SIERRA BANCORP 10-Q

Item 1 – Financial Statements SIERRA BANCORP CONSOLIDATED BALANCE SHEETS (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 ASSETS ​ (unaudited) ​ (audited) Cash and due from banks ​ $ 81,694 ​ $ 72,803 Interest bearing deposits in banks ​ ​ 1,812 ​ ​ 4,328 Total cash & cash equivalents ​ ​ 83,506 ​ ​ 77,131 Investment securities ​ ​ ​ ​ ​ ​ Available-for-sale, net of zero allowance for credit losses at March 31, 2023 and December 31, 2022 ​ ​ 1,040,920 ​ ​ 934,923 ​ ​ ​ ​ ​ ​ ​ Held-to-maturity, (fair value of $ 325,607 at March 31, 2023 and $ 328,011 at December 31, 2022) ​ ​ 332,791 ​ ​ 336,944 Allowance for credit losses on held-to-maturity securities ​ ​ ( 63 ) ​ ​ ( 63 ) Net, investment securities held-to-maturity ​ ​ 332,728 ​ ​ 336,881 ​ ​ ​ ​ ​ ​ ​ Loans: ​ ​ ​ ​ ​ ​ Gross loans ​ ​ 2,033,968 ​ ​ 2,052,940 Deferred loan costs (fees), net ​ ​ 24 ​ ​ ( 123 ) Allowance for credit losses on loans ​ ​ ( 23,090 ) ​ ​ ( 23,060 ) Net loans ​ ​ 2,010,902 ​ ​ 2,029,757 Premises and equipment, net ​ ​ 22,321 ​ ​ 22,478 Goodwill ​ ​ 27,357 ​ ​ 27,357 Other intangible assets, net ​ ​ 2,056 ​ ​ 2,275 Bank-owned life insurance ​ ​ 52,308 ​ ​ 52,169 Other assets ​ ​ 121,886 ​ ​ 125,619 Total assets ​ $ 3,693,984 ​ $ 3,608,590 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 1,041,748 ​ $ 1,088,199 Interest bearing ​ ​ 1,907,240 ​ ​ 1,757,965 Total deposits ​ ​ 2,948,988 ​ ​ 2,846,164 Repurchase agreements ​ ​ 94,061 ​ ​ 109,169 Other borrowings ​ ​ 216,800 ​ ​ 219,000 Long-term debt ​ ​ 49,236 ​ ​ 49,214 Subordinated debentures ​ ​ 35,526 ​ ​ 35,481 Allowance for credit losses on unfunded loan commitments ​ ​ 850 ​ ​ 840 Other liabilities ​ ​ 41,513 ​ ​ 45,140 Total liabilities ​ ​ 3,386,974 ​ ​ 3,305,008 ​ ​ ​ ​ ​ ​ ​ Commitments and contingent liabilities (Note 7) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shareholders' equity ​ ​ ​ ​ ​ ​ Common stock, no par value; 24,000,000 shares authorized; 15,050,740 and 15,170,372 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively ​ ​ 111,801 ​ ​ 112,928 Additional paid-in capital ​ ​ 4,561 ​ ​ 4,148 Retained earnings ​ ​ 246,723 ​ ​ 243,082 Accumulated other comprehensive (loss) income, net ​ ​ ( 56,075 ) ​ ​ ( 56,576 ) Total shareholders' equity ​ ​ 307,010 ​ ​ 303,582 Total liabilities and shareholders' equity ​ $ 3,693,984 ​ $ 3,608,590 ​ 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 MONTHS ENDED MARCH 31, 2023 AND 2022 (dollars in thousands, except per share data, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2023 2022 Interest and dividend income ​ ​ ​ ​ ​ ​ Loans, including fees $ 22,550 $ 20,772 Taxable securities ​ ​ 11,986 ​ ​ 3,490 Tax-exempt securities ​ ​ 2,813 ​ ​ 1,726 Federal funds sold and other ​ ​ 70 ​ ​ 93 Total interest income ​ ​ 37,419 ​ ​ 26,081 Interest expense ​ ​ ​ ​ ​ ​ Deposits ​ ​ 5,999 ​ ​ 560 Short-term borrowings ​ ​ 2,158 ​ ​ 82 Subordinated debentures ​ ​ 1,130 ​ ​ 683 Total interest expense ​ ​ 9,287 ​ ​ 1,325 Net interest income ​ ​ 28,132 ​ ​ 24,756 Provision for credit losses ​ ​ 260 ​ ​ 506 Net interest income after provision for credit losses ​ ​ 27,872 ​ ​ 24,250 Noninterest income ​ ​ ​ ​ ​ ​ Service charges and fees on deposit accounts ​ ​ 5,380 ​ ​ 5,548 Net gains on sale of securities available-for-sale ​ ​ 45 ​ ​ 1,032 Increase (decrease) in cash surrender value of life insurance ​ ​ 172 ​ ​ ( 645 ) Other income ​ ​ 982 ​ ​ 128 Total noninterest income ​ ​ 6,579 ​ ​ 6,063 Noninterest expense ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 12,816 ​ ​ 11,805 Occupancy and equipment costs ​ ​ 2,330 ​ ​ 2,294 Other ​ ​ 7,846 ​ ​ 6,074 Total noninterest expense ​ ​ 22,992 ​ ​ 20,173 Income before taxes ​ ​ 11,459 ​ ​ 10,140 Provision for income taxes ​ ​ 2,708 ​ ​ 2,733 Net income ​ $ 8,751 ​ $ 7,407 ​ ​ ​ ​ ​ ​ ​ PER SHARE DATA ​ ​ ​ ​ ​ ​ Earnings per share basic ​ $ 0.58 ​ $ 0.49 Earnings per share diluted ​ $ 0.58 ​ $ 0.49 ​ 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 MONTHS ENDED MARCH 31, 2023 AND 2022 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2023 2022 Net income ​ $ 8,751 ​ $ 7,407 Other comprehensive gain (loss), before tax: ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on securities: ​ ​ ​ ​ ​ ​ Unrealized holding gain (loss) arising during period ​ ​ 756 ​ ​ ( 39,962 ) Less: reclassification adjustment for gains included in net income (1) ​ ​ ( 45 ) ​ ​ ( 1,032 ) Other comprehensive gain (loss), before tax ​ ​ 711 ​ ​ ( 40,994 ) Income tax expense (benefit) related to items of other comprehensive gain (loss), net of tax ​ ​ ( 210 ) ​ ​ 12,119 Other comprehensive gain (loss), net of tax: ​ ​ 501 ​ ​ ( 28,875 ) Comprehensive income (loss) ​ $ 9,252 ​ $ ( 21,468 ) (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 March 31, 2023 and 2022 were $ 13 thousand and $ 305 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 MARCH 31, 2023 AND 2022 (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, 2021 ​ 15,270,010 ​ $ 113,007 ​ $ 3,910 ​ $ 234,410 ​ $ 11,167 ​ $ 362,494 Cumulative effect of change in accounting principle (Note 3) ​ — ​ ​ $— ​ ​ $— ​ ​ ($ 7,315 ) ​ ​ $— ​ ​ ( 7,315 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ 7,407 ​ ​ — ​ ​ 7,407 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 28,875 ) ​ ​ ( 28,875 ) Restricted stock surrendered due to employee tax liability ​ ( 1,196 ) ​ ​ ( 9 ) ​ ​ — ​ ​ ( 23 ) ​ ​ — ​ ​ ( 32 ) Restricted stock forfeited / cancelled ​ ( 220 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 30 ​ ​ — ​ ​ — ​ ​ 30 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 341 ​ ​ — ​ ​ — ​ ​ 341 Stock repurchase ​ ( 182,562 ) ​ ​ ( 1,325 ) ​ ​ — ​ ​ ( 3,526 ) ​ ​ — ​ ​ ( 4,851 ) Cash dividends - $ 0.23 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,508 ) ​ ​ — ​ ​ ( 3,508 ) Balance, March 31, 2022 ​ 15,086,032 ​ $ 111,673 ​ $ 4,281 ​ $ 227,445 ​ $ ( 17,708 ) ​ $ 325,691 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2022 ​ 15,170,372 ​ $ 112,928 ​ $ 4,148 ​ $ 243,082 ​ $ ( 56,576 ) ​ $ 303,582 Net income ​ — ​ ​ — ​ ​ — ​ ​ 8,751 ​ ​ — ​ ​ 8,751 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 501 ​ ​ 501 Restricted stock granted ​ 29,064 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Restricted stock surrendered due to employee tax liability ​ ( 1,764 ) ​ ​ ( 13 ) ​ ​ — ​ ​ ( 23 ) ​ ​ — ​ ​ ( 36 ) Restricted stock forfeited / cancelled ​ ( 514 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ — ​ ​ 20 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 393 ​ ​ — ​ ​ — ​ ​ 393 Stock repurchase ​ ( 146,418 ) ​ ​ ( 1,088 ) ​ ​ — ​ ​ ( 1,592 ) ​ ​ — ​ ​ ( 2,680 ) Excise tax on stock repurchase ​ — ​ ​ ( 26 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 26 ) Cash dividends - $ 0.23 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 3,495 ) ​ ​ — ​ ​ ( 3,495 ) Balance, March 31, 2023 ​ 15,050,740 ​ $ 111,801 ​ $ 4,561 ​ $ 246,723 ​ $ ( 56,075 ) ​ $ 307,010 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 4 Table of Contents SIERRA BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ 2023 2022 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ Net income ​ $ 8,751 ​ $ 7,407 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Gain on sales of securities ​ ​ ( 45 ) ​ ​ ( 1,032 ) (Gain) loss on disposal of fixed assets ​ ​ ( 14 ) ​ ​ 6 Gain on sale on foreclosed assets ​ ​ — ​ ​ ( 5 ) Stock based compensation expense ​ ​ 413 ​ ​ 371 Provision for credit losses on loans ​ ​ 250 ​ ​ 600 Depreciation and amortization ​ ​ 604 ​ ​ 636 Net amortization on securities premiums and discounts ​ ​ 743 ​ ​ 1,177 Net (accretion) amortization of premiums/discounts for loans acquired ​ ​ ( 124 ) ​ ​ 36 (Increase) decrease in cash surrender value of life insurance policies ​ ​ ( 172 ) ​ ​ 645 Amortization of core deposit intangible ​ ​ 219 ​ ​ 253 Decrease (increase) in interest receivable and other assets ​ ​ 3,185 ​ ​ ( 1,419 ) Decrease in other liabilities ​ ​ ( 3,617 ) ​ ​ ( 537 ) Deferred income tax (benefit) provision ​ ​ ( 119 ) ​ ​ 811 Decrease in value of restricted bank equity securities ​ ​ 291 ​ ​ 332 Excise tax on stock options purchased ​ ​ ( 26 ) ​ ​ — Amortization of debt issuance costs ​ ​ 22 ​ ​ 10 Net amortization of partnership investment ​ ​ 166 ​ ​ 113 Net cash provided by operating activities ​ ​ 10,527 ​ ​ 9,404 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ Maturities and calls of securities available for sale ​ ​ 21,864 ​ ​ 2,373 Proceeds from sales of securities available for sale ​ ​ 14,349 ​ ​ 26,408 Purchases of securities available for sale ​ ​ ( 149,172 ) ​ ​ ( 145,327 ) Principal pay downs on securities available for sale ​ ​ 11,128 ​ ​ 23,688 Loan originations and payments, net ​ ​ ( 422 ) ​ ​ 3,914 Purchases of premises and equipment ​ ​ ( 413 ) ​ ​ ( 265 ) Proceeds from sale of premises and equipment ​ ​ 25 ​ ​ — Proceeds from sales of foreclosed assets ​ ​ 19,151 ​ ​ 5 Purchase of bank-owned life insurance ​ ​ ( 202 ) ​ ​ ( 8 ) Liquidation of bank-owned life insurance ​ ​ — ​ ​ 11 Proceeds from BOLI death benefit ​ ​ 235 ​ ​ — Net cash used in investing activities ​ ​ ( 83,457 ) ​ ​ ( 89,201 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ Increase in deposits ​ ​ 102,824 ​ ​ 83,371 Decrease in borrowed funds ​ ​ ( 27,200 ) ​ ​ — Increase in Fed funds purchased ​ ​ 25,000 ​ ​ — (Decrease) increase in customer repurchase agreements ​ ​ ( 15,108 ) ​ ​ 823 Cash dividends paid ​ ​ ( 3,495 ) ​ ​ ( 3,508 ) Repurchases of common stock ​ ​ ( 2,716 ) ​ ​ ( 4,883 ) Net cash provided by financing activities ​ ​ 79,305 ​ ​ 75,803 ​ ​ ​ ​ ​ ​ ​ Increase (decrease) in cash and cash equivalents ​ ​ 6,375 ​ ​ ( 3,994 ) Cash and cash equivalents ​ ​ ​ ​ ​ ​ Beginning of period ​ ​ 77,131 ​ ​ 257,528 End of period ​ $ 83,506 ​ $ 253,534 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ Interest paid ​ $ 8,511 ​ $ 1,730 Supplemental schedule of noncash investing and financing activities: ​ ​ ​ ​ ​ ​ Real estate acquired through foreclosure ​ $ 15,406 ​ $ — ​ ​ The accompanying notes are an integral part of these consolidated financial statements. 5 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 March 31, 2023, 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 $ 3.7 billion at March 31, 2023, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley. The Bank’s deposit accounts, which totaled $ 2.9 billion at March 31, 2023, 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, through May 5, 2023 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 2022 have been reclassified to be consistent with the reporting for 2023, none of which impacted net income or shareholders’ equity. 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, 2022, 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 6 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 $ 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. 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. On October 1, 2022, a similar transfer of $ 198.3 million securities from available for sale to held-to-maturity was completed. 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 is updated on a quarterly basis. As of March 31, 2023, an allowance for credit losses of $ 0.06 million had been established on the Bank’s held-to-maturity portfolio which remained unchanged from December 31, 2022. In March 2023 the FASB issued , ASU No. 2023-02 , “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures. ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures. ASU 2023-02 will be effective for the Company on January 1, 2024, though early adoption is permitted, and its adoption is not expected to have a significant effect on the Company’s financial statements. ​ 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 134,449 shares that were granted under the 2007 Plan were still outstanding as of March 31, 7 Table of Contents 2023 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 March 31, 2023 was 356,420 . Options to purchase 402,726 shares granted under the 2017 Plan were outstanding as of March 31, 2023. 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 $ 0.4 million was reflected in the Company’s income statement during the first quarter of 2023 and $ 0.4 million was charged during the first quarter of 2022, as expense related to stock options and restricted stock awards. 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 29,064 shares granted to employees of the Company during the first three months of 2023. As of March 31, 2023, there was $ 3.1 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 2.3 years. The Company’s restricted stock award activity for the three months ended March 31, 2023 and 2022 is summarized below (unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2023 ​ 2022 ​ ​ Shares ​ ​ Weighted Average Grant-Date Fair Value ​ Shares ​ ​ Weighted Average Grant-Date Fair Value Unvested shares, January 1, ​ 175,619 ​ $ 21.42 ​ 165,131 ​ $ 21.72 Granted ​ 29,064 ​ ​ 21.50 ​ — ​ ​ — Vested ​ ( 3,162 ) ​ ​ 25.30 ​ ( 3,162 ) ​ ​ 25.30 Forfeited ​ ( 514 ) ​ ​ 27.16 ​ ( 220 ) ​ ​ 27.16 Unvested shares, March 31, ​ 201,007 ​ $ 21.35 ​ 161,749 ​ $ 21.65 ​ ​ 8 Table of Contents 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 March 31, 2023 and 2022 are summarized below (dollars in thousands, except per share data, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, ​ ​ 2023 ​ 2022 ​ 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, ​ 352,249 ​ $ 25.06 ​ ​ ​ $ 348 ​ 415,870 ​ $ 24.15 ​ ​ ​ $ 1,338 Exercised ​ — ​ $ — ​ ​ ​ $ — ​ — ​ $ — ​ ​ ​ $ 91 Forfeited/Expired ​ ( 2,200 ) ​ $ 27.67 ​ ​ ​ $ — ​ ( 3,081 ) ​ $ 27.30 ​ ​ ​ $ — Outstanding at March 31, ​ 350,049 ​ $ 25.04 ​ 4.99 ​ $ 33 ​ 412,789 ​ $ 24.12 ​ 5.66 ​ $ 1,092 Exercisable at March 31, ​ 325,649 ​ $ 24.89 ​ 4.85 ​ $ 33 ​ 370,789 ​ $ 23.78 ​ 5.43 ​ $ 1,092 (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 March 31, 2023. This amount changes based on changes in the market value of the Company's stock. ​ ​ Note 5 – Earnings per Share The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period, excluding unvested restricted stock awards. There were 14,971,842 weighted average shares outstanding during the first quarter of 2023 and 15,021,138 during the first quarter of 2022. Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options, and unvested restricted stock awards. For the first quarter of 2023, calculations under the treasury stock method resulted in the equivalent of 30,524 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 327,141 stock options were excluded from the calculation because they were underwater and thus anti-dilutive. For the first quarter of 2022 the equivalent of 99,852 shares were added in calculating diluted earnings per share, while 301,714 anti-dilutive stock options were not factored into the computation. Note 6 – Comprehensive Income (Loss) As presented in the Consolidated Statements of Comprehensive Income (Loss), comprehensive income (loss) includes net income and other comprehensive income (loss). The Company’s only source of other comprehensive income (loss) is unrealized gains and losses on available-for-sale investment securities. Investment gains or losses that were realized and reflected in net income of the current period, which had previously been included in other comprehensive income (loss) as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income (loss) in the current period. 9 Table of Contents 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 Commitments to extend credit ​ $ 699,176 ​ $ 889,517 Standby letters of credit ​ $ 6,052 ​ $ 6,037 ​ 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 $ 401.5 million at March 31, 2023 and $ 594.6 million at December 31, 2022. At March 31, 2023, 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 10 Table of Contents 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. ​ 11 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ ​ ​ ​ ​ 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 ​ $ 83,506 ​ $ 83,506 ​ $ — ​ $ — ​ $ 83,506 Investment securities available-for-sale ​ ​ 1,040,920 ​ ​ — ​ ​ 988,921 ​ ​ 51,999 ​ ​ 1,040,920 Investment securities held-to-maturity ​ ​ 332,728 ​ ​ — ​ ​ 325,607 ​ ​ — ​ ​ 325,607 Loans, net held for investment ​ ​ 2,010,807 ​ ​ — ​ ​ — ​ ​ 1,896,715 ​ ​ 1,896,715 Individually evaluated collateral dependent loans ​ ​ 95 ​ ​ — ​ ​ 95 ​ ​ — ​ ​ 95 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,948,988 ​ ​ 1,041,748 ​ ​ 1,906,751 ​ ​ — ​ ​ 2,948,499 Repurchase agreements ​ ​ 94,061 ​ ​ — ​ ​ 94,061 ​ ​ — ​ ​ 94,061 Other borrowings ​ ​ 216,800 ​ ​ — ​ ​ 216,480 ​ ​ — ​ ​ 216,480 Long-term borrowings ​ ​ 49,236 ​ ​ — ​ ​ 41,038 ​ ​ — ​ ​ 41,038 Subordinated debentures ​ ​ 35,526 ​ ​ — ​ ​ 32,757 ​ ​ — ​ ​ 32,757 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ $ 77,131 ​ $ 77,131 ​ $ — ​ $ — ​ $ 77,131 Investment securities available for sale ​ ​ 934,923 ​ ​ — ​ ​ 877,488 ​ ​ 57,435 ​ ​ 934,923 Investment securities held-to-maturity ​ ​ 336,881 ​ ​ — ​ ​ 328,011 ​ ​ — ​ ​ 328,011 Loans, net held for investment ​ ​ 2,011,616 ​ ​ — ​ ​ — ​ ​ 1,909,822 ​ ​ 1,909,822 Individually evaluated collateral dependent loans ​ ​ 18,141 ​ ​ — ​ ​ 18,141 ​ ​ — ​ ​ 18,141 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,846,164 ​ ​ 1,088,199 ​ ​ 1,756,443 ​ ​ — ​ ​ 2,844,642 Repurchase agreements ​ ​ 109,169 ​ ​ — ​ ​ 109,169 ​ ​ — ​ ​ 109,169 Other borrowings ​ ​ 219,000 ​ ​ — ​ ​ 219,000 ​ ​ — ​ ​ 219,000 Long-term borrowings ​ ​ 49,214 ​ ​ — ​ ​ 42,775 ​ ​ — ​ ​ 42,775 Subordinated debentures ​ ​ 35,481 ​ ​ — ​ ​ 37,171 ​ ​ — ​ ​ 37,171 ​ For financial asset categories that were carried on our balance sheet at fair value as of March 31, 2023 and December 31, 2022, 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 foreclosure is probable or repayment is expected through the sale or operation of collateral and borrower is experiencing financial difficulty. ● 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 12 Table of Contents 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 March 31, 2023, 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 ​ $ — ​ $ 105,327 ​ $ — ​ $ 105,327 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 115,652 ​ ​ — ​ ​ 115,652 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 206,963 ​ ​ — ​ ​ 206,963 ​ ​ — Corporate bonds ​ ​ — ​ ​ — ​ ​ 51,999 ​ ​ 51,999 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 560,979 ​ ​ — ​ ​ 560,979 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 988,921 ​ $ 51,999 ​ $ 1,040,920 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 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 ​ $ — ​ $ 50,599 ​ $ — ​ $ 50,599 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 122,532 ​ ​ — ​ ​ 122,532 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 205,980 ​ ​ — ​ ​ 205,980 ​ ​ — Corporate bonds ​ ​ — ​ ​ — ​ ​ 57,435 ​ ​ 57,435 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 498,377 ​ ​ — ​ ​ 498,377 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 877,488 ​ $ 57,435 ​ $ 934,923 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements - Level 3 Recurring ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Collateralized Loan Obligations Corporate Bonds ​ ​ 2023 ​ 2022 ​ 2023 ​ 2022 Balance of recurring Level 3 assets at January 1, ​ $ — ​ $ 195,707 ​ $ 57,435 ​ $ 27,530 Total gains or losses for the period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Included in other comprehensive income ​ ​ — ​ ​ — ​ ​ ( 5,436 ) ​ ​ — Purchases ​ ​ — ​ ​ — ​ ​ — ​ ​ 13,354 Transfers out of Level 3 ​ ​ — ​ ​ ( 195,707 ) ​ ​ — ​ ​ — Balance of recurring Level 3 assets at March 31, ​ $ — ​ $ — ​ $ 51,999 ​ $ 40,884 ​ ​ 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. ​ 13 Table of Contents Assets reported at fair value on a nonrecurring basis are summarized below: Fair Value Measurements – Nonrecurring (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at March 31, 2023, using ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Individually evaluated 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 ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate ​ ​ — ​ ​ — ​ ​ — ​ ​ — Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ 95 ​ ​ — ​ ​ 95 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total collateral dependent loans ​ $ — ​ $ 95 ​ $ — ​ $ 95 Foreclosed assets ​ $ — ​ $ — ​ $ — ​ $ — Total assets measured on a nonrecurring basis ​ $ — ​ $ 95 ​ $ — ​ $ 95 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2022, using ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Individually evaluated 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 ​ ​ — ​ ​ 15,391 ​ ​ — ​ ​ 15,391 Total real estate ​ ​ — ​ ​ 15,391 ​ ​ — ​ ​ 15,391 Agricultural ​ ​ — ​ ​ 2,750 ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,750 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total collateral dependent loans ​ $ — ​ $ 18,141 ​ $ — ​ $ 18,141 Foreclosed assets ​ $ — ​ $ — ​ $ — ​ $ — Total assets measured on a nonrecurring basis ​ $ — ​ $ 18,141 ​ $ — ​ $ 18,141 ​ 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. 14 Table of Contents The unobservable inputs are based on Management’s best estimates of appropriate discounts in arriving at fair market value. Adjusting any of those inputs could result in a significantly lower or higher fair value measurement. For example, an increase or decrease in actual loss rates would create a directionally opposite change in the fair value of unsecured 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ​ Allowance for Credit Losses Estimated Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 105,600 ​ $ 66 ​ $ ( 339 ) ​ $ — ​ $ 105,327 Mortgage-backed securities ​ ​ 122,977 ​ ​ — ​ ​ ( 7,325 ) ​ ​ — ​ ​ 115,652 State and political subdivisions ​ ​ 222,609 ​ ​ 785 ​ ​ ( 16,431 ) ​ ​ — ​ ​ 206,963 Corporate bonds ​ ​ 65,190 ​ ​ — ​ ​ ( 13,191 ) ​ ​ — ​ ​ 51,999 Collateralized loan obligations ​ ​ 574,041 ​ ​ 62 ​ ​ ( 13,124 ) ​ ​ — ​ ​ 560,979 Total available-for-sale securities ​ $ 1,090,417 ​ $ 913 ​ $ ( 50,410 ) ​ $ — ​ $ 1,040,920 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses ​ Estimated Fair Value Allowance for Credit Losses Held-to-maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 5,795 ​ $ — ​ $ ( 602 ) ​ $ 5,193 ​ $ — Mortgage-backed securities ​ ​ 153,667 ​ ​ — ​ ​ ( 10,168 ) ​ ​ 143,499 ​ ​ — State and political subdivisions ​ ​ 173,329 ​ ​ 3,586 ​ ​ — ​ ​ 176,915 ​ ​ ( 63 ) Total held-to-maturity securities ​ $ 332,791 ​ $ 3,586 ​ $ ( 10,770 ) ​ $ 325,607 ​ $ ( 63 ) ​ 15 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ​ Allowance for Credit Losses Estimated Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 50,625 ​ $ 49 ​ $ ( 75 ) ​ $ — ​ $ 50,599 Mortgage-backed securities ​ ​ 129,948 ​ ​ — ​ ​ ( 7,416 ) ​ ​ — ​ ​ 122,532 State and political subdivisions ​ ​ 223,810 ​ ​ 607 ​ ​ ( 18,437 ) ​ ​ — ​ ​ 205,980 Corporate bonds ​ ​ 65,164 ​ ​ 10 ​ ​ ( 7,739 ) ​ ​ — ​ ​ 57,435 Collateralized loan obligations ​ ​ 515,032 ​ ​ 60 ​ ​ ( 16,715 ) ​ ​ — ​ ​ 498,377 Total available-for-sale securities ​ $ 984,579 ​ $ 726 ​ $ ( 50,382 ) ​ $ — ​ $ 934,923 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Cost ​ Gross Unrecognized Gains ​ Gross Unrecognized Losses ​ Estimated Fair Value ​ Allowance for Credit Losses Held-to-maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 6,047 ​ $ — ​ $ ( 621 ) ​ $ 5,426 ​ $ — Mortgage-backed securities ​ ​ 157,473 ​ ​ — ​ ​ ( 9,915 ) ​ ​ 147,558 ​ ​ — State and political subdivisions ​ ​ 173,424 ​ ​ 1,603 ​ ​ — ​ ​ 175,027 ​ ​ ( 63 ) Total held-to-maturity securities ​ $ 336,944 ​ $ 1,603 ​ $ ( 10,536 ) ​ $ 328,011 ​ $ ( 63 ) ​ ​ 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. On October 1, 2022, a similar transfer of $ 198.3 million securities from available for sale to held-to-maturity was completed. The securities were transferred at their fair value as of the transfer date, with the related unrealized gain or loss as of the date of transfer included in the amortized cost basis of the transferred security and subject to amortization or accretion over each security’s remaining life. An unrealized loss of $ 30.1 million, on securities transferred from the available-for-sale to held-to-maturity categorization, remains as of March 31, 2023 and is included in accumulated other comprehensive income, net of tax. The remaining unrealized loss on the securities transferred from available-for-sale to held-to-maturity, will be accreted over the remaining term of the securities, with the amortized-cost basis of these securities and accumulated comprehensive income each increasing over time. A discounted-cash-flow reserve calculation was performed upon the transfer of these securities into the held-to-maturity designation and is updated on a quarterly basis. As of March 31, 2023, an allowance for credit losses of $ 0.06 million had been established on the Bank’s held-to-maturity portfolio which remained unchanged from December 31, 2022. All of the Company’s held-to-maturity municipal bonds were AAA, AA, or A rated and have been determined to be investment grade as of March 31, 2023 and December 31, 2022. ​ ​ 16 Table of Contents 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ ​ ​ 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 19 ​ $ ( 297 ) ​ $ 68,303 ​ $ ( 42 ) ​ $ 958 ​ $ ( 339 ) ​ $ 69,261 Mortgage-backed securities 338 ​ ​ ( 1,310 ) ​ ​ 29,985 ​ ​ ( 6,015 ) ​ ​ 85,644 ​ ​ ( 7,325 ) ​ ​ 115,629 State and political subdivisions 236 ​ ​ ( 2,747 ) ​ ​ 73,118 ​ ​ ( 13,684 ) ​ ​ 77,094 ​ ​ ( 16,431 ) ​ ​ 150,212 Corporate bonds 52 ​ ​ ( 3,074 ) ​ ​ 21,667 ​ ​ ( 10,117 ) ​ ​ 30,332 ​ ​ ( 13,191 ) ​ ​ 51,999 Collateralized loan obligations 65 ​ ​ ( 1,258 ) ​ ​ 148,195 ​ ​ ( 11,866 ) ​ ​ 384,889 ​ ​ ( 13,124 ) ​ ​ 533,084 Total available-for-sale 710 ​ $ ( 8,686 ) ​ $ 341,268 ​ $ ( 41,724 ) ​ $ 578,917 ​ $ ( 50,410 ) ​ $ 920,185 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 8 ​ $ ( 75 ) ​ $ 27,550 ​ $ — ​ $ — ​ $ ( 75 ) ​ $ 27,550 Mortgage-backed securities 340 ​ ​ ( 7,108 ) ​ ​ 119,260 ​ ​ ( 308 ) ​ ​ 3,227 ​ ​ ( 7,416 ) ​ ​ 122,487 State and political subdivisions 252 ​ ​ ( 15,732 ) ​ ​ 147,635 ​ ​ ( 2,705 ) ​ ​ 9,807 ​ ​ ( 18,437 ) ​ ​ 157,442 Corporate bonds 52 ​ ​ ( 7,644 ) ​ ​ 54,636 ​ ​ ( 95 ) ​ ​ 405 ​ ​ ( 7,739 ) ​ ​ 55,041 Collateralized loan obligations 60 ​ ​ ( 10,152 ) ​ ​ 309,102 ​ ​ ( 6,563 ) ​ ​ 169,743 ​ ​ ( 16,715 ) ​ ​ 478,845 Total available-for-sale 712 ​ $ ( 40,711 ) ​ $ 658,183 ​ $ ( 9,671 ) ​ $ 183,182 ​ $ ( 50,382 ) ​ $ 841,365 ​ ​ 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 March 31, ​ 2023 2022 Proceeds from sales, calls and maturities of securities available for sale ​ $ 36,213 ​ $ 28,781 Gross gains on sales, calls and maturities of securities available for sale ​ ​ 45 ​ ​ 1,032 Net gains on sale of securities available for sale ​ $ 45 ​ $ 1,032 ​ 17 Table of Contents The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at March 31, 2023 and December 31, 2022 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ ​ Available-for-Sale ​ Held-to-Maturity ​ Amortized Cost Fair Value Amortized Cost Fair Value Maturing within one year ​ $ 24,690 ​ $ 24,749 ​ $ 668 ​ $ 666 Maturing after one year through five years ​ ​ 50,222 ​ ​ 49,963 ​ ​ 2,052 ​ ​ 2,018 Maturing after five years through ten years ​ ​ 131,381 ​ ​ 117,486 ​ ​ 18,754 ​ ​ 17,313 Maturing after ten years ​ ​ 187,107 ​ ​ 172,090 ​ ​ 157,650 ​ ​ 162,111 Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage-backed securities ​ ​ 122,977 ​ ​ 115,652 ​ ​ 153,667 ​ ​ 143,499 Collateralized loan obligations ​ ​ 574,040 ​ ​ 560,980 ​ ​ — ​ ​ — ​ ​ $ 1,090,417 ​ $ 1,040,920 ​ $ 332,791 ​ $ 325,607 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Available-for-Sale ​ Held-to-Maturity ​ Amortized Cost Fair Value Amortized Cost Fair Value Maturing within one year ​ $ 12,141 ​ $ 12,184 $ 672 ​ $ 666 Maturing after one year through five years ​ ​ 21,013 ​ ​ 20,831 ​ ​ 2,059 ​ ​ 2,032 Maturing after five years through ten years ​ ​ 119,649 ​ ​ 111,513 ​ ​ 19,048 ​ ​ 17,431 Maturing after ten years ​ ​ 186,796 ​ ​ 169,486 ​ ​ 157,692 ​ ​ 160,324 Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage-backed securities ​ ​ 129,948 ​ ​ 122,532 ​ ​ 157,473 ​ ​ 147,558 Collateralized loan obligations ​ ​ 515,032 ​ ​ 498,377 ​ ​ — ​ ​ — ​ ​ $ 984,579 ​ $ 934,923 ​ $ 336,944 ​ $ 328,011 ​ At March 31, 2023, the Company’s investment portfolio included 499 municipal bonds issued by 409 different government municipalities and agencies located within 37 different states, with an aggregate fair value of $ 383.9 million. The largest exposure to any single municipality or agency was a combined $ 5.2 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the Company owned 51 subordinated debentures issued by bank holding companies totaling $ 52.0 million (fair value). At December 31, 2022, the Company’s investment portfolio included 501 municipal bonds issued by 406 different government municipalities and agencies located within 37 states, with an aggregate fair value of $ 381.0 million. The largest exposure to any single municipality or agency was a combined $ 5.1 million (fair value) in general obligation bonds issued by the City of New York (NY). In addition, the company owned 51 subordinated debentures issued by bank holding companies totaling $ 57.4 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. ​ 18 Table of Contents The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations: Revenue and General Obligation Bonds by Location (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ December 31, 2022 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market General obligation bonds Cost Value Cost Value State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ $ 152,779 ​ $ 147,874 ​ $ 153,209 ​ $ 146,667 California ​ ​ 65,368 ​ ​ 61,651 ​ ​ 65,758 ​ ​ 60,701 Washington ​ ​ 21,597 ​ ​ 21,498 ​ ​ 21,635 ​ ​ 21,312 Other (29 & 26 states, respectively) ​ ​ 101,954 ​ ​ 100,596 ​ ​ 102,336 ​ ​ 100,480 Total general obligation bonds ​ ​ 341,698 ​ ​ 331,619 ​ ​ 342,938 ​ ​ 329,160 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue bonds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State of issuance ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ ​ 9,209 ​ ​ 8,852 ​ ​ 9,216 ​ ​ 8,840 California ​ ​ 3,790 ​ ​ 3,728 ​ ​ 3,788 ​ ​ 3,673 Washington ​ ​ 4,073 ​ ​ 3,523 ​ ​ 4,083 ​ ​ 3,490 Other (20 & 15 states, respectively) ​ ​ 37,168 ​ ​ 36,156 ​ ​ 37,209 ​ ​ 35,844 Total revenue bonds ​ ​ 54,240 ​ ​ 52,259 ​ ​ 54,296 ​ ​ 51,847 Total obligations of states and political subdivisions ​ $ 395,938 ​ $ 383,878 ​ $ 397,234 ​ $ 381,007 ​ ​ 19 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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ December 31, 2022 ​ ​ Amortized ​ Fair Market ​ Amortized ​ Fair Market Revenue bonds Cost Value Cost Value Revenue source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Water ​ $ 21,220 ​ $ 20,098 ​ $ 21,246 ​ $ 19,977 Lease ​ ​ 7,027 ​ ​ 7,284 ​ ​ 7,035 ​ ​ 7,250 Sewer ​ ​ 6,554 ​ ​ 6,469 ​ ​ 6,560 ​ ​ 6,405 Sales tax revenue ​ ​ 4,117 ​ ​ 3,969 ​ ​ 4,123 ​ ​ 3,934 Local or GTD housing ​ ​ 3,038 ​ ​ 2,971 ​ ​ 3,040 ​ ​ 2,951 Other (9 and 10 sources, respectively) ​ ​ 12,284 ​ ​ 11,468 ​ ​ 12,292 ​ ​ 11,330 Total revenue bonds ​ $ 54,240 ​ $ 52,259 ​ $ 54,296 ​ $ 51,847 ​ 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 March 31, 2023, our total LIHTC investment book balance was $ 9.9 million, which includes $ 7.4 million in remaining commitments for additional capital contributions. There were $ 0.1 million in tax credits derived from our LIHTC investments that were recognized during the three months ended March 31, 2022, and amortization expense of $ 0.2 million associated with those investments was netted against pre-tax noninterest income for the same time period. Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is stated fairly and is not impaired. As of December 31, 2022, our total LIHTC investment book balance was $ 10.1 million, which includes $ 7.4 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 Allowance for Credit Losses We adopted the new current expected credit loss accounting guidance, CECL, and all related amendments as of January 1, 2022. 20 Table of Contents The following table presents loans by class as of March 31, 2023 and December 31, 2022. Accrued interest receivable on loans of $ 5.2 million and $ 6.4 million at March 31, 2023 and December 31, 2022 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 December 31, 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 Distribution ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ March 31, 2023 December 31, 2022 Real estate: ​ ​ ​ ​ ​ ​ Other construction/land ​ $ 15,653 ​ $ 18,412 1-4 family - closed-end ​ ​ 414,232 ​ ​ 416,116 Equity lines ​ ​ 18,953 ​ ​ 21,330 Multi-family residential ​ ​ 92,220 ​ ​ 91,691 Commercial real estate - owner occupied ​ ​ 313,863 ​ ​ 323,873 Commercial real estate - non-owner occupied ​ ​ 912,544 ​ ​ 893,846 Farmland ​ ​ 92,906 ​ ​ 113,394 Total real estate ​ ​ 1,860,371 ​ ​ 1,878,662 Agricultural ​ ​ 26,392 ​ ​ 27,936 Commercial and industrial ​ ​ 74,726 ​ ​ 76,779 Mortgage warehouse lines ​ ​ 68,472 ​ ​ 65,439 Consumer loans ​ ​ 4,007 ​ ​ 4,124 Subtotal ​ ​ 2,033,968 ​ ​ 2,052,940 Net deferred loan fees and costs ​ ​ 24 ​ ​ ( 123 ) Loans, amortized cost basis ​ ​ 2,033,992 ​ ​ 2,052,817 Allowance for credit losses ​ ​ ( 23,090 ) ​ ​ ( 23,060 ) Net Loans ​ $ 2,010,902 ​ $ 2,029,757 ​ ​ 21 Table of Contents The following tables present the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of March 31, 2023 and December 31, 2022 : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ ​ 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 ​ ​ 93 ​ ​ — ​ ​ 93 ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 78 ​ ​ — ​ ​ 78 ​ ​ — Total real estate ​ ​ 656 ​ ​ — ​ ​ 656 ​ ​ — Agricultural ​ ​ 71 ​ ​ — ​ ​ 71 ​ ​ — Commercial and industrial ​ ​ 75 ​ ​ 134 ​ ​ 209 ​ ​ 88 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ 1 ​ ​ 1 ​ ​ 2 ​ ​ — Total ​ $ 803 ​ $ 135 ​ $ 938 ​ $ 88 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ ​ 629 ​ ​ — ​ ​ 629 ​ ​ — Equity lines ​ ​ 59 ​ ​ — ​ ​ 59 ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 15,812 ​ ​ — ​ ​ 15,812 ​ ​ — Total real estate ​ ​ 16,500 ​ ​ — ​ ​ 16,500 ​ ​ — Agricultural ​ ​ 2,826 ​ ​ 29 ​ ​ 2,855 ​ ​ — Commercial and industrial ​ ​ 83 ​ ​ 134 ​ ​ 217 ​ ​ 940 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ 7 ​ ​ 7 ​ ​ — Total ​ $ 19,409 ​ $ 170 ​ $ 19,579 ​ $ 940 ​ ​ 22 Table of Contents The Company did not recognize any interest on nonaccrual loans during 2022 and would have recognized an additional $ 0.04 million in interest income on nonaccrual loans had those loans not been designated as nonaccrual. The following table presents the amortized cost basis of collateral-dependent loans by class as of March 31, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Collateral Dependent Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ December 31, 2022 ​ Amortized Cost ​ Individual Reserves ​ Amortized Cost ​ Individual Reserves Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ 485 ​ ​ — ​ ​ 629 ​ ​ — Equity lines ​ ​ 93 ​ ​ — ​ ​ 59 ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ 78 ​ ​ — ​ ​ 15,812 ​ ​ — Total real estate ​ ​ 656 ​ ​ — ​ ​ 16,500 ​ ​ — Agricultural ​ ​ 71 ​ ​ — ​ ​ 2,826 ​ ​ — Commercial and industrial ​ ​ 210 ​ ​ 39 ​ ​ 217 ​ ​ 39 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total Loans ​ $ 937 ​ $ 39 ​ $ 19,543 ​ $ 39 ​ ​ During the first quarter of 2023 the amortized cost balance of collateral-dependent loans declined by 18.6 million due to the foreclosure and subsequent sale of Farmland and other Agricultural collateral related to a single borrower, as well as declines resulting from upgrades and payoffs. The weighted average loan-to-value ratio of collateral dependent loans was 17 % at March 31, 2023. There were no collateral dependent loans in the process of foreclosure as of March 31, 2023. 23 Table of Contents The following tables presents the aging of the amortized cost basis in past-due loans, according to class, as of March 31, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 15,596 ​ $ 15,596 1-4 family - closed-end ​ ​ 1,158 ​ ​ — ​ ​ 31 ​ ​ 1,189 ​ ​ 413,998 ​ ​ 415,187 Equity lines ​ ​ 1 ​ ​ 88 ​ ​ 35 ​ ​ 124 ​ ​ 19,139 ​ ​ 19,263 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 92,040 ​ ​ 92,040 Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 313,860 ​ ​ 313,860 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 909,884 ​ ​ 909,884 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 93,141 ​ ​ 93,141 Total real estate ​ ​ 1,159 ​ ​ 88 ​ ​ 66 ​ ​ 1,313 ​ ​ 1,857,658 ​ ​ 1,858,971 Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 26,672 ​ ​ 26,672 Commercial and industrial ​ ​ 322 ​ ​ — ​ ​ 222 ​ ​ 544 ​ ​ 75,218 ​ ​ 75,762 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 68,472 ​ ​ 68,472 Consumer loans ​ ​ 30 ​ ​ — ​ ​ — ​ ​ 30 ​ ​ 4,085 ​ ​ 4,115 Total Loans ​ $ 1,511 ​ $ 88 ​ $ 288 ​ $ 1,887 ​ $ 2,032,105 ​ $ 2,033,992 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 18,358 ​ $ 18,358 1-4 family - closed-end ​ ​ 1,259 ​ ​ 87 ​ ​ 179 ​ ​ 1,525 ​ ​ 415,568 ​ ​ 417,093 Equity lines ​ ​ 35 ​ ​ — ​ ​ — ​ ​ 35 ​ ​ 21,603 ​ ​ 21,638 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 91,485 ​ ​ 91,485 Commercial real estate - owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 323,895 ​ ​ 323,895 Commercial real estate - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 891,195 ​ ​ 891,195 Farmland ​ ​ 522 ​ ​ 97 ​ ​ 15,393 ​ ​ 16,012 ​ ​ 97,582 ​ ​ 113,594 Total real estate ​ ​ 1,816 ​ ​ 184 ​ ​ 15,572 ​ ​ 17,572 ​ ​ 1,859,686 ​ ​ 1,877,258 Agricultural ​ ​ — ​ ​ — ​ ​ 2,778 ​ ​ 2,778 ​ ​ 25,416 ​ ​ 28,194 Commercial and industrial ​ ​ 19 ​ ​ 134 ​ ​ 940 ​ ​ 1,093 ​ ​ 76,601 ​ ​ 77,694 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 65,439 ​ ​ 65,439 Consumer loans ​ ​ 15 ​ ​ — ​ ​ — ​ ​ 15 ​ ​ 4,217 ​ ​ 4,232 Total Loans ​ $ 1,850 ​ $ 318 ​ $ 19,290 ​ $ 21,458 ​ $ 2,031,359 ​ $ 2,052,817 ​ Loan Modifications The Company may agree to different types of concessions when modifying a loan. There were no modifications to borrowers experiencing financial difficulty, including principal forgiveness, rate reductions, payment deferral, or term extension, during the three months ended March 31, 2023. For the three months ended March 31, 2022, there were no new TDRs and no modifications of existing TDRs. 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: 24 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. The following tables present the amortized cost of loans by credit quality classification in addition to loan vintage as of March 31, 2023: 25 Table of Contents Loan Credit Quality by Vintage (dollars in thousands, unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ Prior ​ Revolving Loans Amortized Cost ​ Total Loans Other construction/land ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ — ​ $ — ​ $ — ​ $ 3,792 ​ $ 712 ​ $ 1,892 ​ $ 9,132 ​ $ 15,528 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ 68 ​ ​ — ​ ​ — ​ ​ — ​ ​ 68 Subtotal ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,860 ​ ​ 712 ​ ​ 1,892 ​ ​ 9,132 ​ ​ 15,596 1-4 family - closed-end ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ ​ 109,728 ​ ​ 237,151 ​ ​ 7,761 ​ ​ 2,038 ​ ​ 55,919 ​ ​ — ​ ​ 412,597 Special mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,603 ​ ​ — ​ ​ 1,603 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 987 ​ ​ — ​ ​ 987 Subtotal ​ ​ — ​ ​ 109,728 ​ ​ 237,151 ​ ​ 7,761 ​ ​ 2,038 ​ ​ 58,509 ​ ​ — ​ ​ 415,187 Equity lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ ​ 46 ​ ​ 332 ​ ​ 400 ​ ​ 322 ​ ​ 363 ​ ​ 16,856 ​ ​ 18,319 Special mention ​ ​ — ​ ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ — ​ ​ 454 ​ ​ 474 Substandard ​ ​ — ​ ​ — ​ ​ 114 ​ ​ — ​ ​ — ​ ​ — ​ ​ 356 ​ ​ 470 Subtotal ​ ​ — ​ ​ 46 ​ ​ 446 ​ ​ 420 ​ ​ 322 ​ ​ 363 ​ ​ 17,666 ​ ​ 19,263 Multi-family residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 1,892 ​ ​ 23,696 ​ ​ 511 ​ ​ 11,348 ​ ​ 655 ​ ​ 23,368 ​ ​ 27,341 ​ ​ 88,811 Special mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,229 ​ ​ — ​ ​ 3,229 Subtotal ​ ​ 1,892 ​ ​ 23,696 ​ ​ 511 ​ ​ 11,348 ​ ​ 655 ​ ​ 26,597 ​ ​ 27,341 ​ ​ 92,040 Commercial real estate - OO ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 3,275 ​ ​ 38,637 ​ ​ 24,015 ​ ​ 63,603 ​ ​ 36,273 ​ ​ 138,028 ​ ​ 5,839 ​ ​ 309,670 Special mention ​ ​ — ​ ​ 279 ​ ​ — ​ ​ 203 ​ ​ 341 ​ ​ 1,329 ​ ​ — ​ ​ 2,152 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,571 ​ ​ 467 ​ ​ 2,038 Subtotal ​ ​ 3,275 ​ ​ 38,916 ​ ​ 24,015 ​ ​ 63,806 ​ ​ 36,614 ​ ​ 140,928 ​ ​ 6,306 ​ ​ 313,860 Commercial real estate - NOO ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 31,278 ​ ​ 84,417 ​ ​ 19,416 ​ ​ 375,899 ​ ​ 24,797 ​ ​ 207,388 ​ ​ 69,399 ​ ​ 812,594 Special mention ​ ​ — ​ ​ — ​ ​ — ​ ​ 68,559 ​ ​ — ​ ​ 4,165 ​ ​ — ​ ​ 72,724 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ 14,653 ​ ​ — ​ ​ 9,913 ​ ​ — ​ ​ 24,566 Subtotal ​ ​ 31,278 ​ ​ 84,417 ​ ​ 19,416 ​ ​ 459,111 ​ ​ 24,797 ​ ​ 221,466 ​ ​ 69,399 ​ ​ 909,884 Farmland ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ ​ 27,996 ​ ​ 1,350 ​ ​ 3,993 ​ ​ 1,746 ​ ​ 32,519 ​ ​ 15,428 ​ ​ 83,032 Special mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,023 ​ ​ — ​ ​ 3,023 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 7,086 ​ ​ — ​ ​ 7,086 Subtotal ​ ​ — ​ ​ 27,996 ​ ​ 1,350 ​ ​ 3,993 ​ ​ 1,746 ​ ​ 42,628 ​ ​ 15,428 ​ ​ 93,141 Agricultural ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 3,475 ​ ​ 7,509 ​ ​ 425 ​ ​ 438 ​ ​ 18 ​ ​ 2,667 ​ ​ 11,619 ​ ​ 26,151 Special mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 450 ​ ​ 450 Substandard ​ ​ — ​ ​ — ​ ​ 71 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 71 Subtotal ​ ​ 3,475 ​ ​ 7,509 ​ ​ 496 ​ ​ 438 ​ ​ 18 ​ ​ 2,667 ​ ​ 12,069 ​ ​ 26,672 Commercial and industrial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 2,089 ​ ​ 4,302 ​ ​ 3,893 ​ ​ 7,024 ​ ​ 5,857 ​ ​ 10,590 ​ ​ 33,439 ​ ​ 67,194 Special mention ​ ​ — ​ ​ 184 ​ ​ 119 ​ ​ 3,006 ​ ​ 41 ​ ​ 1,097 ​ ​ 3,772 ​ ​ 8,219 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 72 ​ ​ 208 ​ ​ 69 ​ ​ 349 Subtotal ​ ​ 2,089 ​ ​ 4,486 ​ ​ 4,012 ​ ​ 10,030 ​ ​ 5,970 ​ ​ 11,895 ​ ​ 37,280 ​ ​ 75,762 Mortgage warehouse lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 68,472 ​ ​ 68,472 Subtotal ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 68,472 ​ ​ 68,472 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 885 ​ ​ 397 ​ ​ 181 ​ ​ 133 ​ ​ 101 ​ ​ 303 ​ ​ 2,049 ​ ​ 4,049 Special mention ​ ​ — ​ ​ — ​ ​ — ​ ​ 19 ​ ​ 12 ​ ​ 17 ​ ​ 14 ​ ​ 62 Substandard ​ ​ 2 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2 ​ ​ 4 Subtotal ​ ​ 887 ​ ​ 397 ​ ​ 181 ​ ​ 152 ​ ​ 113 ​ ​ 320 ​ ​ 2,065 ​ ​ 4,115 Total ​ $ 42,896 ​ $ 297,191 ​ $ 287,578 ​ $ 560,919 ​ $ 72,985 ​ $ 507,265 ​ $ 265,158 ​ $ 2,033,992 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross charge-offs ​ $ 437 ​ $ 13 ​ $ 250 ​ $ — ​ $ — ​ $ 1,280 ​ ​ ​ ​ ​ ​ ​ 26 Table of Contents CECL replaces the legacy accounting for loans designated as purchased credit impaired (“PCI”) with loans designated as purchased credit deteriorated (“PCD”). PCD loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination. Due to the immaterial balance in the Company’s PCI loans as of December 31, 2021 management elected not to transition these loans into the PCD designation. As of March 31, 2023 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 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 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 March 31, 2023, 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- 27 Table of Contents factors”) considered by management reflect the legacy regulatory guidance on Q-factors, whereas several others represent factors unique to the Company or unique to the current time period. ● Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices ● Changes in international, regional and local economic and business conditions, and developments that affect the collectability of the portfolio, as reflected in forecasts of the Housing Price Index, Real GDP and the National Unemployment Rate (Farmland & Agricultural Production and Consumer segments only) ● Changes in the nature and volume of the loan portfolio ● Changes in the experience, ability, and depth of lending management and other relevant staff ● Changes in the volume and severity of past due, non-accruals loans, and adversely classified loans, as reflected in changes of the relative level of loans classified as substandard and special mention ● Changes in the quality of the Bank’s loan review processes ● Changes in the value of underlying collateral for loans not identified as collateral dependent ● Changes in loan categorization concentrations ● Other external factors, which include, the influence of peer data on estimated quantitative reserves, residual COVID-19 related risk, expected impact of current and expected inflationary environment, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of current and expected geo-political conditions The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and management judgement, to determine risk categorizations in each of the Q-factors presented above. The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan-equivalent, loss rate ranges and the relative weighting of Q-factors according to management’s judgement. Although collectively evaluated reserves are generally calculated separately at the call code or loan class level, management has grouped loan classes with similar risk characteristics into the following portfolio segments: 1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse and Consumer loans. Loans secured by 1-4 family residences have a different profile from loans secured by Commercial Real Estate. Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for Commercial Real Estate are often businesses. The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic. Farmland and Agricultural Production loans are included in a single segment as these loans are often times to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions in addition to other environmental concerns. Commercial & Industrial loans are separated into a unique segment given the uniqueness of these loans, which are often revolving and secured by other business assets as opposed to real estate. Mortgage warehouse loans are also unique in the Company’s portfolio and warrant separate presentation as an individual portfolio segment, given the specific nature of these constantly revolving lines to mortgage originators and also attributable to a very limited loss history, even after consideration of peer data. Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans. Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves. As of March 31, 2023, 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. ​ 28 Table of Contents The following tables present the activity in the allowance for credit losses by portfolio segment for the quarters ended March 31, 2023 and 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, 2022 ​ $ 3,251 ​ $ 17,732 ​ $ 458 ​ $ 1,233 ​ $ 72 ​ $ 314 ​ $ 23,060 Charge-offs ​ ​ — ​ ​ — ​ ​ ( 1,277 ) ​ ​ ( 308 ) ​ ​ — ​ ​ ( 395 ) ​ ​ ( 1,980 ) Recoveries ​ ​ 205 ​ ​ — ​ ​ 1,282 ​ ​ 23 ​ ​ — ​ ​ 250 ​ ​ 1,760 Provision for credit losses ​ ​ ( 213 ) ​ ​ 67 ​ ​ 38 ​ ​ 258 ​ ​ 10 ​ ​ 90 ​ ​ 250 Ending allowance balance: ​ $ 3,243 ​ $ 17,799 ​ $ 501 ​ $ 1,206 ​ $ 82 ​ $ 259 ​ $ 23,090 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ — ​ ​ — ​ ​ ( 1,958 ) ​ ​ ( 74 ) ​ ​ — ​ ​ ( 299 ) ​ ​ ( 2,331 ) Recoveries ​ ​ 87 ​ ​ 260 ​ ​ — ​ ​ 20 ​ ​ — ​ ​ 184 ​ ​ 551 Provision for credit losses ​ ​ 722 ​ ​ ( 1,897 ) ​ ​ 1,842 ​ ​ ( 133 ) ​ ​ ( 40 ) ​ ​ 106 ​ ​ 600 Ending allowance balance: ​ $ 3,329 ​ $ 17,043 ​ $ 606 ​ $ 1,231 ​ $ 51 ​ $ 270 ​ $ 22,530 ​ There were no significant changes in the Company’s loan portfolio ACL in the first quarter of 2023. ​ Note 11 – Goodwill The following table discloses changes in the carrying value of goodwill for the three months ended March 31, 2023 and 2022 (dollars in thousands, unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ 2023 ​ 2022 Net carrying value at beginning of period ​ $ 27,357 ​ $ 27,357 ​ Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. Bank of the Sierra (the “Bank”) is the only subsidiary of the Company that meets the materiality criteria necessary to be deemed an operating segment, and because the Company exists primarily for the purpose of holding the stock of the Bank we have determined that only one unified operating segment or reporting unit (the consolidated Company) exists. The fair value of the consolidated Company is its market capitalization, as determined by quoted prices in active markets, plus a sales control premium, as determined by analyzing recent mergers and acquisitions. If the Company’s market capitalization plus a control premium exceeds recorded shareholders’ equity (the book value), it can be reasonably presumed that no impairment exists. Therefore, it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment at March 31, 2023. 29 Table of Contents ​ Note 12 – Borrowings and Other Arrangements The following table summarizes the Company’s other borrowings as of March 31, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2023 ​ December 31, 2022 ​ ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ ​ Average ​ Balance Rate Balance Rate Overnight Fed funds purchased (1) ​ $ 150,000 ​ 4.88 % ​ $ 125,000 ​ 4.08 % Overnight FHLB advance (2) ​ ​ 26,800 ​ 4.84 % ​ ​ 94,000 ​ 3.44 % Long-term FHLB advance (2) ​ ​ 40,000 ​ 3.88 % ​ ​ — ​ — Total other borrowings ​ $ 216,800 ​ 4.84 % ​ $ 219,000 ​ 3.67 % ​ The Company has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, FRB, and other correspondent banks. ​ Federal Funds Purchased (1) – The Company had unsecured available lines of credit with correspondent banks for short-term borrowings totaling $ 309.0 million at March 31, 2022 and $ 237.0 million at December 31, 2022. In general, interest rates on these lines approximate the federal funds target rate. ​ Federal Home Loan Bank Borrowings (2) – At March 31, 2023 and December 31, 2022, the Company had available lines of credit with the FHLB totaling $ 762.7 million and $ 718.8 million, respectively, based on eligible collateral of certain loans and investment securities. ​ 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 March 31, 2023 and December 31, 2022 the Company had borrowing capacity under this line totaling $ 40.3 million and $ 42.3 million, respectively. We had no outstanding borrowings on this line of credit as of March 31, 2023 and December 31, 2022. ​ Repurchase Agreements – Repurchase agreements represent “sweep accounts”, where commercial deposit balances above a specified threshold are transferred at the close of each business day into non-deposit accounts secured by investment securities. Repurchase agreements totaled $ 94.1 million at March 31, 2023 relative to a balance of $ 109.2 million at December 31, 2022. ​ 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 both March 31, 2023 and December 31, 2022 was $ 49.2 million. ​ 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 March 31, 2023 and December 31, 2022 the Company’s trust preferred securities totaled $ 35.5 million. ​ Note 13 – Revenue Recognition The Company utilizes the guidance found in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), when accounting for certain noninterest income. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which 30 Table of Contents the entity expects to be entitled in exchange for those goods or services. Sufficient information should be provided to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company’s revenue streams that are within the scope of and accounted for under Topic 606 include service charges on deposit accounts, debit card interchange fees, and fees levied for other services the Company provides its customers. The guidance does not apply to revenue associated with financial instruments such as loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP. All of the Company’s revenue from contracts within the scope of ASC 606 is recognized when incurred as noninterest income and gains on the sale of OREO which is classified as noninterest expense. These gains were immaterial for both of the three months ended March 31, 2023 and 2022. The following table presents the Company’s sources of noninterest income for the three month periods ended March 31, 2023 and 2022. Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, ​ For the year ended December 31, ​ 2023 2022 ​ 2022 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ Returned item and overdraft fees $ 1,258 $ 1,328 ​ $ 5,227 Other service charges on deposits ​ ​ 2,093 ​ ​ 2,164 ​ ​ 9,340 Debit card interchange income ​ ​ 2,029 ​ ​ 2,056 ​ ​ 8,533 Gain (loss) on limited partnerships (1) ​ ​ ( 166 ) ​ ​ ( 113 ) ​ ​ 253 Dividends on equity investments (1) ​ ​ 276 ​ ​ 246 ​ ​ 843 Unrealized (losses) gains recognized on equity investments (1) ​ ​ ( 291 ) ​ ​ ( 332 ) ​ ​ ( 332 ) Net gains on sale of securities (1) ​ ​ 45 ​ ​ 1,032 ​ ​ 1,487 Other (1) ​ ​ 1,335 ​ ​ ( 318 ) ​ ​ 5,419 Total noninterest income ​ $ 6,579 ​ $ 6,063 ​ $ 30,770 Percentage of noninterest income not within scope of ASC 606. ​ ​ 18.22 % ​ ​ 8.49 % ​ ​ 24.93 % ​ (1) Not within scope of ASC 606. Revenue streams are not related to contracts with customers and are accounted for 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. ​ ​ ​ ​ 31 Table of Contents PART I - FINANCIAL INFORMATION