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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

Commission file number: 000-33063

SIERRA BANCORP

(Exact name of Registrant as specified in its charter)

California	33-0937517
(State of Incorporation)	(IRS Employer Identification No)

86 North Main Street, Porterville, California 93257

(Address of principal executive offices)                  (Zip Code)

(559) 782-4900

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	BSRR	The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer:	☒
Non-accelerated Filer:	☐	Smaller Reporting Company:	☐
Emerging Growth Company:	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 1, 2024, the registrant had 14,595,719 shares of common stock outstanding, including 262,420 shares of unvested restricted stock.

FORM 10-Q

Table of Contents

					Page
Part I - Financial Information					1
	Item 1. Financial Statements (Unaudited)				1
		Consolidated Balance Sheets			1
		Consolidated Statements of Income			2
		Consolidated Statements of Comprehensive Income (Loss)			3
		Consolidated Statements of Changes In Shareholders’ Equity			4
		Consolidated Statements of Cash Flows			5
		Notes to Consolidated Financial Statements (Unaudited)			6
	Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations				33
		Forward-Looking Statements			33
		Critical Accounting Policies			34
		Overview of the Results of Operations and Financial Condition			34
		Earnings Performance			36
			Net Interest Income and Net Interest Margin		36
			Provision for Credit Losses on Loans		39
			Noninterest Income and Noninterest Expense		40
			Provision for Income Taxes		41
		Balance Sheet Analysis			42
			Earning Assets		42
				Investments	42
				Loan Portfolio	44
				Nonperforming Assets	46
				Allowance for Credit Losses on Loans	46
				Off-Balance Sheet Arrangements	48
			Other Assets		48
			Deposits and Interest-Bearing Liabilities		49
				Deposits	49
				Other Interest-Bearing Liabilities	49
			Noninterest-Bearing Liabilities		50
		Liquidity and Market Risk Management			50
		Capital Resources			53
	Item 3. Quantitative & Qualitative Disclosures about Market Risk				54
	Item 4. Controls and Procedures				54
Part II - Other Information					54
	Item 1. - Legal Proceedings				54
	Item 1A. - Risk Factors				54
	Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds				55
	Item 3. - Defaults upon Senior Securities				55
	Item 4. - Mine Safety Disclosures				55
	Item 5. - Other Information				55
	Item 6. - Exhibits				56
Signatures					58

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

SIERRA BANCORP

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	March 31, 2024		December 31, 2023
ASSETS	(unaudited)		(audited)
Cash and due from banks	$	70,908	$	73,721
Interest-bearing deposits in banks		48,336		4,881
Total cash & cash equivalents		119,244		78,602
Investment securities
Available-for-sale, net of zero allowance for credit losses		741,789		1,019,201
Held-to-maturity, net of allowance for credit losses of $16 and $16		316,406		320,057
Total investment securities		1,058,195		1,339,258
Loans:
Gross loans		2,156,864		2,090,075
Deferred loan costs, net		214		309
Allowance for credit losses on loans		(23,140)		(23,500)
Net loans		2,133,938		2,066,884
Premises and equipment, net		16,067		16,907
Goodwill		27,357		27,357
Other intangible assets, net		1,180		1,399
Bank-owned life insurance		52,977		51,572
Other assets		144,114		147,820
Total assets	$	3,553,072	$	3,729,799
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	968,996	$	1,020,772
Interest-bearing		1,878,008		1,740,451
Total deposits		2,847,004		2,761,223
Repurchase agreements		121,851		107,121
Other borrowings		80,000		360,500
Long-term debt		49,326		49,304
Subordinated debentures		35,704		35,660
Allowance for credit losses on unfunded loan commitments		540		510
Other liabilities		73,553		77,384
Total liabilities		3,207,978		3,391,702
Commitments and contingent liabilities (Note 7)
Shareholders' equity
Common stock, no par value; 24,000,000 shares authorized; 14,645,298 and 15,170,372 shares issued and outstanding at March 31, 2024, and December 31, 2023, respectively		109,295		110,446
Additional paid-in capital		4,815		4,581
Retained earnings		262,906		259,050
Accumulated other comprehensive loss, net		(31,922)		(35,980)
Total shareholders' equity		345,094		338,097
Total liabilities and shareholders' equity	$	3,553,072	$	3,729,799

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

1

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2024, and 2023

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

	Three months ended March 31,
	2024		2023
Interest and dividend income
Loans, including fees	$	25,426	$	22,550
Taxable securities		13,303		11,986
Tax-exempt securities		1,989		2,813
Federal funds sold and other		243		70
Total interest income		40,961		37,419
Interest expense
Deposits		9,645		5,999
Federal funds purchased and repurchase agreements		286		1,560
Federal Home Loan Bank advances		1,127		632
Long-term debt		431		429
Subordinated debentures		755		667
Total interest expense		12,244		9,287
Net interest income		28,717		28,132
Credit loss expense - loans		97		250
Credit loss expense - unfunded commitments		30		10
Net interest income after provision for credit losses		28,590		27,872
Noninterest income
Service charges and fees on deposit accounts		5,726		5,380
Net (loss) gain on sale of securities available-for-sale		(2,883)		45
Net gain on sale of fixed assets		3,799		14
Increase in cash surrender value of life insurance		1,215		172
Realized gain on available-for-sale securities		66		—
Other income		666		968
Total noninterest income		8,589		6,579
Noninterest expense
Salaries and employee benefits		13,197		12,816
Occupancy and equipment costs		3,025		2,330
Other		8,304		7,846
Total noninterest expense		24,526		22,992
Income before taxes		12,653		11,459
Provision for income taxes		3,323		2,708
Net income	$	9,330	$	8,751
PER SHARE DATA
Book value	$	23.56	$	20.40
Cash dividends	$	0.23	$	0.23
Earnings per share basic	$	0.64	$	0.58
Earnings per share diluted	$	0.64	$	0.58
Average shares outstanding, basic		14,508,468		14,971,842
Average shares outstanding, diluted		14,553,627		15,002,366
Total shareholders' equity (in thousands)	$	345,094	$	307,010
Shares outstanding		14,645,298		15,050,740
Dividends paid (in thousands)	$	3,396	$	3,495

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

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SIERRA BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2024, and 2023

(dollars in thousands, unaudited)

	Three months ended March 31,
	2024		2023
Net income	$	9,330	$	8,751
Other comprehensive gain, before tax:
Unrealized gain on securities:
Unrealized holding gain arising during period		2,877		756
Less: reclassification adjustment for losses (gains) included in net income (1)		2,883		(45)
Other comprehensive gain, before tax		5,760		711
Income tax expense related to items of other comprehensive gain		(1,702)		(210)
Other comprehensive gain, net of tax:		4,058		501
Comprehensive income	$	13,388	$	9,252

(1) Amounts are included in net gains on investment securities available-for-sale on the Consolidated Statements of Income in noninterest income. Income tax expenses associated with the reclassification adjustment for the three months ended March 31, 2024, and 2023, was $0.8 million and $0.01 million, respectively.

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

3

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2024, and 2023

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

								Accumulated
				Additional				Other
	Common Stock			Paid In		Retained		Comprehensive		Shareholders'
	Shares	Amount		Capital		Earnings		Loss		Equity
Balance, December 31, 2022	15,170,372	$	112,928	$	4,148	$	243,082	$	(56,576)	$	303,582
Net income	—		—		—		8,751		—		8,751
Other comprehensive gain, net of tax	—		—		—		—		501		501
Restricted stock granted	29,064		—		—		—		—		—
Restricted stock surrendered due to employee tax liability	(1,764)		(13)		—		(23)		—		(36)
Restricted stock forfeited / cancelled	(514)		—		—		—		—		—
Stock based compensation - stock options	—		—		20		—		—		20
Stock based compensation - restricted stock	—		—		393		—		—		393
Stock repurchase	(146,418)		(1,088)		—		(1,592)		—		(2,680)
Excise tax on stock repurchase	—		(26)		—		—		—		(26)
Cash dividends - $0.23 per share	—		—		—		(3,495)		—		(3,495)
Balance, March 31, 2023	15,050,740	$	111,801	$	4,561	$	246,723	$	(56,075)	$	307,010
Balance, December 31, 2023	14,793,832	$	110,446	$	4,581	$	259,050	$	(35,980)	$	338,097
Net income	—		—		—		9,330		—		9,330
Other comprehensive gain, net of tax	—		—		—		—		4,058		4,058
Restricted stock granted	36,114		—		—		—		—		—
Restricted shares withheld for taxes	(5,062)		(38)		—		(63)		—		(101)
Restricted stock forfeited / cancelled	(649)		—		—		—		—		—
Restricted stock vested in period	—		253		(253)		—		—		—
Stock based compensation - stock options	—		—		14		—		—		14
Stock based compensation - restricted stock	—		—		473		—		—		473
Stock repurchase	(178,937)		(1,334)		—		(2,015)		—		(3,349)
Excise tax on stock repurchase	—		(32)		—		—		—		(32)
Cash dividends - $0.23 per share	—		—		—		(3,396)		—		(3,396)
Balance, March 31, 2024	14,645,298	$	109,295	$	4,815	$	262,906	$	(31,922)	$	345,094

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

4

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2024, AND 2023

(dollars in thousands, unaudited)

		Three months ended March 31,
	2024		2023
Cash flows from operating activities:
Net income	$	9,330	$	8,751
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on sales of securities		2,883		(45)
Realized gain on securities transaction		(66)		—
Gain on disposal of fixed assets		(3,799)		(14)
Stock based compensation expense		487		413
Provision for credit losses on loans		97		250
Depreciation and amortization		534		604
Net amortization on securities premiums and discounts		375		743
Net accretion of premiums/discounts for loans acquired		(55)		(124)
Increase in cash surrender value of life insurance policies		(1,215)		(172)
Amortization of core deposit intangible		219		219
Decrease in interest receivable and other assets		1,220		3,185
Decrease in other liabilities		(3,833)		(3,643)
Deferred income tax benefit		(137)		(119)
Decrease in value of restricted bank equity securities		311		291
Amortization of debt issuance costs		22		22
Net amortization of partnership investment		608		166
Net cash provided by operating activities		6,981		10,527
Cash flows from investing activities:
Maturities and calls of securities available for sale		33,713		21,864
Proceeds from sales of securities available for sale		233,187		14,349
Purchase of securities available for sale		—		(149,172)
Principal pay downs on securities available for sale		16,733		11,128
Loan originations and payments, net		(67,096)		(422)
Purchases of premises and equipment		(369)		(413)
Proceeds from sale of premises and equipment		4,518		25
Proceeds from sales of foreclosed assets		—		19,151
Purchase of bank-owned life insurance		(190)		(202)
Proceeds from BOLI death benefit		—		235
Net cash provided by (used in) investing activities		220,496		(83,457)
Cash flows from financing activities:
Increase in deposits		85,781		102,824
(Decrease) increase in Fed funds purchased		(130,000)		25,000
Decrease in short-term Federal Home Loan Bank advances		(150,500)		(27,200)
Increase (decrease) in customer repurchase agreements		14,730		(15,108)
Cash dividends paid		(3,396)		(3,495)
Repurchases of common stock		(3,450)		(2,716)
Net cash (used in) provided by financing activities		(186,835)		79,305
Increase in cash and cash equivalents		40,642		6,375
Cash and cash equivalents
Beginning of period		78,602		77,131
End of period	$	119,244	$	83,506
Supplemental disclosure of cash flow information:
Interest paid	$	13,276	$	8,511
Supplemental schedule of noncash investing and financing activities:
Real estate acquired through foreclosure	$	—	$	15,406

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

5

SIERRA BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

Note 1 – The Business of Sierra Bancorp

Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws. The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”) and has been the Bank’s sole shareholder since August 2001. The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. As of March 31, 2024, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”). Pursuant to the Financial Accounting Standards Board (“FASB”) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the Company’s financial statements. References herein to the “Company” include Sierra Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.

Bank of the Sierra, a California state-chartered bank headquartered in Porterville, California, offers a wide range of retail and commercial banking services via branch offices located throughout California’s South San Joaquin Valley, the Central Coast, Ventura County, the Sacramento area, and neighboring communities. The Bank was incorporated in September 1977, and opened for business in January 1978 as a one-branch bank with $1.5 million in capital. Our growth in the ensuing years has largely been organic in nature but includes four whole-bank acquisitions: Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017. As of the filing date of this report the Bank operates 35 full-service branches and an online branch and maintains ATMs at all but one of our branch locations as well as at seven non-branch locations. Moreover, the Bank has specialized lending units which focus on agricultural borrowers, commercial real estate, and mortgage warehouse lending. In addition, in February 2020 the Bank opened a loan production office which is currently located in Roseville, CA. To support organic growth in the agricultural and commercial lending sectors the Bank opened a loan production office in Templeton, CA in April 2022. The Company had total assets of $3.6 billion at March 31, 2024, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley. The Bank’s deposit accounts, which totaled $2.8 billion at March 31, 2024, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

Note 2 – Basis of Presentation

The accompanying interim unaudited consolidated financial statements have been prepared in a condensed format as allowed under U.S. generally accepted accounting principles (“GAAP”). Therefore, these financial statements do not include all of the information and footnotes required for complete, audited financial statements as presented in the Company’s Annual Report on Form 10-K. The information furnished in these interim statements reflects all adjustments that are, in the opinion of Management, necessary for a fair statement of the results for such periods. Such adjustments can generally be considered as normal and recurring unless otherwise disclosed in this Form 10-Q. In preparing the accompanying financial statements, Management has taken subsequent events into consideration, through May 6, 2024 and recognized them where appropriate. The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year. Certain amounts reported for 2023 have been reclassified to be consistent with the reporting for 2024, none of which impacted net income or shareholders’ equity. The interim financial information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”).

Note 3 – Current Accounting Developments

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

6

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 effective for the Company on January 1, 2024, 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 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 was adopted by the Company on January 1, 2024, and did not have a significant impact on the 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 the financial statements.

Note 4 – Share Based Compensation

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 191,600 shares granted under the 2017 Plan and options to purchase 130,649 shares that were granted under the 2007 Plan were still outstanding as of March 31, 2024, 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 under the 2023 Plan was initially 360,000 shares, and the number remaining available for grant as of March 31, 2024, was 259,913. The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share.

Pursuant to FASB’s standards on stock compensation, the value of each stock option and restricted stock award is reflected in our income state­ment as employee compensation or directors’ expense by amortizing its grant date fair value over the vesting period of the option or award. The Company utilizes a Black-Scholes model to determine grant date fair values for options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

7

Forfeitures are reflected in compensation costs as they occur for both types of awards. A pre-tax charge of $0.5 million was reflected in the Company’s income statement during the first quarter of 2024 and $0.4 million during the first quarter of 2023, as expense related to stock options and restricted stock awards.

Restricted Stock Grants

The Company’s Restricted Stock Awards are awards of either time-vested or performance-based shares. The Restricted Stock Awards are non-transferrable shares of common stock and are available to be granted to the Company’s employees and directors. The vesting period of Restricted Stock Awards is determined at the time the awards are issued, and different awards may have different vesting terms or performance measures; provided, however, that no installment of any Restricted Stock Award shall become vested less than one year from the grant date. Restricted Stock Awards are valued utilizing the fair value of the Company’s stock at the grant date. These awards are expensed on a straight-line basis over the vesting period and consider the probability of meeting the performance criteria. There were 36,114 shares granted to employees of the Company during the first three months of 2024.  As of March 31, 2024, there was $3.4 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 plan. That cost is expected to be amortized over a weighted average period of 2.3 years.

The Company’s restricted stock award activity for the three months ended March 31, 2024, and 2023 is summarized below (unaudited):

	Three months ended March 31,
	2024			2023
	Shares		Weighted Average Grant-Date Fair Value	Shares		Weighted Average Grant-Date Fair Value
Unvested shares, January 1,	238,179	$	20.30	175,619	$	21.42
Granted	36,114		19.10	29,064		21.50
Vested	(11,224)		22.57	(3,162)		25.30
Forfeited	(649)		23.10	(514)		27.16
Unvested shares, March 31,	262,420	$	20.00	201,007	$	21.35

Stock Option Grants

The Company has issued equity instruments in the form of Incentive Stock Options and Nonqualified Stock Options to certain officers and directors. No options have been granted since 2020, but the Company could elect to issue under the 2023 Plan. The exercise price of each stock option is determined at the time of the grant and may be no less than 100% of the fair market value of such stock at the time the option is granted.

The Company’s stock option activity during the three months ended March 31, 2024, and 2023 are summarized below (dollars in thousands, except per share data, unaudited):

	Three months ended March 31,
	2024						2023
	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (1)		Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (1)
Outstanding at January 1,	343,449	$	25.02		$	447	352,249	$	25.06		$	348
Forfeited/Expired	(11,000)	$	27.43		$	—	(2,200)	$	27.67		$	—
Outstanding at March 31,	332,449	$	24.94	3.96	$	264	350,049	$	25.04	4.99	$	33
Exercisable at March 31,	332,449	$	24.87	3.90	$	264	325,649	$	24.89	4.85	$	33

(1) The aggregate intrinsic value of stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on March 31, 2024. This amount changes based on changes in the market value of the Company's stock.

8

Note 5 – Earnings per Share

The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period, excluding unvested restricted stock awards. There were 14,508,468 weighted average shares outstanding during the first quarter of 2024 and 14,971,842 during the first quarter of 2023.

Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options, and unvested restricted stock awards. For the first quarter of 2024, calculations under the treasury stock method resulted in the equivalent of 45,159, shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 268,991 stock options were excluded from the calculation because they were underwater and thus anti-dilutive. For the first quarter of 2023 the equivalent of 30,524 shares were added in calculating diluted earnings per share, while 327,141 anti-dilutive stock options were not factored into the computation.

Note 6 – Comprehensive Income

As presented in the Consolidated Statements of Comprehensive Income, comprehensive income includes net income and other comprehensive income. The Company’s only source of other comprehensive income is unrealized gains and losses on available-for-sale investment securities. Investment gains or losses that were realized and reflected in net income of the current period, which had previously been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose, are considered to be reclassification adjustments that are excluded from other comprehensive income in the current period.

Note 7 – Commitments and Contingent Liabilities

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business. Those financial instruments currently consist of unused commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of risk in excess of the amount recognized in the balance sheet. The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and issuing letters of credit as it does for originating loans included on the bala