INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2025

3. INVESTMENT SECURITIES

Pursuant to FASB’s guidance on accounting for debt securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity. Held-to-maturity securities are carried on the Company’s financial statements at their amortized cost, net of the allowance for credit losses.

The amortized cost and fair value of the securities available-for-sale and held-to-maturity are as follows (dollars in thousands):


		December 31, 2025
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses		Allowance for Credit Losses			Estimated Fair Value
Available-for-sale
U.S. government agencies		$	33,000		$	35		$	(134)	$	—		$	32,901
Mortgage-backed securities			259,386			2,491			(2,117)		—			259,760
State and political subdivisions			52,610			68			(5,757)		—			46,921
Corporate bonds			90,114			293			(3,940)		—			86,467
Collateralized loan obligations			198,968			364			(51)		—			199,281
Total available-for-sale securities		$	634,078		$	3,251		$	(11,999)	$	—		$	625,330

		Amortized Cost			Gross Unrecognized Gains			Gross Unrecognized Losses		Estimated Fair Value			Allowance for Credit Losses
Held-to-maturity
U.S. government agencies		$	4,523		$	—		$	(413)	$	4,110		$	—
Mortgage-backed securities			115,228			20			(7,002)		108,246			—
State and political subdivisions			171,075			3,030			—		174,105			(15)
Total held-to-maturity securities		$	290,826		$	3,050		$	(7,415)	$	286,461		$	(15)


		December 31, 2024
		Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses		Allowance for Credit Losses			Estimated Fair Value
Available-for-sale
U.S. government agencies		$	50,761		$	—		$	(608)	$	—		$	50,153
Mortgage-backed securities			97,113			116			(3,726)		—			93,503
State and political subdivisions			48,119			7			(7,323)		—			40,803
Corporate bonds			66,308			—			(7,746)		—			58,562
Collateralized loan obligations			411,729			1,217			—		—			412,946
Total available-for-sale securities		$	674,030		$	1,340		$	(19,403)	$			$	655,967

		Amortized Cost			Gross Unrecognized Gains			Gross Unrecognized Losses		Estimated Fair Value			Allowance for Credit Losses
Held-to-maturity
U.S. government agencies		$	4,819		$	—		$	(592)	$	4,227		$	—
Mortgage-backed securities			128,974			—			(13,986)		114,988			—
State and political subdivisions			171,736			229			(152)		171,813			(15)
Total held-to-maturity securities		$	305,529		$	229		$	(14,730)	$	291,028		$	(15)

The Company did not record an ACL on the available-for-sale portfolio at December 31, 2025, or upon the implementation of CECL on January 1, 2022. As of both dates the Company considers the unrealized loss across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The Company maintains that it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as December 31, 2025, that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.

For the years ended December 31, 2025, 2024, and 2023, proceeds from sales of securities available-for-sale were $3.0 million, $233.2 million, and $25.7 million, respectively. Gains and losses on the sale of investment securities are recorded on the trade date and are determined using the specific identification method.

Gross gains and losses from the sales and calls of securities for the years ended were as follows (dollars in thousands):


		December 31,
		2025			2024			2023
Gross gains on sales and calls of securities		$	126		$	220		$	396
Gross losses on sales and calls of securities			(6)			(2,901)			—
Net gains (losses) on sales and calls of securities		$	120		$	(2,681)		$	396

The Company has reviewed all sectors and securities in the portfolio for impairment. During the year ended December 31, 2025, the Company realized gains through earnings from the sale and call of 73 debt securities for $0.1 million and one debt security for which a loss was realized. During the year ended December 31, 2024, the Company realized gains through earnings from the sale and call of eight debt securities for $0.2 million. The securities were sold with 100 other debt securities, for which a $2.9 million loss was realized. During the year ended December 31, 2023, the Company realized gains through earnings from the sale and call of 37 debt securities for $0.4 million.

The Company recognized a $14.5 million loss for the year ended December 31, 2023, on investment securities intended for sale and subsequently sold in January 2024. Included in this sale were $4.0 million in U.S. government agencies, $74.8 million in mortgage-backed securities, and $117.9 million in state and political subdivisions.

The following table summarizes available-for-sale debt securities that were in an unrealized loss position for which an ACL has not been recorded, based on the length of time the individual securities have been in an unrealized loss position, including the number of available-for-sale debt securities in an unrealized loss position, as of the dates indicated below (dollars in thousands):


	December 31, 2025
			Less than twelve months						Twelve months or longer						Total
	Number of Securities		Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value
Available-for-sale
U.S. government agencies	5		$	(10)		$	5,990		$	(124)		$	14,375		$	(134)		$	20,365
Mortgage-backed securities	72			(755)			92,185			(1,362)			28,712			(2,117)			120,897
State and political subdivisions	51			(14)			1,481			(5,743)			37,029			(5,757)			38,510
Corporate bonds	70			(483)			25,381			(3,457)			41,993			(3,940)			67,374
Collateralized loan obligations	7			(51)			59,209			—			—			(51)			59,209
Total available-for-sale	205		$	(1,313)		$	184,246		$	(10,686)		$	122,109		$	(11,999)		$	306,355


	December 31, 2024
			Less than twelve months						Twelve months or longer					Total
	Number of Securities		Gross Unrealized Losses			Fair Value			Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value
Available-for-sale
U.S. government agencies	11		$	(608)		$	48,155		$	—		$	—	$	(608)	$	48,155
Mortgage-backed securities	54			(2,952)			64,419			(774)			8,032		(3,726)		72,451
State and political subdivisions	52			(33)			3,087			(7,290)			34,612		(7,323)		37,699
Corporate bonds	52			(12)			1,359			(7,734)			55,653		(7,746)		57,012
Total available-for-sale	169		$	(3,605)		$	117,020		$	(15,798)		$	98,297	$	(19,403)	$	215,317

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at December 31, 2025, by contractual maturity 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 penalties (dollars in thousands):


		December 31, 2025
		Available-for-Sale					Held-to-Maturity
		Amortized Cost			Fair Value		Amortized Cost			Fair Value
Maturing within one year		$	10,285		$	10,320	$	824		$	825
Maturing after one year through five years			19,667			19,907		5,014			4,902
Maturing after five years through ten years			82,725			78,553		17,806			17,020
Maturing after ten years			63,047			57,509		151,954			155,468
Securities not due at a single maturity date:
Mortgage-backed securities			259,386			259,760		115,228			108,246
Collateralized loan obligations			198,968			199,281		—			—
		$	634,078		$	625,330	$	290,826		$	286,461

Securities with amortized costs totaling $382.2 million and carrying values totaling $367.5 million were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2025 (see Note 10).

Securities with amortized costs totaling $420.4 million and carrying values totaling $403.4 million were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2024 (see Note 10).

At December 31, 2025, the Company’s investment portfolio included securities issued by 199 different government municipalities and agencies located within 28 states with a fair value of $221.0 million. The largest exposure to any single municipality or agency was $5.2 million (fair value) in four general obligation bonds issued by the City of New York (NY). In addition, the Company owned 109 subordinated debentures issued by bank holding companies totaling $86.5 million (fair value).

At December 31, 2024, the Company’s investment portfolio included securities issued by 188 different government municipalities and agencies located within 28 states with a fair value of $212.6 million. The largest exposure to any single municipality or agency was $5.1 million (fair value) in four general obligation bonds issued by the City of New York (NY). In addition, the Company owned 56 subordinated debentures issued by bank holding companies totaling $58.6 million (fair value).

The Company’s investments in bonds issued by states, municipalities and political subdivisions are evaluated in accordance with Supervision and Regulation Letter 12-15 (SR 12-15) issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Organization Ratings,” and other regulatory guidance. Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly rated bonds. There have been no significant differences in our internal analyses compared with the ratings assigned by the third-party credit rating agencies.

The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations (dollars in thousands):


		December 31, 2025						December 31, 2024
General obligation bonds		Amortized Cost			Fair Value			Amortized Cost			Fair Value
State of Issuance:
Texas		$	86,922		$	85,424		$	82,769		$	79,472
California			50,945			49,130			51,222			48,131
Other (22 and 22 states, respectively)			60,220			61,092			60,422			60,169
Total general obligation bonds			198,087			195,646			194,413			187,772

Revenue bonds
State of Issuance:
Texas			5,534			5,378			5,434			5,261
California			3,583			3,586			3,576			3,440
Other (13 and 11 states, respectively)			16,481			16,416			16,432			16,143
Total revenue bonds			25,598			25,380			25,442			24,844
Total obligations of states and political subdivisions		$	223,685		$	221,026		$	219,855		$	212,616

The following table summarizes the amortized cost and fair value of revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the revenue source of repayment for our largest source concentrations (dollars in thousands):


		December 31, 2025						December 31, 2024
Revenue bonds		Amortized Cost			Fair Value			Amortized Cost			Fair Value
Revenue Source:
Water		$	9,274		$	9,059		$	9,194		$	8,892
Sewer			3,713			3,801			3,613			3,755
Lease			3,910			4,158			3,923			4,141
Sales tax			1,687			1,676			1,688			1,588
Other (10 and 6 sources, respectively)			7,014			6,686			7,024			6,468
Total revenue bonds		$	25,598		$	25,380		$	25,442		$	24,844

SIERRA BANCORP 10-K