What changed in this filing

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Item 1. Financial Statements

2024-11-07 compared with 2024-08-05 · 197 added, 213 removed, 792 unchanged (34% of the section changed)

3 unchanged sentences

(dollars in thousands)

June 30, 2024

September 30, 2024

December 31, 2023

4 unchanged sentences

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

Held-to-maturity, net of allowance for credit losses of $ 15 and $ 16

Total investment securities

2 unchanged sentences

Premises and equipment, net

Other intangible assets, net

Bank-owned life insurance

7 unchanged sentences

Subordinated debentures

Allowance for credit losses on unfunded loan commitments

Other liabilities

4 unchanged sentences

24,000,000 shares authorized;

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

14,414,561 and 15,170,372 shares issued and outstanding at September 30, 2024 (unaudited), and December 31, 2023, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss, net

Accumulated other comprehensive loss

Total shareholders' equity

3 unchanged sentences

CONSOLIDATED STATEMENTS OF INCOME

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024, and 2023

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

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Interest and dividend income

12 unchanged sentences

Credit loss expense - loans

Credit loss (benefit) expense - unfunded commitments

Credit loss expense (benefit) - unfunded commitments

Credit loss benefit - debt securities held-to-maturity

Net interest income after provision for credit losses

Net interest income after credit loss expense

Noninterest income

22 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2024, and 2023

(dollars in thousands, unaudited)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Other comprehensive gain (loss), before tax:

7 unchanged sentences

(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 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.

Income tax expenses associated with the reclassification adjustment were negligible for the three months ended September 30, 2024 and 2023.

Income tax expenses (benefits) associated with the reclassification adjustment for the nine months ended September 30, 2024 and 2023 were $ 0.8 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 JUNE 30, 2024, and 2023

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

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

1 unchanged sentence

Shareholders'

Balance, March 31, 2023

Balance, June 30, 2023

Other comprehensive loss, net of tax

Restricted stock forfeited / cancelled

Restricted shares withheld for taxes

Restricted stock vested in period

4 unchanged sentences

Cash dividends - $ 0.23 per share

Balance, September 30, 2023

Balance, June 30, 2024

Balance, March 31, 2024

Other comprehensive gain, net of tax

Stock options exercised, net of shares surrendered for cashless exercises

Restricted shares withheld for taxes

Restricted stock forfeited / cancelled

Stock-based compensation - stock options

Restricted stock vested in period

Stock-based compensation - restricted stock

2 unchanged sentences

Cash dividends - $ 0.24 per share

Balance, June 30, 2024

Balance, September 30, 2024

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

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

2 unchanged sentences

Balance, December 31, 2022

Other comprehensive gain, net of tax

Other comprehensive loss, net of tax

Restricted stock granted

7 unchanged sentences

Cash dividends - $ 0.69 per share

Balance, June 30, 2023

Balance, September 31, 2023

Balance, December 31, 2023

Other comprehensive gain, net of tax

Stock options exercised, net of shares surrendered for cashless exercises

Restricted stock granted

7 unchanged sentences

Cash dividends - $ 0.70 per share

Balance, June 30, 2024

Balance, September 30, 2024

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024, AND 2023

(dollars in thousands, unaudited)

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

12 unchanged sentences

Increase in interest receivable and other assets

(Decrease) increase in other liabilities

Decrease in other liabilities

Deferred income tax benefit

14 unchanged sentences

Purchase of bank-owned life insurance

Proceeds from BOLI death benefit

Investments in variable interest entities

Proceeds from bank -owned life insurance death benefit

Net cash provided by (used in) investing activities

2 unchanged sentences

(Decrease) increase in Fed funds purchased

Decrease in short-term Federal Home Loan Bank advances

Decrease (increase) in short-term Federal Home Loan Bank advances

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

2 unchanged sentences

Repurchases of common stock

Stock options exercised

Net cash (used in) provided by financing activities

16 unchanged sentences

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 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”).

As of September 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.

2 unchanged sentences

The Bank was incorporated in September 1977, and opened for business in January 1978 as a one -branch bank with $ 1.5 million in capital.

Our growth in the ensuing years has largely been organic in nature but includes four whole-bank acquisitions:

The Company’s growth in the ensuing years has largely been organic in nature but includes four whole-bank acquisitions:

Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in October 2017.

As of the filing date of this report the Bank operates 35 full-service branches and an online branch and maintains ATMs at all but one of our branch locations as well as at seven non-branch locations.

As of the filing date of this report the Bank operates 35 full-service branches and an online branch and maintains ATMs at all but one branch location as well as at seven non-branch locations.

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

1 unchanged sentence

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.

The Company had total assets of $ 3.7 billion at September 30, 2024.

The Company’s deposit accounts, which totaled $ 3.0 billion at September 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 August 5, 2024 and recognized them where appropriate.

In preparing the accompanying financial statements, Management has taken subsequent events into consideration, through November 7, 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.

28 unchanged sentences

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 effective for the Company on January 1, 2025, though early adoption is permitted.

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

2 unchanged sentences

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

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.

Options to purchase 194,000 shares granted under the 2017 Plan and options to purchase 106,800 shares that were granted under the 2007 Plan were still outstanding as of September 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 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.

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

Any unexercised, unvested, or undistributed portion of any expired, cancelled, terminated, or forfeited awards under the Company’s 2017 Plan are added to the number of shares available to grant under the 2023 Plan.

There were 92,882 unvested Restricted Stock Awards issued under the 2017 Plan at September 30, 2024 and are included in shares outstanding.

The potential dilutive impact of unexercised stock options and unvested restricted stock 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 the 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 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 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.

A pre-tax charge of $ 0.4 million was reflected in the Company’s income statement during the third quarter of 2024 and $ 0.3 million during the third quarter of 2023, as expense related to stock options and restricted stock awards.

For the first nine months of 2024 and 2023, the charges totaled $ 1.4 million and $ 1.2 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 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.

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

As of September 30, 2024, there was $ 2.2 million of unamortized compensation cost related to unvested Restricted Stock Awards granted under the 2017 and 2023 plans.

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 six months ended June 30, 2024, and 2023 is summarized below (unaudited):

Six months ended June 30,

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

Nine months ended September 30,

Weighted Average Grant-Date Fair Value

1 unchanged sentence

Unvested shares, January 1,

Unvested shares, June 30,

Unvested shares, September 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 six months ended June 30, 2024, and 2023 are summarized below (dollars in thousands, except per share data, unaudited):

Six months ended June 30,

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

Nine months ended September 30,

Weighted Average

6 unchanged sentences

Forfeited/Expired

Outstanding at June 30,

Exercisable at June 30,

(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 June 30, 2024.

Outstanding at September 30,

Exercisable at September 30,

(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 the last day of the period.

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 14,300,267 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.

There were 14,188,051 weighted average shares outstanding during the third quarter of 2024 and 14,583,132 during the third quarter of 2023, while there were 14,331,032 weighted average shares outstanding during the first nine months of 2024 and 14,762,231 during the first nine 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 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.

For the third quarter of 2024, calculations under the treasury stock method resulted in the equivalent of 147,655 shares being added to basic weighted average shares outstanding for purposes of determining diluted earnings per share, while zero shares were excluded from the calculation due to being underwater and thus anti-dilutive.

For the third quarter of 2023 the equivalent of 53,345 shares were added in calculating diluted earnings per share, while 278,374 anti-dilutive shares were not factored into the computation.

Likewise, for the first nine months of 2024 the equivalent of 106,754 shares were added to basic weighted average shares outstanding in calculating diluted earnings per share and a weighted average of 255,414 shares that were anti-dilutive for the period were not included, compared to the addition of the equivalent of 29,465 shares and non-inclusion of 326,036 anti-dilutive shares in calculating diluted earnings per share for first nine months of 2023.

Note 6 – Comprehensive Income

10 unchanged sentences

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

June 30, 2024

September 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 $ 232.4 million at June 30, 2024, and $ 204.5 million at December 31, 2023.

Unused commitments on mortgage warehouse lines were $ 237.7 million at September 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.

1 unchanged sentence

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 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.

At September 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.

3 unchanged sentences

FASB’s standards on financial instruments, and on fair value measurements and disclosures, require public business entities to disclose in their financial statement footnotes the estimated fair values of financial instruments.

In addition to disclosure requirements, FASB’s standard on investments requires that our debt securities that are classified as available for sale and any equity securities which have readily determinable fair values be measured and reported at fair value in our statement of financial position.

In addition to disclosure requirements, FASB’s standard on investments requires that debt securities that are classified as available-for-sale and any equity securities which have readily determinable fair values be measured and reported at fair value in the statement of financial position.

Certain individually identified loans are also reported at fair value, as explained in greater detail below, and foreclosed assets are carried at the lower of cost or fair value.

9 unchanged sentences

Fair value disclosures for deposits include demand deposits, which are, by definition, equal to the amount payable on demand at the reporting date.

Fair value calculations for loans reflect exit pricing and incorporate our assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things.

Fair value calculations for loans reflect exit pricing and incorporate Management’s assumptions with regard to the impact of prepayments on future cash flows and credit quality adjustments based on risk characteristics of various financial instruments, among other things.

Since the estimates are subjective and involve uncertainties and matters of significant judgment they cannot be determined with precision, and changes in assumptions could significantly alter the fair values presented.

Carrying amounts and estimated fair values for the Company’s financial instruments are as follows, as of the dates noted:

Fair Value of Financial Instruments

(dollars in thousands, unaudited)

June 30, 2024

September 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 June 30, 2024, and December 31, 2023, the Company used the following methods and significant assumptions:

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

● Investment securities :

Fair values are determined by obtaining quoted prices on nationally recognized securities exchanges 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.

● Collateral-dependent loans :

Collateral-dependent loans are carried at fair value when foreclosure is probable or repayment is expected through the sale or operation of collateral and borrower is experiencing financial difficulty.

● Individually evaluated loans :

Individually evaluated loans are measured based on the fair value of collateral when foreclosure is probable or repayment is expected through the sale or operation of collateral and borrower is experiencing financial difficulty.

● Foreclosed assets :

5 unchanged sentences

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

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

Fair Value Measurements – Recurring

(dollars in thousands, unaudited)

Fair Value Measurements at June 30, 2024, using

Fair Value Measurements at September 30, 2024, using

Quoted Prices in

23 unchanged sentences

Included in other comprehensive income

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):

Balance of recurring Level 3 assets at September 30,

Fair Value Measurements – Nonrecurring

(dollars in thousands, unaudited)

Fair Value Measurements at September 30, 2024, using

Quoted Prices in

Active Markets for

Identical Assets

Observable Inputs

Unobservable Inputs

Individually evaluated collateral-dependent loans

Commercial real estate

Total assets measured on a nonrecurring basis

Fair Value Measurements at December 31, 2023, using

5 unchanged sentences

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

8 unchanged sentences

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, estimated fair value, and allowance for credit losses of available-for-sale and held-to-maturity investment securities are as follows:

Amortized cost is adjusted to the fair value of the security upon transfer to held-to-maturity.

Amortized Cost and Estimated Fair Value

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

Allowance for Credit Losses

31 unchanged sentences

Total held-to-maturity securities

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.

An unrealized loss of $ 26.8 million, on securities transferred from the available-for-sale to held-to-maturity categorization, remains as of September 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 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 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 is included in other assets on the Company’s balance sheet and as of

September 30, 2024, measured at $ 8.4 million and $ 1.7 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 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.

During the first nine months 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.

A discounted-cash-flow reserve calculation is performed on securities designated as held-to-maturity on a quarterly basis.

As of September 30, 2024, an allowance for credit losses of $ 15 thousand had been established on the Company’s held-to-maturity portfolio, which is a slight decrease from the December 31, 2023 allowance for credit losses of $ 16 thousand.

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

2 unchanged sentences

Held-To-Maturity

June 30, 2024

September 30, 2024

December 31, 2023

2 unchanged sentences

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.

In performing this evaluation, management considers the extent to 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.

If Management’s evaluation indicates that a credit loss exists then a present value of the expected cash flows is calculated and compared to the amortized cost basis of the security in question and to the degree that the amortized cost basis exceeds the present value an allowance for credit loss (“ACL”) is established, with the caveat that the maximum amount of the reserve on any individual security is the difference between the fair value and amortized cost balance of the security in question.

3 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

Less than twelve months

19 unchanged sentences

Total available-for-sale

The table below summarizes the Company’s gross realized gains and losses as well as gross proceeds from the sales of securities, for the periods indicated:

Investment Portfolio - Realized Gains/(Losses)

(dollars in thousands, unaudited)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

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

1 unchanged sentence

Gross losses on sales, calls and maturities of securities available-for-sale

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 June 30, 2024, and December 31, 2023 (dollars in thousands), are shown below, grouped by the remaining time to contractual maturity dates.

Net gain (loss) 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 September 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.

June 30, 2024

September 30, 2024

Available-for-Sale

21 unchanged sentences

Collateralized loan obligations

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.

At September 30, 2024, the Company’s investment portfolio included 223 municipal bonds issued by 188 different government municipalities and agencies located within 28 different states, with an aggregate fair value of $ 219.8 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).

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).

The Company’s investments in bonds issued by corporations, states, municipalities, and political subdivisions are evaluated in accordance with Financial Institution Letter 48-2012, issued by the FDIC, “Revised Standards of Creditworthiness for Investment Securities,” and other regulatory guidance.

Credit ratings are considered in our analysis only as a guide to the historical default rate associated with similarly rated bonds.

There have been no significant differences in our internal analyses compared with the ratings assigned by the third-party credit rating agencies.

The following table summarizes the amortized cost and fair values of general obligation and revenue bonds in the Company’s investment securities portfolio at the indicated dates, identifying the state in which the issuing municipality or agency operates for our largest geographic concentrations:

Credit ratings are considered in Management’s analysis only as a guide to the historical default rate associated with similarly rated bonds.

There have been no significant differences in internal analyses compared with the ratings assigned by the third-party credit rating agencies.

Revenue and General Obligation Bonds by Location

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

December 31, 2023

1 unchanged sentence

State of issuance

Other (20 & 26 states, respectively)

Other (20 and 26 states, respectively)

Total general obligation bonds

1 unchanged sentence

State of issuance

Other (20 & 15 states, respectively)

Other (20 and 15 states, respectively)

Total revenue bonds

4 unchanged sentences

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

December 31, 2023

2 unchanged sentences

Sales tax revenue

Local or GTD housing

Local or guaranteed housing

Other (9 and 10 sources, respectively)

2 unchanged sentences

The Company has the ability to invest in limited partnerships which own housing projects that qualify for federal and/or California state tax credits, by mandating a specified percentage of low-income tenants for each project.

The primary investment return comes from tax credits that flow through to investors.

investment return comes from tax credits that flow through to investors.

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 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.

The Company utilized the cost method of accounting for LIHTC fund investments, under which were initially recorded on the balance sheet an asset that represents the total cash expected to be invested over the life of the partnership.

Any commitments or contingent commitments for future investment are reflected as a liability.

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 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.

As of December 31, 2023, our total LIHTC investment book balance was $ 14.4 million, which includes $ 10.5 million in remaining commitments for additional capital contributions.

There were $ 0.7 million in tax credits derived from our LIHTC investments that were recognized during the year ended December 31, 2023, and “below the line” amortization expense of $ 0.7 million associated with those investments was netted against pre-tax noninterest income for the same time period.

The income statement reflects tax credits and any other tax benefits from these investments “below the line” within 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 September 30, 2024, the Company’s total LIHTC investment book balance was $ 22.8 million, which includes $ 19.1 million in remaining commitments for additional capital contributions.

There were approximately $ 1.4 million in tax credits derived from the Company’s LIHTC investments that were recognized during the nine months ended September 30, 2024, and “below the line” amortization expense of $ 1.6 million associated with those investments was recorded for the same time period.

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

As of December 31, 2023, the Company’s total LIHTC investment book balance was $ 14.4 million, which includes $ 10.5 million in remaining commitments for additional capital contributions.

There were $ 0.7 million in tax credits derived from LIHTC investments that were recognized during the year ended December 31, 2023, and “below the line” amortization expense of $ 0.7 million associated with those investments was netted against pre-tax noninterest income for the same time period.

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.

8 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 $ 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.

Accrued interest receivable on loans of $ 7.7 million and $ 5.6 million at September 30, 2024, and December 31, 2023, respectively is included in other assets on the Company’s balance sheet.

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)

June 30, 2024

September 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 June 30, 2024, and December 31, 2023:

Nonaccrual Loans

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

Nonaccrual Loans

3 unchanged sentences

Residential real estate

Commercial real estate

Total real estate

9 unchanged sentences

Other commercial

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:

The Company did not recognize any interest on nonaccrual loans during the three or nine months ended September 30, 2024, and would have recognized an additional $ 0.1 million in interest income on nonaccrual loans during the third quarter and $ 0.4 million during the first nine months of 2024 had those loans not been designated as nonaccrual.

Due to loans being placed on nonaccrual status, during the third quarter and first nine months of 2024, $ 0.1 million and $ 0.2 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 September 30, 2024, and December 31, 2023:

Collateral-Dependent Loans

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

December 31, 2023

7 unchanged sentences

Other commercial

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:

During the first nine months of 2024 the amortized cost balance of collateral-dependent loans increased by $ 2.2 million due primarily to an agriculture real estate secured loan and a commercial real estate 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 97 % at September 30, 2024.

There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of September 30, 2024.

Past Due Loans

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

30-59 Days Past Due

26 unchanged sentences

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.

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

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

3 unchanged sentences

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

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.

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

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

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, unaudited):

Three months ended June 30, 2024

Three months ended September 30, 2024

Principal Forgiveness

3 unchanged sentences

Total Class of Financing Receivable

Residential real estate

Commercial real estate

Other construction/land

Total real estate

Other commercial

Consumer loans

Six months ended June 30, 2024

Nine months ended September 30, 2024

Principal Forgiveness

3 unchanged sentences

Total Class of Financing Receivable

Residential real estate

Commercial real estate

Other construction/land

1 unchanged sentence

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

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

Three months ended September 30, 2024

Principal Forgiveness

1 unchanged sentence

Weighted-Average Term Extension (years)

Residential real estate

Commercial real estate

Other construction/land

Other commercial

Mortgage warehouse lines

Consumer loans

Six months ended June 30, 2024

Nine months ended September 30, 2024

Principal Forgiveness

1 unchanged sentence

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.

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

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

The Company had no additional funds committed on loans which have been modified to borrowers experiencing financial difficulty.

The Company had $ 0.1 million in additional funds committed on loans which have been modified to borrowers experiencing financial difficulty as of September 30, 2024 and none as of September 30, 2023.

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.

5 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 June 30, 2024, and December 31, 2023:

Loan Credit Quality by Vintage

(dollars in thousands, unaudited)

June 30, 2024

September 30, 2024

Term Loans Amortized Cost Basis by Origination Year

33 unchanged sentences

Gross charge-offs

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

Purchased credit deteriorated (“PCD”) loans are loans acquired or purchased, which as of acquisition, had evidence of more than insignificant credit deterioration since origination.

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

The model used for calculating the Company’s ACL is refreshed periodically, most recently in the third quarter of 2024.

As a result of this refresh process the Company changed to a Multi-factor Regression Model from a Single Factor Regression Model which was used in previous periods.

Additionally, legacy peer groups were expanded to include California banks with an asset size between $ 1.5 billion to $ 10 billion.

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

For purposes of estimating the Company’s ACL, Management generally evaluates collectively evaluated loans by Federal Call code in order to group loans with similar risk characteristics together, however management has grouped loans in selected call codes together in determining portfolio segments, due to similar risk characteristics and reserve methodologies used for certain call code classifications.

4 unchanged sentences

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.

Regression models are generally refreshed on an annual basis, in order to pull in more recent loss rate data.

Regression models are generally refreshed periodically, in order to pull in more recent loss rate data.

Reasonable and supportable forecasts of the selected economic metric are then input into the regression model to calculate an expected default rate.

5 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 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.

The estimated remaining life is calculated using historical bank-specific loan attrition data.

The call code multiple factor regression models utilized as of September 30, 2024, for Residential Real Estate loans relied upon reasonable and supportable forecasts of the National Unemployment Rate and House Price Index (HPI).

The call code multiple factor regression models utilized as of September 30, 2024, for Commercial Real Estate and Other Construction loans relied upon reasonable and supportable forecasts of the National Unemployment Rate and Gross Domestic Product (GDP).

Management selected the National Unemployment Rate, HPI, and GDP as the drivers of quantitative portion of collectively evaluated 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 these economic metrics.

The quantitative reserves for Farmland, Agricultural Production and Consumer loans are calculated using a Remaining Life methodology where average historical 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.

The estimated remaining life is calculated using historical peer data.

For the Farmland, Agricultural Production and Consumer classes of loans, reasonable and supportable forecasts of the National Unemployment rate, real GDP and the housing price index are considered through estimation of qualitative reserves.

14 unchanged sentences

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:

Residential Real Estate, Commercial Real Estate, Farmland & Agricultural Production, Commercial & Industrial, Mortgage Warehouse and Consumer loans.

● Residential Real Estate

● Commercial Real Estate

● Farmland & Agricultural Production

● Commercial & Industrial

● Mortgage Warehouse

● Consumer loans.

Loans secured by Residential Real Estate have a different profile from loans secured by Commercial Real Estate.

6 unchanged sentences

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

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

As of September 30, 2024 and 2023, 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 September 30, 2024, and 2023:

Allowance for Credit Losses

(dollars in thousands, unaudited)

5 unchanged sentences

Allowance for credit losses:

Balance, March 31, 2024

Balance, June 30, 2024

(Benefit) provision for credit losses

Ending allowance balance:

Balance, September 30, 2024

Residential Real Estate

4 unchanged sentences

Allowance for credit losses:

Balance, March 31, 2023

Balance, June 30, 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:

Balance, September 30, 2023

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

Residential Real Estate

6 unchanged sentences

(Benefit) provision for credit losses

Ending allowance balance:

Balance, September 30, 2024

Residential Real Estate

6 unchanged sentences

(Benefit) provision for credit losses

Ending allowance balance:

Balance, September 30, 2023

Note 11 – Goodwill

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 balance of goodwill at the three and nine months beginning and ended September 30, 2024 and 2023 was $ 27.4 million.

There was no acquired goodwill for the three or nine months ended September 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.

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 annual assessment date was changed to October 1 in 2023 to allow more time for evaluation of impairment.

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

1 unchanged sentence

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 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.

Therefore, goodwill was not impaired as of September 30, 2024, and there were no impairment charges related to the Company’s goodwill recorded during the three or nine months ended September 30, 2024 and 2023.

Note 12 – Borrowings and Other Arrangements

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

June 30, 2024

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 $ 125.5 million at September 30, 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 Secured Overnight

Financing Rate (“SOFR”) until maturity on October 1, 2031.

The balance of the Company’s long-term debt, net of unamortized issuance costs, was $ 49.4 million at September 30, 2024, and $ 49.3 million at 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.

For financial reporting purposes, the Trusts are not consolidated, and the Floating Rate Junior Subordinated Deferrable Interest Debentures (the “Subordinated Debentures”) held by the Trusts and issued and guaranteed by the Company are reflected in the Company’s consolidated balance sheet in accordance with provisions of ASC Topic 810.

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 SOFR, effective June 30, 2023.

At September 30, 2024, and December 31, 2023, the Company’s trust preferred securities totaled $ 35.8 million and $ 35.7 million, respectively.

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

September 30, 2024

December 31, 2023

4 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 – 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.

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 September 30, 2024, and $ 374.8 million at December 31, 2023.

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

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.

Secured FHLB Borrowings – At September 30, 2024, and December 31, 2023, the Company had secured available lines of credit with the FHLB totaling $ 618.1 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 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.

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 SOFR, effective June 30, 2023.

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

At September 30, 2024, and December 31, 2023, the Company had borrowing capacity under this line totaling $ 342.7 million and $ 392.0 million, respectively.

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

Note 13 – Revenue Recognition

The Company utilizes the guidance found in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), when accounting for certain noninterest income.

The core principle of this guidance is that an entity should recognize revenue

to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Sufficient information should be provided to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

1 unchanged sentence

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 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.

All of the Company’s revenue from contracts within the scope of ASC 606 is recognized as noninterest income.

Due to the short-term nature of the Company’s contracts with customers, an insignificant amount of receivables related to such revenue was recorded at September 30, 2024 and 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 June 30,

For the six months ended June 30,

For the year ended December 31,

For the three months ended September 30,

Nine months ended September 30,

Noninterest income

3 unchanged sentences

Debit card interchange income

Gain on limited partnerships (1)

Dividends on equity investments (1)

8 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