SIERRA BANCORP
For the period ended Sep 30, 2026. Filed Oct 30, 2026.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2026 · Filed Oct 30, 2026
BSRR$41.42-1.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2026-06-30; filed 2026-07-31.
0001104659-26-088894
Item 2. Management’s Discussion & Analysis of Financial Condition & Results of OperationsForward-Looking StatementsCritical Accounting PoliciesOverview of the Results of Operations and Financial ConditionEarnings PerformanceNet Interest Income and Net Interest MarginProvision for Credit Loss ExpenseNoninterest Income and Noninterest ExpenseProvision for Income TaxesEarning AssetsInvestmentsLoan PortfolioNonperforming AssetsAllowance for Credit Losses on LoansOff-Balance Sheet ArrangementsOther AssetsDepositsOther Interest-Bearing LiabilitiesNoninterest-Bearing LiabilitiesLiquidity and Market Risk ManagementCapital ResourcesCurrent report: 10-Q
Period ended 2026-09-30; filed 2026-10-30.
0001437749-26-034062
Item 2. Management’s Discussion & Analysis of Financial Condition & Results of OperationsForward-Looking StatementsCritical Accounting PoliciesOverview of the Results of Operations and Financial ConditionEarnings PerformanceNet Interest Income and Net Interest MarginProvision for Credit Loss ExpenseNoninterest Income and Noninterest ExpenseProvision for Income TaxesEarning AssetsInvestmentsLoan PortfolioNonperforming AssetsAllowance for Credit Losses on LoansOff-Balance Sheet ArrangementsOther AssetsDepositsOther Interest-Bearing LiabilitiesNoninterest-Bearing LiabilitiesLiquidity and Market Risk ManagementCapital ResourcesThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 152 previous paragraphs and 149 current paragraphs.
75 unchanged; 54 reworded; 20 added; 20 removed; 3 previous and 0 current paragraphs rearranged.
Tables are not compared: 72 previous and 74 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (20)
Current report
CRITICAL ACCOUNTING POLICY AND ACCOUNTING ESTIMATES
Current report
Third Quarter 2026 Compared to Third Quarter 2025
Current report
First Nine Months of 2026 Compared to First Nine Months of 2025
Current report
Net interest income was $32.4 million for the third quarter of 2026, an increase of $0.4 million, or 1%, compared to the third quarter of 2025. The increase was primarily attributable to lower funding costs, higher loan yields, and the recovery of approximately $1.1 million of previously unrecognized interest income associated with a nonaccrual agricultural production loan that paid in full during the quarter. This credit relationship is unrelated to the agricultural production credit discussed in the Provision for Credit Loss Expense section. The favorable interest recovery was partially offset by lower average investment securities balances and yields. Interest expense declined $1.4 million, or 12%, from the prior-year quarter, reflecting lower rates on deposits and borrowed funds and a decrease in the average balance of borrowed funds.
Current report
Average interest-bearing liabilities decreased $45.6 million, or 2%, compared to the third quarter of 2025, while the cost of those liabilities declined 21 basis points to 1.92%. The decrease in funding costs was primarily attributable to lower costs on interest-bearing deposits and borrowed funds. Average customer time deposits declined $42.2 million from the prior-year quarter and brokered deposit costs decreased 33 basis points, contributing to the improvement in overall funding costs.
Current report
Net interest income for the first nine months of 2026 increased $0.7 million, or 1%, to $93.4 million, compared to the same period in 2025. The increase was primarily attributable to lower funding costs and the recovery of approximately $1.1 million of previously unrecognized interest income associated with a nonaccrual loan that paid in full during the third quarter, partially offset by lower average investment securities balances. Average interest-earning assets decreased $35.7 million, or 1%, while the tax-equivalent yield on earning assets declined seven basis points to 5.07%.
Current report
For the first nine months of 2026, interest expense decreased $3.7 million, or 10%, to $31.7 million. The decrease was driven by a 22 basis point reduction in the cost of interest-bearing liabilities to 1.93%, reflecting favorable repricing of deposits and wholesale funding balances. As a result, tax-equivalent net interest margin increased seven basis points to 3.80%, compared to 3.73% for the same period in 2025.
Current report
The Company temporarily paused growth within its mortgage warehouse portfolio during the quarter in response to elevated interest rate volatility and changing conditions in the residential mortgage market. Enhanced reviews of our customer's credit risk profiles, including hedging positions and pipelines, resulted in a more selective approach to extending mortgage warehouse credit at the end of the third quarter 2026. Despite a decline of $97.1 million in period-end mortgage warehouse balances during the quarter, average mortgage warehouse balances decreased by only $20.8 million compared to the linked quarter, while related interest income declined slightly by $0.2 million, reflecting the continued profitability of the portfolio.
Current report
The volume and rate analysis indicates that lower funding costs continued to be a significant contributor to earnings performance during both the quarterly and year-to-date periods. Favorable repricing of deposits and wholesale funding sources more than offset the impact of lower average investment securities balances and yields. In addition, third quarter 2026 results benefited from the recovery of approximately $1.1 million of previously unrecognized interest income associated with a separate nonaccrual agricultural production lending relationship in the lumber industry that paid in full during the quarter. While mortgage warehouse balances declined during 2026 as the Company adopted a more selective approach to extending mortgage warehouse credit, strong growth in commercial real estate lending and improved funding mix contributed to the favorable net interest margin performance.
Current report
The third quarter 2026 benefit was primarily attributable to the resolution of a previously identified agricultural production lending relationship in the lumber industry that had been individually evaluated for expected credit losses. During the second quarter of 2026, the Company recorded a $2.5 million allowance allocation on this credit due to elevated repayment risk and uncertainty regarding ultimate collectability. During the third quarter of 2026, the relationship was resolved through the sale of the note to another creditor. As a result, the Company recovered substantially all principal, accrued interest, and fees associated with the relationship, resulting in an immaterial charge-off and the reversal of the allowance allocation previously established on the credit. The nonaccrual agricultural production credit discussed in the Net Interest Income section is unrelated to the previously reserved agricultural production relationship in the lumber industry discussed in the Provision for Credit Loss Expense.
Current report
The resolution of this relationship contributed to a decline in the allowance for credit losses on loans from $23.6 million at June 30, 2026, to $21.7 million at September 30, 2026. Excluding the impact of this individually evaluated relationship, credit quality trends across the remainder of the loan portfolio were generally stable to improved during the quarter. Nonperforming assets declined to $9.3 million at September 30, 2026, from $14.8 million at December 31, 2025, classified loans declined to $27.0 million from $31.4 million, and loans past due 30 to 89 days improved to $2.5 million from $6.8 million at year-end 2025.
Current report
Total noninterest income decreased $0.3 million, or 4%, to $7.7 million in the third quarter 2026 from $8.1 million in the third quarter of 2025. The decrease was primarily attributable to a $0.5 million decline in earnings on separate-account life insurance, partially offset by increases in service charges and fees on deposit accounts and the above-mentioned special FHLB dividend.
Current report
Total noninterest expense decreased $1.2 million, or 5%, to $22.3 million during the third quarter of 2026 from $23.5 million in the linked quarter. The decrease was primarily attributable to a $0.9 million decline in deferred directors' fee expense, a $0.4 million reduction in salaries and employee benefits expense, and lower data processing and deposit service costs. These favorable variances were partially offset by higher legal and accounting expenses and higher debit card and fraud losses.
Current report
Compared to the third quarter of 2025, total noninterest expense decreased $1.3 million, or 6%, from $23.6 million. Salaries and employee benefits expense declined $0.7 million, primarily due to lower full-time equivalent staffing levels, and deposit service costs decreased $0.3 million. These favorable variances were partially offset by increases in legal and accounting expenses and director-related costs.
Current report
For the first nine months of 2026, noninterest expense decreased $2.2 million, or 3%, to $67.7 million from $69.8 million for the same period in 2025. Salaries and employee benefits expense decreased $1.0 million, deposit service costs declined $0.4 million, and other operating expenses decreased $0.4 million. These improvements were partially offset by higher occupancy costs and increased legal and accounting expenses. The Company's efficiency ratio improved to 56.73% for the first nine months of 2026, compared to 59.32% for the same period in 2025.
Current report
The decrease in gross loan balances compared to December 31, 2025, was primarily driven by a $158.0 million decrease in mortgage warehouse utilization, partially offset by a $74.1 million increase in commercial real estate loans and continued loan production across the Company's core lending markets. The reduction in mortgage warehouse balances reflects a temporary pause in growth in the third quarter of 2026 due to the implementation of enhanced controls, as well as market volatility throughout 2026 due to the higher rate environment, while growth in commercial real estate lending demonstrates continued success in originating and retaining relationship-based commercial credits. The Company continues to add new mortgage warehouse customers with total commitments increasing $82.3 million, or 10.6%, during the first nine months of 2026. Most of the increase was in the third quarter with $54.4 million of net new commitments.
Current report
Despite the decline in period-end mortgage warehouse balances, average mortgage warehouse balances decreased by only $20.8 million during the third quarter of 2026 compared to the linked quarter, while related interest income declined slightly by $0.2 million. In addition, commercial real estate balances increased $75.3 million during the quarter, reflecting strong production activity and growth in relationship-based lending.
Current report
As indicated in the loan rollforward table below, the Company significantly increased new credit extended during the quarter to $123.7 million as compared to $49.4 million in the previous quarter. The implementation of semi-monthly credit evaluation meetings has enabled the Bank’s lending teams to more effectively compete for lending opportunities. While lending activity increased, it was offset by significant declines in mortgage warehouse utilization as well as higher than normal paydowns.
Current report
Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, decreased $5.4 million, or 37%, to $9.3 million at September 30, 2026, from $14.8 million at December 31, 2025. The Company's ratio of nonperforming assets to gross loans plus foreclosed assets improved to 0.38% at September 30, 2026, compared to 0.58% at December 31, 2025. The improvement reflects the successful resolution of several criticized and nonperforming credit relationships. The increase in nonaccrual Farmland balances was primarily attributable to a single credit relationship with an estimated loan-to-value ratio of approximately 69%. Likewise, the increase in nonaccrual Commercial Real Estate balances was concentrated in a separate credit relationship with an estimated loan-to-value ratio of approximately 62%. Management believes both relationships remain adequately secured.
Current report
Total deposits increased $108.3 million, or 4%, to $2.98 billion at September 30, 2026, from $2.88 billion at December 31, 2025. Core non-maturity deposits increased $122.5 million, or 6%, driven by growth in noninterest-bearing demand deposits, interest-bearing transaction accounts, and money market accounts. Customer time deposits decreased $16.2 million, or 4%, reflecting the continued migration away from higher-cost deposit products. Noninterest-bearing deposits increased $59.5 million during the first nine months of 2026 and represented 35.4% of total deposits at September 30, 2026, compared to 34.6% at December 31, 2025. The Company's strong base of noninterest-bearing and other core deposit relationships continued to support a favorable funding mix and contribute to lower funding costs.
Removed paragraphs (20)
Previous report
CRITICAL ACCOUNTING POLIC****Y AND ACCOUNTING ESTIMATES
Previous report
Second Quarter 2026 Compared to Second Quarter 2025
Previous report
First Half of 2026 Compared to First Half of 2025
Previous report
momentum entering the third quarter of 2026, driven by increasing commercial real estate and commercial and industrial lending opportunities.
Previous report
Net interest income was $30.4 million for the second quarter of 2026, a decrease of $0.2 million, or 1%, compared to the second quarter of 2025. The decrease was primarily attributable to lower average interest-earning asset balances and yields, substantially offset by lower funding costs. Interest expense declined $1.5 million, or 13%, from the prior-year quarter, reflecting the benefits of lower deposit and wholesale funding costs.
Previous report
Average interest-bearing liabilities decreased $23.7 million in the second quarter of 2026 compared to the same period in 2025, while the cost of those liabilities declined 26 basis points to 1.92%. The quarterly decrease was primarily attributable to a 28 basis point reduction in the cost of interest-bearing deposits and a 23 basis point reduction in the cost of borrowed funds to 1.73% and 2.81%, respectively. Average interest-bearing deposit balances declined $42.8 million from the prior-year quarter, comprised primarily of a decline in higher-cost customer time deposits which decreased $62.7 million and brokered deposits which declined $16.2 million. These changes were partially offset by higher average balances of federal funds purchased, which also increased to fund mortgage warehouse lending activity.
Previous report
Net interest income for the first six months of 2026 increased $0.3 million to $61.0 million, compared to the same period in 2025. The increase resulted primarily from an improved net interest margin, driven by lower funding costs and partially offset by a modest decline in average earning assets. Average interest-earning assets decreased $19.6 million, or 1%, and the yield on those assets decreased nine basis points to 5.03%.
Previous report
For the first six months of 2026, interest expense decreased $2.3 million to $21.1 million, compared to $23.4 million during the same period in 2025. The decrease was driven by a 23 basis point reduction in the cost of interest-bearing liabilities to 1.93%, partially offset by a $25.1 million increase in average interest-bearing liabilities. The reduction in funding costs contributed to a four basis point increase in net interest margin to 3.75% for the first six months of 2026, compared to 3.71% for the same period in 2025.
Previous report
The volume and rate analysis indicates that lower funding costs remained the primary driver of earnings performance during both the quarterly and year-to-date periods. Favorable deposit and borrowing cost repricing largely offset pressure from lower investment balances and reduced earning asset yields, while growth in mortgage warehouse lending provided a meaningful positive volume contribution.
Previous report
Total noninterest income was unchanged at $8.6 million compared to the second quarter of 2025. Favorable variances included a $0.4 million increase in earnings on separate account BOLI, a $0.1 million increase in service charges and fees on deposit accounts, and a modest increase in cash surrender value income from life insurance. These improvements were largely offset by a $0.6 million decrease in other income, mainly due to a decrease in gain on life insurance proceeds.
Previous report
Total noninterest expense decreased $0.3 million, or 1%, compared to the second quarter of 2025. Salaries and benefits expense remained essentially unchanged from the prior year quarter. Other noninterest expense decreased $0.3 million, primarily due to lower deposit service costs and other operating expenses. These favorable variances were partially offset by higher deferred compensation expense, legal and accounting costs, and directors' fees.
Previous report
For the first six months of 2026, noninterest expense decreased $0.9 million, or 2%, to $45.3 million from $46.2 million for the same period in 2025. Salaries and benefits decreased $0.3 million, while other noninterest expense declined $0.7 million. The improvement was primarily attributable to lower deposit service costs, lower operating expenses, and reduced sundry and teller expenses, partially offset by higher occupancy costs, legal and accounting expenses, and director-related costs. In addition, we had $0.5 million in severance and recruiting costs related to an executive leadership restructuring during the quarter, which was offset by a reduction in overall staff. These results reflect management's continued focus on maintaining a relatively flat expense base while selectively investing in strategic growth initiatives, technology enhancements, regulatory compliance, and customer service capabilities.
Previous report
are reviewed by Management quarterly. Following review of the financial metrics available for each of the underlying institutions as of June 30, 2026, and December 31, 2025, Management concluded the unrealized loss position of these securities were related exclusively to the fluctuation in market conditions, primarily interest rates, from the date of purchase, and were not reflective of any credit concerns with the issuing financial institution. These bonds were subject to a credit review by the credit administration department prior to their purchase and are subject to ongoing quarterly reviews.
Previous report
The decrease in gross loan balances compared to December 31, 2025, was primarily driven by a $60.9 million reduction in mortgage warehouse facilities balances, reflecting normal fluctuations in mortgage origination activity and secondary market demand. Other changes in loan balances were primarily attributable to scheduled paydowns, payoffs, and normal customer activity. Despite the decline in period-end balances, mortgage warehouse average balances increased $8.0 million during the second quarter of 2026 compared to the linked quarter. Average balances of commercial real estate and commercial and industrial loans declined modestly during the quarter, while period-end balances remained relatively stable. As the quarter progressed, however, loan production strengthened significantly, that we believe reflects a shift in momentum entering the third quarter of 2026. This improvement was particularly evident within the commercial real estate and commercial and industrial portfolios and resulted in an enhanced pipeline of lending opportunities entering the second half of the year.
Previous report
7% of the portfolio at June 30, 2026. Commercial real estate balances remained relatively stable during the first six months of the year despite elevated payoff activity, reflecting continued success in replacing runoff with new production.
Previous report
As indicated in the loan rollforward table below, new credit extended for the second quarter of 2026 increased $41.6 million over the linked quarter to $49.4 million and increased $1.2 million over the same period in 2025. The Company also had $59.6 million in loan paydowns and maturities, a $27.4 million decline in line of credit utilization, and a decrease of $60.9 million in mortgage warehouse facilities utilization for the first half of 2026.
Previous report
Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, declined $4.3 million to $10.5 million at June 30, 2026, compared to $14.8 million at December 31, 2025. The improvement was primarily attributable to lower nonaccrual loan balances, reflecting resolutions and paydowns within the Company's criticized loan portfolio. The increase in nonaccrual Farmland balances was primarily attributable to a single relationship which management believes is well secured and has a current loan-to-value ratio of approximately 61%. Additionally, the Company sold its only foreclosed asset during the first six months of 2026, eliminating foreclosed assets from the balance sheet.
Previous report
The Company’s ratio of nonperforming loans to gross loans decreased to 0.43% at June 30, 2026, compared to 0.52% at December 31, 2025, reflecting both the reduction in nonperforming loan balances and a modest decline in total loan balances during the quarter.
Previous report
Total deposits increased $54.6 million, or 1.9%, to $2.93 billion at June 30, 2026, from $2.88 billion at December 31, 2025. The increase was primarily driven by growth in core deposit categories, including a $30.7 million increase in noninterest-bearing demand deposits and a $27.9 million increase in money market deposits.
Previous report
The growth in noninterest-bearing demand deposits improved the Company's funding mix, with such deposits representing 35.0% of total deposits at June 30, 2026, compared to 34.6% at December 31, 2025. Interest-bearing transaction accounts increased $9.8 million, while savings balances remained relatively stable. Partially offsetting these increases were declines in customer time deposits and brokered deposits of $10.3 million and $2.9 million, respectively, reflecting the Company's continued emphasis on lower-cost funding sources.
Reworded paragraphs (54)
Previous 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.
Current wording
Critical accounting estimates 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 2026 net income was $9.9 million, and $0.77 per diluted share as compared to $10.6 million and $0.78 per diluted share in the second quarter of 2025. The Company’s annualized return on average equity was 10.90% and annualized return on average assets was 1.09% for the quarter ended June 30, 2026, compared to 12.08% and 1.16%,
Current wording
Third quarter 2026 net income was $15.3 million, and $1.18 per diluted share as compared to $9.7 million and $0.72 per diluted share in the third quarter of 2025. The Company’s annualized return on average equity was 16.49% and annualized return on average assets was 1.66% for the quarter ended September 30, 2026, compared to 10.81% and 1.04%, respectively, for the same quarter in 2025. The primary drivers behind the increase in third quarter net income are as follows:
Previous wording
The Company’s assets totaled $3.7 billion at June 30, 2026, a decrease of $108.7 million, or 3% from December 31, 2025. The following provides a summary of key balance sheet changes during the first six months of 2026:
Current wording
The Company’s assets totaled $3.7 billion at September 30, 2026, a decrease of $154.1 million, or 4% from December 31, 2025. The following provides a summary of key balance sheet changes during the first nine months of 2026:
Previous wording
For the second quarter of 2026, average interest-earning assets decreased $81.2 million, or 2%, from the same period in 2025, while the yield on those assets declined eight basis points to 5.02%. The decline in average earning assets was driven primarily by lower investment securities balances and decreases in real estate loans and agricultural production loans.
Current wording
For the third quarter of 2026, average interest-earning assets decreased $67.4 million, or 2%, from the same period in 2025, while the yield on those assets remained relatively stable at 5.17%, compared to 5.18% in the prior-year quarter. The decline in average earning assets was primarily attributable to lower investment securities balances, partially offset by growth in average commercial real estate and mortgage warehouse loan balances.
Previous wording
The reduction in funding costs more than offset the modest decline in earning asset yields, resulting in a six basis point increase in the net interest margin to 3.74% from 3.68% in the second quarter of 2025.
Current wording
The reduction in funding costs and improvement in loan yields more than offset modest pressure on earning asset balances, resulting in a 13 basis point increase in tax-equivalent net interest margin to 3.91%, compared to 3.78% in the third quarter of 2025.
Previous wording
The Company had $1.8 billion in adjustable and variable rate loans and $214.4 million in floating rate bonds, as compared to $220.5 million in floating rate CDs and $36.1 million in floating rate trust preferred securities at June 30, 2026. 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, $793.3 million reprice or mature in the next twelve months, including $457.5 million in mortgage warehouse facilities, which generally reprice immediately as interest rates change. In addition, there were $620.2 million of fixed-term deposits that reprice or mature within twelve months. Of the $793.3 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $270.5 million, or 34%, have a pricing index rate higher than the current index, while $12.7 million, or 2%, have a pricing index rate lower than the current index. The remaining balance of $510.1 million in loans are priced at the current index rate.
Current wording
The Company had $1.8 billion in adjustable and variable rate loans and $196.9 million in floating rate bonds, as compared to $201.6 million in floating rate CDs and $36.1 million in floating rate trust preferred securities at September 30, 2026. Subsequent to quarter-end, approximately $49.6 million of subordinated debt transitioned from a fixed interest rate to a variable rate based on SOFR. 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, $704.4 million reprice or mature in the next twelve months, including $360.3 million in mortgage warehouse facilities. Although the mortgage warehouse facilities do not generally reprice while outstanding, their short duration and rapid turnover result in yields that adjust quickly to changes in market interest rates. In addition, there were $647.7 million of fixed-term deposits that reprice or mature within twelve months. Of the $704.4 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $265.2 million, or 38%, have a pricing index rate higher than the current index, while $3.3 million, or less than 1%, have a pricing index rate lower than the current index. The remaining balance of $436.0 million in loans are priced at the current index rate.
Previous wording
Overall, the Company continues to benefit from continued lower cost funding, which was partially offset by lower yields on investment securities, as assets repriced in a lower rate environment, resulting in a stable net interest margin compared to the prior year. 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.
Current wording
Overall, the Company's net interest margin benefited from lower funding costs, a favorable funding mix, and the recovery of previously unrecognized interest income during the third quarter of 2026. These factors more than offset pressure from lower average investment securities balances and yields. The level of net interest income recognized in any given period depends on a combination of factors including the average volume and yield of interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of financial instruments which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities.
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 loss expense on loans of $2.3 million for the second quarter of 2026, compared to $1.2 million for the second quarter of 2025. For the first six months of 2026, the provision for credit losses on loans was $2.4 million, compared to $3.2 million for the same period in 2025. A $2.5 million specific reserve established on an agricultural production loan during the second quarter of 2026 was the primary driver of the increase in credit loss expense for the quarterly comparison. Following the end of the second quarter, the Company received a $0.5 million payment on this loan. Management continues to work with the borrower to evaluate and pursue various resolution alternatives for this credit.
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 benefit for credit losses on loans of $2.0 million for the third quarter of 2026, compared to credit loss expense on loans of $3.7 million for the third quarter of 2025. For the first nine months of 2026, provision for credit losses on loans totaled $0.3 million, compared to $6.9 million for the same period in 2025.
Previous wording
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
The allowance for credit losses on loans is maintained 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.
Previous wording
For the first six months of 2026, noninterest income increased $1.3 million, or 9%, to $16.5 million compared to $15.2 million for the same period in 2025. The increase was driven primarily by a $0.5 million increase in earnings on separate account life insurance, a $0.3 million increase in cash surrender value income from life insurance, a $0.2 million increase in service charges and fees on deposit accounts, and a $0.4 million favorable variance from gains on sales of fixed assets. These favorable changes were partially offset by lower gains on sale of investment securities.
Current wording
For the first nine months of 2026, noninterest income increased $1.0 million, or 4%, to $24.3 million compared to $23.3 million for the same period in 2025. The increase was primarily driven by a $0.4 million gain on the sale of fixed assets, a $0.3 million increase in cash surrender value income from life insurance, a $0.3 million increase in service charges and fees on deposit accounts, and a $0.2 million increase in other income. These favorable variances were partially offset by the absence of securities gains recognized during the first nine months of 2025.
Previous wording
The Company’s non-qualified deferred compensation plan for officers and directors, allows participants to defer a portion of their earnings and select from various hypothetical investment alternatives to determine their individual returns. The Company economically offsets this liability with separate account life insurance policies that are invested in similar underlying fund types within the life insurance policy. Because the deferred compensation liability and the separate account life insurance asset are not contractually linked, differences in balances, fund performance, and insurance costs can result in temporary timing mismatches between changes in separate account life insurance income and the related deferred compensation expense.
Current wording
The Company’s nonqualified deferred compensation plan for officers and directors allows participants to defer a portion of their earnings and select from various hypothetical investment alternatives to determine their individual returns. The Company economically offsets this liability with separate-account life insurance policies that are invested in similar underlying fund types within the life insurance policy. Because the deferred compensation liability and the separate-account life insurance asset are not contractually linked, differences in balances, fund performance, and insurance costs can result in temporary timing mismatches between changes in separate-account life insurance income and the related deferred compensation expense.
Previous wording
Earnings on separate account life insurance were $1.4 million for the second quarter of 2026, compared to a loss of $0.4 million in the linked quarter and earnings of $1.0 million in the second quarter of 2025. For the first six months of 2026, earnings on separate account life insurance totaled $1.0 million, compared to $0.5 million for the same period in 2025. These changes reflect market-driven fluctuations in the value of the underlying investment alternatives and do not represent changes in the operating performance or credit quality of the Company.
Current wording
Earnings on separate account life insurance were $0.1 million for the third quarter of 2026, compared to $0.6 million in the third quarter of 2025. For the first nine months of both 2026 and 2025, earnings on separate account life insurance totaled $1.1 million. These changes reflect market-driven fluctuations in the value of the underlying investment alternatives and do not represent changes in the operating performance or credit quality of the Company.
Previous wording
The majority of the related deferred compensation expense or benefit is reported within professional services expense under deferred directors' fees, as it primarily relates to directors' deferred compensation elections. Deferred directors' fee expense was $1.0 million during the second quarter of 2026, compared to a benefit of $0.6 million in the linked quarter and expense of $0.9 million in the second quarter of 2025. For the first six months of 2026 and 2025, deferred directors' fee expense totaled $0.5 million.
Current wording
The majority of the related deferred compensation expense or benefit is reported within professional services expense under deferred directors' fees, as it primarily relates to directors' deferred compensation elections. Deferred directors' fee expense was $0.2 million during the third quarter of 2026, compared to $0.4 million in the third quarter of 2025. For the first nine months of 2026, deferred directors' fee expense totaled $0.6 million, compared to $0.9 million for the first nine months of 2025.
Previous wording
Overall full-time equivalent employees were 452 at June 30, 2026, as compared to 465 at December 31, 2025, and 494 at June 30, 2025.
Current wording
Overall full-time equivalent employees were 447 at September 30, 2026, as compared to 465 at December 31, 2025, and 476 at September 30, 2025. The decline reflects management's continued focus on operating efficiency and controlling noninterest expense growth while maintaining service levels and support for strategic growth initiatives.
Previous wording
The Company records its provision for income taxes using the annual effective tax rate method prescribed by ASC 740, Income Taxes. Under this methodology, income tax expense is determined by applying the Company's estimated annual effective tax rate to year-to-date pre-tax income and adjusting for discrete tax items recognized in the period in which they occur. The estimated annual effective tax rate reflects the impact of tax-exempt income, tax credits, and other permanent differences between book and taxable income. 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 effective tax rate was 25.3% for the second quarter of 2026, unchanged from the second quarter of 2025 and as compared to 25.2% in the linked first quarter of 2026. For the first six months of 2026, the effective tax rate was 25.2%, compared to 25.5% for the same period in 2025. The lower year-to-date effective tax rate reflects the continued benefit of tax-exempt income and tax credit investments as a percentage of pre-tax earnings.
Current wording
The Company records its provision for income taxes using the annual effective tax rate method prescribed by ASC 740, Income Taxes. Under this methodology, income tax expense is determined by applying the Company's estimated annual effective tax rate to year-to-date pre-tax income and adjusting for discrete tax items recognized in the period in which they occur. The estimated annual effective tax rate reflects the impact of tax-exempt income, tax credits, and other permanent differences between book and taxable income. 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 benefits generated through investments in low-income housing tax credit funds and, more recently, renewable energy tax equity investments. The Company's effective tax rate was 22.7% for the third quarter of 2026, compared to 23.6% for the third quarter of 2025. For the first nine months of 2026, the effective tax rate was 24.2%, compared to 24.9% for the same period in 2025. The Company's effective tax rate declined during the third quarter of 2026 primarily due to the recognition of expected tax benefits associated with its renewable energy tax equity investment, consistent with management's estimate of credits expected to be realized during 2026, as well as the continued benefit of tax-exempt income.
Previous wording
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.
Current wording
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 investments and loans 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.
Previous wording
The investment portfolio is reflected on the balance sheet as investment securities and totaled $894.7 million, or 24% of total assets at June 30, 2026, and $916.1 million, or 24% of total assets at December 31, 2025. The modest decrease was due to regularly scheduled maturities and paydowns.
Current wording
The majority of the investment portfolio is reflected on the consolidated balance sheet as investment securities and totaled $862.5 million, or 23% of total assets at September 30, 2026, and $916.1 million, or 24% of total assets at December 31, 2025. The modest decrease was due primarily to regularly scheduled maturities and paydowns, as well as calls of collateralized loan obligations ("CLOs").
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 3.1 years for available-for-sale investments and 5.2 years for held-to-maturity investments at June 30, 2026, as compared to 2.8 years for available-for-sale investments and 5.6 years for held-to-maturity investments at December 31, 2025.
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 3.5 years for available-for-sale investments and 5.9 years for held-to-maturity investments at September 30, 2026, as compared to 2.8 years for available-for-sale investments and 5.6 years for held-to-maturity investments at December 31, 2025.
Previous wording
The fair value of 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 $362.5 million at June 30, 2026, and $367.5 million at December 31, 2025, leaving $528.1 million in unpledged debt securities at June 30, 2026, and $548.6 million at December 31, 2025. Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $204.3 million at June 30, 2026, and $192.3 million at December 31, 2025.
Current wording
The fair value of 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 $300.2 million at September 30, 2026, and $367.5 million at December 31, 2025, leaving $531.6 million in unpledged debt securities at September 30, 2026, and $548.6 million at December 31, 2025. Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $41.7 million at September 30, 2026, and $35.6 million at December 31, 2025.
Previous wording
At June 30, 2026, the Company’s investment portfolio included 231 municipal bonds issued by 201 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $229.8 million. The largest exposure to any single municipality or agency was a combined $5.2 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 100 subordinated debentures issued by bank-holding companies totaling $84.0 million (fair value).
Current wording
At September 30, 2026, the Company’s investment portfolio included 231 municipal bonds issued by 193 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $200.2 million. The largest exposure to any single municipality or agency was a combined $4.5 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 105 subordinated debentures issued by bank-holding companies totaling $83.8 million (fair value).
Previous wording
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 June 30, 2026, and December 31, 2025, 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 June 30, 2026, and December 31, 2025, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.
Current wording
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 and may not be correlated with fluctuations in fair value related to changes in market conditions, primarily interest rates. The Company maintains it has intent and ability to hold AFS securities until the amortized cost basis of each security is recovered and likewise concluded as of both September 30, 2026, and December 31, 2025, 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, 2026, and December 31, 2025, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.
Previous wording
The Company's loan portfolio remains diversified, with commercial real estate representing 57% of total loans, mortgage warehouse facilities representing 19%, residential real estate comprising 14%, and other commercial loans representing
Current wording
The Company's loan portfolio remains well diversified, with commercial real estate representing 60% of total loans, mortgage warehouse facilities representing 15%, residential real estate comprising 14%, and other commercial loans representing 7% of the portfolio at September 30, 2026. Commercial real estate lending continues to be a key area of growth, supported by strong customer demand and a healthy pipeline of opportunities.
Previous wording
At June 30, 2026, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 235.9% as compared to 242.1% at December 31, 2025. The overall level of construction and land development lending was 3.4% of regulatory capital plus allowance for credit losses at June 30, 2026. At June 30, 2026, non-owner occupied commercial real estate included $304.7 million of retail; $137.2 million of warehouse/industrial; $147.7 million of office; and $256.0 million of hospitality. Approximately $25.1 million, or 17% of the office real estate matures or reprices in less than two years.
Current wording
At September 30, 2026, the total regulatory CRE concentration ratio of total CRE over Bank Tier 1 Capital plus allowance was 245.7% as compared to 242.1% at December 31, 2025. The overall level of construction and land development lending was 3.4% of Bank Tier 1 capital plus allowance at September 30, 2026. At September 30, 2026, non-owner occupied commercial real estate included $293.5 million of retail; $134.4 million of warehouse/industrial; $142.8 million of office; and $302.0 million of hospitality. Approximately $21.4 million, or 15%, of the office real estate balances mature or reprice in less than two years.
Previous wording
The Company had no foreclosed assets at June 30, 2026, compared to $1.6 million at December 31, 2025, as the remaining foreclosed property was resolved during the first quarter of 2026. All nonperforming assets are individually evaluated for credit losses on a quarterly basis, and Management believes the allowance for credit losses allocated to these loans is appropriate.
Current wording
The Company had no foreclosed assets at September 30, 2026, compared to $1.6 million at December 31, 2025, as the remaining foreclosed property was resolved during the first quarter of 2026. All nonperforming loans are individually evaluated for credit losses on a quarterly basis, and Management believes the allowance for credit losses established for these loans is appropriate. Additionally, fair values of foreclosed assets are monitored quarterly and impairments are recognized when Management estimates that the expected value to be recovered has fallen below the carrying value of these assets.
Previous wording
At June 30, 2026, loans past due 30 to 89 days and still accruing totaled $5.4 million compared to $6.8 million at December 31, 2025. Approximately $4.6 million of this balance related to a single commercial real estate loan that became 30 days past due near the end of the second quarter of 2026. Management believes the loan is well secured, with an estimated current loan-to-value ratio of approximately 51%, and therefore does not consider the credit to present a significant loss exposure. 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
Loans past due 30 to 89 days and still accruing declined favorably to $2.5 million at September 30, 2026, compared to $6.8 million at December 31, 2025. Classified loan levels improved to $27.0 million at September 30, 2026, compared to $31.4 million at December 31, 2025, and $29.3 million at June 30, 2026, reflecting continued improvement in overall portfolio risk characteristics. All 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 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.
Current wording
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 an adequate estimation of 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.
Previous wording
allocations. At June 30, 2026, mortgage warehouse and residential real estate loans totaled $803.0 million, representing approximately 33% of total loans, while the related allowance was $1.8 million, or 0.23% of the outstanding balances. As a result, these portfolios reduce the Company's overall allowance coverage ratio. Excluding mortgage warehouse and residential real estate loans, the allowance for credit losses totaled $21.8 million and represented 1.32% of the remaining loan portfolio, compared to 1.16% at December 31, 2025. The Company's commercial real estate portfolio, which represents its largest loan segment, maintained a reserve coverage ratio of 1.15% at June 30, 2026. The increase in the allowance during the first six months of 2026 was driven primarily by higher reserve levels within the other commercial loan portfolio, including increased specific reserves related to individually evaluated credits and changes in management's assessment of credit risk.
Current wording
The allowance for credit losses on loans was $21.7 million, or 0.89% of gross loans, at September 30, 2026, compared to $21.5 million, or 0.84% of gross loans, at December 31, 2025. The Company's overall coverage ratio is influenced by the composition of its loan portfolio, which includes significant concentrations in mortgage warehouse and residential real estate loans that have historically experienced minimal credit losses and therefore require comparatively low reserve allocations. At September 30, 2026, mortgage warehouse and residential real estate loans totaled $702.4 million, representing approximately 29% of total loans, while the related allowance was $1.3 million, or 6% of the total allowance. As a result, these portfolios reduce the Company's overall allowance coverage ratio. Excluding mortgage warehouse and residential real estate loans, the allowance for credit losses totaled $20.4 million and represented 1.18% of the remaining loan portfolio, compared to 1.16% at December 31, 2025. The Company's commercial real estate portfolio, which represents its largest loan segment, maintained a reserve coverage ratio of 1.16% at September 30, 2026.
Previous wording
Included in unused commitments are mortgage warehouse facilities, which are mostly in the form of repurchase 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.
Current wording
Included in unused commitments are mortgage warehouse facilities, which are mostly in the form of repurchase 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 cancelable.
Previous wording
The Company also had undrawn letters of credit issued to customers totaling $5.7 million at June 30, 2026, and December 31, 2025. 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 $1.8 million at September 30, 2026, and $5.7 million at December 31, 2025. 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 $87.7 million at June 30, 2026. 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 $67.5 million at September 30, 2026. 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
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 $92.7 million at September 30, 2026, relative to $71.4 million at December 31, 2025.
Previous wording
Net premises and equipment decreased by $0.9 million during the first six months of 2026, to $14.1 million. This decline was mostly a result of the sale of a bank owned real estate property and depreciation in the first six months of 2026.
Current wording
Net premises and equipment decreased by $0.7 million during the first nine months of 2026, to $14.3 million. This decline was mostly a result of the sale of a bank owned real estate property and depreciation in the first nine months of 2026.
Previous wording
Goodwill was $27.4 million at June 30, 2026, unchanged during the first half of 2026. 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 2026.
Current wording
Goodwill was $27.4 million at September 30, 2026, unchanged during the first nine months of 2026. 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, 2026, 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 2027.
Previous wording
Bank-owned life insurance, with a balance of $70.1 million at June 30, 2026, increased $0.8 million during the first six months of 2026. Additional details are discussed above in the “Noninterest Income and Noninterest Expense” section.
Current wording
Bank-owned life insurance, with a balance of $70.5 million at September 30, 2026, increased $1.2 million during the first nine months of 2026. Additional details are discussed above in the “Noninterest Income and Noninterest Expense” section.
Previous wording
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.
Current wording
Deposits are one of the primary drivers of 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.
Previous wording
Overall uninsured deposits are estimated to be $734.2 million, or 25% 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 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, 2026, the Company had approximately 114,000 accounts, and the 25 largest deposit balance customers had balances of approximately 11% of overall deposits*.* During the first half of 2026, except for seasonal fluctuations in the normal course of business, there have been no material changes in the composition of our 25 largest deposit balance customers.
Current wording
Overall uninsured deposits are estimated to be $773.7 million, or 26% of total deposit balances at September 30, 2026, 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 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, 2026, the Company had approximately 114,000 accounts, and the 25 largest deposit balance customers had balances of approximately 12% of overall deposits*.* During the third quarter of 2026, there were seasonality fluctuations in the normal course of business related to the Company's 25 largest depositors.
Previous wording
Customer repurchase agreements were $122.4 million at June 30, 2026, as compared to $130.9 million at December 31, 2025. 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.
Current wording
Customer repurchase agreements were $113.1 million at September 30, 2026, as compared to $130.9 million at December 31, 2025. 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.
Previous wording
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.
Current wording
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 and FRB borrowings 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.
Previous wording
At June 30, 2026, the Company had $120.0 million in overnight borrowings and $35.0 million of term FHLB borrowings, as compared to $222.7 million in overnight borrowings and $80.0 million of term FHLB borrowings at December 31, 2025.
Current wording
At September 30, 2026, the Company had $17.0 million in overnight borrowings and $35.0 million of term FHLB borrowings, as compared to $222.7 million in overnight borrowings and $80.0 million of term FHLB borrowings at December 31, 2025. The significant reduction in borrowings was primarily attributable to lower mortgage warehouse utilization levels and growth in deposits, which reduced the Company's overall funding requirements.
Previous wording
Long-term debt at June 30, 2026, consisted of $49.5 million of subordinated debt. This remained relatively unchanged from December 31, 2025. Subordinated debentures related to $36.1 million of trust preferred securities at June 30, 2026, were $0.1 million higher than at December 31, 2025. 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).
Current wording
Long-term debt at September 30, 2026, consisted of $49.6 million of subordinated debt. This remained relatively unchanged from December 31, 2025. Subordinated debentures related to $36.2 million of trust preferred securities at September 30, 2026, were $0.1 million higher than at December 31, 2025. 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).
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Previous report — wording carried elsewhere
respectively, for the same quarter in 2025. The primary drivers behind the variance in second quarter net income are as follows:
Previous report — wording carried elsewhere
The allowance for credit losses on loans was $23.6 million, or 0.96% of gross loans, at June 30, 2026, compared to $21.5 million, or 0.84% of gross loans, at December 31, 2025. The Company's overall coverage ratio is influenced by the composition of its loan portfolio, which includes significant concentrations in mortgage warehouse and residential real estate loans that have historically experienced minimal credit losses and therefore require comparatively low reserve
Previous report — wording carried elsewhere
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 $107.6 million at June 30, 2026, relative to $71.4 million at December 31, 2025.