SIERRA BANCORP

Previous wording

Third quarter 2024 net income was $10.6 million, and $0.74 per diluted share in the third quarter of 2024 as compared to $0.68 per diluted share in the third quarter of 2023. The Company’s annualized return on average equity was 11.95% and annualized return on average assets was 1.14% for the quarter ended September 30, 2024, compared to 12.62% and 1.04%,

Current wording

First quarter 2025 net income was $9.1 million, and $0.65 per diluted share as compared to $9.3 million, and $0.64 per diluted share in the first quarter of 2024. The Company’s annualized return on average equity was 10.44% and annualized return on average assets was 1.02% for the quarter ended March 31, 2025, compared to 11.09% and 1.06%, respectively, for the same quarter in 2024. The primary drivers behind the variance in first quarter net income are as follows:

Previous wording

The Company’s assets totaled $3.7 billion at September 30, 2024, a decrease of $33.6 million, or 1.0% from December 31, 2023. The following provides a summary of key balance sheet changes during the first nine months of 2024:

Current wording

The Company’s assets totaled $3.6 billion at March 31, 2025, a decrease of $8.1 million, or 0.2% from December 31, 2024. The following provides a summary of key balance sheet changes during the first three months of 2025:

Previous wording

Total capital of $358.7 million at September 30, 2024, reflects an increase of $20.6 million, or 6%, compared to December 31, 2023. The increase in capital was due to the addition of $30.2 million in net income, a $7.4 million favorable swing in accumulated other comprehensive income/loss, due principally to changes in investment securities’ fair value, offset by $8.3 million in share repurchases, and $10.2 million in dividends paid. The remaining difference is related to the impact of equity compensation recognized during the first nine months of 2024.

Current wording

Total capital of $351.8 million at March 31, 2025, reflects a decrease of $5.5 million, or 2%, compared to December 31, 2024. The decrease in equity during the first quarter of 2025 is due to net income of $9.1 million, offset by a $3.5 million dividend paid to shareholders, $14.2 million in share repurchases, and a $2.4 million favorable swing in other comprehensive income due principally to positive changes in investment securities’ fair value. The remaining difference is related to equity compensation recognized during the quarter.

Previous wording

The Company had $1.3 billion in adjustable and variable rate loans and $539.1million in floating rate bonds, as compared to $269.4 million in floating rate CDs and $35.8 million in floating rate trust preferred securities at September 30, 2024. The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years. Of the $1.3 billion in adjustable and variable rate loans, $719.2 million of such adjustable and variable rate loans reprice or mature in the next twelve months. Based on current rates, of the $719.2 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $153.1 million, or 21%, are expected to reprice higher, while $157.1 million, or 22%, are expected to reprice lower. The remaining balance of $409.0 million is neutral to any repricing adjustment due to maturity or other factors.

Current wording

The Company had $1.3 billion in adjustable and variable rate loans and $339.9 million in floating rate bonds, as compared to $251.5 million in floating rate CDs and $35.9 million in floating rate trust preferred securities at March 31, 2025. The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years. Of the $1.3 billion in adjustable and variable rate loans, $696.1 million of such adjustable and variable rate loans reprice or mature in the next twelve months. In addition, there are $618.3 million of fixed-term deposits that reprice or mature within twelve months. Based on current rates, of the $696.1 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $303.5 million, or 44%, have a current pricing index rate that is higher than the current index, while $24.8 million, or 4%, have lower pricing index rates as compared to the current index. The remaining balance of $367.8 million are priced at the current index rate or are expected to mature.

Previous wording

The volume variance calculated for the third quarter of 2024 relative to the third quarter of 2023 was a favorable $3.1 million; this is primarily from a favorable loan volume variance of $4.0 million augmented by a favorable reduction in other borrowed funds. There was a favorable rate variance of $1.1 million from the comparative quarter since the weighted average yield on interest-earning assets more than offset the increase in the average yield unfavorable variance on interest-bearing liabilities. There was an unfavorable mix variance of $1.5 million primarily from the sale of bonds with lower yields that has yet to be deployed into higher yielding assets combined with higher interest rates paid on customer time

Current wording

The volume variance calculated for the first quarter of 2025 relative to the first quarter of 2024 was a favorable $2.6 million; this is primarily from a favorable loan volume variance of $4.4 million augmented by a favorable reduction in other borrowed funds. There was an unfavorable rate variance of $0.3 million from the comparative quarter primarily driven from an unfavorable rate variance on investment securities, partially offset by favorable rate variances in loans and interest bearing liabilities. There was an unfavorable mix variance of $1.0 million primarily from an increase in mortgage

Previous wording

Average interest earning cash balances for the quarter and year-to-date comparisons have increased and have a positive impact on the net interest margin since cash balances have been earning approximately 5.5%. Average cash and due from banks was $88.5 million, an increase of $64.7 million for the third quarter of 2024 as compared to the same period last year, and was $28.3 million higher for the first nine months of 2024 as compared to the same period in 2023.

Current wording

Average interest earning cash balances for the quarterly comparisons have increased and have a positive impact on the net interest margin since cash balances have been earning approximately 4.4%. Average cash and due from banks was $54.6 million, an increase of $37.6 million for the first quarter of 2025 as compared to the same period last year.

Previous wording

Overall average investment securities decreased by $321.7 million for the third quarter of 2024, as compared to the same period in 2023, and decreased by $266.8 million for the first nine months of 2024, from the sale of lower yielding bonds from a strategic securities transaction, the proceeds of which were used to paydown higher cost borrowings. The overall investment portfolio had a tax-equivalent yield of 5.27% at September 30, 2024, with an average life of 4.44 years and average effective duration of 1.0 years for available-for-sale securities. Approximately $464.8 million of the investment securities reprice every 90 days and $65.4 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.

Current wording

Overall average investment securities decreased by $205.4 million for the first 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 4.52% at March 31, 2025, with an average life of 5.88 years and average effective duration of 2.1 years for available-for-sale securities. Approximately $266.7 million of the investment securities reprice every 90 days and $74.6 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.

Previous wording

Variances in interest expense were the result of changes discussed under the “Net Interest Income and Net Interest Margin” heading. In addition, average noninterest-bearing demand deposits decreased $69.6 million or 7% for the third quarter of 2024 as compared to the third quarter of 2023 and decreased $74.0 million or 7% for the first nine months of 2024 as compared to the first nine months of 2023.

Current wording

Variances in interest expense were the result of changes discussed under the “Net Interest Income and Net Interest Margin” heading.

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 for the third quarter of 2024, as compared to a $0.1 million in the third quarter of 2023. There was a year-to-date provision for credit losses on loans of $2.3 million in 2024, as compared to $0.4 million for the same period in 2023. The Company's $1.1 million increase in the provision for credit losses on loans in the third quarter of 2024, as compared to the third quarter of 2023, and the $1.8 million year to date increase in the provision for credit losses on loans, compared to the same period in 2023, was primarily due to the impact of $3.0 million in net charge-offs in the first nine months of 2024, with only $0.4 million in net charge-offs for the first nine months of 2023. The increase in net charge-offs was primarily related to a single office building, which was subsequently foreclosed upon and sold.

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 $2.0 million in the first quarter of 2025, as compared to $0.1 million in the first quarter of 2024. The increased provision for credit losses in the first quarter of 2025 over the first quarter of 2024, was primarily due to an increased specific reserve on an individually evaluated loan related to a single loan relationship of a wine grape grower. 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.

Previous 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 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. During the third quarter, and first nine months of 2024, earnings from the BOLI was $0.3 million, and $1.5 million, respectively, while additional expense from the related deferred compensation liability was $0.3 million, and $1.7 million, respectively. Most of such expense is reported as professional fees under directors’ fees as such expense is related to deferral of past directors’ fees. Specifically, $0.2 million for the quarterly comparison, and $1.4 million for the year-to-date comparison, respectively, is 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 $0.2 million during the third quarter of 2024, and $1.0 million for the first nine-months of 2024.

Current 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 $1.5 million within noninterest income and a favorable year-over-year $1.5 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. During the first quarter of 2025, reversal of earnings from the BOLI was $0.3 million, while reversal of expense from the related deferred compensation liability was $0.4 million. Most of such expense is reported as professional fees under directors’ fees as such expense is related to deferral of past directors’ fees. Specifically, $0.4 million for the quarterly comparison is reflected as a reversal of directors’ fees as part of the overall professional fees expense line item.

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 26.4% of pre-tax income in the third quarter of 2024, relative to 25.8% in the third quarter of 2023, and 26.8% of pre-tax income for the first nine months of 2024, relative to 25.3% for the same period in 2023. The increase 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 smaller percentage of total taxable income.

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 25.8% of pre-tax income in the first quarter of 2025, relative to 26.3% in the first quarter of 2024. The variance in the effective tax rate, is due to fluctuations in tax credits and related amortization, as well as tax-exempt income as a percentage of total taxable income.

Previous wording

The investment portfolio is reflected on the balance sheet as investment securities and totaled $1.0 billion, or 27% of total assets at September 30, 2024, and $1.3 billion, or 36% of total assets at December 31, 2023. The decrease was due to the sale of bonds from the strategic securities transaction. The bonds sold had an average book yield of 2.61% and were used to paydown borrowed funds at an average rate of 5.52%.

Current wording

The investment portfolio is reflected on the balance sheet as investment securities and totaled $922.4 million, or 26% of total assets at March 31, 2025, and $1.0 billion, 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 1.0 years for available-

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 2.1 years for available-for-sale investments and 6.2 years for held-to-maturity investments at March 31, 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 that were 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 $463.9 million at September 30, 2024, and $551.5 million at December 31, 2023, leaving $551.4 million in unpledged debt securities at September 30, 2024, and $787.8 million at December 31, 2023. Securities that were pledged in excess of actual pledging needs and were thus available for liquidity purposes, if needed, totaled $286.4 million at September 30, 2024, and $383.0 million at December 31, 2023.

Current wording

Investment securities that were 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 $353.0 million at March 31, 2025, and $403.4 million at December 31, 2024, leaving $569.4 million in unpledged debt securities at March 31, 2025, and $558.1 million at December 31, 2024. Securities that were pledged in excess of actual pledging needs and were thus available for liquidity purposes, if needed, totaled $181.0 million at March 31, 2025, and $242.2 million at December 31, 2024.

Previous wording

Over the past several years, the Company has strategically focused on reducing concentrations in commercial real estate, especially amongst areas management deemed to be higher risk such as construction, office real estate, and hospitality. At September 30, 2024, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 236.43% as compared to 242.88% at December 31, 2023, and 243.07% at September 30, 2023. Further, the overall level of construction and land development lending had declined to 1% of regulatory capital plus allowance for credit losses at September 30, 2024. At September 30, 2024, non-owner occupied commercial real estate includes $304.7 million of retail; $142.1 million of warehouse/industrial; $172.9 million of office; and $200.9 million of hospitality. Approximately $172.9 million, or 5% of the office real estate matures in less than two years.

Current wording

At March 31, 2025, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 237.1% as compared to 236.3% at December 31, 2024, and 248.4% at March 31, 2024. Further, the overall level of construction and land development lending had declined to 1% of regulatory capital plus allowance for credit losses at March 31, 2025. At March 31, 2025, non-owner occupied commercial real estate includes $301.4 million of retail; $150.7 million of warehouse/industrial; $155.4 million of office; and $218.2 million of hospitality. Approximately $29.5 million, or $19% of the office real estate matures in less than two years.

Previous wording

Unused commitments, excluding mortgage warehouse and overdraft lines, were $237.7 million at September 30, 2024, compared to $203.6 million at December 31, 2023. Total line utilization, excluding mortgage warehouse and overdraft lines, was 59.2% at September 30, 2024, and 62.3% at December 31, 2023. Mortgage warehouse utilization increased to 54.6% at September 30, 2024, as compared to 36.2% at December 31, 2023.The increase in mortgage warehouse utilization during the first nine months of 2024 was due to $297.6 million in new mortgage warehouse lines and subsequent utilization of those lines.

Current wording

Unused commitments, excluding mortgage warehouse and overdraft lines, were $267.4 million at March 31, 2025, compared to $256.9 million at December 31, 2024. Total line utilization, excluding mortgage warehouse and overdraft lines, was 56.3% at March 31, 2025, and 57.0% at December 31, 2024. Mortgage warehouse utilization decreased to 40.6% at March 31, 2025, as compared to 51.2% at December 31, 2024. The decrease in mortgage warehouse utilization during the first quarter of 2025 was due to seasonality and approximately $41.3 million in late quarter line paydowns by two customers.

Previous wording

It should be noted that the mortgage warehouse lines were moved to repurchase agreement lines in 2022 and 2023. 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 as they are unconditionally cancellable.

Current wording

The mortgage warehouse lines are structured as repurchase agreement lines. The repurchase agreement structure provides stronger credit protection to the Company, as well as more favorable regulatory capital treatment as these repurchase lines are not considered off-balance sheet commitments for regulatory capital purposes as they are unconditionally cancellable.

Previous wording

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

Current wording

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

Previous wording

Total nonperforming assets, comprised of nonaccrual loans, increased by $2.4 million to $10.3 million for the first nine months of 2024. The Company's ratio of nonperforming loans to gross loans increased to 0.45% at September 30, 2024, from 0.38% at December 31, 2023. The increase in nonperforming loans resulted from a loan collateralized by agricultural property specifically related to dairy farming and an office commercial real estate loan. This increase was offset by the foreclosure, and subsequent first quarter 2024 sale of an office commercial real estate property which was nonperforming at December 31, 2023. 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 non-accrual loans, decreased by $1.5 million, or 7%, during the first quarter of 2025. The decrease in non-accrual loans, was from the successful payoff and paydown of a couple of loans secured by farmland. The Company's ratio of nonperforming assets to loans plus foreclosed assets decreased to 0.79% at March 31, 2025, from 0.84% at December 31, 2024. 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

The Company had $0.4 million in loans past due 30-89 days at September 30, 2024. This is a decrease of $1.7 million over the balance at December 31, 2023. 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 $3.1 million in loans past due 30-89 days and still accruing at March 31, 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.

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 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

Previous wording

The Company's allowance for credit losses on loans was $22.7 million at September 30, 2024, and $23.5 million at December 31, 2023. The allowance was 0.98% of gross loans at September 30, 2024, and 1.12% of total loans at December 31, 2023. The decrease in the allowance resulted from a reduction in specific individual reserves on individually evaluated loans due to the charge-off associated with one commercial real estate loan. 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, 2024, 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. Furthermore, fluctuations in credit quality, changes in economic conditions, updated accounting or regulatory requirements, and/or other factors could induce the Company to augment or reduce the allowance. The Company calculates the allowance for credit losses using a combination of quantitative and qualitative factors applied to loans segmented by call report category. The largest increase in loan balances was from mortgage warehouse lines which has the lowest reserve rate in the allowance for credit losses at 0.14%. Therefore, at September 30, 2024, approximately $0.5 million of the allowance for credit losses is attributable to mortgage warehouse lines. A separate allowance of $0.06 million for potential credit losses inherent in unused commitments is included in other liabilities at September 30, 2024, an increase of $0.1 million, from December 31, 2023.

Current wording

The Company's allowance for credit losses on loans was $27.1 million at March 31, 2025, as compared to $24.8 million at December 31, 2024, and $23.1 million at March 31, 2024. The increase is primarily attributable to an increase in the allowance for loans individually evaluated and was specifically related to a $11.9 million single loan relationship of a wine grape grower. The allowance was 1.17% of total loans at March 31, 2025, 1.07% of total loans at December 31, 2024, and 1.07% of total loans at March 31, 2024. 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 March 31, 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 $27.1 million at March 31, 2025, included $0.3 million of allowance related to $283.2 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 March 31, 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 $589.7 million at September 30, 2024, and $487.1 million at December 31, 2023, representing approximately 25% of gross loans outstanding at September 30, 2024, and 23% at December 31, 2023. 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 $279.2 million at September 30, 2024, and $204.5 million at December 31, 2023, while utilization was 55% and 36%, respectively.

Current wording

ultimately be drawn down. Unused commitments to extend credit, which included standby letters of credit, totaled $754.4 million at March 31, 2025, and $641.5 million at December 31, 2024, representing approximately 33% of gross loans outstanding at March 31, 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 $414.8 million at March 31, 2025, and $311.6 million at December 31, 2024, while utilization was 41% and 51%, respectively.

Previous wording

The increase in utilization during the first nine months of 2024 was due to new customers in the mortgage warehouse product that ramped up their utilization. Unused commitments exclusive of mortgage warehouse lines and overdraft lines of credit, have increased $34.1 million or 17% for the first nine months of 2024 and are due to an increase in new lines of credit and higher utilization on existing lines of credit. The Company also had undrawn letters of credit issued to customers totaling $5.3 million at September 30, 2024, and $5.0 million at December 31, 2023. 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 decrease in utilization during the first three months of 2025 was due to new customers in the mortgage warehouse product that had not yet ramped up their utilization as well as two large mortgage warehouse line paydowns during the final week of the quarter. Unused commitments exclusive of mortgage warehouse lines and overdraft lines of credit, were nearly flat at 57% at December 31, 2024 and 56% at March 31, 2025. The Company also had undrawn letters of credit issued to customers totaling $5.2 million at March 31, 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 $77.7 million at September 30, 2024. That letter of credit is backed by loans that are 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 $83.4 million at March 31, 2025. That letter of credit is backed by loans that are 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 $97.6 million at September 30, 2024, relative to $73.7 million at December 31, 2023.

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 $80.4 million at March 31, 2025, relative to $79.6 million at December 31, 2024.

Previous wording

Net premises and equipment decreased by $1.3 million during the first nine months of 2024, to $15.6 million. This decline was a result of the sale/leaseback of two bank-owned branch locations in the first quarter of 2024.

Current wording

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

Previous wording

Goodwill was $27.4 million at September 30, 2024, unchanged during the first nine months of 2024. 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, 2023, 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 2024.

Current wording

Goodwill was $27.4 million at March 31, 2025, unchanged during the first three 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, 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.

Previous wording

Bank-owned life insurance, with a balance of $54.0 million at September 30, 2024, is discussed in detail above in the “Noninterest Income and Noninterest Expense” section.

Current wording

Bank-owned life insurance, with a balance of $52.7 million at March 31, 2025, is discussed in detail above in the “Noninterest Income and Noninterest Expense” section.

Previous wording

Deposit balances grew by $200.9 million, or 7%, during the first nine months of 2024 to $3.0 billion at September 30, 2024. Core non-maturity deposits increased by $31.0 million, or 6%, for the first nine months of 2024, while customer time deposits decreased by $5.0 million, or 1%. Wholesale brokered deposits increased $175.0 million during the first nine months of 2024, or 130%. This was a strategic decision to fund increased usage on mortgage warehouse lines. Overall noninterest-bearing deposits as a percent of total deposits decreased to 34.2%, at September 30, 2024, compared to 37.0% at December 31, 2023.

Current wording

Deposit balances declined by $41.8 million, or 1%, during the first three months of 2025 to $2.8 billion at March 31, 2025 due mostly to an $85.0 million reduction in brokered deposits. Core non-maturity deposits increased $52.6 million, or 3%, for the first three months of 2025, while customer time deposits decreased by $9.4 million. Brokered deposits decreased significantly during the quarter, as the Company utilized some paydowns in the investment portfolio and changes in mortgage warehouse line utilization to offset recent brokered deposit maturities. Noninterest-bearing deposits as a percent of total deposits increased to 36.4% at March 31, 2025, compared to 34.8% at December 31, 2024, and from 34.0% at March 31, 2024.

Previous wording

Overall uninsured deposits are estimated to be approximately $816.2 million, or 28% 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 (ICS) account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (CDARS). IntraFi allows for up to $265 million per customer of pass-through FDIC insurance, which would more than cover each of the Bank’s deposit customers if such 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, 2024, the Company had approximately 120,000 accounts and the 25 largest deposit balance customers had balances of approximately 15% of overall deposits*.*

Current wording

Overall uninsured deposits are estimated to be $788.6 million, or 28% 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 $275 million of combined pass-through FDIC insurance which would more than cover each of the Bank’s deposit customers if such 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 March 31, 2025, the Company had approximately 119,000 accounts and the 25 largest deposit balance customers had balances of less than 10% of overall deposits*.* Other interest-bearing liabilities of $198.8 million on March 31, 2025, consist of $118.8 million in customer repurchase agreements and $80.0 million of term FHLB borrowings, as compared to $108.9 million in customer repurchase agreements, and $80.0 million of term FHLB borrowings on December 31, 2024.

Previous wording

Customer repurchase agreements increased from $107.1 million at December 31, 2023, to $125.5 million at September 30, 2024. Customer repurchase agreements provide collateral for customers that sweep excess deposit balances each day into a separate repurchase agreement account where the Company effectively sells certain government bonds to customers daily and then repurchases the same bonds on the next business day. Although these accounts are not deposits and are not FDIC insured, they provide customers with larger account balances the ability to have their account secured with collateral.

Current wording

Customer repurchase agreements were $118.8 million at March 31, 2025, as compared to $108.9 million at December 31, 2024. Customer repurchase agreements provide collateral for customers that sweep excess deposit balances each day into a separate repurchase agreement account where the Company sells certain government bonds to customers daily under an agreement to repurchases the same bonds on the next business day. Although these accounts are not deposits and are not FDIC insured, they provide customers with larger account balances the ability to have their account effectively secured with collateral.

Previous wording

Long-term debt at September 30, 2024, consisted of $49.4 million of subordinated debt. This remained relatively unchanged from December 31, 2023. Subordinated debentures related to $35.8 million of trust preferred securities at both September 30, 2024, and December 31, 2023. Trust preferred securities are variable rate instruments benchmarked against the Secured Overnight Financing Rate (SOFR).

Current wording

Long-term debt at March 31, 2025, consisted of $49.4 million of subordinated debt. This remained relatively unchanged from December 31, 2024. Subordinated debentures related to $35.9 million of trust preferred securities at March 31, 2025, was $0.1 million higher than at December 31, 2024. The small increase resulted from the amortization of 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).

Previous wording

Other liabilities are principally comprised of operating lease right-of-use liabilities, accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts. The Company’s balance of other liabilities was $84.0 million at September 30, 2024, as compared to $77.4 million at December 31, 2023, an increase of $6.6 million or 8%. The increase was primarily driven by accrued payables that as of September 30, 2024, had not settled .

Current wording

Other liabilities are principally comprised of operating lease right-of-use liabilities, accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts. The Company’s balance of other liabilities was $119.7 million at March 31, 2025, as compared to $90.5 million at December 31, 2024, an increase of $29.2 million or 32%. The increase was primarily driven by investment security purchases that as of March 31, 2025, had not settled .

Previous wording

The Company continues to have substantial liquidity though unencumbered assets and available borrowings. In addition, the Company’s loan-to-deposit ratio was 78% at September 30, 2024, and 76% at December 31, 2023.

Current wording

The Company continues to have substantial liquidity through unencumbered assets and available borrowings. In addition, the Company’s loan-to-deposit ratio was 81% at both March 31, 2025, and December 31, 2024, compared to an internal policy guideline of less than 90%.

Previous wording

Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by Management on a monthly basis, with various stress scenarios applied to assessthe Company’s ability to meet liquidity needs under unusual or adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored, the Company is committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise.

Current wording

Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by Management on a monthly basis, with various stress scenarios applied to assess the Company’s ability to meet liquidity needs under unusual or adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored, the Company is committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise.

Previous wording

Available funding sources detailed above of $2.4 billion represented 82% of total deposits and 299% of estimated uninsured and/or uncollateralized deposits as of September 30, 2024. Unpledged investment securities include $266.4 million of CLOs. As CLO’s have a rate that resets every 90 days to current rates, the volatility of pricing of these securities is limited and the Company could sell such securities for liquidity at a significantly lower loss than selling lower rate fixed term securities such as US government bonds or municipal bonds.

Current wording

Available funding sources detailed above of $2.3 billion represented 79% of total deposits and 287% of estimated uninsured and/or uncollateralized deposits as of March 31, 2025. Unpledged investment securities include $160.4 million of CLOs. As CLO’s have a rate that resets every 90 days to current rates, the volatility of pricing of these securities is limited and the Company could sell such securities for liquidity at a significantly lower loss than selling lower rate fixed term securities such as US government bonds or municipal bonds.

Previous wording

The Company’s primary liquidity ratio and gross loans to deposits were 22.59% and 78.34%, respectively, at September 30, 2024, as compared to internal policy guidelines of “greater than 15%” and “less than 95%.” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at September 30, 2024, are also periodically reviewed by Management and the Board. The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that the liquidity position will continue at current strong levels.

Current wording

The Company’s primary liquidity ratio was 20% at March 31, 2025, as compared to an internal policy guideline of “greater than 15%” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at March 31, 2025, are also periodically reviewed by Management and the Board. The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that the liquidity position will continue at current strong levels.

Previous wording

The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, interest on trust preferred securities and subordinated debt, shareholder dividends, and share repurchases. Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. As of September 30, 2024, the holding company maintained a cash balance of $11.0 million. Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC.

Current wording

The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, interest on trust preferred securities and subordinated debt, shareholder dividends, and share repurchases. Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. As of March 31, 2025, the holding company maintained a cash balance of $2.4 million. Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC.

Previous wording

To identify areas of potential exposure to interest rate changes, the Company utilizes commercially available modeling software to perform monthly earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios. The model imports relevant information for the Company’s financial instruments and

Current wording

To identify areas of potential exposure to interest rate changes, the Company utilizes commercially available modeling software to perform monthly earnings simulations using a dynamic balance sheet and calculate the Company’s market value of portfolio equity under varying interest rate scenarios. The model imports relevant information for the Company’s