What changed in this filing

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Item 1. Financial Statements

2024-08-05 compared with 2024-05-06 · 230 added, 175 removed, 775 unchanged (34% of the section changed)

3 unchanged sentences

(dollars in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

3 unchanged sentences

Investment securities

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

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

Available-for-sale, net of allowance for credit losses of $ 0 and $ 0

Held-to-maturity, net of allowance for credit losses of $ 16 at both periods

Total investment securities

19 unchanged sentences

24,000,000 shares authorized;

14,645,298 and 15,170,372 shares issued and outstanding at March 31, 2024, and December 31, 2023, respectively

14,466,873 and 15,170,372 shares issued and outstanding at June 30, 2024 unaudited, and December 31, 2023, respectively

Additional paid-in capital

6 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

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

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024, and 2023

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

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Interest and dividend income

12 unchanged sentences

Credit loss expense - loans

Credit loss expense - unfunded commitments

Credit loss (benefit) expense - unfunded commitments

Credit loss benefit - debt securities held-to-maturity

Net interest income after provision for credit losses

1 unchanged sentence

Service charges and fees on deposit accounts

Net (loss) gain on sale of securities available-for-sale

Net gain (loss) on sale of securities available-for-sale

Net gain on sale of fixed assets

Increase in cash surrender value of life insurance

Realized gain on available-for-sale securities

Total noninterest income

17 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024, and 2023

(dollars in thousands, unaudited)

Three months ended March 31,

Other comprehensive gain, before tax:

Unrealized gain on securities:

Unrealized holding gain arising during period

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

Other comprehensive gain, before tax

Income tax expense related to items of other comprehensive gain

Other comprehensive gain, net of tax:

Three months ended June 30,

Six months ended June 30,

Other comprehensive gain (loss), before tax:

Unrealized gain (loss) on securities:

Unrealized holding gain (loss) arising during period

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

Other comprehensive gain (loss), before tax

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

Other comprehensive gain (loss), net of tax:

Comprehensive income

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

Income tax expenses associated with the reclassification adjustment for the three months ended March 31, 2024, and 2023, was $ 0.8 million and $ 0.01 million, respectively.

Income tax expenses associated with the reclassification adjustment for the three months ended June 30, 2024, and 2023, was $ 0 and $ 0.01 million, respectively.

Income tax (benefits) expenses associated with the reclassification adjustment for the six months ended June 30, 2024 and 2023 were $( 0.9 ) million and $ 0.1 million, respectively.

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

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

FOR THE THREE MONTHS ENDED JUNE 30, 2024, and 2023

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

1 unchanged sentence

Shareholders'

Balance, March 31, 2023

Other comprehensive loss, net of tax

Restricted stock forfeited / cancelled

Restricted stock vested in period

Stock-based compensation - stock options

Stock-based compensation - restricted stock

Stock repurchased

Excise tax on stock repurchased

Cash dividends - $ 0.23 per share

Balance, June 30, 2023

Balance, March 31, 2024

Other comprehensive gain, net of tax

Restricted stock forfeited / cancelled

Stock-based compensation - stock options

Stock-based compensation - restricted stock

Stock repurchased

Excise tax on stock repurchased

Cash dividends - $ 0.23 per share

Balance, June 30, 2024

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

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

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

Comprehensive

Shareholders'

Balance, December 31, 2022

3 unchanged sentences

Restricted stock forfeited / cancelled

Restricted stock vested in period

Stock-based compensation - stock options

Stock-based compensation - restricted stock

Stock repurchase

Excise tax on stock repurchase

Stock repurchased

Excise tax on stock repurchased

Cash dividends - $ 0.46 per share

Balance, March 31, 2023

Balance, June 30, 2023

Balance, December 31, 2023

6 unchanged sentences

Stock-based compensation - restricted stock

Stock repurchase

Excise tax on stock repurchase

Stock repurchased

Excise tax on stock repurchased

Cash dividends - $ 0.46 per share

Balance, March 31, 2024

Balance, June 30, 2024

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

FOR THE SIX MONTHS ENDED JUNE 30, 2024, AND 2023

(dollars in thousands, unaudited)

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities:

5 unchanged sentences

Provision for credit losses on loans

Benefit for credit losses on held-to-maturity securities

Depreciation and amortization

3 unchanged sentences

Amortization of core deposit intangible

Decrease in interest receivable and other assets

Decrease in other liabilities

Increase in interest receivable and other assets

(Decrease) increase in other liabilities

Deferred income tax benefit

6 unchanged sentences

Proceeds from sales of securities available for sale

Purchase of securities available for sale

Purchases of securities available for sale

Principal pay downs on securities available for sale

Net purchases of FHLB stock

Loan originations and payments, net

9 unchanged sentences

Decrease in short-term Federal Home Loan Bank advances

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

Increase (decrease) in customer repurchase agreements

8 unchanged sentences

Interest paid

Income taxes paid

Supplemental schedule of noncash investing and financing activities:

3 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

June 30, 2024

Note 1 – The Business of Sierra Bancorp

Sierra Bancorp (the “Company”) is a California corporation headquartered in Porterville, California, and is a registered bank holding company under federal banking laws.

The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”) and has been the Bank’s sole shareholder since August 2001.

The Company was formed to serve as the holding company for Bank of the Sierra (the “Bank”) and has been the Company’s sole shareholder since August 2001.

The Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish.

As of March 31, 2024, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”).

As of June 30, 2024, the Company’s only other subsidiaries were Sierra Statutory Trust II, Sierra Capital Trust III, and Coast Bancorp Statutory Trust II, which were formed solely to facilitate the issuance of capital trust pass-through securities (“TRUPS”).

Pursuant to the Financial Accounting Standards Board (“FASB”) standard on the consolidation of variable interest entities, these trusts are not reflected on a consolidated basis in the Company’s financial statements.

6 unchanged sentences

Moreover, the Bank has specialized lending units which focus on agricultural borrowers, commercial real estate, and mortgage warehouse lending.

In addition, in February 2020 the Bank opened a loan production office which is currently located in Roseville, CA.

To support organic growth in the agricultural and commercial lending sectors the Bank opened a loan production office in Templeton, CA in April 2022.

The Company had total assets of $ 3.6 billion at March 31, 2024, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley.

The Bank’s deposit accounts, which totaled $ 2.8 billion at March 31, 2024, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

In addition, the Bank maintains an administrative office in Roseville, CA.

Company had total assets of $ 3.7 billion at June 30, 2024, and for a number of years we have claimed the distinction of being the largest bank headquartered in the South San Joaquin Valley.

The Company’s deposit accounts, which totaled $ 2.9 billion at June 30, 2024, are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to maximum insurable amounts.

Note 2 – Basis of Presentation

4 unchanged sentences

Such adjustments can generally be considered as normal and recurring unless otherwise disclosed in this Form 10-Q.

In preparing the accompanying financial statements, Management has taken subsequent events into consideration, through May 6, 2024 and recognized them where appropriate.

In preparing the accompanying financial statements, Management has taken subsequent events into consideration, through August 5, 2024 and recognized them where appropriate.

The results of operations in the interim statements are not necessarily indicative of the results that may be expected for any other quarter, or for the full year.

5 unchanged sentences

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.

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.

24 unchanged sentences

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

Options to purchase 191,600 shares granted under the 2017 Plan and options to purchase 130,649 shares that were granted under the 2007 Plan were still outstanding as of March 31, 2024, and remain unaffected by that plan’s expiration.

Options to purchase 201,800 shares granted under the 2017 Plan and options to purchase 130,649 shares that were granted under the 2007 Plan were still outstanding as of June 30, 2024, and remain unaffected by that plan’s expiration.

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

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

The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2023 Plan was initially 360,000 shares, and the number remaining available for grant as of March 31, 2024, was 259,913 .

The total number of shares of the Company’s authorized but unissued stock reserved for issuance pursuant to awards under the 2023 Plan was 360,000 shares, and the number remaining available for grant as of June 30, 2024, was 260,170 .

The potential dilutive impact of unexercised stock options is discussed below in Note 5, Earnings per Share.

Pursuant to FASB’s standards on stock compensation, the value of each stock option and restricted stock award is reflected in our income statement as employee compensation or directors’ expense by amortizing its grant date fair value over the vesting period of the option or award.

The Company utilizes a Black-Scholes model to determine grant date fair values for options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

The Company utilized a Black-Scholes model to determine grant date fair values for options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards.

Forfeitures are reflected in compensation costs as they occur for both types of awards.

A pre-tax charge of $ 0.5 million was reflected in the Company’s income statement during the first quarter of 2024 and $ 0.4 million during the first quarter of 2023, as expense related to stock options and restricted stock awards.

A pre-tax charge of $ 0.5 million

was reflected in the Company’s income statement during the second quarter of 2024 and $ 0.4 million during the second quarter of 2023, as expense related to stock options and restricted stock awards.

For the first half of 2024 and 2023, the charges totaled $ 1.0 million and $ 0.8 million, respectively.

Restricted Stock Grants

5 unchanged sentences

These awards are expensed on a straight-line basis over the vesting period and consider the probability of meeting the performance criteria.

There were 36,114 shares granted to employees of the Company during the first three months of 2024.

As of March 31, 2024, there was $ 3.4 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 plan.

There were 36,114 shares granted to employees of the Company during the first six months of 2024.

As of June 30, 2024, there was $ 2.9 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 plan.

That cost is expected to be amortized over a weighted average period of 2.1 years.

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

Three months ended March 31,

The Company’s restricted stock award activity for the six months ended June 30, 2024, and 2023 is summarized below (unaudited):

Six months ended June 30,

Weighted Average Grant-Date Fair Value

1 unchanged sentence

Unvested shares, January 1,

Unvested shares, March 31,

Unvested shares, June 30,

Stock Option Grants

2 unchanged sentences

The exercise price of each stock option is determined at the time of the grant and may be no less than 100 % of the fair market value of such stock at the time the option is granted.

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

Three months ended March 31,

The Company’s stock option activity during the six months ended June 30, 2024, and 2023 are summarized below (dollars in thousands, except per share data, unaudited):

Six months ended June 30,

Weighted Average

6 unchanged sentences

Forfeited/Expired

Outstanding at March 31,

Exercisable at March 31,

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

Outstanding at June 30,

Exercisable at June 30,

This amount changes based on changes in the market value of the Company's stock.

1 unchanged sentence

The computation of earnings per share, as presented in the Consolidated Statements of Income, is based on the weighted average number of shares outstanding during each period, excluding unvested restricted stock awards.

There were 14,508,468 weighted average shares outstanding during the first quarter of 2024 and 14,971,842 during the first quarter of 2023.

There were 14,300,267 weighted average shares outstanding during the second quarter of 2024 and 14,735,568 during the second quarter of 2023, while there were 14,404,368 weighted average shares outstanding during the first six months of 2024 and 14,853,052 during the first six months of 2023.

Diluted earnings per share calculations include the effect of the potential issuance of common shares, which for the Company is limited to shares that would be issued on the exercise of “in-the-money” stock options, and unvested restricted stock awards.

For the first quarter of 2024, calculations under the treasury stock method resulted in the equivalent of 45,159 , shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 268,991 stock options were excluded from the calculation because they were underwater and thus anti-dilutive.

For the first quarter of 2023 the equivalent of 30,524 shares were added in calculating diluted earnings per share, while 327,141 anti-dilutive stock options were not factored into the computation.

For the second quarter of 2024, calculations under the treasury stock method resulted in the equivalent of 81,159 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while a weighted average of 260,924 shares were excluded from the calculation because they were underwater and thus anti-dilutive.

For the second quarter of 2023 the equivalent of 19,196 shares were added in calculating diluted earnings per share, while 405,229 anti-dilutive shares were not factored into the computation.

Likewise, for the first half of 2024 the equivalent of 63,109 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 265,107 options that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 22,456 shares and non-inclusion of 364,219 anti-dilutive options in calculating diluted earnings per share for first half of 2023.

Note 6 – Comprehensive Income

7 unchanged sentences

The Company’s exposure to credit loss in the event of nonperformance by counterparties for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and issuing letters of credit as it does for originating loans included on the balance sheet.

The Company uses the same credit policies in making

commitments and issuing letters of credit as it does for originating loans included on the balance sheet.

The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

March 31, 2024

June 30, 2024

December 31, 2023

8 unchanged sentences

Included in unused commitments are mortgage warehouse lines which are in the form of repo lines and are unconditionally cancellable.

Unused commitments on mortgage warehouse lines were $ 206.4 million at March 31, 2024, and $ 204.5 million at December 31, 2023.

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

The funding rate represents management’s estimate of the amount of the current unfunded commitment that will be funded over the

remaining contractual life of the commitment and is based on historical data.

Unused commitments on mortgage warehouse lines were $ 232.4 million at June 30, 2024, and $ 204.5 million at December 31, 2023.

The allowance for credit losses, (ACL) on unfunded commitments is estimated using the same reserve or coverage rates calculated on collectively evaluated loans following the application of a funding rate to the amount of the unfunded commitment.

The funding rate represents management’s estimate of the amount of the current unfunded commitment that will be funded over the remaining contractual life of the commitment and is based on historical data.

The ACL on unfunded loan commitments is located in other liabilities while any related provision expense is recorded as a provision for credit losses.

At March 31, 2024, the Company was also utilizing a letter of credit in the amount of $ 127.9 million issued by the Federal Home Loan Bank on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers.

At June 30, 2024, the Company was also utilizing a letter of credit in the amount of $ 127.9 million issued by the Federal Home Loan Bank (“FHLB”) on the Company’s behalf as security for certain deposits and to facilitate certain credit arrangements with the Company’s customers.

That letter of credit is backed by loans which are pledged to the FHLB by the Company.

20 unchanged sentences

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

Fair Value Measurements

25 unchanged sentences

Subordinated debentures

For financial asset categories that were carried on our balance sheet at fair value as of March 31, 2024, and December 31, 2023, the Company used the following methods and significant assumptions:

For financial asset categories that were carried on our balance sheet at fair value as of June 30, 2024, and December 31, 2023, the Company used the following methods and significant assumptions:

● Investment securities :

5 unchanged sentences

Fair value is the appraised value less expected disposition costs for OREO;

fair values for any other foreclosed assets are represented by estimated sales proceeds as

determined using reasonably available sources.

fair values for any other foreclosed assets are represented by estimated sales proceeds as determined using reasonably available sources.

Foreclosed assets for which appraisals can be feasibly obtained are periodically measured for impairment using updated appraisals.

Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic reevaluation of expected cash flows and the timing of resolution.

Fair values for other foreclosed assets are adjusted as necessary, subsequent to a periodic re-evaluation of expected cash flows and the timing of resolution.

If impairment is determined to exist, the book value of a foreclosed asset is immediately written down to its estimated impaired value through the income statement, thus the carrying amount is equal to the fair value and there is no valuation allowance.

2 unchanged sentences

(dollars in thousands, unaudited)

Fair Value Measurements at March 31, 2024, using

Fair Value Measurements at June 30, 2024, using

Quoted Prices in

23 unchanged sentences

Included in other comprehensive income

Balance of recurring Level 3 assets at March 31,

Assets reported at fair value on a nonrecurring basis are summarized below:

Fair Value Measurements – Nonrecurring

(dollars in thousands, unaudited)

Fair Value Measurements at March 31, 2024, using

Quoted Prices in

Active Markets for

Identical Assets

Observable Inputs

Unobservable Inputs

Individually evaluated collateral dependent loans

Residential real estate

Commercial real estate

Other construction/land

Total real estate

Other commercial

Consumer loans

Total collateral dependent loans

Foreclosed assets

Total assets measured on a nonrecurring basis

Balance of recurring Level 3 assets at June 30,

There were no assets reported at fair value on a nonrecurring basis at June 30, 2024.

Assets reported at fair value on a nonrecurring basis at December 31, 2023 are summarized below (dollars in thousands, unaudited):

Fair Value Measurements at December 31, 2023, using

26 unchanged sentences

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

Allowance for Credit Losses

31 unchanged sentences

Total held-to-maturity securities

An unrealized loss of $ 27.9 million, on securities transferred from the available-for-sale to held-to-maturity categorization, remains as of March 31, 2024, and is included in accumulated other comprehensive income, net of tax.

An unrealized loss of $ 27.4 million, on securities transferred from the available-for-sale to held-to-maturity categorization, remains as of June 30, 2024, 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.

Because of the implicit and explicit guarantees of the Federal Government on the Agency and Mortgage-Backed securities there is no expectation of future losses on any of these securities.

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

The Company’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.

The Company elected the practical expedient available under the current expected credit losses (“CECL”) accounting standard to exclude accrued interest receivable from the amortized cost basis of all categorizations of investment securities, 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 is included in other assets on the Company’s balance sheet and as of March 31, 2024, measured at $ 9.6 million and $ 1.7 million for available-for-sale securities and held-to-maturity securities, respectively.

Accrued interest receivable is included in other assets on the Company’s balance sheet and as of June 30, 2024, measured at $ 9.4 million and $ 2.4 million for available-for-sale securities and held-to-maturity securities, respectively.

Accrued interest receivable as of December 31, 2023, on these same classes of investment securities measured at $ 12.3 million and $ 2.4 million, respectively.

During the first quarter of 2024 , no interest receivable on available-for-sale or held-to-maturity securities was reversed against interest income and the Company did not have any held-to-maturity debt securities past due.

As of March 31, 2024, an allowance for credit losses of $ 0.02 million had been established on the Bank’s held-to-maturity portfolio, which is unchanged from the December 31, 2023, allowance for credit losses.

The following table summarizes the amortized cost of held-to-maturity municipal bonds aggregated by NRSRO credit rating:

During the first half of 2024 and 2023, no interest receivable on available-for-sale or held-to-maturity securities was reversed against interest income and the Company did not have any held-to-maturity debt securities past due.

As of June 30, 2024, an allowance for credit losses of $ 0.02 million had been established on the Company’s held-to-maturity portfolio, which is unchanged from the December 31, 2023, allowance for credit losses.

The following table summarizes the amortized cost of held-to-maturity municipal bonds aggregated by nationally recognized statistical rating organizations (“NRSRO”) credit rating:

Held-To-Maturity by Credit Rating

1 unchanged sentence

Held-To-Maturity

March 31, 2024

June 30, 2024

December 31, 2023

1 unchanged sentence

For available-for-sale debt securities in an unrealized loss position for which management has an intent to sell the security or considers it more likely-than-not that the security in question will be sold prior to a recovery of its amortized cost basis, the security will be written down to fair value through a direct charge to income.

For the remainder of available sale debt securities in an unrealized loss position, which don’t meet the previously outlined criteria, management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors.

For the remainder of available-sale-debt securities in an unrealized loss position, which do not meet the previously outlined criteria, management evaluates whether the decline in fair value is a reflection of credit deterioration or other factors.

In performing this evaluation, management considers the extent which fair value has fallen below amortized cost, changes in ratings by rating agencies, and other information indicating a deterioration in repayment capacity of either the underlying issuer or the borrowers providing repayment capacity in a securitization.

4 unchanged sentences

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

Less than twelve months

22 unchanged sentences

(dollars in thousands, unaudited)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Proceeds from sales, calls and maturities of securities available for sale

2 unchanged sentences

Net (loss) gain on sale of securities available for sale

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at March 31, 2024, and December 31, 2023 (dollars in thousands), are shown below, grouped by the remaining time to contractual maturity dates.

The amortized cost and estimated fair value of investment securities available-for-sale and held-to-maturity at June 30, 2024, and December 31, 2023 (dollars in thousands), are shown below, grouped by the remaining time to contractual maturity dates.

The expected life of investment securities may not be consistent with contractual maturity dates since the issuers of the securities might have the right to call or prepay obligations with or without penalties.

March 31, 2024

June 30, 2024

Available-for-Sale

21 unchanged sentences

Collateralized loan obligations

At March 31, 2024, the Company’s investment portfolio included 227 municipal bonds issued by 191 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $ 219.8 million.

At June 30, 2024, the Company’s investment portfolio included 226 municipal bonds issued by 191 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $ 215.5 million.

The largest exposure to any single municipality or agency was a combined $ 5.2 million (fair value) in general obligation bonds issued by the City of New York (NY).

1 unchanged sentence

At December 31, 2023, the Company’s investment portfolio included 485 municipal bonds issued by 398 different government municipalities and agencies located within 36 states, with an aggregate fair value of $ 372.4 million.

The largest exposure to any single municipality or agency was a combined $ 5.3 million (fair value) in general obligation bonds issued by the City of New York (NY).

The largest exposure to any single municipality or agency was a combined $ 5.3 million (fair value) in general obligation bonds

issued by the City of New York (NY).

In addition, the company owned 51 subordinated debentures issued by bank-holding companies totaling $ 52.0 million (fair value).

5 unchanged sentences

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

December 31, 2023

8 unchanged sentences

Total obligations of states and political subdivisions

The revenue bonds in the Company’s investment securities portfolios were issued by government municipalities and agencies to fund public services such as utilities (water, sewer, and power), educational facilities, and general public and

economic improvements.

The primary sources of revenue for these bonds are delineated in the table below, which shows the amortized cost and fair market values for the largest revenue concentrations as of the indicated dates.

1 unchanged sentence

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

December 31, 2023

9 unchanged sentences

Because rent levels are lower than standard market rents and the projects are generally highly leveraged, each project also typically generates tax-deductible operating losses that are allocated to the limited partners for tax purposes.

The Company currently has investments in five different LIHTC fund limited partnerships made in 2014, 2015, two in 2022, and one in 2023, all of which were California-focused funds that help the Company meet its obligations under the Community Reinvestment Act.

The Company currently has investments in seven different LIHTC fund limited partnerships made in 2014, 2015, two in 2022, one in 2023, and two in the second quarter of 2024, all of which were California-focused funds that help the Company meet its obligations under the Community Reinvestment Act.

We utilize the cost method of accounting for our LIHTC fund investments, under which we initially record on our balance sheet an asset that represents the total cash expected to be invested over the life of the partnership.

1 unchanged sentence

The income statement reflects tax credits and any other tax benefits from these investments “below the line” within our income tax provision, while the initial book value of the investment is amortized on the proportional amortization method as a “below the line” expense, over the time period in which the tax credits and tax benefits are expected to be received.

As of March 31, 2024, our total LIHTC investment book balance was $ 13.8 million, which includes $ 10.1 million in remaining commitments for additional capital contributions.

There were approximately $ 0.3 million in tax credits derived from our LIHTC investments that were recognized during the three months ended March 31, 2024, and “below the line” amortization expense of $ 0.6 million associated with those investments was recorded for the same time period.

As of June 30, 2024, our total LIHTC investment book balance was $ 23.4 million, which includes $ 19.4 million in remaining commitments for additional capital contributions.

There were approximately $ 0.8 million in tax credits derived from our LIHTC investments that were recognized during the six months ended June 30, 2024, and “below the line” amortization expense of $ 1.0 million associated with those investments was recorded for the same time period.

Our LIHTC investments are evaluated annually for potential impairment, and we have concluded that the carrying value of the investments is stated fairly and is not impaired.

2 unchanged sentences

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

Pursuant to the FAS standard on the consolidation of variable interest entities, these investments are not reflected on a consolidated basis in the Company’s financial statements.

Pursuant to the FASB standard on the consolidation of variable interest entities, these investments are not reflected on a consolidated basis in the Company’s financial statements.

Note 10 – 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.

Similar to practice under legacy GAAP, the ACL on the loan portfolio is a valuation allowance deducted from the recorded balance in loans.

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

The ACL on the loan portfolio is a valuation allowance deducted from the recorded balance in loans.

Under CECL the ACL represents principal which is not expected to be collected over the contractual life of the loans, adjusted for expected prepayment.

The ACL is increased by a provision for credit losses charged to expense, and by principal recovered on charged-off balances.

3 unchanged sentences

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 as a result 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 loans of $ 6.8 million and $ 5.6 million at March 31, 2024, and December 31, 2023, respectively is included in other assets on the Company’s balance sheet.

The following table presents loans by class as of March 31, 2024, and December 31, 2023.

Accrued interest receivable on loans of $ 7.0 million and $ 5.6 million at June 30, 2024, and December 31, 2023, respectively is included in other assets on the Company’s balance sheet.

The following table presents loans by class as of June 30, 2024, and December 31, 2023.

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.

2 unchanged sentences

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

December 31, 2023

15 unchanged sentences

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.

The following tables present the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of March 31, 2024, and December 31, 2023:

The following tables present the amortized cost basis of nonaccrual loans, according to loan class, with and without individually evaluated reserves as of June 30, 2024, and December 31, 2023:

Nonaccrual Loans

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

Nonaccrual Loans

3 unchanged sentences

Residential real estate

Commercial real estate

Total real estate

Other commercial

Consumer loans

December 31, 2023

7 unchanged sentences

Other commercial

Consumer loans

The Company did not recognize any interest on nonaccrual loans during the three months ended March 31, 2024, and would have recognized an additional $ 0.003 million in interest income on nonaccrual loans had those loans not been designated as nonaccrual.

Due to loans being placed on nonaccrual status, during the three months ended March 31, 2023, $ 0.04 million of interest receivable on loans was reversed against interest income.

The following table presents the amortized cost basis of collateral-dependent loans by class as of March 31, 2024, and December 31, 2023:

The Company did not recognize any interest on nonaccrual loans during the three or six months ended June 30, 2024, and would have recognized an additional $ 0.3 million in interest income on nonaccrual loans during the second quarter and first half of 2024 had those loans not been designated as nonaccrual.

Due to loans being placed on nonaccrual status, during the second quarter and first half 2024, $ 0.001 million and $ 0.1 million respectively, of interest receivable on loans was reversed against interest income.

The following table presents the amortized cost basis of collateral-dependent loans by class as of June 30, 2024, and December 31, 2023:

Collateral-Dependent Loans

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

December 31, 2023

7 unchanged sentences

Other commercial

During the first three months of 2024 the amortized cost balance of collateral-dependent loans increased by $ 6.2 million due primarily to a single agriculture real estate secured loan, offset by declines resulting from upgrades and payoffs.

The weighted average loan-to-value ratio of collateral dependent loans was 100 % at March 31, 2024.

There were no collateral dependent loans in the process of foreclosure as of March 31, 2024.

The following tables presents the aging of the amortized cost basis in past-due loans, according to class, as of March 31, 2024, and December 31, 2023:

During the first six months of 2024 the amortized cost balance of collateral-dependent loans decreased by $ 1.5 million due primarily to a single agriculture real estate secured loan, offset by the foreclosure and subsequent sale of an office real estate loan.

The weighted average loan-to-value ratio of collateral-dependent loans was 89 % at June 30, 2024.

There were no collateral-dependent loans in the process of foreclosure as of June 30, 2024.

The following tables presents the aging of the amortized cost basis in past due loans, according to class, as of June 30, 2024, and December 31, 2023:

Past Due Loans

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

30-59 Days Past Due

32 unchanged sentences

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

The following table presents the amortized cost basis of loans at March 31, 2024 that were both experiencing financial difficulty and modified during the quarter ended March 31, 2024, by class and by type of modification.

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

Loans to Borrowers Experiencing Financial Difficulty

(dollars in thousands, unaudited)

March 31, 2024

The following tables present the amortized cost basis of loans at June 30, 2024 that were both experiencing financial difficulty and modified during the three and six months ended June 30, 2024, by class and by type of modification.

There were no modifications of loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023.

Three months ended June 30, 2024

Principal Forgiveness

Payment Delay

Term Extension

7 unchanged sentences

Consumer loans

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended March 31, 2024:

Borrower Experiencing Financial Difficulty - Financial Effect

(dollars in thousands, unaudited)

March 31, 2024

Six months ended June 30, 2024

Principal Forgiveness

Payment Delay

Term Extension

Combination Term Extension Interest Rate Reduction

Total Class of Financing Receivable

Residential real estate

Commercial real estate

Other construction/land

Total real estate

Other commercial

Consumer loans

The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the three and six months ended June 30, 2024 (dollars in thousands, unaudited):

Three months ended June 30, 2024

Principal Forgiveness

Weighted-Average Interest Rate Reduction

6 unchanged sentences

Consumer loans

There were no payment defaults on loans previously modified in the preceding 12 months for either of the quarters ending March 31, 2024, and 2023.

Six months ended June 30, 2024

Principal Forgiveness

Weighted-Average Interest Rate Reduction

Weighted-Average Term Extension (years)

Residential real estate

Commercial real estate

Other construction/land

Other commercial

Mortgage warehouse lines

Consumer loans

There were no payment defaults on loans previously modified in the preceding 12 months for either of the quarters ending June 30, 2024, and 2023.

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

7 unchanged sentences

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

The following tables present the amortized cost of loans by credit quality classification in addition to loan vintage as of March 31, 2024, and December 31, 2023:

The following tables present the amortized cost of loans by credit quality classification in addition to loan vintage as of June 30, 2024, and December 31, 2023:

Loan Credit Quality by Vintage

(dollars in thousands, unaudited)

March 31, 2024

June 30, 2024

Term Loans Amortized Cost Basis by Origination Year

36 unchanged sentences

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 March 31, 2024, the Company had no loans categorized as PCD.

As noted in footnote 3, 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.

As of June 30, 2024, the Company had no loans categorized as PCD.

As noted in Note 3, 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.

13 unchanged sentences

Economic forecasts are considered over a four-quarter forecast period, with reversion to mean occurring on a straight-line basis over four quarters.

The call code regression models utilized upon implementation of CECL on January 1, 2022, and as of March 31, 2024, were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate.

Management selected the National Unemployment Rate as the driver of quantitative portion of collectively reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly FOMC forecast, and given the widespread familiarity of stakeholders with this economic metric.

The call code regression models utilized upon implementation of CECL on January 1, 2022, and as of June 30, 2024, were identical, and relied upon reasonable and supportable forecasts of the National Unemployment Rate.

Management selected the National Unemployment Rate as the driver of quantitative portion of collectively reserves on loan classes reliant upon the DCF methodology, primarily as a result of high correlation coefficients identified in regression modeling, the availability of forecasts including the quarterly Federal Open Market Committee (“FOMC”) forecast, and given the widespread familiarity of stakeholders with this economic metric.

The quantitative reserves for Farmland, Agricultural Production and Consumer loans are calculated using a Remaining Life methodology where average historical bank specific and peer loss rates are applied to expected loan balances over an estimated remaining life of loans in calculation of the quantitative portion of collectively evaluated loans in these classes.

9 unchanged sentences

● Changes in the volume and severity of past due, nonaccruals loans, and adversely classified loans, as reflected in changes of the relative level of loans classified as substandard and special mention

● Changes in the quality of the Bank’s loan review processes

● Changes in the quality of the Company’s loan review processes

● Changes in the value of underlying collateral for loans not identified as collateral-dependent

2 unchanged sentences

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

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

The 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 judgment.

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:

8 unchanged sentences

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

As of March 31, 2024, 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 tables present the activity in the allowance for credit losses by portfolio segment for the quarters ended March 31, 2024, and 2023:

As of June 30, 2024, 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 tables present the activity in the allowance for credit losses by portfolio segment for the quarters ended June 30, 2024, and 2023:

Allowance for Credit Losses and Recorded Investment in Financing Receivables

6 unchanged sentences

Allowance for credit losses:

Balance, March 31, 2024

(Benefit) provision for credit losses

Ending allowance balance:

Residential Real Estate

Commercial Real Estate

Farmland & Agricultural Production

Commercial & Industrial

Mortgage Warehouse

Allowance for credit losses:

Balance, March 31, 2023

(Benefit) provision for credit losses

Ending allowance balance:

The following tables present the activity in the allowance for credit losses by portfolio segment for the six months ended June 30, 2024 and 2023:

Residential Real Estate

Commercial Real Estate

Farmland & Agricultural Production

Commercial & Industrial

Mortgage Warehouse

Allowance for credit losses:

Balance, December 31, 2023

10 unchanged sentences

Ending allowance balance:

There were no significant changes in the Company’s loan portfolio ACL in the first quarter of 2024.

Note 11 – Goodwill

The balance of goodwill at the three months beginning and ended March 31, 2024 and 2023 was $ 27.4 million.

There was no acquired goodwill or impairment for the three months ended March 31, 2024 and 2023.

The balance of goodwill at the three and six months beginning and ended June 30, 2024 and 2023 was $ 27.4 million.

There was no acquired goodwill or impairment for the three or six months ended June 30, 2024 and 2023.

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

3 unchanged sentences

Management continues to evaluate whether or not a triggering event occurs, or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount before the next annual test in 2024, and has concluded no such events have occurred.

Therefore, goodwill was not impaired as of March 31, 2024, and there were no impairment charges related to the Company’s goodwill recorded during the quarter ended March 31, 2024.

Therefore, goodwill was not impaired as of June 30, 2024, and there were no impairment charges related to the Company’s goodwill recorded during the three or six months ended June 30, 2024.

Note 12 – Borrowings and Other Arrangements

The following table summarizes the Company’s other borrowings as of March 31, 2024, and December 31, 2023:

March 31, 2024

The following table summarizes the Company’s other borrowings as of June 30, 2024, and December 31, 2023:

June 30, 2024

December 31, 2023

Overnight Fed funds purchased (1)

Overnight Federal funds purchased

Short-term FHLB advance

2 unchanged sentences

The Company has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, FRB, and other correspondent banks.

Federal Funds Purchased (1) – The Company had unsecured available lines of credit with correspondent banks and the Federal Home Loan Bank for short-term borrowings totaling $ 504.8 million at March 31, 2024, and $ 374.8 million at December 31, 2023.

Federal Funds Purchased – The Company had unsecured available lines of credit with correspondent banks and the FHLB for short-term borrowings totaling $ 504.8 million at June 30, 2024, and $ 374.8 million at December 31, 2023.

In general, interest rates on these lines approximate the federal funds target rate.

Secured Federal Home Loan Bank Borrowings (2) – At March 31, 2024, and December 31, 2023, the Company had secured available lines of credit with the FHLB totaling $ 676.8 million and $ 586.7 million, respectively, based on eligible collateral of certain loans and investment securities.

Federal Reserve Line of Credit – The Company has an available line of credit with the Federal Reserve Bank of San Francisco secured by certain loans and investments.

At March 31, 2024, and December 31, 2023, the Company had borrowing capacity under this line totaling $ 376.2 million and $ 392.0 million, respectively.

The Company had no outstanding borrowings on this line of credit as of March 31, 2024, and December 31, 2022.

Secured FHLB Borrowings – At June 30, 2024, and December 31, 2023, the Company had secured available lines of credit with the FHLB totaling $ 672.3 million and $ 586.7 million, respectively, based on eligible collateral of certain loans and investment securities.

Federal Reserve Line of Credit – The Company has an available line of credit with the Federal Reserve Bank (“FRB”) of San Francisco secured by certain loans and investments.

At June 30, 2024, and December 31, 2023, the Company had borrowing capacity under this line totaling $ 348.4 million and $ 392.0 million, respectively.

The Company had no outstanding borrowings on this line of credit as of June 30, 2024, and December 31, 2023.

Repurchase Agreements – Repurchase agreements represent “sweep accounts,” where commercial deposit balances above a specified threshold are transferred at the close of each business day into non-deposit accounts secured by investment securities.

Repurchase agreements totaled $ 121.9 million at March 31, 2024, relative to a balance of $ 107.1 million at December 31, 2023.

Long-Term Debt – The Company has long-term debt in the form of fixed to floating rate subordinated debentures with a fixed rate of 3.25 % until September 30, 2026, then floating rate at 253.5 basis points over 3-month term SOFR until maturity on October 1, 2031.

The balance of the Company’s long-term debt, net of unamortized issuance costs, was $ 49.3 million at March 31, 2024, and December 31, 2023.

Repurchase agreements totaled $ 148.0 million at June 30, 2024, relative to a balance of $ 107.1 million at December 31, 2023.

The balance of the Company’s long-term debt, net of unamortized issuance costs, was $ 49.3 million at June 30, 2024, and December 31, 2023.

Subordinated Debentures - Sierra Statutory Trust II (“Trust II”), Sierra Capital Trust III (“Trust III”), and Coast Bancorp Statutory Trust II (“Trust IV”), (collectively, the “Trusts”) exist solely for the purpose of issuing trust preferred securities fully and unconditionally guaranteed by the Company.

1 unchanged sentence

Trust preferred securities are variable rate instruments which were benchmarked against the London Interbank Offered Rate (LIBOR) plus a spread until LIBOR was phased out on June 30, 2023.

These instruments are benchmarked against the Secured Overnight Financing Rate (SOFR), effective June 30, 2023.

At March 31, 2024, and December 31, 2023, the Company’s trust preferred securities totaled $ 35.7 million.

These instruments are benchmarked against the SOFR, effective June 30, 2023.

At June 30, 2024, and December 31, 2023, the Company’s trust preferred securities totaled $ 35.7 million.

Note 13 – Revenue Recognition

5 unchanged sentences

The guidance does not apply to revenue associated with financial instruments such as loans and investments, and other noninterest income such as loan servicing fees and earnings on bank-owned life insurance, which are accounted for on an accrual basis under other provisions of GAAP.

All of the Company’s revenue from contracts within the scope of ASC 606 is recognized when incurred as noninterest income and gains on the sale of OREO which is classified as noninterest expense.

These gains were immaterial for each of the three months ended March 31, 2024, and 2023, and the year ended December 31, 2023.

All of the Company’s revenue from contracts within the scope of ASC 606 is recognized as noninterest income and gains on the sale of OREO which is classified as noninterest expense.

These gains were immaterial for each of the three months ended June 30, 2024, and 2023, and the year ended December 31, 2023.

The following table presents the Company’s sources of noninterest income.

Items outside the scope of ASC 606 are noted as such (dollars in thousands, unaudited).

For the three months ended March 31,

For the three months ended June 30,

For the six months ended June 30,

For the year ended December 31,

4 unchanged sentences

Debit card interchange income

Loss on limited partnerships (1)

Gain on limited partnerships (1)

Dividends on equity investments (1)

Unrealized losses recognized on equity investments (1)

Net (loss) gain on sale of securities (1)

Net gain (loss) on sale of securities (1)

Total noninterest income

5 unchanged sentences

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-Q

Item 1. Financial Statements