SIERRA BANCORP

Previous wording

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 critical accounting policies deal with the following areas:

Current wording

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:

Previous wording

Critical accounting areas are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate its most recent expectations regarding those areas.

Current wording

Critical accounting areas are evaluated on an ongoing basis to ensure the Company’s financial statements incorporate its most recent expectations regarding those areas.

Previous wording

Second quarter 2025 net income was $10.6 million, and $0.78 per diluted share as compared to $10.3 million, and $0.71 per diluted share in the second quarter of 2024. The Company’s annualized return on average equity was 12.08% and annualized return on average assets was 1.16% for the quarter ended June 30, 2025, compared to 11.95% and 1.14%, respectively, for the same quarter in 2024. The primary drivers behind the variance in first quarter net income are as follows:

Current wording

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%,

Previous wording

The Company’s assets totaled $3.8 billion at June 30, 2025, an increase of $156.0 million, or 4.0% from December 31, 2024. The following provides a summary of key balance sheet changes during the first six months of 2025:

Current wording

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:

Previous wording

Net interest income for the comparative year-to-date periods increased $1.9 million. As with the quarterly comparison the decrease in the cost of interest-bearing liabilities was greater than the decrease in yield on interest-bearing assets. There was a $61.7 million, or 2%, increase in average interest-earning asset balances yielding 10 basis points lower for the same period, while average interest-bearing liability balances increased $1.7 million, yielding 20 basis points lower for the same period. The favorable net impact of the mix and rate change was a five basis point increase in our net interest margin for the six months ending June 30, 2025, as compared to the same period in 2024.

Current wording

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.

Previous wording

The Company had $1.7 billion in adjustable and variable rate loans and $359.7 million in floating rate bonds, as compared to $255.3 million in floating rate CDs and $35.9 million in floating rate trust preferred securities at June 30, 2025. The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years. Of the $1.7 billion in adjustable and variable rate loans, $751.8 million of such adjustable and variable rate loans reprice or mature in the next twelve months. In addition, there are $710.2 million of fixed-term deposits that reprice or mature within twelve months. Based on current rates, of the $751.8 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $263.1 million, or 35%, have a pricing index rate higher than the current index, while $14.3 million, or 2%, have a pricing index rate lower than the current index. The remaining balance of $474.5 million are priced at the current index rate or are expected to mature.

Current wording

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.

Previous wording

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 rate variance.

Current wording

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.

Previous wording

The volume variance calculated for the second quarter of 2025 relative to the second quarter of 2024 was a favorable $0.5 million; this is primarily from the net impact of a favorable loan volume variance of $3.1 million augmented by a favorable rate reduction in interest bearing liabilities. There was an overall unfavorable rate and volume variance on investment securities, which mostly came from the variable rate investments, in the form of CLOs, partially offsetting the favorable variances in loans and interest-bearing liabilities. There was a modest favorable mix variance of $0.1 million. The

Current wording

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.

Previous wording

Average interest earning cash balances for the quarterly comparisons have decreased and have a positive impact on the net interest margin since cash balances have been earning approximately 4.7% and have been deployed into mortgage warehouse line advances yielding 7.01%. Average interest-earning cash and due from banks was $18.1 million, a decrease of $25.3 million for the second quarter of 2025 as compared to the same period last year.

Current wording

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.

Previous wording

Overall average investment securities decreased by $99.4 million for the second 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 4.68% at June 30, 2025, with an average life of 5.99 years and average effective duration of 2.09 years for available-for-sale securities. Approximately $320.4 million of the investment securities reprice every 90 days and $80.1 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.

Current wording

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.

Previous wording

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 $1.2 million in the second quarter of 2025, as compared to $0.9 million in the second quarter of 2024. The increase in net charge-offs in the second quarter of 2025, as compared to the second quarter of 2024, was primarily related to the $5.3 million prior allowance on an individually-evaluated agricultural production loan. 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.

Current wording

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.

Previous wording

Within noninterest income and noninterest expense are mostly offsetting amounts related to bank owned life insurance and non-qualified deferred compensation. This created a year-over-year unfavorable variance of $0.8 million within noninterest income and a favorable year-over-year $0.8 million variance for noninterest expense. 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 BOLI 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.

Current wording

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.

Previous wording

Service charges and fees on customer deposit accounts declined by $0.3 million, or 5%, to $5.9 million in the second quarter of 2025 as compared to the second quarter of 2024, and declined by $0.5 million, or 4% 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.

Current wording

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.

Previous wording

In the “other” category of noninterest income there was a $0.5 million increase in the second quarter of 2025 as compared to the second quarter of 2024, and a $1.0 million increase for the first six months of 2025 as compared to the same period in 2024. Life insurance proceeds accounted for most of the favorable variance for both the quarterly and year-to-date comparisons.

Current wording

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.

Previous wording

Total noninterest expense increased by $1.1 million, or 5%, in the second quarter of 2025, relative to the second quarter of 2024, but favorably declined by $1.0 million, or 2%, in the first six months of 2025, as compared to the first six months of 2024.

Current wording

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.

Previous wording

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 25.3% of pre-tax income in the second quarter of 2025, relative to 27.8% in the second quarter of 2024, and 25.5% of pre-tax income for the first half of 2025 relative to 27.1% for the same period in 2024.

Current wording

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.

Previous wording

The decrease in effective tax rate for both the quarterly and year-to-date comparisons is due to the tax credits and tax-exempt income representing a larger percentage of total taxable income.

Current wording

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.

Previous wording

The investment portfolio is reflected on the balance sheet as investment securities and totaled $967.3 million, or 26% of total assets at June 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.

Current wording

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.

Previous wording

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 2.1 years for available-for-sale investments and 6.1 years for held-to-maturity investments at June 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.

Current wording

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.

Previous wording

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 $433.8 million at June 30, 2025, and $403.4 million at December 31, 2024, leaving $533.5 million in unpledged debt securities at June 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 $253.4 million at June 30, 2025, and $242.2 million at December 31, 2024.

Current wording

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.

Previous wording

Gross loan balances at $2.4 billion, increased $103.3 million, or 4%, during the first half of 2025. Organic loan growth contributed to increases of $34.1 million in commercial real estate loans, $6.3 million in construction loan balances, and $8.4 million in other commercial loans. Mortgage warehouse line utilization increased $75.5 million, or 23%. Consumer loans had a modest decline, while residential real estate loans decreased $11.1 million, and farmland loans decreased $9.6 million.

Current wording

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.

Previous wording

As indicated in the loan rollforward below, new credit extended for the second quarter of 2025 decreased $18.2 million over the linked quarter comparison and increased $7.8 million over the same period in 2024. For the six months ended June 30, 2025, new credit extended increased $39.2 million, or 52% over the same period in 2024. For the first six months ended 2025, we had $77.2 million in loan paydowns and maturities, along with a $9.5 million decrease in line of credit utilization, partially offset by a $75.5 million increase in mortgage warehouse utilization for the first half of 2025.

Current wording

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.

Previous wording

At June 30, 2025, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 243.6% as compared to 236.3% at December 31, 2024, and 241.1% at June 30, 2024. The overall level of construction and land development lending is 2.6% of regulatory capital plus allowance for credit losses at June 30, 2025. At June 30, 2025, non-owner occupied commercial real estate includes $306.5 million of retail; $145.6 million of warehouse/industrial; $155.5 million of office; and $222.0 million of hospitality. Approximately $35.8 million, or 23% of the office real estate matures in less than two years.

Current wording

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.

Previous wording

Nonperforming assets is currently comprised of loans for which the Company is no longer accruing interest but can include OREO and other foreclosed assets, when applicable.

Current wording

Nonperforming assets are currently comprised of loans for which the Company is no longer accruing interest and foreclosed assets.

Previous wording

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, decreased by $4.7 million to $15.0 million for the first half of 2025. The Company's ratio of nonperforming loans to gross loans decreased to 0.62% at June 30, 2025, from 0.84% at December 31, 2024. The decrease resulted from a decrease in non-accrual loan balances, due to the partial charge-off of one agricultural production loan. 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.

Current wording

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.

Previous wording

There were no foreclosed assets at June 30, 2025, and December 31, 2024. However, when the Company does own foreclosed assets, they are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value.

Current wording

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.

Previous wording

The Company had $3.0 million in loans past due 30-89 days and still accruing at June 30, 2025. This is an increase of $1.7 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.

Current wording

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.

Previous wording

The Company's allowance for credit losses on loans was $21.7 million at June 30, 2025, as compared to $24.8 million at December 31, 2024, and $21.6 million at June 30, 2024. The decrease for the first half of 2025 is primarily attributable to a decrease in the allowance for loans individually evaluated and was specifically related to the partial charge-off of one agricultural production loan, reflected in the other commercial category in the table below. The allowance as a percentage of gross loans was 0.89%, 1.07%, and 0.97%, at June 30, 2025, December 31, 2024, and June 30, 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 June 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 $21.7 million at June 30, 2025, included $0.5 million of allowance related to $401.9 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 June 30, 2025, an increase of $0.1 million, from December 31, 2024.

Current wording

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.

Previous wording

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 $671.4 million at June 30, 2025, and $641.5 million at December 31, 2024, representing approximately 28% of gross loans outstanding at both June 30, 2025, and December 31, 2024. Included in unused commitments are mortgage warehouse

Current wording

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.

Previous wording

The increase in mortgage warehouse utilization during the first half 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, were flat at 57% at December 31, 2024, and June 30, 2025. Total mortgage warehouse commitments increased by $38.5 million and $98.5 million for the three-and-six-month periods ending June 30, 2025, respectively.

Current wording

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.

Previous wording

The Company also had undrawn letters of credit issued to customers totaling $5.3 million at June 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.

Current wording

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.

Previous wording

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 $112.2 million at June 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.

Current wording

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.

Previous wording

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 $112.9 million at June 30, 2025, relative to $79.6 million at December 31, 2024.

Current wording

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.

Previous wording

Net premises and equipment decreased by $0.1 million during the first half of 2025, to $15.3 million. This decline was mostly a result of depreciation in the first half of 2025.

Current wording

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.

Previous wording

Goodwill was $27.4 million at June 30, 2025, unchanged during the first half 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, 2024, 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.

Current wording

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

Previous wording

Bank-owned life insurance, with a balance of $67.7 million at June 30, 2025, increased $14.5 million during the first half 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.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Deposit balances increased by $82.8 million, or 3%, during the first half of 2025 to $3.0 billion at June 30, 2025. Core non-maturity deposits increased $86.8 million, or 4%, for the first half of 2025, while customer time deposits decreased by $19.0 million. Brokered deposits increased $15.0 million to fund mortgage warehouse lines. Noninterest-bearing deposits as a percent of total deposits increased to 35.8% at June 30, 2025, compared to 34.8% at December 31, 2024, and from 33.5% at June 30, 2024.

Current wording

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.

Previous wording

Overall uninsured deposits are estimated to be $751.1 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 June 30, 2025, the Company had approximately 118,000 accounts, and the 25 largest deposit balance customers had balances of approximately 11% of overall deposits*.*

Current wording

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

Previous wording

Customer repurchase agreements were $126.5 million at June 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

Current wording

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.