TRICO BANCSHARES / 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS Cautionary Statements Regarding Forward-Looking Information The statements contained herein that are not historical facts are forward-looking statements based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond our control. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the conditions of the United States economy in general and the strength of the local economies in which we conduct operations; the impact of any future federal government shutdown and uncertainty regarding the federal government’s debt limit or changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System; the impacts of inflation, interest rate, market and monetary fluctuations on the Company's business condition and financial operating results; the impact of changes in financial services industry policies, laws and regulations; regulatory restrictions affecting our ability to successfully market and price our products to consumers; the risks related to the development, implementation, use and management of emerging technologies, including artificial intelligence and machine learning; extreme weather, natural disasters and other catastrophic events that may or may not be caused by climate change and their effects on the Company's customers and the economic and business environments in which the Company operates; the impact of a slowing U.S. economy, decreases in housing and commercial real estate prices, and potentially increased unemployment on the performance of our loan portfolio, the market value of our investment securities and possible other-than-temporary impairment of securities held by us due to changes in credit quality or rates; the availability of, and cost of, sources of funding and the demand for our products; adverse developments with respect to U.S. or global economic conditions and other uncertainties, including the impact of supply chain disruptions, commodities prices, inflationary pressures and labor shortages on the economic recovery and our business; the impacts of international hostilities, wars, terrorism or geopolitical events; adverse developments in the financial services industry generally such as the recent bank failures and any related impact on depositor behavior or investor sentiment; risks related to the sufficiency of liquidity; the possibility that our recorded goodwill could become impaired, which may have an adverse impact on our earnings and capital; the costs or effects of mergers, acquisitions or dispositions we may make, as well as whether we are able to obtain any required governmental approvals in connection with any such activities, or identify and complete favorable transactions in the future, and/or realize the anticipated financial and business benefits; the regulatory and financial impacts associated with exceeding $10 billion in total assets; the negative impact on our reputation and profitability in the event customers experience economic harm or in the event that regulatory violations are identified; the ability to execute our business plan in new markets; the future operating or financial performance of the Company, including our outlook for future growth and changes in the level and direction of our nonperforming assets and charge-offs; the appropriateness of the allowance for credit losses, including the assumptions made under our current expected credit losses model; any deterioration in values of California real estate, both residential and commercial; the effectiveness of the Company's asset management activities managing the mix of earning assets and in improving, resolving or liquidating lower-quality assets; the effect of changes in the financial performance and/or condition of our borrowers; changes in accounting standards and practices; changes in consumer spending, borrowing and savings habits; our ability to attract and maintain deposits and other sources of liquidity; the effects of changes in the level or cost of checking or savings account deposits on our funding costs and net interest margin; increasing noninterest expense and its impact on our financial performance; competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional competitors including retail businesses and technology companies; the challenges of attracting, integrating and retaining key employees; the vulnerability of the Company's operational or security systems or infrastructure, the systems of third-party vendors or other service providers with whom the Company contracts, and the Company's customers to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and data/security breaches and the cost to defend against and respond to such incidents; the impact of the 2023 cyber security ransomware incident, including the pending litigation, on our operations and reputation; increased data security risks due to work from home arrangements and email vulnerability; failure to safeguard personal information, and any resulting litigation; the effect of a fall in stock market prices on our brokerage and wealth management businesses; the transition from the LIBOR to new interest rate benchmarks; the emergence or continuation of widespread health emergencies or pandemics; the Company’s potential judgments, orders, settlements, penalties, fines and reputational damage resulting from pending or future litigation and regulatory investigations, proceedings and enforcement actions; and our ability to manage the risks involved in the foregoing. There can be no assurance that future developments affecting us will be the same as those anticipated by management. Additional factors that could cause results to differ materially from those described above can be found in our Annual Report on Form 10-K for the year ended December 31, 2023, which has been filed with the Securities and Exchange Commission (the “SEC”) and all subsequent filings with the SEC under Sections 13(a), 13(c), 14, and 15(d) of the Securities Act of 1934, as amended. Such filings are also available in the “Investor Relations” section of our website, https://www.tcbk.com/investor-relations and in other documents we file with the SEC. Annualized, pro forma, projections and estimates are not forecasts and may not reflect actual results. We undertake no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. General As TriCo Bancshares (referred to in this report as “we”, “our” or the “Company”) has not commenced any business operations independent of Tri Counties Bank (the “Bank”), the following discussion pertains primarily to the Bank. Average balances, including such balances used in calculating certain financial ratios, are generally comprised of average daily balances for the Company. Within Management’s Discussion and Analysis of Financial Condition and Results of Operations, interest income, net interest income, and net interest yield are generally presented on a FTE basis. The Company believes the use of these non-generally accepted accounting principles (non-GAAP) measures provides additional clarity in assessing its results, and the presentation of these measures on a FTE basis is a common practice within the banking industry. Interest income and net interest income are shown on a non-FTE basis in the Part I - Financial Information section of this Form 10-Q, and a reconciliation of the FTE and non-FTE presentations is provided below in the discussion of net interest income. 41 Table of Contents Critical Accounting Policies and Estimates The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those that materially affect the financial statements and are related to the adequacy of the allowance for loan losses, investments, mortgage servicing rights, fair value measurements, retirement plans and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A detailed discussion related to the Company’s accounting policies including those related to estimates on the allowance for credit losses related to loans and investment securities, and impairment of intangible assets, can be found in Note 1 of the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2023. 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. Financial Highlights Performance highlights and other developments for the Company as of or for the three and nine months ended September 30, 2024, included the following: • Net income was $29.1 million or $0.88 per diluted share as compared to $29.0 million or $0.87 per diluted share in the trailing quarter • Deposit balances decreased $13.1 million or 0.7% (annualized) from the trailing quarter and have increased $27.4 million or 0.3% (annualized) from the same quarter of the prior year • Average yield on earning assets was 5.26%, an increase of 2 basis points over the 5.24% in the trailing quarter • Net interest margin (FTE) was 3.71% in the recent quarter, an increase of 3 basis points over 3.68% in the trailing quarter • Non-interest bearing deposits averaged 31.7% of total deposits during the quarter • The average cost of total deposits was 1.52%, an increase of 7 basis points as compared to 1.45% in the trailing quarter, and an increase of 66 basis points from 0.86% in the same quarter of the prior year; the Company's total cost of deposits have increased 148 basis points since FOMC rate actions began in March 2022, which translates to a cycle-to-date deposit beta of 31.2% • For the quarter ended September 30, 2024, the Company’s return on average assets was 1.20%, while the return on average equity was 9.52%; for the trailing quarter ended June 30, 2024, the Company’s return on average assets was 1.19%, while the return on average equity was 9.99% • Diluted earnings per share were $0.88 for the third quarter of 2024, compared to $0.87 for the trailing quarter and $0.92 during the third quarter of 2023 • The loan to deposit ratio decreased to 83.2% as of September 30, 2024, as compared to 83.8% for the trailing quarter end, as a result of loan contraction during the quarter • The efficiency ratio was 60.02% for the quarter ended September 30, 2024, as compared to 59.61% for the trailing quarter • The provision for credit losses was approximately $0.2 million during the quarter ended September 30, 2024, as compared to $0.4 million during the trailing quarter • The allowance for credit losses (ACL) to total loans was 1.85% as of September 30, 2024, compared to 1.83% as of the trailing quarter end, and 1.73% as of September 30, 2023. Non-performing assets to total assets were 0.45% on September 30, 2024, as compared to 0.36% as of June 30, 2024, and 0.33% at September 30, 2023. At September 30, 2024, the ACL represented 297% of non-performing loans 42 Table of Contents TRICO BANCSHARES Financial Summary (In thousands, except per share amounts; unaudited) Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net interest income $ 82,611 $ 88,123 $ 247,344 $ 270,060 Provision for credit losses (220) (4,155) (4,930) (18,000) Non-interest income 16,495 15,984 48,132 45,360 Non-interest expense (59,487) (57,878) (174,330) (172,915) 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 paid $ 0.33 $ 0.30 $ 0.99 $ 0.90 Book value at period end $ 37.55 $ 32.18 Average common shares outstanding 32,993 33,263 33,119 33,259 Average diluted common shares outstanding 33,137 33,319 33,251 33,356 Shares outstanding at period end 33,001 33,263 At period end: Loans $ 6,683,891 $ 6,708,666 Total investment securities $ 2,116,469 $ 2,333,162 Total assets $ 9,823,890 $ 9,897,006 Total deposits $ 8,037,091 $ 8,009,643 Other borrowings $ 266,767 $ 537,975 Shareholders’ equity $ 1,239,015 $ 1,070,401 Financial Ratios: During the period: Return on average assets (annualized) 1.20 % 1.23 % 1.17 % 1.24 % Return on average equity (annualized) 9.52 % 10.91 % 9.67 % 11.06 % Net interest margin (1) (annualized) 3.71 % 3.88 % 3.69 % 4.01 % Efficiency ratio 60.02 % 55.59 % 59.00 % 54.82 % Average equity to average assets 12.56 % 11.27 % 12.14 % 11.19 % At end of period: Equity to assets 12.61 % 10.82 % Total capital to risk-adjusted assets 15.56 % 14.51 % (1) Fully Taxable Equivalent (FTE) Results of Operations The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and the Bank’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the Condensed Consolidated Financial Statements of the Company and the Notes thereto located at Item 1 of this report. 43 Table of Contents Net Interest Income The Company’s primary source of revenue is net interest income, or the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Following is a summary of the components of FTE net income for the periods indicated. Three months ended (in thousands) September 30, 2024 June 30, 2024 Change % Change Interest income $ 117,347 $ 117,032 $ 315 0.3 % Interest expense (34,736) (35,035) 299 (0.9) % Fully tax-equivalent adjustment (FTE) (1) 269 275 (6) (2.2) % Net interest income (FTE) $ 82,880 $ 82,272 $ 608 0.7 % Net interest margin (FTE) 3.71 % 3.68 % Acquired loans discount accretion, net: Amount (included in interest income) $ 1,018 $ 850 $ 168 19.8 % Net interest margin less effect of acquired loan discount accretion (1) 3.66 % 3.64 % 0.02 % Three months ended September 30, (in thousands) 2024 2023 Change % Change Interest income $ 117,347 $ 112,380 $ 4,967 4.4 % Interest expense (34,736) (24,257) (10,479) 43.2 % Fully tax-equivalent adjustment (FTE) (1) 269 405 (136) (33.6) % Net interest income (FTE) $ 82,880 $ 88,528 $ (5,648) (6.4) % Net interest margin (FTE) 3.71 % 3.88 % Acquired loans discount accretion, net: Amount (included in interest income) $ 1,018 $ 1,324 $ (306) (23.1) % Net interest margin less effect of acquired loan discount accretion (1) 3.66 % 3.82 % (0.16) % Nine months ended September 30, (in thousands) 2024 2023 Change % Change Interest income $ 349,796 $ 322,445 $ 27,351 8.5 % Interest expense (102,452) (52,385) (50,067) 95.6 % Fully tax-equivalent adjustment (FTE) (1) 819 1,176 (357) (30.4) % Net interest income (FTE) $ 248,163 $ 271,236 $ (23,073) (8.5) % Net interest margin (FTE) 3.69 % 4.01 % Acquired loans discount accretion, net: Amount (included in interest income) $ 3,200 $ 4,192 $ (992) (23.7) % Net interest margin less effect of acquired loan discount accretion (1) 3.64 % 3.95 % (0.31) % (1) Certain information included herein is presented on a FTE basis and/or to present additional financial details which may be desired by users of this financial information. The Company believes the use of this non-generally accepted accounting principles (non-GAAP) measure provides additional clarity in assessing its results, and the presentation of these measures is a common practice within the banking industry. Loans may be acquired at a premium or discount to par value, in which case, the premium is amortized (subtracted from) or the discount is accreted (added to) interest income over the remaining life of the loan. The dollar impact of loan discount accretion and loan premium amortization decrease as the purchased loans mature or pay off early. Upon the early pay off of a loan, any remaining unaccreted discount or unamortized premium is immediately taken into interest income; and as loan payoffs may vary significantly from quarter to quarter, so may the impact of discount accretion and premium amortization on interest income. Despite the elevated rate environment, the prepayment rate of portfolio loans, inclusive of those acquired at a premium or discount, remains generally consistent. During the quarters ended September 30, 2024, June 30, 2024 and September 30, 2023, the purchased loan discount accretion was $1.0 million, $0.9 million and $1.3 million, respectively. 44 Table of Contents Summary of Average Balances, Yields/Rates and Interest Differential The following table presents, for the three month periods indicated, information regarding the Company’s consolidated average assets, liabilities and shareholders’ equity, the amounts of interest income from average interest-earning assets and resulting yields, and the amount of interest expense paid on interest-bearing liabilities. Average loan balances include nonperforming loans. Interest income includes proceeds from loans on nonaccrual loans only to the extent cash payments have been received and applied to interest income. Yields on securities and certain loans have been adjusted upward to reflect the effect of income thereon exempt from federal income taxation at the current statutory tax rate (dollars in thousands). Three months ended September 30, 2024 2023 Average Balance Interest Income/ Expense Rates Earned /Paid Average Balance Interest Income/ Expense Rates Earned /Paid Assets: Loans $ 6,690,326 $ 98,085 5.83 % $ 6,597,400 $ 91,707 5.51 % Investment securities - taxable 1,972,859 17,188 3.47 % 2,246,569 18,990 3.35 % Investment securities - nontaxable (1) 135,500 1,166 3.42 % 182,766 1,755 3.81 % Total investments 2,108,359 18,354 3.46 % 2,429,335 20,745 3.39 % Cash at Federal Reserve and other banks 93,538 1,177 5.01 % 26,654 333 4.96 % Total interest-earning assets 8,892,223 117,616 5.26 % 9,053,389 112,785 4.94 % Other assets 774,756 820,851 Total assets $ 9,666,979 $ 9,874,240 Liabilities and shareholders’ equity: Interest-bearing demand deposits $ 1,736,442 $ 6,132 1.40 % $ 1,751,625 $ 3,916 0.89 % Savings deposits 2,686,303 13,202 1.96 % 2,790,197 9,526 1.35 % Time deposits 1,055,612 11,354 4.28 % 535,715 3,937 2.92 % Total interest-bearing deposits 5,478,357 30,688 2.23 % 5,077,537 17,379 1.36 % Other borrowings 175,268 2,144 4.87 % 449,274 5,106 4.51 % Junior subordinated debt 101,150 1,904 7.49 % 101,070 1,772 6.96 % Total interest-bearing liabilities 5,754,775 34,736 2.40 % 5,627,881 24,257 1.71 % Noninterest-bearing deposits 2,542,579 2,965,564 Other liabilities 155,115 168,391 Shareholders’ equity 1,214,510 1,112,404 Total liabilities and shareholders’ equity $ 9,666,979 $ 9,874,240 Net interest spread (2) 2.86 % 3.23 % Net interest income and interest margin (3) $ 82,880 3.71 % $ 88,528 3.88 % (1) Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable. (2) Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. (3) Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of i nterest-earning assets, then annualized based on the number of days in the given period . Net interest income (FTE) during the three months ended September 30, 2024, decreased $5.6 million or 6% to $82.9 million compared to $88.5 million during the three months ended September 30, 2023. In addition, net interest margin declined 17 basis points to 3.71%, compared to the same quarter last year. The decrease in net interest income is primarily attributed to an additional $13.3 million in deposit interest expense due to rate increases associated with competitive pricing pressures, and to a lesser extent, changes in product mix. The cost of interest-bearing deposits increased by 87 basis points between the quarter ended September 30, 2024 and the same quarter of the prior year. In addition, the average balance of noninterest-bearing deposits decreased by $423.0 million from the three month average for the period ended September 30, 2023 as customers continued to migrate towards higher yielding term deposit accounts. As of September 30, 2024, the ratio of average total noninterest-bearing deposits to total average deposits was 31.7%, as compared to 32.0% and 36.9% at June 30, 2024 and September 30, 2023, respectively. The increase in cost of interest bearing liabilities was partially offset by increased interest and fee income on loans totaling $6.4 million compared to the same quarter of the prior year. Average loan yields increased 32 basis points from 5.51% during the three months ended September 30, 2023, to 5.83% during the three months ended September 30, 2024. The accretion of discounts from acquired loans added 6 and 8 basis points to loan yields during the quarters ended September 30, 2024 and 2023, respectively. Additionally, the average balance of loans during the quarter increased $92.9 million compared to the same period in the prior year. 45 Table of Contents Nine months ended September 30, 2024 2023 Average Balance Interest Income/ Expense Rates Earned /Paid Average Balance Interest Income/ Expense Rates Earned /Paid Assets: Loans $ 6,755,916 $ 292,799 5.79 % $ 6,493,585 $ 260,868 5.37 % Investment securities - taxable 2,034,336 52,021 3.42 % 2,328,883 56,681 3.25 % Investment securities - nontaxable (1) 137,515 3,548 3.45 % 184,524 5,096 3.69 % Total investments 2,171,851 55,569 3.42 % 2,513,407 61,777 3.29 % Cash at Federal Reserve and other banks 58,792 2,247 5.11 % 27,606 976 4.73 % Total interest-earning assets 8,986,559 350,615 5.21 % 9,034,598 323,621 4.79 % Other assets 781,406 832,501 Total assets $ 9,767,965 $ 9,867,099 Liabilities and shareholders’ equity: Interest-bearing demand deposits $ 1,738,876 $ 17,294 1.33 % $ 1,694,438 $ 6,476 0.51 % Savings deposits 2,670,555 36,362 1.82 % 2,818,817 20,616 0.98 % Time deposits 961,577 29,582 4.11 % 413,359 6,889 2.23 % Total interest-bearing deposits 5,371,008 83,238 2.07 % 4,926,614 33,981 0.92 % Other borrowings 361,175 13,640 5.04 % 402,016 13,318 4.43 % Junior subordinated debt 101,128 5,574 7.36 % 101,057 5,086 6.73 % Total interest-bearing liabilities 5,833,311 102,452 2.35 % 5,429,687 52,385 1.29 % Noninterest-bearing deposits 2,584,705 3,153,807 Other liabilities 163,704 179,483 Shareholders’ equity 1,186,245 1,104,122 Total liabilities and shareholders’ equity $ 9,767,965 $ 9,867,099 Net interest spread (2) 2.86 % 3.50 % Net interest income and interest margin (3) $ 248,163 3.69 % $ 271,236 4.01 % (1) Fully taxable equivalent (FTE). All yields and rates are calculated using specific day counts for the period and year as applicable. (2) Net interest spread represents the average yield earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. (3) Net interest margin is computed by calculating the difference between interest income and interest expense, divided by the average balance of i nterest-earning assets, then annualized based on the number of days in the given period . Net interest income (FTE) during the nine months ended September 30, 2024, decreased $23.1 million, or 9%, to $248.2 million compared to $271.2 million during the nine months ended September 30, 2023. In addition, net interest margin declined 32 basis points to 3.69%, compared to the same period in the prior year. The decrease in net interest income is primarily attributed to an increased cost of interest bearing liabilities, primarily on deposits. The cost of interest bearing deposits increased by 115 basis points during the nine months ended September 30, 2024, compared to the same period in the prior year. In addition, the average balance of noninterest-bearing deposits decreased by $569.1 million from the nine month average for the period ended September 30, 2023 amidst a continued migration of customer funds to interest-bearing products, as discussed above. The increases in the cost of interest bearing liabilities were partially offset by increased interest and fee income on loans. As compared to the same period in the prior year, the average balance of loans increased $262.3 million and average loan yields increased 42 basis points from 5.37% during the nine months ended September 30, 2023, to 5.79% during the nine months ended September 30, 2024. The accretion of discounts from acquired loans added 6 and 9 basis points to loan yields during the nine months ended September 30, 2024 and September 30, 2023, respectively. Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid The following table sets forth, for the period identified, a summary of the changes in interest income and interest expense from changes in average asset and liability balances (volume) and changes in average interest rates for the periods indicated. Changes not solely attributable to volume or rates have been allocated in proportion to the respective volume and rate components. 46 Table of Contents Three months ended September 30, 2024 compared with three months ended September 30, 2023 (in thousands) Volume Rate Total Increase (decrease) in interest income: Loans $ 1,281 $ 5,097 $ 6,378 Investment securities (2,742) 351 (2,391) Cash at Federal Reserve and other banks 829 15 844 Total interest-earning assets (632) 5,463 4,831 Increase (decrease) in interest expense: Interest-bearing demand deposits (34) 2,250 2,216 Savings deposits (351) 4,027 3,676 Time deposits 3,795 3,622 7,417 Other borrowings (3,089) 127 (2,962) Junior subordinated debt 1 131 132 Total interest-bearing liabilities 322 10,157 10,479 Decrease in net interest income $ (954) $ (4,694) $ (5,648) The following commentary regarding net interest income, interest income and interest expense may be best understood while referencing the Summary of Average Balances, Yields/Rates and Interest Differential and the Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid shown above. Net interest income (FTE) during the three months ended September 30, 2024 decreased $5.6 million to $82.9 million compared to $88.5 million during the three months ended September 30, 2023. The overall decrease in net interest income (FTE) was due to increasing interest rates elevating interest expense on interest-bearing liabilities, most significantly deposits. Elevated interest rates also improved interest income on earning assets by $4.8 million, partially offsetting the increases in interest expense. Nine months ended September 30, 2024 compared with nine months ended September 30, 2023 (in thousands) Volume Rate Total Increase (decrease) in interest income: Loans $ 10,565 $ 21,366 $ 31,931 Investment securities (8,481) 2,273 (6,208) Cash at Federal Reserve and other banks 1,106 165 1,271 Total interest-earning assets 3,190 23,804 26,994 Increase (decrease) in interest expense: Interest-bearing demand deposits 170 10,648 10,818 Savings deposits (1,090) 16,836 15,746 Time deposits 9,169 13,524 22,693 Other borrowings (1,357) 1,679 322 Junior subordinated debt 4 484 488 Total interest-bearing liabilities 6,896 43,171 50,067 Decrease in net interest income $ (3,706) $ (19,367) $ (23,073) Net interest income (FTE) during the nine months ended September 30, 2024 decreased $23.1 million to $248.2 million compared to $271.2 million during the nine months ended September 30, 2023. The overall decrease in net interest income (FTE) was due to increasing interest rates elevating interest expense on interest-bearing liabilities, most significantly deposits and other borrowings, resulting in a net increase of $49.3 million and $0.3 million, respectively. Elevated interest rates also improved interest income on earning assets by $27.0 million, partially offsetting the increases in interest expense. Asset Quality and Credit Loss Provisioning During the three months ended September 30, 2024, the Company recorded a provision for credit losses of $0.2 million, as compared to $0.4 million during the trailing quarter, and $4.2 million during the third quarter of 2023. 47 Table of Contents Three months ended Nine months ended (dollars in thousands) September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Addition to allowance for credit losses $ 320 $ 3,120 $ 4,670 $ 16,415 Addition to (reversal of) reserve for unfunded loan commitments (100) 1,035 260 1,585 Total provision for credit losses $ 220 $ 4,155 $ 4,930 $ 18,000 The provision for credit losses on loans of $0.3 million during the recent quarter was the result of net charge-offs approximating $0.1 million and decreases in reserves for qualitative factors due to improved concentration levels and overall lower loan balances, offset by a $3.7 million increase in specific reserves for individually evaluated credits within the commercial and industrial portfolio. Three months ended September 30, Nine months ended September 30, (dollars in thousands) 2024 2023 2024 2023 Balance, beginning of period $ 123,517 $ 117,329 $ 121,522 $ 105,680 Provision for credit losses 320 3,120 4,670 16,415 Loans charged-off (444) (5,357) (3,329) (7,391) Recoveries of previously charged-off loans 367 720 897 1,108 Balance, end of period $ 123,760 $ 115,812 $ 123,760 $ 115,812 The allowance for credit losses (ACL) was $123.8 million or 1.85% of total loans as of September 30, 2024. 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. Loans past due 30 days or more increased by $7.5 million during the quarter ended September 30, 2024, to $37.9 million, as compared to $30.4 million at June 30, 2024. The majority of loans identified as past due are well-secured by collateral, and approximately $16.3 million is less than 90 days delinquent. Non-performing loans were $41.6 million at September 30, 2024, an increase of $8.9 million from $32.8 million as of June 30, 2024, and an increase of $11.8 million from $29.8 million as of September 30, 2023. Management continues to proactively work with these borrowers to identify actionable and appropriate resolution strategies which are customary for the industries. Of the $41.6 million loans designated as non-performing as of September 30, 2024, approximately $10.0 million are current or less than 30 days past due with respect to payments required under their existing loan agreements. (dollars in thousands) September 30, 2024 % of Loans Outstanding June 30, 2024 % of Loans Outstanding September 30, 2023 % of Loans Outstanding Risk Rating: Pass $ 6,461,451 96.7 % $ 6,536,223 96.9 % $ 6,532,424 97.4 % Special Mention 104,759 1.6 % 101,324 1.5 % 94,614 1.4 % Substandard 117,681 1.8 % 104,979 1.6 % 81,628 1.2 % Total $ 6,683,891 $ 6,742,526 $ 6,708,666 Classified loans to total loans 1.76 % 1.56 % 1.22 % Loans past due 30+ days to total loans 0.57 % 0.45 % 0.12 % The ratio of classified loans to total loans of 1.76% as of September 30, 2024, increased 20 basis points from June 30, 2024, and increased 55 basis points from the comparative quarter ended 2023. The change in classified loans outstanding as compared to the trailing quarter totaled $16.1 million. Loans with the risk grade classification substandard increased by $12.7 million over the trailing quarter and relate primarily to the commercial and industrial portfolio. As a percentage of total loans outstanding, classified assets remain consistent with volumes experienced prior to the recent quantitative easing cycle spurred by the COVID pandemic and reflect management's historically conservative approach to credit risk monitoring. The Company's combined criticized loan balances totaled $222.4 million as of September 30, 2024, an increase of $46.2 million from September 30, 2023. Outstanding balances on construction loans, which have historically been associated with elevated levels of risk, experienced balance reductions of $7.3 million during the current quarter and $44.9 million since September 30, 2023. These reductions were primarily associated with balances that were converted to term loans upon the completion of construction and achievement of stabilized occupancy, and were partially offset by new draws or originations. 48 Table of Contents Management continues to proactively assess the repayment capacity of borrowers that will be subject to rate resets in the near term. To date this analysis as well as management's observations of loans that have experienced a rate reset, have resulted in an insignificant need to provide concessions to borrowers. As of September 30, 2024, other real estate owned consisted of 10 properties with a carrying value of approximately $2.8 million, compared to 10 properties with a carrying value of approximately $2.5 million as of June 30, 2024. Non-performing assets of $44.4 million at September 30, 2024, represented 0.45% of total assets, a change from the $35.3 million or 0.36% and $32.7 million or 0.33% as of June 30, 2024 and September 30, 2023, respectively. Non-interest Income The following table summarizes the Company’s non-interest income for the periods indicated (in thousands): Three months ended September 30, (in thousands) 2024 2023 $ Change % Change ATM and interchange fees $ 6,472 $ 6,728 $ (256) (3.8) % Service charges on deposit accounts 4,979 4,851 128 2.6 % Other service fees 1,224 1,142 82 7.2 % Mortgage banking service fees 439 445 (6) (1.3) % Change in value of mortgage servicing rights (332) (91) (241) 264.8 % Total service charges and fees 12,782 13,075 (293) (2.2) % Increase in cash value of life insurance 786 684 102 14.9 % Asset management and commission income 1,502 1,141 361 31.6 % Gain on sale of loans 549 382 167 43.7 % Lease brokerage income 62 160 (98) (61.3) % Sale of customer checks 303 396 (93) (23.5) % (Loss) gain on sale or exchange of investment securities 2 — 2 n/m (Loss) gain on marketable equity securities 356 (81) 437 (539.5) % Other 153 227 (74) (32.6) % Total other non-interest income 3,713 2,909 804 27.6 % Total non-interest income $ 16,495 $ 15,984 $ 511 3.2 % Non-interest income increased $0.5 million or 3.2% to $16.5 million during the three months ended September 30, 2024, compared to $16.0 million during the comparative quarter ended September 30, 2023. Elevated activity and volumes of assets under management drove an increase in asset management and commission income, in addition to the benefit mentioned above related to Visa stock. These increases were partially offset by a decline in interchange fees earned related to decreased customer activity in the third quarter of 2024 as compared to the equivalent quarter in 2023. 49 Table of Contents Nine months ended September 30, (in thousands) 2024 2023 $ Change % Change ATM and interchange fees $ 19,013 $ 19,928 $ (915) (4.6) % Service charges on deposit accounts 14,489 12,863 1,626 12.6 % Other service fees 3,876 3,300 576 17.5 % Mortgage banking service fees 1,305 1,364 (59) (4.3) % Change in value of mortgage servicing rights (468) (215) (253) 117.7 % Total service charges and fees 38,215 37,240 975 2.6 % Increase in cash value of life insurance 2,420 2,274 146 6.4 % Asset management and commission income 3,989 3,233 756 23.4 % Gain on sale of loans 1,198 883 315 35.7 % Lease brokerage income 377 332 45 13.6 % Sale of customer checks 916 1,091 (175) (16.0) % (Loss) gain on sale or exchange of investment securities (43) (164) 121 (73.8) % (Loss) gain on marketable equity securities 207 (81) 288 (355.6) % Other 853 552 301 54.5 % Total other non-interest income 9,917 8,120 1,797 22.1 % Total non-interest income $ 48,132 $ 45,360 $ 2,772 6.1 % Non-interest income increased $2.8 million or 6.1% to $48.1 million during the nine months ended September 30, 2024, compared to $45.4 million during the comparative nine months ended September 30, 2023. As noted above, interchange fees as driven by customer activities was elevated in the 2023 period and resulted in a decrease of $0.9 million as compared to the nine months ended September 30, 2024. Meanwhile, service charges on deposit accounts increased by $1.6 million or 12.6% as compared to the equivalent period in 2023 following $0.9 million in waived or reversed fees as a courtesy to customers in the 2023 year. As noted above, elevated activity within asset management and the gain on Visa stock further contributed to the overall improvement. 50 Table of Contents Non-interest Expense The following table summarizes the Company’s non-interest expense for the periods indicated: Three months ended September 30, (in thousands) 2024 2023 $ Change % Change Base salaries, net of deferred loan origination costs $ 24,407 $ 23,616 $ 791 3.3 % Incentive compensation 4,361 4,391 (30) (0.7) % Benefits and other compensation costs 6,782 6,456 326 5.0 % Total salaries and benefits expense 35,550 34,463 1,087 3.2 % Occupancy 4,191 3,948 243 6.2 % Data processing and software 5,258 5,246 12 0.2 % Equipment 1,374 1,503 (129) (8.6) % Intangible amortization 1,030 1,590 (560) (35.2) % Advertising 1,152 881 271 30.8 % ATM and POS network charges 1,712 1,606 106 6.6 % Professional fees 1,893 1,752 141 8.0 % Telecommunications 507 567 (60) (10.6) % Regulatory assessments and insurance 1,256 1,194 62 5.2 % Postage 335 306 29 9.5 % Operational losses 603 474 129 27.2 % Courier service 542 492 50 10.2 % (Gain) loss on sale or acquisition of foreclosed assets 26 (152) 178 (117.1) % (Gain) loss on disposal of fixed assets 6 4 2 50.0 % Other miscellaneous expense 4,052 4,004 48 1.2 % Total other non-interest expense 23,937 23,415 522 2.2 % Total non-interest expense $ 59,487 $ 57,878 $ 1,609 2.8 % Average full time equivalent staff 1,161 1,215 (54) (4.4) % Total non-interest expense increased $1.6 million or 2.8% to $59.5 million during the three months ended September 30, 2024, as compared to $57.9 million for the quarter ended September 30, 2023. Total salaries and benefits expense increased by $1.1 million or 3.2%, reflecting the increase of $0.8 million in salaries and $0.3 million in benefits and other costs. 51 Table of Contents Nine months ended September 30, (in thousands) 2024 2023 $ Change % Change Base salaries, net of deferred loan origination costs $ 72,279 $ 70,675 $ 1,604 2.3 % Incentive compensation 12,329 11,663 666 5.7 % Benefits and other compensation costs 20,647 19,402 1,245 6.4 % Total salaries and benefits expense 105,255 101,740 3,515 3.5 % Occupancy 12,205 12,099 106 0.9 % Data processing and software 15,459 13,916 1,543 11.1 % Equipment 4,060 4,322 (262) (6.1) % Intangible amortization 3,090 4,902 (1,812) (37.0) % Advertising 2,733 2,656 77 2.9 % ATM and POS network charges 5,360 5,217 143 2.7 % Professional fees 5,047 5,326 (279) (5.2) % Telecommunications 1,576 1,971 (395) (20.0) % Regulatory assessments and insurance 3,651 3,979 (328) (8.2) % Postage 983 916 67 7.3 % Operational losses 1,199 1,999 (800) (40.0) % Courier service 1,581 1,314 267 20.3 % (Gain) loss on sale or acquisition of foreclosed assets (12) (152) 140 (92.1) % (Gain) loss on disposal of fixed assets 12 22 (10) (45.5) % Other miscellaneous expense 12,131 12,688 (557) (4.4) % Total other non-interest expense 69,075 71,175 (2,100) (3.0) % Total non-interest expense $ 174,330 $ 172,915 $ 1,415 0.8 % Average full time equivalent staff 1,170 1,215 (45) (3.7) % Total non-interest expense increased $1.4 million or 0.8% to $174.3 million during the nine months ended September 30, 2024, as compared to $172.9 million for the nine months ended September 30, 2023. This was largely attributed to an increase of $3.5 million or 3.5% in total salaries and benefits expense to $105.3 million, from annual compensation adjustments and other routine increases in benefits and compensation. Salaries expense was also impacted by an increase in average compensation per employee as various strategic talent acquisitions were made in order to further prepare the Company to execute its growth objectives beyond $10 billion in total assets. Additionally, data processing and software expenses increased by $1.5 million or 11.1% related to ongoing investments in the Company's data management and security infrastructure. These increases were partially offset by declines in non-cash intangible amortization expense of $1.8 million or 37.0% and reductions in operational losses of $0.8 million or 40.0% due to non-recurring ATM burglary expenses totaling $0.7 million in the comparative period. Income Taxes The Company’s effective tax rate was 26.3% and 26.1% for the quarter and nine months ended September 30, 2024, respectively as compared to 27.3% and 26.7% for the comparative periods ended September 30, 2023, respectively. Differences between the Company's effective tax rate and applicable federal and state blended statutory rate of approximately 29.6% are due to the proportion of non-taxable revenues, non-deductible expenses, and benefits from tax credits as compared to the levels of pre-tax earnings. Financial Condition For financial reporting purposes, the Company does not separately track the changes in assets and liabilities based on branch location or regional geography. The following is a comparison of the quarterly change in certain assets and liabilities: Ending balances September 30, 2024 June 30, 2024 Annualized % Change (dollars in thousands) $ Change Total assets $ 9,823,890 $ 9,741,399 $ 82,491 3.4 % Total loans 6,683,891 6,742,526 (58,635) (3.5) Total investments 2,116,469 2,086,090 30,379 5.8 Total deposits 8,037,091 8,050,230 (13,139) (0.7) Total other borrowings 266,767 247,773 18,994 30.7 52 Table of Contents Loans outstanding decreased by $58.6 million or 3.5% on an annualized basis during the quarter ended September 30, 2024. During the quarter, loan originations/draws totaled approximately $310.1 million while payoffs/repayments of loans totaled $368.7 million, which compares to originations/draws and payoffs/repayments during the trailing quarter ended of $325.5 million and $321.3 million, respectively. Origination volume activity levels remain slightly lower relative to the comparative period in 2023 due in part to disciplined pricing and underwriting, as well as decreased borrower demand given economic uncertainties. The increase in payoffs/repayments as compared to the trailing quarter was spread amongst numerous borrowers, regions and loan types. Investment security balances decreased $30.4 million or 5.8% on an annualized basis during the current quarter as a result of net prepayments, and maturities, collectively totaling approximating $164.0 million and, to a lesser extent, sales totaling $28.6 million, partially offset by security purchases totaling $53.5 million, in addition to net increases in the market value of securities of $4.1 million. Investment security purchases were comprised of floating rate instruments tied to SOFR with an initial weighted average coupon of 6.77% and a weighted average life of 4.7 years. Investment security sales were primarily comprised of fixed rate instruments with a weighted average coupon of 2.39% and a weighted average life of 3.8 years. While management intends to primarily utilize cash flows from the investment security portfolio and organic deposit growth to support loan growth, excess liquidity will be utilized for purchases of investment securities to support net interest income growth and net interest margin expansion. Deposit balances increased by $13.1 million or 0.7% annualized during the quarter, led by growth within time deposits. Other borrowings totaled $266.8 million at September 30, 2024, representing a net decrease of $19.0 million from the trailing quarter. This quarter over quarter decrease was facilitated by proceeds from the sale, call or maturity of investment securities, and growth in deposits. The following is a comparison of the year over year change in certain assets and liabilities: Ending balances As of September 30, % Change (dollars in thousands) 2024 2023 $ Change Total assets $ 9,823,890 $ 9,897,006 $ (73,116) (0.7) % Total loans 6,683,891 6,708,666 (24,775) (0.4) Total investments 2,116,469 2,333,162 (216,693) (9.3) Total deposits 8,037,091 8,009,643 27,448 0.3 Total other borrowings 266,767 537,975 (271,208) (50.4) Investment Securities The following table presents the available for sale debt securities portfolio by major type as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 (in thousands) Fair Value % Fair Value % Debt securities available for sale : Obligations of U.S. government agencies $ 1,101,997 55.7 % $ 1,221,737 56.8 % Obligations of states and political subdivisions 229,342 11.6 % 236,375 11.0 % Corporate bonds 5,864 0.3 % 5,602 0.3 % Asset backed securities 363,540 18.3 % 355,281 16.5 % Non-agency mortgage backed 278,527 14.1 % 333,509 15.4 % Total debt securities available for sale $ 1,979,270 100.0 % $ 2,152,504 100.0 % September 30, 2024 December 31, 2023 (in thousands) Amortized Cost % Amortized Cost % Debt securities held to maturity : Obligations of U.S. government and agencies $ 114,558 97.7 % $ 130,823 98.0 % Obligations of states and political subdivisions 2,701 2.3 % 2,671 2.0 % Total debt securities held to maturity $ 117,259 100.0 % $ 133,494 100.0 % Investment securities held to maturity decreased $16.2 million to $117.3 million as of September 30, 2024, as compared to December 31, 2023. This decrease is attributable to calls and principal repayments of $16.0 million, and amortization of net purchase premiums of $0.1 million. 53 Table of Contents Loans The Company focuses its primary lending activities in six principal areas: commercial real estate loans, consumer loans, commercial and industrial loans, construction loans, agriculture production loans and leases. The interest rates charged for the loans made by the Company vary with the degree of risk, the size and duration of the loans, the borrower’s relationship with the Company and prevailing money market rates indicative of the Company’s cost of funds. The majority of the Company’s loans are direct loans made to individuals, and local or regional businesses which service a variety of industries. The Company relies substantially on local promotional activity and personal contacts by bank officers, directors and employees to compete with other financial institutions. The Company makes loans to borrowers whose applications include a sound purpose, a viable repayment source and a plan of repayment established at inception and generally backed by a secondary source of repayment. The following table shows the Company’s loan balances, net of deferred loan costs and discounts, as of the dates indicated: (in thousands) September 30, 2024 December 31, 2023 Commercial real estate $ 4,487,524 67.1 % $ 4,394,802 64.7 % Consumer 1,283,963 19.2 % 1,313,268 19.3 % Commercial and industrial 484,763 7.3 % 586,455 8.6 % Construction 276,095 4.1 % 347,198 5.1 % Agriculture production 144,123 2.2 % 144,497 2.2 % Leases 7,423 0.1 % 8,250 0.1 % Total loans $ 6,683,891 100.0 % $ 6,794,470 100.0 % Nonperforming Assets The following tables set forth the amount of the Company’s NPAs as of the dates indicated. “Performing nonaccrual loans” are loans that may be current for both principal and interest payments, or are less than 90 days past due, but for which payment in full of both principal and interest is not expected, and are not well secured and in the process of collection: (in thousands) September 30, 2024 December 31, 2023 Performing nonaccrual loans $ 20,026 $ 25,380 Nonperforming nonaccrual loans 21,525 6,500 Total nonaccrual loans 41,551 31,880 Loans 90 days past due and still accruing 85 11 Total nonperforming loans 41,636 31,891 Foreclosed assets 2,764 2,704 Total nonperforming assets $ 44,400 $ 34,595 Nonperforming assets to total assets 0.45 % 0.35 % Nonperforming loans to total loans 0.62 % 0.47 % Allowance for credit losses to nonperforming loans 297 % 381 % 54 Table of Contents Changes in nonperforming assets during the three months ended September 30, 2024 (in thousands) Balance at June 30, 2024 New NPA / Valuation Adjustments Pay-downs /Sales /Upgrades Charge-offs/ (1) Write-downs Transfers to Foreclosed Assets Balance at September 30, 2024 Commercial real estate: CRE non-owner occupied $ 4,882 587 (1,846) — — $ 3,623 CRE owner occupied 3,426 — (148) — — 3,278 Multifamily — 502 — — — 502 Farmland 13,071 — (104) — — 12,967 Total commercial real estate loans 21,379 1,089 (2,098) — — 20,370 Consumer SFR 1-4 1st DT liens 5,189 878 (70) — — 5,997 SFR HELOCs and junior liens 3,291 1,046 (99) — — 4,238 Other 72 113 (4) (64) — 117 Total consumer loans 8,552 2,037 (173) (64) — 10,352 Commercial and industrial 2,623 8,631 (338) (274) — 10,642 Construction 63 — (4) — — 59 Agriculture production 157 198 (142) — — 213 Leases — — — — — — Total nonperforming loans 32,774 11,955 (2,755) (338) — 41,636 Foreclosed assets 2,493 665 (394) — — 2,764 Total nonperforming assets $ 35,267 12,620 (3,149) (338) — $ 44,400 (1) The table above does not include deposit overdraft charge-offs. Nonperforming assets increased during the three months ended September 30, 2024 by $9.1 million or 25.9% to $44.4 million compared to $35.3 million at June 30, 2024. The increase in nonperforming assets during the third quarter of 2024 was primarily the result of nonperforming loan pay-downs and upgrades, which totaled $2.8 million during the quarter, as well as $0.3 million in charge-offs. Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the loan loss reserves associated with these loans is sufficient as of September 30, 2024. 55 Table of Contents Changes in nonperforming assets during the nine months ended September 30, 2024 (in thousands) Balance at December 31, 2023 New NPA / Valuation Adjustments Pay-downs /Sales /Upgrades Charge-offs/ (1) Write-downs Transfers to Foreclosed Assets Balance at September 30, 2024 Commercial real estate: CRE non-owner occupied $ 2,024 4,211 (2,612) — — $ 3,623 CRE owner occupied 3,994 26 (742) — — 3,278 Multifamily — 502 — — — 502 Farmland 14,484 — (1,517) — — 12,967 Total commercial real estate loans 20,502 4,739 (4,871) — — 20,370 Consumer SFR 1-4 1st DT liens 2,811 3,647 (435) (26) — 5,997 SFR HELOCs and junior liens 3,571 1,802 (1,095) (40) — 4,238 Other 105 308 (35) (261) — 117 Total consumer loans 6,487 5,757 (1,565) (327) — 10,352 Commercial and industrial 2,513 10,607 (1,204) (1,274) — 10,642 Construction 67 9 (5) — (12) 59 Agriculture production 2,321 217 (875) (1,450) — 213 Leases — — — — — — Total nonperforming loans 31,890 21,329 (8,520) (3,051) (12) 41,636 Foreclosed assets 2,705 442 (395) — 12 2,764 Total nonperforming assets $ 34,595 21,771 (8,915) (3,051) — $ 44,400 (1) The table above does not include deposit overdraft charge-offs. Nonperforming assets increased during the nine months ended September 30, 2024 by $9.8 million or 28.3% to $44.4 million compared to $34.6 million at December 31, 2023. The increase in nonperforming assets during the nine months ended September 30, 2024 was primarily the result of nonperforming loan increases/down-grades, which totaled $21.3 million. Management is actively engaged in the collection and recovery efforts for all nonperforming assets and believes that the loan loss reserves associated with these loans is sufficient as of September 30, 2024. Loan charge-offs during the three and nine months ended September 30, 2024 In the third quarter of 2024, the Company recorded $0.4 million in loan charge-offs and $0.1 million in deposit overdraft charge-offs less $0.3 million in loan recoveries and $0.02 million in deposit overdraft recoveries, which collectively resulted in $0.1 million in net charge-offs. During the nine months ended September 30, 2024, the Company recorded $3.3 million in loan charge-offs and $0.2 million in deposit overdraft charge-offs less $0.9 million in loan recoveries and $0.1 million in deposit overdraft recoveries, which collectively resulted in $3.0 million in net charge-offs. The Components of the Allowance for Credit Losses for Loans The following table sets forth the allowance for credit losses for loans as of the dates indicated: (in thousands) September 30, 2024 December 31, 2023 September 30, 2023 Allowance for credit losses: Qualitative and forecast factor allowance $ 85,518 $ 84,291 $ 80,923 Cohort model allowance reserves 33,514 34,139 33,325 Allowance for individually evaluated loans 4,728 3,092 1,564 Total allowance for credit losses $ 123,760 $ 121,522 $ 115,812 Allowance for credit losses for loans / total loans 1.85 % 1.79 % 1.73 % For additional information regarding the allowance for loan losses, including changes in specific, formula, and environmental factors allowance categories, see “Asset Quality and Loan Loss Provisioning” at “Results of Operations” , above. Based on the current conditions of the loan portfolio, management believes that the $123.8 million allowance for loan losses at September 30, 2024 is adequate to absorb probable losses inherent in the Bank’s loan portfolio. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses in the portfolio. 56 Table of Contents The following table summarizes the allocation of the allowance for credit losses between loan types and by percentage of the total allowance for credit losses on loans as of the dates indicated: (in thousands) September 30, 2024 December 31, 2023 September 30, 2023 Commercial real estate $ 71,339 57.6 % $ 68,864 56.7 % $ 66,675 57.6 % Consumer 27,504 22.2 % 27,453 22.6 % 26,618 23.0 % Commercial and industrial 14,453 11.7 % 12,750 10.5 % 12,290 10.6 % Construction 7,119 5.8 % 8,856 7.3 % 8,097 7.0 % Agriculture production 3,312 2.7 % 3,589 2.9 % 2,125 1.8 % Leases 33 0.0 % 10 0.0 % 7 0.0 % Total allowance for credit losses $ 123,760 100.0 % $ 121,522 100.0 % $ 115,812 100.0 % The following table summarizes the allocation of the allowance for credit losses as a percentage of the total loans for each loan category as of the dates indicated: (in thousands) September 30, 2024 December 31, 2023 September 30, 2023 Commercial real estate 1.59 % 1.57 % 1.53 % Consumer 2.14 % 2.09 % 2.07 % Commercial and industrial 2.98 % 2.17 % 2.05 % Construction 2.58 % 2.55 % 2.52 % Agriculture production 2.30 % 2.48 % 1.72 % Leases 0.44 % 0.12 % 0.09 % Total loans 1.85 % 1.79 % 1.73 % 57 Table of Contents The following table summarizes the activity in the allowance for credit losses for the periods indicated: Three months ended September 30, Nine months ended September 30, (in thousands) 2024 2023 2024 2023 Allowance for credit losses: Balance at beginning of period $ 123,517 $ 117,329 $ 121,522 $ 105,680 Provision for credit losses 320 3,120 4,670 16,415 Loans charged-off: Commercial real estate: CRE non-owner occupied — — — — CRE owner occupied — (3,608) — (3,608) Multifamily — — — — Farmland — — — — Consumer: SFR 1-4 1st DT liens — — (26) — SFR HELOCs and junior liens — — (41) (42) Other (170) (133) (538) (438) Commercial and industrial (274) (1,616) (1,274) (3,303) Construction — — — — Agriculture production — — (1,450) — Leases — — — — Total loans charged-off (444) (5,357) (3,329) (7,391) Recoveries of previously charged-off loans: Commercial real estate: CRE non-owner occupied — — — — CRE owner occupied 1 — 2 1 Multifamily — — — — Farmland — — — — Consumer: SFR 1-4 1st DT liens — 262 — 262 SFR HELOCs and junior liens 196 314 296 416 Other 63 52 184 129 Commercial and industrial 106 91 389 267 Construction — — — — Agriculture production 1 1 26 33 Leases — — — — Total recoveries of previously charged-off loans 367 720 897 1,108 Net charge-offs (77) (4,637) (2,432) (6,283) Balance at end of period $ 123,760 $ 115,812 $ 123,760 $ 115,812 Average total loans $ 6,690,326 $ 6,597,400 $ 6,755,916 $ 6,493,585 Ratios (annualized): Net (charge-offs) recoveries during period to average loans outstanding during period — % (0.28) % (0.05) % (0.13) % Provision for credit losses to average loans outstanding during period 0.02 % 0.19 % 0.09 % 0.34 % 58 Table of Contents Foreclosed Assets, Net of Allowance for Losses The following table details the components and summarize the activity in foreclosed assets, net of allowances for losses, for the nine months ended September 30, 2024: (in thousands) Balance at December 31, 2023 Sales Valuation Adjustments Transfers from Loans Balance at September 30, 2024 Land & construction $ 154 $ 12 $ 39 $ — $ 205 Residential real estate 1,673 446 (262) — 1,857 Commercial real estate 878 — 218 (394) 702 Total foreclosed assets $ 2,705 $ 458 $ (5) $ (394) $ 2,764 Deposits During the nine months ended September 30, 2024, the Company’s deposits increased by $203.1 million to $8.0 billion at quarter end. There were no brokered deposits included in the deposit balances as of September 30, 2024 and December 31, 2023. Estimated uninsured deposits totaled $2.5 billion and $2.4 billion as of September 30, 2024 and December 31, 2023, respectively. Off-Balance Sheet Arrangements See Note 9 to the condensed consolidated financial statements at Item 1 of Part I of this report for information about the Company’s commitments and contingencies including off-balance-sheet arrangements. Capital Resources The current and projected capital position of the Company and the impact of capital plans and long-term strategies are reviewed regularly by Management. On February 25, 2021 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company's common stock (the 2021 Repurchase Plan), which approximated 6.7% of the shares outstanding as of the approval date. The actual timing of any share repurchases will be determined by the Company's management and therefore the total value of the shares to be purchased under the 2021 Repurchase Plan is subject to change. The Company may repurchase its outstanding shares of common stock from time to time in open market or privately-negotiated transactions, including block trades, or pursuant to 10b5-1 trading plans. 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. In addition, the Company’s Tier 1 common equity and tangible capital ratios increased to 13.1% and 9.7%, respectively as of September 30, 2024, compared to 12.2% and 8.8%, respectively, as of December 31, 2023. Total shareholders' equity increased by $64.0 million during the quarter ended September 30, 2024, as net income of $29.1 million and a $44.5 million decrease in accumulated other comprehensive losses was partially offset by cash dividend payments on common stock of approximately $10.9 million. As a result, the Company’s book value grew to $37.55 per share at September 30, 2024, compared to $32.18 at September 30, 2023. The Company’s tangible book value per share, a non-GAAP measure, calculated by subtracting goodwill and other intangible assets from total shareholders’ equity and dividing that sum by total shares outstanding, was $28.09 per share at September 30, 2024, as compared to $22.67 at September 30, 2023. As noted previously, changes in the fair value of available-for-sale investment securities, net of deferred taxes continue to create moderate levels of volatility in tangible book value per share. Current Year Balance Sheet Change September 30, 2024 December 31, 2023 Ratio Minimum Regulatory Requirement Ratio Minimum Regulatory Requirement Total risk based capital 15.6 % 10.5 % 14.7 % 10.5 % Tier I capital 13.8 % 8.5 % 12.9 % 8.5 % Common equity Tier 1 capital 13.1 % 7.0 % 12.2 % 7.0 % Leverage 11.6 % 4.0 % 10.7 % 4.0 % See Note 10 and Note 16 to the condensed consolidated financial statements at Item 1 of Part I of this report for additional information about the Company’s capital resources. 59 Table of Contents As of September 30, 2024, we had an effective shelf registration statement on file with the Securities and Exchange Commission that allows us to issue various types of debt securities, as well as common stock, preferred stock, warrants, depository shares representing fractional interest in shares of preferred stock, purchase contracts and units from time to time in one or more offerings. Each issuance under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. The registration statement does not limit the amount of securities that may be issued thereunder. Our ability to issue securities is subject to market conditions and other factors including, in the case of our debt securities, our credit ratings and compliance with current and prospective covenants in credit agreements. Liquidity The Company's primary sources of liquidity include the following for the periods indicated: (dollars in thousands) September 30, 2024 December 31, 2023 Borrowing capacity at correspondent banks and FRB $ 2,757,640 $ 2,921,525 Less: borrowings outstanding (250,000) (600,000) Unpledged available-for-sale investment securities 1,312,745 1,558,506 Cash held or in transit with FRB 274,908 51,253 Total primary liquidity $ 4,095,293 $ 3,931,284 At September 30, 2024, the Company's primary sources of liquidity represented 51% of total deposits and 163% of estimated total uninsured (excluding collateralized municipal deposits and intercompany balances) deposits, respectively. As secondary sources of liquidity, the Company's held-to-maturity investment securities had a fair value of $112.0 million, including approximately $5.3 million in net unrealized losses. The Company’s profitability during the first nine months of 2024 generated cash flows from operations of $85.5 million compared to $102.4 million during the first nine months of 2023. Net cash from investing activities was $345.0 million for the nine months ended September 30, 2024, compared to net cash from investing activities of $13.6 million during the nine months ending 2023. Financing activities used $209.0 million during the nine months ended September 30, 2024, compared to $84.9 million during the nine months ended September 30, 2023. The changes in contractual obligations of the Company and Bank, to include but not limited to term subordinated debt, operating leases, deferred compensation and supplemental retirement plans as well as off-balance sheet commitments such as unfunded loans and letters of credit, are consistent with similar balances or totals as of December 31, 2023. The Company is dependent upon the payment of cash dividends by the Bank to service its commitments, which have historically included dividends to shareholders, scheduled debt service payments, and general operations. Shareholder dividends are expected to continue subject to the Board’s discretion and management's continuing evaluation of capital levels, earnings, asset quality and other factors. The Company expects that the cash dividends paid by the Bank to the Company will be sufficient to cover the Company's cash flow needs. However, the Company and its ability to generate liquidity through either the issuance of stock or debt, also serves as a potential source of strength for the Bank. Dividends paid by the Company to holders of its common stock used $32.8 million and $29.9 million of cash during the nine months ended September 30, 2024 and 2023, respectively. The Company’s liquidity is dependent on dividends received from the Bank. Dividends from the Bank are subject to certain regulatory restrictions. 60 Table of Contents TRICO BANCSHARES—NON-GAAP FINANCIAL MEASURES (Unaudited. Dollars in thousands) In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this filing contains certain non-GAAP financial measures. Management has presented these non-GAAP financial measures in this filing because it believes that they provide useful and comparative information to assess trends in the Company's core operations reflected in the current quarter's results, and facilitate the comparison of our performance with the performance of our peers. However, these non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP. Where applicable, comparable earnings information using GAAP financial measures is also presented. Because not all companies use the same calculations, our presentation may not be comparable to other similarly titled measures as calculated by other companies. For a reconciliation of these non-GAAP financial measures, see the tables below: Three months ended Nine months ended (dollars in thousands) September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Net interest margin Acquired loans discount accretion, net: Amount (included in interest income) $1,018 $1,324 $3,200 $4,192 Effect on average loan yield 0.06 % 0.08 % 0.06 % 0.09 % Effect on net interest margin (FTE) 0.05 % 0.06 % 0.05 % 0.06 % Net interest margin (FTE) 3.71 % 3.88 % 3.69 % 4.01 % Net interest margin less effect of acquired loan discount accretion (Non-GAAP) 3.66 % 3.82 % 3.64 % 3.95 % Three months ended Nine months ended (dollars in thousands) September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Pre-tax pre-provision return on average assets or equity Net income (GAAP) $29,051 $30,590 $85,834 $91,315 Exclude provision for income taxes 10,348 11,484 30,382 33,190 Exclude provision for credit losses 220 4,155 4,930 18,000 Net income before income tax and provision expense (Non-GAAP) $39,619 $46,229 $121,146 $142,505 Average assets (GAAP) $9,666,979 $9,874,240 $9,767,965 $9,867,099 Average equity (GAAP) $1,214,510 $1,112,404 $1,186,245 $1,104,122 Return on average assets (GAAP) (annualized) 1.20 % 1.23 % 1.17 % 1.24 % Pre-tax pre-provision return on average assets (Non-GAAP) (annualized) 1.63 % 1.86 % 1.66 % 1.93 % Return on average equity (GAAP) (annualized) 9.52 % 10.91 % 9.67 % 11.06 % Pre-tax pre-provision return on average equity (Non-GAAP) (annualized) 12.98 % 16.49 % 13.64 % 17.26 % 61 Table of Contents Three months ended Nine months ended (dollars in thousands) September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023 Return on tangible common equity Average total shareholders' equity $1,214,510 $1,112,404 $1,186,245 $1,104,122 Exclude average goodwill 304,442 304,442 304,442 304,442 Exclude average other intangibles 8,093 12,563 9,098 14,219 Average tangible common equity (Non-GAAP) $901,975 $795,399 $872,705 $785,461 Net income (GAAP) $29,051 $30,590 $85,834 $91,315 Exclude amortization of intangible assets, net of tax effect 725 1,120 2,175 3,453 Tangible net income available to common shareholders (Non-GAAP) $29,776 $31,710 $88,009 $94,768 Return on average equity (GAAP) (annualized) 9.52 % 10.91 % 9.67 % 11.06 % Return on average tangible common equity (Non-GAAP) 13.13 % 15.82 % 13.47 % 16.13 % As of (dollars in thousands) September 30, 2024 December 31, 2023 Tangible shareholders' equity to tangible assets Shareholders' equity (GAAP) $1,239,015 $1,159,682 Exclude goodwill and other intangible assets, net 311,904 314,994 Tangible shareholders' equity (Non-GAAP) $927,111 $844,688 Total assets (GAAP) $9,823,890 $9,910,089 Exclude goodwill and other intangible assets, net 311,904 314,994 Total tangible assets (Non-GAAP) $9,511,986 $9,595,095 Shareholders' equity to total assets (GAAP) 12.61 % 11.70 % Tangible shareholders' equity to tangible assets (Non-GAAP) 9.75 % 8.80 % As of (dollars in thousands) September 30, 2024 December 31, 2023 Tangible common shareholders' equity per share Tangible shareholders' equity (Non-GAAP) $927,111 $844,688 Common shares outstanding at end of period 33,000,508 33,268,102 Common shareholders' equity (book value) per share (GAAP) $37.55 $34.86 Tangible common shareholders' equity (tangible book value) per share (Non-GAAP) $28.09 $25.39 62 Table of Contents