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Item 8. Financial Statements and Supplementary Data

2024-03-22 compared with 2023-03-09 · 445 added, 485 removed, 1165 unchanged (44% of the section changed)

1 unchanged sentence

The following financial statements and independent auditors’ report listed below are included herein:

Report of Independent Registered Public Accounting Firm (RSM US LLP San Francisco, California PCAOB ID 49)

Report of Independent Registered Public Accounting Firm (Eide Bailly LLP San Ramon, California PCAOB ID 286 )

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Sierra Bancorp and Subsidiary

Porterville, California

Opinion on the Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of Sierra Bancorp and Subsidiary (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control —Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework:

(2013) issued by COSO.

As discussed in notes 2 and 4, effective January 1, 2022, the company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

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.

To the Shareholders and the Board of Directors of Sierra Bancorp

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Sierra Bancorp and its subsidiary (the Company) as of December 31, 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the year ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 15, 2024, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of

internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

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.

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:

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Loans and Leases

As 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.

The ACL represents management’s estimate of expected credit losses over the contractual life of the portfolio.

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.

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.

Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of specialized skill or knowledge needed.

Our considerations and procedures performed to address this critical audit matter included:

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.

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.

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.

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.

o Determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices.

o Testing the completeness and accuracy of internal loan level data used as the basis for the calculation.

o Evaluating the reasonableness of forecasted economic scenarios provided by a third party.

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.

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

As described in Notes 2 and 4 to the financial statements, the Company’s allowance for credit losses totaled $23.5 million as of December 31, 2023.

The allowance for credit losses is calculated under the expected credit loss model and is an estimate of life-of-loan and -lease losses.

The allowance for credit losses for loans and leases consists of a collective reserve evaluation for loans and leases with similar risk characteristics and an individual reserve evaluation for loans and leases without similar risk characteristics.

The allowance for the collective reserve evaluation is derived from an estimate of expected loan and lease losses primarily using an expected loss methodology that incorporates certain risk characteristics using either the remaining life or discounted cash flow (DCF) methodology depending on the loan and lease portfolio segment.

The discounted cash flow quantitative reserve methodology incorporates the consideration of probability of default (PD) and loss given default (LGD) assumptions to estimate periodic losses, and LGD is derived from the application of the Frye-Jacobs theory which relates LGD to PD based on historical peer data.

The Company uses a regression analysis that links historical losses of the Company and its peer group to national unemployment rates in order to calculate expected default rates.

The expected default rates are then applied to expected monthly loan balances estimated through the consideration of contractual repayment terms and expected prepayments.

The Company utilizes a four-quarter forecast period, after which the expected default rates revert to the historical average over a four-quarter reversion period on a straight-line basis.

For the remaining life quantitative reserve method, the Company’s and peer group’s average historical losses are used to determine the loss rates, and the loss rates are applied to expected loan balances over an estimated remaining life of loans.

The estimated remaining life is calculated using the Company’s historical attrition data.

Reasonable and supportable forecasts of the national unemployment rate, real growth domestic product and the housing price index are considered through estimation of qualitative reserves on portfolios using the remaining life method.

The quantitative estimates are adjusted to incorporate considerations of current trends and conditions that are not captured in the quantitative credit loss estimates through the use of qualitative or environmental factors (qualitative factors).

The qualitative reserve is calculated using a combination of numeric frameworks and management’s judgment in order to determine the risk categorization in each of the qualitative factor.

The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan equivalent, loss rate ranges and the relative weighting of qualitative factors according to management’s judgment.

The estimation of the allowance for credit losses involves many inputs and assumptions.

These inputs and assumptions include, among others, the selection, evaluation and measurement of the reasonable and supportable forecasts and the qualitative factors discussed above, which require management to apply judgment and that are subject to change as forecasted economic events or internal assessments evolve.

We identified the determination and evaluation of the economic forecasts and qualitative factors of the allowance for credit losses as a critical audit matter because auditing the underlying assumptions and evaluation of the economic forecasts and qualitative factors used in the allowance for credit losses involved a degree of complexity and high degree of auditor judgment.

Our audit procedures related to management’s evaluation and establishment of the economic forecasts and qualitative factors in the allowance for credit losses included the following, among others:

● We obtained an understanding of the relevant controls related to the evaluation and establishment of the economic forecasts and qualitative factors of the allowance for credit losses and tested such controls for design and operating effectiveness, including controls related to management’s establishment, review and approval of the economic forecasts and qualitative factors and the completeness and accuracy of the underlying data.

● We tested management’s process and significant judgments in the evaluation and establishment of the economic forecasts, which included:

- Evaluating management’s considerations and data utilized as a basis for the selection of economic forecasts by tracing data points used to company-provided source documents and assessing the appropriateness of their source.

- Evaluating the reasonableness of management’s judgments related to the selection of economic forecasts.

● We tested management’s process and evaluated their judgments and assumptions in the determination of the qualitative factors, which included:

- Evaluating the reasonableness of management’s selection of data inputs used as a basis for the adjustments related to the qualitative factors, and testing the completeness and accuracy of the data utilized by comparing them to internal and external source data.

o Evaluating the reasonableness of the qualitative factors assessed by management, including the directional consistency and magnitude of the resulting qualitative component of the allowance for credit losses, as compared to internal and external source data, and how the data correlated with the risk categorization and numeric framework established by management.

/s/ RSM US LLP

We have served as the Company's auditor since 2023.

Vavrinek, Trine, Day & Co., LLP, who joined Eide Bailly LLP in 2019, had served as the Company’s auditor since 2004.

San Francisco, California

March 22, 2024

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders

Sierra Bancorp Porterville, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Sierra Bancorp and subsidiary (the Company) as of December 31, 2022, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the entity’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We have served as Sierra Bancorp’s auditor from 2004 through 2022 (such dates incorporate the

acquisition of certain assets of Vavrinek, Trine, Day & Co., LLP by Eide Bailly in 2019).

San Ramon, California

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Investment securities

Available-for-sale, net of zero allowance for credit losses at December 31, 2022 and December 31, 2021

Held-to-maturity, (fair value of $ 328,011 at December 31, 2022 and $ 0 at December 31, 2021)

Allowance for credit losses on held-to-maturity securities

Net, investment securities held-to-maturity

Loans and leases:

Gross loans and leases

Deferred loan and lease fees, net

Allowance for credit losses on loans and leases

Net loans and leases

Foreclosed assets

Available-for-sale, net of zero allowance for credit losses

Held-to-maturity, net of allowance for credit losses of $ 16 and $ 63

Total investment securities

Deferred loan costs (fees), net

Allowance for credit losses on loans

Premises and equipment, net

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Repurchase agreements

Short-term borrowings

Other borrowings

Long-term debt

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24,000,000 shares authorized;

15,170,372 and 15,270,010 shares issued and outstanding in 2022 and 2021, respectively

14,793,832 and 15,170,372 shares issued and outstanding , respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive (loss) gain, net of taxes of $ 23,746 in 2022 and $( 4,687 ) in 2021

Accumulated other comprehensive loss, net of taxes of $ 14,874 and $ 23,746

Total shareholders' equity

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Interest and dividend income

Loans and leases, including fees

Loans, including fees

Taxable securities

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Interest expense

Short-term borrowings

Other borrowings

Long-term debt

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Net interest income

Provision (benefit) for credit losses on loans and leases

Provision (benefit) for credit losses on loans

Benefit for credit losses on unfunded loan commitments

Provision for credit losses on held-to-maturity securities

Net interest income after provision for loan and lease losses

(Benefit) provision for credit losses on held-to-maturity securities

Net interest income after provision for credit losses

Noninterest income

Service charges on deposits

Debit card fees

Net gains (losses) on sale of securities available-for-sale

(Decrease) increase in cash surrender value of life insurance

Net gains on sale of securities available-for-sale

Net gains (losses) on sale of fixed assets

Increase (decrease) in cash surrender value of life insurance

Realized losses on available-for-sale securities

Total noninterest income

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(dollars in thousands, except footnotes)

Other comprehensive (loss) gain, before tax

Unrealized (loss) gain on securities:

Unrealized holding (loss) gain arising during period

Reclassification adjustment for gains included in net income (1)

Other comprehensive (loss) gain, before tax

Income tax benefit (expense) related to items of other comprehensive income

Total other comprehensive (loss) gain , net of tax

Comprehensive (loss) income

Other comprehensive gain (loss), before tax

Unrealized gain (loss) on securities:

Unrealized holding gain (loss) arising during period

Reclassification adjustment for losses (gains) included in net income (1)

Other comprehensive gain (loss), before tax

Income tax (expense) benefit related to items of other comprehensive income

Total other comprehensive gain (loss), net of tax

Comprehensive income (loss)

(1) Amounts are included in net gains on securities available-for-sale on the Consolidated Statements of Income in noninterest income.

Income tax expense associated with the reclassification adjustment for the years ended 2022, 2021 and 2020 was $ 440,000 , $ 3,000 , and $ 115,000 respectively.

Income tax expense associated with the reclassification adjustment for the years ended 2023, 2022 and 2021 was $ 4.2 million, $ 0.4 million, and 0.003 million respectively.

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

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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Years Ended December 31, 2022

For the Three Years Ended December 31, 2023, 2022 and 2021

(dollars in thousands, except per share data)

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Balance, January 1, 2021

Other comprehensive gain, net of tax

Exercise of stock options

Stock based compensation expense

Other comprehensive loss, net of tax

Stock options exercised, net of shares surrendered for cashless exercises

Restricted stock granted

Restricted stock surrendered due to employee tax liability

Restricted stock forfeited / cancelled

Stock based compensation - stock options

Stock based compensation - restricted stock

Stock repurchase

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Balance, December 31, 2021

Cumulative effect of change in accounting principle

Other comprehensive loss, net of tax

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Balance, December 31, 2022

Cumulative change in accounting principle

Other comprehensive loss, net of tax

Stock options exercised, net of shares surrendered for cashless exercises

Other comprehensive gain, net of tax

Restricted stock granted

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Restricted stock forfeited / cancelled

Restricted stock vested in period

Stock based compensation - stock options

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Stock repurchase

Excise tax on stock repurchases

Cash dividends - $ 0.92 per share

8 unchanged sentences

Gain on sales of securities

Realized loss on available-for-sale securities

Loss (gain) on disposal of fixed assets

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Stock based compensation expense

Provision (benefit) for loan and lease losses

Provision for credit losses on held-to-maturity securities

Provision (benefit) for credit losses on loans

(Benefit) provision for credit losses on held-to-maturity securities

Depreciation and amortization

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Accretion of discounts for loans acquired and net deferred loan fees

Decrease (increase) in cash surrender value of life insurance policies

(Increase) decrease in cash surrender value of life insurance policies

Amortization of core deposit intangible

(Increase) decrease in interest receivable and other assets

Increase (decrease) in other liabilities

Increase in other liabilities

Deferred income tax (benefit) provision

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Net purchases of FHLB stock

Loan originations and payments, net

Loan (payments) and originations, net

Purchases of premises and equipment, net

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Net increase in partnership investment

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Increase in deposits

Increase (decrease) in borrowed funds

Increase in repurchase agreements

(Decrease) increase in deposits

Increase (decrease) in fed funds purchased

Increase (decrease) in borrowed funds

Proceeds from long-term Federal Home Loan Bank advances and other debt

(Decrease) increase in repurchase agreements

Cash dividends paid

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Cash paid during the year for:

Supplemental noncash disclosures:

Supplemental disclosure of noncash investing and financing activities:

Real estate acquired through foreclosure

Change in unrealized net (losses) gains on investment securities

Operating right-of-use asset from branch facilities sale leaseback transaction

Operating lease liability from branch facilities sale leaseback transaction

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

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The Company’s only other direct subsidiaries are Sierra Statutory Trust II, Sierra Capital Trust III and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities.

At December 31, 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.

At December 31, 2023, the Bank operated 35 full service branch offices and an online branch and provides specialized lending services through a dedicated agricultural credit office, Mortgage Warehouse lending divisions, a dedicated loan production office in Roseville, California and an agricultural production office in Templeton, California.

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits.

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These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for credit losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.

Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for credit losses, income taxes and deferred tax assets and liabilities, and goodwill.

In connection with the determination of the allowances for credit losses and other real estate, management obtains independent appraisals for significant properties, evaluates the overall loan portfolio characteristics and delinquencies, and monitors economic conditions.

Reclassifications

Certain amounts in the Consolidated Income Statements for the prior periods have been reclassified to conform to the current presentation.

The reclassifications had no effect on net income or stockholders’ equity as previously reported.

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.

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The securities were transferred at their fair value as of the transfer date, with the related unrealized gain or loss as of the date of transfer included in the amortized cost basis of the transferred security and subject to amortization or accretion over each security’s remaining life.

An unrealized loss of $ 30.7 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.

An unrealized loss of $ 28.4 million, on securities transferred from the available-for-sale to held-to-maturity categorization, remains

as of December 31, 2023 and is included in accumulated other comprehensive income, net of tax.

The remaining 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.

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The Bank’s municipal bonds moved to the held-to-maturity designation all have credit ratings considered investment grade or equivalent.

A discounted-cash-flow

reserve calculation was performed upon the transfer of these securities into the held-to-maturity designation and is updated on a quarterly basis.

As of December 31, 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.

The company did not have any securities classified as held-to-maturity as of December 31, 2021.

A discounted-cash-flow reserve calculation was performed upon the transfer of these securities into the held-to-maturity designation and is updated on a quarterly basis.

As of December 31, 2023, an allowance for credit losses of $ 0.02 million had been established on the Bank’s held-to-maturity portfolio, a slight decrease from the allowance for credit losses of $ 0.06 million at December 31, 2022.

FHLB Stock and Other Investments

The Bank is a member of the Federal Home Loan Bank ("FHLB") system.

Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts.

2 unchanged sentences

The Bank’s investment in FHLB stock was approximately $ 14.7 million at December 31, 2023, and $ 12.7 million at December 31, 2022.

Pursuant to the adoption of ASU 2016-01 on January 1, 2018 , the Company elected the measurement alternative for measuring equity securities without readily determinable fair values at cost less impairment, plus or minus observable price changes in orderly transactions.

The carrying amount of equity securities without readily determinable fair values is $ 3.0 million and $ 3.3 million at December 31, 2022, and 2021, respectively.

Equity securities primarily consist of an investment in Pacific Coast Bankers’ Bank (“PCBB”).

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.

Loans Held for Sale

The Company may originate loans intended to be sold on the secondary market.

Loans originated and intended for sale in the secondary market are carried at cost which approximates fair value since these loans are typically sold shortly after origination.

The loan’s cost basis includes unearned deferred fees and costs, and premiums and discounts.

If loans held for sale remain on our books for an extended period of time the fair value of those loans is determined using quoted secondary market prices.

Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Loans that might be held for sale by the Company typically consist of residential real estate loans.

Loans classified as held for sale, if any, are disclosed in Note 4 to the consolidated financial statements.

Gains and losses on sales of loans are recognized at the time of sale and are calculated based on the difference between the selling price and the allocated book value of loans sold.

Book value allocations are determined in accordance with U.S.

Any inherent risk of loss on loans sold is transferred to the buyer at the date of sale.

The Company has issued various representations and warranties associated with the sale of loans.

These representations and warranties may require the Company to repurchase loans with underwriting deficiencies as defined per the applicable sales agreements and certain past due loans within 90 days of the sale.

The Company did no t experience losses during the years ended December 31, 2022, 2021, or 2020 regarding these representations and warranties.

Loans and Leases (Financing Receivables)

Our credit quality classifications of Loans and Leases include Pass, Special Mention and Substandard.

Loans (Financing Receivables)

Our credit quality classifications of Loans include Pass, Special Mention and Substandard.

These classifications are defined in Note 4 to the consolidated financial statements.

Loans and leases are reported on the amortized cost basis.

Loans are reported on the amortized cost basis.

The amortized cost basis of the Company’s loans is comprised of the principal balance outstanding, net of remaining deferred loan fees and costs, purchase premiums and discounts, and also net of any write-downs.

Notably, the Company elected the practical expedient available

under CECL to exclude accrued interest receivable from the amortized cost basis of all categorizations of loans and resultingly did not estimate reserves on accrued interest receivable balances, as any past due interest income is reversed on a timely basis.

Accrued interest receivable on the Company’s Loans 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.

Notably, the Company elected the practical expedient available under CECL to exclude accrued interest receivable from the amortized cost basis of all categorizations of loans and resultingly did not estimate reserves on accrued interest receivable balances, as any past due interest income is reversed on a timely basis.

Accrued interest receivable on the Company’s Loans continues to be included in other assets on the Company’s balance sheet and as of December 31, 2023, measured $ 5.6 million.

Loan origination fees, net of certain deferred origination costs, and purchase premiums and discounts are recognized in interest income as an adjustment to yield of the related loans over the contractual life of the loan using both the effective interest and straight-line methods without anticipating prepayments.

Interest income for all performing loans, regardless of classification (Pass, Special Mention, Substandard), is recognized on an accrual basis, with interest accrued daily.

8 unchanged sentences

For loans with an interest reserve, i.e., where loan proceeds are advanced to the borrower to make interest payments, all interest recognized from the inception of the loan is reversed when the loan is placed on non-accrual.

Once a loan is on non-accrual status subsequent payments received from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required.

Generally, loans and leases are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Once a loan is on non-accrual status subsequent payments received

from the customer are applied to principal, and no further interest income is recognized until the principal has been paid in full or until circumstances have changed such that payments are again consistently received as contractually required.

Generally, loans are not restored to accrual status until the obligation is brought current and has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

Due to loans being placed on nonaccrual status, $ 0.4 million of interest receivable on loans was reversed from interest income for the year ended December 31, 2023.

Impaired loans are classified as either nonaccrual or accrual, depending on individual circumstances regarding the collectability of interest and principal according to the contractual terms.

Purchased Credit Deteriorated Loans

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”).

PCD loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination.

Due to the immaterial balance in the Company’s PCI loans as of December 31, 2021, management elected not to transition these loans into the PCD designation.

As of December 31, 2022 the Company had no loans categorized as PCD.

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.

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.

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.

This difference in accounting between loans designated as PCD and non-PCD is commonly referred to as the “CECL double count”.

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.

Allowance for Credit Losses - Loans and Leases

The Allowance for Credit Losses (“ACL”) on the loan portfolio is a valuation allowance deducted from the recorded balance in loans and leases.

Allowance for Credit Losses - Loans

The Allowance for Credit Losses (“ACL”) on the loan portfolio is a valuation allowance deducted from the recorded balance in loans.

The ACL represents principal which is not expected to be collected over the contractual life of the loans, adjusted for expected prepayment, whereas under legacy GAAP the allowance represented only losses already incurred as of the balance sheet date.

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It is reduced by principal charge-offs.

The amount of the allowance is based on management’s evaluation of the collectability of the loan and lease portfolio, using information from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, using information from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

Adjustments are also made for changes in risk profile, credit concentrations, historical trends, and other economic conditions.

The ACL for loans 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.

The ACL for loans is separated between a collective reserve evaluation, for loans where similar risk characteristics exist and an individual reserve evaluation for loans without similar risk characteristics.

The collective evaluation of loans is performed at the portfolio segment level, using call code as the primary segmentation key but also considering similarity in quantitative reserve methodology.

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1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse, and Consumer.

Loans secured by 1-4 family residences have a different profile from loans secured by Commercial Real Estate.

Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for Commercial Real Estate are often businesses.

The COVID-19 pandemic illustrated how these different categories of real estate loans were subject to different risks, which was exacerbated by the widespread work-from-home model adopted by many companies during and since the pandemic.

Farmland and Agricultural Production loans are included in a single segment as these loans are often times to the same borrowers, facing the same risks relating to commodity prices, water supply and drought conditions in addition to other environmental concerns.

Commercial & Industrial loans are separated into a unique segment given the uniqueness of these loans, which are often revolving and secured by other business assets as opposed to real estate.

Mortgage warehouse loans are also unique in the Company’s portfolio and warrant separate presentation as an individual portfolio segment, given the specific nature of these constantly revolving lines to mortgage originators and also attributable to a very limited loss history, even after consideration of peer data.

Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans.

Management utilizes a discounted cash flow methodology to estimate the quantitative portion of collectively evaluated reserves for the 1-4 Family Real Estate, Commercial Real Estate, Commercial & Industrial and Mortgage Warehouse portfolio segments.

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The Company’s policy is that nonaccrual loans also represent the subset of loans where borrowers are experiencing financial difficulty where an evaluation of the source of repayment is required to determine if the nonaccrual loan should be categorized as collateral dependent.

It is the Company’s policy that the only loans and leases where the credit quality has deteriorated to the point where foreclosure is probable are the Company’s nonaccrual loans.

It is the Company’s policy that the only loans where the credit quality has deteriorated to the point where foreclosure is probable are the Company’s nonaccrual loans.

Most of the Company’s business activity is with customers located in California within the Southern Central San Joaquin Valley;

in the corridor stretching between Santa Paula and Santa Clarita in Southern California, and on the Central Coast.

Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in those regions.

Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in those

The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance for credit.

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Because the available funds have not yet been disbursed on these commitments the estimated losses are not included in the calculation of the allowance for credit losses on the loan portfolio.

The implementation of CECL also impacted the Company’s ACL on unfunded loan commitments, as this ACL now represents expected credit losses over the contractual life of

commitments not identified as unconditionally cancellable by the Company.

The implementation of CECL also impacted the Company’s ACL on unfunded loan commitments, as this ACL now represents expected credit losses over the contractual life of commitments not identified as unconditionally cancellable by the Company.

The Reserve for Unfunded Commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment.

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Impairment of long-lived assets is evaluated by management based upon an event or changes in circumstances surrounding the underlying assets which indicate long-lived assets may be impaired.

Leases are classified as operating or finance leases at the lease commencement date.

The Company leases certain locations classified as operating leases.

The Company records leases on the balance sheet in the form of a lease liability for the present value of future minimum payments under the lease terms and a right-of-use asset equal to the lease liability adjusted for items such as deferred or prepaid rent, lease incentives, and any impairment of the right-of-use asset.

The discount rate used in determining the lease liability is based upon incremental borrowing rates the Company could obtain for similar loans as of the date of commencement or renewal.

The Company does not record short term leases with an initial lease term of one year or less on the consolidated balance sheets.

At lease inception, the Company determines the lease term by considering the noncancelable lease term and all optional renewal periods that the Company is reasonably certain to renew.

The lease term is also used to calculate straight-line lease expense.

Leasehold improvements are amortized over the shorter of the useful life and the

estimated lease term.

The Company’s leases do not contain residual value guarantees or material variable lease payments that will impact the Company's ability to pay dividends or cause the Company to incur additional expenses.

Operating lease expense consists of a single lease cost allocated over the remaining lease term on a straight-line basis and variable lease expense.

Lease expense is included in occupancy and equipment expense on the Company's consolidated statements of income.

The Company's variable lease expense includes rent escalators that are based on market conditions and include items such as common area maintenance, utilities, parking, property taxes, insurance and other costs associated with the lease.

The amortization of the right-of-use asset arising from finance leases is expensed through occupancy and equipment expense.

Foreclosed Assets

Foreclosed assets include real estate and other property acquired in full or partial settlement of loan obligations.

Upon acquisition, any excess of the recorded investment in the loan balance over the appraised fair market value, net of estimated selling costs, is charged against the allowance for credit losses on loans and leases.

A valuation allowance for losses on foreclosed assets is maintained to provide for subsequent declines in value.

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Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized but are tested for impairment at least annually or more frequently if events and circumstances exist which indicate that an impairment test should be performed.

The Company selected December 31, 2022, as the date to perform the annual impairment test for 2022.

The Company selected October 1, 2023, as the date to perform the annual impairment test for 2023.

Goodwill is the only intangible asset with an indefinite life on our balance sheet.

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Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

The Company’s other intangible assets consist solely of core deposit intangible assets (CDI’s) arising from the acquisitions of Santa Clara Valley Bank, Coast National Bank, Ojai Community Bank, the Woodlake Branch of

Citizen’s Business Bank and the Lompoc branch of Santa Maria Community Bank.

All of the CDI’s are being amortized on a straight-line basis over eight years .

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Stock-Based Compensation

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

approved by the Company’s shareholders on May 24, 2017.

At December 31, 2023, the Company had one active stock-based compensation plan, the Sierra Bancorp 2023 Equity Compensation Plan (the “2023 Plan”), which was adopted by the Company’s Board of Directors on March 17, 2023 and approved by the Company’s shareholders on May 24, 2023.

The 2023 Plan replaced the Company’s 2017 Stock Incentive Plan (the “2017” Plan), which expired by its own terms on March 16, 2023.

Options to purchase shares granted under the 2007 Plan that remained outstanding were unaffected by that plan’s termination.

Unvested restricted stock and options to purchase shares granted under the 2017 Plan and its predecessor the 2007 Stock Incentive Plan (the “2007” Plan) that remained outstanding were unaffected by that plan’s termination.

The 2023 Plan covers 360,000 shares of the Company’s authorized but unissued common stock, subject to adjustment for stock splits and dividends, and provides for the issuance of both “incentive” and “nonqualified” stock options to salaried officers and employees, and of “nonqualified” stock options to non-employee directors.

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No stock options were granted during the years ended December 31, 2023, 2022 and 2021.

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 %;

expected volatility, 25.06 %;

risk-free interest rate, 1.47 %;

expected option life, 6.4 years.

Revenue Recognition

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The Company implemented CECL on January 1, 2022 , using the modified retrospective approach to estimate lifetime expected losses on financial assets measured at amortized cost in addition to certain off balance sheet credit exposures.

The January 1, 2022, increase in the Company’s allowance for credit losses, of $ 9.5 million on loans and leases and $ 0.9 million in off balance sheet credit exposures, net of the impact of deferred taxes, was reflected in a

transition adjustment of $ 7.3 million to retained earnings.

The January 1, 2022, increase in the Company’s allowance for credit losses, of $ 9.5 million on loans and $ 0.9 million in off balance sheet credit exposures, net of the impact of deferred taxes, was reflected in a transition adjustment of $ 7.3 million to retained earnings.

There was no cumulative effect adjustment related to our available-for-sale investment portfolio upon adoption and the company had no securities designated as held-to-maturity as of January 1, 2022.

Results for reporting periods beginning after December 31, 2021, are presented under CECL whereas prior comparative periods are presented under legacy GAAP.

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).

The impact to the Allowance for Credit losses (“ACL”) on the Loan Portfolio is broken out at the class level.

January 1, 2022

Reserves Under Incurred Loss

Reserves Under CECL

Transition Impact Gross

Impact of Deferred Taxes

Impact to Retained Earnings

1-4 family residential construction

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Total real estate

Commercial and industrial

Mortgage warehouse lines

Consumer loans

Total Allowance for Credit Losses - Loans

Allowance for unfunded Loan Commitments

In March 2023 the FASB issued, ASU No.

2023-02, “Investments—Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures.

ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures.

ASU 2023-02 was adopted by the

Company on January 1, 2023, and its adoption did not have a significant effect on the Company’s financial statements.

On October 9, 2023, the FASB issued ASU 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification of Initiative.” ASU 2023-06 amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”).

The ASU was issued in response to the SEC’s August 2018 final rule that updated and simplified disclosure requirements that the SEC believed were “redundant, duplicative, overlapping, outdated, or superseded.” The new guidance is intended to align U.S.

GAAP requirements with those of the SEC and to facilitate the application of U.S.

GAAP for all entities.

ASU 2023-06 applies to all reporting entities within the scope of the amended subtopics.

Note that some of the amendments introduced by the ASU are technical corrections or clarifications of the FASB’s current disclosure or presentation requirements.

The effective date for each amendment of ASU 2023-06 will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The Company will apply the amendments in ASU 2023-06 prospectively after the effective dates.

The adoption of this standard is not expected to have a significant effect on the Company’s financial statements.

In November 2023 the FASB issued, ASU No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

ASU 2023-07 is not expected to have a significant impact on our financial statements.

In December 2023 the FASB issued, ASU 2023-09,“Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold.

ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things.

ASU 2023-09 is effective for us on January 1, 2025, though early adoption is permitted.

ASU 2023-09 is not expected to have a significant impact on our financial statements.

INVESTMENT SECURITIES

Pursuant to FASB’s guidance on accounting for debt securities, available for sale securities are carried on the Company’s financial statements at their estimated fair market values, with monthly tax-effected “mark-to-market” adjustments made vis-à-vis accumulated other comprehensive income in shareholders’ equity.

Held-to-maturity

securities are carried on the Company’s financial statements at their amortized cost, net of the allowance for credit losses.

Held-to-maturity securities are carried on the Company’s financial statements at their amortized cost, net of the allowance for credit losses.

The amortized cost and fair value of the securities available-for-sale and held-to-maturity are as follows (dollars in thousands):

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Allowance for Credit Losses

Estimated Fair

Available-for-sale

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Total available-for-sale securities

Estimated Fair

Allowance for Credit Losses

Held-to-maturity

government agencies

Mortgage-backed securities

State and political subdivisions

Total held-to-maturity securities

The Company did not record an ACL on the available-for-sale portfolio at December 31, 2023 or upon the implementation of CECL on January 1, 2022.

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The Company maintains that it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise concluded as of both January 1, 2022 and December 31, 2023 that it was not more likely than not that any of the securities in an unrealized loss position would be required to be sold.

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.

● US Government Agencies are supported by the full faith and credit-worthiness of the U.S.

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.

● Mortgage-backed securities issued by government sponsored entities (“GSEs”) carry an implicit guarantee by the U.S.

Federal Government, as the GSEs can draw funds from the U.S.

Federal Government up to a limit, with an

implied ability to draw funds beyond the limit.

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.

● 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.

On a quarterly basis management receives financial information from a third-party service in order to monitor the underlying issuer’s financial stability.

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.

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.

● The Company has invested in corporate debt issuances of other financial institutions.

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.

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.

These bonds were subject to a credit review by the credit administration department prior to their purchase and are subject to ongoing quarterly reviews.

● The Company has invested exclusively in AA and AAA tranches of various collateralized loan obligations, which are securitizations of commercial loans.

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.

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.

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, 2023, 2022, and 2021, proceeds from sales of securities available-for-sale were $ 25.7 million, $ 45.9 million, and $ 0.1 million, respectively.

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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.

The securities were sold with 9 other debt securities, for which a $ 0.04 million loss was realized.

There were no securities sold during 2021 for which a loss was realized.

The Company recognized a $ 14.5 million loss for the year ending December 31, 2023 on investment securities intended for sale and subsequently sold in January 2024.

Included in this sale were $ 4.0 million in U.S.

government agencies, $ 74.8 million in mortgage-backed securities, and $ 117.9 million in state and political subdivisions.

The following table summarizes available-for-sale debt securities that were in an unrealized loss position for which an ACL has not been recorded, based on the length of time the individual securities have been in an unrealized loss position, including the number of available-for-sale debt securities in an unrealized loss position, as of the dates indicated below (dollars in thousands):

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Revenue Source:

Local or guaranteed housing

Other (10 and 10 sources, respectively)

Total revenue bonds

LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND ALLOWANCE FOR CREDIT LOSSES

We adopted the new current expected credit loss accounting guidance, CECL, and all related amendments as of January 1, 2022.

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Under CECL, disclosures are required on the amortized cost basis, whereas legacy GAAP required presentation on the recorded investment basis, with the primary difference being net deferred fees and costs.

Unless specifically noted otherwise, December 31, 2022 disclosures are prepared on the amortized cost basis and December 31, 2021 and 2020 disclosures present information according to the recorded investment basis.

Unless specifically noted otherwise, December 31, 2023 and 2022 disclosures are prepared on the amortized cost basis and December 31, 2021 disclosures present information according to the recorded investment basis.

Accrued interest receivable on loans of $ 5.6 million and $ 6.4 million at December 31, 2023 and December 31, 2022 respectively is not included in the loans included in the table below but is included in other assets on the Company’s balance sheet.

The December 31, 2022 balance in 1-4 family closed end loans reflects year-to-date 2022 loan purchases of $ 173.1 million.

The majority of the disclosures in this footnote are prepared at the class level which is equivalent to the call report or call code classification.

The final table in this section separates a roll forward of the Allowance for Credit Losses at the portfolio segment level.

The December 31, 2022 balance in residential real estate loans reflects year-to-date 2022 loan purchases of $ 173.1 million.

The majority of the disclosures in this footnote are prepared at the class level which combines certain related call report or call code classification.

The final table in this section separates a roll forward

of the Allowance for Credit Losses at the portfolio segment level.

The following table presents loans by class as of December 31, 2023 and December 31, 2022 (dollars in thousands).

1-4 family residential construction

Residential real estate

Commercial real estate

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Total real estate

Commercial and industrial

Other commercial

Mortgage warehouse lines

Consumer loans

Less net deferred loan fees and costs

Allowance for credit losses on loans and leases

Net loans and leases

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):

Plus (less) net deferred loan fees and costs

Allowance for credit losses on loans

The following tables present the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of December 31, 2023 and 2022 (dollars in thousands):

December 31, 2023

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Loans Past Due 90+ Accruing

1-4 family residential construction

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Residential real estate

Commercial real estate

Total real estate

Commercial and industrial

Mortgage warehouse lines

Other commercial

Consumer loans

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).

Impaired loans as of December 31, 2021 included both nonaccrual loans and performing TDRs.

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, 2022

Unpaid Principal

Average Recorded

Interest Income

Investment (2)

Related Allowance

Recognized (3)

With an Allowance Recorded

Other construction/land

1-4 family - closed-end

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Nonaccrual Loans

With no allowance for credit loss

With an allowance for credit loss

Loans Past Due 90+ Accruing

Residential real estate

Total real estate

Commercial and industrial

Other commercial

Consumer loans

With no Related Allowance Recorded

1-4 family - closed-end

Commercial real estate - owner occupied

The Company did not recognize any interest on nonaccrual loans during 2023, 2022, or 2021 and would have recognized an additional $ 0.1 million, $ 1.0 million, and $ 0.4 million in interest income on nonaccrual loans for the same periods, respectively, had those loans not been designated as nonaccrual.

The following tables present the amortized cost basis of collateral-dependent loans by class as of December 31, 2022 and 2023 (dollars in thousands):

December 31, 2023

Amortized Cost

Individual Reserves

Residential real estate

Commercial real estate

Other construction/land

Total real estate

Commercial and industrial

(1) Contractual principal balance due from customer.

(2) Principal balance on Company’s books, less any direct charge offs.

(3) Interest income is recognized on performing balances on a regular accrual basis.

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.

The following table presents the amortized cost basis of collateral-dependent loans by class as of December 31, 2022 (dollars in thousands):

Other commercial

Mortgage warehouse lines

Consumer loans

December 31, 2022

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Individual Reserves

1-4 family residential construction

Residential real estate

Commercial real estate

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Total real estate

Commercial and industrial

Other commercial

Mortgage warehouse lines

Consumer loans

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.

These charge-offs are primarily the result of a reduction in the expected valuation of collateral on a single loan relationship.

The weighted average loan-to-value ratio of collateral dependent loans was 67 % at December 31, 2022.

There were four collateral dependent loans in the process of foreclosure as of December 31, 2022.

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):

The weighted average loan-to-value ratio of collateral dependent loans was 54 % at December 31, 2023 and 67 % at December 31, 2022.

There were no collateral dependent loans in the process of foreclosure as of December 31, 2023 and four collateral dependent loans in the process of foreclosure as of December 31, 2022.

The following tables present the aging of the amortized cost basis in past-due loans, according to class, as of December 31, 2023 and 2022 (dollars in thousands):

December 31, 2023

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Loans not Past Due

1-4 family residential construction

Residential real estate

Commercial real estate

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Total real estate

Commercial and industrial

Other commercial

Mortgage warehouse lines

Consumer loans

Total loans and leases

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, 2022

Total Financing

30-59 Days Past Due

60-89 Days Past Due

Loans Past Due 90+ Days

Total Past Due

1-4 family residential construction

Loans not Past Due

Residential real estate

Commercial real estate

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate owner occupied

Commercial real estate non-owner occupied

Total real estate loans

Commercial and industrial

Total real estate

Other commercial

Mortgage warehouse lines

Consumer loans

Total gross loans and leases

(1) Included in Total Financing Receivables

(2) As of December 31, 2021 there were no loans over 90 days past due and still accruing.

Troubled Debt Restructurings

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.

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.

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

the borrower’s ability to comply with the modified terms.

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.

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.

The Company may agree to different types of concessions when modifying a loan or lease.

For the year ended December 31, 2022, there were no new TDRs and no modifications of existing TDRs.

The tables below summarize TDRs which were modified during the years ended December 31, 2021 and December 31, 2020, by type of concession.

Troubled Debt Restructurings, by Type of Loan Modification

( dollars in thousands, unaudited)

Loan Modifications

Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, rate reductions, payment deferral, or term extension.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

In some cases, the Company provides multiple types on concessions on one loan.

Typically, one type of concession, such as a term extension, is granted initially.

If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted.

For the loans included in the “combination” columns below, multiple types of modifications have been made on the same loan within the current reporting period.

The combination is at least two of the following:

principal forgiveness, rate reductions, payment deferral, and/or term extension.

The following table presents the amortized cost basis of loans at December 31, 2023 that were both experiencing financial difficulty and modified during the year ended December 31, 2023, by class and by type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below (dollars in thousands):

December 31, 2023

Interest Only

Term & Interest

Troubled debt restructurings

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate owner occupied

Commercial real estate non-owner occupied

Total real estate loans

Commercial and industrial

Principal Forgiveness

Term Extension

Combination Term Extension Interest Rate Reduction

Total Class of Financing Receivable

Residential real estate

Commercial real estate

Total real estate

Other commercial

Consumer loans

Small Business Administration Loans

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023:

December 31, 2023

Principal Forgiveness

Weighted-Average Interest Rate Reduction

Weighted-Average Term Extension (years)

Residential real estate

Commercial real estate

Other commercial

Consumer loans

During the year ending December 31, 2023, there were no payment defaults, within a twelve month period of the modification date on loans identified as modifications made to borrowers experiencing financial difficulty.

For purposes of this disclosure the Company defines a payment default as 90 days past due.

In estimating the allowance for credit losses, the Company considers the performance of accruing loans which have been identified as modifications made to borrower’s experiencing financial difficulty in the same way it considers the performance of other collectively evaluated accruing loans.

Loan modifications made to borrowers experiencing financial difficulty which have been placed on nonaccrual status are subject to an individual reserve evaluation.

For the year ended December 31, 2022, under the legacy troubled debt restructuring (TDR) guidance, there were no new TDRs and no modifications of existing TDRs.

The tables below summarize TDRs which were modified during the year ended December 31, 2021, by type of concession.

Troubled Debt Restructurings, by Type of Loan Modification

( dollars in thousands)

December 31, 2021

Interest Only

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Consumer loans

Small Business Administration Loans

Troubled Debt Restructurings

(dollars in thousands, unaudited)

Pre-Modification

Post-Modification

December 31, 2021

Difference (1)

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate - owner occupied

Commercial real estate - non-owner occupied

Total real estate loans

Commercial and industrial

Consumer loans

(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.

(dollars in thousand)

Pre-Modification

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Consumer loans

The Company had no finance receivables modified as TDRs within the previous twelve months that defaulted or were charged off during years ending December 31, 2022 and 2021.

Credit Quality

The Company monitors the credit quality of loans on a continuous basis using the regulatory and accounting classifications of pass, special mention and substandard to characterize and qualify the associated credit risk.

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Substandard – Loans classified as substandard are those loans with clear and well-defined weaknesses such as a highly leveraged position, unfavorable financial operating results and/or trends, or uncertain repayment sources or poor financial condition, which may jeopardize ultimate recoverability of the debt.

The following tables present the amortized cost of loans and leases by credit quality classification in addition to loan and lease vintage as of December 31, 2022 (dollars in thousands):

The following tables present the amortized cost of loans by credit quality classification in addition to loan vintage as of December 31, 2023 and 2022 (dollars in thousands):

December 31, 2023

Term Loans Amortized Cost Basis by Origination Year

Revolving Loans

Other construction/land

1-4 family - closed-end

Revolving Loans Amortized Cost

Revolving Loans Converted to Term Loans

Residential real estate

Special mention

Commercial real estate

Special mention

Multi-family residential

Other construction/land

Special mention

Commercial real estate - OO

Other commercial

Special mention

Commercial real estate - NOO

Mortgage warehouse lines

Consumer loans

Special mention

Gross charge-offs

December 31, 2022

Term Loans Amortized Cost Basis by Origination Year

Revolving Loans Amortized Cost

Revolving Loans Converted to Term Loans

Residential real estate

Special mention

Commercial real estate

Special mention

Commercial and industrial

Other construction/land

Special mention

Mortgage warehouse lines

Consumer loans

Other commercial

Special mention

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):

1-4 family residential construction

Other construction/land

1-4 family - closed-end

Multi-family residential

Commercial real estate owner occupied

Commercial real estate non-owner occupied

Total real estate

Commercial and industrial

Mortgage warehouse lines

Consumer loans

Total gross loans and leases

Special mention

CECL replaces the legacy accounting for loans designated as purchased credit impaired (“PCI”) with loans designated as purchased credit deteriorated (“PCD”).

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As of December 31, 2023 the Company had no loans categorized as PCD.

As noted in footnote 2, on January 1, 2022 the Company implemented CECL and increased our ACL, previously the allowance for loan and lease losses, with a $ 9.5 million cumulative adjustment.

As noted in footnote 2, on January 1, 2022 the Company implemented CECL and increased our ACL, previously the allowance for loan losses, with a $ 9.5 million cumulative adjustment.

The Company’s ACL is calculated quarterly, with any difference in the calculated ACL and the recorded ACL trued-up through an entry to the provision for credit losses.

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The DCF quantitative reserve methodology incorporates the consideration of probability of default (“PD”) and loss given default (“LGD”) estimates to estimate periodic losses.

The PD estimates are derived through the application of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data.

The PD estimates are derived through the application

of reasonable and supportable economic forecasts to call code specific regression models, derived from the consideration of historical bank-specific and peer loss-rate data.

The loss rate data has been regressed against benchmark economic indicators, for which reasonable and supportable forecasts exist, in the development of the call-code specific regression models.

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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.

prepayment assumptions applied to expected cash flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and the consideration of current and expected conditions and circumstances including the level of interest rates.

The prepayment assumptions applied to expected cash flow over the contractual life of the loans are estimated based on historical, bank-specific experience, peer data and the consideration of current and expected conditions and circumstances including the level of interest rates.

The prepayment assumptions may be updated by Management in the event that changing conditions impact Management’s estimate or additional historical data gathered has resulted in the need for a reevaluation.

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● Changes in loan categorization concentrations

● Other external factors, which include, the influence of peer data on estimated quantitative reserves, residual COVID-19 related risk, expected impact of current and expected inflationary environment, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of current and expected geo-political conditions

● Other external factors, which include, the influence of peer data on estimated quantitative reserves, expected impact of current and expected inflationary environment, reliance on the National Unemployment rate as opposed to the California unemployment rate in the calculation of quantitative reserves, the expected impact of current and expected geo-political conditions

The qualitative portion of the Company’s reserves on collectively evaluated loans are calculated using a combination of numeric frameworks and management judgement, to determine risk categorizations in each of the Q-factors presented above.

The amount of qualitative reserves is also contingent upon the historical peer, life-of-loan-equivalent, loss rate ranges and the relative weighting of Q-factors according to management’s judgement.

Although collectively evaluated reserves are generally calculated separately at the call code or loan class level, management has grouped loan classes with similar risk characteristics into the following portfolio segments:

1-4 Family Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse and Consumer loans.

Loans secured by 1-4 family residences have a different profile from loans secured by Commercial Real Estate.

Generally, the borrowers for 1-4 Family loans are consumers whereas borrowers for Commercial Real Estate are often businesses.

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.

Finally, the Company splits out Consumer loans as a separate segment as a result of the small balance, homogeneous terms that characterize these loans.

Management individually evaluates loans that do not share risk characteristics with other loans when estimating reserves.

As of 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.

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):

The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2023 and 2022 (dollars in thousands):

1-4 Family Real Estate

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Balance, December 31, 2022

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.

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.

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):

Commercial and

Industrial (1)

Allowance for credit losses:

Balance, December 31, 2019

Balance, December 31, 2020

Provision for credit losses

Balance, December 31, 2023

(1) Includes mortgage warehouse lines

PREMISES AND EQUIPMENT

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OPERATING LEASES

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.

The Company leases space under non-cancelable operating leases for 28 branch locations, four off-site ATM locations, one administrative building, three loan production offices and a warehouse.

Many of our leases include both lease (e.g., fixed payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs).

Payments for taxes and insurance as well as non-lease components are not included in the accounting of the lease component, but are separately accounted for in occupancy expense.

The Company recognized lease expense of $ 2.2 million for the years ended December 31, 2022, 2021 and 2020.

The Company recognized lease expense of $ 2.3 million for the year ended December 31, 2023 and $ 2.2 million for the years ended December 31, 2022 and 2021.

Most leases include one or more renewal options available to exercise.

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As most of our leases do not provide an implicit rate, we used our incremental borrowing rate in determining the present value of the lease payments.

There were no sale and leaseback transactions, leveraged leases, or lease transactions with related parties during the years ending December 31, 2022 and 2021.

There were no leveraged leases or lease transactions with related parties during the years ending December 31, 2023 and 2022.

In December 2023 the Company completed a sale and leaseback transaction on 11 branch buildings with a book value of $ 4.8 million, for a gain on sale of $ 15.3 million.

These branch buildings were subsequently leased back to the Company and are reflected in the tables in this footnote.

This sale and leaseback transaction resulted in additions to the Company’s right of use asset and operating lease liability of $ 18.0 million and $ 13.8 million, respectively at the year ended December 31, 2023.

The new leases have an average life of 18 years .

There were no sale and leaseback transactions during the year ended December 31, 2022.

At December 31, 2023, the Company’s right-of-use assets and operating lease liabilities were $ 25.8 million and $ 21.9 million, respectively.

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Lease liabilities from new right-of-use assets obtained during the year ending December 31, 2023 and December 31, 2022 were $ 20.7 million and $ 3.3 million, respectively.

There were no variable lease costs for the years ending December 31, 2022 and 2021.

Cash paid on operating leases was $ 2.3 million and $ 2.2 million for the years ending December 31, 2022 and 2021, respectively.

There was $ 0.2 million, $ 0.03 million, and $ 0.008 million in variable lease costs for the years ending December 31, 2023, 2022, and 2021, respectively.

Cash paid on operating leases was $ 2.3 million for both of the years ending December 31, 2023 and 2022, respectively.

Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2023 are as follows (dollars in thousands):

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GOODWILL AND INTANGIBLE ASSETS

The rollforward of goodwill for each of the preceding three years is included in the table below (dollars in thousands):

Years Ended December 31,

Balance at January 1

Acquired goodwill

Balance at December 31

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value.

Bank of the Sierra (the “Bank”) is the only subsidiary of the Company that meets the materiality criteria necessary to be deemed an operating segment, and because the Company exists primarily for the purpose of holding the stock of the Bank we have determined that only one unified operating segment or reporting unit (the consolidated Company) exists.

The fair value of the consolidated Company is its market capitalization, as determined by quoted prices in active markets.

If the Company’s market capitalization exceeds recorded shareholders’ equity, the book value, it can be reasonably presumed that no impairment exists.

At December 31, 2022 (the measurement date that the Company selected), the Company’s stock closed at $ 21.24 which resulted in a market capitalization in excess of shareholders book equity.

Therefore it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment at December 31, 2022.

The balance of goodwill at the years beginning and ended December 31, 2023, 2022 and 2021 was $ 27.4 million.

There was no acquired goodwill or impairment for the years ended December 31, 2023, 2022 and 2021.

The Company performs its annual goodwill impairment tests annually, or more often if events or circumstances indicate the carrying value may not be recoverable.

The annual assessment date was changed to October 1 in 2023 as it was December 31 in 2022, to allow more time for evaluation of impairment.

The Company performed a Step 1 goodwill impairment assessment as of October 1, 2023 using a market approach.

Based on the results of the Company’s goodwill impairment assessment, the Company determined that the fair value of its reporting unit, which was at the consolidated level, exceeded the carrying value.

Therefore, goodwill was not impaired as of December 31, 2023 and there was no impairment charges related to the Company’s goodwill recorded during the year ended December 31, 2023.

Acquired Intangible Assets

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Federal Home Loan Bank stock, at cost

The Company has invested in limited partnerships that operate qualified affordable housing projects to receive tax benefits in the form of tax deductions from operating losses and tax credits.

The Company accounts for these investments under the cost method and management analyzes these investments annually for potential impairment.

The Company holds ownership interests in limited partnerships and limited liability companies that invest in affordable housing, and small business investment companies which are included in other assets.

These investments are designed to generate a return primarily through the realization of federal tax credits and deductions, which may be subject to recapture by taxing authorities if compliance requirements are not met, or for CRA credits.

The Company accounts for its low income housing investments using the proportional amortization method and management analyzes these investments annually for potential impairment.

The Company evaluates its interests in these entities to determine whether it has a variable interest and whether it is required to consolidate these entities.

A variable interest is an investment or other interest that will absorb portions of an entity's expected losses or receive portions of the entity's expected residual returns.

If the Company determines it has a variable interest in an entity, it evaluates whether such interest is in a Variable Interest Entity (“VIE”).

A VIE is broadly defined as an entity where either:

1) The equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity's economic performance;

2) The equity investment at risk is insufficient to finance that entity's activities without additional subordinated financial support.

The Company is required to consolidate any VIE when it is determined to be the primary beneficiary of the VIE's operations.

A variable interest holder is considered to be the primary beneficiary of a VIE if it has both the power to direct the activities of a VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE.

The Company’s assessment of whether it is the primary beneficiary of a VIE includes consideration of various factors such as:

1) The Company's ability to direct the activities that most significantly impact the entity's economic performance;

2) its form of ownership interest;

3) its representation on the entity's governing body;

4) the size and seniority of its investment, the maximum of which is four percent;

5) its ability and the rights of other investors to participate in policy making decisions and to replace the manager of and/or liquidate the entity.

The Company is required to evaluate whether to consolidate a VIE both at inception and on an ongoing basis as changes in circumstances require reconsideration.

The Company’s investments in qualified affordable housing projects, and small business investment companies meet the definition of a VIE as the entities are structured such that the limited partner investors lack substantive voting rights.

The Company, as a limited partner, is liable only to make the payments due on its subscription and is not liable for the debts, liabilities, contracts or other obligations of the Partnership.

The Company had $10.5 million in remaining capital commitments to these partnerships at December 31, 2023.

The general partner or managing member has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities.

Accordingly, as a limited partner, the Company is not the primary beneficiary and is not required to consolidate these entities.

The Company accounts for its investment in limited partnerships which invest in small business investment companies under the cost method.

Under this method, the investments are initially recorded at their historical cost.

Dividends received from these investments is recorded in Other Income in the Income Statement.

Management analyzes these investments annually for potential impairment.

The Company holds certain equity investments that are not readily marketable securities and thus are classified as “other assets” on the Company’s balance sheet.

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Any stock deemed in excess is automatically repurchased by the FHLB at cost.

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at year-end 2022 and 2021 were $ 97.8 million and $ 115.2 million, respectively.

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at year-ends 2023 and 2022 were $ 162.2 million and $ 97.8 million, respectively.

Aggregate annual maturities of time deposits were as follows (dollars in thousands):

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Short term borrowings

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.

At year end, long-term advances from FHLB consisted of the following (dollars in thousands):

Weighted average interest rate

As of December 31:

Federal Home Loan Bank advances, maturing 2026

Federal Home Loan Bank advances, maturing 2028

Federal Home Loan Bank advances, maturing 2026

Federal Home Loan Bank advances, maturing 2028

Included in short term borrowings was $ 25.5 million outstanding in fixed-rate overnight FHLB advances and $ 125.0 million in fixed-rate short term FHLB advances at December 31, 2023.

At December 31, 2022 there were $ 94.0 million outstanding in fixed-rate overnight FHLB advances and no fixed-rate short term FHLB advances.

Each FHLB advance is payable at its maturity date, with a prepayment penalty for fixed rate advances.

The advances were collateralized by $ 1.3 billion of first

mortgage loans under a blanket lien arrangement at year end 2022.

The advances were collateralized by $ 1.3 billion of first mortgage loans under a blanket lien arrangement at year end 2023.

Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow up to the total of $ 930.1 million at year-end 2023, with a remaining borrowing capacity of $ 485.6 million if sufficient additional collateral was pledged.

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The Company had unsecured lines of credit with its correspondent banks which, in the aggregate, amounted to $ 382.0 million and $ 362.0 million at December 31, 2023 and 2022, respectively, at fixed interest rates which vary with market conditions.

Included in short term borrowings above there was $ 125.0 million outstanding overnight under these lines of credit at December 31, 2022 and no balance outstanding at December 31, 2021.

Included in short term borrowings above there was $ 130.0 million outstanding overnight under these lines of credit at December 31, 2023 and $ 125.0 million outstanding overnight at December 31, 2022.

LONG-TERM DEBT

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Fixed - floating rate subordinated debentures, due 2031 (1)

(1) 3.25 % fixed rate for five years then floating rate at 253.5 basis points over 3-month term SOFR .

(1) 3.25 % fixed rate for five years then floating rate at 253.5 bps over 3-month term SOFR.

SUBORDINATED DEBENTURES

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The Subordinated Debentures, purchased by Trust II, represent the sole assets of the Trust II.

Those Subordinated Debentures mature on March 17, 2034, bear a current interest rate of 2.97 % (based on 3-month LIBOR plus 2.75 %), with re-pricing and payments due quarterly.

Those Subordinated Debentures mature on March 17, 2034, bear a current interest rate of 8.39 % (based on 3-month CME Term SOFR plus tenor spread adjustment of 0.26161 % plus 2.75 %), with re-pricing and payments due quarterly.

Those Subordinated Debentures are currently redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 17 th , June 17 th , September 17 th , or December 17 th .

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The Subordinated Debentures, purchased by Trust III, represent the sole assets of the Trust III.

Those Subordinated Debentures mature on September 23, 2036 , bear a current interest rate of 1.62 % (based on 3-month LIBOR plus 1.40 %), with repricing and payments due quarterly.

Those Subordinated Debentures mature on

September 23, 2036 , bear a current interest rate of 7.02 % (based on 3-month CME Term SOFR plus tenor spread adjustment of 0.26261 % plus 1.40 %), with repricing and payments due quarterly.

Those Subordinated Debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 23 rd , June 23 rd , September 23 rd , or December 23 rd .

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The Subordinated Debentures, purchased by Trust IV, represent the sole assets of the Trust IV.

Those Subordinated Debentures mature on December 15, 2037 , bear a current interest rate of 1.70 % (based on 3-month LIBOR plus 1.50 %), with re-pricing and payments due quarterly.

Those Subordinated Debentures mature on December 15, 2037 , bear a current interest rate of 7.15 % (based on 3-month CME Term SOFR plus tenor spread adjustment of 0.26161 % plus 1.50 %), with re-pricing and payments due quarterly.

Those Subordinated Debentures are currently redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank, on any March 15 th , June 15 th , September 15 th , or December 15 th .

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Deferred tax assets:

Allowance for credit losses on loans and leases

Foreclosed assets

Allowance for credit losses on loans

Deferred compensation

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Premises and equipment

Net unrealized gain on securities available-for-sale

Total deferred tax liabilities

Net deferred tax assets

The Company believes that the deferred tax assets will be fully realized, therefore no valuation allowance has been recorded.

The expense for income taxes differs from amounts computed by applying the statutory Federal income tax rates to income before income taxes.

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Our federal income tax returns for the years ended December 31, 2020, 2021 and 2022 are open to audit by the federal authorities and our California state tax returns for the years ended December 31, 2019, 2020, 2021 and 2022 are open to audit by the state authorities.

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.

Net operating loss carry forwards, to the extent not used will begin to expire in 2033.

At December 31, 2023, the Company has net federal net operating loss carry forwards of approximately $ 3.4 million which expire at various dates from 2031 to 2034.

The Company also had California Franchise tax net operating loss carry forwards of approximately $ 5.4 million which expire at various dates from 2032 to 2036.

Net operating loss carry forwards available from acquisitions are substantially limited by Section 382 of the Internal Revenue Code and benefits not expected to be realized due to the limitation have been excluded from the deferred tax asset and net operating loss carry forward amounts noted above.

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Federal Reserve Requirements

Banks are normally required to maintain reserves with the Federal Reserve Bank equal to a specified percentage of their reservable deposits less vault cash.

The Federal Reserve Bank has temporarily eliminated the reserve requirement in response to the COVID-19 pandemic, in an effort to free up available cash for lending purposes.

There were no reserve balances required to be maintained at the Federal Reserve Bank by the Company at December 31, 2022 and 2021.

Historically banks were required to maintain reserves with the Federal Reserve Bank equal to a specified percentage of their reservable deposits less vault cash.

Effective March 26, 2020 the Federal Reserve Board reduced the reserve requirement to zero percent indefinitely.

Financial Instruments with Off-Balance-Sheet Risk

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Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash

requirements.

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Commitments to extend credit are made at both fixed and variable rates of interest as stated in the table above.

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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).

The Company will establish litigation and legal reserves, where appropriate, in accordance with FASB guidance over loss contingencies (ASC 450).

The outcome of litigation and other legal and regulatory matters is inherently uncertain, however, and it is possible that one or more of the legal or regulatory matters currently pending or threatened could have a material adverse effect on our liquidity, consolidated financial position, and/or results of operations.

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Share Repurchase Plan

At December 31, 2022, the Company had a stock repurchase plan which has no expiration date.

During the year ended December 31, 2022, the Company repurchased 182,562 shares.

At December 31, 2023, the Company had a 2023 Share Repurchase Plan with an expiration date of October 31, 2024.

This share repurchase plan replaced the 2022 Share Repurchase Plan which expired on October 31, 2023.

During the year ended December 31, 2023, the Company repurchased 481,094 shares under the 2022 Share Repurchase Plan and no shares under the 2023 Share Repurchase Plan.

The total number of shares available for repurchase at December 31, 2023 was 1,000,000 .

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Stock Options

On March 16, 2017 the Company’s Board of Directors approved and adopted the 2017 Stock Incentive Plan (the “2017 Plan”), which became effective May 24, 2017 pursuant to the approval of the Company’s shareholders.

The 2017 Plan replaced the Company’s 2007 Stock Incentive Plan (the “2007 Plan”), which expired by its own terms on March 15, 2017.

Options to purchase 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.

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.

On March 17, 2023, the Company’s Board of Directors approved and adopted the 2023 Equity Compensation Plan (the “2023 Plan”), which became effective May 24, 2023, the date approved by the Company’s shareholders.

The 2023 Plan replaced the Company’s 2017 Stock Incentive Plan (the “2017 Plan”).

Options to purchase 210,800 shares granted under the 2017 Plan and options to purchase 59,800 shares that were granted under the 2007 Plan were still outstanding as of December 31, 2023, and remain unaffected by that plan’s expiration.

The 2023 Plan provides for the issuance of various types of equity awards, including options, stock appreciation rights, restricted stock awards, restricted share units, performance share awards, dividend equivalents, or any combination thereof.

Such awards may be granted to officers and employees as well as non-employee directors, which awards may be granted on such terms and conditions as are established by the Board of Directors or the Compensation Committee in its discretion.

The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2023 Plan was initially 360,000 shares, and the number remaining available for grant as of December 31, 2023 was 292,581 .

All options granted under the 2017 and 2007 Plans have been or will be granted at an exercise price of not less than 100 % of the fair market value of the stock on the date of grant, exercisable in installments as provided in individual stock option agreements.

All options granted under the 2023, 2017 and 2007 Plans have been or will be granted at an

exercise price of not less than 100 % of the fair market value of the stock on the date of grant, exercisable in installments as provided in individual stock option agreements.

In the event of a “Change in Control” as defined in the Plans, all outstanding options shall become exercisable in full (subject to certain notification requirements), and shall terminate if not exercised within a specified period of time unless such options are assumed by the successor corporation or substitute options are granted.

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Total fair value of stock options vested

$ 0.3 million in cash was received from the exercise of 29,640 shares during the period ended December 31, 2022, with a related tax benefit of $ 0.1 million.

$ 0.3 million in cash was received from the exercise of 25,452 shares during the period ended December 31, 2021, with a related tax benefit of $ 0.1 million.

No shares were exercised during the year ended December 31, 2023.

$ 0.3 million in cash was received from the exercise of 29,640 shares during the year ended December 31, 2022, with a related tax benefit of $ 0.1 million.

$ 0.3 million in cash was received from the exercise of 25,452 shares during the period ended December 31, 2021, with a related tax benefit of $ 0.1 million.

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GAAP, charges of $ 0.1 million, $ 0.1 million, and $ 0.1 million are reflected in the Company’s income statements for the years ended December 31, 2023, 2022, and 2021, respectively, as pre-tax compensation and directors’ expense related to stock options.

The related tax benefit of these options is $ 0.03 million for the years ended December 31, 2022 and 2021, and $ 0.1 million for the year ended December 31, 2020.

The related tax benefit of these options is $ 0.02 million for the year ended December 31, 2023 and $ .03 million for the years ended December 31, 2022 and December 31, 2021.

Unamortized compensation expense associated with unvested stock options outstanding at December 31, 2023 was $ 0.1 million, which will be recognized over a weighted average period of 1.0 years.

Restricted Stock Grants

The Company’s restricted stock awards are non-transferrable shares of common stock and are available to be granted to the Company’s employees and directors.

The Company’s restricted stock awards granted under the 2017 Plan and 2023 Plan are non-transferrable shares of common stock and are available to be granted to the Company’s employees and directors.

The vesting period of restricted stock awards is determined at the time the awards are issued, and different awards may have different vesting terms;

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Restricted stock awards are valued utilizing the fair value of the Company’s stock at the grant date.

During the year ending 2022, 70,465 shares were granted to employees and directors of the Company.

These awards are expensed on a straight-line basis over the vesting period.

During the year ending 2023, 129,904 shares were granted to employees and directors of the Company ( 29,064 under the 2017 Plan and 100,840 under the 2023 Plan).

These awards are expensed on a straight-line basis

over the vesting period.

Compensation expense related to restricted stock units for the years ended December 31, 2023, 2022 and 2021 was $ 1.7 million, $ 1.2 million, and $ 0.9 million respectively, and the recognized income tax benefit related to this expense was $ 0.4 million, $ 0.4 million, and $ 0.3 million, respectively.

As of December 31, 2022, there was $ 2.9 million of unamortized compensation and directors’ cost related to unvested restricted stock awards

granted under the 2017 plan.

As of December 31, 2023, there was $ 3.3 million of unamortized compensation and directors’ cost related to unvested restricted stock awards granted under the 2023 and 2017 plans.

That cost is expected to be amortized over a weighted average period of 2.3 years.

The total fair value of shares vested during the year ended December 31, 2022 and 2021 was $ 1.3 million and $ 0.7 million, respectively.

There were no shares vested during the year ended December 31, 2020.

The total fair value of shares vested during the year ended December 31, 2023, 2022 and 2021 was $ 1.2 million, $ 1.3 million and $ 0.7 million, respectively.

A summary of the Company’s nonvested shares for the year follows (shares in thousands, except grant date fair value):

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The final rule became effective on January 1, 2020 and was elected by the Bank at that time.

In April 2020, the federal banking agencies issued an interim final rule that makes temporary changes to the CBLR framework, pursuant to section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and a second interim final rule that provides a graduated increase in the community bank leverage ratio requirement after the expiration of the temporary changes implemented pursuant to section 4012 of the CARES Act.

The community bank leverage ratio removes the requirement for qualifying banking organizations to calculate and report risk-based capital but rather only requires a Tier 1 to average assets (leverage) ratio.

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Under the interim final rules the community bank leverage ratio minimum requirement is 8% as of December 31, 2020, 8.5% for calendar year 2021, and 9% for calendar year 2022 and beyond.

The interim rule allows for a two-

quarter grace period to correct a ratio that falls below the required amount, provided that the bank maintains a leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond.

The interim rule allows for a two-quarter grace period to correct a ratio that falls below the required amount, provided that the bank maintains a

leverage ratio of 7% as of December 31, 2020, 7.5% for calendar year 2021, and 8% for calendar year 2022 and beyond.

Under the final rule, an eligible banking organization can opt out of the CBLR framework and revert back to the risk-weighting framework without restriction.

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Certain officers of the Company have supplemental life insurance policies with death benefits available to the officers’ beneficiaries.

In connection with these plans the Company has purchased, or acquired through merger, single premium life insurance policies with cash surrender values totaling $ 43.2 million at December 31, 2022 and 2021.

In connection with these plans the Company has purchased, or acquired through merger, single premium life insurance policies with cash surrender values totaling $ 41.7 million and $ 43.2 million at December 31, 2023 and 2022.

Officer and Director Deferred Compensation Plan

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The Company contributed $ 1.2 million to the Plan in each of the years ended 2022 and 2021 and contributed $ 1.3 million to the Plan in 2023.

Starting in 2024, the Company has adopted a safe-harbor plan and will match 100 % of the first 1% and 50 % of the next 5% of employee contributions each pay period.

NONINTEREST INCOME

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RELATED PARTY TRANSACTIONS

During the normal course of business, the Bank enters into loans with related parties, including executive officers and directors.

During the normal course of business, the Bank may enter into loans with related parties, including executive officers and directors.

These loans are made with substantially the same terms, including rates and collateral, as loans to unrelated parties.

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Balance of recurring Level 3 assets at January 1,

Total gains or losses for the period:

Included in other comprehensive income

Transfers out of Level 3

Balance of recurring Level 3 assets at December 31,

The following tables present quantitative information about recurring level 3 fair value measurements at December 31, 2022 (dollars in thousands):

The following table present quantitative information about recurring level 3 fair value measurements at December 31, 2023 (dollars in thousands):

Valuation Technique(s)

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Credit spread

Collateralized Loan Obligations

New issue pricing

Constant prepayment rate

Secondary market pricing

Credit quality of issuer

Recovery rate

Credit spread

Assets and liabilities measured at fair market value on a non-recurring basis are summarized below (dollars in thousands):

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Collateral dependent loans

Foreclosed assets

Year Ended December 31, 2022

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Collateral dependent impaired loans

Foreclosed assets

The following table presents quantitative information about level 3 fair value measurements for assets measured at fair value on a non-recurring basis at December 31, 2021 (dollars in thousands):

Valuation Technique(s)

Unobservable Input(s)

Weighted Average

Impaired loans - commercial and industrial

Fair value of collateral

Collateral discount

There were no assets measured at fair value on a non-recurring basis with level 3 fair value measurements at December 31, 2022.

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These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments.

In addition, the tax ramifications

related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors.

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The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges, live trading desk pricing from brokerages, or by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities by relying on their relationship to other benchmark quoted securities when quoted prices for specific securities are not readily available.

Loans and leases :

Fair values of loans, excluding loans held for sale, are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and estimated using discounted cash flow analyses.

Fair values of loans are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and estimated using discounted cash flow analyses.

The estimation of fair values of loans results in a Level 3 classification as it requires various assumptions and considerable judgement to incorporate factors relevant when selling loans to market participants, such as funding costs, return requirements of likely buyers and performance expectations of the loans given the current market environment and quality of loans.

Mortgage loans :

Fair value of mortgage loans, included in the table with loans 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.

Fair value of mortgage loans, included in the table with loans held for investment, are based on the exit price notion set forth by ASU 2016-01 effective January 1, 2018 and estimated using discounted cash flow analyses.

The estimation of fair values of mortgage loans results in a Level 3 classification as it requires various assumptions and considerable judgement to incorporate factors relevant when selling loans to market participants, such as funding costs, return requirements of likely buyers and performance expectations of the loans given the current market environment and quality of loans.

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The fair values of subordinated debentures are determined based on the current market value for like instruments of a similar maturity and structure.

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

Year Ended December 31, 2022

Carrying amount and estimated fair values of financial instruments not carried at fair value were as follows (dollars in thousands):

December 31, 2023

Estimated Fair Value

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Cash and cash equivalents

Securities available-for-sale

Securities held-to-maturity

Loans and leases held for investment

Collateral dependent loans

Loans held for investment

Financial Liabilities:

Noninterest bearing

Interest bearing

Time deposits

Repurchase agreements

Short-term borrowings

Other borrowings

Long-term borrowings

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Standby letters of credit

Carrying amount and estimated fair values of financial instruments were as follows (dollars in thousands):

Year Ended December 31, 2021

December 31, 2022

Estimated Fair Value

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Cash and cash equivalents

Securities available for sale

Loans and leases held for investment

Collateral dependent impaired loans

Securities held-to-maturity

Loans held for investment

Financial Liabilities:

Noninterest bearing

Interest bearing

Fed funds purchased and repurchase agreements

Short-term borrowings

Time deposits

Repurchase agreements

Other borrowings

Long-term borrowings

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Unfunded commitments related to these investments in qualified affordable housing projects totaled $ 10.5 million and $ 7.0 million at December 31, 2023 and 2022, respectively.

During the years ended December 31, 2022, 2021 and 2020, the Company recognized amortization expense on these investments of $ 0.5 million, $ 0.5 million, and $ 0.6 million, respectively which was included within pretax income on the consolidated statements of income.

Additionally, during the years ended December 31, 2022, 2021 and 2020 the Company recognized tax credits and other benefits from its investment in affordable housing tax credits of $ 0.5 million.

During the years ended December 31, 2023, 2021 and 2021, the Company recognized amortization expense on these investments of $ 0.7 million, $ 0.5 million, and $ 0.5 million, respectively which was included within the tax provision using the proportional amortization method on the consolidated statements of income.

Additionally, during the year ended December 31, 2023, the Company recognized $ 0.6 million in tax credits and other benefits from its investment in affordable housing tax credits and $ 0.5 million for each of the years ended December 31, 2022 and 2021.

The Company had no impairment losses during the years ended December 31, 2023, 2022 and 2021.

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Total noninterest income

Noninterest expense

Salaries and employee benefits (1)

Occupancy expense (1)

Gains on sale of OREO

Total noninterest expense

(1) Not within the scope of ASC 606.

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Undistributed net income of subsidiary

Gain on sale of securities

(Increase) decrease in other assets

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Net interest income

Provision for loan and lease losses

Provision (benefit) for credit losses

Noninterest income

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Net interest income

Provision for loan and lease losses

Provision for credit losses

Noninterest income

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SUBSEQUENT EVENTS

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.

The Company sold a portion of such assets in the first quarter of 2023 for $ 7.7 million, which constituted book value.

The Company continues to actively work with interested buyers to sell the remaining assets of the dairy.

Subsequent to year end, $ 196.7 million of bonds were sold.

The bonds had a weighted average book yield of 2.61 %.

The proceeds from the bond sale were used to pay down short-term borrowings at an average rate of 5.52 %.

The loss on this transaction of $ 14.5 million was recognized in 2023 as management had the intent to sell such bonds at December 31, 2023.

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.

What changed 10-K

Item 8. Financial Statements and Supplementary Data