SIERRA BANCORP 10-K

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  (Eide Bailly LLP San Ramon, California PCAOB ID 286 ) ​ 67 ​ ​ ​ ​ II. Consolidated Balance Sheets – December 31, 2021 and 2020 ​ 70 ​ ​ ​ ​ III. Consolidated Statements of Income – Years Ended December 31, 2021, 2020, and 2019 ​ 71 ​ ​ ​ ​ IV. Consolidated Statements of Comprehensive Income – Years Ended December 31, 2021, 2020, and 2019 ​ 72 ​ ​ ​ ​ V. Consolidated Statements of Changes in Shareholders’ Equity – Years Ended December 31, 2021, 2020, and 2019 ​ 73 ​ ​ ​ ​ VI. Consolidated Statements of Cash Flows – Years Ended December 31, 2021, 2020, and 2019 ​ 74 ​ ​ ​ ​ VII. Notes to Consolidated Financial Statements ​ 76 ​ ​ ​ 66 Table of Contents ​ Report of Independent Registered Public Accounting Firm ​ ​ To the Board of Directors and Shareholders Sierra Bancorp and Subsidiary Porterville, California ​ Opinion on the Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Sierra Bancorp and Subsidiary (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). ​ We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control —Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). ​ In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework: (2013) issued by COSO. ​ Basis for Opinion The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. ​ Our audits of the financial statements 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 consolidated 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 consolidated financial statements. Our audit of internal control over financial reporting 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. ​ 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 consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control 67 Table of Contents 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 consolidated financial statements. ​ 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. ​ 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 especially challenging, subjective, or complex judgments. The communication of critical audit matters 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 separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Loan and Lease Losses As discussed in Note 4 to the Company’s consolidated financial statements, the Company has a gross loan and lease portfolio of $2.0 billion and related allowance for loan and lease losses of $14.3 million as of December 31, 2021. The determination of the allowance for loan and lease losses is a material and complex estimate requiring significant management’s judgment in the evaluation of the credit quality and the estimation of inherent losses within the loan and lease portfolio. The allowance for loan and lease losses includes a general reserve which is determined based on the results of a quantitative and a qualitative analysis of all loans not measured for impairment at the reporting date. The Company’s general reserves cover non-impaired loans and are based on historical net loss rates for each portfolio segment by call report code, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in international, national, regional, and local economic and business conditions and developments; changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management and staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in quality of the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit; and the effect of the other external factors such as competition and legal and regulatory requirements. We identified the allowance for loan and lease losses as a critical matter. Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed. The primary procedures we performed to address this critical audit matter included: • Testing the design and operating effectiveness of controls relating to management’s timely identification of problem loans, appropriate application of loan rating policy, consistency of application of accounting policies and appropriateness of assumptions used in the allowance for loan and lease losses calculation. ​ • Evaluating the reasonableness of assumptions and sources of data used by management in forming the loss factors by performing retrospective review of historic loan and lease loss experience and 68 Table of Contents analyzing historical data used in developing the assumptions. ​ • Evaluating the appropriateness of inputs and factors that the Company used in forming the qualitative loss factors and assessing whether such inputs and factors were relevant, reliable, and reasonable for the purpose used. ​ • Testing the mathematical accuracy and computation of the allowance for loan and lease losses. ​ • Evaluating the period to period consistency with which qualitative loss factors are determined and applied. ​ /s/ Eide Bailly LLP ​ San Ramon, California March 10, 2022 ​ We have served as the Company’s auditor since 2019. Vavrinek, Trine, Day & Co., LLP, who joined Eide Bailly LLP in 2019, had served as the Company’s auditor since 2004. ​ ​ ​ ​ 69 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 2021 and 2020 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 ASSETS ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 63,147 ​ $ 67,908 Interest bearing deposits in banks ​ ​ 194,381 ​ ​ 3,509 Cash and cash equivalents ​ ​ 257,528 ​ ​ 71,417 Securities available-for-sale ​ ​ 973,314 ​ ​ 543,974 Loans and leases: ​ ​ ​ ​ ​ ​ Gross loans and leases ​ ​ 1,989,726 ​ ​ 2,463,111 Allowance for loan and lease losses ​ ​ ( 14,256 ) ​ ​ ( 17,738 ) Deferred loan and lease (fees) costs, net ​ ​ ( 1,865 ) ​ ​ ( 3,147 ) Net loans and leases ​ ​ 1,973,605 ​ ​ 2,442,226 Foreclosed assets ​ ​ 93 ​ ​ 971 Premises and equipment, net ​ ​ 23,571 ​ ​ 27,505 Goodwill ​ ​ 27,357 ​ ​ 27,357 Other intangible assets, net ​ ​ 3,275 ​ ​ 4,307 Company owned life insurance ​ ​ 54,242 ​ ​ 52,539 Other assets ​ ​ 58,029 ​ ​ 50,446 ​ ​ $ 3,371,014 ​ $ 3,220,742 LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 1,084,544 ​ $ 943,664 Interest bearing ​ ​ 1,697,028 ​ ​ 1,680,942 Total deposits ​ ​ 2,781,572 ​ ​ 2,624,606 Repurchase agreements ​ ​ 106,937 ​ ​ 39,138 Short-term borrowings ​ ​ — ​ ​ 142,900 Long-term debt ​ ​ 49,141 ​ ​ — Subordinated debentures, net ​ ​ 35,302 ​ ​ 35,124 Other liabilities ​ ​ 35,568 ​ ​ 35,078 Total liabilities ​ ​ 3,008,520 ​ ​ 2,876,846 Commitments and contingent liabilities (Notes 6 & 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; 15,270,010 and 15,388,423 shares issued and outstanding in 2021 and 2020, respectively ​ ​ 113,007 ​ ​ 113,384 Additional paid-in capital ​ ​ 3,910 ​ ​ 3,736 Retained earnings ​ ​ 234,410 ​ ​ 208,371 Accumulated other comprehensive gain, net of taxes of $( 4,687 ) in 2021 and $( 7,725 ) in 2020 ​ ​ 11,167 ​ ​ 18,405 Total shareholders' equity ​ ​ 362,494 ​ ​ 343,896 ​ ​ $ 3,371,014 ​ $ 3,220,742 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 70 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2021, 2020 and 2019 (dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Interest and dividend income ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans and leases, including fees ​ $ 99,249 ​ $ 96,181 ​ $ 95,898 Taxable securities ​ ​ 7,239 ​ ​ 8,199 ​ ​ 10,139 Tax-exempt securities ​ ​ 6,218 ​ ​ 5,707 ​ ​ 4,534 Federal funds sold and other ​ ​ 370 ​ ​ 156 ​ ​ 376 Total interest income ​ ​ 113,076 ​ ​ 110,243 ​ ​ 110,947 Interest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ 2,390 ​ ​ 3,948 ​ ​ 11,380 Short-term borrowings ​ ​ 213 ​ ​ 243 ​ ​ 362 Long-term debt ​ ​ 468 ​ ​ — ​ ​ — Subordinated debentures ​ ​ 979 ​ ​ 1,217 ​ ​ 1,836 Total interest expense ​ ​ 4,050 ​ ​ 5,408 ​ ​ 13,578 Net interest income ​ ​ 109,026 ​ ​ 104,835 ​ ​ 97,369 (Benefit) provision for loan and lease losses ​ ​ ( 3,650 ) ​ ​ 8,550 ​ ​ 2,550 Net interest income after provision for loan and lease losses ​ ​ 112,676 ​ ​ 96,285 ​ ​ 94,819 Noninterest income ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ 11,846 ​ ​ 11,765 ​ ​ 12,742 Checkcard fees ​ ​ 8,485 ​ ​ 7,023 ​ ​ 6,584 Net gains (losses) on sale of securities available-for-sale ​ ​ 11 ​ ​ 390 ​ ​ ( 198 ) Increase in cash surrender value of life insurance ​ ​ 2,648 ​ ​ 2,412 ​ ​ 2,184 Other income ​ ​ 5,089 ​ ​ 4,560 ​ ​ 2,165 Total noninterest income ​ ​ 28,079 ​ ​ 26,150 ​ ​ 23,477 Noninterest expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 42,431 ​ ​ 40,178 ​ ​ 35,978 Occupancy and equipment ​ ​ 9,837 ​ ​ 9,842 ​ ​ 9,845 Acquisition costs ​ ​ — ​ ​ — ​ ​ 22 Other ​ ​ 31,288 ​ ​ 25,892 ​ ​ 24,733 Total noninterest expense ​ ​ 83,556 ​ ​ 75,912 ​ ​ 70,578 Income before income taxes ​ ​ 57,199 ​ ​ 46,523 ​ ​ 47,718 Provision for income taxes ​ ​ 14,187 ​ ​ 11,079 ​ ​ 11,757 Net income ​ $ 43,012 ​ $ 35,444 ​ $ 35,961 Earnings per share ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 2.82 ​ $ 2.33 ​ $ 2.35 Diluted ​ $ 2.80 ​ $ 2.32 ​ $ 2.33 Weighted average shares outstanding, basic ​ ​ 15,241,957 ​ ​ 15,216,749 ​ ​ 15,311,113 Weighted average shares outstanding, diluted ​ ​ 15,353,445 ​ ​ 15,280,325 ​ ​ 15,437,111 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 71 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2021, 2020 and 2019 (dollars in thousands, except footnotes) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Net income ​ $ 43,012 ​ $ 35,444 ​ $ 35,961 Other comprehensive income, before tax ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gain (loss) arising during period ​ ​ ( 10,265 ) ​ ​ 18,099 ​ ​ 17,686 Reclassification adjustment for (gains) losses included in net income (1) ​ ​ ( 11 ) ​ ​ ( 390 ) ​ ​ 198 Other comprehensive gain (loss), before tax ​ ​ ( 10,276 ) ​ ​ 17,709 ​ ​ 17,884 Income tax (expense) benefit related to items of other comprehensive income ​ ​ 3,038 ​ ​ ( 5,236 ) ​ ​ ( 5,286 ) Total other comprehensive gain (loss), net of tax ​ ​ ( 7,238 ) ​ ​ 12,473 ​ ​ 12,598 Comprehensive income ​ $ 35,774 ​ $ 47,917 ​ $ 48,559 (1) Amounts are included in net (gains) losses on securities available-for-sale on the Consolidated Statements of Income in noninterest income. Income tax (expense) benefit associated with the reclassification adjustment for the years ended 2021, 2020 and 2019 was $( 3,000 ) , $( 115,000 ) , and $ 59,000 respectively. The accompanying notes are an integral part of these consolidated financial statements. ​ 72 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY For the Three Years Ended December 31, 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, 2019 ​ 15,300,460 ​ $ 112,507 ​ $ 3,066 ​ $ 164,117 ​ $ ( 6,666 ) ​ $ 273,024 Net Income ​ — ​ ​ — ​ ​ — ​ ​ 35,961 ​ ​ — ​ ​ 35,961 Other comprehensive loss, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 12,598 ​ ​ 12,598 Exercise of stock options ​ 82,681 ​ ​ 1,337 ​ ​ ( 249 ) ​ ​ — ​ ​ — ​ ​ 1,088 Stock based compensation expense ​ — ​ ​ — ​ ​ 490 ​ ​ — ​ ​ — ​ ​ 490 Stock repurchase ​ ( 98,603 ) ​ ​ ( 665 ) ​ ​ — ​ ​ ( 1,879 ) ​ ​ — ​ ​ ( 2,544 ) Cash dividends - $ .74 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 11,332 ) ​ ​ — ​ ​ ( 11,332 ) Balance, December 31, 2019 ​ 15,284,538 ​ ​ 113,179 ​ ​ 3,307 ​ ​ 186,867 ​ ​ 5,932 ​ ​ 309,285 Net Income ​ — ​ ​ — ​ ​ — ​ ​ 35,444 ​ ​ — ​ ​ 35,444 Other comprehensive gain, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 12,473 ​ ​ 12,473 Exercise of stock options ​ 67,050 ​ ​ 1,034 ​ ​ ( 259 ) ​ ​ — ​ ​ — ​ ​ 775 Stock based compensation expense ​ 148,885 ​ ​ — ​ ​ 688 ​ ​ — ​ ​ — ​ ​ 688 Stock repurchase ​ ( 112,050 ) ​ ​ ( 829 ) ​ ​ — ​ ​ ( 1,733 ) ​ ​ — ​ ​ ( 2,562 ) Cash dividends - $ .80 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 12,207 ) ​ ​ — ​ ​ ( 12,207 ) Balance, December 31, 2020 ​ 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 - $ .87 per share ​ — ​ ​ — ​ ​ — ​ ​ ( 13,232 ) ​ ​ — ​ ​ ( 13,232 ) Balance, December 31, 2021 ​ 15,270,010 ​ $ 113,007 ​ $ 3,910 ​ $ 234,410 ​ $ 11,167 ​ $ 362,494 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 73 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2021, 2020, and 2019 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 43,012 ​ $ 35,444 ​ $ 35,961 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ (Gain) loss on sales of securities ​ ​ ( 11 ) ​ ​ ( 390 ) ​ ​ 198 (Gain) loss on disposal of fixed assets ​ ​ ( 180 ) ​ ​ — ​ ​ 28 Gain on sale of foreclosed assets ​ ​ ( 153 ) ​ ​ ( 10 ) ​ ​ ( 107 ) Writedown of foreclosed assets ​ ​ 174 ​ ​ 124 ​ ​ 77 Stock based compensation expense ​ ​ 995 ​ ​ 688 ​ ​ 490 (Benefit) provision for loan and lease losses ​ ​ ( 3,650 ) ​ ​ 8,550 ​ ​ 2,550 Depreciation and amortization ​ ​ 3,237 ​ ​ 3,025 ​ ​ 2,988 Net amortization on securities premiums and discounts ​ ​ 4,914 ​ ​ 4,789 ​ ​ 4,449 Accretion of discounts for loans acquired and net deferred loan fees ​ ​ ( 411 ) ​ ​ ( 663 ) ​ ​ ( 1,023 ) Increase in cash surrender value of life insurance policies ​ ​ ( 2,648 ) ​ ​ ( 2,412 ) ​ ​ ( 2,184 ) Amortization of core deposit intangible ​ ​ 1,032 ​ ​ 1,074 ​ ​ 1,074 Decrease (increase) in interest receivable and other assets ​ ​ 6,435 ​ ​ ( 488 ) ​ ​ ( 9,224 ) Increase (decrease) in other liabilities ​ ​ 1,602 ​ ​ ( 8,151 ) ​ ​ 9,662 Deferred income tax provision (benefit) ​ ​ 85 ​ ​ ( 2,611 ) ​ ​ ( 97 ) Increase in equity securities ​ ​ ( 2,523 ) ​ ​ ( 447 ) ​ ​ ( 232 ) Net amortization of partnership investment ​ ​ 746 ​ ​ 1,505 ​ ​ 2,127 Net cash provided by operating activities ​ ​ 52,656 ​ ​ 40,027 ​ ​ 46,737 Cash flows from investing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturities and calls of securities available for sale ​ ​ 10,390 ​ ​ 12,385 ​ ​ 9,809 Proceeds from sales of securities available for sale ​ ​ 148 ​ ​ 20,298 ​ ​ 60,510 Purchases of securities available for sale ​ ​ ( 568,174 ) ​ ​ ( 71,816 ) ​ ​ ( 190,168 ) Principal paydowns on securities available for sale ​ ​ 113,117 ​ ​ 109,267 ​ ​ 92,766 Net purchases of FHLB stock ​ ​ — ​ ​ — ​ ​ ( 833 ) Loan originations and payments, net ​ ​ 472,589 ​ ​ ( 697,305 ) ​ ​ ( 32,376 ) Purchases of premises and equipment, net ​ ​ ( 371 ) ​ ​ ( 2,916 ) ​ ​ ( 783 ) Proceeds from sales of fixed assets ​ ​ 1,426 ​ ​ — ​ ​ 10 Proceeds from sales of foreclosed assets ​ ​ 950 ​ ​ 2,445 ​ ​ 7,955 Purchase of bank owned life insurance ​ ​ ( 39 ) ​ ​ ( 210 ) ​ ​ ( 440 ) Liquidation of bank-owned life insurance ​ ​ — ​ ​ 326 ​ ​ 260 Proceeds from BOLI death benefit ​ ​ 984 ​ ​ 274 ​ ​ — Net increase in partnership investment ​ ​ ( 10,400 ) ​ ​ — ​ ​ — Net cash provided by (used in) investing activities ​ ​ 20,620 ​ ​ ( 627,252 ) ​ ​ ( 53,290 ) Cash flows from financing activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Increase in deposits ​ ​ 156,966 ​ ​ 456,232 ​ ​ 52,034 (Decrease) increase in borrowed funds ​ ​ ( 42,900 ) ​ ​ 22,900 ​ ​ ( 36,100 ) Increase in repurchase agreements ​ ​ 67,799 ​ ​ 13,427 ​ ​ 9,352 (Decrease) increase in fed funds purchased ​ ​ ( 100,000 ) ​ ​ 100,000 ​ ​ — Cash dividends paid ​ ​ ( 13,232 ) ​ ​ ( 12,207 ) ​ ​ ( 11,332 ) Repurchases of common stock ​ ​ ( 5,220 ) ​ ​ ( 2,562 ) ​ ​ ( 2,544 ) Stock options exercised ​ ​ 281 ​ ​ 775 ​ ​ 1,088 Proceeds from issuance of subordinated debt ​ ​ 49,141 ​ ​ — ​ ​ — Net cash provided by financing activities ​ ​ 112,835 ​ ​ 578,565 ​ ​ 12,498 Increase (decrease) in cash and due from banks ​ ​ 186,111 ​ ​ ( 8,660 ) ​ ​ 5,945 Cash and cash equivalents, beginning of year ​ ​ 71,417 ​ ​ 80,077 ​ ​ 74,132 Cash and cash equivalents, end of year ​ $ 257,528 ​ $ 71,417 ​ $ 80,077 ​ 74 Table of Contents SIERRA BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) Years Ended December 31, 2021, 2020 and 2019 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid during the year for: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest ​ $ 3,649 ​ $ 6,007 ​ $ 13,769 Income taxes ​ $ 13,554 ​ $ 14,490 ​ $ 12,000 Supplemental noncash disclosures: ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate acquired through foreclosure ​ $ 93 ​ $ 2,562 ​ $ 27 Change in unrealized net (losses) gains on securities available-for-sale ​ $ ( 10,276 ) ​ $ 17,709 ​ $ 17,884 Operating right-of-use asset pursuant to adoption of ASU 2016-02 ​ $ — ​ $ — ​ $ 8,308 Operating lease liability pursuant to adoption of ASU 2016-02 ​ $ — ​ $ — ​ $ 8,915 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 75 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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, 2021, the Bank operated 35 full service branch offices, an online branch and provides specialized lending services through an agricultural credit center, an SBA center, Mortgage Warehouse lending divisions and a dedicated loan production office in Roseville, 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 2021. 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 loan and lease losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowances for loan and lease losses and other real estate, management obtains independent appraisals for significant properties, evaluates the overall loan portfolio characteristics and delinquencies and monitors economic conditions. 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 76 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 available for sale are carried at fair value with unrealized holding gains and losses reported in other comprehensive income, net of tax. 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. Although the Company currently has the intent and the ability to hold the securities in its investment portfolio to maturity, the securities are all marketable and are currently classified as “available for sale” to allow maximum flexibility with regard to interest rate risk and liquidity management. Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of the impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. 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 $ 12.4 million at December 31, 2021 and $ 10.7 million at December 31, 2020. Pursuant to the adoption of ASU 2016-01 on January 1, 2018 , the Company elected the measurement alternative for measuring equity securities without readily determinable fair values at cost less impairment, plus or minus observable price changes in orderly transactions. The carrying amount of equity securities without readily determinable fair values is $ 3.3 million and $ 2.5 million at December 31, 2021 and 2020, respectively. Equity securities primarily consist of an investment in Pacific Coast Bankers’ Bank (“PCBB”). A remeasurement gain of $ 0.9 million, $ 0.4 million and $ 0.2 million was recorded to income during the years ended December 31, 2021, 2020 and 2019, on PCBB stock. $ 2.7 million in cumulative remeasurement gains have been recorded as of December 31, 2021 on PCBB stock. Adjustments to the carrying value of PCBB stock were based on a third party valuation. 77 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Loans Held for Sale The Company may originate loans intended to be sold on the secondary market. Loans originated and intended for sale in the secondary market are carried at cost which approximates fair value since these loans are typically sold shortly after origination. The loan’s cost basis includes unearned deferred fees and costs, and premiums and discounts. If loans held for sale remain on our books for an extended period of time the fair value of those loans is determined using quoted secondary market prices. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Loans that might be held for sale by the Company typically consist of residential real estate loans. Loans classified as held for sale, if any, are disclosed in Note 4 to the consolidated financial statements. Gains and losses on sales of loans are recognized at the time of sale and are calculated based on the difference between the selling price and the allocated book value of loans sold. Book value allocations are determined in accordance with U.S. GAAP. Any inherent risk of loss on loans sold is transferred to the buyer at the date of sale. The Company has issued various representations and warranties associated with the sale of loans. These representations and warranties may require the Company to repurchase loans with underwriting deficiencies as defined per the applicable sales agreements and certain past due loans within 90 days of the sale. The Company did no t experience losses during the years ended December 31, 2021, 2020, or 2019 regarding these representations and warranties. Loans and Leases (Financing Receivables) Our credit quality classifications of Loans and Leases include Pass, Special Mention, Substandard and Impaired. These classifications are defined in Note 4 to the consolidated financial statements. Loans and leases that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, purchase premiums and discounts, write-downs, and an allowance for loan and lease losses. Loan and lease 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 and leases 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 and Impaired), 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 78 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 required. Generally, loans and leases are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. Impaired loans are classified as either nonaccrual or accrual, depending on individual circumstances regarding the collectability of interest and principal according to the contractual terms. Purchased Credit Impaired Loans The Company purchases individual loans and groups of loans, some of which may show evidence of credit deterioration since origination. These purchased credit impaired (“PCI”) loans are recorded at the amount paid, since there is no carryover of the seller’s allowance for loan and lease losses. After acquisition, additional deterioration in credit is recognized by an increase in the allowance for loan and lease losses. Such PCI loans are accounted for individually or aggregated into pools of loans based on common risk characteristics. The Company estimates the amount and timing of expected cash flows for the loan or pool, and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan or pool (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference). Over the life of the loan or pool, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded as a provision for loan and lease losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income Loans Modified in a Troubled Debt Restructuring Loans are considered to have been modified in a troubled debt restructuring (“TDR”) when due to a borrower’s financial difficulties the Company makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status. A TDR is generally considered to be in default when it appears likely that the customer will not be able to repay all principal and interest pursuant to the terms of the restructured agreement. Allowance for Loan and Lease Losses The allowance for loan and lease losses is maintained at a level which, in management’s judgment, is adequate to absorb loan and lease losses inherent in the loan and lease portfolio. The allowance for loan and lease losses is 79 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) increased by a provision for loan and lease losses, which is charged to expense, and by principal recovered on charged-off balances. It is reduced by principal charge-offs. The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, changes in its risk profile, credit concentrations, historical trends, and economic conditions. This evaluation also considers the balance of impaired loans and leases. A loan or lease is impaired when it is probable that the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan or lease agreement. The impairment on certain individually identified loans or leases is measured based on the present value of expected future cash flows discounted at the original effective interest rate of the loan or lease. As a practical expedient, impairment may be measured based on the loan’s or lease’s observable market price or the fair value of collateral if the loan or lease is collateral dependent. The amount of impairment, if any, is recorded through the provision for loan and lease losses and is added to the allowance for loan and lease losses, with any changes over time recognized as additional bad debt expense in our provision for loan and lease losses. Impaired loans with homogenous characteristics, such as one-to-four family residential mortgages and consumer installment loans, may be subjected to a collective evaluation for impairment, considering delinquency and repossession statistics, historical loss experience, and other factors. General reserves cover non-impaired loans and are based on historical net loss rates for each portfolio segment by call report code, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in international, national, regional, and local economic and business conditions and developments; changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management and staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in quality of the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit; and the effect of the other external factors such as competition and legal and regulatory requirements. 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 loan and lease losses. Portfolio segments identified by the Company include Agricultural, Commercial and Industrial, Real Estate, Small Business Administration, and Consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans; and credit scores, debt-to-income ratios, collateral type and loan-to-value ratios for consumer loans. Though management believes the allowance for loan and lease 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 loan and lease losses. These agencies may require additions to the allowance for loan and lease losses based on their judgment about information available at the time of their examinations. Reserve for 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, 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 ALLL. The reserve for off-balance sheet commitments is an estimated loss contingency which is included in 80 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) other liabilities on the Consolidated Balance Sheets. The adjustments to the reserve for off-balance sheet commitments are reported within noninterest expense. This reserve is for estimated losses that could occur when the Company is contractually obligated to make a payment under these instruments and must seek repayment from a party that may not be as financially sound in the current period as it was when the commitment was originally made. 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. 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 loan and lease losses. 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 one foreclosed residential real estate property recorded at December 31, 2021, as a result of obtaining physical possession of the property. At December 31, 2021, the recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process was $ .008 million. 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 December 31, 2021 as the date to perform the annual impairment test for 2021. 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, 2021, 2020, and 2019. 81 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, a Citizen’s Business Bank Porterville branch deposit portfolio, 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 , except for the Citizen’s Business Bank Porterville branch deposit portfolio which is being amortized on a straight-line basis over five 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 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, 2021 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 82 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2021, the Company had one stock-based compensation plan, the Sierra Bancorp 2017 Stock Incentive Plan (the “2017 Plan”), which was adopted by the Company’s Board of Directors on March 16, 2017 and approved by the Company’s shareholders on May 24, 2017. The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007” Plan), which expired by its own terms on March 15, 2017. Options to purchase shares granted under the 2007 Plan that remained outstanding were unaffected by that plan’s termination. The 2017 Plan covers 850,000 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 2017 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 the expected term of the stock option is based on the U.S. Treasury yield curve in effect at the time of the grant. The fair value of each stock option is estimated on the date of grant using the following assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 Dividend yield ​ 3.02 % ​ 2.62 % Expected Volatility ​ 25.06 % ​ 34.57 % Risk-free interest rate ​ 1.47 % ​ 2.70 % Expected option life ​ 6.4 years ​ 5.4 years ​ No stock options were granted during the year ended December 31, 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. 83 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 a current estimate of all expected credit losses over the contractual term, adjusted by expected prepayments, for financial assets carried at amortized cost. This is commonly referred to as the current expected credit losses (“CECL”) methodology. Expected credit losses for financial assets held at the reporting date will be estimated for the contractual term of the financial asset, adjusted by prepayments, based on historical experience, current conditions, and reasonable and supportable forecasts of future economic conditions. Another change from existing U.S. GAAP involves the treatment of purchased credit deteriorated assets, which are more broadly defined than purchased credit impaired assets in current accounting standards. When such assets are purchased, institutions will estimate and record an allowance for credit losses, in contrast to acquired loans not identified as purchased credit deteriorated for which the allowance will be established through a charge to credit loss expense. Furthermore, ASU 2016-13 updates the measurement of credit losses on available-for-sale debt securities, by mandating that institutions record credit losses on available-for-sale debt securities through an allowance for credit losses rather than the current practice of writing down securities for other-than-temporary impairment. ASU 2016-13 will also require the enhancement of financial statement disclosures regarding estimates used in calculating credit losses. ASU 2016-13 does not change the existing write-off principle in U.S. GAAP or current nonaccrual practices, nor does it change accounting requirements for loans held for sale or certain other financial assets which are measured at the lower of amortized cost or fair value. As a public business entity that is an SEC filer, ASU 2016-13 was originally scheduled to become effective for the Company on January 1, 2020. In March 2020, the Company elected under Section 4014 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020. In December 2020, the Consolidated Appropriations Act 2021, extended the deferral of implementation of CECL from December 31, 2020, to the earlier of the first day of the fiscal year, beginning after the national emergency terminates or January 1, 2022. The Company implemented CECL on January 1, 2022 . As a result the Company’s allowance for credit losses increased by $ 10.4 million relative to the balance at December 31, 2021, which included an increase to our reserve for unfunded commitments of $ 0.9 million. On March 22, 2020, a statement was issued by our banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” (the “Interagency Statement”) that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act, that passed on March 27, 2020, further provides that a qualified loan modification is exempt by law from classification as a troubled debt restructuring (“TDR”) as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak declared by the President of the United States under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. The Interagency Statement was subsequently revised in April 2020 to clarify the interaction of the original guidance with Section 4013 of the CARES Act, as well as setting forth the banking regulators’ views on consumer protection considerations. In accordance with such guidance, we processed short-term modifications for 311 loans and $ 424.9 million made in response to COVID-19 to borrowers 84 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) who were current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. See Note 4 for further information on remaining non-TDR loan modifications. The Interagency Guidance and Section 4013 did not have a material impact on the Company’s financial statements. ​ ​ ​ 3. SECURITIES AVAILABLE-FOR-SALE The amortized cost and fair value of the securities available-for-sale are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government agencies ​ $ 1,546 ​ $ 28 ​ $ — ​ $ 1,574 Mortgage-backed securities ​ ​ 303,912 ​ ​ 4,772 ​ ​ ( 1,957 ) ​ ​ 306,727 State and political subdivisions ​ ​ 290,729 ​ ​ 13,807 ​ ​ ( 268 ) ​ ​ 304,268 Corporate bonds ​ ​ 28,436 ​ ​ 94 ​ ​ ( 1 ) ​ ​ 28,529 Collateralized loan obligations ​ ​ 332,836 ​ ​ 68 ​ ​ ( 688 ) ​ ​ 332,216 Total securities ​ $ 957,459 ​ $ 18,769 ​ $ ( 2,914 ) ​ $ 973,314 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. government agencies ​ $ 1,725 ​ $ 75 ​ $ — ​ $ 1,800 Mortgage-backed securities ​ ​ 304,108 ​ ​ 10,389 ​ ​ ( 62 ) ​ ​ 314,435 State and political subdivisions ​ ​ 212,011 ​ ​ 15,728 ​ ​ — ​ ​ 227,739 Total securities ​ $ 517,844 ​ $ 26,192 ​ $ ( 62 ) ​ $ 543,974 ​ For the years ended December 31, 2021, 2020, and 2019, proceeds from sales of securities available-for-sale were $ 0.1 million, $ 20.3 million, and $ 60.5 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. Gross gains and losses from the sales and calls of securities for the years ended were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 2019 Gross gains on sales and calls of securities ​ $ 11 ​ $ 433 ​ $ 230 Gross losses on sales and calls of securities ​ ​ — ​ ​ ( 43 ) ​ ​ ( 428 ) Net gains (losses) on sales and calls of securities ​ $ 11 ​ $ 390 ​ $ ( 198 ) ​ The Company has reviewed all sectors and securities in the portfolio for impairment. 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. During the year ended December 31, 2020, the Company realized gains through earnings from the sale and call of 60 debt securities for $ 0.43 million. The securities were sold with 9 other debt securities, for which a $ 0.04 million loss was realized. During the year ended December 31, 2019 the Company realized gains through earnings from the sale and call of 85 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 74 debt securities for $ 0.2 million. The securities were sold with 108 other debt securities, for which a $ 0.4 million loss was realized, to improve the structure of the portfolio at year end. At December 31, 2021 and 2020, the Company had 99 and 2 securities with unrealized gross losses, respectively. Information pertaining to these securities aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Less than twelve months ​ Twelve months or longer ​ Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value U.S. government agencies ​ $ — ​ $ — ​ $ — ​ $ — Mortgage-backed securities ​ ​ ( 1,797 ) ​ ​ 107,026 ​ ​ ( 160 ) ​ ​ 2,808 State and political subdivisions ​ ​ ( 268 ) ​ ​ 30,170 ​ ​ — ​ ​ — Corporate bonds ​ ​ ( 1 ) ​ ​ 499 ​ ​ — ​ ​ — Collateralized loan obligations ​ ​ ( 688 ) ​ ​ 175,581 ​ ​ — ​ ​ — Total ​ $ ( 2,754 ) ​ $ 313,276 ​ $ ( 160 ) ​ $ 2,808 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ Less than twelve months ​ Twelve months or longer ​ Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value U.S. government agencies ​ $ — ​ $ — ​ $ — ​ $ — Mortgage-backed securities ​ ​ ( 62 ) ​ ​ 4,286 ​ ​ — ​ ​ — State and political subdivisions ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ ( 62 ) ​ $ 4,286 ​ $ — ​ $ — ​ The Company has concluded as of December 31, 2021 that all remaining securities, currently in an unrealized loss position, are not other-than-temporarily-impaired. This assessment was based on the following factors: 1) the Company has the ability to hold the securities, 2) the Company does not intend to sell the securities, 3) the Company does not anticipate it will be required to sell the securities before recovery, 4) and the Company expects to eventually recover the entire amortized cost basis of the securities. The amortized cost and estimated fair value of securities available-for-sale at December 31, 2021 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): ​ ​ ​ ​ ​ ​ ​ ​ Amortized Cost Fair Value Maturing within one year ​ $ 3,513 ​ $ 3,547 Maturing after one year through five years ​ ​ 26,422 ​ ​ 26,718 Maturing after five years through ten years ​ ​ 36,840 ​ ​ 38,314 Maturing after ten years ​ ​ 253,936 ​ ​ 265,792 Securities not due at a single maturity date: ​ ​ 320,711 ​ ​ 334,371 Mortgage-backed securities ​ ​ 303,912 ​ ​ 306,727 Collateralized loan obligations ​ ​ 332,836 ​ ​ 332,216 ​ ​ $ 957,459 ​ $ 973,314 ​ 86 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Securities available-for-sale with amortized costs totaling $ 166.3 million and estimated fair values totaling $ 167.2 million were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2021 (see Note 10). Securities available-for-sale with amortized costs totaling $ 224.1 million and estimated fair values totaling $ 232.0 million were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2020 (see Note 10). At December 31, 2021, the Company’s investment portfolio included securities issued by 335 different government municipalities and agencies located within 33 states with a fair value of $ 304.3 million. The largest exposure to any single municipality or agency was $ 4.0 million (fair value) in three bonds issued for the purpose of paying costs to acquire and construct improvements of various township facilities by the Charter Township of Washington, to be repaid by future tax revenues. 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. 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, 2021 ​ December 31, 2020 General obligation bonds Amortized Cost Fair Value Amortized Cost Fair Value State of Issuance: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ $ 85,045 ​ $ 89,225 ​ $ 76,794 ​ $ 82,888 California ​ ​ 64,092 ​ ​ 67,066 ​ ​ 31,122 ​ ​ 33,100 Washington ​ ​ 23,858 ​ ​ 24,812 ​ ​ 22,896 ​ ​ 25,072 Other (26 and 21 states, respectively) ​ ​ 75,037 ​ ​ 78,579 ​ ​ 51,827 ​ ​ 55,352 Total general obligation bonds ​ ​ 248,032 ​ ​ 259,682 ​ ​ 182,639 ​ ​ 196,412 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue bonds ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ State of Issuance: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Texas ​ ​ 7,038 ​ ​ 7,377 ​ ​ 7,023 ​ ​ 7,516 California ​ ​ 1,349 ​ ​ 1,392 ​ ​ 363 ​ ​ 379 Washington ​ ​ 4,334 ​ ​ 4,602 ​ ​ 2,249 ​ ​ 2,406 Other (15 and 14 states, respectively) ​ ​ 29,976 ​ ​ 31,215 ​ ​ 19,737 ​ ​ 21,026 Total revenue bonds ​ ​ 42,697 ​ ​ 44,586 ​ ​ 29,372 ​ ​ 31,327 Total obligations of states and political subdivisions ​ $ 290,729 ​ $ 304,268 ​ $ 212,011 ​ $ 227,739 ​ 87 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2021 ​ December 31, 2020 Revenue bonds Amortized Cost Fair Value Amortized Cost Fair Value Revenue Source: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Water ​ $ 15,534 ​ $ 16,220 ​ $ 12,609 ​ $ 13,526 Lease ​ ​ 6,556 ​ ​ 6,718 ​ ​ 2,707 ​ ​ 2,773 Sales tax ​ ​ 5,514 ​ ​ 5,842 ​ ​ 3,083 ​ ​ 3,308 Sewer ​ ​ 3,932 ​ ​ 4,165 ​ ​ 4,584 ​ ​ 4,891 Other (9 and 8 sources, respectively) ​ ​ 11,161 ​ ​ 11,641 ​ ​ 6,389 ​ ​ 6,829 Total revenue bonds ​ $ 42,697 ​ $ 44,586 ​ $ 29,372 ​ $ 31,327 ​ ​ ​ 4. LOANS AND LEASES The composition of the loan and lease portfolio is as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Real estate: ​ ​ ​ ​ ​ ​ Secured by commercial and professional office properties, including construction and development ​ $ 1,242,633 ​ $ 1,477,677 Secured by residential properties ​ ​ 390,872 ​ ​ 288,341 Secured by farmland ​ ​ 106,706 ​ ​ 129,905 Total real estate loans ​ ​ 1,740,211 ​ ​ 1,895,923 Agricultural ​ ​ 33,990 ​ ​ 44,872 Commercial and industrial ​ ​ 109,791 ​ ​ 209,048 Mortgage warehouse lines ​ ​ 101,184 ​ ​ 307,679 Consumer ​ ​ 4,550 ​ ​ 5,589 Total loans ​ ​ 1,989,726 ​ ​ 2,463,111 Deferred loan and lease origination cost, net ​ ​ ( 1,865 ) ​ ​ ( 3,147 ) Allowance for loan and lease losses ​ ​ ( 14,256 ) ​ ​ ( 17,738 ) Loans, net ​ $ 1,973,605 ​ $ 2,442,226 ​ The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention, substandard and impaired 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. 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. 88 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. Impaired – A loan is considered impaired, when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Additionally, all loans classified as troubled debt restructurings are considered impaired. Credit quality classifications as of December 31, 2021 were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass Special Mention Substandard Impaired Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 19,669 ​ $ 1,700 ​ $ — ​ $ — ​ $ 21,369 Other construction/land ​ ​ 24,958 ​ ​ — ​ ​ — ​ ​ 341 ​ ​ 25,299 1-4 family - closed-end ​ ​ 282,717 ​ ​ 4,703 ​ ​ 201 ​ ​ 1,836 ​ ​ 289,457 Equity lines ​ ​ 23,277 ​ ​ 615 ​ ​ 55 ​ ​ 2,641 ​ ​ 26,588 Multi-family residential ​ ​ 49,986 ​ ​ 3,472 ​ ​ — ​ ​ — ​ ​ 53,458 Commercial real estate owner occupied ​ ​ 321,996 ​ ​ 6,108 ​ ​ 3,860 ​ ​ 2,482 ​ ​ 334,446 Commercial real estate non-owner occupied ​ ​ 841,728 ​ ​ 26,364 ​ ​ 14,429 ​ ​ 367 ​ ​ 882,888 Farmland ​ ​ 92,479 ​ ​ 10,266 ​ ​ 3,961 ​ ​ — ​ ​ 106,706 Total real estate ​ ​ 1,656,810 ​ ​ 53,228 ​ ​ 22,506 ​ ​ 7,667 ​ ​ 1,740,211 Agricultural ​ ​ 32,513 ​ ​ — ​ ​ 1,099 ​ ​ 378 ​ ​ 33,990 Commercial and industrial ​ ​ 98,367 ​ ​ 9,989 ​ ​ 212 ​ ​ 1,223 ​ ​ 109,791 Mortgage warehouse lines ​ ​ 101,184 ​ ​ — ​ ​ — ​ ​ — ​ ​ 101,184 Consumer loans ​ ​ 4,349 ​ ​ 31 ​ ​ 6 ​ ​ 164 ​ ​ 4,550 Total gross loans and leases ​ $ 1,893,223 ​ $ 63,248 ​ $ 23,823 ​ $ 9,432 ​ $ 1,989,726 ​ 89 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Credit quality classifications as of December 31, 2020 were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass Special Mention Substandard Impaired Total Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ 40,044 ​ $ 8,521 ​ $ — ​ $ — ​ $ 48,565 Other construction/land ​ ​ 61,809 ​ ​ 7,478 ​ ​ 2,148 ​ ​ 545 ​ ​ 71,980 1-4 family - closed-end ​ ​ 130,559 ​ ​ 4,922 ​ ​ 1,356 ​ ​ 2,999 ​ ​ 139,836 Equity lines ​ ​ 30,479 ​ ​ 2,581 ​ ​ 58 ​ ​ 4,957 ​ ​ 38,075 Multi-family residential ​ ​ 57,934 ​ ​ 3,597 ​ ​ — ​ ​ 334 ​ ​ 61,865 Commercial real estate owner occupied ​ ​ 308,819 ​ ​ 21,148 ​ ​ 5,652 ​ ​ 7,580 ​ ​ 343,199 Commercial real estate non-owner occupied ​ ​ 1,026,041 ​ ​ 10,827 ​ ​ 25,048 ​ ​ 582 ​ ​ 1,062,498 Farmland ​ ​ 104,826 ​ ​ 21,468 ​ ​ 3,169 ​ ​ 442 ​ ​ 129,905 Total real estate ​ ​ 1,760,511 ​ ​ 80,542 ​ ​ 37,431 ​ ​ 17,439 ​ ​ 1,895,923 Agricultural ​ ​ 39,391 ​ ​ 3,617 ​ ​ 1,614 ​ ​ 250 ​ ​ 44,872 Commercial and industrial ​ ​ 194,876 ​ ​ 11,819 ​ ​ 1,259 ​ ​ 1,094 ​ ​ 209,048 Mortgage warehouse lines ​ ​ 307,679 ​ ​ — ​ ​ — ​ ​ — ​ ​ 307,679 Consumer loans ​ ​ 5,323 ​ ​ 58 ​ ​ 11 ​ ​ 197 ​ ​ 5,589 Total gross loans and leases ​ $ 2,307,780 ​ $ 96,036 ​ $ 40,315 ​ $ 18,980 ​ $ 2,463,111 ​ Loans may or may not be collateralized, and collection efforts are continuously pursued. Loans or leases may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Loans and leases are charged off when they are deemed to be uncollectible, while recoveries are generally recorded only when cash payments are received subsequent to the charge-off. The following tables present the activity in the allowance for loan and lease losses and the recorded investment in loans and impairment method by portfolio segment for each of the years ending December 31, 2021, 2020, and 2019 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real Estate Agricultural Industrial (1) Consumer Unallocated Total Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2018 ​ $ 5,831 ​ ​ 256 ​ ​ 2,394 ​ ​ 1,239 ​ ​ 30 ​ ​ 9,750 Charge-offs ​ ​ ( 1,190 ) ​ ​ — ​ ​ ( 1,274 ) ​ ​ ( 2,409 ) ​ ​ — ​ ​ ( 4,873 ) Recoveries ​ ​ 647 ​ ​ — ​ ​ 690 ​ ​ 1,159 ​ ​ — ​ ​ 2,496 Provision ​ ​ 347 ​ ​ ( 63 ) ​ ​ 875 ​ ​ 1,289 ​ ​ 102 ​ ​ 2,550 Balance, December 31, 2019 ​ ​ 5,635 ​ ​ 193 ​ ​ 2,685 ​ ​ 1,278 ​ ​ 132 ​ ​ 9,923 Charge-offs ​ ​ — ​ ​ — ​ ​ ( 436 ) ​ ​ ( 1,397 ) ​ ​ — ​ ​ ( 1,833 ) Recoveries ​ ​ 87 ​ ​ — ​ ​ 129 ​ ​ 882 ​ ​ — ​ ​ 1,098 Provision ​ ​ 6,044 ​ ​ 289 ​ ​ 2,343 ​ ​ ( 43 ) ​ ​ ( 83 ) ​ ​ 8,550 Balance, December 31, 2020 ​ ​ 11,766 ​ ​ 482 ​ ​ 4,721 ​ ​ 720 ​ ​ 49 ​ ​ 17,738 Charge-offs ​ ​ ( 245 ) ​ ​ ( 50 ) ​ ​ ( 159 ) ​ ​ ( 946 ) ​ ​ — ​ ​ ( 1,400 ) Recoveries ​ ​ 601 ​ ​ — ​ ​ 223 ​ ​ 744 ​ ​ — ​ ​ 1,568 Benefit ​ ​ ( 536 ) ​ ​ 32 ​ ​ ( 3,226 ) ​ ​ ( 8 ) ​ ​ 88 ​ ​ ( 3,650 ) Balance, December 31, 2021 ​ $ 11,586 ​ $ 464 ​ $ 1,559 ​ $ 510 ​ $ 137 ​ $ 14,256 (1) Includes mortgage warehouse lines 90 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ Loans evaluated for impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 December 31, 2019 ​ Individually Collectively Individually Collectively Individually Collectively Real estate ​ $ 7,667 ​ $ 1,732,544 ​ $ 17,439 ​ $ 1,878,484 ​ $ 12,745 ​ $ 1,389,368 Agricultural ​ ​ 378 ​ ​ 33,612 ​ ​ 250 ​ ​ 44,622 ​ ​ 5 ​ ​ 48,031 Commercial and industrial (1) ​ ​ 1,223 ​ ​ 209,752 ​ ​ 1,094 ​ ​ 515,633 ​ ​ 977 ​ ​ 303,658 Consumer ​ ​ 164 ​ ​ 4,386 ​ ​ 197 ​ ​ 5,392 ​ ​ 426 ​ ​ 7,355 Total loans ​ $ 9,432 ​ $ 1,980,294 ​ $ 18,980 ​ $ 2,444,131 ​ $ 14,153 ​ $ 1,748,412 (1) Includes mortgage warehouse lines ​ Reserves based on method of evaluation for impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 ​ December 31, 2019 ​ Specific General Specific General Specific General Real estate ​ $ 428 ​ $ 10,983 ​ $ 525 ​ $ 11,241 ​ $ 493 ​ $ 5,142 Agricultural ​ ​ 244 ​ ​ 217 ​ ​ 250 ​ ​ 232 ​ ​ 1 ​ ​ 192 Commercial and industrial (1) ​ ​ 127 ​ ​ 1,405 ​ ​ 202 ​ ​ 4,519 ​ ​ 219 ​ ​ 2,466 Consumer ​ ​ 19 ​ ​ 487 ​ ​ 19 ​ ​ 701 ​ ​ 114 ​ ​ 1,164 Unallocated ​ ​ — ​ ​ 346 ​ ​ — ​ ​ 49 ​ ​ — ​ ​ 132 Total loan loss reserves ​ $ 818 ​ $ 13,438 ​ $ 996 ​ $ 16,742 ​ $ 827 ​ $ 9,096 (1) Includes mortgage warehouse lines 91 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present the recorded investment in nonaccrual loans and loans past due over 30 days as of December 31, 2021 and December 31, 2020 (dollars in thousands, except footnotes): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ 30-59 Days ​ 60-89 Days ​ 90 Days Or More Past ​ ​ ​ ​ ​ ​ ​ Total Financing ​ Non-Accrual ​ Past Due Past Due Due (2) Total Past Due Current Receivables Loans (1) Real Estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 21,369 ​ $ 21,369 ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 25,299 ​ ​ 25,299 ​ ​ — 1-4 family - closed-end ​ ​ 1,532 ​ ​ 132 ​ ​ — ​ ​ 1,664 ​ ​ 287,793 ​ ​ 289,457 ​ ​ 1,023 Equity lines ​ ​ 30 ​ ​ — ​ ​ — ​ ​ 30 ​ ​ 26,558 ​ ​ 26,588 ​ ​ 892 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 53,458 ​ ​ 53,458 ​ ​ — Commercial real estate owner occupied ​ ​ 124 ​ ​ — ​ ​ 698 ​ ​ 822 ​ ​ 333,624 ​ ​ 334,446 ​ ​ 1,234 Commercial real estate non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 882,888 ​ ​ 882,888 ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 106,706 ​ ​ 106,706 ​ ​ — Total real estate loans ​ ​ 1,686 ​ ​ 132 ​ ​ 698 ​ ​ 2,516 ​ ​ 1,737,695 ​ ​ 1,740,211 ​ ​ 3,149 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ — ​ ​ — ​ ​ 284 ​ ​ 284 ​ ​ 33,706 ​ ​ 33,990 ​ ​ 378 Commercial and industrial ​ ​ 473 ​ ​ — ​ ​ 283 ​ ​ 756 ​ ​ 109,035 ​ ​ 109,791 ​ ​ 973 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 101,184 ​ ​ 101,184 ​ ​ — Consumer loans ​ ​ 6 ​ ​ 3 ​ ​ — ​ ​ 9 ​ ​ 4,541 ​ ​ 4,550 ​ ​ 22 Total gross loans and leases ​ $ 2,165 ​ $ 135 ​ $ 1,265 ​ $ 3,565 ​ $ 1,986,161 ​ $ 1,989,726 ​ $ 4,522 (1) Included in Total Financing Receivables (2) As of December 31, 2021 there were no loans over 90 days past due and still accruing. 92 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ 30-59 Days ​ 60-89 Days ​ 90 Days Or More Past ​ ​ ​ ​ ​ ​ ​ Total Financing ​ Non-Accrual ​ Past Due Past Due Due (2) Total Past Due Current Receivables Loans (1) Real Estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 48,565 ​ $ 48,565 ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 71,980 ​ ​ 71,980 ​ ​ — 1-4 family - closed-end ​ ​ 210 ​ ​ 37 ​ ​ 150 ​ ​ 397 ​ ​ 139,439 ​ ​ 139,836 ​ ​ 1,193 Equity lines ​ ​ 1,409 ​ ​ — ​ ​ 551 ​ ​ 1,960 ​ ​ 36,115 ​ ​ 38,075 ​ ​ 2,403 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 61,865 ​ ​ 61,865 ​ ​ — Commercial real estate owner occupied ​ ​ 101 ​ ​ 1,187 ​ ​ 78 ​ ​ 1,366 ​ ​ 341,833 ​ ​ 343,199 ​ ​ 1,678 Commercial real estate non-owner occupied ​ ​ — ​ ​ — ​ ​ 152 ​ ​ 152 ​ ​ 1,062,346 ​ ​ 1,062,498 ​ ​ 582 Farmland ​ ​ — ​ ​ 211 ​ ​ 442 ​ ​ 653 ​ ​ 129,252 ​ ​ 129,905 ​ ​ 442 Total real estate loans ​ ​ 1,720 ​ ​ 1,435 ​ ​ 1,373 ​ ​ 4,528 ​ ​ 1,891,395 ​ ​ 1,895,923 ​ ​ 6,298 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ — ​ ​ — ​ ​ 250 ​ ​ 250 ​ ​ 44,622 ​ ​ 44,872 ​ ​ 250 Commercial and industrial ​ ​ 325 ​ ​ — ​ ​ 237 ​ ​ 562 ​ ​ 208,486 ​ ​ 209,048 ​ ​ 1,026 Mortgage warehouse lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 307,679 ​ ​ 307,679 ​ ​ — Consumer loans ​ ​ 38 ​ ​ — ​ ​ — ​ ​ 38 ​ ​ 5,551 ​ ​ 5,589 ​ ​ 24 Total gross loans and leases ​ $ 2,083 ​ $ 1,435 ​ $ 1,860 ​ $ 5,378 ​ $ 2,457,733 ​ $ 2,463,111 ​ $ 7,598 (1) Included in Total Financing Receivables (2) As of December 31, 2020 there were no loans over 90 days past due and still accruing. 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. Subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required. As of December 31, 2021 there was 1 customer relationship, for a total of $ 10.4 million, with payment deferrals either under section 4013 of the CARES Act or the April 7, 2020 Interagency Statement, that are not included in the table above. 93 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Individually impaired loans as of December 31, 2021, December 31, 2020 and December 31, 2019 were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Unpaid Principal ​ Recorded ​ ​ ​ Average Recorded ​ Interest Income ​ Balance (1) Investment (2) Related Allowance Investment Recognized (3) With an Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ 341 ​ $ 341 ​ $ 64 ​ $ 352 ​ $ 55 1-4 family - closed-end ​ ​ 1,048 ​ ​ 1,048 ​ ​ 37 ​ ​ 1,096 ​ ​ 104 Equity lines ​ ​ 2,005 ​ ​ 1,993 ​ ​ 182 ​ ​ 2,056 ​ ​ 138 Commercial real estate - owner occupied ​ ​ 1,249 ​ ​ 1,248 ​ ​ 19 ​ ​ 1,278 ​ ​ 144 Commercial real estate - non-owner occupied ​ ​ 367 ​ ​ 367 ​ ​ 126 ​ ​ 393 ​ ​ 32 Total real estate ​ ​ 5,010 ​ ​ 4,997 ​ ​ 428 ​ ​ 5,175 ​ ​ 473 Agricultural ​ ​ 244 ​ ​ 244 ​ ​ 244 ​ ​ 246 ​ ​ — Commercial and industrial ​ ​ 757 ​ ​ 757 ​ ​ 127 ​ ​ 873 ​ ​ 41 Consumer loans ​ ​ 164 ​ ​ 164 ​ ​ 19 ​ ​ 180 ​ ​ 28 ​ ​ ​ 6,175 ​ ​ 6,162 ​ ​ 818 ​ ​ 6,474 ​ ​ 542 With no Related Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family - closed-end ​ ​ 788 ​ ​ 788 ​ ​ — ​ ​ 869 ​ ​ — Equity lines ​ ​ 648 ​ ​ 648 ​ ​ — ​ ​ 690 ​ ​ 6 Commercial real estate - owner occupied ​ ​ 1,353 ​ ​ 1,234 ​ ​ — ​ ​ 1,282 ​ ​ — Total real estate ​ ​ 2,789 ​ ​ 2,670 ​ ​ — ​ ​ 2,841 ​ ​ 6 Agricultural ​ ​ 134 ​ ​ 134 ​ ​ — ​ ​ 186 ​ ​ — Commercial and industrial ​ ​ 466 ​ ​ 466 ​ ​ — ​ ​ 550 ​ ​ — ​ ​ ​ 3,389 ​ ​ 3,270 ​ ​ — ​ ​ 3,577 ​ ​ 6 Total ​ $ 9,564 ​ $ 9,432 ​ $ 818 ​ $ 10,051 ​ $ 548 (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. 94 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ Unpaid Principal ​ Recorded ​ ​ ​ Average Recorded ​ Interest Income ​ Balance (1) Investment (2) Related Allowance Investment Recognized (3) With an Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ 545 ​ $ 545 ​ $ 171 ​ $ 565 ​ $ 40 1-4 family - closed-end ​ ​ 2,078 ​ ​ 2,077 ​ ​ 51 ​ ​ 2,141 ​ ​ 104 Equity lines ​ ​ 2,875 ​ ​ 2,875 ​ ​ 233 ​ ​ 2,989 ​ ​ 98 Multifamily residential ​ ​ 334 ​ ​ 334 ​ ​ 16 ​ ​ 343 ​ ​ 23 Commercial real estate- owner occupied ​ ​ 6,076 ​ ​ 6,076 ​ ​ 54 ​ ​ 6,135 ​ ​ 226 Total real estate ​ ​ 11,908 ​ ​ 11,907 ​ ​ 525 ​ ​ 12,173 ​ ​ 491 Agricultural ​ ​ 250 ​ ​ 250 ​ ​ 250 ​ ​ 250 ​ ​ — Commercial and industrial ​ ​ 945 ​ ​ 935 ​ ​ 202 ​ ​ 1,152 ​ ​ 6 Consumer loans ​ ​ 235 ​ ​ 197 ​ ​ 19 ​ ​ 221 ​ ​ 16 ​ ​ ​ 13,338 ​ ​ 13,289 ​ ​ 996 ​ ​ 13,796 ​ ​ 513 With no Related Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ ​ 114 ​ ​ — ​ ​ — ​ ​ 5 ​ ​ — 1-4 family - closed-end ​ ​ 942 ​ ​ 922 ​ ​ — ​ ​ 960 ​ ​ — Equity Lines ​ ​ 2,160 ​ ​ 2,082 ​ ​ — ​ ​ 2,127 ​ ​ 3 Commercial real estate- owner occupied ​ ​ 1,624 ​ ​ 1,504 ​ ​ — ​ ​ 1,590 ​ ​ — Commercial real estate- non-owner occupied ​ ​ 582 ​ ​ 582 ​ ​ — ​ ​ 617 ​ ​ — Farmland ​ ​ 442 ​ ​ 442 ​ ​ — ​ ​ 446 ​ ​ — Total real estate ​ ​ 5,864 ​ ​ 5,532 ​ ​ — ​ ​ 5,745 ​ ​ 3 Commercial and industrial ​ ​ 189 ​ ​ 159 ​ ​ — ​ ​ 165 ​ ​ — Consumer loans ​ ​ 5 ​ ​ — ​ ​ — ​ ​ 5 ​ ​ 2 ​ ​ ​ 6,058 ​ ​ 5,691 ​ ​ — ​ ​ 5,915 ​ ​ 5 Total ​ $ 19,396 ​ $ 18,980 ​ $ 996 ​ $ 19,711 ​ $ 518 (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. ​ 95 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unpaid Principal ​ Recorded ​ ​ ​ Average Recorded ​ Interest Income ​ Balance (1) Investment (2) Related Allowance Investment Recognized (3) With an Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ 656 ​ $ 537 ​ $ 157 ​ $ 563 ​ $ 32 1-4 family - closed-end ​ ​ 2,298 ​ ​ 2,298 ​ ​ 58 ​ ​ 2,365 ​ ​ 146 Equity lines ​ ​ 4,173 ​ ​ 4,120 ​ ​ 252 ​ ​ 4,185 ​ ​ 200 Multifamily residential ​ ​ 353 ​ ​ 353 ​ ​ 17 ​ ​ 361 ​ ​ 23 Commercial real estate- owner occupied ​ ​ 593 ​ ​ 593 ​ ​ 6 ​ ​ 606 ​ ​ 38 Farmland ​ ​ 237 ​ ​ 237 ​ ​ 3 ​ ​ 256 ​ ​ — Total real estate ​ ​ 8,310 ​ ​ 8,138 ​ ​ 493 ​ ​ 8,336 ​ ​ 439 Agricultural ​ ​ 5 ​ ​ 5 ​ ​ 1 ​ ​ 6 ​ ​ — Commercial and industrial ​ ​ 915 ​ ​ 896 ​ ​ 219 ​ ​ 1,140 ​ ​ 29 Consumer loans ​ ​ 464 ​ ​ 426 ​ ​ 114 ​ ​ 469 ​ ​ 35 ​ ​ ​ 9,694 ​ ​ 9,465 ​ ​ 827 ​ ​ 9,951 ​ ​ 503 With no Related Allowance Recorded ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ ​ 52 ​ ​ 17 ​ ​ — ​ ​ 577 ​ ​ 4 1-4 family - closed-end ​ ​ 755 ​ ​ 722 ​ ​ — ​ ​ 726 ​ ​ — Equity Lines ​ ​ 326 ​ ​ 301 ​ ​ — ​ ​ 310 ​ ​ 5 Commercial real estate- owner occupied ​ ​ 1,560 ​ ​ 1,440 ​ ​ — ​ ​ 1,477 ​ ​ — Commercial real estate- non-owner occupied ​ ​ 3,295 ​ ​ 2,105 ​ ​ — ​ ​ 3,267 ​ ​ — Farmland ​ ​ 22 ​ ​ 22 ​ ​ — ​ ​ 25 ​ ​ — Total real estate ​ ​ 6,010 ​ ​ 4,607 ​ ​ — ​ ​ 6,382 ​ ​ 9 Commercial and industrial ​ ​ 102 ​ ​ 81 ​ ​ — ​ ​ 162 ​ ​ — Consumer loans ​ ​ 9 ​ ​ — ​ ​ — ​ ​ 140 ​ ​ 15 ​ ​ ​ 6,121 ​ ​ 4,688 ​ ​ — ​ ​ 6,684 ​ ​ 24 Total ​ $ 15,815 ​ $ 14,153 ​ $ 827 ​ $ 16,635 ​ $ 527 ​ (1) Contractual principal balance due from customer. (2) Principal balance on Company’s books, less any direct charge offs. (3) Interest income is recognized on performing balances on a regular accrual basis. ​ Included in loans above are troubled debt restructurings that were classified as impaired. The Company had $ 0.4 million and $ 0.4 million in commercial loans, $ 0.1 million and $ 0 in agricultural loans, $ 5.4 million and $ 13.0 million in real estate secured loans and $ 0.2 million and $ 0.2 million in consumer loans, which were modified as troubled debt restructurings and consequently classified as impaired at December 31, 2021 and 2020, respectively. 96 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Additional commitments to existing customers with restructured loans totaled $ 0.04 million and $ 0.05 million at December 31, 2021 and 2020, respectively. Interest income recognized on impaired loans was $ 0.5 million, $ 0.5 million, and $ 0.5 million, for the years ended December 31, 2021, 2020, and 2019, respectively. There was no interest income recognized on a cash basis on impaired loans for the years ended December 31, 2021, 2020, and 2019, respectively. The following is a summary of interest income from non-accrual loans in the portfolio at year-end that was not recognized (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, Non-accrual loans 2021 2020 2019 Interest that would have been recorded under the loans’ original terms ​ $ 406 ​ $ 605 ​ $ 650 Less gross interest recorded ​ ​ 33 ​ ​ 201 ​ ​ 289 Foregone interest ​ $ 373 ​ $ 404 ​ $ 361 ​ Certain loans have been pledged to secure short-term borrowing arrangements (see Note 10). These loans totaled $ 808.8 million and $ 1.1 billion at December 31, 2021 and 2020, respectively. Salaries and employee benefits totaling $ 1.0 million, $ 3.3 million, and $ 3.7 million, have been deferred as loan and lease origination costs to be amortized over the estimated lives of the related loans and leases for the years ended December 31, 2021, 2020, and 2019, respectively. During the periods ended December 31, 2021 and 2020, the terms of certain loans were modified as troubled debt restructurings. Types of modifications applied to these loans include a reduction of the stated interest rate, a modification of term, an agreement to collect only interest rather than principal and interest for a specified period, or any combination thereof. 97 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present troubled debt restructurings by type of modification during the period ending December 31, 2021, December 31, 2020 and December 31, 2019 (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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Other construction/land ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 1,000 ​ ​ — ​ ​ 83 ​ ​ — ​ ​ 1,083 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate owner occupied ​ ​ — ​ ​ 136 ​ ​ — ​ ​ — ​ ​ — ​ ​ 136 Commercial real estate non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — 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 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ $ — ​ $ 1,483 ​ $ — ​ $ 83 ​ $ 23 ​ $ 1,589 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Rate ​ Term ​ Interest Only ​ Rate & Term ​ ​ Term & Interest ​ ​ ​ ​ Modification Modification Modification Modification ​ Modification ​ Total Troubled debt restructurings ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ 85 ​ $ — ​ $ — ​ $ — ​ $ 85 1-4 family - closed-end ​ ​ — ​ ​ 1,325 ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,325 Equity lines ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate owner occupied ​ ​ — ​ ​ 5,515 ​ ​ — ​ ​ — ​ ​ 338 ​ ​ 5,853 Commercial real estate non-owner occupied ​ ​ — ​ ​ 443 ​ ​ — ​ ​ — ​ ​ — ​ ​ 443 Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 7,368 ​ ​ — ​ ​ — ​ ​ 338 ​ ​ 7,706 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ — ​ ​ 143 ​ ​ — ​ ​ — ​ ​ — ​ ​ 143 Consumer loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ $ — ​ $ 7,511 ​ $ — ​ $ — ​ $ 338 ​ $ 7,849 ​ ​ 98 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ Rate ​ Term ​ Interest Only ​ Rate & Term ​ ​ Term & Interest ​ ​ ​ ​ Modification Modification Modification Modification ​ Modification ​ Total Troubled debt restructurings ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ $ — ​ $ 163 ​ $ — ​ $ — ​ $ — ​ $ 163 1-4 family - closed-end ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ ​ — ​ ​ 344 ​ ​ — ​ ​ — ​ ​ — ​ ​ 344 Multi-family residential ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ — ​ ​ 507 ​ ​ — ​ ​ — ​ ​ — ​ ​ 507 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ ​ 94 ​ ​ 255 ​ ​ — ​ ​ 52 ​ ​ — ​ ​ 401 Consumer loans ​ ​ — ​ ​ 9 ​ ​ — ​ ​ 50 ​ ​ — ​ ​ 59 ​ ​ $ 94 ​ $ 771 ​ $ — ​ $ 102 ​ $ — ​ $ 967 ​ The following tables present loans by class modified as troubled debt restructurings including any subsequent defaults during the period ending December 31, 2021, December 31, 2020 and December 31, 2019 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-Modification ​ Post-Modification ​ ​ ​ ​ ​ ​ ​ Outstanding ​ Outstanding ​ ​ ​ ​ ​ Number of ​ Recorded ​ Recorded ​ Reserve December 31, 2021 Loans Investment Investment Difference (1) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ — ​ $ — ​ $ — ​ $ — Other construction/land ​ — ​ ​ — ​ ​ — ​ ​ — 1-4 family - closed-end ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 2 ​ ​ 1,083 ​ ​ 1,083 ​ ​ — Multi-family residential ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 1 ​ ​ 137 ​ ​ 136 ​ ​ ( 1 ) Commercial real estate - non-owner occupied ​ — ​ ​ — ​ ​ — ​ ​ — 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 Small Business Administration Loans ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ $ 1,590 ​ $ 1,589 ​ $ 116 (1) This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan and lease loss methodology. 99 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-Modification ​ Post-Modification ​ ​ ​ ​ ​ ​ ​ Outstanding ​ Outstanding ​ ​ ​ ​ ​ Number of ​ Recorded ​ Recorded ​ Reserve December 31, 2020 Loans Investment Investment Difference (1) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 1 ​ $ 86 ​ $ 85 ​ $ 40 1-4 family - closed-end ​ 1 ​ ​ 1,325 ​ ​ 1,325 ​ ​ 10 Equity lines ​ — ​ ​ — ​ ​ — ​ ​ — Multi-family residential ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ 4 ​ ​ 5,853 ​ ​ 5,853 ​ ​ 8 Commercial real estate - non-owner occupied ​ 1 ​ ​ 443 ​ ​ 443 ​ ​ — Farmland ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 7,707 ​ ​ 7,706 ​ ​ 58 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ 3 ​ ​ 143 ​ ​ 143 ​ ​ 3 Consumer loans ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ $ 7,850 ​ $ 7,849 ​ $ 61 (1) This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan and lease loss methodology. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-Modification ​ Post-Modification ​ ​ ​ ​ ​ ​ ​ Outstanding ​ Outstanding ​ ​ ​ ​ ​ Number of ​ Recorded ​ Recorded ​ Reserve December 31, 2019 Loans Investment Investment Difference (1) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other construction/land ​ 1 ​ $ 163 ​ $ 163 ​ $ 74 1-4 family - closed-end ​ — ​ ​ — ​ ​ — ​ ​ — Equity lines ​ 2 ​ ​ 344 ​ ​ 344 ​ ​ — Multi-family residential ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - owner occupied ​ — ​ ​ — ​ ​ — ​ ​ — Commercial real estate - non-owner occupied ​ — ​ ​ — ​ ​ — ​ ​ — Farmland ​ — ​ ​ — ​ ​ — ​ ​ — Total real estate loans ​ ​ ​ ​ 507 ​ ​ 507 ​ ​ 74 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Agricultural ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial ​ 7 ​ ​ 401 ​ ​ 401 ​ ​ ( 59 ) Consumer loans ​ 2 ​ ​ 59 ​ ​ 59 ​ ​ ( 47 ) ​ ​ ​ ​ $ 967 ​ $ 967 ​ $ ( 32 ) (1) This represents the increase or (decrease) in the allowance for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan and lease loss methodology. ​ In the tables above, there were no TDRs that subsequently defaulted necessitating an increase in the allowance for loan and lease losses for the years ended December 31, 2021, 2020 and 2019. The total allowance for loan and lease 100 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) losses specifically allocated to the balances that were classified as TDRs during the year ended December 31, 2021 and 2020 is $ 0.5 million and $ 0.6 million, respectively. Purchased Credit Impaired Loans The Company has purchased loans from past acquisitions, some of which have shown evidence of credit deterioration since origination and it was probable at acquisition that all contractually required payments would not be collected. The carrying amount and unpaid principal balance of those loans are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Unpaid Principal Balance Carrying Value Real estate secured ​ $ 60 ​ $ 60 Total purchased credit impaired loans ​ $ 60 ​ $ 60 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Unpaid Principal Balance Carrying Value Real estate secured ​ $ 78 ​ $ 78 Total purchased credit impaired loans ​ $ 78 ​ $ 78 ​ For those purchased credit impaired loans disclosed above, the Company did not increase the allowance for loan and lease losses during 2021, 2020 and 2019. There is no accretable yield, or income expected to be collected on these purchased credit impaired loans. During the years ended December 31, 2021 and 2020, there were no purchased credit impaired loans acquired. 5. PREMISES AND EQUIPMENT Premises and equipment at cost consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Land ​ $ 4,823 ​ $ 5,751 Buildings and improvements ​ ​ 21,006 ​ ​ 21,580 Furniture, fixtures and equipment ​ ​ 19,242 ​ ​ 20,705 Leasehold improvements ​ ​ 14,682 ​ ​ 15,226 ​ ​ ​ 59,753 ​ ​ 63,262 ​ ​ ​ ​ ​ ​ ​ Less accumulated depreciation and amortization ​ ​ 36,182 ​ ​ 35,757 ​ ​ $ 23,571 ​ $ 27,505 ​ Depreciation and amortization included in occupancy and equipment expense totaled $ 3.1 million, $ 2.8 million, and $ 2.8 million, for the years ended December 31, 2021, 2020, and 2019, respectively. 6. OPERATING LEASES The Company leases space under non-cancelable operating leases for 18 branch locations, four off-site ATM locations, one administrative building, one loan production office 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., 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 101 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) recognized lease expense of $ 2.2 million for the years ended December 31, 2021, 2020 and 2019. 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 sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the years ending December 31, 2021 and 2020. At December 31, 2021, the Company’s right-of-use assets and operating lease liabilities were $ 5.5 million and $ 6.2 million, respectively. The weighted average remaining lease term for the lease liabilities was 6.3 years, and the weighted average discount rate of remaining payments was 5.3 percent. At December 31, 2020, the Company’s right-of-use assets and operating lease liabilities were $ 7.2 million and $ 7.8 million, respectively. The weighted average remaining lease term for the lease liabilities was 6.8 years, and the weighted average discount rate of remaining payments was 5.5 percent for the year ended December 31, 2020. Lease liabilities from new right-of-use assets obtained during the year ending December 31, 2021 and December 31, 2020 were $ 0.5 million and $ 0.6 million, respectively. There were no variable lease costs for the years ending December 31, 2021 and 2020. Cash paid on operating leases was $ 2.2 million for both years ending December 31, 2021 and 2020. Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2021 are as follows (dollars in thousands): ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ ​ 2022 $ 1,909 2023 ​ ​ 1,403 2024 ​ ​ 1,057 2025 ​ ​ 782 2026 ​ ​ 479 Thereafter ​ ​ 1,722 Total undiscounted lease payments ​ $ 7,352 Less: imputed interest ​ ​ ( 1,143 ) Net lease liabilities ​ $ 6,209 ​ The Company generally has options to renew its facilities leases after the initial leases expire. The renewal options range from one to ten years . 102 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. GOODWILL AND INTANGIBLE ASSETS Goodwill The rollforward of goodwill for each of the preceding three years is included in the table below (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2021 2020 2019 Balance at January 1 ​ $ 27,357 ​ $ 27,357 ​ $ 27,357 Acquired goodwill ​ ​ — ​ ​ — ​ ​ — Impairment ​ ​ — ​ ​ — ​ ​ — Balance at December 31 ​ $ 27,357 ​ $ 27,357 ​ $ 27,357 ​ Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. Bank of the Sierra (the “Bank”) is the only subsidiary of the Company that meets the materiality criteria necessary to be deemed an operating segment, and because the Company exists primarily for the purpose of holding the stock of the Bank we have determined that only one unified operating segment or reporting unit (the consolidated Company) exists. The fair value of the consolidated Company is its market capitalization, as determined by quoted prices in active markets. If the Company’s market capitalization exceeds recorded shareholders’ equity, the book value, it can be reasonably presumed that no impairment exists. At December 31, 2021 (the measurement date that the Company selected), the Company’s stock closed at $ 27.15 which resulted in a market capitalization in excess of shareholders book equity. Therefore it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment at December 31, 2021. Acquired Intangible Assets Acquired intangible assets were as follows at year-end (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2021 ​ 2020 ​ Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Core deposit intangibles ​ $ 8,401 ​ $ 5,126 ​ $ 8,401 ​ $ 4,094 ​ Aggregate amortization expense was $ 1.0 million, $ 1.1 million, and $ 1.1 million for 2021, 2020, and 2019. Estimated amortization expense for each of the next five years and thereafter (dollars in thousands): ​ ​ ​ ​ 2022 $ 1,000 2023 ​ ​ 876 2024 ​ ​ 781 2025 ​ ​ 566 2026 ​ ​ 52 Thereafter ​ ​ — ​ ​ $ 3,275 ​ ​ 103 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. OTHER ASSETS Other assets consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Accrued interest receivable ​ $ 11,246 ​ $ 16,074 Deferred tax assets ​ ​ 3,792 ​ ​ 839 Investment in qualified affordable housing projects ​ ​ 2,940 ​ ​ 3,473 Investment in limited partnerships ​ ​ 1,655 ​ ​ 1,848 Federal Home Loan Bank stock, at cost ​ ​ 12,393 ​ ​ 10,727 Other ​ ​ 26,003 ​ ​ 17,485 ​ ​ $ 58,029 ​ $ 50,446 ​ The Company has invested in limited partnerships that operate qualified affordable housing projects to receive tax benefits in the form of tax deductions from operating losses and tax credits. The Company accounts for these investments under the cost method and management analyzes these investments annually for potential impairment. The Company had $ 0.1 million in remaining capital commitments to these partnerships at December 31, 2021. 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 $ 12.4 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. 9. DEPOSITS Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at year-end 2021 and 2020 were $ 115.2 million and $ 225.4 million, respectively. ​ Aggregate annual maturities of time deposits were as follows (dollars in thousands): ​ ​ ​ ​ Year Ending December 31, ​ ​ ​ 2022 $ 294,284 2023 ​ ​ 31,227 2024 ​ ​ 26,051 2025 ​ ​ 1,254 2026 ​ ​ 309 Thereafter ​ ​ 772 ​ ​ $ 353,897 ​ 104 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 Interest bearing demand deposits ​ $ 331 ​ $ 278 ​ $ 316 NOW ​ ​ 444 ​ ​ 388 ​ ​ 524 Savings ​ ​ 240 ​ ​ 221 ​ ​ 308 Money market ​ ​ 111 ​ ​ 128 ​ ​ 181 Time deposits ​ ​ 1,039 ​ ​ 2,687 ​ ​ 8,931 Brokered Deposits ​ ​ 225 ​ ​ 246 ​ ​ 1,120 ​ ​ $ 2,390 ​ $ 3,948 ​ $ 11,380 ​ ​ 10. OTHER BORROWING ARRANGEMENTS At year end, short-term borrowings consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 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 ​ $ 70,443 ​ $ 106,937 ​ 0.30 % ​ $ 106,937 ​ 0.30 % Short term borrowings ​ ​ 5,186 ​ ​ — ​ 0.06 % ​ ​ 5,000 ​ — ​ ​ $ 75,629 ​ $ 106,937 ​ ​ ​ $ 111,937 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ 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 ​ $ 34,614 ​ $ 39,138 ​ 0.40 % ​ $ 41,449 ​ 0.40 % Short term borrowings ​ ​ 53,593 ​ ​ 142,900 ​ 0.19 % ​ ​ 195,100 ​ 0.12 % ​ ​ $ 88,207 ​ $ 182,038 ​ ​ ​ $ 236,549 ​ ​ ​ Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $ 808.8 million of first mortgage loans under a blanket lien arrangement at year end 2021. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow up to the total of $ 888.8 million at year-end 2021, with a remaining borrowing capacity of $ 732.2 million if sufficient additional collateral was pledged. The Company had no borrowings at December 31, 2021 and 2020 from the FRB. The Company was eligible to borrow up to $ 50.6 million from FRB at year end 2021, which was collateralized by $ 66.1 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 $ 305.0 million and $ 275.0 million at December 31, 2021 and 2020, respectively, at interest rates which vary with market conditions. There was no balance outstanding under these lines of credit at December 31, 2021 and $ 100.0 million outstanding at December 31, 2020. 105 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. LONG-TERM DEBT At year-end, long-term debt was as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ ​ 2020 ​ ​ ​ Principal ​ ​ Unamortized Debt Issuance Costs ​ ​ Principal ​ ​ Unamortized Debt Issuance Costs Fixed - floating rate subordinated debentures, due 2031 (1) ​ $ 50,000 ​ $ ( 859 ) ​ $ — ​ $ — ​ ​ $ 50,000 ​ $ ( 859 ) ​ $ — ​ $ — (1) 3.25 % fixed rate for five years then floating rate at 253.5 basis points 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, 2021, all $ 35.3 million of the Company’s trust preferred securities qualified as Tier 1 capital. 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 2.97 % (based on 3-month LIBOR 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. 106 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 1.62 % (based on 3-month LIBOR 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 1.70 % (based on 3-month LIBOR 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. 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. 107 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. INCOME TAXES ​ The provision for income taxes follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 Federal: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ $ 8,186 ​ $ 7,979 ​ $ 7,081 Deferred ​ ​ 135 ​ ​ ( 1,697 ) ​ ​ ( 228 ) ​ ​ ​ 8,321 ​ ​ 6,282 ​ ​ 6,853 State: ​ ​ ​ ​ ​ ​ ​ ​ ​ Current ​ ​ 5,916 ​ ​ 5,711 ​ ​ 4,771 Deferred ​ ​ ( 50 ) ​ ​ ( 914 ) ​ ​ 133 ​ ​ ​ 5,866 ​ ​ 4,797 ​ ​ 4,904 ​ ​ $ 14,187 ​ $ 11,079 ​ $ 11,757 ​ ​ 108 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of the net deferred tax asset, included in other assets, are as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Deferred tax assets: ​ ​ ​ ​ ​ ​ Allowance for loan and lease losses ​ $ 4,215 ​ $ 5,244 Foreclosed assets ​ ​ 126 ​ ​ 126 Deferred compensation ​ ​ 4,511 ​ ​ 4,147 Accrued reserves ​ ​ 555 ​ ​ 325 Non-accrual loans ​ ​ 363 ​ ​ 403 Lease liability ​ ​ 1,752 ​ ​ 2,283 Loan fair value adjustment ​ ​ 420 ​ ​ 956 Capital losses carried forward ​ ​ — ​ ​ 29 Net operating losses ​ ​ 1,592 ​ ​ 1,751 State income tax deduction ​ ​ 1,179 ​ ​ 1,170 Other ​ ​ 992 ​ ​ 986 Total deferred tax assets ​ ​ 15,705 ​ ​ 17,420 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Deferred loan costs ​ ​ ( 1,288 ) ​ ​ ( 2,482 ) Right-of-use asset ​ ​ ( 1,618 ) ​ ​ ( 2,127 ) Intangibles ​ ​ ( 579 ) ​ ​ ( 832 ) Premises and equipment ​ ​ ( 917 ) ​ ​ ( 750 ) Net unrealized gain on securities available-for-sale ​ ​ ( 4,687 ) ​ ​ ( 7,725 ) Other ​ ​ ( 2,824 ) ​ ​ ( 2,665 ) Total deferred tax liabilities ​ ​ ( 11,913 ) ​ ​ ( 16,581 ) Net deferred tax assets ​ $ 3,792 ​ $ 839 ​ 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, ​ 2021 2020 2019 Income tax expense at federal statutory rate ​ $ 12,012 ​ $ 9,770 ​ $ 10,021 Increase (decrease) resulting from: ​ ​ ​ ​ ​ ​ ​ ​ ​ State franchise tax expense, net of federal tax effect ​ ​ 4,634 ​ ​ 3,790 ​ ​ 3,872 Tax exempt municipal income ​ ​ ( 1,306 ) ​ ​ ( 1,199 ) ​ ​ ( 952 ) Affordable housing tax credits ​ ​ ( 524 ) ​ ​ ( 518 ) ​ ​ ( 538 ) Excess tax benefit of stock-based compensation ​ ​ ( 109 ) ​ ​ ( 90 ) ​ ​ ( 133 ) Cash surrender value - life insurance ​ ​ ( 556 ) ​ ​ — ​ ​ — Other ​ ​ 36 ​ ​ ( 674 ) ​ ​ ( 513 ) ​ ​ $ 14,187 ​ $ 11,079 ​ $ 11,757 Effective tax rate ​ ​ 24.80 % ​ ​ 23.81 % ​ ​ 24.64 % ​ 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, 2018 , 2019 and 2020 are open to audit by the federal authorities and our California 109 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) state tax returns for the years ended December 31, 2017 , 2018, 2019 and 2020 are open to audit by the state authorities. The Company has net operating loss carry forwards of approximately $ 4.8 million for federal income and approximately $ 6.9 million for California franchise tax purposes. Net operating loss carry forwards, to the extent not used will begin to expire in 2031. 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, 2021, 2020, and 2019, 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 $ 128.6 million. A $ 125.0 million letter of credit is pledged to secure public deposits at December 31, 2021 and a $ 3.6 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 Banks are normally required to maintain reserves with the Federal Reserve Bank equal to a specified percentage of their reservable deposits less vault cash. The Federal Reserve Bank has temporarily eliminated the reserve requirement in response to the COVID-19 pandemic, in an effort to free up available cash for lending purposes. There were no reserve balances required to be maintained at the Federal Reserve Bank by the Company at December 31, 2021 and 2020. 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 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. 110 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following financial instruments represent off-balance-sheet credit risk (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Fixed-rate commitments to extend credit ​ $ 72,946 ​ $ 75,291 Variable-rate commitments to extend credit ​ $ 481,082 ​ $ 366,525 Standby letters of credit ​ $ 6,651 ​ $ 8,104 ​ 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, 2021, 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 71 % of all real estate loans, while loans secured by non-construction residential properties accounted for 22 %, and loans secured by farmland were 6 % 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, 111 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 has established 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, 2021, the Company had a stock repurchase plan which has no expiration date. During the year ended December 31, 2021, the Company repurchased 187,438 shares. The total number of shares available for repurchase at December 31, 2021 was 812,562 . 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, ​ 2021 2020 2019 Basic Earnings Per Share ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (dollars in thousands) ​ $ 43,012 ​ $ 35,444 ​ $ 35,961 Weighted average shares outstanding ​ ​ 15,241,957 ​ ​ 15,216,749 ​ ​ 15,311,113 Basic earnings per share ​ $ 2.82 ​ $ 2.33 ​ $ 2.35 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted Earnings Per Share ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (dollars in thousands) ​ $ 43,012 ​ $ 35,444 ​ $ 35,961 Weighted average shares outstanding ​ ​ 15,241,957 ​ ​ 15,216,749 ​ ​ 15,311,113 Effect of dilutive stock options ​ ​ 111,488 ​ ​ 63,576 ​ ​ 125,998 Weighted average shares outstanding ​ ​ 15,353,445 ​ ​ 15,280,325 ​ ​ 15,437,111 Diluted earnings per share ​ $ 2.80 ​ $ 2.32 ​ $ 2.33 ​ Stock options for 337,004 , 348,328 , and 243,657 shares of common stock were not considered in computing diluted earnings per common share for 2021, 2020, and 2019, respectively, because they were antidilutive. Stock Options On March 16, 2017 the Company’s Board of Directors approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective May 24, 2017 pursuant to the approval of the Company’s shareholders. The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15, 2017. Options to purchase 172,689 shares that were granted under the 2007 Plan were still outstanding as of December 31, 2021, and remain unaffected by that plan’s expiration. The 2017 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options 112 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) to non-employee directors and consultants of the Company. The 2017 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants. The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2017 Plan was initially 850,000 shares, and the number remaining available for grant as of December 31, 2021, was 408,909 . All options granted under the 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2020 ​ 2019 ​ Shares Weighted Average Exercise Price Aggregate Intrinsic Value (1) Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price Outstanding, ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning of year ​ 495 ​ $ 23.67 ​ ​ ​ ​ 458 ​ $ 21.08 ​ 453 ​ $ 18.45 Exercised or released ​ ( 33 ) ​ $ 14.64 ​ ​ ​ ​ ( 67 ) ​ $ 11.65 ​ ( 83 ) ​ $ 13.07 Granted ​ — ​ $ — ​ ​ ​ ​ 126 ​ $ 27.11 ​ 102 ​ $ 26.97 Canceled ​ ( 45 ) ​ $ 26.36 ​ ​ ​ ​ ( 21 ) ​ $ 26.01 ​ ( 14 ) ​ $ 26.77 Expired ​ ( 1 ) ​ $ 10.58 ​ ​ ​ ​ ( 1 ) ​ $ 10.73 ​ — ​ $ — Outstanding, end of year ​ 416 ​ $ 24.15 ​ $ 1,338 ​ 495 ​ $ 23.67 ​ 458 ​ $ 21.08 Exercisable, end of year (2) ​ 355 ​ $ 23.62 ​ $ 1,336 ​ 324 ​ $ 21.97 ​ 322 ​ $ 18.89 (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, 2021. 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, 2021 was 5.9 years and 5.6 years, respectively. Information related to stock options during each year follows (dollars in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Weighted-average grant-date fair value per share ​ $ — ​ $ 4.76 ​ $ 6.60 Total intrinsic value of stock options exercised ​ $ 346 ​ $ 705 ​ $ 1,150 Total fair value of stock options vested ​ $ 418 ​ $ 489 ​ $ 438 ​ $ 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. $ 0.8 million in cash was received from the exercise of 66,470 shares during the period ended December 31, 2020, with a related tax benefit of $ 0.5 million. $ 1.1 million in cash was received from the exercise of 83,261 shares during the period ended December 31, 2019, with a related tax benefit of $ 0.3 million. 113 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company is using the Black-Scholes model to value stock options. In accordance with U.S. GAAP, charges of $ 0.1 million, $ 0.4 million, and $ 0.5 million are reflected in the Company’s income statements for the years ended December 31, 2021, 2020, and 2019, respectively, as pre-tax compensation and directors’ expense related to stock options. The related tax benefit of these options is $ 0.03 million for the year ended December 31, 2021, and $ 0.1 million for the two years ended December 31, 2020 and 2019. Unamortized compensation expense associated with unvested stock options outstanding at December 31, 2021 was $ 0.4 million, which will be recognized over a weighted average period of 2.9 years. Restricted Stock Grants The Company’s restricted stock awards are time-vested, non-transferrable shares of common stock and are available to be granted to the Company’s employees and directors. The vesting period of restricted stock awards is determined at the time the awards are issued, and different awards may have different vesting terms; provided, however, that no installment of any restricted stock award shall become vested less than one year from the grant date. Restricted stock awards are valued utilizing the fair value of the Company’s stock at the grant date. During the year ending 2021, 73,912 shares were granted to employees and directors of the Company. 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, 2021, 2020 and 2019 was $ 0.9 million, $ 0.2 million, and $ 0 respectively, and the recognized income tax benefit related to this expense was $ 0.3 million, $ 0.1 million, and $ 0 , respectively. As of December 31, 2021, there was $ 3.0 million of unamortized compensation and directors’ 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 3.2 years. The total fair value of shares vested during the year ended December 31, 2021 was $ 0.7 million. There were no shares vested during the years ended December 31, 2020 and 2019. 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, 2021 ​ 149 ​ $ 18.00 Granted ​ 74 ​ ​ 26.66 Vested ​ ( 40 ) ​ ​ 18.00 Forfeited ​ ( 18 ) ​ ​ 18.22 Nonvested at December 31, 2021 ​ 165 ​ $ 21.85 ​ ​ ​ 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. 114 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2021, 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, 2021 and 2020, 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. In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a second interim final rule that provides a graduated increase in the community bank leverage ratio requirement after the expiration of the temporary changes implemented pursuant to section 4012 of the CARES Act. 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 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, 2021, 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. ​ 115 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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) 2021 Capital Amount Ratio Capital Amount Ratio Tier 1 (Core) Capital to average total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sierra Bancorp and subsidiary ​ $ 356,800 ​ 10.43 % ​ $ 290,851 ​ 8.50 % Bank of the Sierra ​ $ 387,059 ​ 11.31 % ​ $ 290,817 ​ 8.50 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual ​ To Be Well Capitalized Under Prompt Corrective Action Regulations 2020 Capital Amount Ratio Capital Amount Ratio Tier 1 (Core) Capital to average total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sierra Bancorp and subsidiary ​ $ 330,200 ​ 10.50 % ​ $ 251,595 ​ 8.00 % Bank of the Sierra ​ ​ 318,194 ​ 10.12 % ​ ​ 251,572 ​ 8.00 % ​ ​ 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, 2021, the maximum amount available for dividend distribution under this restriction was approximately $ 77.6 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 $ 5.1 million and was fully accrued for both of the years ended December 31, 2021 and 2020. The expense recognized under these arrangements totaled $ 0.4 million, $ 0.2 million and $ 0.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Salary continuation benefits paid to former directors or executives of the Company or their 116 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) beneficiaries totaled $ 0.4 million, $ 0.4 million and $ 0.3 million for the years ended December 31, 2021, 2020 and 2019. 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 $ 43.2 million at December 31, 2021 and 2020. Officer and Director Deferred Compensation Plan The Company has established a 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 for the plan’s administration and the interest earned on participant deferrals. The related administrative expense was not material for the years ended December 31, 2021, 2020 and 2019. In connection with this plan, life insurance policies with cash surrender values totaled $ 11.0 million and $ 9.3 million at December 31, 2021 and 2020, respectively. 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 95 %, 90 % and 95 % for the years ended December 31, 2021, 2020 and 2019, 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, $ 1.1 million, and $ 1.1 million to the Plan in 2021, 2020 and 2019, respectively. 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, ​ 2021 2020 2019 Included in other income: ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of limited partnerships ​ $ ( 524 ) ​ $ ( 1,189 ) ​ $ ( 2,079 ) Dividends on equity investments ​ ​ 737 ​ ​ 664 ​ ​ 789 Unrealized gains recognized on equity investments ​ ​ 857 ​ ​ 447 ​ ​ 232 Other ​ ​ 4,019 ​ ​ 4,638 ​ ​ 3,223 Total other noninterest income ​ $ 5,089 ​ $ 4,560 ​ $ 2,165 ​ ​ 117 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 19. OTHER NONINTEREST EXPENSE Other noninterest expense consisted of the following (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 2019 Legal, audit and professional ​ $ 7,652 ​ $ 4,263 ​ $ 4,039 Data processing ​ ​ 5,890 ​ ​ 4,661 ​ ​ 4,564 Advertising and promotional ​ ​ 1,521 ​ ​ 1,889 ​ ​ 2,568 Deposit services ​ ​ 9,049 ​ ​ 8,483 ​ ​ 7,962 Stationery and supplies ​ ​ 345 ​ ​ 446 ​ ​ 318 Telephone and data communication ​ ​ 2,013 ​ ​ 1,775 ​ ​ 1,529 Loan and credit card processing ​ ​ 501 ​ ​ 879 ​ ​ 675 Foreclosed assets expense (income), net ​ ​ 72 ​ ​ 253 ​ ​ 35 Postage ​ ​ 308 ​ ​ 321 ​ ​ 436 Other ​ ​ 2,780 ​ ​ 2,205 ​ ​ 2,082 Assessments ​ ​ 1,157 ​ ​ 717 ​ ​ 525 Total other noninterest expense ​ $ 31,288 ​ $ 25,892 ​ $ 24,733 ​ ​ 20. RELATED PARTY TRANSACTIONS During the normal course of business, the Bank enters 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, ​ 2021 2020 2019 Balance, beginning of year ​ $ 1,794 ​ $ 2,731 ​ $ 2,544 Disbursements ​ ​ 1,983 ​ ​ 7,114 ​ ​ 18,681 Amounts repaid ​ ​ ( 2,548 ) ​ ​ ( 8,051 ) ​ ​ ( 18,494 ) Effect of changes in composition of related parties ​ ​ ( 162 ) ​ ​ — ​ ​ — Balance, end of year ​ $ 1,067 ​ $ 1,794 ​ $ 2,731 Undisbursed commitments to related parties ​ $ 2,156 ​ $ 2,635 ​ $ 1,829 ​ Deposits from related parties held by the Bank at December 31, 2021 and 2020 amounted to $ 9.9 million and $ 6.1 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. 118 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ● 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. 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 impaired loans : A specific loss allowance is created for collateral dependent impaired 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. ​ 119 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2021, using ​ Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Realized Gain/(Loss) Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ 1,574 ​ $ — ​ $ 1,574 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 306,727 ​ ​ — ​ ​ 306,727 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 304,268 ​ ​ — ​ ​ 304,268 ​ ​ — Corporate bonds ​ ​ — ​ ​ 999 ​ ​ 27,530 ​ ​ 28,529 ​ ​ — Collateralized loan obligations ​ ​ — ​ ​ 136,509 ​ ​ 195,707 ​ ​ 332,216 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 750,077 ​ $ 223,237 ​ $ 973,314 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2020, 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 ​ $ — ​ $ 1,800 ​ $ — ​ $ 1,800 ​ $ — Mortgage-backed securities ​ ​ — ​ ​ 314,435 ​ ​ — ​ ​ 314,435 ​ ​ — State and political subdivisions ​ ​ — ​ ​ 227,739 ​ ​ — ​ ​ 227,739 ​ ​ — Total available-for-sale securities ​ $ — ​ $ 543,974 ​ $ — ​ $ 543,974 ​ $ — ​ 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, 2021 and 2020 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Collateralized Loan Obligations Corporate Bonds ​ ​ 2021 ​ 2020 ​ 2021 ​ 2020 Balance of recurring Level 3 assets at January 1, ​ $ — ​ $ — ​ $ — ​ $ — Purchases ​ ​ 195,707 ​ ​ — ​ ​ 27,530 ​ ​ — Balance of recurring Level 3 assets at December 31, ​ $ 195,707 ​ $ — ​ $ 27,530 ​ $ — ​ The following table presents quantitative information about recurring level 3 fair value measurements at December 31, 2021 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Range ​ Fair Value ​ Valuation Technique(s) Unobservable Input(s) ​ Min ​ Max ​ Weighted Average Corporate Bonds ​ $ 27,530 ​ New issue pricing ​ Risk appetite ​ N/A ​ N/A ​ N/A ​ ​ ​ ​ ​ Secondary market pricing ​ Market volatility ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit quality of issuer ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit spread ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Collateralized Loan Obligations ​ ​ 195,707 ​ New issue pricing ​ Constant prepayment rate ​ N/A ​ N/A ​ N/A ​ ​ ​ ​ ​ Secondary market pricing ​ Default rate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit quality of issuer ​ Recovery rate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Credit spread ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 223,237 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 120 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) There were no assets measured at fair value on a recurring basis with level 3 fair value measurements at December 31, 2020. Assets and liabilities measured at fair market value on a non-recurring basis are summarized below (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ 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 ​ $ — ​ $ 221 ​ $ 177 ​ $ 398 Foreclosed assets ​ $ — ​ $ 93 ​ $ — ​ $ 93 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ 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 ​ $ — ​ $ 550 ​ $ — ​ $ 550 Foreclosed assets ​ $ — ​ $ 971 ​ $ — ​ $ 971 ​ The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis at December 31, 2021 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Range ​ Fair Value ​ Valuation Technique(s) Unobservable Input(s) ​ Min ​ Max ​ Weighted Average Impaired loans - commercial and industrial ​ $ 177 ​ Fair value of collateral ​ Collateral discount ​ 50 % ​ 70 % ​ 56 % ​ ​ $ 177 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ There were no assets measured at fair value on a non-recurring basis with level 3 fair value measurements at December 31, 2020. ​ ​ ​ 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 121 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2021 and 2020: 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 and leases : Fair values of loans, excluding loans held for sale, 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. Loans held for sale : Since loans designated by the Company as held-for-sale are typically sold shortly after making the decision to sell them, realized gains or losses are usually recognized within the same period and fluctuations in fair values are thus not relevant for reporting purposes. If held-for-sale loans stay on our books for an extended period of time, the fair value of those loans is determined using quoted secondary-market prices. 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. 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. 122 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ ​ ​ ​ ​ 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 ​ $ 257,528 ​ $ 257,528 ​ $ — ​ $ — ​ $ 257,528 Securities available for sale ​ ​ 973,314 ​ ​ — ​ ​ 750,077 ​ ​ 223,237 ​ ​ 973,314 Loans and leases held for investment ​ ​ 1,973,207 ​ ​ — ​ ​ — ​ ​ 1,960,966 ​ ​ 1,960,966 Collateral dependent impaired loans ​ ​ 398 ​ ​ — ​ ​ 221 ​ ​ 177 ​ ​ 398 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 1,084,544 ​ $ 1,084,544 ​ $ — ​ $ — ​ $ 1,084,544 Interest bearing ​ ​ 1,697,028 ​ ​ — ​ ​ 1,696,124 ​ ​ — ​ ​ 1,696,124 Repurchase agreements ​ ​ 106,937 ​ ​ — ​ ​ 106,937 ​ ​ — ​ ​ 106,937 Long-term borrowings ​ ​ 49,141 ​ ​ — ​ ​ 49,118 ​ ​ — ​ ​ 49,118 Subordinated debentures ​ ​ 35,302 ​ ​ — ​ ​ 33,281 ​ ​ — ​ ​ 33,281 ​ ​ ​ ​ ​ ​ Notional Amount Off-balance-sheet financial instruments: ​ ​ ​ Commitments to extend credit ​ $ 554,028 Standby letters of credit ​ ​ 6,651 ​ Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2020 ​ ​ ​ ​ ​ 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 ​ $ 71,417 ​ $ 71,417 ​ $ — ​ $ — ​ $ 71,417 Securities available for sale ​ ​ 543,974 ​ ​ — ​ ​ 543,974 ​ ​ — ​ ​ 543,974 Loans and leases held for investment ​ ​ 2,441,676 ​ ​ — ​ ​ — ​ ​ 2,450,340 ​ ​ 2,450,340 Collateral dependent impaired loans ​ ​ 550 ​ ​ — ​ ​ 550 ​ ​ — ​ ​ 550 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest bearing ​ $ 943,664 ​ $ 943,664 ​ $ — ​ $ — ​ $ 943,664 Interest bearing ​ ​ 1,680,942 ​ ​ — ​ ​ 1,680,814 ​ ​ — ​ ​ 1,680,814 Fed funds purchased and repurchase agreements ​ ​ 39,138 ​ ​ — ​ ​ 39,138 ​ ​ — ​ ​ 39,138 Short-term borrowings ​ ​ 142,900 ​ ​ — ​ ​ 142,896 ​ ​ — ​ ​ 142,896 Subordinated debentures ​ ​ 35,124 ​ ​ — ​ ​ 24,364 ​ ​ — ​ ​ 24,364 ​ 123 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ​ ​ ​ ​ ​ Notional Amount Off-balance-sheet financial instruments: ​ ​ ​ Commitments to extend credit ​ $ 441,816 Standby letters of credit ​ ​ 8,104 ​ ​ ​ ​ ​ 23. QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS T he Company invests in qualified affordable housing projects. At December 31, 2021 and 2020, the balance of the investment for qualified affordable housing projects totaled $ 2.9 million and $ 3.5 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 $ 0.1 million and $ 0.1 million at December 31, 2021 and 2020, respectively. During the years ended December 31, 2021, 2020 and 2019, the Company recognized amortization expense on these investments of $ 0.5 million, $ 0.6 million, and $ 1.8 million, respectively which was included within pretax income on the consolidated statements of income. Additionally, during the years ended December 31, 2021, 2020 and 2019 the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $ 0.5 million. The Company had no impairment losses during the years ended December 31, 2021, 2020 and 2019. 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 124 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) twelve months ended December 31, 2021 and 2020. Items outside the scope of ASC 606 are noted as such (dollars in thousands). ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2021 2020 Noninterest income ​ ​ ​ ​ ​ ​ Service charges on deposits ​ ​ ​ ​ ​ ​ Returned item and overdraft fees ​ $ 4,924 ​ $ 5,078 Other service charges on deposits ​ ​ 6,922 ​ ​ 6,687 Debit card interchange income ​ ​ 8,485 ​ ​ 7,023 Loss on limited partnerships (1) ​ ​ ( 524 ) ​ ​ ( 1,189 ) Dividends on equity investments (1) ​ ​ 737 ​ ​ 664 Unrealized gains recognized on equity investments (1) ​ ​ 857 ​ ​ 447 Net gains (losses) on sale of securities (1) ​ ​ 11 ​ ​ 390 Other (1) ​ ​ 6,667 ​ ​ 7,050 Total noninterest income ​ $ 28,079 ​ $ 26,150 ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ ​ ​ ​ ​ ​ Salaries and employee benefits (1) ​ $ 42,431 ​ $ 40,178 Occupancy expense (1) ​ ​ 9,837 ​ ​ 9,842 Gains on sale of OREO ​ ​ ( 153 ) ​ ​ ( 10 ) Other (1) ​ ​ 31,441 ​ ​ 25,902 Total noninterest expense ​ $ 83,556 ​ $ 75,912 (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. 125 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 25. PARENT ONLY CONDENSED FINANCIAL STATEMENTS BALANCE SHEETS Years Ended December 31, 2021 and 2020 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 ASSETS ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 20,143 ​ $ 12,000 Investments in bank subsidiary ​ ​ 428,054 ​ ​ 367,014 Investment in trust subsidiaries ​ ​ 1,145 ​ ​ 1,145 Other assets ​ ​ 21 ​ ​ 22 ​ ​ $ 449,363 ​ $ 380,181 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Other liabilities ​ $ 2,426 ​ $ 1,161 Long-term debt ​ ​ 49,141 ​ ​ — Subordinated debentures ​ ​ 35,302 ​ ​ 35,124 Total liabilities ​ ​ 86,869 ​ ​ 36,285 Shareholders' equity: ​ ​ ​ ​ ​ ​ Common stock ​ ​ 116,917 ​ ​ 117,120 Retained earnings ​ ​ 234,410 ​ ​ 208,371 Accumulated other comprehensive gain, net of taxes ​ ​ 11,167 ​ ​ 18,405 Total shareholders' equity ​ ​ 362,494 ​ ​ 343,896 ​ ​ $ 449,363 ​ $ 380,181 ​ STATEMENTS OF INCOME Years Ended December 31, 2021, 2020 and 2019 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Income: ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividend from subsidiary ​ $ 3,200 ​ $ 23,000 ​ $ 17,200 Other operating income ​ ​ — ​ ​ 43 ​ ​ — Total income ​ ​ 3,200 ​ ​ 23,043 ​ ​ 17,200 Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 779 ​ ​ 856 ​ ​ 582 Other expenses ​ ​ 2,728 ​ ​ 1,971 ​ ​ 2,664 Total expenses ​ ​ 3,507 ​ ​ 2,827 ​ ​ 3,246 Income before income taxes ​ ​ ( 307 ) ​ ​ 20,216 ​ ​ 13,954 Income tax benefit ​ ​ ( 1,037 ) ​ ​ ( 823 ) ​ ​ ( 1,138 ) Income before equity in undistributed income of subsidiary ​ ​ 730 ​ ​ 21,039 ​ ​ 15,092 Equity in undistributed income of subsidiary ​ ​ 42,282 ​ ​ 14,405 ​ ​ 20,869 Net income ​ $ 43,012 ​ $ 35,444 ​ $ 35,961 ​ 126 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATEMENTS OF CASH FLOWS Years Ended December 31, 2021, 2020 and 2019 (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 43,012 ​ $ 35,444 ​ $ 35,961 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Undistributed net income of subsidiary ​ ​ ( 42,282 ) ​ ​ ( 14,405 ) ​ ​ ( 20,869 ) Decrease in other assets ​ ​ 179 ​ ​ 178 ​ ​ 178 Increase (decrease) in other liabilities ​ ​ 1,263 ​ ​ ( 41 ) ​ ​ ( 2 ) Net cash provided by operating activities ​ ​ 2,172 ​ ​ 21,176 ​ ​ 15,268 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 282 ​ ​ 775 ​ ​ 1,088 Repurchase of common stock ​ ​ ( 5,220 ) ​ ​ ( 2,562 ) ​ ​ ( 2,544 ) Dividends paid ​ ​ ( 13,232 ) ​ ​ ( 12,207 ) ​ ​ ( 11,332 ) Issuance of debentures, net ​ ​ 49,141 ​ ​ — ​ ​ — Net cash provided by (used) in financing activities ​ ​ 30,971 ​ ​ ( 13,994 ) ​ ​ ( 12,788 ) Net increase in cash and cash equivalents ​ ​ 8,143 ​ ​ 7,182 ​ ​ 2,480 Cash and cash equivalents, beginning of year ​ ​ 12,000 ​ ​ 4,818 ​ ​ 2,338 Cash and cash equivalents, end of year ​ $ 20,143 ​ $ 12,000 ​ $ 4,818 ​ ​ 127 Table of Contents SIERRA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 26. CONDENSED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following table sets forth the Company’s unaudited results of operations for the four quarters of 2021 and 2020. 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). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 Quarter Ended ​ December 31, September 30, June 30, March 31, Interest income ​ $ 27,897 ​ $ 27,629 ​ $ 28,092 ​ $ 29,458 Interest expense ​ ​ 1,331 ​ ​ 913 ​ ​ 903 ​ ​ 903 Net interest income ​ ​ 26,566 ​ ​ 26,716 ​ ​ 27,189 ​ ​ 28,555 Provision for loan and lease losses ​ ​ ( 1,200 ) ​ ​ ( 600 ) ​ ​ ( 2,100 ) ​ ​ 250 Noninterest income ​ ​ 7,103 ​ ​ 7,534 ​ ​ 6,612 ​ ​ 6,830 Noninterest expense ​ ​ 22,175 ​ ​ 20,875 ​ ​ 20,235 ​ ​ 20,271 Net income before taxes ​ ​ 12,694 ​ ​ 13,975 ​ ​ 15,666 ​ ​ 14,864 Provision for taxes ​ ​ 3,073 ​ ​ 3,370 ​ ​ 3,958 ​ ​ 3,786 Net income ​ $ 9,621 ​ $ 10,605 ​ $ 11,708 ​ $ 11,078 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share ​ $ 0.63 ​ $ 0.69 ​ $ 0.76 ​ $ 0.72 Cash dividend per share ​ $ 0.22 ​ $ 0.22 ​ $ 0.21 ​ $ 0.21 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 Quarter Ended ​ December 31, September 30, June 30, March 31, Interest income ​ $ 29,762 ​ $ 29,044 ​ $ 25,386 ​ $ 26,051 Interest expense ​ ​ 930 ​ ​ 970 ​ ​ 1,244 ​ ​ 2,264 Net interest income ​ ​ 28,832 ​ ​ 28,074 ​ ​ 24,142 ​ ​ 23,787 Provision for loan and lease losses ​ ​ 2,200 ​ ​ 2,350 ​ ​ 2,200 ​ ​ 1,800 Noninterest income ​ ​ 6,040 ​ ​ 7,104 ​ ​ 6,900 ​ ​ 6,106 Noninterest expense ​ ​ 20,757 ​ ​ 19,304 ​ ​ 18,033 ​ ​ 17,818 Net income before taxes ​ ​ 11,915 ​ ​ 13,524 ​ ​ 10,809 ​ ​ 10,275 Provision for taxes ​ ​ 2,936 ​ ​ 3,169 ​ ​ 2,506 ​ ​ 2,468 Net income ​ $ 8,979 ​ $ 10,355 ​ $ 8,303 ​ $ 7,807 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share ​ $ 0.58 ​ $ 0.68 ​ $ 0.54 ​ $ 0.52 Cash dividend per share ​ $ 0.20 ​ $ 0.20 ​ $ 0.20 ​ $ 0.20 ​ ​ ​ ​ 128 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.