What changed in this filing

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Item 1A. Risk Factors

2025-03-03 compared with 2024-02-29 · 214 added, 131 removed, 388 unchanged (47% of the section changed)

An investment in our securities is subject to certain risks.

In addition to the other information in this report, investors should carefully consider the following discussion of significant risk and uncertainties before making investment decisions about our securities.

In addition to the other information in this report, investors should carefully consider the following discussion of significant risks and uncertainties before making investment decisions about our securities.

The events and consequences discussed in these risk factors could, in circumstances we may or may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results) liquidity, and stock price.

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Risks Related to the Nature and Geographic Area of Our Business

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The majority of our assets are loans, which are subject to credits risks.

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To the extent that these risks may have a negative impact on the financial condition of borrowers, it could also have a material adverse effect on our business, financial condition and results of operations.

We have underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses, that we believe appropriately address this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our respective loan portfolios.

We have underwriting and credit monitoring procedures and credit policies, including the establishment and review of the allowance for credit losses,

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that we believe appropriately address this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our respective loan portfolios.

Such policies and procedures, however, may not prevent unexpected losses that could adversely affect our results of operations.

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Determining an appropriate level of allowance is an inherently difficult process and is based on numerous assumptions.

The actual amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, unemployment and economic conditions that may be beyond our control and these losses may exceed current estimates.

The actual amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates, unemployment and a number of other economic conditions that may be beyond our control and these losses may exceed current estimates.

Effective January 1, 2020, we implemented a new accounting standard, “Measurement of Credit Losses on Financial Instruments,” commonly referred to as the “Current Expected Credit Losses” standard, or “CECL.” CECL changed the allowance for credit losses methodology from an incurred loss concept to an expected loss concept, which is more dependent on future economic forecasts, assumptions and models than previous methodology, which could result in increases and add volatility to our allowance for credit losses and future provisions for loan losses.

These forecasts, assumptions and models are inherently uncertain and are based upon our management’s reasonable judgment in light of information currently available.

In addition to periodic reviews completed by management and independent third parties retained by the Bank, Federal and state bank regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses.

In addition to periodic reviews completed by management and independent third parties retained by us, Federal and state bank regulatory agencies, as an integral part of their examination process, review our loans and allowance for credit losses.

While we believe that our allowance for credit losses is adequate to cover estimated future losses, we cannot assure you that we will not increase the allowance for credit losses further or that the allowance will be adequate to absorb credit losses we actually incur.

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• low cost or non-interest-bearing deposits may continue to decrease, and

• collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans.

• collateral for loans made by us, especially real estate, may experience a decline in value and/or cash flows, in turn reducing customers’ borrowing or repayment ability, and reducing the value of assets and collateral associated with our existing loans.

In view of the concentration of our operations and the collateral securing our loan portfolio in California, we may be particularly susceptible to the adverse effects of any of these consequences, any of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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These types of natural catastrophic events have at times disrupted the local economies, our business and customers in these regions.

Such events could also affect the stability of our deposit base;

impair the ability of borrowers to obtain adequate insurance or repay outstanding loans, impair the value of collateral securing loans and cause significant property damage, result in losses of revenue and/or cause us to incur additional expenses.

Such events could also affect the stability of our deposit base, impact real estate values, impair the ability of borrowers to obtain adequate insurance or repay outstanding loans, impair the value of collateral securing loans and cause significant property damage, result in losses of revenue and/or cause us to incur additional expenses.

In addition, catastrophic events occurring in other regions of the world may have an impact on our customers and in turn, on us.

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A significant majority of the loans in our portfolio are secured by California real estate and a decline in real estate values could hurt our business.

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A downturn in real estate values in the markets which we conduct our business in California could hurt our business because most of our loans are secured by real estate.

Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in tax laws and other governmental statutes, regulations and policies.

Real estate values could also be affected by, among other things, earthquakes, drought and national disasters.

As real estate prices decline, the value of real estate collateral securing our loans is reduced.

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Any such decline could have a material adverse effect on our business, financial condition and results of operations.

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We have significant exposure to risks associated with commercial real estate lending.

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In addition, these loans often involve larger loan balances to single borrowers or groups of related borrowers compared with other types of loans.

In recent years, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic, which has been a catalyst for the evolution of various remote work options which could impact the long-term performance of some types of office properties within our commercial real estate portfolio.

In recent years, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic, which has been a catalyst for the evolution of various remote work options which could impact the vacancy rates and the long-term vacancy performance of some types of office properties within our commercial real estate portfolio.

Accordingly, the federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market.

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and (vi) industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our

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competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

We may be adversely affected by the soundness of other financial institutions.

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Any such losses could have a material adverse effect on our financial condition and results of operations.

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We may need to raise additional capital, but it may not be available on acceptable terms or at all.

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The inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition, or results of operations.

Adverse changes in economic or market conditions may hurt our businesses.

Adverse changes in economic or market conditions, including health related events, may hurt our businesses.

Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies.

Conditions such as an economic recession, pandemics, rising unemployment, inflation, changes in interest rates, declines in asset values and other factors beyond our control may adversely affect our asset quality, deposit levels and our net income.

Conditions such as an economic recession, pandemics, rising unemployment, adverse immigration policies impacting the labor market (notably agriculture), inflation, changes in interest rates, declines in asset values and other factors beyond our control may adversely affect our asset quality, deposit levels and our net income.

Adverse changes in the economy may also have a negative effect on the demand for new loans and the ability of our existing borrowers to make timely repayments of their loans, which could adversely impact our growth and earnings.

Economic and market conditions may also be affected by political developments in the U.S.

and other countries and global conflicts, such as the conflicts in Ukraine and the Middle East.

Uncertainty about the federal fiscal policymaking process, the fiscal outlook of the federal government, and future tax rates is a concern for businesses, consumers and investors in the United States The COVID-19 pandemic caused, and its lingering impact may continue to cause, disruptions in the U.S.

economy at large, and for small businesses in particular, and has resulted in and may continue to result in disruptions to our customers’ businesses, and a decrease in consumer confidence and business generally.

and other countries and global conflicts, such the conflicts in Ukraine and the Middle East.

While the effects of COVID have reduced, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, employment and labor markets and disrupted trade and supply chains.

If these effects continue for a prolonged period or result in sustained economic stress or recession, many of the risk factors identified in our Form 10-K could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to credit, collateral, customer demand, funding, operations, interest rate risk, and human capital, as described in this document.

If the United States economy weakens or does not improve, our growth and profitability from our lending, deposit and investment operations could be constrained.

Any of these potential outcomes could cause us to suffer losses in our investment securities portfolio, reduce our liquidity and capital levels, hamper our ability to deliver products and services to our clients and customers, and weaken our results of operations and financial condition.

The lingering effects of COVID-19 or a similar health crisis or pandemic, could adversely affect or operations or financial performance.

and global economies have begun to recover from the COVID-19 pandemic and many health and safety restrictions have been lifted, certain adverse consequences of the pandemic, including labor shortages, disruptions of global supply chains, and inflationary pressures, continue to impact the economy and could adversely affect our business.

Our business depends on the willingness and ability of our customers and employees to conduct banking and other financial transactions.

Continued disruptions to our customers caused by the COVID-19 pandemic could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans, as well as reductions in loan demand, the liquidity of loan guarantors, loan collateral values (particularly in real estate), loan originations, interest and noninterest income and deposit availability.

The COVID-19 pandemic has also resulted in heightened operational risks.

Some of our colleagues continue to work remotely at least part-time basis, which may create additional cybersecurity risks.

The increase in online and remote banking activities may also increase the risk of fraud in certain instances.

Adverse developments affecting the financial services industry, such as the failure of three banks in the first half of 2023 or concerns involving liquidity, may have a material effect on the Company’s liquidity, earnings and financial condition.

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Although we were not directly affected by these bank failures, the resulting speed and ease in which news or rumors, including social media commentary, led depositors to withdraw or attempt to withdraw their funds from these and other financial institutions caused the stock prices of many financial institutions to become volatile, in particular regional, as well as community banks like us.

Notably, the Company’s share price decreased by 17% during the month of March

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2023, consistent with other community banking organizations.

Notably, the Company’s share price decreased by 17% during the month of March 2023, consistent with other community banking organizations.

According to data published by the FRB, deposits at domestic commercial banks decreased by approximately $280 billion between the end of February 2023 and the week ended March 29, 2023.

The Bank’s deposits decreased by $162 million during this period, which was a decrease of 2%.

As a result of these events, customers may choose to maintain deposits with larger financial institutions or in other higher yielding alternatives, which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.

Customers may choose to maintain deposits with larger financial institutions or in other higher yielding alternatives, which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.

The bank failures during 2023 may lead to governmental initiatives intended to prevent future bank failures and stem significant deposit outflows from the banking sector, including (i) legislation aimed at preventing similar future bank runs and failures and stabilizing confidence in the banking sector over the long term, (ii) agency rulemaking to modify and enhance relevant regulatory requirements, specifically with respect to liquidity risk management, deposit concentrations, capital adequacy, stress testing and contingency planning, and safe and sound banking practices, and (iii) enhancement of the agencies’ supervision and examination policies and priorities.

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Risks Related to Interest Rates

Changes in interest rates may make it difficult for us to improve or maintain our current interest income spread and could result in reduced earnings and negatively impact our financial performance.

Like other financial institutions, we are subject to risks resulting from changes in interest rates.

Our primary source of income is net interest income, which is the difference between interest earned on loans and leases and investments, and interest paid on deposits and borrowings.

Because of the differences in the maturities and repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates may not produce matching changes in interest income we earn on interest-earning assets and interest we pay on interest-bearing liabilities.

Accordingly, fluctuations in interest rates could adversely affect our interest rate spread and, in turn, our profitability.

In addition, loan and lease volume and quality and deposit volume and mix can be affected by market interest rates as can the businesses of our clients.

Changes in levels of market interest rates could have a material adverse effect on our net interest spread, asset quality, origination volume, the value of our loans and investment securities, deposit levels and overall profitability.

Interest rates may be affected by many factors that are beyond the control of our management, including general economic conditions and the policies of various governmental and regulatory authorities.

The actions of the Federal Reserve influence the rates of interest that we charge on loans and that we pay on borrowings and interest-bearing deposits.

Changes in monetary policy, including changes in interest rates, may negatively affect our ability to originate loans and leases, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately could affect our earnings.

The Federal Reserve raised benchmark interest rates in 2022 and 2023 and may continue to raise or keep interest rates high in response to economic conditions, particularly inflationary pressures.

We cannot predict the nature or timing of future changes in monetary, tax and other policies or the effects that they may have on our activities and financial results.

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

Although we were successful in generating new loans during 2023, increasing interest rates may adversely affect the demand for new loans and our loan growth.

To supplement our organic loan growth, we from time-to-time may purchase loans from third parties that may have lower yields than those loans that we originate on our own.

Additionally, interest rate increases often result in larger payment requirements for our borrowers with variable rate loans, which increases the potential for default and could result in a decrease in the demand for loans.

At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates.

An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to an increase in nonperforming assets and a reversal of income previously recognized, which could have an adverse effect on our results of operations.

Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income.

At the same time, we continue to incur costs to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.

Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income.

Furthermore, if short-term market rates rise, in order to retain existing deposit customers and attract new deposit customers we may need to increase rates we pay on deposit accounts.

Accordingly, changes in levels of market interest rates could materially and adversely affect our net interest spread, asset quality, loan origination volume, business, financial condition and results of operations.

Higher or prolonged inflation could have a negative impact on our financial results and operations.

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Inflation may negatively affect us by increasing our labor costs, through higher wages and higher interest rates, which may negatively affect the market value of securities on our balance sheet, higher interest expenses on our deposits, especially CDs, and a higher cost of our borrowings.

Additionally, higher inflation levels could lead to higher oil and gas prices, which may negatively impact the net operating income on the properties which we lend on and could impair a borrower's ability to repay their loans.

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

Our profitability is dependent to a large extent on our net interest income, which is the difference between interest income we earn as a result of interest paid to us on loans and investments and interest we pay to third-parties such as our depositors and those from which we borrow funds.

Like most financial institutions, we are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve Board.

Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits, (ii) the fair value of our financial assets and liabilities, (iii) the average duration of our securities portfolio, (iv) the value of our loan servicing rights, and (v) the slope of the overall yield curve and its impact on the value of the investment portfolio and reinvestment income.

If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and investments, our net interest income, and earnings, could be adversely affected.

Earnings could also be adversely affected if the interest rates received on loans and investments fall more quickly than the interest rates paid on deposits and other borrowings.

After an extended period at a target rate of 0-0.25%, the Federal Reserve Board began aggressively increasing interest rates in March 2022 and continuing into 2023 with increases of 25 basis points in February, March, May, and July 2023.

Most recently, the Federal Reserve Board decreased interest rates 50 basis points in September and 25 basis points in November and December 2024, respectively, resulting in a target rate range of 4.25% to 4.50% at December 31, 2024.

Today, there continues to be uncertainty regarding future interest rates.

Increases in interest rates can have negative impacts on our business, including reducing our customers’ desire to borrow money from us or adversely affecting their ability to repay their outstanding loans by increasing their debt obligations through the periodic reset of adjustable interest rate loans.

If our borrowers’ ability to pay their loans is impaired by increasing interest payment obligations, our level of non-performing assets would increase, producing an adverse effect on operating results.

Asset values, especially commercial real estate as collateral, securities or other fixed rate earning assets, can decline significantly with relatively minor changes in interest rates.

Conversely, decreases in interest rates can affect the amount of interest we earn on our loans and investment securities, which could have a material adverse effect on our financial condition and results of operations.

Elevated inflation and expectations for elevated future inflation can adversely impact economic growth, consumer and business confidence, and our financial condition and results.

In addition, elevated inflation may cause unexpected changes in monetary policies and actions which may adversely affect confidence, the economy, and our financial condition and results.

Supply chain constraints and a tightening labor markets could potentially exacerbate inflation and sustain it at elevated levels, even as growth slows.

The risk of sustained high inflation would likely be accompanied by monetary policy tightening with potential negative effects on various elevated asset classes.

In addition, elevated inflation may cause unexpected changes in monetary policies and actions which may adversely affect confidence and the economy.

Although we have implemented strategies that we believe reduce the potential effects of adverse changes in interest rates on our results of operations, these strategies may not always be successful.

Any of these events could adversely affect our results of operations, financial condition and liquidity.

Reduction in the value, or impairment of our investment securities, can impact our earnings and common shareholders’ equity.

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Changes in market interest rates can affect the fair value of these investment securities, with increasing interest rates generally resulting in a reduction of value.

Although the reduction in value from temporary increases in market rates does not affect our income until the security is sold, it does result in an unrealized loss recorded in other comprehensive income that can reduce our common stockholders’ equity.

Although the reduction in value from temporary increases in market rates does not affect our income unless the security is sold, it does result in an unrealized loss recorded in accumulated other comprehensive income that can reduce our common stockholders’ equity.

Further, we must periodically test our investment securities for other-than-temporary impairment in value.

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If we are required to sell securities to meet liquidity needs, we could realize significant losses.

As a result of increases in interest rates over the last year, the market values of previously issued government and other debt securities have declined in value, resulting in unrealized losses in our securities portfolio.

As a result of increases in interest rates in 2023 and most of 2024, the market values of previously issued government and other debt securities declined in value, resulting in unrealized losses in our securities portfolio.

While we anticipate that the scheduled cash flows generated from our investment portfolio will be adequate to support the liquidity needs of the Company, if we were required to sell these securities to expedite the generation of cash flows to meet liquidity needs, we may be required to realize significant losses, which could impair our capital and financial condition and adversely affect our results of operations.

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• desired investments,

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• loans and interest rates on loans,

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Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material adverse impact on our operations, including the cost to conduct business.

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Furthermore, the evolving landscape of legislative and regulatory actions, influenced by election cycles, introduces an additional layer of uncertainty for our operations.

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Political events, including elections, can influence consumer and investor sentiment, affecting demand for our products and services and impacting investor confidence, which may influence our stock price and access to capital.

While there have been significant revisions to the laws and regulations applicable to us that have been finalized in recent years, there are other rules to implement changes that have yet to be proposed or enacted by our regulators.

The final timing, scope and impact of these changes to the regulatory framework applicable to financial institutions remains uncertain.

Uncertainty exists with respect to new laws or regulations or changes in the interpretation or enforcement of existing laws or regulations, including potential deregulation in some areas.

In addition, litigation challenging actions or regulations by federal or state authorities could, depending on the outcome, significantly affect the regulatory and supervisory framework affecting our operations.

For more information on regulations to which we are subject and recent initiatives to reform financial institution regulation, see the “Regulation and Supervision” section in Item 1.

Risks Related to Our Growth and Expansion

Goodwill resulting from acquisitions may adversely affect our results of operations.

Our balance sheet contains a substantial level of goodwill and other intangible assets as a result of our acquisitions, including Valley Republic Bancorp in 2022.

Our balance sheet contains a substantial level of goodwill and other intangible assets as a result of our acquisitions.

Potential impairment of goodwill and amortization of other intangible assets could adversely affect our financial condition and results of operations.

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Our assessment of goodwill, other intangible assets, or long-lived assets could indicate that an impairment of the carrying value of such assets may have occurred that could result in a material, non-cash write-down of such assets, which could have a material adverse effect on our results of operations and future earnings.

Potential acquisitions create risks and may disrupt our business and dilute shareholder value.

We intend to continue to explore opportunities for growth through mergers and acquisitions.

Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:

• incurring substantial expenses in pursuing potential acquisitions without completing such acquisitions,

• exposure to potential asset quality issues of the target company,

• losing key clients as a result of the change of ownership,

• the acquired business not performing in accordance with our expectations,

• difficulties and expenses arising in connection with the integration of the operations or systems conversion of the acquired business with our operations,

• difficulty in estimating the value of the target company,

Potential acquisitions may disrupt our business and dilute shareholder value, we may not be able to successfully consummate or integrate such acquisitions, and we may not realize the anticipated benefits contemplated when pursuing a potential acquisition.

We may acquire other financial institutions, or branches or assets of other financial institutions, in the future.

We may also open new branches and enter into new lines of business or offer new products or services either through organic expansion, mergers, acquisitions or similar corporate transactions.

Any such expansion of our business will involve a number of expenses and risks, which may include:

• the time and expense associated with identifying and evaluating potential expansions;

• the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to the target company;

• potential exposure to unknown or contingent liabilities of the target company;

• management needing to divert attention from other aspects of our business,

• potentially losing key employees of the acquired business,

• incurring unanticipated costs which could reduce our earnings per share,

• assuming potential liabilities of the acquired company as a result of the acquisition,

• potential changes in banking or tax laws or regulations that may affect the target company,

• exposure to potential asset quality issues of the target company;

• difficulty and expense of integrating the operations and personnel of the target company;

• difficulty or added costs in the wind-down of non-strategic operations;

• potential disruption to our business;

• an acquisition may dilute our earnings per share, in both the short and long term, or it may reduce our tangible capital ratios.

Acquisitions may be delayed, impeded, or prohibited due to regulatory issues.

Acquisitions by financial institutions, including us, are subject to approval by a variety of federal and state regulatory agencies.

The process for obtaining these required regulatory approvals has become substantially more difficult since the global financial crisis and more recently due to political actions.

Furthermore, our ability to engage in certain merger or acquisition transactions depends on the bank regulators' views at the time as to our capital levels, quality of management, and overall condition, in addition to their assessment of a variety of other factors, including our compliance with laws and regulations.

Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related to BSA/AML compliance, CRA performance, fair lending laws, fair housing laws, consumer protection laws and other laws and regulations.

We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a result of our inability, or

• potential diversion of our management’s time and attention;

• the possible loss of key employees and customers of the target company;

• difficulty in estimating the value (including goodwill) of the target company;

• difficulty in receiving appropriate regulatory approval for any proposed transaction;

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perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all.

Difficulties associated with potential acquisitions that may result from these factors could have a material adverse effect on our business, financial condition and results of operations.

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• potential changes in banking, tax or other laws or regulations or accounting rules that may affect the target company or our realization of any anticipated benefits or accretive shareholder value from undertaking such expansion.

We regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies.

Acquisitions could involve the payment of a premium over book and market values, and, therefore, dilution of our tangible book value and net income per common share may occur in connection with any such transaction.

Furthermore, any difficulty integrating businesses acquired as a result of a merger or acquisition and the failure to realize the expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits from an acquisition could have an impact on our liquidity, results of operations and financial condition and any such integration could divert management’s time and attention from managing our company in an effective manner.

Any merger or acquisition opportunity that we decide to pursue will ultimately be subject to regulatory approval or other closing conditions.

We may expend substantial time and resources pursuing potential acquisitions which may not be consummated in a timely manner, or at all, because regulatory approval or other closing requirements are not satisfied.

Additionally, the banking regulators and applicable laws and regulations may restrict our ability to engage in acquisitions under certain circumstances.

If we cannot attract deposits, our growth may be inhibited.

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Business - Regulation and Supervision – Restrictions on Dividends and Distributions.”

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As a holding company with no significant assets other than the Bank, our ability to continue to pay dividends depends in large part upon the Bank’s ability to pay dividends to us.

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Our holding company expenses and obligations with respect to our trust preferred securities and corresponding junior subordinated deferrable interest debentures issued by us may limit or impair our ability to declare or pay dividends.

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Provisions of our governing documents and federal law may limit the ability of another party to acquire us, which could cause our stock price to decline.

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The Company restored its systems without paying ransom.

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The Bank worked with third-party forensic investigators to understand the nature and scope of the incident and to determine what and how much information was impacted.

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Through its investigation, the Bank determined that an unauthorized actor illegally accessed and acquired data from certain systems, including the personal information of approximately 75,000 individuals, including certain current and former customers, individuals related to current and former customers, current and former employees and their dependents, and others.

While the information impacted varied by individual, the types of information that were impacted included name, social security number, driver’s license number, state identification number, financial account information, medical information, health insurance information, date of birth, passport number, digital/electronic signature, tax identification number, access credentials, and mother’s maiden name.

While the information impacted varied by individual, the types of information that were impacted included name, social security number, driver’s license number, state identification number, financial account information, medical information, health insurance information, date of birth, passport number, digital/electronic signature, tax information, tax identification number, access credentials, and mother’s maiden name.

The Bank notified and will continue to notify impacted individuals consistent with state and federal requirements and the Bank is offering impacted individuals credit restoration services and 24 months of credit monitoring services at no cost.

The Bank issued a press release regarding this event and posted notice of this event on its website.

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As a result of the 2023 cyberattack, we have incurred and may continue to incur significant costs or experience other material financial impacts, which may not be covered by, or may exceed the coverage limits of, our cyber liability insurance, and such costs and impacts may have a material adverse effect on our business, reputation, financial condition and operating results.

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We face the risk that failures or breaches, including cyberattacks, of our operational or security systems or of those of our customers or vendors, could disrupt our business, result in the disclosure of confidential information, damage our reputation, and create significant financial and legal exposure.

We, our customers, our vendors, and other third parties have been subject to, and are likely to continue to be the target of, persistent cyberattacks.

Despite our efforts to ensure the integrity of our systems, we may not be able to anticipate or to implement effective preventive measures against all security breaches.

Attacker's tools and techniques evolve frequently, and because attacks may originate from a wide variety of sources, including, but not limited to, state-sponsored parties, organized crime, terrorist organizations, malicious actors, employees, contractors, or other third parties.

Those parties may attempt, for example, to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers and others;

may seek to exploit bugs, errors, misconfigurations or other vulnerabilities in our systems to obtain access to our systems;

may seek to obtain unauthorized access to our systems or confidential information by exploiting insider access or utilizing log-in credentials taken from our customers, employees, or third-party providers by various illicit means;

and may seek to disrupt and damage our business operations and systems through ransomware or distributed denial of service attacks.

The Company, our customers, our vendors, and other third parties have experienced security breaches and cyber attacks in the past, and it is inevitable that additional breaches and attacks will occur in the future.

While such breaches and attacks have not materially impacted the Company to date, future security breaches and cyber attacks could result in serious and harmful consequences for us or our clients and customers.

A principal reason that we cannot provide absolute security against cyber attacks is that we may not always be possible to anticipate, detect or recognize threats to the Company’s systems, or to implement effective preventive measures against all breaches because:

the techniques used in cyber attacks evolve frequently and are increasingly sophisticated, and therefore may not be recognized until launched;

cyber attacks can originate from a wide variety of sources, including our own employees, cyber-criminals, hacktivists, groups linked to terrorist organizations or hostile countries, or third parties whose objective is to disrupt the operations of financial institutions more generally;

we do not have control over the cybersecurity of the systems of the large number of clients, customers, counterparties and third-party service providers with which we do business;

and it is possible that a third party, after establishing a foothold on an internal network without being detected, might obtain access to other networks and systems.

The risk of a security breach due to a cyber attack could increase in the future due to factors such as:

our ongoing expansion of mobile and digital banking and other internet-based products and applications, and the increased use of remote access to facilitate remote arrangements for employees, vendors and other third parties.

In addition, a third party could misappropriate confidential information obtained by intercepting signals or communications from mobile devices used by our employees.

A successful penetration or circumvention of the security of our systems or the systems of a vendor, governmental body or another market participant could cause serious negative consequences, including:

significant disruption of our operations and those of our clients, customers and counterparties, including:

losing access to operational systems;

misappropriation of our confidential information or that of our clients, customers, counterparties, employees, regulators, or other individuals;

disruption of or damage to our systems and those of our clients, customers and counterparties;

the inability, or extended delays in the ability, to fully recover and restore data that has been stolen, manipulated or destroyed or the inability to prevent systems from processing fraudulent transactions;

allegations or violations by the Company of applicable privacy and other laws;

financial loss to us or to our clients, customers, counterparties, employees, or others;

loss of confidence in our cybersecurity and business resiliency measures;

dissatisfaction among our clients, customers or counterparties;

significant exposure to litigation and regulatory fines, penalties or other sanctions;

and harm to our reputation, all of which could have a material adverse effect on us.

If personal, confidential or proprietary information of customers or others in the

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Bank’s or such vendors’ or other third-parties’ possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss, as discussed earlier regarding the Bank's 2023 cyberattack.

The extent of a particular cyber attack and the steps that we may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation or determination, judicial or otherwise, can be completed.

While such an investigation is ongoing, we may not necessarily know the full extent of the harm caused by the cyber attack, and that damage may continue to spread.

These factors may inhibit our ability to provide rapid, full and reliable information about the cyber attack to its clients, customers, counterparties and regulators, and the public.

Furthermore, it may not be clear how best to contain and remediate the harm caused by the cyber attack, and certain errors or actions could be repeated or compounded before they are discovered and remediated.

Any or all of these factors could further increase the costs and consequences of a cyber attack.

Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our computer systems, software, networks, and other technology assets and the confidentiality, integrity, and availability of information belonging to us and our customers, there is no assurance that our security measures will be sufficient.

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For example, the United States government has warned that sanctions imposed against Russia by the United States in response to its conflict with Ukraine could motivate Russia to engage in malicious cyber activities against the United States.

If our security systems or those of our third party vendors, contractors and customers are penetrated or circumvented, it could cause serious negative consequences for us, including significant disruption of our operations, misappropriation or theft of our confidential information or that of our customers, or damage our computers or systems and those of our customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us.

If personal, confidential or proprietary information of customers or others in the Bank’s or such vendors’ or other third-parties’ possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss, as discussed earlier regarding the Bank's 2023 cyberattack.

Our procedures and safeguards to prevent unauthorized access to confidential information and to defend against cyberattacks seeking to disrupt our operations must be continually evaluated and enhanced to address the ever-evolving threat landscape and changing cybersecurity regulations.

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Nevertheless, we may not be able to anticipate, prevent, timely detect and/or effectively remediate all security breaches.

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Any inability to prevent or adequately respond to the issues described above could disrupt the Company’s business, inhibit its ability to retain existing customers or attract new customers, otherwise harm its reputation and/or result in financial losses, litigation, increased costs or other adverse consequences that could be material to the Company.

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While we may contractually limit our liability in connection with attacks against third-party providers, we remain exposed to the risk of loss associated with such vendors.

In addition, a number of our vendors are large national entities with dominant market presence in their respective fields.

Furthermore, a number of our vendors are large national entities with dominant market presence in their respective fields.

Their services could prove difficult to replace in a timely manner if a failure or other service interruption were to occur.

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Failure to meet those standards may significantly impact our ability to offer these services.

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We are subject to the PCI-DSS, issued by the Payment Card Industry Security Standards Council.

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We depend on internal systems, third party service providers, cloud services and outsourced technology to support these data storage and processing operations.

In addition, cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing.

Despite our efforts to ensure the security and integrity of our systems, we may not be able to anticipate, detect or recognize threats to our systems or those of third-party service providers or to implement effective preventive measures against all cybersecurity breaches.

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Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations.

A breach of customer data security such as the breach of customer data in connection with the February 2023

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cyberattack discussed above, may negatively impact our business reputation and cause a loss of customers.

A breach of customer data security such as the breach of customer data in connection with the February 2023 cyberattack discussed above, may negatively impact our business reputation and cause a loss of customers.

This event has resulted in increased expenses to contain the event, to notify impacted individuals and provide them with credit monitoring services, and to defend / respond to litigation.

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We may not be able to effectively implement new technology-driven products and services or successfully market such products and services to our customers.

In addition, advances in technology such as digital, mobile, telephone, text, and online banking;

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advances in technology such as digital, mobile, telephone, text, and online banking;

and self-service automatic teller machines and other equipment, as well as changing customer preferences to access our products and services through digital channels, could decrease the value of our branch network and other assets.

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Our business is susceptible to fraud and conduct risk.

The Company’s business exposes it to fraud risk from loan and deposit customers, the parties they do business with, as well as from employees, contractors and vendors.

The Company relies on financial and other data from new and existing customers which could turn out to be fraudulent when accepting such customers, executing their financial transactions and making and purchasing loans and other financial assets.

In times of increased economic stress the Company is at increased risk of fraud losses.

The Company believes it has underwriting and operational controls in place to prevent or detect such fraud, but cannot provide assurance that these controls will be effective in detecting fraud or that the Company will not experience fraud losses or incur costs or other damage related to such fraud, at levels that adversely affect financial results or reputation.

The Company’s lending customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans or make use of services.

The Company’s and its customers’ exposure to fraud may increase the Company’s financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in the allowance for credit losses.

In addition, the Company is subject to risk from the conduct of its employees, including the negative impact that can result from employee misconduct or failure by employees to conduct themselves in accordance with the Company’s policies, all of which could damage the Company’s reputation and result in loss of customers or other financial loss or expose the Company to increased regulatory or other risk.

New lines of business, products or services and technological advancements may subject us to additional risks.

Our business exposes us to fraud risk from loan and deposit customers, the parties we do business with, as well as from employees, contractors and vendors.

We rely on financial and other data from new and existing customers which could turn out to be fraudulent when accepting such customers, executing their financial transactions and making and purchasing loans and other financial assets.

In times of increased economic stress we are at increased risk of fraud losses.

We believe we have underwriting and operational controls in place to prevent or detect such fraud, but cannot provide assurance that these controls will be effective in detecting fraud or that we will not experience fraud losses or incur costs or other damage related to such fraud, at levels that adversely affect financial results or reputation.

Our lending customers may also experience fraud in their businesses which could adversely affect their ability to repay their loans or make use of services.

The Company’s and its customers’ exposure to fraud may increase our financial risk and reputation risk as it may result in unexpected loan losses that exceed those that have been provided for in the allowance for credit losses.

In addition, we are subject to risk from the conduct of its employees, including the negative impact that can result from employee misconduct or failure by employees to conduct themselves in accordance with our policies, all of which could damage our reputation and result in loss of customers or other financial loss or expose us to increased regulatory or other risk.

New lines of business, products or services and technological advancements, like artificial intelligence, may subject us to additional risks.

From time to time, we implement new lines of business or offer new products and services within existing lines of business.

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In developing and marketing new lines of business and/or new products and services we invest significant time and resources.

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timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible.

Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible.

External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.

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Failure to successfully manage these risks in the development and implementation of new lines of business, new products or services and/or new technologies could have a material adverse effect on our business, financial condition and results of operations.

We are subject to claims and litigation pertaining to intellectual property.

We rely on technology companies to provide information technology products and services necessary to support our day-to-day operations.

Technology companies frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights.

In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained.

Competitors of our vendors, or other individuals or companies, have from time to time claimed to hold intellectual property sold to us by its vendors.

Such claims may increase in the future as the financial services sector becomes more reliant on information technology vendors.

The plaintiffs in these actions frequently seek injunctions and substantial damages.

Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, we may have to engage in litigation that could be expensive, time-consuming, disruptive to our operations, and distracting to management.

If we are found to infringe on one or more patents or other intellectual property rights, we may be required to pay substantial damages or royalties to a third-party.

In certain cases, we may consider entering into licensing agreements for disputed intellectual property, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.

These licenses

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may also significantly increase our operating expenses.

If legal matters related to intellectual property claims were resolved against us or settled, we could be required to make payments in amounts that could have a material adverse effect on our business, financial condition and results of operations.

Our failure to comply with anti-money laundering and anti-terrorism financing laws could have significant adverse consequences for us.

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We can be negatively affected if we fail to identify and address operational risks associated with the introduction of or changes to products, services and delivery platforms.

When we launch a new product or service, introduce a new platform for the delivery or distribution of products or services (including mobile connectivity and cloud computing), or make changes to an existing product, service or delivery platform, it may not fully appreciate or identify new operational risks that may arise from those changes, or may fail to implement adequate controls to mitigate the risks associated with those changes.

When we launch a new product or service, introduce a new platform for the delivery or distribution of products or services (including mobile connectivity and cloud computing), or make changes to an existing product, service or delivery platform, we may not fully appreciate or identify new operational risks that may arise from those changes, or may fail to implement adequate controls to mitigate the risks associated with those changes.

Any significant failure in this regard could diminish our ability to operate one or more of our businesses or result in:

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Such a change in these practices could materially adversely affect our ability to anticipate business needs and meet regulatory requirements.

Further, difficult economic conditions may negatively affect consumer

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confidence levels.

Further, difficult economic conditions may negatively affect consumer confidence levels.

A decrease in consumer confidence levels would likely aggravate the adverse effects of these difficult market conditions on us, our customers and others in the financial institutions industry.

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• harm our reputation;

• otherwise diminish confidence in TriCo.

• otherwise diminish confidence in TriCo or the Bank.

We rely on data to assess many of our various risk exposures.

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General Risk Factors

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We depend on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.

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We establish accruals for those matters when a loss is considered probable and the related amount is reasonably estimable.

Additionally, when it is practicable and reasonably possible that it may experience losses in excess of established accruals, the we estimate possible loss contingencies.

Additionally, when it is practicable and reasonably possible that it may experience losses in excess of established accruals, then we estimate possible loss contingencies.

Determining legal reserves for possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes.

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In addition, it is possible that a resolution of one or more such proceedings, including as a result of a settlement, could involve licenses, sanctions, consent decrees, or orders requiring us to make substantial future payments, preventing us from offering certain products or services, requiring us to change our business practices in a manner materially adverse to our business, requiring development of non-infringing or otherwise altered products or technologies, damaging our reputation, or otherwise having a material effect on our operations.

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We contest liability and/or the amount of damages as appropriate in each pending matter.

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They also could generate litigation or regulatory investigations that subject us to additional adverse effects on our business, results of operations and financial condition.

We are subject to risk from fluctuating conditions in the financial markets and economic and political conditions generally.

Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies.

Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the markets where we operate, in the State of California and in the United States as a whole.

A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.

Unfavorable or uncertain economic and market conditions can be caused by a decline in economic growth both in the U.S.

and internationally;

declines in business activity or investor or business confidence;

limitations on the availability of or increases in the cost of credit and capital;

increases in inflation or interest rates;

high unemployment;

oil price volatility;

natural disasters;

trade policies and tariffs;

or a combination of these or other factors.

In addition, financial markets and global supply chains may be adversely affected by the current or anticipated impact of global wars/military conflicts, terrorism, trade policies, or other geopolitical events.

Current economic conditions are being heavily impacted by prolonged inflationary conditions and higher interest rates, the effects of which may impact our profitability by negatively impacting our fixed costs and expenses.

Economic and inflationary pressure on consumers and uncertainty regarding economic improvement could result in changes in consumer and business spending, borrowing and savings habits.

Such conditions could have a material adverse effect on the credit quality of our loans and our business, financial condition and results of operations.

Federal budget deficit concerns and the potential for political conflict over legislation to fund U.S.

government operations and raise the U.S.

government's debt limit may increase the possibility of a default by the U.S.

government on its debt obligations, related credit-rating

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downgrades, or an economic recession in the United States.

Many of our investment securities are issued by the U.S.

government and government agencies and sponsored entities.

As a result of uncertain domestic political conditions, including potential future federal government shutdowns, the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose liquidity risks.

In connection with prior political disputes over U.S.

fiscal and budgetary issues leading to the U.S.

government shutdown in 2023, both Fitch and S&P lowered their long-term sovereign credit rating on the U.S.

from AAA to AA+, and further affirmed the ratings in 2024.

A further downgrade, or downgrades by other rating agencies, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the U.S.

and worldwide.

Furthermore, evolving responses from federal and state governments and other regulators, and our customers or our third-party partners or vendors, to challenges such as climate change have impacted and could continue to impact the economic and political conditions under which we operate which could have a material adverse effect on our business, financial condition and results of operations.

Changes in the Federal, state or local tax laws may negatively impact our financial performance and we are subject to examinations and challenges by tax authorities.

We are subject to federal and applicable state tax laws and regulations.

Changes in these tax laws and regulations, some of which may be retroactive to previous periods, could increase our effective tax rates and, as a result, could negatively affect our current and future financial performance.

Furthermore, tax laws and regulations are often complex and require interpretation.

In the normal course of business, we are routinely subject to examinations and challenges from federal and applicable state tax authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we have engaged.

Federal and state taxing authorities have been aggressive in challenging tax positions taken by financial institutions.

These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning.

The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions.

If any such challenges are made and are not resolved in our favor, they could have a material adverse effect on our business, financial condition and results of operations.

Climate change could have a material negative impact on us and our clients.

Our business, as well as the operations and activities of our clients, could be negatively impacted by climate change.

Climate change presents both immediate and long-term risks to us and our clients, and these risks are expected to increase over time.

Climate change presents multi-faceted risks, including:

operational risk from the physical effects of climate events on the us and our clients’ facilities and other assets;

credit risk from borrowers with significant exposure to climate risk;

transition risks associated with the transition to a less carbon-dependent economy;

and reputational risk from stakeholder concerns about our practices related to climate change, our carbon footprint, and our business relationships with clients who operate in carbon-intensive industries.

The risks associated with climate change are rapidly changing and evolving in an escalating fashion, making them difficult to assess due to limited data and other uncertainties.

We could experience increased expenses resulting from strategic planning, litigation, and technology and market changes, and reputational harm as a result of negative public sentiment, regulatory scrutiny, and reduced investor and stakeholder confidence due to our response to climate change and our climate change strategy, which, in turn, could have a material negative impact on our business, results of operations, and financial condition.

In addition, ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit, and reputational risks and costs.

Our business, as well as the operations and activities of our customers, could be negatively impacted by climate change.

Climate change presents both immediate and long-term risks to us and our customers and these risks are expected to increase over time.

Climate change presents multi-faceted risks, including (i) operational risk from the physical effects of climate events on our facilities and other assets as well as those of our customers;

(ii) credit risk from borrowers with significant exposure to climate risk;

(iii) legal, regulatory and compliance risks arising from the policy, legal and regulatory changes associated with the transition to a less carbon-dependent economy;

and (iv) reputational risk from stakeholder concerns about our practices related to climate change, our carbon footprint and our business relationships with customers who operate in carbon-intensive industries, and from negative public opinion related to any of our actions or inaction in response to climate change and our climate change strategy.

The risks associated with climate change are rapidly changing and evolving in an escalating fashion, making them difficult to assess due to limited data.

Our business, reputation and ability to attract and retain employees may also be harmed if our response to climate change is perceived to be ineffective or insufficient.

Climate change exposes us and our customers to physical risk as its effects may lead to more frequent and more extreme weather events, such as prolonged droughts or flooding, tornados, hurricanes, wildfires and extreme seasonal weather;

and longer-term shifts, such as increasing average temperatures, ozone depletion and rising sea levels.

Such events and long-term shifts may damage, destroy or otherwise impact the value or productivity of our properties and other assets;

increase the premiums for and reduce the availability of insurance;

and/or disrupt our operations and other activities through prolonged outages.

Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains and distribution networks.

Climate change also exposes us and our customers to transition risks associated with the transition to a less carbon-dependent economy.

Transition risks may result from changes in policies;

laws and regulations;

technologies;

and/or market preferences to address climate change.

Such changes could materially, negatively impact our business, results of operations, financial condition and/or our reputation, in addition to having a similar impact on our customers.

We have customers who operate in carbon-intensive industries like oil and gas that are exposed to climate risks, such as those risks related to the transition to a less carbon-dependent economy, as well as customers who operate in low-carbon industries that may be subject to risks associated with new technologies.

Federal and state banking regulators and supervisory authorities, investors and other stakeholders have increasingly viewed financial institutions as important in helping to address the risks related to climate change both directly and with respect to their customers, which may result in financial institutions coming under increased pressure regarding the disclosure and management of their climate risks and related lending and investment activities.

Given that climate change could impose systemic risks upon the financial sector, either via disruptions in economic activity resulting from the physical impacts of climate change or changes in policies as the economy transitions to a less carbon-intensive environment, we face regulatory risk of increasing focus on our resilience to climate-related risks, including in the context of stress testing for various climate stress scenarios.

Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs, and may subject us to different and potentially conflicting requirements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors