What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-02 compared with 2025-03-03 · 89 added, 152 removed, 831 unchanged (22% of the section changed)

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The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to the Company and the Bank’s financial condition, operating results, asset and liability management, liquidity and capital resources and should be read in conjunction with the consolidated financial statements of the Company and the related notes at Part II, Item 8 of this report.

In March 2022, the Company closed the acquisition of Valley Republic Bancorp.

Historical periods prior to March 25, 2022 reflect results of legacy Trico Bancshares operations.

Subsequent to closing, results reflect all post-acquisition activity.

For further information, refer to Note 2 “Business Combinations” of the Notes to Consolidated Financial Statements.

Financial Overview

In 2024, the Company reported net income of $114.9 million, an $2.5 million or 2.1% decrease from the prior year.

Earnings per share on a diluted basis for the year were $3.46, down 1.7% from the prior year.

The current year net income reported was impacted by declines in net interest income primarily associated with elevated interest expense and partially offset by a reduction in provision for loan losses.

In 2024, total interest expense was reported at $135.2 million, an increase of $53.5 million or 65.5% from the prior year.

Net interest income on a fully tax equivalent (FTE) basis, a non-GAAP financial measure, was $332.5 million, a decrease of $25.7 million, or 7.2%, from 2023.

The decrease in FTE net interest income reflects the $64.9 million, or 0.7%, decrease in average earning assets and a 25 basis point decrease in the FTE net interest margin to 3.71%.

In 2025, the Company reported net income of $121.6 million, a $6.7 million or 5.8% increase from the prior year.

Earnings per share on a diluted basis for the year were $3.70, up 6.9% from the prior year.

The current year net income was impacted by an increase in net interest income primarily associated with decreased interest expense and partially offset by an increase in provision for loan losses.

In 2025, total interest expense was reported at $119.7 million, an decrease of $15.5 million or 11.4% from the prior year.

Net interest income on a fully tax equivalent (FTE) basis, a non-GAAP financial measure, was $351.9 million, an increase of $19.4 million, or 5.8%, from 2024.

The increase in FTE net interest income reflects the $75.8 million, or 0.8%, increase in average earning assets and an 18 basis point increase in the FTE net interest margin to 3.89%.

Average earning asset declines included a $226.1 million or 10.5% decrease in average securities, partially offset by an $166.3 million, or 2.5% increase in average loans and leases.

The decrease in average securities was driven by the redeployment of liquidity from prepayments and maturities into the pay down of borrowings and loan growth during 2024.

The net interest margin contraction was driven by the higher rate environment and a liability sensitive balance sheet, resulting in an increase in the higher cost of funds from both deposits and borrowings.

This increase in interest expense was partially offset by improved yields on loan balances and to a greater extent, by the continued balance sheet mix shift where liquidity from deposit growth and investment security principal repayments were utilized to pay down borrowings.

The decrease in average securities was driven by the redeployment of liquidity from prepayments, maturities and sales into the pay down of borrowings and loan growth during 2025.

The net interest margin expansion was driven by the declining rate environment and a liability sensitive balance sheet, resulting in a decrease in the cost of funds from both deposits and borrowings.

This decrease in interest expense was supported by improved average balances on loans, flat yields on earnings assets and to a greater extent, by the continued balance sheet mix shift where liquidity from deposit growth and investment security principal repayments were utilized to pay down borrowings.

Total average interest-bearing deposits was $5.7 billion and $5.4 billion during 2025 and 2024, respectively, while average other borrowings totaled $35.6 million and $294.3 million, respectively, during the same periods.

The provision for credit losses decreased $17.4 million to $6.6 million, primarily due to muted loan volume during 2024 and generally stable qualitative reserve levels, relative to the 2023 volatility driven by CA unemployment trends and rising Corporate BBB bond yields.

The provision for credit losses increased $5.4 million to $12.1 million, primarily due to growth in loan volume during 2025 and increased charge-offs, relative to the 2024 period with muted loan growth and less volatility within collateral values.

The allowance for credit losses (ACL) was $125.8 million, or 1.77% of total loans and leases, at December 31, 2025, compared to $125.4 million, or 1.85% of total loans and leases, at December 31, 2024.

Noninterest income was $64.4 million, up $3.0 million, or 4.9%, from the prior year.

While noninterest expense of $234.1 million remained generally consistent (up $0.9 million or 0.4%, from the prior year), a variety of both increases and decreases in individual expense items offset one another.

The year over year changes in noninterest income reflected improved earnings on deposit accounts and other fees, coupled with elevated earnings from asset management from continued growth in assets under management.

The tangible common equity to tangible assets ratio, a non-GAAP financial measure, was 9.72% at December 31, 2024, up 92 basis points from December 31, 2023, primarily due to an increase in tangible common equity related primarily to the retention of 2024 earnings.

Noninterest income was $68.3 million, up $3.9 million, or 6.1%, from the prior year, while noninterest expenses of $241.0 million was up $6.9 million or 2.9%, from the prior year.

The year over year changes in noninterest income reflected improved earnings on deposit accounts and other service fees, coupled with elevated earnings from asset management from continued growth in assets under management.

The increase in noninterest expense meanwhile as compared to the trailing year is attributed primarily to a combination of routine merit increases, increased incentive compensation from elevated levels of both loan and deposit production, and targeted strategic hiring.

The tangible common equity to tangible assets ratio, a non-GAAP financial measure, was 10.71% at December 31, 2025, up 99 basis points from December 31, 2024, primarily due to an increase in tangible common equity related to the retention of 2025 earnings and a reduction in accumulated other comprehensive loss.

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TRICO BANCSHARES

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Net interest income 350,843 331,434 356,677

(Provision for) benefit from loan losses (6,632) (23,990) (18,470)

Provision for credit losses (12,063) (6,632) (23,990)

Noninterest income 68,338 64,407 61,400

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and facilitate the comparison of our performance with the performance of our peers.

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Three months ended

(dollars in thousands) December 31,

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Tangible shareholders' equity to tangible assets (Non-GAAP) 10.71 % 9.72 %

Three months ended

(dollars in thousands) December 31,

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Allowance for Credit Losses

The Company’s method for assessing the appropriateness of the allowance for credit losses includes specific allowances for individually analyzed loans, formula allowance factors for pools of credits, and qualitative considerations which include, among other things, current and forecasted economic and environmental factors (e.g., interest rates, growth, economic conditions, etc.).

Allowance factors for loan pools were based on historical loss experience by product type and prior risk rating.

Management estimates the ACL balance using relevant information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

Historical credit loss experience provides the basis for the estimation of expected credit losses, which captures loan balances as of a point in time to form a cohort, then tracks the respective losses generated by that cohort of loans over the remaining life.

The Company has identified and accumulated loan cohort historical loss data beginning with the fourth quarter of 2008 and through the current period.

In situations where the Company's actual loss history was not statistically relevant, the loss history of peers, defined as financial institutions with assets greater than three billion and less than ten billion, were utilized to create a minimum loss rate.

Adjustments to historical loss information are made for differences in relevant current loan-specific risk characteristics, such as historical timing of losses relative to the loan origination.

In its current expected credit loss forecasting framework, the Company incorporates forward-looking information through the use of macroeconomic scenarios applied over the forecasted life of the assets.

These macroeconomic scenarios incorporate variables that have historically been key drivers of increases and decreases in credit losses.

These variables include, but are not limited to, changes in environmental conditions, such as California unemployment rates, household debt levels, and the pace of change in corporate bond yields.

The Company also considers macroeconomic forecasts to estimate the ACL.

There is a greater chance that the Company would suffer a loss from a loan that was risk rated less than satisfactory than if the loan was last graded satisfactory.

As such, the proper risk grading of loans in the portfolio is important to the determination of the calculation of and determination of adequacy of the allowance for credit losses.

Utilizing the historical loss data described above, the Company applies

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reserve rates within any unique pool based on its loss and risk grade migration.

Therefore, within any given pool, a larger loss estimation factor is applied to less than satisfactory loans as compared to those that the Company last graded as satisfactory.

The resulting allowance for any pool is the sum of the calculated reserves determined in this manner.

Our ACL represents our current estimate of the lifetime credit losses expected from our loan and lease portfolio and our unfunded lending commitments.

Management uses models that employ assumptions about current and future economic conditions throughout the contractual life of our loan portfolio.

As part of our model risk oversight, we perform ongoing monitoring of model performance to assess modeling approaches and identify potential model enhancements, which may result in updates to our statistically based models from time-to-time.

The impact from any refinement of estimates or changes to assumptions was insignificant to the financial statements during the current period.

Ongoing oversight efforts include monitoring:

CECL model outputs, loan portfolio risk ratings, economic conditions, loan concentrations and growth rates, past-due and non-performing trends, specific reserves for problem loans, and historical charge-off and recovery experience.

One of the key assumptions requiring significant judgment in the process is estimating the Company's ACL relates to macroeconomic forecasts that are incorporated into the loss models.

As all economic outlooks are inherently uncertain, the Company utilizes various data points to better inform management's estimation of expected credit losses given observable and forecast changes in the economic environment and market conditions.

These macroeconomic forecasts incorporate variables that have historically been key drivers of increases and decreases in credit losses.

These variables include, but are not limited to:

gross domestic product, unemployment rate, consumer price index, corporate interest rate spreads, and economic policy.

Changes in the economic forecasts could significantly affect the estimated credit losses, which could potentially lead to materially different allowance levels from one reporting period to the next.

Certain loans are not included in pools of loans that are collectively evaluated.

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They are then specifically reviewed and evaluated individually by management for loss potential by evaluating sources of repayment, including collateral as applicable, and a specified allowance for credit losses is established where necessary.

By definition, any loan that management has placed on non-accrual is required to be individually evaluated, however, not all individually evaluated loans need to be placed on non-accrual.

Because current economic conditions and forecasts can change and future events make it inherently difficult to predict the anticipated amount of estimated credit losses on loans, management's determination of the appropriateness of the ACL, could change significantly.

By definition, any loan that management has placed on non-accrual is required to be individually evaluated, however, not all individually

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evaluated loans need to be placed on non-accrual.

Because current economic conditions and forecasts can change and determining the likelihood of future events make it inherently difficult to predict the amount of estimated credit losses on loans, management's determination of the appropriateness of the ACL, could change significantly.

It is difficult to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs are considered in estimating the allowance and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types.

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Thus, as a result of the significant size of the loan portfolio, the numerous assumptions in the model, and the high degree of potential change in such assumptions, there is a high degree of sensitivity to the reported amounts.

The ACL is sensitive to changes in key assumptions, and changes in the economic forecasts, the forecast period, and other macroeconomic factors, such as those noted above, would all change the outcome of the quantitative components of the ACL.

Those results would then need to be assessed from a qualitative perspective, potentially requiring further adjustments to the qualitative components to arrive at a reasonable and appropriate allowance for credit losses.

Management believes that the ACL was adequate as of December 31, 2025.

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Year ended December 31,

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Effect of purchased loan discount accretion on net interest margin (FTE) 0.06 % 0.05 % 0.06 %

Net interest income (FTE) during the year ended December 31, 2025 increased $19.4 million or 5.8% to $351.9 million compared against $332.5 million during the year ended December 31, 2024.

The increased amount of net interest income reflects the declining rate environment driving a decrease in the cost of funds from both deposits and borrowings, only slightly offset by modestly lower yields on loan and lease balances, and investment securities during 2025.

Average loan balances increased by $166.3 million or 2.5% from December 31, 2024.

Meanwhile, the yield on interest earning assets was 5.21% and 5.21% for the years ended December 31, 2025 and 2024, respectively.

The unchanged earning asset yield was reflective of a 4 basis point decrease in total loan yields and a 3 basis point decrease in yield associated with total investment securities.

Meanwhile, the costs of total interest bearing liabilities decreased 29 basis points to 2.04% during the year ended December 31, 2025, as compared to 2.33% for the year ended December 31, 2024.

During the same period, costs associated with interest bearing deposits decreased by 12 basis points to 1.97% as compared to 2.09% in the prior year.

The decrease in interest expense for the year ended December 31, 2025, as compared to the trailing year, was primarily due to the continued balance sheet mix shift where liquidity from deposit growth and investment security principal repayments were utilized to pay down borrowings.

Net interest income (FTE) during the year ended December 31, 2024 decreased $25.7 million or 7.2% to $332.5 million compared against $358.2 million during the year ended December 31, 2023.

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The increase in interest expense for the year ended December 31, 2024, as compared to the trailing year, was due to the increase in short term interest rates, as influenced by the FOMC actions, that began in 2023 and which remained elevated until late 2024.

Net interest income (FTE) during the year ended December 31, 2023 increased $10.7 million or 3.1% to $358.2 million compared against $347.5 million during the year ended December 31, 2022.

The increased amount of net interest income reflects growth in both total average loan and investment balances outstanding and the correlated yields, during 2023.

Average loan balances increased by $690.9 million or 11.8% from December 31, 2022.

The yield on interest earning assets was 4.87% and 3.98% for the years ended December 31, 2023 and 2022, respectively.

This 89 basis point increase in total earning asset yield was primarily attributable to a 58 basis point increase in total loan yields and a 80 basis point increase in yields on total investments.

Of the 58 basis point increase in yields on loans, a 3 basis point decline was attributable to decreases in market rates, as well as an 8 basis point benefit from the accretion of purchased loans.

The costs of total interest bearing liabilities increased 129 basis points to 1.48% during the year ended December 31, 2023, as compared to 0.19% for the year ended December 31, 2022.

During the same period, costs associated with interest bearing deposits increased by 100 basis points to 1.10% as compared to 0.10% in the prior year.

The increase in interest expense for the year ended December 31, 2023, as compared to the trailing year, was due largely to the increased rate environment for both the interest-bearing deposit expense and other borrowings interest expense.

For more information related to loan interest income, including loan purchase discount accretion, see the Summary of Average Balances, Yields/Rates and Interest Differential .

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Year ended December 31,

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Summary of Changes in Interest Income and Expense due to Changes in Average Asset and Liability Balances and Yields Earned and Rates Paid – Volume/Rate Tables

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Total other borrowings 11,713 89,610 (77,897) (86.9) %

Balance sheet mix shift where liquidity from deposit growth and investment security principal repayments were utilized to pay down borrowings assisted in minimizing the compression in net interest income and net interest margin during the year ended 2024.

More specifically, deposit increases of $253.5 million and principal repayments on investment securities of $269.3 million, facilitated a $543.0 million reduction in higher cost balances of other borrowings.

Balance sheet mix shift where liquidity from deposit growth and investment security principal repayments and sales were utilized to pay down borrowings and benefit net interest income and net interest margin during the year ended 2025.

More specifically, deposit increases of $176.3 million and principal, maturities, repayment and sales on investment securities of $194.2 million, facilitated a $77.9 million reduction in higher cost balances of other borrowings and an increase of $342.6 million in loans.

Provision for Credit Losses

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The Company recorded a provision for credit losses of $12.1 million during the year ended December 31, 2025, versus $6.6 million during the trailing year end.

The decrease in required provisioning during 2024 was largely attributed to muted loan growth and less change in qualitative reserves driven by more stability in CA unemployment trends and Corporate BBB bond yields, as compared to the trailing year.

The increase in required provisioning during 2025 was largely attributed to loan growth and elevated charge-offs, relative to the 2024 period with muted loan growth and less volatility within collateral values.

The Company recorded a provision for credit losses of $6.6 million during the year ended December 31, 2024, versus $24.0 million during the trailing year end.

The increase in required provisioning during 2023 was largely attributed to elevated qualitative reserves driven by CA unemployment trends and rising Corporate BBB bond yields, and to a lesser extent, organic loan and lease growth.

Net charge-offs for the year ended December 31, 2024 totaled $2.6 million , as compared to net recoveries of $6.6 million for the year ended December 31, 2023.

Net charge-offs for the year ended December 31, 2025 totaled $9.9 million, as compared to net charge-offs of $2.6 million for the year ended December 31, 2024.

Total nonperforming loans increased by 25 basis points to 0.90% of total loans at December 31, 2025 from 0.65% of total loans at December 31, 2024.

For further details of the chan1ge in nonperforming loans during the period ended December 31, 2024 see the Tables, and associated narratives, labeled “Changes in nonperforming assets during the year ended December 31, 2024” and “Changes in nonperforming assets during the three months ended December 31, 2024” under the heading “Asset Quality and Non-Performing Assets ” below.

For further details of the change in nonperforming loans during the period ended December 31, 2025 see the Tables, and associated narratives, labeled “Changes in nonperforming assets during the year ended December 31, 2025” and “Changes in nonperforming assets during the three months ended December 31, 2025” under the heading “Asset Quality and Non-Performing Assets ” below.

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The following table summarizes the components of the provision for credit losses during the periods indicated (dollars in thousands):

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The provision for credit losses is based on management’s evaluation of inherent risks in the loan portfolio and a corresponding analysis of the allowance for credit losses.

Additional discussion on loan quality, our procedures to measure loan impairment, and the allowance for credit losses is provided under the heading “Asset Quality and Non-Performing Assets ” below.

Additional discussion on loan quality, our procedures to identify individually evaluation loans and the related reserves, if any, and the allowance for credit losses is provided under the heading “Asset Quality and Non-Performing Assets ” below.

Non-interest Income

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Sale of customer checks 1,300 1,216 1,383

(Loss) gain on sale/exchange of investment securities (43) (284) —

(Loss) gain on sale or exchange of investment securities (3,247) (43) (284)

(Loss) gain on marketable equity securities 84 126 36

Other 961 903 2,448

Other income 4,506 961 903

Total other non-interest income 14,893 13,077 11,312

Total non-interest income $ 68,338 $ 64,407 $ 61,400

Non-interest income increased $3.0 million or 4.90% to $64.4 million during the year ended December 31, 2024, as compared to $61.4 million during the year ended December 31, 2023.

ATM and interchange fees declined in the 2024 period by $1.1 million as compared to the twelve months ended December 31, 2023.

Non-interest income increased $3.9 million or 6.1% to $68.3 million during the twelve months ended December 31, 2025, compared to $64.4 million during the comparative twelve months ended December 31, 2024.

Increased balances and transaction volume associated with assets under management drove an increase of $1.5 million in related fees, while increased customer usage activities contributed to an increase in service charges and customer fees $1.5 million in the current year as compared to 2024.

During 2025, other income increased by $3.5 million due to $2.5 million gain on early extinguishment of subordinated debt, in addition to $1.2 million gain on life insurance benefits during the first quarter.

As a partial offset, the Company incurred losses on the sale of investment securities totaling approximately $3.2 million, generating proceeds of $79.2 million.

Non-interest income increased $3.0 million or 4.9% to $64.4 million during the twelve months ended December 31, 2024, compared to $61.4 million during the comparative twelve months ended December 31, 2023.

ATM and interchange fees declined in the 2024 period and resulted in a decrease of $1.1 million as compared to the twelve months ended December 31, 2023.

Meanwhile, service charges on deposit accounts and other service fees increased by $1.9 million and $0.6 million, respectively, as compared to the equivalent period in 2023 following $0.9 million in waived or reversed fees as a courtesy to customers in the prior year.

Elevated levels of assets under management and transaction activity within asset management operations further contributed to the overall improvement in income during the year ended 2024.

During 2023, total service charges and fees increased $0.3 million which is net of approximately $0.9 million in waived or reversed fees related to the network outage that occurred in the first quarter of the year.

Mortgage origination related activity declined year over year due to elevated interest rates, as the income recorded from the sale of loans was down $1.2 million or 50.2%.

Changes in interest rates also led to a decline in fair value of mortgage servicing rights during the twelve months ended December 31, 2023, which decreased by $0.8 million or 268.1%, as compared to the trailing twelve month period ended.

Other income declined $1.5 million or 63.1%, $0.6 million of which is attributed to fees from the sale of deposits during 2022.

Elevated activity within asset management and the increases in value of Visa equity securities further contributed to the overall improvement in income during the year ended 2024.

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Non-interest Expense

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Average full-time equivalent staff 1,164 1,170 1,214

Total non-interest expense increased $0.9 million or 0.40% to $234.1 million during the year ended December 31, 2024, as compared to $233.2 million for the comparative period in 2023, This was largely attributed to an increase of $4.8 million or 3.5% in total salaries and benefits expense to $140.6 million, from routine compensation adjustments and other increases in benefits and compensation.

Non-interest expense increased $6.9 million or 2.9% to $241.0 million during the twelve months ended December 31, 2025, as compared to $234.1 million for the twelve months ended December 31, 2024.

The largest component was salaries and benefits expense which increased $9.2 million or 6.5% to $149.8 million as compared to 2024, attributed to a combination of routine merit increases, increased incentive compensation from elevated levels of both loan and deposit production, and targeted strategic hiring.

Other non-interest expense line items evidenced broad based but incremental decreases, driving a net decrease of $2.3 million year over year.

For the year ending 2026, Management anticipates that total non-interest expenses will increase by approximately 5% as compared to the 2.9% increase experienced in the 2025 year.

Total non-interest expense increased $0.9 million or 0.4% to $234.1 million during the year ended December 31, 2024, as compared to $233.1 million for the comparative period in 2023.

This was largely attributed to an increase of $4.8 million or 3.5% in total salaries and benefits expense to $140.6 million, from routine compensation adjustments and other increases in benefits and compensation.

As noted above, 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.

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These increases were partially offset by declines in non-cash intangible amortization expense of $2.0 million or 32.7% and reductions in operational losses of $0.8 million or 31.2% due to ATM burglary expenses totaling $0.7 million in the comparative period.

Non-interest expense increased by $16.5 million or 7.63% to $233.2 million during the year ended December 31, 2023 as compared to $216.6 million for the trailing twelve month period for reasons primarily associated with the acquisition of Valley Republic Bank in March of 2022 which resulted in expense increases for nearly every identified category.

Merger and acquisition expenses associated with this acquisition totaled $6.2 million for the twelve-month period ended 2022.

Regulatory assessment charges also increased by approximately $1.2 million during 2023 as a result of increases in assessment rates.

Other miscellaneous expenses also increased by $4.1 million in 2023 due to, among other things, changes in regulatory requirements which resulted in an estimated $0.8 million in refunds to customers previously charged non-sufficient funds fees, changes in the valuation of other real estate owned which contributed to $0.9 million in variance from the prior year, and other increases generally associated with increased operational costs.

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The provisions for income taxes applicable to income before taxes for the years ended December 31, 2025, 2024, and 2023 differ from amounts computed by applying the statutory Federal income tax rates to income before taxes.

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The effective tax rate on income was 26.8%, 25.9%, and 27.0% in 2025, 2024, and 2023, respectively.

The effective tax rate was greater than the Federal statutory rates of 21% due to the combination of state tax expenses of 7.9%.

The effective tax rate was greater than the Federal statutory rates of 21% due to the addition of state tax expenses of 6.6%.

The impact of Federal and state tax expenses were partially offset by Federal tax-exempt interest income of $5.0 million, $4.4 million, and $5.6 million, respectively, Federal and State tax-exempt income of $4.6 million, $3.3 million, and $3.1 million, respectively, from increase in cash value and gain on death benefit of life insurance, and low income housing tax credits and losses, net of amortization of $3.5 million, $3.0 million, and $1.9 million, respectively.

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Loan Portfolio Composition

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Allowance for credit losses $ (125,762) $ (125,366) $ (121,522)

The Company did not purchase any loans during 2024 or 2023.

During the year ended 2022, the Company acquired loans totaling $773.3 million in connection with the merger with VRB in March of 2022, inclusive of approximately $68.5 million in loans with credit deterioration.

The Company did not have any significant loan purc ha ses during 2025, 2024 and 2023.

The following table shows the Company’s loan balances, including net deferred loan fees, as a percentage of total loans at the dates indicated:

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Allowance for credit losses 1.77 % 1.85 % 1.79 %

At December 31, 2024, loans including net deferred loan fees, totaled $6.8 billion which was a 0.4% or $25.9 million decrease over the balance at the end of December 31, 2023.

At December 31, 2025, loans including net deferred loan fees, totaled $7.1 billion which was a 5.1% or $342.6 million increase over the balance at the end of December 31, 2024.

At December 31, 2024, loans including net deferred loan fees, totaled $6.8 billion, which was a 0.4% or $25.9 million decrease over the balance at the end of December 31, 2023.

From time to time the Bank may be presented with the opportunity to purchase individual or pools of loans in whole or in part outside of a transaction that would be considered a business combination.

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(dollars in thousands) 2025 2024 2023 2022 2021

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Nonperforming assets increased by $23.6 million or 50.3% to $70.5 million at December 31, 2025 from $46.9 million at December 31, 2024.

The increase in nonperforming assets during 2024 was primarily the result of additions of nonperforming loans totaling $27.6 million, partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $11.5 million, and net charge-offs of $3.7 million.

The increase in nonperforming assets during 2025 was primarily the result of additions of nonperforming loans totaling $55.4 million, primarily consisting of farmland, partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $18.4 million, and net charge-offs of $10.6 million.

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Changes in nonperforming assets during the year ended December 31, 2024

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Changes in nonperforming assets during the three months ended December 31, 2025

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(1) Charge-offs and write-downs exclude deposit overdraft charge-offs.

Nonperforming assets increased during the fourth quarter by $2.5 million or 5.6% to $46.9 million at December 31, 2024 compared to $44.4 million at September 30, 2024.

The increase in nonperforming assets during the fourth quarter of 2024 was the result of new nonperforming loans of $6.3 million, that were partially offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $3.0 million, and net charge-offs of $0.6 million in non-performing loans.

Nonperforming assets decreased during the fourth quarter by $0.6 million or 0.9% to $70.5 million at December 31, 2025 compared to $71.1 million at September 30, 2025.

The decrease in nonperforming assets during the fourth quarter of 2025 was the result of new nonperforming loans of $9.1 million, that were collectively offset by net paydowns, sales or upgrades of nonperforming loans to performing status totaling $5.8 million, and net charge-offs of $1.2 million in non-performing loans.

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Changes in nonperforming assets during the three months ended December 31, 2024

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Based on this evaluation, management determined that the expected credit losses associated with these securities is less than significant for financial reporting purposes.

Therefore, during the year ended December 31, 2024 as 2023, no allowance for credit losses related to HTM securities was recorded.

Therefore, as of and during the years ended December 31, 2025, 2024, and 2023, no allowance for credit losses related to HTM securities was recorded.

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Allowance for Credit Losses - Unfunded Commitments

The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies noted above and incorporate utilization assumptions at the estimated time of default.

The estimated credit losses associated with these unfunded lending commitments is calculated using the same models and methodologies for loans but also incorporates utilization assumptions at the estimated time of default based on a historical utilization rate for each segment.

While the provision for credit losses associated with unfunded commitments is included in "provision for (benefit from) credit losses" on the consolidated statement of income, the reserve for unfunded commitments is maintained on the consolidated balance sheet in other liabilities.

The Components of the Allowance for Credit Losses

The following table sets forth the Bank’s allowance for credit losses related to loans as of the dates indicated (dollars in thousands):

(dollars in thousands) 2024 2023 2022 2021 2020

Allowance for credit losses:

Qualitative and forecast factor allowance $ 86,833 $ 84,291 $ 70,777 $ 59,855 $ 61,935

Quantitative (Cohort) model allowance reserves 33,908 34,139 32,489 24,539 28,462

Total allowance for credit losses 120,741 118,430 103,266 84,394 90,397

Allowance for individually evaluated loans 4,625 3,092 2,414 982 1,450

Total allowance for credit losses $ 125,366 $ 121,522 $ 105,680 $ 85,376 $ 91,847

Ratio of allowance for credit losses to gross loans 1.85 % 1.79 % 1.64 % 1.74 % 1.93 %

Based on the current conditions of the loan portfolio, management believes that the $125.4 million allowance for credit losses at December 31, 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.

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, 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.

The following table summarizes the allocation of the allowance for credit losses between loan types:

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Total allowance for credit losses 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

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The following table summarizes the allocation of the allowance for credit losses between loan types as a percentage of total loans in each of the loan categories listed:

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Total allowance for credit losses 1.77 % 1.85 % 1.79 % 1.64 % 1.74 %

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The following tables summarize the net charge-off (recovery) activity in the allowance for credit/loan losses as a percentage of loans for the years indicated (dollars in thousands):

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Total foreclosed assets $ 2,786 $ 6,310 $ — $ (2,848) $ (3) $ 6,245

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Balance at December 31, 2023 Additions Advances/

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Total foreclosed assets $ 2,705 $ 682 $ — $ (359) $ (242) $ 2,786

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Deposit Portfolio Composition

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Total uninsured deposits were estimated to be approximately $2.8 billion and $2.6 billion at December 31, 2025 and 2024, respectively.

Long-Term Debt

See Note 13 to the consolidated financial statements at Part II, Item 8 of this report for information about the Company’s other borrowings and long-term debt.

Other Borrowings

See Note 13 to the consolidated financial statements at Part II, Item 8 of this report for information about the Company’s other borrowings.

Junior Subordinated Debt

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709,172 $42.51 121,351

The Company announced the Board of Directors approved the authorization to repurchase up to 2,000,000 shares of the Company’s common stock, no par value per share which approximates 6.2% of the currently outstanding common shares.

The Company’s 2025 Share Repurchase Program replaces and supersedes the current 2021 Share Repurchase Plan which has been terminated.

Under the new program, management is authorized to repurchase shares at its discretion through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in a manner that is intended to comply with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934.

The Board may suspend or discontinue the program at any time.

There were no shares repurchased under this Program during 2025.

Market Risk Management

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The Company does not hold any financial instruments that are not maintained in US dollars and is not party to any contracts that may be settled or repaid in a denomination other than US dollars.

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Asset/Liability Management.

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Interest rate risk is the primary market risk associated with asset/liability management.

Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different amount from that of interest costs on liabilities.

Sensitivity of earnings to interest rate changes arises when yields on assets change in a different time period or in a different amount from

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that of interest costs on liabilities.

To mitigate interest rate risk, the structure of the balance sheet is managed with the goal that movements of interest rates on assets and liabilities are correlated and contribute to earnings even in periods of volatile interest rates.

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-300 (shock) 2.0 % (10.6) %

These simulations indicate that given a “flat” balance sheet size scenario, and if interest-bearing checking, savings and money market interest rates track the general interest rate changes by the rate shock values listed above, the Company’s balance sheet is liability sensitive over a twelve month time horizon for both a rates up and rates down shock scenario, with greater sensitivity skewed toward rates up.

These simulations indicate that given a “flat or static” balance sheet size scenario, and if interest-bearing checking, savings and money market interest rates track the general interest rate changes by the rate shock values listed above, the Company’s balance sheet is liability sensitive over a twelve month time horizon for both a rates up and rates down shock scenario, with greater sensitivity skewed toward rates up.

“Asset sensitive” implies that net interest income increases when interest rates rise and decrease when interest rates decrease.

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Further, a change in U.S.

Treasury rates accompanied by a change in the shape of the treasury yield curve could result in different estimations from those presented

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Treasury rates accompanied by a change in the shape of the treasury yield curve could result in different estimations from those presented herein.

Accordingly, the results in the preceding tables should not be relied upon as indicative of actual results in the event of changing market interest rates.

Additionally, the resulting estimates of changes in market value of equity are not intended to represent, and should not be construed to represent, estimates of changes in the underlying value of the Company.

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Interest rate sensitivity is a function of the repricing characteristics of the Company’s portfolio of assets and liabilities.

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These activities are included under financing activities in the Consolidated Statement of Cash Flows.

In 2024, financing activities used funds totaling $348.5 million, resulting from a reduction in short term borrowings of $543.0 million, $43.6 million in dividend payment outflows, and an additional $15.5 million

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allocated toward the repurchase of common stock, partially offset by an increase in deposits totaling $253.5 million.

In 2025, financing activities used funds totaling $38.6 million, resulting from a reduction in short term borrowings of $77.9 million, $45.0 million in dividend payment outflows, and an additional $32.0 million allocated toward the repurchase of common stock, partially offset by an increase in deposits totaling $176.3 million.

The Company's primary sources of remaining available liquidity from available borrowings and in transit items include the following for the periods indicated:

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(dollars in thousands) December 31, 2025 December 31, 2024

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Dividends from the Bank are subject to certain regulatory restrictions.

The maturity distribution of certificates of deposit in denominations of $250,000 or more is set forth in the following table.

The maturity distribution of certificates of deposit in denominations in excess of $250,000 is set forth in the following table.

These deposits are generally more rate sensitive than other deposits and, therefore, are more likely to be withdrawn to obtain higher yields elsewhere if available.

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Loan maturities

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Off-Balance Sheet Items

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Time deposits $ 1,110,042 $ 1,094,810 $ 14,288 $ 944 $ —

Term borrowing at FHLB, fixed rate of 5.23%, payable on April 8, 2025

75,000 75,000 — — —

Junior subordinated debt:

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20,619 — — — 20,619

North Valley Trust II(3)

5,713 — — — 5,713

North Valley Trust III(4)

4,571 — — — 4,571

North Valley Trust IV(5)

7,863 — — — 7,863

VRB Subordinated - 6%(6) 16,799 — — — 16,799

VRB Subordinated - 5%(7) 25,007 — — — 25,007

Operating lease obligations 31,530 6,149 12,814 4,937 7,630

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(2) Junior subordinated debt, adjustable rate of three-month SOFR plus 2.55%, callable in whole or in part by the Company on a quarterly basis beginning July 23, 2009, matures July 23, 2034.

(3) Junior subordinated debt, adjustable rate of three-month SOFR plus 3.25%, callable in whole or in part by the Company on a quarterly basis beginning April 24, 2008, matures April 24, 2033.

(4) Junior subordinated debt, adjustable rate of three-month SOFR plus 2.80%, callable in whole or in part by the Company on a quarterly basis beginning July 23, 2009, matures July 23, 2034.

(5) Junior subordinated debt, adjustable rate of three-month SOFR plus 1.33%, callable in whole or in part by the Company on a quarterly basis beginning March 15, 2011, matures March 15, 2036.

(6) Junior subordinated debt, floating rate of three-month SOFR plus 3.52% until maturity in 2029.

Redeemable in whole or in part by the Company beginning March 29, 2024.

(7) Junior subordinated debt, fixed rate of 5% until August 27, 2025, then floating rate of 90-day average SOFR plus 4.90% until maturity in 2035.

Redeemable in whole or in part by the Company beginning August 27, 2025.

(3) These amounts represent known certain payments to participants under the Company’s deferred compensation and supplemental retirement plans.

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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 7. Management’s Discussion and Analysis