What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 410 added, 413 removed, 565 unchanged (59% of the section changed)

3 unchanged sentences

(dollars in thousands)

September 30, 2021

March 31, 2022

December 31, 2021

2 unchanged sentences

Total cash & cash equivalents

Securities available-for-sale

Investment securities available-for-sale, at fair value (net of zero allowance for credit losses at March 31, 2022 and December 31, 2021)

Loans and leases:

1 unchanged sentence

Deferred loan and lease fees, net

Allowance for loan and lease losses

Allowance for credit losses on loans and leases

Net loans and leases

8 unchanged sentences

Repurchase agreements

Short-term borrowings

Long-term debt

Subordinated debentures

Allowance for credit losses on unfunded loan commitments

Other liabilities

4 unchanged sentences

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

15,086,032 and 15,270,010 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income, net

Accumulated other comprehensive (loss) income, net

Total shareholders' equity

3 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(dollars in thousands, except per share data, unaudited)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Interest and dividend income

9 unchanged sentences

Net interest income

(Benefit) provision for loan losses

Net interest income after provision for loan losses

Provision for credit losses on loans and leases

Benefit for credit losses on unfunded loan commitments

Net interest income after provision for credit losses

Noninterest income

3 unchanged sentences

Salaries and employee benefits

Occupancy and equipment

Total noninterest expense

12 unchanged sentences

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(dollars in thousands, unaudited)

Three months ended September 30,

Nine months ended September 30,

Other comprehensive (loss) income, before tax:

Three months ended March 31,

Other comprehensive loss, before tax:

Unrealized gains on securities:

Unrealized holding (loss) gain arising during period

reclassification adjustment for (losses) gains included in net income (1)

Other comprehensive (loss) income, before tax

Income tax (expense) benefit related to items of other comprehensive (loss) income, net of tax

Other comprehensive (loss) income

Comprehensive income

Unrealized holding loss arising during period

reclassification adjustment for gains included in net income (1)

Other comprehensive loss, before tax

Income tax benefit related to items of other comprehensive loss, net of tax

Other comprehensive loss

Comprehensive (loss) income

(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.

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)

Comprehensive

Shareholders'

Income (Loss)

Balance, June 30, 2020

Other comprehensive income, net of tax

Unvested restricted stock issued

Stock compensation costs

Cash dividends - $ 0.20 per share

Balance, September 30, 2020

Balance, June 30, 2021

Other comprehensive loss, net of tax

Exercise of stock options

Stock based compensation expense

Stock repurchase

Cash dividends - $ 0.22 per share

Balance, September 30, 2021

Income tax expense associated with the reclassification adjustment for the three months ended March 31, 2022 and 2021 was $ 305 thousand and $ 0 respectively.

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(dollars in thousands, except per share data, unaudited)

3 unchanged sentences

Balance, December 31 2020

Other comprehensive income, net of tax

Exercise of stock options

Stock based compensation expense

Stock repurchase

Other comprehensive loss, net of tax

Stock options exercised, net of shares surrendered for cashless exercises

Stock compensation costs

Cash dividends - $ 0.21 per share

Balance, September 30, 2020

Balance, March 31, 2021

Balance, December 31, 2021

Cumulative effect of change in accounting principle (Note 3)

Other comprehensive loss, net of tax

Exercise of stock options

Stock based compensation expense

Restricted stock surrendered due to employee tax liability

Restricted stock forfeited / cancelled

Stock based compensation - stock options

Stock based compensation - restricted stock

Stock repurchase

Cash dividends - $ 0.23 per share

Balance, September 30, 2021

Balance, March 31, 2022

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

(dollars in thousands, unaudited)

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

1 unchanged sentence

Gain on sales of securities

Gain on disposal of fixed assets

Loss on disposal of fixed assets

Gain on sale on foreclosed assets

1 unchanged sentence

Stock based compensation expense

(Benefit) provision for loan losses

Provision for credit losses on loans and leases

Depreciation and amortization

Net amortization on securities premiums and discounts

Accretion of discounts for loans acquired and net deferred loan fees

Increase in cash surrender value of life insurance policies

Amortization (accretion) of premiums (discounts) for loans acquired

Decrease (increase) in cash surrender value of life insurance policies

Amortization of core deposit intangible

Increase in interest receivable and other assets

(Increase) decrease in interest receivable and other assets

Decrease in other liabilities

Deferred income tax benefit

Increase in value of restricted bank equity securities

Deferred income tax benefit (provision)

Decrease (increase) in value of restricted bank equity securities

Net amortization of partnership investment

5 unchanged sentences

Principal pay downs on securities available for sale

Net purchases of FHLB stock

Loan originations and payments, net

Purchases of premises and equipment

Proceeds from sale premises and equipment

Proceeds from sales of foreclosed assets

1 unchanged sentence

Liquidation of bank-owned life insurance

Proceeds from BOLI death benefit

Net cash provided by (used in) investing activities

Amortization of debt issuance costs

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Increase in deposits

(Decrease) increase in borrowed funds

Decrease in borrowed funds

Increase in repurchase agreements

2 unchanged sentences

Stock options exercised

Proceeds from issuance of subordinated debt

Net cash provided by financing activities

Increase in cash and cash equivalents

(Decrease) increase in cash and cash equivalents

Cash and cash equivalents

3 unchanged sentences

Interest paid

Income taxes paid

Supplemental noncash disclosures:

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

Note 1 – The Business of Sierra Bancorp

2 unchanged sentences

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”).

As of March 31, 2022, 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.

7 unchanged sentences

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.

To support organic growth in the agricultural lending sector the bank also opened a loan production office in Templeton, CA in April 2022.

The Company had total assets of $ 3.4 billion at March 31, 2022, 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 $ 2.9 billion at March 31, 2022, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

Note 2 – Basis of Presentation

10 unchanged sentences

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

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.

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 (generally loans and held-to-maturity investment securities) in addition to certain off balance-sheet credit exposure.

Under the current expected credit losses (“CECL”)

methodology expected credit losses for financial assets are estimated over the contractual life of the financial asset, adjusted for expected prepayments, considering historical experience, current conditions, and reasonable and supportable forecasts.

Additionally, under CECL the accounting for credit losses on available-for-sale debt securities is addressed through an allowance for credit losses which is a change from legacy GAAP which previously required the direct write-down of securities through the other-than-temporary impairment approach.

The Company implemented CECL on January 1, 2022 , using the modified retrospective approach to estimate lifetime expected losses on financial assets measured at amortized cost in addition to certain off balance sheet credit exposures.

The January 1, 2022, increase in the Company’s allowance for credit losses, of $ 9.5 million on loans and leases and $ 0.9 million in off balance sheet credit exposures, net of the impact of deferred taxes, was reflected in a transition adjustment of $ 7.3 million to retained earnings.

There was no cumulative effect adjustment related to our available-for-sale investment portfolio upon adoption.

Results for reporting periods beginning after December 31, 2021, are presented under CECL whereas prior comparative periods are presented under legacy GAAP.

The following table illustrates the impact of the adoption of CECL, and the transition away from the incurred loss method, on January 1, 2022 .

The impact to the Allowance for Credit losses (“ACL”) on the Loan Portfolio is broken out at the class level (dollars in thousands, unaudited):

Transition Impact on Allowance for Credit Losses

(dollars in thousands, unaudited)

January 1, 2022

Reserves Under Incurred Loss

Reserves Under CECL

Transition Impact Gross

Impact of Deferred Taxes

Impact to Retained Earnings

1-4 family residential construction

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Total real estate

Commercial and industrial

Mortgage warehouse lines

Consumer loans

Total allowance for credit losses - loans

Allowance for credit losses - unfunded loan commitments

The Company currently categorizes all of its loans and leases as held-for-investment and following CECL implementation, reports loans and leases on the amortized cost basis.

The Company’s amortized cost basis is comprised of the principal balance outstanding, net of remaining purchase discount or premium and any deferred fees or costs.

Notably, the Company elected the practical expedient available under CECL to exclude accrued interest receivable from the amortized cost basis of all categorizations of loans and investment securities, and resultingly did not estimate reserves on accrued interest receivable balances, as any past due interest income is reversed on a timely basis.

Accrued interest receivable continues to be included in other assets on the Company’s balance sheet and as of March 31, 2022, measured at $ 4.8 million and $ 6.7 million for available-for-sale securities and loans, respectively.

During 2022 no accrued interest receivable on loans or available for sale investment securities was reversed against interest income.

For available-for-sale debt securities in an unrealized loss position for which management has an intent to sell the security, or considers it more likely-than-not that the security in question will be sold prior to a recovery of its amortized cost basis, the security will be written down to fair value through a direct charge to income.

For the remainder of available sale debt securities in an unrealized loss position, which don’t meet the previously outlined criteria, management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors.

In performing this evaluation, management considers the extent which fair value has fallen below amortized cost, changes in rating by rating agencies, and other information indicating a deterioration in repayment capacity of either the underlying issuer or the borrowers providing repayment capacity in a securitization.

If management’s evaluation indicates that a credit loss exists then a present value of the expected cash flows is calculated and compared to the amortized cost basis of the security in question and to the degree that the amortized cost basis exceeds the present value an allowance for credit loss (“ACL”) is established, with the caveat that the maximum amount of the reserve on any individual security is the difference between the fair value and amortized cost balance of the security in question.

Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

Similar to practice under legacy GAAP, the Company generally continues to place loans and leases on nonaccrual status when management has determined that the full repayment of principal and collection of contractually agreed upon interest is unlikely or when the loan in question has become delinquent more than 90 days.

The Company may decide that it is appropriate to continue to accrue interest on certain loans and leases more than 90 days delinquent if they are well-secured by collateral and collection is in process.

When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan and lease is reversed out of interest income in the period in which the loan’s status changed.

For loans and leases with an interest reserve, i.e., where loan and lease proceeds are advanced to the borrower to make interest payments, all interest recognized from the inception of the loan and lease is reversed when the loan and lease is placed on non-accrual.

Once a loan and lease is on non-accrual status subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required.

Generally, loans and leases are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Similar to practice under legacy GAAP, the ACL on the loan portfolio is a valuation allowance deducted from the recorded balance in loans and leases.

However, under CECL the ACL represents principal which is not expected to be collected over the contractual life of the loans and leases, adjusted for expected prepayment, whereas under legacy GAAP the allowance represented only losses already incurred as of the balance sheet date.

The ACL is increased by a provision for credit losses charged to expense, and by principal recovered on charged-off balances.

It is reduced by principal charge-offs.

The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, using information from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

Adjustments are also made for changes in risk profile, credit concentrations, historical trends, and other economic conditions.

The ACL for loans and leases is separated between a collective reserve evaluation, for loans where similar risk characteristics exist and an individual reserve evaluation for loans without similar risk characteristics.

The collective evaluation of loans is performed at the portfolio segment level, using call code as the primary segmentation key but also considering similarity in quantitative reserve methodology.

The Company’s ACL is categorized according to the following portfolio segments:

1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse, and Consumer.

Management utilizes a discounted cash flow methodology to estimate the quantitative portion of collectively evaluated reserves for the 1-4 Family Real Estate, Commercial Real Estate, Commercial & Industrial and Mortgage Warehouse portfolio segments.

Management utilizes a Remaining Life Quantitative Reserve Methodology for the Farmland & Agricultural Production, and Consumer portfolio segments.

Within the portfolio segments utilizing the DCF quantitative reserve methodology, management has made the election to adjust the effective interest rate to consider the impact of expected prepayments.

Loans and leases where similar risk characteristics exist are evaluated for the ACL in the collective reserve evaluation.

The Company’s policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans and leases evaluated collectively and as such, all nonaccrual loans and leases are individually evaluated for reserves.

of March 31, 2022 the Bank’s nonaccrual loans and leases comprised the entire population of loans and leases individually evaluated.

The Company’s policy is that nonaccrual loans also represent the subset of loans and leases where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loan and lease should be categorized as collateral dependent.

It is the Company’s policy that the only loans and leases where the credit quality has deteriorated to the point where foreclosure is probable are the Company’s nonaccrual loans and leases.

The implementation of CECL also impacted the Company’s ACL on unfunded loan commitments, as this ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company.

The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment.

The funding rate represents management’s estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data.

Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while any related provision expense has been moved to provision for credit loss expense from its prior presentation in noninterest expense.

Prior period expense has been reclassified for comparative purposes.

Note 4 – Share Based Compensation

1 unchanged sentence

The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15, 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.

Options to purchase 172,689 shares that were granted under the 2007 Plan were still outstanding as of March 31, 2022 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.

Options to purchase 436,418 shares granted under the 2017 Plan were outstanding as of March 31, 2022.

The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share.

2 unchanged sentences

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.

A pre-tax charge of $ 0.4 million was reflected in the Company’s income statement during the first quarter of 2022 and $ 0.2 million was charged during the first quarter of 2021, as expense related to stock options and restricted stock awards.

Restricted Stock Grants

3 unchanged sentences

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.

There were no shares granted to employees and directors of the Company during the first three months of 2022.

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.

As of March 31, 2022, there was $ 2.6 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 3.0 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,

The Company’s time-vested award activity for the three months ended March 31, 2022 and 2021 is summarized below (unaudited):

Three months ended March 31,

Weighted Average Grant-Date Fair Value

1 unchanged sentence

Unvested shares, January 1,

Unvested shares September 30,

Unvested shares March 31,

Stock Option Grants

1 unchanged sentence

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.

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,

The Company’s stock option activity during the three months ended March 31, 2022 and 2021 are summarized below (dollars in thousands, except per share data, unaudited):

Three months ended March 31,

Weighted Average

5 unchanged sentences

Outstanding at January 1,

Outstanding at September 30,

Exercisable at September 30,

(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.

Outstanding at March 31,

Exercisable at March 31,

This amount changes based on changes in the market value of the Company's stock.

1 unchanged sentence

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.

There were 15,021,138 weighted average shares outstanding during the first quarter of 2022 and 15,241,190 during the first quarter of 2021.

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.

For the first quarter of 2022, calculations under the treasury stock method resulted in the equivalent of 51,609 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 301,714 stock options were excluded from the calculation because they were underwater and thus anti-dilutive.

For the first quarter of 2021 the equivalent of 114,700 shares were added in calculating diluted earnings per share, while 351,827 anti-dilutive stock options were not factored into the computation.

Note 6 – Comprehensive Income (Loss)

As presented in the Consolidated Statements of Comprehensive Income (Loss), comprehensive income (loss) includes net income and other comprehensive income (loss).

The Company’s only source of other comprehensive income (loss) 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 (loss) 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 (loss) in the current period.

Note 7 – Commitments and Contingent Liabilities

3 unchanged sentences

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

making commitments and issuing letters of credit as it does for originating loans included on the balance sheet.

The Company uses the same credit policies in 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

March 31, 2022

December 31, 2021

11 unchanged sentences

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.

At March 31, 2022, the Company was also utilizing a letter of credit in the amount of $ 128.6 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.

1 unchanged sentence

Management does not believe there are such matters that will have a material effect on the financial statements.

As noted under footnote 3 the adoption of CECL on January 1, 2022 impacted the Company’s ACL on unfunded loan commitments.

Additional information is included in footnote 3.

Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements

1 unchanged sentence

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.

Certain individually identified 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.

12 unchanged sentences

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

Fair Value Measurements

6 unchanged sentences

Loans and leases, net held for investment

Collateral dependent impaired loans

Collateral dependent loans

Financial liabilities:

11 unchanged sentences

Loans and leases, net held for investment

Collateral dependent impaired loans

Collateral dependent loans

Financial liabilities:

2 unchanged sentences

Subordinated debentures

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:

For financial asset categories that were carried on our balance sheet at fair value as of March 31, 2022 and December 31, 2021, 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.

● 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.

● Collateral-dependent loans :

Collateral-dependent 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 :

8 unchanged sentences

(dollars in thousands, unaudited)

Fair Value Measurements at September 30, 2021, using

Fair Value Measurements at March 31, 2022, using

Quoted Prices in

14 unchanged sentences

State and political subdivisions

Corporate bonds

Collateralized loan obligations

Total available-for-sale securities

Fair Value Measurements - Level 3 Recurring

(dollars in thousands, unaudited)

Collateralized Loan Obligations

Corporate Bonds

Balance of recurring Level 3 assets at January 1,

Transfers out of Level 3

Balance of recurring Level 3 assets at March 31,

All of the Company’s collateralized loan obligations with a fair value of $ 195.7 million as of January 1, 2022 were transferred from Level 3 to Level 2 because observable market data became available due to a significant increase in trading volume for these securities in the first quarter of 2022.

Assets reported at fair value on a nonrecurring basis are summarized below:

1 unchanged sentence

(dollars in thousands, unaudited)

Fair Value Measurements at September 30, 2021, using

Fair Value Measurements at March 31, 2022, using

Quoted Prices in

3 unchanged sentences

Unobservable Inputs

Impaired loans

Collateral dependent loans

1-4 family residential construction

7 unchanged sentences

Consumer loans

Total impaired loans

Total collateral dependent loans

Foreclosed assets

6 unchanged sentences

Unobservable Inputs

Impaired loans

Collateral dependent loans

1-4 family residential construction

7 unchanged sentences

Consumer loans

Total impaired loans

Total collateral dependent loans

Foreclosed assets

Total assets measured on a nonrecurring basis

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.

The table above includes collateral-dependent 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 collateral dependent loan balances and specific loss reserves associated with those balances is included in Note 10 below.

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.

For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured individually identified loans.

Note 9 – Investments

5 unchanged sentences

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

Allowance for Credit Losses - AFS Securities

Estimated Fair

10 unchanged sentences

State and political subdivisions

Corporate bonds

Collateralized loan obligations

Total securities

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.

The Company did not record an ACL on the AFS portfolio at March 31, 2022 or upon implementation on January 1, 2022.

As of both dates the Company considers the unrealized loss across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value in any case.

The Company maintains that it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both January 1, 2022 and March 31, 2022 that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.

The following bullets outline additional support for management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of January 1, 2022 and March 31, 2022 was attributable to credit deterioration and a risk of loss, requiring a reserve.

● US Government Agencies are supported by the full faith and credit-worthiness of the U.S.

Federal Government and the management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either January 1, 2022 or March 31, 2022.

● Mortgage-backed securities issued by government sponsored entities (“GSEs”) carry an implicit guarantee by the U.S.

Federal Government, as the GSEs can draw funds from the U.S.

Federal Government up to a limit, with an implied ability to draw funds beyond the limit.

Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either January 1, 2022 or March 31, 2022.

● Management routinely monitors third party credit grades of the municipal issuers in the Company’s state and political subdivisions portfolio and as of both January 1, 2022 and March 31, 2022 noted that all municipal securities in an unrealized loss position were either investment grade rated or guaranteed.

On a quarterly basis management receives financial information from a third-party service related to underlying issuer’s financial stability.

In addition, management performs annual reviews of the underlying municipal issuers financial statements in order to evaluate stability and repayment capacity and has noted no concerns with any of the bonds in the Company’s State and Local portfolio.

As of both January 1, 2022 and March 31, 2022 management concluded that no reserve was warranted on any of the Company’s municipal securities and the unrealized loss position of each of the securities reflected fluctuations in market conditions, primarily interest rates, since the time of purchase.

● The Company has invested in corporate debt issuances of other financial institutions.

Various financial metrics of each of the issuing financial institutions are reviewed by management quarterly, these metrics include credit quality, reserve adequacy, capital, profitability and capital.

Following review of the financial metrics available for each of the underlying institutions as of January 1, 2022 and March 31, 2022 management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rates, from the date of purchase, and were not reflective of any credit concerns with the issuing financial institution.

● The Company has invested in AA and AAA tranches of various collateralized debt obligations, which are securitizations of commercial loans.

Management monitors the credit rating of these investments on a quarterly basis in addition to various performance metrics available through a third-party informational service.

Following review of financial metrics as of both January 1, 2022 and March 31, 2022 management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rate spreads, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments.

At March 31, 2022 and December 31, 2021, the Company had 568 securities and 98 securities, respectively, with gross unrealized losses.

Since the declines in market values were primarily attributable to changes in interest rates and volatility in the financial markets and not a result of an expected credit loss, no allowance for credit losses was recorded as of March 31, 2022.

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).

1 unchanged sentence

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

Less than twelve months

16 unchanged sentences

(dollars in thousands, unaudited)

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Proceeds from sales, calls and maturities of securities available for sale

2 unchanged sentences

Net gains on sale of securities available for sale

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 amortized cost and estimated fair value of investment securities available-for-sale at March 31, 2022 and December 31, 2021 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.

1 unchanged sentence

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

Amortized Cost

5 unchanged sentences

Mortgage-backed securities

Collateralized mortgage obligations

Collateralized loan obligations

7 unchanged sentences

Mortgage-backed securities

Collateralized mortgage obligations

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).

Collateralized loan obligations

At March 31, 2022, the Company’s investment portfolio included 400 “muni” bonds issued by 334 different government municipalities and agencies located within 33 different states, with an aggregate fair value of $ 286.4 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 Alvin Independent School District of Brazoria County (TX).

In addition, the Company owned 36 subordinated debentures issued by bank holding companies totaling $ 43.4 million (fair value).

5 unchanged sentences

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

December 31, 2021

12 unchanged sentences

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

December 31, 2021

7 unchanged sentences

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.

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.

The Company currently has investments in two different LIHTC fund limited partnerships made in 2014 and 2015, both 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.

1 unchanged sentence

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.

As of March 31, 2022, our total LIHTC investment book balance was $ 2.8 million, which includes $ 0.1 million in remaining commitments for additional capital contributions.

There were $ 0.1 million in tax credits derived from our LIHTC investments that were recognized during the three months ended March 31, 2022, and amortization expense of $ 0.1 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:

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.

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).

Credit quality classifications for the Company’s loan balances were as follows, as of the dates indicated:

Credit Quality Classifications

Note 10 – Loans and Leases and Allowance for Credit Losses

We adopted the new current expected credit loss accounting guidance, CECL, and all related amendments as of January 1, 2022.

Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the current guidance and have not been included below as of March 31, 2022.

Under CECL, disclosures are required on the amortized cost basis, whereas legacy GAAP required presentation on the recorded investment basis, with the primary difference being net deferred fees and costs.

Unless specifically noted otherwise, March 31, 2022 disclosures are prepared on the amortized cost basis and December 31, 2021 disclosures present information according to the recorded investment basis.

The following table presents loans by class as of March 31, 2022 and December 31, 2021.

Accrued interest receivable on loans of $ 6.7 million and $ 6.8 million at March 31, 2022 and December 31, 2021 respectively is not included in the loans included in the table below but is included in other assets on the Company’s balance sheet.

The March 31, 2022, balance in 1-4 family closed end loans reflects first quarter 2022 purchase of $ 125.2 million.

The majority of the disclosures in this footnote are prepared at the class level which is equivalent to the call report classification or call code classification.

The final table in this section separates a rollforward of the Allowance for Credit Losses at the portfolio segment level.

Loan And Lease Distribution

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

December 31, 2021

1-4 family residential construction

6 unchanged sentences

Commercial and industrial

Mortgage warehouse

Mortgage warehouse lines

Consumer loans

Total gross loans and leases

December 31, 2020

Less net deferred loan fees and costs

Loans and leases, amortized cost basis

Allowance for credit losses

Net loans and leases

The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of March 31, 2022:

Nonaccrual Loans and Leases

(dollars in thousands, unaudited)

March 31, 2022

Nonaccrual Loans

With no allowance for credit loss

With an allowance for credit loss

Loans Past Due 90+ Accruing

1-4 family residential construction

6 unchanged sentences

Commercial and industrial

Mortgage warehouse

Mortgage warehouse lines

Consumer loans

Total gross loans and leases

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

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

More Past Due (1)

Total Financing

1-4 family residential construction

The following table presents the impaired loans as of December 31, 2021, according to loan class, with and without an individually evaluated reserve according to the recorded investment basis.

Impaired loans as of December 31, 2021 included both nonaccrual loans and performing TDRs.

A separate breakout of nonaccrual loans by class as of December 31, 2021 is included in the past due loans table as of December 31, 2021, later in this footnote.

December 31, 2021

Unpaid Principal

Average Recorded

Interest Income

Investment (2)

Related Allowance

Recognized (3)

With an Allowance Recorded

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

2 unchanged sentences

Commercial and industrial

Mortgage warehouse lines

Total gross loans and leases

(1) As of September 30, 2021, there were no loans over 90 days past due and still accruing.

(2) Included in total financing receivables

Loan Portfolio Aging

Consumer loans

With no Related Allowance Recorded

1-4 family - closed-end

Commercial real estate - owner occupied

Total real estate

Commercial and industrial

(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 Company recognized $ 0 in interest on nonaccrual loans during the first quarter 2022 and would have recognized an additional $ 0.1 million on nonaccrual loans had those loans not been designated as nonaccrual.

The following table presents the amortized cost basis of collateral-dependent loans by class as of March 31, 2022:

Collateral Dependent Loans

(dollars in thousands, unaudited)

December 31, 2020

More Past Due (1)

Total Financing

March 31, 2022

Amortized Cost

Individual Reserves

1-4 family residential construction

7 unchanged sentences

Mortgage warehouse lines

Total gross loans and leases

(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.

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

Consumer loans

Total loans and leases

Absent the significant deterioration of the collateral value of Farmland securing several loans to a single borrower, which were downgraded to non-accrual and collateral dependent during the first quarter of 2022 there were no significant changes in the population of collateral dependent loans, or in the valuations of the related collateral.

All of the Company’s collateral dependent loans had appraised collateral values which exceed the amortized cost basis of the related loan as of March 31, 2022, which the company has applied discounts against.

The weighted-average loan to value of the Company’s collateral-dependent loans as of March 31, 2022, was 18 %.

No collateral-dependent loans were in the process of foreclosure as of March 31, 2022.

The following table presents the aging of the amortized cost basis in past-due loans, according to class, as of March 31, 2022:

Past Due Loans and Leases

(dollars in thousands, unaudited)

Three months ended September 30, 2021

Rate Modification

Interest Only Modification

Rate & Term Modification

Term & Interest Modification

March 31, 2022

30-59 Days Past Due

60-89 Days Past Due

Loans Past Due 90+ Days

Total Past Due

Loans not Past Due

1-4 family residential construction

Other construction/land

2 unchanged sentences

Commercial real estate - owner occupied

Total real estate loans

Commercial real estate - non-owner occupied

Total real estate

Commercial and industrial

Mortgage warehouse lines

Consumer loans

Three months ended September 30, 2020

Rate Modification

Interest Only

Rate & Term Modification

Term & Interest Modification

Total loans and leases

The following table presents the aging of the recorded investment in past-due and nonaccrual loans, according to class, as of December 31, 2021:

December 31, 2021

Total Financing

Total Past Due

1-4 family residential construction

Other construction/land

2 unchanged sentences

Commercial real estate owner occupied

Commercial real estate non-owner occupied

Total real estate loans

Commercial and industrial

Mortgage warehouse lines

Consumer loans

Total gross loans and leases

(1) Included in Total Financing Receivables

(2) As of December 31, 2021 there were no loans over 90 days past due and still accruing.

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.

At March 31, 2022, the Company had a total of $ 5.6 million in TDRs, including $ 1.0 million in TDRs that were on non-accrual status.

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.

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)

Nine months ended September 30, 2021

Three months ended March 31, 2022

Rate Modification

9 unchanged sentences

Consumer loans

Nine months ended September 30, 2020

Three months ended March 31, 2021

Rate Modification

Interest Only Modification

Interest Only

Rate & Term Modification

9 unchanged sentences

(dollars in thousands, unaudited)

Three months ended September 30, 2021

Three months ended March 31, 2022

Difference ⁽ ¹ ⁾

6 unchanged sentences

Consumer loans

(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

(1) This represents the change in the ACL 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 March 31, 2021

Difference ⁽ ¹ ⁾

6 unchanged sentences

Consumer loans

Troubled Debt Restructurings

The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the three-month period ending March 31, 2022 and 2021.

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention and substandard to characterize and qualify the associated credit risk.

Loans classified as “loss” are immediately charged-off.

The Company uses the following definitions of risk classifications:

Pass – Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard – Loans classified as substandard are those loans with clear and well-defined weaknesses such as a highly leveraged position, unfavorable financial operating results and/or trends, or uncertain repayment sources or poor financial condition, which may jeopardize ultimate recoverability of the debt.

The following tables present the amortized cost of loans and leases by credit quality classification in addition to loan and lease vintage as of March 31, 2022:

Loan and Lease Credit Quality by Vintage

(dollars in thousands, unaudited)

Nine months ended September 30, 2021

Difference ⁽ ¹ ⁾

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Total real estate loans

Commercial and industrial

Consumer loans

Nine months ended September 30, 2020

Difference ⁽ ¹ ⁾

Term Loans and Loans Amortized Cost Basis by Origination Year

Revolving Loans Amortized Cost

1-4 family construction

Special Mention

Other construction/land

Special Mention

1-4 family - closed-end

Special Mention

Multi-family residential

Commercial real estate - owner occupied

Total real estate loans

Commercial and industrial

Consumer loans

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.

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

Total purchased credit impaired loans

December 31, 2020

Unpaid Principal Balance

Carrying Value

Real estate secured

Total purchased credit impaired loans

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.

Impaired Loans

(dollars in thousands, unaudited)

September 30, 2021

Unpaid Principal

Investment (2)

Interest Income

Recognized (3)

With an allowance recorded

Other construction/land

1-4 family - closed-end

Commercial real estate- owner occupied

Commercial real estate- non-owner occupied

Total real estate

Commercial and industrial

Consumer loans

With no related allowance recorded

1-4 family - closed-end

Commercial real estate- owner occupied

Total real estate

Special Mention

Commercial real estate - OO

Special Mention

Commercial real estate - NOO

Special Mention

Commercial and industrial

Special Mention

Mortgage warehouse lines

Consumer loans

(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.

Impaired Loans

(dollars in thousands, unaudited)

December 31, 2020

Unpaid Principal

Investment (2)

Interest Income

Recognized (3)

With an allowance recorded

Special Mention

The following table presents the Company’s loan portfolio on the recorded investment basis, according to loan class and credit grade as of December 31, 2021:

1-4 family residential construction

Other construction/land

2 unchanged sentences

Commercial real estate owner occupied

Total real estate

Commercial and industrial

Consumer loans

With no related allowance recorded

Other construction/land

1-4 family - closed-end

Commercial real estate- owner occupied

Commercial real estate non-owner occupied

1 unchanged sentence

Commercial and industrial

Mortgage warehouse lines

Consumer loans

(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

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.

The tables that follow detail the activity in the allowance for loan and lease losses for the periods noted:

Total gross loans and leases

CECL replaces the legacy accounting for loans designated as purchased credit impaired (“PCI”) with loans designated as purchased credit deteriorated (“PCD”).

PCD loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination.

Due to the immaterial balance in the Company’s PCI loans as of December 31, 2021 management elected not to transition these loans into the PCD designation.

As of March 31, 2022 the Company had no loans categorized as PCD.

As noted in footnote 3, on January 1, 2022 the Company implemented CECL and increased our ACL, previously the allowance for loan and lease losses, with a $ 9.5 million cumulative adjustment.

The Company’s ACL is calculated quarterly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses.

Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, with the exception of Farmland, Agricultural Production and Consumer loans, using a discounted cash flow (“DCF”) methodology.

For purposes of calculating the quantitative portion of collectively evaluated reserves on Farmland, Agricultural Production, and Consumer categories a Remaining Life methodology is utilized.

For purposes of estimating the Company’s ACL, Management generally evaluates collectively evaluated loans by Federal Call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.

The DCF quantitative reserve methodology incorporates the consideration of probability of default (“PD”) and loss given default (“LGD”) estimates to estimate periodic losses.

The PD estimates are derived through the application of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data.

The loss rate data has been regressed against benchmark economic indicators, for which reasonable and supportable forecasts exist, in the development of the call-code specific regression models.

Regression models are refreshed on an annual basis, in order to pull in more recent loss rate data.

Reasonable and supportable forecasts of the selected economic metric are then input into the regression model to calculate an expected default rate.

The expected default rates are then applied to expected monthly loan balances estimated through the consideration of contractual repayment terms and expected prepayments.

The Company utilizes a four-quarter forecast period, after which the expected default rates revert to the historical average for each call code, over a four-quarter reversion period, on a straight-line basis.

The prepayment assumptions applied to expected cash flows over the contractual life of the loans, are based on Bank specific prepayment history, specific to each call code, and subject to update on an annual basis.

LGD utilized in the DCF is derived from the application of the Frye-Jacobs theory which

relates LGD to PD based on historical peer data, as calculated by a third-party.

Economic forecasts are considered over a four-quarter forecast period, with reversion to mean occurring on a straight-line basis over four quarters.

The call code regression models utilized upon implementation of CECL on January 1, 2022, and as of March 31, 2022, were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate.

Management selected the National Unemployment Rate as the driver of quantitative portion of collectively reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly FOMC forecast, and given the widespread familiarity of stakeholders with this economic metric.

The quantitative reserves for Farmland, Agricultural Production and Consumer loans are calculated using a Remaining Life methodology where average historical bank specific and peer loss rates are applied to expected loan balances over an estimated remaining life of loans in calculation of the quantitative portion of collectively evaluated loans in these classes.

The estimated remaining life is calculated using historical bank-specific loan attrition data.

For the Farmland, Agricultural Production and Consumer classes of loans, reasonable and supportable forecasts of the National Unemployment rate, real GDP and the housing price index are considered through estimation of qualitative reserves.

Management recognizes that there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of reserves on collectively evaluated loans.

As current and expected conditions, may vary compared with conditions over the historical lookback period, which is utilized in the calculation of quantitative reserves, management considers whether additional or reduced reserve levels on collectively evaluated loans may be warranted given the consideration of a variety of qualitative factors.

Several of the following qualitative factors (“Q-factors”) considered by management reflect the legacy regulatory guidance on Q-factors, whereas several others represent factors unique to the Company or unique to the current time period.

● Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices

● Changes in international, regional and local economic and business conditions, and developments that affect the collectability of the portfolio, as reflected in forecasts of the Housing Price Index, Real GDP and the National Unemployment Rate (Farmland & Agricultural Production and Consumer segments only)

● Changes in the nature and volume of the loan portfolio

● Changes in the experience, ability, and depth of lending management and other relevant staff

● Changes in the volume and severity of past due, non-accruals loans, and adversely classified loans, as reflected in changes of the relative level of loans classified as substandard and special mention

● Changes in the quality of the Bank’s loan review processes

● Changes in the value of underlying collateral for loans not identified as collateral dependent

● Changes in loan categorization concentrations

● Other external factors, which include, the influence of peer data on estimated quantitative reserves, residual COVID-19 related risk, impact of government stimulus, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of fluctuations in interest rate levels on the life of the Company’s loans

The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and management judgement, to determine risk categorizations in each of the Q-factors presented above.

The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan-equivalent, loss rate ranges and the relative weighting of Q-factors according to management’s judgement.

Although collectively evaluated reserves are generally calculated separately at the call code or loan class level, management has grouped loan classes with similar risk characteristics into the following portfolio segments:

1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse and Consumer loans.

Loans secured by 1-4 family residences have a different profile from loans secured by Commercial Real Estate.

Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for Commercial Real Estate are often businesses.

The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic.

Farmland and Agricultural Production loans are included in a single

segment as these loans are often times to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions in addition to other environmental concerns.

Commercial & Industrial loans are separated into a unique segment given the uniqueness of these loans, which are often revolving and secured by other business assets as opposed to real estate.

Mortgage warehouse loans are also unique in the Company’s portfolio and warrant separate presentation as an individual portfolio segment, given the specific nature of these constantly revolving lines to mortgage originators and also attributable to a very limited loss history, even after consideration of peer data.

Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans.

Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves.

As of March 31, 2022, the only loans that Management considered to have different risk characteristics from other loans sharing the same Federal Call Report code were loans designated nonaccrual.

The following table presents the activity in the allowance for credit losses by portfolio segment for the quarter ended March 31, 2022:

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

Three months ended September 30, 2021

Commercial and

Industrial (1)

Allowance for credit losses:

Beginning balance

(Benefit) provision

Ending balance

Nine months ended September 30, 2021

Commercial and

Industrial (1)

Allowance for credit losses:

Beginning balance

(Benefit) provision

Ending balance

Loans evaluated for impairment:

Ending balance

Year ended December 31, 2020

Commercial and

Industrial (1)

1-4 Family Real Estate

Commercial Real Estate

Farmland & Agricultural Production

Commercial & Industrial

Mortgage Warehouse

Allowance for credit losses:

Beginning balance

Provision (benefit)

Ending balance

Loans evaluated for impairment:

Ending balance

(1) Includes mortgage warehouse lines.

Allowance for Credit Losses and Recorded Investment in Financing Receivables

(dollars in thousands, unaudited)

Nine months ended September 30, 2020

Balance, December 31, 2021

Impact of adopting ASC 326

Provision for credit losses

Ending allowance balance:

The $ 1.2 million reduction in the Company’s Loan Portfolio ACL in the first quarter, from $ 23.7 million upon implementation on January 1, 2022 and $ 22.5 million as of March 31, 2022 primarily reflects a narrowing of the gap between the current and expected California unemployment rate and the National unemployment rate as of March 31, 2022 compared with December 31, 2021.

The charge-offs of $ 2.0 million in the Farmland & Agricultural Production segment during the first quarter 2022 reflects a change in the expected valuation of collateral on a single loan relationship.

Management considers this charge-off to be a unique circumstance and not indicative of an increased level of risk in the Farmland & Agricultural Production segment.

The following table presents the activity in the allowance for loan losses by portfolio segment for the quarter ended March 31, 2021:

Three months ended March 31, 2021

Commercial and

2 unchanged sentences

Beginning balance

Provision (benefit)

Ending balance

2 unchanged sentences

Ending balance

(1) Includes mortgage warehouse lines.

Note 11 – Long-Term Debt

1 unchanged sentence

(dollars in thousands, unaudited)

September 30, 2021

March 31, 2022

December 31, 2021

11 unchanged sentences

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.

The following table presents the Company’s sources of noninterest income for the three-month periods ended March 31, 2022 and 2021.

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,

For the three months ended March 31,

Noninterest income

17 unchanged sentences

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.

PART I - FINANCIAL INFORMATION

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements