Form 10-Q Quarterly Report

FEDERAL DEPOSIT INSURANCE CORPORATION

Washington, D.C. 20429

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

or

• TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

FDIC Certificate No. 32203

Summit State Bank

(Exact Name of Registrant as Specified in its Charter)

California94-2878925

(State of Incorporation) (I.R.S. Employer Identification No.)

500 Bicentennial Way, Santa Rosa, CA 95403707-568-6000

(Address of Principal Executive Offices) (Registrant's Telephone Number, Including Area Code)

N/A

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SSBI	The NASDAQ Stock Market LLC

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Securities registered pursuant to Section 12(b) of the Act:

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No☒ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☐ No ☐

As of May 9, 2025, there were 6,776,563 shares of common stock outstanding.

SUMMIT STATE BANK

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1 Financial Statements

Balance Sheets (unaudited) 3

Statements of Income (unaudited) 4

Statements of Comprehensive Income (unaudited) 5

Statements of Changes in Shareholders' Equity (unaudited) 6

Statements of Cash Flows (unaudited) 7

Notes to Financial Statements (unaudited) 8

Item 2 Management's Discussion and Analysis of Financial Condition 37

and Results of Operations

Item 3 Quantitative and Qualitative Disclosures about Market Risk 53

Item 4 Controls and Procedures 54

PART II OTHER INFORMATION

Item 1 Legal Proceedings 55

Item 1A Risk Factors 55

Item 1B Cybersecurity 55

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 56

Item 3 Defaults Upon Senior Securities 56

Item 4 Mine Safety Disclosures 57

Item 5 Other Information 57

Item 6 Exhibit Index 57

SIGNATURES 58

EXHIBITS 59

Part I Financial Information

Item 1 Financial Statements

SUMMIT STATE BANK BALANCE SHEETS

(In thousands except share data)

March 31, 2025December 31, 2024

(Unaudite d) (1)

ASSETS

Cash and due from banks Investment securities: Available-for-sale, less allowance for credit losses of $23 and $36	$ 72,408	$	51,403
(at fair value; amortized cost of $79,827 and $80,887)	68,737		68,228
Loans, less allowance for credit losses of $13,625 and $13,693	877,354	905,075
Bank premises and equipment, net	5,057	5,155
Investment in Federal Home Loan Bank stock (FHLB), at cost	5,889	5,889
Other real estate owned	4,437	4,437
Affordable housing tax credit investments	7,202	7,413
Accrued interest receivable and other assets	22,278	19,494
Total assets	$ 1,063,362	$ 1,067,094

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Demand - non interest-bearing	$ 198,736	$ 185,756
Demand - interest-bearing	192,764	193,355
Savings	39,000	47,235
Money market	212,900	226,879
Time deposits that meet or exceed the FDIC insurance limit	93,154	70,717
Other time deposits	220,511	238,620
Total deposits	957,065	962,562
Junior subordinated debt, net	5,938	5,935
Affordable housing commitment	511	511
Accrued interest payable and other liabilities	4,508	6,363
Total liabilities	968,022	975,371

Commitments and contingencies (Note 7) Shareholders' equity

Common stock, no par value; shares authorized - 30,000,000 shares;

issued and outstanding 6,776,563 and 6,776,563	37,803	37,740
Retained earnings	65,363	62,869
Accumulated other comprehensive loss, net	(7,826)	(8,886)
Total shareholders' equity	95,340	91,723
Total liabilities and shareholders' equity	$ 1,063,362	$ 1,067,094

(1) Information derived from audited financial statements.

The accompanying notes are an integral part of these unaudited financial statements.

SUMMIT STATE BANK STATEMENTS OF INCOME

(In thousands except earnings per share data)

Three Months Ended

	March 31, 2025		March 31, 2024
	(unaudited)		(unaudited)
Interest and dividend income:
Interest and fees on loans	$ 13,420		$ 13,274
Interest on deposits with banks	477		362
Interest on investment securities	515		712
Dividends on FHLB stock	130		129
Total interest and dividend income	14,542		14,477
Interest expense:
Deposits	6,288		6,786
FHLB advances	40		190
Junior subordinated debt	136		94
Total interest expense	6,464		7,070
Net interest income before provision for (reversal of) credit losses	8,078		7,407
Reversal of credit losses on loans	(577)		(15)
Reversal of credit losses on unfunded loan commitments	(38)		(65)
Reversal of credit losses on investments	(13)		(5)

Net interest income after reversal of credit losses

on loans, unfunded loan commitments and investments 8,706 7,492 Non-interest income:

Service charges on deposit accounts	225		233
Rental income	57		60
Net gain on loan sales	22		514
Other income	342		141
Total non-interest income	646		948
Non-interest expense:
Salaries and employee benefits	3,727		4,182
Occupancy and equipment	421		485
Other expenses	2,105		1,733
Total non-interest expense	6,253		6,400
Income before provision for income taxes	3,099		2,040
Provision for income tax expense	605		645
Net income	$ 2,494		$ 1,395
Basic earnings per common share	$ 0.37		$ 0.21
Diluted earnings per common share	$ 0.37		$ 0.21
Basic weighted average shares of common stock outstanding	6,719,127		6,697,587
Diluted weighted average shares of common stock outstanding	6,719,127		6,697,587

The accompanying notes are an integral part of these unaudited financial statements.

SUMMIT STATE BANK STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Three Months Ended

	March 31, 2025 (unaudited)	March 31, 2024 (unaudited)
Net income	$ 2,494	$ 1,395
Change in securities available-for-sale:
Unrealized holding gains (losses) on available-for-sale securities
arising during the period	1,556	(658)
Income tax (expense) benefit	(496)	195
Total other comprehensive income (loss), net of tax	1,060	(463)
Comprehensive income	$ 3,554	$ 932

The accompanying notes are an integral part of these unaudited financial statements.

SUMMIT STATE BANK

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Three Months Ended March 31, 2024 and 2025 (Unaudited)

Common Stock

Accumulated

Other Total

Retained Comprehensive Shareholders'

(In thousands except per share data) Shares Amount Earnings Loss Equity

Balance, January 1, 2024	6,784,099	$ 37,471	$ 68,957	$ (8,750)	$ 97,678
Net income	- -		1,395	-	1,395
Other comprehensive loss, net of tax	- -		-	(463)	(463)
Stock based compensation - restricted stock	- 81		-	-	81
Cash dividends - $0.12 per share	- -		(813)	-	(813)
Balance, March 31, 2024	6,784,099	$ 37,552	$ 69,539	$ (9,213)	$ 97,878

Balance, January 1, 2025	6,776,563	$ 37,740	$ 62,869	$ (8,886)	$ 91,723
Net income	- -		2,494	-	2,494
Other comprehensive income, net of tax	- -		-	1,060	1,060
Stock based compensation - restricted stock	- 63		-	-	63
Balance, March 31, 2025	6,776,563	$ 37,803	$ 65,363	$ (7,826)	$ 95,340

The accompanying notes are an integral part of these unaudited financial statements.

SUMMIT STATE BANK STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

(In thousands) 2025 2024

(unaudited) (unaudited)

Cash flows from operating activities: Net income

$ 2,494 $

1,395

Adjustments to reconcile net income to net cash used in (from) operating activities:

Depreciation and amortization	101		102
Securities amortization and accretion, net	(11)		(8)
Accretion of net deferred loan fees	(299)		(445)
Reversal of credit losses on loans	(577)		(15)
Reversal of credit losses on unfunded loan commitments	(38)		(65)
Reversal of credit losses on investments	(13)		(5)
Net gain on loan sales	(22)		(514)
Amortization of debt issuance cost related to junior subordinated debt	3		4
Amortization of affordable housing tax credit investment	211		240
Net change in accrued interest receivable and other assets	(3,280)		511
Net change in accrued interest payable and other liabilities	(2,014)		49
Stock-based compensation expense	260		(533)
Net cash used in (from) operating activities	(3,185)		716

Cash flows from investing activities:

Proceeds from calls and maturities of available-for-sale investment securities	1,071			69
Loan origination and principal collections, net	28,155			12,031
Proceeds from sales of loans other than loans originated for resale	464			9,884
Purchases of bank premises and equipment, net	(3)			(73)
Net cash from investing activities	29,687			21,911
Cash flows used in financing activities: Net change in demand, savings and money market deposits	(9,825)			(41,279)
Net change in certificates of deposit	4,328			(29,212)
Proceeds from short term advances from FHLB	203,100			856,450
Repayment of short term advances from FHLB	(203,100)			(827,850)
Dividends paid on common stock	-			(813)
Net cash used in financing activities	(5,497)			(42,704)
Net change in cash and cash equivalents	21,005			(20,077)
Cash and cash equivalents at beginning of period	51,403			57,789
Cash and cash equivalents at end of period	$ 72,408			$ 37,712
Supplemental disclosure of cash flow information:
Cash paid during the period for: Interest	$	7,666	$	7,187
Non-Cash Investing and Financing Activities: Net unrealized gains (losses) on available-for-sale securities	$	1,556	$	(658)

The accompanying notes are an integral part of these unaudited financial statements.

SUMMIT STATE BANK

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   General

   On January 15, 1999, Summit State Bank (the "Bank") received authority to transact business as a California state-chartered commercial bank and is subject to regulation, supervision and examination by the State of California Department of Financial Protection & Innovation and the Federal Deposit Insurance Corporation. The Bank was incorporated on December 20, 1982 under the name Summit Savings. The Bank provides a variety of banking services to individuals and businesses in its primary service area of Sonoma County, California. The Bank's branch locations include Santa Rosa, Petaluma, Rohnert Park, and Healdsburg. The Bank offers depository and lending services primarily to meet the needs of its business, nonprofit organization and individual clientele. These services include a variety of transaction, money market, savings and time deposit account alternatives. The Bank's lending activities are directed primarily towards commercial real estate, construction and business loans.

   The financial statements as of March 31, 2025 and for the three months ended March 31, 2025 and 2024 are unaudited. In the opinion of management, these unaudited financial statements contain all adjustments, consisting only of normal recurring accruals necessary to present fairly the financial statements of the Bank.

   The accompanying unaudited interim financial statements have been prepared in accordance with

   U.S. Generally Accepted Accounting Principles for interim financial information and Article 8 of Regulation S-X of the Securities and Exchange Commission. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. These unaudited financial statements do not include all disclosures associated with the Bank's annual financial statements and notes thereto and accordingly, should be read in conjunction with the financial statements and notes thereto included in the Bank's Annual Report for the year ended December 31, 2024 on Form 10-K, on file with the FDIC (the Form 10-K may also be found at https://www.summitstatebank.com).

   The accompanying accounting and reporting policies of the Bank conform to U.S. Generally Accepted Accounting Principles and prevailing practices within the banking industry.

   Use of Estimates

   The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The allowance for credit losses, fair values of investment securities and the determination of potential impairment of affordable housing tax credit investment are particularly subject to change.

   Change in Allowance for Credit Losses - Loans

   As part of the Bank's ongoing efforts to enhance the accuracy of its credit loss estimation process, the Bank transitioned from a Life of Loan Loss Model to a Discounted Cash Flow (DCF) Model for

   estimating the allowance for credit losses. This change, which was implemented December 31, 2024, is intended to improve the precision of the expected credit loss calculations.

   Nature of the Change

   The Life of Loan Loss Model previously used a combination of historical loss rates, qualitative adjustments, and forward-looking macroeconomic factors to estimate expected credit losses. The new DCF Model introduces a more dynamic and granular approach by incorporating:

   • Loan-Level Discounted Cash Flow Analysis - The new model evaluates credit losses at an individual loan level, applying prepayment and loss estimated cash flows that are discounted using an effective interest rate.

   • Incorporation of Peer Data - Utilizing peer loss experience to help enhance the Bank's limited loss experience by incorporating more historical loss activity over various economic cycles.

   • Enhanced Economic Forecasting - The model integrates a reasonable and supportable forecast from FOMC forecasts. The quantitative loss drivers utilized in the model are based on a regression of economic factors to historical loss experience which best aligns the expected credit losses to the economic forecast.

   • More Detailed Portfolio Segmentation - The transition allows for the Bank to evaluate the portfolio at the call code level as opposed to total portfolio, so the Bank can model fluctuations in portfolio mix. This leads to more accurate risk assessments and expected loss estimates.

   • Qualitative Factors - Framework for qualitative factors are more robust and detailed at the call code level allowing for more accurate risk assessments and expected loss estimates.

   • Framework for qualitative factors incorporates a calculated max loss scenario representing a severe economic environment as a basis to bound the upper end of the qualitative adjustments. These qualitative adjustments are more robust and detailed at the call code level, allowing for more accurate risk assessments and expected loss estimates.

     Impact on Financial Statements

     This change is considered a change in accounting estimate, rather than a change in accounting principle, as it results from an improved estimation methodology rather than a fundamental change in the underlying accounting framework. The transition to the DCF Model impacted the Bank's financial results for the year ended December 31, 2024 in the following ways:

   • Allowance for Credit Losses (ACL): The updated model resulted in a $76,000 decrease in the ACL as of December 31, 2024, reflecting adjustments in expected credit losses due to the incorporation of discounted cash flow modeling.

   • Provision for Credit Losses: The shift in methodology led to a net increase of $70,000, made up of a $146,000 increase in reserve for unfunded loan commitments and a $76,000 decrease in the loan loss provision for the three and twelve months ending December 31, 2024, compared to what would have been recorded under the previous model.

   • Earnings Volatility: While the DCF Model provides a more accurate estimate of expected losses, it may introduce increased volatility in the provision for credit losses, particularly during periods of significant economic uncertainty.

   Operating Segments

   The Bank adopted Accounting Standards Update 2023-07 "Segment Reporting (Topic 280) -Improvement to Reportable Segment Disclosures" on January 1, 2024. The Bank has determined that all of its banking divisions meet the aggregation criteria of ASC 280, Segment Reporting, as its current operating model is structured whereby banking divisions serve a similar base of clients utilizing a bank-wide offering of similar products and services managed through similar processes and platforms that are collectively reviewed by the Bank's Chief Executive Officer and Chief Financial Officer, who has been identified as the chief operating decision makers ("CODM").

   The CODM regularly assesses the performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Bank's statements of income and other comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Bank's statements of income and other comprehensive income.

   Earnings Per Common Share

   Basic earnings per common share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing income available to common shareholders by the weighted-average common shares outstanding plus the weighted average number of dilutive shares for the period. The Bank has two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of unvested restricted stock awards receive forfeitable dividends at the same rate as common shareholders. Stock options or unvested restricted stock awards that are considered anti-dilutive, such as options whose exercise prices exceed the current common stock price, are not included in computing diluted earnings per share as they would not reduce EPS under the treasury method. Stock options for 57,000 shares of common stock for the three months ended March 31, 2025 were not considered in computing diluted earnings per share because they were anti-dilutive. Stock options for 86,000 shares of common stock for the three months ended March 31, 2024 were not considered in computing diluted earnings per share because they were anti-dilutive.

   The factors used in the earnings per common share computation follow:

   Three Months Ended

   (in thousands except per share data) March 31, 2025March 31, 2024

   Basic

   Net income

   $ 2,494

   $ 1,395

   Weighted average common shares outstanding (1) 6,719,1276,697,587

   Basic earnings per common share

   $ 0.37

   $ 0.21

   Diluted

   Net income	$ 2,494	$ 1,395
   Weighted average common shares
   outstanding for basic earnings per common share (1)	6,719,127	6,697,587
   Add: Dilutive effects of assumed exercises of stock options and restricted stock awards	-	-
   Average shares and dilutive potential common shares	6,719,127	6,697,587
   Diluted earnings per common share	$ 0.37	$ 0.21

   (1) excludes unvested RSAs

   Accounting Standards Adopted

   In November 2023, the FASB issued ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The new ASU adds required disclosure of significant segments expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, as well as the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance. The ASU also clarifies that if the CODM uses more than one measure of a segment's profit or loss in assessing segment performance, an entity may report one or more of those additional measures of segment profit; however, at least one of the reported segment profit or loss measures should be the measure that is most consistent with the measurement principals used in measuring the corresponding amounts in the entity's financial statements. Finally, the new ASU requires that an entity that has only one reportable segment provide all the disclosures required by this ASU and all existing segment disclosures in Topic 280. The provisions of this ASU became effective, on a prospective basis, for the Bank for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption was permitted. The amendments in this ASU do not affect the Bank's financial position or results of operations; however, the required disclosures have been added to the Bank's financial statements after the ASU was adopted. Management has evaluated potential reportable segments and has concluded that none meet the requirements for separate disclosure under ASU 2023-07.

   Accounting Standards Pending Adoption

   In December 2023, the FASB issued ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU address investor requests for more transparency about income tax information through improvements to income tax disclosures. The ASU enhances existing requirements that an entity disclose a tabular reconciliation, using both reporting currency amounts and percentages, of the entity's reported income tax expense and the amount computed by multiplying income from continuing operations before income taxes by the applicable statutory Federal income tax rate by including specific categories in the rate reconciliation table and requiring additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). The ASU also includes requirements to disclose the amount of income taxes paid (net of refunds received) disaggregated by Federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid. The amendments in this ASU are effective, on a prospective basis, for annual periods beginning after December 31, 2024. Early adoption is permitted. The amendments in this ASU will not affect the Bank's financial position or results of operations; however, the required disclosures will be added to the Bank's financial statements after the ASU is adopted.

   In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments are intended to improve income statement expense disclosure requirements, primarily through enhanced disclosures about certain costs and expenses included in income statement expense captions. The amendments are effective for annual reporting periods beginning after December 15, 2026 (i.e., 2027 Form 10-K) and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. Since this ASU only requires additional disclosure, adoption of this ASU will not have an impact on our financial condition, results

   of operations or cash flows; however, the required disclosures will be added to the Bank's financial statements after the ASU is adopted.

   In January 2025, the FASB issued ASU 2025-01 Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. The amendments in this ASU are intended to clarify that all public business entities should initially adopt the disclosure requirements in ASU 2024-03 in the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Since this ASU only requires additional disclosure, adoption of this ASU will not have an impact on our financial condition, results of operations or cash flows.

2. INVESTMENT SECURITIES - AVAILABLE-FOR-SALE

   The amortized costs and estimated fair value of investment securities available-for-sale are reflected in the tables below; the Bank has no investment securities held-to-maturity:

   March 31, 2025

   (in thousands)

   Amortized Cost

   Gross Unrealized Gains

   Gross Unrealized Losses

   Allowance for Credit Losses

   Estimated Fair Value

   Government agencies	$ 48,404		$ -		$ (8,978)		$ -		$ 39,426
   Mortgage-backed securities - residential	8,538		-		(1,462)		-		7,076
   Corporate debt	22,885		53		(680)		(23)		22,235
   Total investment securities available-for-sale	$ 79,827		$ 53		$ (11,120)		$ (23)		$ 68,737

   December 31, 2024

   (in thousands)

   Amortized

   Cost

   Gross Unrealized

   Gains

   Gross Unrealized

   Losses

   Allowance for Credit

   Losses

   Estimated

   Fair Value

   Government agencies	$ 48,379	$ -	$ (10,154)	$ -	$ 38,225
   Mortgage-backed securities - residential	8,612	-	(1,618)	-	6,994
   Corporate debt	23,896	21	(872)	(36)	23,009
   Total investment securities available-for-sale	$ 80,887	$ 21	$ (12,644)	$ (36)	$ 68,228

   The unrealized loss on the investment portfolio including asset backed securities, corporates, and agencies were generally caused by changes in required yields by investors for these types of securities and changes in interest rates. All the Bank's securities remain investment grade with the exception of two securities that have a total par value of $750,000. These securities are below investment grade and after a separate evaluation was performed, management determined these investments will be separately reserved. This determination was due to a continued and significant deterioration in the credit rating and the significantly negative impact current economic factors are projected to have on future earnings potential, asset quality, liquidity and projected cash flows.

   The Bank continues to monitor all its securities for changes in credit rating or other indications of credit deterioration. The Bank continues to determine the two securities below investment grade could result in a credit loss and as such the Bank recorded an allowance for credit losses of $23,000 as of March 31, 2025 and $36,000 as of December 31, 2024.

   Management has concluded the decline in fair value of its investment securities is attributable to changes in short-term interest rates, market shifts of the treasury yield curve and other variable market and economic conditions. Except for the two securities mentioned above, no other allowance for credit losses has been recognized on the available-for-sale securities in an unrealized loss

   position. Management does not believe any of those securities are impaired due to credit risk factors at either March 31, 2025 or December 31, 2024. In addition, for the available-for-sale securities in an unrealized loss position, the Bank assessed whether it intended to sell the securities, or if it was more likely than not that it would be required to sell the securities before recovery of its amortized cost basis, which would require a write-down to fair value through net income. Because the Bank did not intend to sell any of its securities, and it was not more-likely-than-not that the Bank would be required to sell the securities before recovery of their amortized cost bases, the Bank determined that no write-down was necessary as of the reporting date.

   Investment securities with unrealized losses are summarized and classified according to the duration of the loss period as follows:

   March 31, 2025

   Less than 12 Months12 Months or MoreTotal

   Unrealized Fair Unrealized Unrealized

   (in thousands) Fair ValueLossesValueLossesFair ValueLosses Available-for-sale:

   Government agencies	$ -	$ -	$ 39,426	$ (8,978)	$ 39,426	$ (8,978)
   Mortgage-backed securities - residential	-	-	7,076	(1,462)	7,076	(1,462)
   Corporate debt	1,918	(12)	16,423	(668)	18,341	(680)
   Total investment securities	$ 1,918	$ (12)	$ 62,925	$ (11,108)	$ 64,843	$ (11,120)

   December 31, 2024

   Less than 12 Months12 Months or MoreTotal

   Unrealized Fair Unrealized Unrealized

   Government agencies	$ -	$ -	$ 38,225	$ (10,154)	$ 38,225	$ (10,154)
   Mortgage-backed securities - residential	-	-	6,994	(1,618)	6,994	(1,618)
   Corporate debt	1,898	(29)	17,268	(843)	19,166	(872)
   Total investment securities	$ 1,898	$ (29)	$ 62,487	$ (12,615)	$ 64,385	$ (12,644)

   (in thousands) Fair ValueLossesValueLossesFair ValueLosses Available-for-sale:

   At March 31, 2025, the Bank held four investment securities in an unrealized loss position for less than 12 months and sixty-four investment securities in an unrealized loss position greater than 12 months.

   The following table sets forth an analysis of the allowance for credit losses on available for sale securities for the periods indicated.

   (in thousands)

   Government

   agencies

   Mortgage-backed

   securities

   Corporate

   debt

   Balance, December 31, 2023

   $ - $

   - $ 58

   Reversal of credit losses --(5)

   Balance, March 31, 2024

   $ -

   $ -

   $ 53

   Balance, December 31, 2024

   $ - $

   - $ 36

   Reversal of credit losses --(13)

   Balance, March 31, 2025

   $ -

   $ -

   $ 23

   At March 31, 2025, there were no investment securities pledged to secure public deposits. At December 31, 2024, investment securities with a fair value of $8,160,000, or 12% of the investment portfolio, were pledged.

   The amortized cost and estimated fair value of investment securities by contractual maturity at March 31, 2025 are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

   (in thousands)	Amortized Cost	Estimated Fair Value
   Within one year	$ 3,594	$ 3,588
   After one year through five years	17,861	17,319
   After five years through ten years	19,842	17,567
   After ten years	29,992	23,187
   Investment securities not due at a single maturity date:	71,289	61,661
   Mortgage-backed securities - residential	8,538	7,076
   	$ 79,827	$ 68,737

   The Bank does not own securities of any single issuer (other than U.S. Government agencies) whose aggregate book value was in excess of 10% of the Bank's total shareholders' equity at the time of purchase.

3. LOANS

Outstanding loans are summarized as follows:

(in thousands)	March 31, 2025	December 31, 2024
Commercial & agricultural (1)	$ 128,899	$ 138,460
Real estate - commercial	666,245	682,355
Real estate - construction and land	12,602	9,419
Real estate - single family	49,801	54,922
Real estate - multifamily	33,332	33,602
Consumer & lease financing (2)	100	10
	890,979	918,768
Allowance for credit losses	(13,625)	(13,693)
	$ 877,354	$ 905,075

1. Includes loans secured by farmland.

2. Consumer & lease financing includes overdrafts of $100 as of March 31, 2025 and $10 as of December 31, 2024.

The following is a discussion of the risks across each loan portfolio segment:

Commercial and agricultural - Commercial and agricultural credit is extended to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, farmland, or other projects. Most of these borrowers are customers doing business within the Bank's geographic locations. These loans are generally underwritten individually and secured with the assets of the company and the personal guarantee of the business owners. Commercial and agricultural loans are made based primarily on the historical and projected cash flow of the borrower and the underlying collateral provided by the borrowers. The cash flows of borrowers may not occur as expected, or the collateral securing these loans may fluctuate in value. A weakened economy, and the resulting decrease in consumer or business spending, may also have an impact on the credit quality of commercial and agricultural loans.

Real estate - commercial - Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property but are collateralized by underlying real estate. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market.

Real estate - construction and land - Construction and land real estate loans are extended to qualified commercial and individual customers and are underwritten and secured by the assets of the company or individual. Commercial construction credits are generally secured with personal guarantees of the business owner. Credits are underwritten to meet the general credit policy criteria for current and projected cash flow coverage and loan-to-value. Both types of credit are generally written as construction to permanent loans with terms consistent with policy and property type.

The Bank extends construction loans to borrowers in California, Arizona, Missouri, Texas, Colorado, Utah and Washington with a majority under the SBA 7(a) or U.S. Department of

Agriculture (USDA) loan guarantee programs. The majority of land real estate loans are with customers doing business within the Bank's geographic region, NortheCalifornia. Repayment of construction loans is largely dependent on the ultimate success of the project and can be impacted by the inherent volatility in real estate values, delays due to weather, and labor or material shortages.

Real estate - single family - Single family residential mortgage loans represent loans to consumers for the purchase or refinance of a residence. These loans are generally financed up to 30 years, and in most cases, are extended to borrowers to finance their primary residence. Real estate market values at the time of origination directly affect the amount of credit extended, and in the event of default, subsequent changes in these values may impact the severity of losses. Additionally, commercial loans may be categorized as Single Family Residential if the loan is secured by a mortgage on a home. Commercial loans categorized as Single Family Residential are underwritten as described in Commercial and Agricultural Loans section above and have terms such as interest rates and maturities as a standard Commercial Loan.

Real estate - multifamily - Multifamily real estate loans are subject to underwriting standards and processes similar to commercial loans. These loans are viewed primarily as cash flow loans and the repayment of these loans is largely dependent on the successful operation of the property. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the rental real estate market.

Consumer and lease financing - The Bank does not generally fund consumer loans with the exception of temporary loans to fund overdrafts. The balance in this category will adjust based on changes in investment provisions or reversals and increases or decreases to overdrafts. Consumer and lease financing loans are primarily comprised of loans made directly to consumers. These loans have a specific underwriting matrix which consists of several factors including debt to income, type of collateral and loan to collateral value, credit history and relationship to the borrower. Consumer and lease financing lending uses risk-based pricing in the underwriting process. Consumer and lease financing loans are impacted by factors that impact consumers' ability to repay the loans, such as unemployment rates.

Changes in the allocation of allowance for credit losses by class for the three months ended March 31, 2025 and 2024 are as follows:

Three Months Ended March 31, 2025

(in thousands)

Balance at

December 31, 2024

Provision

(reversal)Charge-offsRecoveries

Balance at

March 31, 2025

Commercial & agricultural	$ 2,439	$ (682)	$ - $ 509	$ 2,266
Real estate - commercial	9,872	41	- -	9,913
Real estate - construction and land	209	83	- -	292
Real estate - single family	598	(28)	- -	570
Real estate - multifamily	382	15	- -	397
Consumer, lease financing & other	193	(6)	--	187
Total	$ 13,693	$ (577)	$ - $ 509	$ 13,625

Three Months Ended March 31, 2024

(in thousands)

Balance at December 31, 2023

Provision

(reversal) Charge-offs Recoveries

Balance at March 31, 2024

Commercial & agricultural	$ 1,395		$ (6)		$ - $ 281		$ 1,670
Real estate - commercial	8,812		1,010		- -		9,822
Real estate - construction and land	3,413		(1,127)		- -		2,286
Real estate - single family	721		36		- -		757
Real estate - multifamily	634		33		- -		667
Consumer, lease financing & other	246		39		- -		285
Total	$ 15,221		$ (15)		$ - $ 281		$ 15,487

For the three months ending March 31, 2025, the ACL for commercial & agricultural decreased

$173,000 due to updated risks assessments related to individually assessed loans within this loan category and a recovery of $509,000. The ACL for real estate - construction and land increased

$84,000 due to higher loan balances in this category. The ACL for real estate - commercial, real estate - single family, real estate - multifamily and consumer loans changed nominally.

The following table presents the amortized cost basis of collateral dependent loans by class of loans and by collateral type as of March 31, 2025 and December 31, 2024:

(in thousands)	Commercial & agricultural	Real estate -commercial	Real estate - construction Real estate - Real estate -and land single family multifamily	Consumer & lease financing Total	Allowance for Credit Losses
Farmland	$ 8,016	$ -	$ - $ - $ -	$ - $ 8,016	$ 546
Hotel/Motel	-	15,420	- - -	- 15,420	1,199
Multi Family 5+	-	-	- - 2,127	- 2,127
Non Owner Occupied - Commercial Office	-	12,996	- - -	- 12,996
Non Owner Occupied - Commercial Special Purp	-	7,287	- - -	- 7,287
Non Owner Occupied - Mixed Use	-	783	- - -	- 783
Owner Occupied - Mixed Use	-	646	- - -	- 646
UCC Blanket	806	-	- - -	- 806	38
UCC Crops	535	-	- - -	- 535	205
Unsecured	33	-	- - -	- 33
Vineyard	7,620	-	- - -	- 7,620
Total collateral dependent loans	$ 17,010	$ 37,132	$ - $ - $ 2,127	$ - $ 56,269	$ 1,988

March 31, 2025 Amortized Cost by Collateral Type

(in thousands)	Commercial & agricultural	Real estate -commercial	Real estate -construction and land	Real estate - Real estate -single family multifamily	Consumer & lease financing	Total	Allowance for Credit Losses
Farmland	$ 8,016	$ -	$ -	$ - $ -	$ - $	8,016	$ 546
Hotel/Motel	-	15,444	-	- -	-	15,444	1,199
Multi Family 5+	-	-	-	- 2,146	-	2,146	-
Non Owner Occupied - Commercial Office	-	12,996	-	- -	-	12,996	-
Non Owner Occupied - Commercial Special Purp	-	7,297	-	- -	-	7,297	-
Non Owner Occupied - Mixed Use	-	1,458	-	- -	-	1,458	-
UCC Blanket	1,154	-	-	- -	-	1,154	136
UCC Crops	535	-	-	- -	-	535	268
Unsecured	37	-	-	- -	-	37	-
Vineyard	17,451	-	-	- -	-	17,451	-
Total collateral dependent loans	$ 27,193	$ 37,195	$ -	$ - $ 2,146	$ - $	66,534	$ 2,149

December 31, 2024 Amortized Cost by Collateral Type

Accrued interest receivable for the total loan portfolio was $3,115,000 and $3,017,000 and net deferred loan fees were $2,455,000 and $2,547,000 as of March 31, 2025 and December 31, 2024, respectively. Accrued interest and unamortized net deferred loan fees are not included in the Bank's ACL calculation.

The following table represents the accrued interest receivable written off by reversing interest income during the three months ended March 31, 2025 and March 31, 2024.

(in thousands)

Three Months Ended

March 31, 2025March 31, 2024

Commercial & agricultural $ - $ -

Real estate - commercial - 90

Real estate - construction and land - -

Real estate - single family - -

Real estate - multifamily - -Consumer & lease financing --

Total

$ -

$ 90

The following table presents the recorded investment in nonaccrual loans and loans past due over 90 days still accruing by class of loans as of March 31, 2025 and December 31, 2024:

March 31, 2025December 31, 2024

(in thousands)

Nonaccrual With Allowance for Credit

Losses

Nonaccrual With No Allowance for Credit

Losses

Total

Nonaccrual

Loans Past Due

Over 90 Days Still

Accruing

Nonaccrual With Allowance for Credit

Losses

Nonaccrual With No Allowance for Credit

Losses

Total

Nonaccrual

Loans Past Due

Over 90 Days Still

Accruing

Commercial & agricultural

$ 6,645

$ 9,802

$ 16,447 $

- $ 6,753

$ 19,974

$ 26,727 $ -

Real estate - commercial - 1,000 1,000 - - 1,027 1,027 -Real estate - construction and land - - - - - - - -Real estate - single family - - - - - - - -Real estate - multifamily - - - - - - - -Consumer & lease financing --------

Total

$ 6,645

$ 10,802

$ 17,447

$ -

$ 6,753

$ 21,001

$ 27,754

$ -

The following table presents the aging of the recorded investment in past due loans, inclusive of nonaccrual loans, as of March 31, 2025, by class of loans:

30 - 59 (in thousands) Days Past Due		60 - 89 Days Past Due	Greater Than 90 Days Past Due	Total Past Due	Loans Not Past Due	Total
Commercial & agricultural	$ 507	$ -	$ 16,047	$ 16,554	$ 112,345	$ 128,899
Real estate - commercial	1,430	217	-	1,647	664,598	666,245
Real estate - construction and land	-	-	-	-	12,602	12,602
Real estate - single family	-	-	-	-	49,801	49,801
Real estate - multifamily	-	-	-	-	33,332	33,332
Consumer & lease financing	-	-	-	-	100	100
Total	$ 1,937	$ 217	$ 16,047	$ 18,201	$ 872,778	$ 890,979

The following table presents the aging of the recorded investment in past due loans, inclusive of nonaccrual loans, as of December 31, 2024 by class of loans:

(in thousands)	30 - 59 Days Past Due	60 - 89 Days Past Due	Greater Than 90 Days Past Due	Total Past Due	Loans Not Past Due	Total
Commercial & agricultural	$ 63	$ 417	$ 26,328	$ 26,808	$ 111,652	$ 138,460
Real estate - commercial	1,458	687	-	2,145	680,210	682,355
Real estate - construction and land	-	-	-	-	9,419	9,419
Real estate - single family	-	-	-	-	54,922	54,922
Real estate - multifamily	2,146	-	-	2,146	31,456	33,602
Consumer & lease financing	-	-	-	-	10	10
Total	$ 3,667	$ 1,104	$ 26,328	$ 31,099	$ 887,669	$ 918,768

A loan is considered past due if a scheduled payment of interest or principal that is due is unpaid for 30 days or more.

The following table presents the amortized cost basis of loans at March 31, 2025 that were both experiencing financial difficulty and modified during the three months ended March 31, 2025, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

March 31, 2025

Number of Loans

Amortized Cost Basis

Amortized Cost Basis of Modified Loans to Gross

Loans by Category Financial Effect

Interest Rate Reduction Real Estate - Commercial	2	9,132	1.4%	Reduced weighted-average contractual interest rate from 5.50% to 4.00%
Total	2	$ 9,132	1.4%

The following table presents an aging analysis of the recorded investments of loans modified as of the date stated.

Current

30-89 Days

Past Due

March 31, 2025

90+ Days

Past DueNonaccrualTotal

Commercial & Agricultural	$ -	$ - $ - $ - $ -
Real Estate - Commercial	9,132	- - - 9,132
Real Estate - Const & Land	-	- - - -
Real Estate - Single Family	-	- - - -
Real Estate - Multifamily	-	- - - -
Consumer & Lease financing	-	----
Total modified loans	$ 9,132	$ - $ - $ - $ 9,132

For the three months ended March 31, 2024, there were no loan modifications to borrowers experiencing financial difficulty. For the three months ended March 31, 2025 and 2024, there were no payment defaults on loans modified in the last twelve months to borrowers experiencing financial difficulty.

Credit Quality Indicators

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for loans in excess of $100,000. Smaller balances are graded at origination and updated based on payment status and other information obtained from borrowers. The Bank uses the following definitions for risk ratings:

PASS - Loans not meeting any of the three criteria below that are analyzed individually as part of the above described process are considered to be pass rated loans.

SPECIAL MENTION - Loans in this category are considered "criticized" from a regulatory point of view but are not considered "classified" until the risk classification becomes substandard or worse. Loans in this category represent above average risk and potential weakness which may, if not corrected, weaken the loan and threaten repayment at some future date.

SUBSTANDARD - Loans in this category have a well-defined weakness that jeopardizes full repayment of the debt, although loss may not seem likely. Loss potential does not have to exist in individual loans in the Substandard classification but will be apparent in the aggregate. Typically, these loans have not met repayment plans as agreed. The primary source of repayment may have failed to materialize; repayment may be dependent on collateral liquidation or other secondary sources. Bankrupt borrowers and those with continuously past due payments are considered substandard.

DOUBTFUL - Loans in this category have all the characteristics of substandard loans with the added weakness that payment in full or liquidation in full is highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the strengthening of the loan, its classification as an estimated loss is deferred until the amount of the loss may be more accurately determined.

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Summit State Bank published this content on May 09, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 09, 2025 at 19:54 UTC.