SIERRA BANCORP 10-Q

Item 1 – Financial Statements SIERRA BANCORP CONSOLIDATED BALANCE SHEETS (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 December 31, 2020 ASSETS ​ (unaudited) ​ (audited) Cash and due from banks ​ $ 66,178 ​ $ 67,908 Interest bearing deposits in banks ​ ​ 356,172 ​ ​ 3,509 Total cash & cash equivalents ​ ​ 422,350 ​ ​ 71,417 Securities available-for-sale ​ ​ 732,312 ​ ​ 543,974 Loans and leases: ​ ​ ​ ​ ​ ​ Gross loans and leases ​ ​ 2,139,826 ​ ​ 2,463,111 Deferred loan and lease fees, net ​ ​ ( 2,612 ) ​ ​ ( 3,147 ) Allowance for loan and lease losses ​ ​ ( 15,617 ) ​ ​ ( 17,738 ) Net loans and leases ​ ​ 2,121,597 ​ ​ 2,442,226 Foreclosed assets ​ ​ 93 ​ ​ 971 Premises and equipment, net ​ ​ 24,490 ​ ​ 27,505 Goodwill ​ ​ 27,357 ​ ​ 27,357 Other intangible assets, net ​ ​ 3,527 ​ ​ 4,307 Bank-owned life insurance ​ ​ 55,023 ​ ​ 52,539 Other assets ​ ​ 55,990 ​ ​ 50,446 Total assets ​ $ 3,442,739 ​ $ 3,220,742 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 1,111,411 ​ $ 943,664 Interest bearing ​ ​ 1,709,235 ​ ​ 1,680,942 Total deposits ​ ​ 2,820,646 ​ ​ 2,624,606 Repurchase agreements ​ ​ 92,553 ​ ​ 39,138 Short-term borrowings ​ ​ — ​ ​ 142,900 Long-term debt ​ ​ 49,221 ​ ​ — Subordinated debentures ​ ​ 35,258 ​ ​ 35,124 Other liabilities ​ ​ 80,554 ​ ​ 35,078 Total liabilities ​ ​ 3,078,232 ​ ​ 2,876,846 ​ ​ ​ ​ ​ ​ ​ Commitments and contingent liabilities (Note 7) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders' equity ​ ​ ​ ​ ​ ​ Common stock, no par value; 24,000,000 shares authorized; 15,382,518 and 15,388,423 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively ​ ​ 114,096 ​ ​ 113,384 Additional paid-in capital ​ ​ 3,710 ​ ​ 3,736 Retained earnings ​ ​ 231,717 ​ ​ 208,371 Accumulated other comprehensive income, net ​ ​ 14,984 ​ ​ 18,405 Total shareholders' equity ​ ​ 364,507 ​ ​ 343,896 Total liabilities and shareholders' equity ​ $ 3,442,739 ​ $ 3,220,742 ​ The accompanying notes are an integral part of these consolidated financial statements ​ 1 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ ​ Nine months ended September 30, ​ 2021 2020 ​ 2021 ​ 2020 Interest and dividend income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans and leases, including fees ​ $ 24,226 ​ $ 25,742 ​ $ 75,555 ​ $ 69,538 Taxable securities ​ ​ 1,679 ​ ​ 1,832 ​ ​ 4,835 ​ ​ 6,542 Tax-exempt securities ​ ​ 1,578 ​ ​ 1,467 ​ ​ 4,539 ​ ​ 4,246 Federal funds sold and other ​ ​ 146 ​ ​ 2 ​ ​ 250 ​ ​ 155 Total interest income ​ ​ 27,629 ​ ​ 29,043 ​ ​ 85,179 ​ ​ 80,481 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 591 ​ ​ 641 ​ ​ 1,818 ​ ​ 3,368 Short-term borrowings ​ ​ 41 ​ ​ 70 ​ ​ 127 ​ ​ 145 Subordinated debentures ​ ​ 281 ​ ​ 258 ​ ​ 774 ​ ​ 965 Total interest expense ​ ​ 913 ​ ​ 969 ​ ​ 2,719 ​ ​ 4,478 Net interest income ​ ​ 26,716 ​ ​ 28,074 ​ ​ 82,460 ​ ​ 76,003 (Benefit) provision for loan losses ​ ​ ( 600 ) ​ ​ 2,350 ​ ​ ( 2,450 ) ​ ​ 6,350 Net interest income after provision for loan losses ​ ​ 27,316 ​ ​ 25,724 ​ ​ 84,910 ​ ​ 69,653 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ 3,186 ​ ​ 2,950 ​ ​ 8,677 ​ ​ 8,752 Other income ​ ​ 4,349 ​ ​ 4,155 ​ ​ 12,300 ​ ​ 11,360 Total noninterest income ​ ​ 7,535 ​ ​ 7,105 ​ ​ 20,977 ​ ​ 20,112 Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 10,618 ​ ​ 9,698 ​ ​ 32,194 ​ ​ 29,136 Occupancy and equipment ​ ​ 2,359 ​ ​ 2,559 ​ ​ 7,472 ​ ​ 7,390 Other ​ ​ 7,898 ​ ​ 7,046 ​ ​ 21,715 ​ ​ 18,630 Total noninterest expense ​ ​ 20,875 ​ ​ 19,303 ​ ​ 61,381 ​ ​ 55,156 Income before taxes ​ ​ 13,976 ​ ​ 13,526 ​ ​ 44,506 ​ ​ 34,609 Provision for income taxes ​ ​ 3,371 ​ ​ 3,170 ​ ​ 11,115 ​ ​ 8,144 Net income ​ $ 10,605 ​ $ 10,356 ​ $ 33,391 ​ $ 26,465 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PER SHARE DATA ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Book value ​ $ 23.70 ​ $ 21.92 ​ $ 23.70 ​ $ 21.92 Cash dividends ​ $ 0.22 ​ $ 0.20 ​ $ 0.65 ​ $ 0.60 Earnings per share basic ​ $ 0.70 ​ $ 0.68 ​ $ 2.19 ​ $ 1.74 Earnings per share diluted ​ $ 0.69 ​ $ 0.68 ​ $ 2.17 ​ $ 1.73 Average shares outstanding, basic ​ ​ 15,257,367 ​ ​ 15,192,838 ​ ​ 15,247,477 ​ ​ 15,215,167 Average shares outstanding, diluted ​ ​ 15,343,543 ​ ​ 15,387,309 ​ ​ 15,369,249 ​ ​ 15,422,647 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total shareholders' equity (in thousands) ​ $ 364,507 ​ $ 336,247 ​ $ 364,507 ​ $ 336,247 Shares outstanding ​ ​ 15,382,518 ​ ​ 15,341,723 ​ ​ 15,382,518 ​ ​ 15,341,723 Dividends paid (in thousands) ​ $ 3,374 ​ $ 3,039 ​ $ 9,842 ​ $ 9,136 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 2 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ Nine months ended September 30, ​ 2021 2020 ​ 2021 ​ 2020 Net income ​ $ 10,605 ​ $ 10,356 ​ $ 33,391 ​ $ 26,465 Other comprehensive (loss) income, before tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains on securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding (loss) gain arising during period ​ ​ ( 576 ) ​ ​ 1,867 ​ ​ ( 4,846 ) ​ ​ 16,806 Less: reclassification adjustment for (losses) gains included in net income (1) ​ ​ ( 11 ) ​ ​ — ​ ​ ( 11 ) ​ ​ ( 390 ) Other comprehensive (loss) income, before tax ​ ​ ( 587 ) ​ ​ 1,867 ​ ​ ( 4,857 ) ​ ​ 16,416 Income tax (expense) benefit related to items of other comprehensive (loss) income, net of tax ​ ​ 174 ​ ​ ( 552 ) ​ ​ 1,436 ​ ​ ( 4,854 ) Other comprehensive (loss) income ​ ​ ( 413 ) ​ ​ 1,315 ​ ​ ( 3,421 ) ​ ​ 11,562 Comprehensive income ​ $ 10,192 ​ $ 11,671 ​ $ 29,970 ​ $ 38,027 (1) Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in noninterest income. Income tax expense associated with the reclassification adjustment for the three months ended September 30, 2021 and 2020 was $ 3 thousand and $ 0 respectively. Income tax expense associated with the reclassification adjustment for the nine months ended September 30, 2021 and 2020 was $ 3 thousand and $ 115 thousand respectively. ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 3 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ Common Stock ​ Paid In ​ Retained ​ Comprehensive ​ Shareholders' ​ Shares Amount Capital Earnings Income (Loss) Equity Balance, June 30, 2020 ​ 15,192,838 ​ $ 112,645 ​ $ 3,462 ​ $ 195,147 ​ $ 16,179 ​ $ 327,433 Net income ​ — ​ ​ — ​ ​ — ​ ​ 10,356 ​ ​ — ​ ​ 10,356 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,315 ​ ​ 1,315 Unvested restricted stock issued ​ 148,885 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock compensation costs ​ — ​ ​ — ​ ​ 182 ​ ​ — ​ ​ — ​ ​ 182 Cash dividends - $ 0.20 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,039 ) ​ ​ — ​ ​ ( 3,039 ) Balance, September 30, 2020 ​ 15,341,723 ​ $ 112,645 ​ $ 3,644 ​ $ 202,464 ​ $ 17,494 ​ $ 336,247 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, June 30, 2021 ​ 15,410,763 ​ $ 113,453 ​ $ 4,190 ​ $ 224,689 ​ $ 15,397 ​ $ 357,729 Net income ​ — ​ ​ — ​ ​ — ​ ​ 10,605 ​ ​ — ​ ​ 10,605 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 413 ) ​ ​ ( 413 ) Exercise of stock options ​ 3,320 ​ ​ 732 ​ ​ ( 692 ) ​ ​ — ​ ​ — ​ ​ 40 Stock based compensation expense ​ ( 19,443 ) ​ ​ — ​ ​ 212 ​ ​ — ​ ​ — ​ ​ 212 Stock repurchase ​ ( 12,122 ) ​ ​ ( 89 ) ​ ​ — ​ ​ ( 203 ) ​ ​ — ​ ​ ( 292 ) Cash dividends - $ 0.22 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,374 ) ​ ​ — ​ ​ ( 3,374 ) Balance, September 30, 2021 ​ 15,382,518 ​ $ 114,096 ​ $ 3,710 ​ $ 231,717 ​ $ 14,984 ​ $ 364,507 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 4 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ Common Stock ​ Paid In ​ Retained ​ Comprehensive ​ Shareholders' ​ Shares Amount Capital Earnings Income (Loss) Equity Balance, December 31, 2019 ​ 15,284,538 ​ $ 113,179 ​ $ 3,307 ​ $ 186,867 ​ $ 5,932 ​ $ 309,285 Net income ​ — ​ ​ — ​ ​ — ​ ​ 26,465 ​ ​ — ​ ​ 26,465 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,562 ​ ​ 11,562 Exercise of stock options ​ 20,350 ​ ​ 295 ​ ​ ( 80 ) ​ ​ — ​ ​ — ​ ​ 215 Stock based compensation expense ​ 148,885 ​ ​ — ​ ​ 417 ​ ​ — ​ ​ — ​ ​ 417 Stock repurchase ​ ( 112,050 ) ​ ​ ( 829 ) ​ ​ — ​ ​ ( 1,732 ) ​ ​ — ​ ​ ( 2,561 ) Cash dividends - $ 0.60 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 9,136 ) ​ ​ — ​ ​ ( 9,136 ) Balance, September 30, 2020 ​ 15,341,723 ​ $ 112,645 ​ $ 3,644 ​ $ 202,464 ​ $ 17,494 ​ $ 336,247 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2020 ​ 15,388,423 ​ $ 113,384 ​ $ 3,736 ​ $ 208,371 ​ $ 18,405 ​ $ 343,896 Net income ​ — ​ ​ — ​ ​ — ​ ​ 33,391 ​ ​ — ​ ​ 33,391 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,421 ) ​ ​ ( 3,421 ) Exercise of stock options ​ 7,480 ​ ​ 801 ​ ​ ( 707 ) ​ ​ — ​ ​ — ​ ​ 94 Stock based compensation expense ​ ( 1,263 ) ​ ​ — ​ ​ 681 ​ ​ — ​ ​ — ​ ​ 681 Stock repurchase ​ ( 12,122 ) ​ ​ ( 89 ) ​ ​ — ​ ​ ( 203 ) ​ ​ — ​ ​ ( 292 ) Cash dividends - $ 0.65 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 9,842 ) ​ ​ — ​ ​ ( 9,842 ) Balance, September 30, 2021 ​ 15,382,518 ​ $ 114,096 ​ $ 3,710 ​ $ 231,717 ​ $ 14,984 ​ $ 364,507 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 5 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ 2021 2020 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 33,391 ​ $ 26,465 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain on sales of securities ​ ​ ( 11 ) ​ ​ ( 390 ) Gain on disposal of fixed assets ​ ​ ( 146 ) ​ ​ — Gain on sale on foreclosed assets ​ ​ ( 141 ) ​ ​ ( 10 ) Writedowns on foreclosed assets ​ ​ 174 ​ ​ 332 Stock based compensation expense ​ ​ 681 ​ ​ 417 (Benefit) provision for loan losses ​ ​ ( 2,450 ) ​ ​ 6,350 Depreciation and amortization ​ ​ 2,585 ​ ​ 2,276 Net amortization on securities premiums and discounts ​ ​ 3,654 ​ ​ 3,528 Accretion of discounts for loans acquired and net deferred loan fees ​ ​ ( 365 ) ​ ​ ( 502 ) Increase in cash surrender value of life insurance policies ​ ​ ( 2,445 ) ​ ​ ( 1,997 ) Amortization of core deposit intangible ​ ​ 779 ​ ​ 806 Increase in interest receivable and other assets ​ ​ ( 497 ) ​ ​ ( 17,046 ) Decrease in other liabilities ​ ​ 46,587 ​ ​ 6,418 Deferred income tax benefit ​ ​ ( 2,702 ) ​ ​ ( 275 ) Increase in value of restricted bank equity securities ​ ​ ( 857 ) ​ ​ ( 447 ) Net amortization of partnership investment ​ ​ 503 ​ ​ 1,287 Net cash provided by operating activities ​ ​ 78,740 ​ ​ 27,212 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Maturities and calls of securities available for sale ​ ​ 5,800 ​ ​ 9,585 Proceeds from sales of securities available for sale ​ ​ 148 ​ ​ 20,298 Purchases of securities available for sale ​ ​ ( 288,552 ) ​ ​ ( 71,065 ) Principal pay downs on securities available for sale ​ ​ 85,767 ​ ​ 77,980 Net purchases of FHLB stock ​ ​ ( 1,666 ) ​ ​ — Loan originations and payments, net ​ ​ 323,351 ​ ​ ( 614,676 ) Purchases of premises and equipment ​ ​ ( 345 ) ​ ​ ( 1,923 ) Proceeds from sale premises and equipment ​ ​ 1,055 ​ ​ — Proceeds from sales of foreclosed assets ​ ​ 938 ​ ​ 238 Purchase of bank-owned life insurance ​ ​ ( 39 ) ​ ​ ( 196 ) Liquidation of bank-owned life insurance ​ ​ — ​ ​ 326 Proceeds from BOLI death benefit ​ ​ — ​ ​ 274 Net cash provided by (used in) investing activities ​ ​ 126,457 ​ ​ ( 579,159 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Increase in deposits ​ ​ 196,040 ​ ​ 423,339 (Decrease) increase in borrowed funds ​ ​ ( 142,900 ) ​ ​ 138,000 Increase in repurchase agreements ​ ​ 53,415 ​ ​ 10,946 Cash dividends paid ​ ​ ( 9,842 ) ​ ​ ( 9,136 ) Repurchases of common stock ​ ​ ( 292 ) ​ ​ ( 2,561 ) Stock options exercised ​ ​ 94 ​ ​ 215 Proceeds from issuance of subordinated debt ​ ​ 49,221 ​ ​ — Net cash provided by financing activities ​ ​ 145,736 ​ ​ 560,803 ​ ​ ​ ​ ​ ​ ​ Increase in cash and cash equivalents ​ ​ 350,933 ​ ​ 8,856 ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ ​ ​ ​ ​ Beginning of period ​ ​ 71,417 ​ ​ 80,077 End of period ​ $ 422,350 ​ $ 88,933 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Interest paid ​ $ 2,702 ​ $ 5,067 Income taxes paid ​ $ 11,769 ​ $ 10,050 Supplemental noncash disclosures: ​ ​ ​ ​ ​ ​ Real estate acquired through foreclosure ​ $ 93 ​ $ 2,563 ​ The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents SIERRA BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021 (Unaudited) Note 1 – The Business of Sierra Bancorp Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws. The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”), and has been the Bank’s sole shareholder since August 2001. The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. As of September 30, 2021, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”). Pursuant to the Financial Accounting Standards Board (“FASB”) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the Company’s financial statements. References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise. Bank of the Sierra, a California state-chartered bank headquartered in Porterville, California, offers a wide range of retail and commercial banking services via branch offices located throughout California’s South San Joaquin Valley, the Central Coast, Ventura County, the Sacramento area, and neighboring communities. The Bank was incorporated in September 1977, and opened for business in January 1978 as a one -branch bank with $ 1.5 million in capital. Our growth in the ensuing years has largely been organic in nature, but includes four whole-bank acquisitions: Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017. As of the filing date of this report the Bank operates 35 full-service branches and an online branch, and maintains ATMs at all but one of our branch locations as well as seven non-branch locations. Moreover, the Bank has specialized lending units which focus on agricultural borrowers, SBA loans, and mortgage warehouse lending. In addition, in February 2020 the bank opened a loan production office which is currently located in Roseville, CA. The Company had total assets of $ 3.4 billion at September 30, 2021, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley. The Bank’s deposit accounts, which totaled $ 2.8 billion at September 30, 2021, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts. Note 2 – Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in a condensed format, and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. The information furnished in these interim statements reflects all adjustments that are, in the opinion of Management, necessary for a fair statement of the results for such periods. Such adjustments can generally be considered as normal and recurring unless otherwise disclosed in this Form 10-Q. In preparing the accompanying financial statements, Management has taken subsequent events into consideration and recognized them where appropriate. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year. Certain amounts reported for 2020 have been reclassified to be consistent with the reporting for 2021. The interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”). Note 3 – Current Accounting Developments In September 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over the contractual term for financial assets carried at amortized cost. This is commonly referred to as the current expected credit losses (“CECL”) methodology. Expected credit losses for financial assets held at the reporting date will be measured based on historical experience, current conditions, and reasonable and supportable forecasts. Another change 7 Table of Contents from existing U.S. GAAP involves the treatment of purchased credit deteriorated assets, which are more broadly defined than purchased credit impaired assets in current accounting standards. When such assets are purchased, institutions will estimate and record an allowance for credit losses that is added to the purchase price rather than being reported as a credit loss expense. Furthermore, ASU 2016-13 updates the measurement of credit losses on available-for-sale debt securities, by mandating that institutions record credit losses on available-for-sale debt securities through an allowance for credit losses rather than the current practice of writing down securities for other-than-temporary impairment. ASU 2016-13 will also require the enhancement of financial statement disclosures regarding estimates used in calculating credit losses. ASU 2016-13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value. As a public business entity that is an SEC filer, ASU 2016-13 was originally scheduled to become effective for the Company on January 1, 2020 . In March 2020, the Company elected under Section 4014 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020. In December 2020, the Consolidated Appropriations Act 2021, extended the deferral of implementation of CECL from December 31, 2020, to the earlier of the first day of the fiscal year, beginning after the national emergency terminates or January 1, 2022. The Company will now continue to postpone implementation in order to provide additional time to assess better the impact of the COVID-19 pandemic on the expected lifetime credit losses. On the effective date, institutions will apply the new accounting standard as follows: for financial assets carried at amortized cost, a cumulative-effect adjustment will be recognized on the balance sheet for any change in the related allowance for loan and lease losses generated by the adoption of the new standard; financial assets classified as purchased credit impaired assets prior to the effective date will be reclassified as purchased credit deteriorated assets as of the effective date, and will be grossed up for the related allowance for expected credit losses created as of the effective date; and, debt securities on which other-than-temporary impairment had been recognized prior to the effective date will transition to the new guidance prospectively with no change in their amortized cost basis. The Company plans to implement CECL on January 1, 2022. As of September 30, 2021, we would expect the implementation adjustment to be approximately 50 % to 75 % of the current balance of the allowance for loan and lease losses. Changes in economic forecasts, or other key assumptions including qualitative factors, and refreshed regression data correlated to loss drivers prior to the implementation of CECL on January 1, 2022, could impact the magnitude of the implementation adjustment. On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act, that passed on March 27, 2020, further provides that a qualified loan modification is exempt by law from classification as a troubled debt restructuring (“TDR”) as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. In late December 2020, Section 4013 of the CARES Act was extended through January 1, 2022 by the 2021 Consolidated Appropriations Act. In accordance with such guidance, we offered and continue to offer on a limited-basis, short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 10 for further information on non-TDR loan modifications. The impact of the Interagency Guidance and Section 4013, as amended, on the Company’s financial statements has not been material through September 30, 2021, but the ultimate impact of the relief provided by these government loan modification provisions cannot be determined at this time. ​ Note 4 – Share Based Compensation On March 16, 2017 the Company’s Board of Directors approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective May 24, 2017, the date approved by the Company’s shareholders. The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15, 8 Table of Contents 2017. Options to purchase 193,609 shares that were granted under the 2007 Plan were still outstanding as of September 30, 2021 and remain unaffected by that plan’s expiration. The 2017 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors and consultants of the Company. The 2017 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants. The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2017 Plan was initially 850,000 shares, and the number remaining available for grant as of September 30, 2021 was 452,953 . Options to purchase 254,681 shares granted under the 2017 Plan were outstanding as of September 30, 2021. The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share. Pursuant to FASB’s standards on stock compensation, the value of each stock option and restricted stock award is reflected in our income state­ment as employee compensation or directors’ expense by amortizing its grant date fair value over the vesting period of the option or award. The Company utilizes a Black-Scholes model to determine grant date fair values for options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Forfeitures are reflected in compensation costs as they occur for both types of awards. A pre-tax charge of $ 0.2 million was reflected in the Company’s income statement during the third quarter of 2021 and $ 0.2 million was charged during the third quarter of 2020, as expense related to stock options and restricted stock awards. For the first nine months, the charges totaled $ 0.7 million in 2021 and $ 0.4 million in 2020. Restricted Stock Grants The Company’s Restricted Stock Awards are awards of time-vested, non-transferrable shares of common stock and are available to be granted to the Company’s employees and directors. The vesting period of Restricted Stock Awards is determined at the time the awards are issued, and different awards may have different vesting terms; provided, however, that no installment of any Restricted Stock Award shall become vested less than one year from the grant date. Restricted Stock Awards are valued utilizing the fair value of the Company’s stock at the grant date. During the first nine months of 2021 18,180 shares were granted to employees and directors of the Company. These awards are expensed on a straight-line basis over the vesting period. As of September 30, 2021, there was $ 2.0 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 plan. That cost is expected to be amortized over a weighted average period of 3.6 years. The Company’s time-vested award activity for the nine months ended September 30, 2021 and 2020 is summarized below (unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ ​ 2021 ​ 2020 ​ ​ Shares ​ ​ Weighted Average Grant-Date Fair Value ​ Shares ​ ​ Weighted Average Grant-Date Fair Value Unvested shares, January 1, ​ 148,885 ​ $ 18.00 ​ — ​ $ — Granted ​ 18,180 ​ ​ 25.30 ​ 148,885 ​ ​ 18.00 Vested ​ ( 39,449 ) ​ ​ 18.00 ​ — ​ ​ — Forfeited ​ ( 17,777 ) ​ ​ 18.00 ​ — ​ ​ — Unvested shares September 30, ​ 109,839 ​ $ 19.21 ​ 148,885 ​ $ — ​ ​ Stock Option Grants The Company has issued equity instruments in the form of Incentive Stock Options and Nonqualified Stock Options to certain officers and directors and may continue to do so under the 2017 Plan. The exercise price of each stock option is determined at the time of the grant and may be no less than 100% of the fair market value of such stock at the time the option is granted. 9 Table of Contents The Company’s stock option activity during the nine months ended September 30, 2021 and 2020 are summarized below (dollars in thousands, except per share data, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ ​ 2021 ​ 2020 ​ Shares Weighted Average Exercise Price ​ Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Shares Weighted Average Exercise Price ​ Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Outstanding at January 1, ​ 495,489 ​ $ 23.67 ​ ​ ​ $ 1,340 ​ 457,959 ​ $ 21.08 ​ ​ ​ $ 3,684 Granted ​ — ​ $ — ​ ​ ​ $ — ​ 126,000 ​ $ 27.11 ​ ​ ​ $ — Exercised ​ ( 7,480 ) ​ $ 12.59 ​ ​ ​ $ 91 ​ ( 19,770 ) ​ $ 10.87 ​ ​ ​ $ 267 Canceled ​ ( 39,719 ) ​ $ 26.93 ​ ​ ​ $ 1 ​ ( 16,400 ) ​ $ 26.93 ​ ​ ​ $ — Outstanding at September 30, ​ 448,290 ​ $ 23.57 ​ 5.92 ​ $ 1,302 ​ 547,789 ​ $ 22.66 ​ 6.47 ​ $ 612 Exercisable at September 30, ​ 384,690 ​ $ 22.97 ​ 5.58 ​ $ 1,302 ​ 373,189 ​ $ 20.68 ​ 5.31 ​ $ 612 (1) The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 2021. This amount changes based on changes in the market value of the Company's stock. ​ ​ Note 5 – Earnings per Share The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period, excluding unvested restricted stock awards. There were 15,257,367 weighted average shares outstanding during the third quarter of 2021 and 15,192,838 during the third quarter of 2020, while there were 15,247,477 weighted average shares outstanding during the first nine months of 2021 and 15,215,167 during the first nine months of 2020. Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options, and unvested restricted stock awards. For the third quarter of 2021, calculations under the treasury stock method resulted in the equivalent of 86,176 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 327,346 stock options were excluded from the calculation because they were underwater and thus anti-dilutive. For the third quarter of 2020 the equivalent of 45,586 shares were added in calculating diluted earnings per share, while 362,407 anti-dilutive stock options were not factored into the computation. Likewise, for the nine months of 2021 the equivalent of 121,772 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 339,546 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 58,595 shares and non-inclusion of 344,814 anti-dilutive options in calculating diluted earnings per share for first nine months of 2020. Note 6 – Comprehensive Income As presented in the Consolidated Statements of Comprehensive Income, comprehensive income includes net income and other comprehensive income. The Company’s only source of other comprehensive income is unrealized gains and losses on available-for-sale investment securities. Investment gains or losses that were realized and reflected in net income of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period. Note 7 – Commitments and Contingent Liabilities The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. Those financial instruments currently consist of unused commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in 10 Table of Contents making commitments and issuing letters of credit as it does for originating loans included on the balance sheet. The following financial instruments represent off-balance-sheet credit risk (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 December 31, 2020 Commitments to extend credit ​ $ 532,891 ​ $ 441,816 Standby letters of credit ​ $ 7,151 ​ $ 8,104 ​ Commitments to extend credit consist primarily of the unused or unfunded portions of the following: home equity lines of credit; commercial real estate construction loans, where disbursements are made over the course of construction; commercial revolving lines of credit; mortgage warehouse lines of credit; unsecured personal lines of credit; and formalized (disclosed) deposit account overdraft lines. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn upon, the unused portions of committed amounts do not necessarily represent future cash requirements. Standby letters of credit are issued by the Company to guarantee the performance of a customer to a third party, and the credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. At September 30, 2021, the Company was also utilizing a letter of credit in the amount of $ 105 million issued by the Federal Home Loan Bank on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers. That letter of credit is backed by loans which are pledged to the FHLB by the Company. The Company is subject to loss contingencies, including claims and legal actions arising in the ordinary course of business, which are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements. Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements FASB’s standards on financial instruments, and on fair value measurements and disclosures, require public business entities to disclose in their financial statement footnotes the estimated fair values of financial instruments. In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities that are classified as available for sale and any equity securities which have readily determinable fair values be measured and reported at fair value in our statement of financial position. Certain impaired loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value. FASB’s standard on financial instruments permits companies to report certain other financial assets and liabilities at fair value, but the Company has not elected the fair value option for any of those financial instruments. Fair value measurement and disclosure standards also establish a framework for measuring fair values. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values. The standards describe three levels of inputs that may be used to measure fair values: ● Level 1 : Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. ● Level 2 : Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. ● Level 3 : Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability. 11 Table of Contents Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Fair value disclosures for deposits include demand deposits, which are, by definition, equal to the amount payable on demand at the reporting date. Fair value calculations for loans and leases reflect exit pricing, and incorporate our assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things. Since the estimates are subjective and involve uncertainties and matters of significant judgment they cannot be determined with precision, and changes in assumptions could significantly alter the fair values presented. Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted: Fair Value of Financial Instruments (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ ​ ​ ​ Fair Value Measurements ​ Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Financial assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 422,350 ​ $ 422,350 ​ $ — ​ $ — ​ $ 422,350 Investment securities available for sale ​ ​ 732,312 ​ ​ — ​ ​ 732,312 ​ ​ — ​ ​ 732,312 Loans and leases, net held for investment ​ ​ 2,121,337 ​ ​ — ​ ​ — ​ ​ 2,103,993 ​ ​ 2,103,993 Collateral dependent impaired loans ​ ​ 260 ​ ​ — ​ ​ 260 ​ ​ 114 ​ ​ 374 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,820,646 ​ ​ 1,111,411 ​ ​ 1,708,701 ​ ​ — ​ ​ 2,820,112 Repurchase agreements ​ ​ 92,553 ​ ​ — ​ ​ 92,553 ​ ​ — ​ ​ 92,553 Long-term debt ​ ​ 49,221 ​ ​ — ​ ​ 49,782 ​ ​ — ​ ​ 49,782 Subordinated debentures ​ ​ 35,258 ​ ​ — ​ ​ 33,929 ​ ​ — ​ ​ 33,929 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ Fair Value Measurements ​ Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Financial assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 71,417 ​ $ 71,417 ​ $ — ​ $ — ​ $ 71,417 Investment securities available for sale ​ ​ 543,974 ​ ​ — ​ ​ 543,974 ​ ​ — ​ ​ 543,974 Loans and leases, net held for investment ​ ​ 2,441,676 ​ ​ — ​ ​ — ​ ​ 2,450,340 ​ ​ 2,450,340 Collateral dependent impaired loans ​ ​ 550 ​ ​ — ​ ​ 550 ​ ​ — ​ ​ 550 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,624,606 ​ ​ 943,664 ​ ​ 1,680,814 ​ ​ — ​ ​ 2,624,478 Repurchase agreements ​ ​ 39,138 ​ ​ — ​ ​ 39,138 ​ ​ — ​ ​ 39,138 Short term borrowings ​ ​ 142,900 ​ ​ — ​ ​ 142,896 ​ ​ — ​ ​ 142,896 Subordinated debentures ​ ​ 35,124 ​ ​ — ​ ​ 24,364 ​ ​ — ​ ​ 24,364 ​ For financial asset categories that were carried on our balance sheet at fair value as of September 30, 2021 and December 31, 2020, the Company used the following methods and significant assumptions: ● Investment securities : Fair values are determined by obtaining quoted prices on nationally recognized securities exchanges or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities. 12 Table of Contents ● Collateral-dependent impaired loans : Collateral-dependent impaired loans are carried at fair value when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the original loan agreement and the loan has been written down to the fair value of its underlying collateral, net of expected disposition costs where applicable. ● Foreclosed assets : Repossessed real estate (known as other real estate owned, or “OREO”) and other foreclosed assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected disposition costs for OREO; fair values for any other foreclosed assets are represented by estimated sales proceeds as determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic reevaluation of expected cash flows and the timing of resolution. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance. Assets reported at fair value on a recurring basis are summarized below: Fair Value Measurements – Recurring (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at September 30, 2021, using ​ ​ ​ ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Realized Gain/(Loss) (Level 3) Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ 1,693 ​ $ — ​ $ 1,693 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 327,645 ​ ​ — ​ ​ 327,645 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 292,079 ​ ​ — ​ ​ 292,079 ​ ​ — Corporate bonds ​ ​ — ​ ​ 16,307 ​ ​ — ​ ​ 16,307 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 94,588 ​ ​ — ​ ​ 94,588 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 732,312 ​ $ — ​ $ 732,312 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2020, using ​ ​ ​ ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Realized Gain/(Loss) (Level 3) Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ 1,800 ​ $ — ​ $ 1,800 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 314,435 ​ ​ — ​ ​ 314,435 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 227,739 ​ ​ — ​ ​ 227,739 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 543,974 ​ $ — ​ $ 543,974 ​ $ — ​ 13 Table of Contents Assets reported at fair value on a nonrecurring basis are summarized below: Fair Value Measurements – Nonrecurring (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at September 30, 2021, using ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Impaired loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 196 ​ ​ — ​ ​ 196 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 64 ​ ​ — ​ ​ 64 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate ​ ​ — ​ ​ 260 ​ ​ — ​ ​ 260 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ — ​ ​ 114 ​ ​ 114 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total impaired loans ​ $ — ​ $ 260 ​ $ 114 ​ $ 374 Foreclosed assets ​ $ — ​ $ 93 ​ $ — ​ $ 93 Total assets measured on a nonrecurring basis ​ $ — ​ $ 353 ​ $ 114 ​ $ 467 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2020, using ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Impaired loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 295 ​ ​ — ​ ​ 295 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 78 ​ ​ — ​ ​ 78 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate ​ ​ — ​ ​ 373 ​ ​ — ​ ​ 373 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ 177 ​ ​ — ​ ​ 177 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total impaired loans ​ $ — ​ $ 550 ​ $ — ​ $ 550 Foreclosed assets ​ $ — ​ $ 971 ​ $ — ​ $ 971 Total assets measured on a nonrecurring basis ​ $ — ​ $ 1,521 ​ $ — ​ $ 1,521 ​ The table above includes collateral-dependent impaired loan balances for which a specific reserve has been established or on which a write-down has been taken. Information on the Company’s total impaired loan balances and specific loss reserves associated with those balances is included in Note 11 below. 14 Table of Contents The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value. Adjusting any of those inputs could result in a significantly lower or higher fair value measurement. For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured impaired loans. ​ Note 9 – Investments Investment Securities Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management. 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. The amortized cost and estimated fair value of available-for-sale investment securities are as follows: Amortized Cost And Estimated Fair Value (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. government agencies ​ $ 1,644 ​ $ 49 ​ $ — ​ $ 1,693 Mortgage-backed securities ​ ​ 320,919 ​ ​ 7,236 ​ ​ ( 510 ) ​ ​ 327,645 State and political subdivisions ​ ​ 277,690 ​ ​ 14,597 ​ ​ ( 208 ) ​ ​ 292,079 Corporate bonds ​ ​ 16,195 ​ ​ 133 ​ ​ ( 21 ) ​ ​ 16,307 Collateralized loan obligations ​ ​ 94,591 ​ ​ — ​ ​ ( 3 ) ​ ​ 94,588 Total securities ​ $ 711,039 ​ $ 22,015 ​ $ ( 742 ) ​ $ 732,312 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. government agencies ​ $ 1,725 ​ $ 75 ​ $ — ​ $ 1,800 Mortgage-backed securities ​ ​ 304,108 ​ ​ 10,389 ​ ​ ( 62 ) ​ ​ 314,435 State and political subdivisions ​ ​ 212,011 ​ ​ 15,728 ​ ​ — ​ ​ 227,739 Total securities ​ $ 517,844 ​ $ 26,192 ​ $ ( 62 ) ​ $ 543,974 ​ 15 Table of Contents At September 30, 2021 and December 31, 2020, the Company had 58 securities and 2 securities, respectively, with gross unrealized losses. Management has evaluated those securities as of the respective dates, and does not believe that any of the unrealized losses are other than temporary. Gross unrealized losses on our investment securities as of the indicated dates are disclosed in the table below, categorized by investment type and by the duration of time that loss positions on individual securities have continuously existed (over or under twelve months). Investment Portfolio - Unrealized Losses (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ Less than twelve months ​ Twelve months or more ​ Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value U.S. government agencies ​ $ — ​ $ — ​ $ — ​ $ — Mortgage-backed securities ​ ​ ( 387 ) ​ ​ 72,050 ​ ​ ( 123 ) ​ ​ 2,869 State and political subdivisions ​ ​ ( 208 ) ​ ​ 28,844 ​ ​ — ​ ​ — Corporate bonds ​ ​ ( 21 ) ​ ​ 1,255 ​ ​ — ​ ​ — Collateralized loan obligations ​ ​ ( 3 ) ​ ​ 8,297 ​ ​ — ​ ​ — Total ​ $ ( 619 ) ​ $ 110,446 ​ $ ( 123 ) ​ $ 2,869 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ Less than twelve months ​ Twelve months or more ​ Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value U.S. government agencies ​ $ — ​ $ — ​ $ — ​ $ — Mortgage-backed securities ​ ​ ( 62 ) ​ ​ 4,286 ​ ​ — ​ ​ — State and political subdivisions ​ ​ — ​ ​ — ​ ​ — ​ ​ — Corporate bonds ​ ​ — ​ ​ — ​ ​ — ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ ( 62 ) ​ $ 4,286 ​ $ — ​ $ — ​ The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated: Investment Portfolio - Realized Gains/(Losses) (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ ​ Nine months ended September 30, ​ 2021 2020 ​ 2021 ​ 2020 Proceeds from sales, calls and maturities of securities available for sale ​ $ 1,948 ​ $ 3,390 ​ $ 5,948 ​ $ 29,883 Gross gains on sales, calls and maturities of securities available for sale ​ ​ 11 ​ ​ — ​ ​ 11 ​ ​ 433 Gross losses on sales, calls and maturities of securities available for sale ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 43 ) Net gains on sale of securities available for sale ​ $ $ 11 ​ $ — ​ $ 11 ​ $ 390 ​ 16 Table of Contents The amortized cost and estimated fair value of investment securities available-for-sale at September 30, 2021 and December 31, 2020 are shown below, grouped by the remaining time to contractual maturity dates. The expected life of investment securities may not be consistent with contractual maturity dates, since the issuers of the securities might have the right to call or prepay obligations with or without penalties. Estimated Fair Value of Contractual Maturities (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ Amortized Cost Fair Value Maturing within one year ​ $ 5,954 ​ $ 6,021 Maturing after one year through five years ​ ​ 21,474 ​ ​ 21,786 Maturing after five years through ten years ​ ​ 30,722 ​ ​ 32,313 Maturing after ten years ​ ​ 237,380 ​ ​ 249,959 Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ Mortgage-backed securities ​ ​ 185,372 ​ ​ 189,427 Collateralized mortgage obligations ​ ​ 135,546 ​ ​ 138,218 Collateralized loan obligations ​ ​ 94,591 ​ ​ 94,588 ​ ​ $ 711,039 ​ $ 732,312 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Amortized Cost Fair Value Maturing within one year ​ $ 3,812 ​ $ 3,857 Maturing after one year through five years ​ ​ 9,475 ​ ​ 9,732 Maturing after five years through ten years ​ ​ 27,250 ​ ​ 28,745 Maturing after ten years ​ ​ 173,199 ​ ​ 187,205 Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ Mortgage-backed securities ​ ​ 157,201 ​ ​ 163,029 Collateralized mortgage obligations ​ ​ 146,907 ​ ​ 151,406 ​ ​ $ 517,844 ​ $ 543,974 ​ At September 30, 2021, the Company’s investment portfolio included 398 “muni” bonds issued by 330 different government municipalities and agencies located within 32 different states, with an aggregate fair value of $ 292.1 million. The largest exposure to any single municipality or agency was a combined $ 4.0 million (fair value) in general obligation bonds issued by the Charter Township of Washington County (MI). In addition, the Company owned 14 subordinated debentures issued by bank holding companies totaling $ 16.3 million (fair value). The Company’s investments in bonds issued by corporations, states, municipalities and political subdivisions are evaluated in accordance with Financial Institution Letter 48-2012, issued by the FDIC, “Revised Standards of Creditworthiness for Investment Securities,” and other regulatory guidance. Credit ratings are considered in 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. 17 Table of Contents The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations: Revenue and General Obligation Bonds by Location (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ December 31, 2020 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market General obligation bonds Cost Value Cost Value State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ $ 101,560 ​ $ 106,865 ​ $ 76,794 ​ $ 82,888 California ​ ​ 47,884 ​ ​ 49,793 ​ ​ 31,122 ​ ​ 33,100 Washington ​ ​ 24,029 ​ ​ 26,011 ​ ​ 22,896 ​ ​ 25,072 Other (29 & 29 states, respectively) ​ ​ 66,515 ​ ​ 69,853 ​ ​ 51,827 ​ ​ 55,352 Total general obligation bonds ​ ​ 239,988 ​ ​ 252,522 ​ ​ 182,639 ​ ​ 196,412 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue bonds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ ​ 6,970 ​ ​ 7,441 ​ ​ 7,023 ​ ​ 7,516 Washington ​ ​ 3,353 ​ ​ 3,491 ​ ​ 2,249 ​ ​ 2,406 California ​ ​ 1,335 ​ ​ 1,358 ​ ​ 363 ​ ​ 379 Other (32 & 32 states, respectively) ​ ​ 26,044 ​ ​ 27,267 ​ ​ 19,737 ​ ​ 21,026 Total revenue bonds ​ ​ 37,702 ​ ​ 39,557 ​ ​ 29,372 ​ ​ 31,327 Total obligations of states and political subdivisions ​ $ 277,690 ​ $ 292,079 ​ $ 212,011 ​ $ 227,739 ​ The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements. The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates. Revenue Bonds by Type (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ December 31, 2020 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market Revenue bonds Cost Value Cost Value Revenue source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Water ​ $ 13,551 ​ $ 14,109 ​ $ 12,609 ​ $ 13,526 Sewer ​ ​ 5,390 ​ ​ 5,667 ​ ​ 4,584 ​ ​ 4,891 Lease ​ ​ 4,613 ​ ​ 4,871 ​ ​ 2,707 ​ ​ 2,773 Sales tax ​ ​ 4,100 ​ ​ 4,203 ​ ​ 3,083 ​ ​ 3,308 Other (10 and 8 sources, respectively) ​ ​ 10,047 ​ ​ 10,707 ​ ​ 6,389 ​ ​ 6,829 Total revenue bonds ​ $ 37,702 ​ $ 39,557 ​ $ 29,372 ​ $ 31,327 ​ Low-Income Housing Tax Credit (“LIHTC”) Fund Investments The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits, by mandating a specified percentage of low-income tenants for each project. The primary investment return comes from tax credits that flow through to investors. Because rent levels are lower than standard market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses that are allocated to the limited partners for tax purposes. 18 Table of Contents The Company made investment commitments to nine different LIHTC fund limited partnerships from 2001 through 2017, all of which were California-focused funds that help the Company meet its obligations under the Community Reinvestment Act. We utilize the cost method of accounting for our LIHTC fund investments, under which we initially record on our balance sheet an asset that represents the total cash expected to be invested over the life of the partnership. Any commitments or contingent commitments for future investment are reflected as a liability. The income statement reflects tax credits and any other tax benefits from these investments “below the line” within our income tax provision, while the initial book value of the investment is amortized on a straight-line basis as an offset to noninterest income, over the time period in which the tax credits and tax benefits are expected to be received. As of September 30, 2021, our total LIHTC investment book balance was $ 3.1 million, which includes $ 0.1 million in remaining commitments for additional capital contributions. There were $ 0.4 million in tax credits derived from our LIHTC investments that were recognized during the nine months ended September 30, 2021, and amortization expense of $ 0.4 million associated with those investments was netted against pre-tax noninterest income for the same time period. Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is stated fairly and is not impaired. Note 10 – Credit Quality and Nonperforming Assets Credit Quality Classifications The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired to characterize the associated credit risk. Balances classified as “loss” are immediately charged off. The Company conforms to the following definitions for its risk classifications: ● Pass : Larger non-homogeneous loans not meeting the risk rating definitions below, and smaller homogeneous loans that are not assessed on an individual basis. ● Special mention : Loans which have potential issues that deserve the close attention of Management. If left uncorrected, those potential weaknesses could eventually diminish the prospects for full repayment of principal and interest according to the contractual terms of the loan agreement, or could result in deterioration of the Company’s credit position at some future date. ● Substandard : Loans that have at least one clear and well-defined weakness that could jeopardize the ultimate recoverability of all principal and interest, such as a borrower displaying a highly leveraged position, unfavorable financial operating results and/or trends, uncertain repayment sources or an otherwise deteriorated financial condition. ● Impaired : A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans include all nonperforming loans and restructured troubled debt (“TDRs”). A TDR may be nonperforming or performing, depending on its accrual status and the demonstrated ability of the borrower to comply with restructured terms (see “Troubled Debt Restructurings” section below for additional information on TDRs). 19 Table of Contents Credit quality classifications for the Company’s loan balances were as follows, as of the dates indicated: Credit Quality Classifications (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ Pass Special Mention Substandard Impaired Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 33,204 ​ $ 1,516 ​ $ — ​ $ — ​ $ 34,720 Other construction/land ​ ​ 25,139 ​ ​ — ​ ​ — ​ ​ 373 ​ ​ 25,512 1-4 family - closed end ​ ​ 213,453 ​ ​ 3,348 ​ ​ 840 ​ ​ 2,599 ​ ​ 220,240 Equity lines ​ ​ 25,183 ​ ​ 2,242 ​ ​ 56 ​ ​ 3,860 ​ ​ 31,341 Multi-family residential ​ ​ 52,123 ​ ​ 3,505 ​ ​ — ​ ​ — ​ ​ 55,628 Commercial real estate - owner occupied ​ ​ 329,776 ​ ​ 8,913 ​ ​ 3,908 ​ ​ 2,519 ​ ​ 345,116 Commercial real estate - non-owner occupied ​ ​ 949,741 ​ ​ 26,681 ​ ​ 19,119 ​ ​ 380 ​ ​ 995,921 Farmland ​ ​ 111,929 ​ ​ 7,853 ​ ​ 4,245 ​ ​ 419 ​ ​ 124,446 Total real estate ​ ​ 1,740,548 ​ ​ 54,058 ​ ​ 28,168 ​ ​ 10,150 ​ ​ 1,832,924 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ 41,377 ​ ​ — ​ ​ 1,448 ​ ​ 471 ​ ​ 43,296 Commercial and industrial ​ ​ 120,857 ​ ​ 9,697 ​ ​ 226 ​ ​ 1,512 ​ ​ 132,292 Mortgage warehouse ​ ​ 126,486 ​ ​ — ​ ​ — ​ ​ — ​ ​ 126,486 Consumer loans ​ ​ 4,561 ​ ​ 35 ​ ​ 69 ​ ​ 163 ​ ​ 4,828 Total gross loans and leases ​ $ 2,033,829 ​ $ 63,790 ​ $ 29,911 ​ $ 12,296 ​ $ 2,139,826 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Pass Special Mention Substandard Impaired Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 40,044 ​ $ 8,521 ​ $ — ​ $ — ​ $ 48,565 Other construction/land ​ ​ 61,809 ​ ​ 7,478 ​ ​ 2,148 ​ ​ 545 ​ ​ 71,980 1-4 family - closed end ​ ​ 130,559 ​ ​ 4,922 ​ ​ 1,356 ​ ​ 2,999 ​ ​ 139,836 Equity lines ​ ​ 30,479 ​ ​ 2,581 ​ ​ 58 ​ ​ 4,957 ​ ​ 38,075 Multi-family residential ​ ​ 57,934 ​ ​ 3,597 ​ ​ — ​ ​ 334 ​ ​ 61,865 Commercial real estate - owner occupied ​ ​ 308,819 ​ ​ 21,148 ​ ​ 5,652 ​ ​ 7,580 ​ ​ 343,199 Commercial real estate - non-owner occupied ​ ​ 1,026,041 ​ ​ 10,827 ​ ​ 25,048 ​ ​ 582 ​ ​ 1,062,498 Farmland ​ ​ 104,826 ​ ​ 21,468 ​ ​ 3,169 ​ ​ 442 ​ ​ 129,905 Total real estate ​ ​ 1,760,511 ​ ​ 80,542 ​ ​ 37,431 ​ ​ 17,439 ​ ​ 1,895,923 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ 39,391 ​ ​ 3,617 ​ ​ 1,614 ​ ​ 250 ​ ​ 44,872 Commercial and industrial ​ ​ 194,876 ​ ​ 11,819 ​ ​ 1,259 ​ ​ 1,094 ​ ​ 209,048 Mortgage warehouse ​ ​ 307,679 ​ ​ — ​ ​ — ​ ​ — ​ ​ 307,679 Consumer loans ​ ​ 5,323 ​ ​ 58 ​ ​ 11 ​ ​ 197 ​ ​ 5,589 Total gross loans and leases ​ $ 2,307,780 ​ $ 96,036 ​ $ 40,315 ​ $ 18,980 ​ $ 2,463,111 ​ Past Due and Nonperforming Assets Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets. The Company’s foreclosed assets include OREO, which consists of commercial and/or residential real estate properties acquired by foreclosure or similar means that the Company is offering or will offer for sale. Foreclosed assets totaled $ 0.1 million at September 30, 2021, and $ 1.0 million at December 31, 2020. Gross nonperforming loans totaled $ 6.8 million at September 30, 2021 and $ 7.6 million at December 31, 2020. Loans and leases are classified as nonperforming when reasonable doubt surfaces with regard to the ability of the Company to collect all principal and interest. At that point, we stop accruing interest on the loan or lease in question and reverse any previously recognized 20 Table of Contents interest to the extent that it is uncollected or associated with interest-reserve loans. Any asset for which principal or interest has been in default for 90 days or more is also placed on non-accrual status even if interest is still being received, unless the asset is both well secured and in the process of collection. As of September 30, 2021, the Company had $ 10.4 million in loans with payment deferrals either under section 4013 of the CARES Act or the April 7, 2020 Interagency Statement. An aging of the Company’s loan balances is presented in the following tables, by number of days past due as of the indicated dates: Loan Portfolio Aging (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due (1) Total Past Due Current Total Financing Receivables Non-Accrual Loans (2) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 34,720 ​ $ 34,720 ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 25,512 ​ ​ 25,512 ​ ​ — 1-4 family - closed end ​ ​ 379 ​ ​ — ​ ​ — ​ ​ 379 ​ ​ 219,861 ​ ​ 220,240 ​ ​ 1,418 Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 31,341 ​ ​ 31,341 ​ ​ 1,962 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 55,628 ​ ​ 55,628 ​ ​ — Commercial real estate - owner occupied ​ ​ 698 ​ ​ 99 ​ ​ — ​ ​ 797 ​ ​ 344,319 ​ ​ 345,116 ​ ​ 1,251 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 995,921 ​ ​ 995,921 ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 124,446 ​ ​ 124,446 ​ ​ 419 Total real estate ​ ​ 1,077 ​ ​ 99 ​ ​ — ​ ​ 1,176 ​ ​ 1,831,748 ​ ​ 1,832,924 ​ ​ 5,050 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ — ​ ​ — ​ ​ 305 ​ ​ 305 ​ ​ 42,991 ​ ​ 43,296 ​ ​ 471 Commercial and industrial ​ ​ 206 ​ ​ 1 ​ ​ 488 ​ ​ 695 ​ ​ 131,597 ​ ​ 132,292 ​ ​ 1,245 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 126,486 ​ ​ 126,486 ​ ​ — Consumer ​ ​ 10 ​ ​ 65 ​ ​ 3 ​ ​ 78 ​ ​ 4,750 ​ ​ 4,828 ​ ​ 22 Total gross loans and leases ​ $ 1,293 ​ $ 165 ​ $ 796 ​ $ 2,254 ​ $ 2,137,572 ​ $ 2,139,826 ​ $ 6,788 (1) As of September 30, 2021, there were no loans over 90 days past due and still accruing. (2) Included in total financing receivables 21 Table of Contents Loan Portfolio Aging (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due (1) Total Past Due Current Total Financing Receivables Non-Accrual Loans (2) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 48,565 ​ $ 48,565 ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 71,980 ​ ​ 71,980 ​ ​ — 1-4 family - closed end ​ ​ 210 ​ ​ 37 ​ ​ 150 ​ ​ 397 ​ ​ 139,439 ​ ​ 139,836 ​ ​ 1,193 Equity lines ​ ​ 1,409 ​ ​ — ​ ​ 551 ​ ​ 1,960 ​ ​ 36,115 ​ ​ 38,075 ​ ​ 2,403 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 61,865 ​ ​ 61,865 ​ ​ — Commercial real estate - owner occupied ​ ​ 101 ​ ​ 1,187 ​ ​ 78 ​ ​ 1,366 ​ ​ 341,833 ​ ​ 343,199 ​ ​ 1,678 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ 152 ​ ​ 152 ​ ​ 1,062,346 ​ ​ 1,062,498 ​ ​ 582 Farmland ​ ​ — ​ ​ 211 ​ ​ 442 ​ ​ 653 ​ ​ 129,252 ​ ​ 129,905 ​ ​ 442 Total real estate ​ ​ 1,720 ​ ​ 1,435 ​ ​ 1,373 ​ ​ 4,528 ​ ​ 1,891,395 ​ ​ 1,895,923 ​ ​ 6,298 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ — ​ ​ — ​ ​ 250 ​ ​ 250 ​ ​ 44,622 ​ ​ 44,872 ​ ​ 250 Commercial and industrial ​ ​ 325 ​ ​ — ​ ​ 237 ​ ​ 562 ​ ​ 208,486 ​ ​ 209,048 ​ ​ 1,026 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 307,679 ​ ​ 307,679 ​ ​ — Consumer ​ ​ 38 ​ ​ — ​ ​ — ​ ​ 38 ​ ​ 5,551 ​ ​ 5,589 ​ ​ 24 Total gross loans and leases ​ $ 2,083 ​ $ 1,435 ​ $ 1,860 ​ $ 5,378 ​ $ 2,457,733 ​ $ 2,463,111 ​ $ 7,598 (1) As of December 31, 2020, there were no loans over 90 days past due and still accruing. (2) Included in total financing receivables ​ Troubled Debt Restructurings A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring (TDR) if the modification constitutes a concession, excluding loan modifications that are COVID-19 related and made in accordance with the interagency guidance and the CARES Act as described in Note 3, above. At September 30, 2021, the Company had a total of $ 7.8 million in TDRs, including $ 2.3 million in TDRs that were on non-accrual status. Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate the borrower’s ability to comply with the modified terms. However, performance prior to the modification, or significant events that coincide with the modification, could result in a loan’s return to accrual status after a shorter performance period or even at the time of loan modification. Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain, then the loan will be kept on non-accrual status. 22 Table of Contents The Company may agree to different types of concessions when modifying a loan or lease. The tables below summarize TDRs which were modified during the noted periods, by type of concession: Troubled Debt Restructurings, by Type of Loan Modification (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 1,000 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,000 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 1,000 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,000 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ — ​ $ 1,000 ​ $ — ​ $ — ​ $ — ​ $ 1,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2020 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 569 ​ ​ — ​ ​ — ​ ​ — ​ ​ 569 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 569 ​ ​ — ​ ​ — ​ ​ — ​ ​ 569 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ 17 ​ ​ — ​ ​ — ​ ​ — ​ ​ 17 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ — ​ $ 586 ​ $ — ​ $ — ​ $ — ​ $ 586 ​ ​ 23 Table of Contents Troubled Debt Restructurings, by Type of Loan Modification (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ ​ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 1,000 ​ ​ — ​ ​ 83 ​ ​ — ​ ​ 1,083 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 136 ​ ​ — ​ ​ — ​ ​ — ​ ​ 136 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 1,136 ​ ​ — ​ ​ 83 ​ ​ — ​ ​ 1,219 Agricultural ​ ​ — ​ ​ 118 ​ ​ — ​ ​ — ​ ​ ​ ​ ​ 118 Commercial and industrial ​ ​ — ​ ​ 185 ​ ​ — ​ ​ — ​ ​ — ​ ​ 185 Consumer loans ​ ​ — ​ ​ 41 ​ ​ — ​ ​ — ​ ​ — ​ ​ 41 Total ​ $ — ​ $ 1,480 ​ $ — ​ $ 83 ​ $ — ​ $ 1,563 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2020 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ 85 ​ $ — ​ $ — ​ $ — ​ $ 85 1-4 family - closed-end ​ ​ — ​ ​ 1,325 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,325 Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 747 ​ ​ — ​ ​ — ​ ​ 338 ​ ​ 1,085 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 2,157 ​ ​ — ​ ​ — ​ ​ 338 ​ ​ 2,495 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ — Commercial and industrial ​ ​ — ​ ​ 45 ​ ​ — ​ ​ — ​ ​ — ​ ​ 45 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ — ​ $ 2,202 ​ $ — ​ $ — ​ $ 338 ​ $ 2,540 ​ 24 Table of Contents Troubled Debt Restructurings (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 0 ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 1 ​ ​ 1,000 ​ ​ 1,000 ​ ​ — ​ ​ — Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 1,000 ​ ​ 1,000 ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ ​ ​ $ 1,000 ​ $ 1,000 ​ $ — ​ $ — (1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2020 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 0 ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 1 ​ ​ 569 ​ ​ 569 ​ ​ — ​ ​ 5 Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 569 ​ ​ 569 ​ ​ — ​ ​ 5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ 1 ​ ​ 17 ​ ​ 17 ​ ​ — ​ ​ 1 Consumer loans ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ ​ ​ $ 586 ​ $ 586 ​ $ — ​ $ 6 (1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology. ​ 25 Table of Contents Troubled Debt Restructurings (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 0 ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 2 ​ ​ 1,083 ​ ​ 1,083 ​ ​ — ​ ​ 1 Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 1 ​ ​ 137 ​ ​ 136 ​ ​ ( 1 ) ​ ​ — Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 1,220 ​ ​ 1,219 ​ ​ ( 1 ) ​ ​ 1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 1 ​ ​ 118 ​ ​ 118 ​ ​ 116 ​ ​ — Commercial and industrial ​ 1 ​ ​ 185 ​ ​ 185 ​ ​ ( 1 ) ​ ​ 47 Consumer loans ​ 1 ​ ​ 41 ​ ​ 41 ​ ​ — ​ ​ — Total ​ ​ ​ $ 1,564 ​ $ 1,563 ​ $ 114 ​ $ 48 (1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2020 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 1 ​ $ 86 ​ $ 85 ​ $ 40 ​ $ 41 1-4 family - closed-end ​ 1 ​ ​ 1,325 ​ ​ 1,325 ​ ​ 10 ​ ​ — Equity lines ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 3 ​ ​ 1,085 ​ ​ 1,085 ​ ​ 8 ​ ​ 6 Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 2,496 ​ ​ 2,495 ​ ​ 58 ​ ​ 47 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ 2 ​ ​ 45 ​ ​ 45 ​ ​ 2 ​ ​ 2 Consumer loans ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ ​ ​ $ 2,541 ​ $ 2,540 ​ $ 60 ​ $ 49 (1) This represents the change in the ALLL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology. The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the three- or nine-month periods ended September 30, 2021 and 2020. ​ 26 Table of Contents Purchased Credit Impaired Loans The Company may acquire loans which show evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at the amount paid, since there is no carryover of the seller’s allowance for loan losses. Potential losses on PCI loans subsequent to acquisition are recognized by an increase in the allowance for loan losses. PCI loans are accounted for individually or are aggregated into pools of loans based on common risk characteristics. The Company projects the amount and timing of expected cash flows, and expected cash receipts in excess of the amount paid for any such loans are recorded as interest income over the remaining life of the loan or pool of loans (accretable yield). The excess of contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Expected cash flows are periodically re-evaluated throughout the life of the loan or pool of loans. If the present value of the expected cash flows is determined at any time to be less than the carrying amount, a reserve is recorded. If the present value of the expected cash flows is greater than the carrying amount, it is recognized as part of future interest income. Our acquisition of Santa Clara Valley Bank in 2014 included certain loans which have shown evidence of credit deterioration since origination, and for which it was probable at acquisition that all contractually required payments would not be collected. The carrying amount and unpaid principal balance of those PCI loans was as follows, as of the dates indicated: Purchased Credit Impaired Loans: (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ Unpaid Principal Balance Carrying Value Real estate secured ​ $ 63 ​ $ 63 Total purchased credit impaired loans ​ $ 63 ​ $ 63 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Unpaid Principal Balance Carrying Value Real estate secured ​ $ 78 ​ $ $ 78 Total purchased credit impaired loans ​ $ 78 ​ $ $ 78 ​ There was no allowance for loan losses allocated for PCI loans as of September 30, 2021 or December 31, 2020. There was no discount accretion recorded on PCI loans during the nine months ended September 30, 2021. Note 11 – Allowance for Loan and Lease Losses The Company’s allowance for loan and lease losses, a contra-asset, is established through a provision for loan and lease losses. The allowance is maintained at a level that is considered adequate to absorb probable losses on certain specifically identified impaired loans, as well as probable incurred losses inherent in the remaining loan portfolio. Specifically identifiable and quantifiable losses are immediately charged off against the allowance; recoveries are generally recorded only when cash payments are received subsequent to the charge off. We employ a systematic methodology, consistent with FASB guidelines on loss contingencies and impaired loans, for determining the appropriate level of the allowance for loan and lease losses and adjusting it to that level at least quarterly. Pursuant to our methodology, impaired loans and leases are individually analyzed and a criticized asset action plan is completed specifying the financial status of the borrower and, if applicable, the characteristics and condition of collateral and any associated liquidation plan. A specific loss allowance is created for each impaired loan, if necessary. The following tables disclose the unpaid principal balance, recorded investment, average recorded investment, and interest income recognized for impaired loans on our books as of the dates indicated. Balances are shown by loan type, and are further broken out by those that required an allowance and those that did not, with the associated allowance disclosed for those that required such. Included in the valuation allowance for impaired loans shown in the tables below are specific reserves allocated to TDRs, totaling $ 0.5 million at September 30, 2021 and $ 0.6 million at December 31, 2020. 27 Table of Contents Impaired Loans (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ Unpaid Principal Balance (1) Recorded Investment (2) Related Allowance Average Recorded Investment Interest Income Recognized (3) With an allowance recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ 373 ​ $ 373 ​ $ 90 ​ $ 382 ​ $ 52 1-4 family - closed-end ​ ​ 1,422 ​ ​ 1,422 ​ ​ 39 ​ ​ 1,459 ​ ​ 125 Equity lines ​ ​ 1,991 ​ ​ 1,991 ​ ​ 156 ​ ​ 2,058 ​ ​ 130 Commercial real estate- owner occupied ​ ​ 1,268 ​ ​ 1,268 ​ ​ 8 ​ ​ 1,286 ​ ​ 120 Commercial real estate- non-owner occupied ​ ​ 380 ​ ​ 380 ​ ​ 126 ​ ​ 400 ​ ​ 25 Total real estate ​ ​ 5,434 ​ ​ 5,434 ​ ​ 419 ​ ​ 5,585 ​ ​ 452 Agricultural ​ ​ 244 ​ ​ 244 ​ ​ 244 ​ ​ 247 ​ ​ — Commercial and industrial ​ ​ 995 ​ ​ 995 ​ ​ 382 ​ ​ 1,072 ​ ​ 36 Consumer loans ​ ​ 163 ​ ​ 163 ​ ​ 16 ​ ​ 177 ​ ​ 28 Subtotal ​ ​ 6,836 ​ ​ 6,836 ​ ​ 1,061 ​ ​ 7,081 ​ ​ 516 With no related allowance recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family - closed-end ​ ​ 1,190 ​ ​ 1,177 ​ ​ — ​ ​ 1,244 ​ ​ — Equity lines ​ ​ 1,881 ​ ​ 1,869 ​ ​ — ​ ​ 1,945 ​ ​ 6 Commercial real estate- owner occupied ​ ​ 1,371 ​ ​ 1,251 ​ ​ — ​ ​ 1,297 ​ ​ — Farmland ​ ​ 419 ​ ​ 419 ​ ​ — ​ ​ 429 ​ ​ — Total real estate ​ ​ 4,861 ​ ​ 4,716 ​ ​ — ​ ​ 4,915 ​ ​ 6 Agricultural ​ ​ 227 ​ ​ 227 ​ ​ — ​ ​ 275 ​ ​ — Commercial and industrial ​ ​ 517 ​ ​ 517 ​ ​ — ​ ​ 619 ​ ​ 2 Consumer loans ​ ​ 30 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2 Subtotal ​ ​ 5,635 ​ ​ 5,460 ​ ​ — ​ ​ 5,809 ​ ​ 10 Total ​ $ 12,471 ​ $ 12,296 ​ $ 1,061 ​ $ 12,890 ​ $ 526 (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. 28 Table of Contents Impaired Loans (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Unpaid Principal Balance (1) Recorded Investment (2) Related Allowance Average Recorded Investment Interest Income Recognized (3) With an allowance recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ 545 ​ $ 545 ​ $ 171 ​ $ 565 ​ $ 40 1-4 family - closed-end ​ ​ 2,078 ​ ​ 2,077 ​ ​ 51 ​ ​ 2,141 ​ ​ 104 Equity lines ​ ​ 2,875 ​ ​ 2,875 ​ ​ 233 ​ ​ 2,989 ​ ​ 98 Multi-family residential ​ ​ 334 ​ ​ 334 ​ ​ 16 ​ ​ 343 ​ ​ 23 Commercial real estate- owner occupied ​ ​ 6,076 ​ ​ 6,076 ​ ​ 54 ​ ​ 6,135 ​ ​ 226 Total real estate ​ ​ 11,908 ​ ​ 11,907 ​ ​ 525 ​ ​ 12,173 ​ ​ 491 Agricultural ​ ​ 250 ​ ​ 250 ​ ​ 250 ​ ​ 250 ​ ​ — Commercial and industrial ​ ​ 945 ​ ​ 935 ​ ​ 202 ​ ​ 1,152 ​ ​ 6 Consumer loans ​ ​ 235 ​ ​ 197 ​ ​ 19 ​ ​ 221 ​ ​ 16 Subtotal ​ ​ 13,338 ​ ​ 13,289 ​ ​ 996 ​ ​ 13,796 ​ ​ 513 With no related allowance recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ ​ 114 ​ ​ — ​ ​ — ​ ​ 5 ​ ​ — 1-4 family - closed-end ​ ​ 942 ​ ​ 922 ​ ​ — ​ ​ 960 ​ ​ — Equity lines ​ ​ 2,160 ​ ​ 2,082 ​ ​ — ​ ​ 2,127 ​ ​ 3 Commercial real estate- owner occupied ​ ​ 1,624 ​ ​ 1,504 ​ ​ — ​ ​ 1,590 ​ ​ — Commercial real estate- non-owner occupied ​ ​ 582 ​ ​ 582 ​ ​ — ​ ​ 617 ​ ​ — Farmland ​ ​ 442 ​ ​ 442 ​ ​ — ​ ​ 446 ​ ​ — Total real estate ​ ​ 5,864 ​ ​ 5,532 ​ ​ — ​ ​ 5,745 ​ ​ 3 Commercial and industrial ​ ​ 189 ​ ​ 159 ​ ​ — ​ ​ 165 ​ ​ — Consumer loans ​ ​ 5 ​ ​ — ​ ​ — ​ ​ 5 ​ ​ 2 Subtotal ​ ​ 6,058 ​ ​ 5,691 ​ ​ — ​ ​ 5,915 ​ ​ 5 Total ​ $ 19,396 ​ $ 18,980 ​ $ 996 ​ $ 19,711 ​ $ 518 (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. The specific loss allowance for an impaired loan generally represents the difference between the book value of the loan and either the fair value of underlying collateral less estimated disposition costs, or the loan’s net present value as determined by a discounted cash flow analysis. The discounted cash flow approach is typically used to measure impairment on loans for which it is anticipated that repayment will be provided from cash flows other than those generated solely by the disposition or operation of underlying collateral. However, historical loss rates may be used by the Company to determine a specific loss allowance if those rates indicate a higher potential reserve need than the discounted cash flow analysis. Any change in impairment attributable to the passage of time is accommodated by adjusting the loss allowance accordingly. For loans where repayment is expected to be provided by the disposition or operation of the underlying collateral, impairment is measured using the fair value of the collateral. If the collateral value, net of the expected costs of disposition, is less than the loan balance, then a specific loss reserve is established for the shortfall in collateral coverage. If the discounted collateral value is greater than or equal to the loan balance, no specific loss reserve is required. At the time a collateral-dependent loan is designated as nonperforming, a new appraisal is ordered and typically received within 30 to 60 days if a recent appraisal is not already available. We use external appraisals to determine the fair value of the underlying collateral for nonperforming real estate loans. Until an updated appraisal is received, the Company uses the existing appraisal to determine the amount of the specific loss allowance that may be required. The specific loss 29 Table of Contents allowance is adjusted, as necessary, once a new appraisal is received. Updated appraisals are generally ordered at least annually for collateral-dependent loans that remain impaired, and current appraisals were available or in process for 71 % of the Company’s impaired real estate loan balances at September 30, 2021. Furthermore, the Company analyzes collateral-dependent loans on at least a quarterly basis, to determine if any portion of the recorded investment in such loans can be identified as uncollectible and would therefore constitute a confirmed loss. All amounts deemed to be uncollectible are promptly charged off against the Company’s allowance for loan and lease losses, with the loan then carried at the fair value of the collateral, as appraised, less estimated costs of disposition if applicable. Once a charge-off or write-down is recorded, it will not be restored to the loan balance on the Company’s accounting books. Our methodology also provides for the establishment of a “general” allowance for probable incurred losses inherent in loans and leases that are not impaired. Unimpaired loan balances are segregated by credit quality, and are then evaluated in pools with common characteristics. At the present time, pools are based on the same segmentation of loan types presented in our regulatory filings. While this methodology utilizes historical loss data and other measurable information, the credit classification of loans and the establishment of the allowance for loan and lease losses are both to some extent based on Management’s judgment and experience. Our methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan and lease losses that Management believes is appropriate at each reporting date. Quantitative information includes our historical loss experience, delinquency and charge-off trends, and current collateral values. Qualitative factors include the general economic environment in our markets and, in particular, the condition of the agricultural industry and other key industries. Lending policies and procedures (including underwriting standards), the experience and abilities of lending staff, the quality of loan review, credit concentrations (by geography, loan type, industry and collateral type), the rate of loan portfolio growth, and changes in legal or regulatory requirements are additional factors that are considered. The total general reserve established for probable incurred losses on unimpaired loans was $ 14.6 million at September 30, 2021. There were no material changes to the methodology used to determine our allowance for loan and lease losses during the three months ended September 30, 2021, although as outlined in Note 3 to the consolidated financial statements we will substantially update our methodology upon the implementation of the CECL accounting method under Financial Accounting Standards Board (FASB) Accounting Standards Update ASU 2016-13 and related amendments, Financial Instruments – Credit Losses (Topic 326) to the earlier of the first day of the fiscal year, beginning after the national emergency related to the outbreak of COVID-19 terminates or January 1, 2022. Moreover, we will continue to enhance our methodology as needed in order to comply with regulatory and accounting requirements, keep pace with the size and complexity of our loan and lease portfolio, and respond to pressures created by external forces. We engage outside firms on a regular basis to assess our methodology and perform independent credit reviews of our loan and lease portfolio. 30 Table of Contents The tables that follow detail the activity in the allowance for loan and lease losses for the periods noted: Allowance for Credit Losses and Recorded Investment in Financing Receivables (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ ​ ​ Real Estate ​ ​ Agricultural Products ​ ​ Commercial and Industrial (1) ​ ​ Consumer ​ ​ Unallocated ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ $ 12,075 ​ $ 524 ​ $ 3,072 ​ $ 690 ​ $ 60 ​ $ 16,421 Charge-offs ​ ​ — ​ ​ — ​ ​ ( 52 ) ​ ​ ( 274 ) ​ ​ — ​ ​ ( 326 ) Recoveries ​ ​ ( 59 ) ​ ​ — ​ ​ 11 ​ ​ 170 ​ ​ — ​ ​ 122 (Benefit) provision ​ ​ 261 ​ ​ 1 ​ ​ ( 930 ) ​ ​ ( 1 ) ​ ​ 69 ​ ​ ( 600 ) Ending balance ​ $ 12,277 ​ $ 525 ​ $ 2,101 ​ $ 585 ​ $ 129 ​ $ 15,617 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ Real Estate Agricultural Products Commercial and Industrial (1) Consumer Unallocated Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance $ 11,766 $ 482 $ 4,721 $ 720 $ 49 $ 17,738 Charge-offs ​ ​ ( 245 ) ​ ​ ( 50 ) ​ ​ ( 129 ) ​ ​ ( 606 ) ​ ​ — ​ ​ ( 1,030 ) Recoveries ​ ​ 590 ​ ​ — ​ ​ 203 ​ ​ 566 ​ ​ — ​ ​ 1,359 (Benefit) provision ​ ​ 166 ​ ​ 93 ​ ​ ( 2,694 ) ​ ​ ( 95 ) ​ ​ 80 ​ ​ ( 2,450 ) Ending balance ​ $ 12,277 ​ $ 525 ​ $ 2,101 ​ $ 585 ​ $ 129 ​ $ 15,617 Reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Specific ​ $ 419 ​ $ 244 ​ $ 382 ​ $ 16 ​ $ — ​ $ 1,061 General ​ ​ 11,858 ​ ​ 281 ​ ​ 1,719 ​ ​ 569 ​ ​ 129 ​ ​ 14,556 Ending balance ​ $ 12,277 ​ $ 525 ​ $ 2,101 ​ $ 585 ​ $ 129 ​ $ 15,617 Loans evaluated for impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ $ 10,150 ​ $ 471 ​ $ 1,512 ​ $ 163 ​ $ — ​ $ 12,296 Collectively ​ ​ 1,822,774 ​ ​ 42,825 ​ ​ 257,266 ​ ​ 4,665 ​ ​ — ​ ​ 2,127,530 Ending balance ​ $ 1,832,924 ​ $ 43,296 ​ $ 258,778 ​ $ 4,828 ​ $ — ​ $ 2,139,826 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2020 ​ Real Estate Agricultural Products Commercial and Industrial (1) Consumer Unallocated Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ $ 5,635 ​ ​ 193 ​ ​ 2,685 ​ ​ 1,278 ​ ​ 132 ​ $ 9,923 Charge-offs ​ ​ — ​ ​ — ​ ​ ( 436 ) ​ ​ ( 1,397 ) ​ ​ — ​ ​ ( 1,833 ) Recoveries ​ ​ 87 ​ ​ — ​ ​ 129 ​ ​ 882 ​ ​ — ​ ​ 1,098 Provision (benefit) ​ ​ 6,044 ​ ​ 289 ​ ​ 2,343 ​ ​ ( 43 ) ​ ​ ( 83 ) ​ ​ 8,550 Ending balance ​ $ 11,766 ​ $ 482 ​ $ 4,721 ​ $ 720 ​ $ 49 ​ $ 17,738 Reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Specific ​ $ 525 ​ $ 250 ​ $ 202 ​ $ 19 ​ $ — ​ $ 996 General ​ ​ 11,241 ​ ​ 232 ​ ​ 4,519 ​ ​ 701 ​ ​ 49 ​ ​ 16,742 Ending balance ​ $ 11,766 ​ $ 482 ​ $ 4,721 ​ $ 720 ​ $ 49 ​ $ 17,738 Loans evaluated for impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ $ 17,439 ​ $ 250 ​ $ 1,094 ​ $ 197 ​ $ — ​ $ 18,980 Collectively ​ ​ 1,878,484 ​ ​ 44,622 ​ ​ 515,633 ​ ​ 5,392 ​ ​ — ​ ​ 2,444,131 Ending balance ​ $ 1,895,923 ​ $ 44,872 ​ $ 516,727 ​ $ 5,589 ​ $ — ​ $ 2,463,111 (1) Includes mortgage warehouse lines. ​ 31 Table of Contents Allowance for Credit Losses and Recorded Investment in Financing Receivables (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2020 ​ Real Estate Agricultural Products Commercial and Industrial (1) Consumer Unallocated Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ $ 5,635 $ 193 $ 2,685 $ 1,278 $ 132 $ 9,923 Charge-offs ​ ​ — ​ ​ — ​ ​ ( 419 ) ​ ​ ( 1,137 ) ​ ​ — ​ ​ ( 1,556 ) Recoveries ​ ​ 78 ​ ​ — ​ ​ 83 ​ ​ 708 ​ ​ — ​ ​ 869 Provision (benefit) ​ ​ 5,047 ​ ​ 283 ​ ​ 1,133 ​ ​ ( 2 ) ​ ​ ( 111 ) ​ ​ 6,350 Ending balance ​ $ 10,760 ​ $ 476 ​ $ 3,482 ​ $ 847 ​ $ 21 ​ $ 15,586 Reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Specific ​ $ 552 ​ $ 250 ​ $ 344 ​ $ 88 ​ $ — ​ $ 1,234 General ​ ​ 10,208 ​ ​ 226 ​ ​ 3,138 ​ ​ 759 ​ ​ 21 ​ ​ 14,352 Ending balance ​ $ 10,760 ​ $ 476 ​ $ 3,482 ​ $ 847 ​ $ 21 ​ $ 15,586 Loans evaluated for impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ $ 13,150 ​ $ 250 ​ $ 1,239 ​ $ 255 ​ $ — ​ $ 14,894 Collectively ​ ​ 1,810,731 ​ ​ 45,532 ​ ​ 503,501 ​ ​ 5,642 ​ ​ — ​ ​ 2,365,406 Ending balance ​ $ 1,823,881 ​ $ 45,782 ​ $ 504,740 ​ $ 5,897 ​ $ — ​ $ 2,380,300 (1) Includes mortgage warehouse lines. ​ ​ ​ Note 12 – Long-Term Debt Long-Term Debt (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ December 31, 2020 ​ ​ ​ ​ Unamortized ​ ​ ​ Unamortized ​ ​ ​ ​ Debt Issuance ​ ​ ​ Debt Issuance ​ Principal Costs Principal Costs Fixed - floating rate subordinated debentures, due 2031 (1) $ 50,000 $ ( 779 ) $ — $ — Total long-term debt ​ $ 50,000 ​ $ ( 779 ) ​ $ — ​ $ — (1) 3.25 % fixed rate for five years, then floating rate beginning October 1, 2026 at 253.5 basis points over 3-month term SOFR adjusted quarterly . ​ Note 13 – Revenue Recognition The Company utilizes the guidance found in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), when accounting for certain noninterest income. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Sufficient information should be provided to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company’s revenue streams that are within the scope of and accounted for under Topic 606 include service charges on deposit accounts, debit card interchange fees, and fees levied for other services the Company provides its customers. The guidance does not apply to revenue associated with financial instruments such as loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP. 32 Table of Contents All of the Company’s revenue from contracts within the scope of ASC 606 is recognized as noninterest income, except for gains on the sale of OREO which is classified as noninterest expense. The following table presents the Company’s sources of noninterest income for the three- and nine-month periods ended September 30, 2021 and 2020. Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ For the nine months ended September 30, ​ 2021 2020 2021 2020 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Returned item and overdraft fees $ 1,307 $ 1,160 $ 3,561 $ 3,785 Other service charges on deposits ​ ​ 1,879 ​ ​ 1,790 ​ ​ 5,116 ​ ​ 4,967 Debit card interchange income ​ ​ 2,192 ​ ​ 1,828 ​ ​ 6,321 ​ ​ 5,183 Loss on limited partnerships (1) ​ ​ ( 144 ) ​ ​ ( 716 ) ​ ​ ( 391 ) ​ ​ ( 1,031 ) Dividends on equity investments (1) ​ ​ 187 ​ ​ 190 ​ ​ 543 ​ ​ 524 Unrealized gains recognized on equity investments (1) ​ ​ — ​ ​ — ​ ​ 857 ​ ​ 447 Net gains on sale of securities (1) ​ ​ 11 ​ ​ — ​ ​ 11 ​ ​ 390 Other (1) ​ ​ 2,103 ​ ​ 2,853 ​ ​ 4,959 ​ ​ 5,847 Total noninterest income ​ $ 7,535 ​ $ 7,105 ​ $ 20,977 ​ $ 20,112 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits (1) ​ $ 10,618 ​ $ 9,698 ​ $ 32,194 ​ $ 29,136 Occupancy expense (1) ​ ​ 2,359 ​ ​ 2,559 ​ ​ 7,472 ​ ​ 7,390 (Gain) loss on sale of OREO ​ ​ ( 26 ) ​ ​ ( 12 ) ​ ​ ( 141 ) ​ ​ ( 10 ) Other (1) ​ ​ 7,924 ​ ​ 7,058 ​ ​ 21,856 ​ ​ 18,640 Total noninterest expense ​ $ 20,875 ​ $ 19,303 ​ $ 61,381 ​ $ 55,156 Percentage of noninterest revenue not within scope of ASC 606. ​ ​ 28.63 % ​ ​ 32.75 % ​ ​ 28.50 % ​ ​ 30.71 % ​ (1) Not within scope of ASC 606. Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP. ​ With regard to noninterest income associated with customer contracts, the Company has determined that transaction prices are fixed, and performance obligations are satisfied as services are rendered, thus there is little or no judgment involved in the timing of revenue recognition under contracts that are within the scope of ASC 606. ​ Note 14 – Subsequent Events On October 21, 2021 the Board approved the 2021 Share Repurchase Plan which authorizes 1,000,000 shares of common stock for repurchase. In conjunction with this action, the Board terminated the current Share Repurchase Plan which authorized 500,000 shares of common stock for repurchase. There were 268,301 shares remaining for repurchase under the current Share Repurchase Plan. Those remaining shares were rolled into the 2021 Share Repurchase Plan, which are included in the 1,000,000 shares authorized for repurchase. The Company plans to commence repurchases of shares in the fourth quarter of 2021. ​ ​ ​ ​ ​ 33 Table of Contents PART I - FINANCIAL INFORMATION