SIERRA BANCORP 10-Q

Table of Contents ​ ​ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022 Commission file number: 000-33063 SIERRA BANCORP (Exact name of Registrant as specified in its charter) ​ ​ ​ California 33-0937517 (State of Incorporation) (IRS Employer Identification No) ​ 86 North Main Street , Porterville , California 93257 (Address of principal executive offices) (Zip Code) ( 559 ) 782-4900 (Registrant’s telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: ​ ​ ​ ​ Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, no par value ​ BSRR ​ The NASDAQ Stock Market LLC ​ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ​ ​ ​ ​ ​ ​ ​ ​ Large Accelerated Filer ☐ Accelerated Filer : ☒ Non-accelerated Filer: ☐ Smaller Reporting Company: ☐ Emerging Growth Company: ​ ☐ ​ ​ ​ ​ ​ If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section7(a)(2)(B) of the Securities Act. ☐ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 1, 2022, the registrant had 15,091,213 shares of common stock outstanding, including 146,173 shares of unvested restricted stock. ​ ​ ​ Table of Contents FORM 10-Q Table of Contents ​ ​ ​ ​ ​ ​ ​ Page Part I - Financial Information 1 ​ Item 1. Financial Statements (Unaudited) 1 ​ ​ Consolidated Balance Sheets 1 ​ ​ Consolidated Statements of Income 2 ​ ​ Consolidated Statements of Comprehensive Income (Loss) 3 ​ ​ Consolidated Statements of Changes In Shareholders’ Equity 4 ​ ​ Consolidated Statements of Cash Flows 6 ​ ​ Notes to Consolidated Financial Statements (Unaudited) 7 ​ ​ ​ ​ ​ ​ Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations 37 ​ ​ Forward-Looking Statements 37 ​ ​ Critical Accounting Policies 38 ​ ​ Overview of the Results of Operations and Financial Condition 38 ​ ​ Earnings Performance 41 ​ ​ ​ Net Interest Income and Net Interest Margin 41 ​ ​ ​ Provision for Credit Losses on Loans and Leases 47 ​ ​ ​ Noninterest Income and Noninterest Expense 48 ​ ​ ​ Provision for Income Taxes 50 ​ ​ Balance Sheet Analysis 51 ​ ​ ​ Earning Assets 51 ​ ​ ​ ​ Investments 51 ​ ​ ​ ​ Loan and Lease Portfolio 52 ​ ​ ​ ​ Nonperforming Assets 54 ​ ​ ​ ​ Allowance for Credit Losses on Loans and Leases 55 ​ ​ ​ ​ Off-Balance Sheet Arrangements 57 ​ ​ ​ Other Assets 58 ​ ​ ​ Deposits and Interest Bearing Liabilities 58 ​ ​ ​ ​ Deposits 58 ​ ​ ​ ​ Other Interest Bearing Liabilities 59 ​ ​ ​ Noninterest Bearing Liabilities 60 ​ ​ Liquidity and Market Risk Management 60 ​ ​ Capital Resources 63 ​ ​ ​ ​ ​ ​ Item 3. Qualitative & Quantitative Disclosures about Market Risk 65 ​ ​ ​ ​ ​ ​ Item 4. Controls and Procedures 65 ​ ​ Part II - Other Information 66 ​ Item 1. - Legal Proceedings 66 ​ Item 1A. - Risk Factors 66 ​ Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 66 ​ Item 3. - Defaults upon Senior Securities 66 ​ Item 4. - Mine Safety Disclosures 66 ​ Item 5. - Other Information 66 ​ Item 6. - Exhibits 67 ​ ​ Signatures 68 ​ ​ ​ Table of Contents PART I - FINANCIAL INFORMATION Item 1 – Financial Statements SIERRA BANCORP CONSOLIDATED BALANCE SHEETS (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 ASSETS ​ (unaudited) ​ (audited) Cash and due from banks ​ $ 82,081 ​ $ 63,147 Interest bearing deposits in banks ​ ​ 79,794 ​ ​ 194,381 Total cash & cash equivalents ​ ​ 161,875 ​ ​ 257,528 Investment securties ​ ​ ​ ​ ​ ​ Available-for-sale, at fair value (net of zero allowance for credit losses at June 30, 2022 and December 31, 2021) ​ ​ 864,178 ​ ​ 973,314 ​ ​ ​ ​ ​ ​ ​ Held-to-maturity, at amortized cost (fair value of $ 147,147 at June 30, 2022 and $ 0 at December 31, 2021) ​ ​ 161,417 ​ ​ — Allowance for credit losses on held-to-maturity securities ​ ​ ( 18 ) ​ ​ — Net, investment securities held-to-maturity ​ ​ 161,399 ​ ​ — ​ ​ ​ ​ ​ ​ ​ Loans and leases: ​ ​ ​ ​ ​ ​ Gross loans and leases ​ ​ 2,022,662 ​ ​ 1,989,726 Deferred loan and lease fees, net ​ ​ ( 1,081 ) ​ ​ ( 1,865 ) Allowance for credit losses on loans and leases ​ ​ ( 22,802 ) ​ ​ ( 14,256 ) Net loans and leases ​ ​ 1,998,779 ​ ​ 1,973,605 Foreclosed assets ​ ​ 2 ​ ​ 93 Premises and equipment, net ​ ​ 22,937 ​ ​ 23,571 Goodwill ​ ​ 27,357 ​ ​ 27,357 Other intangible assets, net ​ ​ 2,769 ​ ​ 3,275 Bank-owned life insurance ​ ​ 52,158 ​ ​ 54,242 Other assets ​ ​ 105,181 ​ ​ 58,029 Total assets ​ $ 3,396,635 ​ $ 3,371,014 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 1,120,413 ​ $ 1,084,544 Interest bearing ​ ​ 1,730,586 ​ ​ 1,697,028 Total deposits ​ ​ 2,850,999 ​ ​ 2,781,572 Repurchase agreements ​ ​ 118,014 ​ ​ 106,937 Long-term debt ​ ​ 49,173 ​ ​ 49,141 Subordinated debentures ​ ​ 35,392 ​ ​ 35,302 Allowance for credit losses on unfunded loan commitments ​ ​ 893 ​ ​ 203 Other liabilities ​ ​ 43,117 ​ ​ 35,365 Total liabilities ​ ​ 3,097,588 ​ ​ 3,008,520 ​ ​ ​ ​ ​ ​ ​ Commitments and contingent liabilities (Note 7) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders' equity ​ ​ ​ ​ ​ ​ Common stock, no par value; 24,000,000 shares authorized; 15,090,792 and 15,270,010 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively ​ ​ 111,727 ​ ​ 113,007 Additional paid-in capital ​ ​ 4,585 ​ ​ 3,910 Retained earnings ​ ​ 233,179 ​ ​ 234,410 Accumulated other comprehensive (loss) income, net ​ ​ ( 50,444 ) ​ ​ 11,167 Total shareholders' equity ​ ​ 299,047 ​ ​ 362,494 Total liabilities and shareholders' equity ​ $ 3,396,635 ​ $ 3,371,014 ​ The accompanying notes are an integral part of these consolidated financial statements ​ 1 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, ​ ​ Six months ended June 30, ​ 2022 2021 ​ 2022 ​ 2021 Interest and dividend income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans and leases, including fees ​ $ 21,605 ​ $ 24,917 ​ $ 42,377 ​ $ 51,329 Taxable securities ​ ​ 4,477 ​ ​ 1,573 ​ ​ 7,966 ​ ​ 3,150 Tax-exempt securities ​ ​ 1,854 ​ ​ 1,517 ​ ​ 3,581 ​ ​ 2,967 Federal funds sold and other ​ ​ 270 ​ ​ 85 ​ ​ 363 ​ ​ 104 Total interest income ​ ​ 28,206 ​ ​ 28,092 ​ ​ 54,287 ​ ​ 57,550 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 784 ​ ​ 619 ​ ​ 1,344 ​ ​ 1,227 Short-term borrowings ​ ​ 77 ​ ​ 39 ​ ​ 159 ​ ​ 86 Subordinated debentures ​ ​ 760 ​ ​ 245 ​ ​ 1,442 ​ ​ 493 Total interest expense ​ ​ 1,621 ​ ​ 903 ​ ​ 2,945 ​ ​ 1,806 Net interest income ​ ​ 26,585 ​ ​ 27,189 ​ ​ 51,342 ​ ​ 55,744 Provision (benefit) for credit losses on loans and leases ​ ​ 2,548 ​ ​ ( 2,100 ) ​ ​ 3,148 ​ ​ ( 1,850 ) Benefit for credit losses on unfunded loan commitments ​ ​ ( 147 ) ​ ​ — ​ ​ ( 241 ) ​ ​ — Provision for credit losses on held-to-maturity securities ​ ​ 18 ​ ​ — ​ ​ 18 ​ ​ — Net interest income after provision for credit losses ​ ​ 24,166 ​ ​ 29,289 ​ ​ 48,417 ​ ​ 57,594 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ 3,204 ​ ​ 2,725 ​ ​ 6,245 ​ ​ 5,491 Other income ​ ​ 7,235 ​ ​ 3,887 ​ ​ 10,257 ​ ​ 7,951 Total noninterest income ​ ​ 10,439 ​ ​ 6,612 ​ ​ 16,502 ​ ​ 13,442 Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 11,745 ​ ​ 10,425 ​ ​ 23,550 ​ ​ 21,576 Occupancy ​ ​ 2,406 ​ ​ 2,626 ​ ​ 4,699 ​ ​ 5,112 Other ​ ​ 7,962 ​ ​ 7,184 ​ ​ 14,037 ​ ​ 13,818 Total noninterest expense ​ ​ 22,113 ​ ​ 20,235 ​ ​ 42,286 ​ ​ 40,506 Income before taxes ​ ​ 12,492 ​ ​ 15,666 ​ ​ 22,633 ​ ​ 30,530 Provision for income taxes ​ ​ 3,288 ​ ​ 3,958 ​ ​ 6,022 ​ ​ 7,744 Net income ​ $ 9,204 ​ $ 11,708 ​ $ 16,611 ​ $ 22,786 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PER SHARE DATA ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Book value ​ $ 19.82 ​ $ 23.21 ​ $ 19.82 ​ $ 23.21 Cash dividends ​ $ 0.23 ​ $ 0.21 ​ $ 0.46 ​ $ 0.42 Earnings per share basic ​ $ 0.62 ​ $ 0.77 ​ $ 1.11 ​ $ 1.49 Earnings per share diluted ​ $ 0.61 ​ $ 0.76 ​ $ 1.10 ​ $ 1.48 Average shares outstanding, basic ​ ​ 14,931,701 ​ ​ 15,243,698 ​ ​ 14,976,774 ​ ​ 15,242,451 Average shares outstanding, diluted ​ ​ 15,004,017 ​ ​ 15,375,825 ​ ​ 15,063,804 ​ ​ 15,365,966 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total shareholders' equity (in thousands) ​ $ 299,047 ​ $ 357,729 ​ $ 299,047 ​ $ 357,729 Shares outstanding ​ ​ 15,090,792 ​ ​ 15,410,763 ​ ​ 15,090,792 ​ ​ 15,410,763 Dividends paid (in thousands) ​ $ 3,470 ​ $ 3,237 ​ $ 6,978 ​ $ 6,468 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 2 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, ​ Six months ended June 30, ​ 2022 2021 ​ 2022 ​ 2021 Net income ​ $ 9,204 ​ $ 11,708 ​ $ 16,611 ​ $ 22,786 Other comprehensive (loss) income, before tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized (loss) gains on securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding (loss) gain arising during period ​ ​ ( 46,476 ) ​ ​ 1,489 ​ ​ ( 86,438 ) ​ ​ ( 4,270 ) Less: reclassification adjustment for gains included in net income (1) ​ ​ — ​ ​ — ​ ​ ( 1,032 ) ​ ​ — Other comprehensive (loss) gain, before tax ​ ​ ( 46,476 ) ​ ​ 1,489 ​ ​ ( 87,470 ) ​ ​ ( 4,270 ) Income tax benefit (income) related to items of other comprehensive (loss) income, net of tax ​ ​ 13,740 ​ ​ ( 441 ) ​ ​ 25,859 ​ ​ 1,262 Other comprehensive (loss) income, before tax: ​ ​ ( 32,736 ) ​ ​ 1,048 ​ ​ ( 61,611 ) ​ ​ ( 3,008 ) Comprehensive (loss) income ​ $ ( 23,532 ) ​ $ 12,756 ​ $ ( 45,000 ) ​ $ 19,778 (1) Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in noninterest income. There was no income tax expense associated with the reclassification adjustment for either of the three months ended June 30, 2022 and 2021 . Income tax expense associated with the reclassification adjustment for the six months ended June 30, 2022 and 2021 were $ 305 thousand and $ 0 , respectively. ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 3 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ Common Stock ​ Paid In ​ Retained ​ Comprehensive ​ Shareholders' ​ Shares Amount Capital Earnings Income (Loss) Equity Balance, March 31, 2021 ​ 15,410,763 ​ $ 113,453 ​ $ 3,961 ​ $ 216,218 ​ $ 14,349 ​ $ 347,981 Net income ​ — ​ ​ — ​ ​ — ​ ​ 11,708 ​ ​ — ​ ​ 11,708 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,048 ​ ​ 1,048 Stock compensation costs ​ — ​ ​ — ​ ​ 229 ​ ​ — ​ ​ — ​ ​ 229 Cash dividends - $ 0.21 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,237 ) ​ ​ — ​ ​ ( 3,237 ) Balance, June 30, 2021 ​ 15,410,763 ​ $ 113,453 ​ $ 4,190 ​ $ 224,689 ​ $ 15,397 ​ $ 357,729 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, March 31, 2022 ​ 15,086,032 ​ $ 111,673 ​ $ 4,281 ​ $ 227,445 ​ $ ( 17,708 ) ​ $ 325,691 Net income ​ — ​ ​ — ​ ​ — ​ ​ 9,204 ​ ​ — ​ ​ 9,204 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 32,736 ) ​ ​ ( 32,736 ) Stock options exercised, net of shares surrendered for cashless exercises ​ 5,200 ​ ​ 54 ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ 53 Restricted stock forfeited / cancelled ​ ( 440 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 18 ​ ​ — ​ ​ — ​ ​ 18 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 287 ​ ​ — ​ ​ — ​ ​ 287 Cash dividends - $ 0.23 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,470 ) ​ ​ — ​ ​ ( 3,470 ) Balance, June 30, 2022 ​ 15,090,792 ​ $ 111,727 ​ $ 4,585 ​ $ 233,179 ​ $ ( 50,444 ) ​ $ 299,047 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 4 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ Common Stock ​ Paid In ​ Retained ​ Comprehensive ​ Shareholders' ​ Shares Amount Capital Earnings Income (Loss) Equity Balance, December 31, 2020 ​ 15,388,423 ​ $ 113,384 ​ $ 3,736 ​ $ 208,371 ​ $ 18,405 ​ $ 343,896 Net income ​ — ​ ​ — ​ ​ — ​ ​ 22,786 ​ ​ — ​ ​ 22,786 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,008 ) ​ ​ ( 3,008 ) Exercise of stock options ​ 4,160 ​ ​ 69 ​ ​ ( 15 ) ​ ​ — ​ ​ — ​ ​ 54 Stock based compensation expense ​ 18,180 ​ ​ — ​ ​ 469 ​ ​ — ​ ​ — ​ ​ 469 Cash dividends - $ 0.42 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 6,468 ) ​ ​ — ​ ​ ( 6,468 ) Balance, June 30, 2021 ​ 15,410,763 ​ $ 113,453 ​ $ 4,190 ​ $ 224,689 ​ $ 15,397 ​ $ 357,729 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2021 ​ 15,270,010 ​ $ 113,007 ​ $ 3,910 ​ $ 234,410 ​ $ 11,167 ​ $ 362,494 Cumulative change in accounting principle ​ — ​ ​ — ​ ​ — ​ ​ ( 7,315 ) ​ ​ — ​ ​ ( 7,315 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ 16,611 ​ ​ — ​ ​ 16,611 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 61,611 ) ​ ​ ( 61,611 ) Stock options exercised, net of shares surrendered for cashless exercises ​ 5,200 ​ ​ 54 ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ 53 Restricted stock surrendered due to employee tax liability ​ ( 1,196 ) ​ ​ ( 9 ) ​ ​ — ​ ​ ( 23 ) ​ ​ — ​ ​ ( 32 ) Restricted stock forfeited / cancelled ​ ( 660 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 48 ​ ​ — ​ ​ — ​ ​ 48 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 628 ​ ​ — ​ ​ — ​ ​ 628 Stock repurchase ​ ( 182,562 ) ​ ​ ( 1,325 ) ​ ​ — ​ ​ ( 3,526 ) ​ ​ — ​ ​ ( 4,851 ) Cash dividends - $ 0.46 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 6,978 ) ​ ​ — ​ ​ ( 6,978 ) Balance, June 30, 2022 ​ 15,090,792 ​ $ 111,727 ​ $ 4,585 ​ $ 233,179 ​ $ ( 50,444 ) ​ $ 299,047 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 5 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, ​ 2022 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 16,611 ​ $ 22,786 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Gain on sales of securities ​ ​ ( 1,032 ) ​ ​ — Loss on disposal of fixed assets ​ ​ 6 ​ ​ 4 Gain on sale on foreclosed assets ​ ​ ( 5 ) ​ ​ ( 116 ) Writedowns on foreclosed assets ​ ​ 91 ​ ​ 176 Stock based compensation expense ​ ​ 676 ​ ​ 469 Provision (benefit) for credit losses on loans and leases ​ ​ 3,148 ​ ​ ( 1,850 ) Provision for credit losses on held-to-maturity securities ​ ​ 18 ​ ​ — Depreciation and amortization ​ ​ 1,284 ​ ​ 1,924 Net amortization on securities premiums and discounts ​ ​ 2,271 ​ ​ 2,386 Amortization (accretion) of premiums (discounts) for loans acquired ​ ​ ( 73 ) ​ ​ ( 253 ) Decrease (increase) in cash surrender value of life insurance policies ​ ​ 1,228 ​ ​ ( 1,397 ) Amortization of core deposit intangible ​ ​ 505 ​ ​ 527 (Increase) decrease in interest receivable and other assets ​ ​ ( 16,029 ) ​ ​ 602 Increase (decrease) in other liabilities ​ ​ 7,511 ​ ​ ( 1,310 ) Deferred income tax benefit ​ ​ ( 2,414 ) ​ ​ ( 2,057 ) Decrease (increase) in value of restricted bank equity securities ​ ​ 332 ​ ​ ( 857 ) Net amortization of partnership investment ​ ​ 225 ​ ​ 267 Net cash provided by operating activities ​ ​ 14,353 ​ ​ 21,301 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Maturities and calls of securities available for sale ​ ​ 4,123 ​ ​ 4,000 Proceeds from sales of securities available for sale ​ ​ 26,408 ​ ​ — Purchases of securities available for sale ​ ​ ( 215,269 ) ​ ​ ( 130,696 ) Principal pay downs on securities available for sale ​ ​ 43,748 ​ ​ 56,540 Net purchases of FHLB stock ​ ​ ( 336 ) ​ ​ ( 1,666 ) Loan originations and payments, net ​ ​ ( 37,703 ) ​ ​ 319,697 Purchases of premises and equipment ​ ​ ( 566 ) ​ ​ ( 283 ) Proceeds from sales of foreclosed assets ​ ​ 5 ​ ​ 229 Purchase of bank-owned life insurance ​ ​ ( 14 ) ​ ​ ( 28 ) Liquidation of bank-owned life insurance ​ ​ 11 ​ ​ — Proceeds from BOLI death benefit ​ ​ 859 ​ ​ — Amortization of debt issuance costs ​ ​ 32 ​ ​ — Net cash (used in) provided by investing activities ​ ​ ( 178,702 ) ​ ​ 247,793 Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Increase in deposits ​ ​ 69,427 ​ ​ 151,308 Decrease in borrowed funds ​ ​ — ​ ​ ( 142,900 ) Increase in customer repurchase agreements ​ ​ 11,077 ​ ​ 31,397 Cash dividends paid ​ ​ ( 6,978 ) ​ ​ ( 6,468 ) Repurchases of common stock ​ ​ ( 4,883 ) ​ ​ — Stock options exercised ​ ​ 53 ​ ​ 54 Net cash provided by financing activities ​ ​ 68,696 ​ ​ 33,391 ​ ​ ​ ​ ​ ​ ​ (Decrease) increase in cash and cash equivalents ​ ​ ( 95,653 ) ​ ​ 302,485 ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ ​ ​ ​ ​ Beginning of period ​ ​ 257,528 ​ ​ 71,417 End of period ​ $ 161,875 ​ $ 373,902 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Interest paid ​ $ 3,459 ​ $ 1,800 Income taxes paid ​ $ 6,005 ​ $ 3,803 Supplemental noncash disclosures: ​ ​ ​ ​ ​ ​ Real estate acquired through foreclosure ​ $ — ​ $ 93 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents SIERRA BANCORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2022 (Unaudited) Note 1 – The Business of Sierra Bancorp Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws. The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”), and has been the Bank’s sole shareholder since August 2001. The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. As of June 30, 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. References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise. Bank of the Sierra, a California state-chartered bank headquartered in Porterville, California, offers a wide range of retail and commercial banking services via branch offices located throughout California’s South San Joaquin Valley, the Central Coast, Ventura County, the Sacramento area, and neighboring communities. The Bank was incorporated in September 1977, and opened for business in January 1978 as a one -branch bank with $ 1.5 million in capital. Our growth in the ensuing years has largely been organic in nature, but includes four whole-bank acquisitions: Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017. As of the filing date of this report the Bank operates 35 full-service branches and an online branch, and maintains ATMs at all but one of our branch locations as well as seven non-branch locations. Moreover, the Bank has specialized lending units which focus on agricultural borrowers, commercial real estate, and mortgage warehouse lending. In addition, in February 2020 the bank opened a loan production office which is currently located in Roseville, CA. 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 June 30, 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 June 30, 2022, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts. Note 2 – Basis of Presentation The accompanying interim unaudited consolidated financial statements have been prepared in a condensed format as allowed under U.S. generally accepted accounting principles (“GAAP”). Therefore these financial statements do not include all of the information and footnotes required for complete, audited financial statements as presented in the Company’s Annual Report on Form 10-K. The information furnished in these interim statements reflects all adjustments that are, in the opinion of Management, necessary for a fair statement of the results for such periods. Such adjustments can generally be considered as normal and recurring unless otherwise disclosed in this Form 10-Q. In preparing the accompanying financial statements, Management has taken subsequent events into consideration and recognized them where appropriate. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year. Certain amounts reported for 2021 have been reclassified to be consistent with the reporting for 2022. The interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”). Note 3 – Current Accounting Developments In September 2016 the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which eliminates the probable initial recognition threshold for credit losses in current U.S. GAAP, and instead requires an organization to record a current estimate of all expected credit losses over 7 Table of Contents 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 and the company had no securities designated as held-to-maturity as of January 1, 2022. 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 Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 135 ​ $ 28 ​ $ ( 107 ) ​ $ 32 ​ $ ( 75 ) Other construction/land ​ ​ 228 ​ ​ 254 ​ ​ 26 ​ ​ ( 8 ) ​ ​ 18 1-4 family - closed-end ​ ​ 1,618 ​ ​ 2,310 ​ ​ 692 ​ ​ ( 205 ) ​ ​ 487 Equity lines ​ ​ 290 ​ ​ 210 ​ ​ ( 80 ) ​ ​ 24 ​ ​ ( 56 ) Multi-family residential ​ ​ 274 ​ ​ 574 ​ ​ 300 ​ ​ ( 89 ) ​ ​ 211 Commercial real estate - owner occupied ​ ​ 2,217 ​ ​ 3,444 ​ ​ 1,227 ​ ​ ( 363 ) ​ ​ 864 Commercial real estate - non-owner occupied ​ ​ 6,199 ​ ​ 14,380 ​ ​ 8,181 ​ ​ ( 2,418 ) ​ ​ 5,763 Farmland ​ ​ 737 ​ ​ 340 ​ ​ ( 397 ) ​ ​ 117 ​ ​ ( 280 ) Total real estate ​ ​ 11,698 ​ ​ 21,540 ​ ​ 9,842 ​ ​ ( 2,910 ) ​ ​ 6,932 Agricultural ​ ​ 465 ​ ​ 382 ​ ​ ( 83 ) ​ ​ 25 ​ ​ ( 58 ) Commercial and industrial ​ ​ 1,060 ​ ​ 1,418 ​ ​ 358 ​ ​ ( 106 ) ​ ​ 252 Mortgage warehouse lines ​ ​ 512 ​ ​ 91 ​ ​ ( 421 ) ​ ​ 124 ​ ​ ( 297 ) Consumer loans ​ ​ 521 ​ ​ 279 ​ ​ ( 242 ) ​ ​ 72 ​ ​ ( 170 ) Total allowance for credit losses - loans ​ $ 14,256 ​ $ 23,710 ​ $ 9,454 ​ $ ( 2,795 ) ​ $ 6,659 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses - unfunded loan commitments ​ $ 203 ​ ​ 1,134 ​ ​ 931 ​ ​ ( 275 ) ​ ​ 656 ​ 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 June 30, 2022, measured at $ 6.0 million, $ 0.8 million and $ 5.4 million for available-for-sale securities, held-to-maturity securities and 8 Table of Contents loans, respectively. During 2022 no accrued interest receivable on loans or available for sale investment securities was reversed against interest 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. As of June 30, 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 9 Table of Contents 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. 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. On April 1, 2022 the Company transferred $ 162.1 million of Agency, Mortgaged-Backed and Municipal securities from available-for-sale to held-to maturity. Because of the implicit and explicit guarantees of the Federal Government on the Agency and Mortgage-Backed securities there is no expectation of future losses on any of these securities. The Bank’s municipal bonds moved to the held-to-maturity designation all have credit ratings considered investment grade or equivalent. A discounted-cash-flow reserve calculation was performed upon the transfer of these securities into the held-to-maturity designation and a reserve of $ 0.02 million was calculated and charged to provision expense. Note 4 – Share Based Compensation On March 16, 2017 the Company’s Board of Directors approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective May 24, 2017, the date approved by the Company’s shareholders. The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15, 2017. Options to purchase 172,489 shares that were granted under the 2007 Plan were still outstanding as of June 30, 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 June 30, 2022 was 418,912 . Options to purchase 382,311 shares granted under the 2017 Plan were outstanding as of June 30, 2022. The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share. Pursuant to FASB’s standards on stock compensation, the value of each stock option and restricted stock award is reflected in our income state­ment as employee compensation or directors’ expense by amortizing its grant date fair value over the vesting period of the option or award. The Company utilizes a Black-Scholes model to determine grant date fair values for options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Forfeitures are reflected in compensation costs as they occur for both types of awards. A pre-tax charge of $ 0.3 million was reflected in the Company’s income statement during the second quarter of 2022 and $ 0.2 million was charged during the second quarter of 2021, as expense related to stock options and restricted stock awards. For the first half, the charges totaled $ 0.7 million in 2022 and $ 0.5 million in 2021. 10 Table of Contents Restricted Stock Grants The Company’s Restricted Stock Awards are awards of time-vested, non-transferrable shares of common stock and are available to be granted to the Company’s employees and directors. The vesting period of Restricted Stock Awards is determined at the time the awards are issued, and different awards may have different vesting terms; provided, however, that no installment of any Restricted Stock Award shall become vested less than one year from the grant date. Restricted Stock Awards are valued utilizing the fair value of the Company’s stock at the grant date. There were no shares granted to employees and directors of the Company during the first six months of 2022. These awards are expensed on a straight-line basis over the vesting period. As of June 30, 2022, there was $ 2.3 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 2.8 years. The Company’s time-vested award activity for the six months ended June 30, 2022 and 2021 is summarized below (unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, ​ ​ 2022 ​ 2021 ​ ​ Shares ​ ​ Weighted Average Grant-Date Fair Value ​ Shares ​ ​ Weighted Average Grant-Date Fair Value Unvested shares, January 1, ​ 161,217 ​ $ 21.72 ​ 148,885 ​ $ 18.00 Granted ​ — ​ ​ — ​ 18,180 ​ ​ 25.30 Vested ​ ( 17,194 ) ​ ​ 20.35 ​ — ​ ​ — Forfeited ​ ( 660 ) ​ ​ 27.16 ​ — ​ ​ — Unvested shares, June 30, ​ 143,363 ​ $ 21.84 ​ 167,065 ​ $ 18.79 ​ Stock Option Grants The Company has issued equity instruments in the form of Incentive Stock Options and Nonqualified Stock Options to certain officers and directors and may continue to do so under the 2017 Plan. The exercise price of each stock option is determined at the time of the grant and may be no less than 100 % of the fair market value of such stock at the time the option is granted. The Company’s stock option activity during the six months ended June 30, 2022 and 2021 are summarized below (dollars in thousands, except per share data, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, ​ ​ 2022 ​ 2021 ​ Shares Weighted Average Exercise Price ​ Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Shares Weighted Average Exercise Price ​ Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Outstanding at January 1, ​ 415,870 ​ $ 24.15 ​ ​ ​ $ 1,338 ​ 495,489 ​ $ 23.67 ​ ​ ​ $ 1,340 Granted ​ — ​ $ — ​ ​ ​ $ — ​ — ​ $ — ​ ​ ​ $ — Exercised ​ ( 200 ) ​ $ 10.21 ​ ​ ​ $ 3 ​ ( 4,160 ) ​ $ 12.95 ​ ​ ​ $ 50 Forfeited/Expired ​ ( 3,681 ) ​ $ 27.27 ​ ​ ​ $ — ​ ( 21,719 ) ​ $ 27.51 ​ ​ ​ $ 1 Outstanding at June 30, ​ 411,989 ​ $ 24.13 ​ 5.41 ​ $ 733 ​ 469,610 ​ $ 23.59 ​ 6.20 ​ $ 1,500 Exercisable at June 30, ​ 370,589 ​ $ 23.79 ​ 5.19 ​ $ 733 ​ 389,010 ​ $ 22.89 ​ 5.80 ​ $ 1,500 (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 June 30, 2022. This amount changes based on changes in the market value of the Company's stock. ​ ​ 11 Table of Contents Note 5 – Earnings per Share The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period, excluding unvested restricted stock awards. There were 14,931,701 weighted average shares outstanding during the second quarter of 2022 and 15,243,698 during the second quarter of 2021, while there were 14,976,774 weighted average shares outstanding during the first six months of 2022 and 15,242,451 during the first six months 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 first quarter of 2022, calculations under the treasury stock method resulted in the equivalent of 72,316 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 354,612 stock options were excluded from the calculation because they were underwater and thus anti-dilutive. For the second quarter of 2021 the equivalent of 132,127 shares were added in calculating diluted earnings per share, while 335,481 anti-dilutive stock options were not factored into the computation. Likewise, for the first half of 2022 the equivalent of 87,030 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 303,543 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 123,515 shares and non-inclusion of 345,748 anti-dilutive options in calculating diluted earnings per share for first half of 2021. 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 The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. Those financial instruments currently consist of unused commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 Commitments to extend credit ​ $ 670,756 ​ $ 554,028 Standby letters of credit ​ $ 6,196 ​ $ 6,651 ​ Commitments to extend credit consist primarily of the unused or unfunded portions of the following: home equity lines of credit; commercial real estate construction loans, where disbursements are made over the course of construction; commercial revolving lines of credit; mortgage warehouse lines of credit; unsecured personal lines of credit; and formalized (disclosed) deposit account overdraft lines. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn upon, the unused portions of committed amounts do not necessarily represent future cash requirements. Standby letters of credit are issued by the Company to guarantee the performance of a customer to a third party, and the credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. 12 Table of Contents At June 30, 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. The Company is subject to loss contingencies, including claims and legal actions arising in the ordinary course of business, which are recorded as liabilities when the likelihood of loss is probable, and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the financial statements. 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 FASB’s standards on financial instruments, and on fair value measurements and disclosures, require public business entities to disclose in their financial statement footnotes the estimated fair values of financial instruments. In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities that are classified as available for sale and any equity securities which have readily determinable fair values be measured and reported at fair value in our statement of financial position. Certain 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. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Further, the standards establish a fair value hierarchy that encourages an entity to maximize the use of observable inputs and limit the use of unobservable inputs when measuring fair values. The standards describe three levels of inputs that may be used to measure fair values: ● Level 1 : Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. ● Level 2 : Significant observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data. ● Level 3 : Significant unobservable inputs that reflect a company’s own assumptions about the factors that market participants would likely consider in pricing an asset or liability. Fair value estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Fair value disclosures for deposits include demand deposits, which are, by definition, equal to the amount payable on demand at the reporting date. Fair value calculations for loans and leases reflect exit pricing, and incorporate our assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things. Since the estimates are subjective and involve uncertainties and matters of significant judgment they cannot be determined with precision, and changes in assumptions could significantly alter the fair values presented. ​ 13 Table of Contents Estimated fair values for the Company’s financial instruments are as follows, as of the dates noted: Fair Value of Financial Instruments (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ ​ ​ ​ ​ Fair Value Measurements ​ Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Financial assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 161,875 ​ $ 161,875 ​ $ — ​ $ — ​ $ 161,875 Investment securities available-for-sale ​ ​ 864,178 ​ ​ — ​ ​ 817,639 ​ ​ 46,539 ​ ​ 864,178 Investment securities held-to-maturity ​ ​ 161,399 ​ ​ — ​ ​ 147,147 ​ ​ — ​ ​ 147,147 Loans and leases, net held for investment ​ ​ 1,980,317 ​ ​ — ​ ​ — ​ ​ 1,960,923 ​ ​ 1,960,923 Collateral dependent loans ​ ​ 18,462 ​ ​ — ​ ​ 18,462 ​ ​ — ​ ​ 18,462 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,850,999 ​ ​ 1,120,413 ​ ​ 1,727,383 ​ ​ — ​ ​ 2,847,796 Repurchase agreements ​ ​ 118,014 ​ ​ — ​ ​ 118,014 ​ ​ — ​ ​ 118,014 Long-term debt ​ ​ 49,173 ​ ​ — ​ ​ 44,890 ​ ​ — ​ ​ 44,890 Subordinated debentures ​ ​ 35,392 ​ ​ — ​ ​ 33,683 ​ ​ — ​ ​ 33,683 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ Fair Value Measurements ​ Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Financial assets: ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 257,528 ​ $ 257,528 ​ $ — ​ $ — ​ $ 257,528 Investment securities available for sale ​ ​ 973,314 ​ ​ — ​ ​ 750,077 ​ ​ 223,237 ​ ​ 973,314 Loans and leases, net held for investment ​ ​ 1,973,207 ​ ​ — ​ ​ — ​ ​ 1,960,966 ​ ​ 1,960,966 Collateral dependent loans ​ ​ 398 ​ ​ — ​ ​ 221 ​ ​ 177 ​ ​ 398 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,781,572 ​ ​ 1,084,544 ​ ​ 1,696,124 ​ ​ — ​ ​ 2,780,668 Repurchase agreements ​ ​ 106,937 ​ ​ — ​ ​ 106,937 ​ ​ — ​ ​ 106,937 Short term borrowings ​ ​ 49,141 ​ ​ — ​ ​ 49,118 ​ ​ — ​ ​ 49,118 Subordinated debentures ​ ​ 35,302 ​ ​ — ​ ​ 33,281 ​ ​ — ​ ​ 33,281 ​ For financial asset categories that were carried on our balance sheet at fair value as of June 30, 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 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 : Repossessed real estate (known as other real estate owned, or “OREO”) and other foreclosed assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected disposition 14 Table of Contents costs for OREO; fair values for any other foreclosed assets are represented by estimated sales proceeds as determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic reevaluation of expected cash flows and the timing of resolution. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance. Assets reported at fair value on a recurring basis are summarized below: Fair Value Measurements – Recurring (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at June 30, 2022, using ​ ​ ​ ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Realized Gain/(Loss) (Level 3) Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ 981 ​ $ — ​ $ 981 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 181,446 ​ ​ — ​ ​ 181,446 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 254,888 ​ ​ — ​ ​ 254,888 ​ ​ — Corporate bonds ​ ​ — ​ ​ — ​ ​ 46,539 ​ ​ 46,539 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 380,324 ​ ​ — ​ ​ 380,324 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 817,639 ​ $ 46,539 ​ $ 864,178 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2021, using ​ ​ ​ ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Realized Gain/(Loss) (Level 3) Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ 1,574 ​ $ — ​ $ 1,574 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 306,727 ​ ​ — ​ ​ 306,727 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 304,268 ​ ​ — ​ ​ 304,268 ​ ​ — Corporate bonds ​ ​ — ​ ​ 999 ​ ​ 27,530 ​ ​ 28,529 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 136,509 ​ ​ 195,707 ​ ​ 332,216 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 750,077 ​ $ 223,237 ​ $ 973,314 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements - Level 3 Recurring ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Collateralized Loan Obligations Corporate Bonds ​ ​ 2022 ​ 2021 ​ 2022 ​ 2021 Balance of recurring Level 3 assets at January 1, ​ $ 195,707 ​ $ — ​ $ 27,530 ​ $ — Purchases ​ ​ — ​ ​ — ​ ​ 19,009 ​ ​ — Transfers out of Level 3 ​ ​ ( 195,707 ) ​ ​ — ​ ​ — ​ ​ — Balance of recurring Level 3 assets at June 30, ​ $ — ​ $ — ​ $ 46,539 ​ $ — ​ ​ 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 during the first quarter of 2022 because observable market data became available due to a significant increase in trading volume for these securities during that time. ​ 15 Table of Contents Assets reported at fair value on a nonrecurring basis are summarized below: Fair Value Measurements – Nonrecurring (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at June 30, 2022, using ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Collateral dependent loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 51 ​ ​ — ​ ​ 51 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ 18,411 ​ ​ — ​ ​ 18,411 Total real estate ​ ​ — ​ ​ 18,462 ​ ​ — ​ ​ 18,462 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total collateral dependent loans ​ $ — ​ $ 18,462 ​ $ — ​ $ 18,462 Foreclosed assets ​ $ — ​ $ 2 ​ $ — ​ $ 2 Total assets measured on a nonrecurring basis ​ $ — ​ $ 18,464 ​ $ — ​ $ 18,464 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2021, using ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Collateral dependent loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 161 ​ ​ — ​ ​ 161 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 60 ​ ​ — ​ ​ 60 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate ​ ​ — ​ ​ 221 ​ ​ — ​ ​ 221 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ — ​ ​ 177 ​ ​ 177 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total collateral dependent loans ​ $ — ​ $ 221 ​ $ 177 ​ $ 398 Foreclosed assets ​ $ — ​ $ 93 ​ $ — ​ $ 93 Total assets measured on a nonrecurring basis ​ $ — ​ $ 314 ​ $ 177 ​ $ 491 ​ 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. 16 Table of Contents The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value. Adjusting any of those inputs could result in a significantly lower or higher fair value measurement. For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured individually identified loans. ​ Note 9 – Investments Investment Securities Pursuant to FASB’s guidance on accounting for debt securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity. Held-to-maturity securities are carried on the Company’s financial statements at their amortized cost, net of the allowance for credit losses. The amortized cost, estimated fair value, and allowance for credit losses of available-for-sale and held-to-maturity investment securities are as follows: Amortized Cost And Estimated Fair Value (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ​ Allowance for Credit Losses Estimated Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 1,000 ​ $ — ​ $ ( 19 ) ​ $ — ​ $ 981 Mortgage-backed securities ​ ​ 190,417 ​ ​ 18 ​ ​ ( 8,989 ) ​ ​ — ​ ​ 181,446 State and political subdivisions ​ ​ 286,650 ​ ​ 198 ​ ​ ( 31,960 ) ​ ​ — ​ ​ 254,888 Corporate bonds ​ ​ 49,708 ​ ​ 10 ​ ​ ( 3,179 ) ​ ​ — ​ ​ 46,539 Collateralized loan obligations ​ ​ 396,763 ​ ​ — ​ ​ ( 16,439 ) ​ ​ — ​ ​ 380,324 Total available-for-sale securities ​ $ 924,538 ​ $ 226 ​ $ ( 60,586 ) ​ $ — ​ $ 864,178 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses ​ Estimated Fair Value Allowance for Credit Losses Held-to-maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 6,762 ​ $ — ​ $ ( 346 ) ​ $ 6,416 ​ $ — Mortgage-backed securities ​ ​ 103,888 ​ ​ — ​ ​ ( 8,006 ) ​ ​ 95,882 ​ ​ — State and political subdivisions ​ ​ 50,767 ​ ​ 25 ​ ​ ( 5,943 ) ​ ​ 44,849 ​ ​ ( 18 ) Total held-to-maturity securities ​ $ 161,417 ​ $ 25 ​ $ ( 14,295 ) ​ $ 147,147 ​ $ ( 18 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ​ Allowance for Credit Losses Estimated Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 1,546 ​ $ 28 ​ $ — ​ $ — ​ $ 1,574 Mortgage-backed securities ​ ​ 303,912 ​ ​ 4,772 ​ ​ ( 1,957 ) ​ ​ — ​ ​ 306,727 State and political subdivisions ​ ​ 290,729 ​ ​ 13,807 ​ ​ ( 268 ) ​ ​ — ​ ​ 304,268 Corporate bonds ​ ​ 28,436 ​ ​ 94 ​ ​ ( 1 ) ​ ​ — ​ ​ 28,529 Collateralized loan obligations ​ ​ 332,836 ​ ​ 68 ​ ​ ( 688 ) ​ ​ — ​ ​ 332,216 Total securities ​ $ 957,459 ​ $ 18,769 ​ $ ( 2,914 ) ​ $ — ​ $ 973,314 ​ ​ 17 Table of Contents The Company reassessed classification of certain investments and effective April 1, 2022 the Company transferred $ 162.1 million of Agency, Mortgaged-Backed and Municipal securities from available-for-sale to held-to-maturity securities. The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income. The related unrealized loss of $ 11.5 million included in other comprehensive income remained in other comprehensive income, to be amortized out of other comprehensive income with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. Subsequent to transfer, a discounted-cash-flow reserve calculation was performed upon the transfer of these securities into the held-to-maturity designation and a allowance for credit losses of $ 0.02 million was calculated and charged to provision for credit loss expense. The Company did not have any securities classified as held-to-maturity as of December 31, 2021. ​ The Company did not record an ACL on the AFS portfolio at June 30, 2022 or upon the implementation of CECL on January 1, 2022. As of both dates the Company considers the unrealized loss across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value 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 June 30, 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 June 30, 2022 was attributable to credit deterioration and a risk of loss, requiring a allowance for credit losses. ​ ● 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2022 management concluded that no allowance for credit losses 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 June 30, 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. These bonds were subject to a credit review by the credit administration department prior to their purchase and are subject to quarterly potential impairment reviews. ● The Company has invested exclusively in AA and AAA tranches of various collateralized debt obligations, which are securitizations of commercial loans. Each purchase is subject to a credit, concentration, and structure review by the credit administration department prior to their purchase and are subject to quarterly potential impairment reviews. 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 June 30, 2022 management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest 18 Table of Contents rate spreads, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments. ​ At June 30, 2022 and December 31, 2021, the Company had 961 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 on available-for-sale securities was recorded as of June 30, 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). Investment Portfolio - Unrealized Losses (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ ​ Less than twelve months ​ Twelve months or more ​ Total ​ Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ ( 19 ) ​ $ 981 ​ $ — ​ $ — ​ $ ( 19 ) ​ $ 981 Mortgage-backed securities ​ ​ ( 8,941 ) ​ ​ 176,718 ​ ​ ( 48 ) ​ ​ 853 ​ ​ ( 8,989 ) ​ ​ 177,571 State and political subdivisions ​ ​ ( 31,960 ) ​ ​ 221,848 ​ ​ — ​ ​ — ​ ​ ( 31,960 ) ​ ​ 221,848 Corporate bonds ​ ​ ( 3,179 ) ​ ​ 43,562 ​ ​ — ​ ​ — ​ ​ ( 3,179 ) ​ ​ 43,562 Collateralized loan obligations ​ ​ ( 16,439 ) ​ ​ 380,324 ​ ​ — ​ ​ — ​ ​ ( 16,439 ) ​ ​ 380,324 Total available-for-sale ​ $ ( 60,538 ) ​ $ 823,433 ​ $ ( 48 ) ​ $ 853 ​ $ ( 60,586 ) ​ $ 824,286 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ ​ Less than twelve months ​ Twelve months or more ​ Total ​ ​ Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Held-to-maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ ( 346 ) ​ $ 6,416 ​ $ — ​ $ — ​ $ ( 346 ) ​ $ 6,416 Mortgage-backed securities ​ ​ ( 8,006 ) ​ ​ 95,882 ​ ​ — ​ ​ — ​ ​ ( 8,006 ) ​ ​ 95,882 State and political subdivisions ​ ​ ( 5,943 ) ​ ​ 41,148 ​ ​ — ​ ​ — ​ ​ ( 5,943 ) ​ ​ 41,148 Total held-to-maturity ​ $ ( 14,295 ) ​ $ 143,446 ​ $ — ​ $ — ​ $ ( 14,295 ) ​ $ 143,446 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Less than twelve months ​ Twelve months or more ​ Total ​ Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Mortgage-backed securities ​ ​ ( 1,797 ) ​ ​ 107,026 ​ ​ ( 160 ) ​ ​ 2,808 ​ ​ ( 1,957 ) ​ ​ 109,834 State and political subdivisions ​ ​ ( 268 ) ​ ​ 30,170 ​ ​ — ​ ​ — ​ ​ ( 268 ) ​ ​ 30,170 Corporate bonds ​ ​ ( 1 ) ​ ​ 499 ​ ​ — ​ ​ — ​ ​ ( 1 ) ​ ​ 499 Collateralized loan obligations ​ ​ ( 688 ) ​ ​ 175,581 ​ ​ — ​ ​ — ​ ​ ( 688 ) ​ ​ 175,581 Total available-for-sale ​ $ ( 2,754 ) ​ $ 313,276 ​ $ ( 160 ) ​ $ 2,808 ​ $ ( 2,914 ) ​ $ 316,084 ​ ​ ​ ​ 19 Table of Contents The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated: Investment Portfolio - Realized Gains/(Losses) (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, ​ ​ Six months ended June 30, ​ 2022 2021 ​ 2022 ​ 2021 Proceeds from sales, calls and maturities of securities available for sale ​ $ 1,750 ​ $ 2,295 ​ $ 30,531 ​ $ 4,000 Gross gains on sales, calls and maturities of securities available for sale ​ ​ — ​ ​ — ​ ​ 1,032 ​ ​ — Gross losses on sales, calls and maturities of securities available for sale ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net gains on sale of securities available for sale ​ $ — ​ $ — ​ $ 1,032 ​ $ — ​ The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at June 30, 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. Estimated Fair Value of Contractual Maturities (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ ​ Available-for-Sale ​ Held-to-Maturity ​ Amortized Cost Fair Value Amortized Cost Fair Value Maturing within one year ​ $ 3,008 ​ $ 3,014 ​ $ 1,225 ​ $ 1,227 Maturing after one year through five years ​ ​ 8,376 ​ ​ 8,267 ​ ​ 1,880 ​ ​ 1,850 Maturing after five years through ten years ​ ​ 71,878 ​ ​ 68,281 ​ ​ 17,096 ​ ​ 15,925 Maturing after ten years ​ ​ 251,829 ​ ​ 220,579 ​ ​ 37,327 ​ ​ 32,263 Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage-backed securities ​ ​ 192,684 ​ ​ 183,713 ​ ​ 103,889 ​ ​ 95,882 Collateralized loan obligations ​ ​ 396,763 ​ ​ 380,324 ​ ​ — ​ ​ — ​ ​ $ 924,538 ​ $ 864,178 ​ $ 161,417 ​ $ 147,147 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Available-for-Sale ​ Held-to-Maturity ​ Amortized Cost Fair Value Amortized Cost Fair Value Maturing within one year ​ $ 3,513 ​ $ 3,547 ​ $ — ​ $ — Maturing after one year through five years ​ ​ 26,422 ​ ​ 26,718 ​ ​ — ​ ​ — Maturing after five years through ten years ​ ​ 36,840 ​ ​ 38,314 ​ ​ — ​ ​ — Maturing after ten years ​ ​ 253,936 ​ ​ 265,792 ​ ​ — ​ ​ — Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ — Mortgage-backed securities ​ ​ 303,912 ​ ​ 306,727 ​ ​ — ​ ​ — Collateralized loan obligations ​ ​ 332,836 ​ ​ 332,216 ​ ​ — ​ ​ — ​ ​ $ 957,459 ​ $ 973,314 ​ $ — ​ $ — ​ At June 30, 2022, the Company’s investment portfolio included 442 “muni” bonds issued by 368 different government municipalities and agencies located within 34 different states, with an aggregate fair value of $ 299.7 million. The largest exposure to any single municipality or agency was a combined $ 5.7 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 40 subordinated debentures issued by bank holding companies totaling $ 46.5 million (fair value). 20 Table of Contents At December 31, 2021, the Company’s investment portfolio included 403 “muni” bonds issued by 335 different government municipalities and agencies located within 33 states, with an aggregate fair value of $ 304.3 million. The largest exposure to any single municipality or agency was $ 4.0 million (fair value) in three bonds issued by the Charter Township of Washington. In addition, the company owned 23 subordinated debentures issued by bank holding companies totaling $ 28.5 million (fair value). The Company’s investments in bonds issued by corporations, states, municipalities and political subdivisions are evaluated in accordance with Financial Institution Letter 48-2012, issued by the FDIC, “Revised Standards of Creditworthiness for Investment Securities,” and other regulatory guidance. Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly rated bonds. There have been no significant differences in our internal analyses compared with the ratings assigned by the third-party credit rating agencies. The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations: Revenue and General Obligation Bonds by Location (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ December 31, 2021 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market General obligation bonds Cost Value Cost Value State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ $ 114,615 ​ $ 100,728 ​ $ 85,045 ​ $ 89,225 California ​ ​ 64,337 ​ ​ 56,481 ​ ​ 64,092 ​ ​ 67,066 Washington ​ ​ 20,724 ​ ​ 19,476 ​ ​ 23,858 ​ ​ 24,812 Other (27 & 26 states, respectively) ​ ​ 91,855 ​ ​ 82,271 ​ ​ 75,037 ​ ​ 78,579 Total general obligation bonds ​ ​ 291,531 ​ ​ 258,956 ​ ​ 248,032 ​ ​ 259,682 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue bonds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ ​ 5,739 ​ ​ 5,118 ​ ​ 7,038 ​ ​ 7,377 California ​ ​ 3,997 ​ ​ 3,616 ​ ​ 4,334 ​ ​ 4,602 Washington ​ ​ 4,103 ​ ​ 3,502 ​ ​ 1,349 ​ ​ 1,392 Other (17 & 15 states, respectively) ​ ​ 32,047 ​ ​ 28,545 ​ ​ 29,976 ​ ​ 31,215 Total revenue bonds ​ ​ 45,886 ​ ​ 40,781 ​ ​ 42,697 ​ ​ 44,586 Total obligations of states and political subdivisions ​ $ 337,417 ​ $ 299,737 ​ $ 290,729 ​ $ 304,268 ​ The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and 21 Table of Contents economic improvements. The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates. Revenue Bonds by Type (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ December 31, 2021 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market Revenue bonds Cost Value Cost Value Revenue source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Water ​ $ 17,120 ​ $ 15,112 ​ $ 15,534 ​ $ 16,220 Sewer ​ ​ 6,107 ​ ​ 5,356 ​ ​ 3,932 ​ ​ 4,165 Lease ​ ​ 4,665 ​ ​ 4,341 ​ ​ 6,556 ​ ​ 6,718 Sales tax revenue ​ ​ 3,559 ​ ​ 3,067 ​ ​ — ​ ​ — Intergovernmental agreement ​ ​ 2,838 ​ ​ 2,680 ​ ​ — ​ ​ — Other (9 and 9 sources, respectively) ​ ​ 11,597 ​ ​ 10,225 ​ ​ 16,675 ​ ​ 17,483 Total revenue bonds ​ $ 45,886 ​ $ 40,781 ​ $ 42,697 ​ $ 44,586 ​ Low-Income Housing Tax Credit (“LIHTC”) Fund Investments The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits, by mandating a specified percentage of low-income tenants for each project. The primary investment return comes from tax credits that flow through to investors. Because rent levels are lower than standard market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses that are allocated to the limited partners for tax purposes. The Company currently has investments in three different LIHTC fund limited partnerships made in 2014, 2015, and 2022, all of which were California-focused funds that help the Company meet its obligations under the Community Reinvestment Act. We utilize the cost method of accounting for our LIHTC fund investments, under which we initially record on our balance sheet an asset that represents the total cash expected to be invested over the life of the partnership. Any commitments or contingent commitments for future investment are reflected as a liability. The income statement reflects tax credits and any other tax benefits from these investments “below the line” within our income tax provision, while the initial book value of the investment is amortized on a straight-line basis as an offset to noninterest income, over the time period in which the tax credits and tax benefits are expected to be received. As of June 30, 2022, our total LIHTC investment book balance was $ 7.7 million, which includes $ 5.1 million in remaining commitments for additional capital contributions. There were $ 0.3 million in tax credits derived from our LIHTC investments that were recognized during the six months ended June 30, 2022, and amortization expense of $ 0.2 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. As of December 31, 2021, our total LIHTC investment book balance was $ 2.9 million, which includes $ 0.1 million in remaining commitments for additional capital contributions. There were $ 0.5 million in tax credits derived from our LIHTC investments that were recognized during the year ended December 31, 2022, and amortization expense of $ 0.5 million associated with those investments was netted against pre-tax noninterest income for the same time period. 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 June 30, 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, 22 Table of Contents June 30, 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 June 30, 2022 and December 31, 2021. Accrued interest receivable on loans of $ 5.4 million and $ 6.8 million at June 30, 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 June 30, 2022, balance in 1-4 family closed end loans reflects year-to-date 2022 loan purchase of $ 173.1 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 roll forward of the Allowance for Credit Losses at the portfolio segment level. ​ 23 Table of Contents ​ ​ ​ ​ ​ ​ ​ Loan And Lease Distribution ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 Real estate: ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 5,542 ​ $ 21,369 Other construction/land ​ ​ 20,816 ​ ​ 25,299 1-4 family - closed-end ​ ​ 429,109 ​ ​ 289,457 Equity lines ​ ​ 25,260 ​ ​ 26,588 Multi-family residential ​ ​ 66,367 ​ ​ 53,458 Commercial real estate - owner occupied ​ ​ 312,060 ​ ​ 334,446 Commercial real estate - non-owner occupied ​ ​ 898,158 ​ ​ 882,888 Farmland ​ ​ 101,675 ​ ​ 106,706 Total real estate ​ ​ 1,858,987 ​ ​ 1,740,211 Agricultural ​ ​ 28,660 ​ ​ 33,990 Commercial and industrial ​ ​ 72,617 ​ ​ 109,791 Mortgage warehouse lines ​ ​ 58,134 ​ ​ 101,184 Consumer loans ​ ​ 4,264 ​ ​ 4,550 Subtotal ​ ​ 2,022,662 ​ ​ 1,989,726 Less net deferred loan fees and costs ​ ​ ( 1,081 ) ​ ​ ( 1,865 ) Loans and leases, amortized cost basis ​ ​ 2,021,581 ​ ​ 1,987,861 Allowance for credit losses ​ ​ ( 22,802 ) ​ ​ ( 14,256 ) Net loans and leases ​ $ 1,998,779 ​ $ 1,973,605 ​ The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual Loans and Leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ ​ Nonaccrual Loans ​ ​ ​ ​ With no allowance for credit loss With an allowance for credit loss ​ Total ​ Loans Past Due 90+ Accruing Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ 632 Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ 745 ​ ​ — ​ ​ 745 ​ ​ — Equity lines ​ ​ 62 ​ ​ — ​ ​ 62 ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ 379 ​ ​ — ​ ​ 379 ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 19,301 ​ ​ — ​ ​ 19,301 ​ ​ — Total real estate ​ ​ 20,487 ​ ​ — ​ ​ 20,487 ​ ​ 632 Agricultural ​ ​ 8,414 ​ ​ 30 ​ ​ 8,444 ​ ​ — Commercial and industrial ​ ​ 584 ​ ​ 230 ​ ​ 814 ​ ​ 7 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ 29,485 ​ $ 260 ​ $ 29,745 ​ $ 639 ​ ​ 24 Table of Contents 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 ​ Recorded ​ ​ ​ Average Recorded ​ Interest Income ​ Balance (1) Investment (2) Related Allowance Investment Recognized (3) With an Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ 341 ​ $ 341 ​ $ 64 ​ $ 352 ​ $ 55 1-4 family - closed-end ​ ​ 1,048 ​ ​ 1,048 ​ ​ 37 ​ ​ 1,096 ​ ​ 104 Equity lines ​ ​ 2,005 ​ ​ 1,993 ​ ​ 182 ​ ​ 2,056 ​ ​ 138 Commercial real estate - owner occupied ​ ​ 1,249 ​ ​ 1,248 ​ ​ 19 ​ ​ 1,278 ​ ​ 144 Commercial real estate - non-owner occupied ​ ​ 367 ​ ​ 367 ​ ​ 126 ​ ​ 393 ​ ​ 32 Total real estate ​ ​ 5,010 ​ ​ 4,997 ​ ​ 428 ​ ​ 5,175 ​ ​ 473 Agricultural ​ ​ 244 ​ ​ 244 ​ ​ 244 ​ ​ 246 ​ ​ — Commercial and industrial ​ ​ 757 ​ ​ 757 ​ ​ 127 ​ ​ 873 ​ ​ 41 Consumer loans ​ ​ 164 ​ ​ 164 ​ ​ 19 ​ ​ 180 ​ ​ 28 ​ ​ ​ 6,175 ​ ​ 6,162 ​ ​ 818 ​ ​ 6,474 ​ ​ 542 With no Related Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family - closed-end ​ ​ 788 ​ ​ 788 ​ ​ — ​ ​ 869 ​ ​ — Equity lines ​ ​ 648 ​ ​ 648 ​ ​ — ​ ​ 690 ​ ​ 6 Commercial real estate - owner occupied ​ ​ 1,353 ​ ​ 1,234 ​ ​ — ​ ​ 1,282 ​ ​ — Total real estate ​ ​ 2,789 ​ ​ 2,670 ​ ​ — ​ ​ 2,841 ​ ​ 6 Agricultural ​ ​ 134 ​ ​ 134 ​ ​ — ​ ​ 186 ​ ​ — Commercial and industrial ​ ​ 466 ​ ​ 466 ​ ​ — ​ ​ 550 ​ ​ — ​ ​ ​ 3,389 ​ ​ 3,270 ​ ​ — ​ ​ 3,577 ​ ​ 6 Total ​ $ 9,564 ​ $ 9,432 ​ $ 818 ​ $ 10,051 ​ $ 548 (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 second quarter 2022 and would have recognized an additional $ 0.6 million on nonaccrual loans had those loans not been designated as nonaccrual. ​ 25 Table of Contents The following table presents the amortized cost basis of collateral-dependent loans by class as of June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ Collateral Dependent Loans ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ Amortized Cost ​ Individual Reserves Real estate: ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ 41 ​ ​ — Equity lines ​ ​ — ​ ​ — Multi-family residential ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ 204 ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — Farmland ​ ​ 19,300 ​ ​ — Total real estate ​ ​ 19,545 ​ ​ — Agricultural ​ ​ 8,414 ​ ​ — Commercial and industrial ​ ​ 478 ​ ​ — Mortgage warehouse lines ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — Total loans and leases ​ $ 28,437 ​ $ — ​ ​ During the second quarter the amortized cost balance of collateral-dependent loans declined by $ 1.3 million due to declines resulting from upgrades and payoffs, partially offset by additional collateral dependent loans downgraded during the quarter. The weighted average loan-to-value ratio of collateral dependent loans was 91 % at June 30, 2022. There were no collateral dependent loans in the process of foreclosure as of June 30, 2022 26 Table of Contents The following table presents the aging of the amortized cost basis in past-due loans, according to class, as of June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due Loans and Leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ 30-59 Days Past Due 60-89 Days Past Due ​ Loans Past Due 90+ Days ​ Total Past Due ​ Loans not Past Due ​ Total Loans Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ 632 ​ $ 632 ​ $ 4,910 ​ $ 5,542 Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 20,757 ​ ​ 20,757 1-4 family - closed-end ​ ​ 32 ​ ​ — ​ ​ 8 ​ ​ 40 ​ ​ 430,095 ​ ​ 430,135 Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 25,575 ​ ​ 25,575 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 66,291 ​ ​ 66,291 Commercial real estate - owner occupied ​ ​ — ​ ​ 124 ​ ​ — ​ ​ 124 ​ ​ 311,965 ​ ​ 312,089 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 895,352 ​ ​ 895,352 Farmland ​ ​ 5,129 ​ ​ 13,932 ​ ​ 342 ​ ​ 19,403 ​ ​ 82,358 ​ ​ 101,761 Total real estate ​ ​ 5,161 ​ ​ 14,056 ​ ​ 982 ​ ​ 20,199 ​ ​ 1,837,303 ​ ​ 1,857,502 Agricultural ​ ​ — ​ ​ 7,760 ​ ​ 597 ​ ​ 8,357 ​ ​ 20,400 ​ ​ 28,757 Commercial and industrial ​ ​ 174 ​ ​ — ​ ​ 263 ​ ​ 437 ​ ​ 72,389 ​ ​ 72,826 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 58,134 ​ ​ 58,134 Consumer loans ​ ​ 7 ​ ​ 2 ​ ​ — ​ ​ 9 ​ ​ 4,353 ​ ​ 4,362 Total loans and leases ​ $ 5,342 ​ $ 21,818 ​ $ 1,842 ​ $ 29,002 ​ $ 1,992,579 ​ $ 2,021,581 ​ 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 ​ 30-59 Days ​ 60-89 Days ​ 90 Days Or More Past ​ ​ ​ ​ ​ ​ ​ Total Financing ​ Non-Accrual ​ Past Due Past Due Due (2) Total Past Due Current Receivables Loans (1) Real Estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 21,369 ​ $ 21,369 ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 25,299 ​ ​ 25,299 ​ ​ — 1-4 family - closed-end ​ ​ 1,532 ​ ​ 132 ​ ​ — ​ ​ 1,664 ​ ​ 287,793 ​ ​ 289,457 ​ ​ 1,023 Equity lines ​ ​ 30 ​ ​ — ​ ​ — ​ ​ 30 ​ ​ 26,558 ​ ​ 26,588 ​ ​ 892 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 53,458 ​ ​ 53,458 ​ ​ — Commercial real estate owner occupied ​ ​ 124 ​ ​ — ​ ​ 698 ​ ​ 822 ​ ​ 333,624 ​ ​ 334,446 ​ ​ 1,234 Commercial real estate non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 882,888 ​ ​ 882,888 ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 106,706 ​ ​ 106,706 ​ ​ — Total real estate loans ​ ​ 1,686 ​ ​ 132 ​ ​ 698 ​ ​ 2,516 ​ ​ 1,737,695 ​ ​ 1,740,211 ​ ​ 3,149 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ — ​ ​ — ​ ​ 284 ​ ​ 284 ​ ​ 33,706 ​ ​ 33,990 ​ ​ 378 Commercial and industrial ​ ​ 473 ​ ​ — ​ ​ 283 ​ ​ 756 ​ ​ 109,035 ​ ​ 109,791 ​ ​ 973 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 101,184 ​ ​ 101,184 ​ ​ — Consumer loans ​ ​ 6 ​ ​ 3 ​ ​ — ​ ​ 9 ​ ​ 4,541 ​ ​ 4,550 ​ ​ 22 Total gross loans and leases ​ $ 2,165 ​ $ 135 ​ $ 1,265 ​ $ 3,565 ​ $ 1,986,161 ​ $ 1,989,726 ​ $ 4,522 (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 June 30, 2022, the Company had a total of $ 5.1 million in TDRs, including $ 0.3 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 27 Table of Contents 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 three and six months ended June 30, 2021, by type of concession. For the three and six months ended June 30, 2022, there were no new TDRs and no modifications of existing TDRs Troubled Debt Restructurings, by Type of Loan Modification (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, 2021 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 136 ​ ​ — ​ ​ — ​ ​ — ​ ​ 136 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 136 ​ ​ — ​ ​ — ​ ​ — ​ ​ 136 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ — ​ $ 136 ​ $ — ​ $ — ​ $ — ​ $ 136 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, 2021 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ 83 ​ ​ — ​ ​ 83 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 136 ​ ​ — ​ ​ — ​ ​ — ​ ​ 136 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 136 ​ ​ — ​ ​ 83 ​ ​ — ​ ​ 219 Agricultural ​ ​ — ​ ​ 118 ​ ​ — ​ ​ — ​ ​ ​ ​ ​ 118 Commercial and industrial ​ ​ — ​ ​ 185 ​ ​ — ​ ​ — ​ ​ — ​ ​ 185 Consumer loans ​ ​ — ​ ​ 41 ​ ​ — ​ ​ — ​ ​ — ​ ​ 41 Total ​ $ — ​ $ 480 ​ $ — ​ $ 83 ​ $ — ​ $ 563 ​ ​ 28 Table of Contents Troubled Debt Restructurings (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, 2021 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 0 ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 1 ​ ​ 137 ​ ​ 136 ​ ​ ( 1 ) ​ ​ — Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 137 ​ ​ 136 ​ ​ ( 1 ) ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ ​ ​ $ 137 ​ $ 136 ​ $ ($ 1 ) ​ $ — (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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, 2021 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 0 ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 1 ​ ​ 83 ​ ​ 83 ​ ​ — ​ ​ 1 Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 1 ​ ​ 137 ​ ​ 136 ​ ​ ( 1 ) ​ ​ — Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 220 ​ ​ 219 ​ ​ ( 1 ) ​ ​ 1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 1 ​ ​ 118 ​ ​ 118 ​ ​ 116 ​ ​ — Commercial and industrial ​ 1 ​ ​ 185 ​ ​ 185 ​ ​ ( 1 ) ​ ​ 48 Consumer loans ​ 1 ​ ​ 41 ​ ​ 41 ​ ​ — ​ ​ — Total ​ ​ ​ $ 564 ​ $ 563 ​ $ 114 ​ $ 49 (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. The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during the three or six-month periods ending June 30, 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: 29 Table of Contents 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. 30 Table of Contents The following tables present the amortized cost of loans and leases by credit quality classification in addition to loan and lease vintage as of June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan and Lease Credit Quality by Vintage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans and Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ 2018 ​ Prior ​ Revolving Loans Amortized Cost ​ Total Loans 1-4 family construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 4,910 ​ $ 4,910 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 632 ​ ​ 632 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Subtotal ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,542 ​ ​ 5,542 Other construction/land ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ $ 3,591 ​ $ 4,343 ​ $ 777 ​ $ 1,054 ​ $ 1,116 ​ $ 9,802 ​ ​ 20,683 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ 74 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 74 Subtotal ​ ​ — ​ ​ 3,591 ​ ​ 4,417 ​ ​ 777 ​ ​ 1,054 ​ ​ 1,116 ​ ​ 9,802 ​ ​ 20,757 1-4 family - closed-end ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 110,397 ​ $ 243,625 ​ $ 8,058 ​ $ 2,094 ​ $ 11,042 ​ $ 50,354 ​ $ — ​ ​ 425,570 Special Mention ​ ​ 264 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,022 ​ ​ 2,095 ​ ​ — ​ ​ 3,381 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 32 ​ ​ 1,152 ​ ​ — ​ ​ 1,184 Subtotal ​ ​ 110,661 ​ ​ 243,625 ​ ​ 8,058 ​ ​ 2,094 ​ ​ 12,096 ​ ​ 53,601 ​ ​ — ​ ​ 430,135 Equity lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 2,355 ​ $ 171 ​ $ 551 ​ $ 361 ​ $ 79 ​ $ — ​ $ 20,691 ​ ​ 24,208 Special Mention ​ ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ — ​ ​ — ​ ​ 790 ​ ​ 810 Substandard ​ ​ — ​ ​ 118 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 439 ​ ​ 557 Subtotal ​ ​ 2,355 ​ ​ 289 ​ ​ 571 ​ ​ 361 ​ ​ 79 ​ ​ — ​ ​ 21,920 ​ ​ 25,575 Multi-family residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 19,320 ​ $ 522 ​ $ 9,504 ​ $ 668 ​ $ 13,159 ​ $ 12,757 ​ $ 4,720 ​ ​ 60,650 Special Mention ​ ​ — ​ ​ — ​ ​ 2,240 ​ ​ — ​ ​ — ​ ​ 3,401 ​ ​ — ​ ​ 5,641 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Subtotal ​ ​ 19,320 ​ ​ 522 ​ ​ 11,744 ​ ​ 668 ​ ​ 13,159 ​ ​ 16,158 ​ ​ 4,720 ​ ​ 66,291 Commercial real estate - OO ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 9,855 ​ $ 26,311 ​ $ 63,756 ​ $ 38,080 ​ $ 39,071 ​ $ 118,601 ​ $ 7,346 ​ ​ 303,020 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,403 ​ ​ — ​ ​ 2,107 ​ ​ — ​ ​ 4,510 Substandard ​ ​ 326 ​ ​ — ​ ​ — ​ ​ — ​ ​ 80 ​ ​ 3,393 ​ ​ 760 ​ ​ 4,559 Subtotal ​ ​ 10,181 ​ ​ 26,311 ​ ​ 63,756 ​ ​ 40,483 ​ ​ 39,151 ​ ​ 124,101 ​ ​ 8,106 ​ ​ 312,089 Commercial real estate - NOO ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 51,922 ​ $ 19,710 ​ $ 451,234 ​ $ 26,810 ​ $ 56,883 ​ $ 165,217 ​ $ 62,955 ​ ​ 834,731 Special Mention ​ ​ — ​ ​ — ​ $ 33,613 ​ ​ — ​ ​ 7,266 ​ ​ 3,121 ​ ​ 12,671 ​ ​ 56,671 Substandard ​ ​ — ​ ​ — ​ $ — ​ ​ — ​ ​ 852 ​ ​ 3,098 ​ ​ — ​ ​ 3,950 Subtotal ​ ​ 51,922 ​ ​ 19,710 ​ ​ 484,847 ​ ​ 26,810 ​ ​ 65,001 ​ ​ 171,436 ​ ​ 75,626 ​ ​ 895,352 Farmland ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ $ 1,377 ​ $ 5,008 ​ $ 1,978 ​ $ 8,202 ​ $ 25,700 ​ $ 27,588 ​ ​ 69,853 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 7,116 ​ ​ 4,385 ​ ​ 1,004 ​ ​ 12,505 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,722 ​ ​ 14,133 ​ ​ 548 ​ ​ 19,403 Subtotal ​ ​ — ​ ​ 1,377 ​ ​ 5,008 ​ ​ 1,978 ​ ​ 20,040 ​ ​ 44,218 ​ ​ 29,140 ​ ​ 101,761 Agricultural ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 549 ​ $ 1,684 ​ $ 475 ​ $ 30 ​ $ 1,092 ​ $ 6,882 ​ $ 9,329 ​ ​ 20,041 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 272 ​ ​ 272 Substandard ​ ​ — ​ ​ 7,847 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 597 ​ ​ 8,444 Subtotal ​ ​ 549 ​ ​ 9,531 ​ ​ 475 ​ ​ 30 ​ ​ 1,092 ​ ​ 6,882 ​ ​ 10,198 ​ ​ 28,757 Commercial and industrial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 1,272 ​ $ 11,449 ​ $ 8,021 ​ $ 6,977 ​ $ 5,682 ​ $ 10,004 ​ $ 19,576 ​ ​ 62,981 Special Mention ​ ​ — ​ ​ 312 ​ ​ 3,186 ​ ​ 50 ​ ​ — ​ ​ 1,553 ​ ​ 3,772 ​ ​ 8,873 Substandard ​ ​ — ​ ​ — ​ ​ 44 ​ ​ 143 ​ ​ 93 ​ ​ 643 ​ ​ 49 ​ ​ 972 Subtotal ​ ​ 1,272 ​ ​ 11,761 ​ ​ 11,251 ​ ​ 7,170 ​ ​ 5,775 ​ ​ 12,200 ​ ​ 23,397 ​ ​ 72,826 Mortgage warehouse lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 58,134 ​ ​ 58,134 Subtotal ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 58,134 ​ ​ 58,134 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 953 ​ $ 275 ​ $ 173 ​ $ 299 ​ $ 19 ​ $ 429 ​ $ 2,163 ​ ​ 4,311 Special Mention ​ ​ — ​ ​ — ​ ​ 40 ​ $ — ​ ​ — ​ ​ — ​ ​ 7 ​ ​ 47 Substandard ​ ​ 2 ​ ​ — ​ ​ — ​ $ — ​ ​ — ​ ​ 2 ​ ​ — ​ ​ 4 Subtotal ​ ​ 955 ​ ​ 275 ​ ​ 213 ​ ​ 299 ​ ​ 19 ​ ​ 431 ​ ​ 2,170 ​ ​ 4,362 Total ​ $ 197,215 ​ $ 316,992 ​ $ 590,340 ​ $ 80,670 ​ $ 157,466 ​ $ 430,143 ​ $ 248,755 ​ $ 2,021,581 ​ 31 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass Special Mention Substandard Impaired Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 19,669 ​ $ 1,700 ​ $ — ​ $ — ​ $ 21,369 Other construction/land ​ ​ 24,958 ​ ​ — ​ ​ — ​ ​ 341 ​ ​ 25,299 1-4 family - closed-end ​ ​ 282,717 ​ ​ 4,703 ​ ​ 201 ​ ​ 1,836 ​ ​ 289,457 Equity lines ​ ​ 23,277 ​ ​ 615 ​ ​ 55 ​ ​ 2,641 ​ ​ 26,588 Multi-family residential ​ ​ 49,986 ​ ​ 3,472 ​ ​ — ​ ​ — ​ ​ 53,458 Commercial real estate owner occupied ​ ​ 321,996 ​ ​ 6,108 ​ ​ 3,860 ​ ​ 2,482 ​ ​ 334,446 Commercial real estate non-owner occupied ​ ​ 841,728 ​ ​ 26,364 ​ ​ 14,429 ​ ​ 367 ​ ​ 882,888 Farmland ​ ​ 92,479 ​ ​ 10,266 ​ ​ 3,961 ​ ​ — ​ ​ 106,706 Total real estate ​ ​ 1,656,810 ​ ​ 53,228 ​ ​ 22,506 ​ ​ 7,667 ​ ​ 1,740,211 Agricultural ​ ​ 32,513 ​ ​ — ​ ​ 1,099 ​ ​ 378 ​ ​ 33,990 Commercial and industrial ​ ​ 98,367 ​ ​ 9,989 ​ ​ 212 ​ ​ 1,223 ​ ​ 109,791 Mortgage warehouse lines ​ ​ 101,184 ​ ​ — ​ ​ — ​ ​ — ​ ​ 101,184 Consumer loans ​ ​ 4,349 ​ ​ 31 ​ ​ 6 ​ ​ 164 ​ ​ 4,550 Total gross loans and leases ​ $ 1,893,223 ​ $ 63,248 ​ $ 23,823 ​ $ 9,432 ​ $ 1,989,726 ​ 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 June 30, 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 generally 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 flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and current conditions and circumstances including the level of interest rates. The prepayment assumptions may be updated by 32 Table of Contents Management in the event that changing conditions impact Management’s estimate or additional historical data gathered has resulted in the need for a reevaluation. 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 June 30, 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, expected impact of current and expected inflationary environment, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of current and expected geo-political conditions 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 33 Table of Contents 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 June 30, 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 June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for Credit Losses and Recorded Investment in Financing Receivables ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 Family Real Estate ​ Commercial Real Estate Farmland & Agricultural Production Commercial & Industrial ​ Mortgage Warehouse Consumer Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, March 31, 2022 ​ $ 3,329 ​ $ 17,043 ​ $ 606 ​ $ 1,231 ​ $ 51 ​ $ 270 ​ $ 22,530 Charge-offs ​ ​ — ​ ​ ( 1,911 ) ​ ​ ( 213 ) ​ ​ ( 86 ) ​ ​ — ​ ​ ( 313 ) ​ ​ ( 2,523 ) Recoveries ​ ​ 12 ​ ​ — ​ ​ — ​ ​ 62 ​ ​ — ​ ​ 173 ​ ​ 247 Provision for credit losses ​ ​ 252 ​ ​ 2,187 ​ ​ ( 17 ) ​ ​ ( 74 ) ​ ​ ( 10 ) ​ ​ 210 ​ ​ 2,548 Ending allowance balance: ​ $ 3,593 ​ $ 17,319 ​ $ 376 ​ $ 1,133 ​ $ 41 ​ $ 340 ​ $ 22,802 ​ The $ 0.3 million increase in the Company’s loan portfolio ACL in the second quarter 2022 from $ 22.5 million at March 31, 2022 to $ 22.8 million at June 30, 2022, is primarily a reflection of growth in loan balances recognized in the second quarter 2022. The following table presents the activity in the allowance for credit losses by portfolio segment for the six months ended June 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for Credit Losses and Recorded Investment in Financing Receivables ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 Family Real Estate ​ Commercial Real Estate Farmland & Agricultural Production Commercial & Industrial ​ Mortgage Warehouse Consumer Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2021 ​ $ 1,909 ​ $ 9,052 ​ $ 1,202 ​ $ 1,060 ​ $ 512 ​ $ 521 ​ $ 14,256 Impact of adopting ASC 326 ​ ​ 611 ​ ​ 9,628 ​ ​ ( 480 ) ​ ​ 358 ​ ​ ( 421 ) ​ ​ ( 242 ) ​ ​ 9,454 Charge-offs ​ ​ — ​ ​ ( 1,911 ) ​ ​ ( 2,171 ) ​ ​ ( 160 ) ​ ​ — ​ ​ ( 612 ) ​ ​ ( 4,854 ) Recoveries ​ ​ 99 ​ ​ 260 ​ ​ — ​ ​ 82 ​ ​ — ​ ​ 357 ​ ​ 798 Provision for credit losses ​ ​ 974 ​ ​ 290 ​ ​ 1,825 ​ ​ ( 207 ) ​ ​ ( 50 ) ​ ​ 316 ​ ​ 3,148 Ending allowance balance: ​ $ 3,593 ​ $ 17,319 ​ $ 376 ​ $ 1,133 ​ $ 41 ​ $ 340 ​ $ 22,802 ​ 34 Table of Contents The $ 0.9 million decline in the Company’s loan portfolio ACL between the $ 23.7 million ACL recognized upon implementation of CECL on January 1, 2022 and the $ 22.8 million as of June 30, 2022, reflects a narrowing of the gap between the California unemployment rate and the National Unemployment rate during the first six months of 2022, compared with December 31, 2021. The $ 2.2 million in charge-offs recognized in the Farmland and Agricultural Production portfolio segment is primarily the result of a reduction in the expected valuation of collateral on a single loan relationship, recorded in the first quarter 2022. The $ 1.9 million charge-off in Commercial Real Estate was recognized during the second quarter, when Management became aware of a borrower’s reduced ability to service their loan primarily as a result of increased vacancy rates related to the remote work which has increased following the pandemic. ​ The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, 2021 ​ ​ ​ Real Estate ​ ​ Agricultural Products ​ ​ Commercial and Industrial (1) ​ ​ Consumer ​ ​ Unallocated ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ $ 12,806 ​ $ 672 ​ $ 4,205 ​ $ 593 ​ $ 43 ​ $ 18,319 Charge-offs ​ ​ ( 11 ) ​ ​ ( 50 ) ​ ​ ( 25 ) ​ ​ ( 169 ) ​ ​ — ​ ​ ( 255 ) Recoveries ​ ​ 195 ​ ​ — ​ ​ 82 ​ ​ 180 ​ ​ — ​ ​ 457 (Benefit) provision ​ ​ ( 915 ) ​ ​ ( 98 ) ​ ​ ( 1,190 ) ​ ​ 86 ​ ​ 17 ​ ​ ( 2,100 ) Ending balance ​ $ 12,075 ​ $ 524 ​ $ 3,072 ​ $ 690 ​ $ 60 ​ $ 16,421 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended June 30, 2021 ​ Real Estate Agricultural Products Commercial and Industrial (1) Consumer Unallocated Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance $ 11,766 $ 482 $ 4,721 $ 720 $ 49 $ 17,738 Charge-offs ​ ​ ( 245 ) ​ ​ ( 50 ) ​ ​ ( 77 ) ​ ​ ( 331 ) ​ ​ — ​ ​ ( 703 ) Recoveries ​ ​ 648 ​ ​ — ​ ​ 192 ​ ​ 396 ​ ​ — ​ ​ 1,236 (Benefit) provision ​ ​ ( 94 ) ​ ​ 92 ​ ​ ( 1,764 ) ​ ​ ( 95 ) ​ ​ 11 ​ ​ ( 1,850 ) Ending balance ​ $ 12,075 ​ $ 524 ​ $ 3,072 ​ $ 690 ​ $ 60 ​ $ 16,421 Reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Specific ​ $ 641 ​ $ 246 ​ $ 381 ​ $ 16 ​ $ — ​ $ 1,284 General ​ ​ 11,434 ​ ​ 278 ​ ​ 2,691 ​ ​ 674 ​ ​ 60 ​ ​ 15,137 Ending balance ​ $ 12,075 ​ $ 524 ​ $ 3,072 ​ $ 690 ​ $ 60 ​ $ 16,421 Loans evaluated for impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ $ 15,677 ​ $ 517 ​ $ 1,649 ​ $ 207 ​ $ — ​ $ 18,050 Collectively ​ ​ 1,780,290 ​ ​ 42,435 ​ ​ 299,334 ​ ​ 4,687 ​ ​ — ​ ​ 2,126,746 Ending balance ​ $ 1,795,967 ​ $ 42,952 ​ $ 300,983 ​ $ 4,894 ​ $ — ​ $ 2,144,796 ​ ​ Note 11 – Long-Term Debt Long-Term Debt (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ December 31, 2021 ​ ​ ​ ​ Unamortized ​ ​ ​ Unamortized ​ ​ ​ ​ Debt Issuance ​ ​ ​ Debt Issuance ​ Principal Costs Principal Costs Fixed - floating rate subordinated debentures, due 2031 (1) $ 50,000 $ ( 827 ) $ 50,000 $ ( 859 ) Total long-term debt ​ $ 50,000 ​ $ ( 827 ) ​ $ 50,000 ​ $ ( 859 ) (1) 3.25 % fixed rate for five years, then floating rate beginning October 1, 2026 at 253.5 basis points over 3-month term SOFR adjusted quarterly . ​ 35 Table of Contents Note 12 – Revenue Recognition The Company utilizes the guidance found in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), when accounting for certain noninterest income. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Sufficient information should be provided to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company’s revenue streams that are within the scope of and accounted for under Topic 606 include service charges on deposit accounts, debit card interchange fees, and fees levied for other services the Company provides its customers. The guidance does not apply to revenue associated with financial instruments such as loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP. 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 six-month periods ended June 30, 2022 and 2021. Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended June 30, ​ Six months ended June 30, ​ 2022 2021 2022 2021 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Returned item and overdraft fees $ 1,372 $ 1,148 $ 2,700 $ 2,254 Other service charges on deposits ​ ​ 1,832 ​ ​ 1,577 ​ ​ 3,545 ​ ​ 3,237 Debit card interchange income ​ ​ 2,161 ​ ​ 2,235 ​ ​ 4,218 ​ ​ 4,128 Loss on limited partnerships (1) ​ ​ ( 113 ) ​ ​ ( 114 ) ​ ​ ( 225 ) ​ ​ ( 247 ) Dividends on equity investments (1) ​ ​ 183 ​ ​ 164 ​ ​ 429 ​ ​ 357 Unrealized gains recognized on equity investments (1) ​ ​ — ​ ​ — ​ ​ ( 332 ) ​ ​ 857 Net gains on sale of securities (1) ​ ​ — ​ ​ — ​ ​ 1,032 ​ ​ — Other (1) ​ ​ 5,004 ​ ​ 1,602 ​ ​ 5,135 ​ ​ 2,856 Total noninterest income ​ $ 10,439 ​ $ 6,612 ​ $ 16,502 ​ $ 13,442 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits (1) ​ $ 11,745 ​ $ 10,425 ​ $ 23,550 ​ $ 21,576 Occupancy expense (1) ​ ​ 2,406 ​ ​ 2,626 ​ ​ 4,699 ​ ​ 5,112 (Gain) loss on sale of OREO ​ ​ — ​ ​ ( 101 ) ​ ​ ( 5 ) ​ ​ ( 116 ) Other (1) ​ ​ 7,962 ​ ​ 7,285 ​ ​ 14,042 ​ ​ 13,934 Total noninterest expense ​ $ 22,113 ​ $ 20,235 ​ $ 42,286 ​ $ 40,506 Percentage of noninterest income not within scope of ASC 606. ​ ​ 48.61 % ​ ​ 24.98 % ​ ​ 36.60 % ​ ​ 28.44 % ​ (1) Not within scope of ASC 606. Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP. ​ With regard to noninterest income associated with customer contracts, the Company has determined that transaction prices are fixed, and performance obligations are satisfied as services are rendered, thus there is little or no judgment involved in the timing of revenue recognition under contracts that are within the scope of ASC 606. ​ ​ ​ 36 Table of Contents PART I - FINANCIAL INFORMATION ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Form 10- Q includes forward-looking statements that involve inherent risks and uncertainties. These forward-looking statements are within the meaning of Section 27A of the Securities Act of 1933 (“1933 Act”), as amended and Section 21E of the Securities Exchange Act of 1934 (“1934 Act”), as amended. Those sections of the 1933 Act and 1934 Act provide a “safe harbor” for forward-looking statements in order to encourage companies to provide prospective information about their financial performance as long as important factors that could cause actual results to differ significantly from projected results are identified with meaningful cautionary statements. Words such as “expects”, “anticipates”, “believes”, “projects”, “intends”, and “estimates” or variations of such words and similar expressions, as well as future or conditional verbs preceded by “will”, “would”, “should”, “could” or “may” are intended to identify forward-looking statements. These forward-looking statements are based on certain underlying assumptions and are not guarantees of future performance, as they could be impacted by several potential risks and developments that cannot be predicted with any degree of certainty. These statements are based on management’s current expectations regarding economic, legislative, regulatory and other environmental issues that may affect our earnings in future periods. Therefore, actual outcomes and results may differ materially from what is expressed, forecast in, or implied by such forward-looking statements. A variety of factors could have a material adverse impact on the Company’s financial condition or results of operations, and should be considered when evaluating the Company’s potential future financial performance. They include, but are not limited to: ● the risk of unfavorable economic conditions in the Company’s market areas; ● risks associated with fluctuations in interest rates; ● risks associated with the current national emergency with respect to COVID-19 and its variants, including the impact that national, state, and local responses, including limitations on business and personal activity as well as any stimulus or relief efforts have on customers’ continued ability to repay loans; ● risks associated with inflation (including efforts by the Board of Governors of the Federal Reserve to control the same); ● liquidity risks, including the ability to effectively manage the additional liquidity from the significant increase in deposits during the COVID-19 pandemic including managing the potential loss of a portion of such deposits; ● increases in nonperforming assets and credit losses that could occur, particularly in times of weak economic conditions or rising interest rates; ● reductions in the market value of available-for-sale securities that could result if interest rates increase substantially or an issuer has real or perceived financial difficulties; ● the Company’s ability to diversify and grow its loan portfolio; ● the Company’s ability to attract and retain skilled employees; ● the Company’s ability to successfully deploy new technology; ● the Company’s ability to receive regulatory approval for acquisitions or branch expansion while having a less than satisfactory rating under the Community Reinvestment Act; 37 Table of Contents ● the outcome of any existing or future legal action for which the Company or Bank is a defendant; ● the success of acquisitions or branch expansions, closures or consolidations; and ● risks associated with the multitude of or changes to current and prospective laws and regulations, and related interpretations, to which the Company is and will be subject. Risk factors that could cause actual results to differ materially from results that might be implied by forward-looking statements include the risk factors detailed in the Company’s Form 10-K for the fiscal year ended December 31, 2021 and in Item 1A, herein. We do not update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. CRITICAL ACCOUNTING POLICIES The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The financial information and disclosures contained within those statements are significantly impacted by Management’s estimates and judgments, which are based on historical experience and incorporate various assumptions that are believed to be reasonable under current circumstances. Actual results may differ from those estimates under divergent conditions. Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on the Company’s stated results of operations. In Management’s opinion, the Company’s critical accounting policies deal with the following areas: ● the establishment of the allowance for credit losses, as explained in detail in Note 10 to the consolidated financial statements and in the “Provision for Credit Losses” and “Allowance for Credit Losses” sections of this discussion and analysis; ● the valuation of individually evaluated loans and foreclosed assets, as discussed in Notes 8 and 10 to the consolidated financial statements; ● income taxes and related deferred tax assets and liabilities, especially with regard to the ability of the Company to recover deferred tax assets as discussed in the “Provision for Income Taxes” and “Other Assets” sections of this discussion and analysis; and ● goodwill and other intangible assets, which are evaluated annually for impairment and for which we have determined that no impairment exists, as discussed in the “Other Assets” section of this discussion and analysis. Critical accounting areas are evaluated on an ongoing basis to ensure that the Company’s financial statements incorporate our most recent expectations regarding those areas. OVERVIEW OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS SUMMARY Second Quarter 2022 compared to Second Quarter 2021 Second quarter 2022 net income was $9.2 million, or $0.61 per diluted share, compared to $11.7 million, or $0.76 per diluted share in the second quarter of 2021. The Company’s annualized return on average equity was 11.68% and annualized return on average assets was 1.07% for the quarter ended June 30, 2022, compared to 13.29% and 1.42%, respectively, for the same quarter in 2021. The primary drivers behind the variance in second quarter net income are as follows: ● Net interest income decreased $0.6 million, or 2%, due primarily to a $0.4 million increase in interest expense from the issuance of subordinated debt during the third quarter of 2021 and higher cost of funds on interest-bearing liabilities due to the recent increases in the prime interest rate. 38 Table of Contents ​ ● The provision for credit losses on loans and leases was $2.5 million under the new current expected credit losses (“CECL”) methodology, as compared to a $2.1 million benefit under the incurred loss model in the same quarter of 2021, for a net increase of $4.6 million. This is driven primarily from the replacement of allowance due to $4.1 million in net loan charge offs during the second quarter of 2022. ● Noninterest income increased $3.8 million, primarily due to a $3.2 million gain on sale of other assets, $0.4 million in life insurance proceeds, a $0.2 million recovery on an acquired loan, and a $1.0 million recovery of prior year legal expenses, partially offset by a $1.4 million negative variance in Corporate Owned Life Insurance with income linked to the Company’s nonqualified deferred compensation plan. ● Total noninterest expense increased $1.9 million, or 9%, in the second quarter of 2022 as compared to the second quarter of 2021. Higher salaries and benefits costs accounted for $1.3 million of the increase as we added new lending teams, and $0.8 million of the increase was due to higher other expenses, mostly for the accrual of restitution payments to customers charged nonsufficient fund fees for representments in the past five years and $0.3 million in postage and mailing costs associated with new disclosure agreements which detail updated service charges on returned items and overdraft fees. First Half 2022 compared to First Half 2021 Net income for the first half of 2022 was $16.6 million, or $1.10 per diluted share, compared to $22.8 million, or $1.48 per diluted share for the same period in 2021. The Company’s annualized return on average equity was 10.10% and annualized return on average assets was 0.98% for the six months ended June 30, 2022, compared to a return on equity of 13.11% and return on assets of 1.41% for the six months ended June 30, 2021. The primary drivers behind the variance in year-to-date net income are as follows: ● The provision for credit losses on loans and leases was $3.1 million, an increase of $5.0 million, due to a change from the incurred loss method to the current expected credit loss method, coupled with higher charge-offs in 2022 on two loan relationships. ● Net interest income decreased by $4.4 million, or 8%, due mostly to the change in mix of interest earning assets with average loan balances increasing and investments increasing. In addition, the cost of interest-bearing liabilities was higher due to increases in index rates on certain floating rate liabilities. ● Noninterest income increased $3.1 million, or 23%, for the same reasons as noted above in the quarterly comparison, combined with a $1.0 million gain on the sale of investment securities, and a $2.6 million negative variance in BOLI income tied to our nonqualified deferred compensation plan. ● Noninterest expense increased $1.8 million, or 4% for the same reasons as outlined in the quarterly comparison above. ​ FINANCIAL CONDITION SUMMARY June 30, 2022 relative to December 31, 2021 The Company’s assets totaled $3.4 billion at June 30, 2022 unchanged from December 31, 2021. The following provides a summary of key balance sheet changes during the first six months of 2022: ​ ● The Company’s balance of cash and cash equivalents declined by $95.7 million, or 37% from December 31, 2021. The overall increase in cash balances was due primarily to increases in investment securities and loans and leases during the first half 2022. ● Investment securities were $1.0 billion at June 30, 2022, an increase of $52.3 million, or 5% from December 31, 2021. The Company purchased $158.2 million in various government agency sponsored mortgage-backed securities, agency securities, municipal securities, corporate bonds and collateralized mortgage obligations. On April 1, 2022, the Company transferred $162.1 million of “available-for-sale” investment securities to “held-to-maturity”. The securities were transferred at fair market value on the date of transfer. The transfer was initiated to partially insulate other comprehensive income and equity from changes in interest rates. This transfer had no 39 Table of Contents impact on net income, and future price changes on these securities due to changes in interest rates will not affect capital. ● Gross loans increased $32.9 million due predominantly to the purchase of high quality jumbo single family mortgage loan pool purchases. This increase was offset by reductions in almost all loan categories as loan maturities and payoffs exceeded the increases in loan production for the first six months of 2022. ● Deposits increased by $69.4 million, or 2%. The growth in deposits came primarily from noninterest-bearing or low-cost transaction and savings accounts, while higher-cost time deposits increased $5.9 million. ​ Total shareholders’ equity of $299.0 million at June 30, 2022 reflects a decrease of $63.4 million, or 18%, relative to year-end 2021, due to the addition of $16.6 million in net income, offset by a $61.6 million unfavorable swing in accumulated other comprehensive income/loss due principally to changes in investment securities’ fair value, a one-time adjustment from the implementation of CECL on January 1, 2022 for $7.3 million, $4.9 million in share repurchases and net of $7.0 million in dividends paid. The remaining difference is related to stock options exercised and restricted stock compensation recognized during the quarter. ​ IMPACT OF CORONAVIRUS DISEASE 2019 (COVID-19) PANDEMIC ON THE COMPANY’S OPERATIONS Overview On January 31, 2020, the United States Department of Health and Human Services declared a public health emergency with respect to the Coronavirus Disease 2019 (COVID-19). Subsequent to this date, federal, state, and local governmental agencies, regulatory agencies, and the Federal Reserve Board took many actions impacting the Company. These actions included, among other things, the Federal Open Market Committee (FOMC) reducing the federal funds rate; California issuing a state-wide shelter-in-place order and various other orders at the state and local levels restricting business operations, closing schools, and thereafter prescribing requirements for reopening; and various pieces of federal legislation were passed to attempt to address the impact of COVID-19 on the economy. ​ Impact of COVID-19 on the Company’s Operations ● Starting in April 2020, the Company took actions to mitigate the impact on credit losses including permitting short-term payment deferrals to current customers, as well as providing bridge loans and SBA Paycheck Protection Program (PPP) loans. The Company had no loans remaining on deferral, which were modified under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, as amended. ● The uncertainty of national and local economic conditions had an impact on our provision for credit losses in early 2022 and on our provision for loan and lease losses in 2021. The Company implemented the Current Expected Credit Loss ("CECL") accounting method under Financial Accounting Standards Board (FASB) Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326) on January 1, 2022, after having elected under Section 4014 of the CARES Act and the Consolidated Appropriations Act, 2021 to defer earlier implementation. ● The Company expects that net interest income may continue to be adversely impacted given pressure on the net interest margin as a result of the current interest rate environment. Although the FOMC has raised the fed funds rate three times in the first half of 2022; 25 basis points on March 16, 2022, 50 basis points on May 4, 2022 and 75 basis points on June 16, 2022, the overall rate environment is still relatively low. The FOMC has indicated potential future increases to the overnight fed funds rate but uncertainty as to when and at what rate this may occur still remains. These lower rates have impacted our net interest margin. Our net interest margin for the six months ended June 30, 2022, was 3.31%, compared to a net interest margin of 3.76% for the same period in 2021. Additional liquidity from significant deposit growth in 2021 and the first six months of 2022, coupled with lower loan balances has negatively impacted our net interest margin. This additional liquidity was mostly deployed in overnight funding resulting in $170.4 million in average overnight cash during the first half of 2022. This overnight funding earned an average rate of 43 basis points, for the first six months ending June 40 Table of Contents 30, 2022. In addition, the Company had $1.0 billion in investment securities at average tax effective yield 207 basis points lower than that of current loan yields. ● The COVID-19 pandemic has not adversely affected our capital or financial resources as of June 30, 2022. During the first half of 2022, total shareholders’ equity decreased by $63.4 million, or 18%, to $299.0 million. The Company earned $16.6 million in net income in the first six months of 2022, but had a $61.6 million decrease in accumulated other comprehensive income as a result of decreases in the value of our investment portfolio due to an uptick in interest rates. If interest rates continue to rise, this component of equity would be expected to further decline. The Company also paid dividends of $7.0 million and repurchased shares of stock for $4.9 million during the first half of 2022. On July 21, 2022, the Company declared a twenty-three cent per share dividend to be paid on August 15, 2022. Although presently not expected, if the Company were to incur significant credit losses as a result of COVID-19’s impact on our customers’ ability to repay loans, capital could be adversely impacted. With respect to liquidity, the Company maintains strong primary and secondary liquidity sources as further described under “Liquidity and Market Risk Management” below. ● The Company continues to serve its customers. Several of our branch locations were closed during the height of the pandemic, but have since re-opened. Five branch locations were permanently closed in June 2021. This decision to close these branches was made as a result of a change in customer behaviors brought about by the COVID-19 pandemic along with an efficiency review. All of the five closed locations were located outside of Tulare County, the Bank’s primary market area. Many of our customers have found an added convenience and ease of transacting business through online and mobile banking services which precipitated our decision to close locations where in-person transaction volumes no longer warranted a traditional brick-and-mortar branch. Overall deposits at these five closed branches increased during the period of time from announcement to closure and consolidation into a nearby branch. ● As a financial institution providing essential services, the Company expects continued demand for loans and deposits. In addition, strong mortgage warehouse utilization that resulted from the low rate refinance environment of 2020 and 2021 is not expected to return in 2022 and hence our loans outstanding in this sector remain at lower levels. Further, it is expected that SBA PPP loans will continue to be forgiven, with the remainder expected to be forgiven in 2022. EARNINGS PERFORMANCE The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on deposits and other borrowed money. The second is noninterest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as BOLI and investment gains. The majority of the Company’s noninterest expense is comprised of operating costs that facilitate offering a full range of banking services to our customers. . NET INTEREST INCOME AND NET INTEREST MARGIN Net interest income decreased $0.6 million to $26.6 million, for the second quarter of 2022 over the second quarter of 2021 and decreased $4.4 million, or 8% to $51.3 million for the first six months of 2022 relative to the same period in 2021. For the second quarter of 2022 as compared to the same quarter in 2021, average loan balances decreased $173.0 million, or 8%, primarily due to decreases in commercial loans of $86.0 million, or 52%, a $13.5 million, or 31% decrease in agricultural production loans, and a $92.5 million, or 65%, decrease in the utilization of mortgage warehouse lines. These decreases were partially offset by an $18.8 million, or 1% increase in real estate loans. The yield on the loan and lease portfolio was 26 basis points lower in the second quarter of 2022 as compared to the same period in 2021. Average investment balances also increased $290.6 million with a 79 basis point increase in yield, mostly due to a $388.9 million increase in average collateralized loan obligation balances which have variable rates, which helped 41 Table of Contents alleviate some of the negative pressure on our net interest margin. Adding to the pressure on our net interest margin, was a 13 basis points unfavorable increase in the cost of interest-bearing liabilities in the second quarter of 2022 as compared to the second quarter of 2021. For the first half of 2022 as compared to the same period in 2021, average loan balances decreased $293.5 million or 13%. All categories of loans decreased with the primary decrease in commercial loans for $90.3 million and a $136.8 million decline in mortgage warehouse line utilization. There was a 24 basis points decrease in loan yield for the first half of 2022 as compared to the same period in 2021. Average investment balances increased $451.0 million yielding 28 basis points higher for the same period, which helped offset the negative loan yield variances. Adding to the unfavorable decrease in yield was an 11 basis point decrease in the yield on interest bearing liabilities, driven by the recent increases in the prime interest rate. The level of net interest income we recognize in any given period depends on a combination of factors including the average volume and yield for interest earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. The following tables show average balances for significant balance sheet categories and the amount of interest income or interest expense associated with each category for the noted periods. The tables also display calculated yields on each major component of the Company’s investment and loan portfolios, average rates paid on each key segment of the Company’s interest-bearing liabilities, and our net interest margin for the noted periods . 42 Table of Contents Average Balances and Rates (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the three months ended ​ ​ June 30, 2022 ​ June 30, 2021 Assets Average Balance (1) Income/ Expense Average Rate/Yield (2) Average Balance (1) Income/ Expense Average Rate/Yield (2) Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-earning due from banks ​ $ 146,287 ​ $ 270 ​ 0.74% ​ $ 308,453 ​ $ 85 ​ 0.11% Taxable ​ ​ 752,693 ​ ​ 4,477 ​ 2.39% ​ 340,690 ​ ​ 1,573 ​ 1.85% Non-taxable ​ ​ 284,198 ​ ​ 1,854 ​ 3.31% ​ ​ 243,461 ​ ​ 1,517 ​ 3.16% Total investments ​ ​ 1,183,178 ​ ​ 6,601 ​ 2.40% ​ ​ 892,604 ​ ​ 3,175 ​ 1.61% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans and leases: (3) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ 1,844,367 ​ ​ 19,659 ​ 4.28% ​ ​ 1,825,600 ​ ​ 21,015 ​ 4.62% Agricultural ​ ​ 30,466 ​ ​ 232 ​ 3.05% ​ ​ 43,959 ​ ​ 408 ​ 3.72% Commercial ​ ​ 80,533 ​ ​ 980 ​ 4.88% ​ ​ 166,554 ​ ​ 2,124 ​ 5.12% Consumer ​ ​ 4,264 ​ ​ 207 ​ 19.47% ​ ​ 4,978 ​ ​ 193 ​ 15.55% Mortgage warehouse lines ​ ​ 49,884 ​ ​ 493 ​ 3.96% ​ ​ 142,348 ​ ​ 1,151 ​ 3.24% Other ​ ​ 2,354 ​ ​ 34 ​ 5.79% ​ ​ 1,460 ​ ​ 26 ​ 7.14% Total loans and leases ​ ​ 2,011,868 ​ ​ 21,605 ​ 4.31% ​ ​ 2,184,899 ​ ​ 24,917 ​ 4.57% Total interest earning assets (4) ​ 3,195,046 ​ ​ 28,206 ​ 3.60% ​ ​ 3,077,503 ​ ​ 28,092 ​ 3.71% Other earning assets ​ ​ 15,628 ​ ​ ​ ​ ​ ​ ​ 15,438 ​ ​ ​ ​ ​ Non-earning assets ​ ​ 239,803 ​ ​ ​ ​ ​ ​ ​ 209,218 ​ ​ ​ ​ ​ Total assets ​ $ 3,450,477 ​ ​ ​ ​ ​ ​ $ 3,302,159 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and shareholders' equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ $ 221,322 ​ $ 120 ​ 0.22% ​ $ 161,871 ​ $ 91 ​ 0.23% NOW ​ ​ 542,915 ​ ​ 82 ​ 0.06% ​ ​ 601,339 ​ ​ 116 ​ 0.08% Savings accounts ​ ​ 480,654 ​ ​ 70 ​ 0.06% ​ ​ 424,512 ​ ​ 59 ​ 0.06% Money market ​ ​ 155,574 ​ ​ 23 ​ 0.06% ​ ​ 139,336 ​ ​ 30 ​ 0.09% Time Deposits ​ ​ 295,850 ​ ​ 441 ​ 0.60% ​ ​ 337,270 ​ ​ 262 ​ 0.31% Brokered deposits ​ ​ 60,000 ​ ​ 48 ​ 0.32% ​ ​ 92,418 ​ ​ 61 ​ 0.26% Total interest bearing deposits ​ ​ 1,756,315 ​ ​ 784 ​ 0.18% ​ ​ 1,756,746 ​ ​ 619 ​ 0.14% Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ 168 ​ ​ — ​ — ​ ​ 168 ​ ​ — ​ 0.00% Repurchase agreements ​ ​ 112,417 ​ ​ 77 ​ 0.27% ​ ​ 57,885 ​ ​ 39 ​ 0.27% Short term borrowings ​ ​ 1 ​ ​ — ​ — ​ ​ 3,133 ​ ​ — ​ 0.00% Long-term debt ​ ​ 49,160 ​ ​ 430 ​ 3.51% ​ ​ ​ ​ ​ — ​ — Subordinated debentures ​ ​ 35,365 ​ ​ 330 ​ 3.74% ​ ​ 35,185 ​ ​ 245 ​ 2.79% Total borrowed funds ​ ​ 197,111 ​ ​ 837 ​ 1.70% ​ ​ 96,371 ​ ​ 284 ​ 1.18% Total interest bearing liabilities ​ ​ 1,953,426 ​ ​ 1,621 ​ 0.33% ​ ​ 1,853,117 ​ ​ 903 ​ 0.20% Demand deposits - noninterest bearing ​ ​ 1,132,601 ​ ​ ​ ​ ​ ​ ​ 1,052,494 ​ ​ ​ ​ ​ Other liabilities ​ ​ 48,458 ​ ​ ​ ​ ​ ​ ​ 43,095 ​ ​ ​ ​ ​ Shareholders' equity ​ ​ 315,992 ​ ​ ​ ​ ​ ​ ​ 353,453 ​ ​ ​ ​ ​ Total liabilities and shareholders' equity ​ $ 3,450,477 ​ ​ ​ ​ ​ ​ $ 3,302,159 ​ ​ ​ ​ ​ Interest income/interest earning assets ​ ​ ​ ​ ​ ​ ​ 3.60% ​ ​ ​ ​ ​ ​ ​ 3.71% Interest expense/interest earning assets ​ ​ ​ ​ ​ ​ ​ 0.20% ​ ​ ​ ​ ​ ​ ​ 0.12% Net interest income and margin (5) ​ ​ ​ ​ $ 26,585 ​ 3.40% ​ ​ ​ ​ $ 27,189 ​ 3.60% (1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs. (2) Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective tax rate. (3) Loans are gross of the allowance for possible loan losses. Loan fees have been included in the calculation of interest income. Net loan fees and loan acquisition FMV amortization were $0.4 million and $1.0 million for the quarters ended June 30, 2022 and 2021, respectively. (4) Non-accrual loans have been included in total loans for purposes of computing total earning assets. (5) Net interest margin represents net interest income as a percentage of average interest earning assets. ​ 43 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Balances and Rates ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands, Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the six months ended ​ ​ For the six months ended ​ ​ June 30, 2022 ​ ​ June 30, 2021 Assets ​ Average Balance (1) ​ Income/ Expense ​ Average Rate/Yield (2) ​ Average Balance (1) ​ Income/ Expense ​ Average Rate/Yield (2) Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-earning due from banks ​ $ 170,432 ​ $ 363 ​ 0.43% ​ $ 193,120 ​ $ 104 ​ 0.11% Taxable ​ ​ 756,061 ​ ​ 7,966 ​ 2.12% ​ ​ 329,029 ​ ​ 3,150 ​ 1.93% Non-taxable ​ ​ 281,882 ​ ​ 3,581 ​ 3.24% ​ ​ 235,204 ​ ​ 2,967 ​ 3.21% Total investments ​ ​ 1,208,375 ​ ​ 11,910 ​ 2.15% ​ ​ 757,353 ​ ​ 6,221 ​ 1.87% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans and leases: (3) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ 1,799,132 ​ ​ 37,984 ​ 4.26% ​ ​ 1,852,330 ​ ​ 42,407 ​ 4.62% Agricultural ​ ​ 32,216 ​ ​ 534 ​ 3.34% ​ ​ 45,050 ​ ​ 827 ​ 3.70% Commercial ​ ​ 88,784 ​ ​ 2,378 ​ 5.40% ​ ​ 179,036 ​ ​ 4,575 ​ 5.15% Consumer ​ ​ 4,355 ​ ​ 413 ​ 19.12% ​ ​ 5,199 ​ ​ 389 ​ 15.09% Mortgage warehouse lines ​ ​ 55,538 ​ ​ 1,003 ​ 3.64% ​ ​ 192,329 ​ ​ 3,078 ​ 3.23% Other ​ ​ 1,922 ​ ​ 65 ​ 6.82% ​ ​ 1,523 ​ ​ 53 ​ 7.02% Total loans and leases ​ ​ 1,981,947 ​ ​ 42,377 ​ 4.31% ​ ​ 2,275,467 ​ ​ 51,329 ​ 4.55% Total interest earning assets (4) ​ ​ 3,190,322 ​ ​ 54,287 ​ 3.49% ​ ​ 3,032,820 ​ ​ 57,550 ​ 3.88% Other earning assets ​ ​ 15,654 ​ ​ ​ ​ ​ ​ ​ 14,363 ​ ​ ​ ​ ​ Non-earning assets ​ ​ 225,345 ​ ​ ​ ​ ​ ​ ​ 205,187 ​ ​ ​ ​ ​ Total assets ​ $ 3,431,321 ​ ​ ​ ​ ​ ​ $ 3,252,370 ​ ​ ​ ​ ​ Liabilities and shareholders' equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ $ 212,193 ​ $ 226 ​ 0.21% ​ $ 146,403 ​ $ 164 ​ 0.23% NOW ​ ​ 544,589 ​ ​ 164 ​ 0.06% ​ ​ 585,344 ​ ​ 217 ​ 0.07% Savings accounts ​ ​ 474,213 ​ ​ 137 ​ 0.06% ​ ​ 407,894 ​ ​ 112 ​ 0.06% Money market ​ ​ 153,469 ​ ​ 46 ​ 0.06% ​ ​ 137,887 ​ ​ 60 ​ 0.09% Time Deposits ​ ​ 294,773 ​ ​ 675 ​ 0.46% ​ ​ 374,636 ​ ​ 551 ​ 0.30% Brokered deposits ​ ​ 60,000 ​ ​ 96 ​ 0.32% ​ ​ 96,188 ​ ​ 123 ​ 0.26% Total interest bearing deposits ​ ​ 1,739,237 ​ ​ 1,344 ​ 0.16% ​ ​ 1,748,352 ​ ​ 1,227 ​ 0.14% Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ 169 ​ ​ 1 ​ 1.19% ​ ​ 2,980 ​ ​ 1 ​ 0.07% Repurchase agreements ​ ​ 108,762 ​ ​ 158 ​ 0.29% ​ ​ 52,024 ​ ​ 83 ​ 0.32% Short term borrowings ​ ​ 1 ​ ​ — ​ 0.00% ​ ​ 7,308 ​ ​ 2 ​ 0.06% Long-term debt ​ ​ 49,152 ​ ​ 857 ​ 3.52% ​ ​ — ​ ​ — ​ — Subordinated debentures ​ ​ 35,342 ​ ​ 585 ​ 3.34% ​ ​ 35,164 ​ ​ 493 ​ 2.83% Total borrowed funds ​ ​ 193,426 ​ ​ 1,601 ​ 1.67% ​ ​ 97,476 ​ ​ 579 ​ 1.20% Total interest bearing liabilities ​ ​ 1,932,663 ​ ​ 2,945 ​ 0.31% ​ ​ 1,845,828 ​ ​ 1,806 ​ 0.20% Demand deposits - noninterest bearing ​ ​ 1,113,262 ​ ​ ​ ​ ​ ​ ​ 1,015,023 ​ ​ ​ ​ ​ Other liabilities ​ ​ 53,712 ​ ​ ​ ​ ​ ​ ​ 41,156 ​ ​ ​ ​ ​ Shareholders' equity ​ ​ 331,684 ​ ​ ​ ​ ​ ​ ​ 350,363 ​ ​ ​ ​ ​ Total liabilities and shareholders' equity ​ $ 3,431,321 ​ ​ ​ ​ ​ ​ $ 3,252,370 ​ ​ ​ ​ ​ Interest income/interest earning assets ​ ​ ​ ​ ​ ​ ​ 3.49% ​ ​ ​ ​ ​ ​ ​ 3.88% Interest expense/interest earning assets ​ ​ ​ ​ ​ ​ ​ 0.18% ​ ​ ​ ​ ​ ​ ​ 0.12% Net interest income and margin (5) ​ ​ ​ ​ $ 51,342 ​ 3.31% ​ ​ ​ ​ $ 55,744 ​ 3.76% (1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs. (2) Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective tax rate. (3) Loans are gross of the allowance for possible loan losses. Loan fees have been included in the calculation of interest income. Net loan fees and loan acquisition FMV amortization were $0.8 million and $2.4 million for the six months ended June 30, 2022 and 2021, respectively. (4) Non-accrual loans have been included in total loans for purposes of computing total earning assets. (5) Net interest margin represents net interest income as a percentage of average interest-earning assets. 44 Table of Contents The Volume and Rate Variances table below sets forth the dollar difference for the comparative periods in interest earned or paid for each major category of interest earning assets and interest-bearing liabilities, and the amount of such change attributable to fluctuations in average balances (volume) or differences in average interest rates. Volume variances are equal to the increase or decrease in average balances multiplied by prior period rates, and rate variances are equal to the change in rates multiplied by prior period average balances. Variances attributable to both rate and volume changes, calculated by multiplying the change in rates by the change in average balances, have been allocated to the rate variance. Volume & Rate Variances (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended June 30, ​ Six months ended June 30, ​ ​ 2022 over 2021 ​ 2022 over 2021 ​ ​ Increase (decrease) due to ​ Increase (decrease) due to Assets: Volume Rate ​ Mix Net ​ Volume ​ Rate ​ Mix ​ Net Investments: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds sold/due from time $ (45) $ 485 ​ $ (255) $ 185 ​ $ (12) ​ $ 307 ​ $ (36) ​ $ 259 Taxable ​ ​ 1,902 ​ ​ 453 ​ ​ 548 ​ ​ 2,904 ​ ​ 4,088 ​ ​ 317 ​ ​ 411 ​ ​ 4,816 Non-taxable ​ ​ 63 ​ ​ 72 ​ ​ 202 ​ ​ 337 ​ ​ 589 ​ ​ 23 ​ ​ 2 ​ ​ 614 Total investments (1) ​ ​ 1,920 ​ ​ 1,010 ​ ​ 495 ​ ​ 3,426 ​ ​ 4,665 ​ ​ 647 ​ ​ 377 ​ ​ 5,689 Loans and leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ 216 ​ ​ (1,556) ​ ​ (16) ​ ​ (1,356) ​ ​ (1,218) ​ ​ (3,300) ​ ​ 95 ​ ​ (4,423) Agricultural ​ ​ (125) ​ ​ (73) ​ ​ 22 ​ ​ (176) ​ ​ (236) ​ ​ (80) ​ ​ 23 ​ ​ (293) Commercial ​ ​ (1,097) ​ ​ (97) ​ ​ 50 ​ ​ (1,144) ​ ​ (2,306) ​ ​ 220 ​ ​ (111) ​ ​ (2,197) Consumer ​ ​ (28) ​ ​ 49 ​ ​ (7) ​ ​ 14 ​ ​ (63) ​ ​ 104 ​ ​ (17) ​ ​ 24 Mortgage warehouse ​ ​ (748) ​ ​ 256 ​ ​ (166) ​ ​ (658) ​ ​ (2,189) ​ ​ 395 ​ ​ (281) ​ ​ (2,075) Other ​ ​ 16 ​ ​ (5) ​ ​ (3) ​ ​ 8 ​ ​ 14 ​ ​ (2) ​ ​ — ​ ​ 12 Total loans and leases (1) ​ ​ (1,766) ​ ​ (1,426) ​ ​ (120) ​ ​ (3,312) ​ ​ (5,998) ​ ​ (2,663) ​ ​ (291) ​ ​ (8,952) Total interest earning assets (1) ​ $ 154 ​ $ (416) ​ $ 375 ​ $ 114 ​ $ (1,333) ​ $ (2,016) ​ $ 86 ​ $ (3,263) Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand deposits ​ $ 33 ​ ​ (3) ​ ​ (1) ​ $ 29 ​ $ 74 ​ $ (8) ​ ​ (4) ​ $ 62 NOW ​ ​ (11) ​ ​ (25) ​ ​ 2 ​ ​ (34) ​ ​ (15) ​ ​ (41) ​ ​ 3 ​ ​ (53) Savings accounts ​ ​ 8 ​ ​ 3 ​ ​ — ​ ​ 11 ​ ​ 18 ​ ​ 6 ​ ​ 1 ​ ​ 25 Money market ​ ​ 3 ​ ​ (9) ​ ​ (1) ​ ​ (7) ​ ​ 7 ​ ​ (19) ​ ​ (2) ​ ​ (14) Time Deposits ​ ​ (32) ​ ​ 241 ​ ​ (30) ​ ​ 179 ​ ​ (117) ​ ​ 306 ​ ​ (65) ​ ​ 124 Brokered deposits ​ ​ (21) ​ ​ 13 ​ ​ (5) ​ ​ (13) ​ ​ (46) ​ ​ 31 ​ ​ (12) ​ ​ (27) Total interest bearing deposits (1) ​ ​ (20) ​ ​ 220 ​ ​ (35) ​ ​ 165 ​ ​ (79) ​ ​ 275 ​ ​ (79) ​ ​ 117 Borrowed funds: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal funds purchased ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (1) ​ ​ 17 ​ ​ (16) ​ ​ — Repurchase agreements ​ ​ 36 ​ ​ 1 ​ ​ 1 ​ ​ 38 ​ ​ 91 ​ ​ (8) ​ ​ (8) ​ ​ 75 Short term borrowings ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (2) ​ ​ (2) ​ ​ 2 ​ ​ (2) Long-term debt ​ ​ — ​ ​ — ​ ​ 430 ​ ​ 430 ​ ​ — ​ ​ — ​ ​ 857 ​ ​ 857 Subordinated debt ​ ​ 1 ​ ​ 84 ​ ​ — ​ ​ 85 ​ ​ 2 ​ ​ 90 ​ ​ — ​ ​ 92 Total borrowed funds (1) ​ ​ 37 ​ ​ 85 ​ ​ 431 ​ ​ 553 ​ ​ 90 ​ ​ 97 ​ ​ 835 ​ ​ 1,022 Total interest bearing liabilities (1) ​ ​ 17 ​ ​ 305 ​ ​ 396 ​ ​ 718 ​ ​ 11 ​ ​ 372 ​ ​ 756 ​ ​ 1,139 Net interest income (1) ​ $ 137 ​ $ (721) ​ $ (21) ​ $ (604) ​ $ (1,344) ​ $ (2,388) ​ $ (670) ​ $ (4,402) (1) Subtotals are a sum of the categories above and are not recalculated on the portfolio totals. ​ The volume variance calculated for the second quarter of 2022 relative to the second quarter of 2021 was a favorable $0.1 million; although average balances of interest earning assets were flat, we had an increase in investment securities, offset by a decrease in almost all categories of loans. There was an unfavorable rate variance of $0.7 million for the comparative quarters since the weighted average yield on interest earning assets decreased by 11 basis points and the weighted average cost of interest-bearing liabil­ities increased by 13 basis points. There was also an unfavorable mix 45 Table of Contents variance of $0.02 million primarily from the issuance of variable rate subordinated debentures issued in September of 2021. The $0.7 million negative rate variance was impacted by the following factors: relatively high average balances of cash and due from banks earning on average 74 bps, new loans and investments having lower yields overall, including low-yielding purchased 1-4 SFD mortgage loans. Increased costs on interest bearing liabilities also had a negative impact on the variance primarily from two Federal Reserve fed funds rate increases in the second quarter of 2022 for a total of 125 basis points, and the issuance of subordinated debt mentioned above. The Company’s net interest margin for the second quarter of 2022 was 3.40%, as compared to 3.60% for the second quarter of 2021. The volume variance calculated for the first six months of 2022 relative to the first six months of 2021 reflects an unfavorable variance of $1.3 million, an unfavorable rate variance of $2.4 million, and an unfavorable mix variance of $0.7 million. There was a decline in loan balances, partially offset by an increase in investment securities. Interest bearing liabilities were relatively flat with an 11 basis point increase in cost, primarily from three Federal Reserve fed funds interest rate increases totaling 150 basis points and the issuance of variable rate subordinated debentures issued in September 2021. The Company’s net interest margin for the first half of 2022 was 3.31%, as compared to 3.76% in the first half of 2021. At June 30, 2022, approximately 8% of our total portfolio, or $122.7 million, consists of variable rate loans. Of these variable rate loans, approximately $34.0 million have floors. At June 30, 2022, our outstanding fixed rate loans represented 26% of our loan portfolio. The remaining 66% of our loan portfolio at June 30, 2022 consists of adjustable-rate loans; 74% of these loans (approximately $930.9 million) will not begin adjusting for at least another 3 years, but up to 10 years. These loans are typically adjustable every five years after the initial adjustment. Approximately $54.3 million of these adjustable-rate loans have the ability to reprice next quarter, which will have a positive impact on earnings. Cash balances for the quarter and year-to-date comparisons have decreased and having less of a negative impact on our net interest margin since cash balances earn considerably lower yields than other earning assets. Average cash and due from banks was $146.3 million, a decrease of $162.2 million, or 53% for the second quarter of 2022, and was $22.7 million lower, or 12% for the first half of 2022 as compared to the same period in 2021. Overall average investment securities increased by $452.7 million for the second quarter of June 30, 2022 as compared to June 30, 2021, and increased by $473.7 million for the first half of 2022. For the quarter ending June 30, 2022 over the same period for 2021, average non-taxable securities increased $40.7 million and taxable securities increased $412.0 million. For the first half of 2022 over the same period in 2021, average non-taxable securities increased $46.7 million and taxable securities increased $427.0 million. The overall investment portfolio had a tax-equivalent yield of 2.65% at June 30, 2022, with an average life of 7.55 years. Interest expense was $1.6 million for the second quarter of 2022, an increase of $0.7 million, or 80%, compared to the second quarter of 2021, and increased $1.1 million or 63% for the first six-months of 2022 as compared to the same period in 2021. The increase in interest expense for the quarter is primarily attributable to the increase in the cost of time deposits tied to prime interest rate increases, while the year-to-date comparison included the increase in the cost of time deposits as well as the issuance of subordinated debentures in September of 2021 at a variable rate. The average cost of interest-bearing deposits increased by 4 basis points to 18 basis points for the second quarter of 2022 compared to the second quarter of 2021, and by 2 basis points to 16 basis points for the first six-months of 2022 as compared to the same period in 2021. The average cost of borrowed funds increased 52 basis points for the second quarter of 2022 as compared to the same period in 2021 and by 47 basis points for the first six-months of 2022 as compared to the first six-months of 2021. Non-interest bearing demand deposits increased $80.1 million or 8% for the second quarter of 2022 as compared to the second quarter of 2021, and increased by $98.2 million or 10% for the first half of 2022 as compared to the first half of 2021. ​ ​ 46 Table of Contents PROVISION FOR CREDIT LOSSES ON LOANS AND LEASES The Company implemented the Current Expected Credit Loss ("CECL") accounting method under Financial Accounting Standards Board (FASB) Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326) on January 1, 2022 . Upon implementation the Company recorded a $10.4 million increase in the allowance for credit losses, which included a $0.9 million reserve for unfunded commitments as an adjustment to equity, net of deferred taxes. Credit risk is inherent in the business of making loans. The Company sets aside an allowance for credit losses on loans and leases, a contra-asset account, through periodic charges to earnings which are reflected in the income statement as the provision for credit losses on loans and leases. The Company recorded an expense related to a credit loss provision for loans and leases of $2.5 million in the second quarter of 2022 relative to a provision for loan and lease losses benefit of $2.1 million in the second quarter of 2021, and a year-to-date credit loss provision for loans and leases of $3.1 million in 2022 as compared to a $1.9 million loan and lease loss provision benefit in 2021. The higher provision for credit losses in the second quarter of 2022 over the same quarter in 2021, was primarily due to the impact of the change in reserve methodology from the incurred loss method to the current expected credit loss method combined with $2.3 million in net charge-offs in the second quarter of 2022 from a single office building loan relationship that was sold at a discount due to an increased risk of default that would have likely led to a prolonged collection period. For the first six months of 2022 compared to the same period in 2021 the $5.0 million increase in provision for credit losses on loans and leases is due to the change in reserve methodology along with the impact of $4.1 million in net charge offs for the first six months of 2022. The first half of 2022 was not only impacted by the loan relationship as mentioned above in the quarterly discussion but also by a charge-off on a single dairy loan relationship that defaulted in March 2022. Specifically identifiable and quantifiable loan losses are immediately charged off against the allowance, with subsequent recoveries reflected as an increase to the allowance. The Company recorded net charge-offs of $2.3 million in the second quarter of 2022 as compared to net recoveries of $0.2 million for the comparative period of 2021. For the first six months of 2022, net charge-offs were $4.1 million as compared to $0.5 million in net recoveries for the same period of 2021. The allowance for credit losses on loans and leases is at a level that, in Management’s judgment, is adequate to absorb probable credit losses on loans related to individually identified loans as well as probable incurred credit losses in the remaining loan portfolio. The Company’s policies for monitoring the adequacy of the allowance, determining loan balances that should be charged off, and other detailed information with regard to changes in the allowance are discussed in Note 10 to the consolidated financial statements, and below, under “Allowance for Credit Losses.” The process utilized to establish an appropriate credit allowance for losses on loans and leases can result in a high degree of variability in the Company’s credit loss provision, and consequently in our net earnings. 47 Table of Contents NONINTEREST INCOME AND NONINTEREST EXPENSE The following table provides details on the Company’s noninterest income and noninterest expense for the three- and six-month periods ended June 30, 2022 and 2021: Noninterest Income/Expense (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended June 30, ​ For the six months ended June 30, Noninterest income: ​ 2022 ​ 2021 ​ 2022 ​ 2021 Service charges on deposit accounts $ 3,204 $ 2,725 ​ $ 6,245 ​ $ 5,491 Other service charges and fees ​ ​ 2,893 ​ ​ 3,050 ​ ​ 5,680 ​ ​ 5,611 Net gains on sale of securities available-for-sale ​ ​ — ​ ​ — ​ ​ 1,032 ​ ​ — Bank-owned life insurance ​ ​ (582) ​ ​ 814 ​ ​ (1,228) ​ ​ 1,397 Other ​ ​ 4,924 ​ ​ 23 ​ ​ 4,773 ​ ​ 943 Total noninterest income ​ $ 10,439 ​ $ 6,612 ​ $ 16,502 ​ $ 13,442 As a % of average interest earning assets (1) ​ ​ 1.31% ​ ​ 0.86% ​ ​ 1.04% ​ ​ 0.89% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ $ 11,745 ​ $ 10,425 ​ $ 23,550 ​ $ 21,576 Occupancy costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Furniture & equipment ​ ​ 511 ​ ​ 453 ​ ​ 964 ​ ​ 905 Premises ​ ​ 1,895 ​ ​ 2,173 ​ ​ 3,735 ​ ​ 4,207 Advertising and marketing costs ​ ​ 449 ​ ​ 292 ​ ​ 855 ​ ​ 612 Data processing costs ​ ​ 1,525 ​ ​ 1,513 ​ ​ 3,010 ​ ​ 2,939 Deposit services costs ​ ​ 2,417 ​ ​ 2,282 ​ ​ 4,662 ​ ​ 4,350 Loan services costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loan processing ​ ​ 186 ​ ​ 65 ​ ​ 297 ​ ​ 234 Foreclosed assets ​ ​ 92 ​ ​ (10) ​ ​ 87 ​ ​ 98 Other operating costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Telephone & data communications ​ ​ 377 ​ ​ 668 ​ ​ 821 ​ ​ 1,048 Postage & mail ​ ​ 223 ​ ​ 109 ​ ​ 279 ​ ​ 193 Other ​ ​ 1,447 ​ ​ 337 ​ ​ 1,868 ​ ​ 799 Professional services costs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Legal & accounting ​ ​ 673 ​ ​ 682 ​ ​ 1,219 ​ ​ 1,125 Acquisition costs ​ ​ — ​ ​ — ​ ​ — ​ ​ — Other professional service ​ ​ 259 ​ ​ 1,004 ​ ​ 402 ​ ​ 1,899 Stationery & supply costs ​ ​ 116 ​ ​ 73 ​ ​ 201 ​ ​ 151 Sundry & tellers ​ ​ 198 ​ ​ 169 ​ ​ 336 ​ ​ 370 Total noninterest expense ​ $ 22,113 ​ $ 20,235 ​ $ 42,286 ​ $ 40,506 As a % of average interest earning assets (1) ​ ​ 2.78% ​ ​ 2.64% ​ ​ 2.67% ​ ​ 2.68% Efficiency ratio (2)(3) ​ ​ 59.19% ​ ​ 58.79% ​ ​ 62.70% ​ ​ 57.58% (1) Annualized (2) Tax equivalent (3) The efficiency ratio is a non-GAAP measure and is a calculation of noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities and bank owned life insurance income. ​ 48 Table of Contents Noninterest Income: Total noninterest income increased by $3.8 million, or 58%, for the quarter ended June 30, 2022 as compared to the same quarter in 2021 and increased $3.1 million, or 23% for the comparable year-to-date periods. Service charges on customer deposit account income increased by $0.5 million, or 18%, to $3.2 million in the second quarter of 2022 as compared to the second quarter of 2021. This service charge income was $0.8 million higher, or 14% in the first six months of 2022, as compared to the same period in 2021. These increases in the quarterly and year-to-date comparisons are primarily a result of increased analysis fees and overdraft income. Overdraft fees and returned check charges increased $0.2 million to $1.4 million for the second quarter of 2022, and increased $0.4 million to $2.7 million for the first six months of 2022. Effective in the third quarter of 2022, the Company made several changes to its NSF fees (i.e. returned item) and overdraft fees for customers. In particular, NSF fees will no longer be charged, and overdraft fees will be limited to 4 per day and no continuous overdraft fee will be charged. In addition, the amount of overdraft privilege (i.e. the amount to which the Company will pay overdrafts for customers) was increased by $250. Although the exact impact of these changes is unknown, the combination of eliminating NSF fees and increasing overdraft privilege is not expected to have a material impact on overall overdraft income. Other service charges and fees decreased $0.2 million or 5% for the second quarter of 2022 as compared to the same period in 2021, and increased $0.1 million for the first half of 2022 as compared to the same periods in 2021. The unfavorable variance for the quarterly comparison is mostly due to lower miscellaneous loan fees while the increase for the year to date comparison is mainly due to an increase in debit card interchange fees from higher usage. There were no gains of the sales of securities for the second quarter of 2022 or 2021, but there was a $1.0 million gain on the sale of securities for the first half of 2022 with no sales in the comparable year-to-date period of 2021. The sale in the first half of 2022 was a strategic effort to rebalance the portfolio by selling longer duration and higher price volatility securities as a hedge against rising interest rates, due to likely persistent inflationary pressures in the near-intermediate term environment. BOLI income decreased by $1.4 million for the second quarter of 2022 as compared to the second quarter of 2021. At June 30, 2022, there was $42.9 million in traditional BOLI policies and $9.3 million in separate account corporate owned life insurance policies associated with the deferred compensation plans. Investments in the separate account variable life insurance policies are invested in a similar proportionate mix of asset classes that our deferred compensation participants have elected, with the exception of participant elections in a fixed income account. Such election by plan participants in the fixed income account is ignored which creates greater volatility of the corporate owned life insurance asset value as compared to the related liability balance for deferred compensation. More specifically, the specific account life insurance policies are designed to hold similar assets to the deemed investments in the director and employee deferred compensation plans. Directors and officers are allowed to make a deemed investment in a fixed income account designed to mirror the crediting rate on one of the life insurance policies. However, the amount of deferred compensation elected to attributed to the fixed income account significantly exceeds the amount of life insurance invested in a similar fixed income account. As the life insurance funding does not closely match the deferred compensation deemed investments, fluctuations occur in earnings of the life insurance plan as compared to the related expense of the deferred compensation plan. If earnings on the life insurance plan are negative, it creates a scenario where the negative income is not tax deductible and has an unfavorable impact on the Company’s tax rate. This occurred in 2022 as the lower quarterly values in the life insurance policies were only partially offset by lower deferred compensation expense reflected primarily in director fees expense. For the first half of 2022 as compared to the same period in 2021 life insurance income was $2.6 million lower and the related deferred compensation was $1.8 million lower. In the “other” category of noninterest income the Company reflected a $4.9 million increase in the second quarter of 2022 as compared to the second quarter of 2021, and a $3.8 million increase in the first half of 2022 as compared to the same period in 2021. The quarterly and year-to-date comparison includes non-recurring gains resulting from the sale of Visa B stock of $2.6 million and a small business investment company fund investment of $0.6 million, as well as $0.4 49 Table of Contents million in life insurance proceeds, a $1.0 million recovery of prior year legal expenses, and a $0.2 million gain from a recovery on an acquired loan. Noninterest Expense: Total noninterest expense increased by $1.9 million, or 9%, in the second quarter of 2022 relative to the second quarter of 2021, and by $1.8 million, or 4%, in the first six months of 2022 as compared to the first six months of 2021. The tax-equivalent efficiency ratio was 59.19% in the second quarter of 2022 as compared to 58.79% in the same quarter of 2021, and was 62.70% for the first half of 2022 as compared to 57.58% for the first half of 2021. The efficiency ratio represents total noninterest expense divided by the sum of fully tax-equivalent net interest and noninterest income; the provision for credit losses on loans and leases and investment gains/losses are excluded from the equation. Salaries and Benefits were $1.3 million, or 13%, higher in the second quarter of 2022 as compared to the second quarter of 2021 and $2.0 million, or 9% higher for the first six months of 2022 compared to the same period in 2021. The reason for this increase is primarily due to increased salary expense due to the strategic hiring of lending and management staff for both the quarterly and year-to-date comparisons. Overall full-time equivalent employees were 504 at June 30, 2022 as compared to 486 at June 30, 2021. Occupancy expenses were $0.2 million lower for the second quarter of 2022 as compared to the same quarter in 2021 and $0.4 million lower for the first half of 2022 as compared to the first half of 2021. The primary reason for this decrease was from a decrease in premises depreciation due to the sale of a branch building which was closed in the third quarter of 2021. Other noninterest expense increased $0.8 million, or 11% for the second quarter 2022 as compared to the second quarter in 2021, and increased $0.2 million, or 2% for the first half of 2022 as compared to the same period in 2021. The variance for the second quarter of 2022 compared to the same period in 2021 was driven by a $0.7 million accrual for restitution payments to customers charged nonsufficient fund fees in the past five years for representments. This accrual was established after the FDIC published a change in its position in how such representments are characterized for regulatory purposes. The Company also incurred higher costs of $0.3 million associated with postage and mailing of new account agreements to customers as well as higher professional fees associated with this matter. Beginning in the third quarter of 2022, the Company will no longer charge customers for returned item fees, commonly referred to as nonsufficient fund fees. In addition, the Company increased overdraft privilege for both commercial and consumer customers, but will limit the number of daily overdraft fees to four per day (previously five per day) and will no longer charge a fee for continuous overdrafts (previously a $35 charge after the 10 th consecutive day an account is in an overdraft position). These changes to our nonsufficient fund fees, overdraft fees and overdraft privilege program are not expected to have a material impact on deposit fee income. In addition, there was a $0.4 million increase in recruitment costs associated with new lending teams and management staff. For the quarterly and year-to-date comparisons decreases in deferred compensation expense for directors, which is linked to the changes in life insurance income partially offset the increases. ​ PROVISION FOR INCOME TAXES The Company sets aside a provision for income taxes on a monthly basis. The amount of that provision is deter­mined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent dif­ferences, and then subtracting available tax credits. Permanent differences include but are not limited to tax-exempt interest income, BOLI income, and certain book expenses that are not allowed as tax deductions. Our tax credits consist primarily of those generated by investments in low-income housing tax credit funds. The Company's provision for income taxes was 26.3% of pre-tax income in the second quarter of 2022 relative to 25.3% in the second quarter of 2021, and 26.6% of pre-tax income for the first half of 2022 relative to 25.4% for the same period in 2021. The increase in effective tax rate for both the quarterly and year-to-date comparisons is due to the volatility in the Corporate Owned Life Insurance asset value associated with our non-qualified deferred compensation plans. In the 50 Table of Contents second quarter and first half of 2022, the investments associated with the non-qualified deferred compensation plans declined in value, resulting in a non-deductible expense as compared to an increase in value generating non-taxable income for the second quarter, and first half of 2021. BALANCE SHEET ANALYSIS EARNING ASSETS The Company’s interest earning assets are comprised of loans and investments, including overnight investments and surplus balances held in interest earning accounts in our Federal Reserve Bank account. The composition, growth characteristics, and credit quality of both of those components are significant determinants of the Company’s financial condition. Investments are analyzed in the section immediately below, while the loan and lease portfolio and other factors affecting earning assets are discussed in the sections following investments. INVESTMENTS The Company’s investments may at any given time consist of debt securities and marketable equity securities (together, the “investment portfolio”), investments in the time deposits of other banks, surplus interest earning balances in our Federal Reserve Bank account, and overnight fed funds sold. The Company’s investments can serve several purposes, including the following: 1) they can provide liquidity for potential funding needs; 2) they provide a source of pledged assets for securing public deposits, bankruptcy deposits and certain borrowed funds which require collateral; 3) they constitute a large base of assets with structural characteristics that can be changed more readily than loan or deposit portfolios, as might be required for interest rate risk management purposes; 4) they are another interest earning option for the placement of surplus funds when loan demand is light; and 5) they can provide partially tax exempt income. The investment portfolio is reflected on the balance sheet as investment securities and totaled $1.03 billion, or 30% of total assets at June 30, 2022, and $973.3 million, or 29% of total assets at December 31, 2021. The increase was primarily due to purchases of $215.3 million to deploy cash into interest earning assets and to provide Balance Sheet diversification. In addition, within the Cash and Due from Banks account on the balance sheet was $79.8 million of surplus interest earning balances in our Federal Reserve Bank account at June 30, 2022, as compared to $193.2 million at December 31, 2021. Surplus balances in our Federal Reserve Bank account and fed funds sold to correspondent banks typically represent the temporary investment of excess liquidity. The Company carries “available for sale” investments at their fair market values and “held to maturity” investments at amortized cost. We currently have the intent and ability to hold our investment securities to maturity, but the securities are all marketable. The expected average duration was 3.2 years at June 30, 2022, and at year-end 2021. In the second quarter of 2022 the Company transferred $162.1 million of “available for sale” investments to “held to maturity”. Those securities were transferred at fair market value on the date of the transfer. The transfer was initiated to reduce the effect of potential future rate increases on the available-for-sale portfolio, mark-to-market, other comprehensive income and equity. See Note 9, Investment Securities for additional information. 51 Table of Contents The following table sets forth the carrying amount for available-for-sale securities, at fair value, and held-to-maturity securities, at amortized cost, net of the allowance for credit losses of the Company’s investment portfolio by investment type as of the dates noted: Investment Portfolio (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ December 31, 2021 ​ Carrying Amount Percent Carrying Amount Percent Available for sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies $ 981 0% $ 1,574 ​ 0% Mortgage-backed securities ​ ​ 181,446 ​ 18% ​ ​ 306,727 ​ 32% State and political subdivisions ​ ​ 254,888 ​ 25% ​ ​ 304,268 ​ 31% Corporate bonds ​ ​ 46,539 ​ 5% ​ ​ 28,529 ​ 3% Collateralized loan obligations ​ ​ 380,324 ​ 37% ​ ​ 332,216 ​ 34% Total available for sale ​ ​ 864,178 ​ 84% ​ ​ 973,314 ​ 100% Held to maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ ​ 6,762 ​ 1% ​ ​ — ​ — Mortgage-backed securities ​ ​ 103,888 ​ 10% ​ ​ — ​ — State and political subdivisions ​ ​ 50,749 ​ 5% ​ ​ — ​ — Total held to maturity ​ ​ 161,399 ​ 16% ​ ​ — ​ — Total securities ​ $ 1,025,577 ​ 100% ​ $ 973,314 ​ 100% ​ ​ Investment securities that were pledged as collateral for borrowings and/or potential borrowings from the Federal Home Loan Bank and the Federal Reserve Bank, customer repurchase agreements, and other purposes as required or permitted by law totaled $169.2 million at June 30, 2022 and $167.2 million at December 31, 2021, leaving $842.1 million in unpledged debt securities at June 30, 2022 and $806.1 million at December 31, 2021. Securities that were pledged in excess of actual pledging needs and were thus available for liquidity purposes, if needed, totaled $38.2 million at June 30, 2022 and $47.0 million at December 31, 2021. ​ LOAN AND LEASE PORTFOLIO A distribution of the Company’s loans showing the balance and percentage of loans by type is presented for the noted periods in the table below. The balances in the table are before deferred or unamortized loan origination, extension, or commitment fees, and deferred origination costs. While not reflected in the loan totals and not currently comprising a material segment of our lending activities, the Company also occasionally originates and sells, or participates out portions of, loans to non-affiliated investors. 52 Table of Contents Loan and Lease Distribution (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 ​ ​ Amount ​ Percent ​ Amount ​ Percent Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 5,542 ​ 0.28% ​ $ 21,369 ​ 1.08% Other construction/land ​ ​ 20,758 ​ 1.04% ​ ​ 25,299 ​ 1.28% 1-4 family - closed-end ​ ​ 430,135 ​ 21.52% ​ ​ 289,457 ​ 14.65% Equity lines ​ ​ 25,574 ​ 1.28% ​ ​ 26,588 ​ 1.35% Multi-family residential ​ ​ 66,291 ​ 3.32% ​ ​ 53,458 ​ 2.71% Commercial real estate - owner occupied ​ ​ 312,089 ​ 15.61% ​ ​ 334,446 ​ 16.93% Commercial real estate - non-owner occupied ​ ​ 895,353 ​ 44.79% ​ ​ 882,888 ​ 44.69% Farmland ​ ​ 101,761 ​ 5.09% ​ ​ 106,706 ​ 5.40% Total real estate ​ ​ 1,857,503 ​ 92.93% ​ ​ 1,740,211 ​ 88.09% Agricultural ​ ​ 28,757 ​ 1.44% ​ ​ 33,990 ​ 1.72% Commercial and industrial ​ ​ 72,825 ​ 3.64% ​ ​ 109,791 ​ 5.56% Mortgage warehouse lines ​ ​ 58,134 ​ 2.91% ​ ​ 101,184 ​ 5.12% Consumer loans ​ ​ 4,362 ​ 0.22% ​ ​ 4,550 ​ 0.23% Total loans and leases ​ ​ 2,021,581 ​ 101.14% ​ ​ 1,989,726 ​ 100.72% Allowance for credit losses on loans ​ ​ (22,802) ​ (1.14)% ​ ​ (14,256) ​ (0.72)% Total loans and leases, net ​ $ 1,998,779 ​ 100.00% ​ $ 1,975,470 ​ 100.00% ​ Gross loans and leases at $2.0 billion, increased $32.9 million during the first half of 2022 with an overall 2% change. The increase in gross loan balances as compared to December 31, 2021 was primarily a result of an increase in 1-4 family residential real estate loans, mostly from the purchase of $173.1 million in high quality jumbo mortgage loans designed as a bridge to organic growth, and a $12.8 million organic increase in multi-family residential loans. Organic loan production for the first half of 2022 was $142.1 million, a 61% increase, as compared to $88.3 million for the comparative period in 2021, as the new lending teams hired earlier in the year have been gaining traction in our market. Counterbalancing these positive variances were loan paydowns, charge-offs and maturities resulting in net declines in many categories even with higher loan production. In particular, there was a $20.4 million net decrease in construction loans, a $9.9 million net decline in commercial real estate loans, a $37.0 million net reduction in commercial and industrial loans, a $43.0 million unfavorable change in mortgage warehouse line utilization, and a $10.2 million net decline in agricultural loans. Further, SBA PPP loan forgiveness resulted in a $23.6 million decline in loan balances, included in the commercial and industrial variance noted above. The following table presents a roll forward of the Company’s gross loan balances for each of the periods noted: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ LOAN ROLLFORWARD ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in Thousands, Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended: ​ For the six months ended: ​ ​ ​ June 30, 2022 ​ ​ March 31, 2022 ​ ​ June 30, 2021 ​ ​ June 30, 2022 ​ ​ June 30, 2021 Gross loans beginning balance ​ $ 1,983,331 ​ $ 1,989,726 ​ $ 2,288,468 ​ $ 1,989,726 ​ $ 2,463,111 New credit extended ​ ​ 119,553 ​ ​ 22,543 ​ ​ 21,698 ​ ​ 142,096 ​ ​ 88,294 Loan purchases ​ ​ 46,364 ​ ​ 126,718 ​ ​ — ​ ​ 173,082 ​ ​ — Changes in line of credit utilization ​ ​ (17,837) ​ ​ (19,553) ​ ​ (17,071) ​ ​ (37,390) ​ ​ (39,657) Change in mortgage warehouse ​ ​ 956 ​ ​ (44,005) ​ ​ (37,588) ​ ​ (43,049) ​ ​ (157,327) Pay-downs, maturities, charge-offs and amortization (1) ​ ​ (109,705) ​ ​ (92,098) ​ ​ (110,711) ​ ​ (201,803) ​ ​ (209,625) Gross loans ending balance ​ ​ 2,022,662 ​ ​ 1,983,331 ​ ​ 2,144,796 ​ ​ 2,022,662 ​ ​ 2,144,796 Deferred costs and (fees), net ​ ​ (1,081) ​ ​ (1,200) ​ ​ (3,835) ​ ​ (1,081) ​ ​ (3,835) Loans, net of deferred costs and (fees) ​ $ 2,021,581 ​ $ 1,982,131 ​ $ 2,140,961 ​ $ 2,021,581 ​ $ 2,140,961 ​ 53 Table of Contents The Company’s regulatory commercial real estate concentration ratio decreased to 238% at June 30, 2022 as compared to 248% at December 31, 2021. Unused commitments, excluding mortgage warehouse and overdraft lines, were $199.4 million at June 30, 2022, compared to $242.3 million at December 31, 2021. Total line utilization, excluding mortgage warehouse and consumer overdraft lines, was 61.2% at June 30, 2022 and 61.0% at December 31, 2021. Mortgage warehouse utilization declined significantly to 12% at June 30, 2022, as compared to 28% at December 31, 2021. It should be noted that approximately $278.0 million of the mortgage warehouse lines were moved to repurchase agreement lines that provide stronger credit protection to the Company, as well as more favorable regulatory capital treatment as these repurchase lines are not considered off-balance sheet commitments. As expected, PPP loans continue to decline as borrowers receive forgiveness on these loans. There were 107 loans for $8.2 million outstanding at June 30, 2022, compared to 438 loans for $31.8 million at December 31, 2021. NONPERFORMING ASSETS Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, in addition to foreclosed assets which is primarily OREO, but can include other foreclosed assets. If the Company grants a concession to a borrower in financial difficulty, the loan falls into the category of a TDR, unless the modification was granted under section 4013 of the CARES Act or the April 7, 2020 Interagency Statement. TDRs may be classified as either nonperforming or performing loans depending on their underlying characteristics and circumstances. The following table presents comparative data for the Company’s nonperforming assets and performing TDRs as of the dates noted: Nonperforming assets and performing troubled debt restructurings (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 June 30, 2021 NON-ACCRUAL LOANS: ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ ​ 745 ​ ​ 1,023 ​ ​ 1,473 Equity lines ​ ​ 62 ​ ​ 892 ​ ​ 2,138 Commercial real estate - owner occupied ​ ​ 379 ​ ​ 1,234 ​ ​ 1,278 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 19,301 ​ ​ — ​ ​ 427 TOTAL REAL ESTATE ​ ​ 20,487 ​ ​ 3,149 ​ ​ 5,316 Agriculture ​ ​ 8,444 ​ ​ 378 ​ ​ 517 Commercial and industrial ​ ​ 814 ​ ​ 973 ​ ​ 1,423 Consumer loans ​ ​ — ​ ​ 22 ​ ​ 20 TOTAL NONPERFORMING LOANS ​ ​ 29,745 ​ ​ 4,522 ​ ​ 7,276 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreclosed assets ​ ​ 2 ​ ​ 93 ​ ​ 774 Total nonperforming assets ​ $ 29,747 ​ $ 4,615 ​ $ 8,050 Performing TDRs (1) ​ $ 4,714 ​ $ 4,910 ​ $ 10,774 Nonperforming loans as a % of total gross loans and leases ​ ​ 1.47% ​ ​ 0.23% ​ ​ 0.34% Nonperforming assets as a % of total gross loans and leases and foreclosed assets ​ ​ 1.47% ​ ​ 0.23% ​ ​ 0.38% (1) Performing TDRs are not included in nonperforming loans above, nor are they included in the numerators used to calculate the ratios disclosed in this table. ​ 54 Table of Contents Total nonperforming assets increased by $25.1 million, to $29.7 million during the first half of 2022, primarily as a result of a downgrade in the first quarter of 2022, consisting of one relationship in the dairy industry comprising four separate loans. These loans were written down by $1.96 million and no further allowance for credit losses was deemed necessary on these loans. The Company's ratio of nonperforming loans to gross loans increased to 1.47% at June 30, 2022 from 0.23% at December 31, 2021. All of the Company's nonperforming assets are periodically reviewed and are either well-reserved based on current loss expectations or are carried at the fair value of the underlying collateral, net of expected disposition costs. As shown in the table, we also had $4.7 million in loans classified as performing TDRs on which we were still accruing interest as of June 30, 2022, a decrease of $0.2 million, or 4%, relative to December 31, 2021. Foreclosed assets had a carrying value of $0.002 million at June 30, 2022 and $0.1 million December 31, 2021 comprised of one property classified as OREO. The property was written down to fair value less disposition costs in the second quarter of 2022 and subsequently sold in the third quarter of 2022. All foreclosed assets are periodically evaluated and written down to their fair value less expected disposition costs, if lower than the then-current carrying value. An action plan is in place for each of our non-accruing loans and foreclosed assets and they are all being actively managed. Collection efforts are continuously pursued for all nonperforming loans, but we cannot provide assurance that they will be resolved in a timely manner or that nonperforming balances will not increase. The Company had $5.3 million in loans past due 30-59 days at June 30, 2022. This is an increase of $3.1 million over the balance at December 31, 2021. All of these past due loans are under management supervision and every effort is being taken to assist the borrowers and manage credit risk in this regard. ALLOWANCE FOR CREDIT LOSSES – LOANS AND LEASES RECEIVABLE The allowance for credit losses on loans and leases, a contra-asset, is established through periodic provisions for credit losses on loans and leases. It is maintained at a level that is considered adequate to measure expected losses on individually identified loans, as well as expected 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 sufficient cash payments are received subsequent to the charge off. After deferring implementation of the CECL accounting method under Financial Accounting Standards Board (FASB) Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326) under section 4014 of the CARES Act, the Company implemented CECL on January 1, 2022 . Upon implementation the Company recorded a $10.4 million increase in the allowance for credit losses, which included a $0.9 million reserve for unfunded commitments as an adjustment to equity, net of deferred taxes. The Company's allowance for credit losses on loans and leases was $22.8 million at June 30, 2022, as compared to $14.3 million at December 31, 2021, and $16.4 million at June 30, 2021. The $8.5 million increase in the allowance for credit losses on loans and leases during the first half of 2022 is due to a $9.5 million one-time adjustment from the implementation of CECL on January 1, 2022, a $3.1 million provision for credit losses on loans and leases, and net loan charge-offs of $4.1 million. The allowance was 1.13% of gross loans at June 30, 2022, 0.72% of gross loans at December 31, 2021, and 0.77% of total loans at June 30, 2021. Management's detailed analysis indicates that the Company's allowance for credit losses on loans and leases should be sufficient to cover credit losses for the life of the loans and leases outstanding as of June 30, 2022, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the loan and lease loss allowance. A separate allowance of $0.9 million for potential credit losses inherent in unused commitments is included in other liabilities at June 30, 2022, as compared to $0.2 million at December 31, 2021. As mentioned previously a $0.9 million 55 Table of Contents one-time adjustment was recorded to the reserve for unfunded commitments on January 1, 2022 upon the implementation of CECL. ​ ​ 56 Table of Contents The following table summarizes activity in the credit allowance for losses on loans and leases for the noted periods: Allowance for Credit Losses on Loans and Leases (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ For the three months ended ​ For the six months ended ​ For the six months ended ​ For the year ended ​ June 30, June 30, June 30, June 30, December 31, Balances: ​ 2022 ​ 2021 ​ 2022 ​ 2021 ​ 2021 Average gross loans and leases outstanding during period (1) ​ $ 2,011,868 ​ $ 2,184,899 ​ $ 1,981,947 ​ $ 2,275,467 ​ $ 2,169,582 Gross loans and leases outstanding at end of period ​ $ 2,022,662 ​ $ 2,144,796 ​ $ 2,022,662 ​ $ 2,144,796 ​ $ 1,989,726 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans and leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period ​ $ 22,530 ​ $ 18,319 ​ $ 14,256 ​ $ 17,738 ​ $ 17,738 Adoption of ASC 326 ​ ​ — ​ ​ — ​ ​ 9,454 ​ ​ — ​ ​ — Provision charged to expense ​ ​ 2,548 ​ ​ (2,100) ​ ​ 3,148 ​ ​ (1,850) ​ ​ (3,650) Charge-offs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 11 ​ ​ — ​ ​ 12 ​ ​ 12 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate- owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ 233 ​ ​ 233 Commercial real estate- non-owner occupied ​ ​ 1,911 ​ ​ — ​ ​ 1,911 ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ 1,958 ​ ​ — ​ ​ — Total real estate ​ ​ 1,911 ​ ​ 11 ​ ​ 3,869 ​ ​ 245 ​ ​ 245 Agricultural ​ ​ 212 ​ ​ 50 ​ ​ 212 ​ ​ 50 ​ ​ 50 Commercial and industrial ​ ​ 86 ​ ​ 25 ​ ​ 159 ​ ​ 77 ​ ​ 159 Consumer loans ​ ​ 314 ​ ​ 169 ​ ​ 612 ​ ​ 331 ​ ​ 946 Total ​ $ 2,523 ​ $ 255 ​ $ 4,852 ​ $ 703 ​ $ 1,400 Recoveries ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Other construction/land ​ ​ — ​ ​ 110 ​ ​ 259 ​ ​ 328 ​ ​ 328 1-4 family - closed-end ​ ​ 1 ​ ​ 3 ​ ​ 86 ​ ​ 5 ​ ​ (67) Equity lines ​ ​ 12 ​ ​ — ​ ​ 12 ​ ​ — ​ ​ 25 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate- owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ 233 ​ ​ 233 Commercial real estate- non-owner occupied ​ ​ — ​ ​ 82 ​ ​ — ​ ​ 82 ​ ​ 82 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate ​ ​ 13 ​ ​ 195 ​ ​ 357 ​ ​ 648 ​ ​ 601 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ 62 ​ ​ 82 ​ ​ 82 ​ ​ 192 ​ ​ 223 Consumer loans ​ ​ 172 ​ ​ 180 ​ ​ 357 ​ ​ 396 ​ ​ 744 Total ​ $ 247 ​ $ 457 ​ $ 796 ​ $ 1,236 ​ $ 1,568 Net loan charge offs (recoveries) ​ $ 2,276 ​ $ (202) ​ $ 4,056 ​ $ (533) ​ $ (168) Balance at end of period ​ $ 22,802 ​ $ 16,421 ​ $ 22,802 ​ $ 16,421 ​ $ 14,256 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ RATIOS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs (recoveries) to average loans and leases (annualized) ​ ​ 0.45% ​ ​ (0.04)% ​ ​ 0.41% ​ ​ (0.05)% ​ ​ (0.01)% Allowance for credit losses on loans and leases to gross loans and leases at end of period ​ ​ 1.13% ​ ​ 0.77% ​ ​ 1.13% ​ ​ 0.77% ​ ​ 0.72% Allowance for credit losses on loans and leases to nonperforming loans ​ ​ 76.66% ​ ​ 225.69% ​ ​ 76.66% ​ ​ 225.69% ​ ​ 315.26% Net loan charge-offs (recoveries) to allowance for credit losses on loans and leases at end of period ​ ​ 9.98% ​ ​ (1.23)% ​ ​ 17.79% ​ ​ (3.25)% ​ ​ (1.18)% Net loan charge-offs (recoveries) to provision for credit losses on loans and leases ​ ​ 89.32% ​ ​ 9.62% ​ ​ 128.84% ​ ​ 28.81% ​ ​ 4.60% ​ (1) Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs. The Company’s credit allowance for losses on loans and leases at June 30, 2022 represents Management’s best estimate of expected losses in the loan portfolio as of that date, but no assurance can be given that the Company will not experience substantial losses relative to the size of the allowance. Furthermore, fluctuations in credit quality, changes in economic conditions, updated accounting or regulatory requirements, and/or other factors could induce us to augment or reduce the allowance. OFF-BALANCE SHEET ARRANGEMENTS The Company maintains commitments to extend credit in the normal course of business, as long as there are no violations of conditions established in the outstanding contractual arrangements. It is unlikely that all unused commitments will ultimately be drawn down. Unused commitments to extend credit, which included standby letters of credit, totaled $513 million at June 30, 2022 and $561 million at December 31, 2021, representing approximately 25% of gross loans outstanding at June 30, 2022 and 28% at December 31, 2021. The decrease in unused commitments is due in large part to the decrease in loan balances with unfunded commitments. The Company also had undrawn letters of credit issued to customers totaling $3.6 million at June 30, 2022 and December 31, 2021. The effect on the Company’s 57 Table of Contents revenues, expenses, cash flows and liquidity from the unused portion of commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will ever be used. However, the “Liquidity” section in this Form 10-Q outlines resources available to draw upon should we be required to fund a significant portion of unused commitments. In addition to unused commitments to provide credit, the Company is utilizing a $125 million letter of credit issued by the Federal Home Loan Bank on the Company’s behalf as security for certain local agency deposits which totaled $77.5 million at June 30, 2022. That letter of credit is backed by loans that are pledged to the FHLB by the Company. For more information on the Company’s off-balance sheet arrangements, see Note 7 to the consolidated financial statements located elsewhere herein. OTHER ASSETS Interest earning cash balances were discussed above in the “Investments” section, but the Company also maintains a certain level of cash on hand in the normal course of business as well as non-earning deposits at other financial institutions. Our balance of cash and due from banks depends on the timing of collection of outstanding cash items (checks), the amount of cash held at our branches, and our reserve requirement among other things, and it is subject to significant fluctuations in the normal course of business. While cash flows are normally predictable within limits, those limits are fairly broad and the Company manages its short-term cash position through the utilization of overnight loans to, and borrowings from, correspondent banks, including the Federal Reserve Bank and the Federal Home Loan Bank. Should a large “short” overnight position persist for any length of time, the Company typically raises money through focused retail deposit gathering efforts or by adding brokered time deposits. If a “long” position is prevalent, we could let brokered deposits or other wholesale borrowings roll off as they mature, or we might invest excess liquidity into investments or loans, subject to the bank’s risk tolerances. The Company’s balance of non-earning cash and due from banks was $82.1 million at June 30, 2022 relative to $63.1 million at December 31, 2021. Foreclosed assets are discussed above in the section titled “Nonperforming Assets.” Net premises and equipment decreased by $0.6 million during the first half of 2022, to $22.9 million. This decline was primarily a result of normal depreciation, net of new purchases. Goodwill was $27.4 million at June 30, 2022, unchanged during the first half of 2022. Goodwill is tested for impairment annually, unless events and circumstances exist which indicate that an impairment test should be performed. A Goodwill impairment test was last performed during the fourth quarter 2021 and determined that no impairment existed. There have been no triggering events in the first six months of 2022 that would require the Company to perform a Goodwill impairment test, however the Company will continue to monitor its Goodwill for potential impairment. Bank-owned life insurance, with a balance of $52.2 million at June 30, 2022, is discussed in detail above in the “Noninterest Income and Noninterest Expense” section. DEPOSITS AND INTEREST BEARING LIABILITIES DEPOSITS Deposits represent another key balance sheet category impacting the Company’s net interest income and profitability metrics. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity accounts such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates paid by deposit type is included in the Average Balances and Rates tables appearing above, in the section titled “Net Interest Income and Net Interest Margin.” A distribution of the Company’s deposits by type, showing the period-end balance and percentage of total deposits, is presented as of the dates indicated in the following table. 58 Table of Contents Deposit Distribution (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 December 31, 2021 Noninterest bearing demand deposits ​ $ 1,120,413 ​ $ 1,084,544 Interest bearing demand deposits ​ ​ 203,032 ​ ​ 129,783 NOW ​ ​ 533,002 ​ ​ 614,770 Savings ​ ​ 482,140 ​ ​ 450,785 Money market ​ ​ 152,596 ​ ​ 147,793 Time ​ ​ 299,816 ​ ​ 293,897 Brokered deposits ​ ​ 60,000 ​ ​ 60,000 Total deposits ​ $ 2,850,999 ​ $ 2,781,572 ​ ​ ​ ​ ​ ​ ​ Percentage of Total Deposits ​ ​ ​ ​ ​ ​ Noninterest bearing demand deposits ​ ​ 39.30% ​ ​ 38.99% Interest bearing demand deposits ​ ​ 7.12% ​ ​ 4.67% NOW ​ ​ 18.70% ​ ​ 22.10% Savings ​ ​ 16.91% ​ ​ 16.21% Money market ​ ​ 5.35% ​ ​ 5.31% Time ​ ​ 10.52% ​ ​ 10.57% Brokered deposits ​ ​ 2.10% ​ ​ 2.16% Total ​ ​ 100.00% ​ ​ 100.00% ​ Deposit balances reflect net growth of $69.4 million, or 2%, during the first half of 2022. Time deposits were $299.8 million at June 30, 2022 as compared to $293.9 million at December 31, 2021. Brokered deposits were unchanged at $60.0 million at June 30, 2022 from December 31, 2021. Non-maturity deposit growth of $63.5 million for the first half of 2022 was primarily the result of increases in balances of existing customers as the total number of customers was relatively unchanged. Management is of the opinion that a relatively high level of core customer deposits is one of the Company’s key strengths, and we continue to strive for core deposit retention and growth. In particular, the Company’s ratio of noninterest-bearing deposits to total deposits was 39.3% at June 30, 2022 as compared to 39.0% at December 31, 2021. OTHER INTEREST-BEARING LIABILITIES The Company’s non-deposit borrowings may, at any given time, include fed funds purchased from correspondent banks, borrowings from the Federal Home Loan Bank, advances from the Federal Reserve Bank, securities sold under agreements to repurchase, and/or junior subordinated debentures. The Company uses short-term FHLB advances and fed funds purchased on uncommitted lines to support liquidity needs created by seasonal deposit flows, to temporarily satisfy funding needs from increased loan demand, and for other short-term purposes. The FHLB line is committed, but the amount of available credit depends on the level of pledged collateral. Total non-deposit interest-bearing liabilities increased by $11.2 million, during the first half of 2022 primarily due to an increase in customer repurchase agreements. Repurchase agreements totaled $118.0 million at June 30, 2022 relative to a balance of $106.9 million at year-end 2021. Repurchase agreements represent “sweep accounts”, where certain customers have elected to have their commercial deposit balances above a specified threshold transferred at the close of each business day into non-deposit investments accounts. The balance in the investment account is used to have the customer purchase securities or a perfected interest in specifically identified pledged securities from the bank, which are then repurchased by the bank from the customer the next business day. The Company had Long term debt totaling $49.2 million and $49.1 million at June 30, 2022 and December 31, 2021, respectively, in the form of 3.25% fixed – floating subordinated debt with a ten-year maturity and junior subordinated debentures totaling $35.4 million at June 30, 2022 and $35.3 million at December 31, 2021, in the form of long-term borrowings from trust subsidiaries formed specifically to issue trust preferred securities. 59 Table of Contents OTHER NONINTEREST BEARING LIABILITIES Other liabilities are principally comprised of operating lease right-of-use liabilities, accrued interest payable, other accrued but unpaid expenses, and certain clearing amounts. The Company’s balance of other liabilities was $43.1 million at June 30, 2022 as compared to $35.4 million at December 31, 2021, an increase of $7.8 million or 22%. The increase was primarily driven by the Company’s investment commitment in a $2.0 million low income housing tax credit fund and $5.0 million investment commitment in a FinTech Fund. LIQUIDITY AND MARKET RISK MANAGEMENT LIQUIDITY Liquidity management refers to the Company’s ability to maintain cash flows that are adequate to fund operations and meet other obligations and commitments in a timely and cost-effective manner. Detailed cash flow projections are reviewed by Management on a monthly basis, with various stress scenarios applied to assess our ability to meet liquidity needs under unusual or adverse conditions. Liquidity ratios are also calculated and reviewed on a regular basis. While those ratios are merely indicators and are not measures of actual liquidity, they are closely monitored, and we are committed to maintaining adequate liquidity resources to draw upon should unexpected needs arise. The Company, on occasion, experiences cash needs as the result of loan growth, deposit outflows, asset purchases or liability repayments. To meet these short-term needs, we can borrow overnight funds from other financial institutions, draw advances via Federal Home Loan Bank lines of credit, or solicit brokered deposits if customer deposits are not immediately obtainable from local sources. At June 30, 2022 and December 31, 2021, the Company had the following sources of primary and secondary liquidity (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ Primary and secondary liquidity sources ​ ​ June 30, 2022 ​ ​ December 31, 2021 Cash and cash equivalents ​ $ 161,875 ​ $ 257,528 Unpledged investment securities ​ ​ 839,833 ​ ​ 806,132 Excess pledged securities ​ ​ 38,245 ​ ​ 47,024 FHLB borrowing availability ​ ​ 830,615 ​ ​ 787,519 Unsecured lines of credit ​ ​ 305,000 ​ ​ 305,000 Funds available through fed discount window ​ ​ 32,762 ​ ​ 50,608 Totals ​ $ 2,208,330 ​ $ 2,253,811 ​ In addition to the above sources, the Company could obtain brokered deposits, obtain deposits via deposit listing services, or offer higher rate time deposits within our market. ​ Cash and cash equivalents during the first half of 2022, declined $95.7 million due to increases in investment securities and loans and leases. Utilization of remaining excess liquidity is expected to come from a combination of new organic loan originations, and new investment purchases, mostly in the form of collateralization loan obligations. In addition, it is possible that a portion of the deposits built-up during the COVID-19 pandemic could be withdrawn by customers. When looking to reduce these low-yielding cash balances with earning assets, management considers interest rate risk, including duration and extension risk; credit risk; and the liquidity risk of such alternative assets. ​ The Company performs regular stress tests on its liquidity and at this time, believes that we have sufficient primary and secondary liquidity sources for operations. ​ The Company has a higher level of actual balance sheet liquidity than might otherwise be the case, since we utilize a letter of credit from the FHLB rather than investment securities for certain pledging requirements. That letter of credit, which is backed by loans pledged to the FHLB by the Company, totaled $125 million at June 30, 2022 and December 31, 2021. Other sources of liquidity include the brokered deposit market, deposit listing services, and the ability to offer local time-deposit campaigns. Management is of the opinion that available investments and other potentially liquid 60 Table of Contents assets, along with standby funding sources it has arranged, are more than sufficient to meet the Company’s current and anticipated short-term liquidity needs and that its liquidity has not been adversely impacted by COVID-19. The Company’s primary liquidity ratio and net loans to deposits were 36.56% and 70.11%, respectively, at June 30, 2022, as compared to internal policy guidelines of “greater than 15%” and “less than 95%.” Ratios and sub-limits for the various components comprising wholesale funding, which were all well within policy guidelines at June 30, 2022, are also periodically reviewed by Management and the Board. The Company has been able to maintain a robust liquidity position in recent periods, but no assurance can be provided that our liquidity position will continue at current strong levels. The holding company’s primary uses of funds include operating expenses incurred in the normal course of business, interest on trust preferred securities and subordinated debt, shareholder dividends, and share repurchases. Its primary source of funds is dividends from the Bank since the holding company does not conduct regular banking operations. As of June 30, 2022, the holding company maintained a cash balance of $7.5 million. Management anticipates that the holding company has sufficient liquidity to meet its funding requirements for the foreseeable future. Both the holding company and the Bank are subject to legal and regulatory limitations on dividend payments, as outlined in Item 5(c) Dividends in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 which was filed with the SEC. INTEREST RATE RISK MANAGEMENT Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company does not engage in the trading of financial instruments, nor does it have exposure to currency exchange rates. Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit our earnings and balance sheet exposure to changes in interest rates. The principal objective of interest rate risk management is to manage the financial components of the Company’s balance sheet in a manner that will optimize the risk/reward equation for earnings and capital under a variety of interest rate scenarios. The Company reclassified $162.1 million of securities that have the highest level of volatility to changes in interest rates from available-for-sale to held-to-maturity to mitigate the impact on tangible capital. To identify areas of potential exposure to interest rate changes, we utilize commercially available modeling software to perform monthly earnings simulations and calculate the Company’s market value of portfolio equity under varying interest rate scenarios. The model imports relevant information for the Company’s financial instruments and incorporates Management’s assumptions on pricing, duration, and optionality for anticipated new volumes. Various rate scenarios consisting of key rate and yield curve projections are then applied in order to calculate the expected effect of a given interest rate change on interest income, interest expense, and the value of the Company’s financial instruments. The rate projections can be shocked (an immediate and parallel change in all base rates, up or down), ramped (an incremental increase or decrease in rates over a specified time period), economic (based on current trends and econometric models) or stable (unchanged from current actual levels). In addition to a stable rate scenario, which presumes that there are no changes in interest rates, we typically use at least eight other interest rate scenarios in conducting our rolling 12- month net interest income simulations: upward shocks of 100, 200, 300, and 400 basis points, and downward shocks of 100, 200, and 300 basis points. Those scenarios may be supplemented, reduced in number, or otherwise adjusted as determined by Management to provide the most meaningful simulations considering economic conditions and expectations at the time. The downward shock scenarios of 200 300 and 400 basis points were temporarily suspended in the second quarter of 2020 after concurrence by the Company’s Board of Directors, due to the fact that in these down scenarios, projected interest rates would be near or below zero. At the June 2022 Finance & Sustainability Committee Meeting, Management reinstituted the down 200 scenario, due to the Federal Open Market Committee increasing rates by 150 basis points during the quarter. Pursuant to policy guidelines, we generally attempt to limit the projected decline in net interest income relative to the stable rate scenario to no more than 5% for a 100 basis point (bp) interest rate shock, 10% for a 200 bp shock, 15% for a 300 bp shock, and 20% for a 400 bp shock. ​ 61 Table of Contents The Company had the following estimated net interest income sensitivity profiles over one-year, without factoring in any potential negative impact on spreads resulting from competitive pressures or credit quality deterioration: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ June 30, 2021 Immediate change in Interest Rates (basis points) ​ % Change in Net Interest Income ​ $ Change in Net Interest Income ​ % Change in Net Interest Income ​ $ Change in Net Interest Income +400 ​ ​ 9.5% ​ $ 11,559 ​ ​ 11.3% ​ $ 11,645 +300 ​ ​ 7.5% ​ $ 9,053 ​ ​ 9.1% ​ $ 9,384 +200 ​ ​ 5.6% ​ $ 6,778 ​ ​ 6.9% ​ $ 7,072 +100 ​ ​ 3.3% ​ $ 3,939 ​ ​ 4.1% ​ $ 4,226 Base ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ -100 ​ ​ (6.9)% ​ $ (8,316) ​ ​ (8.1)% ​ $ (8,306) -200 ​ ​ (15.9)% ​ $ (19,279) ​ ​ N/A ​ ​ N/A ​ For the periods ending June 30, 2022 and June 30, 2021, management believes that the Company was asset sensitive, with net income increasing in a rising rate environment in all scenarios but declining in the down shocks. The Company’s asset sensitivity based on its interest rate risk model at June 30, 2022 as compared to June 30, 2021, is similar. In the up 400 basis point shock scenario, expected net interest income over the next twelve months increases $11.6 million, or 10%, to $132.7 million at June 30, 2022 compared to an 11% increase or $11.6 million for the same period in 2021. The Company reclassified $162.1 million of securities that have the highest level of volatility to changes in interest rates from available-for-sale to held-to-maturity to mitigate the impact on tangible capital. Over the next twelve months, $161.9 million in surplus cash is projected to decline due to expected core loan growth as our pipelines begin to increase, and a redeployment of excess cash into variable rate investment vehicles such as collateralized loan obligations. Further, a portion of the significant increase in deposits during the COVID-19 pandemic could be withdrawn by customers. These expected changes in earnings assets, including overnight cash, are not modeled in the immediate rate shock model described above. Although the cost of interest-bearing liabilities will also increase in a rate shock, the deposit betas utilized in the interest rate model mitigate the magnitude of a deposit rate increase. The change in net interest income is similar for the up 100, 200, 300, and 400 basis point scenarios. If there were an immediate and sustained upward adjustment of 100 basis points in interest rates, all else being equal, net interest income over the next 12 months is projected to improve by $3.9 million, or 3%, relative to a stable interest rate scenario, with the favorable variance increasing marginally as interest rates rise higher. If there was an immediate downward adjustment of 100 basis points in interest rates, net interest income would drop $8.3 million or a negative variance of 7%. The change in net interest income in the down 200 basis point scenario is a decrease of $19.3 million or 16%. The reason for the drop in net interest income in the down 200 basis points scenario over the 100 basis point scenario is that many of the deposit products reach their floors and cannot be repriced lower while, non-floored interest earning assets such as loans and securities can theoretically still be re-priced lower in a falling rate environment. The potential percentage drop in net interest income in the “down 200 basis points” interest rate scenario exceeds our internal policy guidelines, and we will continue to monitor our interest rate risk profile and implement remedial changes if deemed appropriate. The percentage drop in net interest income exceeding internal policy guidelines will most likely continue until interest rates return to historically higher levels. If there was an immediate downward adjustment of 100 basis points in interest rates, net interest income would drop $8.3 million or a negative variance of 8%. The reason for the drop in net interest income is, most deposit products are at their floors of 0.10% and cannot be re-priced lower, while non-floored interest earning assets such as loans and securities can theoretically still be re-priced lower in a falling rate environment. Due to the historically low current rate environment, we view any material interest rate reductions as unlikely in the near term. However, the potential percentage drop in net interest income in the “down 100 basis points” interest rate scenario exceeds our internal policy guidelines and we will continue to monitor our interest rate risk profile and implement remedial changes if deemed appropriate. ​ ​ ​ ​ ​ ​ ​ ​ In addition to the net interest income simulations shown above, we run stress scenarios for the unconsolidated Bank where we model the possibility of no balance sheet growth, the potential runoff of “surge” core deposits which flowed into the Bank in the most recent economic cycle, and unfavorable movement in deposit rates relative to yields on earning assets (i.e., higher deposit betas). When a static balance sheet and a stable interest rate environ­ment are assumed, projected annual net interest income is $8.0 million lower than in our standard simulation. The modeled economic value (or “fair value”) of financial instruments on the Company’s balance sheet will also vary under the interest rate scenarios previously discussed. The difference between the projected fair value of the Company’s 62 Table of Contents financial assets and the fair value of its financial liabilities is referred to as the economic value of equity (“EVE”), and changes in EVE under different interest rate scenarios are effectively a gauge of the Company’s longer-term exposure to interest rate fluctuations. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at anticipated replacement interest rates for each account type, while the fair value of non-financial accounts is assumed to equal their book value for all rate scenarios. An economic value simulation is a static measure utilizing balance sheet accounts at a given point in time, and the measurement can change sub­stantially over time, as is evident in the tables below for the periods ending June 30, 2022 and 2021, respectively, as the Company’s balance sheet evolves and interest rate and yield curve assumptions are updated. The change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including stated interest rates or spreads relative to current or projected market-level interest rates or spreads, the likelihood of principal prepayments, whether contractual interest rates are fixed or floating, and the average remaining time to maturity. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical patterns and Management’s best estimates. ​ Our EVE increased in the past twelve months primarily driven by an increase in deposits and an increase in deposit values. The tables below show estimated changes in the Company’s EVE as modeled under different interest rate scenarios relative to the base case: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2022 ​ June 30, 2021 Immediate change in Interest Rates (basis points) ​ % Change in Fair Value of Equity ​ $ Change in Fair Value of Equity ​ % Change in Fair Value of Equity ​ $ Change in Fair Value of Equity +400 ​ ​ 13.4% ​ $ 95,479 ​ ​ 35.6% ​ $ 202,631 +300 ​ ​ 10.9% ​ $ 77,821 ​ ​ 31.8% ​ $ 181,010 +200 ​ ​ 8.2% ​ $ 58,626 ​ ​ 25.9% ​ $ 147,560 +100 ​ ​ 3.6% ​ $ 25,282 ​ ​ 15.7% ​ $ 89,293 Base ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ -100 ​ ​ (18.9)% ​ $ (134,337) ​ ​ (21.3)% ​ $ (120,991) -200 ​ ​ (38.6)% ​ $ (274,465) ​ ​ N/A ​ ​ N/A ​ ​ The table shows that our EVE is modeled to deteriorate in declining rate scenarios but should benefit from a paral­lel shift upward in the yield curve. The rate of increase in EVE accelerates the higher interest rates rise. This increase in sensitivity is caused by the increase in gross deposits, namely, an increase in noninterest bearing deposits which become more valuable as interest rates rise. We also run stress scenarios for the unconsolidated Bank’s EVE to simulate the possibility of adverse movement in loan prepay­ment rates, unfavorable changes in deposit rates, and higher deposit decay rates. Model results are highly sensitive to changes in assumed decay rates for non-maturity deposits, in particular, with material unfavorable variances occurring relative to the standard simulations shown above as decay rates are increased. Furthermore, while not as extreme as the variances produced by increasing non-maturity deposit decay rates, EVE also displays a relatively high level of sensitivity to unfavorable changes in deposit rate betas in rising interest rate scenarios. The potential percentage drop in EVE in the “down 100 and 200 basis points” interest rate scenario exceeds our internal policy guidelines, and we will continue to monitor our interest rate risk profile and implement remedial changes if deemed appropriate. The percentage drop in EVE exceeding internal policy guidelines will most likely continue until interest rates and deposit rates return to historically higher levels. ​ CAPITAL RESOURCES The Company had total shareholders’ equity of $299.0 million at June 30, 2022, comprised of $111.7 million in common stock, $4.6 million in additional paid-in capital, $233.2 million in retained earnings, and accumulated other 63 Table of Contents comprehensive loss of $50.4 million. At the end of 2021, total shareholders’ equity was $362.5 million. The decrease in equity during the first half of 2022 is due to net income of $16.6 million, offset by a $7.0 million dividend paid to shareholders, $4.9 million in share repurchases, a $61.6 million unfavorable swing in other comprehensive income/loss due principally to changes in investment securities' fair value and a $7.3 million decrease in retained earnings due to the cumulative effect of a change in accounting principal from the implementation of CECL, topic 326. The remaining difference is related to stock options exercised and restricted stock compensation recognized during the quarter. The Company’s strong liquidity position enabled the transfer of $162.1 million of “available-for-sale” investment securities to “held-to-maturity” classification effective April 1, 2022. The transfer was initiated to reduce the effect of future rate increases on the available-for-sale portfolio, mark-to-market adjustments, comprehensive income and equity. The Company approved a new share repurchase program (the 2021 Share Repurchase Plan) on October 21, 2021 and authorized one million shares to be repurchased under this plan. The previous 2003 Share Repurchase Plan was cancelled and the 268,301 shares remaining in that plan were incorporated into the 2021 Share Repurchase Plan. There were 182,562 shares repurchased in the first half of 2022, with 630,000 shares remaining to be repurchased under the 2021 Share Repurchase Plan. The Company uses a variety of measures to evaluate its capital adequacy, including the leverage ratio which is calculated separately for the Company and the Bank. Management reviews these capital measurements on a quarterly basis and takes appropriate action to help ensure that they meet or surpass established internal and external guidelines. As permitted by the regulators for financial institutions that are not deemed to be “advanced approaches” institutions, the Company has elected to opt out of the Basel III requirement to include accumulated other comprehensive income in risk-based capital. The following table sets forth the Bank’s regulatory capital ratios as of the dates indicated. ​ Regulatory Capital Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Minimum ​ Minimum ​ ​ ​ ​ ​ ​ ​ Requirement ​ Required ​ ​ ​ June 30, ​ December 31, ​ to be ​ Community Bank ​ ​ 2022 2021 Well Capitalized (1) ​ Leverage Ratio (2) ​ Bank of the Sierra ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") (3) ​ 11.72 % 11.31 % 5.00 % 9.00 % Sierra Bancorp ​ ​ ​ ​ ​ ​ ​ ​ ​ Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") (3) ​ 10.45 % 10.43 % 5.00 % N/A ​ (1) The Company was subject to these minimum requirements under the regulatory framework for Prompt Corrective Action at December 31, 2019. (2) If the subsidiary bank’s Leverage Ratio exceeds the minimum ratio under the Community Bank Leverage Ratio Framework, it is deemed to be “well capitalized” under all other regulatory capital requirements. The Company may revert back to the regulatory framework for Prompt Corrective Action if the subsidiary bank’s Leverage Ratio falls below the minimum under the Community Bank Leverage Ratio Framework. (3) The Company has elected to phase in the impact of implementing CECL on regulatory capital over a three-year period. ​ The federal banking agencies published a final rule on November 13, 2019, that provided a simplified measure of capital adequacy for qualifying community banking organizations. A qualifying community banking organization that opts into the community bank leverage ratio framework and maintains a leverage ratio greater than 9 percent will be considered to have met the minimum capital requirements, the capital ratio requirements for the well capitalized category under the Prompt Corrective Action framework, and any other capital or leverage requirements to which the qualifying banking organization is subject. A qualifying community banking organization with a leverage ratio of greater than 9 percent may opt into the community bank leverage ratio framework if has average consolidated total assets of less than $10 billion, has off-balance-sheet exposures of 25% or less of total consolidated assets, and has total trading assets and trading liabilities of 5 percent or less of total consolidated assets. Further, the bank must not be an advance approaches banking organization. The final rule became effective January 1, 2020 and banks that meet the qualifying criteria can elect to use the community bank leverage framework starting with the quarter ended March 31, 2020. The CARES Act reduced the required community bank leverage ratio to 8% until the earlier of December 31, 2020, or the national emergency is declared over. Beginning in 2021 the CBLR was increased to 8.5% for the calendar year with the CBLR increasing to 9% on January 1, 64 Table of Contents 2022. The federal bank regulatory agencies adopted an interim final rule to implement this change from the CARES Act. At September 30, 2021, the Company and the Bank met the criteria outlined in the final rule and the interim final rule and elected to measure capital adequacy under the CBLR framework. ​ PART I – FINANCIAL INFORMATION ITEM 3 QUALITATIVE & QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The information concerning quantitative and qualitative disclosures about market risk is included in Part I, Item 2 above. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management.” PART I – FINANCIAL INFORMATION Item 4 CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report (the “Evaluation Date”) have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this quarterly report was being prepared. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC. Changes in Internal Controls There were no significant changes in the Company’s internal controls over financial reporting that occurred in the first six months of 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ​ 65 Table of Contents PART II - OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The Company and the Bank are defendants, from time to time, in legal proceedings in various points of the legal process arising from transactions conducted in the ordinary course of business. In the opinion of Management, in consultation with legal counsel, it is not probable that current legal actions will result in an unfavorable outcome that has a material adverse effect on the Company’s consolidated financial condition, results of operations, comprehensive income, or cash flows. In the event that such legal action results in an unfavorable outcome, the resulting liability could have a material adverse effect on the Company’s consolidated financial position, results of operations, comprehensive income, or cash flows. ITEM 1A: RISK FACTORS There were no material changes from the risk factors disclosed in the Company’s Form 10-K for the fiscal year ended December 31, 2021. ​ ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS (c) Stock Repurchases In October 2021 the Board approved the 2021 Share Repurchase Plan by authorizing 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 are 630,000 shares remaining for repurchase under the current Share Repurchase Plan. ​ ​ ITEM 3: DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4: MINE SAFETY DISCLOSURES Not applicable ITEM 5: OTHER INFORMATION On August 3, 2022, the Company entered into its standard form of indemnification agreement for directors and senior officers with its two new directors, Ermina Karim and Michele Gil (the “Indemnitees”). The form indemnification agreement provides that the Indemnitees are entitled to indemnification from the Company for expenses, judgments, fines, penalties or amounts paid in settlement incurred in a proceeding against the Indemnitee by reason of their service as an officer or director of the Company, but only if the Indemnitee acted in good faith and in a manner reasonably believed to be in the best interests of the Company, and with respect to any criminal proceeding they had no reasonable cause to believe their conduct was unlawful; that the obligation for indemnification continues so long as the Indemnitee shall be subject to any possible proceeding by reason of the fact that Indemnitee served in any capacity referred to in the Indemnification Agreement; and that Indemnification is limited in certain situations as when required by law. Indemnitees are entitled as well to any broader indemnification protections provided by law or subsequently adopted through amended bylaws. ​ The foregoing summary of the terms of the Indemnification Agreements is qualified in its entirety by reference to the complete text of the Indemnification Agreement, and the form of such Indemnification Agreements is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 29, 2021 and incorporated herein by reference. 66 Table of Contents ITEM 6: EXHIBITS ​ ​ ​ Exhibit # Description 3.1 ​ Restated Articles of Incorporation of Sierra Bancorp (1) 3.2 ​ Amended and Restated By-laws of Sierra Bancorp (2) 4.1 ​ Description of Securities (3) 4.2 ​ 3.25% Fixed to Floating Subordinated Debt issued September 24, 2021 (4) 10.3 ​ Director Retirement and Split dollar Agreements Effective October 1, 2002, for Albert Berra , Morris Tharp , and Gordon Woods (5)* 10.4 ​ 401 Plus Non-Qualified Deferred Compensation Plan (5) * 10.5 ​ Indenture dated as of March 17, 2004 between U.S. Bank N.A., as Trustee, and Sierra Bancorp, as Issuer (6) 10.6 ​ Amended and Restated Declaration of Trust of Sierra Statutory Trust II, dated as of March 17, 2004 (6) 10.7 ​ Indenture dated as of June 15, 2006 between Wilmington Trust Co., as Trustee, and Sierra Bancorp, as Issuer (7) 10.8 ​ Amended and Restated Declaration of Trust of Sierra Capital Trust III, dated as of June 15, 2006 (7) 10.9 ​ 2007 Stock Incentive Plan (8) 10.10 ​ Sample Retirement Agreement Entered into with Each Non-Employee Director Effective January 1, 2007 (9) * 10.11 ​ Salary Continuation Agreement for Kevin J. McPhaill (9) * 10.14 ​ First Amendment to the Salary Continuation Agreement for Kevin J. McPhaill (10) * 10.15 ​ Indenture dated as of September 20, 2007 between Wilmington Trust Co., as Trustee, and Coast Bancorp, as Issuer (11) 10.16 ​ Amended and Restated Declaration of Trust of Coast Bancorp Statutory Trust II, dated as of September 20, 2007 (11) 10.17 ​ First Supplemental Indenture dated as of July 8, 2016, between Wilmington Trust Co. as Trustee, Sierra Bancorp as the “Successor Company”, and Coast Bancorp (11) 10.18 ​ 2017 Stock Incentive Plan (12) * 10.19 ​ Employment agreements dated as of December 27, 2018 for Kevin McPhaill , CEO and Michael Olague , Chief Banking Officer (13)* 10.21 ​ Employment agreement dated as of November 15, 2019 for Christopher Treece, Chief Financial Officer (14) * 10.22 ​ Employment agreement dated as of January 17, 2020 for Jennifer Johnson, Chief Administrative Officer (15) * 10.23 ​ Employment agreement dated as of December 14, 2020 for Hugh Boyle, Chief Credit Officer (16)* 10.24 ​ Form Indemnification Agreement dated as of January 28, 2021 for Directors and Executive Officers (17)* 31.1 ​ Certification of Chief Executive Officer (Section 302 Certification) 31.2 ​ Certification of Chief Financial Officer (Section 302 Certification) 32 ​ Certification of Periodic Financial Report (Section 906 Certification) 101.INS ​ Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH ​ Inline XBRL Taxonomy Extension Schema Document 101.CAL ​ Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF ​ Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB ​ Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE ​ Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 ​ Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. (1) Filed as Exhibit 3.1 to the Form 10-Q filed with the SEC on August 7, 2009 and incorporated herein by reference. (2) Filed as an Exhibit to the Form 8-K filed with the SEC on May 25, 2022 and incorporated herein by reference. (3) Filed as an Exhibit to the Form 10-K filed with the SEC on March 12, 2020 and incorporated herein by reference. (4) Filed as an Exhibit to the Form 8-K filed with the SEC on September 24, 2021 and incorporated herein by reference. (5) Filed as Exhibits 10.18 through 10.20, and 10.22 to the Form 10-K filed with the SEC on March 15, 2006 and incorporated herein by reference. (6) Filed as Exhibits 10.9 and 10.10 to the Form 10-Q filed with the SEC on May 14, 2004 and incorporated herein by reference. (7) Filed as Exhibits 10.26 and 10.27 to the Form 10-Q filed with the SEC on August 9, 2006 and incorporated herein by reference. (8) Filed as Exhibit 10.20 to the Form 10-K filed with the SEC on March 15, 2007 and incorporated herein by reference. (9) Filed as Exhibits 10.1 through 10.2 to the Form 8-K filed with the SEC on January 8, 2007 and incorporated herein by reference. (10) Filed as Exhibit 10.24 to the Form 10-Q filed with the SEC on May 7, 2015 and incorporated herein by reference. (11) Filed as Exhibits 10.1 through 10.3 to the Form 8-K filed with the SEC on July 11, 2016 and incorporated herein by reference. (12) Filed as Exhibit 10.1 to the Form 8-K filed with the SEC on March 17, 2017 and incorporated herein by reference. (13) Filed as Exhibits 99.1 and 99.4 to the Form 8-K filed with the SEC on December 28, 2018 and incorporated by reference. (14) Filed as Exhibit 99.1 to the Form 8-K filed with the SEC on November 11, 2019 and incorporated by reference. (15) Filed as Exhibit 99.1 to the Form 8-K filed with the SEC on January 21, 2020 and incorporated by reference. (16) Filed as Exhibit 10.1 to the Form 8-K filed with the SEC on December 09, 2020 and incorporated herein by reference. (17) Filed as Exhibit 10.1 to the Form 8-K filed with the SEC on January 29, 2021 and incorporated herein by reference. ​ *Indicates management contract or compensatory plan or arrangement. 67 Table of Contents SIGNATURES Pursuant to the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized: ​ ​ ​ August 4, 2022 /s/ Kevin J. McPhaill Date ​ SIERRA BANCORP ​ ​ Kevin J. McPhaill ​ ​ President & Chief Executive Officer ​ ​ (Principal Executive Officer) ​ ​ ​ August 4, 2022 ​ /s/ Christopher G. Treece Date ​ SIERRA BANCORP ​ ​ Christopher G. Treece ​ ​ Chief Financial Officer ​ ​ ​ August 4, 2022 ​ /s/ Cindy L. Dabney Date ​ SIERRA BANCORP ​ ​ Cindy L. Dabney ​ ​ Principal Accounting Officer ​ ​ ​ 68