SIERRA BANCORP 10-Q

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Form 10-Q includes forward-looking statements that involve inherent risks and uncertainties. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933 (“1933 Act”), as amended and Section 21E of the Securities Exchange Act of 1934 (“1934 Act”), as amended. Those sections of the 1933 Act and 1934 Act provide a “safe harbor” for forward-looking statements in order to encourage companies to provide prospective information about their financial performance as long as important factors that could cause actual results to differ significantly from projected results are identified with meaningful cautionary statements. Words such as “expects,” “anticipates,” “believes,” “projects,” “intends,” and “estimates” or variations of such words and similar expressions, as well as future or conditional verbs preceded by “will,” “would,” “should,” “could,” or “may” are intended to identify forward-looking statements. These forward-looking statements are based on certain underlying assumptions and are not guarantees of future performance, as they could be impacted by several potential risks and developments that cannot be predicted with any degree of certainty. These statements are based on Management’s current expectations regarding economic, legislative, regulatory, and other environmental issues that may affect earnings in future periods. Therefore, actual outcomes and results may differ materially from what is expressed, forecast in, or implied by such forward-looking statements. A variety of factors could have a material adverse impact on the Company’s financial condition or results of operations and should be considered when evaluating the Company’s potential future financial performance. They include, but are not limited to: ● risks associated with fluctuations in interest rates, including the impact on other comprehensive income, the ability for customers to repay on floating or adjustable rates loans, and the impact on costs and demand of deposits and funding, the impact on interest income on earning assets, the impact on valuations of collateral on loans, and the impact on fair value of longer-term assets; ● risks associated with inflation (including efforts by the Federal Open Market Committee of the Federal Reserve Bank (“FRB”) to control the same); ● 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; ● 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; ● increases in nonperforming assets and credit losses that could occur, particularly in times of weak economic conditions or rising interest rates; ● the impact of adverse developments at other banks, including bank failures, which impact general sentiment regarding the stability and liquidity of banks; ● risks associated with the multitude of, or changes to, current and prospective banking laws and regulations, and related interpretations, to which the Company is and will be subject; ● operational risks including the ability to detect and prevent financial reporting errors, operations errors, and fraud; ● the Company’s ability to diversify and grow its loan portfolio; 32 Table of Contents ● the Company’s ability to attract and retain skilled employees; ● the Company’s ability to successfully deploy new technology and manage cyber security risks; ● the risk to the Company’s operations and ability to serve customers due to the inability of a vendor to meet its service level agreements; ● the outcome of any existing or future legal action for which the Company or Bank is a defendant; ● 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; ● the effects of severe weather events, pandemics, other public health crises, acts of war or terrorism, and other external events; and ● the success of acquisitions or branch expansions, closures, or consolidations. Risk factors that could cause actual results to differ materially from results that might be implied by forward-looking statements include the risk factors detailed in the Company’s Form 10-K for the fiscal year ended December 31, 2025, and in Item 1A, herein. The Company does not update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. CRITICAL ACCOUNTING POLIC Y AND ACCOUNTING ESTIMATES The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances. Actual results may differ from those estimates under divergent conditions. Critical accounting policies are those that involve the most complex and subjective decisions and assessments which have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s has identified one critical accounting policy: ● 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 the Company’s financial statements incorporate its most recent expectations regarding those areas. OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS SUMMARY First Quarter 2026 Compared to First Quarter 2025 First quarter 2026 net income was $12.5 million, and $0.96 per diluted share as compared to $9.1 million and $0.65 per diluted share in the first quarter of 2025. The Company’s annualized return on average equity was 13.88% and annualized 33 Table of Contents return on average assets was 1.39% for the quarter March 31, 2026, compared to 10.44% and 1.02%, respectively, for the same quarter in 2025. The primary drivers behind the variance in first quarter net income are as follows: ● Net income for the first quarter of 2026 increased $3.4 million, or 38%, to $12.5 million. There were favorable changes in every major income statement category, including a decrease in provision for credit losses of $2.0 million, or 99%, an increase in net interest income of $0.5 million, or 2%, an increase in noninterest income of $1.3 million, or 20%, and a $0.6 million, or 3%, reduction in noninterest expense. ● The $0.5 million increase in net interest income was due to a $0.8 million decrease in interest expense partially offset by a $0.3 million decrease in interest income. ● The decrease of $2.0 million in the provision for credit losses was primarily due to an increased specific reserve in the first quarter of 2025 on an individually evaluated loan related to a single loan relationship of a wine grape grower. ● The $1.3 million increase in noninterest income was primarily due to higher service charge income, an increase in cash surrender value of life insurance due to purchases of additional life insurance in the second quarter of 2025, and other increases related to higher FHLB dividend income and an increase in the fair value of bank stocks. ● The $0.6 million decline in noninterest expense in the first quarter over the same quarter last year was primarily due to decreases in salaries and benefits, professional services, and deferred directors’ fees. FINANCIAL CONDITION SUMMARY March 31, 2026, Relative to December 31, 2025 The Company’s assets totaled $3.8 billion at March 31, 2026, a decrease of $74.8 million, or 2.0% from December 31, 2025. The following provides a summary of key balance sheet changes during the first three months of 2026: ● Investment securities decreased $13.2 million, or 1.0%, to $903.0 million primarily due to early calls of U.S. government agencies. ​ ● Gross loans decreased $80.1 million, due mostly to a $39.9 million seasonal decrease in mortgage warehouse line utilization coupled with declines in overall line utilization and new credit extended. ​ ● Deposits totaled $2.9 billion at March 31, 2026, representing a year-to-date increase of $49.3 million, or 2%. The increase in deposits came from a $56.8 million increase in core customer deposits, partially offset by a $7.7 million decline in customer time deposits. ● Overnight borrowings decreased $93.0 million, FHLB term advances decreased $25.0 million, and customer repurchase agreements decreased $3.0 million. ● Total capital of $363.7 million at March 31, 2026, reflects a decrease of $1.1 million compared to December 31, 2025. The decrease in equity during the first quarter of 2026 was due to $9.5 million in share repurchases, a $3.4 million dividend paid to shareholders, and $1.8 million unfavorable swing in other comprehensive income/loss due principally to negative changes in investment securities’ fair value. These changes were partially offset by $12.5 million in net income recorded during the quarter. The remaining difference was related to activity from stock options and restricted stock during the year. EARNINGS PERFORMANCE The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money. The second is noninterest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as BOLI, equity 34 Table of Contents investments, and investment gains. The majority of the Company’s noninterest expense is comprised of operating costs that facilitate offering a full range of banking services to its customers. NET INTEREST INCOME AND NET INTEREST MARGIN Net interest income was $30.6 million for the first quarter of 2026, a $0.5 million increase, or 2% over the first quarter of 2025. Interest expense decreased $0.8 million compared to the first quarter of 2025, primarily due to a reduction in the cost of interest‑bearing liabilities and a modest decline in average interest‑bearing liability balances. The cost of interest‑bearing liabilities decreased approximately 21 basis points, while average interest‑bearing liabilities increased by $74.4 million. Although average interest‑earning assets increased $42.7 million during the period, the yield on those assets declined by approximately 9 basis points compared to the first quarter of 2025, partially offsetting the favorable impact from lower funding costs. The Company had $1.8 billion in adjustable and variable rate loans and $232.6 million in floating rate bonds, as compared to $227.0 million in floating rate CDs and $36.1 million in floating rate trust preferred securities at March 31, 2026. The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years. Of the $1.8 billion in adjustable and variable rate loans, $797.4 million reprice or mature in the next twelve months. In addition, there were $513.3 million of fixed-term deposits that reprice or mature within twelve months. Based on current rates of the $797.4 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $197.6 million, or 25%, have a pricing index rate higher than the current index, while $49.0 million, or 6%, have a pricing index rate lower than the current index. The remaining balance of $550.8 million in loans are priced at the current index rate or are expected to mature. ​ Net interest margin was 3.75% for the first quarter of 2026, as compared to 3.74% for the first quarter of 2025. Compared to the first quarter of 2025, the net interest margin increased one basis point, reflecting the benefit of lower funding costs, partially offset by modest pressure on asset yields. The cost of average total deposits declined to 1.17%, from 1.33% in the first quarter of 2025, while the cost of interest-bearing liabilities declined to 1.94%, from 2.15%, reflecting improved funding mix and lower average balances of higher-cost deposits and borrowings. Overall, the Company continues to benefit from continued lower cost funding, which was partially offset by lower yields on investment securities, as assets repriced in a lower rate environment, resulting in a stable net interest margin compared to the prior year. The level of net interest income recognized in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. The following tables show average balances for significant balance sheet categories and the amount of interest income or interest expense associated with each category for the noted periods. The tables also display calculated yields on each major component of the Company’s investment and loan portfolios, average rates paid on each key segment of the Company’s interest-bearing liabilities, and net interest margin for the noted periods . 35 Table of Contents Average Balances and Rates (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the three months ended ​ ​ March 31, 2026 ​ March 31, 2025 Assets ​ ​ ​ Average Balance (1) ​ ​ ​ Income/ Expense ​ ​ ​ Average Rate/Yield (2) ​ ​ ​ Average Balance (1) ​ ​ ​ Income/ Expense ​ ​ ​ Average Rate/Yield (2) Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-earning due from banks ​ $ 23,411 ​ $ 211 ​ 3.66% ​ $ 54,641 ​ $ 590 ​ 4.38% Taxable ​ ​ 709,417 ​ ​ 7,993 ​ 4.57% ​ ​ ​ ​ 735,197 ​ ​ 9,138 ​ 5.04% Non-taxable ​ ​ 203,801 ​ ​ 1,624 ​ 4.09% ​ ​ 197,558 ​ ​ 1,576 ​ 4.10% Total investments ​ ​ 936,629 ​ ​ 9,828 ​ 4.44% ​ ​ 987,396 ​ ​ 11,304 ​ 4.81% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans: (3) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ 1,822,696 ​ ​ 22,391 ​ 4.98% ​ ​ 1,824,428 ​ ​ 21,988 ​ 4.89% Agricultural ​ ​ 62,795 ​ ​ 724 ​ 4.68% ​ ​ 76,316 ​ ​ 1,030 ​ 5.47% Commercial ​ ​ 111,734 ​ ​ 1,597 ​ 5.80% ​ ​ 103,152 ​ ​ 1,515 ​ 5.96% Consumer ​ ​ 2,601 ​ ​ 55 ​ 8.58% ​ ​ 3,286 ​ ​ 69 ​ 8.52% Mortgage warehouse lines ​ ​ 414,272 ​ ​ 6,589 ​ 6.45% ​ ​ 313,251 ​ ​ 5,529 ​ 7.16% Other ​ ​ 2,146 ​ ​ 12 ​ 2.27% ​ ​ 2,361 ​ ​ 18 ​ 3.09% Total loans ​ ​ 2,416,244 ​ ​ 31,368 ​ 5.26% ​ ​ 2,322,794 ​ ​ 30,149 ​ 5.26% Total interest-earning assets (4) ​ ​ ​ ​ 3,352,873 ​ ​ 41,196 ​ 5.04% ​ ​ 3,310,190 ​ ​ 41,453 ​ 5.13% Other earning assets ​ ​ 17,069 ​ ​ ​ ​ ​ ​ ​ 17,062 ​ ​ ​ ​ ​ Non-earning assets ​ ​ 283,935 ​ ​ ​ ​ ​ ​ ​ 273,926 ​ ​ ​ ​ ​ Total assets ​ $ 3,653,877 ​ ​ ​ ​ ​ ​ $ 3,601,178 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and shareholders' equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ $ 224,131 ​ $ 1,104 ​ 2.00% ​ $ 207,774 ​ $ 1,292 ​ 2.52% NOW ​ ​ 356,648 ​ ​ 75 ​ 0.09% ​ ​ 378,338 ​ ​ 119 ​ 0.13% Savings accounts ​ ​ 363,512 ​ ​ 105 ​ 0.12% ​ ​ 352,645 ​ ​ 90 ​ 0.10% Money market ​ ​ 154,469 ​ ​ 616 ​ 1.62% ​ ​ 145,092 ​ ​ 571 ​ 1.60% Time deposits ​ ​ 459,482 ​ ​ 3,203 ​ 2.83% ​ ​ 531,299 ​ ​ 4,412 ​ 3.37% Brokered deposits ​ ​ 319,199 ​ ​ 3,219 ​ 4.09% ​ ​ 244,561 ​ ​ 2,888 ​ 4.79% Total interest-bearing deposits ​ ​ 1,877,441 ​ ​ 8,322 ​ 1.80% ​ ​ 1,859,709 ​ ​ 9,372 ​ 2.04% Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ 42,782 ​ ​ 395 ​ 3.74% ​ ​ 183 ​ ​ 2 ​ 4.43% Repurchase agreements ​ ​ 128,430 ​ ​ 63 ​ 0.20% ​ ​ 112,361 ​ ​ 69 ​ 0.25% Short term borrowings ​ ​ 3,988 ​ ​ 38 ​ 3.86% ​ ​ 4,043 ​ ​ 45 ​ 4.51% Long term FHLB advances ​ ​ 77,778 ​ ​ 749 ​ 3.91% ​ ​ 80,000 ​ ​ 771 ​ 3.91% Long-term debt ​ ​ 49,492 ​ ​ 431 ​ 3.53% ​ ​ 49,402 ​ ​ 430 ​ 3.53% Subordinated debentures ​ ​ 36,034 ​ ​ 590 ​ 6.64% ​ ​ 35,855 ​ ​ 652 ​ 7.37% Total borrowed funds ​ ​ 338,504 ​ ​ 2,266 ​ 2.71% ​ ​ 281,844 ​ ​ 1,969 ​ 2.83% Total interest-bearing liabilities ​ ​ 2,215,945 ​ ​ 10,588 ​ 1.94% ​ ​ 2,141,553 ​ ​ 11,341 ​ 2.15% Demand deposits - noninterest-bearing ​ ​ 1,005,769 ​ ​ ​ ​ ​ ​ ​ 1,003,322 ​ ​ ​ ​ ​ Other liabilities ​ ​ 66,346 ​ ​ ​ ​ ​ ​ ​ 102,806 ​ ​ ​ ​ ​ Shareholders' equity ​ ​ 365,817 ​ ​ ​ ​ ​ ​ ​ 353,497 ​ ​ ​ ​ ​ Total liabilities and shareholders' equity ​ $ 3,653,877 ​ ​ ​ ​ ​ ​ $ 3,601,178 ​ ​ ​ ​ ​ Interest income/interest-earning assets ​ ​ ​ ​ ​ ​ ​ 5.04% ​ ​ ​ ​ ​ ​ ​ 5.13% Interest expense/interest-earning assets ​ ​ ​ ​ ​ ​ ​ 1.28% ​ ​ ​ ​ ​ ​ ​ 1.39% Net interest income and margin (5) ​ ​ ​ ​ $ 30,608 ​ 3.75% ​ ​ ​ ​ $ 30,112 ​ 3.74% (1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs. (2) Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective federal tax rate. (3) Loans are gross of the allowance for expected credit losses. Loan fees have been included in the calculation of interest income. Net loan costs and loan acquisition FMV amortization were $(0.3) million and $(0.3) million for the quarters ended March 31, 2026 and 2025, respectively. (4) Nonaccrual loans have been included in total loans for purposes of computing total earning assets. (5) Net interest margin represents net interest income as a percentage of average interest-earning assets. 36 Table of Contents The Volume and Rate Variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to fluctuations in average balances (volume) or differences in average interest rates. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates, and rate variances are equal to the change in rates multiplied by prior period average balances. Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the mix variance. Volume & Rate Variances (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ ​ 2026 over 2025 ​ ​ ​ Increase (decrease) due to ​ Assets: ​ ​ ​ Volume ​ ​ ​ Rate ​ Mix ​ ​ ​ Net ​ Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds sold/due from time ​ ​ ​ $ (337) ​ ​ ​ $ (98) ​ $ 56 ​ ​ ​ $ (379) ​ Taxable ​ ​ (320) ​ ​ (855) ​ ​ 30 ​ ​ (1,145) ​ Non-taxable ​ ​ 12 ​ ​ (2) ​ ​ 38 ​ ​ 48 ​ Total investments (1) ​ ​ (645) ​ ​ (955) ​ ​ 124 ​ ​ (1,476) ​ Loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ (21) ​ ​ 424 ​ ​ — ​ ​ 403 ​ Agricultural ​ ​ (183) ​ ​ (150) ​ ​ 27 ​ ​ (306) ​ Commercial ​ ​ 126 ​ ​ (41) ​ ​ (3) ​ ​ 82 ​ Consumer ​ ​ (14) ​ ​ — ​ ​ — ​ ​ (14) ​ Mortgage warehouse ​ ​ 1,783 ​ ​ (547) ​ ​ (176) ​ ​ 1,060 ​ Other ​ ​ (2) ​ ​ (4) ​ ​ — ​ ​ (6) ​ Total loans (1) ​ ​ 1,689 ​ ​ (318) ​ ​ (152) ​ ​ 1,219 ​ Total interest-earning assets (1) ​ $ 1,044 ​ $ (1,273) ​ $ (28) ​ $ (257) ​ Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ $ 102 ​ ​ (269) ​ ​ (21) ​ $ (188) ​ NOW ​ ​ (7) ​ ​ (39) ​ ​ 2 ​ ​ (44) ​ Savings accounts ​ ​ 3 ​ ​ 12 ​ ​ — ​ ​ 15 ​ Money market ​ ​ 37 ​ ​ 8 ​ ​ — ​ ​ 45 ​ Time deposits ​ ​ (596) ​ ​ (709) ​ ​ 96 ​ ​ (1,209) ​ Brokered deposits ​ ​ 882 ​ ​ (422) ​ ​ (129) ​ ​ 331 ​ Total interest-bearing deposits (1) ​ ​ 421 ​ ​ (1,419) ​ ​ (52) ​ ​ (1,050) ​ Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ 465 ​ ​ — ​ ​ (72) ​ ​ 393 ​ Repurchase agreements ​ ​ 10 ​ ​ (14) ​ ​ (2) ​ ​ (6) ​ Short term borrowings ​ ​ (1) ​ ​ (6) ​ ​ — ​ ​ (7) ​ Long-term FHLB Advances ​ ​ (21) ​ ​ (1) ​ ​ — ​ ​ (22) ​ Long term debt ​ ​ 1 ​ ​ — ​ ​ — ​ ​ 1 ​ Subordinated debentures ​ ​ 3 ​ ​ (65) ​ ​ — ​ ​ (62) ​ Total borrowed funds (1) ​ ​ 457 ​ ​ (86) ​ ​ (74) ​ ​ 297 ​ Total interest-bearing liabilities (1) ​ ​ 878 ​ ​ (1,505) ​ ​ (126) ​ ​ (753) ​ Net interest income (1) ​ $ 166 ​ $ 232 ​ $ 98 ​ $ 496 ​ (1) Subtotals are a sum of the categories above and are not recalculated on the portfolio totals. ​ The volume variance was favorable at $0.2 million, primarily driven by higher average loan balances, most notably within the mortgage warehouse portfolio, which contributed a favorable volume variance of $1.8 million. This was partially offset by lower average balances in investment securities, which resulted in an unfavorable volume variance of $0.6 million, as excess liquidity was redeployed and certain securities, including collateralized loan obligations, experienced pay‑downs. 37 Table of Contents The rate variance was a favorable $0.2 million, as favorable rate impacts on loans and interest‑bearing liabilities more than offset unfavorable rate variances on investment securities. Loan yields contributed positively to the rate variance, while interest‑bearing liabilities benefited from lower overall funding costs. These favorable impacts were partially offset by lower yields on variable‑rate investment securities. ​ The mix variance was a favorable $0.1 million, reflecting changes in the composition of interest‑earning assets and interest‑bearing liabilities, including growth in higher‑yielding loan categories and changes in funding mix. ​ Overall, the combined impact of these factors resulted in a $0.5 million increase in net interest income for the first quarter of 2026 compared to the prior‑year quarter. Variances in interest expense were the result of changes discussed under the “Net Interest Income and Net Interest Margin” heading. PROVISION FOR CREDIT LOSSES ON LOANS Credit risk is inherent in the business of making loans. The Company sets aside an allowance for credit losses on loans, a contra-asset account, through periodic charges to earnings, which are reflected in the income statement as the provision for credit losses on loans. Specifically identifiable and quantifiable loan losses are immediately charged off against the allowance, with subsequent recoveries reflected as an increase to the allowance. The Company recorded a provision for credit losses on loans of $0.1 million for the first quarter of 2026, compared to a credit loss benefit of $0.8 million in the fourth quarter of 2025 and a provision of $2.0 million in the first quarter of 2025. The $0.8 million release in allowance for credit losses during the fourth quarter of 2025 was due mostly to the $1.5 million release of specific reserve on loans individually evaluated, partially offset by higher reserve on loans collectively evaluated. The provision recorded during the first quarter of 2026 is due to the increase in specific reserve and changes to certain assumptions used, partially offset by lower loan balances and net loan charge-offs. The allowance for credit losses on loans is at a level that, in Management’s judgment, is adequate to absorb probable credit losses on loans related to individually identified loans as well as probable credit losses in the remaining loan portfolio. The Company’s policies for monitoring the adequacy of the allowance, determining loan balances that should be charged off, and other detailed information with regard to changes in the allowance are discussed in Note 10 to the consolidated financial statements, and below, under “Allowance for Credit Losses.” The process utilized to establish an appropriate credit allowance for losses on loans can result in a high degree of variability in the Company’s credit loss provision, and consequently in net earnings. 38 Table of Contents NONINTEREST INCOME AND NONINTEREST EXPENSE Noninterest Income/Expense (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, Noninterest income: ​ 2026 ​ 2025 Service charges and fees on deposit accounts ​ ​ ​ $ ​ ​ ​ ​ $ ​ Interchange income on debit cards ​ ​ 1,941 ​ ​ 1,953 Business analysis fees ​ ​ 1,030 ​ ​ 1,034 Overdraft fee income ​ ​ 1,324 ​ ​ 1,245 Other service charges and fees ​ ​ 1,378 ​ ​ 1,349 Net gain on sale of securities available-for-sale ​ ​ — ​ ​ 122 Gain (loss) on sale of fixed assets ​ ​ 360 ​ ​ (2) Increase in cash surrender value of life insurance ​ ​ 419 ​ ​ 237 Earnings on separate account life insurance ​ ​ (379) ​ ​ (502) Other ​ ​ 1,896 ​ ​ 1,206 Total noninterest income ​ $ 7,969 ​ $ 6,642 As a % of average interest-earning assets (1) ​ ​ 0.96% ​ ​ 0.81% ​ ​ ​ ​ ​ ​ ​ Noninterest expense: ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ ​ ​ ​ ​ Salary and incentives ​ $ 10,409 ​ $ 10,687 Employee benefits ​ ​ 2,288 ​ ​ 2,300 Deferred compensation ​ ​ 3 ​ ​ 16 Occupancy costs ​ ​ 3,085 ​ ​ 2,978 Advertising and marketing costs ​ ​ 333 ​ ​ 348 Data processing costs ​ ​ 1,583 ​ ​ 1,498 Deposit services costs ​ ​ 1,948 ​ ​ 1,991 Loan services costs ​ ​ ​ ​ ​ ​ Loan processing ​ ​ 113 ​ ​ 138 Foreclosed assets ​ ​ 17 ​ ​ 4 Other operating costs ​ ​ 779 ​ ​ 928 Professional services costs ​ ​ ​ ​ ​ ​ Legal and accounting services ​ ​ 557 ​ ​ 651 Director's costs ​ ​ 356 ​ ​ 310 Deferred directors' fees cost/(benefit) ​ ​ (572) ​ ​ (444) Other professional services ​ ​ 698 ​ ​ 706 Stationery and supply costs ​ ​ 97 ​ ​ 101 Sundry and tellers ​ ​ 130 ​ ​ 205 Total noninterest expense ​ $ 21,824 ​ $ 22,417 As a % of average interest-earning assets (1) ​ ​ 2.64% ​ ​ 2.75% (1) Annualized ​ 39 Table of Contents Noninterest Income: Noninterest income increased $1.3 million, or 20%, to $8.0 million in the first quarter of 2026 compared to the same period in 2025. The $1.3 million increase in noninterest income in the first quarter of 2026 as compared to the same quarter in 2025 was due to higher service charge and fee income, an increase in cash surrender value of life insurance due to purchases of additional life insurance in the second quarter of 2025, and other increases related to higher FHLB dividend income, an increase in the fair value of bank stocks, and a gain on sale of fixed assets. Service charges and fees on customer deposit accounts increased by $0.1 million, or 2%, to $5.7 million in the first quarter of 2026 as compared to the same quarter in 2025. Higher overdraft income and a decrease in costs related to our VISA debit card program were the primary drivers of the favorable variance. The Company maintains a non-qualified deferred compensation plan for officers and directors, under which participants may defer a portion of their earnings and select from various hypothetical investment alternatives to determine their individual returns. The Company economically offsets this liability with separate account life insurance policies that are invested in similar underlying fund types within the life insurance policy. Because the deferred compensation liability and the separate account life insurance asset are not contractually linked, differences in balances, fund performance, and insurance costs can result in temporary timing mismatches between changes in separate account life insurance income and the related deferred compensation expense. During the first quarter of 2026, declines in market values of investments inside the life insurance policy to offset employee and director deferred compensation plan elections resulted in a $0.4 million net loss related to separate account life insurance, while the related deferred compensation liability experienced a $0.6 million benefit as the funds that the plan participants elected declined in value. These offsetting movements reflect market-driven changes in the underlying investment alternatives and do not represent credit- or performance-related deterioration. The majority of the deferred compensation expense is reported within professional fees, under deferred directors’ fees, as it primarily relates to the deferral of directors’ compensation. Specifically, $0.6 million of deferred compensation benefit was recorded as deferred directors’ fees during the first quarter of 2026. The related tax shortfall associated with the loss associated with separate account life insurance and taxable deferred compensation expense/(benefit) totaled $0.3 million for the quarter. Noninterest Expense: Total noninterest expense decreased $0.6 million, or 3%, to $21.8 million in the first quarter of 2026, compared to the first quarter of 2025. The primary driver of lower noninterest expense was lower deferred compensation expense, reflecting market-driven changes in the related deferred compensation liability. Excluding the change in deferred compensation, total noninterest expense declined $1.0 million in the first quarter of 2026 as compared to the fourth quarter of 2025. The decrease in deferred compensation expense was mostly offset by lower separate account life insurance income, as declines in market values during the quarter resulted in a loss related to separate account life insurance policies, consistent with the discussion above. These offsetting movements reflect normal market-related volatility between the separate account life insurance asset and the deferred compensation liability. ​ Salaries and benefits were relatively stable compared to both the linked quarter and the same period last year, with modest period-to-period changes primarily related to normal compensation timing and benefit costs. Occupancy expense declined modestly compared to the linked quarter and remained relatively consistent year over year, reflecting disciplined expense management. Other noninterest expense declined compared to both the linked quarter and the prior year, driven primarily by lower deferred directors’ compensation expense/(benefit) and continued cost control across operating expense categories. 40 Table of Contents PROVISION FOR INCOME TAXES The Company sets aside a provision for income taxes on a monthly basis. The amount of that provision is deter­mined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent dif­ferences, and then subtracting available tax credits. Permanent differences include, but are not limited to, tax-exempt interest income, BOLI income, and certain book expenses that are not allowed as tax deductions. Tax credits consist primarily of those generated by investments in low-income housing tax credit funds. The Company's provision for income taxes was 25.2% of pre-tax income in the first quarter of 2026, relative to 25.8% in the first quarter of 2025. The decrease in effective tax rate for both the quarterly and year-to-date comparisons was due to the tax credits and tax-exempt income representing a larger percentage of total taxable income. ​ BALANCE SHEET ANALYSIS EARNING ASSETS The Company’s interest-earning assets are comprised of loans and investments, including overnight investments and surplus balances held in interest-earning accounts in its FRB account. The composition, growth characteristics, and credit quality of both of those components are significant determinants of the Company’s financial condition. Investments are analyzed in the section immediately below, while the loan portfolio and other factors affecting earning assets are discussed in the sections following investments. INVESTMENTS The Company’s investments may at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest-earning balances in its FRB account, and overnight fed funds sold. The Company’s investments can serve several purposes, including the following: 1) they can provide liquidity for potential funding needs; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with structural characteristics that can be changed more readily than loan or deposit portfolios, as might be required for interest rate risk management purposes; 4) they are another interest-earning option for the placement of surplus funds when loan demand is light; and 5) they can provide partially tax exempt income. The investment portfolio is reflected on the balance sheet as investment securities and totaled $903.0 million, or 24% of total assets at March 31, 2026, and $916.1 million, or 24% of total assets at December 31, 2025. The modest decrease was due to regularly scheduled maturities and paydowns. 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 2.8 years for available-for-sale investments and 5.7 years for held-to-maturity investments at March 31, 2026, as compared to 2.8 years for available-for-sale investments and 5.6 years for held-to-maturity investments at December 31, 2025. 41 Table of Contents The following table sets forth the carrying amount for available-for-sale securities, at fair value, and held-to-maturity securities, at amortized cost, net of the allowance for credit losses of the Company’s investment portfolio by investment type as of the dates noted: Investment Portfolio (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ December 31, 2025 ​ ​ ​ ​ Carrying Amount ​ ​ ​ Percent ​ ​ ​ Carrying Amount ​ ​ ​ Percent Available for sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ ​ ​ $ 22,240 ​ ​ ​ 2.46% ​ ​ ​ $ 32,901 ​ 3.59% Mortgage-backed securities ​ ​ 258,463 ​ 28.62% ​ ​ 259,760 ​ 28.35% State and political subdivisions ​ ​ 49,463 ​ 5.48% ​ ​ 46,921 ​ 5.12% Corporate bonds ​ ​ 86,809 ​ 9.61% ​ ​ 86,467 ​ 9.44% Collateralized loan obligations ​ ​ 198,426 ​ 21.97% ​ ​ 199,281 ​ 21.75% Total available for sale ​ ​ 615,401 ​ 68.14% ​ ​ 625,330 ​ 68.25% Held to maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ ​ 4,340 ​ 0.48% ​ ​ 4,523 ​ 0.49% Mortgage-backed securities ​ ​ 112,254 ​ 12.43% ​ ​ 115,228 ​ 12.58% State and political subdivisions ​ ​ 170,989 ​ 18.95% ​ ​ 171,060 ​ 18.68% Total held to maturity ​ ​ 287,583 ​ 31.86% ​ ​ 290,811 ​ 31.75% Total securities ​ $ 902,984 ​ 100.00% ​ $ 916,141 ​ 100.00% ​ Investment securities pledged as collateral for borrowings and/or potential borrowings from the FHLB and the FRB, customer repurchase agreements, and other purposes as required or permitted by law totaled $363.5 million at March 31, 2026, and $367.5 million at December 31, 2025, leaving $539.5 million in unpledged debt securities at March 31, 2026, and $548.6 million at December 31, 2025. Securities pledged in excess of actual pledging needs and thus available for liquidity purposes, if needed, totaled $191.1 million at March 31, 2026, and $192.3 million at December 31, 2025. At March 31, 2026, the Company’s investment portfolio included 229 municipal bonds issued by 199 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $221.9 million. The largest exposure to any single municipality or agency was a combined $5.1 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 94 subordinated debentures issued by bank-holding companies totaling $86.8 million (fair value). At December 31, 2025, the Company’s investment portfolio included 227 municipal bonds issued by 199 different government municipalities and agencies located within 28 states, with an aggregate fair value of $221.0 million. The largest exposure to any single municipality or agency was a combined $5.2 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 109 subordinated debentures issued by bank-holding companies totaling $86.5 million (fair value). The Company’s investments in bonds issued by corporations, states, municipalities, and political subdivisions are evaluated in accordance with Financial Institution Letter 48-2012, issued by the FDIC, “Revised Standards of Creditworthiness for Investment Securities,” and other regulatory guidance. Credit ratings are considered in Management’s analysis only as a guide to the historical default rate associated with similarly rated bonds. There have been no significant differences in internal analyses compared with the ratings assigned by the third-party credit rating agencies. ​ 42 Table of Contents The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for the Company’s largest geographic concentrations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ December 31, 2025 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market General obligation bonds ​ ​ ​ Cost ​ ​ ​ Value ​ ​ ​ Cost ​ ​ ​ Value State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ $ 89,989 ​ $ 87,671 ​ $ 86,922 ​ $ 85,424 California ​ ​ 50,889 ​ ​ 48,670 ​ ​ 50,945 ​ ​ 49,130 Other (22 & 22 states, respectively) ​ ​ 60,285 ​ ​ 60,425 ​ ​ 60,220 ​ ​ 61,092 Total general obligation bonds ​ ​ 201,163 ​ ​ 196,766 ​ ​ 198,087 ​ ​ 195,646 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue bonds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ ​ 5,534 ​ ​ 5,327 ​ ​ 5,534 ​ ​ 5,378 California ​ ​ 3,586 ​ ​ 3,576 ​ ​ 3,583 ​ ​ 3,586 Other (13 & 13 states, respectively) ​ ​ 16,377 ​ ​ 16,204 ​ ​ 16,481 ​ ​ 16,416 Total revenue bonds ​ ​ 25,497 ​ ​ 25,107 ​ ​ 25,598 ​ ​ 25,380 Total obligations of states and political subdivisions ​ $ 226,660 ​ $ 221,873 ​ $ 223,685 ​ $ 221,026 ​ ALLOWANCE FOR CREDIT LOSSES – AFS INVESTMENT SECURITIES The allowance for credit losses on AFS investment securities, a contra-asset, is established through periodic provisions for credit losses on AFS investment securities. It is maintained at a level that is considered adequate to measure expected losses across the classes of major investment security types related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The Company maintains it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both March 31, 2026, and December 31, 2025, that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold. The following bullets outline additional support for Management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of March 31, 2026, and December 31, 2025, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses. ● U.S. 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 March 31, 2026, or December 31, 2025. ● Mortgage-backed securities issued by government-sponsored enterprises (“GSEs”) carry an implicit guarantee by the U.S. federal government, as the GSEs can draw funds from the U.S. 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 March 31, 2026, or December 31, 2025. ● Management routinely monitors third party credit grades of the municipal issuers in the Company’s state and political subdivisions portfolio. On a quarterly basis Management receives financial information from a third-party service in order to monitor the underlying issuer’s financial stability. In addition, Management performs annual reviews of the underlying municipal issuers financial statements in order to evaluate stability and repayment capacity and has noted no concerns with any of the bonds in the Company’s state and local portfolio. As of both March 31, 2026 and December 31, 2025, 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 43 Table of Contents underlying institutions as of March 31, 2026, and December 31, 2025, Management concluded the unrealized loss position of these securities were related exclusively to the fluctuation in market conditions, primarily interest rates, from the date of purchase, and were not reflective of any credit concerns with the issuing financial institution. These bonds were subject to a credit review by the credit administration department prior to their purchase and are subject to ongoing quarterly reviews. ● The Company has invested exclusively in AA and AAA tranches of various collateralized loan obligations, which are securitizations of commercial loans. Each purchase is subject to a credit, concentration, and structure review by the credit administration department prior to their purchase and are subject to ongoing quarterly reviews. 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 March 31, 2026, and December 31, 2025, 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 A distribution of the Company’s loans showing the balance and percentage of loans by type is presented for the noted periods in the table below. The balances in the table are after deferred or unamortized loan origination, extension, or commitment fees, and deferred origination costs. While not reflected in the loan totals and not currently comprising a material segment of lending activities, the Company also occasionally originates and sells, or participates out portions of loans to non-affiliated investors. Loan Distribution (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ ​ ​ December 31, 2025 ​ ​ Amount ​ Percent ​ Amount ​ Percent Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ 349,860 ​ 14.18% ​ $ 359,514 ​ 14.12% Commercial real estate ​ ​ 1,381,770 ​ 56.00% ​ ​ 1,390,890 ​ 54.61% Other construction/land ​ ​ 15,242 ​ 0.62% ​ ​ 14,414 ​ 0.57% Farmland ​ ​ 66,218 ​ 2.68% ​ ​ 68,307 ​ 2.68% Total real estate ​ ​ 1,813,090 ​ 73.49% ​ ​ 1,833,125 ​ 71.98% Other commercial ​ ​ 172,653 ​ 7.00% ​ ​ 192,577 ​ 7.56% Mortgage warehouse lines ​ ​ 478,454 ​ 19.41% ​ ​ 518,333 ​ 20.35% Consumer loans ​ ​ 2,597 ​ 0.11% ​ ​ 2,810 ​ 0.11% Total loans ​ $ 2,466,794 ​ 100.00% ​ $ 2,546,845 ​ 100.00% ​ Gross loan balances decreased $80.1 million, or 3%, during the first quarter of 2026, reflecting lower mortgage warehouse line utilization, portfolio runoff, changes in commercial line utilization, and lower volumes of new credit extended. Mortgage warehouse balances declined $39.9 million, driven by seasonal activity and late-quarter paydowns. Excluding mortgage warehouse activity, loan balances declined modestly across several portfolios, including decreases of $9.1 million in commercial real estate loans, $19.9 million in other commercial loans, $9.7 million in residential real estate loans, $2.1 million in farmland loans, and $0.2 million in consumer loans. Other construction loans increased $0.8 million during the quarter. As indicated in the loan rollforward below, new credit extended for the first quarter of 2026 decreased $19.0 million over the linked quarter comparison and $58.6 million over the same period in 2025. For the first three months ended 2026, we had $25.3 million in loan paydowns and maturities, along with a $22.6 million decrease in line of credit utilization, and a $39.9 million decrease in mortgage warehouse utilization. The reduction in new credit extended is primarily due to a strategic shift in our target customer base with a change to increase granularity within the portfolio by focusing more on 44 Table of Contents serving our local communities, as well as expanded commercial real estate lending. It is taking time to refresh the pipeline, but our pipeline had returned to prior quarter levels by the end of March 2026. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LOAN ROLLFORWARD ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands, Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended: ​ ​ ​ 3/31/2026 ​ ​ 12/31/2025 ​ ​ 3/31/2025 Gross loans beginning balance ​ $ 2,546,880 ​ $ 2,491,779 ​ $ 2,331,341 New credit extended ​ ​ 7,811 ​ ​ 26,794 ​ ​ 66,370 Changes in line of credit utilization (1) ​ ​ (22,592) ​ ​ 6,230 ​ ​ (12,129) Change in mortgage warehouse ​ ​ (39,880) ​ ​ 65,651 ​ ​ (46,139) Pay-downs, maturities, charge-offs and amortization ​ ​ (25,328) ​ ​ (43,574) ​ ​ (32,681) Gross loans ending balance ​ $ 2,466,891 ​ $ 2,546,880 ​ $ 2,306,762 (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 March 31, 2026, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 238.7% as compared to 242.1% at December 31, 2025. The overall level of construction and land development lending was 3.3% of regulatory capital plus allowance for credit losses at March 31, 2026. At March 31, 2026, non-owner occupied commercial real estate included $305.1 million of retail; $136.6 million of warehouse/industrial; $150.0 million of office; and $235.3 million of hospitality. Approximately $25.5 million, or 17% of the office real estate matures or reprices in less than two years. NONPERFORMING ASSETS 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ ​ ​ December 31, 2025 ​ ​ ​ March 31, 2025 Nonperforming loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ 505 ​ $ 210 ​ $ 264 Commercial real estate ​ ​ — ​ ​ — ​ ​ 5,876 Other construction/land ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 3,105 ​ ​ 1,717 ​ ​ 1,709 Total real estate nonperforming loans ​ ​ 3,610 ​ ​ 1,927 ​ ​ 7,849 Other commercial ​ ​ 6,800 ​ ​ 11,304 ​ ​ 10,352 Consumer loans ​ ​ — ​ ​ — ​ ​ — Total nonperforming loans ​ ​ 10,410 ​ ​ 13,231 ​ ​ 18,201 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreclosed assets ​ ​ — ​ ​ 1,565 ​ ​ — Total nonperforming assets ​ $ 10,410 ​ $ 14,796 ​ $ 18,201 Nonperforming loans as a % of total gross loans ​ ​ 0.42% ​ ​ 0.52% ​ ​ 0.79% Nonperforming assets as a % of total gross loans and foreclosed assets ​ ​ 0.42% ​ ​ 0.58% ​ ​ 0.79% ​ Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, declined $4.4 million to $10.4 million at March 31, 2026, compared to $14.8 million at December 31, 2025. This improvement was driven by a reduction in nonaccrual loan balances, reflecting resolutions and paydowns within the Company’s criticized loan portfolio. The Company’s ratio of nonperforming loans to gross loans decreased to approximately 0.42% at March 31, 2026, compared 45 Table of Contents to approximately 0.52% at December 31, 2025, reflecting both the reduction in nonperforming loan balances and a modest decline in total loan balances during the quarter. ​ The Company had no foreclosed assets at March 31, 2026, compared to $1.6 million at December 31, 2025, as the remaining foreclosed property was resolved during the quarter. All nonperforming assets are individually evaluated for credit losses on a quarterly basis, and Management believes the allowance for credit losses allocated to these loans is appropriate. An action plan is in place for each non-accruing loan, and they are all being actively managed. Collection efforts are continuously pursued for all nonperforming loans, but the Company cannot provide assurance that they will be resolved in a timely manner or that nonperforming balances will not increase. The Company had $0.9 million in loans past due 30-89 days and still accruing at March 31, 2026. This was a decrease of $5.9 million compared to the balance at December 31, 2025. All of these past due loans are under Management supervision, and every effort is being taken to assist the borrowers and manage credit risk in this regard. ALLOWANCE FOR CREDIT LOSSES – LOANS The allowance for credit losses on loans, a contra-asset, is established through periodic provisions for credit losses on loans. It is maintained at a level that is considered adequate to measure expected losses on individually identified loans, as well as expected losses inherent in the remaining loan portfolio. Specifically identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when sufficient cash payments are received subsequent to the charge-off. The Company's allowance for credit losses on loans and leases was $21.3 million at March 31, 2026, as compared to $21.5 million at December 31, 2025. The decrease resulted from net charge‑offs during the quarter of $0.3 million, partially offset by a provision for credit losses of $0.1 million, reflecting Management’s assessment of credit quality, portfolio composition, and current economic conditions. The following tables highlight the coverage ratios by loan category at March 31, 2026, and December 31, 2025 (dollars in thousands, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, 2026 ​ ​ ​ Balance ​ ​ Total Allowance ​ Percent of Portfolio ​ Coverage Ratio (1) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 1,381,770 ​ $ 15,977 ​ 56.01% ​ 1.16% Other construction/land ​ ​ 15,242 ​ ​ 299 ​ 0.62% ​ 1.96% Farmland ​ ​ 66,218 ​ ​ 542 ​ 2.68% ​ 0.82% Total real estate (2) ​ ​ 1,463,230 ​ ​ 16,818 ​ 59.32% ​ 1.15% Other Commercial ​ ​ 172,653 ​ ​ 2,351 ​ 7.00% ​ 1.36% Consumer loans (including overdrafts) ​ ​ 2,597 ​ ​ 109 ​ 0.11% ​ 4.20% Subtotal (2) (3) ​ ​ 1,638,480 ​ ​ 19,278 ​ 66.42% ​ 1.18% Residential real estate ​ ​ 349,860 ​ ​ 1,368 ​ 14.18% ​ 0.39% Mortgage warehouse lines ​ ​ 478,454 ​ ​ 604 ​ 19.40% ​ 0.13% Total Loans ​ $ 2,466,794 ​ $ 21,250 ​ 100.00% ​ 0.86% ​ ​ ​ ​ 46 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2025 ​ ​ ​ Balance ​ ​ Total Allowance ​ Percent of Portfolio ​ Coverage Ratio (1) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 1,390,890 ​ $ 16,354 ​ 54.61% ​ 1.18% Other construction/land ​ ​ 14,414 ​ ​ 296 ​ 0.57% ​ 2.05% Farmland ​ ​ 68,307 ​ ​ 496 ​ 2.68% ​ 0.73% Total real estate (2) ​ ​ 1,473,611 ​ ​ 17,146 ​ 57.86% ​ 1.16% Other Commercial ​ ​ 192,577 ​ ​ 2,146 ​ 7.56% ​ 1.11% Consumer loans (including overdrafts) ​ ​ 2,810 ​ ​ 112 ​ 0.11% ​ 3.99% Subtotal (2) (3) ​ ​ 1,668,998 ​ ​ 19,404 ​ 65.53% ​ 1.16% Residential real estate ​ ​ 359,514 ​ ​ 1,411 ​ 14.12% ​ 0.39% Mortgage warehouse lines ​ ​ 518,333 ​ ​ 665 ​ 20.35% ​ 0.13% Total Loans ​ $ 2,546,845 ​ $ 21,480 ​ 100.00% ​ 0.84% (1) Coverage ratio equals allowance for credit losses on loans divided by total loans on the amortized cost basis. (2) Does not include residential real estate. (3) Does not include mortgage warehouse lines. ​ The allowance as a percentage of gross loans was 0.86% and 0.84%, at March 31, 2026, and December 31, 2025, 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 March 31, 2026, 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 $21.3 million at March 31, 2026, included $0.6 million of allowance related to $478.5 million of mortgage warehouse lines. A separate allowance of $0.7 million for potential credit losses inherent in unused commitments is included in other liabilities at March 31, 2026, a decrease of $0.1 million, from December 31, 2025. 47 Table of Contents Allowance for Credit Losses on Loans (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the three months ended ​ For the year ended ​ ​ ​ ​ March 31, ​ ​ ​ March 31, ​ ​ ​ December 31, Balances: ​ 2026 ​ 2025 ​ 2025 Average gross loans outstanding during period (1) ​ $ 2,416,244 ​ $ 2,322,794 ​ $ 2,409,304 Gross Loans outstanding at end of period ​ $ 2,466,891 ​ $ 2,306,762 ​ $ 2,546,880 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period ​ $ 21,480 ​ $ 24,830 ​ $ 24,830 Provision charged to expense ​ ​ 77 ​ ​ 1,961 ​ ​ 6,095 Charge-offs ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ 90 ​ ​ — ​ ​ 1,421 Total real estate ​ ​ 90 ​ ​ — ​ ​ 1,421 Other commercial ​ ​ 88 ​ ​ 57 ​ ​ 8,022 Consumer loans ​ ​ 216 ​ ​ 329 ​ ​ 907 Total ​ $ 394 ​ $ 386 ​ $ 10,350 Recoveries ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ Farmland ​ ​ — ​ ​ 410 ​ ​ 410 Total real estate ​ ​ — ​ ​ 410 ​ ​ 410 Other commercial ​ ​ 42 ​ ​ 14 ​ ​ 42 Consumer loans ​ ​ 45 ​ ​ 221 ​ ​ 453 Total ​ $ 87 ​ $ 645 ​ $ 905 Net loan charge-offs ​ $ 307 ​ $ (259) ​ $ 9,445 Balance at end of period ​ $ 21,250 ​ $ 27,050 ​ $ 21,480 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RATIOS ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs to average loans (annualized) ​ ​ 0.05% ​ ​ (0.05)% ​ ​ 0.39% Allowance for credit losses on loans to gross loans at end of period ​ ​ 0.86% ​ ​ 1.17% ​ ​ 0.84% Net loan charge-offs to allowance for credit losses on loans at end of period ​ ​ 1.44% ​ ​ (0.96)% ​ ​ 43.97% Net loan charge-offs to provision for credit losses on loans ​ ​ 398.70% ​ ​ (13.21)% ​ ​ 154.96% (1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs. OFF-BALANCE SHEET ARRANGEMENTS The Company maintains commitments to extend credit in the normal course of business, as long as there are no violations of conditions established in the outstanding contractual arrangements. It is unlikely that all unused commitments will ultimately be drawn down. ​ 48 Table of Contents A summary of the Company’s unfunded commitments and utilization is presented below (dollars in thousands, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ December 31, 2025 ​ March 31, 2025 ​ ​ ​ Balance ​ Utilization % ​ ​ Balance ​ Utilization % ​ ​ Balance ​ Utilization % Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ 14,393 ​ 44.37% ​ $ 15,726 ​ 44.50% ​ $ 19,311 ​ 42.17% Commercial real estate ​ ​ 20,132 ​ 88.38% ​ ​ 23,203 ​ 86.93% ​ ​ 33,129 ​ 82.79% Other construction/land ​ ​ 1,740 ​ 86.22% ​ ​ 2,634 ​ 79.10% ​ ​ 7,161 ​ 27.67% Farmland ​ ​ 2,544 ​ 82.45% ​ ​ 3,126 ​ 80.20% ​ ​ 5,639 ​ 63.73% Total real estate ​ ​ 38,809 ​ 82.85% ​ ​ 44,689 ​ 80.92% ​ ​ 65,240 ​ 74.05% Other commercial ​ ​ 193,442 ​ 45.07% ​ ​ 187,084 ​ 48.81% ​ ​ 197,259 ​ 44.36% Consumer ​ ​ 4,538 ​ 23.11% ​ ​ 4,580 ​ 24.29% ​ ​ 4,879 ​ 23.33% Subtotal (1) ​ ​ 236,789 ​ 59.48% ​ ​ 236,353 ​ 61.00% ​ ​ 267,378 ​ 56.33% Mortgage warehouse lines ​ ​ 319,546 ​ 59.96% ​ ​ 247,667 ​ 67.67% ​ ​ 414,769 ​ 40.58% Overdrafts - Commercial and Consumer ​ ​ 68,188 ​ 1.43% ​ ​ 69,112 ​ 1.40% ​ ​ 72,238 ​ 1.08% Total ​ $ 624,523 ​ 56.98% ​ $ 553,132 ​ 61.64% ​ $ 754,385 ​ 45.49% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unused commitment as a percent of gross loans ​ ​ 25.32% ​ ​ ​ ​ 21.72% ​ ​ ​ ​ 32.70% ​ ​ Unused mortgage warehouse commitments as percent of gross loans ​ ​ 12.95% ​ ​ ​ ​ 9.72% ​ ​ ​ ​ 17.98% ​ ​ (1) Excludes mortgage warehouse lines and overdraft lines. ​ Included in unused commitments are mortgage warehouse lines, which are mostly in the form of repurchase lines. The repurchase agreement structure provides stronger credit protection to the Company, as well as more favorable regulatory capital treatment, as these repurchase lines are not considered off-balance sheet commitments for regulatory capital purposes as they are unconditionally cancellable. The Company also had undrawn letters of credit issued to customers totaling $5.8 million at March 31, 2026, and $5.7 million at December 31, 2025. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should the Company be required to fund a significant portion of unused commitments. 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 $80.1 million at March 31, 2026. That letter of credit is backed by loans pledged to the FHLB by the Company. For more information on the Company’s off-balance sheet arrangements, see Note 7 to the consolidated financial statements located elsewhere herein. OTHER ASSETS Interest-earning cash balances were discussed above in the “Investments” section, but the Company also maintains a certain level of cash on hand in the normal course of business, as well as non-earning deposits at other financial institutions. The Company’s balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the amount of cash held in the branches, and the reserve requirement among other things, and it is subject to significant fluctuations in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to, and borrowings from, correspondent banks, including the FRB and the FHLB. Should a large “short” overnight position persist for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits. If a “long” position is prevalent, the Company could let brokered deposits or other wholesale borrowings roll off as they mature, or invest excess liquidity into investments or loans, subject to the Company’s risk 49 Table of Contents tolerances. The Company’s balance of non-earning cash and due from banks was $105.7 million at March 31, 2026, relative to $71.4 million at December 31, 2025. Foreclosed assets are discussed above in the section titled “Nonperforming Assets.” Net premises and equipment decreased by $0.5 million during the first three months of 2026, to $14.4 million. This decline was mostly a result of the sale of a bank owned real estate property and depreciation in the first three months of 2026. Goodwill was $27.4 million at March 31, 2026, unchanged during the first three months of 2026. Goodwill is tested for impairment annually, unless events and circumstances exist which indicate that an impairment test should be performed. The annual goodwill impairment test was last performed on October 1, 2025, and it was determined that no impairment existed. Management continues to evaluate whether or not a triggering event occurs, or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2026. ​ Bank-owned life insurance, with a balance of $68.7 million at March 31, 2026, decreased $0.6 million during the first three months of 2026. Additional details are discussed above in the “Noninterest Income and Noninterest Expense” section. The remainder of other assets consists primarily of right-of-use assets tied to operating leases, accrued interest receivable, deferred taxes, investments in bank stocks, prepaid assets, investments in low-income housing credits, investments in SBA loan funds, and other miscellaneous assets. Bank stocks include Pacific Coast Bankers Bank (PCBB) stock (marked to market value annually) and restricted stock related to the Federal Home Loan Bank of San Francisco (FHLB SF) stock held in conjunction with our FHLB borrowings. Both the PCBB and FHLB SF stock are not deemed to be marketable or liquid. Our net deferred tax asset is evaluated as of every reporting date pursuant to FASB guidance, and we have determined that no impairment exists. DEPOSITS AND INTEREST-BEARING LIABILITIES DEPOSITS Deposits represent a key balance sheet category impacting the Company’s profitability metrics. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity accounts, such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates paid by deposit type is included in the Average Balances and Rates tables appearing above, in the section titled “Net Interest Income and Net Interest Margin.” A distribution of the Company’s deposits by type, showing the period-end balance and percentage of total deposits, is presented as of the dates indicated in the following table. Deposit Distribution (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ December 31, 2025 ​ ​ ​ ​ Amount ​ Percent ​ Amount ​ Percent Noninterest bearing demand deposits ​ $ 1,028,678 ​ 35.17% ​ $ 995,623 ​ 34.61% Interest bearing demand deposits ​ ​ 244,941 ​ 8.37% ​ ​ 224,745 ​ 7.81% NOW ​ ​ 359,075 ​ 12.27% ​ ​ 357,001 ​ 12.41% Savings ​ ​ 364,830 ​ 12.47% ​ ​ 365,064 ​ 12.69% Money market ​ ​ 153,438 ​ 5.24% ​ ​ 151,760 ​ 5.28% Customer time deposits ​ ​ 454,459 ​ 15.53% ​ ​ 462,153 ​ 16.07% Brokered deposits ​ ​ 320,385 ​ 10.95% ​ ​ 320,090 ​ 11.13% Total deposits ​ $ 2,925,806 ​ 100.00% ​ $ 2,876,436 ​ 100.00% ​ Total deposits increased $49.4 million, or 2%, to $2.93 billion at March 31, 2026, compared to $2.88 billion at December 31, 2025. The increase was driven primarily by growth in noninterest‑bearing demand deposits, which increased $33.1 million, or 3%, during the quarter. 50 Table of Contents Noninterest‑bearing demand deposits represented 35.2% of total deposits at March 31, 2026, compared to 34.6% at December 31, 2025, reflecting a modest improvement in the Company’s funding mix. Interest‑bearing demand deposits increased $20.2 million, while balances in NOW, savings, and money market accounts were relatively stable during the quarter. Customer time deposits declined $7.7 million, reflecting continued runoff of higher‑cost certificates, while brokered deposits remained essentially flat, increasing $0.3 million as compared to December 31, 2025. Overall uninsured deposits are estimated to be $710.0 million, or 24% of total deposit balances, excluding public agency deposits that are subject to collateralization through a letter of credit issued by the FHLB. In addition, uninsured deposits of the bank’s customers are eligible for FDIC pass-through insurance if the customer opens an IntraFi Insured Cash Sweep account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (CDARS). IntraFi allows for up to $285 million of combined pass-through FDIC insurance which would more than cover each of the Bank’s deposit customers if a customer desired to have such pass-through insurance. The Bank maintains a diversified deposit base with no significant customer concentrations and does not bank any cryptocurrency companies. At March 31, 2026, the Company had approximately 116,000 accounts, and the 25 largest deposit balance customers had balances of approximately 10% of overall deposits . During the first quarter of 2026, except for seasonal fluctuations in the normal course of business, there have been no material changes in the composition of our 25 largest deposit balance customers. OTHER INTEREST-BEARING LIABILITIES Customer repurchase agreements were $127.8 million at March 31, 2026, as compared to $130.9 million at December 31, 2025. Customer repurchase agreements allow customers to sweep excess deposit balances over the FDIC insurance limit each day into a separate repurchase agreement account. Monies in that account are used daily by the customer to purchase specific government debt securities from the Company under an agreement from the Company to repurchase the same securities from the customer on the next business day. These accounts are not deposits and are not FDIC insured. However, the repurchase agreement provides a customer with a larger account balance to have their account effectively secured with US government securities. The Company’s non-deposit borrowings may, at any given time, include fed funds purchased from correspondent banks, borrowings from the FHLB, advances from the FRB, securities sold under agreements to repurchase, subordinated notes and/or junior subordinated debentures. The Company uses short-term FHLB advances and fed funds purchased on unsecured lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line consists of both a secured and unsecured component. The secured component depends on the level of pledged collateral. At March 31, 2026, the Company had $130.0 million in overnight borrowings and $55.0 million of term FHLB borrowings, as compared to $222.7 million in overnight borrowings and $80.0 million of term FHLB borrowings at December 31, 2025. Long-term debt at March 31, 2026, consisted of $49.5 million of subordinated debt. This remained relatively unchanged from December 31, 2025. Subordinated debentures related to $36.1 million of trust preferred securities at March 31, 2026, were $0.1 million higher than at December 31, 2025. The small increase resulted from the amortization of the discount on junior subordinated debentures that were part of the Company’s acquisition of Coast Bancorp in 2016. Trust preferred securities are variable rate instruments benchmarked against the Secured Overnight Financing Rate (SOFR). OTHER NONINTEREST-BEARING LIABILITIES Other liabilities are principally comprised of operating lease right-of-use liabilities, accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts. The Company’s balance of other liabilities was $65.9 million at March 31, 2026, as compared to $68.2 million at December 31, 2025, a decrease of $2.3 million or 3%. 51 Table of Contents LIQUIDITY AND MARKET RISK MANAGEMENT LIQUIDITY The Company continues to have substantial liquidity through unencumbered assets and available borrowings. In addition, the Company’s loan-to-deposit ratio was 84% at March 31, 2026, and 89% at December 31, 2025, compared to an internal policy guideline of less than 90%. Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by Management on a monthly basis, with various stress scenarios applied to assess the Company’s ability to meet liquidity needs under unusual or adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored; the Company is committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise. The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments. To meet these short-term needs, the Company can borrow overnight funds from other financial institutions, draw advances via FHLB lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources. At March 31, 2026, and December 31, 2025, the Company had the following sources of primary and secondary liquidity (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ Primary and secondary liquidity sources ​ ​ 3/31/2026 ​ ​ 12/31/2025 Cash and cash equivalents ​ $ 156,372 ​ $ 135,628 Unpledged investment securities ​ ​ 539,347 ​ ​ 551,406 Excess pledged securities ​ ​ 191,145 ​ ​ 192,275 FHLB borrowing availability ​ ​ 657,040 ​ ​ 629,481 Unsecured lines of credit ​ ​ 331,785 ​ ​ 250,785 Secured lines of credit ​ ​ 25,000 ​ ​ 25,000 Funds available through fed discount window ​ ​ 244,039 ​ ​ 254,908 Totals ​ $ 2,144,728 ​ $ 2,039,483 ​ Available funding sources, detailed above, of $2.1 billion represented 73% of total deposits and 302% of estimated uninsured and/or uncollateralized deposits as of March 31, 2026. Unpledged investment securities include $136.7 million of CLOs. As CLO rates reset every 90 days to current rates, the volatility of pricing of these securities is limited and the Company could sell such securities for liquidity at a significantly lower loss than selling lower-rate fixed term securities such as US government bonds or municipal bonds. The Company performs regular stress tests on its liquidity, and at this time, Management believes it has sufficient primary and secondary liquidity sources for operations. The Company has a higher level of actual balance sheet liquidity than might otherwise be the case since the Company utilizes a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at March 31, 2026, and December 31, 2025. 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 20% at March 31, 2026, 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, 2026, 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. 52 Table of Contents 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, 2026, the holding company maintained a cash balance of $7.1 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, 2025, which was filed with the SEC. INTEREST RATE RISK MANAGEMENT Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. The Company’s market risk exposure is primarily that of interest rate risk and has established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios. To identify areas of potential exposure to interest rate changes, the Company utilizes a third-party that uses commercially-available modeling software to perform monthly earnings simulations using a dynamic balance sheet and calculate the Company’s market value of portfolio equity under varying interest rate scenarios. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Assumptions regarding deposit betas in the up cycles can range from 25% to 100% and from 0% to 75% in the down cycles, depending on the deposit type. Deposit decay rate assumptions range from 5% to 26% and are based on the Company’s own historical averages. Prepayment speeds are based on actual three-year historical averages. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels). In addition to a stable rate scenario, which presumes that there are no changes in interest rates, the Company typically uses at least eight other interest rate scenarios in conducting rolling 12-month net interest income simulations: upward shocks of 100, 200, 300, and 400 basis points, and downward shocks of 100, 200, 300, and 400 basis points. Those scenarios may be supplemented, reduced in number, or otherwise adjusted as determined by Management to provide the most meaningful simulations considering economic conditions and expectations at the time. The Company’s guideline is to limit any projected decline in net interest income relative to the stable rate scenario to no more than 10% for a 100 basis point interest rate shock, 15% for a 200 basis point shock, 20% for a 300 basis point shock, and 25% for a 400 basis point shock. The Company had the following estimated net interest income sensitivity profiles over one year, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration (dollars in thousands, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ March 31, 2025 Immediate change in Interest Rates (basis points) ​ % Change in Net Interest Income ​ $ Change in Net Interest Income ​ % Change in Net Interest Income ​ $ Change in Net Interest Income +400 ​ ​ (0.3)% ​ $ (350) ​ ​ 8.7% ​ $ 12,118 +300 ​ ​ 0.2% ​ $ 302 ​ ​ 6.6% ​ $ 9,209 +200 ​ ​ 0.4% ​ $ 500 ​ ​ 4.5% ​ $ 6,316 +100 ​ ​ 0.3% ​ $ 449 ​ ​ 2.4% ​ $ 3,310 Base ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ -100 ​ ​ (3.0)% ​ $ (4,017) ​ ​ (5.3)% ​ $ (7,427) -200 ​ ​ (6.3)% ​ $ (8,569) ​ ​ (10.8)% ​ $ (15,018) -300 ​ ​ (9.6)% ​ $ (13,012) ​ ​ (16.0)% ​ $ (22,216) -400 ​ ​ (8.5)% ​ $ (11,470) ​ ​ (18.7)% ​ $ (25,952) ​ 53 Table of Contents The table above presents the estimated impact of immediate, parallel shifts in interest rates across all yield curves and represents an extreme scenario. Management utilizes this analysis as a starting point in assessing the Company’s overall interest rate risk profile. ​ Based on these modeled interest rate shocks, as of March 31, 2026, Management believes the Company remains asset sensitive, though to a lesser degree than as of March 31, 2025. In rising rate scenarios, the projected changes in net interest income are relatively modest and consistent across the up 100, 200, 300, and 400 basis point scenarios, reflecting a more balanced repricing profile. ​ In an immediate 100 basis point increase in interest rates, net interest income is projected to increase $0.4 million, or 0.3%, compared to a stable rate environment. In higher upward shock scenarios, projected changes in net interest income remain limited, ranging from an increase of $0.3 million in the +300 basis point scenario to a $0.4 million decrease in the +400 basis point scenario. ​ In contrast, declining rate scenarios have a more pronounced adverse impact on net interest income. An immediate 100 basis point decrease in interest rates is projected to result in a $4.0 million decline, or 3.0%, in net interest income, with greater sensitivity in more severe down‑rate scenarios. A 200 basis point decrease results in a projected decline of $8.6 million, or 6.3%, while a 300 basis point decrease results in a projected decline of $13.0 million, or 9.6%. ​ The Company’s greater sensitivity to declining interest rates reflects the impact of repricing on variable‑rate earning assets, which would adjust downward more rapidly than interest‑bearing liabilities, particularly given the presence of noninterest‑bearing and low‑cost deposit funding. All modeled interest rate shock scenarios remain within the Company’s internal policy guidelines. Management also models other interest rate scenarios that do not assume a simultaneous and parallel shock of all points on the yield curve including short-term and long-term rates. One of these alternate rate change scenarios uses rate forecasts, from a known economist over the next twelve months, which reflect overnight rates moving differently than longer-term treasury rates. Using this forecast of interest rates, net interest income models close to the base case scenario, indicating that based on a most-likely interest rate forecast the Company’s net interest income is expected to be close to the same level modeled in an unchanged rate environment. This use of a most-likely interest rate forecast suggests we are less sensitive to interest rate changes, when compared to use of an interest rate shock. ​ As the Company utilizes a dynamic balance sheet for its interest rate modeling, the Company also uses a static, or no-growth, balance sheet to assess the reasonableness of the interest rate sensitivity in the dynamic balance sheet model; no significant changes in interest rate risk outside of the base case were noted. In addition, the Company runs stress scenarios for stresses to average deposits, higher deposit betas than the base case, deposit migration from low-cost to high-cost deposits, and both higher and slower prepayment speeds. The most significant impact to net interest income in the net interest income simulations is the reduction or migration of low-cost deposits. ​ CAPITAL RESOURCES The Company had total shareholders’ equity of $363.7 million at March 31, 2026, comprised of $103.0 million in common stock, $4.2 million in additional paid-in capital, $281.4 million in retained earnings, and accumulated other comprehensive loss of $24.9 million. At the end of 2025, total shareholders’ equity was $364.9 million. The $1.1 million, or 0.3%, decrease in equity during the three months of 2026 was due to $9.5 million in share repurchases, a $3.4 million dividend paid to shareholders, and $1.8 million unfavorable swing in other comprehensive income/loss due principally to changes in investment securities’ fair value. These changes were partially offset by $12.5 million in net income recorded during the quarter. The remaining difference was related to stock option and restricted stock activity during the year. At March 31, 2026, the Company had a 2025 Share Repurchase Plan authorizing 1,000,000 shares of common stock, with an expiration date of October 31, 2026. At March 31, 2026, there were 514,329 shares of common stock remaining available for repurchase under the 2025 Share Repurchase plan. 54 Table of Contents ​ The Company uses a variety of measures to evaluate its capital adequacy, including the leverage ratio which is calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to help ensure that they meet or surpass established internal and external guidelines. As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital. The following table sets forth the Company’s regulatory capital ratios as of the dates indicated: ​ Regulatory Capital Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum ​ Minimum ​ ​ ​ ​ ​ ​ ​ Requirement ​ Required ​ ​ ​ March 31, ​ December 31, ​ to be ​ Community Bank ​ ​ ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ Well Capitalized ​ Leverage Ratio (1) ​ Bank of the Sierra ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") ​ 12.05 % 11.94 % 9.00 % 9.00 % Sierra Bancorp ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") ​ 10.94 % 10.80 % 9.00 % N/A ​ (1) If the subsidiary bank’s leverage ratio exceeds the minimum ratio under the community bank leverage ratio framework, it is deemed to be “well capitalized” under all other regulatory capital requirements. The Company may revert back to the regulatory framework for Prompt Corrective Action if the subsidiary bank’s leverage ratio falls below the minimum under the community bank leverage ratio framework. ​ The federal banking agencies provide a simplified measure of capital adequacy for qualifying community banking organizations by allowing such banking organizations to opt into the community bank leverage ratio framework. The Company’s subsidiary has opted into the community bank leverage ratio framework. This means that if the Company’s subsidiary maintains a leverage ratio greater than 9%, it will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject. A qualifying community banking organization with a leverage ratio of greater than 9% may opt into the community bank leverage ratio framework if has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5% or less of total consolidated assets. Further, the bank must not be an advanced approaches banking organization. PART I – FINANCIAL INFORMATION ITEM 3 QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information concerning quantitative and qualitative disclosures about market risk is included in Part I, Item 2 above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management.” PART I – FINANCIAL INFORMATION