4 unchanged sentences
Consolidated Statements of Income – Years Ended December 31, 2022, 2021, and 2020
−Removed: Consolidated Statements of Comprehensive Income – Years Ended December 31, 2021, 2020, and 2019
+Added: Consolidated Statements of Comprehensive (Loss) Income – Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Changes in Shareholders’ Equity – Years Ended December 31, 2022, 2021, and 2020
12 unchanged sentences
(2013) issued by COSO.
+Added: As discussed in notes 2 and 4, effective January 1, 2022, the company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):
+Added: Measurement of Credit Losses on Financial Instruments.
+Added: The Company recorded an increase to the allowance for credit losses – loans and leases of $9.5 million, an increase to allowance for credit losses on off balance sheet credit exposures of $0.9 million and a reduction to retained earnings of $7.3 million, net of deferred taxes of $3.1 million.
Basis for Opinion
8 unchanged sentences
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.
−Removed: 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.
+Added: 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
+Added: internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances.
2 unchanged sentences
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.
−Removed: A company’s internal control
−Removed: 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;
+Added: A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
3 unchanged sentences
Critical Audit Matter
−Removed: 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:
−Removed: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.
−Removed: 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.
−Removed: Allowance for Loan and Lease Losses
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Qualitative factors include consideration of the following:
−Removed: changes in lending policies and procedures;
−Removed: changes in international, national, regional, and local economic and business conditions and developments;
−Removed: changes in the nature and volume of the portfolio;
−Removed: changes in the experience, ability and depth of lending management and staff;
−Removed: changes in the volume and severity of past due, nonaccrual and other adversely graded loans;
−Removed: changes in quality of the loan review system;
−Removed: changes in the value of the underlying collateral for collateral-dependent loans;
−Removed: concentrations of credit;
−Removed: and the effect of the other external factors such as competition and legal and regulatory requirements.
−Removed: We identified the allowance for loan and lease losses as a critical matter.
−Removed: 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.
−Removed: The primary procedures we performed to address this critical audit matter included:
−Removed: • 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.
−Removed: • 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
−Removed: analyzing historical data used in developing the assumptions.
−Removed: • 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.
−Removed: • Testing the mathematical accuracy and computation of the allowance for loan and lease losses.
−Removed: • Evaluating the period to period consistency with which qualitative loss factors are determined and applied.
+Added: Critical audit matters (CAMs) arising from the audit and included in our auditor’s report are intended to inform investors and other financial statement users about matters that required especially challenging, subjective, or complex auditor judgment, and the relevant response or approach that we had to those matters.
+Added: These matters relate to accounts or disclosures that are material to the financial statements, and include the following matters arising from the current period audit of the consolidated financial statements:
+Added: Allowance for Credit Losses - Loans and Leases
+Added: As discussed in Note 4 to the Company’s consolidated financial statements, the Company has a gross loan and lease portfolio of $2.1 billion and related allowance for credit losses - loans and leases (ACL) of $23.1 million as of December 31, 2022.
+Added: The ACL represents management’s estimate of expected credit losses over the contractual life of the portfolio.
+Added: The determination of the ACL is a material and complex estimate requiring significant management judgment in the evaluation of past events, current economic conditions and reasonable supportable forecasts, as well as qualitative adjustments applied on a portfolio segment basis.
+Added: The qualitative adjustments are used to bring the ACL to the level management believes appropriate based on factors that are otherwise unaccounted for in the quantitative process.
+Added: Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of specialized skill or knowledge needed.
+Added: Our considerations and procedures performed to address this critical audit matter included:
+Added: o Obtaining an understanding of the Company’s process for establishing the ACL, including the models selected by management to estimate quantitative components of the ACL and qualitative adjustments made to the ACL.
+Added: This includes the process utilized by management to challenge the model results and determine the best estimate of the ACL as of the balance sheet date.
+Added: o Evaluating the design and testing the operating effectiveness of controls relating to the development and approval of the ACL methodology, management’s identification, determination and controls related to the significant assumptions used in the models, controls around the reliability and accuracy of the data used in the models, analysis of the ACL results and management’s review and approval of the ACL.
+Added: o Evaluating the appropriateness of the model methodology used to incorporate a reasonable and supportable forecast period and reversion to historical loss rates by inspecting the model documentation and by comparing it to relevant industry practices.
+Added: o Determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices.
+Added: o Testing the completeness and accuracy of internal loan level data used as the basis for the calculation.
+Added: o Evaluating the reasonableness of forecasted economic scenarios provided by a third party.
+Added: o Evaluating the identification and measurement of the qualitative adjustments, including the basis for concluding an adjustment was warranted and compared the adjustments utilized by management to both internal portfolio metrics and external macroeconomic data to support the adjustments and evaluated the trends in such adjustments.
+Added: We searched for and evaluated information that corroborates or contradicts management’s reasonable and supportable forecast as well as identification and measurement of qualitative factors.
/s/ Eide Bailly LLP
−Removed: San Ramon, California
−Removed: 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.
+Added: San Ramon, California
+Added: March 9, 2023
SIERRA BANCORP AND SUBSIDIARY
5 unchanged sentences
Cash and cash equivalents
−Removed: Securities available-for-sale
+Added: Investment securities
+Added: Available-for-sale, net of zero allowance for credit losses at December 31, 2022 and December 31, 2021
+Added: Held-to-maturity, (fair value of $ 328,011 at December 31, 2022 and $ 0 at December 31, 2021)
+Added: Allowance for credit losses on held-to-maturity securities
+Added: Net, investment securities held-to-maturity
Loans and leases:
Gross loans and leases
−Removed: Allowance for loan and lease losses
−Removed: Deferred loan and lease (fees) costs, net
+Added: Deferred loan and lease fees, net
+Added: Allowance for credit losses on loans and leases
Net loans and leases
11 unchanged sentences
Subordinated debentures, net
+Added: Allowance for credit losses on unfunded loan commitments
Other liabilities
Total liabilities
−Removed: Commitments and contingent liabilities (Notes 6 & 14)
+Added: Commitments and contingent liabilities (Note 14)
Shareholders' equity
6 unchanged sentences
Retained earnings
−Removed: Accumulated other comprehensive gain, net of taxes of $( 4,687 ) in 2021 and $( 7,725 ) in 2020
+Added: Accumulated other comprehensive (loss) gain, net of taxes of $ 23,746 in 2022 and $( 4,687 ) in 2021
Total shareholders' equity
16 unchanged sentences
Net interest income
−Removed: (Benefit) provision for loan and lease losses
+Added: Provision (benefit) for credit losses on loans and leases
+Added: Benefit for credit losses on unfunded loan commitments
+Added: Provision for credit losses on held-to-maturity securities
Net interest income after provision for loan and lease losses
1 unchanged sentence
Service charges on deposits
−Removed: Checkcard fees
+Added: Debit card fees
Net gains (losses) on sale of securities available-for-sale
−Removed: Increase in cash surrender value of life insurance
+Added: (Decrease) increase in cash surrender value of life insurance
Total noninterest income
2 unchanged sentences
Occupancy and equipment
−Removed: Acquisition costs
Total noninterest expense
6 unchanged sentences
SIERRA BANCORP AND SUBSIDIARY
−Removed: CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
+Added: CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Years Ended December 31, 2022, 2021 and 2020
(dollars in thousands, except footnotes)
−Removed: Other comprehensive income, before tax
−Removed: Unrealized gain (loss) on securities:
−Removed: Unrealized holding gain (loss) arising during period
−Removed: Reclassification adjustment for (gains) losses included in net income (1)
−Removed: Other comprehensive gain (loss), before tax
−Removed: Income tax (expense) benefit related to items of other comprehensive income
−Removed: Total other comprehensive gain (loss), net of tax
−Removed: Comprehensive income
−Removed: (1) Amounts are included in net (gains) losses on securities available-for-sale on the Consolidated Statements of Income in noninterest income.
−Removed: 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.
+Added: Other comprehensive (loss) gain, before tax
+Added: Unrealized (loss) gain on securities:
+Added: Unrealized holding (loss) gain arising during period
+Added: Reclassification adjustment for gains included in net income (1)
+Added: Other comprehensive (loss) gain, before tax
+Added: Income tax benefit (expense) related to items of other comprehensive income
+Added: Total other comprehensive (loss) gain , net of tax
+Added: Comprehensive (loss) income
+Added: (1) Amounts are included in net gains on securities available-for-sale on the Consolidated Statements of Income in noninterest income.
+Added: Income tax expense associated with the reclassification adjustment for the years ended 2022, 2021 and 2020 was $ 440,000 , $ 3,000 , and $ 115,000 respectively.
The accompanying notes are an integral part of these consolidated financial statements.
6 unchanged sentences
Balance, January 1, 2020
−Removed: Other comprehensive loss, net of tax
+Added: Other comprehensive gain, net of tax
Exercise of stock options
3 unchanged sentences
Balance, December 31, 2020
−Removed: Other comprehensive gain, net of tax
−Removed: Exercise of stock options
−Removed: Stock based compensation expense
+Added: Other comprehensive loss, net of tax
+Added: Stock options exercised, net of shares surrendered for cashless exercises
+Added: Restricted stock granted
+Added: Restricted stock surrendered due to employee tax liability
+Added: Restricted stock forfeited / cancelled
+Added: Stock based compensation - stock options
+Added: Stock based compensation - restricted stock
Stock repurchase
1 unchanged sentence
Balance, December 31, 2021
+Added: Cumulative change in accounting principle
Other comprehensive loss, net of tax
−Removed: Stock options exercised;
−Removed: net of shares surrendered for cashless exercises
+Added: Stock options exercised, net of shares surrendered for cashless exercises
Restricted stock granted
13 unchanged sentences
Adjustments to reconcile net income to net cash provided by operating activities:
−Removed: (Gain) loss on sales of securities
−Removed: (Gain) loss on disposal of fixed assets
+Added: Gain on sales of securities
+Added: Loss (gain) on disposal of fixed assets
Gain on sale of foreclosed assets
1 unchanged sentence
Stock based compensation expense
−Removed: (Benefit) provision for loan and lease losses
+Added: Provision (benefit) for loan and lease losses
+Added: Provision for credit losses on held-to-maturity securities
Depreciation and amortization
1 unchanged sentence
Accretion of discounts for loans acquired and net deferred loan fees
−Removed: Increase in cash surrender value of life insurance policies
+Added: Decrease (increase) in cash surrender value of life insurance policies
Amortization of core deposit intangible
−Removed: Decrease (increase) in interest receivable and other assets
+Added: (Increase) decrease in interest receivable and other assets
Increase (decrease) in other liabilities
−Removed: Deferred income tax provision (benefit)
−Removed: Increase in equity securities
+Added: Deferred income tax (benefit) provision
+Added: Decrease (increase) in equity securities
Net amortization of partnership investment
13 unchanged sentences
Proceeds from BOLI death benefit
+Added: Amortization of debt issuance costs
Net increase in partnership investment
−Removed: Net cash provided by (used in) investing activities
+Added: Net cash (used in) provided by investing activities
Cash flows from financing activities:
Increase in deposits
−Removed: (Decrease) increase in borrowed funds
+Added: Increase (decrease) in borrowed funds
Increase in repurchase agreements
−Removed: (Decrease) increase in fed funds purchased
+Added: Increase (decrease) in fed funds purchased
Cash dividends paid
3 unchanged sentences
Net cash provided by financing activities
−Removed: Increase (decrease) in cash and due from banks
+Added: (Decrease) increase in cash and due from banks
Cash and cash equivalents, beginning of year
8 unchanged sentences
Real estate acquired through foreclosure
−Removed: Change in unrealized net (losses) gains on securities available-for-sale
−Removed: Operating right-of-use asset pursuant to adoption of ASU 2016-02
−Removed: Operating lease liability pursuant to adoption of ASU 2016-02
+Added: Change in unrealized net (losses) gains on investment securities
The accompanying notes are an integral part of these consolidated financial statements.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE BUSINESS OF SIERRA BANCORP
1 unchanged sentence
The Company was incorporated in November 2000 and acquired all of the outstanding shares of Bank of the Sierra (the “Bank”) in August 2001.
−Removed: 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.
+Added: The Company’s principal subsidiary is the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and its subsidiaries, two special purpose entities organized to facilitate repossessed assets, and of such other subsidiaries it may acquire or establish.
The Company’s only other direct subsidiaries are Sierra Statutory Trust II, Sierra Capital Trust III and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities.
−Removed: 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.
+Added: At December 31, 2022, the Bank operated 35 full service branch offices, an online branch and provides specialized lending services through a dedicated agricultural credit office, an SBA division, Mortgage Warehouse lending divisions and a dedicated loan production office in Roseville, California and an agricultural production office in Templeton, California.
The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits.
16 unchanged sentences
These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.
−Removed: 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.
−Removed: 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.
+Added: Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for credit losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.
+Added: In connection with the determination of the allowances for credit losses and other real estate, management obtains independent appraisals for significant properties, evaluates the overall loan portfolio characteristics and delinquencies and monitors economic conditions.
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.
−Removed: Net cash flows are reported for customer
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: loan and deposit transactions, interest bearing deposits in other financial institutions, and fed funds purchased and repurchase agreements.
+Added: Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and fed funds purchased and repurchase agreements.
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.
1 unchanged sentence
Equity securities with readily determinable fair values are classified as available for sale.
−Removed: Debt securities available for sale are carried at fair value with unrealized holding gains and losses reported in other comprehensive income, net of tax.
+Added: Debt securities classified as available for sale are carried at fair value with unrealized holding gains and losses reported in other comprehensive income, net of tax.
+Added: Securities designated as held-to-maturity, are carried at the amortized cost basis of the securities in question, which includes purchase premium or discount in addition to any unamortized premium or discount representing the unrealized gain or loss on any individual security at the time it was transferred from the available for sale designation.
+Added: Notably, the Company has elected the practical expedient under GAAP to exclude accrued interest from the amortized-cost-basis of held-to-maturity securities and does not evaluate accrued interest receivable for an allowance for credit losses because any past due interest receivable on its held-to-maturity portfolio is reversed from income timely.
+Added: Accrued interest on held-to-maturity securities and available-for-sale securities continues to be included in other assets on the Company’s balance sheet and measured $ 2.7 million and $ 9.3 million, respectively, as of December 31, 2022.
Interest income includes amortization of purchase premium or discount.
3 unchanged sentences
All transfers between categories are accounted for at fair value.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: For debt securities that do not meet the aforementioned criteria, the amount of the impairment is split into two components as follows:
−Removed: 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.
−Removed: 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.
+Added: For available-for-sale debt securities in an unrealized loss position for which management has an intent to sell the security or considers it more likely-than-not that the security in question will be sold prior to a recovery of its amortized cost basis, the security will be written down to fair value through a direct charge to income.
+Added: For the remainder of available sale debt securities in an unrealized loss position, which don’t meet the previously outlined criteria, management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors.
+Added: In performing this evaluation, management considers the extent which fair value has fallen below amortized cost, changes in ratings by rating agencies, and other information indicating a deterioration in repayment capacity of either the underlying issuer or the borrowers providing repayment capacity in a securitization.
+Added: If management’s evaluation indicates that a credit loss exists then a present value of the expected cash flows is calculated and compared to the amortized cost basis of the security in question and to the degree that the amortized cost basis exceeds the present value an allowance for credit loss (“ACL”) is established, with the caveat that the maximum amount of the reserve on any individual security is the difference between the fair value and amortized cost balance of the security in question.
+Added: Any unrealized loss that has not been recorded through an ACL is recognized in other comprehensive income.
+Added: At December 31, 2022, the Company had no recorded Allowance for Credit Losses on its securities designated as available-for-sale.
+Added: Under CECL, held-to-maturity debt securities are evaluated for reserves in the same manner as loans.
+Added: On April 1, 2022, the Company transferred $ 162.1 million of Agency, Mortgaged-Backed and Municipal securities from available-for-sale to held-to maturity.
+Added: On October 1, 2022, a similar transfer of $ 198.3 million securities from available for sale to held-to-maturity was completed.
+Added: The securities were transferred at their fair value as of the transfer date, with the related unrealized gain or loss as of the date of transfer included in the amortized cost basis of the transferred security and subject to amortization or accretion over each security’s remaining life.
+Added: An unrealized loss of $ 30.7 million, on securities transferred from the available-for-sale to held-to-maturity categorization, remains as of December 31, 2022 and is included in accumulated other comprehensive income, net of tax.
+Added: The remaining unrealized loss on the securities transferred from available-for-sale to held-to-maturity, will be accreted over the remaining term of the securities, with the amortized-cost basis of these securities and accumulated comprehensive income each increasing over time.
+Added: Because of the implicit and explicit guarantees of the Federal Government on the Agency and Mortgage-Backed securities there is no expectation of future losses on any of these securities and no allowance for credit losses has been established for these securities.
+Added: The Bank’s municipal bonds moved to the held-to-maturity designation all have credit ratings considered investment grade or equivalent.
+Added: A discounted-cash-flow
+Added: reserve calculation was performed upon the transfer of these securities into the held-to-maturity designation and is updated on a quarterly basis.
+Added: As of December 31, 2022, an allowance for credit losses of $ 0.06 million had been established on the Bank’s held-to-maturity portfolio and charged to provision expense during the year ended December 31, 2022.
+Added: The company did not have any securities classified as held-to-maturity as of December 31, 2021.
FHLB Stock and Other Investments
7 unchanged sentences
Equity securities primarily consist of an investment in Pacific Coast Bankers’ Bank (“PCBB”).
−Removed: 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.
+Added: A remeasurement (loss) gain of $( 0.3 ) million, $ 0.9 million and $ 0.4 million was recorded to income during the years ended December 31, 2022, 2021 and 2020, on PCBB stock.
$ 2.4 million in cumulative remeasurement gains have been recorded as of December 31, 2022, on PCBB stock.
Adjustments to the carrying value of PCBB stock were based on a third-party valuation.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loans Held for Sale
13 unchanged sentences
Loans and Leases (Financing Receivables)
−Removed: Our credit quality classifications of Loans and Leases include Pass, Special Mention, Substandard and Impaired.
+Added: Our credit quality classifications of Loans and Leases include Pass, Special Mention and Substandard.
These classifications are defined in Note 4 to the consolidated financial statements.
−Removed: 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.
+Added: Loans and leases are reported on the amortized cost basis.
+Added: The amortized cost basis of the Company’s loans is comprised of the principal balance outstanding, net of remaining deferred loan fees and costs, purchase premiums and discounts, and also net of any write-downs.
+Added: Notably, the Company elected the practical expedient available
+Added: under CECL to exclude accrued interest receivable from the amortized cost basis of all categorizations of loans and resultingly did not estimate reserves on accrued interest receivable balances, as any past due interest income is reversed on a timely basis.
+Added: Accrued interest receivable on the Company’s Loans and Leases continues to be included in other assets on the Company’s balance sheet and as of December 31, 2022, measured $ 6.4 million.
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.
−Removed: 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.
+Added: Interest income for all performing loans, regardless of classification (Pass, Special Mention, Substandard), is recognized on an accrual basis, with interest accrued daily.
Costs associated with successful loan originations are netted from loan origination fees, with the net amount (net deferred loan fees) amortized over the contractual life of the loan in interest income.
5 unchanged sentences
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.
−Removed: When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: income in the period in which the loan’s status changed.
+Added: When a loan is placed on nonaccrual status, any accrued but uncollected interest for the loan is reversed out of interest income in the period in which the loan’s status changed.
For loans with an interest reserve, i.e., where loan proceeds are advanced to the borrower to make interest payments, all interest recognized from the inception of the loan is reversed when the loan is placed on non-accrual.
1 unchanged sentence
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.
+Added: Due to loans being placed on nonaccrual status, $ 0.1 million of interest receivable on loans was reversed from interest income for the year ended December 31, 2022.
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.
−Removed: Purchased Credit Impaired Loans
−Removed: The Company purchases individual loans and groups of loans, some of which may show evidence of credit deterioration since origination.
−Removed: 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.
−Removed: After acquisition, additional deterioration in credit is recognized by an increase in the allowance for loan and lease losses.
−Removed: Such PCI loans are accounted for individually or aggregated into pools of loans based on common risk characteristics.
−Removed: 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).
−Removed: The excess of the loan’s or pool’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).
−Removed: Over the life of the loan or pool, expected cash flows continue to be estimated.
−Removed: 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.
−Removed: If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income
−Removed: Loans Modified in a Troubled Debt Restructuring
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.
−Removed: 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.
−Removed: Allowance for Loan and Lease Losses
−Removed: 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.
−Removed: The allowance for loan and lease losses is
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: increased by a provision for loan and lease losses, which is charged to expense, and by principal recovered on charged-off balances.
+Added: Purchased Credit Deteriorated Loans
+Added: Under CECL the legacy GAAP for purchased credit impaired (“PCI”) loans has been replaced with rules relating to loans designated as purchased credit deteriorated (“PCD”).
+Added: PCD loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination.
+Added: Due to the immaterial balance in the Company’s PCI loans as of December 31, 2021, management elected not to transition these loans into the PCD designation.
+Added: As of December 31, 2022 the Company had no loans categorized as PCD.
+Added: Loans designated as PCD upon acquisition or purchase, most commonly resulting from a business combination, have the credit portion of any fair value discount established as an ACL in the fair value of “Day One” accounting for the business combination.
+Added: Any interest rate-related fair value adjustment on loans designated as PCD is recorded in the day one accounting and accreted or amortized over the loan’s expected life.
+Added: Loans not designated as PCD have a separate ACL, in addition to a credit related fair value adjustment recorded on day-one, recorded subsequent to the business combination accounting and established through provision expense.
+Added: This difference in accounting between loans designated as PCD and non-PCD is commonly referred to as the “CECL double count”.
+Added: The FASB is currently in initial deliberations to modify the accounting for acquired loans and leases and is expected to bring the accounting for loans designated as PCD and non-PCD into closer alignment.
+Added: Allowance for Credit Losses - Loans and Leases
+Added: The Allowance for Credit Losses (“ACL”) on the loan portfolio is a valuation allowance deducted from the recorded balance in loans and leases.
+Added: The ACL represents principal which is not expected to be collected over the contractual life of the loans, adjusted for expected prepayment, whereas under legacy GAAP the allowance represented only losses already incurred as of the balance sheet date.
+Added: The ACL is increased by a provision for credit losses charged to expense, and by principal recovered on charged-off balances.
It is reduced by principal charge-offs.
−Removed: 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.
−Removed: This evaluation also considers the balance of impaired loans and leases.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: Qualitative factors include consideration of the following:
−Removed: changes in lending policies and procedures;
−Removed: changes in international, national, regional, and local economic and business conditions and developments;
−Removed: changes in the nature and volume of the portfolio;
−Removed: changes in the experience, ability and depth of lending management and staff;
−Removed: changes in the volume and severity of past due, nonaccrual and other adversely graded loans;
−Removed: changes in quality of the loan review system;
−Removed: changes in the value of the underlying collateral for collateral-dependent loans;
−Removed: concentrations of credit;
−Removed: and the effect of the other external factors such as competition and legal and regulatory requirements.
+Added: The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, using information from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.
+Added: Adjustments are also made for changes in risk profile, credit concentrations, historical trends, and other economic conditions.
+Added: The ACL for loans and leases is separated between a collective reserve evaluation, for loans where similar risk characteristics exist and an individual reserve evaluation for loans without similar risk characteristics.
+Added: The collective evaluation of loans is performed at the portfolio segment level, using call code as the primary segmentation key but also considering similarity in quantitative reserve methodology.
+Added: The Company’s ACL is categorized according to the following portfolio segments:
+Added: 1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse, and Consumer.
+Added: Management utilizes a discounted cash flow methodology to estimate the quantitative portion of collectively evaluated reserves for the 1-4 Family Real Estate, Commercial Real Estate, Commercial & Industrial and Mortgage Warehouse portfolio segments.
+Added: Management utilizes a Remaining Life Quantitative Reserve Methodology for the Farmland & Agricultural Production, and Consumer portfolio segments.
+Added: Within the portfolio segments utilizing the DCF quantitative reserve methodology, management has made the election to adjust the effective interest rate to consider the impact of expected prepayments.
+Added: Loans where similar risk characteristics exist are evaluated for the ACL in the collective reserve evaluation.
+Added: The Company’s policy is that loans designated as nonaccrual no longer share risk characteristics similar to other loans evaluated collectively and as such, all nonaccrual loans are individually evaluated for reserves.
+Added: As of December 31, 2022, the Bank’s nonaccrual loans comprised the entire population of loans individually evaluated.
+Added: The Company’s policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loan should be categorized as collateral dependent.
+Added: It is the Company’s policy that the only loans and leases where the credit quality has deteriorated to the point where foreclosure is probable are the Company’s nonaccrual loans.
Most of the Company’s business activity is with customers located in California within the Southern Central San Joaquin Valley;
1 unchanged sentence
Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in those regions.
−Removed: The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for loan and lease losses.
−Removed: Portfolio segments identified by the Company include Agricultural, Commercial and Industrial, Real Estate, Small Business Administration, and Consumer loans.
−Removed: Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans;
−Removed: and credit scores, debt-to-income ratios, collateral type and loan-to-value ratios for consumer loans.
−Removed: Though management believes the allowance for loan and lease losses to be adequate, ultimate losses may vary from their estimates.
+Added: The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for credit.
+Added: Though management believes the allowance for credit losses to be adequate, ultimate losses may vary from their estimates.
However, estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings during the periods they become known.
−Removed: 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.
−Removed: 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.
−Removed: Reserve for Off-Balance Sheet Commitments
−Removed: 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.
−Removed: Because the available funds have not yet been disbursed on these commitments the estimated losses are not included in the calculation of the ALLL.
−Removed: The reserve for off-balance sheet commitments is an estimated loss contingency which is included in
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: other liabilities on the Consolidated Balance Sheets.
−Removed: The adjustments to the reserve for off-balance sheet commitments are reported within noninterest expense.
−Removed: 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.
+Added: In addition, the FDIC and the California Department of Financial Protection and Innovation, as an integral part of their examination processes, review the allowance for credit losses.
+Added: These agencies may require additions to the allowance for credit losses based on their judgment about information available at the time of their examinations.
+Added: Allowance for Credit Losses - Off-Balance Sheet Commitments
+Added: In addition to the exposure to credit loss from outstanding loans, the Company is also exposed to credit loss from certain off-balance sheet commitments such as unused commitments from revolving lines of credit, certain mortgage warehouse lines of credit, construction loans and commercial and standby letters of credit.
+Added: Because the available funds have not yet been disbursed on these commitments the estimated losses are not included in the calculation of the allowance for credit losses on the loan portfolio.
+Added: The implementation of CECL also impacted the Company’s ACL on unfunded loan commitments, as this ACL now represents expected credit losses over the contractual life of
+Added: commitments not identified as unconditionally cancellable by the Company.
+Added: The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment.
+Added: The funding rate represents management’s estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data.
+Added: Under CECL the ACL on unfunded loan commitments remains in Other Liabilities while any related provision expense has been moved to provision for credit loss expense from its prior presentation in noninterest expense.
+Added: Prior period expense have not been reclassified for comparative purposes.
Premises and Equipment
10 unchanged sentences
Foreclosed assets include real estate and other property acquired in full or partial settlement of loan obligations.
−Removed: 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.
+Added: Upon acquisition, any excess of the recorded investment in the loan balance over the appraised fair market value, net of estimated selling costs, is charged against the allowance for credit losses on loans and leases.
A valuation allowance for losses on foreclosed assets is maintained to provide for subsequent declines in value.
2 unchanged sentences
Operating costs after acquisition are expensed.
−Removed: The Company had one foreclosed residential real estate property recorded at December 31, 2021, as a result of obtaining physical possession of the property.
−Removed: 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.
+Added: The Company had no foreclosed residential real estate properties recorded at December 31, 2022.
+Added: At December 31, 2022, there were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceeds were in process.
Goodwill and Other Intangible Assets
5 unchanged sentences
There was no impairment recognized for the years ended December 31, 2022, 2021, and 2020.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.
−Removed: 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.
−Removed: 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 .
+Added: The Company’s other intangible assets consist solely of core deposit intangible assets (CDI’s) arising from the acquisitions of Santa Clara Valley Bank, Coast National Bank, Ojai Community Bank, the Woodlake Branch of
+Added: Citizen’s Business Bank and the Lompoc branch of Santa Maria Community Bank.
+Added: All of the CDI’s are being amortized on a straight-line basis over eight years .
Loan Commitments and Related Financial Instruments
20 unchanged sentences
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.
−Removed: Comprehensive income is a more inclusive financial
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: reporting methodology that includes disclosure of other comprehensive income that historically has not been recognized in the calculation of net income.
+Added: Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income that historically has not been recognized in the calculation of net income.
Unrealized gains and losses on the Company’s available for sale securities, net of tax, are included in other comprehensive income after adjusting for the effects of realized gains and losses.
1 unchanged sentence
Stock-Based Compensation
−Removed: 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.
+Added: At December 31, 2022, 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
+Added: 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.
10 unchanged sentences
Treasury yield curve in effect at the time of the grant.
−Removed: The fair value of each stock option is estimated on the date of grant using the following assumptions:
+Added: No stock options were granted during the years ended December 31, 2022 and 2021.
+Added: For the year ended 2020 the fair value of each stock option was estimated on the date of grant using the following assumptions:
dividend yield, 3.02 %;
1 unchanged sentence
risk-free interest rate, 1.47 %;
−Removed: Expected option life
−Removed: No stock options were granted during the year ended December 31, 2021.
+Added: expected option life, 6.4 years.
Revenue Recognition
5 unchanged sentences
Service Charges on Deposit Accounts comprise charges on retail and business accounts.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business customers can earn credits depending on account type and deposit balances maintained with the Company, which may be used to offset fees.
6 unchanged sentences
Measurement of Credit Losses on Financial Instruments, which eliminates the probable initial recognition threshold for credit losses in current U.S.
−Removed: 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.
−Removed: This is commonly referred to as the current expected credit losses (“CECL”) methodology.
−Removed: 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.
−Removed: Another change from existing U.S.
−Removed: GAAP involves the treatment of purchased credit deteriorated assets, which are more broadly defined than purchased credit impaired assets in current accounting standards.
−Removed: 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.
−Removed: 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.
−Removed: ASU 2016-13 will also require the enhancement of financial statement disclosures regarding estimates used in calculating credit losses.
−Removed: ASU 2016-13 does not change the existing write-off principle in U.S.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The Company implemented CECL on January 1, 2022 .
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 1601 et seq.) terminates.
−Removed: 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.
−Removed: 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
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: who were current and otherwise not past due.
−Removed: 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.
−Removed: See Note 4 for further information on remaining non-TDR loan modifications.
−Removed: The Interagency Guidance and Section 4013 did not have a material impact on the Company’s financial statements.
−Removed: SECURITIES AVAILABLE-FOR-SALE
−Removed: The amortized cost and fair value of the securities available-for-sale are as follows (dollars in thousands):
+Added: GAAP, and instead requires an organization to record an estimate of expected credit losses over the contractual term for financial assets carried at amortized cost (generally loans and held-to-maturity investment securities) in addition to certain off balance-sheet credit exposure.
+Added: Under the current expected credit losses (“CECL”) methodology expected credit losses for financial assets are estimated over the contractual life of the financial asset, adjusted for expected prepayments, considering historical experience, current conditions, and reasonable and supportable forecasts.
+Added: Additionally, under CECL the accounting for credit losses on available-for-sale debt securities is addressed through an allowance for credit losses which is a change from legacy GAAP which previously required the direct write-down of securities through the other-than-temporary impairment approach.
+Added: The Company implemented CECL on January 1, 2022 , using the modified retrospective approach to estimate lifetime expected losses on financial assets measured at amortized cost in addition to certain off balance sheet credit exposures.
+Added: The January 1, 2022, increase in the Company’s allowance for credit losses, of $ 9.5 million on loans and leases and $ 0.9 million in off balance sheet credit exposures, net of the impact of deferred taxes, was reflected in a
+Added: transition adjustment of $ 7.3 million to retained earnings.
+Added: There was no cumulative effect adjustment related to our available-for-sale investment portfolio upon adoption and the company had no securities designated as held-to-maturity as of January 1, 2022.
+Added: Results for reporting periods beginning after December 31, 2021, are presented under CECL whereas prior comparative periods are presented under legacy GAAP.
+Added: The following table illustrates the impact of the adoption of CECL, and the transition away from the incurred loss method, on January 1, 2022 (dollars in thousands).
+Added: The impact to the Allowance for Credit losses (“ACL”) on the Loan Portfolio is broken out at the class level.
+Added: January 1, 2022
+Added: Reserves Under Incurred Loss
+Added: Reserves Under CECL
+Added: Transition Impact Gross
+Added: Impact of Deferred Taxes
+Added: Impact to Retained Earnings
+Added: 1-4 family residential construction
+Added: Other construction/land
+Added: 1-4 family - closed-end
+Added: Multi-family residential
+Added: Commercial real estate - owner occupied
+Added: Commercial real estate - non-owner occupied
+Added: Total real estate
+Added: Commercial and industrial
+Added: Mortgage warehouse lines
+Added: Consumer loans
+Added: Total Allowance for Credit Losses - Loans
+Added: Allowance for unfunded Loan Commitments
+Added: INVESTMENT SECURITIES
+Added: Pursuant to FASB’s guidance on accounting for debt securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity.
+Added: Held-to-maturity
+Added: securities are carried on the Company’s financial statements at their amortized cost, net of the allowance for credit losses.
+Added: The amortized cost and fair value of the securities available-for-sale and held-to-maturity are as follows (dollars in thousands):
December 31, 2022
+Added: Allowance for Credit Losses
+Added: Estimated Fair
+Added: Available-for-sale
government agencies
3 unchanged sentences
Collateralized loan obligations
−Removed: Total securities
+Added: Total available-for-sale securities
+Added: Estimated Fair
+Added: Allowance for Credit Losses
+Added: Held-to-maturity
+Added: government agencies
+Added: Mortgage-backed securities
+Added: State and political subdivisions
+Added: Total held-to-maturity securities
December 31, 2021
+Added: Allowance for Credit Losses
+Added: Available-for-sale
government agencies
1 unchanged sentence
State and political subdivisions
−Removed: Total securities
+Added: Corporate bonds
+Added: Collateralized loan obligations
+Added: Total available-for-sale securities
+Added: The Company did not record an ACL on the available-for-sale portfolio at December 31, 2022 or upon the implementation of CECL on January 1, 2022.
+Added: As of both dates the Company considers the unrealized loss across the classes of major security-type to be related to fluctuations in market conditions, primarily interest rates, and not reflective of a deterioration in credit value.
+Added: The Company maintains that it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both January 1, 2022 and December 31, 2022 that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.
+Added: The following bullets outline additional support for management’s conclusion that no amount of the unrealized loss of the securities in an unrealized loss position as of January 1, 2022 and December 31, 2022 was attributable to credit deterioration and a risk of loss, requiring an allowance for credit losses.
+Added: ● US Government Agencies are supported by the full faith and credit-worthiness of the U.S.
+Added: Federal Government and the management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either January 1, 2022 or December 31, 2022.
+Added: ● Mortgage-backed securities issued by government sponsored entities (“GSEs”) carry an implicit guarantee by the U.S.
+Added: Federal Government, as the GSEs can draw funds from the U.S.
+Added: Federal Government up to a limit, with an
+Added: implied ability to draw funds beyond the limit.
+Added: Management did not consider a default, much less a loss on these securities to be a reasonable possibility as of either January 1, 2022 or December 31, 2022.
+Added: ● Management routinely monitors third party credit grades of the municipal issuers in the Company’s state and political subdivisions portfolio and as of both January 1, 2022 and December 31, 2022 noted that all municipal securities in an unrealized loss position were either investment grade rated or guaranteed.
+Added: On a quarterly basis management receives financial information from a third-party service in order to monitor the underlying issuer’s financial stability.
+Added: In addition, management performs annual reviews of the underlying municipal issuers financial statements in order to evaluate stability and repayment capacity and has noted no concerns with any of the bonds in the Company’s State and Local portfolio.
+Added: As of both January 1, 2022 and December 31, 2022 management concluded that no allowance for credit losses was warranted on any of the Company’s municipal securities and the unrealized loss position of each of the securities reflected fluctuations in market conditions, primarily interest rates, since the time of purchase.
+Added: ● The Company has invested in corporate debt issuances of other financial institutions.
+Added: Various financial metrics of each of the issuing financial institutions are reviewed by management quarterly, these metrics include credit quality, reserve adequacy, profitability and capital.
+Added: Following review of the financial metrics available for each of the underlying institutions as of January 1, 2022 and December 31, 2022 management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rates, from the date of purchase, and were not reflective of any credit concerns with the issuing financial institution.
+Added: These bonds were subject to a credit review by the credit administration department prior to their purchase and are subject to ongoing quarterly reviews.
+Added: ● The Company has invested exclusively in AA and AAA tranches of various collateralized loan obligations, which are securitizations of commercial loans.
+Added: Each purchase is subject to a credit, concentration, and structure review by the credit administration department prior to their purchase and are subject to ongoing quarterly reviews.
+Added: Management monitors the credit rating of these investments on a quarterly basis in addition to various performance metrics available through a third-party informational service.
+Added: Following review of financial metrics as of both January 1, 2022 and December 31, 2022 management concluded that the unrealized loss position of these securities related exclusively to the fluctuation in market conditions, primarily interest rate spreads, from the date of purchase, and were not reflective of any credit concerns with the tranches comprising the Company’s investments.
For the years ended December 31, 2022, 2021, and 2020, proceeds from sales of securities available-for-sale were $ 45.9 million, $ 0.1 million, and $ 20.3 million, respectively.
8 unchanged sentences
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.
+Added: There were no securities sold during 2021 for which a loss was realized.
+Added: 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.
−Removed: During the year ended December 31, 2019 the Company realized gains through earnings from the sale and call of
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 74 debt securities for $ 0.2 million.
−Removed: 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.
−Removed: At December 31, 2021 and 2020, the Company had 99 and 2 securities with unrealized gross losses, respectively.
−Removed: 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):
+Added: The following table summarizes available-for-sale debt securities that were in an unrealized loss position for which an ACL has not been recorded, based on the length of time the individual securities have been in an unrealized loss position, including the number of available-for-sale debt securities in an unrealized loss position, as of the dates indicated below (dollars in thousands):
December 31, 2022
1 unchanged sentence
Twelve months or longer
+Added: Number of Securities
+Added: Available-for-sale
government agencies
3 unchanged sentences
Collateralized loan obligations
+Added: Total available-for-sale
December 31, 2021
1 unchanged sentence
Twelve months or longer
+Added: Number of Securities
+Added: Available-for-sale
government agencies
1 unchanged sentence
State and political subdivisions
−Removed: 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.
−Removed: This assessment was based on the following factors:
−Removed: 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.
−Removed: The amortized cost and estimated fair value of securities available-for-sale at December 31, 2021 by contractual maturity are shown below.
+Added: Corporate bonds
+Added: Collateralized loan obligations
+Added: Total available-for-sale
+Added: The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at December 31, 2022 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):
+Added: December 31, 2022
+Added: Available-for-Sale
+Added: Held-to-Maturity
Amortized Cost
+Added: Amortized Cost
Maturing within one year
5 unchanged sentences
Collateralized loan obligations
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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).
+Added: Securities with amortized costs totaling $ 186.7 million and carrying values totaling $ 183.5 million were pledged to secure other contractual obligations and short-term borrowing arrangements at December 31, 2022 (see Note 10).
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).
At December 31, 2022, the Company’s investment portfolio included securities issued by 406 different government municipalities and agencies located within 37 states with a fair value of $ 381.0 million.
−Removed: 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.
+Added: The largest exposure to any single municipality or agency was $ 5.1 million (fair value) in four general obligation bonds issued by the City of New York (NY).
+Added: In addition the Company owned 51 subordinated debentures issued by bank holding companies totaling $ 57.4 million (fair value).
The Company’s investments in bonds issued by 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.
15 unchanged sentences
Total obligations of states and political subdivisions
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
5 unchanged sentences
Revenue Source:
+Added: Local or guaranteed housing
Other (10 and 10 sources, respectively)
Total revenue bonds
−Removed: LOANS AND LEASES
−Removed: The composition of the loan and lease portfolio is as follows (dollars in thousands):
−Removed: Secured by commercial and professional office properties, including construction and development
−Removed: Secured by residential properties
−Removed: Secured by farmland
−Removed: Total real estate loans
−Removed: Commercial and industrial
−Removed: Mortgage warehouse lines
−Removed: Deferred loan and lease origination cost, net
−Removed: Allowance for loan and lease losses
−Removed: 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.
−Removed: Loans classified as “loss” are immediately charged-off.
−Removed: The Company uses the following definitions of risk classifications:
−Removed: 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.
−Removed: Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention.
−Removed: 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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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.
−Removed: 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.
−Removed: Additionally, all loans classified as troubled debt restructurings are considered impaired.
−Removed: Credit quality classifications as of December 31, 2021 were as follows (dollars in thousands):
−Removed: 1-4 family residential construction
−Removed: Other construction/land
−Removed: 1-4 family - closed-end
−Removed: Multi-family residential
−Removed: Commercial real estate owner occupied
−Removed: Commercial real estate non-owner occupied
−Removed: Total real estate
−Removed: Commercial and industrial
−Removed: Mortgage warehouse lines
−Removed: Consumer loans
−Removed: Total gross loans and leases
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Credit quality classifications as of December 31, 2020 were as follows (dollars in thousands):
+Added: LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES
+Added: We adopted the new current expected credit loss accounting guidance, CECL, and all related amendments as of January 1, 2022.
+Added: Certain prior period credit quality disclosures related to impaired loans and individually and collectively evaluated loans were superseded with the current guidance and have not been included below as of December 31, 2022.
+Added: Under CECL, disclosures are required on the amortized cost basis, whereas legacy GAAP required presentation on the recorded investment basis, with the primary difference being net deferred fees and costs.
+Added: Unless specifically noted otherwise, December 31, 2022 disclosures are prepared on the amortized cost basis and December 31, 2021 and 2020 disclosures present information according to the recorded investment basis.
+Added: Accrued interest receivable on loans of $ 6.4 million and $ 6.8 million at December 31, 2022 and December 31, 2021 respectively is not included in the loans included in the table below but is included in other assets on the Company’s balance sheet.
+Added: The December 31, 2022 balance in 1-4 family closed end loans reflects year-to-date 2022 loan purchases of $ 173.1 million.
+Added: The majority of the disclosures in this footnote are prepared at the class level which is equivalent to the call report or call code classification.
+Added: The final table in this section separates a roll forward of the Allowance for Credit Losses at the portfolio segment level.
+Added: The following table presents loans by class as of December 31, 2022 and December 31, 2021 (dollars in thousands).
1-4 family residential construction
8 unchanged sentences
Consumer loans
−Removed: Total gross loans and leases
−Removed: Loans may or may not be collateralized, and collection efforts are continuously pursued.
−Removed: 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.
−Removed: 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.
−Removed: 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):
−Removed: Commercial and
−Removed: Industrial (1)
−Removed: Allowance for credit losses:
−Removed: Balance, December 31, 2018
−Removed: Balance, December 31, 2019
−Removed: Balance, December 31, 2020
−Removed: Balance, December 31, 2021
−Removed: (1) Includes mortgage warehouse lines
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Loans evaluated for impairment:
−Removed: December 31, 2021
−Removed: December 31, 2020
−Removed: December 31, 2019
−Removed: Commercial and industrial (1)
−Removed: (1) Includes mortgage warehouse lines
−Removed: Reserves based on method of evaluation for impairment:
−Removed: December 31, 2021
−Removed: December 31, 2020
−Removed: December 31, 2019
−Removed: Commercial and industrial (1)
−Removed: Total loan loss reserves
−Removed: (1) Includes mortgage warehouse lines
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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):
−Removed: December 31, 2021
−Removed: Total Financing
−Removed: Total Past Due
−Removed: 1-4 family residential construction
−Removed: Other construction/land
−Removed: 1-4 family - closed-end
−Removed: Multi-family residential
−Removed: Commercial real estate owner occupied
−Removed: Commercial real estate non-owner occupied
−Removed: Total real estate loans
−Removed: Commercial and industrial
−Removed: Mortgage warehouse lines
−Removed: Consumer loans
−Removed: Total gross loans and leases
−Removed: (1) Included in Total Financing Receivables
−Removed: (2) As of December 31, 2021 there were no loans over 90 days past due and still accruing.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+Added: Less net deferred loan fees and costs
+Added: Allowance for credit losses on loans and leases
+Added: Net loans and leases
+Added: The following table presents the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of December 31, 2022 (dollars in thousands):
December 31, 2022
−Removed: Total Financing
−Removed: Total Past Due
+Added: Nonaccrual Loans
+Added: With no allowance for credit loss
+Added: With an allowance for credit loss
+Added: Loans Past Due 90+ Accruing
1-4 family residential construction
4 unchanged sentences
Commercial real estate - non-owner occupied
−Removed: Total real estate loans
+Added: Total real estate
Commercial and industrial
1 unchanged sentence
Consumer loans
−Removed: Total gross loans and leases
−Removed: (1) Included in Total Financing Receivables
−Removed: (2) As of December 31, 2020 there were no loans over 90 days past due and still accruing.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Individually impaired loans as of December 31, 2021, December 31, 2020 and December 31, 2019 were as follows (dollars in thousands):
+Added: The following table presents the impaired loans as of December 31, 2021, according to loan class, with and without an individually evaluated reserve according to the recorded investment basis (dollars in thousands).
+Added: Impaired loans as of December 31, 2021 included both nonaccrual loans and performing TDRs.
+Added: A separate breakout of nonaccrual loans by class as of December 31, 2021 is included in the past due loans table as of December 31, 2021, later in this footnote.
December 31, 2021
21 unchanged sentences
(3) Interest income is recognized on performing balances on a regular accrual basis.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+Added: The Company did not recognize any interest on nonaccrual loans during 2022 and would have recognized an additional $ 1.0 million in interest income on nonaccrual loans had those loans not been designated as nonaccrual.
+Added: The following table presents the amortized cost basis of collateral-dependent loans by class as of December 31, 2022 (dollars in thousands):
December 31, 2022
−Removed: Unpaid Principal
−Removed: Average Recorded
−Removed: Interest Income
−Removed: Investment (2)
−Removed: Related Allowance
−Removed: Recognized (3)
−Removed: With an Allowance Recorded
−Removed: Other construction/land
−Removed: 1-4 family - closed-end
−Removed: Multifamily residential
−Removed: Commercial real estate- owner occupied
−Removed: Total real estate
−Removed: Commercial and industrial
−Removed: Consumer loans
−Removed: With no Related Allowance Recorded
+Added: Amortized Cost
+Added: Individual Reserves
+Added: 1-4 family residential construction
Other construction/land
1-4 family - closed-end
+Added: Multi-family residential
Commercial real estate - owner occupied
2 unchanged sentences
Commercial and industrial
+Added: Mortgage warehouse lines
Consumer loans
−Removed: (1) Contractual principal balance due from customer.
−Removed: (2) Principal balance on Company’s books, less any direct charge offs.
−Removed: (3) Interest income is recognized on performing balances on a regular accrual basis.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+Added: During the fourth quarter the amortized cost balance of collateral-dependent loans declined by $ 7.2 million due to charge-offs recognized in the Farmland and Agricultural Production categories.
+Added: These charge-offs are primarily the result of a reduction in the expected valuation of collateral on a single loan relationship.
+Added: The weighted average loan-to-value ratio of collateral dependent loans was 67 % at December 31, 2022.
+Added: There were four collateral dependent loans in the process of foreclosure as of December 31, 2022.
+Added: The following table presents the aging of the amortized cost basis in past-due loans, according to class, as of December 31, 2022 (dollars in thousands):
December 31, 2022
−Removed: Unpaid Principal
−Removed: Average Recorded
−Removed: Interest Income
−Removed: Investment (2)
−Removed: Related Allowance
−Removed: Recognized (3)
−Removed: With an Allowance Recorded
−Removed: Other construction/land
−Removed: 1-4 family - closed-end
−Removed: Multifamily residential
−Removed: Commercial real estate- owner occupied
−Removed: Total real estate
−Removed: Commercial and industrial
−Removed: Consumer loans
−Removed: With no Related Allowance Recorded
+Added: 30-59 Days Past Due
+Added: 60-89 Days Past Due
+Added: Loans Past Due 90+ Days
+Added: Total Past Due
+Added: Loans not Past Due
+Added: 1-4 family residential construction
Other construction/land
1-4 family - closed-end
+Added: Multi-family residential
Commercial real estate - owner occupied
2 unchanged sentences
Commercial and industrial
+Added: Mortgage warehouse lines
Consumer loans
−Removed: (1) Contractual principal balance due from customer.
−Removed: (2) Principal balance on Company’s books, less any direct charge offs.
−Removed: (3) Interest income is recognized on performing balances on a regular accrual basis.
−Removed: Included in loans above are troubled debt restructurings that were classified as impaired.
−Removed: 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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: Additional commitments to existing customers with restructured loans totaled $ 0.04 million and $ 0.05 million at December 31, 2021 and 2020, respectively.
−Removed: 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.
−Removed: There was no interest income recognized on a cash basis on impaired loans for the years ended December 31, 2021, 2020, and 2019, respectively.
−Removed: 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):
−Removed: Years Ended December 31,
−Removed: Non-accrual loans
−Removed: Interest that would have been recorded under the loans’ original terms
−Removed: Less gross interest recorded
−Removed: Foregone interest
−Removed: Certain loans have been pledged to secure short-term borrowing arrangements (see Note 10).
−Removed: These loans totaled $ 808.8 million and $ 1.1 billion at December 31, 2021 and 2020, respectively.
−Removed: 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.
−Removed: During the periods ended December 31, 2021 and 2020, the terms of certain loans were modified as troubled debt restructurings.
−Removed: 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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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):
+Added: Total loans and leases
+Added: The following table presents the aging of the recorded investment in past-due and nonaccrual loans, according to class, as of December 31, 2021 (dollars in thousands):
December 31, 2021
−Removed: Interest Only
−Removed: Term & Interest
−Removed: Troubled debt restructurings
+Added: Total Financing
+Added: Total Past Due
1-4 family residential construction
6 unchanged sentences
Commercial and industrial
+Added: Mortgage warehouse lines
Consumer loans
−Removed: Small Business Administration Loans
+Added: Total gross loans and leases
+Added: (1) Included in Total Financing Receivables
+Added: (2) As of December 31, 2021 there were no loans over 90 days past due and still accruing.
+Added: Troubled Debt Restructurings
+Added: A loan that is modified for a borrower who is experiencing financial difficulty is classified as a troubled debt restructuring (TDR) if the modification constitutes a concession.
+Added: At December 31, 2022, the Company had a total of $ 4.9 million in TDRs, including $ 0.3 million in TDRs that were on non-accrual status.
+Added: Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of at least six months to demonstrate
+Added: the borrower’s ability to comply with the modified terms.
+Added: However, performance prior to the modification, or significant events that coincide with the modification, could result in a loan’s return to accrual status after a shorter performance period or even at the time of loan modification.
+Added: Regardless of the period of time that has elapsed, if the borrower’s ability to meet the revised payment schedule is uncertain, then the loan will be kept on non-accrual status.
+Added: The Company may agree to different types of concessions when modifying a loan or lease.
+Added: For the year ended December 31, 2022, there were no new TDRs and no modifications of existing TDRs.
+Added: The tables below summarize TDRs which were modified during the years ended December 31, 2021 and December 31, 2020, by type of concession.
+Added: Troubled Debt Restructurings, by Type of Loan Modification
+Added: ( dollars in thousands, unaudited)
December 31, 2021
10 unchanged sentences
Consumer loans
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+Added: Small Business Administration Loans
December 31, 2020
10 unchanged sentences
Consumer loans
−Removed: 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):
+Added: Troubled Debt Restructurings
+Added: (dollars in thousands, unaudited)
Pre-Modification
2 unchanged sentences
Difference (1)
−Removed: 1-4 family residential construction
Other construction/land
6 unchanged sentences
Consumer loans
−Removed: Small Business Administration Loans
−Removed: (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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+Added: (1) This represents the change in the ACL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.
Pre-Modification
10 unchanged sentences
Consumer loans
−Removed: (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.
−Removed: Pre-Modification
−Removed: Post-Modification
−Removed: December 31, 2019
−Removed: Difference (1)
+Added: (1) This represents the change in the ACL reserve for these credits measured as the difference between the specific post-modification impairment reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.
+Added: The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during years ending December 31, 2022, 2021 and 2020.
+Added: The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention and substandard to characterize and qualify the associated credit risk.
+Added: Loans classified as “loss” are immediately charged-off.
+Added: The Company uses the following definitions of risk classifications:
+Added: 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.
+Added: Special Mention – Loans classified as special mention have the potential weakness that deserves management’s close attention.
+Added: 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.
+Added: 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.
+Added: The following tables present the amortized cost of loans and leases by credit quality classification in addition to loan and lease vintage as of December 31, 2022 (dollars in thousands):
+Added: Term Loans Amortized Cost Basis by Origination Year
+Added: Revolving Loans
Other construction/land
1-4 family - closed-end
+Added: Special Mention
+Added: Special Mention
Multi-family residential
+Added: Special Mention
+Added: Commercial real estate - OO
+Added: Special Mention
+Added: Commercial real estate - NOO
+Added: Special Mention
+Added: Special Mention
+Added: Special Mention
+Added: Commercial and industrial
+Added: Special Mention
+Added: Mortgage warehouse lines
+Added: Consumer loans
+Added: Special Mention
+Added: The following table presents the Company’s loan portfolio on the recorded investment basis, according to loan class and credit grade as of December 31, 2021 (dollars in thousands):
+Added: 1-4 family residential construction
+Added: Other construction/land
+Added: 1-4 family - closed-end
+Added: Multi-family residential
Commercial real estate owner occupied
Commercial real estate non-owner occupied
−Removed: Total real estate loans
+Added: Total real estate
Commercial and industrial
+Added: Mortgage warehouse lines
Consumer loans
−Removed: (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.
−Removed: 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.
−Removed: The total allowance for loan and lease
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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.
−Removed: Purchased Credit Impaired Loans
−Removed: 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.
−Removed: The carrying amount and unpaid principal balance of those loans are as follows (dollars in thousands):
−Removed: December 31, 2021
−Removed: Unpaid Principal Balance
−Removed: Carrying Value
−Removed: Real estate secured
−Removed: Total purchased credit impaired loans
−Removed: December 31, 2020
−Removed: Unpaid Principal Balance
−Removed: Carrying Value
−Removed: Real estate secured
−Removed: Total purchased credit impaired loans
−Removed: 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.
−Removed: There is no accretable yield, or income expected to be collected on these purchased credit impaired loans.
−Removed: During the years ended December 31, 2021 and 2020, there were no purchased credit impaired loans acquired.
+Added: Total gross loans and leases
+Added: CECL replaces the legacy accounting for loans designated as purchased credit impaired (“PCI”) with loans designated as purchased credit deteriorated (“PCD”).
+Added: PCD loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination.
+Added: Due to the immaterial balance in the Company’s PCI loans as of December 31, 2021 management elected not to transition these loans into the PCD designation.
+Added: As of December 31, 2022 the Company had no loans categorized as PCD.
+Added: As noted in footnote 2, on January 1, 2022 the Company implemented CECL and increased our ACL, previously the allowance for loan and lease losses, with a $ 9.5 million cumulative adjustment.
+Added: The Company’s ACL is calculated quarterly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses.
+Added: Management calculates the quantitative portion of collectively evaluated reserves for all loan categories, with the exception of Farmland, Agricultural Production and Consumer loans, using a discounted cash flow (“DCF”) methodology.
+Added: For purposes of calculating the quantitative portion of collectively evaluated reserves on Farmland, Agricultural Production, and Consumer categories a Remaining Life methodology is utilized.
+Added: For purposes of estimating the Company’s ACL, Management generally evaluates collectively evaluated loans by Federal Call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.
+Added: The DCF quantitative reserve methodology incorporates the consideration of probability of default (“PD”) and loss given default (“LGD”) estimates to estimate periodic losses.
+Added: The PD estimates are derived through the application of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data.
+Added: The loss rate data has been regressed against benchmark economic indicators, for which reasonable and supportable forecasts exist, in the development of the call-code specific regression models.
+Added: Regression models are generally refreshed on an annual basis, in order to pull in more recent loss rate data.
+Added: Reasonable and supportable forecasts of the selected economic metric are then input into the regression model to calculate an expected default rate.
+Added: The expected default rates are then applied to expected monthly loan balances estimated through the consideration of contractual repayment terms and expected prepayments.
+Added: The Company utilizes a four-quarter forecast period, after which the expected default rates revert to the historical average for each call code, over a four-quarter reversion period, on a straight-line basis.
+Added: prepayment assumptions applied to expected cash flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and the consideration of current and expected conditions and circumstances including the level of interest rates.
+Added: The prepayment assumptions may be updated by Management in the event that changing conditions impact Management’s estimate or additional historical data gathered has resulted in the need for a reevaluation.
+Added: LGD utilized in the DCF is derived from the application of the Frye-Jacobs theory which relates LGD to PD based on historical peer data, as calculated by a third-party.
+Added: Economic forecasts are considered over a four-quarter forecast period, with reversion to mean occurring on a straight-line basis over four quarters.
+Added: The call code regression models utilized upon implementation of CECL on January 1, 2022, and as of December 31, 2022, were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate.
+Added: Management selected the National Unemployment Rate as the driver of quantitative portion of collectively reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly FOMC forecast, and given the widespread familiarity of stakeholders with this economic metric.
+Added: The quantitative reserves for Farmland, Agricultural Production and Consumer loans are calculated using a Remaining Life methodology where average historical bank specific and peer loss rates are applied to expected loan balances over an estimated remaining life of loans in calculation of the quantitative portion of collectively evaluated loans in these classes.
+Added: The estimated remaining life is calculated using historical bank-specific loan attrition data.
+Added: For the Farmland, Agricultural Production and Consumer classes of loans, reasonable and supportable forecasts of the National Unemployment rate, real GDP and the housing price index are considered through estimation of qualitative reserves.
+Added: Management recognizes that there are additional factors impacting risk of loss in the loan portfolio beyond what is captured in the quantitative portion of reserves on collectively evaluated loans.
+Added: As current and expected conditions, may vary compared with conditions over the historical lookback period, which is utilized in the calculation of quantitative reserves, management considers whether additional or reduced reserve levels on collectively evaluated loans may be warranted given the consideration of a variety of qualitative factors.
+Added: Several of the following qualitative factors (“Q-factors”) considered by management reflect the legacy regulatory guidance on Q-factors, whereas several others represent factors unique to the Company or unique to the current time period.
+Added: ● Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices
+Added: ● Changes in international, regional and local economic and business conditions, and developments that affect the collectability of the portfolio, as reflected in forecasts of the Housing Price Index, Real GDP and the National Unemployment Rate (Farmland & Agricultural Production and Consumer segments only)
+Added: ● Changes in the nature and volume of the loan portfolio
+Added: ● Changes in the experience, ability, and depth of lending management and other relevant staff
+Added: ● Changes in the volume and severity of past due, non-accruals loans, and adversely classified loans, as reflected in changes of the relative level of loans classified as substandard and special mention
+Added: ● Changes in the quality of the Bank’s loan review processes
+Added: ● Changes in the value of underlying collateral for loans not identified as collateral dependent
+Added: ● Changes in loan categorization concentrations
+Added: ● Other external factors, which include, the influence of peer data on estimated quantitative reserves, residual COVID-19 related risk, expected impact of current and expected inflationary environment, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of current and expected geo-political conditions
+Added: The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and management judgement, to determine risk categorizations in each of the Q-factors presented above.
+Added: The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan-equivalent, loss rate ranges and the relative weighting of Q-factors according to management’s judgement.
+Added: Although collectively evaluated reserves are generally calculated separately at the call code or loan class level, management has grouped loan classes with similar risk characteristics into the following portfolio segments:
+Added: 1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse and Consumer loans.
+Added: Loans secured by 1-4 family residences have a different profile from loans secured by Commercial Real Estate.
+Added: Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for Commercial Real Estate are often businesses.
+Added: The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic.
+Added: Farmland and Agricultural Production loans are included in a single segment as these loans are often times to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions in addition to other environmental concerns.
+Added: Commercial & Industrial loans are separated into a unique segment given the uniqueness of these loans, which are often revolving and secured by other business assets as opposed to real estate.
+Added: Mortgage warehouse loans are also unique in the Company’s portfolio and warrant separate presentation as an individual portfolio segment, given the specific nature of these constantly revolving lines to mortgage originators and also attributable to a very limited loss history, even after consideration of peer data.
+Added: Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans.
+Added: Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves.
+Added: As of December 31, 2022, the only loans that Management considered to have different risk characteristics from other loans sharing the same Federal Call Report code were loans designated nonaccrual.
+Added: The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2022 (dollars in thousands):
+Added: 1-4 Family Real Estate
+Added: Commercial Real Estate
+Added: Farmland & Agricultural Production
+Added: Commercial & Industrial
+Added: Mortgage Warehouse
+Added: Allowance for credit losses:
+Added: Balance, December 31, 2021
+Added: Impact of adopting ASC 326
+Added: Provision for credit losses
+Added: Balance, December 31, 2022
+Added: The $ 9.2 million in charge-offs recognized in the Farmland and Agricultural Production portfolio segment is primarily the result of a reduction in the expected valuation of collateral on a single loan relationship, recorded in the first and fourth quarters of 2022.
+Added: The $ 1.9 million charge-off in Commercial Real Estate was recognized during the second quarter, when Management became aware of a borrower’s reduced ability to service their loan primarily as a result of increased vacancy rates related to the remote work which has increased following the pandemic.
+Added: The following table presents the activity in the allowance for loan and lease losses by portfolio segment for the years ended December 31, 2021 and 2020 (dollars in thousands):
+Added: Commercial and
+Added: Industrial (1)
+Added: Allowance for credit losses:
+Added: Balance, December 31, 2019
+Added: Balance, December 31, 2020
+Added: Balance, December 31, 2021
+Added: (1) Includes mortgage warehouse lines
PREMISES AND EQUIPMENT
3 unchanged sentences
Leasehold improvements
+Added: Total premises and equipment, gross
Less accumulated depreciation and amortization
+Added: Total premises and equipment, net
Depreciation and amortization included in occupancy and equipment expense totaled $ 2.4 million, $ 3.1 million, and $ 2.8 million, for the years ended December 31, 2022, 2021, and 2020, respectively.
OPERATING LEASES
−Removed: 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.
+Added: The Company leases space under non-cancelable operating leases for 18 branch locations, four off-site ATM locations, one administrative building, two loan production offices and a warehouse.
Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., 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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: recognized lease expense of $ 2.2 million for the years ended December 31, 2021, 2020 and 2019.
+Added: The Company recognized lease expense of $ 2.2 million for the years ended December 31, 2022, 2021 and 2020.
Most leases include one or more renewal options available to exercise.
10 unchanged sentences
There were no variable lease costs for the years ending December 31, 2022 and 2021.
−Removed: Cash paid on operating leases was $ 2.2 million for both years ending December 31, 2021 and 2020.
+Added: Cash paid on operating leases was $ 2.3 million and $ 2.2 million for the years ending December 31, 2022 and 2021, respectively.
Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2022 are as follows (dollars in thousands):
5 unchanged sentences
The renewal options range from one to ten years .
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GOODWILL AND INTANGIBLE ASSETS
16 unchanged sentences
Estimated amortization expense for each of the next five years and thereafter (dollars in thousands):
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other assets consisted of the following (dollars in thousands):
3 unchanged sentences
Investment in limited partnerships
+Added: Investment in SBA loan fund
Federal Home Loan Bank stock, at cost
10 unchanged sentences
Year Ending December 31,
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest expense recognized on interest-bearing deposits consisted of the following (dollars in thousands):
19 unchanged sentences
Short term borrowings
+Added: Included in short term borrowings was $ 94.0 million outstanding in fixed-rate overnight FHLB advances at December 31, 2022 and no balance outstanding at December 31, 2021.
Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances.
−Removed: The advances were collateralized by $ 808.8 million of first mortgage loans under a blanket lien arrangement at year end 2021.
+Added: The advances were collateralized by $ 1.3 billion of first
+Added: mortgage loans under a blanket lien arrangement at year end 2022.
Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow up to the total of $ 922.1 million at year-end 2022, with a remaining borrowing capacity of $ 661.0 million if sufficient additional collateral was pledged.
1 unchanged sentence
The Company was eligible to borrow up to $ 42.3 million from FRB at year end 2022, which was collateralized by $ 52.1 million in first mortgage loans under a blanket lien arrangement.
−Removed: 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.
−Removed: There was no balance outstanding under these lines of credit at December 31, 2021 and $ 100.0 million outstanding at December 31, 2020.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+Added: The Company had unsecured lines of credit with its correspondent banks which, in the aggregate, amounted to $ 362.0 million and $ 305.0 million at December 31, 2022 and 2021, respectively, at fixed interest rates which vary with market conditions.
+Added: Included in short term borrowings above there was $ 125.0 million outstanding overnight under these lines of credit at December 31, 2022 and no balance outstanding at December 31, 2021.
LONG-TERM DEBT
19 unchanged sentences
The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS II.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 .
18 unchanged sentences
The Company has guaranteed, on a subordinated basis, distributions and other payments due on the TRUPS IV.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes follows (dollars in thousands):
Year Ended December 31,
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
+Added: Total federal
+Added: Total tax provision
The components of the net deferred tax asset, included in other assets, are as follows (dollars in thousands):
Deferred tax assets:
−Removed: Allowance for loan and lease losses
+Added: Allowance for credit losses on loans and leases
Foreclosed assets
4 unchanged sentences
Loan fair value adjustment
−Removed: Capital losses carried forward
Net operating losses
State income tax deduction
+Added: Unrealized losses on securities available-for-sale
Total deferred tax assets
2 unchanged sentences
Right-of-use asset
+Added: TRUPS accretion
+Added: FMV equity securities
Premises and equipment
14 unchanged sentences
The Company is subject to federal income tax and income tax of various states.
−Removed: 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
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: state tax returns for the years ended December 31, 2017 , 2018, 2019 and 2020 are open to audit by the state authorities.
+Added: Our federal income tax returns for the years ended December 31, 2019 , 2020 and 2021 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2018 , 2019, 2020 and 2021 are open to audit by the state authorities.
The Company has net operating loss carry forwards of approximately $ 4.0 million for federal income and approximately $ 6.1 million for California franchise tax purposes.
18 unchanged sentences
The Company uses the same credit policies in making commitments and letters of credit as it does for loans included on the balance sheet.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):
10 unchanged sentences
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
−Removed: Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
+Added: Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash
+Added: requirements.
Commitments to extend credit are made at both fixed and variable rates of interest as stated in the table above.
15 unchanged sentences
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.
−Removed: Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to banking (including laws and regulations governing consumer protection,
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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.
+Added: Given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to banking (including laws and regulations governing consumer protection, 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).
16 unchanged sentences
Weighted average shares outstanding
−Removed: Effect of dilutive stock options
+Added: Effect of dilutive equity awards
Weighted average shares outstanding
Diluted earnings per share
−Removed: 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.
+Added: Stock options and unvested restricted stock awards for 293,586 , 337,004 , and 348,328 shares of common stock were not considered in computing diluted earnings per common share for 2022, 2021, and 2020, respectively, because they were antidilutive.
Stock Options
2 unchanged sentences
Options to purchase 135,449 shares that were granted under the 2007 Plan were still outstanding as of December 31, 2022, and remain unaffected by that plan’s expiration.
−Removed: The 2017 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: to non-employee directors and consultants of the Company.
+Added: The 2017 Plan provides for the issuance of both “incentive” and “nonqualified” stock options to officers and employees, and of “nonqualified” stock options to non-employee directors and consultants of the Company.
The 2017 Plan also provides for the issuance of restricted stock awards to these same classes of eligible participants.
24 unchanged sentences
$ 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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is using the Black-Scholes model to value stock options.
1 unchanged sentence
GAAP, charges of $ 0.1 million, $ 0.1 million, and $ 0.4 million are reflected in the Company’s income statements for the years ended December 31, 2022, 2021, and 2020, respectively, as pre-tax compensation and directors’ expense related to stock options.
−Removed: 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.
+Added: The related tax benefit of these options is $ 0.03 million for the years ended December 31, 2022 and 2021, and $ 0.1 million for the year ended December 31, 2020.
Unamortized compensation expense associated with unvested stock options outstanding at December 31, 2022 was $ 0.1 million, which will be recognized over a weighted average period of 2.0 years.
Restricted Stock Grants
−Removed: 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.
+Added: The Company’s restricted stock awards are non-transferrable shares of common stock and are available to be granted to the Company’s employees and directors.
The vesting period of restricted stock awards is determined at the time the awards are issued, and different awards may have different vesting terms;
3 unchanged sentences
These awards are expensed on a straight-line basis over the vesting period.
−Removed: 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.
−Removed: 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.
+Added: Compensation expense related to restricted stock units for the years ended December 31, 2022, 2021 and 2020 was $ 1.2 million, $ 0.9 million, and $ 0.2 million respectively, and the recognized income tax benefit related to this expense was $ 0.4 million, $ 0.3 million, and $ 0.1 million, respectively.
+Added: As of December 31, 2022, there was $ 2.9 million of unamortized compensation and directors’ cost related to unvested restricted stock awards
+Added: granted under the 2017 plan.
That cost is expected to be amortized over a weighted average period of 2.4 years.
−Removed: The total fair value of shares vested during the year ended December 31, 2021 was $ 0.7 million.
−Removed: There were no shares vested during the years ended December 31, 2020 and 2019.
+Added: The total fair value of shares vested during the year ended December 31, 2022 and 2021 was $ 1.3 million and $ 0.7 million, respectively.
+Added: There were no shares vested during the year ended December 31, 2020.
A summary of the Company’s nonvested shares for the year follows (shares in thousands, except grant date fair value):
8 unchanged sentences
Failure to meet capital requirements can initiate regulatory action.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.
12 unchanged sentences
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.
−Removed: 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.
+Added: The interim rule allows for a two-
+Added: 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, 2022, 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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Actual and required capital amounts (dollars in thousands) and ratios are presented below at year end.
21 unchanged sentences
The plans provide for annual benefits for up to fifteen years after retirement or death.
−Removed: 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.
−Removed: 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.
−Removed: Salary continuation benefits paid to former directors or executives of the Company or their
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: beneficiaries totaled $ 0.4 million, $ 0.4 million and $ 0.3 million for the years ended December 31, 2021, 2020 and 2019.
+Added: The benefit obligation under these plans totaled $ 4.9 million and $ 5.1 million for the years ended December 31, 2022 and 2021 and was fully accrued for both years.
+Added: The expense recognized
+Added: under these arrangements totaled $ 0.3 million, $ 0.4 million and $ 0.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
+Added: Salary continuation benefits paid to former directors or executives of the Company or their beneficiaries totaled $ 0.4 million, $ 0.4 million and $ 0.4 million for the years ended December 31, 2022, 2021 and 2020.
Certain officers of the Company have supplemental life insurance policies with death benefits available to the officers’ beneficiaries.
1 unchanged sentence
Officer and Director Deferred Compensation Plan
−Removed: 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.
−Removed: The Company bears the costs for the plan’s administration and the interest earned on participant deferrals.
+Added: The Company has established a non-qualified deferred compensation plan for certain members of the management group and a deferred fee plan for directors for the purpose of providing the opportunity for participants to defer compensation.
+Added: The Company bears the costs and the liability for the plan’s administration and the changes to income earned on participant deferrals.
The related administrative expense was not material for the years ended December 31, 2022, 2021 and 2020.
−Removed: 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.
+Added: Although there is no requirement to fund this plan, the Company has purchased life insurance policies with cash surrender values totaling $ 9.0 million and $ 11.0 million at December 31, 2022 and 2021, respectively, which are specific account policies with underlying investments similar to the hypothetical investments elected inside the participant deferred compensation accounts.
401(k) Savings Plan
3 unchanged sentences
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.
−Removed: The Company contributed $ 1.2 million, $ 1.1 million, and $ 1.1 million to the Plan in 2021, 2020 and 2019, respectively.
+Added: The Company contributed $ 1.2 million to the Plan in each of the years ended 2022 and 2021 and contributed $ 1.1 million to the Plan in 2020.
NONINTEREST INCOME
8 unchanged sentences
Total other noninterest income
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OTHER NONINTEREST EXPENSE
1 unchanged sentence
Year Ended December 31,
−Removed: Legal, audit and professional
+Added: Legal, audit, professional, and director's fees
Data processing
23 unchanged sentences
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
3 unchanged sentences
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.
−Removed: Collateral-dependent impaired loans :
−Removed: 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.
+Added: Collateral-dependent loans :
+Added: A specific loss allowance is created for collateral dependent loans, representing the difference between the face value of the loan and the current appraised value of its associated collateral, less estimated disposition costs.
Foreclosed assets :
4 unchanged sentences
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.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Assets and liabilities measured at fair value on a recurring basis are summarized below (dollars in thousands):
16 unchanged sentences
State and political subdivisions
+Added: Corporate bonds
+Added: Collateralized loan obligations
Total available-for-sale securities
3 unchanged sentences
Balance of recurring Level 3 assets at January 1,
+Added: Transfers out of Level 3
Balance of recurring Level 3 assets at December 31,
+Added: The following tables present quantitative information about recurring level 3 fair value measurements at December 31, 2022 (dollars in thousands):
+Added: Valuation Technique(s)
+Added: Unobservable Input(s)
+Added: Weighted Average
+Added: Corporate Bonds
+Added: New issue pricing
+Added: Risk appetite
+Added: Secondary market pricing
+Added: Market volatility
+Added: Credit quality of issuer
+Added: Credit spread
The following table presents quantitative information about recurring level 3 fair value measurements at December 31, 2021 (dollars in thousands):
16 unchanged sentences
Credit spread
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: 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):
3 unchanged sentences
Identical Assets
−Removed: Collateral dependent impaired loans
+Added: Collateral dependent loans
Foreclosed assets
17 unchanged sentences
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.
−Removed: 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.
−Removed: 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
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: other factors.
+Added: In addition, the tax ramifications
+Added: 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.
+Added: Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.
7 unchanged sentences
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.
−Removed: Loans held for sale :
−Removed: 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.
−Removed: 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.
+Added: Mortgage loans :
+Added: Fair value of mortgage loans, included in the table with loans and leases held for investment, are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and estimated using discounted cash flow analyses.
+Added: The estimation of fair values of mortgage loans results in a Level 3 classification as it requires various assumptions and considerable judgement to incorporate factors relevant when selling loans to market participants, such as funding costs, return requirements of likely buyers and performance expectations of the loans given the current market environment and quality of loans.
+Added: Collateral-dependent loans :
+Added: A specific loss allowance is created for collateral dependent loans, representing the difference between the face value of the loan and the current appraised value of its associated collateral, less estimated disposition costs.
Fair values for non-maturity deposits are equal to the amount payable on demand at the reporting date, which is the carrying amount.
7 unchanged sentences
The fair values of subordinated debentures are determined based on the current market value for like instruments of a similar maturity and structure.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):
7 unchanged sentences
Securities available-for-sale
+Added: Securities held-to-maturity
Loans and leases held for investment
−Removed: Collateral dependent impaired loans
+Added: Collateral dependent loans
Financial Liabilities:
2 unchanged sentences
Repurchase agreements
+Added: Short-term borrowings
Long-term borrowings
19 unchanged sentences
Short-term borrowings
+Added: Long-term borrowings
Subordinated debentures
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Off-balance-sheet financial instruments:
11 unchanged sentences
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within Noninterest Income.
−Removed: The following table presents the Company’s sources of Noninterest Income for the
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
−Removed: twelve months ended December 31, 2021 and 2020.
+Added: The following table presents the Company’s sources of Noninterest Income for the twelve months ended December 31, 2022 and 2021.
Items outside the scope of ASC 606 are noted as such (dollars in thousands).
5 unchanged sentences
Debit card interchange income
−Removed: Loss on limited partnerships (1)
+Added: Gain (loss) on limited partnerships (1)
Dividends on equity investments (1)
−Removed: Unrealized gains recognized on equity investments (1)
−Removed: Net gains (losses) on sale of securities (1)
+Added: Unrealized (losses) gains recognized on equity investments (1)
+Added: Net gains on sale of securities (1)
Total noninterest income
6 unchanged sentences
Revenue streams are not related to contracts with customers and are accounted for on an accrual basis under other provisions of GAAP.
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PARENT ONLY CONDENSED FINANCIAL STATEMENTS
14 unchanged sentences
Total shareholders' equity
+Added: Total liabilities and shareholders' equity
STATEMENTS OF INCOME
10 unchanged sentences
Equity in undistributed income of subsidiary
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
4 unchanged sentences
Undistributed net income of subsidiary
−Removed: Decrease in other assets
+Added: (Increase) decrease in other assets
Increase (decrease) in other liabilities
8 unchanged sentences
Issuance of debentures, net
−Removed: Net cash provided by (used) in financing activities
+Added: Net cash (used) in provided by financing activities
Net increase in cash and cash equivalents
1 unchanged sentence
Cash and cash equivalents, end of year
−Removed: SIERRA BANCORP AND SUBSIDIARY
−Removed: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
25 unchanged sentences
Cash dividend per share
+Added: SUBSEQUENT EVENTS
+Added: Subsequent to year end, $ 18.1 million of nonaccrual loans from a single dairy relationship were foreclosed upon and were moved to other real estate owned or other foreclosed assets at net realizable value.
+Added: The Company sold a portion of such assets in the first quarter of 2023 for $ 7.7 million, which constituted book value.
+Added: The Company continues to actively work with interested buyers to sell the remaining assets of the dairy.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
1 unchanged sentence
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.