $ 413,863 $ 290,210 $ 137,656 $ 206,408 $ 792,875 $ 141,686 $ — $ 2,163,024 Special Mention — 1,329 — 5,281 17,093 14,174 1,247 — 39,124 Substandard — — 767 — 2,139 12,540 212 — 15,658 Doubtful/Loss — — — — — — — — — Total $ 180,326 $ 415,192 $ 290,977 $ 142,937 $ 225,640 $ 819,589 $ 143,145 $ — $ 2,217,806 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: CRE owner occupied risk ratings Pass $ 71,288 $ 196,915 $ 190,384 $ 118,457 $ 59,220 $ 268,990 $ 23,740 $ — $ 928,994 Special Mention — 5,773 1,513 2,754 703 2,678 — — 13,421 Substandard — 2,972 7,835 — 111 3,107 — — 14,025 Doubtful/Loss — — — — — — — — — Total $ 71,288 $ 205,660 $ 199,732 $ 121,211 $ 60,034 $ 274,775 $ 23,740 $ — $ 956,440 Period end gross write-offs $ — $ — $ — $ 1,380 $ — $ 2,228 $ 29 $ — $ 3,637 Commercial real estate: Multifamily risk ratings Pass $ 28,445 $ 177,032 $ 279,660 $ 89,106 $ 104,108 $ 225,446 $ 33,470 $ — $ 937,267 Special Mention — — 11,914 — — 321 — — 12,235 Substandard — — — — — — — — — Doubtful/Loss — — — — — — — — — Total $ 28,445 $ 177,032 $ 291,574 $ 89,106 $ 104,108 $ 225,767 $ 33,470 $ — $ 949,502 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial real estate: Farmland risk ratings Pass $ 21,729 $ 46,398 $ 37,134 $ 16,006 $ 16,780 $ 41,663 $ 50,857 $ — $ 230,567 Special Mention — 2,170 5,802 51 261 734 — — 9,018 Substandard 101 813 9,053 377 — 13,266 7,859 — 31,469 Doubtful/Loss — — — — — — — — — Total $ 21,830 $ 49,381 $ 51,989 $ 16,434 $ 17,041 $ 55,663 $ 58,716 $ — $ 271,054 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer loans: SFR 1-4 1st DT liens risk ratings Pass $ 135,741 $ 189,920 $ 260,870 $ 125,081 $ 29,568 $ 126,975 $ — $ 4,079 $ 872,234 Special Mention 71 — — — — 1,948 — 27 2,046 Substandard — 140 1,296 1,490 531 5,265 — 436 9,158 Doubtful/Loss — — — — — — — — — Total $ 135,812 $ 190,060 $ 262,166 $ 126,571 $ 30,099 $ 134,188 $ — $ 4,542 $ 883,438 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 22 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2023 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (in thousands) 2023 2022 2021 2020 2019 Prior Consumer loans: SFR HELOCs and junior liens risk ratings Pass $ 297 $ — $ — $ — $ — $ 96 $ 343,698 $ 6,444 $ 350,535 Special Mention — — — — — — 2,274 138 2,412 Substandard — — — — — — 3,212 654 3,866 Doubtful/Loss — — — — — — — — — Total $ 297 $ — $ — $ — $ — $ 96 $ 349,184 $ 7,236 $ 356,813 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ 66 $ 66 Consumer loans: Other risk ratings Pass $ 34,441 $ 9,061 $ 8,908 $ 7,419 $ 6,825 $ 4,619 $ 659 $ — $ 71,932 Special Mention 21 54 203 63 54 37 18 — 450 Substandard 87 183 164 30 116 52 3 — 635 Doubtful/Loss — — — — — — — — — Total $ 34,549 $ 9,298 $ 9,275 $ 7,512 $ 6,995 $ 4,708 $ 680 $ — $ 73,017 Period end gross write-offs $ 376 $ 82 $ — $ 36 $ 39 $ 9 $ 16 $ — $ 558 Commercial and industrial loans: Commercial and industrial risk ratings Pass $ 70,930 $ 83,184 $ 51,455 $ 9,504 $ 10,193 $ 7,636 $ 340,858 $ 318 $ 574,078 Special Mention 33 663 237 83 — 178 1,126 — 2,320 Substandard — 2,014 782 103 4 762 6,318 74 10,057 Doubtful/Loss — — — — — — — — — Total $ 70,963 $ 85,861 $ 52,474 $ 9,690 $ 10,197 $ 8,576 $ 348,302 $ 392 $ 586,455 Period end gross write-offs $ 153 $ 287 $ 240 $ 2,285 $ — $ — $ 896 $ 18 $ 3,879 Construction loans: Construction risk ratings Pass $ 56,378 $ 136,294 $ 85,144 $ 47,632 $ 4,583 $ 6,518 $ — $ — $ 336,549 Special Mention — 10,582 — — — — — — 10,582 Substandard — — — — 67 — — — 67 Doubtful/Loss — — — — — — — — — Total $ 56,378 $ 146,876 $ 85,144 $ 47,632 $ 4,650 $ 6,518 $ — $ — $ 347,198 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Agriculture production loans: Agriculture production risk ratings Pass $ 945 $ 2,749 $ 1,595 $ 396 $ 620 $ 8,491 $ 114,935 $ — $ 129,731 Special Mention — 183 543 176 — — 11,302 — 12,204 Substandard — — — — — — 2,562 — 2,562 Doubtful/Loss — — — — — — — — — Total $ 945 $ 2,932 $ 2,138 $ 572 $ 620 $ 8,491 $ 128,799 $ — $ 144,497 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 23 Table of Contents Term Loans Amortized Cost Basis by Origination Year – As of December 31, 2023 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total (in thousands) 2023 2022 2021 2020 2019 Prior Leases: Lease risk ratings Pass $ 8,250 $ — $ — $ — $ — $ — $ — $ — $ 8,250 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful/Loss — — — — — — — — — Total $ 8,250 $ — $ — $ — $ — $ — $ — $ — $ 8,250 Period end gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Total loans outstanding: Risk ratings Pass $ 608,770 $ 1,255,416 $ 1,205,360 $ 551,257 $ 438,305 $ 1,483,309 $ 1,049,903 $ 10,841 $ 6,603,161 Special Mention 125 20,754 20,212 8,408 18,111 20,070 15,967 165 103,812 Substandard 188 6,122 19,897 2,000 2,968 34,992 20,166 1,164 87,497 Doubtful/Loss — — — — — — — — — Total $ 609,083 $ 1,282,292 $ 1,245,469 $ 561,665 $ 459,384 $ 1,538,371 $ 1,086,036 $ 12,170 $ 6,794,470 Period end gross write-offs $ 529 $ 369 $ 240 $ 3,701 $ 39 $ 2,237 $ 941 $ 84 $ 8,140 The following table shows the ending balance of current and past due originated loans by loan category as of the date indicated: Analysis of Past Due Loans - As of September 30, 2024 (in thousands) 30-59 days 60-89 days > 90 days Total Past Due Loans Current Total Commercial real estate: CRE non-owner occupied $ 1,035 $ — $ 3,042 $ 4,077 $ 2,247,628 $ 2,251,705 CRE owner occupied — 251 3,011 3,262 944,016 947,278 Multifamily — — 502 502 1,019,964 1,020,466 Farmland 1,201 205 8,291 9,697 258,378 268,075 Total commercial real estate loans 2,236 456 14,846 17,538 4,469,986 4,487,524 Consumer: SFR 1-4 1st DT liens 214 — 3,938 4,152 861,604 865,756 SFR HELOCs and junior liens 2,678 810 859 4,347 350,994 355,341 Other 128 80 89 297 62,569 62,866 Total consumer loans 3,020 890 4,886 8,796 1,275,167 1,283,963 Commercial and industrial 1,158 8,501 1,850 11,509 473,254 484,763 Construction — — — — 276,095 276,095 Agriculture production 15 — 28 43 144,080 144,123 Leases — — — — 7,423 7,423 Total $ 6,429 $ 9,847 $ 21,610 $ 37,886 $ 6,646,005 $ 6,683,891 24 Table of Contents Analysis of Past Due Loans - As of December 31, 2023 (in thousands) 30-59 days 60-89 days > 90 days Total Past Due Loans Current Total Commercial real estate: CRE non-owner occupied $ 3,876 $ — $ 1,382 $ 5,258 $ 2,212,548 $ 2,217,806 CRE owner occupied 34 — 247 281 956,159 956,440 Multifamily — — — — 949,502 949,502 Farmland 635 3,798 2,052 6,485 264,569 271,054 Total commercial real estate loans 4,545 3,798 3,681 12,024 4,382,778 4,394,802 Consumer: SFR 1-4 1st DT liens 141 1,449 490 2,080 881,358 883,438 SFR HELOCs and junior liens 16 — 623 639 356,174 356,813 Other 148 40 30 218 72,799 73,017 Total consumer loans 305 1,489 1,143 2,937 1,310,331 1,313,268 Commercial and industrial 244 605 1,654 2,503 583,952 586,455 Construction — — — — 347,198 347,198 Agriculture production 593 878 33 1,504 142,993 144,497 Leases 447 — — 447 7,803 8,250 Total $ 6,134 $ 6,770 $ 6,511 $ 19,415 $ 6,775,055 $ 6,794,470 The following table shows the ending balance of non accrual loans by loan category as of the date indicated: Non Accrual Loans As of September 30, 2024 As of December 31, 2023 (in thousands) Non accrual with no allowance for credit losses Total non accrual Past due 90 days or more and still accruing Non accrual with no allowance for credit losses Total non accrual Past due 90 days or more and still accruing Commercial real estate: CRE non-owner occupied $ 3,624 $ 3,624 $ — $ 2,024 $ 2,024 $ — CRE owner occupied 3,278 3,278 — 3,994 3,994 — Multifamily 502 502 — — — — Farmland 12,967 12,967 — 5,996 14,484 — Total commercial real estate loans 20,371 20,371 — 12,014 20,502 — Consumer: SFR 1-4 1st DT liens 5,991 5,997 — 2,808 2,811 — SFR HELOCs and junior liens 3,995 4,238 — 3,281 3,571 — Other 108 117 — 39 105 — Total consumer loans 10,094 10,352 — 6,128 6,487 — Commercial and industrial 1,529 10,556 86 1,379 2,503 10 Construction 59 59 — 67 67 — Agriculture production 170 213 — — 2,322 — Leases — — — — — — Sub-total 32,223 41,551 86 19,588 31,881 10 Less: Guaranteed loans ( 852 ) — — ( 766 ) ( 878 ) — Total, net $ 31,371 $ 41,551 $ 86 $ 18,822 $ 31,003 $ 10 Interest income on non accrual loans that would have been recognized during the three months ended September 30, 2024 and 2023, if all such loans had been current in accordance with their original terms, totaled $ 1.6 million and $ 0.4 million, respectively. Interest income actually recognized on these originated loans during the three months ended September 30, 2024 and 2023 was $ 0.5 million and $ 0.1 million, respectively. Interest income on non accrual loans that would have been recognized during the nine months ended September 30, 2024 and 2023, if all such loans had been current in accordance with their original terms, totaled $ 3.0 million and $ 1.7 million, respectively. Interest income actually recognized on these originated loans during the nine months ended September 30, 2024 and 2023 was $ 0.6 million and $ 0.8 million, respectively. 25 Table of Contents The following tables present the amortized cost basis of collateral dependent loans by class of loans as of the following periods: As of September 30, 2024 (in thousands) Retail Office Warehouse Other Multifamily Farmland SFR-1st Deed SFR-2nd Deed Automobile/Truck A/R and Inventory Equipment Total Commercial real estate: CRE non-owner occupied $ 3,042 $ 364 $ — $ 218 $ — $ — $ — $ — $ — $ — $ — $ 3,624 CRE owner occupied 140 23 147 2,968 — — — — — — — 3,278 Multifamily — — — — 502 — — — — — — 502 Farmland — — — — — 12,967 — — — — — 12,967 Total commercial real estate loans 3,182 387 147 3,186 502 12,967 — — — — — 20,371 Consumer: SFR 1-4 1st DT liens — — — — — — 5,991 — — — — 5,991 SFR HELOCs and junior liens — — — — — — 1,512 2,483 — — — 3,995 Other — — — — — — — — 108 — — 108 Total consumer loans — — — — — — 7,503 2,483 108 — — 10,094 Commercial and industrial — — — 8,334 — — — — — 1,244 978 10,556 Construction — — — — — — 59 — — — — 59 Agriculture production — — — 28 — — — — — — 185 213 Leases — — — — — — — — — — — — Total $ 3,182 $ 387 $ 147 $ 11,548 $ 502 $ 12,967 $ 7,562 $ 2,483 $ 108 $ 1,244 $ 1,163 $ 41,293 As of December 31, 2023 (in thousands) Retail Office Warehouse Other Multifamily Farmland SFR -1st Deed SFR -2nd Deed Automobile/Truck A/R and Inventory Equipment Total Commercial real estate: CRE non-owner occupied $ 124 $ 615 $ 519 $ 766 $ — $ — $ — $ — $ — $ — $ — $ 2,024 CRE owner occupied 614 — 297 3,083 — — — — — — — 3,994 Multifamily — — — — — — — — — — — — Farmland — — — 635 — 13,849 — — — — — 14,484 Total commercial real estate loans 738 615 816 4,484 — 13,849 — — — — — 20,502 Consumer: SFR 1-4 1st DT liens — — — — — — 2,808 — — — — 2,808 SFR HELOCs and junior liens — — — — — — 1,816 1,467 — — — 3,283 Other — — — — — — — — 95 — — 95 Total consumer loans — — — — — — 4,624 1,467 95 — — 6,186 Commercial and industrial — — — — — — — — — 1,712 791 2,503 Construction — — — — — — 67 — — — — 67 Agriculture production — — — 2,288 — — — — — — 33 2,321 Leases — — — — — — — — — — — — Total $ 738 $ 615 $ 816 $ 6,772 $ — $ 13,849 $ 4,691 $ 1,467 $ 95 $ 1,712 $ 824 $ 31,579 26 Table of Contents Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The following tables show the amortized cost basis of loans that were both experiencing financial difficulty and modified during the periods presented. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivables is also presented below. For the three months ended September 30, 2024 September 30, 2023 (in thousands) Combination - Term Extension/Rate Change Payment Delay/Term Extension Total % of Loans Outstanding Payment Delay/Term Extension Payment Delay/Term Reduction Total % of Loans Outstanding Farmland — — — — $ 1,043 0.37 % Commercial and industrial — 326 0.07 45 — 0.01 Total $ — $ 326 — % $ 45 $ 1,043 0.02 % For the nine months ended September 30, 2024 September 30, 2023 (in thousands) Combination - Term Extension/Rate Change Payment Delay/Term Extension Total % of Loans Outstanding Payment Delay/Term Extension Payment Delay/Term Reduction Total % of Loans Outstanding CRE non-owner occupied $ 211 $ — 0.01 % $ — $ — — % Multifamily — 295 0.29 — — — Farmland — — — — 1,043 0.37 SFR HELOCs and junior liens — 41 0.01 — — — Commercial and industrial — 1,008 0.21 206 — 0.03 Total $ 211 $ 1,344 0.02 % $ 206 $ 1,043 0.02 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024. Three months ended September 30, 2024 Modification Type Loan Type Financial Effect Payment delay / term extension Multifamily Added 12 months to the life of the loan Payment delay / term extension Commercial and industrial Added a weighted average 60 months to the life of the loans Nine months ended September 30, 2024 Modification Type Loan Type Financial Effect Combination - Term extension / rate change CRE non-owner occupied Added 120 months to the life of the loan; converted from variable to fixed interest rate Payment delay / term extension SFR HELOCs and junior liens Added 60 months to the life of the loan Payment delay / term extension Commercial and industrial Added a weighted average 53 months to the life of the loans The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the nine months ended September 30, 2023. Modification Type Loan Type Financial Effect Payment delay / term reduction Farmland Reduced term by 12 months; changed from amortizing to interest only Payment delay / term extension Commercial and industrial Added 12 months to the life of the loan to delay balloon repayment Payment delay / term extension Commercial and industrial Added 12 months to the life of the loan; changed from amortizing to interest only During the nine months ended September 30, 2024 and September 30, 2023, respectively, there were no loans with payment defaults by borrowers experiencing financial difficulty which had material modifications in rate, term or principal forgiveness during the twelve months prior to default. 27 Table of Contents Note 5 - Leases The Company records a ROUA on the consolidated balance sheets for those leases that convey rights to control use of identified assets for a period of time in exchange for consideration. The Company also records a lease liability on the consolidated balance sheets for the present value of future payment commitments. All of the Company’s leases are comprised of operating leases in which the Company is lessee of real estate property for branches, ATM locations, and general administration and operations. The Company has elected not to include short-term leases (i.e. leases with initial terms of 12 month or less) within the ROUA and lease liability. Known or determinable adjustments to the required minimum future lease payments were included in the calculation of the Company’s ROUA and lease liability. Adjustments to the required minimum future lease payments that are variable and will not be determinable until a future period, such as changes in the consumer price index, are included as variable lease costs. Additionally, expected variable payments for common area maintenance, taxes and insurance were unknown and not determinable at lease commencement and therefore, were not included in the determination of the Company’s ROUA or lease liability. The value of the ROUA and lease liability is impacted by the amount of the periodic payment required, length of the lease term, and the discount rate used to calculate the present value of the minimum lease payments. The Company’s lease agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. The lease liability is reduced based on the discounted present value of remaining payments as of each reporting period. The ROUA value is measured using the amount of lease liability and adjusted for prepaid or accrued lease payments, remaining lease incentives, unamortized direct costs (if any), and impairment (if any). The following table presents the components of lease expense for the periods ended: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Operating lease cost $ 1,416 $ 1,451 $ 4,315 $ 4,553 Short-term lease cost 52 43 159 279 Variable lease cost (income) ( 15 ) 9 8 29 Total lease cost $ 1,453 $ 1,503 $ 4,482 $ 4,861 The following table presents supplemental cash flow information related to leases for the periods ended: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 1,511 $ 1,576 $ 4,658 $ 4,840 ROUA obtained in exchange for operating lease liabilities $ 800 $ ( 544 ) $ 2,226 $ 4,311 The following table presents the weighted average operating lease term and discount rate as of the period ended: September 30, 2024 2023 Weighted-average remaining lease term (years) 7.7 8.1 Weighted-average discount rate 3.50 % 3.31 % 28 Table of Contents At September 30, 2024, future expected operating lease payments are as follows: (in thousands) Periods ending December 31, 2024 $ 1,454 2025 5,509 2026 4,950 2027 4,284 2028 3,275 Thereafter 11,106 30,578 Discount for present value of expected cash flows ( 3,910 ) Lease liability at September 30, 2024 $ 26,668 Note 6 - Deposits A summary of the balances of deposits follows: (in thousands) September 30, 2024 December 31, 2023 Noninterest-bearing demand $ 2,547,736 $ 2,722,689 Interest-bearing demand 1,708,726 1,731,814 Savings 2,690,045 2,682,068 Time certificates, $250,000 or more 465,907 250,180 Other time certificates 624,677 447,287 Total deposits $ 8,037,091 $ 7,834,038 Certificate of deposit balances of $ 100.0 million and $ 50.0 million from the State of California were included in time certificates, over $250,000, at September 30, 2024 and December 31, 2023, respectively. The Company participates in a deposit program offered by the State of California whereby the State may make deposits at the Company’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 Company. Overdrawn deposit balances of $ 2.0 million and $ 1.8 million were classified as consumer loans at September 30, 2024 and December 31, 2023, respectively. Note 7 - Other Borrowings A summary of the balances of other borrowings follows: September 30, 2024 December 31, 2023 (in thousands) Term borrowing at FHLB, fixed rate of 5.46 %, payable on October 7, 2024 75,000 — Term borrowing at FHLB, fixed rate of 5.23 %, payable on April 8, 2025 75,000 — Term borrowing at FHLB, fixed rate of 4.75 %, payable on April 8, 2024 — 200,000 Overnight borrowing at FHLB, fixed rate of 5.70 %, payable on January 2, 2024 — 400,000 Overnight borrowing at FHLB, fixed rate, as of September 30, 2024 of 5.21 %, payable on October 1, 2024 100,000 — Other collateralized borrowings, fixed rate, as of September 30, 2024 and December 31, 2023 of 0.05 %, payable on October 1, 2024 and January 2, 2024, respectively 16,767 32,582 Total other borrowings $ 266,767 $ 632,582 29 Table of Contents Note 8 - Junior Subordinated Debt The following table summarizes the terms and recorded balances of each debenture as of the date indicated: (in thousands) Coupon Rate (Variable) 3 mo. SOFR + As of September 30, 2024 As of December 31, 2023 Subordinated Debt Series Maturity Date Face Value Current Coupon Rate Recorded Book Value Recorded Book Value TriCo Cap Trust I 10/7/2033 $ 20,619 3.05 % 8.61 % $ 20,619 $ 20,619 TriCo Cap Trust II 7/23/2034 20,619 2.55 % 8.09 % 20,619 20,619 North Valley Trust II 4/24/2033 6,186 3.25 % 8.76 % 5,684 5,602 North Valley Trust III 7/23/2034 5,155 2.80 % 8.34 % 4,544 4,472 North Valley Trust IV 3/15/2036 10,310 1.33 % 6.54 % 7,797 7,615 VRB Subordinated 3/29/2029 16,000 3.52 % 9.11 % 16,852 17,000 VRB Subordinated - 5 % 8/27/2035 20,000 Fixed 5.00 % 25,049 25,172 $ 98,889 $ 101,164 $ 101,099 The VRB - 5 % Subordinated Debt issuance is fixed at 5.0 % through August 27, 2025, then will have a floating rate of 90-day average SOFR plus 4.9 % until maturity. Note 9 - Commitments and Contingencies The following table presents a summary of the Bank’s commitments and contingent liabilities: (in thousands) September 30, 2024 December 31, 2023 Financial instruments whose amounts represent risk: Commitments to extend credit: Commercial loans $ 889,617 $ 788,742 Consumer loans 627,109 652,110 Real estate mortgage loans 432,022 453,647 Real estate construction loans 266,126 331,178 Standby letters of credit 51,691 38,449 Deposit account overdraft privilege 127,285 121,539 In April 2024, Visa Inc. announced the commencement of an exchange offer for Visa Class B-1 common stock and the Company subsequently tendered all of its Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock. Completion of the exchange resulted in a gain of $ 2.9 million relating to the Visa Class C common stock. Visa Class B-2 common stock continues to be carried at zero. The Bank owns 6,698 shares of Class B-2 common stock of Visa Inc. which may be convertible into Class A common stock at a conversion ratio of 1.5875 per Class B-2 share. As of September 30, 2024, the value of the Class A shares was $ 274.95 per share. Utilizing the conversion ratio, the value of unredeemed Class A equivalent shares owned by the Bank was $ 2.9 million as of September 30, 2024, and has not been reflected in the accompanying consolidated financial statements. The shares of Visa Class B-2 common stock are restricted and may not be transferred. Visa Member Banks are required to fund an escrow account to cover settlements, resolution of pending litigation and related claims. If the funds in the escrow account are insufficient to settle all the covered litigation, Visa may sell additional Class A shares, use the proceeds to settle litigation, and further reduce the conversion ratio. If funds remain in the escrow account after all litigation is settled, the Class B-2 conversion ratio may be increased to reflect that surplus. Until all U.S. covered litigation obligations have been satisfied or the Applicable Conversion Rate for the Class B-2 common stock reaches zero, there is no dollar cap on the amount of payments that a participating holder and its guarantors may be obligated to make under its Makewhole Agreement. 30 Table of Contents Note 10 - Shareholders’ Equity Dividends Paid The Bank paid to the Company cash dividends in the aggregate amounts of $ 10.5 million and $ 11.5 million during the three months ended September 30, 2024 and 2023, respectively and $ 54.4 million and $ 41.4 million during the equivalent nine month periods then ended, respectively. The Bank is regulated by the FDIC and the DFPI. Absent approval from the Commissioner of the DFPI, California banking laws generally limit the Bank’s ability to pay dividends to the lesser of (1) retained earnings or (2) net income for the last three fiscal years, less cash distributions paid during such period. Stock Repurchase Plan On February 25, 2021, the Board of Directors authorized the repurchase of up to 2.0 million shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7 % of the shares outstanding as of the approval date. The actual timing of any share repurchases can be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The 2021 Repurchase Plan has no expiration date (in accordance with applicable laws and regulations). During the three and nine months ended September 30, 2024, the Company repurchased zero and 344,324 shares with market values of $ 0.0 million and $ 12.5 million, respectively. During the three and nine months ended September 30, 2023, the Company repurchased zero and 150,000 shares with market values of zero and $ 7.0 million, respectively. Stock Repurchased Under Equity Compensation Plans The Company's shareholder-approved equity compensation plans permit employees to tender recently vested shares in lieu of cash for the payment of exercise price, if applicable, and the tax withholding on such shares. During the three and nine months ended September 30, 2023, exercising option holders tendered zero and 2,506 shares, respectively, of the Company’s common stock in connection with option exercises. There were no option exercises during the nine months ended September 30, 2024. Employees also tendered 1,551 and 976 shares in connection with the tax withholding requirements of other share-based awards during the three months ended September 30, 2024 and 2023, respectively, and 32,061 and 52,437 during the nine months ended September 30, 2024 and 2023, respectively. In total, shares of the Company's common stock tendered had market values of $ 0.1 million and $ 0.03 million during the quarters ended September 30, 2024 and 2023, respectively and $ 1.2 million and $ 2.1 million, respectively during the year to date periods then ended. The tendered shares were retired. The market value of tendered shares is the last market trade price at closing on the day an option is exercised or the other share-based award vests. Stock repurchased under equity incentive plans are not included in the total of stock repurchased under the 2021 Stock Repurchase Plans. Note 11 - Stock Options and Other Equity-Based Incentive Instruments On April 16, 2024, the Board of Directors adopted the 2024 Equity Incentive Plan (2024 Plan) which was approved by shareholders on May 23, 2024. The 2024 Plan allows for up to 1,200,000 shares to be issued in connection with equity-based incentives. In conjunction with shareholder approval of the 2024 Plan, the 2019 Equity Incentive Plan (2019 Plan), which allowed for up to 1,500,000 shares to be issued in connection with equity-based incentives, is no longer available for grant issuances. The Company's 2009 Equity Incentive Plan expired on March 26, 2019. While no new awards can be granted under the 2019 Plan or 2009 Plan, existing grants continue to be governed by the terms, conditions and procedures set forth in any applicable award agreement. Stock option activity during the nine months ended September 30, 2024, is summarized in the following table: Number of Shares Weighted Average Exercise Price Outstanding at December 31, 2023 7,500 $ 23.21 Options granted — — Options exercised ( 7,500 ) 23.21 Options forfeited — — Outstanding at September 30, 2024 — $ — The Company did not modify any option grants during the nine months ended September 30, 2024 or 2023. 31 Table of Contents Activity related to restricted stock unit awards during the nine months ended September 30, 2024 is summarized in the following table: Service Condition Vesting RSUs Market Plus Service Condition Vesting RSUs Outstanding at December 31, 2023 144,487 123,102 RSUs granted 86,036 56,516 RSUs added through dividend and performance credits 4,685 1,536 RSUs released ( 69,043 ) ( 32,248 ) RSUs forfeited ( 4,001 ) ( 2,458 ) Outstanding at September 30, 2024 162,164 146,448 The 162,164 of service condition vesting RSUs outstanding as of September 30, 2024 include a feature whereby each RSU outstanding is credited with a dividend amount equal to any common stock cash dividend declared and paid, and the credited amount is divided by the closing price of the Company’s stock on the dividend payable date to arrive at an additional amount of RSUs outstanding under the original grant. The dividend credits follow the same vesting requirements as the RSU awards and are not considered participating securities. The 162,164 of service condition vesting RSUs outstanding as of September 30, 2024 are expected to vest, and be released, on a weighted-average basis, over the next 1.7 years. The Company expects to recognize $ 4.4 million of pre-tax compensation costs related to these service condition vesting RSUs between September 30, 2024 and their vesting dates. The Company did not modify any service condition vesting RSUs during the nine months ended September 30, 2024 or 2023. The 146,448 of market plus service condition vesting RSUs outstanding as of September 30, 2024 are expected to vest, and be released, on a weighted-average basis, over the next 1.8 years. The Company expects to recognize $ 2.3 million of pre-tax compensation costs related to these RSUs between September 30, 2024 and their vesting dates. As of September 30, 2024, the number of market plus service condition vesting RSUs outstanding that will actually vest, and be released, may be reduced to zero or increased to 219,672 depending on the total return of the Company’s common stock versus the total return of an index of bank stocks from the grant date to the vesting date. The Company did not modify any market plus service condition vesting RSUs during the nine months ended September 30, 2024 or 2023. 32 Table of Contents Note 12 - Non-interest Income and Expense The following table summarizes the Company’s non-interest income for the periods indicated: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 ATM and interchange fees $ 6,472 $ 6,728 $ 19,013 $ 19,928 Service charges on deposit accounts 4,979 4,851 14,489 12,863 Other service fees 1,224 1,142 3,876 3,300 Mortgage banking service fees 439 445 1,305 1,364 Change in value of mortgage servicing rights ( 332 ) ( 91 ) ( 468 ) ( 215 ) Total service charges and fees 12,782 13,075 38,215 37,240 Increase in cash value of life insurance 786 684 2,420 2,274 Asset management and commission income 1,502 1,141 3,989 3,233 Gain on sale of loans 549 382 1,198 883 Lease brokerage income 62 160 377 332 Sale of customer checks 303 396 916 1,091 (Loss) gain on sale or exchange of investment securities 2 — ( 43 ) ( 164 ) (Loss) gain on marketable equity securities 356 ( 81 ) 207 ( 81 ) Other 153 227 853 552 Total other non-interest income 3,713 2,909 9,917 8,120 Total non-interest income $ 16,495 $ 15,984 $ 48,132 $ 45,360 The components of non-interest expense were as follows: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Base salaries, net of deferred loan origination costs $ 24,407 $ 23,616 $ 72,279 $ 70,675 Incentive compensation 4,361 4,391 12,329 11,663 Benefits and other compensation costs 6,782 6,456 20,647 19,402 Total salaries and benefits expense 35,550 34,463 105,255 101,740 Occupancy 4,191 3,948 12,205 12,099 Data processing and software 5,258 5,246 15,459 13,916 Equipment 1,374 1,503 4,060 4,322 Intangible amortization 1,030 1,590 3,090 4,902 Advertising 1,152 881 2,733 2,656 ATM and POS network charges 1,712 1,606 5,360 5,217 Professional fees 1,893 1,752 5,047 5,326 Telecommunications 507 567 1,576 1,971 Regulatory assessments and insurance 1,256 1,194 3,651 3,979 Postage 335 306 983 916 Operational losses 603 474 1,199 1,999 Courier service 542 492 1,581 1,314 (Gain) loss on sale or acquisition of foreclosed assets 26 ( 152 ) ( 12 ) ( 152 ) Loss on disposal of fixed assets 6 4 12 22 Other miscellaneous expense 4,052 4,004 12,131 12,688 Total other non-interest expense 23,937 23,415 69,075 71,175 Total non-interest expense $ 59,487 $ 57,878 $ 174,330 $ 172,915 Note 13 - Earnings Per Share Basic earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive 33 Table of Contents potential common shares had been issued, as well as any adjustments to income that would result from assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and restricted stock units (RSUs), and are determined using the treasury stock method. Earnings per share have been computed based on the following: Three months ended September 30, (in thousands) 2024 2023 Net income $ 29,051 $ 30,590 Average number of common shares outstanding 32,993 33,263 Effect of dilutive stock options and restricted stock 144 56 Average number of common shares outstanding used to calculate diluted earnings per share 33,137 33,319 Options excluded from diluted earnings per share because of their antidilutive effect — — Nine months ended September 30, (in thousands) 2024 2023 Net income $ 85,834 $ 91,315 Average number of common shares outstanding 33,119 33,259 Effect of dilutive stock options and restricted stock 132 97 Average number of common shares outstanding used to calculate diluted earnings per share 33,251 33,356 Options excluded from diluted earnings per share because of their antidilutive effect — — Note 14 – Comprehensive Income (Loss) Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet identified as accumulated other comprehensive income (AOCI), such items, along with net income, are components of other comprehensive income (loss) (OCI). The components of other comprehensive income (loss) and related tax effects are as follows: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Unrealized holding gains (losses) on available for sale securities before reclassifications $ 63,232 $ ( 62,525 ) $ 48,438 $ ( 44,901 ) Amounts reclassified out of AOCI: Realized gain (loss) on debt securities ( 2 ) — 2,945 164 Unrealized holding gains (losses) on available for sale securities after reclassifications 63,230 ( 62,525 ) 51,383 ( 44,737 ) Tax effect ( 18,692 ) 18,485 ( 15,191 ) 13,226 Unrealized holding gains (losses) on available for sale securities, net of tax 44,538 ( 44,040 ) 36,192 ( 31,511 ) Change in unfunded status of the supplemental retirement plans before reclassifications 114 114 344 342 Amounts reclassified out of AOCI: Amortization of prior service cost — — — — Amortization of actuarial losses ( 114 ) ( 114 ) ( 344 ) ( 342 ) Total amounts reclassified out of accumulated other comprehensive loss ( 114 ) ( 114 ) ( 344 ) ( 342 ) Change in unfunded status of the supplemental retirement plans after reclassifications — — — — Tax effect — — — — Change in unfunded status of the supplemental retirement plans, net of tax — — — — Change in joint beneficiary agreement liability before reclassifications — — — — Tax effect — — — — Change in joint beneficiary agreement liability before reclassifications, net of tax — — — — Total other comprehensive income (loss) $ 44,538 $ ( 44,040 ) $ 36,192 $ ( 31,511 ) 34 Table of Contents The components of accumulated other comprehensive loss, included in shareholders’ equity, are as follows: (in thousands) September 30, 2024 December 31, 2023 Net unrealized loss on available for sale securities $ ( 180,438 ) $ ( 231,821 ) Tax effect 53,343 68,534 Unrealized holding loss on available for sale securities, net of tax ( 127,095 ) ( 163,287 ) Unfunded status of the supplemental retirement plans 13,527 13,527 Tax effect ( 3,999 ) ( 3,999 ) Unfunded status of the supplemental retirement plans, net of tax 9,528 9,528 Joint beneficiary agreement liability 590 590 Tax effect — — Joint beneficiary agreement liability, net of tax 590 590 Accumulated other comprehensive loss $ ( 116,977 ) $ ( 153,169 ) Note 15 - Fair Value Measurement The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, income approach, and/or the cost approach. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Marketable equity securities, trading securities, debt securities available-for-sale, loans held for sale, and mortgage servicing rights are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application impairment write-downs of individual assets. The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observable nature of the assumptions used to determine fair value. These levels are: Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. Marketable equity securities, trading securities and debt securities available for sale - Marketable equity, trading and debt securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and corporate debt securities. The Company had no securities classified as Level 3 during any of the periods covered in these consolidated financial statements. Loans held for sale - Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is based on what secondary markets are currently offering for loans with similar characteristics. As such, we classify those loans subjected to recurring fair value adjustments as Level 2. Individually evaluated loans - Loans are not recorded at fair value on a recurring basis. However, from time to time, certain loans have individual risk characteristics not consistent with a pool of loans and is individually evaluated for credit reserves. Loans for which it is probable that payment of interest and principal will not be made in accordance with the original contractual terms of the loan agreement are typically individually evaluated. The fair value of these loans are estimated using one of several methods, including collateral value, fair value of similar debt, enterprise value, liquidation value and discounted cash flows. Those loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. Loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from 35 Table of Contents comparable sales, and there is no observable market price, the Company records the loan as nonrecurring Level 3. Foreclosed assets - Foreclosed assets include assets acquired through, or in lieu of, loan foreclosure. Foreclosed assets are held for sale and are initially recorded at fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, management periodically performs valuations and the assets are carried at the lower of carrying amount or fair value less cost to sell. When the fair value of foreclosed assets is based on an observable market price or a current appraised value which uses substantially observable data, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value, or the appraised value contains a significant unobservable assumption, such as deviations from comparable sales, and there is no observable market price, the Company records the foreclosed asset as nonrecurring Level 3. Revenue and expenses from operations and changes in the valuation allowance are included in other non-interest expense. Mortgage servicing rights - Mortgage servicing rights are carried at fair value. A valuation model, which utilizes a discounted cash flow analysis using a discount rate and prepayment speed assumptions is used in the computation of the fair value measurement. While the prepayment speed assumption is currently quoted for comparable instruments, the discount rate assumption currently requires a significant degree of management judgment and is therefore considered an unobservable input. As such, the Company classifies mortgage servicing rights subjected to recurring fair value adjustments as Level 3. The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands): Fair value at September 30, 2024 Total Level 1 Level 2 Level 3 Marketable equity securities $ 2,690 $ 2,690 $ — $ — Debt securities available for sale: Obligations of U.S. government corporations and agencies 1,101,997 — 1,101,997 — Obligations of states and political subdivisions 229,342 — 229,342 — Corporate bonds 5,864 — 5,864 — Asset backed securities 363,540 — 363,540 — Non-agency mortgage backed securities 278,527 — 278,527 — Loans held for sale 1,995 — 1,995 — Mortgage servicing rights 6,520 — — 6,520 Total assets measured at fair value $ 1,990,475 $ 2,690 $ 1,981,265 $ 6,520 Fair value at December 31, 2023 Total Level 1 Level 2 Level 3 Marketable equity securities $ 2,634 $ 2,634 $ — $ — Debt securities available for sale: Obligations of U.S. government corporations and agencies 1,221,737 — 1,221,737 — Obligations of states and political subdivisions 236,375 — 236,375 — Corporate bonds 5,602 — 5,602 — Asset backed securities 355,281 — 355,281 — Non-agency mortgage backed securities 333,509 — 333,509 — Loans held for sale 458 — 458 — Mortgage servicing rights 6,606 — — 6,606 Total assets measured at fair value $ 2,162,202 $ 2,634 $ 2,152,962 $ 6,606 Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between any levels during the nine months ended September 30, 2024 or September 30, 2023, respectively. The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the time periods indicated. Had there been any transfer into or out of Level 3 during the time periods indicated, the amount included in the “Transfers into (out of) Level 3” column would represent the beginning balance of an item in the period (interim quarter) during which it was transferred (in thousands): Three months ended September 30, Beginning Balance Transfers into (out of) Level 3 Change Included in Earnings Issuances Ending Balance 2024: Mortgage servicing rights $ 6,666 — $ ( 332 ) $ 186 $ 6,520 2023: Mortgage servicing rights $ 6,741 — $ ( 91 ) $ 142 $ 6,792 36 Table of Contents Nine months ended September 30, Beginning Balance Transfers into (out of) Level 3 Change Included in Earnings Issuances Ending Balance 2024: Mortgage servicing rights $ 6,606 — $ ( 468 ) $ 382 $ 6,520 2023: Mortgage servicing rights $ 6,712 — $ ( 215 ) $ 295 $ 6,792 The key unobservable inputs used in determining the fair value of mortgage servicing rights are mortgage prepayment speeds and the discount rate used to discount cash projected cash flows. Generally, any significant increases in the mortgage prepayment speed and discount rate utilized in the fair value measurement of the mortgage servicing rights will result in a negative fair value adjustments (and decrease in the fair value measurement). Conversely, a decrease in the mortgage prepayment speed and discount rate will result in a positive fair value adjustment (and increase in the fair value measurement). The following table presents quantitative information about recurring Level 3 fair value measurements at September 30, 2024 and December 31, 2023: As of September 30, 2024: Fair Value (in thousands) Valuation Technique Unobservable Inputs Range, Weighted Average Mortgage Servicing Rights $ 6,520 Discounted cash flow Constant prepayment rate 7 % - 11 %; 7.2 % Discount rate 10 % - 14 %; 12 % As of December 31, 2023: Mortgage Servicing Rights $ 6,606 Discounted cash flow Constant prepayment rate 6 % - 12.8 %; 7.0 % Discount rate 10 % - 14 %; 12 % The tables below present the recorded investment in assets and liabilities measured at fair value on a nonrecurring basis, as of the dates indicated, that had a write-down or an additional allowance provided during the periods indicated (in thousands): September 30, 2024 Total Level 1 Level 2 Level 3 Fair value: Collateral dependent loans $ 8,384 — — $ 8,384 December 31, 2023 Total Level 1 Level 2 Level 3 Fair value: Collateral dependent loans $ 4,175 — — $ 4,175 Foreclosed assets 50 — — 50 Total assets measured at fair value $ 4,225 — — $ 4,225 The tables below present the gains (losses) resulting from non-recurring fair value adjustments of assets and liabilities for the periods indicated (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Collateral dependent loans $ ( 4,051 ) $ 4,749 $ ( 4,358 ) $ ( 2,281 ) Foreclosed assets — ( 41 ) — ( 233 ) Total losses from non-recurring measurements $ ( 4,051 ) $ 4,708 $ ( 4,358 ) $ ( 2,514 ) The individually evaluated loan amounts above represent collateral dependent loans that have been adjusted to fair value. When the Company identifies a collateral dependent loan with unique risk characteristics, the Company evaluates the need for an allowance using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If the Company determines that the value of the loan is less than the recorded investment in the loan, the Company recognizes this impairment and adjust the carrying value of the loan to fair value through the allowance for credit losses. The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral. The carrying value of loans fully charged-off is zero . The foreclosed assets amount above represents impaired real estate that has been adjusted to fair value. Foreclosed assets represent real estate which the Company has taken control of in partial or full satisfaction of loans. At the time of foreclosure, other real estate owned is recorded at fair value less costs to sell, which becomes the property’s new basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. After foreclosure, management periodically performs valuations such that the 37 Table of Contents real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on other real estate owned are recognized within net loss on real estate owned. The loss represents impairments on real estate owned for fair value adjustments based on the fair value of the real estate. The Company’s property appraisals are primarily based on the sales comparison approach and income approach methodologies, which consider recent sales of comparable properties, including their income generating characteristics, and then make adjustments to reflect the general assumptions that a market participant would make when analyzing the property for purchase. These adjustments may increase or decrease an appraised value and can vary significantly depending on the location, physical characteristics and income producing potential of each property. Additionally, the quality and volume of market information available at the time of the appraisal can vary from period to period and cause significant changes to the nature and magnitude of comparable sale adjustments. Given these variations, comparable sale adjustments are generally not a reliable indicator for how fair value will increase or decrease from period to period. Under certain circumstances, management discounts are applied based on specific characteristics of an individual property. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at September 30, 2024: September 30, 2024 Fair Value (in thousands) Valuation Technique Unobservable Inputs Range, Weighted Average Collateral dependent loans $ 8,384 Sales comparison approach Income approach Adjustment for differences between comparable sales; Capitalization rate Not meaningful N/A The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at December 31, 2023: December 31, 2023 Fair Value (in thousands) Valuation Technique Unobservable Inputs Range, Weighted Average Collateral dependent loans $ 4,175 Sales comparison approach Income approach Adjustment for differences between comparable sales; Capitalization rate Not meaningful N/A Foreclosed assets (Residential real estate) $ 50 Sales comparison approach Adjustment for differences between comparable sales Not meaningful N/A Fair values for financial instruments are management’s estimates of the values at which the instruments could be exchanged in a transaction between willing parties. The Company uses the exit price notion when measuring the fair value of financial instruments. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including, any mortgage banking operations, deferred tax assets, and premises and equipment. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of these estimates. September 30, 2024 December 31, 2023 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value Financial assets: Level 1 inputs: Cash and due from banks $ 110,141 $ 110,141 $ 81,626 $ 81,626 Cash at Federal Reserve and other banks 209,973 209,973 17,075 17,075 Level 2 inputs: Securities held to maturity 117,259 113,708 133,494 125,126 Restricted equity securities 17,250 n/a 17,250 n/a Level 3 inputs: Loans, net 6,560,131 6,259,677 6,672,948 6,278,577 Financial liabilities: Level 2 inputs: Deposits 8,037,091 8,035,484 7,834,038 7,828,554 Other borrowings 266,767 266,767 632,582 632,582 Level 3 inputs: Junior subordinated debt 101,164 105,949 101,099 95,407 38 Table of Contents Note 16 - Regulatory Matters The Company is subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total, Tier 1, and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. The following tables present actual and required capital ratios as of September 30, 2024 and December 31, 2023 for the Company and the Bank under applicable Basel III Capital Rules. The minimum capital amounts presented include the minimum required capital levels as of September 30, 2024 and December 31, 2023 based on the then phased-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. Actual Required for Capital Adequacy Purposes Required to be Considered Well Capitalized As of September 30, 2024: Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $ 1,240,075 15.56 % $ 836,744 10.50 % N/A N/A Tri Counties Bank $ 1,232,404 15.47 % $ 836,543 10.50 % $ 796,708 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 1,099,766 13.80 % $ 677,364 8.50 % N/A N/A Tri Counties Bank $ 1,132,442 14.21 % $ 677,202 8.50 % $ 637,366 8.00 % Common equity Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 1,042,283 13.08 % $ 557,829 7.00 % N/A N/A Tri Counties Bank $ 1,132,442 14.21 % $ 557,696 7.00 % $ 517,860 6.50 % Tier 1 Capital (to Average Assets): Consolidated $ 1,099,766 11.57 % $ 380,245 4.00 % N/A N/A Tri Counties Bank $ 1,132,442 11.91 % $ 380,234 4.00 % $ 475,293 5.00 % Actual Required for Capital Adequacy Purposes Required to be Considered Well Capitalized As of December 31, 2023: Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) Total Capital (to Risk Weighted Assets): Consolidated $ 1,196,106 14.73 % $ 852,850 10.50 % N/A N/A Tri Counties Bank $ 1,190,542 14.66 % $ 852,648 10.50 % $ 812,046 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 1,052,063 12.95 % $ 690,402 8.50 % N/A N/A Tri Counties Bank $ 1,088,717 13.41 % $ 690,239 8.50 % $ 649,637 8.00 % Common equity Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 994,907 12.25 % $ 568,566 7.00 % N/A N/A Tri Counties Bank $ 1,088,717 13.41 % $ 568,432 7.00 % $ 527,830 6.50 % Tier 1 Capital (to Average Assets): Consolidated $ 1,052,063 10.75 % $ 391,620 4.00 % N/A N/A Tri Counties Bank $ 1,088,717 11.12 % $ 391,574 4.00 % $ 489,468 5.00 % 39 Table of Contents As of September 30, 2024 and December 31, 2023, capital levels at the Company and the Bank exceed all capital adequacy requirements under the Basel III Capital Rules. Also, at September 30, 2024 and December 31, 2023, the Bank’s capital levels exceeded the minimum amounts necessary to be considered well capitalized under the current regulatory framework for prompt corrective action. The Basel III Capital Rules require for all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of common equity tier 1 capital, and it applies to each of the risk-based capital ratios but not the leverage ratio. At September 30, 2024, the Company and the Bank are in compliance with the capital conservation buffer requirement. 40 Table of Contents