What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-31 compared with 2025-08-01 · 231 added, 204 removed, 475 unchanged (48% of the section changed)

15 unchanged sentences

● the risk of unfavorable economic conditions in the Company’s market areas, or the impact on the Company’s market areas of national or international economic conditions or changes to economic policies, including tariffs and trade agreements;

● risks associated with a U.S.

Government shutdown, including delays in regulatory reviews, approvals, or rulemaking from federal agencies, reduced access to government economic data and reports which could affect our ability to assess risk and make informed investment or risk management decisions, heightened volatility or reduced liquidity in financial markets, credit and counterparty risk exposure in connection with clients or counterparties that rely on government funding or contracts, and diminished investor and consumer confidence which could reduce demand for financial products;

● liquidity risks, including the ability to effectively manage the potential loss of deposits, the ability to maintain funding lines of credit, and the loss of value of unencumbered investment securities;

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The Company does not update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events.

CRITICAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

CRITICAL ACCOUNTING POLIC Y AND ACCOUNTING ESTIMATES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States.

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Critical accounting policies are those that involve the most complex and subjective decisions and assessments which have the greatest potential impact on the Company’s stated results of operations.

In Management’s opinion, the Company’s critical accounting policies deal with the following areas:

In Management’s opinion, the Company’s has identified one critical accounting policy:

● the establishment of the allowance for credit losses, including the valuation of individually evaluated loans, as explained in detail in Notes 8 and 10 to the consolidated financial statements and in the “Provision for Credit Losses” and “Allowance for Credit Losses” sections of this discussion and analysis

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

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

OVERVIEW OF THE RESULTS OF OPERATIONS

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RESULTS OF OPERATIONS SUMMARY

Second Quarter 2025 Compared to Second Quarter 2024

Second quarter 2025 net income was $10.6 million, and $0.78 per diluted share as compared to $10.3 million, and $0.71 per diluted share in the second quarter of 2024.

The Company’s annualized return on average equity was 12.08% and annualized return on average assets was 1.16% for the quarter ended June 30, 2025, compared to 11.95% and 1.14%, respectively, for the same quarter in 2024.

The primary drivers behind the variance in first quarter net income are as follows:

● Net income for the second quarter of 2025 increased $0.4 million, or 4%, to $10.6 million.

Net interest income improved $0.5 million and noninterest income increased $0.9 million, or 12%.

These favorable changes were partially offset by an increase in the provision for credit losses of $0.3 million, and an increase in noninterest expense of $1.1 million, or 5%.

● The $0.5 million increase in net interest income for the quarter was mostly driven by a 23 basis point decrease in the cost of deposits and borrowings.

The yield on interest earning assets declined 20 basis points, counterbalancing some of the improvements in the cost of funds.

● Included in the above $0.9 million increase in noninterest income and $1.1 million increase in noninterest expense was an $0.8 million increase in bank-owned life insurance (BOLI) designed to offset changes to deferred compensation expense.

Deferred compensation expense increased $0.7 million in the second quarter of 2025 as compared to the same period in 2024 primarily due to increases in the value of participants accounts as a result of market conditions.

Third Quarter 2025 Compared to Third Quarter 2024

Third quarter 2025 net income was $9.7 million, and $0.72 per diluted share as compared to $10.6 million, and $0.74 per diluted share in the third quarter of 2024.

The Company’s annualized return on average equity was 10.81% and annualized return on average assets was 1.04% for the quarter ended September 30, 2025, compared to 11.95% and 1.14%,

respectively, for the same quarter in 2024.

The primary drivers behind the variance in third quarter net income are as follows:

● Net income for the third quarter of 2025 decreased $0.9 million, or 9%, to $9.7 million.

Net interest income improved $1.2 million, or 4%, and noninterest income increased $0.3 million.

These favorable changes were offset by an increase in the provision for credit losses of $2.3 million, and an increase in noninterest expense of $0.8 million, or 4%.

● The $1.2 million increase in net interest income was due to a 12 basis point increase in net interest margin driven by a 27 basis point decrease in the cost of funds.

● The provision for credit losses was $3.7 million for the quarter, an increase of $2.3 million, primarily due to an increase in individual reserves during the third quarter of 2025, due to a single agricultural production property.

● Noninterest expense was $0.8 million higher in the third quarter over the same quarter last year due to an increase in salaries and benefits, and occupancy costs.

● Included in the line-item changes from the third quarter of 2024 was the increase of $0.3 million in income from corporate owned life insurance income invested to offset the $0.3 million increase in deferred compensation costs.

First Nine Months of 2025 Compared to First Nine Months of 2024

● Net income decreased $0.8 million, or 3%.

The decrease was primarily driven by an increase of $4.6 million in provision for credit losses.

This decline was partially offset by an increase of $3.1 million in net interest income, due mostly to a 25 basis point decrease in the cost of interest-bearing liabilities.

A favorable decrease in the cost of interest-bearing deposits of 29 basis points and decreases in the average balances of those deposits had the biggest impact on the increase in net interest income.

While the Company experienced lower yields and balances on investments, this was mostly offset by increases in yields and balances on loans.

Noninterest income decreased by $0.8 million and noninterest expense decreased by $0.2 million.

● The provision for credit losses was $7.0 million, an increase of $4.6 million, primarily for the reasons stated above.

● Noninterest income decreased by $0.8 million, or 3%, driven by the net $0.6 million gain from the balance sheet restructuring at the beginning of 2024, with no similar transaction in 2025, and a $0.6 million decrease in service charges and fees on deposit accounts.

Partially offsetting these unfavorable variances was a $0.8 million gain on life insurance during the first nine months of 2025.

● Noninterest expense decreased $0.2 million, due mostly to decreases in professional services and lower sundry losses, partially offset by increases in salaries and benefits and occupancy costs.

● Included in the line-item changes from the same period in 2024 was the decrease of $0.5 million in income from corporate owned life insurance income invested to offset the $0.5 million decrease in deferred compensation costs.

FINANCIAL CONDITION SUMMARY

June 30, 2025 Relative to December 31, 2024

The Company’s assets totaled $3.8 billion at June 30, 2025, an increase of $156.0 million, or 4.0% from December 31, 2024.

The following provides a summary of key balance sheet changes during the first six months of 2025:

● Investment securities increased $5.8 million, or 1.0%, to $967.3 million primarily due to purchases of mortgage-backed securities and corporate bonds.

September 30, 2025 Relative to December 31, 2024

The Company’s assets totaled $3.7 billion at September 30, 2025, an increase of $95.1 million, or 3.0% from December 31, 2024.

The following provides a summary of key balance sheet changes during the first nine months of 2025:

● Investment securities decreased $70.0 million, or 7.0%, to $891.4 million primarily due to collateralized loan obligations (CLOs), continuing to aggressively payoff due to tightening spreads and the ability of the issuers to reissue with a lower spread.

Purchases of mortgage-backed securities and corporate bonds have partially offset

the run-off of CLOs.

Corporate bonds have preferential yields over other types of securities, and fixed rate mortgage-backed securities fit the Company’s asset neutrality position.

Collateralized loan obligations (CLOs), continue to aggressively payoff due to tightening spreads and the ability of the issuers to reissue with a lower spread.

● Gross loans increased $103.3 million, or 4%, due to a $75.5 million increase in mortgage warehouse loans, a $34.1 million increase in commercial real estate loans, a $6.3 million increase in construction loans and an $8.4 million increase in other commercial loans, partially offset by declines in other categories.

Specifically, there was an $11.1 million decrease in residential real estate loans, a $9.6 million decrease in farmland loans, and a $0.4 million reduction in consumer loans.

In addition to strong favorable growth in mortgage warehouse, new credit extended, including new fundings on non-mortgage warehouse lines of credit, was $114.5 million year-to-date in 2025 versus $75.3 million year-to-date in 2024.

● Deposits increased by $82.8 million, or 3%.

The growth in deposits came primarily from noninterest bearing demand deposits.

There was also a $15.0 million increase in brokered deposits.

Overall customer deposits increased $67.8 million.

● Other interest-bearing liabilities increased $92.0 million;

$74.4 million from an increase in overnight borrowings, and $17.6 million from increased customer repurchase balances.

Overnight borrowings are used to fund mortgage warehouse line advances.

● Total capital of $355.7 million at June 30, 2025, reflects a decrease of $1.6 million, relative to year-end 2024.

The decrease in equity during the first half of 2025 was due to the addition of $19.7 million in net income, a $2.6 million favorable swing in accumulated other comprehensive income/loss due principally to changes in investment securities’ fair value, $18.0 million in share repurchases and $7.0 million in dividends paid.

The remaining difference is related to stock options exercised and restricted stock compensation recognized during the quarter.

● Gross loans increased $160.4 million, due mostly to a $126.3 million increase in mortgage warehouse line utilization, as well as $46.9 million of growth in commercial real estate loans, a $7.9 million increase in other construction loans, and a $7.6 million increase in other commercial loans.

This favorable growth was partially offset by an $18.2 million decline in residential real estate loans, a $9.7 million decrease in farmland, and a $0.4 million reduction in consumer loans.

● Deposits totaled $2.9 billion at September 30, 2025, representing a year-to-date increase of $41.1 million, or 1%.

The growth in deposits came mostly from a $65.7 million increase in noninterest-bearing deposits and a $60.6 million increase in interest-bearing demand deposits.

The increases were partially offset by decreases in customer time deposits and brokered deposits of $57.3 million and $40.0 million, respectively.

● Overnight borrowings increased $55.0 million and customer repurchase agreements increased $16.9 million.

● Total capital of $360.1 million at September 30, 2025, reflects an increase of $2.8 million, relative to year-end 2024.

The increase in equity during the first nine months of 2025 was due to the addition of $29.4 million in net income, a $6.1 million favorable swing in accumulated other comprehensive income/loss due principally to changes in investment securities’ fair value, partially offset by $24.3 million in share repurchases and $10.3 million in dividends paid.

The remaining difference is related to the impact of equity compensation.

EARNINGS PERFORMANCE

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NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was $30.7 million for the second quarter of 2025, a $0.5 million increase, or 2%, over the second quarter of 2024.

This increase in net interest income for the quarterly comparison was due primarily to a 23 basis point decrease in interest expense on interest-bearing liabilities.

For the second quarter of 2025, although the balance of average interest-earning assets was $58.5 million higher, the yield was 20 basis points lower as compared to the same period in 2024.

The primary reason for the decrease in yield came from variable rate investments, in the form of CLO, that had rate resets due to the 100 basis decline in the prime rate in late 2024, and CLO prepayments where the funds could not be reinvested at the original spread or similar rate.

There was a 23 basis point decrease in the cost of interest-bearing liabilities for the same period, which had a greater impact than the lower yields on the interest-earning asset side of the balance sheet.

Net interest income for the comparative year-to-date periods increased $1.9 million.

As with the quarterly comparison the decrease in the cost of interest-bearing liabilities was greater than the decrease in yield on interest-bearing assets.

There was a $61.7 million, or 2%, increase in average interest-earning asset balances yielding 10 basis points lower for the same period, while average interest-bearing liability balances increased $1.7 million, yielding 20 basis points lower for the same period.

The favorable net impact of the mix and rate change was a five basis point increase in our net interest margin for the six months ending June 30, 2025, as compared to the same period in 2024.

Interest expense was $12.1 million for the second quarter of 2025, a decrease of $1.3 million, relative to the second quarter of 2024.

For the first six months of 2025, compared to the first six months of 2024, interest expense decreased $2.2 million, to $23.4 million.

The decrease in interest expense for the quarterly comparison is primarily attributable to a $49.8 million average volume decrease in interest-bearing deposit balances and a 31 basis point decrease in interest rates paid on those balances.

This positive variance was partially offset by $45.6 million in higher average balances of borrowed funds, combined with an 11 basis point increase in cost.

There was a favorable shift in the deposit mix in the second quarter of 2025 as compared to the same period in 2024 with transaction accounts increasing $112.6 million while higher cost time and brokered deposits decreased.

Higher cost customer time deposits decreased by $46.6 million, and wholesale brokered deposits decreased by $63.6 million.

There was also a $10.5 million decrease in the average balance of savings and money market accounts.

For the first half of 2025, as compared to the same period in 2024, customer time deposits and wholesale brokered deposits decreased $38.6 million, and $12.1 million respectively, while borrowed funds increased $5.5 million.

Other deposits increased $74.2 million for the year-to-date comparison.

The Company had $1.7 billion in adjustable and variable rate loans and $359.7 million in floating rate bonds, as compared to $255.3 million in floating rate CDs and $35.9 million in floating rate trust preferred securities at June 30, 2025.

Net interest income was $32.0 million for the third quarter of 2025, a $1.2 million increase, or 4% over the third quarter of 2024, and increased $3.1 million, or 3%, to $92.7 million for the first nine months of 2025 relative to the same period in 2024.

For the third quarter of 2025, there was a 35 basis point decrease in the cost of our interest-bearing liabilities combined with a $17.9 million decrease in the average balance of interest-bearing liabilities.

Although the balance of average interest-earning assets was $7.2 million higher, the yield was 13 basis points lower as compared to the same period in 2024, which partially offset the favorable variances on the liability side.

Net interest income for the comparative year-to-date periods increased $3.1 million, or 3%, due primarily to a decrease of 25 basis points in the cost of funds of average interest-bearing liabilities combined with an increase in the average balance of interest-earning assets of $43.5 million.

There was a $193.8 million, or 9%, increase in average loan balances yielding 19 basis points higher for the same period, while average investment balances decreased $150.3 million, yielding 78 basis points lower for the same period.

The decline in average investment balances was mostly due to calls of collateralized loan obligations in 2025.

Average interest-bearing liabilities decreased $4.9 million, mostly in higher cost customer time deposits and brokered deposits, offset by an increase in interest-bearing demand deposits and borrowed funds.

The cost of interest-bearing liabilities was 25 basis points lower for the comparative periods.

The favorable net impact of the mix and rate change was a 7 basis point increase in our net interest margin for the nine months ending September 30, 2025, as compared to the same period in 2024.

Interest expense was $12.0 million for the third quarter of 2025, a decrease of $2.0 million, relative to the third quarter of 2024.

For the first nine months of 2025, compared to the same period in 2024, interest expense decreased $4.2 million to

$35.4 million.

The decrease in interest expense for the first nine months of 2025, as compared to the same period in 2024, was attributable to a decrease in higher cost customer time deposits and brokered deposits, along with a net overall interest rate decrease in customer deposit account balances.

These decreases were partially offset by increases in other borrowed funds.

For the first nine months of 2025, compared to the same period in 2024, the average balance of higher cost customer time deposits and brokered deposits decreased $78.6 million, while low to no cost transaction account balances increased $93.6 million and borrowed funds increased $16.3 million.

The Company had $1.8 billion in adjustable and variable rate loans and $268.0 million in floating rate bonds, as compared to $245.0 million in floating rate CDs and $36.0 million in floating rate trust preferred securities at September 30, 2025.

The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years.

Of the $1.7 billion in adjustable and variable rate loans, $751.8 million of such adjustable and variable rate loans reprice or mature in the next twelve months.

In addition, there are $710.2 million of fixed-term deposits that reprice or mature within twelve months.

Of the $1.8 billion in adjustable and variable rate loans, $779.9 million reprice or mature in the next twelve months.

In addition, there were $642.8 million of fixed-term deposits that reprice or mature within twelve months.

Based on current rates, of the $779.9 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $117.1 million, or 15%, have a pricing index rate higher than the current index, while $146.1 million, or 19%, have a pricing index rate lower than the current index.

The remaining balance of $516.7 million are priced at the current index rate or are expected to mature.

The Company’s net interest margin was 3.68% for the second quarter of 2025, as compared to 3.69% for the second quarter of 2024.

Although there was a 20 basis point decrease in the yield on interest earning assets, there was a 23 basis point

decrease in the cost of interest-bearing liabilities.

The decrease in cost mitigated most of the decrease in yield on earning assets resulting in a one basis point decrease in net interest margin.

Net interest margin was 3.78% for the third quarter of 2025, as compared to 3.66% for the third quarter of 2024, and 3.73% for the nine months ended September 30, 2025, compared to 3.66% for the same period last year.

The main reason for the improvement of net interest margin for both the quarter and year-to-date comparisons was a significant decrease in cost of interest-bearing liabilities.

For the quarterly comparison there was a 35 basis point favorable decline in cost of interest-bearing liabilities complemented by a decrease of $17.9 million in the average balance of the same accounts.

While the yield of interest-earning assets decreased 13 basis points during the same comparative period, the average balance of interest-earning assets increased $7.2 million.

The level of net interest income recognized in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities.

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For the three months ended

June 30, 2025

June 30, 2024

September 30, 2025

September 30, 2024

Rate/Yield (2)

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Loan fees have been included in the calculation of interest income.

Net loan (costs) fees and loan acquisition FMV amortization were $(0.4) million and $(0.3) million for the quarters ended June 30, 2025 and 2024, respectively.

Net loan costs and loan acquisition FMV amortization were $(0.3) million and $(0.4) million for the quarters ended September 30, 2025 and 2024, respectively.

(4) Nonaccrual loans have been included in total loans for purposes of computing total earning assets.

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(Dollars in Thousands, Unaudited)

For the six months ended

June 30, 2025

June 30, 2024

For the nine months ended

September 30, 2025

September 30, 2024

Rate/Yield (2)

33 unchanged sentences

Loan fees have been included in the calculation of interest income.

Net loan fees and loan acquisition FMV amortization were $(0.7) million and $(0.7) million for the six months ended June 30, 2025, and 2024, respectively.

Net loan costs and loan acquisition FMV amortization were $(0.9) million and $(1.1) million for the nine months ended September 30, 2025, and 2024, respectively.

(4) Non-accrual loans have been included in total loans for purposes of computing total earning assets.

2 unchanged sentences

Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates, and rate variances are equal to the change in rates multiplied by prior period average balances.

Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the rate variance.

Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the mix variance.

Volume & Rate Variances

(dollars in thousands, unaudited)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2025 over 2024

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(1) Subtotals are a sum of the categories above and are not recalculated on the portfolio totals.

The volume variance calculated for the second quarter of 2025 relative to the second quarter of 2024 was a favorable $0.5 million;

this is primarily from the net impact of a favorable loan volume variance of $3.1 million augmented by a favorable rate reduction in interest bearing liabilities.

There was an overall unfavorable rate and volume variance on investment securities, which mostly came from the variable rate investments, in the form of CLOs, partially offsetting the favorable variances in loans and interest-bearing liabilities.

There was a modest favorable mix variance of $0.1 million.

Company’s net interest margin for the second quarter of 2025 was 3.68%, as compared to 3.69% for the second quarter of 2024.

Average interest earning cash balances for the quarterly comparisons have decreased and have a positive impact on the net interest margin since cash balances have been earning approximately 4.7% and have been deployed into mortgage warehouse line advances yielding 7.01%.

Average interest-earning cash and due from banks was $18.1 million, a decrease of $25.3 million for the second quarter of 2025 as compared to the same period last year.

Overall average investment securities decreased by $99.4 million for the second quarter of 2025, as compared to the same period in 2024, as paydowns and maturities, exceeded purchases, with the excess used to partially offset brokered deposit maturities.

The overall investment portfolio had a tax-equivalent yield of 4.68% at June 30, 2025, with an average life of 5.99 years and average effective duration of 2.09 years for available-for-sale securities.

Approximately $320.4 million of the investment securities reprice every 90 days and $80.1 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.

The volume variance calculated for the third quarter of 2025 relative to the third quarter of 2024 was a favorable $1.1 million;

this is primarily from the net impact of a favorable loan volume variance of $2.8 million offset by an unfavorable volume reduction in investment securities of $2.2 million.

This was augmented by a favorable net volume reduction in interest-bearing liabilities.

There was an unfavorable rate variance on investment securities, which was mostly to the variable rate investments, in the form of CLOs, substantially offsetting the favorable rate variances in loans and interest-bearing liabilities.

The net interest income variance calculated for the first nine months of 2025 relative to the first nine months of 2024 reflects a favorable volume variance of $4.2 million, an unfavorable rate variance of $1.0 million, and an unfavorable mix variance of $0.1 million.

There were increases in loan balances for a favorable volume variance of $10.4 million which more than offset a $6.3 million volume decrease in investments, due to calls and pay-offs of CLOs.

There was a $1.1 million decrease in interest-bearing deposits, partially offset by a $0.9 million increase in borrowed funds.

There was an unfavorable rate variance on interest earning assets of $5.3 million for the first nine months of 2025 partially offset by a favorable $4.2 million rate decrease in interest earning liabilities.

Average interest earning cash balances for the quarterly and year-to-date comparisons have decreased and have a positive impact on the net interest margin since cash balances have been earning approximately 4.34% and have been deployed into mortgage warehouse line advances yielding 7.08%.

Average interest-earning cash and due from banks was $31.7 million, a decrease of $56.8 million for the third quarter of 2025 as compared to the same period last year.

Overall average investment securities decreased by $101.5 million for the third quarter of 2025, as compared to the same period in 2024, as paydowns and maturities exceeded purchases, with the excess used to partially offset brokered deposit maturities.

The overall investment portfolio had a tax-equivalent yield of 4.73% at September 30, 2025, with an average life of 6.01 years and average effective duration of 2.42 years for available-for-sale securities.

Approximately $230.1 million of investment securities reprice every 90 days and $80.2 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter.

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

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Specifically identifiable and quantifiable loan losses are immediately charged off against the allowance, with subsequent recoveries reflected as an increase to the allowance.

The Company recorded a provision for credit losses of $1.2 million in the second quarter of 2025, as compared to $0.9 million in the second quarter of 2024.

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

The Company recorded a provision for credit losses of $3.7 million in the third quarter of 2025, as compared to $1.2 million in the third quarter of 2024.

The year-to-date provision for credit losses on loans was $6.9 million in 2025, as compared to $2.3 million for the same period in 2024.

The $2.5 million increase in the provision for credit losses on loans in the third quarter of 2025, as compared to the third quarter of 2024, and the $4.6 million year-to-date increase in the provision for credit losses on loans, compared to the same period in 2024, was primarily due to the addition of $3.5 million in individual reserves mostly related to a single agricultural production loan, in the third quarter of 2025.

At September 30, 2025, such agricultural production loan had a remaining book balance of $3.5 million with an associated individual reserve of $3.5 million fully offsetting such loan.

See “Allowance for Credit Losses – Loans” for additional information on this credit.

The allowance for credit losses on loans is at a level that, in Management’s judgment, is adequate to absorb probable credit losses on loans related to individually identified loans as well as probable credit losses in the remaining loan portfolio.

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(dollars in thousands, unaudited)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

For the nine months ended September 30,

Noninterest income:

2 unchanged sentences

(Loss) gain on sale of fixed assets

Bank-owned life insurance

Increase in cash surrender value of life insurance

Earnings on separate account life insurance

Total noninterest income

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Salaries and employee benefits

Salaries and benefits

Deferred compensation

Occupancy and equipment costs

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Professional services costs

Legal & accounting services

Legal and accounting services

Director's costs

Other professional service

Stationery & supply costs

Sundry & tellers

Deferred directors' fees

Other professional services

Stationery and supply costs

Sundry and tellers

Total noninterest expense

2 unchanged sentences

Noninterest Income:

Total noninterest income increased by $0.9 million, or 12%, for the quarter ended June 30, 2025, as compared to the same quarter in 2024 and decreased $1.0 million, or 6%, for the comparable year-to-date periods.

The quarterly comparison increase primarily resulted from a $0.7 million positive variance in the value of separate account corporate-owned life insurance assets tied to non-qualified deferred compensation plans, and a $0.5 million increase in death benefit on life insurance proceeds, partially offset by lower service charges on deposit accounts.

The year-to-date decrease reflects the net impact of the loss on the sale of investment securities in 2024, offset by the gain on the sale/leaseback of bank owned branch locations, with no like transactions in 2025.

There was also an unfavorable variance of $0.8 million associated with the decrease in value of separate account corporate-owned life insurance assets tied to non-qualified deferred compensation plans, and a decrease of $0.5 million in service charges on deposits.

These unfavorable variances to the year-to-date comparisons were partially offset by $0.8 million in additional life insurance death benefits.

Within noninterest income and noninterest expense are mostly offsetting amounts related to bank owned life insurance and non-qualified deferred compensation.

This created a year-over-year unfavorable variance of $0.8 million within noninterest income and a favorable year-over-year $0.8 million variance for noninterest expense.

Total noninterest income increased $0.3 million, or 3%, for the quarter ended September 30, 2025, as compared to the same quarter in 2024, and decreased $0.8 million, or 3%, for the year-to-date period ended September 30, 2025, as compared to the same period in 2024.

The year-to-date decline was impacted by a decrease in service charge income on deposit accounts, unfavorable fluctuations in income on Bank Owned Life Insurance (BOLI) with underlying investments mapped directly to the Company’s deferred compensation plan and a net gain on the balance sheet restructure in early 2024 with no similar transaction in 2025.

Offsetting these unfavorable variances was an increase in other income which was related to life insurance proceeds received in 2025 with no like proceeds in 2024.

The Company maintains a non-qualified deferred compensation plan for officers and directors, which allows the participant to defer a portion of their earnings tax-free.

Participants are allowed to choose different hypothetical investment alternatives to determine their individualized return on their deferred compensation.

The Company has chosen to offset the cost of this liability with BOLI which is funded based on deferral elections from the participants.

The Company has chosen to offset the cost of this liability with a BOLI Policy, which is funded based on deferral elections from the participants.

Although the BOLI is not directly tied to the deferred compensation plan, the BOLI is invested in similar fund types as those selected by the participants.

There is some inefficiency in net earnings of the BOLI asset as compared to the deferred compensation liability created by the cost of insurance, differences in balances, and differences in individual fund performance.

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

During the third quarter, and first nine months of 2025, earnings from the BOLI were $0.6 million, and $1.1 million, respectively, while additional expense from the related deferred compensation liability was $0.5 million, and $1.2 million, respectively.

The majority of this expense is reported as professional fees under directors’ fees as it is related to deferral of past directors’ fees.

Specifically, $0.4 million for the quarterly comparison, and $0.9 million for the year-to-date comparison, respectively, was reflected as directors’ fees as part of the overall professional fees expense line item.

The tax benefit of having tax-free earnings with tax-deductible expense was $0.3 million during the third quarter of 2025, and $0.7 million for the first nine months of 2025.

Service charges and fees on customer deposit accounts declined by $0.1 million, or 2%, to $6.1 million in the third quarter of 2025 as compared to the third quarter of 2024, and declined by $0.6 million, or 3% for the year-to-date comparison.

Lower analysis fees, returned check charges, and interchange on debit cards were the primary drivers of the unfavorable variance in both the quarterly and year-to-date variances.

In the “other” category of noninterest income there was a $0.5 million increase in the second quarter of 2025 as compared to the second quarter of 2024, and a $1.0 million increase for the first six months of 2025 as compared to the same period in 2024.

Life insurance proceeds accounted for most of the favorable variance for both the quarterly and year-to-date comparisons.

In the “other” category of noninterest income there was no change in the third quarter of 2025 as compared to the third quarter of 2024, and a $1.0 million increase for the first nine months of 2025 as compared to the same period in 2024.

Life insurance proceeds received in 2025 accounted for most of the favorable variance for the year-to-date comparison.

Noninterest Expense:

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

Salaries and Benefits were $0.5 million, or 4%, higher in the second quarter of 2025, as compared to the second quarter of 2024, and were $0.3 million, or 1%, higher for the first six months of 2025, compared to the same period in 2024.

The quarterly increase is due to increased officer bonus and group health insurance costs.

The year-over-year increase is primarily due to the same reasons as the quarterly but also included an overall increase in officer salary costs and 401(k) company contributions, partially offset by an increase in deferred salary loan costs, due to the hiring of lending and lending support officers.

Full-time equivalent employees were 494 at June 30, 2025, as compared to 485 at December 31, 2024, and 501 at June 30, 2024.

Included in the June 30, 2025, figures were 10 summer interns and temporary employees.

Occupancy expenses were mostly unchanged for the second quarter and the first half of 2025, as compared to the same periods in 2024.

Other noninterest expense increased $0.6 million, or 8%, for the second quarter 2025, as compared to the second quarter in 2024, and decreased $1.3 million, or 8%, for the first half of 2025, as compared to the same period in 2024.

Deferred compensation expense for directors increased $0.7 million for the quarterly comparison but decreased $0.7 million for the year-to-date comparison, which is linked to the changes in life insurance income.

For the year-to-date comparison there were also decreases in marketing expenses.

Total noninterest expense increased by $0.8 million, or 4%, in the third quarter of 2025, relative to the third quarter of 2024, and decreased by $0.2 million for the first nine months of 2025, as compared to the same period in 2024.

Salaries and Benefits were $0.5 million, or 4%, higher in the third quarter of 2025 as compared to the third quarter of 2024, and $0.8 million higher for the first nine months of 2025, as compared to the same period in 2024.

The Company implemented a strategic reorganization at the end of the third quarter of 2025 which resulted in a reduction in force, accompanied by $0.2 million in severance payments.

The remaining increase for both the quarter and year-over-year periods was mostly due to a change in composition in the workforce.

There were 476 full-time equivalent employees at September 30, 2025, as compared to 485 at December 31, 2024.

Occupancy expenses increased by $0.2 million for the third quarter, and the first nine months of 2025 as compared to the same periods in 2024.

The increases in both comparisons were primarily due to increased property taxes related to the updated assessed values of the properties involved in the sale/leaseback transaction in early 2024.

Other noninterest expense was relatively unchanged for the third quarter 2024, as compared to the third quarter in 2024, and decreased $1.2 million, or 5%, for the first nine months of 2025, as compared to the same period in 2024.

For the year-over-year comparison the decrease was primarily driven by decreases in directors’ deferred compensation expense and

legal and accounting services of $0.5 million and $0.3 million, respectively.

The remaining decrease was related to lower data processing costs and reduced debit card losses.

PROVISION FOR INCOME TAXES

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Tax credits consist primarily of those generated by investments in low-income housing tax credit funds.

The Company's provision for income taxes was 25.3% of pre-tax income in the second quarter of 2025, relative to 27.8% in the second quarter of 2024, and 25.5% of pre-tax income for the first half of 2025 relative to 27.1% for the same period in 2024.

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

The Company's provision for income taxes was 23.6% of pre-tax income in the third quarter of 2025, relative to 26.4% in the third quarter of 2024, and 24.9% of pre-tax income for the first nine months of 2025 relative to 26.8% for the same period in 2024.

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

BALANCE SHEET ANALYSIS

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and 5) they can provide partially tax exempt income.

The investment portfolio is reflected on the balance sheet as investment securities and totaled $967.3 million, or 26% of total assets at June 30, 2025, and $961.5 million, or 27% of total assets at December 31, 2024.

The investment portfolio is reflected on the balance sheet as investment securities and totaled $891.4 million, or 24% of total assets at September 30, 2025, and $961.5 million, or 27% of total assets at December 31, 2024.

The decrease was due to maturities and paydowns, partially used to offset brokered deposit maturities.

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The Company currently has the intent and ability to hold investment securities to maturity, but the securities are all marketable.

The expected effective duration was 2.1 years for available-for-sale investments and 6.1 years for held-to-maturity investments at June 30, 2025, as compared to 1.5 years for available-for-sale investments and 6.0 years for held-to-maturity investments at December 31, 2024.

The expected effective duration was 2.4 years for available-for-sale investments and 5.9 years for held-to-maturity investments at September 30, 2025, as compared to 1.5 years for available-for-sale investments and 6.0 years for held-to-maturity investments at December 31, 2024.

The following table sets forth the carrying amount for available-for-sale securities, at fair value, and held-to-maturity securities, at amortized cost, net of the allowance for credit losses of the Company’s investment portfolio by investment type as of the dates noted:

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(dollars in thousands, unaudited)

June 30, 2025

September 30, 2025

December 31, 2024

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Total securities

Investment securities pledged as collateral for borrowings and/or potential borrowings from the FHLB and the FRB, customer repurchase agreements, and other purposes as required or permitted by law totaled $433.8 million at June 30, 2025, and $403.4 million at December 31, 2024, leaving $533.5 million in unpledged debt securities at June 30, 2025, and $558.1 million at December 31, 2024.

Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $253.4 million at June 30, 2025, and $242.2 million at December 31, 2024.

Investment securities pledged as collateral for borrowings and/or potential borrowings from the FHLB and the FRB, customer repurchase agreements, and other purposes as required or permitted by law totaled $403.7 million at September 30, 2025, and $403.4 million at December 31, 2024, leaving $487.7 million in unpledged debt securities at September 30, 2025, and $558.1 million at December 31, 2024.

Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $230.6 million at September 30, 2025, and $242.2 million at December 31, 2024.

ALLOWANCE FOR CREDIT LOSSES – AFS INVESTMENT SECURITIES

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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, 2025 and December 31, 2024, that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.

The following bullets outline additional support for Management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of June 30, 2025, and December 31, 2024, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.

The Company maintains it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both September 30, 2025 and December 31, 2024, that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.

The following bullets outline additional support for Management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of September 30, 2025, and December 31, 2024, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.

government agencies are supported by the full faith and creditworthiness of the U.S.

federal government and Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either June 30, 2025, or December 31, 2024.

federal government and Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either September 30, 2025, or December 31, 2024.

● Mortgage-backed securities issued by government-sponsored enterprises (“GSEs”) carry an implicit guarantee by the U.S.

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federal government up to a limit, with an implied ability to draw funds beyond the limit.

Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either June 30, 2025, or December 31, 2024.

Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either September 30, 2025, or December 31, 2024.

● Management routinely monitors third party credit grades of the municipal issuers in the Company’s state and political subdivisions portfolio.

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repayment capacity and has noted no concerns with any of the bonds in the Company’s state and local portfolio.

As of both June 30, 2025 and December 31, 2024 Management concluded that no allowance for credit losses was warranted on any of the Company’s municipal securities and the unrealized loss position of each of the securities reflected fluctuations in market conditions, primarily interest rates, since the time of purchase.

As of both September 30, 2025 and December 31, 2024 Management concluded that no allowance for credit losses was warranted on any of the Company’s municipal securities and the unrealized loss position of each of the securities reflected fluctuations in market conditions, primarily interest rates, since the time of purchase.

● The Company has invested in corporate debt issuances of other financial institutions.

Various financial metrics, including credit quality, reserve adequacy, profitability and capital, of each of the issuing financial institutions are reviewed by Management quarterly.

Following review of the financial metrics available for each of the underlying institutions as of June 30, 2025, and December 31, 2024, 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.

Following review of the financial metrics available for each of the underlying institutions as of September 30, 2025, and December 31, 2024, 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.

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Management monitors the credit rating, in addition to various performance metrics available through a third-party informational service, of these investments on a quarterly basis.

Following review of financial metrics as of both June 30, 2025, and December 31, 2024, Management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rate spreads due to changes in supply or demand, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments.

Following review of financial metrics as of both September 30, 2025, and December 31, 2024, Management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rate spreads due to changes in supply or demand, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments.

LOAN PORTFOLIO

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(dollars in thousands, unaudited)

June 30, 2025

September 30, 2025

December 31, 2024

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Consumer loans

Gross loan balances at $2.4 billion, increased $103.3 million, or 4%, during the first half of 2025.

Gross loans held at amortized cost totaled $2.5 billion, an increase of $160.4 million, or 7%, during the first nine months of 2025.

Organic loan growth contributed to increases of $46.8 million in commercial real estate loans, $7.9 million in construction loan balances, and $7.6 million in other commercial loans.

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Consumer loans had a modest decline, while residential real estate loans decreased $18.2 million, and farmland loans decreased $9.7 million.

As indicated in the loan rollforward below, new credit extended for the second quarter of 2025 decreased $18.2 million over the linked quarter comparison and increased $7.8 million over the same period in 2024.

For the six months ended June 30, 2025, new credit extended increased $39.2 million, or 52% over the same period in 2024.

For the first six months ended 2025, we had $77.2 million in loan paydowns and maturities, along with a $9.5 million decrease in line of credit utilization, partially offset by a $75.5 million increase in mortgage warehouse utilization for the first half of 2025.

As indicated in the loan rollforward table below, new credit extended for the third quarter of 2025, remained flat on a linked-quarter basis, decreased $13.2 million over the same period in 2024, and increased $26.1 million for the year-to-date comparisons.

The Company had $121.5 million in loan paydowns and maturities;

however, mortgage warehouse utilization of $126.3 million had a positive impact in the first nine months of 2025.

LOAN ROLLFORWARD

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For the three months ended:

For the six months ended:

June 30, 2025

March 31, 2025

June 30, 2024

June 30, 2025

June 30, 2024

For the nine months ended:

Gross loans beginning balance

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(1) Change does not include new balances on lines of credit extended during the respective periods as such balances are included as part of “New credit extended” line above.

At June 30, 2025, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 243.6% as compared to 236.3% at December 31, 2024, and 241.1% at June 30, 2024.

The overall level of construction and land development lending is 2.6% of regulatory capital plus allowance for credit losses at June 30, 2025.

At June 30, 2025, non-owner occupied commercial real estate includes $306.5 million of retail;

At September 30, 2025, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 242.7% as compared to 236.3% at December 31, 2024.

The overall level of construction and land development lending was 2.9% of regulatory capital plus allowance for credit losses at September 30, 2025.

At September 30, 2025, non-owner occupied commercial real estate includes $306.8 million of retail;

$143.5 million of warehouse/industrial;

1 unchanged sentence

and $231.3 million of hospitality.

Approximately $35.8 million, or 23% of the office real estate matures in less than two years.

Approximately $34.6 million, or 22% of the office real estate matures or reprices in less than two years.

Unused commitments, excluding mortgage warehouse and overdraft lines, were $263.1 million at September 30, 2025, compared to $256.9 million at December 31, 2024.

Total line utilization, excluding mortgage warehouse and overdraft lines, was 57.9% at September 30, 2025, and 57.0% at December 31, 2024.

Mortgage warehouse utilization increased to 59.4% at September 30, 2025, as compared to 51.2% at December 31, 2024.

The mortgage warehouse lines are structured as repurchase agreement lines.

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NONPERFORMING ASSETS

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

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

Nonperforming assets

(dollars in thousands, unaudited)

June 30, 2025

September 30, 2025

December 31, 2024

June 30, 2024

September 30, 2024

Nonperforming Loans:

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Nonperforming assets as a % of total gross loans and foreclosed assets

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, decreased by $4.7 million to $15.0 million for the first half of 2025.

The Company's ratio of nonperforming loans to gross loans decreased to 0.62% at June 30, 2025, from 0.84% at December 31, 2024.

The decrease resulted from a decrease in non-accrual loan balances, due to the partial charge-off of one agricultural production loan.

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, improved with a favorable decline of $3.8 million to $15.8 million for the first nine months of 2025.

The Company's ratio of nonperforming loans to gross loans decreased to 0.56% at September 30, 2025, from 0.84% at December 31, 2024.

This favorable year-to-date decline resulted from a decrease in non-accrual loan balances, due mostly to the partial charge-off of one agricultural production loan in the second quarter of 2025.

All the Company's nonperforming assets are individually evaluated for credit loss quarterly and Management believes the established allowance for credit loss on such loans is appropriate.

There were no foreclosed assets at June 30, 2025, and December 31, 2024.

However, when the Company does own foreclosed assets, they are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value.

Foreclosed assets had a carrying value of $1.8 million at September 30, 2025 comprised of one property classified as Other Real Estate Owned (OREO).

There were no foreclosed assets at December 31, 2024.

All foreclosed assets are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value.

An action plan is in place for each non-accruing loan, and they are all being actively managed.

Collection efforts are continuously pursued for all nonperforming loans, but the Company cannot provide assurance that they will be resolved in a timely manner or that nonperforming balances will not increase.

The Company had $3.0 million in loans past due 30-89 days and still accruing at June 30, 2025.

This is an increase of $1.7 million over the balance at December 31, 2024.

The Company had $0.2 million in loans past due 30-89 days and still accruing at September 30, 2025.

This was a decrease of $1.2 million over the balance at December 31, 2024.

All of these past due loans are under Management supervision and every effort is being taken to assist the borrowers and manage credit risk in this regard.

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recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge-off.

The Company's allowance for credit losses on loans was $21.7 million at June 30, 2025, as compared to $24.8 million at December 31, 2024, and $21.6 million at June 30, 2024.

The decrease for the first half of 2025 is primarily attributable to a decrease in the allowance for loans individually evaluated and was specifically related to the partial charge-off of one agricultural production loan, reflected in the other commercial category in the table below.

The allowance as a percentage of gross loans was 0.89%, 1.07%, and 0.97%, at June 30, 2025, December 31, 2024, and June 30, 2024, respectively.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses for the life of the loans outstanding as of June 30, 2025, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance for loans.

The total allowance for credit losses on loans of $21.7 million at June 30, 2025, included $0.5 million of allowance related to $401.9 million of mortgage warehouse lines.

A separate allowance of $0.8 million for potential credit losses inherent in unused commitments is included in other liabilities at June 30, 2025, an increase of $0.1 million, from December 31, 2024.

The Company's allowance for credit losses on loans and leases was $25.2 million at September 30, 2025, as compared to $24.8 million at December 31, 2024.

The increase resulted from a $3.5 million increase in specific individual reserves on impaired loans on a single agricultural production loan in the third quarter of 2025, offset by a $5.3 million partial charge-off on the same loan in the second quarter of 2025, which had a $3.0 million specific individual reserve at December 31, 2024.

Such agricultural production loan was in the wine grape industry and had a remaining book balance of $3.5 million at September 30, 2025, with a full individual reserve of $3.5 million offsetting the remaining balance.

In addition to this loan, the Bank had $19.2 million in outstanding agricultural production loans in the winery and grape industry at September 30, 2025, of which $1.7 million were grapes.

None of the remaining $19.2 million in wine and grape production loans were classified as special mention or substandard.

The allowance as a percentage of gross loans was 1.01% and 1.07%, at September 30, 2025 and December 31, 2024, respectively.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses for the life of the loans outstanding as of September 30, 2025, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance for loans.

The total allowance for credit losses on loans of $25.2 million at September 30, 2025, included $0.5 million of allowance related to $452.7 million of mortgage warehouse lines.

A separate allowance of $0.8 million for potential credit losses inherent in unused commitments is included in other liabilities at September 30, 2025, an increase of $0.1 million, from December 31, 2024.

Allowance for Credit Losses on Loans

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For the year ended

September 30,

Average gross loans outstanding during period (1)

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Residential real estate

Commercial real estate

Total real estate

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It is unlikely that all unused commitments will ultimately be drawn down.

Unused commitments to extend credit, which included standby letters of credit, totaled $671.4 million at June 30, 2025, and $641.5 million at December 31, 2024, representing approximately 28% of gross loans outstanding at both June 30, 2025, and December 31, 2024.

Included in unused commitments are mortgage warehouse

lines, which are mostly in the form of repurchase lines and are unconditionally cancellable.

Unused commitments on mortgage warehouse lines were $334.6 million at June 30, 2025, and $311.6 million at December 31, 2024, while mortgage warehouse utilization was 55% and 51%, respectively.

The increase in mortgage warehouse utilization during the first half of 2025 was due to new customers added in the mortgage warehouse product that ramped up their utilization.

Unused commitments, exclusive of mortgage warehouse lines and overdraft lines of credit, were flat at 57% at December 31, 2024, and June 30, 2025.

Total mortgage warehouse commitments increased by $38.5 million and $98.5 million for the three-and-six-month periods ending June 30, 2025, respectively.

The Company also had undrawn letters of credit issued to customers totaling $5.3 million at June 30, 2025, and $5.0 million at December 31, 2024.

Unused commitments to extend credit, which included standby letters of credit, totaled $641.8 million at September 30, 2025, and $641.5 million at December 31, 2024, representing approximately 26% of gross loans outstanding at September 30, 2025, and 28% at December 31, 2024.

Included in unused commitments are mortgage warehouse lines, which are mostly in the form of repurchase lines and are unconditionally cancellable.

Unused commitments on mortgage warehouse lines were $308.8 million at September 30, 2025, and $311.6 million at December 31, 2024, while mortgage warehouse utilization was 59% and 51%, respectively.

The increase in mortgage warehouse utilization during the first nine months of 2025 was due to new customers added in the mortgage warehouse product that ramped up their utilization.

Unused commitments, exclusive of mortgage warehouse lines and overdraft lines of credit, increased to 58% at September 30, 2025 from 57% at December 31, 2024.

Total mortgage warehouse commitments increased by $25.0 million and $123.5 million for the three-and-nine-month periods ending September 30, 2025, respectively.

The Company also had undrawn letters of credit issued to customers totaling $4.3 million at September 30, 2025, and $5.0 million at December 31, 2024.

The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used.

However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should the Company be required to fund a significant portion of unused commitments.

In addition to unused commitments to provide credit, the Company is utilizing a $125 million letter of credit issued by the FHLB on the Company’s behalf as security for certain local agency deposits which totaled $112.2 million at June 30, 2025.

That letter of credit is backed by loans pledged to the FHLB by the Company.

5 unchanged sentences

If a “long” position is prevalent, the Company could let brokered deposits or other wholesale borrowings roll off as they mature, or invest excess liquidity into investments or loans, subject to the Company’s risk tolerances.

The Company’s balance of non-earning cash and due from banks was $112.9 million at June 30, 2025, relative to $79.6 million at December 31, 2024.

The Company’s balance of non-earning cash and due from banks was $81.8 million at September 30, 2025, relative to $79.6 million at December 31, 2024.

Foreclosed assets are discussed above in the section titled “Nonperforming Assets.”

Net premises and equipment decreased by $0.1 million during the first half of 2025, to $15.3 million.

This decline was mostly a result of depreciation in the first half of 2025.

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

Net premises and equipment decreased by $0.4 million during the first nine months of 2025, to $15.1 million.

This decline was mostly a result of depreciation in the first nine months of 2025.

Goodwill was $27.4 million at September 30, 2025, unchanged during the first nine months of 2025.

Goodwill is tested for impairment annually, unless events and circumstances exist which indicate that an impairment test should be performed.

The annual goodwill impairment test was last performed on October 1, 2025, and it was determined that no impairment existed.

Management continues to evaluate whether or not a triggering event occurs, or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2025.

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

Management continues to evaluate whether or not a triggering event occurs, or circumstances change

that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2025.

Bank-owned life insurance, with a balance of $68.7 million at September 30, 2025, increased $15.6 million during the first nine months of 2025, primarily due to the purchase of additional life insurance policies.

Additional details are discussed above in the “Noninterest Income and Noninterest Expense” section.

The remainder of other assets consists primarily of right-of-use assets tied to operating leases, accrued interest receivable, deferred taxes, investments in bank stocks, prepaid assets, investments in low-income housing credits, investments in SBA

loan funds, and other miscellaneous assets.

Bank stocks include Pacific Coast Bankers Bank (PCBB) stock (marked to market value annually) and restricted stock related to the Federal Home Loan Bank of San Francisco (FHLB SF) stock held in conjunction with our FHLB borrowings.

7 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2025

September 30, 2025

December 31, 2024

3 unchanged sentences

Total deposits

Deposit balances increased by $82.8 million, or 3%, during the first half of 2025 to $3.0 billion at June 30, 2025.

Core non-maturity deposits increased $86.8 million, or 4%, for the first half of 2025, while customer time deposits decreased by $19.0 million.

Brokered deposits increased $15.0 million to fund mortgage warehouse lines.

Noninterest-bearing deposits as a percent of total deposits increased to 35.8% at June 30, 2025, compared to 34.8% at December 31, 2024, and from 33.5% at June 30, 2024.

Deposit balances reflect growth of $41.1 million, or 1%, during the first nine months of 2025.

Core non-maturity deposits increased by $138.4 million, or 7%, while customer time deposits decreased by $57.3 million, or 11%.

Wholesale brokered deposits decreased by $40.0 million, or 15%.

Overall noninterest-bearing deposits as a percentage of total deposits at September 30, 2025, increased to 36.6%, as compared to 34.8% at December 31, 2024.

Overall uninsured deposits are estimated to be $748.1 million, or 26% of total deposit balances, excluding public agency deposits that are subject to collateralization through a letter of credit issued by the FHLB.

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The Bank maintains a diversified deposit base with no significant customer concentrations and does not bank any cryptocurrency companies.

At June 30, 2025, the Company had approximately 118,000 accounts, and the 25 largest deposit balance customers had balances of approximately 11% of overall deposits .

At September 30, 2025, the

Company had approximately 117,000 accounts, and the 25 largest deposit balance customers had balances of approximately 11% of overall deposits .

OTHER INTEREST-BEARING LIABILITIES

Customer repurchase agreements were $126.5 million at June 30, 2025, as compared to $108.9 million at December 31, 2024.

Customer repurchase agreements were $125.7 million at September 30, 2025, as compared to $108.9 million at December 31, 2024.

Customer repurchase agreements allow customers to sweep excess deposit balances over the FDIC insurance limit each day into a separate repurchase agreement account.

Monies in that account are used daily by the customer to purchase specific government debt securities from the Company under an agreement from the Company to repurchase the same

securities from the customer on the next business day.

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.

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The secured component depends on the level of pledged collateral.

At June 30, 2025 the Company had $74.4 million in overnight borrowings, and $80.0 million of term FHLB borrowings, as compared to $80.0 million of term FHLB borrowings on December 31, 2024.

Long-term debt at June 30, 2025, consisted of $49.4 million of subordinated debt.

At September 30, 2025 the Company had $55.0 million in overnight borrowings, and $80.0 million of term FHLB borrowings, as compared to $80.0 million of term FHLB borrowings on December 31, 2024.

Long-term debt at September 30, 2025, consisted of $49.5 million of subordinated debt.

This remained relatively unchanged from December 31, 2024.

Subordinated debentures related to $35.9 million of trust preferred securities at June 30, 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.

Subordinated debentures related to $36.0 million of trust preferred securities at September 30, 2025, was $0.1 million higher than at December 31, 2024.

The small increase resulted from the amortization of the discount on junior subordinated debentures that were part of the Company’s acquisition of Coast Bancorp in 2016.

Trust preferred securities are variable rate instruments benchmarked against the Secured Overnight Financing Rate (SOFR).

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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 $73.0 million at June 30, 2025, as compared to $90.5 million at December 31, 2024, a decrease of $17.5 million or 19%.

The Company’s balance of other liabilities was $69.6 million at September 30, 2025, as compared to $90.5 million at December 31, 2024, a decrease of $20.9 million or 23%.

The decrease was primarily driven by investment security purchases in process that settled, ICS transactions in process that settled, funds advanced on low-income housing tax credit investments, and a decrease in accrued interest on time deposits.

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The Company continues to have substantial liquidity through unencumbered assets and available borrowings.

In addition, the Company’s loan-to-deposit ratio was 82% at June 30, 2025, and 81% at December 31, 2024, compared to an internal policy guideline of less than 90%.

In addition, the Company’s loan-to-deposit ratio was 85% at September 30, 2025, and 81% at December 31, 2024, compared to an internal policy guideline of less than 90%.

Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner.

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To meet these short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances via FHLB lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources.

At June 30, 2025, and December 31, 2024, the Company had the following sources of primary and secondary liquidity (dollars in thousands):

At September 30, 2025, and December 31, 2024, the Company had the following sources of primary and secondary liquidity (dollars in thousands):

Primary and secondary liquidity sources

June 30, 2025

December 31, 2024

Cash and cash equivalents

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Funds available through fed discount window

Available funding sources, detailed above of, $2.3 billion represented 77% of total deposits and 307% of estimated uninsured and/or uncollateralized deposits as of June 30, 2025.

Available funding sources, detailed above, of $2.2 billion represented 75% of total deposits and 293% of estimated uninsured and/or uncollateralized deposits as of September 30, 2025.

Unpledged investment securities include $71.9 million of CLOs.

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The Company has a higher level of actual balance sheet liquidity than might otherwise be the case since the Company utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements.

That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at June 30, 2025, and December 31, 2024.

That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at September 30, 2025, and December 31, 2024.

Other sources of liquidity include the brokered deposit market, deposit listing services, Intrafi, and the ability to offer local time-deposit campaigns.

Management is of the opinion that available investments and other potentially liquid assets, along with standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs.

The Company’s primary liquidity ratio was 21% at June 30, 2025, as compared to an internal policy guideline of “greater than 15%” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at June 30, 2025, are also periodically reviewed by Management and the Board.

The Company’s primary liquidity ratio was 18% at September 30, 2025, as compared to an internal policy guideline of “greater than 15%” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at September 30, 2025, are also periodically reviewed by Management and the Board.

The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that the liquidity position will continue at current strong levels.

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Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations.

As of June 30, 2025, the holding company maintained a cash balance of $8.6 million.

As of September 30, 2025, the holding company maintained a cash balance of $8.4 million.

Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future.

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The Company’s market risk exposure is primarily that of interest rate risk and has established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates.

The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.

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

The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated

The principal objective of interest rate risk management

is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios.

To identify areas of potential exposure to interest rate changes, the Company utilizes a third-party that uses commercially-available modeling software to perform monthly earnings simulations using a dynamic balance sheet and calculate the Company’s market value of portfolio equity under varying interest rate scenarios.

The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes.

Assumptions regarding deposit betas in the up cycles can range from 25% to 100% and from 0% to 75% in the down cycles, depending on the deposit type.

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The Company had the following estimated net interest income sensitivity profiles over one year, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration (dollars in thousands, unaudited):

June 30, 2025

June 30, 2024

September 30, 2025

September 30, 2024

Immediate change in Interest Rates (basis points)

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Management utilizes this as a starting point for determining its overall interest rate risk strategy.

Based on the interest rate shocks, for the period ending June 30, 2025, Management believes that the Company is asset sensitive and is, slightly less asset sensitive than the same period a year ago.

Based on the interest rate shocks, for the period ending September 30, 2025, Management believes that the Company is asset sensitive and is slightly less asset sensitive than the same period a year ago.

The incremental changes in net interest income are similar between the up 100, 200, 300, and 400 basis point scenarios.

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CAPITAL RESOURCES

The Company had total shareholders’ equity of $355.7 million at June 30, 2025, comprised of $105.0 million in common stock, $5.0 million in additional paid-in capital, $274.4 million in retained earnings, and accumulated other comprehensive loss of $28.7 million.

The Company had total shareholders’ equity of $360.1 million at September 30, 2025, comprised of $104.0 million in common stock, $5.1 million in additional paid-in capital, $276.2 million in retained earnings, and accumulated other comprehensive loss of $25.2 million.

At the end of 2024, total shareholders’ equity was $357.3 million.

The $1.6 million, or 0.4%, decrease in equity during the first half of 2025 is due to a $7.0 million dividend paid to shareholders and, $18.0 million in share repurchases, mostly offset by net income of $19.7 million, and a $2.6 million favorable swing in other comprehensive income/loss due principally to positive changes in investment securities’ fair value.

The remaining difference is related to equity compensation recognized during the first half of 2025.

At June 30, 2025, the Company had a 2024 Share Repurchase Plan authorizing 1,000,000 shares of common stock, with an expiration date of October 31, 2025.

At June 30, 2025, 190,342 shares of common stock remain available for repurchase under the 2024 Share Repurchase plan.

The $2.8 million, or 1%, increase in equity during the first nine months of 2025 was due to the addition of $29.4 million in net income, a $6.1 million favorable change in accumulated other comprehensive loss, due principally to changes in investment securities’ fair value, partially offset by $24.3 million in share repurchases, and $10.3 million in dividends paid.

The remaining difference is related to the impact of equity compensation.

At September 30, 2025, the Company had a 2024 Share Repurchase Plan authorizing 1,000,000 shares of common stock, with an expiration date of October 31, 2025.

At September 30, 2025, there were no shares of common stock remaining available for repurchase under the 2024 Share Repurchase plan.

The Company uses a variety of measures to evaluate its capital adequacy, including the leverage ratio which is calculated separately for the Company and the Bank.

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Regulatory Capital Ratios

September 30,

Community Bank

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The Company’s subsidiary has opted into the community bank leverage ratio framework.

This means that if the Company’s subsidiary maintains a leverage ratio greater than 9% , it will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject.

This means that if the Company’s

subsidiary maintains a leverage ratio greater than 9%, it will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject.

A qualifying community banking organization with a leverage ratio of greater than 9% may opt into the community bank leverage ratio framework if has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5% or less of total consolidated assets.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis