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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2025
Commission file number: 000-33063
SIERRA BANCORP
(Exact name of Registrant as specified in its charter)
California
33-0937517
(State of Incorporation)
(IRS Employer Identification No)
86 North Main Street, Porterville, California 93257
(Address of principal executive offices) (Zip Code)
(559) 782-4900
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, no par value
BSRR
The NASDAQ Stock Market LLC
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
☐
Accelerated Filer:
☒
Non-accelerated Filer:
Smaller Reporting Company:
Emerging Growth Company:
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 27, 2025, the registrant had 13,482,458 shares of common stock outstanding, including 184,309 shares of unvested restricted stock.
Page
Part I - Financial Information
1
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
Consolidated Statements of Income
2
Consolidated Statements of Comprehensive Income
3
Consolidated Statements of Changes In Shareholders’ Equity
4
Consolidated Statements of Cash Flows
6
Notes to Consolidated Financial Statements (Unaudited)
7
Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations
36
Forward-Looking Statements
Critical Accounting Policies
37
Overview of the Results of Operations and Financial Condition
Earnings Performance
39
Net Interest Income and Net Interest Margin
Provision for Credit Losses on Loans
44
Noninterest Income and Noninterest Expense
45
Provision for Income Taxes
47
Balance Sheet Analysis
Earning Assets
Investments
Loan Portfolio
49
Nonperforming Assets
51
Allowance for Credit Losses on Loans
Off-Balance Sheet Arrangements
53
Other Assets
Deposits and Interest-Bearing Liabilities
54
Deposits
Other Interest-Bearing Liabilities
55
Noninterest-Bearing Liabilities
Liquidity and Market Risk Management
Capital Resources
58
Item 3. Quantitative & Qualitative Disclosures about Market Risk
59
Item 4. Controls and Procedures
Part II - Other Information
Item 1. - Legal Proceedings
Item 1A. - Risk Factors
60
Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. - Defaults upon Senior Securities
Item 4. - Mine Safety Disclosures
Item 5. - Other Information
Item 6. - Exhibits
61
Signatures
63
PART I - FINANCIAL INFORMATION
Item 1 – Financial Statements
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, 2025
December 31, 2024
ASSETS
(unaudited)
(audited)
Cash and due from banks
$
81,825
79,616
Interest-bearing deposits in banks
13,676
21,048
Total cash & cash equivalents
95,501
100,664
Investment securities
Available-for-sale, net of zero allowance for credit losses
596,933
655,967
Held-to-maturity, net of allowance for credit losses of $15
294,511
305,514
Total investment securities
891,444
961,481
Loans, net:
Gross loans
2,491,779
2,331,341
Deferred loan costs, net
9
93
Allowance for credit losses on loans
(25,180)
(24,830)
Net loans
2,466,608
2,306,604
Foreclosed assets
1,839
—
Premises and equipment, net
15,056
15,431
Goodwill
27,357
Other intangible assets, net
132
618
Bank-owned life insurance
68,727
53,153
Operating right-of-use asset
26,799
28,465
Other assets
115,914
120,498
Total assets
3,709,377
3,614,271
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing
1,072,927
1,007,208
Interest-bearing
1,859,833
1,884,460
Total deposits
2,932,760
2,891,668
Repurchase agreements
125,749
108,860
Other borrowings
135,000
80,000
Long-term debt
49,461
49,393
Subordinated debentures
35,972
35,838
Allowance for credit losses on unfunded loan commitments
790
710
Operating lease liability
23,112
24,059
Other liabilities
46,450
66,441
Total liabilities
3,349,294
3,256,969
Commitments and contingent liabilities (Note 7)
Shareholders' equity
Common stock, no par value; 24,000,000 shares authorized; 13,482,458 and 14,223,046 shares issued and outstanding at September 30, 2025, and December 31, 2024, respectively
104,012
108,965
Additional paid-in capital
5,081
4,509
Retained earnings
276,155
275,085
Accumulated other comprehensive loss, net
(25,165)
(31,257)
Total shareholders' equity
360,083
357,302
Total liabilities and shareholders' equity
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025, and 2024
(dollars in thousands, except per share data, unaudited)
Three months ended September 30,
Nine months ended September 30,
2025
2024
Interest and dividend income
Loans, including fees
32,924
29,998
94,708
83,943
Taxable securities
9,104
11,991
27,539
38,081
Tax-exempt securities
1,580
1,584
4,733
5,164
Federal funds sold and other
329
1,225
1,128
2,065
Total interest income
43,937
44,798
128,108
129,253
Interest expense
9,606
11,980
28,304
32,656
Federal funds purchased and repurchase agreements
420
62
1,087
415
Federal Home Loan Bank advances
857
786
2,729
2,954
429
1,289
1,291
657
751
1,965
2,261
Total interest expense
11,969
14,008
35,374
39,577
Net interest income
31,968
30,790
92,734
89,676
Credit loss expense - loans
3,709
1,240
6,880
2,258
Credit loss (benefit) expense - unfunded commitments
(20)
120
80
130
Credit loss benefit - debt securities held-to-maturity
(1)
Net interest income after credit loss expense
28,279
29,431
85,774
87,289
Noninterest income
Service charges and fees on deposit accounts
6,065
6,205
17,501
18,114
Net gain (loss) on sale of securities available-for-sale
73
124
(2,810)
Net (loss) gain on sale of fixed assets
(22)
3,799
Increase in cash surrender value of life insurance
410
252
991
733
Earnings on separate account life insurance
608
288
1,078
1,545
Other income
975
971
3,580
2,628
Total noninterest income
8,058
7,789
23,252
24,009
Noninterest expense
Salaries and benefits
12,827
12,363
38,375
37,589
Occupancy and equipment costs
3,234
2,995
9,354
9,173
Other
7,574
7,452
22,090
23,266
Total noninterest expense
23,635
22,810
69,819
70,028
Income before taxes
12,702
14,410
39,207
41,270
Provision for income taxes
3,003
3,807
9,774
11,074
Net income
9,699
10,603
29,433
30,196
PER SHARE DATA
Book value
26.71
24.88
Cash dividends
0.25
0.24
0.75
0.70
Earnings per share basic
0.73
2.17
2.11
Earnings per share diluted
0.72
0.74
2.15
2.09
Average shares outstanding, basic
13,361,594
14,188,051
13,582,194
14,331,032
Average shares outstanding, diluted
13,470,658
14,335,706
13,674,934
14,437,786
Total shareholders' equity (in thousands)
358,698
Shares outstanding
13,482,458
14,414,561
Dividends paid (in thousands)
3,382
3,431
10,346
10,179
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands, unaudited)
Other comprehensive income, net of tax:
Unrealized gain on securities:
Unrealized holding gain arising during period
4,963
3,124
8,773
7,704
Less: reclassification adjustment for (gains) losses included in net income (1)
(73)
(124)
2,810
Tax effect
(1,468)
(903)
(2,557)
(3,109)
Other comprehensive income, net of tax
3,495
2,148
6,092
7,405
Comprehensive income
13,194
12,751
35,525
37,601
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2025, and 2024
Accumulated
Additional
Common Stock
Paid In
Retained
Comprehensive
Shareholders'
Shares
Amount
Capital
Earnings
(Loss) Income
Equity
Balance, June 30, 2024
14,466,873
107,929
5,336
267,478
(30,723)
350,020
Stock options exercised, net of shares surrendered for cashless exercises
27,449
573
(69)
504
Restricted shares withheld for taxes
(10,138)
(76)
(206)
(282)
Restricted stock forfeited / cancelled
(19,919)
Restricted stock vested in period
381
(381)
Stock based compensation - restricted stock
377
Stock repurchase
(49,704)
(371)
(869)
(1,240)
Excise tax on stock repurchase
Cash dividends - $0.24 per share
(3,431)
Balance, September 30, 2024
108,435
5,263
273,575
(28,575)
Balance, June 30, 2025
13,681,828
105,045
4,968
274,354
(28,660)
355,707
9,090
217
(7,596)
(58)
(10,522)
323
(323)
436
(190,342)
(1,462)
(4,516)
(5,978)
Excise tax on stock repurchased
(53)
Cash dividends - $0.25 per share
(3,382)
Balance, September 30, 2025
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025, and 2024
Balance, December 31, 2023
14,793,832
110,446
4,581
259,050
(35,980)
338,097
Restricted stock granted
36,114
(15,200)
(114)
(269)
(383)
(20,825)
634
(634)
Stock based compensation - stock options
25
1,360
(406,809)
(3,034)
(5,223)
(8,257)
(70)
Cash dividends - $0.70 per share
(10,179)
Balance, December 31, 2024
14,223,046
30,200
827
(99)
728
62,692
(17,201)
(138)
(208)
(346)
(13,526)
806
(806)
1,474
(802,753)
(6,156)
(17,809)
(23,965)
(292)
Cash dividends - $0.75 per share
(10,346)
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025, AND 2024
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
(Gain) loss on sales of securities
Realized gain on securities transaction
(66)
Loss (gain) on disposal of fixed assets
22
(3,799)
Stock based compensation expense
1,477
1,385
Provision for credit losses on loans
(Benefit) provision for credit losses on held-to-maturity securities
Provision for credit losses on unfunded commitments
Depreciation and amortization
1,567
1,581
Net (accretion) amortization on securities premiums and discounts
(377)
822
Net accretion of premiums/discounts for loans acquired
(201)
(152)
Increase in cash surrender value of life insurance policies
(2,069)
(2,278)
Amortization of core deposit intangible
486
619
Decrease (increase) in interest receivable and other assets
1,523
(8,690)
(Decrease) increase in other liabilities
(21,119)
8,700
Deferred income tax benefit (provision)
690
(425)
Decrease in value of restricted bank equity securities
293
Excise tax on stock repurchases
(111)
Amortization of debt issuance costs
68
67
Net amortization of variable interest entities
1,480
1,556
Net cash provided by operating activities
19,705
35,006
Cash flows from investing activities:
Maturities and calls of securities available for sale
33,965
82,070
Proceeds from sales of securities available for sale
233,187
Purchases of securities available for sale
(288,333)
(109,481)
Principal pay downs on securities available for sale
333,555
125,150
Loan (originations) and payments, net
(168,522)
(236,269)
Purchases of premises and equipment
(1,080)
(905)
Proceeds from sale of premises and equipment
4,517
Proceeds from sales of foreclosed assets
2,732
Purchase of bank-owned life insurance
(150)
(491)
Purchase of split dollar life insurance policies
(15,000)
Investments in variable interest entities
(2,196)
Proceeds from BOLI death benefit
1,645
341
Net cash (used in) provided by investing activities
(103,920)
98,655
Cash flows from financing activities:
Increase in deposits
41,092
200,936
Increase (decrease) in Fed funds purchased
25,000
(130,000)
Increase (decrease) in short-term Federal Home Loan Bank advances
30,000
(150,500)
Increase in customer repurchase agreements
16,889
18,413
Cash dividends paid
Repurchase of common stock, net
(24,311)
(8,640)
Stock options exercised
Net cash provided by (used in) financing activities
79,052
(79,466)
(Decrease) increase in cash and cash equivalents
(5,163)
54,195
Cash and cash equivalents
Beginning of period
78,602
End of period
132,797
Supplemental disclosure of cash flow information:
Interest paid
39,656
37,173
Income taxes paid
8,483
7,871
Supplemental schedule of noncash investing and financing activities:
Real estate acquired through foreclosure
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – The Business of Sierra Bancorp
Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws. The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”) and has been the Company’s sole shareholder since August 2001. The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. As of September 30, 2025, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”). Pursuant to the Financial Accounting Standards Board (“FASB”) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the Company’s financial statements. References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.
Bank of the Sierra, a California state-chartered bank headquartered in Porterville, California, offers a wide range of retail and commercial banking services via branch offices located throughout California’s South San Joaquin Valley, the Central Coast, Ventura County, the Sacramento area, and neighboring communities. The Bank was incorporated in September 1977 and opened for business in January 1978 as a one-branch bank with $1.5 million in capital. The Company’s growth in the ensuing years has largely been organic in nature but includes four whole-bank acquisitions: Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017. As of the filing date of this report the Bank operates 35 full-service branches and an online branch and maintains ATMs at all but one branch location as well as at seven non-branch locations. Moreover, the Bank has specialized lending units which focus on commercial and industrial, commercial real estate, and mortgage warehouse borrowers. To support organic growth in the commercial lending sectors the Bank opened a loan production office in Templeton, CA in April 2022. The Company had total assets of $3.7 billion at September 30, 2025. The Company’s deposit accounts, which totaled $2.9 billion at September 30, 2025, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.
Note 2 – Basis of Presentation
The accompanying interim unaudited consolidated financial statements have been prepared in a condensed format as allowed under U.S. generally accepted accounting principles (“GAAP”). Therefore, these financial statements do not include all of the information and footnotes required for complete, audited financial statements as presented in the Company’s Annual Report on Form 10-K. The information furnished in these interim statements reflects all adjustments that are, in the opinion of Management, necessary for a fair statement of the results for such periods. Such adjustments can generally be considered as normal and recurring unless otherwise disclosed in this Form 10-Q. In preparing the accompanying financial statements, Management has taken subsequent events into consideration, through October 31, 2025, and recognized them where appropriate. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year. Certain amounts reported for 2024 have been reclassified to be consistent with the reporting for 2025, none of which impacted net income or shareholders’ equity. The interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission (the “SEC”).
Segment information
An operating segment is generally defined as a component of business for which discrete financial information is available and whose operating results are regularly reviewed by the chief operating decision maker. As a community-oriented financial institution, substantially all of the Company’s operations involve the delivery of loan and deposit products to customers.
The chief operating decision maker makes operating decisions and assesses performance based on an ongoing review of the Company’s community banking activities (loan and deposit products), which constitutes the Company’s only operating segment for financial reporting purposes. The Company’s single segment is managed on a consolidated basis by the chief operating decision maker, which is the Executive Committee, consisting of the chief executive officer, chief financial officer, chief risk officer, chief credit officer, chief operating officer, and chief banking officer. The accounting policies of the community banking segment are the same as those described in the summary of significant accounting policies of the Company. The chief operating decision maker uses consolidated expense information to manage the operations of the segment. The consolidated expense information is the same as is reported on the income statement as consolidated net income. The measure of segment assets is reported on the balance sheet as total consolidated assets.
The chief operating decision maker uses consolidated net income to evaluate income generated from segment assets (return on assets) in deciding whether to reinvest profits into the community banking segment or into other parts of the entity, such as for whole bank or branch acquisitions or to pay dividends.
Net income is used to monitor budget versus actual results. The chief operating decision maker also uses net income in competitive analysis by benchmarking to the Company’s peer banking competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing Management’s compensation.
The Company does not have intra-entity revenues or transfers.
Note 3 – Current Accounting Developments
On October 9, 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification of Initiative.” ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were “redundant, duplicative, overlapping, outdated, or superseded.” The new guidance is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the application of U.S. GAAP for all entities. ASU 2023-06 applies to all reporting entities within the scope of the amended subtopics. Note that some of the amendments introduced by the ASU are technical corrections or clarifications of the FASB’s current disclosure or presentation requirements. The effective date for each amendment of ASU 2023-06 will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company will apply the amendments in ASU 2023-06 prospectively after the effective dates. The adoption of this standard is not expected to have a significant effect on the Company’s financial statements.
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 was adopted by the Company on January 1, 2024, and did not have a significant impact on the financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for the Company for annual periods beginning after December 15, 2024, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on the financial statements.
8
In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40).” ASU 2024-03 requires public business entities to disclose specific information about certain costs and expenses in the notes to its financial statements for interim and annual reporting periods. The objective of the disclosure requirements is to provide disaggregated information about a public business entity's expenses to help investors (a) better understand the entity's performance, (b) better assess the entity's prospects for future cash flows, and (c) compare an entity's performance over time and with that of other entities. The effective date of Update 2024-03 was amended by ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. Public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of Update 2024-03 is permitted. ASU 2024-03 is not expected to have a significant impact on our financial statements.
Note 4 – Share Based Compensation
On March 17, 2023, the Company’s Board of Directors approved and adopted the 2023 Equity Compensation Plan (the “2023 Plan”), which became effective May 24, 2023, the date approved by the Company’s shareholders. The 2023 Plan replaced the Company’s 2017 Stock Incentive Plan (the “2017 Plan”). Options to purchase 157,400 shares granted under the 2017 Plan and options to purchase 52,000 shares that were granted under the 2007 Plan were still outstanding as of September 30, 2025, and remain unaffected by that plan’s expiration. The 2023 Plan provides for the issuance of various types of equity awards, including options, stock appreciation rights, restricted stock awards, restricted share units, performance share awards, dividend equivalents, or any combination thereof. Such awards may be granted to officers and employees as well as non-employee directors, which may be granted on such terms and conditions as are established by the Board of Directors or the Compensation Committee in its discretion. The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2023 Plan was initially 360,000 shares, and the number remaining available for grant as of September 30, 2025 was 269,857. Any unexercised, unvested, or undistributed portion of any expired, cancelled, terminated, or forfeited awards under the Company’s 2017 Plan are added to the number of shares available to grant under the 2023 Plan. There were 28,920 unvested Restricted Stock Awards issued under the 2017 Plan and 137,904 unvested Restricted Stock Awards issued under the 2023 Equity Compensation Plan at September 30, 2025, and are included in shares outstanding. The potential dilutive impact of unexercised stock options and unvested restricted stock is discussed below in Note 5, Earnings per Share.
Pursuant to FASB’s standards on stock compensation, the value of each stock option and restricted stock award is reflected in the income statement as employee compensation or directors’ expense by amortizing its grant date fair value over the vesting period of the option or award. The Company utilized a Black-Scholes model to determine grant date fair values for options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Forfeitures are reflected in compensation costs as they occur for both types of awards. A pre-tax charge of $0.4 million was reflected in the Company’s income statement during the third quarters of 2025 and 2024, as expense related to stock options and restricted stock awards. For the first nine months of 2025 and 2024, the charges totaled $1.5 million and $1.4 million, respectively.
Restricted Stock Grants
The Company’s Restricted Stock Awards are awards of either time-vested or performance-based shares. The Restricted Stock Awards are non-transferable shares of common stock and are available to be granted to the Company’s employees and directors. The vesting period of Restricted Stock Awards is determined at the time the awards are issued, and different awards may have different vesting terms or performance measures, provided, however, that no installment of any Restricted Stock Award shall become vested less than one year from the grant date. Restricted Stock Awards are valued utilizing the fair value of the Company’s stock at the grant date. These awards are expensed on a straight-line basis over the vesting period and consider the probability of meeting the performance criteria. There were 62,692 shares granted to employees of the Company during the first nine months of 2025. As of September 30, 2025, there was $2.3 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 and 2023 plans. That cost is expected to be amortized over a weighted average period of 2.1 years.
The Company’s restricted stock award activity for the nine months ended September 30, 2025, and 2024 is summarized below (unaudited):
Weighted Average Grant-Date Fair Value
Unvested shares, January 1,
173,970
20.75
238,179
20.30
Granted
30.94
19.10
Vested
(38,827)
19.66
(31,222)
19.64
Forfeited
20.69
(21,185)
20.39
Unvested shares, September 30,
184,309
24.83
221,886
20.18
Stock Option Grants
The Company has issued equity instruments in the form of Incentive Stock Options and Nonqualified Stock Options to certain officers and directors. No options have been granted since 2020, but the Company could elect to issue under the 2023 Plan. The exercise price of each stock option is determined at the time of the grant and may be no less than 100% of the fair market value of such stock at the time the option is granted.
The Company’s stock option activity during the nine months ended September 30, 2025, and 2024 are summarized below (dollars in thousands, except per share data, unaudited):
Weighted AverageExercise Price
Weighted Average Remaining Contractual Term (in years)
AggregateIntrinsicValue (1)
Outstanding at January 1,
239,600
26.50
580
343,449
25.02
447
Exercised
(30,200)
24.10
206
(27,449)
18.38
253
Forfeited/Expired
27.43
Outstanding at September 30,
209,400
26.85
3.11
432
300,800
25.51
3.65
1,013
Exercisable at September 30,
294,800
25.48
3.62
1,003
Note 5 – Earnings per Share
The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period, excluding unvested restricted stock awards. There were 13,361,594 weighted average shares outstanding during the third quarter of 2025 and 14,188,051 during the third quarter of 2024, while there were 13,582,194 weighted average shares outstanding during the first nine months of 2025 and 14,331,032 during the first nine months of 2024.
Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options, and unvested restricted stock awards. For the third quarter of 2025, calculations under the treasury stock method resulted in the equivalent of 109,064 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while 83 shares were excluded from the calculation due to being underwater and thus anti-dilutive. For the third quarter of 2024 the equivalent of 147,655 shares were added in calculating diluted earnings per share, while zero shares were excluded from the calculation due to being underwater and thus anti-dilutive. Likewise, for the first nine months of
10
2025 the equivalent of 92,740 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of no options that were anti-dilutive for the period, compared to the addition of the equivalent of 106,754 shares and non-inclusion of 255,414 anti-dilutive options in calculating diluted earnings per share for first nine months of 2024.
Note 6 – Comprehensive Income
As presented in the Consolidated Statements of Comprehensive Income, comprehensive income includes net income and other comprehensive income. The Company’s only source of other comprehensive income is unrealized gains and losses derived from available-for-sale investment securities, including those securities that were transferred to held-to-maturity. See Note 9 for additional details. Investment gains or losses that were realized and reflected in net income of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period.
Note 7 – Commitments and Contingent Liabilities
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. Those financial instruments currently consist of unused commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of risk in excess of the amount recognized in the consolidated balance sheet. The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and issuing letters of credit as it does for originating loans included on the consolidated balance sheet. The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):
Commitments to extend credit
637,544
636,447
Standby letters of credit
4,280
5,046
Commitments to extend credit consist primarily of the unused or unfunded portions of the following: mortgage warehouse lines; home equity lines of credit; commercial real estate construction loans, where disbursements are made over the course of construction; commercial revolving lines of credit; unsecured personal lines of credit; and formalized (disclosed) deposit account overdraft lines. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn upon, the unused portions of committed amounts do not necessarily represent future cash requirements. Standby letters of credit are issued by the Company to guarantee the performance of a customer to a third party, and the credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. Included in unused commitments are mortgage warehouse lines which are in the form of repo lines and are unconditionally cancellable. Unused commitments on mortgage warehouse lines were $308.8 million at September 30, 2025, and $311.6 million at December 31, 2024.
The allowance for credit losses (ACL) on unfunded commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment. The funding rate represents Management’s estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. The ACL on unfunded loan commitments is located within liabilities on the consolidated balance sheet while any related provision (benefit) expense is recorded as a provision (benefit) for credit losses.
At September 30, 2025, the Company was also utilizing a letter of credit in the amount of $127.9 million issued by the Federal Home Loan Bank (“FHLB”) on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers. That letter of credit is backed by loans which are pledged to the FHLB by the Company.
11
The Company is subject to loss contingencies, including claims and legal actions arising in the ordinary course of business, which are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements.
Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements
FASB’s standards on financial instruments, and on fair value measurements and disclosures, require public business entities to disclose in their financial statement footnotes the estimated fair values of financial instruments. In addition to disclosure requirements, FASB’s standard on investments requires that debt securities classified as available-for-sale and equity securities with readily determinable fair values be measured and reported at fair value in the statement of financial position. Certain collateral-dependent, individually-evaluated loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value. FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but the Company has not elected the fair value option for any of those financial instruments.
Fair value measurement and disclosure standards also establish a framework for measuring fair values. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values. The standards describe three levels of inputs that may be used to measure fair values:
Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Fair value disclosures for deposits include demand deposits, which are, by definition, equal to the amount payable on demand at the reporting date. Fair value calculations for loans reflect exit pricing and incorporate Management’s assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things. Since the estimates are subjective and involve uncertainties and matters of significant judgment they cannot be determined with precision, and changes in assumptions could significantly alter the fair values presented.
12
Fair Value of Financial Instruments
Fair Value Measurements
CarryingAmount
Quoted Prices inActive Markets forIdentical Assets(Level 1)
SignificantObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Total
Financial assets:
Investment securities available-for-sale
595,701
1,232
Investment securities held-to-maturity
285,531
Loans held for investment, net
2,366,889
Financial liabilities:
1,859,810
2,932,737
102,224
134,897
48,167
35,823
Securities available-for-sale
600,314
55,653
Securities held-to-maturity
291,028
11,529
2,161,917
2,173,446
1,904,840
2,912,048
91,585
79,054
46,713
35,299
For financial asset categories carried on the consolidated balance sheet at fair value and measured on a recurring basis as of September 30, 2025, and December 31, 2024, the Company used the following methods and significant assumptions:
13
Fair Value Measurements – Recurring
Fair Value Measurements at September 30, 2025, using
RealizedGain/(Loss)(Level 3)
Securities:
U.S. government agencies
42,183
Mortgage-backed securities
198,600
State and political subdivisions
45,797
Corporate bonds
78,985
80,217
Collateralized loan obligations
230,136
Total available-for-sale securities
Fair Value Measurements at December 31, 2024, using
50,153
93,503
40,803
2,909
58,562
412,946
14
The following tables present quantitative information about recurring Level 3 fair value measurements at September 30, 2025, and December 31, 2024 (dollars in thousands):
Range
Fair
Valuation
Unobservable
Weighted
Value
Technique(s)
Input(s)
Min
Max
Average
Corporate Bonds
Broker estimate
Discount rate
N/A
New issue pricing
Risk appetite
Secondary market pricing
Market volatility
Credit quality of issuer
Credit spread
The significant unobservable inputs utilized in the fair value measurement of the Company’s corporate bonds included risk profile and market conditions, and are not quantifiable inputs. Differing unobservable input assumptions, for example a change in market conditions, may have resulted in reduced or increased fair value.
The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2025, and 2024:
Fair Value Measurements - Level 3 Recurring
Balance of recurring Level 3 assets at January 1,
52,040
Total gains or losses for the period:
Included in other comprehensive income
4,317
Transfers out of Level 3
(54,553)
Balance of recurring Level 3 assets at September 30,
56,357
Corporate bonds with a fair value of $54.5 million as of December 31, 2024 were transferred from Level 3 to Level 2 in the third quarter of 2025 because observable market data became available for the securities.
For financial asset categories carried on the consolidated balance sheet at fair value and measured on a nonrecurring basis as of September 30, 2025, and December 31, 2024, the Company used the following methods and significant assumptions:
15
Fair Value Measurements – Nonrecurring
SignificantObservable Inputs(Level 2)
SignificantUnobservable Inputs(Level 3)
Individually evaluated collateral dependent loans
Other commercial (1)
Total assets measured on a nonrecurring basis
Other commercial
The table above includes collateral dependent loan balances for which a specific reserve has been established. Information on the Company’s total collateral dependent loan balances and specific loss reserves associated with those balances is included in Note 10 below.
The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value. Adjusting any of those inputs could result in a significantly lower or higher fair value measurement.
16
Note 9 – Investments
Investment Securities
Pursuant to FASB’s guidance on accounting for debt securities, available-for-sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments reflected in accumulated other comprehensive income (loss) in shareholders’ equity. Held-to-maturity securities are carried on the Company’s financial statements at their amortized cost, net of the allowance for credit losses. Amortized cost is adjusted to the fair value of the security upon transfer to held-to-maturity.
Amortized Cost and Estimated Fair Value
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
Allowance for Credit Losses
Estimated FairValue
Available-for-sale
42,498
24
(339)
198,620
1,818
(1,838)
52,680
(6,888)
84,787
254
(4,824)
229,418
723
(5)
608,003
2,824
(13,894)
GrossUnrecognizedGains
GrossUnrecognizedLosses
Held-to-maturity
4,545
(408)
4,137
118,836
(7,639)
111,208
171,145
193
(1,152)
170,186
(15)
Total held-to-maturity securities
294,526
204
(9,199)
50,761
(608)
97,113
116
(3,726)
48,119
(7,323)
66,308
(7,746)
411,729
1,217
674,030
1,340
(19,403)
4,819
(592)
4,227
128,974
(13,986)
114,988
171,736
229
171,813
305,529
(14,730)
17
An unrealized loss of $24.7 million and $26.3 million on securities transferred from the available-for-sale to held-to-maturity categorization, remains as of September 30, 2025, and December 31, 2024, respectively, and is included in accumulated other comprehensive loss, net of tax. The remaining unrealized loss on the securities transferred from available-for-sale to held-to-maturity will be accreted over the remaining term of the securities, with the amortized-cost basis of these securities and accumulated comprehensive income (loss) each increasing over time.
The Company elected the practical expedient available under the current expected credit losses (“CECL”) accounting standard to exclude accrued interest receivable from the amortized cost basis of all categorizations of investment securities, and resultingly did not estimate reserves on accrued interest receivable balances, as any past due interest income is reversed on a timely basis. Accrued interest receivable is included in other assets on the Company’s consolidated balance sheet and as of September 30, 2025, measured at $5.8 million and $1.6 million for available-for-sale securities and held-to-maturity securities, respectively. Accrued interest receivable as of December 31, 2024, on these same classes of investment securities measured at $7.5 million and $2.4 million, respectively. During the three-and-nine month periods ending September 30, 2025 and 2024, no interest receivable on available-for-sale or held-to-maturity securities was reversed against interest income and the Company did not have any held-to-maturity debt securities past due.
A discounted cash-flow reserve calculation is performed on securities designated as held-to-maturity on a quarterly basis. As of September 30, 2025 and December 31, 2024, an allowance for credit losses of $15 thousand had been established on the Company’s held-to-maturity portfolio. Because of the implicit and explicit guarantees of the U.S. government on the agency and mortgage-backed securities there is no expectation of future losses and no allowance for credit losses has been established for these securities.
The following table summarizes the amortized cost of held-to-maturity municipal bonds aggregated by nationally recognized statistical rating organizations (“NRSRO”) credit rating:
Held-To-Maturity by Credit Rating
Held-To-Maturity
AAA/Aaa
59,380
59,408
AA/Aa
110,307
110,858
A/A2
526
533
Not rated
932
937
18
For available-for-sale debt securities in an unrealized loss position for which Management has an intent to sell the security or considers it more likely-than-not that the security in question will be sold prior to a recovery of its amortized cost basis, the security will be written down to fair value through a direct charge to income. For the remainder of available-for-sale debt securities in an unrealized loss position, which do not meet the previously outlined criteria, Management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors. In performing this evaluation, Management considers the extent to which fair value has fallen below amortized cost, changes in ratings by rating agencies, and other information indicating a deterioration in repayment capacity of either the underlying issuer or the borrowers providing repayment capacity in a securitization. If Management’s evaluation indicates that a credit loss exists, then a present value of the expected cash flows is calculated and compared to the amortized cost basis of the security in question and to the degree that the amortized cost basis exceeds the present value an ACL is established, with the caveat that the maximum amount of the reserve on any individual security is the difference between the fair value and amortized cost balance of the security in question. Any unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income (loss).
The following table summarizes available-for-sale debt securities in an unrealized loss position for which an ACL has not been recorded:
Investment Portfolio - Unrealized Losses
Less than twelve months
Twelve months or more
Number of Securities
Fair Value
(304)
27,196
(35)
2,965
30,161
(815)
50,940
(1,023)
28,428
79,368
56
8,435
(6,812)
35,149
43,584
66
(399)
18,886
(4,425)
45,777
64,663
17,495
Total available-for-sale
186
(1,599)
122,952
(12,295)
112,319
235,271
48,155
(2,952)
64,419
(774)
8,032
72,451
52
(33)
3,087
(7,290)
34,612
37,699
(12)
1,359
(7,734)
57,012
169
(3,605)
117,020
(15,798)
98,297
215,317
19
Investment Portfolio - Realized Gains/(Losses)
Proceeds from sales, calls and maturities of securities available for sale
22,490
24,525
33,490
315,257
Gross gains on sales, calls and maturities of securities available for sale
Gross losses on sales, calls and maturities of securities available for sale
Net gain (loss) on sale of securities available for sale
The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 30, 2025, and December 31, 2024 (dollars in thousands), are shown below, grouped by the remaining time to contractual maturity dates. The expected life of investment securities may not be consistent with contractual maturity dates since the issuers of the securities might have the right to call or prepay obligations with or without penalties.
Available-for-Sale
Held-to-Maturity
Amortized Cost
Maturing within one year
11,999
12,032
830
Maturing after one year through five years
19,853
20,040
4,405
4,281
Maturing after five years through ten years
75,503
70,409
18,450
17,593
Maturing after ten years
72,610
65,716
152,008
151,619
Securities not due at a single maturity date:
4,590
4,318
2,700
2,666
84,863
77,028
18,708
17,135
75,735
68,172
155,147
156,239
At September 30, 2025, the Company’s investment portfolio included 227 municipal bonds issued by 192 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $216.0 million. The largest exposure to any single municipality or agency was a combined $5.1 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 92 subordinated debentures issued by bank-holding companies totaling $80.2 million (fair value).
At December 31, 2024, the Company’s investment portfolio included 223 municipal bonds issued by 188 different government municipalities and agencies located within 28 states, with an aggregate fair value of $212.6 million. The largest exposure to any single municipality or agency was a combined $5.1 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 56 subordinated debentures issued by bank-holding companies totaling $58.6 million (fair value).
20
The Company’s investments in bonds issued by corporations, states, municipalities, and political subdivisions are evaluated in accordance with Financial Institution Letter 48-2012, issued by the FDIC, “Revised Standards of Creditworthiness for Investment Securities,” and other regulatory guidance. Credit ratings are considered in Management’s analysis only as a guide to the historical default rate associated with similarly rated bonds. There have been no significant differences in internal analyses compared with the ratings assigned by the third-party credit rating agencies.
The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for the Company’s largest geographic concentrations:
Revenue and General Obligation Bonds by Location
Amortized
Fair Market
General obligation bonds
Cost
State of issuance
Texas
86,973
83,262
82,769
79,472
51,001
48,367
51,222
48,131
Other (22 & 20 states, respectively)
60,243
59,609
60,422
60,169
Total general obligation bonds
198,217
191,238
194,413
187,772
Revenue bonds
5,534
5,197
5,434
5,261
3,582
3,555
3,576
3,440
Other (13 & 11 states, respectively)
16,492
15,993
16,432
16,143
Total revenue bonds
25,608
24,745
25,442
24,844
Total obligations of states and political subdivisions
223,825
215,983
219,855
212,616
The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements. The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates.
Revenue Bonds by Type
Revenue source:
Water
9,279
8,806
9,194
8,892
Lease
3,914
4,054
3,613
3,755
Sewer
3,712
3,704
3,923
4,141
Sales tax revenue
1,687
1,612
1,688
1,588
Local or GTD housing
1,024
843
Other (9 and 10 sources, respectively)
5,992
5,726
7,024
6,468
Low-Income Housing Tax Credit (“LIHTC”) Fund Investments
The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits by mandating a specified percentage of low-income tenants for each project. The primary
21
investment return comes from tax credits that flow through to investors. Because rent levels are lower than standard market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses allocated to the limited partners for tax purposes.
The Company currently has investments in eight different LIHTC fund limited partnerships made in 2014, 2015, two in 2022, one in 2023, and three in 2024, all of which were California-focused funds that help the Company meet its obligations under the Community Reinvestment Act. The Company utilized the cost method of accounting for LIHTC fund investments, which were initially recorded on the consolidated balance sheet as an asset representing the total cash expected to be invested over the life of the partnership. Any commitments or contingent commitments for future investment are reflected as a liability. The income statement reflects tax credits and any other tax benefits from these investments “below the line” within income tax provision, while the initial book value of the investment is amortized on the proportional amortization method as a “below the line” expense, over the time period in which the tax credits and tax benefits are expected to be received.
As of September 30, 2025, the Company’s total LIHTC investment book balance was $23.2 million, which is included in “Other Assets” on the consolidated balance sheet. This investment is offset by $11.8 million in remaining commitments for additional capital contributions, which is included in “Other Liabilities” on the consolidated balance sheet. There were approximately $2.2 million in tax credits derived from the Company’s LIHTC investments that were recognized during the nine months ended September 30, 2025, and “below the line” amortization expense of $2.2 million associated with those investments was recorded for the same time period. LIHTC investments are evaluated annually for potential impairment, and the Company concluded the carrying value of the investments is stated fairly and is not impaired.
As of December 31, 2024, the Company’s total LIHTC investment book balance was $25.4 million, which includes $20.5 million in remaining commitments for additional capital contributions. There were $1.8 million in tax credits derived from LIHTC investments recognized during the year ended December 31, 2024; “below the line” amortization expense of $1.9 million associated with those investments was netted against pre-tax noninterest income for the same time period.
The Company’s investments in qualified affordable housing projects and small business investment companies meet the definition of a variable interest entity, as the entities are structured such that the limited partner investors lack substantive voting rights. Pursuant to the FASB standard on the consolidation of variable interest entities, these investments are not reflected on a consolidated basis in the Company’s financial statements.
Note 10 – Loans and Allowance for Credit Losses
The ACL on the loan portfolio is a valuation allowance deducted from the recorded balance in loans. Under CECL, the ACL represents principal which is not expected to be collected over the contractual life of the loans, adjusted for expected prepayments. The ACL is increased by a provision for credit losses charged to expense and by principal recovered on charged-off balances. It is reduced by principal charge-offs. The amount of the allowance is based on Management’s evaluation of the collectability of the loan portfolio, using information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Adjustments are also made for changes in risk profile, credit concentrations, historical trends, and other economic conditions.
The Company elected the practical expedient available under CECL to exclude accrued interest receivable from the amortized cost basis of all categorizations of loans and, as a result, did not estimate reserves on accrued interest receivable balances, as any past due interest income is reversed on a timely basis. Accrued interest receivable on loans of $7.7 million and $6.1 million at September 30, 2025, and December 31, 2024, respectively is included in other assets on the Company’s consolidated balance sheet.
The majority of the disclosures in this footnote are prepared at the class level, which is equivalent to the call report or call code classification. The final table in this section separates a roll forward of the ACL at the portfolio segment level. Unless specifically noted otherwise, the disclosures in this footnote are prepared on an amortized cost basis.
Loan Distribution
Real estate:
Residential real estate
363,197
381,438
Commercial real estate
1,407,083
1,360,374
Other construction/land
13,503
5,458
Farmland
67,704
77,388
Total real estate
1,851,487
1,824,658
184,756
177,013
Mortgage warehouse lines
452,683
326,400
Consumer loans
2,853
3,270
Subtotal
Net deferred loan costs
Loans, amortized cost basis
2,491,788
2,331,434
Allowance for credit losses
Net Loans
The Company places a loan on nonaccrual status when Management has determined full repayment of principal and collection of contractually agreed upon interest is unlikely or the loan in question has become delinquent more than 90 days. The Company may decide it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process. When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed. For loans with an interest reserve (i.e., loan proceeds are advanced to the borrower to make interest payments) all interest recognized from the inception of the loan is reversed when the loan is placed on nonaccrual. Once a loan is on nonaccrual status, subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. Generally, loans are not restored to accrual status until the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
23
Nonaccrual Loans
With no allowance for credit loss
With an allowance for credit loss
Loans Past Due 90+ Accruing
218
1,717
1,935
8,254
3,817
12,071
10,189
14,006
5,105
5,128
14,540
19,668
The Company did not recognize any interest on nonaccrual loans during the three or nine months ended September 30, 2025, and 2024, and would have recognized an additional $0.9 million and $0.1 million in interest income on nonaccrual loans during the third quarter of 2025 and 2024, respectively, had those loans not been designated as nonaccrual. For the year-to-date periods of 2025 and 2024, the Company would have recognized an additional $0.3 million and $0.4 million, respectively, in interest income on nonaccrual loans had those loans not been designated as nonaccrual. Due to loans being placed on nonaccrual status, during the third quarter of 2025, $0.1 million of interest receivable on loans was reversed against interest income, as compared to an immaterial amount during the third quarter of 2024. During the first nine months of 2025, and 2024, $0.3 million and $0.2 million, respectively, of interest receivable on loans was reversed against interest income.
The following table presents the amortized cost basis of collateral-dependent loans by class as of September 30, 2025, and December 31, 2024:
Collateral Dependent Loans
Individual Reserves
11,737
3,482
14,529
3,000
Total Loans
13,672
19,657
During the first nine months of 2025 the amortized cost balance of collateral-dependent loans decreased by $6.0 million due primarily to a $5.3 million charge-off on agriculture production loan in the other commercial category, principal payments received on the same agricultural production loan, offset by a commercial real estate relationship secured by a
hotel property which was placed on nonaccrual status. The weighted average loan-to-value ratio of collateral-dependent loans was 81.1% at September 30, 2025. There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of September 30, 2025, and December 31, 2024.
Past Due Loans
30-59 Days Past Due
60-89 Days Past Due
Loans Past Due 90+ Days
Total Past Due
Loans not Past Due
173
198
393
363,884
364,277
1,404,681
13,420
66,143
67,860
1,915
2,110
1,848,128
1,850,238
8,259
12,076
173,882
185,958
2,902
8,437
5,732
14,193
2,477,595
879
215
1,094
381,413
382,507
1,357,833
5,472
3,335
74,212
77,547
4,214
4,429
1,818,930
1,823,359
258
273
178,058
178,331
3,340
3,344
4,476
230
4,706
2,326,728
Loan Modifications
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing principal forgiveness, rate reduction, payment deferral, or term extension. When principal forgiveness is provided, the amount of forgiveness is charged off against the allowance for credit losses.
In certain cases, the Company provides multiple types of concessions on a single loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: principal forgiveness, rate reduction, payment deferral, and/or term extension.
There was an immaterial amount of term extensions for the three months ended September 30, 2025, and none for the three months ended September 30, 2024. The following tables present the amortized cost basis of loans at September 30, 2025, and 2024, that were both experiencing financial difficulty and modified during the nine months ended September 30, 2025, and 2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below (dollars in thousands, unaudited):
Nine months ended September 30, 2025
Principal Forgiveness
Payment Delay
Term Extension
Combination Term Extension Interest Rate Reduction
Total Class of Financing Receivable
270
219
0.26%
0.02%
Nine months ended September 30, 2024
224
3.98%
299
0.37%
523
0.03%
153
0.09%
676
26
The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2025, and 2024 (dollars in thousands, unaudited):
Three months ended September 30, 2025
Weighted-Average Interest Rate Reduction
Weighted-Average Term Extension (years)
0.31%
7.48
Three months ended September 30, 2024
10.00
7.27
3.00
3.99
There were no payment defaults on loans previously modified in the preceding 12 months for either of the periods ending September 30, 2025, and 2024. For the purpose of this disclosure, the Company defines a payment default as 90 days past due. The Company had $0.1 million in additional funds committed on loans which have been modified to borrowers experiencing financial difficulty as of September 30, 2025, and none as of September 30, 2024.
The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, and substandard to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged off. The Company uses the following definitions of risk classifications:
27
Loan Credit Quality by Vintage
Term Loans Amortized Cost Basis by Origination Year
2023
2022
2021
Prior
Revolving Loans Amortized Cost
Revolving Loans Converted to Term Loans
Pass
91,005
210,537
49,039
9,171
3,751
363,503
Special mention
337
360
Substandard
34
150
414
49,606
9,205
3,924
Current period gross charge-offs
119,488
146,658
99,009
195,626
44,113
705,182
28,875
1,338,951
16,538
31,343
47,881
17,849
212,164
754,374
1,165
8,785
4,635
3,370
14,423
4,951
8,587
10,875
12,068
10,854
623
65,751
357
35
1,752
6,668
12,460
6,659
6,263
6,217
3,075
545
14,235
130,711
1,678
169,383
134
4,313
4,492
194
140
12,083
6,793
6,288
6,411
3,229
143,278
5,179
92
5,365
5,506
801
50
245
32
111
1,583
2,881
266
1,585
Current period gross charge-offs (1)
652
31
727
130,452
176,204
112,354
315,044
266,102
835,426
646,480
9,726
28
2020
96,007
216,294
6,993
45,300
11,125
3,437
379,156
1,418
1,666
3,108
157
243
217,712
47,034
11,143
3,617
146,143
100,067
215,580
44,937
418,673
352,638
27,278
1,305,316
141
24,206
2,815
1,350
28,512
77
14,143
9,785
24,005
146,220
100,208
457,022
365,238
28,628
2,438
350
3,418
1,486
12,533
5,345
9,092
11,076
1,875
12,810
8,885
659
62,275
1,203
1,770
819
7,715
11,507
3,765
13,736
7,115
2,694
24,290
7,058
17,449
4,627
901
6,064
10,623
111,840
1,723
160,285
185
17,656
17,989
57
7,087
4,646
6,249
10,658
111,962
19,379
256
38
235
529
834
407
159
1,718
3,326
838
417
112
1,721
1,377
1,483
168,099
125,540
325,437
274,671
476,428
448,865
488,739
23,655
29
Purchased credit deteriorated (“PCD”) loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination. As of September 30, 2025, the Company had no loans categorized as PCD.
The model used for calculating the Company’s ACL is reviewed and revised periodically, most recently a full review with modifications in the third quarter of 2024, with a partial review and minimal modifications completed in the third quarter of 2025. In the most recent full review, the Company changed to a Multi-Factor Regression Model from a Single-Factor Regression Model used in previous periods. Additionally, legacy peer groups were expanded to include California banks with an asset size between $1.5 billion to $10 billion. The Company’s ACL is calculated quarterly, with any difference in the calculated ACL and the recorded ACL adjusted through an entry to the provision (benefit) for credit losses. For purposes of estimating the Company’s ACL, Management generally evaluates collectively evaluated loans by call code in order to group loans with similar risk characteristics together; however, Management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.
Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, with the exception of Farmland, Agricultural Production and Consumer loans, using a discounted cash flow (“DCF”) methodology. For Farmland, Agricultural Production, and Consumer categories, a Remaining Life methodology is utilized.
The DCF quantitative reserve methodology incorporates the consideration of probability of default (“PD”) and loss given default (“LGD”) estimates to estimate periodic losses. The PD estimates are derived through the application of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data. The loss-rate data has been regressed against benchmark economic indicators, for which reasonable and supportable forecasts exist, in the development of the call-code specific regression models. Regression models are updated periodically, in order to pull in more recent loss-rate data. Reasonable and supportable forecasts of the selected economic metric are then input into the regression model to calculate an expected default rate. The expected default rates are then applied to expected monthly loan balances estimated through the consideration of contractual repayment terms and expected prepayments. The Company utilizes a four-quarter forecast period, after which the expected default rates revert to the historical average for each call code, over a four-quarter reversion period, on a straight-line basis. The prepayment assumptions applied to expected cash flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and the consideration of current and expected conditions and circumstances including the level of interest rates. Management may update prepayment assumptions when changing conditions impact Management’s estimate or additional historical data indicates a reevaluation is warranted. LGD utilized in the DCF is derived from the application of the Frye-Jacobs theory, which relates LGD to PD based on historical peer data, as calculated by a third-party. Economic forecasts are considered over a four-quarter forecast period, with reversion to mean occurring on a straight-line basis over four quarters. The call code multiple factor regression models utilized as of September 30, 2025, for Residential Real Estate loans relied upon reasonable and supportable forecasts of the National Unemployment Rate and House Price Index (HPI). The call code multiple factor regression models utilized as of September 30, 2025, for Commercial Real Estate and Other Construction loans relied upon reasonable and supportable forecasts of the National Unemployment Rate and Gross Domestic Product (GDP). Management selected the National Unemployment Rate, HPI, and GDP as the drivers of quantitative portion of collectively evaluated reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly Federal Open Market Committee (FOMC) forecast and given the widespread familiarity of stakeholders with these economic metrics.
The quantitative reserves for Farmland, Agricultural Production and Consumer loans are calculated using a Remaining Life methodology where the Company’s average historical loss-rates are applied to expected loan balances over an estimated remaining life of loans in calculation of the quantitative portion of collectively evaluated loans in these classes. The estimated remaining life is calculated using historical peer data. For the Farmland, Agricultural Production and Consumer classes of loans, reasonable and supportable forecasts of the National Unemployment Rate, real GDP and the housing price index are considered through estimation of qualitative reserves.
Management recognizes there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of reserves on collectively evaluated loans. As current and expected conditions may vary compared
30
with conditions over the historical lookback period, which is utilized in the calculation of quantitative reserves, Management considers whether additional or reduced reserve levels on collectively evaluated loans may be warranted given the consideration of a variety of qualitative factors. Several of the following qualitative factors (“Q-factors”) considered by Management reflects the legacy regulatory guidance on Q-factors, whereas several others represent factors unique to the Company or unique to the current time period.
The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and Management judgment to determine risk categorizations in each of the Q-factors presented above. The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan-equivalent, loss-rate ranges, and the relative weighting of Q-factors according to Management’s judgment.
Although collectively evaluated reserves are generally calculated separately at the call code or loan class level, Management has grouped loan classes with similar risk characteristics into the following portfolio segments:
Loans secured by Residential Real Estate have a different profile from those secured by Commercial Real Estate. Generally, the borrowers for Residential Real Estate loans are consumers, whereas borrowers for Commercial Real Estate are often businesses. The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic. Farmland and Agricultural Production loans are included in a single segment as these loans are oftentimes to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions, in addition to other environmental concerns. Commercial & Industrial loans are separated into a separate segment given the uniqueness of these loans, which are often revolving and secured by business assets other than real estate. Mortgage Warehouse loans warrant presentation as an individual portfolio segment given the specific nature of these constantly
revolving lines to mortgage originators and due to a very limited loss history, even after consideration of peer data. Finally, Consumer loans are split out as a result of the small balance, homogeneous terms that characterize these loans.
Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves. As of September 30, 2025 and 2024, the only loans Management considered to have different risk characteristics from other loans sharing the same call report code were loans designated as nonaccrual.
The following tables present the activity in the allowance for credit losses by portfolio segment for the quarters ended September 30, 2025, and 2024:
Residential Real Estate
Commercial Real Estate
Farmland & Agricultural Production
Commercial & Industrial
Mortgage Warehouse
Consumer
Allowance for credit losses:
Balance June 30, 2025
1,694
17,335
521
1,571
451
108
21,680
Charge-offs
(18)
(31)
(231)
(280)
Recoveries
71
(Benefit) provision for credit losses
(294)
(524)
4,081
216
175
Balance September 30, 2025
1,400
16,793
4,602
1,766
506
113
25,180
Balance June 30, 2024
2,522
16,666
637
814
685
316
21,640
(39)
(389)
(397)
211
227
(885)
1,445
174
485
(218)
239
Balance September 30, 2024
1,637
18,142
811
1,276
467
22,710
The following tables present the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2025, and 2024:
1,808
17,143
3,827
1,282
398
372
24,830
(1,165)
(5,300)
(727)
(7,398)
423
868
815
5,665
655
2,727
18,554
586
1,148
311
23,500
(2,438)
(410)
(365)
(1,126)
(4,339)
559
672
(1,150)
2,026
635
520
Note 11 – Goodwill
The balance of goodwill at the three-and-nine months beginning and ended September 30, 2025, and 2024 was $27.4 million. There was no acquired goodwill for the three-and-nine months ended September 30, 2025, and 2024.
The Company performs its annual goodwill impairment tests annually, or more often if events or circumstances indicate the carrying value may not be recoverable. The annual assessment date was changed to October 1 in 2023 to allow more time for evaluation of impairment.
The Company performed its annual Step 1 goodwill impairment assessment subsequent to the September 30, 2025 period end, effective as of October 1, 2025, using a market approach. Based on the results of the Company’s goodwill impairment assessment, the Company determined that the fair value of its reporting unit, which was at the consolidated level, exceeded the carrying value. Management continues to evaluate whether or not a triggering event occurs, or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2025 and has concluded no such events have occurred. Therefore, goodwill was not impaired as of September 30, 2025, and there were no impairment charges related to the Company’s goodwill recorded during the three-and-nine months ended September 30, 2025, and 2024.
Note 12 – Borrowings and Other Arrangements
Repurchase Agreements – Repurchase agreements represent “sweep accounts,” where commercial deposit balances above a specified threshold are transferred at the close of each business day into separate non-deposit accounts. Customers use balances of the non-deposit accounts to purchase government bonds from the Company daily, subject to an agreement from the Company to repurchase such securities the next business day. Repurchase agreements totaled $125.7 million at September 30, 2025, relative to a balance of $108.9 million at December 31, 2024.
33
Long-Term Debt – The Company has long-term debt in the form of fixed to floating rate subordinated debentures with a fixed rate of 3.25% until September 30, 2026, then floating rate at 253.5 basis points over 3-month term Secured Overnight Financing Rate (“SOFR”) until maturity on October 1, 2031. The balance of the Company’s long-term debt, net of unamortized issuance costs, was $49.5 million at September 30, 2025, and $49.4 million at December 31, 2024.
Subordinated Debentures – Sierra Statutory Trust II (“Trust II”), Sierra Capital Trust III (“Trust III”), and Coast Bancorp Statutory Trust II (“Trust IV”), (collectively, the “Trusts”) exist solely for the purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. For financial reporting purposes, the Trusts are not consolidated, and the Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures”) held by the Trusts and issued and guaranteed by the Company are reflected in the Company’s consolidated balance sheet in accordance with provisions of ASC Topic 810. Trust preferred securities are variable rate instruments which were benchmarked against the London Interbank Offered Rate (LIBOR) plus a spread until LIBOR was phased out on June 30, 2023. These instruments are benchmarked against the SOFR, effective June 30, 2023. At September 30, 2025, and December 31, 2024, the Company’s trust preferred securities totaled $36.0 million and $35.8 million, respectively.
The following table summarizes the Company’s other borrowings as of September 30, 2025, and December 31, 2024:
Balance
Rate
Overnight Fed funds purchased
4.52%
6.56%
Short-term FHLB advance
4.57%
5.46%
Long-term FHLB advance
3.91%
Total other borrowings
4.11%
3.97%
The Company has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, FRB, and other correspondent banks.
Federal Funds Purchased – The Company had lines of credit with its correspondent banks which, in the aggregate, amounted to $485.8 million unsecured and $25.0 million secured at September 30, 2025, and December 31, 2024, at fixed interest rates which vary with market conditions. There was $25.0 million in outstanding overnight balances under these lines of credit at September 30, 2025, and none at December 31, 2024.
Secured FHLB Borrowings – At September 30, 2025, and December 31, 2024, the Company had secured available lines of credit with the FHLB totaling $623.8 million and $629.1 million, respectively, based on eligible collateral of certain loans and investment securities.
Federal Reserve Line of Credit – The Company has an available line of credit with the FRB of San Francisco secured by certain loans and investments. At September 30, 2025, and December 31, 2024, the Company had borrowing capacity under this line totaling $266.4 million and $298.3 million, respectively. The Company had no outstanding borrowings on this line of credit as of September 30, 2025, and December 31, 2024.
Note 13 – Revenue Recognition
The Company utilizes the guidance found in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), when accounting for certain noninterest income. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Sufficient information should be provided to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company’s revenue streams that are within the scope of and accounted for under Topic 606 include service charges on deposit accounts, debit card interchange fees, and fees levied for other services the Company provides its customers. The guidance does not apply to revenue associated with financial instruments such as
loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP.
All of the Company’s revenue from contracts within the scope of ASC 606 is recognized as noninterest income. Due to the short-term nature of the Company’s contracts with customers, an insignificant amount of receivables related to such revenue was recorded at September 30, 2025, September 30, 2024, and December 31, 2024. The following table presents the Company’s sources of noninterest income. Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited).
Service charges on deposits
Returned item and overdraft fees
1,357
1,458
3,856
4,136
Other service charges on deposits
2,681
2,713
7,609
7,884
Debit card interchange income
2,027
2,034
6,036
6,094
Dividends on equity investments(1)
320
319
1,011
1,014
Unrealized losses recognized on equity investments(1)
(311)
Net gain (loss) on sale of securities(1)
Other(1)
1,673
1,192
4,616
8,002
Percentage of noninterest income not within scope of ASC 606.
24.73%
20.34%
24.55%
With regard to noninterest income associated with customer contracts, the Company has determined that transaction prices are fixed, and performance obligations are satisfied as services are rendered, thus there is little or no judgment involved in the timing of revenue recognition under contracts that are within the scope of ASC 606.
ITEM 2
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes forward-looking statements that involve inherent risks and uncertainties. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933 (“1933 Act”), as amended and Section 21E of the Securities Exchange Act of 1934 (“1934 Act”), as amended. Those sections of the 1933 Act and 1934 Act provide a “safe harbor” for forward-looking statements in order to encourage companies to provide prospective information about their financial performance as long as important factors that could cause actual results to differ significantly from projected results are identified with meaningful cautionary statements. Words such as “expects,” “anticipates,” “believes,” “projects,” “intends,” and “estimates” or variations of such words and similar expressions, as well as future or conditional verbs preceded by “will,” “would,” “should,” “could” or “may” are intended to identify forward-looking statements. These forward-looking statements are based on certain underlying assumptions and are not guarantees of future performance, as they could be impacted by several potential risks and developments that cannot be predicted with any degree of certainty.
These statements are based on Management’s current expectations regarding economic, legislative, regulatory, and other environmental issues that may affect earnings in future periods. Therefore, actual outcomes and results may differ materially from what is expressed, forecast in, or implied by such forward-looking statements.
A variety of factors could have a material adverse impact on the Company’s financial condition or results of operations and should be considered when evaluating the Company’s potential future financial performance. They include, but are not limited to:
Risk factors that could cause actual results to differ materially from results that might be implied by forward-looking statements include the risk factors detailed in the Company’s Form 10-K for the fiscal year ended December 31, 2024, and in Item 1A, herein. The Company does not update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.
CRITICAL ACCOUNTING POLICY AND ACCOUNTING ESTIMATES
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances. Actual results may differ from those estimates under divergent conditions.
Critical accounting policies are those that involve the most complex and subjective decisions and assessments which have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s has identified one critical accounting policy:
Critical accounting areas are evaluated on an ongoing basis to ensure the Company’s financial statements incorporate its most recent expectations regarding those areas.
OVERVIEW OF THE RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS SUMMARY
Third Quarter 2025 Compared to Third Quarter 2024
Third quarter 2025 net income was $9.7 million, and $0.72 per diluted share as compared to $10.6 million, and $0.74 per diluted share in the third quarter of 2024. The Company’s annualized return on average equity was 10.81% and annualized return on average assets was 1.04% for the quarter ended September 30, 2025, compared to 11.95% and 1.14%,
respectively, for the same quarter in 2024. The primary drivers behind the variance in third quarter net income are as follows:
First Nine Months of 2025 Compared to First Nine Months of 2024
FINANCIAL CONDITION SUMMARY
September 30, 2025 Relative to December 31, 2024
The Company’s assets totaled $3.7 billion at September 30, 2025, an increase of $95.1 million, or 3.0% from December 31, 2024. The following provides a summary of key balance sheet changes during the first nine months of 2025:
EARNINGS PERFORMANCE
The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money. The second is noninterest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as BOLI, equity investments, and investment gains. The majority of the Company’s noninterest expense is comprised of operating costs that facilitate offering a full range of banking services to its customers.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income was $32.0 million for the third quarter of 2025, a $1.2 million increase, or 4% over the third quarter of 2024, and increased $3.1 million, or 3%, to $92.7 million for the first nine months of 2025 relative to the same period in 2024.
For the third quarter of 2025, there was a 35 basis point decrease in the cost of our interest-bearing liabilities combined with a $17.9 million decrease in the average balance of interest-bearing liabilities. Although the balance of average interest-earning assets was $7.2 million higher, the yield was 13 basis points lower as compared to the same period in 2024, which partially offset the favorable variances on the liability side.
Net interest income for the comparative year-to-date periods increased $3.1 million, or 3%, due primarily to a decrease of 25 basis points in the cost of funds of average interest-bearing liabilities combined with an increase in the average balance of interest-earning assets of $43.5 million. There was a $193.8 million, or 9%, increase in average loan balances yielding 19 basis points higher for the same period, while average investment balances decreased $150.3 million, yielding 78 basis points lower for the same period. The decline in average investment balances was mostly due to calls of collateralized loan obligations in 2025. Average interest-bearing liabilities decreased $4.9 million, mostly in higher cost customer time deposits and brokered deposits, offset by an increase in interest-bearing demand deposits and borrowed funds. The cost of interest-bearing liabilities was 25 basis points lower for the comparative periods. The favorable net impact of the mix and rate change was a 7 basis point increase in our net interest margin for the nine months ending September 30, 2025, as compared to the same period in 2024.
Interest expense was $12.0 million for the third quarter of 2025, a decrease of $2.0 million, relative to the third quarter of 2024. For the first nine months of 2025, compared to the same period in 2024, interest expense decreased $4.2 million to
$35.4 million. The decrease in interest expense for the first nine months of 2025, as compared to the same period in 2024, was attributable to a decrease in higher cost customer time deposits and brokered deposits, along with a net overall interest rate decrease in customer deposit account balances. These decreases were partially offset by increases in other borrowed funds. For the first nine months of 2025, compared to the same period in 2024, the average balance of higher cost customer time deposits and brokered deposits decreased $78.6 million, while low to no cost transaction account balances increased $93.6 million and borrowed funds increased $16.3 million.
The Company had $1.8 billion in adjustable and variable rate loans and $268.0 million in floating rate bonds, as compared to $245.0 million in floating rate CDs and $36.0 million in floating rate trust preferred securities at September 30, 2025. The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years. Of the $1.8 billion in adjustable and variable rate loans, $779.9 million reprice or mature in the next twelve months. In addition, there were $642.8 million of fixed-term deposits that reprice or mature within twelve months. Based on current rates, of the $779.9 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $117.1 million, or 15%, have a pricing index rate higher than the current index, while $146.1 million, or 19%, have a pricing index rate lower than the current index. The remaining balance of $516.7 million are priced at the current index rate or are expected to mature.
Net interest margin was 3.78% for the third quarter of 2025, as compared to 3.66% for the third quarter of 2024, and 3.73% for the nine months ended September 30, 2025, compared to 3.66% for the same period last year. The main reason for the improvement of net interest margin for both the quarter and year-to-date comparisons was a significant decrease in cost of interest-bearing liabilities. For the quarterly comparison there was a 35 basis point favorable decline in cost of interest-bearing liabilities complemented by a decrease of $17.9 million in the average balance of the same accounts. While the yield of interest-earning assets decreased 13 basis points during the same comparative period, the average balance of interest-earning assets increased $7.2 million.
The level of net interest income recognized in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities.
The following tables show average balances for significant balance sheet categories and the amount of interest income or interest expense associated with each category for the noted periods. The tables also display calculated yields on each major component of the Company’s investment and loan portfolios, average rates paid on each key segment of the Company’s interest-bearing liabilities, and net interest margin for the noted periods.
40
Average Balances and Rates
For the three months ended
September 30, 2024
Assets
Average Balance (1)
Income/Expense
AverageRate/Yield (2)
AverageBalance (1)
Investments:
Interest-earning due from banks
31,672
4.12%
88,509
5.51%
Taxable
731,274
4.94%
830,054
5.75%
Non-taxable
196,550
4.04%
199,261
4.00%
Total investments
959,496
11,013
4.73%
1,117,824
14,800
5.42%
Loans:(3)
Real estate
1,849,065
22,997
4.93%
1,804,099
21,054
4.64%
Agricultural
70,033
961
5.44%
81,501
1,520
7.42%
Commercial
116,855
1,824
6.19%
76,633
1,101
5.72%
2,872
64
8.84%
3,558
78
8.72%
395,940
7,059
7.07%
303,463
6,227
8.16%
2,453
3.07%
2.94%
Total loans
2,437,218
5.36%
2,271,692
5.25%
Total interest-earning assets (4)
3,396,714
5.18%
3,389,516
5.31%
Other earning assets
17,062
Non-earning assets
297,980
288,975
3,711,756
3,695,553
Liabilities and shareholders' equity
Interest-bearing deposits:
Demand deposits
251,719
1,617
2.55%
169,602
1,170
2.74%
NOW
369,586
131
0.14%
393,328
161
0.16%
Savings accounts
356,172
106
0.12%
359,921
0.10%
Money market
156,347
745
1.89%
132,804
542
1.62%
Time deposits
496,155
4,078
3.26%
562,251
6,010
4.25%
Brokered deposits
259,624
2,929
4.48%
327,141
4,004
4.87%
Total interest-bearing deposits
1,889,603
2.02%
1,945,047
2.45%
Borrowed funds:
Federal funds purchased
30,545
353
4.59%
168
4.74%
134,619
0.20%
133,280
0.18%
Short term borrowings
5,539
0.00%
Long term FHLB advances
788
49,447
3.44%
49,357
3.46%
35,945
7.25%
35,767
8.35%
Total borrowed funds
336,095
2,363
2.79%
298,573
2,028
2.70%
Total interest-bearing liabilities
2,225,698
2.13%
2,243,620
2.48%
Demand deposits - noninterest-bearing
1,048,639
995,326
81,368
103,571
356,051
353,036
Interest income/interest-earning assets
Interest expense/interest-earning assets
1.40%
1.64%
Net interest income and margin(5)
3.78%
3.66%
41
(Dollars in Thousands, Unaudited)
For the nine months ended
34,728
4.34%
49,779
5.54%
745,614
863,044
5.89%
196,820
4.07%
214,677
977,162
33,400
1,127,500
45,310
5.53%
1,841,163
67,576
4.91%
1,804,159
61,706
73,071
2,906
5.32%
72,946
4,064
7.44%
109,854
6.03%
77,684
3,458
5.95%
3,123
196
8.39%
3,739
238
8.50%
359,564
19,029
7.08%
234,470
14,431
8.22%
2,389
2.80%
2,354
46
2.61%
2,389,164
5.30%
2,195,352
5.11%
3,366,326
5.14%
3,322,852
17,155
284,071
281,952
3,667,459
3,621,959
228,208
4,329
2.54%
146,443
2,601
2.37%
374,508
390
396,644
0.13%
354,551
292
0.11%
369,371
246
149,252
1,925
1.72%
136,652
1,428
Time Deposits
514,679
12,774
3.32%
562,571
18,251
4.33%
249,584
8,594
4.60%
280,248
9,737
1,870,782
1,891,929
2.31%
25,758
870
5,074
249
123,954
0.23%
125,742
166
11,439
391
14,314
613
2,339
2,341
49,424
3.49%
49,335
3.50%
35,900
7.32%
35,722
8.45%
326,475
7,070
2.90%
310,187
6,921
2.98%
2,197,257
2.15%
2,202,116
2.40%
1,024,278
988,128
91,709
86,061
354,215
345,654
1.41%
1.59%
3.73%
42
The Volume and Rate Variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to fluctuations in average balances (volume) or differences in average interest rates. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates, and rate variances are equal to the change in rates multiplied by prior period average balances. Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the mix variance.
Volume & Rate Variances
2025 over 2024
Increase (decrease) due to
Assets:
Volume
Mix
Net
Federal funds sold/due from time
(787)
(305)
(896)
(624)
(448)
135
(937)
(1,427)
(1,657)
197
(2,887)
(5,181)
(6,205)
844
(10,542)
(17)
(4)
(543)
(2)
114
(431)
Total investments (1)
(2,219)
(1,944)
376
(3,787)
(6,348)
(6,655)
1,093
(11,910)
Loans:
525
1,384
1,943
1,266
4,511
5,870
(214)
(402)
(559)
(1,163)
(1,158)
578
95
1,432
43
1,493
(14)
(40)
(3)
(42)
Mortgage warehouse
1,898
(817)
(249)
832
7,699
(2,022)
(1,079)
4,598
Total loans (1)
2,772
262
(108)
2,926
10,365
1,369
(969)
10,765
Total interest-earning assets (1)
553
(1,682)
268
(861)
4,017
(5,286)
(1,145)
Liabilities
566
(80)
1,452
177
99
1,728
(10)
(21)
(30)
96
91
203
334
497
(707)
(1,388)
163
(1,932)
(1,554)
(4,288)
365
(5,477)
(827)
(313)
65
(1,075)
(1,066)
(87)
(1,143)
Total interest-bearing deposits (1)
(883)
(1,697)
(2,374)
(1,068)
(3,786)
502
(4,352)
362
(11)
351
1,015
(78)
(316)
621
(123)
(222)
Long-term FHLB Advances
Long term debt
(98)
(94)
(296)
Total borrowed funds (1)
368
(90)
335
903
(460)
149
Total interest-bearing liabilities (1)
(515)
(1,787)
263
(2,039)
(165)
(4,246)
208
(4,203)
Net interest income (1)
1,068
105
1,178
4,182
(1,040)
(84)
3,058
The volume variance calculated for the third quarter of 2025 relative to the third quarter of 2024 was a favorable $1.1 million; this is primarily from the net impact of a favorable loan volume variance of $2.8 million offset by an unfavorable volume reduction in investment securities of $2.2 million. This was augmented by a favorable net volume reduction in interest-bearing liabilities. There was an unfavorable rate variance on investment securities, which was mostly to the variable rate investments, in the form of CLOs, substantially offsetting the favorable rate variances in loans and interest-bearing liabilities.
The net interest income variance calculated for the first nine months of 2025 relative to the first nine months of 2024 reflects a favorable volume variance of $4.2 million, an unfavorable rate variance of $1.0 million, and an unfavorable mix variance of $0.1 million. There were increases in loan balances for a favorable volume variance of $10.4 million which more than offset a $6.3 million volume decrease in investments, due to calls and pay-offs of CLOs. There was a $1.1 million decrease in interest-bearing deposits, partially offset by a $0.9 million increase in borrowed funds. There was an unfavorable rate variance on interest earning assets of $5.3 million for the first nine months of 2025 partially offset by a favorable $4.2 million rate decrease in interest earning liabilities.
Average interest earning cash balances for the quarterly and year-to-date comparisons have decreased and have a positive impact on the net interest margin since cash balances have been earning approximately 4.34% and have been deployed into mortgage warehouse line advances yielding 7.08%. Average interest-earning cash and due from banks was $31.7 million, a decrease of $56.8 million for the third quarter of 2025 as compared to the same period last year.
Overall average investment securities decreased by $101.5 million for the third quarter of 2025, as compared to the same period in 2024, as paydowns and maturities exceeded purchases, with the excess used to partially offset brokered deposit maturities. The overall investment portfolio had a tax-equivalent yield of 4.73% at September 30, 2025, with an average life of 6.01 years and average effective duration of 2.42 years for available-for-sale securities. Approximately $230.1 million of investment securities reprice every 90 days and $80.2 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.
Variances in interest expense were the result of changes discussed under the “Net Interest Income and Net Interest Margin” heading.
PROVISION FOR CREDIT LOSSES ON LOANS
Credit risk is inherent in the business of making loans. The Company sets aside an allowance for credit losses on loans, a contra-asset account, through periodic charges to earnings, which are reflected in the income statement as the provision for credit losses on loans. Specifically identifiable and quantifiable loan losses are immediately charged off against the allowance, with subsequent recoveries reflected as an increase to the allowance. The Company recorded a provision for credit losses of $3.7 million in the third quarter of 2025, as compared to $1.2 million in the third quarter of 2024. The year-to-date provision for credit losses on loans was $6.9 million in 2025, as compared to $2.3 million for the same period in 2024. The $2.5 million increase in the provision for credit losses on loans in the third quarter of 2025, as compared to the third quarter of 2024, and the $4.6 million year-to-date increase in the provision for credit losses on loans, compared to the same period in 2024, was primarily due to the addition of $3.5 million in individual reserves mostly related to a single agricultural production loan, in the third quarter of 2025. At September 30, 2025, such agricultural production loan had a remaining book balance of $3.5 million with an associated individual reserve of $3.5 million fully offsetting such loan. See “Allowance for Credit Losses – Loans” for additional information on this credit.
The allowance for credit losses on loans is at a level that, in Management’s judgment, is adequate to absorb probable credit losses on loans related to individually identified loans as well as probable credit losses in the remaining loan portfolio.
The Company’s policies for monitoring the adequacy of the allowance, determining loan balances that should be charged off, and other detailed information with regard to changes in the allowance are discussed in Note 10 to the consolidated financial statements, and below, under “Allowance for Credit Losses.” The process utilized to establish an appropriate credit allowance for losses on loans can result in a high degree of variability in the Company’s credit loss provision, and consequently in net earnings.
NONINTEREST INCOME AND NONINTEREST EXPENSE
Noninterest Income/Expense
For the nine months ended September 30,
Noninterest income:
(Loss) gain on sale of fixed assets
As a % of average interest-earning assets (1)
0.94%
0.91%
0.92%
0.97%
Noninterest expense:
Salaries and employee benefits
12,728
12,286
38,132
37,264
Deferred compensation
325
Advertising and marketing costs
403
1,156
1,061
Data processing costs
1,518
1,555
4,582
4,744
Deposit services costs
2,134
2,150
6,243
6,302
Loan services costs
Loan processing
184
425
424
Other operating costs
959
2,905
2,980
Professional services costs
Legal and accounting services
641
547
1,712
1,976
Director's costs
332
327
951
1,018
Deferred directors' fees
438
942
1,383
Other professional services
763
775
2,180
2,167
Stationery and supply costs
102
382
Sundry and tellers
280
656
829
2.76%
2.68%
2.77%
2.82%
Noninterest Income:
Total noninterest income increased $0.3 million, or 3%, for the quarter ended September 30, 2025, as compared to the same quarter in 2024, and decreased $0.8 million, or 3%, for the year-to-date period ended September 30, 2025, as compared to the same period in 2024. The year-to-date decline was impacted by a decrease in service charge income on deposit accounts, unfavorable fluctuations in income on Bank Owned Life Insurance (BOLI) with underlying investments mapped directly to the Company’s deferred compensation plan and a net gain on the balance sheet restructure in early 2024 with no similar transaction in 2025. Offsetting these unfavorable variances was an increase in other income which was related to life insurance proceeds received in 2025 with no like proceeds in 2024.
The Company maintains a non-qualified deferred compensation plan for officers and directors, which allows the participant to defer a portion of their earnings tax-free. Participants are allowed to choose different hypothetical investment alternatives to determine their individualized return on their deferred compensation. The Company has chosen to offset the cost of this liability with a BOLI Policy, which is funded based on deferral elections from the participants. Although the BOLI is not directly tied to the deferred compensation plan, the BOLI is invested in similar fund types as those selected by the participants. There is some inefficiency in net earnings of the BOLI asset as compared to the deferred compensation liability created by the cost of insurance, differences in balances, and differences in individual fund performance. During the third quarter, and first nine months of 2025, earnings from the BOLI were $0.6 million, and $1.1 million, respectively, while additional expense from the related deferred compensation liability was $0.5 million, and $1.2 million, respectively. The majority of this expense is reported as professional fees under directors’ fees as it is related to deferral of past directors’ fees. Specifically, $0.4 million for the quarterly comparison, and $0.9 million for the year-to-date comparison, respectively, was reflected as directors’ fees as part of the overall professional fees expense line item. The tax benefit of having tax-free earnings with tax-deductible expense was $0.3 million during the third quarter of 2025, and $0.7 million for the first nine months of 2025.
Service charges and fees on customer deposit accounts declined by $0.1 million, or 2%, to $6.1 million in the third quarter of 2025 as compared to the third quarter of 2024, and declined by $0.6 million, or 3% for the year-to-date comparison. Lower analysis fees, returned check charges, and interchange on debit cards were the primary drivers of the unfavorable variance in both the quarterly and year-to-date variances.
In the “other” category of noninterest income there was no change in the third quarter of 2025 as compared to the third quarter of 2024, and a $1.0 million increase for the first nine months of 2025 as compared to the same period in 2024. Life insurance proceeds received in 2025 accounted for most of the favorable variance for the year-to-date comparison.
Noninterest Expense:
Total noninterest expense increased by $0.8 million, or 4%, in the third quarter of 2025, relative to the third quarter of 2024, and decreased by $0.2 million for the first nine months of 2025, as compared to the same period in 2024.
Salaries and Benefits were $0.5 million, or 4%, higher in the third quarter of 2025 as compared to the third quarter of 2024, and $0.8 million higher for the first nine months of 2025, as compared to the same period in 2024. The Company implemented a strategic reorganization at the end of the third quarter of 2025 which resulted in a reduction in force, accompanied by $0.2 million in severance payments. The remaining increase for both the quarter and year-over-year periods was mostly due to a change in composition in the workforce. There were 476 full-time equivalent employees at September 30, 2025, as compared to 485 at December 31, 2024.
Occupancy expenses increased by $0.2 million for the third quarter, and the first nine months of 2025 as compared to the same periods in 2024. The increases in both comparisons were primarily due to increased property taxes related to the updated assessed values of the properties involved in the sale/leaseback transaction in early 2024.
Other noninterest expense was relatively unchanged for the third quarter 2024, as compared to the third quarter in 2024, and decreased $1.2 million, or 5%, for the first nine months of 2025, as compared to the same period in 2024. For the year-over-year comparison the decrease was primarily driven by decreases in directors’ deferred compensation expense and
legal and accounting services of $0.5 million and $0.3 million, respectively. The remaining decrease was related to lower data processing costs and reduced debit card losses.
PROVISION FOR INCOME TAXES
The Company sets aside a provision for income taxes on a monthly basis. The amount of that provision is determined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits. Permanent differences include, but are not limited to, tax-exempt interest income, BOLI income, and certain book expenses that are not allowed as tax deductions. Tax credits consist primarily of those generated by investments in low-income housing tax credit funds. The Company's provision for income taxes was 23.6% of pre-tax income in the third quarter of 2025, relative to 26.4% in the third quarter of 2024, and 24.9% of pre-tax income for the first nine months of 2025 relative to 26.8% for the same period in 2024.
The decrease in effective tax rate for both the quarterly and year-to-date comparisons was due to the tax credits and tax-exempt income representing a larger percentage of total taxable income.
BALANCE SHEET ANALYSIS
EARNING ASSETS
The Company’s interest-earning assets are comprised of loans and investments, including overnight investments and surplus balances held in interest-earning accounts in its FRB account. The composition, growth characteristics, and credit quality of both of those components are significant determinants of the Company’s financial condition. Investments are analyzed in the section immediately below, while the loan portfolio and other factors affecting earning assets are discussed in the sections following investments.
INVESTMENTS
The Company’s investments may at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in its FRB account, and overnight fed funds sold. The Company’s investments can serve several purposes, including the following: 1) they can provide liquidity for potential funding needs; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with structural characteristics that can be changed more readily than loan or deposit portfolios, as might be required for interest rate risk management purposes; 4) they are another interest-earning option for the placement of surplus funds when loan demand is light; and 5) they can provide partially tax exempt income.
The investment portfolio is reflected on the balance sheet as investment securities and totaled $891.4 million, or 24% of total assets at September 30, 2025, and $961.5 million, or 27% of total assets at December 31, 2024. The decrease was due to maturities and paydowns, partially used to offset brokered deposit maturities.
The Company carries “available-for-sale” investments at their fair market values and “held-to-maturity” investments at amortized cost, net of allowance for credit losses. The Company currently has the intent and ability to hold investment securities to maturity, but the securities are all marketable. The expected effective duration was 2.4 years for available-for-sale investments and 5.9 years for held-to-maturity investments at September 30, 2025, as compared to 1.5 years for available-for-sale investments and 6.0 years for held-to-maturity investments at December 31, 2024.
The following table sets forth the carrying amount for available-for-sale securities, at fair value, and held-to-maturity securities, at amortized cost, net of the allowance for credit losses of the Company’s investment portfolio by investment type as of the dates noted:
Investment Portfolio
Carrying Amount
Percent
Available for sale
5.22%
22.28%
9.72%
4.24%
9.00%
6.09%
25.82%
42.95%
Total available for sale
66.97%
68.22%
Held to maturity
0.51%
0.50%
13.32%
13.41%
171,130
19.20%
171,721
17.87%
Total held to maturity
33.03%
31.78%
Total securities
100.00%
Investment securities pledged as collateral for borrowings and/or potential borrowings from the FHLB and the FRB, customer repurchase agreements, and other purposes as required or permitted by law totaled $403.7 million at September 30, 2025, and $403.4 million at December 31, 2024, leaving $487.7 million in unpledged debt securities at September 30, 2025, and $558.1 million at December 31, 2024. Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $230.6 million at September 30, 2025, and $242.2 million at December 31, 2024.
ALLOWANCE FOR CREDIT LOSSES – AFS INVESTMENT SECURITIES
The allowance for credit losses on AFS investment securities, a contra-asset, is established through periodic provisions for credit losses on AFS investment securities. It is maintained at a level that is considered adequate to measure expected losses across the classes of major investment security types related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The Company maintains it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both September 30, 2025 and December 31, 2024, that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold. The following bullets outline additional support for Management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of September 30, 2025, and December 31, 2024, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.
48
LOAN PORTFOLIO
A distribution of the Company’s loans showing the balance and percentage of loans by type is presented for the noted periods in the table below. The balances in the table are after deferred or unamortized loan origination, extension, or commitment fees, and deferred origination costs. While not reflected in the loan totals and not currently comprising a material segment of lending activities, the Company also occasionally originates and sells, or participates out portions of loans to non-affiliated investors.
14.62%
16.41%
56.37%
58.25%
0.54%
2.72%
3.33%
74.25%
78.22%
7.46%
7.64%
18.17%
14.00%
Gross loans held at amortized cost totaled $2.5 billion, an increase of $160.4 million, or 7%, during the first nine months of 2025. Organic loan growth contributed to increases of $46.8 million in commercial real estate loans, $7.9 million in construction loan balances, and $7.6 million in other commercial loans. Mortgage warehouse line utilization increased $126.3 million, or 39%. Consumer loans had a modest decline, while residential real estate loans decreased $18.2 million, and farmland loans decreased $9.7 million.
As indicated in the loan rollforward table below, new credit extended for the third quarter of 2025, remained flat on a linked-quarter basis, decreased $13.2 million over the same period in 2024, and increased $26.1 million for the year-to-date comparisons. The Company had $121.5 million in loan paydowns and maturities; however, mortgage warehouse utilization of $126.3 million had a positive impact in the first nine months of 2025.
LOAN ROLLFORWARD
For the three months ended:
For the nine months ended:
9/30/2025
6/30/2025
9/30/2024
Gross loans beginning balance
2,434,605
2,306,762
2,234,528
2,090,075
New credit extended
48,065
48,147
61,239
162,582
136,518
Changes in line of credit utilization (1)
2,587
11,572
(6,914)
(23,768)
Change in mortgage warehouse
50,787
118,665
61,718
126,283
219,778
Pay-downs, maturities, charge-offs and amortization
(44,306)
(41,556)
(48,428)
(121,513)
(101,974)
Gross loans ending balance
2,320,629
At September 30, 2025, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 242.7% as compared to 236.3% at December 31, 2024. The overall level of construction and land development lending was 2.9% of regulatory capital plus allowance for credit losses at September 30, 2025. At September 30, 2025, non-owner occupied commercial real estate includes $306.8 million of retail; $143.5 million of warehouse/industrial; $157.5 million of office; and $231.3 million of hospitality. Approximately $34.6 million, or 22% of the office real estate matures or reprices in less than two years.
Unused commitments, excluding mortgage warehouse and overdraft lines, were $263.1 million at September 30, 2025, compared to $256.9 million at December 31, 2024. Total line utilization, excluding mortgage warehouse and overdraft lines, was 57.9% at September 30, 2025, and 57.0% at December 31, 2024. Mortgage warehouse utilization increased to 59.4% at September 30, 2025, as compared to 51.2% at December 31, 2024.
The mortgage warehouse lines are structured as repurchase agreement lines. The repurchase agreement structure provides stronger credit protection to the Company, as well as more favorable regulatory capital treatment, as these repurchase lines are not considered off-balance sheet commitments for regulatory capital purposes as they are unconditionally cancellable.
NONPERFORMING ASSETS
Nonperforming assets are currently comprised of loans for which the Company is no longer accruing interest and foreclosed assets.
Nonperforming assets
Nonperforming Loans:
2,655
7,528
Total Real Estate nonperforming loans
10,225
123
Total nonperforming Loans
10,348
Total Nonperforming Assets
15,845
Nonperforming loans as a % of total gross loans
0.56%
0.84%
0.45%
Nonperforming assets as a % of total gross loans and foreclosed assets
0.64%
Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, improved with a favorable decline of $3.8 million to $15.8 million for the first nine months of 2025. The Company's ratio of nonperforming loans to gross loans decreased to 0.56% at September 30, 2025, from 0.84% at December 31, 2024. This favorable year-to-date decline resulted from a decrease in non-accrual loan balances, due mostly to the partial charge-off of one agricultural production loan in the second quarter of 2025. All the Company's nonperforming assets are individually evaluated for credit loss quarterly and Management believes the established allowance for credit loss on such loans is appropriate.
Foreclosed assets had a carrying value of $1.8 million at September 30, 2025 comprised of one property classified as Other Real Estate Owned (OREO). There were no foreclosed assets at December 31, 2024. All foreclosed assets are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value.
An action plan is in place for each non-accruing loan, and they are all being actively managed. Collection efforts are continuously pursued for all nonperforming loans, but the Company cannot provide assurance that they will be resolved in a timely manner or that nonperforming balances will not increase.
The Company had $0.2 million in loans past due 30-89 days and still accruing at September 30, 2025. This was a decrease of $1.2 million over the balance at December 31, 2024. All of these past due loans are under Management supervision and every effort is being taken to assist the borrowers and manage credit risk in this regard.
ALLOWANCE FOR CREDIT LOSSES – LOANS
The allowance for credit losses on loans, a contra-asset, is established through periodic provisions for credit losses on loans. It is maintained at a level that is considered adequate to measure expected losses on individually identified loans, as well as expected losses inherent in the remaining loan portfolio. Specifically identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge-off.
The Company's allowance for credit losses on loans and leases was $25.2 million at September 30, 2025, as compared to $24.8 million at December 31, 2024. The increase resulted from a $3.5 million increase in specific individual reserves on impaired loans on a single agricultural production loan in the third quarter of 2025, offset by a $5.3 million partial charge-off on the same loan in the second quarter of 2025, which had a $3.0 million specific individual reserve at December 31, 2024. Such agricultural production loan was in the wine grape industry and had a remaining book balance of $3.5 million at September 30, 2025, with a full individual reserve of $3.5 million offsetting the remaining balance. In addition to this loan, the Bank had $19.2 million in outstanding agricultural production loans in the winery and grape industry at September 30, 2025, of which $1.7 million were grapes. None of the remaining $19.2 million in wine and grape production loans were classified as special mention or substandard.
The allowance as a percentage of gross loans was 1.01% and 1.07%, at September 30, 2025 and December 31, 2024, respectively. Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses for the life of the loans outstanding as of September 30, 2025, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance for loans. The total allowance for credit losses on loans of $25.2 million at September 30, 2025, included $0.5 million of allowance related to $452.7 million of mortgage warehouse lines. A separate allowance of $0.8 million for potential credit losses inherent in unused commitments is included in other liabilities at September 30, 2025, an increase of $0.1 million, from December 31, 2024.
For the threemonths ended
For the ninemonths ended
For the year ended
September 30,
December 31,
Balances:
Average gross loans outstanding during period (1)
2,225,402
Gross Loans outstanding at end of period
Allowance for credit losses on loans:
Balance at beginning of period
Provision charged to expense
4,593
2,848
231
388
1,126
1,484
397
7,398
4,339
4,861
883
1,598
Net loan charge-offs
209
170
6,530
3,048
3,263
Balance at end of period
RATIOS
Net charge-offs to average loans (annualized)
0.59%
Allowance for credit losses on loans to gross loans at end of period
1.01%
0.98%
1.07%
Net loan charge-offs to allowance for credit losses on loans at end of period
0.83%
0.75%
25.93%
13.42%
13.14%
Net loan charge-offs to provision for credit losses on loans
5.63%
13.71%
94.91%
134.99%
71.04%
OFF-BALANCE SHEET ARRANGEMENTS
The Company maintains commitments to extend credit in the normal course of business, as long as there are no violations of conditions established in the outstanding contractual arrangements. It is unlikely that all unused commitments will ultimately be drawn down. Unused commitments to extend credit, which included standby letters of credit, totaled $641.8 million at September 30, 2025, and $641.5 million at December 31, 2024, representing approximately 26% of gross loans outstanding at September 30, 2025, and 28% at December 31, 2024. Included in unused commitments are mortgage warehouse lines, which are mostly in the form of repurchase lines and are unconditionally cancellable. Unused commitments on mortgage warehouse lines were $308.8 million at September 30, 2025, and $311.6 million at December 31, 2024, while mortgage warehouse utilization was 59% and 51%, respectively.
The increase in mortgage warehouse utilization during the first nine months of 2025 was due to new customers added in the mortgage warehouse product that ramped up their utilization. Unused commitments, exclusive of mortgage warehouse lines and overdraft lines of credit, increased to 58% at September 30, 2025 from 57% at December 31, 2024. Total mortgage warehouse commitments increased by $25.0 million and $123.5 million for the three-and-nine-month periods ending September 30, 2025, respectively.
The Company also had undrawn letters of credit issued to customers totaling $4.3 million at September 30, 2025, and $5.0 million at December 31, 2024. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should the Company be required to fund a significant portion of unused commitments.
In addition to unused commitments to provide credit, the Company is utilizing a $125 million letter of credit issued by the FHLB on the Company’s behalf as security for certain local agency deposits which totaled $85.3 million at September 30, 2025. That letter of credit is backed by loans pledged to the FHLB by the Company. For more information on the Company’s off-balance sheet arrangements, see Note 7 to the consolidated financial statements located elsewhere herein.
OTHER ASSETS
Interest-earning cash balances were discussed above in the “Investments” section, but the Company also maintains a certain level of cash on hand in the normal course of business, as well as non-earning deposits at other financial institutions. The Company’s balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the amount of cash held in the branches, and the reserve requirement among other things, and it is subject to significant fluctuations in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to, and borrowings from, correspondent banks, including the FRB and the FHLB. Should a large “short” overnight position persist for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits. If a “long” position is prevalent, the Company could let brokered deposits or other wholesale borrowings roll off as they mature, or invest excess liquidity into investments or loans, subject to the Company’s risk tolerances. The Company’s balance of non-earning cash and due from banks was $81.8 million at September 30, 2025, relative to $79.6 million at December 31, 2024.
Foreclosed assets are discussed above in the section titled “Nonperforming Assets.”
Net premises and equipment decreased by $0.4 million during the first nine months of 2025, to $15.1 million. This decline was mostly a result of depreciation in the first nine months of 2025.
Goodwill was $27.4 million at September 30, 2025, unchanged during the first nine months of 2025. Goodwill is tested for impairment annually, unless events and circumstances exist which indicate that an impairment test should be performed. The annual goodwill impairment test was last performed on October 1, 2025, and it was determined that no impairment existed. Management continues to evaluate whether or not a triggering event occurs, or circumstances change
that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2025.
Bank-owned life insurance, with a balance of $68.7 million at September 30, 2025, increased $15.6 million during the first nine months of 2025, primarily due to the purchase of additional life insurance policies. Additional details are discussed above in the “Noninterest Income and Noninterest Expense” section.
The remainder of other assets consists primarily of right-of-use assets tied to operating leases, accrued interest receivable, deferred taxes, investments in bank stocks, prepaid assets, investments in low-income housing credits, investments in SBA loan funds, and other miscellaneous assets. Bank stocks include Pacific Coast Bankers Bank (PCBB) stock (marked to market value annually) and restricted stock related to the Federal Home Loan Bank of San Francisco (FHLB SF) stock held in conjunction with our FHLB borrowings. Both the PCBB and FHLB SF stock are not deemed to be marketable or liquid. Our net deferred tax asset is evaluated as of every reporting date pursuant to FASB guidance, and we have determined that no impairment exists.
DEPOSITS AND INTEREST-BEARING LIABILITIES
DEPOSITS
Deposits represent a key balance sheet category impacting the Company’s profitability metrics. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity accounts, such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates paid by deposit type is included in the Average Balances and Rates tables appearing above, in the section titled “Net Interest Income and Net Interest Margin.” A distribution of the Company’s deposits by type, showing the period-end balance and percentage of total deposits, is presented as of the dates indicated in the following table.
Deposit Distribution
Noninterest-bearing demand deposits
36.57%
34.83%
Interest-bearing demand deposits
267,349
9.12%
206,766
7.15%
367,930
12.55%
380,987
13.18%
Savings
357,107
12.18%
347,387
12.01%
156,255
5.33%
140,793
Time
476,242
16.24%
533,577
18.45%
234,950
8.01%
274,950
9.51%
Deposit balances reflect growth of $41.1 million, or 1%, during the first nine months of 2025. Core non-maturity deposits increased by $138.4 million, or 7%, while customer time deposits decreased by $57.3 million, or 11%. Wholesale brokered deposits decreased by $40.0 million, or 15%. Overall noninterest-bearing deposits as a percentage of total deposits at September 30, 2025, increased to 36.6%, as compared to 34.8% at December 31, 2024.
Overall uninsured deposits are estimated to be $748.1 million, or 26% of total deposit balances, excluding public agency deposits that are subject to collateralization through a letter of credit issued by the FHLB. In addition, uninsured deposits of the bank’s customers are eligible for FDIC pass-through insurance if the customer opens an IntraFi Insured Cash Sweep account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (CDARS). IntraFi allows for up to $285 million of combined pass-through FDIC insurance which would more than cover each of the Bank’s deposit customers if a customer desired to have such pass-through insurance. The Bank maintains a diversified deposit base with no significant customer concentrations and does not bank any cryptocurrency companies. At September 30, 2025, the
Company had approximately 117,000 accounts, and the 25 largest deposit balance customers had balances of approximately 11% of overall deposits.
OTHER INTEREST-BEARING LIABILITIES
Customer repurchase agreements were $125.7 million at September 30, 2025, as compared to $108.9 million at December 31, 2024. Customer repurchase agreements allow customers to sweep excess deposit balances over the FDIC insurance limit each day into a separate repurchase agreement account. Monies in that account are used daily by the customer to purchase specific government debt securities from the Company under an agreement from the Company to repurchase the same securities from the customer on the next business day. These accounts are not deposits and are not FDIC insured. However, the repurchase agreement provides a customer with a larger account balance to have their account effectively secured with US government securities.
The Company’s non-deposit borrowings may, at any given time, include fed funds purchased from correspondent banks, borrowings from the FHLB, advances from the FRB, securities sold under agreements to repurchase, subordinated notes and/or junior subordinated debentures. The Company uses short-term FHLB advances and fed funds purchased on unsecured lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line consists of both a secured and unsecured component. The secured component depends on the level of pledged collateral.
At September 30, 2025 the Company had $55.0 million in overnight borrowings, and $80.0 million of term FHLB borrowings, as compared to $80.0 million of term FHLB borrowings on December 31, 2024.
Long-term debt at September 30, 2025, consisted of $49.5 million of subordinated debt. This remained relatively unchanged from December 31, 2024. Subordinated debentures related to $36.0 million of trust preferred securities at September 30, 2025, was $0.1 million higher than at December 31, 2024. The small increase resulted from the amortization of the discount on junior subordinated debentures that were part of the Company’s acquisition of Coast Bancorp in 2016. Trust preferred securities are variable rate instruments benchmarked against the Secured Overnight Financing Rate (SOFR).
OTHER NONINTEREST-BEARING LIABILITIES
Other liabilities are principally comprised of operating lease right-of-use liabilities, accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts. The Company’s balance of other liabilities was $69.6 million at September 30, 2025, as compared to $90.5 million at December 31, 2024, a decrease of $20.9 million or 23%. The decrease was primarily driven by investment security purchases in process that settled, ICS transactions in process that settled, funds advanced on low-income housing tax credit investments, and a decrease in accrued interest on time deposits.
LIQUIDITY AND MARKET RISK MANAGEMENT
LIQUIDITY
The Company continues to have substantial liquidity through unencumbered assets and available borrowings. In addition, the Company’s loan-to-deposit ratio was 85% at September 30, 2025, and 81% at December 31, 2024, compared to an internal policy guideline of less than 90%.
Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by Management on a monthly basis, with various stress scenarios applied to assess the Company’s ability to meet liquidity needs under unusual or adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored, the Company is committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise.
The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments. To meet these short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances via FHLB lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources.
At September 30, 2025, and December 31, 2024, the Company had the following sources of primary and secondary liquidity (dollars in thousands):
Primary and secondary liquidity sources
12/31/2024
Unpledged investment securities
487,710
552,098
Excess pledged securities
230,581
242,519
FHLB borrowing availability
623,774
629,134
Unsecured lines of credit
460,785
479,785
Secured lines of credit
Funds available through fed discount window
266,419
298,296
Totals
2,189,770
2,327,496
Available funding sources, detailed above, of $2.2 billion represented 75% of total deposits and 293% of estimated uninsured and/or uncollateralized deposits as of September 30, 2025. Unpledged investment securities include $71.9 million of CLOs. As CLO rates reset every 90 days to current rates, the volatility of pricing of these securities is limited and the Company could sell such securities for liquidity at a significantly lower loss than selling lower-rate fixed term securities such as US government bonds or municipal bonds.
The Company performs regular stress tests on its liquidity, and at this time, Management believes it has sufficient primary and secondary liquidity sources for operations.
The Company has a higher level of actual balance sheet liquidity than might otherwise be the case since the Company utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at September 30, 2025, and December 31, 2024. Other sources of liquidity include the brokered deposit market, deposit listing services, Intrafi, and the ability to offer local time-deposit campaigns. Management is of the opinion that available investments and other potentially liquid assets, along with standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.
The Company’s primary liquidity ratio was 18% at September 30, 2025, as compared to an internal policy guideline of “greater than 15%” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at September 30, 2025, are also periodically reviewed by Management and the Board. The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that the liquidity position will continue at current strong levels.
The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, interest on trust preferred securities and subordinated debt, shareholder dividends, and share repurchases. Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. As of September 30, 2025, the holding company maintained a cash balance of $8.4 million. Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC.
INTEREST RATE RISK MANAGEMENT
Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. The Company’s market risk exposure is primarily that of interest rate risk and has established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management
is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.
To identify areas of potential exposure to interest rate changes, the Company utilizes a third-party that uses commercially-available modeling software to perform monthly earnings simulations using a dynamic balance sheet and calculate the Company’s market value of portfolio equity under varying interest rate scenarios. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Assumptions regarding deposit betas in the up cycles can range from 25% to 100% and from 0% to 75% in the down cycles, depending on the deposit type. Deposit decay rate assumptions range from 5% to 26% and are based on the Company’s own historical averages. Prepayment speeds are based on actual three-year historical averages. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels).
In addition to a stable rate scenario, which presumes that there are no changes in interest rates, the Company typically uses at least eight other interest rate scenarios in conducting rolling 12-month net interest income simulations: upward shocks of 100, 200, 300, and 400 basis points, and downward shocks of 100, 200, 300, and 400 basis points. Those scenarios may be supplemented, reduced in number, or otherwise adjusted as determined by Management to provide the most meaningful simulations considering economic conditions and expectations at the time. The Company’s guideline is to limit any projected decline in net interest income relative to the stable rate scenario to no more than 10% for a 100 basis point interest rate shock, 15% for a 200 basis point shock, 20% for a 300 basis point shock, and 25% for a 400 basis point shock.
The Company had the following estimated net interest income sensitivity profiles over one year, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration (dollars in thousands, unaudited):
Immediate change in Interest Rates (basis points)
% Change in Net Interest Income
$ Change in Net Interest Income
+400
4.0%
5,530
9.0%
12,006
+300
3.2%
4,440
6.9%
9,153
+200
2.3%
3,179
4.7%
6,295
+100
1.3%
1,776
2.5%
3,385
Base
-100
(4.8)%
(6,675)
(5.2)%
(6,954)
-200
(10.0)%
(13,817)
(10.4)%
(13,795)
-300
(15.0)%
(15.4)%
(20,469)
-400
(17.3)%
(23,992)
(18.4)%
(24,467)
The above table is for parallel interest rate shocks for all rate curves and represents an extreme scenario. Management utilizes this as a starting point for determining its overall interest rate risk strategy. Based on the interest rate shocks, for the period ending September 30, 2025, Management believes that the Company is asset sensitive and is slightly less asset sensitive than the same period a year ago.
The incremental changes in net interest income are similar between the up 100, 200, 300, and 400 basis point scenarios. If there were an immediate and sustained upward adjustment of 100 basis points in interest rates, all else being equal, net interest income over the next 12 months is projected to increase by $1.8 million, or 1.3%, relative to a stable interest rate scenario, with the favorable variance increasing as interest rates rise higher.
If there was an immediate downward adjustment of 100 basis points in interest rates for all rate curves, net interest income would drop $6.7 million, or a negative variance of 4.8% over 12 months. The change in net interest income in the down 200 basis point scenario is a decrease of $13.8 million or 10.0%. As a significant portion of the Company’s deposits remain in noninterest-bearing accounts or low-cost deposit accounts, in a downrate scenario, these rates would not change or only change slightly. However, floating rate earning assets (loans and deposits) would reprice downward more than the decline in floating rate liabilities. All interest rate shock scenarios are within internal policy guidelines.
Management also models other interest rate scenarios that do not assume a simultaneous and parallel shock of all points on the yield curve including short-term and long-term rates. One of these alternate rate change scenarios uses rate forecasts, from a known economist over the next twelve months, which reflect overnight rates moving differently than longer-term treasury rates. Using this forecast of interest rates, net interest income models close to the base case scenario, indicating that based on a most-likely interest rate forecast the Company’s net interest income is expected to be close to the same level modeled in an unchanged rate environment. This use of a most-likely interest rate forecast suggests we are less sensitive to interest rate changes, when compared to use of an interest rate shock.
As the Company utilizes a dynamic balance sheet for its interest rate modeling, the Company also uses a static, or no-growth, balance sheet to assess the reasonableness of the interest rate sensitivity in the dynamic balance sheet model; no significant changes in interest rate risk outside of the base case were noted. In addition, the Company runs stress scenarios for stresses to average deposits, higher deposit betas than the base case, deposit migration from low-cost to high-cost deposits, and both higher and slower prepayment speeds. The most significant impact to net interest income in the net interest income simulations is the reduction or migration of low-cost deposits.
CAPITAL RESOURCES
The Company had total shareholders’ equity of $360.1 million at September 30, 2025, comprised of $104.0 million in common stock, $5.1 million in additional paid-in capital, $276.2 million in retained earnings, and accumulated other comprehensive loss of $25.2 million. At the end of 2024, total shareholders’ equity was $357.3 million.
The $2.8 million, or 1%, increase in equity during the first nine months of 2025 was due to the addition of $29.4 million in net income, a $6.1 million favorable change in accumulated other comprehensive loss, due principally to changes in investment securities’ fair value, partially offset by $24.3 million in share repurchases, and $10.3 million in dividends paid. The remaining difference is related to the impact of equity compensation.
At September 30, 2025, the Company had a 2024 Share Repurchase Plan authorizing 1,000,000 shares of common stock, with an expiration date of October 31, 2025. At September 30, 2025, there were no shares of common stock remaining available for repurchase under the 2024 Share Repurchase plan.
The Company uses a variety of measures to evaluate its capital adequacy, including the leverage ratio which is calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to help ensure that they meet or surpass established internal and external guidelines. As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital. The following table sets forth the Company’s regulatory capital ratios as of the dates indicated:
Regulatory Capital Ratios
Minimum
Requirement
Required
to be
Community Bank
Well Capitalized
Leverage Ratio (1)
Bank of the Sierra
Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") (2)
11.73
%
11.80
9.00
Sierra Bancorp
10.65
10.93
The federal banking agencies provide a simplified measure of capital adequacy for qualifying community banking organizations by allowing such banking organizations to opt into the community bank leverage ratio framework. The Company’s subsidiary has opted into the community bank leverage ratio framework. This means that if the Company’s
subsidiary maintains a leverage ratio greater than 9%, it will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject. A qualifying community banking organization with a leverage ratio of greater than 9% may opt into the community bank leverage ratio framework if has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5% or less of total consolidated assets. Further, the bank must not be an advanced approaches banking organization.
PART I – FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE & QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information concerning quantitative and qualitative disclosures about market risk is included in Part I, Item 2 above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management.”
Item 4
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end
of the period covered by this report (the “Evaluation Date”) have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that are filed or submitted under the Exchange Act is accumulated and communicated to Management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC.
Changes in Internal Controls
There were no significant changes in the Company’s internal controls over financial reporting that occurred in the first nine months of 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
From time to time, the Company and the Bank are defendants in legal proceedings, at various points of the legal process, arising from transactions conducted in the ordinary course of business. In the opinion of Management, in consultation with legal counsel, it is not probable that current legal actions will result in an unfavorable outcome that has a material adverse effect on the Company’s consolidated balance sheets, statements of income, statements of comprehensive income, or
statements of cash flows. In the event such legal action results in an unfavorable outcome, the resulting liability could have a material adverse effect on the Company’s balance sheet, income statement, comprehensive income/(loss), or cash flows.
ITEM 1A: RISK FACTORS
There were no material changes from the risk factors disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2024.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Stock Repurchases
In October 2024, the Board approved the 2024 Share Repurchase Plan by authorizing 1,000,000 shares of common stock for repurchase which expired on October 31, 2025. A new Share Repurchase Program was approved by the Board in October 2025, authorizing 1,000,000 shares of common stock for repurchase beginning at the end of the expiration of the share repurchase program on October 31, 2025, and expiring on October 31, 2026.
Stock Repurchases
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of a Publicly Announced Plan
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plan at the End of the Period
July 1 - July 31, 2025
99,677
31.10
90,665
August 1 - August 31, 2025
58,490
29.70
32,175
September 1 - September 30, 2025
30.38
190,342
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: MINE SAFETY DISCLOSURES
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS
Exhibit #
Description
3.1
Restated Articles of Incorporation of Sierra Bancorp (1)
3.2
Amended and Restated By-laws of Sierra Bancorp (2)
4.1
Description of Securities (3)
4.2
3.25% Fixed to Floating Subordinated Debt issued September 24, 2021 (4)
4.3
Indenture dated as of March 17, 2004, between U.S. Bank N.A., as Trustee, and Sierra Bancorp, as Issuer (7)
4.4
Indenture dated as of June 15, 2006, between Wilmington Trust Co., as Trustee, and Sierra Bancorp, as Issuer (8)
4.5
Indenture dated as of September 20, 2007, between Wilmington Trust Co., as Trustee, and Coast Bancorp, as Issuer (12)
4.6
First Supplemental Indenture dated as of July 8, 2016, between Wilmington Trust Co. as Trustee, Sierra Bancorp as the “Successor Company”, and Coast Bancorp (12)
10.1
Salary Continuation Agreement for James C. Holly (5)*
10.2
Split Dollar Agreement and Amendment thereto for James C. Holly (6)*
10.3
Director Retirement and Split dollar Agreements Effective October 1, 2002, for Albert Berra, Morris Tharp, and Gordon Woods (6)*
10.4
401 Plus Non-Qualified Deferred Compensation Plan (6)*
10.5
Amended and Restated Declaration of Trust of Sierra Statutory Trust II, dated as of March 17, 2004 (7)
10.6
Amended and Restated Declaration of Trust of Sierra Capital Trust III, dated as of June 15, 2006 (8)
10.7
2007 Stock Incentive Plan (9)
10.8
Sample Retirement Agreement Entered into with Each Non-Employee Director Effective January 1, 2007 (10)*
10.9
Salary Continuation Agreement for Kevin J. McPhaill (10)*
10.10
First Amendment to the Salary Continuation Agreement for Kevin J. McPhaill (11)*
10.11
Amended and Restated Declaration of Trust of Coast Bancorp Statutory Trust II, dated as of September 20, 2007 (12)
10.12
2017 Stock Incentive Plan (13)*
10.13
Employment agreements dated as of December 27, 2018, for Kevin McPhaill, CEO and Michael Olague, Chief Banking Officer (14)*
10.14
Employment agreement dated as of November 15, 2019, for Christopher Treece, Chief Financial Officer (15)*
10.15
Employment agreement dated as of December 14, 2020, for Hugh Boyle, Chief Credit Officer (16)*
10.16
Form Indemnification Agreement dated as of January 28, 2021, for Directors and Executive Officers (17)*
10.17
Split Dollar Master Agreement and Election Form Effective October 1, 2002, for Kevin McPhaill (18)*
10.18
First Amendments to employment agreements dated as of January 19, 2023 for Kevin McPhaill, CEO, Christopher Treece, CFO, Hugh Boyle, CCO, and Michael Olague, CBO (23)*
10.19
Split Dollar Agreement for Albert Berra (19)*
10.20
10b5-1 Plan for Lynda Scearcy (21)
10.21
2023 Equity Based Compensation Plan (20) *
10.22
Employment agreement dated as of August 25, 2023, for Natalia Coen, Chief Risk Officer (22)*
10.23
Employment agreement dated as of July 01, 2025, for William Wade, Chief Operating Officer (23)*
31.1
Certification of Chief Executive Officer (Section 302 Certification)
31.2
Certification of Chief Financial Officer (Section 302 Certification)
Certification of Periodic Financial Report (Section 906 Certification)
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*Indicates Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
October 31, 2025
/s/ Kevin J. McPhaill
Date
Kevin J. McPhaill
President & Chief Executive Officer
(Principal Executive Officer)
/s/ Christopher G. Treece
Christopher G. Treece
Chief Financial Officer
/s/ Cindy L. Dabney
Cindy L. Dabney
Principal Accounting Officer