SIERRA BANCORP 10-K/A

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements and independent auditors’ report listed below are included herein: ​ ​ Page I. Report of Independent Registered Public Accounting Firm  (RSM US LLP San Francisco, California PCAOB ID 49 ) ​ 67 ​ ​ ​ ​ ​ Report of Independent Registered Public Accounting Firm (RSM US LLP San Francisco, California PCAOB ID 49) ​ 70 ​ ​ ​ ​ II. Report of Independent Registered Public Accounting Firm  (Eide Bailly LLP San Ramon, California PCAOB ID 286) ​ 72 ​ ​ ​ ​ III. Consolidated Balance Sheets – December 31, 2023 and 2022 ​ 73 ​ ​ ​ ​ IV. Consolidated Statements of Income – Years Ended December 31, 2023, 2022, and 2021 ​ 74 ​ ​ ​ ​ V. Consolidated Statements of Comprehensive (Loss) Income – Years Ended December 31, 2023, 2022, and 2021 ​ 75 ​ ​ ​ ​ VI. Consolidated Statements of Changes in Shareholders’ Equity – Years Ended December 31, 2023, 2022, and 2021 ​ 76 ​ ​ ​ ​ VII. Consolidated Statements of Cash Flows – Years Ended December 31, 2023, 2022, and 2021 ​ 77 ​ ​ ​ ​ VIII. Notes to Consolidated Financial Statements ​ 79 ​ ​ ​ 66 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Sierra Bancorp Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Sierra Bancorp and its subsidiary (the Company) as of December 31, 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the year ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. ​ We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 22, 2024, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. ​ Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ Allowance for Credit Losses – Loans and Leases ​ As described in Notes 2 and 4 to the financial statements, the Company’s allowance for credit losses totaled $23.5 million as of December 31, 2023. The allowance for credit losses is calculated under the expected credit loss model and is an estimate of life-of-loan and -lease losses. ​ The allowance for credit losses for loans and leases consists of a collective reserve evaluation for loans and leases with similar risk characteristics and an individual reserve evaluation for loans and leases 67 Table of Contents without similar risk characteristics. The allowance for the collective reserve evaluation is derived from an estimate of expected loan and lease losses primarily using an expected loss methodology that incorporates certain risk characteristics using either the remaining life or discounted cash flow (DCF) methodology depending on the loan and lease portfolio segment. ​ The discounted cash flow quantitative reserve methodology incorporates the consideration of probability of default (PD) and loss given default (LGD) assumptions to estimate periodic losses, and LGD is derived from the application of the Frye-Jacobs theory which relates LGD to PD based on historical peer data. The Company uses a regression analysis that links historical losses of the Company and its peer group to national unemployment rates in order to calculate expected default rates. 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 over a four-quarter reversion period on a straight-line basis. For the remaining life quantitative reserve method, the Company’s and peer group’s average historical losses are used to determine the loss rates, and the loss rates are applied to expected loan balances over an estimated remaining life of loans. The estimated remaining life is calculated using the Company’s historical attrition data. Reasonable and supportable forecasts of the national unemployment rate, real growth domestic product and the housing price index are considered through estimation of qualitative reserves on portfolios using the remaining life method. ​ The quantitative estimates are adjusted to incorporate considerations of current trends and conditions that are not captured in the quantitative credit loss estimates through the use of qualitative or environmental factors (qualitative factors). The qualitative reserve is calculated using a combination of numeric frameworks and management’s judgment in order to determine the risk categorization in each of the qualitative factor. The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan equivalent, loss rate ranges and the relative weighting of qualitative factors according to management’s judgment. ​ The estimation of the allowance for credit losses involves many inputs and assumptions. These inputs and assumptions include, among others, the selection, evaluation and measurement of the reasonable and supportable forecasts and the qualitative factors discussed above, which require management to apply judgment and that are subject to change as forecasted economic events or internal assessments evolve. ​ We identified the determination and evaluation of the economic forecasts and qualitative factors of the allowance for credit losses as a critical audit matter because auditing the underlying assumptions and evaluation of the economic forecasts and qualitative factors used in the allowance for credit losses involved a degree of complexity and high degree of auditor judgment. ​ Our audit procedures related to management’s evaluation and establishment of the economic forecasts and qualitative factors in the allowance for credit losses included the following, among others: ​ ● We obtained an understanding of the relevant controls related to the evaluation and establishment of the economic forecasts and qualitative factors of the allowance for credit losses and tested such controls for design and operating effectiveness, including controls related to management’s establishment, review and approval of the economic forecasts and qualitative factors and the completeness and accuracy of the underlying data. ​ ● We tested management’s process and significant judgments in the evaluation and establishment of the economic forecasts, which included: ​ - Evaluating management’s considerations and data utilized as a basis for the selection of economic forecasts by tracing data points used to company-provided source documents and assessing the appropriateness of their source. ​ 68 Table of Contents - Evaluating the reasonableness of management’s judgments related to the selection of economic forecasts. ​ ● We tested management’s process and evaluated their judgments and assumptions in the determination of the qualitative factors, which included: ​ - Evaluating the reasonableness of management’s selection of data inputs used as a basis for the adjustments related to the qualitative factors, and testing the completeness and accuracy of the data utilized by comparing them to internal and external source data. ​ o Evaluating the reasonableness of the qualitative factors assessed by management, including the directional consistency and magnitude of the resulting qualitative component of the allowance for credit losses, as compared to internal and external source data, and how the data correlated with the risk categorization and numeric framework established by management. ​ /s/ RSM US LLP We have served as the Company's auditor since 2023. San Francisco, California March 22, 2024 ​ ​ 69 Table of Contents ​ Report of Independent Registered Public Accounting Firm ​ ​ To the Shareholders and the Board of Directors of Sierra Bancorp ​ ​ Opinion on the Internal Control Over Financial Reporting We have audited Sierra Bancorp and its subsidiary’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. ​ We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet as of December 31, 2023, and the consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the year ended December 31, 2023, of the Company and our report dated March 22, 2024, expressed an unqualified opinion. ​ Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. ​ Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. ​ ​ 70 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ ​ /s/RSM US LLP ​ San Francisco, California March 22, 2024 ​ ​ 71 Table of Contents Report of Independent Registered Public Accounting Firm ​ To the Board of Directors and Shareholders Sierra Bancorp Porterville, California ​ Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Sierra Bancorp and subsidiary (the Company) as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ ​ ​ ​ ​ ​ We have served as Sierra Bancorp’s auditor from 2004 through 2022 (such dates incorporate the acquisition of certain assets of Vavrinek, Trine, Day & Co., LLP by Eide Bailly in 2019). ​ San Ramon, California March 9, 2023 ​ ​ ​ 72 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 2023 and 2022 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ASSETS ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 73,721 ​ $ 72,803 Interest bearing deposits in banks ​ ​ 4,881 ​ ​ 4,328 Cash and cash equivalents ​ ​ 78,602 ​ ​ 77,131 Investment securities ​ ​ ​ ​ ​ ​ Available-for-sale, net of zero allowance for credit losses ​ ​ 1,019,201 ​ ​ 934,923 Held-to-maturity, net of allowance for credit losses of $ 16 and $ 63 ​ ​ 320,057 ​ ​ 336,881 Total investment securities ​ ​ 1,339,258 ​ ​ 1,271,804 Loans: ​ ​ ​ ​ ​ ​ Gross loans ​ ​ 2,090,075 ​ ​ 2,052,940 Deferred loan costs (fees), net ​ ​ 309 ​ ​ ( 123 ) Allowance for credit losses on loans ​ ​ ( 23,500 ) ​ ​ ( 23,060 ) Net loans ​ ​ 2,066,884 ​ ​ 2,029,757 Premises and equipment, net ​ ​ 16,907 ​ ​ 22,478 Goodwill ​ ​ 27,357 ​ ​ 27,357 Other intangible assets, net ​ ​ 1,399 ​ ​ 2,275 Company owned life insurance ​ ​ 51,572 ​ ​ 52,169 Other assets ​ ​ 147,820 ​ ​ 125,619 ​ ​ $ 3,729,799 ​ $ 3,608,590 LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 1,020,772 ​ $ 1,088,199 Interest bearing ​ ​ 1,740,451 ​ ​ 1,757,965 Total deposits ​ ​ 2,761,223 ​ ​ 2,846,164 Repurchase agreements ​ ​ 107,121 ​ ​ 109,169 Other borrowings ​ ​ 360,500 ​ ​ 219,000 Long-term debt ​ ​ 49,304 ​ ​ 49,214 Subordinated debentures, net ​ ​ 35,660 ​ ​ 35,481 Allowance for credit losses on unfunded loan commitments ​ ​ 510 ​ ​ 840 Other liabilities ​ ​ 77,384 ​ ​ 45,140 Total liabilities ​ ​ 3,391,702 ​ ​ 3,305,008 Commitments and contingent liabilities (Note 14) ​ ​ ​ ​ ​ ​ Shareholders' equity ​ ​ ​ ​ ​ ​ Serial Preferred stock, no par value; 10,000,000 shares authorized; none issued; Common stock, no par value; 24,000,000 shares authorized; 14,793,832 and 15,170,372 shares issued and outstanding , respectively ​ ​ 110,446 ​ ​ 112,928 Additional paid-in capital ​ ​ 4,581 ​ ​ 4,148 Retained earnings ​ ​ 259,050 ​ ​ 243,082 Accumulated other comprehensive loss, net of taxes of $ 14,874 and $ 23,746 ​ ​ ( 35,980 ) ​ ​ ( 56,576 ) Total shareholders' equity ​ ​ 338,097 ​ ​ 303,582 ​ ​ $ 3,729,799 ​ $ 3,608,590 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 73 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2023, 2022 and 2021 (dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Interest and dividend income ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans, including fees ​ $ 96,791 ​ $ 86,706 ​ $ 99,249 Taxable securities ​ ​ 54,367 ​ ​ 25,789 ​ ​ 7,239 Tax-exempt securities ​ ​ 10,909 ​ ​ 8,805 ​ ​ 6,218 Federal funds sold and other ​ ​ 1,054 ​ ​ 519 ​ ​ 370 Total interest income ​ ​ 163,121 ​ ​ 121,819 ​ ​ 113,076 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 31,554 ​ ​ 6,819 ​ ​ 2,390 Other borrowings ​ ​ 14,561 ​ ​ 2,069 ​ ​ 213 Long-term debt ​ ​ 1,715 ​ ​ 1,713 ​ ​ 468 Subordinated debentures ​ ​ 2,886 ​ ​ 1,603 ​ ​ 979 Total interest expense ​ ​ 50,716 ​ ​ 12,204 ​ ​ 4,050 Net interest income ​ ​ 112,405 ​ ​ 109,615 ​ ​ 109,026 Provision (benefit) for credit losses on loans ​ ​ 4,058 ​ ​ 10,898 ​ ​ ( 3,650 ) Benefit for credit losses on unfunded loan commitments ​ ​ ( 330 ) ​ ​ ( 294 ) ​ ​ — (Benefit) provision for credit losses on held-to-maturity securities ​ ​ ( 47 ) ​ ​ 63 ​ ​ — Net interest income after provision for credit losses ​ ​ 108,724 ​ ​ 98,948 ​ ​ 112,676 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ 23,103 ​ ​ 23,100 ​ ​ 22,306 Net gains on sale of securities available-for-sale ​ ​ 396 ​ ​ 1,487 ​ ​ 11 Net gains (losses) on sale of fixed assets ​ ​ 15,270 ​ ​ ( 8 ) ​ ​ 180 Increase (decrease) in cash surrender value of life insurance ​ ​ 1,767 ​ ​ ( 996 ) ​ ​ 2,648 Realized losses on available-for-sale securities ​ ​ ( 14,500 ) ​ ​ — ​ ​ — Other income ​ ​ 4,364 ​ ​ 7,187 ​ ​ 2,934 Total noninterest income ​ ​ 30,400 ​ ​ 30,770 ​ ​ 28,079 Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 50,977 ​ ​ 47,053 ​ ​ 42,431 Occupancy and equipment ​ ​ 10,160 ​ ​ 9,718 ​ ​ 9,837 Other ​ ​ 31,523 ​ ​ 28,032 ​ ​ 31,288 Total noninterest expense ​ ​ 92,660 ​ ​ 84,803 ​ ​ 83,556 Income before income taxes ​ ​ 46,464 ​ ​ 44,915 ​ ​ 57,199 Provision for income taxes ​ ​ 11,620 ​ ​ 11,256 ​ ​ 14,187 Net income ​ $ 34,844 ​ $ 33,659 ​ $ 43,012 Earnings per share ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 2.37 ​ $ 2.25 ​ $ 2.82 Diluted ​ $ 2.36 ​ $ 2.24 ​ $ 2.80 Weighted average shares outstanding, basic ​ ​ 14,706,141 ​ ​ 14,955,756 ​ ​ 15,241,957 Weighted average shares outstanding, diluted ​ ​ 14,737,870 ​ ​ 15,022,755 ​ ​ 15,353,445 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 74 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME Years Ended December 31, 2023, 2022 and 2021 (dollars in thousands, except footnotes) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Net income ​ $ 34,844 ​ $ 33,659 ​ $ 43,012 Other comprehensive gain (loss), before tax ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gain (loss) arising during period ​ ​ 15,140 ​ ​ ( 94,689 ) ​ ​ ( 10,265 ) Reclassification adjustment for losses (gains) included in net income (1) ​ ​ 14,104 ​ ​ ( 1,487 ) ​ ​ ( 11 ) Other comprehensive gain (loss), before tax ​ ​ 29,244 ​ ​ ( 96,176 ) ​ ​ ( 10,276 ) Income tax (expense) benefit related to items of other comprehensive income ​ ​ ( 8,648 ) ​ ​ 28,433 ​ ​ 3,038 Total other comprehensive gain (loss), net of tax ​ ​ 20,596 ​ ​ ( 67,743 ) ​ ​ ( 7,238 ) Comprehensive income (loss) ​ $ 55,440 ​ $ ( 34,084 ) ​ $ 35,774 (1) Amounts are included in net gains on securities available-for-sale on the Consolidated Statements of Income in noninterest income. Income tax expense associated with the reclassification adjustment for the years ended 2023, 2022 and 2021 was $ 4.2 million, $ 0.4 million, and 0.003 million respectively. The accompanying notes are an integral part of these consolidated financial statements. ​ 75 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY For the Three Years Ended December 31, 2023, 2022 and 2021 (dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Paid In ​ Retained ​ Comprehensive ​ Shareholders' ​ Shares Amount Capital Earnings Gain (Loss) Equity Balance, January 1, 2021 ​ 15,388,423 ​ ​ 113,384 ​ ​ 3,736 ​ ​ 208,371 ​ ​ 18,405 ​ ​ 343,896 Net Income ​ — ​ ​ — ​ ​ — ​ ​ 43,012 ​ ​ — ​ ​ 43,012 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 7,238 ) ​ ​ ( 7,238 ) Stock options exercised, net of shares surrendered for cashless exercises ​ 25,452 ​ ​ 422 ​ ​ ( 141 ) ​ ​ — ​ ​ — ​ ​ 281 Restricted stock granted ​ 73,912 ​ ​ 680 ​ ​ ( 680 ) ​ ​ — ​ ​ — ​ ​ — Restricted stock surrendered due to employee tax liability ​ ( 12,122 ) ​ ​ ( 89 ) ​ ​ — ​ ​ ( 203 ) ​ ​ — ​ ​ ( 292 ) Restricted stock forfeited / cancelled ​ ( 18,217 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 118 ​ ​ — ​ ​ — ​ ​ 118 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 877 ​ ​ — ​ ​ — ​ ​ 877 Stock repurchase ​ ( 187,438 ) ​ ​ ( 1,390 ) ​ ​ — ​ ​ ( 3,538 ) ​ ​ — ​ ​ ( 4,928 ) Cash dividends - $ 0.87 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 13,232 ) ​ ​ — ​ ​ ( 13,232 ) Balance, December 31, 2021 ​ 15,270,010 ​ ​ 113,007 ​ ​ 3,910 ​ ​ 234,410 ​ ​ 11,167 ​ ​ 362,494 Cumulative effect of change in accounting principle ​ — ​ ​ — ​ ​ — ​ ​ ( 7,315 ) ​ ​ — ​ ​ ( 7,315 ) Net Income ​ — ​ ​ — ​ ​ — ​ ​ 33,659 ​ ​ — ​ ​ 33,659 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 67,743 ) ​ ​ ( 67,743 ) Stock options exercised, net of shares surrendered for cashless exercises ​ 29,640 ​ ​ 1,360 ​ ​ ( 1,046 ) ​ ​ — ​ ​ — ​ ​ 314 Restricted stock granted ​ 70,465 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Restricted stock surrendered due to employee tax liability ​ ( 15,309 ) ​ ​ ( 114 ) ​ ​ — ​ ​ ( 227 ) ​ ​ — ​ ​ ( 341 ) Restricted stock forfeited / cancelled ​ ( 1,872 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 84 ​ ​ — ​ ​ — ​ ​ 84 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 1,200 ​ ​ — ​ ​ — ​ ​ 1,200 Stock repurchase ​ ( 182,562 ) ​ ​ ( 1,325 ) ​ ​ — ​ ​ ( 3,526 ) ​ ​ — ​ ​ ( 4,851 ) Cash dividends - $ 0.92 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 13,919 ) ​ ​ — ​ ​ ( 13,919 ) Balance, December 31, 2022 ​ 15,170,372 ​ ​ 112,928 ​ ​ 4,148 ​ ​ 243,082 ​ ​ ( 56,576 ) ​ ​ 303,582 Net Income ​ — ​ ​ — ​ ​ — ​ ​ 34,844 ​ ​ — ​ ​ 34,844 Other comprehensive gain, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 20,596 ​ ​ 20,596 Restricted stock granted ​ 129,904 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Restricted stock surrendered due to employee tax liability ​ ( 19,317 ) ​ ​ ( 145 ) ​ ​ — ​ ​ ( 246 ) ​ ​ — ​ ​ ( 391 ) Restricted stock forfeited / cancelled ​ ( 6,033 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Restricted stock vested in period ​ — ​ ​ 1,316 ​ ​ ( 1,316 ) ​ ​ — ​ ​ — ​ ​ — Stock based compensation - stock options ​ — ​ ​ — ​ ​ 69 ​ ​ — ​ ​ — ​ ​ 69 Stock based compensation - restricted stock ​ — ​ ​ — ​ ​ 1,680 ​ ​ — ​ ​ — ​ ​ 1,680 Stock repurchase ​ ( 481,094 ) ​ ​ ( 3,574 ) ​ ​ — ​ ​ ( 4,916 ) ​ ​ — ​ ​ ( 8,490 ) Excise tax on stock repurchases ​ — ​ ​ ( 79 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 79 ) Cash dividends - $ 0.92 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 13,714 ) ​ ​ — ​ ​ ( 13,714 ) Balance, December 31, 2023 ​ 14,793,832 ​ $ 110,446 ​ $ 4,581 ​ $ 259,050 ​ $ ( 35,980 ) ​ $ 338,097 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 76 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2023, 2022 and 2021 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 34,844 ​ $ 33,659 ​ $ 43,012 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain on sales of securities ​ ​ ( 396 ) ​ ​ ( 1,487 ) ​ ​ ( 11 ) Realized loss on available-for-sale securities ​ ​ 14,500 ​ ​ — ​ ​ — Loss (gain) on disposal of fixed assets ​ ​ ( 15,270 ) ​ ​ 8 ​ ​ ( 180 ) Gain on sale of foreclosed assets ​ ​ — ​ ​ ( 8 ) ​ ​ ( 153 ) Writedown of foreclosed assets ​ ​ — ​ ​ 91 ​ ​ 174 Stock based compensation expense ​ ​ 1,749 ​ ​ 1,284 ​ ​ 995 Provision (benefit) for credit losses on loans ​ ​ 4,058 ​ ​ 10,898 ​ ​ ( 3,650 ) (Benefit) provision for credit losses on held-to-maturity securities ​ ​ ( 47 ) ​ ​ 63 ​ ​ — Depreciation and amortization ​ ​ 2,356 ​ ​ 2,536 ​ ​ 3,237 Net amortization on securities premiums and discounts ​ ​ 2,872 ​ ​ 3,519 ​ ​ 4,914 Accretion of discounts for loans acquired and net deferred loan fees ​ ​ ( 311 ) ​ ​ ( 279 ) ​ ​ ( 411 ) (Increase) decrease in cash surrender value of life insurance policies ​ ​ ( 1,905 ) ​ ​ 996 ​ ​ ( 2,648 ) Amortization of core deposit intangible ​ ​ 876 ​ ​ 1,000 ​ ​ 1,032 (Increase) decrease in interest receivable and other assets ​ ​ ( 20,525 ) ​ ​ ( 29,283 ) ​ ​ 6,435 Increase in other liabilities ​ ​ 31,835 ​ ​ 9,481 ​ ​ 1,602 Deferred income tax (benefit) provision ​ ​ ( 2,343 ) ​ ​ 311 ​ ​ 85 Decrease (increase) in equity securities ​ ​ 291 ​ ​ 332 ​ ​ ( 2,523 ) Net amortization of partnership investment ​ ​ 661 ​ ​ 451 ​ ​ 746 Net cash provided by operating activities ​ ​ 53,245 ​ ​ 33,572 ​ ​ 52,656 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturities and calls of securities available for sale ​ ​ 71,065 ​ ​ 11,003 ​ ​ 10,390 Proceeds from sales of securities available for sale ​ ​ 25,676 ​ ​ 45,903 ​ ​ 148 Purchases of securities available for sale ​ ​ ( 197,153 ) ​ ​ ( 526,498 ) ​ ​ ( 568,174 ) Principal paydowns on securities available for sale ​ ​ 45,269 ​ ​ 72,831 ​ ​ 113,117 Net purchases of FHLB stock ​ ​ ( 1,929 ) ​ ​ ( 336 ) ​ ​ — Loan (payments) and originations, net ​ ​ ( 60,025 ) ​ ​ ( 76,225 ) ​ ​ 472,589 Purchases of premises and equipment, net ​ ​ ( 1,415 ) ​ ​ ( 1,272 ) ​ ​ ( 371 ) Proceeds from sales of fixed assets ​ ​ 20,079 ​ ​ — ​ ​ 1,426 Proceeds from sales of foreclosed assets ​ ​ 19,151 ​ ​ 10 ​ ​ 950 Purchase of bank owned life insurance ​ ​ ( 125 ) ​ ​ ( 24 ) ​ ​ ( 39 ) Liquidation of bank-owned life insurance ​ ​ 165 ​ ​ 23 ​ ​ — Proceeds from BOLI death benefit ​ ​ 2,462 ​ ​ 1,078 ​ ​ 984 Amortization of debt issuance costs ​ ​ 90 ​ ​ 73 ​ ​ — Net increase in partnership investment ​ ​ ( 7,000 ) ​ ​ ( 7,562 ) ​ ​ ( 10,400 ) Net cash used in investing activities ​ ​ ( 83,690 ) ​ ​ ( 480,996 ) ​ ​ 20,620 Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ (Decrease) increase in deposits ​ ​ ( 84,941 ) ​ ​ 64,592 ​ ​ 156,966 Increase (decrease) in fed funds purchased ​ ​ 5,000 ​ ​ 125,000 ​ ​ ( 100,000 ) Increase (decrease) in borrowed funds ​ ​ 56,500 ​ ​ 94,000 ​ ​ ( 42,900 ) Proceeds from long-term Federal Home Loan Bank advances and other debt ​ ​ 80,000 ​ ​ — ​ ​ — (Decrease) increase in repurchase agreements ​ ​ ( 2,048 ) ​ ​ 2,232 ​ ​ 67,799 Cash dividends paid ​ ​ ( 13,714 ) ​ ​ ( 13,919 ) ​ ​ ( 13,232 ) Repurchases of common stock ​ ​ ( 8,881 ) ​ ​ ( 5,192 ) ​ ​ ( 5,220 ) Stock options exercised ​ ​ — ​ ​ 314 ​ ​ 281 Proceeds from issuance of subordinated debt ​ ​ — ​ ​ — ​ ​ 49,141 Net cash provided by financing activities ​ ​ 31,916 ​ ​ 267,027 ​ ​ 112,835 (Decrease) increase in cash and due from banks ​ ​ 1,471 ​ ​ ( 180,397 ) ​ ​ 186,111 Cash and cash equivalents, beginning of year ​ ​ 77,131 ​ ​ 257,528 ​ ​ 71,417 Cash and cash equivalents, end of year ​ $ 78,602 ​ $ 77,131 ​ $ 257,528 ​ 77 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31, 2023, 2022 and 2021 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid during the year for: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ $ 48,545 ​ $ 10,777 ​ $ 3,649 Income taxes ​ $ 10,355 ​ $ 13,165 ​ $ 13,554 Supplemental disclosure of noncash investing and financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate acquired through foreclosure ​ $ 15,406 ​ $ — ​ $ 93 Operating right-of-use asset from branch facilities sale leaseback transaction ​ $ 17,859 ​ $ — ​ $ — Operating lease liability from branch facilities sale leaseback transaction ​ $ 13,755 ​ $ — ​ $ — ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 78 Table of Contents 1. THE BUSINESS OF SIERRA BANCORP Sierra Bancorp (the “Company”) is a California corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is headquartered in Porterville, California. The Company was incorporated in November 2000 and acquired all of the outstanding shares of Bank of the Sierra (the “Bank”) in August 2001. The Company’s principal subsidiary is the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and its subsidiaries, two special purpose entities organized to facilitate repossessed assets, and of such other subsidiaries it may acquire or establish. The Company’s only other direct subsidiaries are 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. At December 31, 2023, the Bank operated 35 full service branch offices and an online branch and provides specialized lending services through a dedicated agricultural credit office, Mortgage Warehouse lending divisions, a dedicated loan production office in Roseville, California and an agricultural production office in Templeton, California. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits. The Bank maintains a diversified loan portfolio comprised of agricultural, commercial, consumer, real estate, construction and mortgage loans. Loans are made in California within the market area of the South Central San Joaquin Valley, the Central Coast, Ventura County and neighboring communities. These areas have diverse economies with principal industries being agriculture, real estate and light manufacturing. ​ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation and Basis of Presentation The consolidated financial statements include the accounts of the Company and the consolidated accounts of its wholly owned subsidiary, Bank of the Sierra. All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior years’ balances to conform to classifications used in 2023. The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (U.S. GAAP) and prevailing practices within the banking industry. In accordance with U.S. GAAP, the Company’s investments in Sierra Statutory Trust II, Sierra Capital Trust III and Coast Bancorp Statutory Trust II are not consolidated and are accounted for under the equity method and included in other assets on the consolidated balance sheet. The subordinated debentures issued and guaranteed by the Company and held by the trusts are reflected on the Company’s consolidated balance sheet. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for credit losses, income taxes and deferred tax assets and liabilities, and goodwill. In connection with the determination of the allowances for credit losses and other real estate, management obtains independent appraisals for significant properties, evaluates the overall loan portfolio characteristics and delinquencies, and monitors economic conditions. Reclassifications Certain amounts in the Consolidated Income Statements for the prior periods have been reclassified to conform to the current presentation. The reclassifications had no effect on net income or stockholders’ equity as previously reported. 79 Table of Contents Cash Flows For purposes of reporting cash flows, cash and cash equivalents include cash and deposits with other financial institutions with original maturities within 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and fed funds purchased and repurchase agreements. Securities Debt securities may be classified as held to maturity and carried at amortized cost when management has the positive ability and intent to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Debt securities classified as available for sale are carried at fair value with unrealized holding gains and losses reported in other comprehensive income, net of tax. Securities designated as held-to-maturity, are carried at the amortized cost basis of the securities in question, which includes purchase premium or discount in addition to any unamortized premium or discount representing the unrealized gain or loss on any individual security at the time it was transferred from the available for sale designation. Notably, the Company has elected the practical expedient under GAAP to exclude accrued interest from the amortized-cost-basis of held-to-maturity securities and does not evaluate accrued interest receivable for an allowance for credit losses because any past due interest receivable on its held-to-maturity portfolio is reversed from income timely. Accrued interest on held-to-maturity securities and available-for-sale securities continues to be included in other assets on the Company’s balance sheet and measured $ 2.4 million and $ 12.3 million, respectively, as of December 31, 2023. Interest income includes amortization of purchase premium or discount. Premiums or discounts on securities are amortized on the level-yield method without anticipating prepayments. Gains and losses on sales are recorded on the trade date and determined using the specific identification method. Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value. 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. At December 31, 2023, the Company had no recorded Allowance for Credit Losses on its securities designated as available-for-sale. Under CECL, held-to-maturity debt securities are evaluated for reserves in the same manner as loans. 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. 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 $ 28.4 million, on securities transferred from the available-for-sale to held-to-maturity categorization, remains as of December 31, 2023 and is included in accumulated other comprehensive income, net of tax. The remaining 80 Table of Contents 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. 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 and no allowance for credit losses has been established for 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 December 31, 2023, an allowance for credit losses of $ 0.02 million had been established on the Bank’s held-to-maturity portfolio, a slight decrease from the allowance for credit losses of $ 0.06 million at December 31, 2022. FHLB Stock and Other Investments The Bank is a member of the Federal Home Loan Bank ("FHLB") system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost in other assets, and periodically evaluated for impairment based on the ultimate recovery of par value. Both cash and stock dividends are reported as income. The Bank’s investment in FHLB stock was approximately $ 14.7 million at December 31, 2023, and $ 12.7 million at December 31, 2022. Loans (Financing Receivables) Our credit quality classifications of Loans include Pass, Special Mention and Substandard. These classifications are defined in Note 4 to the consolidated financial statements. Loans are reported on the amortized cost basis. The amortized cost basis of the Company’s loans is comprised of the principal balance outstanding, net of remaining deferred loan fees and costs, purchase premiums and discounts, and also net of any write-downs. Notably, the Company elected the practical expedient available under CECL to exclude accrued interest receivable from the amortized cost basis of all categorizations of loans and resultingly did not estimate reserves on accrued interest receivable balances, as any past due interest income is reversed on a timely basis. Accrued interest receivable on the Company’s Loans continues to be included in other assets on the Company’s balance sheet and as of December 31, 2023, measured $ 5.6 million. Loan origination fees, net of certain deferred origination costs, and purchase premiums and discounts are recognized in interest income as an adjustment to yield of the related loans over the contractual life of the loan using both the effective interest and straight-line methods without anticipating prepayments. Interest income for all performing loans, regardless of classification (Pass, Special Mention, Substandard), is recognized on an accrual basis, with interest accrued daily. Costs associated with successful loan originations are netted from loan origination fees, with the net amount (net deferred loan fees) amortized over the contractual life of the loan in interest income. If a loan has scheduled periodic payments, the amortization of the net deferred loan fee is calculated using the effective interest method over the contractual life of the loan. If the loan does not have scheduled payments, such as a line of credit, the net deferred loan fee is recognized as interest income on a straight-line basis over the contractual life of the loan. Fees received for loan commitments are recognized as interest income over the term of the commitment. When loans are repaid, any remaining unamortized balances of deferred fees and costs are accounted for through interest income. Generally, the Company places a loan or lease on nonaccrual status and ceases recognizing interest income when it has become delinquent more than 90 days and/or when Management determines that the repayment of principal and collection of interest is unlikely. The Company may decide that it is appropriate to continue to accrue interest on certain loans more than 90 days delinquent if they are well-secured by collateral and collection is in process. When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed. For loans with an interest reserve, i.e., where loan proceeds are advanced to the borrower to make interest payments, all interest recognized from the inception of the loan is reversed when the loan is placed on non-accrual. Once a loan is on non-accrual status subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually 81 Table of Contents required. Generally, loans are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Due to loans being placed on nonaccrual status, $ 0.4 million of interest receivable on loans was reversed from interest income for the year ended December 31, 2023. Allowance for Credit Losses - Loans The Allowance for Credit Losses (“ACL”) on the loan portfolio is a valuation allowance deducted from the recorded balance in loans. The ACL represents principal which is not expected to be collected over the contractual life of the loans, adjusted for expected prepayment, whereas under legacy GAAP the allowance represented only losses already incurred as of the balance sheet date. The ACL is increased by a provision for credit losses charged to expense, and by principal recovered on charged-off balances. It is reduced by principal charge-offs. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, using information from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Adjustments are also made for changes in risk profile, credit concentrations, historical trends, and other economic conditions. The ACL for loans is separated between a collective reserve evaluation, for loans where similar risk characteristics exist and an individual reserve evaluation for loans without similar risk characteristics. The collective evaluation of loans is performed at the portfolio segment level, using call code as the primary segmentation key but also considering similarity in quantitative reserve methodology. The Company’s ACL is categorized according to the following portfolio segments: 1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse, and Consumer. 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 utilizes a discounted cash flow methodology to estimate the quantitative portion of collectively evaluated reserves for the 1-4 Family Real Estate, Commercial Real Estate, Commercial & Industrial and Mortgage Warehouse portfolio segments. Management utilizes a Remaining Life Quantitative Reserve Methodology for the Farmland & Agricultural Production, and Consumer portfolio segments. Within the portfolio segments utilizing the DCF quantitative reserve methodology, management has made the election to adjust the effective interest rate to consider the impact of expected prepayments. Loans where similar risk characteristics exist are evaluated for the ACL in the collective reserve evaluation. The Company’s policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves. As of December 31, 2023, the Bank’s nonaccrual loans comprised the entire population of loans individually evaluated. The Company’s policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loan should be categorized as collateral dependent. It is the Company’s policy that the only loans where the credit quality has deteriorated to the point where foreclosure is probable are the Company’s nonaccrual loans. Most of the Company’s business activity is with customers located in California within the Southern Central San Joaquin Valley; in the corridor stretching between Santa Paula and Santa Clarita in Southern California, and on the Central Coast. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in those regions. The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for credit. 82 Table of Contents Though management believes the allowance for credit losses to be adequate, ultimate losses may vary from their estimates. However, estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings during the periods they become known. In addition, the FDIC and the California Department of Financial Protection and Innovation, as an integral part of their examination processes, review the allowance for credit losses. These agencies may require additions to the allowance for credit losses based on their judgment about information available at the time of their examinations. Allowance for Credit Losses - Off-Balance Sheet Commitments In addition to the exposure to credit loss from outstanding loans, the Company is also exposed to credit loss from certain off-balance sheet commitments such as unused commitments from revolving lines of credit, certain mortgage warehouse lines of credit, construction loans and commercial and standby letters of credit. Because the available funds have not yet been disbursed on these commitments the estimated losses are not included in the calculation of the allowance for credit losses on the loan portfolio. The implementation of CECL also impacted the Company’s ACL on unfunded loan commitments, as this ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company. The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment. The funding rate represents management’s estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while any related provision expense has been moved to provision for credit loss expense from its prior presentation in noninterest expense. Prior period expense have not been reclassified for comparative purposes. Premises and Equipment Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The useful lives of premises range between twenty-five to thirty-nine years . The useful lives of furniture, fixtures and equipment range between three to twenty years . Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred. Impairment of long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets which indicate long-lived assets may be impaired. Leases Leases are classified as operating or finance leases at the lease commencement date. The Company leases certain locations classified as operating leases. The Company records leases on the balance sheet in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset. The discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of commencement or renewal. The Company does not record short term leases with an initial lease term of one year or less on the consolidated balance sheets. At lease inception, the Company determines the lease term by considering the noncancelable lease term and all optional renewal periods that the Company is reasonably certain to renew. The lease term is also used to calculate straight-line lease expense. Leasehold improvements are amortized over the shorter of the useful life and the estimated lease term. The Company’s leases do not contain residual value guarantees or material variable lease payments that will impact the Company's ability to pay dividends or cause the Company to incur additional expenses. Operating lease expense consists of a single lease cost allocated over the remaining lease term on a straight-line basis and variable lease expense. Lease expense is included in occupancy and equipment expense on the Company's 83 Table of Contents consolidated statements of income. The Company's variable lease expense includes rent escalators that are based on market conditions and include items such as common area maintenance, utilities, parking, property taxes, insurance and other costs associated with the lease. The amortization of the right-of-use asset arising from finance leases is expensed through occupancy and equipment expense. Foreclosed Assets Foreclosed assets include real estate and other property acquired in full or partial settlement of loan obligations. Upon acquisition, any excess of the recorded investment in the loan balance over the appraised fair market value, net of estimated selling costs, is charged against the allowance for credit losses on loans. A valuation allowance for losses on foreclosed assets is maintained to provide for subsequent declines in value. The allowance is established through a provision for losses on foreclosed assets which is included in other noninterest expense. Subsequent gains or losses on sales or write-downs resulting from permanent impairments are recorded in other noninterest expense as incurred. Operating costs after acquisition are expensed. The Company had no foreclosed residential real estate properties recorded at December 31, 2023. At December 31, 2023, there were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process. Goodwill and Other Intangible Assets The Company acquired Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank and the Woodlake Branch of Citizen’s Business Bank in 2017. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized but are tested for impairment at least annually or more frequently if events and circumstances exist which indicate that an impairment test should be performed. The Company selected October 1, 2023, as the date to perform the annual impairment test for 2023. Goodwill is the only intangible asset with an indefinite life on our balance sheet. There was no impairment recognized for the years ended December 31, 2023, 2022, and 2021. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. The Company’s other intangible assets consist solely of core deposit intangible assets (CDI’s) arising from the acquisitions of Santa Clara Valley Bank, Coast National Bank, Ojai Community Bank, the Woodlake Branch of Citizen’s Business Bank and the Lompoc branch of Santa Maria Community Bank. All of the CDI’s are being amortized on a straight-line basis over eight years . Loan Commitments and Related Financial Instruments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. Details regarding these commitments and financial instruments are discussed in detail in Note 14 to the consolidated financial statements. Income Taxes The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income tax expense represents each entity’s proportionate share of the consolidated provision for income taxes. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences 84 Table of Contents between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely to be realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We have determined that as of December 31, 2023, all tax positions taken to date are highly certain and, accordingly, no accounting adjustment has been made to the financial statements. The Company recognizes interest and penalties related to uncertain tax positions as part of income tax expense. Salary Continuation Agreements and Directors’ Retirement Plan The Company has entered into agreements to provide members of the Board of Directors and certain key executives, or their designated beneficiaries, with annual benefits for up to fifteen years after retirement or death. The Company accrues for these future benefits from the effective date of the plan until the director’s or executive’s expected retirement date in a systematic and rational manner. At the consolidated balance sheet date, the amount of accrued benefits equals the then present value of the benefits expected to be provided to the director or employee, any beneficiaries, and covered dependents in exchange for the director’s or employee’s services to that date. Comprehensive Income Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes fluctuations in unrealized gains and losses on securities available for sale, net of an adjustment for the effects of realized gains and losses and any applicable tax. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s available for sale securities, net of tax, are included in other comprehensive income after adjusting for the effects of realized gains and losses. Total comprehensive income and the components of accumulated other comprehensive income (loss) are presented in the consolidated statements of comprehensive income. Stock-Based Compensation At December 31, 2023, the Company had one active stock-based compensation plan, the Sierra Bancorp 2023 Equity Compensation Plan (the “2023 Plan”), which was adopted by the Company’s Board of Directors on March 17, 2023 and approved by the Company’s shareholders on May 24, 2023. The 2023 Plan replaced the Company’s 2017 Stock Incentive Plan (the “2017” Plan), which expired by its own terms on March 16, 2023. Unvested restricted stock and options to purchase shares granted under the 2017 Plan and its predecessor the 2007 Stock Incentive Plan (the “2007” Plan) that remained outstanding were unaffected by that plan’s termination. The 2023 Plan covers 360,000 shares of the Company’s authorized but unissued common stock, subject to adjustment for stock splits and dividends, and provides for the issuance of both “incentive” and “nonqualified” stock options to salaried officers and employees, and of “nonqualified” stock options to non-employee directors. The 2023 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants. Compensation cost and director’s expense is recognized for stock options and restricted stock awards issued to employees and directors and is recognized over the required service period, generally defined as the vesting period. The Company is using the Black-Scholes model to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. The “multiple option” approach for stock options is used to allocate the resulting valuation to actual expense for current period. Expected volatility is based on historical volatility of the Company’s common stock. The Company uses historical data to estimate stock option exercise and post-vesting termination behavior. The expected term of stock options granted is based on historical data and represents the period of time that options granted are expected to be outstanding subsequent to vesting, which takes into account that the options are not transferable. The risk-free interest rate for 85 Table of Contents the expected term of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant. No stock options were granted during the years ended December 31, 2023, 2022 and 2021. Revenue Recognition Revenue from contracts with customers subject to ASC 606 comprises the noninterest income earned by the Company in exchange for services provided to customers. Income associated with customer contracts generally involve transaction prices that are fixed and performance obligations which are satisfied as services are rendered. In most cases recognition occurs within a single financial reporting period as there is little or no judgement involved in the timing of revenues. We generally act in a principal capacity, on our own behalf, in most of our contracts with customers. In such transactions, we recognize revenue and the related costs to provide our services on a gross basis in our financial statements. Service Charges on Deposit Accounts comprise charges on retail and business accounts. Business customers can earn credits depending on account type and deposit balances maintained with the Company, which may be used to offset fees. Fees and credits are based on predetermined, agreed-upon rates. In some cases, we act in an agent capacity, deriving revenue through assisting other entities in transactions with our customers. In such transactions, we recognize revenue and those related costs to provide services on a gross basis in our financial statements. Debit card interchange income is derived from our customers’ use of various interchange and ATM/debit card networks which are the primary sources of revenue generated in an agent capacity. Recent Accounting Pronouncements 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 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. Results for reporting periods beginning after December 31, 2021, are presented under CECL whereas prior comparative periods are presented under legacy GAAP. 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 was adopted by the Company on January 1, 2023, and its adoption did not have a significant effect on the Company’s financial statements. On October 9, 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification of Initiative.” ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”). The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were “redundant, duplicative, overlapping, outdated, or superseded.” The new guidance is intended to align U.S. GAAP requirements with those of the SEC and to facilitate the 86 Table of Contents application of U.S. GAAP for all entities. ASU 2023-06 applies to all reporting entities within the scope of the amended subtopics. Note that some of the amendments introduced by the ASU are technical corrections or clarifications of the FASB’s current disclosure or presentation requirements. The effective date for each amendment of ASU 2023-06 will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company will apply the amendments in ASU 2023-06 prospectively after the effective dates. The adoption of this standard is not expected to have a significant effect on the Company’s financial statements. In November 2023 the FASB issued, ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is not expected to have a significant impact on our financial statements. In December 2023 the FASB issued, ASU 2023-09,“Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for us on January 1, 2025, though early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements. ​ 3. 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. 87 Table of Contents The amortized cost and fair value of the securities available-for-sale and held-to-maturity are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses ​ Allowance for Credit Losses Estimated Fair Value Available-for-sale ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 102,823 ​ $ 23 ​ $ ( 97 ) ​ $ — ​ $ 102,749 Mortgage-backed securities ​ ​ 100,745 ​ ​ 21 ​ ​ ( 1,222 ) ​ ​ — ​ ​ 99,544 State and political subdivisions ​ ​ 200,057 ​ ​ 572 ​ ​ ( 6,423 ) ​ ​ — ​ ​ 194,206 Corporate bonds ​ ​ 65,273 ​ ​ — ​ ​ ( 13,233 ) ​ ​ — ​ ​ 52,040 Collateralized loan obligations ​ ​ 573,027 ​ ​ 1,113 ​ ​ ( 3,478 ) ​ ​ — ​ ​ 570,662 Total available-for-sale securities ​ $ 1,041,925 ​ $ 1,729 ​ $ ( 24,453 ) ​ $ — ​ $ 1,019,201 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortized Cost ​ Gross Unrecognized Gains ​ Gross Unrecognized Losses ​ Estimated Fair Value ​ Allowance for Credit Losses Held-to-maturity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 5,522 ​ $ — ​ $ ( 617 ) ​ $ 4,905 ​ $ — Mortgage-backed securities ​ ​ 142,295 ​ ​ — ​ ​ ( 10,441 ) ​ ​ 131,854 ​ ​ — State and political subdivisions ​ ​ 172,256 ​ ​ 5,909 ​ ​ — ​ ​ 178,165 ​ ​ ( 16 ) Total held-to-maturity securities ​ $ 320,073 ​ $ 5,909 ​ $ ( 11,058 ) ​ $ 314,924 ​ $ ( 16 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 585 ​ ​ 1,018 ​ ​ 175,027 ​ ​ ( 63 ) Total held-to-maturity securities ​ $ 336,944 ​ $ 585 ​ $ ( 9,518 ) ​ $ 328,011 ​ $ ( 63 ) ​ The Company did not record an ACL on the available-for-sale portfolio at December 31, 2023 or upon the implementation of CECL on January 1, 2022. As of both dates the Company considers the unrealized loss across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value. The Company maintains that it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both January 1, 2022 and December 31, 2023 that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold. For the years ended December 31, 2023, 2022, and 2021, proceeds from sales of securities available-for-sale were $ 25.7 million, $ 45.9 million, and $ 0.1 million, respectively. Gains and losses on the sale of investment securities are recorded on the trade date and are determined using the specific identification method. 88 Table of Contents Gross gains and losses from the sales and calls of securities for the years ended were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 2021 Gross gains on sales and calls of securities ​ $ 396 ​ $ 1,487 ​ $ 11 Gross losses on sales and calls of securities ​ ​ — ​ ​ — ​ ​ — Net gains (losses) on sales and calls of securities ​ $ 396 ​ $ 1,487 ​ $ 11 ​ The Company has reviewed all sectors and securities in the portfolio for impairment. During the year ended December 31, 2023 the Company realized gains through earnings from the sale and call of 37 debt securities for $ 0.4 million. There were no securities sold during 2023 for which a loss was realized. During the year ended December 31, 2022, the Company realized gains through earnings from the sale and call of 54 debt securities for $ 1.5 million. There were no securities sold during 2022 for which a loss was realized. During the year ended December 31, 2021 the Company realized gains through earnings from the sale and call of 21 debt securities for $ 0.01 million. There were no securities sold during 2021 for which a loss was realized. The Company recognized a $ 14.5 million loss for the year ending December 31, 2023 on investment securities intended for sale and subsequently sold in January 2024. Included in this sale were $ 4.0 million in U.S. government agencies, $ 74.8 million in mortgage-backed securities, and $ 117.9 million in state and political subdivisions. 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 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ ​ Less than twelve months ​ Twelve months or longer ​ 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 14 ​ $ ( 97 ) ​ $ 46,823 ​ $ — ​ $ 3,929 ​ $ ( 97 ) ​ $ 50,752 Mortgage-backed securities 321 ​ ​ — ​ ​ 20 ​ ​ ( 1,222 ) ​ ​ 94,505 ​ ​ ( 1,222 ) ​ ​ 94,525 State and political subdivisions 201 ​ ​ ( 33 ) ​ ​ 6,950 ​ ​ ( 6,390 ) ​ ​ 125,283 ​ ​ ( 6,423 ) ​ ​ 132,233 Corporate bonds 51 ​ ​ ( 118 ) ​ ​ 2,316 ​ ​ ( 13,115 ) ​ ​ 49,724 ​ ​ ( 13,233 ) ​ ​ 52,040 Collateralized loan obligations 47 ​ ​ — ​ ​ — ​ ​ ( 3,478 ) ​ ​ 393,258 ​ ​ ( 3,478 ) ​ ​ 393,258 Total available-for-sale 634 ​ $ ( 248 ) ​ $ 56,109 ​ $ ( 24,205 ) ​ $ 666,699 ​ $ ( 24,453 ) ​ $ 722,808 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ Less than twelve months ​ Twelve months or longer ​ 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 ​ 89 Table of Contents The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at December 31, 2023 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without penalties (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Available-for-Sale ​ Held-to-Maturity ​ Amortized Cost Fair Value ​ Amortized Cost Fair Value Maturing within one year ​ $ 583 ​ $ 582 $ 145 ​ $ 145 Maturing after one year through five years ​ ​ 40,187 ​ ​ 39,916 ​ ​ 2,413 ​ ​ 2,384 Maturing after five years through ten years ​ ​ 156,541 ​ ​ 143,516 ​ ​ 19,895 ​ ​ 18,350 Maturing after ten years ​ ​ 170,842 ​ ​ 164,981 ​ ​ 155,325 ​ ​ 162,191 Securities not due at a single maturity date: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage-backed securities ​ ​ 100,745 ​ ​ 99,544 ​ ​ 142,295 ​ ​ 131,854 Collateralized loan obligations ​ ​ 573,027 ​ ​ 570,662 ​ ​ — ​ ​ — ​ ​ $ 1,041,925 ​ $ 1,019,201 ​ $ 320,073 ​ $ 314,924 ​ Securities with amortized costs totaling $ 570.4 million and carrying values totaling $ 551.5 million were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2023 (see Note 10). Securities available-for-sale with amortized costs totaling $ 186.7 million and estimated fair values totaling $ 183.5 million were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2022 (see Note 10). At December 31, 2023, the Company’s investment portfolio included securities issued by 398 different government municipalities and agencies located within 36 states with a fair value of $ 372.4 million. The largest exposure to any single municipality or agency was $ 5.3 million (fair value) in four 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). The Company’s investments in bonds issued by states, municipalities and political subdivisions are evaluated in accordance with Supervision and Regulation Letter 12-15 (SR 12-15) issued by the Board of Governors of the Federal Reserve System, “Investing in Securities without Reliance on Nationally Recognized Statistical Rating Organization Ratings”, 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. 90 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 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 General obligation bonds Amortized Cost Fair Value Amortized Cost Fair Value State of Issuance: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ $ 146,215 ​ $ 146,589 ​ $ 153,209 ​ $ 146,667 California ​ ​ 63,316 ​ ​ 61,048 ​ ​ 65,758 ​ ​ 60,701 Washington ​ ​ 20,212 ​ ​ 20,400 ​ ​ 21,635 ​ ​ 21,312 Other (29 and 29 states, respectively) ​ ​ 94,936 ​ ​ 96,606 ​ ​ 102,336 ​ ​ 100,480 Total general obligation bonds ​ ​ 324,679 ​ ​ 324,643 ​ ​ 342,938 ​ ​ 329,160 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue bonds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State of Issuance: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ ​ 8,850 ​ ​ 8,899 ​ ​ 9,216 ​ ​ 8,840 California ​ ​ 3,794 ​ ​ 3,735 ​ ​ 3,788 ​ ​ 3,673 Washington ​ ​ 4,035 ​ ​ 3,591 ​ ​ 4,083 ​ ​ 3,490 Other (20 and 20 states, respectively) ​ ​ 30,955 ​ ​ 31,503 ​ ​ 37,209 ​ ​ 35,844 Total revenue bonds ​ ​ 47,634 ​ ​ 47,728 ​ ​ 54,296 ​ ​ 51,847 Total obligations of states and political subdivisions ​ $ 372,313 ​ $ 372,371 ​ $ 397,234 ​ $ 381,007 ​ The following table summarizes the amortized cost and fair value of revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the revenue source of repayment for our largest source concentrations (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 Revenue bonds Amortized Cost Fair Value Amortized Cost Fair Value Revenue Source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Water ​ $ 19,113 ​ $ 19,158 ​ $ 21,246 ​ $ 19,977 Sewer ​ ​ 6,323 ​ ​ 6,380 ​ ​ 6,560 ​ ​ 6,405 Lease ​ ​ 6,070 ​ ​ 6,312 ​ ​ 7,035 ​ ​ 7,250 Sales tax ​ ​ 4,349 ​ ​ 4,010 ​ ​ 4,123 ​ ​ 3,934 Other (10 and 10 sources, respectively) ​ ​ 11,779 ​ ​ 11,868 ​ ​ 15,332 ​ ​ 14,281 Total revenue bonds ​ $ 47,634 ​ $ 47,728 ​ $ 54,296 ​ $ 51,847 ​ ​ 4. 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. Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the current guidance and have not been included below as of December 31, 2023. Under CECL, disclosures are required on the amortized cost basis, whereas legacy GAAP required presentation on the recorded investment basis, with the primary difference being net deferred fees and costs. Unless specifically noted otherwise, December 31, 2023 and 2022 disclosures are prepared on the amortized cost basis and December 31, 2021 disclosures present information according to the recorded investment basis. Accrued interest receivable on loans of $ 5.6 million and $ 6.4 million at December 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 residential real estate 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 combines certain related call report or call code classification. The final table in this section separates a roll forward 91 Table of Contents of the Allowance for Credit Losses at the portfolio segment level. The following table presents loans by class as of December 31, 2023 and December 31, 2022 (dollars in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Real estate: ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ 412,063 ​ ​ 437,446 Commercial real estate ​ ​ 1,328,224 ​ ​ 1,311,158 Other construction/land ​ ​ 6,256 ​ ​ 18,412 Farmland ​ ​ 67,276 ​ ​ 113,394 Total real estate ​ ​ 1,813,819 ​ ​ 1,880,410 Other commercial ​ ​ 156,272 ​ ​ 102,967 Mortgage warehouse lines ​ ​ 116,000 ​ ​ 65,439 Consumer loans ​ ​ 3,984 ​ ​ 4,124 Subtotal ​ ​ 2,090,075 ​ ​ 2,052,940 Plus (less) net deferred loan fees and costs ​ ​ 309 ​ ​ ( 123 ) Allowance for credit losses on loans ​ ​ ( 23,500 ) ​ ​ ( 23,060 ) Net loans ​ $ 2,066,884 ​ $ 2,029,757 ​ The following tables present the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of December 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Nonaccrual Loans ​ ​ ​ ​ With no allowance for credit loss With an allowance for credit loss ​ Total ​ Loans Past Due 90+ Accruing Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ 414 ​ ​ — ​ ​ 414 ​ ​ — Commercial real estate ​ ​ — ​ ​ 7,457 ​ ​ 7,457 ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate ​ ​ 414 ​ ​ 7,457 ​ ​ 7,871 ​ ​ — Other commercial ​ ​ 114 ​ ​ — ​ ​ 114 ​ ​ 14 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ 528 ​ $ 7,457 ​ $ 7,985 ​ $ 14 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ 688 ​ ​ — ​ ​ 688 ​ ​ — Farmland ​ ​ 15,812 ​ ​ — ​ ​ 15,812 ​ ​ — Total real estate ​ ​ 16,500 ​ ​ — ​ ​ 16,500 ​ ​ — Other commercial ​ ​ 2,909 ​ ​ 163 ​ ​ 3,072 ​ ​ 940 Consumer loans ​ ​ — ​ ​ 7 ​ ​ 7 ​ ​ — Total ​ $ 19,409 ​ $ 170 ​ $ 19,579 ​ $ 940 ​ The Company did not recognize any interest on nonaccrual loans during 2023, 2022, or 2021 and would have recognized an additional $ 0.1 million, $ 1.0 million, and $ 0.4 million in interest income on nonaccrual loans for the same periods, respectively, had those loans not been designated as nonaccrual. ​ 92 Table of Contents The following tables present the amortized cost basis of collateral-dependent loans by class as of December 31, 2022 and 2023 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ Amortized Cost ​ Individual Reserves Real estate: ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ 414 ​ ​ — Commercial real estate ​ ​ 7,457 ​ ​ 1,600 Other construction/land ​ $ — ​ $ — Farmland ​ ​ — ​ ​ — Total real estate ​ ​ 7,871 ​ ​ 1,600 Other commercial ​ ​ 114 ​ ​ — Mortgage warehouse lines ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — Total ​ $ 7,985 ​ $ 1,600 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Amortized Cost ​ Individual Reserves Real estate: ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ 688 ​ ​ — Commercial real estate ​ ​ — ​ ​ — Other construction/land ​ ​ — ​ ​ — Farmland ​ ​ 15,812 ​ ​ — Total real estate ​ ​ 16,500 ​ ​ — Other commercial ​ ​ 3,043 ​ ​ 39 Mortgage warehouse lines ​ ​ — ​ ​ — Consumer loans ​ ​ — ​ ​ — Total ​ $ 19,543 ​ $ 39 ​ The weighted average loan-to-value ratio of collateral dependent loans was 54 % at December 31, 2023 and 67 % at December 31, 2022. There were no collateral dependent loans in the process of foreclosure as of December 31, 2023 and four collateral dependent loans in the process of foreclosure as of December 31, 2022. ​ 93 Table of Contents The following tables present the aging of the amortized cost basis in past-due loans, according to class, as of December 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ ​ 1,768 ​ ​ — ​ ​ — ​ ​ 1,768 ​ ​ 411,494 ​ ​ 413,262 Commercial real estate ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,325,494 ​ ​ 1,325,494 Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 6,268 ​ $ 6,268 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 67,510 ​ ​ 67,510 Total real estate ​ ​ 1,768 ​ ​ — ​ ​ — ​ ​ 1,768 ​ ​ 1,810,766 ​ ​ 1,812,534 Other commercial ​ ​ 158 ​ ​ 171 ​ ​ 14 ​ ​ 343 ​ ​ 157,417 ​ ​ 157,760 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 116,000 ​ ​ 116,000 Consumer loans ​ ​ 47 ​ ​ — ​ ​ — ​ ​ 47 ​ ​ 4,043 ​ ​ 4,090 Total loans ​ $ 1,973 ​ $ 171 ​ $ 14 ​ $ 2,158 ​ $ 2,088,226 ​ $ 2,090,384 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ 1,294 ​ $ 87 ​ $ 179 ​ $ 1,560 ​ $ 437,171 ​ $ 438,731 Commercial real estate ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,308,328 ​ ​ 1,308,328 Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 18,358 ​ ​ 18,358 Farmland ​ ​ 522 ​ ​ 97 ​ ​ 15,393 ​ ​ 16,012 ​ ​ 97,582 ​ ​ 113,594 Total real estate ​ ​ 1,816 ​ ​ 184 ​ ​ 15,572 ​ ​ 17,572 ​ ​ 1,861,439 ​ ​ 1,879,011 Other commercial ​ ​ 19 ​ ​ 134 ​ ​ 3,718 ​ ​ 3,871 ​ ​ 100,264 ​ ​ 104,135 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 Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, rate reductions, payment deferral, or term extension. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. In some cases, the Company provides multiple types on concessions on one loan. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period. The combination is at least two of the following: principal forgiveness, rate reductions, payment deferral, and/or term extension. ​ ​ 94 Table of Contents The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2023, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ Principal Forgiveness ​ Term Extension ​ Combination Term Extension Interest Rate Reduction ​ Total Class of Financing Receivable Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ — ​ $ — ​ $ 26 ​ ​ 0.01 % Commercial real estate ​ ​ — ​ ​ — ​ ​ 148 ​ ​ 0.01 % Total real estate ​ ​ — ​ ​ — ​ ​ 174 ​ ​ 0.01 % Other commercial ​ ​ — ​ ​ 277 ​ ​ — ​ ​ 0.18 % Consumer loans ​ ​ — ​ ​ 25 ​ ​ — ​ ​ 0.61 % Total ​ $ — ​ $ 302 ​ $ 174 ​ ​ 0.02 % ​ The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Principal Forgiveness ​ Weighted-Average Interest Rate Reduction ​ ​ Weighted-Average Term Extension (years) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential real estate ​ $ — ​ ​ 1.25 % ​ ​ 14.30 Commercial real estate ​ $ — ​ ​ 5.31 % ​ ​ 15.67 Other commercial ​ $ — ​ ​ — ​ ​ 4.76 Consumer loans ​ $ — ​ ​ — ​ ​ 7.11 ​ During the year ending December 31, 2023, there were no payment defaults, within a twelve month period of the modification date on loans identified as modifications made to borrowers experiencing financial difficulty. For purposes of this disclosure the Company defines a payment default as 90 days past due. In estimating the allowance for credit losses, the Company considers the performance of accruing loans which have been identified as modifications made to borrower’s experiencing financial difficulty in the same way it considers the performance of other collectively evaluated accruing loans. Loan modifications made to borrowers experiencing financial difficulty which have been placed on nonaccrual status are subject to an individual reserve evaluation. ​ ​ 95 Table of Contents For the year ended December 31, 2022, under the legacy troubled debt restructuring (TDR) guidance, there were no new TDRs and no modifications of existing TDRs. The tables below summarize TDRs which were modified during the year ended December 31, 2021, by type of concession. ​ Troubled Debt Restructurings, by Type of Loan Modification ( dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 Rate Term Interest Only Rate & Term Term & Interest ​ ​ ​ Modification ​ Modification ​ Modification ​ Modification ​ Modification ​ Total Troubled debt restructurings ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ — ​ — ​ — ​ — ​ — ​ — Equity lines ​ — ​ — ​ — ​ — ​ — ​ — Multi-family residential ​ — ​ 1,000 ​ — ​ 83 ​ — ​ 1,083 Commercial real estate owner occupied ​ — ​ — ​ — ​ — ​ — ​ — Commercial real estate non-owner occupied ​ — ​ 136 ​ — ​ — ​ — ​ 136 Farmland ​ — ​ — ​ — ​ — ​ — ​ — Total real estate loans ​ — ​ 1,136 ​ — ​ 83 ​ — ​ 1,219 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ — ​ 118 ​ — ​ — ​ — ​ 118 Commercial and industrial ​ — ​ 185 ​ — ​ — ​ — ​ 185 Consumer loans ​ — ​ 44 ​ — ​ — ​ 23 ​ 67 Small Business Administration Loans ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ — ​ $ 1,483 ​ $ — ​ $ 83 ​ $ 23 ​ $ 1,589 ​ Troubled Debt Restructurings (dollars in thousand) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-Modification ​ Post-Modification ​ ​ ​ ​ ​ ​ ​ ​ Outstanding ​ Outstanding ​ ​ ​ ​ ​ Number of ​ Recorded ​ Recorded ​ Reserve December 31, 2021 Loans Investment Investment Difference (1) Real estate: ​ ​ ​ ​ Other construction/land ​ — ​ $ — ​ $ — ​ $ — 1-4 family - closed-end ​ — ​ — ​ — ​ — Equity lines ​ — ​ — ​ — ​ — Multi-family residential ​ 2 ​ 1,083 ​ 1,083 ​ — Commercial real estate - owner occupied ​ — ​ — ​ — ​ — Commercial real estate - non-owner occupied ​ 1 ​ 137 ​ 136 ​ ( 1 ) Farmland ​ — ​ — ​ — ​ — Total real estate loans ​ ​ ​ ​ 1,220 ​ 1,219 ​ ( 1 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ 1 ​ 118 ​ 118 ​ 116 Commercial and industrial ​ 1 ​ 185 ​ 185 ​ ( 1 ) Consumer loans ​ 3 ​ 67 ​ 67 ​ 2 Total ​ ​ ​ ​ $ 1,590 ​ $ 1,589 ​ $ 116 ​ The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during years ending December 31, 2022 and 2021. Credit Quality The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention and substandard to characterize and qualify the associated credit risk. Loans classified as “loss” are immediately charged-off. The Company uses the following definitions of risk classifications: Pass – Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis. 96 Table of Contents 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 December 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ ​ 2022 ​ ​ 2021 ​ ​ 2020 ​ ​ 2019 ​ ​ Prior ​ Revolving Loans Amortized Cost ​ Revolving Loans Converted to Term Loans ​ Total Loans Residential real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ - ​ $ 104,141 ​ $ 228,849 ​ $ 7,611 ​ $ 1,979 ​ $ 50,295 ​ $ 12,797 ​ $ 2,302 ​ $ 407,974 Special mention ​ ​ - ​ ​ - ​ ​ 1,241 ​ ​ - ​ ​ - ​ ​ 2,942 ​ ​ 20 ​ ​ 284 ​ ​ 4,487 Substandard ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 494 ​ ​ 115 ​ ​ 192 ​ ​ 801 Subtotal ​ ​ - ​ ​ 104,141 ​ ​ 230,090 ​ ​ 7,611 ​ ​ 1,979 ​ ​ 53,731 ​ ​ 12,932 ​ ​ 2,778 ​ ​ 413,262 Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 112,254 ​ ​ 275,626 ​ ​ 58,310 ​ ​ 475,353 ​ ​ 51,100 ​ ​ 251,163 ​ ​ 22,929 ​ ​ - ​ ​ 1,246,735 Special mention ​ ​ 148 ​ ​ - ​ ​ - ​ ​ 39,654 ​ ​ 3,010 ​ ​ 8,489 ​ ​ - ​ ​ - ​ ​ 51,301 Substandard ​ ​ - ​ ​ - ​ ​ - ​ ​ 21,872 ​ ​ - ​ ​ 5,586 ​ ​ - ​ ​ - ​ ​ 27,458 Subtotal ​ ​ 112,402 ​ ​ 275,626 ​ ​ 58,310 ​ ​ 536,879 ​ ​ 54,110 ​ ​ 265,238 ​ ​ 22,929 ​ ​ - ​ ​ 1,325,494 Other construction/land ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 352 ​ ​ - ​ ​ - ​ ​ 3,646 ​ ​ 638 ​ ​ 1,632 ​ ​ - ​ ​ - ​ ​ 6,268 Substandard ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - Subtotal ​ ​ 352 ​ ​ - ​ ​ - ​ ​ 3,646 ​ ​ 638 ​ ​ 1,632 ​ ​ - ​ ​ - ​ ​ 6,268 Farmland ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 6,731 ​ ​ 11,645 ​ ​ 11,793 ​ ​ 2,650 ​ ​ 1,652 ​ ​ 11,608 ​ ​ 2,750 ​ ​ 394 ​ ​ 49,223 Special mention ​ ​ - ​ ​ - ​ ​ - ​ ​ 840 ​ ​ - ​ ​ 10,471 ​ ​ - ​ ​ - ​ ​ 11,311 Substandard ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 6,976 ​ ​ - ​ ​ - ​ ​ 6,976 Subtotal ​ ​ 6,731 ​ ​ 11,645 ​ ​ 11,793 ​ ​ 3,490 ​ ​ 1,652 ​ ​ 29,055 ​ ​ 2,750 ​ ​ 394 ​ ​ 67,510 Other commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 18,319 ​ ​ 6,501 ​ ​ 2,666 ​ ​ 6,622 ​ ​ 4,534 ​ ​ 9,354 ​ ​ 101,163 ​ ​ 1,171 ​ ​ 150,330 Special mention ​ ​ - ​ ​ - ​ ​ 273 ​ ​ 2,783 ​ ​ - ​ ​ 128 ​ ​ 143 ​ ​ 3,748 ​ ​ 7,075 Substandard ​ ​ - ​ ​ - ​ ​ 55 ​ ​ - ​ ​ - ​ ​ - ​ ​ 208 ​ ​ 92 ​ ​ 355 Subtotal ​ ​ 18,319 ​ ​ 6,501 ​ ​ 2,994 ​ ​ 9,405 ​ ​ 4,534 ​ ​ 9,482 ​ ​ 101,514 ​ ​ 5,011 ​ ​ 157,760 Mortgage warehouse lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 116,000 ​ ​ - ​ ​ 116,000 Subtotal ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 116,000 ​ ​ - ​ ​ 116,000 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 1,366 ​ ​ 229 ​ ​ 102 ​ ​ 82 ​ ​ 67 ​ ​ 177 ​ ​ 1,949 ​ ​ - ​ ​ 3,972 Special mention ​ ​ - ​ ​ - ​ ​ - ​ ​ 15 ​ ​ - ​ ​ 35 ​ ​ 13 ​ ​ - ​ ​ 63 Substandard ​ ​ 55 ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 55 Subtotal ​ ​ 1,421 ​ ​ 229 ​ ​ 102 ​ ​ 97 ​ ​ 67 ​ ​ 212 ​ ​ 1,962 ​ ​ - ​ ​ 4,090 Total ​ $ 139,225 ​ $ 398,142 ​ $ 303,289 ​ $ 561,128 ​ $ 62,980 ​ $ 359,350 ​ $ 258,087 ​ $ 8,183 ​ $ 2,090,384 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross charge-offs ​ ​ 2,145 ​ ​ 45 ​ ​ 250 ​ ​ 2,266 ​ ​ 81 ​ ​ 1,345 ​ ​ 489 ​ ​ ​ ​ ​ 6,621 ​ 97 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Term Loans Amortized Cost Basis by Origination Year ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ 2021 ​ 2020 ​ 2019 ​ 2018 ​ Prior ​ Revolving Loans Amortized Cost ​ Revolving Loans Converted to Term Loans ​ Total Loans Residential real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 107,744 ​ $ 239,044 ​ $ 7,814 ​ $ 2,066 ​ $ 10,723 ​ $ 49,282 ​ $ 15,970 ​ $ 1,825 ​ $ 434,468 Special mention ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 89 ​ ​ 1,584 ​ ​ 36 ​ ​ 970 ​ ​ 2,679 Substandard ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 31 ​ ​ 1,201 ​ ​ - ​ ​ 352 ​ ​ 1,584 Subtotal ​ ​ 107,744 ​ ​ 239,044 ​ ​ 7,814 ​ ​ 2,066 ​ ​ 10,843 ​ ​ 52,067 ​ ​ 16,006 ​ ​ 3,147 ​ ​ 438,731 Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 276,728 ​ ​ 62,764 ​ ​ 474,494 ​ ​ 56,419 ​ ​ 82,595 ​ ​ 221,447 ​ ​ 22,158 ​ ​ - ​ ​ 1,196,605 Special mention ​ ​ 296 ​ ​ - ​ ​ 73,002 ​ ​ 3,068 ​ ​ - ​ ​ 7,299 ​ ​ - ​ ​ - ​ ​ 83,665 Substandard ​ ​ - ​ ​ - ​ ​ 14,733 ​ ​ - ​ ​ 7,144 ​ ​ 6,181 ​ ​ - ​ ​ - ​ ​ 28,058 Subtotal ​ ​ 277,024 ​ ​ 62,764 ​ ​ 562,229 ​ ​ 59,487 ​ ​ 89,739 ​ ​ 234,927 ​ ​ 22,158 ​ ​ - ​ ​ 1,308,328 Other construction/land ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ - ​ ​ - ​ ​ 14,896 ​ ​ 734 ​ ​ 955 ​ ​ 1,010 ​ ​ 693 ​ ​ - ​ ​ 18,288 Substandard ​ ​ - ​ ​ - ​ ​ 70 ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 70 Subtotal ​ ​ - ​ ​ - ​ ​ 14,966 ​ ​ 734 ​ ​ 955 ​ ​ 1,010 ​ ​ 693 ​ ​ - ​ ​ 18,358 Farmland ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 30,346 ​ ​ 12,941 ​ ​ 4,504 ​ ​ 1,819 ​ ​ 9,418 ​ ​ 24,175 ​ ​ 3,976 ​ ​ 420 ​ ​ 87,599 Special mention ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 7,045 ​ ​ 3,042 ​ ​ - ​ ​ - ​ ​ 10,087 Substandard ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 3,417 ​ ​ 12,491 ​ ​ - ​ ​ - ​ ​ 15,908 Subtotal ​ ​ 30,346 ​ ​ 12,941 ​ ​ 4,504 ​ ​ 1,819 ​ ​ 19,880 ​ ​ 39,708 ​ ​ 3,976 ​ ​ 420 ​ ​ 113,594 Other commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 7,478 ​ ​ 6,350 ​ ​ 7,913 ​ ​ 6,028 ​ ​ 5,178 ​ ​ 10,579 ​ ​ 47,998 ​ ​ 167 ​ ​ 91,691 Special mention ​ ​ - ​ ​ 129 ​ ​ 3,067 ​ ​ 44 ​ ​ - ​ ​ 1,616 ​ ​ 3,773 ​ ​ 660 ​ ​ 9,289 Substandard ​ ​ 1 ​ ​ 2,798 ​ ​ 28 ​ ​ - ​ ​ 28 ​ ​ 133 ​ ​ - ​ ​ 167 ​ ​ 3,155 Subtotal ​ ​ 7,479 ​ ​ 9,277 ​ ​ 11,008 ​ ​ 6,072 ​ ​ 5,206 ​ ​ 12,328 ​ ​ 51,771 ​ ​ 994 ​ ​ 104,135 Mortgage warehouse lines ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 65,439 ​ ​ - ​ ​ 65,439 Subtotal ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 65,439 ​ ​ - ​ ​ 65,439 Consumer loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 1,162 ​ ​ 203 ​ ​ 138 ​ ​ 127 ​ ​ 4 ​ ​ 375 ​ ​ 2,148 ​ ​ - ​ ​ 4,157 Special mention ​ ​ 5 ​ ​ - ​ ​ 35 ​ ​ 16 ​ ​ - ​ ​ - ​ ​ 11 ​ ​ - ​ ​ 67 Substandard ​ ​ 8 ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 8 Subtotal ​ ​ 1,175 ​ ​ 203 ​ ​ 173 ​ ​ 143 ​ ​ 4 ​ ​ 375 ​ ​ 2,159 ​ ​ - ​ ​ 4,232 Total ​ $ 731,138 ​ $ 399,934 ​ $ 1,182,393 ​ $ 132,361 ​ $ 237,201 ​ $ 616,060 ​ $ 189,029 ​ $ 4,981 ​ $ 2,052,817 ​ 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 December 31, 2023 the Company had no loans categorized as PCD. As noted in footnote 2, 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 98 Table of Contents 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 December 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-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 99 Table of Contents ● Changes in loan categorization concentrations ● Other external factors, which include, the influence of peer data on estimated quantitative reserves, 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. The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 Family Real Estate ​ Commercial Real Estate Farmland & Agricultural Production Commercial & Industrial ​ Mortgage Warehouse Consumer Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2021 ​ $ 1,909 ​ $ 9,052 ​ $ 1,202 ​ $ 1,060 ​ $ 512 ​ $ 521 ​ $ 14,256 Impact of adopting ASC 326 ​ ​ 611 ​ ​ 9,628 ​ ​ ( 480 ) ​ ​ 358 ​ ​ ( 421 ) ​ ​ ( 242 ) ​ ​ 9,454 Charge-offs ​ ​ — ​ ​ ( 1,911 ) ​ ​ ( 9,205 ) ​ ​ ( 322 ) ​ ​ — ​ ​ ( 1,396 ) ​ ​ ( 12,834 ) Recoveries ​ ​ 99 ​ ​ 260 ​ ​ — ​ ​ 163 ​ ​ — ​ ​ 764 ​ ​ 1,286 Provision for credit losses ​ ​ 632 ​ ​ 703 ​ ​ 8,941 ​ ​ ( 26 ) ​ ​ ( 19 ) ​ ​ 667 ​ ​ 10,898 Balance, December 31, 2022 ​ $ 3,251 ​ $ 17,732 ​ $ 458 ​ $ 1,233 ​ $ 72 ​ $ 314 ​ $ 23,060 Charge-offs ​ ​ ( 30 ) ​ ​ ( 2,266 ) ​ ​ ( 1,277 ) ​ ​ ( 1,320 ) ​ ​ — ​ ​ ( 1,728 ) ​ ​ ( 6,621 ) Recoveries ​ ​ 205 ​ ​ 17 ​ ​ 1,370 ​ ​ 425 ​ ​ — ​ ​ 986 ​ ​ 3,003 Provision for credit losses ​ ​ ( 699 ) ​ ​ 3,071 ​ ​ 35 ​ ​ 810 ​ ​ 102 ​ ​ 739 ​ ​ 4,058 Balance, December 31, 2023 ​ $ 2,727 ​ $ 18,554 ​ $ 586 ​ $ 1,148 ​ $ 174 ​ $ 311 ​ $ 23,500 ​ ​ 5. PREMISES AND EQUIPMENT Premises and equipment at cost consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Land ​ $ 2,694 ​ $ 4,823 Buildings and improvements ​ ​ 11,919 ​ ​ 21,170 Furniture, fixtures and equipment ​ ​ 17,857 ​ ​ 18,948 Leasehold improvements ​ ​ 14,699 ​ ​ 14,732 Total premises and equipment, gross ​ ​ 47,169 ​ ​ 59,673 ​ ​ ​ ​ ​ ​ ​ Less accumulated depreciation and amortization ​ ​ 30,262 ​ ​ 37,195 Total premises and equipment, net ​ $ 16,907 ​ $ 22,478 ​ Depreciation and amortization included in occupancy and equipment expense totaled $ 2.2 million, $ 2.4 million, and $ 3.1 million, for the years ended December 31, 2023, 2022, and 2021, respectively. ​ 6. OPERATING LEASES The Company leases space under non-cancelable operating leases for 28 branch locations, four off-site ATM locations, one administrative building, three loan production offices and a warehouse. Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., 100 Table of Contents common-area or other maintenance costs). Payments for taxes and insurance as well as non-lease components are not included in the accounting of the lease component, but are separately accounted for in occupancy expense. The Company recognized lease expense of $ 2.3 million for the year ended December 31, 2023 and $ 2.2 million for the years ended December 31, 2022 and 2021. Most leases include one or more renewal options available to exercise. The exercise of lease renewal options is typically at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in our right-of-use assets and lease liabilities as they are not reasonably certain of exercise. We regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease term. As most of our leases do not provide an implicit rate, we used our incremental borrowing rate in determining the present value of the lease payments. There were no leveraged leases or lease transactions with related parties during the years ending December 31, 2023 and 2022. In December 2023 the Company completed a sale and leaseback transaction on 11 branch buildings with a book value of $ 4.8 million, for a gain on sale of $ 15.3 million. These branch buildings were subsequently leased back to the Company and are reflected in the tables in this footnote. This sale and leaseback transaction resulted in additions to the Company’s right of use asset and operating lease liability of $ 18.0 million and $ 13.8 million, respectively at the year ended December 31, 2023. The new leases have an average life of 18 years . There were no sale and leaseback transactions during the year ended December 31, 2022. At December 31, 2023, the Company’s right-of-use assets and operating lease liabilities were $ 25.8 million and $ 21.9 million, respectively. The weighted average remaining lease term for the lease liabilities was 13.3 years, and the weighted average discount rate of remaining payments was 8.4 percent. At December 31, 2022, the Company’s right-of-use assets and operating lease liabilities were $ 6.9 million and $ 7.3 million, respectively. The weighted average remaining lease term for the lease liabilities was 5.8 years, and the weighted average discount rate of remaining payments was 4.7 percent for the year ended December 31, 2022. Lease liabilities from new right-of-use assets obtained during the year ending December 31, 2023 and December 31, 2022 were $ 20.7 million and $ 3.3 million, respectively. There was $ 0.2 million, $ 0.03 million, and $ 0.008 million in variable lease costs for the years ending December 31, 2023, 2022, and 2021, respectively. Cash paid on operating leases was $ 2.3 million for both of the years ending December 31, 2023 and 2022, respectively. Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2023 are as follows (dollars in thousands): ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ ​ 2024 $ 3,625 2025 ​ ​ 3,330 2026 ​ ​ 3,019 2027 ​ ​ 2,907 2028 ​ ​ 2,375 Thereafter ​ ​ 24,283 Total undiscounted lease payments ​ $ 39,539 Less: imputed interest ​ ​ ( 17,593 ) Net lease liabilities ​ $ 21,946 ​ The Company generally has options to renew its facilities leases after the initial leases expire. The renewal options range from one to ten years . ​ 7. GOODWILL AND INTANGIBLE ASSETS Goodwill The balance of goodwill at the years beginning and ended December 31, 2023, 2022 and 2021 was $ 27.4 million. There was no acquired goodwill or impairment for the years ended December 31, 2023, 2022 and 2021. 101 Table of Contents The Company performs its annual goodwill impairment tests annually, or more often if events or circumstances indicate the carrying value may not be recoverable. The annual assessment date was changed to October 1 in 2023 as it was December 31 in 2022, to allow more time for evaluation of impairment. The Company performed a Step 1 goodwill impairment assessment as of October 1, 2023 using a market approach. Based on the results of the Company’s goodwill impairment assessment, the Company determined that the fair value of its reporting unit, which was at the consolidated level, exceeded the carrying value. Therefore, goodwill was not impaired as of December 31, 2023 and there was no impairment charges related to the Company’s goodwill recorded during the year ended December 31, 2023. Acquired Intangible Assets Acquired intangible assets were as follows at year-end (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2023 ​ 2022 ​ Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Core deposit intangibles ​ $ 8,401 ​ $ 7,002 ​ $ 8,401 ​ $ 6,126 ​ Aggregate amortization expense was $ 0.9 million, $ 1.0 million, and $ 1.0 million for 2023, 2022, and 2021. Estimated amortization expense for each of the next five years and thereafter (dollars in thousands): ​ ​ ​ ​ 2024 $ 781 2025 ​ ​ 566 2026 ​ ​ 52 2027 ​ ​ — 2028 ​ ​ — Thereafter ​ ​ — Total ​ $ 1,399 ​ ​ 8. OTHER ASSETS Other assets consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Accrued interest receivable ​ $ 20,347 ​ $ 18,354 Deferred tax assets ​ ​ 28,682 ​ ​ 34,984 Investment in qualified affordable housing projects ​ ​ 14,390 ​ ​ 10,051 Investment in limited partnerships ​ ​ 4,359 ​ ​ 4,359 Investment in SBA loan fund ​ ​ 25,000 ​ ​ 25,000 Federal Home Loan Bank stock, at cost ​ ​ 14,657 ​ ​ 12,729 Other ​ ​ 40,385 ​ ​ 20,142 Total ​ $ 147,820 ​ $ 125,619 ​ The Company holds ownership interests in limited partnerships and limited liability companies that invest in affordable housing, and small business investment companies which are included in other assets. These investments are designed to generate a return primarily through the realization of federal tax credits and deductions, which may be subject to recapture by taxing authorities if compliance requirements are not met, or for CRA credits. The Company accounts for its low income housing investments using the proportional amortization method and management analyzes these investments annually for potential impairment. The Company evaluates its interests in these entities to determine whether it has a variable interest and whether it is required to consolidate these entities. A variable interest is an investment or other interest that will absorb portions of an entity's expected losses or receive 102 Table of Contents portions of the entity's expected residual returns. If the Company determines it has a variable interest in an entity, it evaluates whether such interest is in a Variable Interest Entity (“VIE”). A VIE is broadly defined as an entity where either: 1) The equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance; 2) The equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support. The Company is required to consolidate any VIE when it is determined to be the primary beneficiary of the VIE's operations. A variable interest holder is considered to be the primary beneficiary of a VIE if it has both the power to direct the activities of a VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company’s assessment of whether it is the primary beneficiary of a VIE includes consideration of various factors such as: 1) The Company's ability to direct the activities that most significantly impact the entity's economic performance; 2) its form of ownership interest; 3) its representation on the entity's governing body; 4) the size and seniority of its investment, the maximum of which is four percent; 5) its ability and the rights of other investors to participate in policy making decisions and to replace the manager of and/or liquidate the entity. The Company is required to evaluate whether to consolidate a VIE both at inception and on an ongoing basis as changes in circumstances require reconsideration. The Company’s investments in qualified affordable housing projects, and small business investment companies meet the definition of a VIE as the entities are structured such that the limited partner investors lack substantive voting rights. The Company, as a limited partner, is liable only to make the payments due on its subscription and is not liable for the debts, liabilities, contracts or other obligations of the Partnership. The Company had $10.5 million in remaining capital commitments to these partnerships at December 31, 2023. The general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Accordingly, as a limited partner, the Company is not the primary beneficiary and is not required to consolidate these entities. ​ The Company accounts for its investment in limited partnerships which invest in small business investment companies under the cost method. Under this method, the investments are initially recorded at their historical cost. Dividends received from these investments is recorded in Other Income in the Income Statement. Management analyzes these investments annually for potential impairment. The Company holds certain equity investments that are not readily marketable securities and thus are classified as “other assets” on the Company’s balance sheet. These include investments in Pacific Coast Bankers Bancshares, California Economic Development Lending Initiative, and the Federal Home Loan Bank (“FHLB”). The largest of these is the Company’s $ 14.7 million investment in FHLB stock, carried at cost. Quarterly, the FHLB evaluates and adjusts the Company’s minimum stock requirement based on the Company’s borrowing activity and membership requirements. Any stock deemed in excess is automatically repurchased by the FHLB at cost. ​ 103 Table of Contents ​ 9. DEPOSITS Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at year-ends 2023 and 2022 were $ 162.2 million and $ 97.8 million, respectively. Aggregate annual maturities of time deposits were as follows (dollars in thousands): ​ ​ ​ ​ Year Ending December 31, ​ ​ ​ 2024 $ 568,685 2025 ​ ​ 17,738 2026 ​ ​ 35,897 2027 ​ ​ 41,101 2028 ​ ​ 25,678 Thereafter ​ ​ 1,008 Total ​ $ 690,107 ​ Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Interest bearing demand deposits ​ $ 1,429 ​ $ 485 ​ $ 331 NOW ​ ​ 289 ​ ​ 322 ​ ​ 444 Savings ​ ​ 269 ​ ​ 278 ​ ​ 240 Money market ​ ​ 710 ​ ​ 95 ​ ​ 111 Time deposits ​ ​ 23,214 ​ ​ 4,914 ​ ​ 1,039 Brokered Deposits ​ ​ 5,643 ​ ​ 725 ​ ​ 225 Total ​ $ 31,554 ​ $ 6,819 ​ $ 2,390 ​ ​ 10. OTHER BORROWING ARRANGEMENTS At year end, short-term borrowings consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ Average balance outstanding Amount Average interest rate during the year Maximum month-end balance during the year Weighted average interest rate at year-end As of December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Repurchase agreements ​ $ 90,294 ​ $ 107,121 ​ 0.27 % ​ $ 107,121 ​ 0.27 % Short term borrowings ​ ​ 225,437 ​ ​ 280,500 ​ 5.34 % ​ ​ 219,000 ​ 5.34 % Total ​ $ 315,731 ​ $ 387,621 ​ ​ ​ $ 326,121 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ Average balance outstanding Amount Average interest rate during the year Maximum month-end balance during the year Weighted average interest rate at year-end As of December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Repurchase agreements ​ $ 110,387 ​ $ 109,169 ​ 0.29 % ​ $ 118,014 ​ 0.29 % Short term borrowings ​ ​ 47,708 ​ ​ 219,000 ​ 3.67 % ​ ​ 219,000 ​ 3.67 % Total ​ $ 158,095 ​ $ 328,169 ​ ​ ​ $ 337,014 ​ ​ ​ 104 Table of Contents At year end, long-term advances from FHLB consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ ​ 2022 ​ ​ ​ Amount ​ Fixed rate ​ Weighted average interest rate ​ ​ Amount ​ Fixed rate ​ Weighted average interest rate As of December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal Home Loan Bank advances, maturing 2026 ​ $ 25,000 ​ 3.96 % ​ 3.96 % ​ $ — ​ — ​ — Federal Home Loan Bank advances, maturing 2028 ​ ​ 15,000 ​ 3.78 % ​ 3.78 % ​ ​ ​ ​ ​ ​ — Federal Home Loan Bank advances, maturing 2026 ​ ​ 20,000 ​ 4.04 % ​ 4.04 % ​ ​ — ​ — ​ — Federal Home Loan Bank advances, maturing 2028 ​ ​ 20,000 ​ 3.81 % ​ 3.81 % ​ ​ ​ ​ ​ ​ ​ Total ​ $ 80,000 ​ ​ ​ ​ ​ $ — ​ ​ ​ — ​ Included in short term borrowings was $ 25.5 million outstanding in fixed-rate overnight FHLB advances and $ 125.0 million in fixed-rate short term FHLB advances at December 31, 2023. At December 31, 2022 there were $ 94.0 million outstanding in fixed-rate overnight FHLB advances and no fixed-rate short term FHLB advances. Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $ 1.3 billion of first mortgage loans under a blanket lien arrangement at year end 2023. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow up to the total of $ 930.1 million at year-end 2023, with a remaining borrowing capacity of $ 485.6 million if sufficient additional collateral was pledged. The Company had no borrowings at December 31, 2023 and 2022 from the FRB. The Company was eligible to borrow up to $ 392.0 million from FRB at year end 2023, which was collateralized by $ 204.4 million in first mortgage loans under a blanket lien arrangement. The Company had unsecured lines of credit with its correspondent banks which, in the aggregate, amounted to $ 382.0 million and $ 362.0 million at December 31, 2023 and 2022, respectively, at fixed interest rates which vary with market conditions. Included in short term borrowings above there was $ 130.0 million outstanding overnight under these lines of credit at December 31, 2023 and $ 125.0 million outstanding overnight at December 31, 2022. ​ 11. LONG-TERM DEBT At year-end, long-term debt was as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ ​ 2022 ​ ​ ​ Principal ​ ​ Unamortized Debt Issuance Costs ​ ​ Principal ​ ​ Unamortized Debt Issuance Costs Fixed - floating rate subordinated debentures, due 2031 (1) ​ $ 50,000 ​ $ 696 ​ $ 50,000 ​ $ 786 ​ ​ $ 50,000 ​ $ 696 ​ $ 50,000 ​ $ 786 (1) 3.25 % fixed rate for five years then floating rate at 253.5 bps over 3-month term SOFR . ​ 12. 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. Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to twenty-five percent of the Company’s Tier 1 capital on a pro forma basis. At December 31, 2023, all $ 35.7 million of the Company’s trust preferred securities qualified as Tier 1 capital. 105 Table of Contents During the first quarter of 2004, Sierra Statutory Trust II issued 15,000 Floating Rate Capital Trust Pass-Through Securities (TRUPS II), with a liquidation value of $ 1,000 per security, for gross proceeds of $ 15,000,000 . The entire proceeds of the issuance were invested by Trust II in $ 15,464,000 of Subordinated Debentures issued by the Company, with identical maturity, re-pricing and payment terms as the TRUPS II. The Subordinated Debentures, purchased by Trust II, represent the sole assets of the Trust II. Those Subordinated Debentures mature on March 17, 2034, bear a current interest rate of 8.39 % (based on 3-month CME Term SOFR plus tenor spread adjustment of 0.26161 % plus 2.75 %), with re-pricing and payments due quarterly. Those Subordinated Debentures are currently redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 17 th , June 17 th , September 17 th , or December 17 th . The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture. The TRUPS II are subject to mandatory redemption to the extent of any early redemption of the related Subordinated Debentures and upon maturity of the Subordinated Debentures on March 17, 2034 . Trust II has the option to defer payment of the distributions for a period of up to five years , subject to certain conditions, including that the Company may not pay dividends on its common stock during such period. The TRUPS II issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS II. During the second quarter of 2006, Sierra Capital Trust III issued 15,000 Floating Rate Capital Trust Pass-Through Securities (TRUPS III), with a liquidation value of $ 1,000 per security, for gross proceeds of $ 15,000,000 . The entire proceeds of the issuance were invested by Trust III in $ 15,464,000 of Subordinated Debentures issued by the Company, with identical maturity, repricing and payment terms as the TRUPS III. The Subordinated Debentures, purchased by Trust III, represent the sole assets of the Trust III. Those Subordinated Debentures mature on September 23, 2036 , bear a current interest rate of 7.02 % (based on 3-month CME Term SOFR plus tenor spread adjustment of 0.26261 % plus 1.40 %), with repricing and payments due quarterly. Those Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 23 rd , June 23 rd , September 23 rd , or December 23 rd . The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture. The TRUPS III are subject to mandatory redemption to the extent of any early redemption of the related Subordinated Debentures and upon maturity of the Subordinated Debentures on September 23, 2036. Trust III has the option to defer payment of the distributions for a period of up to five years , subject to certain conditions, including that the Company may not pay dividends on its common stock during such period. The TRUPS III issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS III. During the third quarter of 2016, the Company acquired Coast Bancorp Statutory Trust II, which had issued 7,000 Floating Rate Capital Trust Pass-Through Securities (TRUPS IV), with a liquidation value of $ 1,000 per security, for gross proceeds of $ 7,000,000 . The entire proceeds of the issuance were invested by Trust IV in $ 7,217,000 of Subordinated Debentures issued by Coast Bancorp with identical maturity, re-pricing and payment terms as the TRUPS IV. The Subordinated Debentures, purchased by Trust IV, represent the sole assets of the Trust IV. Those Subordinated Debentures mature on December 15, 2037 , bear a current interest rate of 7.15 % (based on 3-month CME Term SOFR plus tenor spread adjustment of 0.26161 % plus 1.50 %), with re-pricing and payments due quarterly. Those Subordinated Debentures are currently redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 15 th , June 15 th , September 15 th , or December 15 th . The redemption price is par plus accrued and unpaid interest, except in the case of redemption under a special event which is defined in the debenture. 106 Table of Contents The TRUPS IV are subject to mandatory redemption to the extent of any early redemption of the related Subordinated Debentures and upon maturity of the Subordinated Debentures on December 15, 2037. Coast Bancorp Statutory Trust II has the option to defer payment of the distributions for a period of up to five years , subject to certain conditions, including that the Company may not pay dividends on its common stock during such period. The TRUPS IV issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS IV. ​ 13. INCOME TAXES The provision for income taxes follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Federal: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ $ 8,470 ​ $ 6,071 ​ $ 8,186 Deferred ​ ​ ( 1,531 ) ​ ​ 233 ​ ​ 135 Total federal ​ ​ 6,939 ​ ​ 6,304 ​ ​ 8,321 State: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ ​ 5,493 ​ ​ 4,874 ​ ​ 5,916 Deferred ​ ​ ( 812 ) ​ ​ 78 ​ ​ ( 50 ) Total state ​ ​ 4,681 ​ ​ 4,952 ​ ​ 5,866 Total tax provision ​ $ 11,620 ​ $ 11,256 ​ $ 14,187 ​ The components of the net deferred tax asset, included in other assets, are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Deferred tax assets: ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans ​ $ 6,947 ​ $ 6,817 Deferred compensation ​ ​ 4,440 ​ ​ 4,158 Accrued reserves ​ ​ 1,131 ​ ​ 1,022 Non-accrual loans ​ ​ 76 ​ ​ 241 Lease liability ​ ​ 6,488 ​ ​ 2,147 Loan fair value adjustment ​ ​ 172 ​ ​ 245 Net operating losses ​ ​ 1,178 ​ ​ 1,370 State income tax deduction ​ ​ 1,176 ​ ​ 1,005 Other ​ ​ 4,982 ​ ​ 1,211 Unrealized losses on securities available-for-sale ​ ​ 15,101 ​ ​ 23,746 Total deferred tax assets ​ ​ 41,691 ​ ​ 41,962 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Deferred loan costs ​ ​ ( 1,304 ) ​ ​ ( 1,070 ) Right-of-use asset ​ ​ ( 7,604 ) ​ ​ ( 2,034 ) TRUPS accretion ​ ​ ( 735 ) ​ ​ ( 788 ) FMV equity securities ​ ​ ( 620 ) ​ ​ ( 706 ) Prepaids ​ ​ ( 791 ) ​ ​ ( 639 ) Other ​ ​ ( 689 ) ​ ​ ( 517 ) Intangibles ​ ​ ( 130 ) ​ ​ ( 337 ) Premises and equipment ​ ​ ( 1,136 ) ​ ​ ( 887 ) Total deferred tax liabilities ​ ​ ( 13,009 ) ​ ​ ( 6,978 ) Net deferred tax assets ​ $ 28,682 ​ $ 34,984 ​ 107 Table of Contents The Company believes that the deferred tax assets will be fully realized, therefore no valuation allowance has been recorded. The expense for income taxes differs from amounts computed by applying the statutory Federal income tax rates to income before income taxes. The significant items comprising these differences consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Income tax expense at federal statutory rate ​ $ 9,758 ​ $ 9,432 ​ $ 12,012 Increase (decrease) resulting from: ​ ​ ​ ​ ​ ​ ​ ​ ​ State franchise tax expense, net of federal tax effect ​ ​ 3,698 ​ ​ 3,912 ​ ​ 4,634 Tax exempt municipal income ​ ​ ( 2,291 ) ​ ​ ( 1,849 ) ​ ​ ( 1,306 ) Affordable housing tax credits ​ ​ 16 ​ ​ ( 530 ) ​ ​ ( 524 ) Excess tax benefit of stock-based compensation ​ ​ 22 ​ ​ ( 50 ) ​ ​ ( 109 ) Cash surrender value - life insurance ​ ​ ( 371 ) ​ ​ 209 ​ ​ ( 556 ) Other ​ ​ 788 ​ ​ 132 ​ ​ 36 Total ​ $ 11,620 ​ $ 11,256 ​ $ 14,187 Effective tax rate ​ ​ 25.01 % ​ ​ 25.06 % ​ ​ 24.80 % ​ The Company is subject to federal income tax and income tax of various states. Our federal income tax returns for the years ended December 31, 2020, 2021 and 2022 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2019, 2020, 2021 and 2022 are open to audit by the state authorities. At December 31, 2023, the Company has net federal net operating loss carry forwards of approximately $ 3.4 million which expire at various dates from 2031 to 2034. The Company also had California Franchise tax net operating loss carry forwards of approximately $ 5.4 million which expire at various dates from 2032 to 2036. Net operating loss carry forwards available from acquisitions are substantially limited by Section 382 of the Internal Revenue Code and benefits not expected to be realized due to the limitation have been excluded from the deferred tax asset and net operating loss carry forward amounts noted above. There were no recorded interest or penalties related to uncertain tax positions as part of income tax for the years ended December 31, 2023, 2022, and 2021, respectively. We do not expect the total amount of unrecognized tax benefits to significantly increase or decrease within the next twelve months. ​ 14. COMMITMENTS AND CONTINGENCIES Letter of Credit The Company holds two letters of credit with the Federal Home Loan Bank of San Francisco totaling $ 127.9 million. A $ 125.0 million letter of credit is pledged to secure public deposits at December 31, 2023 and a $ 2.9 million standby letter of credit was obtained on behalf of one of our customers to guarantee financial performance. Should the standby letter of credit be drawn upon, the customer would reimburse the Company from an existing line of credit. Federal Reserve Requirements Historically banks were required to maintain reserves with the Federal Reserve Bank equal to a specified percentage of their reservable deposits less vault cash. Effective March 26, 2020 the Federal Reserve Board reduced the reserve requirement to zero percent indefinitely. Financial Instruments with Off-Balance-Sheet Risk The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. These financial instruments consist of commitments to extend credit and standby letters of credit. These instruments 108 Table of Contents involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The Company’s exposure to credit loss in the event of nonperformance by the other party 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 letters of credit as it does for loans included on the balance sheet. The following financial instruments represent off-balance-sheet credit risk (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Fixed-rate commitments to extend credit ​ $ 84,646 ​ $ 94,248 Variable-rate commitments to extend credit ​ $ 397,408 ​ $ 795,269 Standby letters of credit ​ $ 5,040 ​ $ 6,036 ​ 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 of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to extend credit are made at both fixed and variable rates of interest as stated in the table above. Standby letters of credit are generally unsecured and are issued by the Company to guarantee the performance of a customer to a third party, while commercial letters of credit represent the Company’s commitment to pay a third party on behalf of a customer upon fulfillment of contractual requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Concentration in Real Estate Lending At December 31, 2023, in management’s judgment the Company had a concentration of loans secured by real estate. At that date, approximately 87 % of the Company’s loans were real estate related. Balances secured by commercial buildings and construction and development loans represented 74 % of all real estate loans, while loans secured by non-construction residential properties accounted for 23 %, and loans secured by farmland were 4 % of real estate loans. Although management believes the loans within these concentrations have no more than the normal risk of collectability, a decline in the performance of the economy in general or a decline in real estate values in the Company’s primary market areas, in particular, could have an adverse impact on collectability. Concentration by Geographic Location The Company extends commercial, real estate mortgage, real estate construction and consumer loans to customers primarily in the South Central San Joaquin Valley of California, specifically Tulare, Fresno, Kern, Kings and Madera counties; and the Coastal counties of San Luis Obispo, Ventura and Santa Barbara. The ability of a substantial portion of the Company’s customers to honor their contracts is dependent on the economy in these areas. Although the Company’s loan portfolio is diversified, there is a relationship in those regions between the local agricultural economy and the economic performance of loans made to non-agricultural customers. Legal Matters In the ordinary course of our business, the Company is subject to legal proceedings and claims which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. Upon consultation with legal counsel and based on information currently available to us, management does not expect the amount of any resulting liability, in addition to amounts already accrued and taking into consideration insurance which may be applicable, to have a material adverse effect on the consolidated financial position or results of operations of the Company. Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to banking (including laws and regulations governing consumer protection, 109 Table of Contents fair lending, privacy, information security and anti-money laundering and anti-terrorism laws), we like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk. The Company will establish litigation and legal reserves, where appropriate, in accordance with FASB guidance over loss contingencies (ASC 450). The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal or regulatory matters currently pending or threatened could have a material adverse effect on our liquidity, consolidated financial position, and/or results of operations. ​ 15. SHAREHOLDERS’ EQUITY Share Repurchase Plan At December 31, 2023, the Company had a 2023 Share Repurchase Plan with an expiration date of October 31, 2024. This share repurchase plan replaced the 2022 Share Repurchase Plan which expired on October 31, 2023. During the year ended December 31, 2023, the Company repurchased 481,094 shares under the 2022 Share Repurchase Plan and no shares under the 2023 Share Repurchase Plan. The total number of shares available for repurchase at December 31, 2023 was 1,000,000 . Repurchases are generally made in the open market at market prices. Earnings Per Share A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations is as follows (dollars in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Years Ended December 31, ​ 2023 2022 2021 Basic Earnings Per Share ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (dollars in thousands) ​ $ 34,844 ​ $ 33,659 ​ $ 43,012 Weighted average shares outstanding ​ ​ 14,706,141 ​ ​ 14,955,756 ​ ​ 15,241,957 Basic earnings per share ​ $ 2.37 ​ $ 2.25 ​ $ 2.82 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted Earnings Per Share ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (dollars in thousands) ​ $ 34,844 ​ $ 33,659 ​ $ 43,012 Weighted average shares outstanding ​ ​ 14,706,141 ​ ​ 14,955,756 ​ ​ 15,241,957 Effect of dilutive equity awards ​ ​ 31,729 ​ ​ 66,999 ​ ​ 111,488 Weighted average shares outstanding ​ ​ 14,737,870 ​ ​ 15,022,755 ​ ​ 15,353,445 Diluted earnings per share ​ $ 2.36 ​ $ 2.24 ​ $ 2.80 ​ Stock options and unvested restricted stock awards for 298,986 , 293,586 , and 337,004 shares of common stock were not considered in computing diluted earnings per common share for 2023, 2022, and 2021, respectively, because they were antidilutive. Stock Options On March 17, 2023, the Company’s Board of Directors approved and adopted the 2023 Equity Compensation Plan (the “2023 Plan”), which became effective May 24, 2023, the date approved by the Company’s shareholders. The 2023 Plan replaced the Company’s 2017 Stock Incentive Plan (the “2017 Plan”). Options to purchase 210,800 shares granted under the 2017 Plan and options to purchase 59,800 shares that were granted under the 2007 Plan were still outstanding as of December 31, 2023, and remain unaffected by that plan’s expiration. The 2023 Plan provides for the issuance of various types of equity awards, including options, stock appreciation rights, restricted stock awards, restricted share units, performance share awards, dividend equivalents, or any combination thereof. Such awards may be granted to officers and employees as well as non-employee directors, which awards may be granted on such terms and conditions as are established by the Board of Directors or the Compensation Committee in its discretion. The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards 110 Table of Contents under the 2023 Plan was initially 360,000 shares, and the number remaining available for grant as of December 31, 2023 was 292,581 . All options granted under the 2023, 2017 and 2007 Plans have been or will be granted at an exercise price of not less than 100 % of the fair market value of the stock on the date of grant, exercisable in installments as provided in individual stock option agreements. In the event of a “Change in Control” as defined in the Plans, all outstanding options shall become exercisable in full (subject to certain notification requirements), and shall terminate if not exercised within a specified period of time unless such options are assumed by the successor corporation or substitute options are granted. Options also terminate in the event an optionee ceases to be employed by or to serve as a director of the Company or its subsidiaries, and the vested portion thereof must be exercised within a specified period after such cessation of employment or service. A summary of the Company’s stock option activity follows (shares in thousands, except exercise price): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ 2021 ​ Shares Weighted Average Exercise Price Aggregate Intrinsic Value (1) Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Outstanding, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning of year ​ 352 ​ $ 25.06 ​ ​ ​ ​ 416 ​ $ 24.15 ​ 495 ​ $ 23.67 Exercised or released ​ — ​ $ — ​ ​ ​ ​ ( 30 ) ​ $ 10.59 ​ ( 33 ) ​ $ 14.64 Granted ​ — ​ $ — ​ ​ ​ ​ — ​ $ — ​ — ​ $ — Canceled ​ ( 9 ) ​ $ 26.56 ​ ​ ​ ​ ( 32 ) ​ $ 27.32 ​ ( 45 ) ​ $ 26.36 Expired ​ — ​ $ — ​ ​ ​ ​ ( 2 ) ​ $ 10.21 ​ ( 1 ) ​ $ 10.58 Outstanding, end of year ​ 343 ​ $ 25.02 ​ $ 447 ​ 352 ​ $ 25.06 ​ 416 ​ $ 24.15 Exercisable, end of year (2) ​ 343 ​ $ 25.02 ​ $ 447 ​ 311 ​ $ 24.78 ​ 355 ​ $ 23.62 (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 December 31, 2023. This amount changes based on changes in the market value of the Company’s stock. (2) The weighted average remaining contractual life of stock options outstanding and exercisable on December 31, 2023 was 5.2 years and 5.0 years, respectively. Information related to stock options during each year follows (dollars in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Weighted-average grant-date fair value per share ​ $ — ​ $ — ​ $ — Total intrinsic value of stock options exercised ​ $ — ​ $ 329 ​ $ 346 Total fair value of stock options vested ​ $ — ​ $ 103 ​ $ 418 ​ No shares were exercised during the year ended December 31, 2023. $ 0.3 million in cash was received from the exercise of 29,640 shares during the year ended December 31, 2022, with a related tax benefit of $ 0.1 million. $ 0.3 million in cash was received from the exercise of 25,452 shares during the period ended December 31, 2021, with a related tax benefit of $ 0.1 million. The Company is using the Black-Scholes model to value stock options. In accordance with U.S. GAAP, charges of $ 0.1 million, $ 0.1 million, and $ 0.1 million are reflected in the Company’s income statements for the years ended December 31, 2023, 2022, and 2021, respectively, as pre-tax compensation and directors’ expense related to stock options. The related tax benefit of these options is $ 0.02 million for the year ended December 31, 2023 and $ .03 million for the years ended December 31, 2022 and December 31, 2021. Unamortized compensation expense associated with unvested stock options outstanding at December 31, 2023 was $ 0.1 million, which will be recognized over a weighted average period of 1.0 years. Restricted Stock Grants The Company’s restricted stock awards granted under the 2017 Plan and 2023 Plan 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; provided, however, that no installment of any restricted stock award shall become vested less than one year from the grant date. Restricted stock awards are valued utilizing the fair value of the Company’s stock at the grant date. During the year ending 2023, 129,904 shares were granted to employees and directors of the Company 111 Table of Contents ( 29,064 under the 2017 Plan and 100,840 under the 2023 Plan). These awards are expensed on a straight-line basis over the vesting period. Compensation expense related to restricted stock units for the years ended December 31, 2023, 2022 and 2021 was $ 1.7 million, $ 1.2 million, and $ 0.9 million respectively, and the recognized income tax benefit related to this expense was $ 0.4 million, $ 0.4 million, and $ 0.3 million, respectively. As of December 31, 2023, there was $ 3.3 million of unamortized compensation and directors’ cost related to unvested restricted stock awards granted under the 2023 and 2017 plans. That cost is expected to be amortized over a weighted average period of 2.3 years. The total fair value of shares vested during the year ended December 31, 2023, 2022 and 2021 was $ 1.2 million, $ 1.3 million and $ 0.7 million, respectively. A summary of the Company’s nonvested shares for the year follows (shares in thousands, except grant date fair value): ​ ​ ​ ​ ​ ​ Nonvested Shares ​ Shares ​ ​ Weighted Average Grant-Date Fair Value Nonvested at January 1, 2023 ​ 187 ​ $ 21.42 Granted ​ 118 ​ ​ 19.51 Vested ​ ( 61 ) ​ ​ 21.46 Forfeited ​ ( 6 ) ​ ​ 23.02 Nonvested at December 31, 2023 ​ 238 ​ $ 20.30 ​ ​ 16. REGULATORY MATTERS The Company and the Bank are subject to regulatory capital requirements administered by the Board of Governors of the Federal Reserve System and the FDIC. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2023, the Company and Bank meet all capital adequacy requirements to which they are subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized , significantly undercapitalized , and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end December 31, 2023 and 2022, notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank's categorization. In 2019, the federal banking agencies jointly issued a final rule that provides for an optional, simplified measure of capital adequacy, the community bank leverage ratio framework (CBLR framework), for qualifying community banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule became effective on January 1, 2020 and was elected by the Bank at that time. The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio. Qualifying banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than required minimums will be considered to have satisfied the generally applicable risk based and leverage capital requirements in the agencies' capital rules (generally applicable rule) and, if applicable, will be considered to have met the well capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act. Under the interim final rules the community bank leverage ratio minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond. The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the bank maintains a 112 Table of Contents leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond. Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction. As of December 31, 2023, both the Company and Bank were qualifying community banking organizations as defined by the federal banking agencies and elected to measure capital adequacy under the CBLR framework. Actual and required capital amounts (dollars in thousands) and ratios are presented below at year end. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual ​ To Be Well Capitalized Under Prompt Corrective Action Regulations (CBLR Framework) 2023 Capital Amount Ratio Capital Amount Ratio Tier 1 (Core) Capital to average total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sierra Bancorp and subsidiary ​ $ 384,936 ​ 10.32 % ​ $ 335,700 ​ 9.00 % Bank of the Sierra ​ $ 421,041 ​ 11.29 % ​ $ 335,639 ​ 9.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual ​ To Be Well Capitalized Under Prompt Corrective Action Regulations 2022 Capital Amount Ratio Capital Amount Ratio Tier 1 (Core) Capital to average total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sierra Bancorp and subsidiary ​ $ 371,980 ​ 10.30 % ​ $ 325,031 ​ 9.00 % Bank of the Sierra ​ $ 396,856 ​ 10.99 % ​ $ 324,996 ​ 9.00 % ​ Dividend Restrictions The Company’s ability to pay cash dividends is dependent on dividends paid to it by the Bank, and is also limited by state corporation law. California law allows a California corporation to pay dividends if the company’s retained earnings equal at least the amount of the proposed dividend plus any preferred dividend arrears amount. If a California corporation does not have sufficient retained earnings available for the proposed dividend, it may still pay a dividend to its shareholders if immediately after the dividend the value of the company’s assets would equal or exceed the sum of its total liabilities plus any preferred dividend arrears amount. Dividends from the Bank to the Company are restricted under California law to the lesser of the Bank’s retained earnings or the Bank’s net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the Department of Financial Protection and Innovation, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year, or the net income of the Bank for its current fiscal year. As of December 31, 2023, the maximum amount available for dividend distribution under this restriction was approximately $ 75.5 million. ​ 17. BENEFIT PLANS Salary Continuation Agreements, Directors’ Retirement and Officer Supplemental Life Insurance Plans The Company has entered into salary continuation agreements with its executive officers, and has established retirement plans for qualifying members of the Board of Directors. The plans provide for annual benefits for up to fifteen years after retirement or death. The benefit obligation under these plans totaled $ 4.7 million and $ 4.9 million for the years ended December 31, 2023 and 2022 and was fully accrued for both years. The expense recognized under these arrangements totaled $ 0.3 million, $ 0.3 million and $ 0.4 million for the years ended December 31, 2023, 113 Table of Contents 2022 and 2021, respectively. Salary continuation benefits paid to former directors or executives of the Company or their beneficiaries totaled $ 0.5 million, $ 0.4 million and $ 0.4 million for the years ended December 31, 2023, 2022 and 2021. Certain officers of the Company have supplemental life insurance policies with death benefits available to the officers’ beneficiaries. In connection with these plans the Company has purchased, or acquired through merger, single premium life insurance policies with cash surrender values totaling $ 41.7 million and $ 43.2 million at December 31, 2023 and 2022. Officer and Director Deferred Compensation Plan The Company has established a non-qualified deferred compensation plan for certain members of the management group and a deferred fee plan for directors for the purpose of providing the opportunity for participants to defer compensation. The Company bears the costs and the liability for the plan’s administration and the changes to income earned on participant deferrals. The related administrative expense was not material for the years ended December 31, 2023, 2022 and 2021. Although there is no requirement to fund this plan, the Company has purchased life insurance policies with cash surrender values totaling $ 10.0 million and $ 9.0 million at December 31, 2023 and 2022, respectively, which are specific account policies with underlying investments similar to the hypothetical investments elected inside the participant deferred compensation accounts. 401(k) Savings Plan The 401(k) savings plan (the “Plan”) allows participants to defer, on a pre-tax basis, up to 15 % of their salary (subject to Internal Revenue Service limitations) and accumulate tax-deferred earnings as a retirement fund. The Bank may make a discretionary contribution to match a specified percentage of the first 6 % of the participants’ contributions annually. The amount of the matching contribution was 80 %, 80 % and 95 % for the years ended December 31, 2023, 2022 and 2021, respectively. The matching contribution is discretionary, vests over a period of five years from the participants’ hire date, and is subject to the approval of the Board of Directors. The Company contributed $ 1.2 million to the Plan in each of the years ended 2022 and 2021 and contributed $ 1.3 million to the Plan in 2023. Starting in 2024, the Company has adopted a safe-harbor plan and will match 100 % of the first 1% and 50 % of the next 5% of employee contributions each pay period. ​ 18. NONINTEREST INCOME The major grouping of noninterest revenue on the consolidated income statements includes several specific items: service charges on deposit accounts, gains on the sale of loans, credit card fees, check card fees, the net gain (loss) on sales and calls of investment securities available for sale, and the net increase (decrease) in the cash surrender value of life insurance. Noninterest income also includes one general category of “other income” of which the following are major components (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Included in other income: ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of limited partnerships ​ $ — ​ $ 253 ​ $ ( 524 ) Dividends on equity investments ​ ​ 1,076 ​ ​ 843 ​ ​ 737 Unrealized gains recognized on equity investments ​ ​ ( 291 ) ​ ​ ( 332 ) ​ ​ 857 Other ​ ​ 3,579 ​ ​ 6,423 ​ ​ 1,864 Total other noninterest income ​ $ 4,364 ​ $ 7,187 ​ $ 2,934 ​ ​ 114 Table of Contents 19. OTHER NONINTEREST EXPENSE Other noninterest expense consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Legal, audit, professional, and director's fees ​ $ 5,293 ​ $ 3,061 ​ $ 7,652 Data processing ​ ​ 5,831 ​ ​ 6,202 ​ ​ 5,890 Advertising and promotional ​ ​ 2,215 ​ ​ 1,728 ​ ​ 1,521 Deposit services ​ ​ 8,775 ​ ​ 9,492 ​ ​ 9,049 Stationery and supplies ​ ​ 531 ​ ​ 486 ​ ​ 345 Telephone and data communication ​ ​ 1,452 ​ ​ 1,563 ​ ​ 2,013 Loan and credit card processing ​ ​ 597 ​ ​ 550 ​ ​ 501 Foreclosed assets expense (income), net ​ ​ 665 ​ ​ 84 ​ ​ 72 Postage ​ ​ 219 ​ ​ 373 ​ ​ 308 Other ​ ​ 4,003 ​ ​ 3,415 ​ ​ 2,780 Assessments ​ ​ 1,942 ​ ​ 1,078 ​ ​ 1,157 Total other noninterest expense ​ $ 31,523 ​ $ 28,032 ​ $ 31,288 ​ ​ 20. RELATED PARTY TRANSACTIONS During the normal course of business, the Bank may enter into loans with related parties, including executive officers and directors. These loans are made with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Balance, beginning of year ​ $ — ​ $ 1,067 ​ $ 1,794 Disbursements ​ ​ — ​ ​ 4,059 ​ ​ 1,983 Amounts repaid ​ ​ — ​ ​ ( 5,150 ) ​ ​ ( 2,548 ) Effect of changes in composition of related parties ​ ​ — ​ ​ 24 ​ ​ ( 162 ) Balance, end of year ​ $ — ​ $ — ​ $ 1,067 Undisbursed commitments to related parties ​ $ 6 ​ $ 6 ​ $ 2,156 ​ Deposits from related parties held by the Bank at December 31, 2023 and 2022 amounted to $ 4.2 million and $ 8.1 million, respectively. ​ 21. FAIR VALUE Fair value is defined by U.S. GAAP as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: ● 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 use in pricing an asset or liability. 115 Table of Contents The Company used the following methods and significant assumptions to estimate fair values for each category of financial asset noted below: Securities : The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges, live trading desk pricing from brokerages, 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. In certain circumstances live trading desk pricing from brokerages and third party internal models are used to value debt securities that we classify as Level 3. Collateral-dependent loans : A specific loss allowance is created for collateral dependent loans, representing the difference between the face value of the loan and the current appraised value of its associated collateral, less estimated disposition costs. Foreclosed assets : Repossessed real estate (OREO) and other assets are carried at the lower of cost or fair value. Fair value is the appraised value less expected selling costs for OREO and some other assets such as mobile homes, and for all other assets fair value is represented by the estimated sales proceeds as determined using reasonably available sources. Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals. Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation 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 and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 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) Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ 102,749 ​ $ — ​ $ 102,749 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 99,544 ​ ​ — ​ ​ 99,544 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 194,206 ​ ​ — ​ ​ 194,206 ​ ​ — Corporate bonds ​ ​ — ​ ​ — ​ ​ 52,040 ​ ​ 52,040 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 570,662 ​ ​ — ​ ​ 570,662 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 967,161 ​ $ 52,040 ​ $ 1,019,201 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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) 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 ​ $ — ​ 116 Table of Contents The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2023 and 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ — ​ ​ — ​ ​ ( 5,395 ) ​ ​ — Purchases ​ ​ — ​ ​ — ​ ​ — ​ ​ 29,905 Transfers out of Level 3 ​ ​ — ​ ​ ( 195,707 ) ​ ​ — ​ ​ — Balance of recurring Level 3 assets at December 31, ​ $ — ​ $ — ​ $ 52,040 ​ $ 57,435 ​ The following table present quantitative information about recurring level 3 fair value measurements at December 31, 2023 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Range ​ Fair Value Valuation Technique(s) Unobservable Input(s) Min Max Weighted Average Corporate Bonds ​ $ 52,040 ​ New issue pricing ​ Risk appetite ​ N/A ​ N/A ​ N/A ​ ​ ​ ​ ​ Secondary market pricing ​ Market volatility ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit quality of issuer ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit spread ​ ​ ​ ​ ​ ​ ​ ​ ​ The following table presents quantitative information about recurring level 3 fair value measurements at December 31, 2022 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Range ​ Fair Value Valuation Technique(s) Unobservable Input(s) Min Max Weighted Average Corporate Bonds ​ $ 57,435 ​ New issue pricing ​ Risk appetite ​ N/A ​ N/A ​ N/A ​ ​ ​ ​ ​ Secondary market pricing ​ Market volatility ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit quality of issuer ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit spread ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets and liabilities measured at fair market value on a non-recurring basis are summarized below (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2023 ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Collateral dependent loans ​ $ — ​ $ 5,889 ​ $ — ​ $ 5,889 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Collateral dependent impaired loans ​ $ — ​ $ 18,141 ​ $ — ​ $ 18,141 ​ There were no assets measured at fair value on a non-recurring basis with level 3 fair value measurements at December 31, 2022. ​ ​ 117 Table of Contents 22. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Disclosures include estimated fair values for financial instruments for which it is practicable to estimate fair value. These estimates are made as of the respective balance sheet dates based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented. The following methods and assumptions were used by the Company to estimate the fair value of its financial instruments at December 31, 2023 and 2022: Cash and cash equivalents, and fed funds sold : For cash and cash equivalents and fed funds sold, the carrying amount is estimated to be fair value. Securities : The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges, live trading desk pricing from brokerages, 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 when quoted prices for specific securities are not readily available. Loans : Fair values of loans are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and estimated using discounted cash flow analyses. The estimation of fair values of loans results in a Level 3 classification as it requires various assumptions and considerable judgement to incorporate factors relevant when selling loans to market participants, such as funding costs, return requirements of likely buyers and performance expectations of the loans given the current market environment and quality of loans. Mortgage loans : Fair value of mortgage loans, included in the table with loans held for investment, are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and estimated using discounted cash flow analyses. The estimation of fair values of mortgage loans results in a Level 3 classification as it requires various assumptions and considerable judgement to incorporate factors relevant when selling loans to market participants, such as funding costs, return requirements of likely buyers and performance expectations of the loans given the current market environment and quality of loans. Collateral-dependent loans : A specific loss allowance is created for collateral dependent loans, representing the difference between the face value of the loan and the current appraised value of its associated collateral, less estimated disposition costs. Deposits : Fair values for non-maturity deposits are equal to the amount payable on demand at the reporting date, which is the carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a cash flow analysis, discounted at interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities. Short-term borrowings: The carrying amounts approximate fair values for federal funds purchased, overnight FHLB advances, borrowings under repurchase agreements, and other short-term borrowings maturing within ninety days of the reporting dates. Fair values of other short-term borrowings are estimated by discounting projected cash flows at the Company’s current incremental borrowing rates for similar types of borrowing arrangements. Long-term borrowings: The fair values of the Company’s long-term borrowings are estimated using projected cash flows discounted at the Company’s current incremental borrowing rates for similar types of borrowing arrangements. 118 Table of Contents Subordinated debentures : The fair values of subordinated debentures are determined based on the current market value for like instruments of a similar maturity and structure. Carrying amount and estimated fair values of financial instruments not carried at fair value were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ ​ ​ ​ Estimated Fair Value ​ 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 ​ $ 78,602 ​ $ 78,602 ​ $ — ​ $ — ​ $ 78,602 Securities held-to-maturity ​ ​ 320,057 ​ ​ — ​ ​ 314,924 ​ ​ — ​ ​ 314,924 Loans held for investment ​ ​ 2,066,884 ​ ​ — ​ ​ 5,889 ​ ​ 1,918,654 ​ ​ 1,924,543 Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Time deposits ​ $ 690,107 ​ $ — ​ $ 688,222 ​ $ — ​ $ 688,222 Repurchase agreements ​ ​ 107,121 ​ ​ — ​ ​ 107,121 ​ ​ — ​ ​ 107,121 Other borrowings ​ ​ 360,500 ​ ​ — ​ ​ 360,500 ​ ​ — ​ ​ 360,500 Long-term borrowings ​ ​ 49,304 ​ ​ — ​ ​ 44,097 ​ ​ — ​ ​ 44,097 Subordinated debentures ​ ​ 35,660 ​ ​ — ​ ​ 35,423 ​ ​ — ​ ​ 35,423 ​ ​ ​ ​ ​ ​ Notional Amount Off-balance-sheet financial instruments: ​ ​ ​ Commitments to extend credit ​ $ 482,054 Standby letters of credit ​ ​ 5,040 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ Estimated Fair Value ​ 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 Securities held-to-maturity ​ ​ 336,881 ​ ​ — ​ ​ 328,011 ​ ​ — ​ ​ 328,011 Loans held for investment ​ ​ 2,029,757 ​ ​ — ​ ​ 18,141 ​ ​ 1,909,822 ​ ​ 1,927,963 Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Time deposits ​ $ 519,608 ​ $ — ​ $ 517,967 ​ $ — ​ $ 517,967 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 ​ ​ ​ ​ ​ ​ Notional Amount Off-balance-sheet financial instruments: ​ ​ ​ Commitments to extend credit ​ $ 889,517 Standby letters of credit ​ ​ 6,036 ​ ​ 119 Table of Contents 23. QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS T he Company invests in qualified affordable housing projects. At December 31, 2023 and 2022, the balance of the investment for qualified affordable housing projects totaled $ 14.4 million and $ 10.1 million, respectively. These balances are reflected in the other assets line on the consolidated balance sheet. Unfunded commitments related to these investments in qualified affordable housing projects totaled $ 10.5 million and $ 7.0 million at December 31, 2023 and 2022, respectively. During the years ended December 31, 2023, 2021 and 2021, the Company recognized amortization expense on these investments of $ 0.7 million, $ 0.5 million, and $ 0.5 million, respectively which was included within the tax provision using the proportional amortization method on the consolidated statements of income. Additionally, during the year ended December 31, 2023, the Company recognized $ 0.6 million in tax credits and other benefits from its investment in affordable housing tax credits and $ 0.5 million for each of the years ended December 31, 2022 and 2021. The Company had no impairment losses during the years ended December 31, 2023, 2022 and 2021. ​ 24. REVENUE FROM CONTRACTS WITH CUSTOMERS All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income. The following table presents the Company’s sources of Noninterest Income for the twelve months ended December 31, 2023 and 2022. Items outside the scope of ASC 606 are noted as such (dollars in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 2022 2021 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ Returned item and overdraft fees ​ $ 5,261 ​ $ 5,227 ​ $ 4,924 Other service charges on deposits ​ ​ 9,790 ​ ​ 7,308 ​ ​ 6,922 Debit card interchange income ​ ​ 8,052 ​ ​ 8,533 ​ ​ 8,485 Gain (loss) on limited partnerships (1) ​ ​ — ​ ​ 253 ​ ​ ( 524 ) Dividends on equity investments (1) ​ ​ 1,076 ​ ​ 843 ​ ​ 737 Unrealized (losses) gains recognized on equity investments (1) ​ ​ ( 291 ) ​ ​ ( 332 ) ​ ​ 857 Net gains on sale of securities (1) ​ ​ 396 ​ ​ 1,487 ​ ​ 11 Other (1) ​ ​ 6,116 ​ ​ 7,451 ​ ​ 6,667 Total noninterest income ​ $ 30,400 ​ $ 30,770 ​ $ 28,079 (1) Not within the scope of ASC 606. Revenue streams are not related to contracts with customers and are accounted for on an accrual basis under other provisions of GAAP. 120 Table of Contents 25. PARENT ONLY CONDENSED FINANCIAL STATEMENTS BALANCE SHEETS Years Ended December 31, 2023 and 2022 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 ASSETS ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 10,437 ​ $ 26,099 Investments in bank subsidiary ​ ​ 409,862 ​ ​ 363,507 Investment in trust subsidiaries ​ ​ 1,145 ​ ​ 1,145 Other assets ​ ​ 4,410 ​ ​ 4,162 Total assets ​ $ 425,854 ​ $ 394,913 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Other liabilities ​ $ 2,793 ​ $ 6,636 Long-term debt ​ ​ 49,304 ​ ​ 49,214 Subordinated debentures ​ ​ 35,660 ​ ​ 35,481 Total liabilities ​ ​ 87,757 ​ ​ 91,331 Shareholders' equity: ​ ​ ​ ​ ​ ​ Common stock ​ ​ 115,027 ​ ​ 117,076 Retained earnings ​ ​ 259,050 ​ ​ 243,082 Accumulated other comprehensive gain, net of taxes ​ ​ ( 35,980 ) ​ ​ ( 56,576 ) Total shareholders' equity ​ ​ 338,097 ​ ​ 303,582 Total liabilities and shareholders' equity ​ $ 425,854 ​ $ 394,913 ​ STATEMENTS OF INCOME Years Ended December 31, 2023, 2022 and 2021 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Income: ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividend from subsidiary ​ $ 16,800 ​ $ 28,000 ​ $ 3,200 Other operating income ​ ​ — ​ ​ — ​ ​ — Total income ​ ​ 16,800 ​ ​ 28,000 ​ ​ 3,200 Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 1,741 ​ ​ 1,129 ​ ​ 779 Other expenses ​ ​ 6,117 ​ ​ 4,550 ​ ​ 2,728 Total expenses ​ ​ 7,858 ​ ​ 5,679 ​ ​ 3,507 Income before income taxes ​ ​ 8,942 ​ ​ 22,321 ​ ​ ( 307 ) Income tax benefit ​ ​ ( 2,323 ) ​ ​ ( 1,679 ) ​ ​ ( 1,037 ) Income before equity in undistributed income of subsidiary ​ ​ 11,265 ​ ​ 24,000 ​ ​ 730 Equity in undistributed income of subsidiary ​ ​ 23,579 ​ ​ 9,659 ​ ​ 42,282 Net income ​ $ 34,844 ​ $ 33,659 ​ $ 43,012 ​ 121 Table of Contents STATEMENTS OF CASH FLOWS Years Ended December 31, 2023, 2022 and 2021 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 2021 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 34,844 ​ $ 33,659 ​ $ 43,012 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Undistributed net income of subsidiary ​ ​ ( 23,579 ) ​ ​ ( 9,659 ) ​ ​ ( 42,282 ) Gain on sale of securities ​ ​ — ​ ​ — ​ ​ — (Increase) decrease in other assets ​ ​ 1,863 ​ ​ ( 3,459 ) ​ ​ 179 Increase (decrease) in other liabilities ​ ​ ( 6,117 ) ​ ​ 4,212 ​ ​ 1,263 Net cash provided by operating activities ​ ​ 7,011 ​ ​ 24,753 ​ ​ 2,172 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment in subsidiary ​ ​ — ​ ​ — ​ ​ ( 25,000 ) Net cash used by investing activities ​ ​ — ​ ​ — ​ ​ ( 25,000 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock options exercised ​ ​ — ​ ​ 314 ​ ​ 282 Repurchase of common stock ​ ​ ( 8,959 ) ​ ​ ( 5,192 ) ​ ​ ( 5,220 ) Dividends paid ​ ​ ( 13,714 ) ​ ​ ( 13,919 ) ​ ​ ( 13,232 ) Issuance of debentures, net ​ ​ — ​ ​ — ​ ​ 49,141 Net cash (used) in provided by financing activities ​ ​ ( 22,673 ) ​ ​ ( 18,797 ) ​ ​ 30,971 Net increase in cash and cash equivalents ​ ​ ( 15,662 ) ​ ​ 5,956 ​ ​ 8,143 Cash and cash equivalents, beginning of year ​ ​ 26,099 ​ ​ 20,143 ​ ​ 12,000 Cash and cash equivalents, end of year ​ $ 10,437 ​ $ 26,099 ​ $ 20,143 ​ ​ 26. CONDENSED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth the Company’s unaudited results of operations for the four quarters of 2022 and 2021. In management’s opinion, the results of operations reflect all adjustments (which include only recurring adjustments) necessary to present fairly the condensed results for such periods (dollars in thousands, except per share data). c ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 Quarter Ended ​ December 31, September 30, June 30, March 31, Interest income ​ $ 42,444 ​ $ 42,384 ​ $ 40,875 ​ $ 37,419 Interest expense ​ ​ 14,574 ​ ​ 14,297 ​ ​ 12,558 ​ ​ 9,287 Net interest income ​ ​ 27,870 ​ ​ 28,087 ​ ​ 28,317 ​ ​ 28,132 Provision (benefit) for credit losses ​ ​ 3,525 ​ ​ ( 33 ) ​ ​ ( 70 ) ​ ​ 260 Noninterest income ​ ​ 8,045 ​ ​ 7,762 ​ ​ 8,013 ​ ​ 6,579 Noninterest expense ​ ​ 24,136 ​ ​ 22,562 ​ ​ 22,968 ​ ​ 22,992 Net income before taxes ​ ​ 8,254 ​ ​ 13,320 ​ ​ 13,432 ​ ​ 11,459 Provision for taxes ​ ​ 1,964 ​ ​ 3,435 ​ ​ 3,513 ​ ​ 2,709 Net income ​ $ 6,290 ​ $ 9,885 ​ $ 9,919 ​ $ 8,750 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share ​ $ 0.43 ​ $ 0.68 ​ $ 0.67 ​ $ 0.58 Cash dividend per share ​ $ 0.23 ​ $ 0.23 ​ $ 0.23 ​ $ 0.23 ​ 122 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 Quarter Ended ​ December 31, September 30, June 30, March 31, Interest income ​ $ 35,603 ​ $ 31,929 ​ $ 28,206 ​ $ 26,081 Interest expense ​ ​ 6,240 ​ ​ 3,017 ​ ​ 1,621 ​ ​ 1,325 Net interest income ​ ​ 29,363 ​ ​ 28,912 ​ ​ 26,585 ​ ​ 24,756 Provision for credit losses ​ ​ 6,483 ​ ​ 1,259 ​ ​ 2,419 ​ ​ 600 Noninterest income ​ ​ 7,656 ​ ​ 6,612 ​ ​ 10,539 ​ ​ 6,063 Noninterest expense ​ ​ 21,522 ​ ​ 20,996 ​ ​ 22,213 ​ ​ 20,079 Net income before taxes ​ ​ 9,014 ​ ​ 13,269 ​ ​ 12,492 ​ ​ 10,140 Provision for taxes ​ ​ 1,901 ​ ​ 3,334 ​ ​ 3,288 ​ ​ 2,733 Net income ​ $ 7,113 ​ $ 9,935 ​ $ 9,204 ​ $ 7,407 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share ​ $ 0.47 ​ $ 0.66 ​ $ 0.62 ​ $ 0.49 Cash dividend per share ​ $ 0.23 ​ $ 0.23 ​ $ 0.23 ​ $ 0.23 ​ ​ ​ 27. SUBSEQUENT EVENTS Subsequent to year end, $ 196.7 million of bonds were sold. The bonds had a weighted average book yield of 2.61 %. The proceeds from the bond sale were used to pay down short-term borrowings at an average rate of 5.52 %. The loss on this transaction of $ 14.5 million was recognized in 2023 as management had the intent to sell such bonds at December 31, 2023. ​ ​ 123 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ​