FNRN 10-K & 10-Q changes, risk factors and insider trading
First Northern Community Bancorp · Nasdaq · Savings Institution, Federally Chartered · CIK 1114927 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Changes in U.S. and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank’s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations”
Largest changes
“As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S. from other countries. As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S. More recently, the U.S. …”see in full comparison
“In addition, the war between Russia and Ukraine and global reactions thereto have increased U.S. domestic and global energy prices. Oil supply disruptions related to the Russia-Ukraine conflict, and sanctions and other measures taken by the U.S. or its allies, could lead to higher costs for gas, food and goods in the U.S. and exacerbate the inflationary pressures on the economy. As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S. from other countries. …”see in full comparison
“In addition, the war between Russia and Ukraine and global reactions thereto have increased U.S. domestic and global energy prices. Oil supply disruptions related to the Russia-Ukraine conflict, and sanctions and other measures taken by the U.S. or its allies, could lead to higher costs for gas, food and goods in the U.S. and exacerbate the inflationary pressures on the economy. As noted previously, the new Trump Administration has taken steps to increase tariffs on goods imported to the U.S. from certain countries. …”see in full comparison
“Following the financial crisis of 2008, adverse financial and economic developments impacted U.S. and global economies and financial markets and presented challenges for the banking and financial services industry and for us. These developments included a general recession both globally and in the U.S. accompanied by substantial volatility in the financial markets. In response, various significant economic and monetary stimulus measures were implemented by the U.S. government. …”see in full comparison
Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings. Since 2022, inflationary pressures have affected many aspects of the U.S. economy, including gasoline and fuel prices, and global and domestic supply-chain issues have also had a disruptive effect on many industries, including the agricultural industry. In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the FRB announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The FOMC increased the target range 525 basis points from March 2022 through July 2023. The target range remained unchanged through much of 2024 until the FOMC decreased the rate 100 basissee in full comparisonpointspoints, to a target range of 4.25% to 4.50%, during the last four months ofthe2024.year.InAs of December 31, 2024,2025, thetargetFOMCrangeimplementedforthree consecutive 25-basis-point interest rate cuts starting in September, lowering the federal funds ratehadtobeenadecreasedrange of 3.5% to4.25%3.75%toby4.50%.December 2025. It remains uncertain whether the FOMC will further decrease the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels,furtherbeginreduceto increase the federal funds rate or leave the rate at its current elevated level for a lengthy period of time. Factors such as inflation, productivity, oil prices, unemployment rates, and global demand play a role in the FOMC's consideration of future rate adjustments. As noted previously, thenewTrump Administrationhastakenrecentlystepsimposedto increaseincreased tariffs on goods imported to the U.S. fromcertainother countries.RetaliationAsbyasuchconsequence,countriesotherthroughcountries, in retaliation to the U.S.’s tariff measures, announced the imposition ofhigherincreased levels of tariffs onexportsgoodsfromexported to such countries by companies in the U.S.appearsMore recently, the U.S. government has introduced agreements in principle regarding tariffs with certain trading partners of the United States, new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to beaunderpossibility.consideration. President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the U.S. Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA. The Trump Administration responded by announcing the imposition ofincreasednew tariffs under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge on most imports (initially 10%, with an announcement on February 21, 2026, that the tariff rate would be 15%), effective for 150 days. The tariff environment continues to remain highly dynamic, andexportstheisspecificbelievedtariffs applicable to goods imported into the U.S. continue to evolve, as do import tariffs charged bysomeothereconomistscountries.toSuchentailtariffsthecouldpossibilityresultofin increased inflationary pressures on the U.S. economy.TheTheseimpactdevelopments could adversely affect our banking customers’ businesses, which, in turn, could adversely affect our business, financial condition and results of operations. See “Economic Conditions in the U.S. May Soften or Become Recessionary with Resultant Adverse Consequences for the U.S. Financial Services Industry and for the Bank,” above in thesedevelopments“Risk Factors” in this Annual Report ontheFormbusiness of our clients and on our business cannot be predicted with certainty but could present challenges in 2025 and beyond.10-K.
“Changes in U.S. and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank’s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations”see in full comparison
Full comparison: every changed paragraph (34)
Changes in U.S. and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank’s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations
In February 2025, the Trump Administration announced that it would be imposing increases in tariffs on goods imported to the U.S. from Canada, Mexico, and China, and, in April 2025, the Administration announced the imposition of increased tariffs on goods imported to the U.S. from other countries. As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S. The Trump Administration has announced agreements in principle regarding tariffs with certain significant trading partners of the United States, including (among others) the European Union, the United Kingdom, Japan and South Korea. It remains uncertain whether such agreements in principle will lead to definitive agreements with such trading partners and, if so, on what terms and whether agreements with other trading partners will eventually be consummated. More recently, the U.S. government has introduced new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be under consideration. President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the U.S. Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA. The Trump Administration responded by announcing the imposition of new tariffs under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge on most imports (initially 10%, with an announcement on February 21, 2026, that the tariff rate would be 15%), effective for 150 days. The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S. continue to evolve, as do import tariffs charged by other countries. These tariffs could be of particular concern to U.S. companies operating in the agricultural sector who export agricultural goods to other countries. The Company’s customers include a number of agricultural businesses, which could be negatively affected.
As a result of these changes to U.S. and foreign government trade policies, there may be changes to existing trade agreements, greater restrictions on free trade generally, the imposition of or significant further increases in tariffs on goods imported into the U.S., and adverse responses by foreign governments to U.S. trade policies, among other possible changes. The extent and duration of any tariffs, and the resulting impact on economic conditions generally and on our customers’ businesses in particular are uncertain and depend on various factors, such as negotiations between the U.S. and other countries, the responses of such countries, and exemptions or exclusions that may be granted. A significant trade disruption or the establishment or further increase of any tariffs, trade protection measures or restrictions could result in lost sales, adversely impacting our banking customers and their businesses, including our agricultural business customers. In addition, international trade disputes, including those related to tariffs, could result in inflationary pressures and/or adversely impact global supply chains, which could increase the costs of doing business for our banking customers. Changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the countries where our banking customers currently sell products, including agricultural products, and any resulting negative sentiments towards the U.S. and U.S. businesses as a result of such changes, could also have a material adverse effect on our banking customers’ business, financial condition, results of operations and cash flows. If these events negatively affect our banking clients, or general economic conditions nationally, in California, or in the markets we serve, our business, financial condition and results of operations could be adversely affected.
Recent Negative Developments in the Banking Industry, and any Legislative and/or Bank Regulatory Actions that may Result, Could Adversely Affect our Business Operations, Results of
Operations and Financial Condition.
While we currently do not anticipate liquidity constraints of the kind that caused these other financial services institutions to fail or require external support, constraints on our liquidity could occur as a result of customers choosing to maintain their deposits with larger financial institutions or to invest in higher yielding short-term fixed income securities, which could materially adversely impact our liquidity, cost of funding, loan funding capacity, net interest margin, capital and results of operations. If we were required to sell a portion of our securities portfolio to address liquidity needs, we may incur losses, including as a result of the negative impact of rising interest rates on the value of our securities portfolio, which could negatively affect our earnings and our capital. While the Company has taken actions which aim to maintain adequate and diversified sources of funding and management believes that its liquidity measures are reasonable in light of the nature of the Bank’s customer base, there can be no assurance that such actions will be sufficient in the event of a sudden liquidity crisis.
These recentbank eventsfailures may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies, enhanced regulatory supervision and examination policies and
priorities, and/or the imposition of restrictions through regulatory supervisory or enforcement activities, including higher capital requirements and/or an increase in the Bank’s deposit insurance assessments. The FDIC has proposed that Congress
consider consider, and legislation has been introduced in Congress proposing, various changes in the FDIC insurance program, including possible increases in the deposit insurance limit for certain types of accounts, such as business payment accounts. Although these legislative and regulatory actions cannot be
predicted with certainty, any of these potential legislative or regulatory actions could, among other things, subject us to additional costs, limit the types of financial services and products we may offer, and reduce our profitability, any of which
could materially and adversely affect our business, results of operations or financial condition.
Following the financial crisis of 2008, adverse financial and economic developments impacted U.S. and global economies and financial markets and presented challenges for the banking and financial services industry and for us. These developments included a general recession both globally and in the U.S. accompanied by substantial volatility in the financial markets. In response, various significant economic and monetary stimulus measures were implemented by the U.S. government. The FRB also pursued a highly accommodative monetary policy aimed at keeping interest rates at historically low levels, In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the FRB began slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time, before beginning to reduce interest rates in 2024, which reductions continued in 2025. Despite these rate cuts, the FRB has signaled caution in easing monetary policy. At its January 2026 meeting, the FRB, citing continued elevated uncertainty about the economic outlook, low job gains, and inflation that remains somewhat elevated, determined to maintain the target range for the federal funds rate at 3‑1/2 to 3‑3/4 percent. Monetary policy has contributed to and may continue to result in elevated market interest rates and a flat and/or inverted yield curve. Changes to monetary policy may adversely impact U.S. economic activity and have adverse consequences on our customers’ and our earnings and operations. During his second term, President Trump has regularly pushed for the FRB to cut short-term interest rates, threatened to fire the FRB Chairman, and taken steps to remove another member of the FRB’s governing board, and, in January 2026, the U.S. attorney’s office in the District of Columbia opened a criminal investigation into the FRB Chairman over the central bank’s renovation of its Washington headquarters. These actions have the potential to threaten the independence of the FRB, and the outcome of these actions, and their impact on interest rates, financial markets, borrowing costs and the U.S. economy in general, cannot be predicted at this time. A prolonged federal government shutdown, as well as broader issues surrounding the federal budgeting process and governance, may also contribute to market volatility and disruptions and recessionary risk.
As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S. from other countries. As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S. More recently, the U.S. government has introduced agreements in principle regarding tariffs with certain trading partners of the United States, new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be under consideration. President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the U.S. Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA. The Trump Administration responded by announcing the imposition of new tariffs under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge on most imports (initially 10%, with an announcement on February 21, 2026, that the tariff rate would be 15%), effective for 150 days. The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S. continue to evolve, as do import tariffs charged by other countries. See “Changes in U.S. and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank’s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations,” above in these “Risk Factors” in this Annual Report on Form 10-K. International trade disputes, including those related to tariffs, could result in inflationary pressures and/or adversely impact global supply chains, which could increase the costs of doing business for our banking customers. Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets, which could have resulting material adverse effects on general economic conditions nationally, in California, or in our local markets. Some economists have predicted that the Administration’s steep new tariffs could curtail growth and result in price increases for American consumers, ultimately increasing the likelihood of a U.S. recession. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including the recent military actions in Iran and the Middle East, escalating military tension between Russia and Ukraine, terrorism and other geopolitical events. Any of these developments could adversely affect our business, financial condition and results of operations.
Following the financial crisis of 2008, adverse financial and economic developments impacted U.S. and global economies and financial markets and presented challenges for the banking and financial
services industry and for us. These developments included a general recession both globally and in the U.S. accompanied by substantial volatility in the financial markets.
In response, various significant economic and monetary stimulus measures were implemented by the U.S. government. The FRB also pursued a highly accommodative monetary policy aimed at keeping interest rates at
historically low levels. The more recent tightening of the Federal Reserve’s monetary policies, including repeated and aggressive increases in target range for the federal funds rate as well as the conclusion of the Federal Reserve’s tapering of
asset purchases, together with ongoing economic and geopolitical instability, increases the risk of an economic recession. The Federal Reserve has signaled caution in easing monetary policy citing strong robust GDP growth, and persistent inflation as
reasons to delay rate cuts.
The U.S. government continues to face significant fiscal and budgetary challenges which, if not resolved, could result in renewed adverse U.S. economic conditions. These challenges may be intensified over time if federal budget deficits were to increase and Congress and the Administration cannot effectively work to address them. The overall level of the federal government's debt, the extensive political disagreements regarding the government's statutory debt limit and the continuing substantial federal budget deficits led to a downgrade from “AAA” to “AA+” of the long-term sovereign credit rating of United States debt by one credit rating agency in 2023. In May 2025, Moody’s lowered the U.S. government’s long-term issuer and senior unsecured ratings from “Aaa” to “Aa1”. This downgrade means that all three major credit rating agencies have downgraded the U.S. credit rating below their top rating. This risk could be exacerbated over time.
If substantial federal budget deficits were to continue or increase in the years ahead, further downgrades by the credit rating agencies with respect to the obligations of the U.S. federal government
could occur. A prolonged federal government shutdown, as well as broader issues surrounding the federal budgeting process and governance, may further contribute to the possibility of a downgrade of the U.S. sovereign credit rating. Any such further downgrades could increase over time the U.S. federal government’s cost of borrowing, which may worsen its fiscal challenges, as well as generate further upward pressure on interest rates generally in the U.S. which
could, in turn, have adverse consequences for borrowers and the level of business activity. The long-term impact of this situation, including the impact toon the Bank's investment securities portfolio and other assets, cannot be predicted.
The Bank’s allowance for credit losses on loans was approximately $14.5 million, or 1.36% of total loans, at December 31, 2025, compared to $15.9 million, or 1.49% of total loans, at December 31, 2024, comparedand to $16.6 million, or 1.55%285.7% of total loans, at December 31, 2023, and 143.5% of
total non-performing loans net of guaranteed portions at December 31, 2024,2025, compared to 199.1%143.5% of total non-performing loans, net of guaranteed portions at December 31, 2023.2024. ReversalNo provision for credit losses was recorded for the year ended December 31, 2025, and a reversal of provision for credit losses totaled $0.3 million for the year
ended December 31, 2024, and provision for credit losses totaled $1.1 million for the year ended December 31, 2023. The reversal of provision for credit losses in 2024 was primarily due to decreases in loans outstanding
and unfunded commitments.2024.
The Bank’s primary lending focus has historically been commercial (including agricultural), construction, and real estate mortgage. At December 31, 2024,2025, loans secured by real estateestate, mortgageincluding (excluding loans held-for-sale) and
construction loans (residential and other), comprised approximately 90% and 3%, respectively,84% of the total loans in the Bank’s portfolio. At December 31, 2024,2025, all of the Bank’s real estate mortgage and construction loans and approximately 1% of its commercial loans were secured fully or in part by deeds
of trust on underlying real estate. The Company’s dependence on real estate increases the risk of loss in both the Bank’s loan portfolio and its holdings of other real estate owned if economic conditions in Northern California were to deteriorate.
Deterioration of the real estate market in Northern California would have a material adverse effect on the Company’s business, financial condition, and results of operations.
The Bank is subject to certain industry-specific economic factors. For example, a portion of the Bank’s total loan portfolio is related to residential and commercial real estate,
especially in California. Increases in residential mortgage loan interest rates could have an adverse effect on the Bank’s operations by depressing new mortgage loan originations, which in turn could negatively impact the Bank’s title and
escrow deposit levels. Additionally, a downturn in the residential real estate and housing industries in California could have an adverse effect on the Bank’s operations and the quality of its real estate and construction loan portfolio. Although
the Bank does not engage in subprime or negative amortization lending, we are not immune to volatility in the real estate market. Real estate valuations are influenced by demand, and demand is driven by economic factors such as employment rates and
interest rates, which have been, and may continue to be, affected by the pandemic.rates. These factors could adversely impact the quality of the Bank’s residential construction, residential mortgage and construction related commercial portfolios in
various ways, including by decreasing the value of the collateral for our loans, and thereby negatively affecting the Bank’s overall loan portfolio.
The Bank provides financing to, and receives deposits from, businesses in a number of other industries that may be particularly vulnerable to industry-specific economic factors, including the home building, commercial real estate, retail, agricultural, industrial, and commercial industries. Following the financial crisis of 2008, the home building industry in California was especially adversely impacted by the deterioration in residential real estate markets, which lead the Bank to take additional provisions and charge-offs against credit losses in this portfolio. The recessionary economic and market conditions resulting from the COVID-19 pandemic also significantly affected the commercial and residential real estate markets in the U.S. generally, and in California in particular, decreasing property values, increasing the risk of defaults and reducing the value of real estate collateral. Continued volatility in fuel prices and energy costs and return of drought conditions in California could also adversely affect businesses in several of these industries.
As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S. from other countries. As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S. More recently, the U.S. government has introduced agreements in principle regarding tariffs with certain trading partners of the United States, new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be under consideration. President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the U.S. Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA. The Trump Administration responded by announcing the imposition of new tariffs under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge on most imports (initially 10%, with an announcement on February 21, 2026, that the tariff rate would be 15%), effective for 150 days. The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S. continue to evolve, as do import tariffs charged by other countries. Such tariffs could be of particular concern to U.S. companies operating in the agricultural sector who export agricultural goods to other countries. The Company’s customers include a number of agricultural businesses, which could be negatively affected. See “Changes in U.S. and Foreign Government Policies, Including the Imposition of or Further Increases in Tariffs and Changes to Existing Trade Agreements, Could Have a Material Adverse Effect on the Bank’s Customers, Which, in Turn, Could Adversely Affect Our Business, Financial Condition and Results of Operations,” above in these “Risk Factors” in this Annual Report on Form 10-K.
In February 2025, the new Trump Administration announced that it would be imposing increases in tariffs on goods imported to the U.S. from Canada, Mexico, and China and has also indicated that tariffs may be imposed at
increased levels on imports to the U.S. from other countries. If other countries, in retaliation to the U.S.’s tariff measures, were to impose increased levels of tariffs on goods exported to such countries by companies in the U.S. such tariff
increases may negatively impact companies in the U.S. whose business involves exports to other countries. This could be of particular concern to U.S. companies operating in the agricultural sector who export to other countries. The Company’s
customers included a number of agricultural business, which could be negatively affected. Preliminary indications have been that the new Trump Administration tariff increases to Canada and Mexico may be delayed or decreased if such countries adopt
various policies urged by the U.S., such as enhanced border security and control measures. The outcome of this process cannot be predicted with any certainty at this time.
In recent years, wildfires across California and in our market areas resulted in significant damage and destruction of property and equipment. The fire damage caused resulted in adverse economic impacts to those
affected markets and beyond and on the Bank's customers. In addition, the major electric utility company in our region has adopted programs of electrical power shut-offs, often for multiple days, in wide areas of Northern California during periods
of high winds and high fire danger. Shut-offs of power by this utility have adversely impacted the business of some of our customers and also have resulted in some of our branches being temporarily closed. It can be expected that these events will
continue to occur from time to time in the areas served by the Bank, and that the consequences of these natural disasters, including programs of public utility public safety power outages when weather conditions and fire danger warrant, may adversely
affect the Bank’s business and that of its customers. It is also possible that climate change may be increasing the severity or frequency of adverse weather conditions, thus increasing the impact of these types of natural disasters on our business
and that of our customers. For additional information, see "Our Operations, Business and Customers Could be Materially Adversely Affected by the Physical Effects of Climate Change, as well as Governmental and Societal Responses to Climate Change,"
below in these "Risk Factors" in this Annual Report on Form 10-K.
Recently, several of California’s largest home insurance providers, including State Farm, Allstate, Farmers, USAA, Travelers, Nationwide and Chubb, have either paused or severely limited their issuance of new policies,
or their renewal of existing policies, in the state. Mounting claims from wildfire damages, the increasing cost of building and repairing homes in California, and a steep increase in reinsurance premiums, as well as state insurance regulations that
make it difficult for insurers to adjust premiums in response to the evolving risk landscape, have challenged the capacity of insurance companies to sustainably and profitably offer home insurance in California. The result of these actions has been
to significantly limit the availability of home insurance in California, where homeowners already face escalating property values and high wildfire, seismic, severe weather and other risks. The recent catastrophic fires in Southern California,California in January 2025, with
preliminary estimates of resulting property damage and other claims exceedingestimated $30to be as high as $53.8 billion, are expected to further exacerbate these challenges.
The California Department of Insurance enforces some safeguards to temporarily shield homeowners from the cancellation or non-renewal of home insurance policies in high-risk areas, particularly those prone to
wildfires. In addition, the California Fair Access to Insurance Requirements (FAIR) Plan, a state-established risk pool, operates as an insurer of last resort, providing temporary coverage for California homeowners unable to obtain (generally at
increased premium cost) such coverage from a traditional insurance carrier; however, enrollment in the FAIR Plan as a percentage of the total number of residential insurance policies in California has steadily increased over the past five years,
particularly in counties with the highest wildfire risk, threatening the ongoing stability of the Plan. In late 2023, following the California Governor’s declaration of a State of Emergency regarding property insurance, the Insurance Commissioner of
the State of California introduced a comprehensive package of executive actions aimed at insurance reform. In December 2024, the California Department of Insurance adopted regulations intended to cause insurance companies to write more policies in
wildfire distressed areas of California as a condition for using forward-looking wildfire modeling designed to more accurately assess wildfire risks and to reverse FAIR Plan growth. In October 2025, the California Governor signed legislation to strengthen the FAIR Plan with new financing mechanisms to more quickly pay claims, better oversight, improved policyholder experience, and added coverage for manufactured homes, and the California Insurance Commissioner continues to advance a comprehensive reform package of the FAIR Plan, including temporary expansion of FAIR Plan coverage for certain high-value commercial properties. There can be no assurance that these regulatory actions, or other
proposed legislation, will increase insurance availability or stabilize and strengthen California’s insurance market. particularly in light of the recent catastrophic fires in Southern California.California in January 2025.
The GSEs remain in federal government conservatorship at this time and proposals for the reform of their role are not being actively pursued in Congress. However, thisrecent coulddevelopments changesuggest atthat anythe time,
particularlyTrump sinceAdministration may be exploring plans to sell the government’s stakes in the GSEs through an initial public offering (IPO), and comprehensive GSE reform wasbills ahave prioritybeen duringintroduced thein firstCongress Trumpin Administration.recent months. GSE reform could again become a subject under active consideration andreform, if adopted, could well have a substantial impact on the mortgage market and could reduce our
income from mortgage originations by increasing mortgage costs or lowering originations. GSE reforms could also reduce real estate prices, which could reduce the value of collateral securing outstanding mortgage loans. This reduction of collateral
value could negatively impact the value or perceived collectability of these mortgage loans and may increase our allowance for credit loan losses. Such reforms may also include changes to the Federal Home Loan Bank System, which could adversely
affect a significant source of term funding for lending activities by the banking industry, including the Bank. These reforms may also result in higher interest rates on residential mortgage loans, thereby reducing demand, which could have an adverse
impact on our residential mortgage lending business.
Fluctuations in market rates and other market disruptions are neither predictable nor controllable and may adversely affect our financial condition and earnings. Since
2022, inflationary pressures have affected many aspects of the U.S. economy, including gasoline and fuel prices, and global and domestic supply-chain issues have also had a disruptive effect on many industries, including the agricultural industry.
In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the FRB announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace
of its bond purchasing and increasing the target range for the federal funds rate over time. The FOMC increased the target range 525 basis points from March 2022 through July 2023. The target range remained unchanged through much of 2024 until the
FOMC decreased the rate 100 basis pointspoints, to a target range of 4.25% to 4.50%, during the last four months of the2024. year.In As of December 31, 2024,2025, the targetFOMC rangeimplemented forthree consecutive 25-basis-point interest rate cuts starting in September, lowering the federal funds rate hadto beena decreasedrange of 3.5% to 4.25%3.75% toby 4.50%.December 2025. It remains uncertain whether the FOMC will further decrease the target range for the federal funds rate to attain a monetary policy
sufficiently restrictive to return inflation to more normalized levels, furtherbegin reduceto increase the federal funds rate or leave the rate at its current elevated level for a lengthy period of time. Factors such as inflation, productivity, oil prices, unemployment rates, and global demand play a role in the FOMC's consideration of future rate adjustments. As noted previously, the new Trump Administration
has takenrecently stepsimposed to increaseincreased tariffs on goods imported to the U.S. from certainother countries. RetaliationAs bya suchconsequence, countriesother throughcountries, in retaliation to the U.S.’s tariff measures, announced the imposition of higherincreased levels of tariffs on exportsgoods fromexported to such countries by companies in the U.S. appearsMore recently, the U.S. government has introduced agreements in principle regarding tariffs with certain trading partners of the United States, new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be aunder possibility.consideration. President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the U.S. Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA. The Trump Administration responded by announcing the imposition of increasednew tariffs
under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge on most imports (initially 10%, with an announcement on February 21, 2026, that the tariff rate would be 15%), effective for 150 days. The tariff environment continues to remain highly dynamic, and exportsthe isspecific believedtariffs applicable to goods imported into the U.S. continue to evolve, as do import tariffs charged by someother economistscountries. toSuch entailtariffs thecould possibilityresult ofin increased inflationary pressures on the U.S. economy. TheThese impactdevelopments could adversely affect our banking customers’ businesses, which, in turn, could adversely affect our business, financial condition and results of operations. See “Economic Conditions in the U.S. May Soften or Become Recessionary with Resultant Adverse Consequences for the U.S. Financial Services Industry and for the Bank,” above in these developments“Risk Factors” in this Annual Report on theForm business of our clients and on our business
cannot be predicted with certainty but could present challenges in 2025 and beyond.10-K.
Beginning in 2021, the U.S. economy exhibited relatively rapid rates of increase in the consumer price index and other economic indices. If the U.S. economy encounters a significant, prolonged rate of
inflation, this could pose higher relative risks to the banking industry and our business. Such inflationary periods have historically corresponded with relatively weaker earnings and higher credit losses for banks. In the past, inflationary
environments have caused financing conditions to tighten and have increased borrowing costs for some marginal borrowers which, in turn, has impacted bank credit quality and loan growth. Additionally, a sustained period of inflation well above the
FRB’s long-term target could prompt broad-based selling of longer-duration, fixed-rate debt, which could have negative implications for equity and real estate markets. Lower interest rates enable less credit-worthy borrowers to more readily meet
their debt obligations. Small businesses and leveraged loan borrowers can be challenged in a materially higher-rate environment. Higher interest rates can also present challenges for commercial real estate projects, pressuring valuations and
loan-to-value ratios. TheSee FRB“Economic initiated a series of significant interest rate increasesConditions in responsethe toU.S. May Soften or Become Recessionary with Resultant Adverse Consequences for the recentU.S. economicFinancial developments.Services For additional information, see "Management's DiscussionIndustry and Analysisfor ofthe FinancialBank,” Conditionabove andin Resultsthese of
Operations“Risk - Results of Operations - Net Interest Income" belowFactors” in this Annual Report on Form 10-K.
In addition, the war between Russia and Ukraine and global reactions thereto have increased U.S. domestic and global energy prices. Oil supply disruptions related to the Russia-Ukraine conflict, and sanctions and other measures taken by the U.S. or its allies, could lead to higher costs for gas, food and goods in the U.S. and exacerbate the inflationary pressures on the economy. As noted previously, the Trump Administration recently imposed increased tariffs on goods imported to the U.S. from other countries. As a consequence, other countries, in retaliation to the U.S.’s tariff measures, announced the imposition of increased levels of tariffs on goods exported to such countries by companies in the U.S. More recently, the U.S. government has introduced agreements in principle regarding tariffs with certain trading partners of the United States, new tariffs and tariff-related measures and has indicated that other potential tariff measures and modifications to existing tariffs continue to be under consideration. President Trump imposed many of these tariffs by invoking authority under the International Emergency Economic Powers Act (IEEPA). On February 20, 2026, the U.S. Supreme Court ruled that President Trump could not invoke the IEEPA to unilaterally set tariffs on imports, thereby invalidating those tariffs implemented using IEEPA. The Trump Administration responded by announcing the imposition of new tariffs under alternative legal authorities to replace the IEEPA tariffs, including an executive order imposing a global surcharge on most imports (initially 10%, with an announcement on February 21, 2026, that the tariff rate would be 15%), effective for 150 days. The tariff environment continues to remain highly dynamic, and the specific tariffs applicable to goods imported into the U.S. continue to evolve, as do import tariffs charged by other countries. Such tariffs could result in increased inflationary pressures on the U.S. economy. These developments could adversely affect our banking customers’ businesses, which, in turn, could adversely affect our business, financial condition and results of operations. See “Economic Conditions in the U.S. May Soften or Become Recessionary with Resultant Adverse Consequences for the U.S. Financial Services Industry and for the Bank,” above in these “Risk Factors” in this Annual Report on Form 10-K.
In addition, the war between Russia and Ukraine and global reactions thereto have increased U.S. domestic and global energy prices. Oil supply disruptions related to the Russia-Ukraine
conflict, and sanctions and other measures taken by the U.S. or its allies, could lead to higher costs for gas, food and goods in the U.S. and exacerbate the inflationary pressures on the economy. As noted previously, the new Trump
Administration has taken steps to increase tariffs on goods imported to the U.S. from certain countries. The imposition of increased tariffs on imports and exports is believed by some economists to entail the possibility of increased inflationary
pressures on the U.S. economy. The impact of these developments cannot be predicted with certainty, but they could have potentially adverse impacts on our customers and on our business, results of operations and
financial condition.
In California generally, and in the Bank’s primary market area specifically, major banks dominate the commercial banking industry. By virtue of their larger capital bases, such
institutions have substantially greater lending limits than those of the Bank. Competition is likely to further intensify as a result of the recent and increasing level of consolidation of financial services companies, particularly in our market
area resulting from various economic and market conditions. In obtaining deposits and making loans, the Bank competes with these larger commercial banks and other financial institutions, such as savings and loan associations, credit unions and
member institutions of the Farm Credit System, which offer many services that traditionally were offered only by banks. Using the financial holding company structure, insurance companies and securities firms may compete more directly with banks
and bank holding companies. In addition, the Bank competes with other institutions such as mutual fund companies, brokerage firms, and even retail stores seeking to penetrate the financial services market. Current federal law has also made it
easier for out-of-state banks to enter and compete in the states in which we operate. Competition in our principal markets has further intensified as a result of the Dodd-Frank Act which, among other things, permitted out-of-state de novo branching
by national banks, state banks and foreign banks from other states. We also experience competition, especially for deposits, from internet-based banking institutions and other non-traditional financial services
firms, such as financial technology companies, which do not always have a physical presence in our market footprint and have grown rapidly in recent years. Also, technology and other changes increasingly allow parties to complete financial
transactions electronically, and in many cases, without banks. For example, consumers can pay bills and transfer funds over the internet and by telephone without banks. Non-bank financial service providers may have lower overhead costs,
are subject to fewer regulatory constraints and continue to expand their offerings of services traditionally provided by financial institutions. Further, the newcurrent Trump Administration ishas expectedtaken toa seek
number of actions to promote innovation across financial services through a regulatory environment that is favorable to cryptocurrencies, digital assets, open banking initiatives and financial technology companies, which has the potential to further increase
competition within the banking industry. In 2025, the OCC announced its conditional approval of five national trust bank charter applications to either newly charter or convert existing institutions into national trust banks that propose to offer digital asset products and services. While national trust banks generally do not take insured deposits or engage in commercial lending, these new non-traditional trust banks offer deposit-like products, although lacking FDIC insurance and core consumer protections, and they are not subject to the same capital, liquidity or supervisory standards as banks. Emerging technologies, such as artificial intelligence (including machine learning and generative artificial intelligence) and quantum computing, have the potential to intensify competition and accelerate disruption in the financial services industry. If consumers do not use banks to complete their financial transactions, we could potentially lose fee income, deposits and income generated from those deposits. During periods
of declining interest rates, competitors with lower costs of capital may solicit the Bank’s customers to refinance their loans. Furthermore, during periods of economic slowdown or recession, the Bank’s borrowers may face financial difficulties
and be more receptive to offers from the Bank’s competitors to refinance their loans. No assurance can be given that the Bank will be able to compete with these lenders. See “Business – Competition” in Item 1 of this Form 10-K.
Our success depends upon the ability to attract and retain highly motivated, well-qualified personnel. We face significant competition in the recruitment and retention of qualified employees. Executive
compensation in the financial services sector has been controversial and the subject of regulation. The FDIC has proposed rules which would increase deposit premiums for institutions with compensation practices deemed to increase risk to the
institution. Over time, thischanging guidance and thenewly-adopted proposedrules rules,regarding uponcompensation their adoption,practices could have the effect of making it more difficult for banks to attract and retain skilled personnel.
Advances and changes in technology can significantly impact the business and operations of the Company. The financial services industry is undergoing rapid technological change which regularly involves the introduction of new products and services based on new or enhanced technologies. Examples include cloud computing, artificial intelligence and machine learning, biometric authentication and data protection enhancements, as well as increased online and mobile device interaction with customers and increased demand for providing computer access to Bank accounts and the systems to perform banking transactions electronically. The Company’s merchant processing services require the use of advanced computer hardware and software technology and rapidly changing customer and regulatory requirements. The Company’s ability to compete effectively depends on its ability to continue to adapt its technology on a timely and cost-effective basis to meet these requirements. Our continued success and the maintenance of our competitive position depends, in part, upon our ability to meet the needs of our customers through the application of new technologies. Furthermore, the widespread adoption of new technologies by competitors, including artificial intelligence, could require us to make additional substantial investments to modify or adapt our existing products and services or alter the way we conduct business. These and other capital investments in the Company's business may not produce the growth in earnings anticipated at the time of the expenditure, and we may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. If we fail to maintain or enhance our competitive position with regard to technology, whether because we fail to anticipate customer needs and expectations or because our technological initiatives fail to perform as desired or are not timely implemented, we may lose market share or incur additional expense. Our ability to execute our core operations and to implement technology and other important initiatives may be adversely affected if our resources are insufficient or if we are unable to allocate available resources effectively.
In addition, the Company’s business and operations are susceptible to negative impacts from computer system failures, communication and power disruption, and unethical individuals with the technological ability to cause disruptions or failures of the Company’s data processing systems. Implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, also may have unintended consequences, including fraud or cybersecurity risk, due to their limitations, potential manipulation, or our failure to use them effectively.
Changes in the U.S. Tax Laws Have ImpactedImpacted, and May Impact, Our Business and Results of Operations in a Variety of Ways, Some of Which Are Positive, and Others Which May Be Negative
The Tax Cuts and Jobs Act (“TCJA”), signed into law on December 22, 2017, enacted sweeping changes to the U.S. federal tax laws generally effective January 1, 2018. These changes have impacted our business and results of operations in a variety of ways, some of which are positive and others which are negative. The TCJA reduced the corporate tax rate to 21% from 35%, which resulted in a net reduction in our annual income tax expense and which has also benefited many of our corporate and other small business borrowers. However, our ability to utilize tax credits, such as those arising from low-income housing and alternative energy investments, is constrained by the lower tax rate. Increases in the U.S. corporate tax rate could adversely impact our profitability and that of our business and commercial customers. On July 4, 2025, the One Big Beautiful Bill Act was enacted into law, which included certain modifications to U.S. tax law. The Company has evaluated the provisions of this Act and has concluded that they do not have any material impact on our consolidated financial statements for the year ended December 31, 2025.
In recent years, the federal banking agencies have increased their focus on climate-related risks impacting the operations of banks, the communities they serve and the broader financial system. Accordingly, the
agencies have begun to enhance their supervisory expectations regarding the climate risk management practices of larger banking organizations, including by encouraging such banks to: ensure that management of climate-related risk exposures has been
incorporated into existing governance structures; evaluate the potential impact of climate-related risks on the bank’s financial condition, operations and business objectives as part of its strategic planning process; account for the effects of
climate change in stress testing scenarios and systemic risk assessments; revise expectations for credit portfolio concentrations based on climate-related factors; consider investments in climate-related initiatives and lending to communities
disproportionately impacted by the effects of climate change; evaluate the impact of climate change on the bank’s borrowers and consider possible changes to underwriting criteria to account for climate-related risks to mortgaged properties;
incorporate climate-related financial risk into the bank’s internal reporting, monitoring and escalation processes; and prepare for the transition risks to the bank associated with the adjustment to a low-carbon economy and related changes in laws,
regulations, governmental policies, technology, and consumer behavior and expectations. The FDIC has indicated that all banks, regardless of their size, may have material exposures to climate-related financial and other risks that require prudent
management. As climate-related supervisory guidance is formalized, and relevant risk areas and corresponding control expectations are further refined, we may be required to expend significant capital and incur compliance, operating, maintenance and
remediation costs in order to conform to such requirements.
Additional legislationLegislation and regulatory requirements and changes in consumer preferences, including those associated with the transition to a low-carbon economy, could increase expenses of, or
otherwise adversely impact, the Company, its businesses or its customers. We and our customers may face cost increases, asset value reductions, operating process changes, reduced availability of insurance, and the like, as a result of governmental actions or societal responses to climate change. New and/or more stringent regulatory requirements relating to climate change or
environmental sustainability could materially affect the Company’s results of operations by increasing our compliance costs. Regulatory changes or market shifts to low-carbon products could also impact the creditworthiness of some of our customers
or reduce the value of assets securing loans, which may require the Company to adjust our lending portfolios and business strategies.
Management's Discussion & Analysis (MD&A)
Removed heading “Business Combinations”
Largest changes
“Goodwill and intangible assets acquired in a business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has no goodwill arising from business combinations. The Company recognized a bargain purchase gain arising from business combinations. The Company recorded the fair values based on the valuations available as of reporting date. …”see in full comparison
“In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. …”see in full comparison
“The Company accounts for acquisitions of businesses using the acquisition method of accounting. Under the acquisition method, assets acquired and liabilities assumed are recorded at their estimated fair values at the date of acquisition. Management utilizes various valuation techniques including discounted cash flow analyses to determine these fair values. Any excess of the purchase consideration over the fair value of acquired assets, including identifiable intangible assets, and liabilities assumed is recorded as goodwill and a deficit is recognized as a bargain purchase gain.”see in full comparison
Net income for the year ended December 31,see in full comparison2024,2025, was$20.0$21.1 million, representingaandecreaseincrease of$1.6$1.1 million, or7.1%,5.5%, compared to net income of$21.6$20.0 million for the year ended December 31,2023.2024. Thedecreaseincrease in net income was primarily attributable toaandecreaseincrease in net interest income of$2.2$3.1 million and a decrease innon-interestprovision for income tax of$1.8$1.5 million, which was partially offset byaandecrease in provision for credit losses of $1.4 million and a decreaseincrease in non-interest expenses of$0.8$3.4 million. Thedecreaseincrease innon-interestnet interest income was primarily due totheincreasesbargaininpurchaseyieldgainonofloans$1.4andmillioninvestmentassecurities and aresult of the branch acquisitionsdecrease in2023volume and rate paid on time certificates, which wasnotpartiallyrepeatedoffset by decreases in2024.volume and yield on due from banks and increases in rates paid on interest-bearing transaction deposits and savings and MMDAs. The increase in non-interest expenses was primarily due to an increase in salaries and employee benefits, occupancy and equipment and data processing expenses. The decrease in provision forcreditincomelossestax was due todecreasesthe execution of a tax planning strategy that involved purchasing investment tax credits under the Inflation Reduction Act of 2022 tied to alternative energy projects. The investment tax credits were acquired at a discount and recognized as a reduction to income tax expense inunfunded commitments.2025.
Net interest income is the excess of interest and fees earned on the Bank’s loans, investment securities, federal funds sold and banker’s acceptances over the interest expense paid on deposits and other borrowed funds which are used to fund those assets. Net interest income is primarily affected by the yields and mix of the Bank’s interest-earning assets and interest-bearing liabilities outstanding during the period. Thesee in full comparison$4,529,000$3,655,000 increase in the Bank's interest and dividend income in20242025 from20232024 was primarily driven by an increase in interest rates on loans andaninvestmentincrease in average balance of loans,securities, which was partially offset by a decrease in the averagebalancesbalanceofand interest rate on due frombanks and certificates of deposit.banks. The$3,186,000$2,610,000 increase in theBank’sBank's interest income on loans was primarily driven by an increase of$1,101,000$2,444,000 attributable to an increase in interestrates compounded by an increase of $2,085,000 driven by an increase in average loans outstanding.rates. The$2,117,000$2,204,000 decrease in the Bank’s interest income on due from banks was primarily driven by a decrease of$2,472,000$1,000,000 due to the decreased average due from bank balancesoutstanding,whichoutstandingwasandpartiallyaoffset by an increasedecrease of$355,000$1,204,000 attributable toanaincreasedecrease in average interest rates paid on excess reserves at the FRB. The$33,000$132,000 decrease in the Bank's interest income on certificates of deposit was driven by a decrease of$124,000$147,000 due to the decrease in average certificates of deposit outstanding, which was partially offset by an increase of$91,000$15,000 due to the increase in average interest rates paid on certificates of deposit. The$3,247,000$3,414,000 increase in the Bank’s interest income on investment securities was driven by an increase of$3,262,000$2,773,000 due to an increase in interestrates,rateswhichandwasanpartially offset by a decreaseincrease of$15,000$641,000 driven bydecreasedincreased investment securities balances outstanding. The$6,708,000$543,000 increase in the Bank's interest expense on deposits was primarily driven by an increase of$4,978,000$568,000 due to increases in interestratesrates,coupledwhichwithwasanpartiallyincreaseoffset by a decrease of$1,730,000$25,000 due toan increasea decrease in average time certificates balances outstanding. See “Analysis of Changes in Interest Income and Interest Expense”set forth on page 40 ofin this Annual Report on Form 10-K for the effects of interest rates and loan/deposit volume on net interest income.
Full comparison: every changed paragraph (60)
The Company reported net income of $21.1 million for 2025, a 5.5% increase compared to net income of $20.0 million for 2024, a 7.1% decrease compared to net income of $21.6 million for 2023.2024. Net income per common share for 20242025 was $1.26,$1.30, aan decreaseincrease of 6.7%
8.3% compared to net income per common share of $1.35$1.20 for 2023.2024. Net income per common share on a fully diluted basis was $1.24$1.27 for 2024,2025, aan decreaseincrease of 7.5%6.7% compared to net income per common share on a fully diluted basis of $1.34$1.19 for 2023.2024.
Net interest income totaled $64.4$67.5 million for 2024,2025, aan decreaseincrease of 3.3%4.8% from $66.5$64.4 million in 2023,2024, primarily due to an increaseincreases in interestyields expenseearned on loans and investment securities, which was partially offset by decreases both in volume and yield earned on due tofrom anbanks increaseand increases in average rate paid on average
interest-bearing deposits,transaction which was partially offset by an increase in interestdeposits and dividendsavings incomeand due to an increase in yield on average earning assets.MMDAs. Net interest margin was 3.60%3.77% for the year ended 20242025 which was a 2.6%4.7% or 1017 basis point
decrease increase from the 3.70%3.60% reported for the year ended 2023.2024.
No provision for credit losses was recorded in 2025, compared to a reversal of provision for credit losses of $0.3 million in 2024. No provision for credit losses was recorded in 2025 primarily due to positive trends in gross domestic product and single-family home prices, coupled with an overall decrease in forecasted loss rates and improvements in qualitative risk factors.
Non-interest income totaled $6.1 million in 2025, an increase of 1.3% from $6.0 million in 2024. The increase was primarily due to a decrease in realized losses on sales/calls of available for sale securities and an increase in other income, which was partially offset by decreases in service charges on deposit accounts and debit card income.
Reversal of provision for credit losses totaled $0.3 million in 2024, compared to provision for credit losses of $1.1 million in 2023. The reversal of provision for credit
losses in 2024 was primarily due to decreases in unfunded commitments.
Non-interest income totaled $6.0 million in 2024, a decrease of 23.3% from $7.8 million in 2023. The decrease was primarily due to a gain on bargain purchase of $1.4 million as a result of the
acquisition of the Colusa, Willows, and Orland branches in 2023, which was not repeated in 2024.
Non-interest expenses totaled $42.8$46.2 million for 2024,2025, downup 2.0%7.9% from $43.6$42.8 million in 2023.2024. The decreaseincrease was primarily due to decreasesincreases in salaries and employee benefits, which was partially offset
by increases in occupancy and equipment, data processing and consultinglegal fees. The decreaseincrease in salaries and benefits was primarily due to decreasesan increase in commissions,full-time equivalent employees and increases in contingent compensation and profitgroup sharingmedical insurance expense. The increases in occupancy
and equipment and data processing were primarily due to increases in service contracts. The increase in consultingoccupancy feesand equipment was primarily due to staffingan searches.increase in service contracts related to upgrading and maintaining facilities. The increase in data processing was primarily due to an increase in costs of service contracts.
Investments totaled $617.2 million as of December 31, 2025, a 2.6% decrease from $633.9 million as of December 31, 2024,2024. aU.S. 10.7%Treasury increasesecurities fromtotaled $572.4$87.5 million as of December 31, 2023.2025, U.S.down Treasury17.0% securities totaledfrom $105.5 million as of December 31, 2024, up
21.1% from $87.2 million as of December 31, 20232024; securities of U.S. government agencies and corporations totaled $95.7$85.3 million, down 16.9%10.8% from $115.1$95.7 million as of December 31, 20232024; obligations of state and political subdivisions totaled $67.6
$75.0 million, up 30.8%11.0% from $51.7$67.6 million as of December 31, 20232024; collateralized mortgage obligations totaled $95.0$92.3 million, updown 4.4%2.8% from $90.9$95.0 million as of December 31, 20232024; and mortgage-backed securities totaled $270.1$277.1 million, up 18.7%2.6% from
$227.5 $270.1 million as of December 31, 2023.2024.
Loans (including loans held-for-sale), net of allowance, totaled $1.050 billion as of December 31, 2025, a 0.4% increase from $1.047 billion as of December 31, 2024, a 0.5% decrease from $1.052 billion as of December 31, 2023.2024. Commercial loans totaled $117.9
million as of December 31, 2024, up 10.3% from $106.9$146.2 million as of December 31, 20232025, up 24.0% from $117.9 million as of December 31, 2024; commercial real estate loans were $723.6$702.5 million, updown 0.3%2.9% from $721.7$723.6 million as of December 31, 20232024; agriculture loans were $92.6$93.6 million, downup 12.5%1.1% from
$105.8 $92.6 million as of December 31, 20232024; residential mortgage loans were $105.9$100.7 million, down 1.3%4.9% from $107.3$105.9 million as of December 31, 20232024; residential construction loans were $6.9$5.8 million, down 44.3%14.9% from $12.3 million as of December 31,
2023; and consumer loans totaled $15.7 million, up 5.7% from $14.9$6.9 million as of December 31, 2023.2024; and consumer loans totaled $15.5 million, down 1.5% from $15.7 million as of December 31, 2024.
Deposits totaled $1.68 billion as of December 31, 2025, a 1.2% decrease from $1.70 billion as of December 31, 2024.
Deposits totaled $1.70 billion as of December 31, 2024, a 0.5% increase from $1.69 billion as of December 31, 2023.
Stockholders' equity increased to $212.0 million as of December 31, 2025, a 20.2% increase from $176.3 million as of December 31, 2024, a 10.7% increase from $159.2 million as of December 31, 2023.2024. The increase was primarily due to 20242025 net income of $20.0
$21.1 million and a decrease in accumulated other comprehensive loss, net of $18.4 million.
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, income and
expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to the allowance for credit losses and business combinations.losses. The Company bases its
estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
In determining the ACL, accruing loans with similar risk characteristics are generally evaluated collectively. To estimate expected losses the Company generally utilizes historical loss trends and
the remaining contractual lives of the loan portfolios to determine estimated credit losses through a reasonable and supportable forecast period. The Company utilized a reasonable and supportable forecast period of approximately four quarters and
obtained the forecast data from Moody’s Analytics. Individual loan credit quality indicators, including historical credit losses, have been statistically correlated with various econometrics, including national unemployment rate, andnational national
gross domestic product.product, and single-family home prices. Model forecasts may be adjusted for inherent limitations or biases that have been identified through independent validation and back-testing of model performance to actual realized results. The Company also considered the
impact of portfolio concentrations, changes in underwriting practices, imprecision in its economic forecasts, and other risk factors that might influence its loss estimation process. Increases in external risk factors due to more pessimistic
business and economic conditions could potentially add $5.6$4.6 million based on existing loan balances, if not more, to the ACL. While management utilizes its best judgment and information available, the ultimate adequacy of our allowance accounts
is dependent upon a variety of factors beyond our control, including the performance of our portfolios, the economy and changes in interest rates.
Business Combinations
The Company accounts for acquisitions of businesses using the acquisition method of accounting. Under the acquisition method, assets acquired and liabilities assumed are recorded at their estimated fair values at
the date of acquisition. Management utilizes various valuation techniques including discounted cash flow analyses to determine these fair values. Any excess of the purchase consideration over the fair value of acquired assets, including
identifiable intangible assets, and liabilities assumed is recorded as goodwill and a deficit is recognized as a bargain purchase gain.
Goodwill and intangible assets acquired in a business combination and that are determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more
frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has no goodwill arising from business combinations. The Company recognized a bargain purchase gain arising from
business combinations. The Company recorded the fair values based on the valuations available as of reporting date. In accordance with business combination accounting guidance, the Company continued to evaluate these fair values for one year
following the acquisition date. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible assets arising from business combinations are amortized on an
accelerated basis reflecting the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up. The estimated life of the core deposit intangible is approximately 10 years.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Among other things, these amendments provide additional transparency into an entity’s income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The standard requires that public business entities disclose, on an annual basis, specific categories in the rate reconciliation and additional information for reconciling items meeting a certain quantitative threshold. The amendments also require that entities disclose on an annual basis: 1) income taxes paid (net of refunds received) disaggregated by federal (national), state, and foreign taxes and 2) the income taxes paid (net of refunds received) disaggregated by individual jurisdictions exceeding 5% of total income taxes paid (net of refunds received). The amendments are effective for public business entities for annual periods beginning after December 15, 2024. The Company adopted this ASU retrospectively. Adoption of this ASU did not have a material impact on the Company's consolidated financial statements. For additional information, see Note 18 to the Consolidated Financial Statements in this Form 10-K.
In March 2024, the FASB issued guidance within ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The amendments in the ASU apply to companies that provide employees and non-employees with profits interest and similar awards to align compensation with a company’s operating performance and provide those holders with the opportunity to participate in future profits and/or equity appreciation of the company. The purpose of the ASU is to clarify the application of the scope guidance in Accounting Standards Codification (ASC) paragraph 718-10-15-3 in determining if a profit interest award should be accounted for in accordance with Topic 718: Compensation—Stock Compensation. The amendment in ASC paragraph 718-10-15-3 is solely intended to improve the overall clarity and does not change the guidance. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If a company adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes the interim period. The amendments should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) on a prospective basis. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements, as the Company does not typically provide these types of awards. For additional information, see Note 15 to the Consolidated Financial Statements in this Form 10-K.
In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope. This ASU clarifies that certain optional expedients and exceptions
in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope
clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU 2021-01 on contract modifications that change the interest rate used for margining, discounting,
or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to
January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020,
and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):
Deferral of the Sunset Date of Topic 848. This ASU extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to
December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. Adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
In August 2023, the FASB issued ASU 2023-05, Business Combinations—Joint Venture (JV) Formations: Recognition and Initial Measurement. The guidance requires
newly formed JVs to apply a new basis of accounting to all of its contributed net assets, which results in the JV initially measuring its contributed net assets under ASC 805-20, Business Combinations. The new guidance would be applied
prospectively and is effective for all newly formed joint venture entities with a formation date on or after January 1, 2025, with early adoption permitted. Adoption of this ASU did not have a material impact on the Company's consolidated
financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires that a
public entity that has a single reportable segment provide all the disclosures required by the amendments in this ASU and all existing disclosures in Topic 280. The Company has determined that its current business and operations consist of a
single business segment and a single reporting unit. The amendments in ASU 2023-07 are intended to improve segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company applied this ASU
retrospectively with no material impact on the Company's consolidated financial statements; however, new disclosures have been added as applicable for a single reportable operating segment. For additional information, see Note 22 to the
Consolidated Financial Statements in this Form 10-K.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Among other things, these amendments
provide additional transparency into an entity’s income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The standard requires that public business entities disclose, on an annual basis, specific
categories in the rate reconciliation and additional information for reconciling items meeting a certain quantitative threshold. The amendments also require that entities disclose on an annual basis: 1) income taxes paid (net of refunds received)
disaggregated by federal (national), state, and foreign taxes and 2) the income taxes paid (net of refunds received) disaggregated by individual jurisdictions exceeding 5% of total income taxes paid (net of refunds received). The amendments are
effective for public business entities for annual periods beginning after December 15, 2024. The Company has evaluated this ASU and does not expect the adoption to have a material impact on the Company's consolidated financial statements.
In March 2024, the FASB issued guidance within ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards.
The amendments in the ASU apply to companies that provide employees and non-employees with profits interest and similar awards to align compensation with a company’s operating performance and provide those holders with the opportunity to
participate in future profits and/or equity appreciation of the company. The purpose of the ASU is to clarify the application of the scope guidance in Accounting Standards Codification (ASC) paragraph 718-10-15-3 in determining if a profit
interest award should be accounted for in accordance with Topic 718: Compensation—Stock Compensation. The amendment in ASC paragraph 718-10-15-3 is solely intended to improve the overall clarity and does not change the guidance. The ASU is
effective for annual periods beginning after December 15, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If a company adopts the amendments in an
interim period, it should adopt them as of the beginning of the annual period that includes the interim period. The amendments should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) on a prospective basis. The Company has evaluated this ASU and does not expect the
adoption to have a material impact on the Company’s consolidated financial statements, as the Company does not typically provide these types of awards.
In November 2025, the FASB issued ASU 2025-08, Financial Instruments - Credit Losses (Topic 326): Purchased Loans. This ASU expands the population of acquired financial assets accounted for using the gross-up approach. Acquired loans (excluding credit cards) are deemed purchased seasoned loans and accounted for using the gross-up approach upon acquisition if criteria established by the new guidance are met. This change aims to enhance comparability, consistency, and better reflect the economics of acquiring financial assets. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. The Company is evaluating the accounting and disclosure requirements of this update and the impact of adopting the new guidance on the consolidated financial statements.
In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements. This ASU enables entities to apply hedge accounting to a greater number of highly effective economic hedges in the following five areas: similar risk assessment for cash flow hedges, hedging forecasted interest payments on choose-your-rate debt instruments, cash flow hedges of nonfinancial forecasted transactions, net written options as hedging instruments, foreign-currency-denominated debt instrument as hedging instrument and hedged item (dual hedge). This ASU is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted on any date on or after the issuance of ASU No. 2025-09. The Company is evaluating the accounting and disclosure requirements of this update and the impact of adopting the new guidance on the consolidated financial statements.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. This ASU does not change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements. The amendments in this ASU: clarify that the guidance in Topic 270 applies to all entities that provide interim financial statements and notes in accordance with GAAP; create a comprehensive list in FASB Accounting Standards Codification Topic 270 of interim disclosures that are required in interim financial statements and notes in accordance with GAAP; incorporate a disclosure principle, which is modeled after previous SEC guidance, that requires entities to disclose events and changes that occur after the end of the most recent fiscal year that have a material impact on the entity; and improve guidance about information included in and the format of interim financial statements. The amendments in this ASU are effective for pubic business entities for interim periods within annual periods beginning after December 15, 2027. Early adoption is permitted for all entities. The amendments can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements. The Company is evaluating the disclosure requirements of this update and the impact of adopting the new guidance on the consolidated financial statements.
In December 2025, the FASB issued ASU 2025-12, Codification Improvements. The amendments in this ASU update the FASB ASC for a broad range of Topics arising from technical corrections, unintended application of the ASC, clarifications, and other minor improvements. The amendments in this ASU, which addresses 33 issues, affect a wide variety of Topics in the ASC and apply to all reporting entities within the scope of the affected accounting guidance. The amendments in this ASU are effective for all entities for annual periods beginning after December 15, 2026, and interim periods within those annual periods. Early adoption is permitted in both interim and annual periods in which financial statements have not yet been issued or made available for issuance. The Company is evaluating the accounting and disclosure requirements of this update and the impact of adopting the new guidance on the consolidated financial statements.
The mix of investment securities held by the Company at December 31 of the previous two fiscal years iswas as follows (dollars in thousands):
The mix of loans, net of deferred origination fees and costs and allowance for credit losses and excluding loans held-for-sale, at December 31, 20242025 and December 31, 20232024 iswas as follows (dollars in
thousands):
As shown in the comparative figures for loan mix during 20242025 and 2023,2024, total loans decreasedincreased primarily as a result of decreasesan increase in agriculture,commercial residential mortgage and residential construction
loans, which was partially offset by increasesdecreases in commercial, commercial real estate and consumerresidential mortgage loans.
Non-accrual loans amounted to $6,030,000 at December 31, 2025, and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $657,000, four agriculture loans totaling $4,423,000, three residential mortgage loans totaling $174,000 and five consumer loans totaling $637,000. Non-accrual loans amounted to $11,212,000 at December 31, 2024, and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $7,993,000, two agriculture loans totaling $2,236,000, three residential mortgage loans totaling $202,000 and four consumer loans totaling $642,000.
Non-accrual loans amounted to $3,998,000 at December 31, 2023, and were comprised of two agriculture loans totaling $2,871,000, three residential mortgage loan totaling $424,000 and four consumer loans totaling $703,000.
As the following table illustrates, total non-performing assets, which consists of loans on non-accrual status, loans past due 90-days and still accruing and Other Real Estate Owned ("OREO") net of
guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored agencies, increaseddecreased $2,739,000,$4,750,000, or 32.9%,42.9%, to $11,073,000$6,323,000 from December 31, 20232024 to December 31, 2024.2025. Non-performing assets net of
guarantees represented 0.6%0.3% and 0.5%0.6% of total assets at December 31, 20242025 and 2023,2024, respectively. The Bank’s management believes that the $11,212,000$6,030,000 in non-accrual loans were appropriately reflected at theirthe lower of the carrying value of the loan or the fair value of the underlying collateral at December 31, 2024.
2025. However, no assurance can be given that the existing or any additional collateral will be sufficient to secure full recovery of the obligations owed under these loans.
The Company had no loans that were 90 days or more past due and still accruing at December 31, 2025.
The Company had no loans that were 90 days or more past due and still accruing at December 31, 2024. The Company had two loans totaling $4,336,000 that were 90 days or more past due and still
accruing at December 31, 2023. The two loans totaling $4,336,000 that were 90 days or more past due and still accruing at December 31, 2023 were comprised of one residential construction loan totaling $3,420,000 and one residential mortgage loan
totaling $916,000 that were both well secured and in process of collection.
OREO consists of property that the Company has acquired by deed in lieu of foreclosure or through foreclosure proceedings, and property that the Company does not hold title to but is in actual
control of, known as in-substance foreclosure. OREO can also consist of Company owned properties that the Company has determined are no longer intended for use or future development. The estimated fair value of the property is determined prior to transferring the balance to OREO. The balance transferred to OREO is the estimated fair value of the property less estimated cost to
sell. Impairment may be deemed necessary to bring the book value of the loan equal to the appraised value. Appraisals or loan officer evaluations are then conducted periodically thereafter charging any additional impairment to the appropriate
expense account. The Company had OREO totaling $1,241,000 as of the year ended December 31, 2025. OREO as of December 31, 2025 represented land, transferred from premises and equipment, that the Company determined is no longer intended for future development and is actively marketing it for sale. The Company had no OREO as of the years ended December 31, 2024 and 2023.2024.
The Company manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination
of outstanding loans and delinquencies, with particular attention to portfolio dynamics and loan mix. The Company strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on
realistic assessments of collectability and current collateral values and to maintain an adequate allowance for credit losses at all times. Asset quality reviews of loans and other non-performing assets are administered using credit risk rating
standards and criteria similar to those employed by state and federal banking regulatory agencies. The federal banking regulatory agencies utilize the following definitions for assets adversely classified for supervisory purposes: “Substandard
Assets: a substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the
liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.” “Doubtful Assets: An asset classified doubtful has all the weaknesses inherent in one
classified substandardSubstandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable." OREO and loans rated
Substandard and Doubtful are deemed “classified assets.” This category, which includes both performing and non-performing assets, receives an elevated level of attention regarding collection.
Excluding the non-performing loans, net of guarantees cited previously, loans totaling $11,782,000$18,259,000 and $12,327,000$11,782,000 were classified as substandard or doubtful loans, representing potential problem
loans at December 31, 20242025 and 2023,2024, respectively. In Management’s opinion, the potential loss related to these problem loans was sufficiently covered by the Bank’s existing loan loss reserve (Allowance for Credit Losses) at December 31, 2024
2025 and 2023.2024. The ratio of the allowance for credit losses to total loans at December 31, 20242025 and 20232024 was 1.49%1.36% and 1.55%,1.49%, respectively. The decrease in the ratio of the allowance for credit losses to total loans was primarily due to positive trends in gross domestic product and single-family home prices, coupled with an overall decrease in forecasted loss rates and improvements in qualitative risk factors. Management considered the allowance for credit losses of $15,885,000$14,519,000 to be adequate as a reserve against
expected losses as of December 31, 2024.2025.
Approximately 40% and 37% of our deposits were uninsured asfor each of the years ended December 31, 20242025 and 2023, respectively.2024.
The Company and the Bank maintain an unfunded non-contributory defined benefit pension plan (“Salary Continuation Plan”) and related split dollar plan for a select group of highly compensated
employees. Eligibility to participate in the Salary Continuation Plan is limited to a select group of management or highly compensated employees of the Bank that are designated by the Board. Additionally, the Company and the Bank adopted a
supplemental executive retirement plan (“SERP”) in 2006. The SERP is intended to integrate the various forms of retirement payments offered to executives. At December 31, 2025, the benefit obligation was $4,405,000, of which $4,716,000 was recorded in interest payable and other liabilities and $(311,000) was recorded in accumulated other comprehensive loss, net, in the Consolidated Balance Sheets. At December 31, 2024, the benefit obligation was $4,500,000, of which $4,793,000 was
recorded in interest payable and other liabilities and $(293,000) was recorded in accumulated other comprehensive loss, net, in the Consolidated Balance Sheets. At December 31, 2023, the benefit obligation was $4,979,000, of which $4,879,000 was
recorded in interest payable and other liabilities and $100,000 was recorded in accumulated other comprehensive loss, net, in the Consolidated Balance Sheets.
Net income for the year ended December 31, 2024,2025, was $20.0$21.1 million, representing aan decreaseincrease of $1.6$1.1 million, or 7.1%,5.5%, compared to net income of $21.6$20.0 million for the year ended
December 31, 2023.2024. The decreaseincrease in net income was primarily attributable to aan decreaseincrease in net interest income of $2.2$3.1 million and a decrease in non-interestprovision for income tax of $1.8$1.5 million, which was partially offset by aan decrease in provision for credit losses
of $1.4 million and a decreaseincrease in non-interest expenses of $0.8$3.4 million. The decreaseincrease in non-interestnet interest income was primarily due to theincreases bargainin purchaseyield gainon ofloans $1.4and millioninvestment assecurities and a result of the branch acquisitionsdecrease in 2023volume and rate paid on time certificates, which was notpartially repeated
offset by decreases in 2024.volume and yield on due from banks and increases in rates paid on interest-bearing transaction deposits and savings and MMDAs. The increase in non-interest expenses was primarily due to an increase in salaries and employee benefits, occupancy and equipment and data processing expenses. The decrease in provision for creditincome lossestax was due to decreasesthe execution of a tax planning strategy that involved purchasing investment tax credits under the Inflation Reduction Act of 2022 tied to alternative energy projects. The investment tax credits were acquired at a discount and recognized as a reduction to income tax expense in unfunded commitments.2025.
Total assets were $1.91 billion as of December 31, 2025, representing an increase of $19.2 million, or 1.0%, compared to total assets of $1.89 billion as of December 31, 2024, representing an increase of $19.9 million, or 1.1%, compared to total assets of $1.87 billion as of December 31, 2023.2024. For the year ended
December 31, 20242025 compared to the year ended December 31, 2023,2024, there was a $61.5$26.1 million increase in investmentcash, securities,$3.6 million increase in net loans, $9.9 million increase in interest receivable and other assets, which was partially offset by a $29.8$16.6 million decrease in cash,investment $3.6securities and a $5.9 million decrease in certificates of deposit, $5.6
million decrease in net loans (including loans held-for-sale), $0.7 million decrease in premises and equipment, $0.8 million decrease in core deposit intangible and $1.1 million decrease in interest receivable and other assets.deposit. Total deposits
increased $7.6decreased $20.9 million, or 0.5%,1.2%, to $1.70$1.68 billion as of December 31, 2024,2025, compared to $1.69$1.70 billion at December 31, 2023.2024.
Net interest income is the excess of interest and fees earned on the Bank’s loans, investment securities, federal funds sold and banker’s acceptances over the interest expense paid on
deposits and other borrowed funds which are used to fund those assets. Net interest income is primarily affected by the yields and mix of the Bank’s interest-earning assets and interest-bearing liabilities outstanding during the period. The
$4,529,000 $3,655,000 increase in the Bank's interest and dividend income in 20242025 from 20232024 was primarily driven by an increase in interest rates on loans and aninvestment increase in average balance of loans,securities, which was partially offset by a decrease in the average balancesbalance of
and interest rate on due from banks and certificates of deposit.banks. The $3,186,000$2,610,000 increase in the Bank’sBank's interest income on loans was primarily driven by an increase of $1,101,000$2,444,000 attributable to an increase in interest rates compounded by an increase of
$2,085,000 driven by an increase in average loans outstanding.rates. The $2,117,000$2,204,000 decrease in the Bank’s interest income on due from banks was primarily driven by a decrease of $2,472,000$1,000,000 due to the decreased average due from bank balances
outstanding, whichoutstanding wasand partiallya offset by an increasedecrease of $355,000$1,204,000 attributable to ana increasedecrease in average interest rates paid on excess reserves at the FRB. The $33,000$132,000 decrease in the Bank's interest income on certificates of deposit was driven
by a decrease of $124,000$147,000 due to the decrease in average certificates of deposit outstanding, which was partially offset by an increase of $91,000$15,000 due to the increase in average interest rates paid on certificates of deposit. The $3,247,000
$3,414,000 increase in the Bank’s interest income on investment securities was driven by an increase of $3,262,000$2,773,000 due to an increase in interest rates,rates whichand wasan partially offset by a decreaseincrease of $15,000$641,000 driven by decreasedincreased investment securities balances
outstanding. The $6,708,000$543,000 increase in the Bank's interest expense on deposits was primarily driven by an increase of $4,978,000$568,000 due to increases in interest ratesrates, coupledwhich withwas anpartially increaseoffset by a decrease of $1,730,000$25,000 due to an
increasea decrease in average time certificates balances outstanding. See “Analysis of Changes in Interest Income and Interest Expense” set forth on page 40 ofin this Annual Report on Form 10-K for the effects of interest rates and loan/deposit
volume on net interest income.
The FRB influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is significantly affected by changes in the
prime interest rate. As of December 31, 2023,2024, the prime rate was 8.50%.7.50%. The prime rate decreased several times beginning in September 2025, decreasing to 6.75% as of December 31, 2025.
The prime rate decreased several times beginning in September 2024, decreasing to 7.50% as of December 31, 2024.
As of December 31, 2023,2024, the target range for the federal funds rate was 5.25%4.25% to 5.50%.4.50%. ToDuring support economic growth,2025 the FRB cut interest rates in each of September, NovemberOctober and December. As of December
31, 2024,2025, the target rate for the federal funds rate was 4.25%3.50% to 4.50%.3.75%. For additional information, see “The Bank is Subject to Interest Rate Risk” and “Beginning in 2021, the U.S. Economy Began to Reflect Relatively Rapid Rates of Increase in
the Consumer Price Index and Other Economic Indices; a Prolonged Elevated Rate of Inflation Could Present Risks for the U.S. Banking Industry and Our Business”, in “Risk Factors” (Item 1A) of this Annual Report on Form 10-K.
Interest income on interest-bearing due from banks for 20242025 was down 24.6%34.0% from 2023,2024, decreasing from $8,594,000$6,477,000 to $6,477,000.$4,273,000. The decrease in interest income on interest-bearing due from banks
was the result of a 27.7%17.0% decrease in average balances of interest-bearing due from banks,banks whichcoupled was partially offset bywith a 22109 basis point increasedecrease in yield on interest-bearing due from banks.
Interest income on certificates of deposit for 20242025 was down 4.4%18.2% from 2023,2024, decreasing from $757,000$724,000 to $724,000.$592,000. The decrease in interest income on certificates of deposit was primarily due to a
15.3% 19.9% decrease in average balances of certificates of deposit, which was partially offset by aan 469 basis point increase in yield on certificates of deposit.
Interest income on investment securities for 20242025 was up 27.6%22.7% from 2023,2024, increasing from $11,764,000$15,011,000 to $15,011,000.$18,425,000. The increase in interest income on investment securities was the result of a 56
3.9% increase in average investment securities volume coupled with a 46 basis point increase in investment securities yields, which was partially offset by a 0.6% decrease in average investment securities volume.yields. The Bank deployed excess liquidity into the investment portfolio over the course of 20242025 at higher reinvestment rates. Investment securities yields were 2.54%3.00% and 1.98%2.54% for 20242025 and 2023,2024, respectively.
Interest expense on depositsinterest-bearing liabilities for 20242025 was up 88.5%3.8% from 2023,2024, increasing from $7,584,000$14,292,000 to $14,292,000.$14,835,000. The increase in interest expense on depositsinterest-bearing liabilities was the result of a 702.4% increase in interest-bearing liabilities coupled with a 2 basis point increase in
interest rates paid on interest-bearing deposits, which was partially offset by a 1.1% decrease in average balances of interest-bearing deposits.liabilities.
The Bank’s net interest margin (net interest income divided by average earning assets) was 3.77% in 2025 and 3.60% in 2024 and 3.70% in 2023.2024. The net interest spread (average yield earned on interest-earning assets
less the average rate paid on interest-bearing liabilities) was 2.92%3.16% in 20232025 and 3.34%2.98% in 2023.2024. The 4218 basis point decreaseincrease in net spread in 20242025 over 20232024 was due to an overall increase in interest rates on interest-bearingearning deposits,assets, which was
partially offset by an overall increase in interest rates on earning assets.deposits.
The provision for credit losses is established by charges to earnings on management’s evaluation of expected losses on the loan portfolio. Based on this evaluation, the Company recorded no provision for credit losses in 2025 and a reversal
of provision for credit losses of $250,000 in 20242024. and aNo provision for credit losses ofwas $1,100,000recorded in 2023.2025 primarily due to positive trends in gross domestic product and single-family home prices, coupled with an overall decrease in loss rates and improvements in risk factors. The reversal of provision for credit losses in 2024 was primarily due to a decrease in loans outstanding and a decrease in unfunded
commitments. The provision for credit losses in 2023 was primarily due to loan growth. The ratio of the Allowance for Credit Losses to total loans at December 31, 20242025 was 1.49%1.36% compared to 1.55%1.49% at December 31, 2023.2024. The ratio of the
Allowance for Credit Losses to total non-accrual loans and loans past due 90 days or more, net of guarantees was 285.7% at December 31, 2025, compared to 143.5% at December 31, 2024, compared to 199.1% at December 31, 2023.2024.
Non-interest income consisted primarily of service charges on deposit accounts, net realized losses on sale of available-for-sale securities, net realized gains on sales of loans held-for-sale, debit card
income, gain on bargain purchaseincome and other income. Non-interest income decreasedincreased to $6,097,000 in 2025 from $6,019,000 in 2024 from $7,845,000 in 2023,2024, representing aan decreaseincrease of $1,826,000,$78,000, or 23.3%. The decrease was primarily driven by a bargain purchase gain in 2023
which was not repeated in 2024. The Company recognized a bargain purchase gain totaling $1.4 million as a result of the acquisition of the Colusa, Willows, and Orland branches in 2023.1.3%.
Non-interest expenses consisted primarily of salaries and employee benefits, occupancy and equipment expense, data processing expense, amortization of core deposit intangible and other expenses.
Non-interest expenses decreasedincreased to $46,164,000 in 2025 from $42,789,000 in 2024 from $43,638,000 in 2023,2024, representing aan decreaseincrease of $849,000,$3,375,000, or 2.0%.7.9%.
The increase in salaries and employee benefits in 2025 was primarily due to a 4.1% increase in regular salaries, 47.4% increase in contingent compensation, and 42.1% increase in group insurance, partially offset by a 24.5% decrease in commissions. The increase in regular salaries, contingent compensation, and group insurance was primarily due to an increase in full-time equivalent employees and increased costs of insurance provided to employees. The decrease in commissions was primarily due to a decrease in mortgage loan production volumes and deposit growth. The increase in occupancy and equipment was primarily due to an increase in service contracts related to upgrades to certain facilities coupled with the overall maintenance of facilities. The increase in data processing was primarily due to an increase in costs of service contracts. The increase in other expenses was primarily due to a 257.2% increase in legal fees, 84.5% increase in amortization expense on housing tax credits, 19.3% increase in contributions, and 16.3% increase in accounting and audit fees. The increase in legal fees is primarily due to general corporate matters and legal services rendered relating to the creation of the Company's new stock incentive plan and new employee stock purchase plan.
The decrease in salaries and employee benefits in 2024 was primarily due to a 18.9% decrease in commissions, 55.8% decrease in contingent compensation and 42.3% decrease in profit sharing plan
contributions, partially offset by a 67.5% increase in group insurance. The decrease in commissions is primarily due to a decrease in mortgage loan production volumes and deposit growth. The decrease in contingent compensation is primarily due
to a decrease in incentive goals met. The decrease in profit sharing plan contributions is primarily due to a change in the calculation of profit sharing plan contributions. The increase in group insurance is primarily due to increased costs of
insurance provided to employees. The increase in occupancy and equipment and data processing expense was primarily due to a full year of expenses related to the branches acquired in the first quarter of 2023. The increase in other expenses was
primarily due to a 95.4% increase in contributions, a 30.5% increase in consulting fees and a 200.2% increase in loan collection expense, which was partially offset by a 51.5% decrease in legal fees.
The provision for income taxes is primarily affected by the tax rate, the level of earnings before taxes and the level of tax-exempt income. In 2024,2025, tax expense decreased to $7,806,000$6,277,000 from
$8,092,000 $7,806,000 in 2023,2024, due to the execution of a decreasetax planning strategy that involved purchasing investment tax credits under the Inflation Reduction Act of 2022 tied to alternative energy projects. The investment tax credits were acquired at a discount and recognized as a reduction to income tax expense in income before taxes.2025. Non-taxable municipal bond income was $1,216,000$1,642,000 and $914,000$1,216,000 for the years ended December 31, 20242025 and 2023,2024, respectively.
The liquidity position of the Bank is managed daily, thus enabling the Bank to adapt its position according to market fluctuations. Liquidity is measured by various ratios, the most common of which
is the ratio of net loans (including loans held-for-sale) to deposits. This ratio was 62.6% on December 31, 2025, and 61.6% on December 31, 2024, and 62.2% on December 31, 2023.2024. The Bank’s ratio of core deposits to total assets was 85.0% and 87.0% for each of the years ended December
31, 20242025 and December 31, 2023.2024, respectively. Core deposits include demand deposits, interest-bearing transaction deposits, savings and money market deposit accounts, and non-brokered time deposits of $250,000 or less. Core deposits are important in
maintaining a strong liquidity position as they represent a stable and relatively low-cost source of funds. Management believes that the Bank’s liquidity position was adequate in 2024.2025. This is best illustrated by the change in the Bank’s net
non-core ratio, which explains the degree of reliance on non-core liabilities to fund long-term assets. At December 31, 2024,2025, the Bank’s net core funding dependence ratio, the difference between non-core funds, time deposits $250,000 or more and
brokered time deposits under $250,000, and short-term investments to long-term assets, was (5.177.38)% as of December 31, 2024,2025, and (8.45%5.17%) as of December 31, 2023.2024. This ratio indicated that, at December 31, 2024,2025, the Bank did not significantly rely
upon non-core deposits and borrowings to fund the Bank’s long-term assets, namely loans and investments. The Bank believes that by maintaining adequate volumes of short-term investments and implementing competitive pricing strategies on
deposits, it can ensure adequate liquidity to support future growth. The Bank also believes that its liquidity position remains strong to meet both present and future financial obligations and commitments, events or uncertainties that have
resulted or are reasonably likely to result in material changes with respect to the Bank’s liquidity.
At December 31, 2024,2025, stockholders’ equity totaled $176.3$212.0 million, an increase of $17.1$35.7 million from $159.2$176.3 million at December 31, 2023.2024. The increase in 20242025 was primarily due to net income of
$20.0 $21.0 million and a decrease in accumulated other comprehensive loss, net of $18.4 million. Also affecting capital in 20242025 were stock repurchases totaling $3.8$4.7 million and paid-in capital in the amount of $0.9 million resulting from employee stock purchases and stock plan accruals.
On March 27, 2024, the Company approved a stock repurchase program effective May 1, 2024. The stock repurchase program, which remains in effect until April 30, 2026 unless terminated sooner, allows
for repurchases by the Company in an aggregate amount of no more than 6% of the Company’s 15,550,73117,144,680 outstanding shares of common stock as of March 31,21, 2024. This represented total shares of 979,6951,028,679 eligible for repurchase at May 1, 2024. The
total number of shares outstanding and shares eligible for repurchase has been adjusted to give retroactive effect to stock dividends and stock splits, including the 5% stock dividend declared on January 23,22, 2025,2026, payable on March 25, 20252026 to shareholders of record as
of February 28,27, 2025.2026. The Company repurchased 389,071452,589 shares (adjusted for stock dividends) of the Company's outstanding common stock during the year ended December 31, 2024,2025, and 590,624147,142 shares remained available for repurchase under the stock repurchase program at December
31, 2024.2025. The purpose of the stock repurchase program was to give management the ability to manage capital and create liquidity for shareholders who want to sell their stock. Management believed that the stock repurchase program was a prudent
use of excess capital.
What changed in the latest 10-Q
Risk Factors
New heading “The Company’s common stock was recently listed on The Nasdaq Capital Market, and our trading volume, liquidity and stock price may be volatile.”
Largest changes
“The liquidity of our common stock has been mixed, and there is no assurance that liquidity will continue. There may be periods when trading activity in our shares is minimal, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. …”see in full comparison
“The Company’s common stock was recently listed on The Nasdaq Capital Market, and our trading volume, liquidity and stock price may be volatile.”see in full comparison
“Our common stock is currently included in the Russell 3000 Index. FTSE Russell periodically reviews and reconstitutes its indexes, and continued inclusion in the index is not assured. If our common stock is removed from the Russell 3000 Index or any related index, investment funds and other investors that seek to track or maintain exposure to those indexes may be required or may choose to sell shares of our common stock. Any such sales could result in increased trading volume and downward pressure on the market price of our common stock. …”see in full comparison
“On April 24, 2026, the Company uplisted from the OTCQX to The Nasdaq Capital Market. The trading volume of our common stock is less than that of nationwide or larger regional financial institutions. The quotation of our common stock on Nasdaq does not assure that a meaningful, consistent and liquid public trading market currently exists. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence of willing buyers and sellers of stock at any given time. …”see in full comparison
“The market price of our common stock is likely to be volatile and could fluctuate in price in response to various factors, including market perception of our ability to achieve our strategic plan, quarterly operating results of other companies in the same industry, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors, the banking industry generally or in our market areas, or the Company itself. …”see in full comparison
We are subject to various risks and uncertainties, which could materially affect our business, results of operations, financial condition, future results, and the trading price of our common stock.see in full comparisonThereForhaveabeendiscussionno material changes in theof risk factorspreviouslyrelatingdisclosedtoinour business, please refer to Part I, Item 1A, “Risk Factors” in our 2025 Form10-K.10-K, which is incorporated herein by reference, and to the following risk factor. These risk factors, as well as our condensed consolidated financial statements and notes thereto and the other information appearing in this Report, should be reviewed carefully for important information regarding risks that affect us.
Full comparison: every changed paragraph (6)
We are subject to various risks and uncertainties, which could materially affect our business, results of operations, financial condition, future results, and the trading price of our common stock. ThereFor havea beendiscussion no material changes in theof risk factors previouslyrelating disclosedto inour business, please refer to Part I, Item 1A, “Risk Factors” in our 2025 Form 10-K.10-K, which is incorporated herein by reference, and to the following risk factor. These risk factors, as well as our condensed consolidated financial statements and notes thereto and the other information appearing in this Report, should be reviewed carefully for important information regarding risks that affect us.
The Company’s common stock was recently listed on The Nasdaq Capital Market, and our trading volume, liquidity and stock price may be volatile.
On April 24, 2026, the Company uplisted from the OTCQX to The Nasdaq Capital Market. The trading volume of our common stock is less than that of nationwide or larger regional financial institutions. The quotation of our common stock on Nasdaq does not assure that a meaningful, consistent and liquid public trading market currently exists. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence of willing buyers and sellers of stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.
The liquidity of our common stock has been mixed, and there is no assurance that liquidity will continue. There may be periods when trading activity in our shares is minimal, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. In addition, we must continue to meet the Nasdaq listing requirements in order to maintain the listing of our common stock on The Nasdaq Capital Market. If we do not meet these requirements, the market liquidity for our common stock could be severely adversely affected, and this could impair the ability of our shareholders to sell their shares of common stock at the time they wish to sell or at a price that they consider favorable. In the event that we are unable to maintain compliance with Nasdaq’s continued listing standards and our common stock is delisted from Nasdaq, we would take actions to restore our compliance with the continued listing standards; however, we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, or prevent future non-compliance with Nasdaq’s continued listing requirements.
Our common stock is currently included in the Russell 3000 Index. FTSE Russell periodically reviews and reconstitutes its indexes, and continued inclusion in the index is not assured. If our common stock is removed from the Russell 3000 Index or any related index, investment funds and other investors that seek to track or maintain exposure to those indexes may be required or may choose to sell shares of our common stock. Any such sales could result in increased trading volume and downward pressure on the market price of our common stock. Removal could also reduce our visibility among institutional investors and research analysts, decrease demand for our common stock and adversely affect its liquidity and market price.
The market price of our common stock is likely to be volatile and could fluctuate in price in response to various factors, including market perception of our ability to achieve our strategic plan, quarterly operating results of other companies in the same industry, changes in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors, the banking industry generally or in our market areas, or the Company itself. Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. Significant trades of our stock in a given time period, or the expectations of these trades, could adversely affect prevailing market prices of our common stock, our stock price may decline substantially in a short time, and our shareholders could suffer losses or be unable to liquidate their holdings. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices. The market price of our common stock, and the trading volume in our common stock, may fluctuate and significant price variations may occur.
Management's Discussion & Analysis (MD&A)
New heading “Distribution of Average Statements of Condition and Analysis of Net Interest Income”
Largest changes
“Distribution of Average Statements of Condition and Analysis of Net Interest Income”see in full comparison
see in full comparisonTotal non-interestNon-interest expenseswerewasdownup4.8%2.2% for thethreesix months endedMarchJune31,30, 2026 from the same period in 2025,decreasingincreasing from$11,590,000$22,483,000 to$11,032,000.$22,986,000. Thedecreaseincrease was primarily due to increases in salaries and employee benefits, data processing, and amortization of intangible assets, which was partially offset by decreases in occupancy and equipment expense and otherexpenses,expenses.whichThewas partially offset by increasesincrease in salaries and employee benefitsandwas primarily due to an increase in full-time equivalent employees. The increase in data processing was primarily due to an increase in costs of service contracts. The increase in amortization of intangibleassets.assets was due to the acquisition of a customer-related intangible asset during the fourth quarter of 2025. The decrease in occupancy and equipment expense was primarily due to the prior year upgrades to facilities which were not repeated in the current year. The decrease in other expenses was primarily due to decreases inconsulting feeslegal andloanconsultingcollection expense. The increase in salaries and employee benefits was primarily due to an increase in full-time equivalent employees. The increase in amortization of intangible assets was due to the acquisition of a customer-related intangible asset during the fourth quarter of 2025.fees.
The Company’s tax rate, the Company’s income before taxes and the amount of tax relief provided by non-taxable earnings affect the Company’s provision for income taxes. Provision for income taxessee in full comparisonincreaseddecreased32.8%6.5% for thethreesix months endedMarchJune31,30, 2026 from the same period in 2025,increasingdecreasing from$1,285,000$3,416,000 to$1,706,000.$3,193,000, and decreased 30.2% for the three months ended June 30, 2026 from the same period in 2025, decreasing from $2,131,000 to $1,487,000. The effective tax rate was22.4%23.1% and25.9%27.2% for the six months ended June 30, 2026 and June 30, 2025, respectively. The effective tax rate was 23.9% and 28.1% for the three months endedMarchJune31,30, 2026 andMarchJune31,30, 2025, respectively.The increase in provision for income taxes for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to an increase in pre-tax income.The decrease in the effective tax rate was primarily due to low income housing tax credits recognized during the six months ended June 30, 2026, coupled with the execution of a tax planning strategy that involved purchasing investment tax credits tied to alternative energy projects. The investment tax credits were acquired at a discount and the majority was recognized as a reduction to income tax expense in the third quarter of 2025, with the remaining credits recognized in the first quarter of 2026.
Interest income on other earning assets for thesee in full comparisonthreesix months endedMarchJune31,30, 2026 was up104.0%34.9% from the same period in 2025, increasing from$272,000$522,000 to$555,000.$704,000, and was down 40.4% for the three months ended June 30, 2026 over the same period in 2025, decreasing from $250,000 to $149,000. This income is primarily derived from dividends received from the Federal Home LoanBank.Bank (FHLB). The increase in interest income on other earning assets for thethreesix months endedMarchJune31,30, 2026 as compared to the same period a year ago was primarily due to a special cash dividend issued by theFederal Home Loan BankFHLB during the first quarter of 2026. The decrease in interest income on other earning assets for the three months endedMarchJune31,30, 2026 as compared to the same period a year ago was primarily due to a special cash dividend issued by the FHLB in the second quarter of 2026 compared to the quarterly cash dividend received in the second quarter of 2025. Other than the special cash dividend, no quarterly cash dividend was issued by the FHLB in the second quarter of 2026.
“Non-interest expenses was up 9.7% for the three months ended June 30, 2026 over the same period in 2025, increasing from $10,893,000 to $11,954,000. The increase was primarily due to increases in salaries and employee benefits, data processing, and other expenses, which was partially offset by a decrease in occupancy and equipment. The increase in salaries and employee benefits was primarily due to an increase in full-time equivalent employees. The increase in data processing was primarily due to an increase in costs of service contracts. …”see in full comparison
Interest income on certificates of deposit for thesee in full comparisonthreesix months endedMarchJune31,30, 2026 was down34.2%32.7% from the same period in 2025, decreasing from$161,000$318,000 to$106,000.$214,000, and was down 31.9% for the three months ended June 30, 2026 over the same period in 2025, decreasing from $157,000 to $107,000. The decrease in interest income on certificates of deposit for the six months ended June 30, 2026 as compared to the same period a year ago was primarily due to an 8 basis point decrease in yield on certificates of deposit coupled with a decrease in average balances of certificates of deposit. The decrease in interest income on certificates of deposit for the three months endedMarchJune31,30, 2026 as compared to the same period a year ago was primarily due to adecrease in average balances of certificates of deposit coupled with a 416 basis point decrease in yield on certificates of deposit coupled with a decrease in average balances of certificates of deposit.
Full comparison: every changed paragraph (40)
Significant results and developments during the firstsecond quarter and year-to-date 2026 included:
The Company recorded net income of $5,906,000$10,634,000 for the threesix months ended MarchJune 31,30, 2026, representing an increase of $2,235,000,$1,497,000, or 60.9%,16.4%, from net income of $3,671,000$9,137,000 for the same period in 2025. The Company recorded net income of $4,728,000 for the three months ended June 30, 2026, representing a decrease of $738,000, or 13.5%, from net income of $5,466,000 for the same period in 2025.
The following tables present a summary of the results for the three and six months ended MarchJune 31,30, 2026 and 2025, and a summary of financial condition at MarchJune 31,30, 2026 and December 31, 2025.
Distribution of Average Statements of Condition and Analysis of Net Interest Income
Following is an analysis of changes in interest income and expense (dollars in thousands) for the three months ended MarchJune 31,30, 2026 over the three months ended June 30, 2025, the six months ended June 30, 2026 over the six months ended June 30, 2025, and the three months ended June 30, 2026 over the three months ended March 31, 2025 and the three months ended March 31, 2026 over the three months ended December 31, 2025.2026. Changes not solely due to interest rate or volume have been allocated proportionately to interest rate and volume.
The assets of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect a $5,970,000,$32,119,000, or 4.1%,22.1%, decrease in cash and cash equivalents, a $6,039,000,$1,688,000, or 1.0%,0.3%, increase in investment securities available-for-sale, and a $14,149,000,$41,625,000, or 1.3%,4.0%, increase in net loans held-for-investmentheld-for-investment, and a $3,107,000, or 5.0%, increase in interest receivable and other assets from December 31, 2025 to MarchJune 31,30, 2026. The decrease in cash and cash equivalents was primarily due to an increase in investment securities due to purchases of investment securities and an increase in loans due to net loan originations, which was partially offset by an increase in deposit balances. The increase in investment securities was due to purchases of available-for-sale securities, which was partially offset by paydowns and maturities of available-for-sale securities. The increase in net loans held-for-investment was primarily due to net originations of commercial loans, which was partially offset by net payoffs of commercial real estate, agriculture, residential mortgage and consumer loans. The increase in interest receivable and other assets was primarily due to the increase in deferred tax assets due to the increase in unrealized losses on investment securities.
The liabilities of the Company set forth in the Unaudited Condensed Consolidated Balance Sheets reflect an increase in total deposits of $15,555,000,$12,744,000, or 0.9%,0.8%, from December 31, 2025 to MarchJune 31,30, 2026. The overall increase in total deposits was primarily due to seasonal fluctuations due to changes in market conditions and monetary policy.
The Federal Open Market Committee kept the Federal Reserve's benchmark rate range at 3.50% to 3.75% during the threesix months ended MarchJune 31,30, 2026.
Interest income on loans for the threesix months ended MarchJune 31,30, 2026 was up 5.3%2.3% from the same period in 2025, increasing from $13,602,000$28,231,000 to $14,322,000.$28,871,000, and was down 0.5% for the three months ended June 30, 2026 over the same period in 2025, decreasing from $14,629,000 to $14,549,000. The increase in interest income on loans for the threesix months ended MarchJune 31,30, 2026 as compared to the same period a year ago was primarily due to a 274 basis point increase in yield on loans coupled with an increase in average balances of loans. The decrease in interest income on loans for the three months ended June 30, 2026 compared to the same period a year ago was primarily due to a 17 basis point decrease in yield on loans, which was partially offset by an increase in average balance of loans.
Interest income on certificates of deposit for the threesix months ended MarchJune 31,30, 2026 was down 34.2%32.7% from the same period in 2025, decreasing from $161,000$318,000 to $106,000.$214,000, and was down 31.9% for the three months ended June 30, 2026 over the same period in 2025, decreasing from $157,000 to $107,000. The decrease in interest income on certificates of deposit for the six months ended June 30, 2026 as compared to the same period a year ago was primarily due to an 8 basis point decrease in yield on certificates of deposit coupled with a decrease in average balances of certificates of deposit. The decrease in interest income on certificates of deposit for the three months ended MarchJune 31,30, 2026 as compared to the same period a year ago was primarily due to a decrease in average balances of certificates of deposit coupled with a 416 basis point decrease in yield on certificates of deposit coupled with a decrease in average balances of certificates of deposit.
Interest income on interest-bearing due from banks for the threesix months ended MarchJune 31,30, 2026 was up 51.0%22.7% from the same period in 2025, increasing from $727,000$1,737,000 to $1,098,000.$2,131,000, and was up 2.4% for the three months ended June 30, 2026 over the same period in 2025, increasing from $1,010,000 to $1,034,000. The increase in interest income on interest-bearing due from banks for the threesix months ended MarchJune 31,30, 2026 as compared to the same period a year ago was primarily due to an increase in average balances of interest-bearing due from banks, which was partially offset by a 6270 basis point decrease in yield on interest-bearing due from banks. The increase in interest income on interest-bearing due from banks for the three months ended June 30, 2026 as compared to the same period a year ago was primarily due to an increase in average balances of interest-bearing due from banks, which was partially offset by a 67 basis point decrease in yield on interest-bearing due from banks.
Interest income on investment securities available-for-sale for the threesix months ended MarchJune 31,30, 2026 was up 3.0%6.3% from the same period in 2025, increasing from $4,741,000$9,269,000 to $4,881,000.$9,848,000, and was up 9.7% for the three months ended June 30, 2026 over the same period in 2025, increasing from $4,528,000 to $4,967,000. The increase in interest income on investment securities for the threesix months ended MarchJune 31,30, 2026 as compared to the same period a year ago was primarily due to a 1316 basis point increase in investment yields,yields whichcoupled waswith partiallyan offset by a decreaseincrease in average investment securities. The increase in interest income on investment securities for the three months ended June 30, 2026 as compared to the same period a year ago was primarily due to a 21 basis point increase in investment yields coupled with an increase in average investment securities.
Interest income on other earning assets for the threesix months ended MarchJune 31,30, 2026 was up 104.0%34.9% from the same period in 2025, increasing from $272,000$522,000 to $555,000.$704,000, and was down 40.4% for the three months ended June 30, 2026 over the same period in 2025, decreasing from $250,000 to $149,000. This income is primarily derived from dividends received from the Federal Home Loan Bank.Bank (FHLB). The increase in interest income on other earning assets for the threesix months ended MarchJune 31,30, 2026 as compared to the same period a year ago was primarily due to a special cash dividend issued by the Federal Home Loan BankFHLB during the first quarter of 2026. The decrease in interest income on other earning assets for the three months ended MarchJune 31,30, 2026 as compared to the same period a year ago was primarily due to a special cash dividend issued by the FHLB in the second quarter of 2026 compared to the quarterly cash dividend received in the second quarter of 2025. Other than the special cash dividend, no quarterly cash dividend was issued by the FHLB in the second quarter of 2026.
The Company had no Federal Funds sold balances during the three and six months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025.
Interest expense on interest-bearing liabilities for the threesix months ended MarchJune 31,30, 2026 was up 5.6%5.3% from the same period in 2025, increasing from $3,560,000$7,181,000 to $3,758,000.$7,558,000, and was up 4.9% for the three months ended June 30, 2026 over the same period in 2025, increasing from $3,621,000 to $3,800,000. The increase in interest expense for the threesix months ended MarchJune 31,30, 2026 as compared to the same period a year ago was primarily due to an increase in average balance of interest-bearing liabilities coupled with a 32 basis point increase in average interest-bearing deposit yield. The increase in interest expense for the three months ended June 30, 2026 as compared to the same period a year ago was primarily due to an increase in average balance of interest-bearing liabilities coupled with a 1 basis point increase in average interest-bearing deposit yield.
Provision for credit losses for the six months ended June 30, 2026 was up 5.9% from the same period in 2025, increasing from $850,000 to $900,000. Provision for credit losses for the three months ended MarchJune 31,30, 2026 was down$600,000, 64.7%compared fromto $0 for the same period in 2025,2025. decreasingThe increase in provision for credit losses from $850,000the toprior $300,000. The decreaseyear was primarily due to a decrease in nonaccrual loans requiring specific reserves, which was partially offset by an increase in reserves on pooled loans due to an increase in qualitative factors due to geopolitical risks.factors.
Non-interest income was up 19.8%17.2% for the threesix months ended MarchJune 31,30, 2026 from the same period in 2025, increasing from $1,453,000$2,990,000 to $1,740,000.$3,503,000, and was up 14.7% for the three months ended June 30, 2026 over the same period in 2025, increasing from $1,537,000 to $1,763,000. The increase was primarily driven by an increase in investment and brokerage services income due to the Beacon Wealth client acquisition in the fourth quarter of 2025.
Total non-interestNon-interest expenses werewas downup 4.8%2.2% for the threesix months ended MarchJune 31,30, 2026 from the same period in 2025, decreasingincreasing from $11,590,000$22,483,000 to $11,032,000.$22,986,000. The decreaseincrease was primarily due to increases in salaries and employee benefits, data processing, and amortization of intangible assets, which was partially offset by decreases in occupancy and equipment expense and other expenses,expenses. whichThe was partially offset by increasesincrease in salaries and employee benefits andwas primarily due to an increase in full-time equivalent employees. The increase in data processing was primarily due to an increase in costs of service contracts. The increase in amortization of intangible assets.assets was due to the acquisition of a customer-related intangible asset during the fourth quarter of 2025. The decrease in occupancy and equipment expense was primarily due to the prior year upgrades to facilities which were not repeated in the current year. The decrease in other expenses was primarily due to decreases in consulting feeslegal and loanconsulting collection expense. The increase in salaries and employee benefits was primarily due to an increase in full-time equivalent employees. The increase in amortization of intangible assets was due to the acquisition of a customer-related intangible asset during the fourth quarter of 2025.fees.
Non-interest expenses was up 9.7% for the three months ended June 30, 2026 over the same period in 2025, increasing from $10,893,000 to $11,954,000. The increase was primarily due to increases in salaries and employee benefits, data processing, and other expenses, which was partially offset by a decrease in occupancy and equipment. The increase in salaries and employee benefits was primarily due to an increase in full-time equivalent employees. The increase in data processing was primarily due to an increase in costs of service contracts. The increase in other expenses was primarily due to increases in consulting fees and loan collection expenses. The decrease in occupancy and equipment expense was primarily due to the prior year upgrades to facilities which were not repeated in the current year.
The following table sets forth other non-interest expenses by category for the three and six months ended MarchJune 31,30, 2026 and 2025.
The Company’s tax rate, the Company’s income before taxes and the amount of tax relief provided by non-taxable earnings affect the Company’s provision for income taxes. Provision for income taxes increaseddecreased 32.8%6.5% for the threesix months ended MarchJune 31,30, 2026 from the same period in 2025, increasingdecreasing from $1,285,000$3,416,000 to $1,706,000.$3,193,000, and decreased 30.2% for the three months ended June 30, 2026 from the same period in 2025, decreasing from $2,131,000 to $1,487,000. The effective tax rate was 22.4%23.1% and 25.9%27.2% for the six months ended June 30, 2026 and June 30, 2025, respectively. The effective tax rate was 23.9% and 28.1% for the three months ended MarchJune 31,30, 2026 and MarchJune 31,30, 2025, respectively. The increase in provision for income taxes for the three months ended March 31, 2026 as compared to the same period a year ago was primarily due to an increase in pre-tax income. The decrease in the effective tax rate was primarily due to low income housing tax credits recognized during the six months ended June 30, 2026, coupled with the execution of a tax planning strategy that involved purchasing investment tax credits tied to alternative energy projects. The investment tax credits were acquired at a discount and the majority was recognized as a reduction to income tax expense in the third quarter of 2025, with the remaining credits recognized in the first quarter of 2026.
The reserve for unfunded lending commitments amounted to $1,100,000$1,150,000 and $1,200,000 as of MarchJune 31,30, 2026 and December 31, 2025, respectively. The reserve for unfunded lending commitments is included in other liabilities on the Condensed Consolidated Balance Sheets. See Note 7 of the Notes to Condensed Consolidated Financial Statements of this Form 10-Q, "Commitments and Contingencies," for additional information.
The following table summarizes the Company’s non-accrual loans net of guarantees of the State of California and U.S. Government by loan category at MarchJune 31,30, 2026 and December 31, 2025:
Non-accrual loans amounted to $4,918,000$4,567,000 at MarchJune 31,30, 2026 and were comprised of onetwo commercial loanloans totaling $139,000,$289,000, two commercial real estate loans totaling $909,000,$894,000, four agriculture loans totaling $3,212,000,$2,758,000, three residential mortgage loans totaling $162,000$156,000 and four consumer loans totaling $496,000.$470,000. Non-accrual loans amounted to $6,030,000 at December 31, 2025 and were comprised of one commercial loan totaling $139,000, one commercial real estate loan totaling $657,000, four agriculture loans totaling $4,423,000, three residential mortgage loans totaling $174,000 and five consumer loans totaling $637,000.
A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or sale of the collateral. The ACLallowance for credit losses on collateral dependent loans is measured using the fair value of the underlying collateral, adjusted for costs to sell when applicable, less the amortized cost basis of the financial asset. It is generally the Company’s policy that if the value of the underlying collateral is determined to be less than the recorded amount of the loan, a charge-off will be taken.
As the following table illustrates, total non-performing assets, net of guarantees of the State of California and U.S. Government, including its agencies and its government-sponsored agencies, decreased $1,096,000,$1,431,000, or 17.3%,22.6%, to $5,227,000$4,892,000 during the first threesix months of 2026. Non-performing assets, net of guarantees, represented 0.3% of total assets at MarchJune 31,30, 2026.
The Company had no loans that were 90 days or more past due and still accruing as of MarchJune 31,30, 2026 and December 31, 2025.
Excluding non-performing loans, loans totaling $18,447,000$17,717,000 and $18,259,000 were classified as substandard or doubtful loans, representing potential problem loans at MarchJune 31,30, 2026 and December 31, 2025, respectively. Management believes that the allowance for credit losses at MarchJune 31,30, 2026 and December 31, 2025 appropriately reflected expected credit losses in the loan portfolio at that date. The ratio of the allowance for credit losses to total loans was 1.37%1.34% and 1.36% at MarchJune 31,30, 2026 and December 31, 2025, respectively.
Other real estate owned (“OREO”) consists of property that the Company has acquired by deed in lieu of foreclosure or through foreclosure proceedings, and property that the Company does not hold title to but is in actual control of, known as in-substance foreclosure. OREO can also consist of Company ownedCompany-owned properties that the Company has determined are no longer intended for use or future development. The estimated fair value of the property is determined prior to transferring the balance to OREO. The balance transferred to OREO is the estimated fair value of the property less estimated cost to sell. Impairment may be deemed necessary to bring the book value of the loan equal to the appraised value. Appraisals or loan officer evaluations are then conducted periodically thereafter charging any additional impairment to the appropriate expense account. The Company had OREO totaling $1,241,000 for each of the periods ended MarchJune 31,30, 2026 and December 31, 2025. As of MarchJune 31,30, 2026 and December 31, 2025, OREO represented land, transferred from premises and equipment, that the Company determined is no longer intended for future development and is actively marketing for sale.
The following table summarizes the ACL of the Company during the threesix months ended MarchJune 31,30, 2026 and 2025, and for the year ended December 31, 2025:
Deposits are one of the Company’s primary sources of funds. At MarchJune 31,30, 2026 and December 31, 2025, the Company had the following deposit mix:
Maturities of time certificates of deposit of over $250,000 outstanding at MarchJune 31,30, 2026 and December 31, 2025 are summarized as follows:
Approximately 43%44% and 40% of our deposits were uninsured as of MarchJune 31,30, 2026 and December 31, 2025, respectively.
Asset liquidity sources consist of the repayments and maturities of loans, selling of loans, short-term money market investments, maturities of securities and sales of securities from the available-for-sale portfolio. These activities are generally summarized as investing activities in the Condensed Consolidated Statements of Cash Flows. For the threesix months ended MarchJune 31,30, 2026, net liquidity used in investing activities totaled $24,617,000.$51,179,000.
The Company’s available-for-sale investment securities plus cash and cash equivalents in excess of reserve requirements and certificates of deposit totaled $773,038,000$743,229,000 on MarchJune 31,30, 2026, which was 40.2%38.6% of assets at that date. This was a decrease of $61,000$29,748,000 from $772,977,000 and 40.4% of assets as of December 31, 2025. The Company’s investment securities are generally shorter term in nature to provide ongoing cash flows for liquidity needs and/or reinvestment for interest rate risk management. On MarchJune 31,30, 2026, the effective duration of our investment securities was 3.113.15 with projected principal cashflow of $116,255,000$81,777,000 for the remainder of 2026 available for reinvestment or liquidity needs. The Company had no held-to-maturity securities as of MarchJune 31,30, 2026 and December 31, 2025.
Liquidity may also be impacted from liabilities through changes in deposits and borrowings outstanding. These activities are included under financing activities in the Condensed Consolidated Statements of Cash Flows. As of MarchJune 30, 2026 and December 31, 2026,2025, the Company had $0 in borrowings outstanding. For the threesix months ended MarchJune 31,30, 2026, net liquidity provided by financing activities totaled $14,393,000,$11,338,000, primarily due to a net increase in deposits. While these sources of funds are expected to continue to provide significant amounts of funds in the future, their mix, as well as the possible use of other sources, will depend on future economic and market conditions.
Liquidity is also provided or used through the results of operating activities. For the threesix months ended MarchJune 31,30, 2026, net cash provided by operating activities totaled $4,254,000,$7,722,000, primarily as a result of net income during the threesix months ended MarchJune 31,30, 2026.
Liquidity is measured by various ratios, in management’s opinion, the most common being the ratio of net loans to deposits (including loans held-for-sale). This ratio was 62.8%64.6% and 62.6% as of MarchJune 31,30, 2026 and December 31, 2025, respectively.
To meet unanticipated funding requirements, the Company maintains short-term unsecured lines of credit with other banks which totaled $130,000,000 at MarchJune 31,30, 2026. Additionally, the Company has a line of credit with the FHLB, with a remaining borrowing capacity at MarchJune 31,30, 2026 of $354,702,000$339,691,000; credit availability is subject to certain collateral requirements.
As of MarchJune 31,30, 2026, the Bank’s capital ratios exceeded applicable regulatory requirements. The following table presents the capital ratios for the Bank, compared to the regulatory standards for well-capitalized depository institutions, as of MarchJune 31,30, 2026.
FNRN insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 2 Form 4 filings (1 insider, 3 trade dates, 2,000 shares, about $35.5K) and open-market sales in 8 filings (4 insiders, 10 trade dates, 32,054 shares, about $560.6K). Net open-market shares: -30,054 (purchases minus sales); net value about -$525.1K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-13 | Martinez Richard M |
Open-market sale | 2,000 | $17.51 | $35.0K |
| 2026-08-12 | Servat Jean-Luc |
Open-market purchase | 400 | $17.29 | $6.9K |
| 2026-08-12 | Servat Jean-Luc |
Open-market purchase | 600 | $17.29 | $10.4K |
| 2026-08-11 | Schulze Mark C |
Open-market sale | 1,118 | $17.40 | $19.5K |
| 2026-08-10 | Schulze Mark C |
Open-market sale | 3,000 | $16.97 | $50.9K |
| 2026-08-10 | Schulze Mark C |
Open-market sale | 2,250 | $17.18 | $38.7K |
| 2026-08-06 | Schulze Mark C |
Open-market sale | 400 | $18.11 | $7.2K |
| 2026-08-06 | Servat Jean-Luc |
Open-market purchase | 500 | $18.12 | $9.1K |
| 2026-08-05 | Servat Jean-Luc |
Open-market purchase | 500 | $18.32 | $9.2K |
| 2026-08-05 | Schulze Mark C |
Open-market sale | 232 | $18.30 | $4.2K |
| 2026-08-04 | Schulze Mark C |
Open-market sale | 3,000 | $18.40 | $55.2K |
| 2026-05-15 | Smith Jeremiah Zachary |
Open-market sale | 6,783 | $17.69 | $120.0K |
| 2026-05-13 | Smith Jeremiah Zachary |
Gift | 76 | $17.74 | $1.3K |
| 2026-05-12 | Schulze Mark C |
Open-market sale | 2,000 | $17.79 | $35.6K |
| 2026-05-08 | Schulze Mark C |
Open-market sale | 3,000 | $17.78 | $53.3K |
| 2026-05-04 | Spink Kevin |
Open-market sale | 8,271 | $17.04 | $140.9K |
Well-known investors holding FNRN (13F)
None of the 59 investors we track reported a position in their latest 13F.