SIERRA BANCORP 10-Q

Item 1 – Financial Statements SIERRA BANCORP CONSOLIDATED BALANCE SHEETS (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 December 31, 2021 ASSETS ​ (unaudited) ​ (audited) Cash and due from banks ​ $ 82,285 ​ $ 63,147 Interest bearing deposits in banks ​ ​ 4,398 ​ ​ 194,381 Total cash & cash equivalents ​ ​ 86,683 ​ ​ 257,528 Investment securities ​ ​ ​ ​ ​ ​ Available-for-sale, net of allowance for credit losses of $ 0 at September 30, 2022 and December 31, 2021 ​ ​ 1,069,434 ​ ​ 973,314 ​ ​ ​ ​ ​ ​ ​ Held-to-maturity, (fair value of $ 138,684 at September 30, 2022 and $ 0 at December 31, 2021) ​ ​ 156,229 ​ ​ — Allowance for credit losses on held-to-maturity securities ​ ​ ( 18 ) ​ ​ — Net, investment securities held-to-maturity ​ ​ 156,211 ​ ​ — ​ ​ ​ ​ ​ ​ ​ Loans and leases: ​ ​ ​ ​ ​ ​ Gross loans and leases ​ ​ 2,020,364 ​ ​ 1,989,726 Deferred loan and lease fees, net ​ ​ ( 348 ) ​ ​ ( 1,865 ) Allowance for credit losses on loans and leases ​ ​ ( 23,790 ) ​ ​ ( 14,256 ) Net loans and leases ​ ​ 1,996,226 ​ ​ 1,973,605 Foreclosed assets ​ ​ — ​ ​ 93 Premises and equipment, net ​ ​ 22,688 ​ ​ 23,571 Goodwill ​ ​ 27,357 ​ ​ 27,357 Other intangible assets, net ​ ​ 2,517 ​ ​ 3,275 Bank-owned life insurance ​ ​ 52,140 ​ ​ 54,242 Other assets ​ ​ 119,033 ​ ​ 58,029 Total assets ​ $ 3,532,289 ​ $ 3,371,014 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 1,118,245 ​ $ 1,084,544 Interest bearing ​ ​ 1,767,223 ​ ​ 1,697,028 Total deposits ​ ​ 2,885,468 ​ ​ 2,781,572 Repurchase agreements ​ ​ 112,012 ​ ​ 106,937 Short-term borrowings ​ ​ 103,100 ​ ​ — Long-term debt ​ ​ 49,196 ​ ​ 49,141 Subordinated debentures ​ ​ 35,436 ​ ​ 35,302 Allowance for credit losses on unfunded loan commitments ​ ​ 940 ​ ​ 203 Other liabilities ​ ​ 51,065 ​ ​ 35,365 Total liabilities ​ ​ 3,237,217 ​ ​ 3,008,520 ​ ​ ​ ​ ​ ​ ​ Commitments and contingent liabilities (Note 7) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders' equity ​ ​ ​ ​ ​ ​ Common stock, no par value; 24,000,000 shares authorized; 15,085,675 and 15,270,010 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively ​ ​ 112,111 ​ ​ 113,007 Additional paid-in capital ​ ​ 4,470 ​ ​ 3,910 Retained earnings ​ ​ 239,496 ​ ​ 234,410 Accumulated other comprehensive (loss) income, net ​ ​ ( 61,005 ) ​ ​ 11,167 Total shareholders' equity ​ ​ 295,072 ​ ​ 362,494 Total liabilities and shareholders' equity ​ $ 3,532,289 ​ $ 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ Nine months ended September 30, ​ 2022 2021 2022 ​ 2021 Interest and dividend income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans and leases, including fees $ 21,833 $ 24,226 $ 64,211 $ 75,555 Taxable securities ​ ​ 7,646 ​ ​ 1,679 ​ ​ 15,613 ​ ​ 4,835 Tax-exempt securities ​ ​ 2,346 ​ ​ 1,578 ​ ​ 5,926 ​ ​ 4,539 Federal funds sold and other ​ ​ 103 ​ ​ 146 ​ ​ 466 ​ ​ 250 Total interest income ​ ​ 31,928 ​ ​ 27,629 ​ ​ 86,216 ​ ​ 85,179 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 1,761 ​ ​ 591 ​ ​ 3,106 ​ ​ 1,818 Short-term borrowings ​ ​ 390 ​ ​ 41 ​ ​ 549 ​ ​ 127 Subordinated debentures ​ ​ 866 ​ ​ 281 ​ ​ 2,308 ​ ​ 774 Total interest expense ​ ​ 3,017 ​ ​ 913 ​ ​ 5,963 ​ ​ 2,719 Net interest income ​ ​ 28,911 ​ ​ 26,716 ​ ​ 80,253 ​ ​ 82,460 Provision (benefit) for credit losses on loans and leases ​ ​ 1,212 ​ ​ ( 600 ) ​ ​ 4,360 ​ ​ ( 2,450 ) Provision (benefit) for credit losses on unfunded loan commitments ​ ​ 47 ​ ​ — ​ ​ ( 194 ) ​ ​ — Provision for credit losses on held-to-maturity securities ​ ​ — ​ ​ — ​ ​ 18 ​ ​ — Net interest income after provision for credit losses ​ ​ 27,652 ​ ​ 27,316 ​ ​ 76,069 ​ ​ 84,910 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ 3,216 ​ ​ 3,186 ​ ​ 9,460 ​ ​ 8,677 Other income ​ ​ 3,396 ​ ​ 4,349 ​ ​ 13,654 ​ ​ 12,300 Total noninterest income ​ ​ 6,612 ​ ​ 7,535 ​ ​ 23,114 ​ ​ 20,977 Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 11,521 ​ ​ 10,618 ​ ​ 35,070 ​ ​ 32,194 Occupancy ​ ​ 2,470 ​ ​ 2,359 ​ ​ 7,170 ​ ​ 7,472 Other ​ ​ 7,005 ​ ​ 7,898 ​ ​ 21,042 ​ ​ 21,715 Total noninterest expense ​ ​ 20,996 ​ ​ 20,875 ​ ​ 63,282 ​ ​ 61,381 Income before taxes ​ ​ 13,268 ​ ​ 13,976 ​ ​ 35,901 ​ ​ 44,506 Provision for income taxes ​ ​ 3,333 ​ ​ 3,371 ​ ​ 9,355 ​ ​ 11,115 Net income ​ $ 9,935 ​ $ 10,605 ​ $ 26,546 ​ $ 33,391 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PER SHARE DATA ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Book value ​ $ 19.56 ​ $ 23.70 ​ $ 19.56 ​ $ 23.70 Cash dividends ​ $ 0.23 ​ $ 0.22 ​ $ 0.69 ​ $ 0.65 Earnings per share basic ​ $ 0.66 ​ $ 0.70 ​ $ 1.77 ​ $ 2.19 Earnings per share diluted ​ $ 0.66 ​ $ 0.69 ​ $ 1.76 ​ $ 2.17 Average shares outstanding, basic ​ ​ 14,954,503 ​ ​ 15,257,367 ​ ​ 14,968,242 ​ ​ 15,247,477 Average shares outstanding, diluted ​ ​ 15,014,048 ​ ​ 15,343,543 ​ ​ 15,046,883 ​ ​ 15,369,249 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total shareholders' equity (in thousands) ​ $ 295,072 ​ $ 364,507 ​ $ 295,072 ​ $ 364,507 Shares outstanding ​ ​ 15,085,675 ​ ​ 15,382,518 ​ ​ 15,085,675 ​ ​ 15,382,518 Dividends paid (in thousands) ​ $ 3,471 ​ $ 3,374 ​ $ 10,449 ​ $ 9,842 ​ 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 NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, ​ Nine months ended September 30, ​ 2022 2021 ​ 2022 ​ 2021 Net income ​ $ 9,935 ​ $ 10,605 ​ $ 26,546 ​ $ 33,391 Other comprehensive loss, before tax: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized loss on securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding loss arising during period ​ ​ ( 14,994 ) ​ ​ ( 576 ) ​ ​ ( 101,432 ) ​ ​ ( 4,846 ) Less: reclassification adjustment for gains included in net income (1) ​ ​ — ​ ​ ( 11 ) ​ ​ ( 1,032 ) ​ ​ ( 11 ) Other comprehensive loss, before tax ​ ​ ( 14,994 ) ​ ​ ( 587 ) ​ ​ ( 102,464 ) ​ ​ ( 4,857 ) Income tax benefit related to items of other comprehensive loss, net of tax ​ ​ 4,433 ​ ​ 174 ​ ​ 30,292 ​ ​ 1,436 Other comprehensive loss, net of tax: ​ ​ ( 10,561 ) ​ ​ ( 413 ) ​ ​ ( 72,172 ) ​ ​ ( 3,421 ) Comprehensive (loss) income ​ $ ( 626 ) ​ $ 10,192 ​ $ ( 45,626 ) ​ $ 29,970 (1) Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in noninterest income. Income tax expense associated with the reclassification adjustment for the three months ended September 30, 2022 and 2021 were $ 0 and $ 3 thousand, respectively. Income tax expense associated with the reclassification adjustment for the nine months ended September 30, 2022 and 2021 were $ 305 thousand and $ 3 thousand, respectively. ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 3 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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, June 30, 2021 ​ 15,410,763 ​ $ 113,453 ​ $ 4,190 ​ $ 224,689 ​ $ 15,397 ​ $ 357,729 Net income ​ — ​ ​ — ​ ​ — ​ ​ 10,605 ​ ​ — ​ ​ 10,605 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 413 ) ​ ​ ( 413 ) Stock options exercised, net of shares surrendered for cashless exercises ​ 3,320 ​ ​ 732 ​ ​ ( 692 ) ​ ​ — ​ ​ — ​ ​ 40 Restricted stock granted ​ ( 19,443 ) ​ ​ — ​ ​ 212 ​ ​ — ​ ​ — ​ ​ 212 Stock compensation costs ​ ( 12,122 ) ​ ​ ( 89 ) ​ ​ — ​ ​ ( 203 ) ​ ​ — ​ ​ ( 292 ) Cash dividends - $ 0.22 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,374 ) ​ ​ — ​ ​ ( 3,374 ) Balance, September 30, 2021 ​ 15,382,518 ​ $ 114,096 ​ $ 3,710 ​ $ 231,717 ​ $ 14,984 ​ $ 364,507 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, June 30, 2022 ​ 15,090,792 ​ $ 111,727 ​ $ 4,585 ​ $ 233,179 ​ $ ( 50,444 ) ​ $ 299,047 Net income ​ — ​ ​ — ​ ​ — ​ ​ 9,935 ​ ​ — ​ ​ 9,935 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 10,561 ) ​ ​ ( 10,561 ) Stock options exercised, net of shares surrendered for cashless exercises ​ 5,400 ​ ​ 458 ​ ​ ( 397 ) ​ ​ — ​ ​ — ​ ​ 61 Restricted stock surrendered due to employee tax liability ​ ( 9,965 ) ​ ​ ( 74 ) ​ ​ — ​ ​ ( 147 ) ​ ​ — ​ ​ ( 221 ) Restricted stock forfeited / cancelled ​ ( 552 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 18 ​ ​ — ​ ​ — ​ ​ 18 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 264 ​ ​ — ​ ​ — ​ ​ 264 Cash dividends - $ 0.23 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,471 ) ​ ​ — ​ ​ ( 3,471 ) Balance, September 30, 2022 ​ 15,085,675 ​ $ 112,111 ​ $ 4,470 ​ $ 239,496 ​ $ ( 61,005 ) ​ $ 295,072 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 4 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 ​ — ​ ​ — ​ ​ — ​ ​ 33,391 ​ ​ — ​ ​ 33,391 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 3,421 ) ​ ​ ( 3,421 ) Exercise of stock options ​ 7,480 ​ ​ 801 ​ ​ ( 707 ) ​ ​ — ​ ​ — ​ ​ 94 Stock based compensation expense ​ ( 1,263 ) ​ ​ — ​ ​ 681 ​ ​ — ​ ​ — ​ ​ 681 Stock repurchase ​ ( 12,122 ) ​ ​ ( 89 ) ​ ​ — ​ ​ ( 203 ) ​ ​ — ​ ​ ( 292 ) Cash dividends - $ 0.65 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 9,842 ) ​ ​ — ​ ​ ( 9,842 ) Balance, September 30, 2021 ​ 15,382,518 ​ $ 114,096 ​ $ 3,710 ​ $ 231,717 ​ $ 14,984 ​ $ 364,507 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ — ​ ​ — ​ ​ — ​ ​ 26,546 ​ ​ — ​ ​ 26,546 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 72,172 ) ​ ​ ( 72,172 ) Stock options exercised, net of shares surrendered for cashless exercises ​ 10,600 ​ ​ 512 ​ ​ ( 398 ) ​ ​ — ​ ​ — ​ ​ 114 Restricted stock surrendered due to employee tax liability ​ ( 11,161 ) ​ ​ ( 83 ) ​ ​ — ​ ​ ( 170 ) ​ ​ — ​ ​ ( 253 ) Restricted stock forfeited / cancelled ​ ( 1,212 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 66 ​ ​ — ​ ​ — ​ ​ 66 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 892 ​ ​ — ​ ​ — ​ ​ 892 Stock repurchase ​ ( 182,562 ) ​ ​ ( 1,325 ) ​ ​ — ​ ​ ( 3,526 ) ​ ​ — ​ ​ ( 4,851 ) Cash dividends - $ 0.69 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 10,449 ) ​ ​ — ​ ​ ( 10,449 ) Balance, September 30, 2022 ​ 15,085,675 ​ $ 112,111 ​ $ 4,470 ​ $ 239,496 ​ $ ( 61,005 ) ​ $ 295,072 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 5 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ 2022 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 26,546 ​ $ 33,391 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Gain on sales of securities ​ ​ ( 1,032 ) ​ ​ ( 11 ) Loss (gain) on disposal of fixed assets ​ ​ 6 ​ ​ ( 146 ) Gain on sale on foreclosed assets ​ ​ ( 8 ) ​ ​ ( 141 ) Writedowns on foreclosed assets ​ ​ 91 ​ ​ 174 Stock based compensation expense ​ ​ 958 ​ ​ 681 Provision (benefit) for credit losses on loans and leases ​ ​ 4,360 ​ ​ ( 2,450 ) Provision for credit losses on held-to-maturity securities ​ ​ 18 ​ ​ — Depreciation and amortization ​ ​ 1,910 ​ ​ 2,585 Net amortization on securities premiums and discounts ​ ​ 2,934 ​ ​ 3,654 Net accretion of premiums/discounts for loans acquired ​ ​ ( 149 ) ​ ​ ( 365 ) Decrease (increase) in cash surrender value of life insurance policies ​ ​ 1,251 ​ ​ ( 2,445 ) Amortization of core deposit intangible ​ ​ 758 ​ ​ 779 Increase in interest receivable and other assets ​ ​ ( 18,017 ) ​ ​ ( 497 ) Decrease in other liabilities ​ ​ 15,506 ​ ​ 46,587 Deferred income tax benefit ​ ​ ( 2,397 ) ​ ​ ( 2,702 ) Decrease (increase) in value of restricted bank equity securities ​ ​ 332 ​ ​ ( 857 ) Net amortization of partnership investment ​ ​ 338 ​ ​ 503 Net cash provided by operating activities ​ ​ 33,405 ​ ​ 78,740 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Maturities and calls of securities available for sale ​ ​ 7,663 ​ ​ 5,800 Proceeds from sales of securities available for sale ​ ​ 26,408 ​ ​ 148 Purchases of securities available for sale ​ ​ ( 450,984 ) ​ ​ ( 288,552 ) Principal pay downs on securities available for sale ​ ​ 60,198 ​ ​ 85,767 Net purchases of FHLB stock ​ ​ ( 336 ) ​ ​ ( 1,666 ) Loan originations and payments, net ​ ​ ( 36,286 ) ​ ​ 323,351 Purchases of premises and equipment ​ ​ ( 899 ) ​ ​ ( 345 ) Proceeds from sale premises and equipment ​ ​ — ​ ​ 1,055 Proceeds from sales of foreclosed assets ​ ​ 10 ​ ​ 938 Purchase of bank-owned life insurance ​ ​ ( 19 ) ​ ​ ( 39 ) Liquidation of bank-owned life insurance ​ ​ 11 ​ ​ — Proceeds from BOLI death benefit ​ ​ 859 ​ ​ — Amortization of debt issuance costs ​ ​ 55 ​ ​ — Increase in partnership investment ​ ​ ( 7,562 ) ​ ​ — Net cash (used in) provided by investing activities ​ ​ ( 400,882 ) ​ ​ 126,457 Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Increase in deposits ​ ​ 103,896 ​ ​ 196,040 Increase (decrease) in borrowed funds ​ ​ 103,100 ​ ​ ( 142,900 ) Increase in customer repurchase agreements ​ ​ 5,075 ​ ​ 53,415 Cash dividends paid ​ ​ ( 10,449 ) ​ ​ ( 9,842 ) Repurchases of common stock ​ ​ ( 5,108 ) ​ ​ ( 292 ) Stock options exercised ​ ​ 118 ​ ​ 94 Proceeds from issuance of subordinated debt ​ ​ — ​ ​ 49,221 Net cash provided by financing activities ​ ​ 196,632 ​ ​ 145,736 ​ ​ ​ ​ ​ ​ ​ (Decrease) increase in cash and cash equivalents ​ ​ ( 170,845 ) ​ ​ 350,933 Cash and cash equivalents ​ ​ ​ ​ ​ ​ Beginning of period ​ ​ 257,528 ​ ​ 71,417 End of period ​ $ 86,683 ​ $ 422,350 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Interest paid ​ $ 5,958 ​ $ 2,702 Income taxes paid ​ $ 8,946 ​ $ 11,769 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 September 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 September 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 at 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 $ 3.5 billion at September 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 September 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 an estimate of expected credit losses over the 7 Table of Contents 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 majority of the Bank’s loan and lease portfolio consists of loans, so hereafter within this document references to the loan and lease portfolio in general will reference loans as opposed to loans and leases. 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 as held-for-investment and following CECL implementation, reports loans 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 September 30, 2022, measured at $ 8.3 8 Table of Contents million, $ 0.5 million and $ 4.7 million for available-for-sale securities, held-to-maturity securities and loans, respectively. Due to loans being placed on nonaccrual status, during the third quarter of 2022 an immaterial amount of interest receivable on loans was reversed against interest income and $ 0.1 million of reversed interest for the nine months ended September 30, 2022. For the same time periods no interest receivable on held-to-maturity or available for sale investment securities was reversed against interest income. Similar to practice under legacy GAAP, the Company continues to place loans 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 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 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 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. However, under CECL the ACL represents principal which is not expected to be collected over the contractual life of the loans, 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 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 evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of September 30, 2022 the Bank’s nonaccrual loans comprised the entire population of loans individually evaluated. The Company’s policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loan 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. 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 9 Table of Contents calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment. The funding rate represents management’s estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while any related provision expense has been moved to provision for credit loss expense from its prior presentation in noninterest expense. Prior period expense has been reclassified for comparative purposes. 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 ratings 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 unrealized loss 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 161,089 shares that were granted under the 2007 Plan were still outstanding as of September 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 September 30, 2022 was 451,577 . Options to purchase 339,057 shares granted under the 2017 Plan were outstanding as of September 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 third quarter of 2022 and $ 0.2 million was charged during the third quarter of 2021, as expense related to stock options and restricted stock awards. For the first nine months, the charges totaled $ 1.0 million in 2022 and $ 0.7 million in 2021. 10 Table of Contents Restricted Stock Grants The Company’s Restricted Stock Awards are awards of either time-vested or performance-based shares. The Restricted Stock Awards are 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 or performance measures; 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. These awards are expensed on a straight-line basis over the vesting period and consider the probability of meeting the performance criteria. There were no shares granted to employees and directors of the Company during the first nine months of 2022. As of September 30, 2022, there was $ 2.0 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 plan. That cost is expected to be amortized over a weighted average period of 2.7 years. The Company’s restricted stock award activity for the nine months ended September 30, 2022 and 2021 is summarized below (unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, ​ ​ 2022 ​ 2021 ​ ​ Shares ​ ​ Weighted Average Grant-Date Fair Value ​ Shares ​ ​ Weighted Average Grant-Date Fair Value Unvested shares, January 1, ​ 165,131 ​ $ 21.72 ​ 148,885 ​ $ 18.00 Granted ​ — ​ ​ — ​ 18,180 ​ ​ 25.30 Vested ​ ( 37,748 ) ​ ​ 19.20 ​ ( 39,449 ) ​ ​ 18.00 Forfeited ​ ( 1,212 ) ​ ​ 27.16 ​ ( 17,777 ) ​ ​ 18.00 Unvested shares, September 30, ​ 126,171 ​ $ 22.45 ​ 109,839 ​ $ 19.21 ​ 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 nine months ended September 30, 2022 and 2021 are summarized below (dollars in thousands, except per share data, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 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 ​ ( 5,600 ) ​ $ 11.22 ​ ​ ​ $ 56 ​ ( 7,480 ) ​ $ 12.59 ​ ​ ​ $ 91 Forfeited/Expired ​ ( 32,381 ) ​ $ 27.32 ​ ​ ​ $ — ​ ( 39,719 ) ​ $ 26.93 ​ ​ ​ $ 1 Outstanding at September 30, ​ 377,889 ​ $ 24.07 ​ 5.13 ​ $ 470 ​ 448,290 ​ $ 23.57 ​ 5.92 ​ $ 1,302 Exercisable at September 30, ​ 336,489 ​ $ 23.69 ​ 4.88 ​ $ 470 ​ 384,690 ​ $ 22.97 ​ 5.58 ​ $ 1,302 (1) The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on September 30, 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 14,954,503 weighted average shares outstanding during the third quarter of 2022 and 15,257,367 during the third quarter of 2021, while there were 14,968,242 weighted average shares outstanding during the first nine months of 2022 and 15,247,477 during the first nine 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 third quarter of 2022, calculations under the treasury stock method resulted in the equivalent of 59,545 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 303,387 stock options were excluded from the calculation because they were underwater and thus anti-dilutive. For the third quarter of 2021 the equivalent of 86,176 shares were added in calculating diluted earnings per share, while 327,346 anti-dilutive stock options were not factored into the computation. Likewise, for the first nine months of 2022 the equivalent of 78,641 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 299,404 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 121,772 shares and non-inclusion of 339,546 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 December 31, 2021 Commitments to extend credit ​ $ 792,728 ​ $ 554,028 Standby letters of credit ​ $ 6,057 ​ $ 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. Included in unused commitments are mortgage warehouse lines which are mostly in the form of repo lines and are unconditionally cancellable. Unused commitments on mortgage warehouse lines were $ 488.4 million at September 30, 2022 and $ 272.8 million at December 31, 2021. 12 Table of Contents At September 30, 2022, the Company was also utilizing a letter of credit in the amount of $ 127.9 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 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 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 ​ $ 86,683 ​ $ 86,683 ​ $ — ​ $ — ​ $ 86,683 Investment securities available-for-sale ​ ​ 1,069,434 ​ ​ — ​ ​ 1,015,098 ​ ​ 54,336 ​ ​ 1,069,434 Investment securities held-to-maturity ​ ​ 156,211 ​ ​ — ​ ​ 138,684 ​ ​ — ​ ​ 138,684 Loans and leases, net held for investment ​ ​ 1,972,649 ​ ​ — ​ ​ — ​ ​ 1,958,479 ​ ​ 1,958,479 Collateral dependent loans ​ ​ 23,577 ​ ​ — ​ ​ 23,577 ​ ​ — ​ ​ 23,577 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,885,468 ​ ​ 1,118,245 ​ ​ 1,764,225 ​ ​ — ​ ​ 2,882,470 Repurchase agreements ​ ​ 112,012 ​ ​ — ​ ​ 112,012 ​ ​ — ​ ​ 112,012 Short term borrowings ​ ​ 103,100 ​ ​ — ​ ​ 103,100 ​ ​ — ​ ​ 103,100 Long-term debt ​ ​ 49,196 ​ ​ — ​ ​ 43,247 ​ ​ — ​ ​ 43,247 Subordinated debentures ​ ​ 35,436 ​ ​ — ​ ​ 35,251 ​ ​ — ​ ​ 35,251 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 September 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. 14 Table of Contents ● Foreclosed assets : Repossessed real estate (known as other real estate owned, or “OREO”) and other foreclosed assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected disposition costs for OREO; fair values for any other foreclosed assets are represented by estimated sales proceeds as determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic reevaluation of expected cash flows and the timing of resolution. If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance. Assets reported at fair value on a recurring basis are summarized below: Fair Value Measurements – Recurring (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at September 30, 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 ​ $ — ​ $ 3,955 ​ $ — ​ $ 3,955 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 191,022 ​ ​ — ​ ​ 191,022 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 320,729 ​ ​ — ​ ​ 320,729 ​ ​ — Corporate bonds ​ ​ — ​ ​ — ​ ​ 54,336 ​ ​ 54,336 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 499,392 ​ ​ — ​ ​ 499,392 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 1,015,098 ​ $ 54,336 ​ $ 1,069,434 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ — ​ ​ — ​ ​ 26,806 ​ ​ — Transfers out of Level 3 ​ ​ ( 195,707 ) ​ ​ — ​ ​ — ​ ​ — Balance of recurring Level 3 assets at September 30, ​ $ — ​ $ — ​ $ 54,336 ​ $ — ​ ​ 15 Table of Contents 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. ​ Assets reported at fair value on a nonrecurring basis are summarized below: Fair Value Measurements – Nonrecurring (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at September 30, 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 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ 17,655 ​ ​ — ​ ​ 17,655 Total real estate ​ ​ — ​ ​ 17,655 ​ ​ — ​ ​ 17,655 Agricultural ​ ​ — ​ ​ 5,922 ​ ​ — ​ ​ 5,922 Commercial and industrial ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total collateral dependent loans ​ $ — ​ $ 23,577 ​ $ — ​ $ 23,577 Foreclosed assets ​ $ — ​ $ — ​ $ — ​ $ — Total assets measured on a nonrecurring basis ​ $ — ​ $ 23,577 ​ $ — ​ $ 23,577 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 16 Table of Contents ​ The table above includes collateral-dependent loan balances for which a specific reserve has been established or on which a write-down has been taken. Information on the Company’s total collateral dependent loan balances and specific loss reserves associated with those balances is included in Note 10 below. The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value. Adjusting any of those inputs could result in a significantly lower or higher fair value measurement. For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ​ Allowance for Credit Losses Estimated Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 4,000 ​ $ — ​ $ ( 45 ) ​ $ — ​ $ 3,955 Mortgage-backed securities ​ ​ 202,882 ​ ​ — ​ ​ ( 11,860 ) ​ ​ — ​ ​ 191,022 State and political subdivisions ​ ​ 363,790 ​ ​ 53 ​ ​ ( 43,114 ) ​ ​ — ​ ​ 320,729 Corporate bonds ​ ​ 59,768 ​ ​ — ​ ​ ( 5,432 ) ​ ​ — ​ ​ 54,336 Collateralized loan obligations ​ ​ 514,701 ​ ​ 119 ​ ​ ( 15,428 ) ​ ​ — ​ ​ 499,392 Total available-for-sale securities ​ $ 1,145,141 ​ $ 172 ​ $ ( 75,879 ) ​ $ — ​ $ 1,069,434 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses ​ Estimated Fair Value Allowance for Credit Losses Held-to-maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 6,113 ​ $ — ​ $ ( 669 ) ​ $ 5,444 ​ $ — Mortgage-backed securities ​ ​ 100,792 ​ ​ — ​ ​ ( 9,941 ) ​ ​ 90,851 ​ ​ — State and political subdivisions ​ ​ 49,324 ​ ​ 11 ​ ​ ( 6,946 ) ​ ​ 42,389 ​ ​ ( 18 ) Total held-to-maturity securities ​ $ 156,229 ​ $ 11 ​ $ ( 17,556 ) ​ $ 138,684 ​ $ ( 18 ) ​ 17 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 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 the available-for-sale designation to the held-to-maturity designation. 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. Upon transfer, a discounted-cash-flow reserve calculation was prepared for the securities transferred into the held-to-maturity designation and an allowance for credit losses of $ 0.02 million was recorded 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 September 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. 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 September 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 September 30, 2022 was attributable to credit deterioration and a risk of loss, requiring an 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 September 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 September 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 September 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 in order to monitor the 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 September 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, profitability and capital. Following review of the financial metrics available for each 18 Table of Contents of the underlying institutions as of January 1, 2022 and September 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 ongoing quarterly reviews. ● The Company has invested exclusively in AA and AAA tranches of various collateralized loan 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 ongoing quarterly 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 September 30, 2022 management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rate spreads, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments. ​ The following table summarizes available-for-sale debt securities that were in an unrealized loss position for which an ACL has not been recorded, based on the length of time the individual securities have been in an unrealized loss position, including the number of available-for-sale debt securities in an unrealized loss position, as of the dates indicated below. Investment Portfolio - Unrealized Losses (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ ​ ​ Less than twelve months ​ Twelve months or more ​ Total ​ Number of Securities Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies 2 ​ $ ( 45 ) ​ $ 3,955 ​ $ — ​ $ — ​ $ ( 45 ) ​ $ 3,955 Mortgage-backed securities 371 ​ ​ ( 11,696 ) ​ ​ 189,031 ​ ​ ( 164 ) ​ ​ 1,924 ​ ​ ( 11,860 ) ​ ​ 190,955 State and political subdivisions 399 ​ ​ ( 38,127 ) ​ ​ 286,459 ​ ​ ( 4,987 ) ​ ​ 13,878 ​ ​ ( 43,114 ) ​ ​ 300,337 Corporate bonds 51 ​ ​ ( 5,432 ) ​ ​ 54,336 ​ ​ — ​ ​ — ​ ​ ( 5,432 ) ​ ​ 54,336 Collateralized loan obligations 58 ​ ​ ( 15,200 ) ​ ​ 447,465 ​ ​ ( 228 ) ​ ​ 8,071 ​ ​ ( 15,428 ) ​ ​ 455,536 Total available-for-sale 881 ​ $ ( 70,500 ) ​ $ 981,246 ​ $ ( 5,379 ) ​ $ 23,873 ​ $ ( 75,879 ) ​ $ 1,005,119 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ Less than twelve months ​ Twelve months or more ​ Total ​ Number of Securities Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Mortgage-backed securities 46 ​ ​ ( 1,797 ) ​ ​ 107,026 ​ ​ ( 160 ) ​ ​ 2,808 ​ ​ ( 1,957 ) ​ ​ 109,834 State and political subdivisions 29 ​ ​ ( 268 ) ​ ​ 30,170 ​ ​ — ​ ​ — ​ ​ ( 268 ) ​ ​ 30,170 Corporate bonds 1 ​ ​ ( 1 ) ​ ​ 499 ​ ​ — ​ ​ — ​ ​ ( 1 ) ​ ​ 499 Collateralized loan obligations 22 ​ ​ ( 688 ) ​ ​ 175,581 ​ ​ — ​ ​ — ​ ​ ( 688 ) ​ ​ 175,581 Total available-for-sale 98 ​ $ ( 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 September 30, ​ ​ Nine months ended September 30, ​ 2022 2021 ​ 2022 ​ 2021 Proceeds from sales, calls and maturities of securities available for sale ​ $ 3,540 ​ $ 1,948 ​ $ 34,071 ​ $ 5,948 Gross gains on sales, calls and maturities of securities available for sale ​ ​ — ​ ​ 11 ​ ​ 1,032 ​ ​ 11 Gross losses on sales, calls and maturities of securities available for sale ​ ​ — ​ ​ — ​ ​ — ​ ​ — Net gains on sale of securities available for sale ​ $ — ​ $ 11 ​ $ 1,032 ​ $ 11 ​ The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at September 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ ​ Available-for-Sale ​ Held-to-Maturity ​ Amortized Cost Fair Value Amortized Cost Fair Value Maturing within one year ​ $ 908 ​ $ 908 ​ $ 675 ​ $ 667 Maturing after one year through five years ​ ​ 14,313 ​ ​ 14,132 ​ ​ 2,133 ​ ​ 2,091 Maturing after five years through ten years ​ ​ 81,497 ​ ​ 75,441 ​ ​ 18,729 ​ ​ 16,869 Maturing after ten years ​ ​ 330,840 ​ ​ 288,539 ​ ​ 33,900 ​ ​ 28,207 Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage-backed securities ​ ​ 202,882 ​ ​ 191,022 ​ ​ 100,792 ​ ​ 90,850 Collateralized loan obligations ​ ​ 514,701 ​ ​ 499,392 ​ ​ — ​ ​ — ​ ​ $ 1,145,141 ​ $ 1,069,434 ​ $ 156,229 ​ $ 138,684 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 September 30, 2022, the Company’s investment portfolio included 503 “muni” bonds issued by 415 different government municipalities and agencies located within 37 different states, with an aggregate fair value of $ 363.1 million. The largest exposure to any single municipality or agency was a combined $ 5.0 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 46 subordinated debentures issued by bank holding companies totaling $ 54.3 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ December 31, 2021 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market General obligation bonds Cost Value Cost Value State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ $ 159,391 ​ $ 139,498 ​ $ 85,045 ​ $ 89,225 California ​ ​ 67,310 ​ ​ 58,161 ​ ​ 64,092 ​ ​ 67,066 Washington ​ ​ 22,417 ​ ​ 20,670 ​ ​ 23,858 ​ ​ 24,812 Other (29 & 26 states, respectively) ​ ​ 107,784 ​ ​ 95,355 ​ ​ 75,037 ​ ​ 78,579 Total general obligation bonds ​ ​ 356,902 ​ ​ 313,684 ​ ​ 248,032 ​ ​ 259,682 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue bonds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ ​ 9,496 ​ ​ 8,460 ​ ​ 7,038 ​ ​ 7,377 California ​ ​ 3,994 ​ ​ 3,613 ​ ​ 1,349 ​ ​ 1,392 Washington ​ ​ 4,093 ​ ​ 3,387 ​ ​ 4,334 ​ ​ 4,602 Other (20 & 15 states, respectively) ​ ​ 38,629 ​ ​ 33,974 ​ ​ 29,976 ​ ​ 31,215 Total revenue bonds ​ ​ 56,212 ​ ​ 49,434 ​ ​ 42,697 ​ ​ 44,586 Total obligations of states and political subdivisions ​ $ 413,114 ​ $ 363,118 ​ $ 290,729 ​ $ 304,268 ​ ​ 21 Table of Contents The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and economic improvements. The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates. Revenue Bonds by Type (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ December 31, 2021 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market Revenue bonds Cost Value Cost Value Revenue source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Water ​ $ 22,741 ​ $ 20,064 ​ $ 15,534 ​ $ 16,220 Lease ​ ​ 7,511 ​ ​ 6,907 ​ ​ 6,556 ​ ​ 6,718 Sewer ​ ​ 7,091 ​ ​ 6,144 ​ ​ 3,932 ​ ​ 4,165 Sales tax revenue ​ ​ 4,329 ​ ​ 3,803 ​ ​ — ​ ​ — Intergovernmental agreement ​ ​ 2,836 ​ ​ 2,600 ​ ​ — ​ ​ — Other (10 and 9 sources, respectively) ​ ​ 11,704 ​ ​ 9,916 ​ ​ 16,675 ​ ​ 17,483 Total revenue bonds ​ $ 56,212 ​ $ 49,434 ​ $ 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 four different LIHTC fund limited partnerships made in 2014, 2015, and two in 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 September 30, 2022, our total LIHTC investment book balance was $ 10.2 million, which includes $ 7.5 million in remaining commitments for additional capital contributions. There were $ 0.4 million in tax credits derived from our LIHTC investments that were recognized during the nine months ended September 30, 2022, and amortization expense of $ 0.3 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 September 30, 2022. 22 Table of Contents 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, September 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 September 30, 2022 and December 31, 2021. Accrued interest receivable on loans of $ 4.7 million and $ 6.8 million at September 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 September 30, 2022 balance in 1-4 family closed end loans reflects year-to-date 2022 loan purchases 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 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. ​ ​ ​ ​ ​ ​ ​ ​ Loan And Lease Distribution ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ September 30, 2022 December 31, 2021 Real estate: ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ 21,369 Other construction/land ​ ​ 18,315 ​ ​ 25,299 1-4 family - closed-end ​ ​ 420,136 ​ ​ 289,457 Equity lines ​ ​ 21,126 ​ ​ 26,588 Multi-family residential ​ ​ 69,665 ​ ​ 53,458 Commercial real estate - owner occupied ​ ​ 324,696 ​ ​ 334,446 Commercial real estate - non-owner occupied ​ ​ 896,954 ​ ​ 882,888 Farmland ​ ​ 117,385 ​ ​ 106,706 Total real estate ​ ​ 1,868,277 ​ ​ 1,740,211 Agricultural ​ ​ 31,290 ​ ​ 33,990 Commercial and industrial ​ ​ 70,147 ​ ​ 109,791 Mortgage warehouse lines ​ ​ 46,553 ​ ​ 101,184 Consumer loans ​ ​ 4,097 ​ ​ 4,550 Subtotal ​ ​ 2,020,364 ​ ​ 1,989,726 Net deferred loan fees and costs ​ ​ ( 348 ) ​ ​ ( 1,865 ) Loans and leases, amortized cost basis ​ ​ 2,020,016 ​ ​ 1,987,861 Allowance for credit losses ​ ​ ( 23,790 ) ​ ​ ( 14,256 ) Net loans and leases ​ $ 1,996,226 ​ $ 1,973,605 ​ ​ 23 Table of Contents The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual Loans and Leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 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 ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ 485 ​ ​ — ​ ​ 485 ​ ​ — Equity lines ​ ​ 61 ​ ​ — ​ ​ 61 ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 9,677 ​ ​ 8,593 ​ ​ 18,270 ​ ​ — Total real estate ​ ​ 10,223 ​ ​ 8,593 ​ ​ 18,816 ​ ​ — Agricultural ​ ​ 82 ​ ​ 7,649 ​ ​ 7,731 ​ ​ — Commercial and industrial ​ ​ 87 ​ ​ 138 ​ ​ 225 ​ ​ 7 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ 10,392 ​ $ 16,380 ​ $ 26,772 ​ $ 7 ​ ​ 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 did not recognize any interest on nonaccrual loans during 2022 and would have recognized an additional $ 0.6 million in interest income 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 September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ Collateral Dependent Loans ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 ​ Amortized Cost ​ Individual Reserves Real estate: ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ 40 ​ ​ — Equity lines ​ ​ 506 ​ ​ — Multi-family residential ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — Farmland ​ ​ 18,271 ​ ​ 195 Total real estate ​ ​ 18,817 ​ ​ 195 Agricultural ​ ​ 7,702 ​ ​ 967 Commercial and industrial ​ ​ 224 ​ ​ 40 Mortgage warehouse lines ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — Total loans and leases ​ $ 26,743 ​ $ 1,202 ​ ​ During the third quarter the amortized cost balance of collateral-dependent loans declined by $ 1.7 million due to declines resulting from upgrades and payoffs. The weighted average loan-to-value ratio of collateral dependent loans was 93 % at September 30, 2022. There were no collateral dependent loans in the process of foreclosure as of September 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 September 30, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due Loans and Leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 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 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 18,255 ​ ​ 18,255 1-4 family - closed-end ​ ​ — ​ ​ 32 ​ ​ 8 ​ ​ 40 ​ ​ 421,096 ​ ​ 421,136 Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 21,441 ​ ​ 21,441 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 69,569 ​ ​ 69,569 Commercial real estate - owner occupied ​ ​ 351 ​ ​ — ​ ​ — ​ ​ 351 ​ ​ 324,364 ​ ​ 324,715 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 894,213 ​ ​ 894,213 Farmland ​ ​ 99 ​ ​ — ​ ​ 18,271 ​ ​ 18,370 ​ ​ 99,189 ​ ​ 117,559 Total real estate ​ ​ 450 ​ ​ 32 ​ ​ 18,279 ​ ​ 18,761 ​ ​ 1,848,127 ​ ​ 1,866,888 Agricultural ​ ​ — ​ ​ — ​ ​ 7,649 ​ ​ 7,649 ​ ​ 23,879 ​ ​ 31,528 Commercial and industrial ​ ​ 775 ​ ​ — ​ ​ — ​ ​ 775 ​ ​ 70,069 ​ ​ 70,844 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 46,554 ​ ​ 46,554 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,202 ​ ​ 4,202 Total loans and leases ​ $ 1,225 ​ $ 32 ​ $ 25,928 ​ $ 27,185 ​ $ 1,992,831 ​ $ 2,020,016 ​ 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 September 30, 2022, the Company had a total of $ 4.9 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 27 Table of Contents period or even at the time of loan modification. Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain, then the loan will be kept on non-accrual status. The Company may agree to different types of concessions when modifying a loan or lease. The tables below summarize TDRs which were modified during the three and nine months ended September 30, 2021, by type of concession. For the three and nine months ended September 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 September 30, 2021 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 1,000 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,000 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 1,000 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,000 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ — ​ $ 1,000 ​ $ — ​ $ — ​ $ — ​ $ 1,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ Rate Modification Term Modification Interest Only Modification Rate & Term Modification Term & Interest Modification ​ Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 1,000 ​ ​ — ​ ​ 83 ​ ​ — ​ ​ 1,083 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ 136 ​ ​ — ​ ​ — ​ ​ — ​ ​ 136 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 1,136 ​ ​ — ​ ​ 83 ​ ​ — ​ ​ 1,219 Agricultural ​ ​ — ​ ​ 118 ​ ​ — ​ ​ — ​ ​ ​ ​ ​ 118 Commercial and industrial ​ ​ — ​ ​ 185 ​ ​ — ​ ​ — ​ ​ — ​ ​ 185 Consumer loans ​ ​ — ​ ​ 41 ​ ​ — ​ ​ — ​ ​ — ​ ​ 41 Total ​ $ — ​ $ 1,480 ​ $ — ​ $ 83 ​ $ — ​ $ 1,563 ​ ​ 28 Table of Contents Troubled Debt Restructurings (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 0 ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 1 ​ ​ 1,000 ​ ​ 1,000 ​ ​ — ​ ​ — Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 1,000 ​ ​ 1,000 ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ ​ ​ $ 1,000 ​ $ 1,000 ​ $ — ​ $ — (1) This represents the change in the 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ ​ ​ ​ Pre- Modification ​ Post- Modification ​ ​ ​ ​ ​ ​ ​ Number of Loans Outstanding Recorded Investment Outstanding Recorded Investment Reserve Difference ⁽ ¹ ⁾ Reserve Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 0 ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 2 ​ ​ 1,083 ​ ​ 1,083 ​ ​ — ​ ​ 1 Multi-family residential ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 1 ​ ​ 137 ​ ​ 136 ​ ​ ( 1 ) ​ ​ — Farmland ​ 0 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 1,220 ​ ​ 1,219 ​ ​ ( 1 ) ​ ​ 1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 1 ​ ​ 118 ​ ​ 118 ​ ​ 116 ​ ​ — Commercial and industrial ​ 1 ​ ​ 185 ​ ​ 185 ​ ​ ( 1 ) ​ ​ 47 Consumer loans ​ 1 ​ ​ 41 ​ ​ 41 ​ ​ — ​ ​ — Total ​ ​ ​ $ 1,564 ​ $ 1,563 ​ $ 114 ​ $ 48 (1) This represents the change in the 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 nine-month periods ending September 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 September 30, 2022: ​ Loan and Lease Credit Quality by Vintage (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans and Leases Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ 2018 ​ Prior ​ Revolving Loans Amortized Cost ​ Total Loans Other construction/land ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ — ​ $ — ​ $ 4,295 ​ $ 756 ​ $ 974 ​ $ 1,063 ​ $ 11,095 ​ $ 18,183 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ 72 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 72 Subtotal ​ ​ — ​ ​ — ​ ​ 4,367 ​ ​ 756 ​ ​ 974 ​ ​ 1,063 ​ ​ 11,095 ​ ​ 18,255 1-4 family - closed-end ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 108,169 ​ ​ 240,043 ​ ​ 8,011 ​ ​ 2,077 ​ ​ 11,061 ​ ​ 50,121 ​ ​ — ​ ​ 419,482 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 744 ​ ​ — ​ ​ 744 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 32 ​ ​ 878 ​ ​ — ​ ​ 910 Subtotal ​ ​ 108,169 ​ ​ 240,043 ​ ​ 8,011 ​ ​ 2,077 ​ ​ 11,093 ​ ​ 51,743 ​ ​ — ​ ​ 421,136 Equity lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ ​ 158 ​ ​ 527 ​ ​ 352 ​ ​ 78 ​ ​ — ​ ​ 18,982 ​ ​ 20,097 Special Mention ​ ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ — ​ ​ — ​ ​ 777 ​ ​ 797 Substandard ​ ​ — ​ ​ 116 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 431 ​ ​ 547 Subtotal ​ ​ — ​ ​ 274 ​ ​ 547 ​ ​ 352 ​ ​ 78 ​ ​ — ​ ​ 20,190 ​ ​ 21,441 Multi-family residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 23,928 ​ ​ 519 ​ ​ 9,439 ​ ​ 664 ​ ​ 13,018 ​ ​ 11,778 ​ ​ 4,628 ​ ​ 63,974 Special Mention ​ ​ — ​ ​ — ​ ​ 2,228 ​ ​ — ​ ​ — ​ ​ 3,367 ​ ​ — ​ ​ 5,595 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Subtotal ​ ​ 23,928 ​ ​ 519 ​ ​ 11,667 ​ ​ 664 ​ ​ 13,018 ​ ​ 15,145 ​ ​ 4,628 ​ ​ 69,569 Commercial real estate - OO ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 32,522 ​ ​ 26,144 ​ ​ 64,833 ​ ​ 36,390 ​ ​ 37,353 ​ ​ 111,721 ​ ​ 7,243 ​ ​ 316,206 Special Mention ​ ​ 304 ​ ​ — ​ ​ — ​ ​ 2,393 ​ ​ — ​ ​ 1,696 ​ ​ — ​ ​ 4,393 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 79 ​ ​ 3,280 ​ ​ 757 ​ ​ 4,116 Subtotal ​ ​ 32,826 ​ ​ 26,144 ​ ​ 64,833 ​ ​ 38,783 ​ ​ 37,432 ​ ​ 116,697 ​ ​ 8,000 ​ ​ 324,715 Commercial real estate - NOO ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 75,716 ​ ​ 19,627 ​ ​ 401,978 ​ ​ 26,624 ​ ​ 57,534 ​ ​ 161,763 ​ ​ 60,457 ​ ​ 803,699 Special Mention ​ ​ — ​ ​ — ​ ​ 64,607 ​ ​ — ​ ​ 8,965 ​ ​ 3,098 ​ ​ 9,924 ​ ​ 86,594 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 852 ​ ​ 3,068 ​ ​ — ​ ​ 3,920 Subtotal ​ ​ 75,716 ​ ​ 19,627 ​ ​ 466,585 ​ ​ 26,624 ​ ​ 67,351 ​ ​ 167,929 ​ ​ 70,381 ​ ​ 894,213 Farmland ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 15,958 ​ ​ 1,368 ​ ​ 4,971 ​ ​ 1,904 ​ ​ 8,098 ​ ​ 24,658 ​ ​ 28,976 ​ ​ 85,933 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 7,081 ​ ​ 4,671 ​ ​ 1,504 ​ ​ 13,256 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,689 ​ ​ 13,681 ​ ​ — ​ ​ 18,370 Subtotal ​ ​ 15,958 ​ ​ 1,368 ​ ​ 4,971 ​ ​ 1,904 ​ ​ 19,868 ​ ​ 43,010 ​ ​ 30,480 ​ ​ 117,559 Agricultural ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 7,253 ​ ​ 458 ​ ​ 458 ​ ​ 26 ​ ​ 1,027 ​ ​ 1,809 ​ ​ 12,045 ​ ​ 23,076 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 721 ​ ​ 721 Substandard ​ ​ — ​ ​ 7,702 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 29 ​ ​ 7,731 Subtotal ​ ​ 7,253 ​ ​ 8,160 ​ ​ 458 ​ ​ 26 ​ ​ 1,027 ​ ​ 1,809 ​ ​ 12,795 ​ ​ 31,528 Commercial and industrial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 2,448 ​ ​ 6,988 ​ ​ 7,700 ​ ​ 6,519 ​ ​ 5,113 ​ ​ 8,288 ​ ​ 24,569 ​ ​ 61,625 Special Mention ​ ​ 245 ​ ​ 145 ​ ​ 3,127 ​ ​ 47 ​ ​ — ​ ​ 1,562 ​ ​ 3,772 ​ ​ 8,898 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ 97 ​ ​ 87 ​ ​ 137 ​ ​ — ​ ​ 321 Subtotal ​ ​ 2,693 ​ ​ 7,133 ​ ​ 10,827 ​ ​ 6,663 ​ ​ 5,200 ​ ​ 9,987 ​ ​ 28,341 ​ ​ 70,844 Mortgage warehouse lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 46,554 ​ ​ 46,554 Subtotal ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 46,554 ​ ​ 46,554 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 945 ​ ​ 229 ​ ​ 156 ​ ​ 243 ​ ​ 6 ​ ​ 375 ​ ​ 2,187 ​ ​ 4,141 Special Mention ​ ​ — ​ ​ — ​ ​ 37 ​ ​ 19 ​ ​ — ​ ​ — ​ ​ 4 ​ ​ 60 Substandard ​ ​ 1 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1 Subtotal ​ ​ 946 ​ ​ 229 ​ ​ 193 ​ ​ 262 ​ ​ 6 ​ ​ 375 ​ ​ 2,191 ​ ​ 4,202 Total ​ $ 267,489 ​ $ 303,497 ​ $ 572,459 ​ $ 78,111 ​ $ 156,047 ​ $ 407,758 ​ $ 234,655 ​ $ 2,020,016 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 September 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 the 32 Table of Contents consideration of current and expected conditions and circumstances including the level of interest rates. The prepayment assumptions may be updated by 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 September 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 33 Table of Contents Commercial Real Estate. Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for Commercial Real Estate are often businesses. The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic. Farmland and Agricultural Production loans are included in a single segment as these loans are often times to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions in addition to other environmental concerns. Commercial & Industrial loans are separated into a unique segment given the uniqueness of these loans, which are often revolving and secured by other business assets as opposed to real estate. Mortgage warehouse loans are also unique in the Company’s portfolio and warrant separate presentation as an individual portfolio segment, given the specific nature of these constantly revolving lines to mortgage originators and also attributable to a very limited loss history, even after consideration of peer data. Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans. Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves. As of September 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 September 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, June 30, 2022 ​ $ 3,593 ​ $ 17,319 ​ $ 376 ​ $ 1,133 ​ $ 41 ​ $ 340 ​ $ 22,802 Charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 85 ) ​ ​ — ​ ​ ( 371 ) ​ ​ ( 456 ) Recoveries ​ ​ — ​ ​ — ​ ​ — ​ ​ 36 ​ ​ — ​ ​ 196 ​ ​ 232 Provision for credit losses ​ ​ ( 262 ) ​ ​ 249 ​ ​ 1,034 ​ ​ 67 ​ ​ 6 ​ ​ 118 ​ ​ 1,212 Ending allowance balance: ​ $ 3,331 ​ $ 17,568 ​ $ 1,410 ​ $ 1,151 ​ $ 47 ​ $ 283 ​ $ 23,790 ​ The $ 1.0 million increase in the Company’s loan portfolio ACL in the third quarter of 2022 from $ 22.8 million at June 30, 2022 to $ 23.8 million at September 30, 2022, is primarily attributable to an increase in reserves on a single collateral-dependent loan relationship as a result of a decline in management’s estimate of net realizable value on the related collateral. The following table presents the activity in the allowance for credit losses by portfolio segment for the nine months ended September 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 ) ​ ​ ( 2,170 ) ​ ​ ( 244 ) ​ ​ — ​ ​ ( 984 ) ​ ​ ( 5,309 ) Recoveries ​ ​ 99 ​ ​ 259 ​ ​ — ​ ​ 118 ​ ​ — ​ ​ 553 ​ ​ 1,029 Provision for credit losses ​ ​ 712 ​ ​ 539 ​ ​ 2,858 ​ ​ ( 141 ) ​ ​ ( 44 ) ​ ​ 436 ​ ​ 4,360 Ending allowance balance: ​ $ 3,331 ​ $ 17,567 ​ $ 1,410 ​ $ 1,151 ​ $ 47 ​ $ 284 ​ $ 23,790 ​ 34 Table of Contents 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 nine months ended September 30, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ ​ ​ Real Estate ​ ​ Agricultural Products ​ ​ Commercial and Industrial (1) ​ ​ Consumer ​ ​ Unallocated ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance ​ $ 12,075 ​ $ 524 ​ $ 3,072 ​ $ 690 ​ $ 60 ​ $ 16,421 Charge-offs ​ ​ — ​ ​ — ​ ​ ( 52 ) ​ ​ ( 274 ) ​ ​ — ​ ​ ( 326 ) Recoveries ​ ​ ( 59 ) ​ ​ — ​ ​ 11 ​ ​ 170 ​ ​ — ​ ​ 122 (Benefit) provision ​ ​ 261 ​ ​ 1 ​ ​ ( 930 ) ​ ​ ( 1 ) ​ ​ 69 ​ ​ ( 600 ) Ending balance ​ $ 12,277 ​ $ 525 ​ $ 2,101 ​ $ 585 ​ $ 129 ​ $ 15,617 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2021 ​ Real Estate Agricultural Products Commercial and Industrial (1) Consumer Unallocated Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning balance $ 11,766 $ 482 $ 4,721 $ 720 $ 49 $ 17,738 Charge-offs ​ ​ ( 245 ) ​ ​ ( 50 ) ​ ​ ( 129 ) ​ ​ ( 606 ) ​ ​ — ​ ​ ( 1,030 ) Recoveries ​ ​ 590 ​ ​ — ​ ​ 203 ​ ​ 566 ​ ​ — ​ ​ 1,359 (Benefit) provision ​ ​ 166 ​ ​ 93 ​ ​ ( 2,694 ) ​ ​ ( 95 ) ​ ​ 80 ​ ​ ( 2,450 ) Ending balance ​ $ 12,277 ​ $ 525 ​ $ 2,101 ​ $ 585 ​ $ 129 ​ $ 15,617 Reserves: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Specific ​ $ 419 ​ $ 244 ​ $ 382 ​ $ 16 ​ $ — ​ $ 1,061 General ​ ​ 11,858 ​ ​ 281 ​ ​ 1,719 ​ ​ 569 ​ ​ 129 ​ ​ 14,556 Ending balance ​ $ 12,277 ​ $ 525 ​ $ 2,101 ​ $ 585 ​ $ 129 ​ $ 15,617 Loans evaluated for impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually ​ $ 10,150 ​ $ 471 ​ $ 1,512 ​ $ 163 ​ $ — ​ $ 12,296 Collectively ​ ​ 1,822,774 ​ ​ 42,825 ​ ​ 257,266 ​ ​ 4,665 ​ ​ — ​ ​ 2,127,530 Ending balance ​ $ 1,832,924 ​ $ 43,296 ​ $ 258,778 ​ $ 4,828 ​ $ — ​ $ 2,139,826 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 35 Table of Contents Note 11 – Borrowings and Other Arrangements Federal Funds Purchased – The Company had unsecured available lines of credit with correspondent banks for short-term borrowings totaling $ 305.0 million at September 30, 2022 and December 31, 2021. In general, interest rates on these lines approximate the federal funds target rate. We had no borrowings under these credit facilities at September 30, 2022 or December 31, 2021. ​ Federal Home Loan Bank Borrowings – As of September 30, 2022 and December 31, 2021, the Company had available lines of credit with the FHLB totaling $ 724.0 million and $ 787.5 million, respectively, based on eligible collateral of certain loans. At September 30, 2022 and December 31, 2021 the Company had $ 103.1 million and $ 0 in FHLB overnight borrowings, respectively. ​ Federal Reserve Line of Credit – The Company has an available line of credit with the Federal Reserve Bank of San Francisco secured by certain loans. At September 30, 2022 and December 31, 2021 the Company had borrowing capacity under this line totaling $ 34.2 million and $ 50.6 million, respectively. We had no outstanding borrowings on this line of credit as of September 30, 2022 and December 31, 2021. ​ Long-Term Debt – The Company has long-term debt in the form of fixed to floating rate subordinated debentures with a fixed rate of 3.25 % until September 30, 2026, then floating rate at 253.5 basis points over 3-month term SOFR until maturity on October 1, 2031. The balance of the Company’s long-term debt, net of unamortized issuance costs, at September 30, 2022 and December 31, 2021 was $ 49.2 million and $ 49.1 million, respectively. ​ Subordinated Debentures - Sierra Statutory Trust II (“Trust II”), Sierra Capital Trust III (“Trust III”), and Coast Bancorp Statutory Trust II (“Trust IV”), (collectively, the “Trusts”) exist solely for the purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company. For financial reporting purposes, the Trusts are not consolidated, and the Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures”) held by the Trusts and issued and guaranteed by the Company are reflected in the Company’s consolidated balance sheet in accordance with provisions of ASC Topic 810. At September 30, 2022 and December 31, 2021 the Company’s trust preferred securities totaled $ 35.4 million and $ 35.3 million, respectively. ​ 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. ​ 36 Table of Contents All of the Company’s revenue from contracts within the scope of ASC 606 is recognized as noninterest income, except for gains on the sale of OREO which is classified as noninterest expense. The following table presents the Company’s sources of noninterest income for the three and nine-month periods ended September 30, 2022 and 2021. Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended September 30, ​ Nine months ended September 30, ​ 2022 2021 2022 2021 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Returned item and overdraft fees $ 1,273 $ 1,307 $ 3,973 $ 3,561 Other service charges on deposits ​ ​ 1,943 ​ ​ 1,879 ​ ​ 5,487 ​ ​ 5,116 Debit card interchange income ​ ​ 2,241 ​ ​ 2,192 ​ ​ 6,458 ​ ​ 6,321 Gain (loss) on limited partnerships (1) ​ ​ 64 ​ ​ ( 144 ) ​ ​ ( 162 ) ​ ​ ( 391 ) Dividends on equity investments (1) ​ ​ 189 ​ ​ 187 ​ ​ 619 ​ ​ 543 Unrealized (losses) gains recognized on equity investments (1) ​ ​ — ​ ​ — ​ ​ ( 332 ) ​ ​ 857 Net gains on sale of securities (1) ​ ​ — ​ ​ 11 ​ ​ 1,032 ​ ​ 11 Other (1) ​ ​ 902 ​ ​ 2,103 ​ ​ 6,039 ​ ​ 4,959 Total noninterest income ​ $ 6,612 ​ $ 7,535 ​ $ 23,114 ​ $ 20,977 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits (1) ​ $ 11,521 ​ $ 10,618 ​ $ 35,070 ​ $ 32,194 Occupancy expense (1) ​ ​ 2,470 ​ ​ 2,359 ​ ​ 7,170 ​ ​ 7,472 Gain on sale of OREO ​ ​ ( 3 ) ​ ​ ( 26 ) ​ ​ ( 8 ) ​ ​ ( 141 ) Other (1) ​ ​ 7,008 ​ ​ 7,924 ​ ​ 21,050 ​ ​ 21,856 Total noninterest expense ​ $ 20,996 ​ $ 20,875 ​ $ 63,282 ​ $ 61,381 Percentage of noninterest income not within scope of ASC 606. ​ ​ 17.47 % ​ ​ 28.63 % ​ ​ 31.13 % ​ ​ 28.50 % ​ (1) Not within scope of ASC 606. Revenue streams are not related to contract with customers and are accounted for on an accrual basis under other provisions of GAAP. ​ With regard to noninterest income associated with customer contracts, the Company has determined that transaction prices are fixed, and performance obligations are satisfied as services are rendered, thus there is little or no judgment involved in the timing of revenue recognition under contracts that are within the scope of ASC 606. ​ ​ Note 13 – Subsequent Events Effective October 1 , 2022, the Company transferred $ 198.3 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. ​ ​ 37 Table of Contents PART I - FINANCIAL INFORMATION