| --- | --- | --- | --- | --- | |----------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------|-----------------------| | | | | | | | | | U ...

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 it's subsidiaries, two special purpose entities organized to facilitate repossessed assets. The Company has been the Bank's sole shareholder since August 2001. The Company exists primarily for the purpose of holding the stock of the Bank and of su ...

Table of Contents | --- | --- | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|-------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------------| | | | | | | | | | | ...

Table of Contents | --- | --- | --- | --- | |----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------- ...

Table of Contents | --- | --- | --- | --- | |------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------- ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | --- | |-----------------------------------------------------------------------------------------------------------------------------------------------|------------------------- ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Sierra Bancorp's unaudited consolidated financial statements for the period ended September 30, 2021, detailing balance sheets, income, comprehensive income, equity changes, cash flows, and explanatory notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (dollars in thousands) | ASSETS (dollars in thousands) | Sep 30, 2021 (unaudited) | Dec 31, 2020 (audited) | |:------------------------------|:-------------------------|:-----------------------| | Total cash & cash equivalents | $422,350 | $71,417 | | Securities available-for-sale | $732,312 | $543,974 | | Net loans and leases | $2,121,597 | $2,442,226 | | Total assets | $3,442,739 | $3,220,742 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total deposits | $2,820,646 | $2,624,606 | | Total liabilities | $3,078,232 | $2,876,846 | | Total shareholders' equity | $364,507 | $343,896 | | Total liabilities and shareholders' equity | $3,442,739 | $3,220,742 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income (dollars in thousands) | Income Statement (dollars in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | |:----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Total interest income | $27,629 | $29,043 | $85,179 | $80,481 | | Total interest expense | $913 | $969 | $2,719 | $4,478 | | Net interest income | $26,716 | $28,074 | $82,460 | $76,003 | | (Benefit) provision for loan losses | $(600) | $2,350 | $(2,450) | $6,350 | | Total noninterest income | $7,535 | $7,105 | $20,977 | $20,112 | | Total noninterest expense | $20,875 | $19,303 | $61,381 | $55,156 | | Income before taxes | $13,976 | $13,526 | $44,506 | $34,609 | | Provision for income taxes | $3,371 | $3,170 | $11,115 | $8,144 | | Net income | $10,605 | $10,356 | $33,391 | $26,465 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income (dollars in thousands) | Comprehensive Income (dollars in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | |:--------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income | $10,605 | $10,356 | $33,391 | $26,465 | | Other comprehensive (loss) income | $(413) | $1,315 | $(3,421) | $11,562 | | Comprehensive income | $10,192 | $11,671 | $29,970 | $38,027 | [Consolidated Statements of Changes In Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20In%20Shareholders'%20Equity) Consolidated Statements of Changes In Shareholders' Equity (dollars in thousands) | Shareholders' Equity (dollars in thousands) | Balance, Dec 31, 2020 | Net Income | Other Comprehensive Loss, net of tax | Cash Dividends Paid | Balance, Sep 30, 2021 | |:--------------------------------------------|:----------------------|:-----------|:-------------------------------------|:--------------------|:----------------------| | Common Stock Amount | $113,384 | — | — | — | $114,096 | | Additional Paid In Capital | $3,736 | — | — | — | $3,710 | | Retained Earnings | $208,371 | $33,391 | — | $(9,842) | $231,717 | | Accumulated Other Comprehensive Income | $18,405 | — | $(3,421) | — | $14,984 | | Total Shareholders' Equity | $343,896 | $33,391 | $(3,421) | $(9,842) | $364,507 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (dollars in thousands) | Cash Flows (dollars in thousands) | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | |:----------------------------------|:-------------------------------|:-------------------------------| | Net cash provided by operating activities | $78,740 | $27,212 | | Net cash provided by (used in) investing activities | $126,457 | $(579,159) | | Net cash provided by financing activities | $145,736 | $560,803 | | Increase in cash and cash equivalents | $350,933 | $8,856 | | Cash and cash equivalents, end of period | $422,350 | $88,933 | [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) [Note 1 – The Business of Sierra Bancorp](index=9&type=section&id=Note%201%20%E2%80%93%20The%20Business%20of%20Sierra%20Bancorp) - Sierra Bancorp, a California-based bank holding company, operates Bank of the Sierra, offering retail and commercial banking services through 35 branches, an online platform, and specialized lending units across California[24](index=24&type=chunk)[25](index=25&type=chunk) Key Metrics (September 30, 2021) | Metric | September 30, 2021 | |:-------|:-------------------| | Total Assets | $3.4 billion | | Total Deposits | $2.8 billion | [Note 2 – Basis of Presentation](index=9&type=section&id=Note%202%20%E2%80%93%20Basis%20of%20Presentation) - The unaudited consolidated financial statements are presented in a condensed format, reflecting all necessary management adjustments, with interim results not indicative of full-year performance, and certain 2020 amounts reclassified for consistency[26](index=26&type=chunk) [Note 3 – Current Accounting Developments](index=9&type=section&id=Note%203%20%E2%80%93%20Current%20Accounting%20Developments) - The Company deferred CECL methodology implementation until January 1, 2022, to better assess COVID-19's impact on expected credit losses, with an estimated adjustment of approximately **50% to 75% of the current allowance for loan and lease losses**[28](index=28&type=chunk) - Loan modifications made in response to COVID-19, in accordance with the CARES Act and Interagency Statement, are exempt from Troubled Debt Restructuring (TDR) classification, with no material impact through September 30, 2021[29](index=29&type=chunk) [Note 4 – Share Based Compensation](index=10&type=section&id=Note%204%20%E2%80%93%20Share%20Based%20Compensation) - The Company's 2017 Stock Incentive Plan allows for stock options and restricted stock awards to employees, officers, directors, and consultants, with compensation costs amortized over the vesting period, totaling **$0.2 million in Q3 2021** and **$0.7 million year-to-date 2021**[31](index=31&type=chunk)[32](index=32&type=chunk) Restricted Stock Awards (Nine months ended Sep 30) | Restricted Stock Awards (Nine months ended Sep 30) | 2021 Shares | 2020 Shares | |:---------------------------------------------------|:------------|:------------| | Unvested shares, January 1 | 148,885 | — | | Granted | 18,180 | 148,885 | | Vested | (39,449) | — | | Forfeited | (17,777) | — | | Unvested shares, September 30 | 109,839 | 148,885 | Stock Options (Nine months ended Sep 30) | Stock Options (Nine months ended Sep 30) | 2021 Shares | 2020 Shares | |:-----------------------------------------|:------------|:------------| | Outstanding at January 1 | 495,489 | 457,959 | | Granted | — | 126,000 | | Exercised | (7,480) | (19,770) | | Canceled | (39,719) | (16,400) | | Outstanding at September 30 | 448,290 | 547,789 | | Exercisable at September 30 | 384,690 | 373,189 | [Note 5 – Earnings per Share](index=12&type=section&id=Note%205%20%E2%80%93%20Earnings%20per%20Share) - Basic EPS is calculated based on weighted average shares outstanding, excluding unvested restricted stock, while diluted EPS includes the effect of potential common shares from 'in-the-money' stock options and unvested restricted stock awards[39](index=39&type=chunk)[40](index=40&type=chunk) Weighted Average Shares Outstanding | Weighted Average Shares Outstanding | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:------------------------------------|:-------------|:-------------|:-------------|:-------------| | Basic | 15,257,367 | 15,192,838 | 15,247,477 | 15,215,167 | | Dilutive effect (shares added) | 86,176 | 45,586 | 121,772 | 58,595 | | Anti-dilutive options (excluded) | 327,346 | 362,407 | 339,546 | 344,814 | [Note 6 – Comprehensive Income](index=12&type=section&id=Note%206%20%E2%80%93%20Comprehensive%20Income) - Comprehensive income includes net income and other comprehensive income, with the latter primarily consisting of unrealized gains and losses on available-for-sale investment securities[41](index=41&type=chunk) [Note 7 – Commitments and Contingent Liabilities](index=12&type=section&id=Note%207%20%E2%80%93%20Commitments%20and%20Contingent%20Liabilities) - The Company is exposed to off-balance-sheet risk from unused commitments to extend credit and standby letters of credit, applying the same credit policies as for originating loans[42](index=42&type=chunk)[45](index=45&type=chunk) Off-Balance-Sheet Credit Risk (dollars in thousands) | Off-Balance-Sheet Credit Risk (dollars in thousands) | Sep 30, 2021 | Dec 31, 2020 | |:-----------------------------------------------------|:-------------|:-------------| | Commitments to extend credit | $532,891 | $441,816 | | Standby letters of credit | $7,151 | $8,104 | - A **$105 million** letter of credit from the Federal Home Loan Bank secures certain deposits and credit arrangements, backed by pledged loans[46](index=46&type=chunk) [Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements](index=13&type=section&id=Note%208%20%E2%80%93%20Fair%20Value%20Disclosures%20and%20Reporting%20and%20Fair%20Value%20Measurements) - The Company measures and reports available-for-sale debt securities and certain impaired loans at fair value, using a three-level hierarchy based on input observability, with estimates relying on market data and assumptions[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[52](index=52&type=chunk) Financial Assets and Liabilities (dollars in thousands) | Financial Assets (dollars in thousands) | Carrying Amount (Sep 30, 2021) | Fair Value (Sep 30, 2021) | |:----------------------------------------|:-------------------------------|:--------------------------| | Cash and cash equivalents | $422,350 | $422,350 | | Investment securities available for sale| $732,312 | $732,312 | | Loans and leases, net held for investment | $2,121,337 | $2,103,993 | | Collateral dependent impaired loans | $260 | $374 | | Financial Liabilities | | | | Deposits | $2,820,646 | $2,820,112 | | Repurchase agreements | $92,553 | $92,553 | | Long-term debt | $49,221 | $49,782 | | Subordinated debentures | $35,258 | $33,929 | - Collateral-dependent impaired loans are carried at fair value when collection is improbable and the loan is written down to collateral value, while foreclosed assets are carried at the lower of cost or fair value, determined by appraisals less disposition costs[56](index=56&type=chunk)[57](index=57&type=chunk) [Note 9 – Investments](index=17&type=section&id=Note%209%20%E2%80%93%20Investments) - All investment securities are classified as 'available for sale' for flexibility in interest rate risk and liquidity management, carried at estimated fair market values with monthly mark-to-market adjustments[63](index=63&type=chunk) Investment Securities (dollars in thousands) | Investment Securities (dollars in thousands) | Amortized Cost (Sep 30, 2021) | Estimated Fair Value (Sep 30, 2021) | |:---------------------------------------------|:------------------------------|:------------------------------------| | U.S. government agencies | $1,644 | $1,693 | | Mortgage-backed securities | $320,919 | $327,645 | | State and political subdivisions | $277,690 | $292,079 | | Corporate bonds | $16,195 | $16,307 | | Collateralized loan obligations | $94,591 | $94,588 | | Total securities | $711,039 | $732,312 | - The Company had **58 securities with gross unrealized losses** at September 30, 2021, but management does not believe these losses are other than temporary, with net gains on sale of securities available-for-sale totaling **$11 thousand** for both the three and nine months ended September 30, 2021[66](index=66&type=chunk)[67](index=67&type=chunk) [Note 10 – Credit Quality and Nonperforming Assets](index=21&type=section&id=Note%2010%20%E2%80%93%20Credit%20Quality%20and%20Nonperforming%20Assets) - The Company monitors loan credit quality using classifications: Pass, Special Mention, Substandard, and Impaired, with impaired loans including nonperforming loans and Troubled Debt Restructurings (TDRs)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) Credit Quality (dollars in thousands) | Credit Quality (dollars in thousands) | Pass (Sep 30, 2021) | Special Mention (Sep 30, 2021) | Substandard (Sep 30, 2021) | Impaired (Sep 30, 2021) | Total (Sep 30, 2021) | |:--------------------------------------|:--------------------|:-------------------------------|:---------------------------|:------------------------|:---------------------| | Total real estate | $1,740,548 | $54,058 | $28,168 | $10,150 | $1,832,924 | | Agricultural | $41,377 | — | $1,448 | $471 | $43,296 | | Commercial and industrial | $120,857 | $9,697 | $226 | $1,512 | $132,292 | | Mortgage warehouse | $126,486 | — | — | — | $126,486 | | Consumer loans | $4,561 | $35 | $69 | $163 | $4,828 | | Total gross loans and leases | $2,033,829 | $63,790 | $29,911 | $12,296 | $2,139,826 | - Nonperforming assets decreased by **$1.7 million (20%)** to **$6.9 million** during the first nine months of 2021, while nonperforming loans to gross loans increased slightly to **0.32%** due to a decrease in the overall loan portfolio, and performing TDRs decreased by **$5.9 million (52%)** to **$5.5 million**[265](index=265&type=chunk)[266](index=266&type=chunk) [Note 11 – Allowance for Loan and Lease Losses](index=29&type=section&id=Note%2011%20%E2%80%93%20Allowance%20for%20Loan%20and%20Lease%20Losses) - The Allowance for Loan and Lease Losses (ALLL) is maintained to absorb probable losses on impaired loans and inherent losses in the remaining portfolio, using a systematic methodology including individual analysis for impaired loans and pooled evaluations for unimpaired loans, incorporating quantitative and qualitative risk factors[113](index=113&type=chunk)[123](index=123&type=chunk) ALLL Activity (dollars in thousands) | ALLL Activity (dollars in thousands) | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | |:-------------------------------------|:-------------------------------|:-------------------------------| | Beginning balance | $17,738 | $9,923 | | (Benefit) provision | $(2,450) | $6,350 | | Charge-offs | $(1,030) | $(1,556) | | Recoveries | $1,359 | $869 | | Ending balance | $15,617 | $15,586 | ALLL Ratios | ALLL Ratios | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | |:-------------------------------------|:-------------|:-------------|:-------------| | ALLL to gross loans and leases | 0.73% | 0.72% | 0.65% | | ALLL to nonperforming loans | 230.07% | 233.46% | 216.89% | [Note 12 – Long-Term Debt](index=34&type=section&id=Note%2012%20%E2%80%93%20Long-Term%20Debt) Long-Term Debt (dollars in thousands) | Long-Term Debt (dollars in thousands) | Principal (Sep 30, 2021) | Unamortized Debt Issuance Costs (Sep 30, 2021) | |:----------------------------------------|:-------------------------|:-----------------------------------------------| | Fixed - floating rate subordinated debentures, due 2031 | $50,000 | $(779) | | Total long-term debt | $50,000 | $(779) | - The Company issued **$50 million** in 3.25% fixed-to-floating subordinated debt with a ten-year maturity in Q3 2021, with the holding company planning to contribute **$25 million** of this capital to the Bank in Q4 2021[297](index=297&type=chunk) [Note 13 – Revenue Recognition](index=34&type=section&id=Note%2013%20%E2%80%93%20Revenue%20Recognition) - Revenue from customer contracts (ASC 606), such as service charges and debit card interchange fees, is recognized as noninterest income when services are rendered, while revenue from financial instruments and other noninterest income (e.g., BOLI) is accounted for on an accrual basis under other GAAP provisions[132](index=132&type=chunk)[136](index=136&type=chunk) Noninterest Income (dollars in thousands) | Noninterest Income (dollars in thousands) | Three months ended Sep 30, 2021 | Three months ended Sep 30, 2020 | Nine months ended Sep 30, 2021 | Nine months ended Sep 30, 2020 | |:------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Service charges on deposits | $3,186 | $2,950 | $8,677 | $8,752 | | Other income | $4,349 | $4,155 | $12,300 | $11,360 | | Total noninterest income | $7,535 | $7,105 | $20,977 | $20,112 | [Note 14 – Subsequent Events](index=35&type=section&id=Note%2014%20%E2%80%93%20Subsequent%20Events) - On October 21, 2021, the Board approved a new 2021 Share Repurchase Plan authorizing **1,000,000 shares** for repurchase, incorporating the **268,301 remaining shares** from the previous plan, with repurchases expected to commence in Q4 2021[137](index=137&type=chunk) [Item 2. Management's Discussion & Analysis of Financial Condition & Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20%26%20Analysis%20of%20Financial%20Condition%20%26%20Results%20of%20Operations) Management discusses Sierra Bancorp's financial performance, condition, key drivers, trends, COVID-19 impacts, and risk management [Forward-Looking Statements](index=36&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements based on management's current expectations, which are subject to inherent risks and uncertainties, with actual results potentially differing materially due to factors including economic conditions, COVID-19 impacts, interest rate fluctuations, and regulatory changes[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) [Critical Accounting Policies](index=37&type=section&id=Critical%20Accounting%20Policies) - Critical accounting policies involve complex judgments and estimates, primarily in establishing the allowance for loan and lease losses, valuing impaired loans and foreclosed assets, assessing income taxes and deferred tax assets, and evaluating goodwill and other intangible assets for impairment[146](index=146&type=chunk)[147](index=147&type=chunk) [Overview of the Results of Operations and Financial Condition](index=37&type=section&id=Overview%20of%20the%20Results%20of%20Operations%20and%20Financial%20Condition) [Results of Operations Summary](index=37&type=section&id=Results%20of%20Operations%20Summary) Results of Operations Summary (dollars in millions) | Metric (dollars in millions) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:-----------------------------|:--------|:--------|:---------|:---------| | Net Income | $10.6 | $10.4 | $33.4 | $26.5 | | Diluted EPS | $0.69 | $0.68 | $2.17 | $1.73 | | Return on Average Equity | 11.62% | 12.34% | 12.60% | 10.90% | | Return on Average Assets | 1.26% | 1.34% | 1.36% | 1.26% | - Q3 2021 net income increased slightly due to a **$0.6 million negative provision for loan losses** (vs. $2.4 million provision in Q3 2020), offset by a **$1.4 million decrease in net interest income** and a **$1.6 million increase in noninterest expense**[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - Year-to-date 2021 net income increased significantly due to a **$2.5 million negative provision for loan losses** (vs. $6.4 million provision in YTD 2020) and a **$6.5 million increase in net interest income**, partially offset by a **$6.2 million increase in noninterest expense**[153](index=153&type=chunk)[155](index=155&type=chunk) [Financial Condition Summary](index=38&type=section&id=Financial%20Condition%20Summary) Financial Condition Summary (dollars in millions) | Balance Sheet Item (dollars in millions) | Sep 30, 2021 | Dec 31, 2020 | Change (YTD) | |:-----------------------------------------|:-------------|:-------------|:-------------| | Total Assets | $3,400 | $3,200 | +$200 | | Cash and due from banks | $422.4 | $71.4 | +$350.9 | | Investment securities | $732.3 | $544.0 | +$188.3 | | Gross loans | $2,139.8 | $2,463.1 | $(323.3) | | Deposits | $2,800 | $2,600 | +$196.0 | | Long-term debt | $49.2 | — | +$49.2 | | Total shareholders' equity | $364.5 | $343.9 | +$20.6 | - Gross loans declined primarily due to a **$181.2 million decrease in mortgage warehouse line utilization**, a **$63.0 million decline in real estate loans**, and a **$76.8 million decrease in commercial and industrial loans** (mostly SBA PPP loan forgiveness)[158](index=158&type=chunk) - Deposit growth was driven by core transaction and savings accounts, while higher-cost time and wholesale brokered deposits decreased[160](index=160&type=chunk) [Impact of Coronavirus Disease 2019 (COVID-19) Pandemic on the Company's Operations](index=39&type=section&id=Impact%20of%20Coronavirus%20Disease%202019%20(COVID-19)%20Pandemic%20on%20the%20Company's%20Operations) - The Company offered short-term payment deferrals and SBA PPP loans to mitigate credit loss impacts, with **$10.4 million in loans with payment deferrals** remaining as of September 30, 2021, all fully secured by real estate and internally graded as classified assets[177](index=177&type=chunk)[271](index=271&type=chunk) - The Company deferred CECL implementation until January 1, 2022, to better assess COVID-19's impact on credit losses, as the pandemic has negatively impacted net interest margin due to lower interest rates and increased liquidity deployed in low-yielding overnight funding[180](index=180&type=chunk)[181](index=181&type=chunk) - COVID-19 has not adversely affected capital or financial resources, with shareholders' equity increasing by **$20.6 million YTD 2021**, and the Company closed five branch locations in June 2021 due to changing customer behaviors, expecting annual noninterest expense savings of **$0.8-$1.0 million**[182](index=182&type=chunk)[185](index=185&type=chunk) [Earnings Performance](index=42&type=section&id=Earnings%20Performance) - The Company's income primarily derives from net interest income (interest income from earning assets minus interest expense on liabilities) and noninterest income (customer service charges, fees, BOLI, and non-debt investments), with noninterest expense mainly covering operating costs for banking services[191](index=191&type=chunk) [Net Interest Income and Net Interest Margin](index=43&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin) Net Interest Income and Net Interest Margin (dollars in millions) | Metric (dollars in millions) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:-----------------------------|:--------|:--------|:---------|:---------| | Net Interest Income | $26.7 | $28.1 | $82.5 | $76.0 | | Net Interest Margin | 3.46% | 3.98% | 3.66% | 3.97% | - Q3 2021 net interest income decreased by **$1.4 million** due to a **54 bps decline in earning asset yield** and lower average loan balances, partially offset by a **2 bps decrease in interest-bearing liability costs**[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - YTD 2021 net interest income increased by **$6.5 million**, driven by higher average loan balances and a favorable deposit mix, despite a lower net interest margin[208](index=208&type=chunk)[209](index=209&type=chunk) - Average loan balances decreased by **$161.9 million (7%)** in Q3 2021 YoY, mainly due to a **55% decrease in mortgage warehouse lines** and a **38% decrease in commercial loans** (SBA PPP forgiveness), while YTD 2021, average loan balances increased by **$254.3 million (13%)**, primarily from a **20% increase in real estate loans**[194](index=194&type=chunk)[195](index=195&type=chunk) - Interest expense declined due to a favorable shift in deposit mix, with average total time deposits decreasing by **31% in Q3 2021 YoY** and **22% YTD 2021**, and non-interest bearing demand deposits increasing by **15% in Q3 2021 YoY** and **27% YTD 2021**[213](index=213&type=chunk)[215](index=215&type=chunk) [Provision for Loan and Lease Losses](index=49&type=section&id=Provision%20for%20Loan%20and%20Lease%20Losses) Provision for Loan Losses (dollars in millions) | Provision for Loan Losses (dollars in millions) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:------------------------------------------------|:--------|:--------|:---------|:---------| | (Benefit) Provision | $(0.6) | $2.4 | $(2.5) | $6.4 | - The Company recorded a net benefit for loan and lease loss provision of **$0.6 million in Q3 2021** and **$2.5 million YTD 2021**, a significant favorable change from provisions in 2020, attributed to lower historical loan loss rates, declining loan balances, a shift in loan mix, and net recoveries[217](index=217&type=chunk) - No provision was made for SBA PPP loans due to their **100% SBA guarantee**, and the Company deferred CECL adoption until January 1, 2022, to better assess COVID-19's impact on credit losses[218](index=218&type=chunk)[219](index=219&type=chunk) Net Loan (Recoveries) Charge-offs (dollars in millions) | Net Loan (Recoveries) Charge-offs (dollars in millions) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:--------------------------------------------------------|:--------|:--------|:---------|:---------| | Net Charge-offs (Recoveries) | $0.2 | $0.3 | $(0.3) | $0.7 | [Noninterest Income and Noninterest Expense](index=51&type=section&id=Noninterest%20Income%20and%20Noninterest%20Expense) Noninterest Income (dollars in thousands) | Noninterest Income (dollars in thousands) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:------------------------------------------|:--------|:--------|:---------|:---------| | Total Noninterest Income | $7,535 | $7,105 | $20,977 | $20,112 | | As a % of average interest earning assets | 0.96% | 0.99% | 0.92% | 1.04% | - Total noninterest income increased by **$0.4 million (6%) in Q3 2021** and **$0.9 million (4%) YTD 2021**, primarily due to increased check-card interchange fees from higher customer debit card usage, while BOLI income decreased in Q3 but increased YTD due to fluctuations in underlying asset values[228](index=228&type=chunk)[230](index=230&type=chunk)[232](index=232&type=chunk) Noninterest Expense (dollars in thousands) | Noninterest Expense (dollars in thousands) | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:-------------------------------------------|:--------|:--------|:---------|:---------| | Total Noninterest Expense | $20,875 | $19,303 | $61,381 | $55,156 | | As a % of average interest earning assets | 2.66% | 2.70% | 2.68% | 2.85% | | Efficiency ratio | 59.75% | 53.74% | 58.30% | 56.64% | - Total noninterest expense increased by **$1.6 million (8%) in Q3 2021** and **$6.2 million (11%) YTD 2021**, mainly driven by higher salaries and employee benefits (due to lower salary deferrals), increased legal and accounting costs, and higher data processing and check-card processing costs, while occupancy expenses decreased in Q3 due to branch closures but slightly increased YTD due to accelerated leasehold improvements[234](index=234&type=chunk)[235](index=235&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) [Provision for Income Taxes](index=53&type=section&id=Provision%20for%20Income%20Taxes) Provision for Income Taxes | Provision for Income Taxes | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | |:---------------------------|:--------|:--------|:---------|:---------| | As a % of pre-tax income | 24.1% | 23.4% | 25.0% | 23.5% | - The effective tax rate increased in Q3 2021 and YTD 2021 because tax credits and tax-exempt income represented a smaller percentage of total taxable income[240](index=240&type=chunk) [Balance Sheet Analysis](index=53&type=section&id=Balance%20Sheet%20Analysis) [Earning Assets](index=53&type=section&id=Earning%20Assets) - Earning assets, comprising loans and investments, including overnight investments and surplus balances at the Federal Reserve Bank, are key determinants of the Company's financial condition, with their composition, growth, and credit quality being significant factors[242](index=242&type=chunk) [Investments](index=53&type=section&id=Investments) Investment Portfolio (dollars in thousands) | Investment Portfolio (dollars in thousands) | Sep 30, 2021 | Dec 31, 2020 | |:--------------------------------------------|:-------------|:-------------| | Total investment securities | $732,312 | $543,974 | | % of total assets | 21% | 17% | | Surplus interest earning balances (Fed Res) | $356,200 | $3,500 | - The net unrealized gain on the investment portfolio decreased by **$4.9 million** to **$21.3 million** at September 30, 2021, due to increased long-term market interest rates, with municipal bonds constituting **40% of the portfolio**[247](index=247&type=chunk)[248](index=248&type=chunk)[249](index=249&type=chunk) - New corporate bonds are subordinated debentures of bank holding companies, and purchases of AAA and AA rated Collateralized Loan Obligations (CLOs) in Q3 2021 were for asset class diversification and asset sensitivity[250](index=250&type=chunk)[253](index=253&type=chunk) - Pledged investment securities totaled **$148.2 million** at September 30, 2021, leaving **$584.1 million** in unpledged debt securities available for liquidity[254](index=254&type=chunk) [Loan and Lease Portfolio](index=55&type=section&id=Loan%20and%20Lease%20Portfolio) Loan and Lease Distribution (dollars in thousands) | Loan and Lease Distribution (dollars in thousands) | Sep 30, 2021 | Dec 31, 2020 | |:---------------------------------------------------|:-------------|:-------------| | Total real estate | $1,832,924 | $1,895,923 | | Agricultural | $43,296 | $44,872 | | Commercial and industrial | $132,292 | $209,048 | | Mortgage warehouse lines | $126,486 | $307,679 | | Consumer loans | $4,828 | $5,589 | | Total loans and leases | $2,139,826 | $2,463,111 | - Gross loans and leases decreased by **$323.3 million (13%)** to **$2.1 billion** at September 30, 2021, primarily due to declines in mortgage warehouse lines (**$181.2 million**), real estate loans (**$63.0 million**), and commercial and industrial loans (**$76.8 million**, mainly SBA PPP loan forgiveness)[258](index=258&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[261](index=261&type=chunk) - The Company strategically lowered its regulatory commercial real estate concentration ratio from **378% to 308%**, with the decline in real estate loans partially offset by an **$80.4 million increase in 1-4 family residential loans**, including a **$121.6 million purchase of jumbo mortgage loans**[260](index=260&type=chunk) [Nonperforming Assets](index=56&type=section&id=Nonperforming%20Assets) Nonperforming Assets (dollars in thousands) | Nonperforming Assets (dollars in thousands) | Sep 30, 2021 | Dec 31, 2020 | Sep 30, 2020 | |:--------------------------------------------|:-------------|:-------------|:-------------| | Total Nonperforming Loans | $6,788 | $7,598 | $7,186 | | Foreclosed assets | $93 | $971 | $2,970 | | Total Nonperforming Assets | $6,881 | $8,569 | $10,156 | | Performing TDRs | $5,509 | $11,382 | $7,708 | | Nonperforming loans as a % of total gross loans and leases | 0.32% | 0.31% | 0.30% | - Total nonperforming assets decreased by **$1.7 million (20%)** to **$6.9 million**, with nonperforming loans decreasing by **$0.8 million**, but their ratio to gross loans increased slightly due to a smaller loan portfolio, and performing TDRs decreased by **$5.9 million (52%)** to **$5.5 million**[265](index=265&type=chunk)[266](index=266&type=chunk) - Foreclosed assets decreased to **$0.1 million (2 properties)** from **$1.0 million (7 properties)** at year-end 2020, with all impaired assets actively managed and well-reserved or carried at fair value[267](index=267&type=chunk)[268](index=268&type=chunk) - The Company had **$10.4 million** in outstanding loan modifications under the CARES Act for one customer relationship, all fully secured by real estate and internally graded as classified assets[271](index=271&type=chunk) [Allowance for Loan and Lease Losses](index=58&type=section&id=Allowance%20for%20Loan%20and%20Lease%20Losses) - The ALLL decreased by **$2.1 million (12%)** to **$15.6 million** at September 30, 2021, driven by a **$2.5 million loan loss benefit** and **$0.3 million in net recoveries**, reflecting improved historical loan loss rates and decreased loan balances[274](index=274&type=chunk) - The ALLL to total loans ratio was **0.73%** at September 30, 2021, and the ALLL to nonperforming loans ratio was **230.1%**, with management believing the ALLL is adequate, though future losses are not assured[276](index=276&type=chunk)[282](index=282&type=chunk) - A separate allowance of **$0.2 million** for potential losses on unused commitments is included in other liabilities[277](index=277&type=chunk) [Off-Balance Sheet Arrangements](index=60&type=section&id=Off-Balance%20Sheet%20Arrangements) - Unused commitments to extend credit, including standby letters of credit, totaled **$540.0 million** at September 30, 2021, an increase from **$449.9 million** at December 31, 2020, largely due to increased unfunded mortgage warehouse lines[284](index=284&type=chunk) - The Company uses a **$100 million FHLB letter of credit** to secure certain local agency deposits, backed by pledged loans[285](index=285&type=chunk) [Other Assets](index=60&type=section&id=Other%20Assets) - Non-earning cash and due from banks was **$66.2 million** at September 30, 2021, while net premises and equipment decreased by **$3.0 million** due to branch closures, and goodwill remained unchanged at **$27 million**, with no impairment triggering events in the first nine months of 2021[287](index=287&type=chunk)[288](index=288&type=chunk) [Deposits and Interest Bearing Liabilities](index=60&type=section&id=Deposits%20and%20Interest%20Bearing%20Liabilities) [Deposits](index=60&type=section&id=Deposits) Deposit Distribution (dollars in thousands) | Deposit Distribution (dollars in thousands) | Sep 30, 2021 | Dec 31, 2020 | |:--------------------------------------------|:-------------|:-------------| | Noninterest bearing demand deposits | $1,111,411 | $943,664 | | Interest bearing demand deposits | $154,773 | $109,938 | | NOW | $611,050 | $558,407 | | Savings | $451,248 | $368,420 | | Money market | $141,348 | $131,232 | | Time | $290,816 | $412,945 | | Brokered deposits | $60,000 | $100,000 | | Total deposits | $2,820,646 | $2,624,606 | | Percentage of Total Deposits | | | | Noninterest bearing demand deposits | 39.40% | 35.95% | - Deposit balances grew by **$196.0 million (7%) YTD 2021**, driven by non-maturity deposit growth of **$358.2 million**, while time deposits decreased by **$122.1 million** (primarily due to non-renewal of public time deposits), and brokered deposits decreased by **$40.0 million**[292](index=292&type=chunk) [Other Interest Bearing Liabilities](index=61&type=section&id=Other%20Interest%20Bearing%20Liabilities) - Total non-deposit interest-bearing liabilities decreased by **$40.1 million (18%) YTD 2021**, mainly due to reduced federal funds purchased and FHLB borrowings, while repurchase agreements increased to **$92.6 million**, representing customer 'sweep accounts'[295](index=295&type=chunk)[296](index=296&type=chunk) - Long-term debt increased to **$49.2 million** from the issuance of **$50 million in subordinated debt**, and junior subordinated debentures totaled **$35.3 million**[297](index=297&type=chunk)[298](index=298&type=chunk) [Noninterest Bearing Liabilities](index=62&type=section&id=Noninterest%20Bearing%20Liabilities) - Other liabilities increased by **$45.5 million** to **$80.6 million** at September 30, 2021, primarily due to a forward settling investment securities accrual[300](index=300&type=chunk) [Liquidity and Market Risk Management](index=62&type=section&id=Liquidity%20and%20Market%20Risk%20Management) [Liquidity](index=62&type=section&id=Liquidity) - The Company manages liquidity through cash flow projections, stress scenarios, and monitoring liquidity ratios, with primary and secondary liquidity sources including cash and cash equivalents, unpledged investment securities, FHLB borrowing availability, and unsecured lines of credit[302](index=302&type=chunk)[303](index=303&type=chunk)[304](index=304&type=chunk) Liquidity Sources (dollars in thousands) | Liquidity Sources (dollars in thousands) | Sep 30, 2021 | Dec 31, 2020 | |:-----------------------------------------|:-------------|:-------------| | Cash and cash equivalents | $422,350 | $71,417 | | Unpledged investment securities | $584,066 | $311,983 | | FHLB borrowing availability | $773,125 | $535,404 | | Unsecured lines of credit | $305,000 | $230,000 | | Totals | $2,189,654 | $1,259,823 | - The significant increase in cash and cash equivalents in 2021 is due to deposit growth and lower loan balances, with management believing current liquidity is strong and sufficient, and ratios like net loans to assets (**62.08%**) and available investments to assets (**28.57%**) well within policy guidelines[305](index=305&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) [Interest Rate Risk Management](index=63&type=section&id=Interest%20Rate%20Risk%20Management) - The Company's primary market risk is interest rate risk, managed through policies, procedures, and monthly earnings simulations using commercially available modeling software, with scenarios including upward and downward rate shocks to assess net interest income and economic value of equity (EVE) sensitivity[311](index=311&type=chunk)[312](index=312&type=chunk)[314](index=314&type=chunk) Net Interest Income Sensitivity (12-month % Change) | Net Interest Income Sensitivity (12-month) | Sep 30, 2021 (% Change) | Sep 30, 2020 (% Change) | |:-------------------------------------------|:------------------------|:------------------------| | +400 bps | 16.1% | (0.4)% | | +300 bps | 13.2% | 0.1% | | +200 bps | 9.8% | 0.7% | | +100 bps | 5.7% | 0.9% | | -100 bps | (11.0)% | (5.8)% | - At September 30, 2021, the Company was asset sensitive, with net interest income projected to increase significantly in a rising rate environment, largely due to higher overnight cash balances, though a continued drop in rates could have a substantial negative impact, exceeding internal policy guidelines for a **100 bps downward shock**[315](index=315&type=chunk)[316](index=316&type=chunk)[320](index=320&type=chunk) Economic Value of Equity (EVE) Sensitivity (% Change) | Economic Value of Equity (EVE) Sensitivity | Sep 30, 2021 (% Change) | Sep 30, 2020 (% Change) | |:-------------------------------------------|:------------------------|:------------------------| | +400 bps | 38.1% | 33.5% | | +300 bps | 35.7% | 30.1% | | +200 bps | 29.9% | 24.2% | | +100 bps | 17.6% | 14.4% | | -100 bps | (23.1)% | (7.9)% | - EVE is modeled to deteriorate in moderate declining rate scenarios but benefits from upward shifts in the yield curve, with sensitivity increasing with higher interest rates due to increased noninterest-bearing deposits[324](index=324&type=chunk) [Capital Resources](index=66&type=section&id=Capital%20Resources) Shareholders' Equity (dollars in millions) | Shareholders' Equity (dollars in millions) | Sep 30, 2021 | Dec 31, 2020 | |:-------------------------------------------|:-------------|:-------------| | Total Shareholders' Equity | $364.5 | $343.9 | - The increase in shareholders' equity was driven by net income, stock options exercised, and restricted stock accruals, partially offset by an unfavorable swing in accumulated other comprehensive income and cash dividends paid[328](index=328&type=chunk) Regulatory Capital Ratios (Bank of the Sierra) | Regulatory Capital Ratios (Bank of the Sierra) | Sep 30, 2021 | Dec 31, 2020 | Minimum Required Community Bank Leverage Ratio | |:-----------------------------------------------|:-------------|:-------------|:-----------------------------------------------| | Tier 1 Capital to Adjusted Average Assets | 10.66% | 10.12% | 8.50% | - The Company and Bank meet the Community Bank Leverage Ratio (CBLR) framework criteria, with the Bank's leverage ratio exceeding the **8.5% minimum**, and the CBLR is set to increase to **9% on January 1, 2022**[330](index=330&type=chunk)[331](index=331&type=chunk) [Item 3. Qualitative & Quantitative Disclosures about Market Risk](index=67&type=section&id=Item%203.%20Qualitative%20%26%20Quantitative%20Disclosures%20about%20Market%20Risk) Market risk disclosures, especially interest rate risk, are detailed in Management's Discussion and Analysis under 'Liquidity and Market Risk Management' - Qualitative and quantitative disclosures about market risk are included in Part I, Item 2, under 'Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Market Risk Management'[334](index=334&type=chunk) [Item 4. Controls and Procedures](index=67&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures are effective, with no significant changes to internal controls over financial reporting in the first nine months of 2021 - The CEO and CFO concluded that the Company's disclosure controls and procedures were adequate and effective as of September 30, 2021, ensuring material information is communicated and reported timely[334](index=334&type=chunk)[335](index=335&type=chunk) - There were no significant changes in internal controls over financial reporting during the first nine months of 2021 that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting[336](index=336&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=68&type=section&id=Item%201.%20Legal%20Proceedings) Ordinary course legal proceedings are not expected to materially adversely affect the Company's financial condition or results - The Company and Bank are defendants in legal proceedings arising from ordinary business transactions, which management, in consultation with legal counsel, believes are not probable to have a material adverse effect on the Company's consolidated financial condition, results of operations, comprehensive income, or cash flows[339](index=339&type=chunk) [Item 1A. Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported from the Company's Form 10-K for the fiscal year ended December 31, 2020 - No material changes were reported from the risk factors disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2020[340](index=340&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details stock repurchase activities, including a new 2021 Share Repurchase Plan and Q3 2021 repurchases - The Board approved a new 2021 Share Repurchase Plan authorizing **1,000,000 shares** for repurchase, terminating the previous plan and rolling over its remaining **268,301 shares**, with repurchases planned to commence in Q4 2021[341](index=341&type=chunk) Stock Repurchases (Q3 2021) | Stock Repurchases (Q3 2021) | July 31, 2021 | August 31, 2021 | September 30, 2021 | |:----------------------------|:--------------|:----------------|:-------------------| | Total shares repurchased (1)| — | 12,122 | — | | Average per share price | N/A | $24.12 | N/A | | Maximum shares remaining | 268,301 | 268,301 | 268,301 | - The repurchased shares in August 2021 relate to net settlements by employees for vested, restricted stock awards to satisfy income tax liabilities, and do not impact the publicly announced repurchase plan shares[342](index=342&type=chunk) [Item 3. Defaults upon Senior Securities](index=68&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) There are no applicable defaults upon senior securities - Not applicable[343](index=343&type=chunk) [Item 4. Mine Safety Disclosures](index=68&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no applicable mine safety disclosures - Not applicable[343](index=343&type=chunk) [Item 5. Other Information](index=69&type=section&id=Item%205.%20Other%20Information) There is no other information to disclose - Not applicable[344](index=344&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including organizational documents, securities descriptions, and various agreements - The exhibits include Restated Articles of Incorporation, Amended and Restated By-laws, Description of Securities, 3.25% Fixed to Floating Subordinated Debt, Salary Continuation Agreements, Split Dollar Agreements, Deferred Compensation Plan, Indentures, Stock Incentive Plans, and Employment Agreements[345](index=345&type=chunk) [Signatures](index=71&type=section&id=Signatures) This section contains the signatures of the President & CEO, CFO, and Principal Accounting Officer, certifying the report on November 4, 2021 - The report is signed by Kevin J. McPhaill (President & CEO), Christopher G. Treece (CFO), and Cindy L. Dabney (Principal Accounting Officer) on November 4, 2021[347](index=347&type=chunk)

Part I [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) The unaudited consolidated financial statements for the period ended June 30, 2021, show an increase in total assets to $3.3 billion from $3.2 billion at year-end 2020, driven by a significant rise in cash and cash equivalents, with net income for Q2 2021 at $11.7 million [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2021, total assets increased to $3.27 billion from $3.22 billion at December 31, 2020, primarily driven by a substantial increase in cash and cash equivalents to $373.9 million Consolidated Balance Sheet Highlights | Account | June 30, 2021 (Unaudited) ($ thousands) | December 31, 2020 (Audited) ($ thousands) | | :--- | :--- | :--- | | **Total Assets** | **$3,272,048** | **$3,220,742** | | Total cash & cash equivalents | $373,902 | $71,417 | | Net loans and leases | $2,124,540 | $2,442,226 | | **Total Liabilities** | **$2,914,319** | **$2,876,846** | | Total deposits | $2,775,914 | $2,624,606 | | Short-term borrowings | $0 | $142,900 | | **Total Shareholders' Equity** | **$357,729** | **$343,896** | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) For the second quarter ended June 30, 2021, net income was $11.7 million, a 41% increase from $8.3 million in the same period of 2020, driven by a $2.1 million benefit for loan losses and a 12.6% increase in net interest income Income Statement Summary | Metric | Q2 2021 ($ thousands) | Q2 2020 ($ thousands) | H1 2021 ($ thousands) | H1 2020 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $27,189 | $24,142 | $55,744 | $47,929 | | (Benefit) Provision for Loan Losses | $(2,100) | $2,200 | $(1,850) | $4,000 | | **Net Income** | **$11,708** | **$8,303** | **$22,786** | **$16,110** | | Earnings per share diluted | $0.76 | $0.54 | $1.48 | $1.05 | | Cash dividends per share | $0.21 | $0.20 | $0.42 | $0.40 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2021, net cash provided by operating activities was $21.3 million, with a significant increase in cash and cash equivalents of $302.5 million due to investing and financing activities Cash Flow Summary for Six Months Ended June 30 | Cash Flow Category | 2021 ($ thousands) | 2020 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $21,301 | $21,765 | | Net cash provided by (used in) investing activities | $247,793 | $(433,905) | | Net cash provided by financing activities | $33,391 | $488,674 | | **Increase in cash and cash equivalents** | **$302,485** | **$76,534** | | Cash and cash equivalents, end of period | $373,902 | $156,611 | [Notes to Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20%28Unaudited%29) The notes provide critical details on accounting policies and financial statement components, including the deferred implementation of CECL, loan deferrals under the CARES Act, and the allowance for loan and lease losses totaling $16.4 million - The Company elected to defer the implementation of the Current Expected Credit Losses (CECL) methodology to January 1, 2022, under the provisions of the CARES Act and subsequent extensions, to better assess the impact of the COVID-19 pandemic[30](index=30&type=chunk) - As of June 30, 2021, the company had **$10.4 million** in loans with payment deferrals under CARES Act provisions, which are not classified as Troubled Debt Restructurings (TDRs)[90](index=90&type=chunk) - The allowance for loan and lease losses was **$16.4 million** at June 30, 2021, comprised of a **$1.3 million** specific reserve for impaired loans and a **$15.1 million** general reserve for unimpaired loans[131](index=131&type=chunk)[126](index=126&type=chunk) [Item 2. Management's Discussion & Analysis of Financial Condition & Results of Operations](index=46&type=section&id=Item%202.%20Management%27s%20Discussion%20%26%20Analysis%20of%20Financial%20Condition%20%26%20Results%20of%20Operations) Management's discussion highlights strong earnings for Q2 and H1 2021, driven by a significant negative provision for loan losses and increased net interest income, alongside strategic balance sheet shifts and ongoing COVID-19 impact management [Overview of the Results of Operations and Financial Condition](index=48&type=section&id=Overview%20of%20the%20Results%20of%20Operations%20and%20Financial%20Condition) Q2 2021 net income rose to $11.7 million, driven by a $2.1 million negative provision for loan losses and increased net interest income, while total assets grew to $3.3 billion and loan balances declined by $318.3 million - Q2 2021 net income increased to **$11.7 million**, primarily due to a **$2.1 million** negative provision for loan losses and a **$3.0 million** increase in net interest income[150](index=150&type=chunk) - Loan balances declined by **$318.3 million** (13%) in H1 2021, mainly due to decreases in mortgage warehouse lines (**$157.3 million**), real estate loans (**$100.0 million**), and SBA PPP loans (**$49.0 million**)[155](index=155&type=chunk) - The company deferred CECL implementation to January 1, 2022, to better assess the impact of the COVID-19 pandemic on lifetime credit losses[178](index=178&type=chunk) - In June 2021, the company permanently closed five branch locations due to changing customer behaviors, projecting annual noninterest expense savings of **$0.8 to $1.0 million**[182](index=182&type=chunk)[184](index=184&type=chunk) [Earnings Performance](index=58&type=section&id=Earnings%20Performance) Earnings performance improved significantly, with net interest income increasing by 13% in Q2 2021 and 16% in H1 2021 year-over-year, primarily due to a $2.1 million negative provision for loan losses Net Interest Income and Margin | Period | Net Interest Income ($ millions) | Net Interest Margin | | :--- | :--- | :--- | | Q2 2021 | $27.2 | 3.60% | | Q2 2020 | $24.1 | 3.81% | | H1 2021 | $55.7 | 3.76% | | H1 2020 | $47.9 | 3.97% | - The company recorded a net benefit (negative provision) for loan losses of **$2.1 million** in Q2 2021 and **$1.9 million** in H1 2021, compared to provisions of **$2.2 million** and **$4.0 million** in the respective 2020 periods, reflecting improved economic conditions[219](index=219&type=chunk) - Noninterest expense increased by **$2.2 million** (12%) in Q2 2021, primarily due to a **$1.2 million** rise in salaries and benefits (from lower loan origination cost deferrals) and a **$0.5 million** increase in data processing costs[234](index=234&type=chunk)[235](index=235&type=chunk)[238](index=238&type=chunk) [Balance Sheet Analysis](index=51&type=section&id=Balance%20Sheet%20Analysis) The balance sheet analysis reveals a strategic shift in asset composition, with the loan portfolio decreasing by $318.3 million to $2.1 billion, while deposits grew by $151.3 million and nonperforming assets remained low - Gross loans and leases decreased by **$318.3 million** (13%) in H1 2021, primarily from a **$157.3 million** drop in mortgage warehouse lines and forgiveness of SBA PPP loans[254](index=254&type=chunk)[255](index=255&type=chunk) - The regulatory commercial real estate (CRE) concentration ratio was strategically lowered from 378% at year-end 2020 to **335%** at June 30, 2021[257](index=257&type=chunk) Asset Quality Ratios | Metric | June 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Nonperforming loans to gross loans | 0.34% | 0.31% | | Nonperforming assets to total assets | 0.38% | 0.35% | | Allowance for loan losses to gross loans | 0.77% | 0.72% | - Deposits grew by **$151.3 million** in H1 2021, with non-maturity deposits increasing by **$283.4 million** while time deposits declined by **$117.1 million**[288](index=288&type=chunk) [Liquidity and Market Risk Management](index=58&type=section&id=Liquidity%20and%20Market%20Risk%20Management) The company maintains a strong liquidity position, with primary and secondary sources totaling $1.93 billion at June 30, 2021, and is asset-sensitive to interest rate changes, projecting a 4.1% NII increase from a 100 bps rate rise Primary and Secondary Liquidity Sources | Source | June 30, 2021 ($ thousands) | December 31, 2020 ($ thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $373,902 | $71,417 | | Unpledged investment securities | $482,039 | $311,983 | | FHLB borrowing availability | $662,641 | $535,404 | | **Total Sources** | **$1,930,741** | **$1,259,823** | Net Interest Income Sensitivity (1-Year Projection) | Rate Shock (bps) | % Change in NII (June 30, 2021) | | :--- | :--- | | +200 | +6.9% | | +100 | +4.1% | | -100 | (8.1)% | [Capital Resources](index=61&type=section&id=Capital%20Resources) Total shareholders' equity increased to $357.7 million at June 30, 2021, driven by net income, and the company's leverage ratio of 10.43% comfortably exceeds the 'well capitalized' threshold under the CBLR framework - Total shareholders' equity increased by **$13.8 million** in H1 2021 to **$357.7 million**, primarily due to **$22.8 million** in net income, partially offset by dividends and an unfavorable change in AOCI[160](index=160&type=chunk)[323](index=323&type=chunk) Bank of the Sierra - Leverage Ratio | Date | Leverage Ratio | Minimum to be Well Capitalized | | :--- | :--- | :--- | | June 30, 2021 | 10.43% | 8.50% | - The Company has elected to measure capital adequacy under the Community Bank Leverage Ratio (CBLR) framework, which simplifies capital requirements for qualifying institutions[328](index=328&type=chunk) [Item 3. Qualitative & Quantitative Disclosures about Market Risk](index=62&type=section&id=Item%203.%20Qualitative%20%26%20Quantitative%20Disclosures%20about%20Market%20Risk) This section cross-references the detailed discussion on market risk provided in Item 2, under the heading 'Liquidity and Market Risk Management', identifying interest rate risk as the company's primary market risk exposure - The report directs readers to the 'Liquidity and Market Risk Management' section within Item 2 (MD&A) for all qualitative and quantitative disclosures about market risk[329](index=329&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's CEO and CFO have evaluated the disclosure controls and procedures and concluded they were adequate and effective as of June 30, 2021, with no significant changes in internal controls over financial reporting during the first half of 2021 - The CEO and CFO certified that the Company's disclosure controls and procedures were effective as of the end of the reporting period[331](index=331&type=chunk) - No significant changes to internal controls over financial reporting were identified during the first six months of 2021[333](index=333&type=chunk) Part II - Other Information [Item 1. - Legal Proceedings](index=64&type=section&id=Item%201.%20-%20Legal%20Proceedings) The company is involved in various legal proceedings in the normal course of business, with management believing that any resulting liability will not have a material adverse effect on its financial condition or results of operations - Management does not expect any legal proceedings to have a material adverse effect on the Company's financial condition or operations[336](index=336&type=chunk) [Item 1A. - Risk Factors](index=64&type=section&id=Item%201A.%20-%20Risk%20Factors) There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - No material changes to risk factors were reported compared to the Form 10-K for the year ended December 31, 2020[337](index=337&type=chunk) [Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20-%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company's stock repurchase program remains suspended as of June 30, 2021, with no repurchases made since March 2020, and 268,301 shares remaining authorized for purchase - The stock repurchase program has been suspended since March 2020[338](index=338&type=chunk) - As of June 30, 2021, **268,301 shares** remained authorized for repurchase under the existing plan[338](index=338&type=chunk) [Item 5. - Other Information](index=64&type=section&id=Item%205.%20-%20Other%20Information) Items 3 (Defaults upon Senior Securities), 4 (Mine Safety Disclosures), and 5 (Other Information) are reported as 'Not applicable' for this reporting period - Items concerning Defaults upon Senior Securities, Mine Safety Disclosures, and Other Information were not applicable[339](index=339&type=chunk) [Item 6. - Exhibits](index=65&type=section&id=Item%206.%20-%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, descriptions of securities, various agreements, and CEO/CFO certifications, along with XBRL interactive data files - A list of **24 exhibits** and various XBRL files are included or incorporated by reference, covering governance, agreements, and required certifications[342](index=342&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021 Commission file number: 000-33063 SIERRA BANCORP (Exact name of Registrant as specified in its charter) California 33-0937517 (State of Incorporation) (IRS Employer Identification No) 86 North Main Street, Porterville, California 93257 (Address of principal executive offices) ...

Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Sierra Bancorp is a bank holding company providing retail and commercial banking services via its subsidiary, Bank of the Sierra, across 40 branches in California Company Overview (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | **Consolidated Assets** | $3.2 billion | | **Gross Loans** | $2.5 billion | | **Total Deposits** | $2.6 billion | | **Shareholders' Equity** | $343.9 million | | **Full-Service Branches** | 40 | Loan Portfolio Composition (as of Dec 31, 2020) | Loan Type | Percentage of Portfolio | | :--- | :--- | | **Loans Secured by Real Estate** | 77.0% | | **Mortgage Warehouse Loans** | 12.5% | | **Commercial & Industrial Loans (incl. PPP)** | 8.5% | | **Agricultural Production Loans** | 1.8% | | **Consumer Loans** | 0.2% | - The Company's growth strategy combines organic expansion, such as opening a new loan production office in Rocklin, CA in 2020, with strategic whole-bank and branch acquisitions[9](index=9&type=chunk)[10](index=10&type=chunk)[19](index=19&type=chunk) - The Company faces intense competition from major banks like Wells Fargo and Bank of America, which hold significantly larger market shares; however, **Sierra Bancorp ranks first in deposit market share in Tulare County**, its original market[25](index=25&type=chunk)[26](index=26&type=chunk) Workforce Demographics (as of Dec 31, 2020) | Category | Metric | Percentage | | :--- | :--- | :--- | | **Gender** | Women | 75% | | | Men | 25% | | **Ethnicity** | Hispanic or Latino | 45% | | | Other | 55% | - The Company and the Bank are **heavily regulated by multiple agencies**, including the Federal Reserve, FDIC, and California's DFPI, covering capital adequacy, lending, and consumer protection[40](index=40&type=chunk)[41](index=41&type=chunk)[48](index=48&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) The Company faces risks from the COVID-19 pandemic, economic volatility, its high concentration in real estate loans, competition, regulation, and cybersecurity threats - The **COVID-19 pandemic poses significant risks**, including potential declines in collateral value, reduced demand for products, net interest margin compression, and higher credit losses[96](index=96&type=chunk)[100](index=100&type=chunk)[102](index=102&type=chunk) - A **heavy concentration in real estate loans, which constitute 77.0% of the total loan portfolio**, exposes the Company to significant risk from a downturn in the real estate market[124](index=124&type=chunk) - The business is exposed to regional economic risks, particularly challenges in the **agricultural industry from drought and trade disruptions**, and the impact of oil price volatility in Kern County[113](index=113&type=chunk)[117](index=117&type=chunk) - The Company operates in a highly regulated environment, and changes in laws or adverse examination findings could **restrict activities and increase costs**[144](index=144&type=chunk)[150](index=150&type=chunk) - **Cybersecurity threats**, including data breaches and fraudulent activity, pose a severe risk to the Company's reputation, operations, and financial condition[168](index=168&type=chunk)[170](index=170&type=chunk)[172](index=172&type=chunk) [Item 1B. Unresolved Staff Comments](index=54&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The Company reports that there are no unresolved staff comments - Not applicable; the company has **no unresolved comments from SEC staff**[179](index=179&type=chunk) [Item 2. Properties](index=54&type=section&id=Item%202.%20Properties) The Company owns its headquarters and 18 branch offices, with the remaining facilities being leased from third parties - The Company **owns its administrative headquarters in Porterville and the properties for 18 of its branch offices**, with the remaining locations being leased[180](index=180&type=chunk) [Item 3. Legal Proceedings](index=54&type=section&id=Item%203.%20Legal%20Proceedings) Management believes that legal proceedings from the ordinary course of business will not materially impact the Company's financial condition - Management does not expect any legal proceedings arising from the ordinary course of business to have a **material adverse effect** on the Company's financial condition[181](index=181&type=chunk) [Item 4. Mine Safety Disclosures](index=54&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[182](index=182&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=56&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The Company's stock (BSRR) trades on NASDAQ; this section details its 2020 price range, dividend payments, and the status of its stock buyback plan Common Stock Price and Volume (2020) | Quarter End | High Price | Low Price | | :--- | :--- | :--- | | **Mar 31, 2020** | $29.37 | $13.05 | | **Jun 30, 2020** | $21.87 | $14.86 | | **Sep 30, 2020** | $20.13 | $15.84 | | **Dec 31, 2020** | $24.72 | $16.47 | Annual Dividends Per Share | Year | Dividend Per Share | Payout Ratio | | :--- | :--- | :--- | | **2020** | $0.80 | 34% | | **2019** | $0.74 | 32% | - As of January 31, 2021, there were an estimated **6,292 shareholders** of the Company's common stock[187](index=187&type=chunk) - The Company has a stock buyback plan but has **currently suspended repurchases**, with 344,862 shares remaining under the current authorization[197](index=197&type=chunk) [Item 6. Selected Financial Data](index=61&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year summary of key financial data, showing growth in assets and loans, with fluctuating but strong net income Selected Financial Data (2018-2020) | (in thousands, except per share data) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net Income** | $35,444 | $35,961 | $29,677 | | **Net Income per Diluted Share** | $2.32 | $2.33 | $1.92 | | **Total Assets** | $3,220,742 | $2,593,819 | $2,522,502 | | **Total Loans and Leases, net** | $2,442,226 | $1,755,538 | $1,724,780 | | **Total Deposits** | $2,624,606 | $2,168,374 | $2,116,340 | | **Total Shareholders' Equity** | $343,896 | $309,285 | $273,024 | Key Operating Ratios (2018-2020) | Ratio | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Return on Average Equity** | 10.80% | 12.23% | 11.37% | | **Return on Average Assets** | 1.22% | 1.40% | 1.23% | | **Net Interest Margin (tax-equivalent)** | 3.95% | 4.19% | 4.24% | | **Efficiency Ratio (tax-equivalent)** | 57.18% | 57.46% | 60.79% | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=63&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 2020 performance, highlighting asset growth from PPP loans, net interest margin compression, and a higher provision for loan losses Key Performance Metrics (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net Income** | $35.4M | $36.0M | $29.7M | | **Diluted EPS** | $2.32 | $2.33 | $1.92 | | **Return on Average Assets (ROA)** | 1.22% | 1.40% | 1.23% | | **Return on Average Equity (ROE)** | 10.80% | 12.23% | 11.37% | - **Net interest income increased by 8%** in 2020, driven by growth in earning assets; however, the **net interest margin declined by 24 basis points to 3.95%** due to the low-rate environment[208](index=208&type=chunk)[210](index=210&type=chunk)[255](index=255&type=chunk) - The **provision for loan and lease losses significantly increased to $8.6 million** in 2020, up from $2.6 million in 2019, due to strong loan growth and economic uncertainty[213](index=213&type=chunk)[257](index=257&type=chunk) - **Total assets grew by 24% ($626.9 million)** in 2020, primarily fueled by a 39% ($694.5 million) increase in net loans, which included SBA PPP loans and strong organic growth[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - The Company elected to **defer the implementation of the Current Expected Credit Loss (CECL) accounting standard** until January 1, 2022, as permitted by the CARES Act[233](index=233&type=chunk)[257](index=257&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=66&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers to the 'Liquidity and Market Risk Management' discussion within Item 7 for disclosures on the Company's primary market risk, interest rate risk - The required information regarding market risk is included in the **"Liquidity and Market Risk Management" section of Item 7**, Management's Discussion and Analysis[391](index=391&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=67&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited consolidated financial statements, notes, and the independent auditor's report, which gives an unqualified opinion - The independent auditor, Eide Bailly LLP, issued an **unqualified opinion** on the consolidated financial statements and on the effectiveness of internal control over financial reporting[394](index=394&type=chunk) - The auditor identified the **Allowance for Loan and Lease Losses as a critical audit matter**, highlighting its materiality and the complex, subjective judgments required by management[399](index=399&type=chunk) Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | **Total Assets** | $3,220,742 | $2,593,819 | | Net Loans and Leases | $2,442,226 | $1,755,538 | | Goodwill | $27,357 | $27,357 | | **Total Liabilities** | $2,876,846 | $2,284,534 | | Total Deposits | $2,624,606 | $2,168,374 | | **Total Shareholders' Equity** | $343,896 | $309,285 | Consolidated Income Statement Highlights (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net Interest Income** | $104,835 | $97,369 | $92,394 | | **Provision for Loan & Lease Losses** | $8,550 | $2,550 | $4,350 | | **Noninterest Income** | $26,150 | $23,477 | $21,564 | | **Noninterest Expense** | $75,912 | $70,578 | $70,024 | | **Net Income** | $35,444 | $35,961 | $29,677 | [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=131&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the Company - Not applicable[711](index=711&type=chunk) [Item 9A. Controls and Procedures](index=131&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2020 - The CEO and CFO concluded that the Company's **disclosure controls and procedures were effective** as of December 31, 2020[712](index=712&type=chunk) - Management assessed its **internal control over financial reporting as effective** as of December 31, 2020, based on the COSO framework, an assessment audited by Eide Bailly[717](index=717&type=chunk)[719](index=719&type=chunk)[721](index=721&type=chunk) - There were **no significant changes** to the Company's internal control over financial reporting during the fourth quarter of 2020[722](index=722&type=chunk) [Item 9B. Other Information](index=132&type=section&id=Item%209B.%20Other%20Information) There is no information to report under this item - None[723](index=723&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=133&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Required information on directors, officers, and governance is incorporated by reference from the 2021 Annual Meeting Proxy Statement - Information regarding directors, executive officers, and corporate governance is **incorporated by reference** from the upcoming 2021 Proxy Statement[726](index=726&type=chunk)[728](index=728&type=chunk) [Item 11. Executive Compensation](index=133&type=section&id=Item%2011.%20Executive%20Compensation) Required information on executive compensation is incorporated by reference from the 2021 Annual Meeting Proxy Statement - Information regarding executive compensation is **incorporated by reference** from the upcoming 2021 Proxy Statement[729](index=729&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=133&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Information on security ownership is incorporated by reference from the 2021 Proxy Statement, with equity plan details available in Item 5 - Information regarding security ownership is **incorporated by reference** from the upcoming 2021 Proxy Statement; details on equity compensation plans are located in Item 5[730](index=730&type=chunk)[731](index=731&type=chunk) [Item 13. Certain Relationships and Related Transactions and Director Independence](index=133&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Required information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information regarding related transactions and director independence is **incorporated by reference** from the upcoming 2021 Proxy Statement[732](index=732&type=chunk) [Item 14. Principal Accounting Fees and Services](index=133&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Required information on accountant fees and services is incorporated by reference from the 2021 Annual Meeting Proxy Statement - Information regarding accounting fees and services is **incorporated by reference** from the upcoming 2021 Proxy Statement[733](index=733&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=134&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-K, while financial statement schedules are omitted as they are not applicable - This section lists all exhibits filed with the report, such as articles of incorporation, bylaws, material contracts, and CEO/CFO certifications[738](index=738&type=chunk) - Financial statement schedules have been omitted because the required information is **either not applicable or is already included** in the financial statements or notes[741](index=741&type=chunk) [Item 16. Form 10-K Summary](index=135&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the Company - Not Applicable[742](index=742&type=chunk)