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 FOMC of the 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; ● 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; ● the Company’s ability to attract and retain skilled employees; 33 Table of Contents ● 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; ● 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, 2024, 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 POLICIES 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 critical accounting policies deal with the following areas: ● the establishment of the allowance for credit losses, as explained in detail in Note 10 to the consolidated financial statements and in the “Provision for Credit Losses” and “Allowance for Credit Losses” sections of this discussion and analysis; ● the valuation of individually evaluated loans, as discussed in Notes 8 and 10 to the consolidated financial statements; 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. ​ OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS SUMMARY First Quarter 2025 Compared to First Quarter 2024 First quarter 2025 net income was $9.1 million, and $0.65 per diluted share as compared to $9.3 million, and $0.64 per diluted share in the first quarter of 2024. The Company’s annualized return on average equity was 10.44% and annualized return on average assets was 1.02% for the quarter ended March 31, 2025, compared to 11.09% and 1.06%, respectively, for the same quarter in 2024. The primary drivers behind the variance in first quarter net income are as follows: ● Net income for the first quarter of 2025 decreased $0.2 million, or 2%, to $9.1 million. There was a favorable increase in net interest income for $1.4 million and a $2.1 million reduction in noninterest expense, which were offset by an increase in the provision for credit losses of $1.9 million as well as reduction of noninterest income of $1.9 million. 34 Table of Contents ● The $1.4 million increase in net interest income for the quarter was driven by a 12 basis point increase in the net interest margin due to lower cost of deposits and borrowings and an increase in yield on loans, partially offset by lower yields on investments. ​ ● Noninterest income for the first quarter of 2025 as compared to the same period in 2024 decreased $1.9 million or 23%. In the first quarter of 2024 we had a loss on the sale of bonds from a balance sheet restructure for $3.0 million offset by a gain on the sale/leaseback of two bank owned branch buildings for $3.8 million, with no like transaction in the first quarter of 2025. We experienced an unfavorable variance of $1.5 million in bank owned life insurance (BOLI), but had increases in other noninterest income, primarily life insurance proceeds, and dividends for $0.5 million. ​ ● Noninterest expense decreased $2.1 million, or 9%, compared to the first quarter of 2024. The primary driver of lower expense in the first quarter of 2025 as compared to the same period in 2024 is deferred directors’ fees as part of the Company’s deferred compensation plan. The lower deferred compensation expense was offset by lower bank-owned life insurance income, mostly due to fluctuations in underlying values of assets in the separate account BOLI policies that are designed to have similar assets to those in the deferred compensation plans. ​ FINANCIAL CONDITION SUMMARY March 31, 2025 Relative to December 31, 2024 The Company’s assets totaled $3.6 billion at March 31, 2025, a decrease of $8.1 million, or 0.2% from December 31, 2024. The following provides a summary of key balance sheet changes during the first three months of 2025: ● Investment securities decreased $39.1 million, or 4.0%, to $922.4 million primarily due to paydowns in the portfolio, which were partially used to offset brokered deposit maturities. ​ ● Gross loans decreased $24.6 million, due to a $43.2 million decrease in mortgage warehouse line utilization, due to seasonality and two large line paydowns shortly before quarter-end, partially offset by a favorable increase in organic loan growth of $18.6 million, mostly commercial real estate. During the final week of the quarter, two mortgage warehouse customers paid down their lines by $41.3 million as part of normal operations. ​ ● Deposits decreased by $41.8 million, or 1%. The decline in deposits came from an $85.0 million, planned decrease in brokered deposits, while overall customer deposits increased $43.2 million. ​ ● Other interest-bearing liabilities increased $9.9 million, from an increase in repurchase agreements. ​ Total capital of $351.8 million at March 31, 2025, reflects a decrease of $5.5 million, or 2%, compared to December 31, 2024. The decrease in equity during the first quarter of 2025 is due to net income of $9.1 million, offset by a $3.5 million dividend paid to shareholders, $14.2 million in share repurchases, and a $2.4 million favorable swing in other comprehensive income due principally to positive changes in investment securities’ fair value. The remaining difference is related to equity compensation recognized during the quarter. ​ 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 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 $30.1 million for the first quarter of 2025, a decrease of $0.2 million, or 1%, as compared to the fourth quarter of 2024, and an increase of $1.4 million, or 5%, as compared to the first quarter of 2024. Although interest 35 Table of Contents expense improved by $1.4 million due to a 14 basis points favorable cost of funds, interest income declined by $1.6 million, due to a decline in both volume and interest rates on investments and a slight decline in loan interest income, mostly from the decrease in line utilization of mortgage warehouse lines discussed in the “Balance Sheet Analysis – Earning Assets – Loan Portfolio” section below. The $1.4 million increase in interest income for the first quarter of 2025, as compared to the same quarter in 2024, is due primarily to a $232.2 million increase in average loan balances, as well as a 37 basis point increase in yield. This was complemented by a $0.9 million decrease in interest expense due to the movement of deposits from higher cost time deposits, including wholesale brokered deposits to lower or no cost transaction accounts. Interest bearing deposit costs decreased 9 basis points in the first quarter of 2025 as compared to the same quarter in 2024, along with a 47 basis points decrease in the cost of borrowed funds. Additionally average borrowed funds were $35.0 million lower in the first quarter of 2025 as compared to the same quarter in 2024. Interest expense was $11.3 million for the first quarter of 2025, a decrease of $0.9 million, relative to the first quarter of 2024. The favorable change in the quarterly comparison was primarily due to a decrease in rates paid on customer variable rate Certificates of Deposit. The positive interest rate variance on Certificates of Deposit were complemented by a decrease in volume and rate on borrowed funds. Borrowed funds decreased $35.0 million, and lower cost or no cost deposits increased $62.4 million. The Company had $1.3 billion in adjustable and variable rate loans and $339.9 million in floating rate bonds, as compared to $251.5 million in floating rate CDs and $35.9 million in floating rate trust preferred securities at March 31, 2025. The adjustable-rate loans have repricing frequencies ranging from 30-days to 10-years. Of the $1.3 billion in adjustable and variable rate loans, $696.1 million of such adjustable and variable rate loans reprice or mature in the next twelve months. In addition, there are $618.3 million of fixed-term deposits that reprice or mature within twelve months. Based on current rates, of the $696.1 million in adjustable and variable rate loans that reprice or mature over the next twelve months, $303.5 million, or 44%, have a current pricing index rate that is higher than the current index, while $24.8 million, or 4%, have lower pricing index rates as compared to the current index. The remaining balance of $367.8 million are priced at the current index rate or are expected to mature. ​ The Company’s net interest margin was 3.74% for the first quarter of 2025, as compared to 3.62% for the quarter ending March 31, 2024. While the change in yield on interest earning assets was negligible, there was a 16 basis point positive variance on interest bearing liabilities. 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 . 36 Table of Contents Average Balances and Rates (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the three months ended ​ ​ March 31, 2025 ​ March 31, 2024 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 ​ $ 54,641 ​ $ 590 ​ 4.38% ​ $ 16,996 ​ $ 243 ​ 5.75% Taxable ​ ​ 735,197 ​ ​ 9,138 ​ 5.04% ​ 893,171 ​ ​ 13,303 ​ 5.99% Non-taxable ​ ​ 197,558 ​ ​ 1,576 ​ 4.10% ​ ​ 244,997 ​ ​ 1,989 ​ 4.13% Total investments ​ ​ 987,396 ​ ​ 11,304 ​ 4.81% ​ ​ 1,155,164 ​ ​ 15,535 ​ 5.59% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans: (3) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ 1,824,428 ​ ​ 21,988 ​ 4.89% ​ ​ 1,806,185 ​ ​ 20,190 ​ 4.50% Agricultural ​ ​ 76,316 ​ ​ 1,030 ​ 5.47% ​ ​ 61,419 ​ ​ 1,138 ​ 7.45% Commercial ​ ​ 103,152 ​ ​ 1,515 ​ 5.96% ​ ​ 79,208 ​ ​ 1,183 ​ 6.01% Consumer ​ ​ 3,286 ​ ​ 69 ​ 8.52% ​ ​ 3,962 ​ ​ 80 ​ 8.12% Mortgage warehouse lines ​ ​ 313,251 ​ ​ 5,529 ​ 7.16% ​ ​ 137,421 ​ ​ 2,821 ​ 8.26% Other ​ ​ 2,361 ​ ​ 18 ​ 3.09% ​ ​ 2,333 ​ ​ 14 ​ 2.41% Total loans ​ ​ 2,322,794 ​ ​ 30,149 ​ 5.26% ​ ​ 2,090,528 ​ ​ 25,426 ​ 4.89% Total interest-earning assets (4) ​ 3,310,190 ​ ​ 41,453 ​ 5.13% ​ ​ 3,245,692 ​ ​ 40,961 ​ 5.14% Other earning assets ​ ​ 17,062 ​ ​ ​ ​ ​ ​ ​ 17,345 ​ ​ ​ ​ ​ Non-earning assets ​ ​ 273,926 ​ ​ ​ ​ ​ ​ ​ 270,786 ​ ​ ​ ​ ​ Total assets ​ $ 3,601,178 ​ ​ ​ ​ ​ ​ $ 3,533,823 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and shareholders' equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ $ 207,774 ​ $ 1,292 ​ 2.52% ​ $ 137,961 ​ $ 699 ​ 2.04% NOW ​ ​ 378,338 ​ ​ 119 ​ 0.13% ​ ​ 398,639 ​ ​ 84 ​ 0.08% Savings accounts ​ ​ 352,645 ​ ​ 90 ​ 0.10% ​ ​ 376,335 ​ ​ 73 ​ 0.08% Money market ​ ​ 145,092 ​ ​ 571 ​ 1.60% ​ ​ 137,687 ​ ​ 410 ​ 1.20% Time deposits ​ ​ 531,299 ​ ​ 4,412 ​ 3.37% ​ ​ 561,941 ​ ​ 6,190 ​ 4.43% Brokered deposits ​ ​ 244,561 ​ ​ 2,888 ​ 4.79% ​ ​ 205,092 ​ ​ 2,189 ​ 4.29% Total interest-bearing deposits ​ ​ 1,859,709 ​ ​ 9,372 ​ 2.04% ​ ​ 1,817,655 ​ ​ 9,645 ​ 2.13% Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ 183 ​ ​ 2 ​ 4.43% ​ ​ 14,928 ​ ​ 245 ​ 6.60% Repurchase agreements ​ ​ 112,361 ​ ​ 69 ​ 0.25% ​ ​ 112,385 ​ ​ 41 ​ 0.15% Short term borrowings ​ ​ 4,043 ​ ​ 45 ​ 4.51% ​ ​ 24,547 ​ ​ 350 ​ 5.73% Long term FHLB advances ​ ​ 80,000 ​ ​ 771 ​ 3.91% ​ ​ 80,000 ​ ​ 777 ​ 3.91% Long-term debt ​ ​ 49,402 ​ ​ 430 ​ 3.53% ​ ​ 49,312 ​ ​ 431 ​ 3.52% Subordinated debentures ​ ​ 35,855 ​ ​ 652 ​ 7.37% ​ ​ 35,677 ​ ​ 755 ​ 8.51% Total borrowed funds ​ ​ 281,844 ​ ​ 1,969 ​ 2.83% ​ ​ 316,849 ​ ​ 2,599 ​ 3.30% Total interest-bearing liabilities ​ ​ 2,141,553 ​ ​ 11,341 ​ 2.15% ​ ​ 2,134,504 ​ ​ 12,244 ​ 2.31% Demand deposits - noninterest-bearing ​ ​ 1,003,322 ​ ​ ​ ​ ​ ​ ​ 990,377 ​ ​ ​ ​ ​ Other liabilities ​ ​ 102,806 ​ ​ ​ ​ ​ ​ ​ 70,534 ​ ​ ​ ​ ​ Shareholders' equity ​ ​ 353,497 ​ ​ ​ ​ ​ ​ ​ 338,408 ​ ​ ​ ​ ​ Total liabilities and shareholders' equity ​ $ 3,601,178 ​ ​ ​ ​ ​ ​ $ 3,533,823 ​ ​ ​ ​ ​ Interest income/interest-earning assets ​ ​ ​ ​ ​ ​ ​ 5.13% ​ ​ ​ ​ ​ ​ ​ 5.14% Interest expense/interest-earning assets ​ ​ ​ ​ ​ ​ ​ 1.39% ​ ​ ​ ​ ​ ​ ​ 1.52% Net interest income and margin (5) ​ ​ ​ ​ $ 30,112 ​ 3.74% ​ ​ ​ ​ $ 28,717 ​ 3.62% (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) fees and loan acquisition FMV amortization were $(0.3) million and $(0.3) million for the quarters ended March 31, 2025 and 2024, 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. 37 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 rate variance. Volume & Rate Variances (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ ​ 2025 over 2024 ​ ​ ​ Increase (decrease) due to ​ Assets: Volume Rate ​ Mix Net ​ Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds sold/due from time $ 538 $ (59) ​ $ (132) $ 347 ​ Taxable ​ ​ (2,353) ​ ​ (2,201) ​ ​ 389 ​ ​ (4,165) ​ Non-taxable ​ ​ (95) ​ ​ (35) ​ ​ (283) ​ ​ (413) ​ Total investments (1) ​ ​ (1,910) ​ ​ (2,295) ​ ​ (26) ​ ​ (4,231) ​ Loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ 204 ​ ​ 1,578 ​ ​ 16 ​ ​ 1,798 ​ Agricultural ​ ​ 276 ​ ​ (309) ​ ​ (75) ​ ​ (108) ​ Commercial ​ ​ 358 ​ ​ (20) ​ ​ (6) ​ ​ 332 ​ Consumer ​ ​ (13) ​ ​ 3 ​ ​ (1) ​ ​ (11) ​ Mortgage warehouse ​ ​ 3,609 ​ ​ (395) ​ ​ (506) ​ ​ 2,708 ​ Other ​ ​ — ​ ​ 4 ​ ​ — ​ ​ 4 ​ Total loans (1) ​ ​ 4,434 ​ ​ 861 ​ ​ (572) ​ ​ 4,723 ​ Total interest-earning assets (1) ​ $ 2,524 ​ $ (1,434) ​ $ (598) ​ $ 492 ​ Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ $ 354 ​ ​ 159 ​ ​ 80 ​ $ 593 ​ NOW ​ ​ (4) ​ ​ 41 ​ ​ (2) ​ ​ 35 ​ Savings accounts ​ ​ (5) ​ ​ 23 ​ ​ (1) ​ ​ 17 ​ Money market ​ ​ 22 ​ ​ 132 ​ ​ 7 ​ ​ 161 ​ Time deposits ​ ​ (338) ​ ​ (1,523) ​ ​ 83 ​ ​ (1,778) ​ Brokered deposits ​ ​ 421 ​ ​ 233 ​ ​ 45 ​ ​ 699 ​ Total interest-bearing deposits (1) ​ ​ 450 ​ ​ (935) ​ ​ 212 ​ ​ (273) ​ Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ (242) ​ ​ (82) ​ ​ 81 ​ ​ (243) ​ Repurchase agreements ​ ​ — ​ ​ 28 ​ ​ — ​ ​ 28 ​ Short term borrowings ​ ​ (292) ​ ​ (77) ​ ​ 64 ​ ​ (305) ​ Long-term FHLB Advances ​ ​ — ​ ​ (6) ​ ​ — ​ ​ (6) ​ Long term debt ​ ​ 1 ​ ​ (2) ​ ​ — ​ ​ (1) ​ Subordinated debentures ​ ​ 4 ​ ​ (106) ​ ​ (1) ​ ​ (103) ​ Total borrowed funds (1) ​ ​ (529) ​ ​ (245) ​ ​ 144 ​ ​ (630) ​ Total interest-bearing liabilities (1) ​ ​ (79) ​ ​ (1,180) ​ ​ 356 ​ ​ (903) ​ Net interest income (1) ​ $ 2,603 ​ $ (254) ​ $ (954) ​ $ 1,395 ​ (1) Subtotals are a sum of the categories above and are not recalculated on the portfolio totals. ​ The volume variance calculated for the first quarter of 2025 relative to the first quarter of 2024 was a favorable $2.6 million; this is primarily from a favorable loan volume variance of $4.4 million augmented by a favorable reduction in other borrowed funds. There was an unfavorable rate variance of $0.3 million from the comparative quarter primarily driven from an unfavorable rate variance on investment securities, partially offset by favorable rate variances in loans and interest bearing liabilities. There was an unfavorable mix variance of $1.0 million primarily from an increase in mortgage 38 Table of Contents warehouse originations at lower interest rates. The Company’s net interest margin for the first quarter of 2025 was 3.74%, as compared to 3.62% for the first quarter of 2024. Average interest earning cash balances for the quarterly comparisons have increased and have a positive impact on the net interest margin since cash balances have been earning approximately 4.4%. Average cash and due from banks was $54.6 million, an increase of $37.6 million for the first quarter of 2025 as compared to the same period last year. Overall average investment securities decreased by $205.4 million for the first quarter of 2025, as compared to the same period in 2024, as paydowns and maturities, exceeded purchases, with the excess used to partially offset brokered deposit maturities. The overall investment portfolio had a tax-equivalent yield of 4.52% at March 31, 2025, with an average life of 5.88 years and average effective duration of 2.1 years for available-for-sale securities. Approximately $266.7 million of the investment securities reprice every 90 days and $74.6 million are subordinated debt with an initial fixed rate period of 5 years and floating thereafter. 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 of $2.0 million in the first quarter of 2025, as compared to $0.1 million in the first quarter of 2024. The increased provision for credit losses in the first quarter of 2025 over the first quarter of 2024, was primarily due to an increased specific reserve on an individually evaluated loan related to a single loan relationship of a wine grape grower. The allowance for credit losses on loans is at a level that, in Management’s judgment, is adequate to absorb probable credit losses on loans related to individually identified loans as well as probable credit losses in the remaining loan portfolio. 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. 39 Table of Contents NONINTEREST INCOME AND NONINTEREST EXPENSE Noninterest Income/Expense (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, ​ Noninterest income: ​ 2025 ​ 2024 ​ Service charges and fees on deposit accounts $ 5,581 $ 5,726 ​ Net gain (loss) on sale of securities available-for-sale ​ ​ 122 ​ ​ (2,817) ​ (Loss) gain on sale of fixed assets ​ ​ (2) ​ ​ 3,799 ​ Bank-owned life insurance ​ ​ (265) ​ ​ 1,215 ​ Other ​ ​ 1,206 ​ ​ 666 ​ Total noninterest income ​ $ 6,642 ​ $ 8,589 ​ As a % of average interest-earning assets (1) ​ ​ 0.81% ​ ​ 1.06% ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense: ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ $ 13,003 ​ $ 13,197 ​ Occupancy and equipment costs ​ ​ 2,978 ​ ​ 3,025 ​ Advertising and marketing costs ​ ​ 348 ​ ​ 343 ​ Data processing costs ​ ​ 1,498 ​ ​ 1,509 ​ Deposit services costs ​ ​ 1,991 ​ ​ 2,133 ​ Loan services costs ​ ​ ​ ​ ​ ​ ​ Loan processing ​ ​ 138 ​ ​ 151 ​ Foreclosed assets ​ ​ 4 ​ ​ — ​ Other operating costs ​ ​ 928 ​ ​ 926 ​ Professional services costs ​ ​ ​ ​ ​ ​ ​ Legal & accounting services ​ ​ 651 ​ ​ 715 ​ Director's costs ​ ​ (134) ​ ​ 1,254 ​ Other professional service ​ ​ 706 ​ ​ 809 ​ Stationery & supply costs ​ ​ 101 ​ ​ 148 ​ Sundry & tellers ​ ​ 205 ​ ​ 316 ​ Total noninterest expense ​ $ 22,417 ​ $ 24,526 ​ As a % of average interest-earning assets (1) ​ ​ 2.75% ​ ​ 3.06% ​ (1) Annualized ​ 40 Table of Contents Noninterest Income: Noninterest income decreased by $1.9 million, or 23%, in the first quarter of 2025 as compared to the same quarter in 2024. The decrease in the first quarter 2025, is due mostly to a $1.5 million unfavorable change in bank owned life insurance associated with deferred compensation plans (as described further below) as well as $0.9 million in year-over-year differences due to the first quarter of 2024 strategic balance sheet restructure, which included a bond sale and sale leaseback of branch properties. Partially offsetting these unfavorable variances were $0.3 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 $1.5 million within noninterest income and a favorable year-over-year $1.5 million variance for noninterest expense. The Company maintains a non-qualified deferred compensation plan for officers and directors, which allows the participant to defer a portion of their earnings tax-free. Participants are allowed to choose different hypothetical investment alternatives to determine their individualized return on their deferred compensation. The Company has chosen to offset the cost of this liability with BOLI which is funded based on deferral elections from the participants. Although the BOLI is not directly tied to the deferred compensation plan, the BOLI is invested in similar fund types as those selected by the participants. There is some inefficiency in net earnings of the BOLI asset as compared to the deferred compensation liability created by the cost of insurance, differences in balances, and differences in individual fund performance. During the first quarter of 2025, reversal of earnings from the BOLI was $0.3 million, while reversal of expense from the related deferred compensation liability was $0.4 million. Most of such expense is reported as professional fees under directors’ fees as such expense is related to deferral of past directors’ fees. Specifically, $0.4 million for the quarterly comparison is reflected as a reversal of directors’ fees as part of the overall professional fees expense line item. Service charges and fees on customer deposit accounts declined by $0.1 million, or 3%, to $5.6 million in the first quarter of 2025 as compared to the first quarter of 2024. Lower returned check charges was the primary driver of the unfavorable variance. In the “other” category of noninterest income there was a $0.5 million increase in the first quarter of 2025 as compared to the first quarter of 2024. Life insurance proceeds and a 2024 first quarter loss on the valuation of equity securities account accounted for most of the favorable variance. Noninterest Expense: Total noninterest expense decreased $2.1 million, or 9%, compared to the first quarter of 2024. The primary driver of the positive variance as compared to the same period of 2024 is $1.5 million favorable change of deferred directors’ fees and officers’ deferred compensation expense as part of the Company’s deferred compensation plan as described above. Salaries and benefits were $0.2 million lower than the first quarter of 2024. The decrease in the year-over-year quarterly comparison is due to several factors, including severance payments in the first quarter of 2024, with no like payments in the first quarter of 2025, and a decrease in deferred compensation expense. Overall full-time equivalent employees were 489 at March 31, 2025, as compared to 492 at March 31, 2024. Occupancy expense was mostly unchanged for the first quarter of 2025 as compared to the same quarter last year. Other noninterest expense decreased $1.9 million over the first quarter of 2024. The primary reason for the positive variance was decreased directors deferred compensation expense which is linked to the fluctuation in BOLI income. Additionally, debit card processing costs and debit card losses were $0.4 million lower in the year-over-year quarterly comparison because of the Company’s conversion from Mastercard to VISA. ​ 41 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 25.8% of pre-tax income in the first quarter of 2025, relative to 26.3% in the first quarter of 2024. The variance in the effective tax rate, is due to fluctuations in tax credits and related amortization, as well as tax-exempt income as a percentage of total taxable income. ​ 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 $922.4 million, or 26% of total assets at March 31, 2025, and $1.0 billion, or 27% of total assets at December 31, 2024. The decrease was due to maturities and paydowns, partially used to offset brokered deposit maturities. The Company carries “available-for-sale” investments at their fair market values and “held-to-maturity” investments at amortized cost, net of allowance for credit losses. The Company currently has the intent and ability to hold investment securities to maturity, but the securities are all marketable. The expected effective duration was 2.1 years for available-for-sale investments and 6.2 years for held-to-maturity investments at March 31, 2025, as compared to 1.5 years for available-for-sale investments and 6.0 years for held-to-maturity investments at December 31, 2024. 42 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, 2025 ​ December 31, 2024 ​ Carrying Amount Percent Carrying Amount Percent Available for sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies $ 55,480 6.01% $ 50,153 ​ 5.22% Mortgage-backed securities ​ ​ 149,270 ​ 16.19% ​ ​ 93,503 ​ 9.72% State and political subdivisions ​ ​ 40,134 ​ 4.35% ​ ​ 40,803 ​ 4.24% Corporate bonds ​ ​ 68,510 ​ 7.43% ​ ​ 58,562 ​ 6.09% Collateralized loan obligations ​ ​ 306,894 ​ 33.27% ​ ​ 412,946 ​ 42.95% Total available for sale ​ ​ 620,288 ​ 67.25% ​ ​ 655,967 ​ 68.22% Held to maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ ​ 4,715 ​ 0.51% ​ ​ 4,819 ​ 0.50% Mortgage-backed securities ​ ​ 125,771 ​ 13.63% ​ ​ 128,974 ​ 13.41% State and political subdivisions ​ ​ 171,637 ​ 18.61% ​ ​ 171,721 ​ 17.87% Total held to maturity ​ ​ 302,123 ​ 32.75% ​ ​ 305,514 ​ 31.78% Total securities ​ $ 922,411 ​ 100.00% ​ $ 961,481 ​ 100.00% ​ Investment securities that were pledged as collateral for borrowings and/or potential borrowings from the FHLB and the FRB, customer repurchase agreements, and other purposes as required or permitted by law totaled $353.0 million at March 31, 2025, and $403.4 million at December 31, 2024, leaving $569.4 million in unpledged debt securities at March 31, 2025, and $558.1 million at December 31, 2024. Securities that were pledged in excess of actual pledging needs and were thus available for liquidity purposes, if needed, totaled $181.0 million at March 31, 2025, and $242.2 million at December 31, 2024. 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 that 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, 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 March 31, 2025 and December 31, 2024, was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses. ● US 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, 2025, or December 31, 2024. ● Mortgage-backed securities issued by government sponsored entities (“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, 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. 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 43 Table of Contents 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, 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 of each of the issuing financial institutions are reviewed by management quarterly; these metrics include credit quality, reserve adequacy, profitability and capital. Following review of the financial metrics available for each of the underlying institutions as of March 31, 2025 or December 31, 2024 management concluded that the unrealized loss position of these securities 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 of these investments on a quarterly basis in addition to various performance metrics available through a third-party informational service. Following review of financial metrics as of both March 31, 2025 or 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 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, 2025 December 31, 2024 ​ ​ Amount ​ Percent ​ Amount ​ Percent Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ 377,592 ​ 16.37% ​ $ 382,507 ​ 16.41% Commercial real estate ​ ​ 1,380,402 ​ 59.85% ​ ​ 1,357,833 ​ 58.25% Other construction/land ​ ​ 7,633 ​ 0.33% ​ ​ 5,472 ​ 0.23% Farmland ​ ​ 73,206 ​ 3.17% ​ ​ 77,547 ​ 3.33% Total real estate ​ ​ 1,838,833 ​ 79.72% ​ ​ 1,823,359 ​ 78.22% Other commercial ​ ​ 181,631 ​ 7.87% ​ ​ 178,331 ​ 7.64% Mortgage warehouse lines ​ ​ 283,231 ​ 12.28% ​ ​ 326,400 ​ 14.00% Consumer loans ​ ​ 2,968 ​ 0.13% ​ ​ 3,344 ​ 0.14% Total loans ​ $ 2,306,663 ​ 100.00% ​ $ 2,331,434 ​ 100.00% ​ Gross loan balances at $2.3 billion, decreased $24.6 million, or 1%, during the first quarter of 2025. Organic loan growth contributed to a $22.5 million increase in commercial real estate loans, a $2.3 million increase in other construction loans and a $3.4 million increase in commercial loans. Consumer loans had a modest decline, while residential real estate loans decreased $4.9 million, and farmland loans decreased $4.3 million. Mortgage warehouse line utilization decreased $43.2 44 Table of Contents million, or 13%, due to a combination of seasonality and two large line paydowns shortly before quarter-end. The Company continues to see an increased pipeline of new mortgage warehouse customers. As indicated in the loan rollforward below, new credit extended for the first quarter of 2025 decreased $13.6 million over the linked quarter comparison and increased $31.4 million over the same period in 2024. For the first three months ended 2025, we had $32.7 million in loan paydowns and maturities, along with a $12.1 million decrease in line of credit utilization, and a $46.1 million decrease in mortgage warehouse utilization. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LOAN ROLLFORWARD ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands, Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended: ​ ​ ​ March 31, 2025 ​ ​ December 31, 2024 ​ ​ March 31, 2024 Gross loans beginning balance ​ $ 2,331,341 ​ $ 2,320,629 ​ $ 2,090,075 New credit extended ​ ​ 66,370 ​ ​ 79,934 ​ ​ 34,966 Changes in line of credit utilization (1) ​ ​ (12,129) ​ ​ (19,664) ​ ​ (24,928) Change in mortgage warehouse ​ ​ (46,139) ​ ​ (9,376) ​ ​ 87,561 Pay-downs, maturities, charge-offs and amortization ​ ​ (32,681) ​ ​ (40,182) ​ ​ (30,810) Gross loans ending balance ​ $ 2,306,762 ​ $ 2,331,341 ​ $ 2,156,864 (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, 2025, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 237.1% as compared to 236.3% at December 31, 2024, and 248.4% at March 31, 2024. Further, the overall level of construction and land development lending had declined to 1% of regulatory capital plus allowance for credit losses at March 31, 2025. At March 31, 2025, non-owner occupied commercial real estate includes $301.4 million of retail; $150.7 million of warehouse/industrial; $155.4 million of office; and $218.2 million of hospitality. Approximately $29.5 million, or $19% of the office real estate matures in less than two years. Unused commitments, excluding mortgage warehouse and overdraft lines, were $267.4 million at March 31, 2025, compared to $256.9 million at December 31, 2024. Total line utilization, excluding mortgage warehouse and overdraft lines, was 56.3% at March 31, 2025, and 57.0% at December 31, 2024. Mortgage warehouse utilization decreased to 40.6% at March 31, 2025, as compared to 51.2% at December 31, 2024. The decrease in mortgage warehouse utilization during the first quarter of 2025 was due to seasonality and approximately $41.3 million in late quarter line paydowns by two customers. The mortgage warehouse lines are structured as repurchase agreement lines. The repurchase agreement structure provides stronger credit protection to the Company, as well as more favorable regulatory capital treatment as these repurchase lines are not considered off-balance sheet commitments for regulatory capital purposes as they are unconditionally cancellable. 45 Table of Contents NONPERFORMING ASSETS Nonperforming assets currently is comprised of loans for which the Company is no longer accruing interest but can include OREO and other foreclosed assets, when applicable. Nonperforming assets (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2025 December 31, 2024 March 31, 2024 Nonperforming Loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ 264 ​ $ 23 ​ $ 96 Commercial real estate ​ ​ 5,876 ​ ​ — ​ ​ 7,437 Other construction/land ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 1,709 ​ ​ 5,105 ​ ​ 6,503 Total Real Estate nonperforming loans ​ ​ 7,849 ​ ​ 5,128 ​ ​ 14,036 Other commercial ​ ​ 10,352 ​ ​ 14,540 ​ ​ 152 Consumer loans ​ ​ — ​ ​ — ​ ​ — Total Nonperforming Loans ​ ​ 18,201 ​ ​ 19,668 ​ ​ 14,188 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreclosed assets ​ ​ — ​ ​ — ​ ​ — Total Nonperforming Assets ​ $ 18,201 ​ $ 19,668 ​ $ 14,188 Nonperforming loans as a % of total gross loans ​ ​ 0.79% ​ ​ 0.84% ​ ​ 0.66% Nonperforming assets as a % of total gross loans and foreclosed assets ​ ​ 0.79% ​ ​ 0.84% ​ ​ 0.66% ​ Total nonperforming assets, comprised of non-accrual loans, decreased by $1.5 million, or 7%, during the first quarter of 2025. The decrease in non-accrual loans, was from the successful payoff and paydown of a couple of loans secured by farmland. The Company's ratio of nonperforming assets to loans plus foreclosed assets decreased to 0.79% at March 31, 2025, from 0.84% at December 31, 2024. All the Company's nonperforming assets are individually evaluated for credit loss quarterly and management believes the established allowance for credit loss on such loans is appropriate. Subsequent to March 31, 2025, the Company received payment in full on a $5.9 million non-accrual loan secured by commercial real estate. The $6.5 million payoff included all principal, interest, and fees due, bringing the total of non-accrual loans to $12.3 million. There were no foreclosed assets at March 31, 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. 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 $3.1 million in loans past due 30-89 days and still accruing at March 31, 2025. This is an increase of $1.7 million over the balance at December 31, 2024. All of these past due loans are under management supervision and every effort is being taken to assist the borrowers and manage credit risk in this regard. 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 46 Table of Contents 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 was $27.1 million at March 31, 2025, as compared to $24.8 million at December 31, 2024, and $23.1 million at March 31, 2024. The increase is primarily attributable to an increase in the allowance for loans individually evaluated and was specifically related to a $11.9 million single loan relationship of a wine grape grower. The allowance was 1.17% of total loans at March 31, 2025, 1.07% of total loans at December 31, 2024, and 1.07% of total loans at March 31, 2024. Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses for the life of the loans outstanding as of March 31, 2025, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance for loans. The total allowance for credit losses on loans of $27.1 million at March 31, 2025, included $0.3 million of allowance related to $283.2 million of mortgage warehouse lines. A separate allowance of $0.8 million for potential credit losses inherent in unused commitments is included in other liabilities at March 31, 2025, an increase of $0.1 million, from December 31, 2024. 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: ​ 2025 ​ 2024 ​ 2024 Average gross loans outstanding during period (1) ​ $ 2,322,794 ​ $ 2,090,528 ​ $ 2,225,402 Gross Loans outstanding at end of period ​ $ 2,306,762 ​ $ 2,156,864 ​ $ 2,331,341 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period ​ $ 24,830 ​ $ 23,500 ​ $ 23,500 Provision charged to expense ​ ​ 1,961 ​ ​ 97 ​ ​ 4,593 Charge-offs ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ — ​ ​ — ​ ​ — Commercial real estate ​ ​ — ​ ​ 20 ​ ​ 2,438 Farmland ​ ​ — ​ ​ 410 ​ ​ 410 Total real estate ​ ​ — ​ ​ 430 ​ ​ 2,848 Other commercial ​ ​ 57 ​ ​ 287 ​ ​ 529 Consumer loans ​ ​ 329 ​ ​ 411 ​ ​ 1,484 Total ​ $ 386 ​ $ 1,128 ​ $ 4,861 Recoveries ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ — ​ $ — ​ $ 60 Commercial real estate ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 410 ​ ​ — ​ ​ — Total real estate ​ ​ 410 ​ ​ — ​ ​ 60 Other commercial ​ ​ 14 ​ ​ 441 ​ ​ 655 Consumer loans ​ ​ 221 ​ ​ 230 ​ ​ 883 Total ​ $ 645 ​ $ 671 ​ $ 1,598 Net loan (recoveries) charge offs ​ $ (259) ​ $ 457 ​ $ 3,263 Balance at end of period ​ $ 27,050 ​ $ 23,140 ​ $ 24,830 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RATIOS ​ ​ ​ ​ ​ ​ ​ ​ ​ Net (recoveries) charge-offs to average Loans (annualized) ​ ​ (0.05)% ​ ​ 0.09% ​ ​ 0.59% Allowance for credit losses on Loans to gross Loans at end of period ​ ​ 1.17% ​ ​ 1.07% ​ ​ 1.07% Net loan (recoveries) charge-offs to allowance for credit losses on Loans at end of period ​ ​ (0.96)% ​ ​ 1.97% ​ ​ 13.14% Net loan (recoveries) charge-offs to provision for credit losses on Loans ​ ​ (13.21)% ​ ​ 471.13% ​ ​ 71.04% (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 47 Table of Contents ultimately be drawn down. Unused commitments to extend credit, which included standby letters of credit, totaled $754.4 million at March 31, 2025, and $641.5 million at December 31, 2024, representing approximately 33% of gross loans outstanding at March 31, 2025, and 28% at December 31, 2024. Included in unused commitments are mortgage warehouse lines which are mostly in the form of repurchase lines and are unconditionally cancellable. Unused commitments on mortgage warehouse lines were $414.8 million at March 31, 2025, and $311.6 million at December 31, 2024, while utilization was 41% and 51%, respectively. The decrease in utilization during the first three months of 2025 was due to new customers in the mortgage warehouse product that had not yet ramped up their utilization as well as two large mortgage warehouse line paydowns during the final week of the quarter. Unused commitments exclusive of mortgage warehouse lines and overdraft lines of credit, were nearly flat at 57% at December 31, 2024 and 56% at March 31, 2025. The Company also had undrawn letters of credit issued to customers totaling $5.2 million at March 31, 2025, and $5.0 million at December 31, 2024. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should the Company be required to fund a significant portion of unused commitments. In addition to unused commitments to provide credit, the Company is utilizing a $125 million letter of credit issued by the FHLB on the Company’s behalf as security for certain local agency deposits which totaled $83.4 million at March 31, 2025. That letter of credit is backed by loans that are pledged to the FHLB by the Company. For more information on the Company’s off-balance sheet arrangements, see Note 7 to the consolidated financial statements located elsewhere herein. 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 tolerances. The Company’s balance of non-earning cash and due from banks was $80.4 million at March 31, 2025, relative to $79.6 million at December 31, 2024. Foreclosed assets are discussed above in the section titled “Nonperforming Assets.” Net premises and equipment decreased by $0.1 million during the first three months of 2025, to $15.3 million. This decline was mostly a result of depreciation in the first quarter of 2025. Goodwill was $27.4 million at March 31, 2025, unchanged during the first three months of 2025. Goodwill is tested for impairment annually, unless events and circumstances exist which indicate that an impairment test should be performed. The annual goodwill impairment test was last performed on October 1, 2024, and it was determined that no impairment existed. Management continues to evaluate whether or not a triggering event occurs, or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2025. ​ Bank-owned life insurance, with a balance of $52.7 million at March 31, 2025, is discussed in detail above in the “Noninterest Income and Noninterest Expense” section. 48 Table of Contents DEPOSITS AND INTEREST-BEARING LIABILITIES DEPOSITS Deposits represent another key balance sheet category impacting the Company’s net interest income and 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, 2025 ​ December 31, 2024 ​ Amount ​ Percent ​ Amount ​ Percent Noninterest-bearing demand deposits ​ $ 1,037,990 ​ 36.42% ​ $ 1,007,208 ​ 34.83% Interest-bearing demand deposits ​ ​ 221,463 ​ 7.77% ​ ​ 206,766 ​ 7.15% NOW ​ ​ 377,462 ​ 13.24% ​ ​ 380,987 ​ 13.18% Savings ​ ​ 355,325 ​ 12.47% ​ ​ 347,387 ​ 12.01% Money market ​ ​ 143,521 ​ 5.04% ​ ​ 140,793 ​ 4.87% Time ​ ​ 524,173 ​ 18.39% ​ ​ 533,577 ​ 18.45% Brokered deposits ​ ​ 189,950 ​ 6.67% ​ ​ 274,950 ​ 9.51% Total deposits ​ $ 2,849,884 ​ 100.00% ​ $ 2,891,668 ​ 100.00% ​ Deposit balances declined by $41.8 million, or 1%, during the first three months of 2025 to $2.8 billion at March 31, 2025 due mostly to an $85.0 million reduction in brokered deposits. Core non-maturity deposits increased $52.6 million, or 3%, for the first three months of 2025, while customer time deposits decreased by $9.4 million. Brokered deposits decreased significantly during the quarter, as the Company utilized some paydowns in the investment portfolio and changes in mortgage warehouse line utilization to offset recent brokered deposit maturities. Noninterest-bearing deposits as a percent of total deposits increased to 36.4% at March 31, 2025, compared to 34.8% at December 31, 2024, and from 34.0% at March 31, 2024. Overall uninsured deposits are estimated to be $788.6 million, or 28% of total deposit balances, excluding public agency deposits that are subject to collateralization through a letter of credit issued by the FHLB. In addition, uninsured deposits of the bank’s customers are eligible for FDIC pass-through insurance if the customer opens an IntraFi Insured Cash Sweep account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (CDARS). IntraFi allows for up to $275 million of combined pass-through FDIC insurance which would more than cover each of the Bank’s deposit customers if such customer desired to have such pass-through insurance. The Bank maintains a diversified deposit base with no significant customer concentrations and does not bank any cryptocurrency companies. At March 31, 2025, the Company had approximately 119,000 accounts and the 25 largest deposit balance customers had balances of less than 10% of overall deposits . Other interest-bearing liabilities of $198.8 million on March 31, 2025, consist of $118.8 million in customer repurchase agreements and $80.0 million of term FHLB borrowings, as compared to $108.9 million in customer repurchase agreements, and $80.0 million of term FHLB borrowings on December 31, 2024. OTHER INTEREST-BEARING LIABILITIES 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 49 Table of Contents 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. Total non-deposit interest-bearing liabilities increased by $9.9 million, during the first three months of 2025 primarily due to an increase in customer repurchase agreements. Customer repurchase agreements were $118.8 million at March 31, 2025, as compared to $108.9 million at December 31, 2024. Customer repurchase agreements provide collateral for customers that sweep excess deposit balances each day into a separate repurchase agreement account where the Company sells certain government bonds to customers daily under an agreement to repurchases the same bonds on the next business day. Although these accounts are not deposits and are not FDIC insured, they provide customers with larger account balances the ability to have their account effectively secured with collateral. Long-term debt at March 31, 2025, consisted of $49.4 million of subordinated debt. This remained relatively unchanged from December 31, 2024. Subordinated debentures related to $35.9 million of trust preferred securities at March 31, 2025, was $0.1 million higher than at December 31, 2024. The small increase resulted from the amortization of discount on junior subordinated debentures that were part of the Company’s acquisition of Coast Bancorp in 2016. Trust preferred securities are variable rate instruments benchmarked against the Secured Overnight Financing Rate (SOFR). 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 $119.7 million at March 31, 2025, as compared to $90.5 million at December 31, 2024, an increase of $29.2 million or 32%. The increase was primarily driven by investment security purchases that as of March 31, 2025, had not settled . 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 81% at both March 31, 2025, and 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. 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. 50 Table of Contents At March 31, 2025, and December 31, 2024, the Company had the following sources of primary and secondary liquidity (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ Primary and secondary liquidity sources ​ ​ March 31, 2025 ​ ​ December 31, 2024 Cash and cash equivalents ​ $ 159,711 ​ $ 100,664 Unpledged investment securities ​ ​ 522,332 ​ ​ 552,098 Excess pledged securities ​ ​ 181,048 ​ ​ 242,519 FHLB borrowing availability ​ ​ 633,368 ​ ​ 629,134 Unsecured lines of credit ​ ​ 479,785 ​ ​ 479,785 Secured lines of credit ​ ​ 25,000 ​ ​ 25,000 Funds available through fed discount window ​ ​ 258,130 ​ ​ 298,296 Totals ​ $ 2,259,374 ​ $ 2,327,496 ​ Available funding sources detailed above of $2.3 billion represented 79% of total deposits and 287% of estimated uninsured and/or uncollateralized deposits as of March 31, 2025. Unpledged investment securities include $160.4 million of CLOs. As CLO’s have a rate that resets every 90 days to current rates, the volatility of pricing of these securities is limited and the Company could sell such securities for liquidity at a significantly lower loss than selling lower rate fixed term securities such as US government bonds or municipal bonds. The Company performs regular stress tests on its liquidity and at this time, Management believes that 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, 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 20% at March 31, 2025, as compared to an internal policy guideline of “greater than 15%” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at March 31, 2025, are also periodically reviewed by Management and the Board. The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that the liquidity position will continue at current strong levels. The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, interest on trust preferred securities and subordinated debt, shareholder dividends, and share repurchases. Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. As of March 31, 2025, the holding company maintained a cash balance of $2.4 million. Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC. 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 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 51 Table of Contents 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 50% in the down cycles depending on the deposit type. Deposit decay rate assumptions range from 5 to 10% and are based on historical averages. Prepayment speeds are based on 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, and 300 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. Pursuant to policy guidelines, the Company generally attempts to limit the 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2025 ​ March 31, 2024 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 ​ ​ 8.7% ​ $ 12,118 ​ ​ 8.3% ​ $ 10,117 +300 ​ ​ 6.6% ​ $ 9,209 ​ ​ 6.3% ​ $ 7,715 +200 ​ ​ 4.5% ​ $ 6,316 ​ ​ 4.3% ​ $ 5,305 +100 ​ ​ 2.4% ​ $ 3,310 ​ ​ 2.3% ​ $ 2,842 Base ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ -100 ​ ​ (5.3)% ​ $ (7,427) ​ ​ (5.5)% ​ $ (6,777) -200 ​ ​ (10.8)% ​ $ (15,018) ​ ​ (10.9)% ​ $ (13,302) -300 ​ ​ (16.0)% ​ $ (22,216) ​ ​ (16.1)% ​ ​ (19,711) -400 ​ ​ (18.7)% ​ $ (25,952) ​ ​ (20.2)% ​ ​ (24,717) ​ The above table is for parallel interest rate shocks for all rate curves and represents an extreme scenario. 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 March 31, 2025, management believes that the Company is asset sensitive, slightly more 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. If there were an immediate and sustained upward adjustment of 100 basis points in interest rates, all else being equal, net interest income over the next 12 months is projected to increase by $3.3 million, or 2.4%, relative to a stable interest rate scenario, with the favorable variance increasing as interest rates rise higher. If there was an immediate downward adjustment of 100 basis points in interest rates for all rate curves, net interest income would drop $7.4 million, or a negative variance of 5.3% over 12 months. The change in net interest income in the down 200 basis point scenario is a decrease of $15.0 million or 10.8%. As a significant portion of the Company’s deposits remain in noninterest-bearing accounts or low-cost deposit accounts, in a downrate scenario, these rates would not change or only change slightly. However, floating rate earning assets (loans and deposits) would reprice downward more than the decline in floating rate liabilities. All interest rate shock scenarios are within 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 52 Table of Contents level modeled in an unchanged rate environment. This use of a most likely interest rate forecast suggests that we are less sensitive to interest rate changes, when compared to an interest rate shock. Management believes modeling alternative scenarios is an important part of interest rate risk management given the current shape of the yield curve, with an inversion between the overnight rate and five-year rate. In an inverted yield curve, shocking all points on the yield curve in parallel tends to overstate the sensitivity to a change in rate. Thus, management has isolated the parts of the yield curve its balance sheet is most sensitive to and is strategically focused on those parts. ​ As the Company utilizes a dynamic balance sheet for its interest rate modeling, the Company also models using a static, or no-growth, balance sheet to validate the interest rate sensitivity in the dynamic balance sheet model and noted no significant changes in interest rate risk outside of the base case. 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 $351.8 million at March 31, 2025, comprised of $106.3 million in common stock, $4.4 million in additional paid-in capital, $270.0 million in retained earnings, and accumulated other comprehensive loss of $28.9 million. At the end of 2024, total shareholders’ equity was $357.3 million. The decrease in equity during the first quarter of 2025 is due to net income of $9.1 million, offset by a $3.5 million dividend paid to shareholders, $14.2 million in share repurchases, and a $2.4 million favorable swing in other comprehensive income/loss due principally to positive changes in investment securities’ fair value. The remaining difference is related to equity compensation recognized during the quarter. At March 31, 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 March 31, 2025, 325,983 shares of common stock remain 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. 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 ​ ​ 2025 2024 Well Capitalized ​ Leverage Ratio (1) ​ Bank of the Sierra ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") (2) ​ 12.11 % 11.80 % 9.00 % 9.00 % Sierra Bancorp ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") (2) ​ 10.84 % 10.93 % 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. (2) The Company has elected to phase in the impact of implementing CECL on regulatory capital over a three-year period, which ended December 31, 2024. 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, 53 Table of Contents 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