Sierra Bancorp Reports Financial Results for Third Quarter and First Nine Months of 2023

Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the three-and nine-month periods ended September 30, 2023. Sierra Bancorp reported consolidated net income of $9.9 million, or $0.68 per diluted share, for the third quarter of 2023, and $28.5 million, or $1.93 per diluted shares, for the first nine months of 2023.

Highlights for the third quarter of 2023:

• Steady Earnings
  • Net Income of $9.9 million, consistent with the second quarter of 2023 (the prior linked quarter), and up 8% year-to-date compared to the same period last year
  • Return on Average Assets of 1.04%
  • Return on Average Equity of 12.62%

• Solid Asset Quality
  • Total Nonperforming Loans declined to $0.8 million, or 0.04% of total gross loans
  • Past due loans declined to $0.8 million, the lowest level for the past two years
  • No foreclosed assets at September 30, 2023
  • Net Charge-offs remained very low at just under $0.1 million
  • Stable Allowance for Credit Losses on loans of $23.1 million

• Stable Deposits & Liquidity
  • Overall primary and secondary liquidity sources increased to $2.67 billion at September 30, 2023
  • Total deposits declined by 1.6% during the quarter due mostly to declines in brokered deposits and interest-bearing transaction accounts
  • Total deposits have increased by $23.6 million, or 0.8% year-to-date
  • Noninterest-bearing deposits stable at 37% of total deposits

• Strong Capital and Solid Asset Growth
  • Total Assets at $3.74 billion, down 1% from prior linked quarter, but up 4% year-to-date
  • Maintained a diversified investment portfolio designed for interest rate risk management and liquidity
  • Repurchased 99,528 shares of stock during the quarter
  • Tangible Book Value per share increased by 1% to $19.04 per share at September 30, 2023 compared to the prior linked quarter
  • Strong regulatory Community Bank Leverage Ratio of 11.00% for our subsidiary Bank
  • Tangible Common Equity Ratio of 7.5% on a consolidated basis and 9.4% for our subsidiary bank
  • Dividend declared of $0.23 per share, payable on November 14, 2023, our 99^th consecutive quarterly dividend

“The elevator to success is out of order. You’ll have to use the stairs, one step at a time.” - Joe Girard

“We are proud of the many accomplishments of our team of focused bankers this past quarter,” stated Kevin McPhaill, CEO and President. “Our continued strong results are even more noteworthy, given the challenging banking environment. In particular, earnings per share increased from last quarter as did tangible common equity per share. Our quarterly results demonstrate our commitment to continued active balance sheet management. Much of our success is the result of our community bank foundation, which gives us unique positioning and strong connections with our customers. As we continue to look for opportunities to improve earnings, we are excited about the remainder of 2023 and the coming year!” concluded Mr. McPhaill.

For the first nine months of 2023, the Company recognized net income of $28.6 million, or $1.93 per diluted share, as compared to $26.5 million, or $1.76 per diluted share, for the same period in 2022. The year-over-year improvement is due primarily to higher net interest income of $4.3 million, along with a $4.0 million decrease in the provision for credit losses in 2023, partially offset by a $5.2 million increase in noninterest expense. The Company’s financial performance metrics for the first nine months of 2023 include an annualized return on average assets and a return on average equity of 1.03% and 12.41%, respectively, compared to 1.03% and 10.98%, respectively, for the same period in 2022.

Financial Highlights

Quarterly Changes (comparisons to the third quarter of 2022)

• Net income was unchanged at $9.9 million. Net interest income was negatively impacted by compression in the net interest margin. There was a favorable change in the provision for credit losses on loans while improvements made in noninterest income were offset by higher noninterest expenses.
• Net interest income was $0.8 million lower due to a 33 bp decrease in net interest margin. There was a $231.9 million increase in average interest earning assets with an increased yield of 94 bps, however this was more than offset by a $335.4 million increase in interest bearing liabilities at 184 bps higher cost.
• Noninterest income increased $1.2 million or 17% primarily due to a $0.6 million increase in bank-owned life insurance, $0.3 million in life insurance proceeds and a $0.2 million increase in service charges on deposit accounts.
• Asset quality improved considerably as demonstrated by a significant decline in non-performing assets to gross loans plus foreclosed assets. This ratio fell to 0.04% at September 30, 2023, from 1.33% at the same period in 2022. Nonperforming assets declined substantially from $26.8 million at September 30, 2022, to $0.8 million at September 30, 2023, a decline of 97%. Most of the nonperforming assets at September 30, 2022 were related to a single dairy relationship that was foreclosed upon and sold in early 2023.
• There was a benefit for credit losses for $0.03 million, as compared to a provision for credit losses of $1.3 million in the same quarter of 2022, due to a decrease in specific reserves for individually evaluated loans.
• Liquidity continues to be very substantial with the primary liquidity ratio at 31.5% and $2.7 billion in overall available liquidity at September 30, 2023.
• All required capital ratios were above the regulatory guidelines for a well-capitalized institution. The Community Bank Leverage ratio was 11.00% for Bank of the Sierra. The Sierra Bancorp Tier I leverage ratio was 10.08%.
• Sierra Bancorp repurchased 99,528 shares totaling $2.0 million in the third quarter of 2023.
• Our Board of Directors declared a cash dividend of $0.23 per share on October 19, 2023. This is the 99th consecutive quarterly dividend paid by Sierra Bancorp. The cash dividend is payable on November 14, 2023, to shareholders of record at the close of business on October 30, 2023.

Year to-Date Income Changes (comparisons to the first nine-months of 2022)

• Net income increased $2.0 million, or 8%. There was an increase of $4.3 million or 5% in net interest income, due mostly to an overall increase in interest rates. We experienced higher yields and balances on loans and investment securities, which were partly offset by higher overall funding costs.
• Earnings per share increased to $1.93, an increase of 10% from $1.76 per share.
• The provision for credit losses was $0.2 million, a decrease of $4.0 million due to a decrease in specific reserves on individual loans as well as lower net loan charge-offs.
• Noninterest income decreased by $0.8 million, or 3%. In 2022 there was a $1.0 million recovery of prior year legal expenses, a $1.0 million gain on the sale of investment securities, and a $3.2 million gain on the sale of other assets with no like corresponding event in 2023. Positively impacting the first nine months of 2023 there was a $2.8 million positive variance in deferred compensation BOLI and a $0.4 million increase in life insurance proceeds.
• Noninterest expense increased $5.2 million, or 8%, due mostly to the increases in salary expense for new loan production teams and a negative variance in director’s deferred compensation expense which is linked to the favorable changes in bank-owned life insurance income described above.

Statement of Condition Changes (comparisons to December 31, 2022)

• Total assets increased by $130.3 million, or 4%, to $3.7 billion, during the first nine months of the year due mostly to an increase in wholesale deposits and borrowed funds which facilitated the purchase of investment securities as well as modest loan growth.
• Cash and due from banks increased $11.4 million to $88.5 million during the first nine months of the year due to an increase in interest earning bank balances.
• Investment securities increased by $62.1 million, or 5%, to $1.2 billion primarily due to strategic purchases of high-quality AAA and AA rated, collateralized loan obligations and government agency securities.
• Gross loans increased $47.9 million predominantly due to a $42.2 million increase in mortgage warehouse line utilization. In addition, C&I and Agricultural production loans increased, but were partially offset by a decline in Farmland loans due to a foreclosure of a single dairy relationship in early 2023.
• Deposits totaled $2.9 billion at September 30, 2023, representing a year-to-date increase of $23.6 million, or 1%. The growth in deposits came mostly from a $45.0 million increase in brokered deposits primarily acquired prior to March 2023 as part of the Company’s interest rate risk management and liquidity strategy.
• Long term debt and subordinated debentures were relatively unchanged. Other interest-bearing liabilities increased $83.7 million, or 26%, and consisted primarily of long term FHLB advances.

Other financial highlights are reflected in the following table.

FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Data, Unaudited)
			As of or for the									As of or for the
			three months ended									nine months ended
			9/30/2023			6/30/2023			9/30/2022			9/30/2023			9/30/2022
Net income		$	9,885		$	9,919		$	9,935		$	28,555		$	26,546
Diluted earnings per share		$	0.68		$	0.67		$	0.66		$	1.93		$	1.76
Return on average assets			1.04%			1.07%			1.13%			1.03%			1.03%
Return on average equity			12.62%			13.06%			12.84%			12.41%			10.98%
Net interest margin (tax-equivalent) (1)			3.30%			3.39%			3.63%			3.39%			3.41%
Yield on average loans			4.73%			4.74%			4.28%			4.66%			4.30%
Yield on investments			5.25%			5.02%			3.51%			5.00%			2.61%
Cost of average total deposits			1.20%			1.09%			0.24%			1.04%			0.15%
Efficiency ratio (tax-equivalent) (1) (2)			61.46%			62.27%			58.10%			62.83%			61.10%
Total assets		$	3,738,880		$	3,762,461		$	3,532,289		$	3,738,880		$	3,532,289
Loans net of deferred fees		$	2,100,973		$	2,094,464		$	2,020,016		$	2,100,973		$	2,020,016
Noninterest demand deposits		$	1,059,878		$	1,066,498		$	1,118,245		$	1,059,878		$	1,118,245
Total deposits		$	2,869,720		$	2,918,759		$	2,885,468		$	2,869,720		$	2,885,468
Noninterest-bearing deposits over total deposits			36.9%			36.5%			38.8%			36.9%			38.8%
Shareholders' equity / total assets			8.3%			8.2%			8.4%			8.3%			8.4%
Tangible common equity ratio (2)			7.5%			7.5%			7.6%			7.5%			7.6%
Book value per share		$	21.01		$	20.90		$	19.56		$	21.01		$	19.56
Tangible book value per share (2)		$	19.04		$	18.93		$	17.58		$	19.04		$	17.58

(1)		Computed on a tax equivalent basis utilizing a federal income tax rate of 21%.
(2)		See reconciliation of non-GAAP financial measures to the corresponding GAAP measurement in "Non-GAAP Financial Measures".

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $28.1 million, for the third quarter of 2023, a $0.8 million decrease, or 3% over the third quarter of 2022, but increased $4.3 million, or 5%, to $84.5 million for the first nine months of 2023 relative to the same period in 2022.

For the third quarter of 2023, growth in average interest-earning assets totaled $231.9 million, or 7%, as compared to the third quarter of 2022. The yield on these balances was 94 basis points higher for the same period due mostly to an increase in investment securities as well as loan growth and the result of interest rate increases by the Federal Open Market Committee. This increase in yield was offset by a 184 basis point increase in the cost of our interest-bearing liabilities for the same period. Although transaction and savings deposit rates have not changed, higher costs of time deposits and borrowed funds including overnight purchases are the primary reasons for the increase in interest expense.

Net interest income for the comparative year-to-date periods increased $4.3 million, or 5%, due to a change in mix of average interest-earning assets, mostly the deployment of lower yielding interest earning due from bank balances into higher yielding investment securities. Investment balances, which includes overnight funds, with an average yield of 5.0% increased $157.0 million, while gross average loan balances yielding 4.7% increased $64.0 million. The overall yield on the average balances of earning assets was 114 basis points higher for the comparative periods, offset by a 171 basis point increase in interest paid on liabilities. The net impact of these various changes was a 2 basis point decrease in our net interest margin for the nine-months ending September 30, 2023, as compared to the same period in 2022.

Interest expense was $14.3 million for the third quarter of 2023, an increase of $11.3 million, relative to the third quarter of 2022. For the first nine months of 2023, compared to the same period in 2022, interest expense increased $30.2 million to $36.1 million. The significant increase in interest expense is attributable to an unfavorable shift in interest bearing liabilities and the impact of recent interest rate increases, as the average balance of deposits, including lower cost core deposits decreased $93.2 million while higher cost borrowed funds and wholesale brokered deposits increased by $352.7 million in the third quarter of 2023 as compared to the third quarter of 2022. For the year-to-date comparisons the increase is attributable to a shift from lower cost transaction accounts to higher cost time accounts as well as an increase in borrowed funds. For the first nine months of 2023, higher cost customer time deposits increased $218.9 million, wholesale brokered deposits increased $106.6 million and borrowed funds increased $247.5 million, while lower cost or no cost deposits decreased $278.4 million.

Our net interest margin was 3.30% for the third quarter of 2023, as compared to 3.39% for the linked quarter and 3.63% for the third quarter of 2022. While the yield of interest-earning assets increased 9 basis points for the third quarter of 2023 as compared to the linked quarter, the cost of interest-bearing liabilities increased 26 basis points for the same period of comparison. The average balance of interest-earning assets increased $24.7 million for the linked quarter while the increase in interest-bearing liabilities was $9.0 million for the same period. Even though the volume increase of interest earning assets was more than the increase in interest-bearing liabilities, the larger rate increase on liabilities caused the compression in the linked quarter. Any future FOMC rate hikes could cause further compression in the net interest margin, since overnight borrowing funds instantly reprice higher while there is a lag in the increased yield on interest-earning assets.

Provision for Loan and Lease Losses

The overall provision for credit losses resulted in a benefit of $0.03 million for the third quarter of 2023; there was a $0.1 million provision for credit losses related to loans and leases offset by a $0.2 million benefit for credit losses from unfunded commitments and no provision for held-to-maturity investment securities, relative to a provision for credit losses of $1.3 million in the third quarter of 2022, and a year-to-date provision for credit losses on loans and leases of $0.2 million in 2023 as compared to $4.2 million for the same period in 2022. The Company's $1.3 million decrease in the provision for credit losses on loans and leases in the third quarter of 2023 as compared to the third quarter of 2022, and the $4.0 million year to date decrease in the provision for credit losses, compared to the same period in 2022 was primarily due to the impact of $4.3 million in net charge-offs in the first nine months of 2022 with only $0.4 million in net charge offs for the first nine months of 2023. The decrease in net charge-offs in the first nine months of 2023 was primarily related to a single office building loan relationship that was sold at a discount due to an increased risk of default that would have likely led to a prolonged collection period and a single dairy loan relationship.

The Company did not record a provision for credit losses on available-for-sale debt securities. Although there were debt securities in an unrealized loss position the declines in market values were primarily attributable to changes in interest rates and volatility in the financial markets and not a result of an expected credit loss.

Noninterest Income

Total noninterest income increased $1.2 million, or 17%, for the quarter ended September 30, 2023, as compared to the same quarter in 2022, and decreased $.08 million, or 3% for the year-to-date period ended September 30, 2023, as compared to the same period in 2022. The quarterly and year-to-date comparisons were both impacted by favorable fluctuations in income on bank-owned life insurance (BOLI) with underlying investments mapped directly to the Company’s deferred compensation plan. The quarterly comparison was also positively impacted by an increase in service charges on deposit accounts for $0.2 million, life insurance proceeds for $0.3 million, and $0.4 million in income from an investment in an SBA loan fund. The year-to-date decrease is the result of 2022 events that did not recur in 2023, including a $1.0 million gain on the sale of debt securities, $3.6 million from gains on the sale of other assets, and the recovery of prior period legal expenses, partially offset by income from an investment in an SBA loan fund for $1.0 million in 2023. Service charges on customer deposit accounts were basically unchanged at $6.1 million in the third quarter of 2023 as compared to the third quarter of 2022, however for the year-to-date comparison there was a $0.3 million decrease primarily due to decreases in ATM and debit card income.

Noninterest Expense

Total noninterest expense increased by $1.6 million, or 7%, in the third quarter of 2023 relative to the third quarter of 2022, and by $5.2 million, or 8%, for the first nine months of 2023 as compared to the same period in 2022.

Salaries and Benefits were $1.1 million, or 10%, higher in the third quarter of 2023 as compared to the third quarter of 2022 and $2.5 million, or 7%, higher for the first nine months of 2023 compared to the same period in 2022. The reason for this increase is primarily due to the hiring of higher paid new lending teams and management staff for both the quarterly and year-to-date comparisons. There were 487 full-time equivalent employees at September 30, 2023 as compared to 491 at December 31, 2022 and 500 at September 30, 2022.

Occupancy expenses were relatively unchanged for the third quarter and the first nine-months of 2023 as compared to the same periods in 2022.

Other noninterest expense increased $0.5 million, or 6%, for the third quarter 2023 as compared to the third quarter in 2022, and increased $2.7 million, or 13%, for the first nine months of 2023 as compared to the same period in 2022. The variances for the third quarter of 2023 compared to the same period in 2022 were primarily driven by a $0.6 million unfavorable variance in directors deferred compensation expense, linked to the changes in BOLI income, higher FDIC assessment costs, increased marketing costs associated with a deposit acquisition campaign and elevated debit card losses. These increased expenses were partially offset by lower costs in core processing, debit card processing and ATM network costs. For the year-over-year comparison, the categories of increase were the same as with the quarterly comparison, along with a $0.2 million decrease in deposit statement costs offset by increased foreclosed asset costs related to the foreclosure and subsequent sale of one large loan relationship in the first quarter of 2023.

The Company's provision for income taxes was 25.8% of pre-tax income in the third quarter of 2023 relative to 25.1% in the third quarter of 2022, and 25.2% of pre-tax income for the first nine months of 2023 relative to 26.1% for the same period in 2022. The changes in effective tax rate for both the quarterly and year-to-date comparisons is due to the volatility in the Bank Owned Life Insurance asset value associated with our non-qualified deferred compensation plans.

Balance Sheet Summary

Balance sheet changes during the first nine months of 2023 include an increase in total assets of $130.3 million, or 4%, primarily a result of a $62.1 million increase in investments securities, and a $47.9 million increase in gross loans.

The increase in investment securities of $62.1 million for the year-to-date period consisted primarily of increases in AAA and AA tranches of collateralized loan obligations of $56.5 million and in callable government agency securities for $56.0 million, partially offset by decreases in mortgage-backed securities, corporate bonds and state and municipal bonds.

Gross loan balances increased $47.9 million during the first nine months of 2023, as compared to December 31, 2022. The increase was primarily a result of a $42.1 million increase in mortgage warehouse utilization, $22.6 million increase in commercial real estate, and a $35.4 million increase in other commercial loans. Negatively impacting these positive variances were loan paydowns and maturities resulting in net declines in many categories even with solid loan production. In particular there was a $22.4 million decrease in farmland, $11.1 million decrease in other construction and $18.7 million decrease in residential real estate. Further, SBA PPP loan forgiveness resulted in a $1.3 million decline in loan balances, included in the other commercial loan variance noted above.

As indicated in the loan roll forward below, new credit extended for the third quarter of 2023 decreased $14.0 million over the same period in 2022 and decreased $66.4 million for the year-to-date comparisons. This decline in organic loan growth is attributable to competitive pressures in our market and management’s unwillingness to compromise the quality of new loans originated, combined with a lack of demand due to the current high interest rate environment. We also had $37.0 million in loan paydowns and maturities, and a decrease in mortgage warehouse and credit line utilization of $25.5 million in the third quarter.

LOAN ROLLFORWARD
(Dollars in Thousands, Unaudited)
		For the three months ended:												For the nine months ended:
			September 30, 2023				June 30, 2023				September 30, 2022				September 30, 2023				September 30, 2022
Gross loans beginning balance		$	2,094,391			$	2,033,968			$	2,022,662			$	2,052,940			$	1,989,726
New credit extended			68,980				37,030				82,958				158,619				225,054
Loan purchases			—				—				—				—				173,082
Changes in line of credit utilization			(22,517	)			6,622				(7,811	)			(41,685	)			(45,201	)
Change in mortgage warehouse			(3,032	)			42,145				(11,581	)			42,146				(54,630	)
Pay-downs, maturities, charge-offs and amortization (1)			(37,012	)			(25,374	)			(65,864	)			(111,210	)			(267,667	)
Gross loans ending balance			2,100,810				2,094,391				2,020,364				2,100,810				2,020,364

(1)

Includes $1.6 million from the sale of a performing loan during the second quarter of 2022.

Unused commitments, excluding mortgage warehouse and overdraft lines, were $216.4 million at September 30, 2023, compared to $219.7 million at December 31, 2022. Total line utilization, excluding mortgage warehouse and overdraft lines, was 59.7% at September 30, 2022 and 58.7% at December 31, 2022. Mortgage warehouse utilization increased to 25.0% at September 30, 2023, as compared to 9.9% at December 31, 2022.

PPP loans continue to decline as borrowers receive forgiveness on these loans. There were nine loans for $0.4 million outstanding at September 30, 2023, compared to fourteen loans for $1.8 million at December 31, 2022.

Deposit balances reflect growth of $23.6 million, or 1%, during the first nine months of 2023. Core non-maturity deposits decreased by $173.6 million, or 7%, while customer time deposits increased by $152.1 million, or 38%. Wholesale brokered deposits increased by $45.0 million, or 38%. Overall noninterest-bearing deposits as a percent of total deposits at September 30, 2023, were 36.9%, as compared to 38.2% at December 31, 2022.

Other interest-bearing liabilities of $411.9 million on September 30, 2023, consist of $94.9 million in customer repurchase agreements, $182.0 million of FHLB borrowings and $135.0 million in fed funds purchased.

The Company continues to have substantial liquidity. At September 30, 2023, and December 31, 2022, the Company had the following sources of primary and secondary liquidity (Dollars in Thousands, Unaudited):

Primary and secondary liquidity sources			September 30, 2023			December 31, 2022
Cash and cash equivalents		$	88,542		$	77,131
Unpledged investment securities			854,730			1,097,164
Excess pledged securities			326,343			43,096
FHLB borrowing availability			657,548			718,842
Unsecured lines of credit			362,785			237,000
Funds available through fed discount window			383,943			42,278
Totals		$	2,673,891		$	2,215,511

Total capital of $308.9 million at September 30, 2023 reflects an increase of $5.3 million, or 2%, relative to year-end 2022. The increase in equity during the first nine months of 2023 was due to the addition of $28.6 million in net income, offset by a $5.3 million unfavorable swing in accumulated other comprehensive income/loss, due principally to changes in investment securities’ fair value, $8.5 million in share repurchases, and $10.4 million in dividends paid. The remaining difference is related to the impact of restricted stock.

Asset Quality

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, decreased by $18.8 million to $0.8 million for the first nine months of 2023. The Company's ratio of nonperforming loans to gross loans decreased to 0.4% at September 30, 2023 from 0.95% at December 31, 2022. The decrease resulted from a decrease in non-accrual loan balances, primarily as a result of the foreclosure and sale of one loan relationship in the dairy industry consisting of four separate loans in the first quarter of 2023. All the Company's nonperforming assets are individually evaluated for credit loss quarterly and management believes the established allowance for credit loss on such loans is appropriate.

The Company's allowance for credit losses on loans and leases was $23.1 million at both September 30, 2023, and December 31, 2022. The flat allowance for credit losses on loans and leases was due to fewer net charge offs during the first nine-months of 2023 along with modest loan growth.

The allowance for credit losses on loans and leases was 1.10% of gross loans at September 30, 2023, and 1.12% of gross loans at December 31, 2022. Management's detailed analysis indicates that the Company's allowance for credit losses on loans and leases should be sufficient to cover credit losses for the life of the loans and leases outstanding as of September 30, 2023, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the loan and lease loss allowance.

About Sierra Bancorp

Sierra Bancorp is the holding Company for Bank of the Sierra (www.bankofthesierra.com), which is in its 46^th year of operations and is the largest independent bank headquartered in the South San Joaquin Valley. Bank of the Sierra is a community-centric regional bank, which offers a broad range of retail and commercial banking services through full-service branches located within the counties of Tulare, Kern, Kings, Fresno, Ventura, San Luis Obispo, and Santa Barbara. The Bank also maintains an online branch and provides specialized lending services through an agricultural credit center in Templeton, California, and a dedicated loan production office in Roseville, California. In 2023, Bank of the Sierra was recognized as one of the strongest and top-performing community banks in the country, with a 5-star rating from Bauer Financial and a BBB+ rating from Kroll.

Forward-Looking Statements

The statements contained in this release that are not historical facts are forward-looking statements based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Readers are cautioned not to unduly rely on forward looking statements. Actual results may differ from those projected. These forward-looking statements involve risks and uncertainties including but not limited to the health of the national and local economies including the impact to the Company and its customers resulting from changes to, and the level of, inflation and interest rates; changes in laws, rules, regulations, or interpretations to which the Company is subject; the Company’s ability to maintain and grow its deposit base; loan demand and continued portfolio performance, the Company's ability to attract and retain skilled employees, customers' service expectations; cyber security risks: the Company's ability to successfully deploy new technology, the success of acquisitions and branch expansion; operational risks including the ability to detect and prevent errors and fraud; the effectiveness of the Company’s enterprise risk management framework; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks that could affect stock price; changes to valuations of the Company’s assets and liabilities including the allowance for credit losses, earning assets, and intangible assets; changes to the availability of liquidity sources including borrowing lines and the ability to pledge or sell certain assets; costs related to litigation; the effects of severe weather events, pandemics, other public health crises, acts of war or terrorism, and other external events on our business; and other factors detailed in the Company's SEC filings, including the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's most recent Form 10‑K and Form 10‑Q.

STATEMENT OF CONDITION
(Dollars in Thousands, Unaudited)
ASSETS			9/30/2023				6/30/2023				3/31/2023				12/31/2022				9/30/2022
Cash and due from banks		$	88,542			$	103,483			$	83,506			$	77,131			$	86,683
Investment securities
Available-for-sale, at fair value			1,010,377				1,027,538				1,040,920				934,923				1,069,434
Held-to-maturity, at amortized cost, net of allowance for credit losses			323,544				328,478				332,728				336,881				156,211
Real estate loans
Residential real estate			418,782				426,608				433,185				437,446				441,262
Commercial real estate			1,331,989				1,317,945				1,318,627				1,309,410				1,291,315
Other construction/land			7,320				16,020				15,653				18,412				18,315
Farmland			90,993				92,728				92,906				113,394				117,385
Total real estate loans			1,849,084				1,853,301				1,860,371				1,878,662				1,868,277
Other commercial			140,081				126,360				101,118				104,715				101,437
Mortgage warehouse lines			107,584				110,617				68,472				65,439				46,553
Consumer loans			4,061				4,113				4,007				4,124				4,097
Gross loans			2,100,810				2,094,391				2,033,968				2,052,940				2,020,364
Deferred loan fees			163				73				24				(123	)			(348	)
Allowance for credit losses on loans			(23,060	)			(23,010	)			(23,090	)			(23,060	)			(23,790	)
Net loans			2,077,913				2,071,454				2,010,902				2,029,757				1,996,226
Bank premises and equipment			21,926				22,072				22,321				22,478				22,688
Other assets			216,578				209,436				203,607				207,420				201,047
Total assets		$	3,738,880			$	3,762,461			$	3,693,984			$	3,608,590			$	3,532,289
LIABILITIES AND CAPITAL
Noninterest demand deposits		$	1,059,878			$	1,066,498			$	1,041,748			$	1,088,199			$	1,118,245
Interest-bearing transaction accounts			561,257				584,263				637,549				641,581				732,468
Savings deposits			400,940				415,793				441,758				456,981				481,882
Money market deposits			130,914				124,834				123,162				139,795				140,620
Customer time deposits			551,731				552,371				519,771				399,608				332,253
Wholesale brokered deposits			165,000				175,000				185,000				120,000				80,000
Total deposits			2,869,720				2,918,759				2,948,988				2,846,164				2,885,468
Long-term debt			49,281				49,259				89,236				49,214				49,196
Subordinated debentures			35,615				35,570				35,526				35,481				35,436
Other interest-bearing liabilities			411,865				398,922				270,861				328,169				215,112
Total deposits and interest-bearing liabilities			3,366,481				3,402,510				3,344,611				3,259,028				3,185,212
Allowance for credit losses on unfunded loan commitments			600				750				850				840				940
Other liabilities			62,940				49,609				41,513				45,140				51,065
Total capital			308,859				309,592				307,010				303,582				295,072
Total liabilities and capital		$	3,738,880			$	3,762,461			$	3,693,984			$	3,608,590			$	3,532,289

GOODWILL AND INTANGIBLE ASSETS
(Dollars in Thousands, Unaudited)
			9/30/2023			6/30/2023			3/31/2023			12/31/2022			9/30/2022
Goodwill		$	27,357		$	27,357		$	27,357		$	27,357		$	27,357
Core deposit intangible			1,618			1,837			2,056			2,275			2,517
Total intangible assets		$	28,975		$	29,194		$	29,413		$	29,632		$	29,874
CREDIT QUALITY
(Dollars in Thousands, Unaudited)
			9/30/2023			6/30/2023			3/31/2023			12/31/2022			9/30/2022
Non-accruing loans		$	781		$	1,141		$	938		$	19,579		$	26,772
Foreclosed assets			—			—			—			—			—
Total nonperforming assets		$	781		$	1,141		$	938		$	19,579		$	26,772
Quarterly net charge offs		$	67		$	157		$	220		$	7,268		$	224
Past due & still accruing (30-89)		$	806		$	1,873		$	1,241		$	1,203		$	1,242
Non-performing loans to gross loans			0.04%			0.05%			0.05%			0.95%			1.33%
NPA's to loans plus foreclosed assets			0.04%			0.05%			0.05%			0.95%			1.33%
Allowance for credit losses on loans			1.10%			1.10%			1.14%			1.12%			1.18%
SELECT PERIOD-END STATISTICS
(Unaudited)
			9/30/2023			6/30/2023			3/31/2023			12/31/2022			9/30/2022
Shareholders' equity / total assets			8.3%			8.2%			8.3%			8.4%			8.4%
Gross loans / deposits			73.2%			71.8%			69.0%			72.1%			70.0%
Noninterest-bearing deposits / total deposits			36.9%			36.5%			35.3%			38.2%			38.8%

CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Unaudited)			For the three months ended:												For the nine months ended:
			9/30/2023				6/30/2023				9/30/2022				9/30/2023				9/30/2022
Interest income		$	42,384			$	40,875			$	31,928			$	120,678			$	86,216
Interest expense			14,297				12,558				3,017				36,143				5,963
Net interest income			28,087				28,317				28,911				84,535				80,253
(Benefit) provision for credit losses			(33	)			(70	)			1,259				157				4,184
Net interest income after provision			28,120				28,387				27,652				84,378				76,069
Service charges and fees on deposit accounts			6,055				5,691				6,008				17,127				17,464
Gain on sale of investments			-				351				-				396				1,032
BOLI income (expense)			558				658				(23	)			1,388				(1,252	)
Other noninterest income			1,149				1,313				627				3,444				5,870
Total noninterest income			7,762				8,013				6,612				22,355				23,114
Salaries and benefits			12,623				12,129				11,521				37,567				35,070
Occupancy expense			2,482				2,438				2,470				7,251				7,170
Other noninterest expenses			7,457				8,401				7,005				23,704				21,042
Total noninterest expense			22,562				22,968				20,996				68,522				63,282
Income before taxes			13,320				13,432				13,268				38,211				35,901
Provision for income taxes			3,435				3,513				3,333				9,656				9,355
Net income		$	9,885			$	9,919			$	9,935			$	28,555			$	26,546
TAX DATA
Tax-exempt muni income		$	2,679			$	2,741			$	2,346			$	8,233			$	5,926
Interest income - fully tax equivalent		$	43,096			$	41,604			$	32,552			$	122,867			$	87,791

PER SHARE DATA
(Unaudited)			For the three months ended:									For the nine months ended:
			9/30/2023			6/30/2023			9/30/2022			9/30/2023			9/30/2022
Basic earnings per share		$	0.68		$	0.67		$	0.66		$	1.93		$	1.77
Diluted earnings per share		$	0.68		$	0.67		$	0.66		$	1.93		$	1.76
Common dividends		$	0.23		$	0.23		$	0.23		$	0.69		$	0.69
Weighted average shares outstanding			14,583,132			14,735,568			14,954,503			14,762,231			14,968,242
Weighted average diluted shares			14,636,477			14,754,764			15,014,048			14,791,696			15,046,883
Book value per basic share (EOP)		$	21.01		$	20.90		$	19.56		$	21.01		$	19.56
Tangible book value per share (EOP)		$	19.04		$	18.93		$	17.58		$	19.04		$	17.58
Common shares outstanding (EOP)			14,702,079			14,811,736			15,085,675			14,702,079			15,085,675
KEY FINANCIAL RATIOS
(Unaudited)			For the three months ended:									For the nine months ended:
			9/30/2023			6/30/2023			9/30/2022			9/30/2023			9/30/2022
Return on average equity			12.62%			13.06%			12.84%			12.41%			10.98%
Return on average assets			1.04%			1.07%			1.13%			1.03%			1.03%
Net interest margin (tax-equivalent) (1)			3.30%			3.39%			3.63%			3.39%			3.41%
Efficiency ratio (tax-equivalent) (1) (2)			61.46%			62.27%			58.10%			62.83%			61.10%
Net charge offs to avg loans (not annualized)			0.00%			0.01%			1.00%			0.02%			21.00%

(1)		Computed on a tax equivalent basis utilizing a federal income tax rate of 21%.
(2)		See reconciliation of non-GAAP financial measures to the corresponding GAAP measurement in "Non-GAAP Financial Measures".

The following non-GAAP schedule reconciles the book value per share to the tangible book value per share and the GAAP equity ratio to the tangible equity ratio as of the dates indicated:

NON-GAAP FINANCIAL MEASURES
(Dollars in Thousands, Unaudited)
			9/30/2023			6/30/2023			9/30/2022
Total stockholders' equity		$	308,859		$	309,592		$	295,072
Less: goodwill and other intangible assets			28,975			29,194			29,874
Tangible common equity		$	279,884		$	280,398		$	265,198
Total assets		$	3,738,880		$	3,762,461		$	3,532,289
Less: goodwill and other intangible assets			28,975			29,194			29,874
Tangible assets		$	3,709,905		$	3,733,267		$	3,502,415
Common shares outstanding			14,702,079			14,811,736			15,085,675
Book value per common share		$	21.01		$	20.90		$	19.56
Tangible book value per common share		$	19.04		$	18.93		$	17.58
Equity ratio - GAAP (total stockholders' equity / total assets			8.26%			8.23%			8.35%
Tangible common equity ratio (tangible common equity / tangible assets)			7.54%			7.51%			7.57%
		For the three months ended:
Efficiency Ratio:			9/30/2023			6/30/2023			9/30/2022
Noninterest expense		$	22,562		$	22,968		$	20,996
Divided by:
Net interest income			28,087			28,317			28,911
Tax-equivalent interest income adjustments			712			729			624
Net interest income, adjusted			28,799			29,046			29,535
Noninterest income			7,762			8,013			6,612
Less gain on sale of securities			-			351			-
Tax-equivalent noninterest income adjustments			148			175			(6	)
Noninterest income, adjusted			7,910			7,837			6,606
Net interest income plus noninterest income, adjusted		$	36,709		$	36,883		$	36,141
Efficiency Ratio (tax-equivalent)			61.46%			62.27%			58.10%

NONINTEREST INCOME/EXPENSE
(Dollars in Thousands, Unaudited)
		For the three months ended:												For the nine months ended September 30,
Noninterest income:		9/30/2023				6/30/2023				9/30/2022				2023				2022
Service charges and fees on deposit accounts		$	6,055			$	5,691			$	6,008			$	17,127			$	17,464
Net gains on sale of securities available-for-sale			—				351				—				396				1,032
Bank-owned life insurance			558				658				(23	)			1,388				(1,252	)
Other			1,149				1,313				627				3,444				5,870
Total noninterest income		$	7,762			$	8,013			$	6,612			$	22,355			$	23,114
As a % of average interest earning assets (1)			0.89%				0.93%				0.81%				0.87%				0.96%
Noninterest expense:
Salaries and employee benefits		$	12,623			$	12,129			$	11,521			$	37,567			$	35,070
Occupancy and equipment costs			2,482				2,438				2,470				7,251				7,170
Advertising and marketing costs			723				410				466				1,646				1,322
Data processing costs			1,369				1,536				1,564				4,433				4,574
Deposit services costs			2,048				2,532				2,450				6,603				7,112
Loan services costs
Loan processing			174				151				128				452				426
Foreclosed assets			(60	)			(33	)			(3	)			665				84
Other operating costs			765				1,490				912				3,244				3,879
Professional services costs
Legal & accounting services			493				483				535				1,623				1,753
Director's costs			732				725				(143	)			1,733				(1,192	)
Other professional service			707				832				855				2,053				2,306
Stationery & supply costs			148				125				114				414				315
Sundry & tellers			358				150				127				838				463
Total noninterest expense		$	22,562			$	22,968			$	20,996			$	68,522			$	63,282
As a % of average interest earning assets (1)			2.58%				2.68%				2.58%				2.67%				2.64%
Efficiency ratio (tax-equivalent) (2)(3)			61.46%				62.27%				58.10%				62.83%				61.10%

(1)		Annualized
(2)		Computed on a tax equivalent basis utilizing a federal income tax rate of 21%
(3)		See reconciliation of non-GAAP financial measures to the corresponding GAAP measurement in "Non-GAAP Financial Measures.”

AVERAGE BALANCES AND RATES
(Dollars in Thousands, Unaudited)
		For the quarter ended						For the quarter ended						For the quarter ended
		September 30, 2023						June 30, 2023						September 30, 2022
		Average Balance(1)		Income/ Expense		Yield/ Rate(2)		Average Balance(1)		Income/ Expense		Yield/ Rate(2)		Average Balance(1)		Income/ Expense		Yield/ Rate(2)
Assets
Investments:
Federal funds sold/interest-earning due from's		$	23,760	$	415	6.93%		$	35,236	$	376	4.28%		$	21,845	$	103	1.87%
Taxable			1,005,372		14,375	5.67%			996,117		13,488	5.43%			851,683		7,646	3.56%
Non-taxable			345,645		2,679	3.89%			352,718		2,741	3.95%			336,567		2,346	3.50%
Total investments			1,374,777		17,469	5.25%			1,384,071		16,605	5.02%			1,210,095		10,095	3.51%
Loans: (3)
Real estate			1,854,055		20,764	4.44%			1,858,512		20,827	4.49%			1,862,738		19,808	4.22%
Agricultural production			37,096		649	6.94%			28,472		496	6.99%			29,724		274	3.66%
Commercial			90,348		1,392	6.11%			82,743		1,179	5.72%			75,482		973	5.11%
Consumer			4,303		87	8.02%			4,339		88	8.13%			4,228		132	12.39%
Mortgage warehouse lines			100,549		2,004	7.91%			78,187		1,658	8.51%			46,969		623	5.26%
Other			2,381		19	3.17%			2,483		22	3.55%			2,349		23	3.88%
Total loans			2,088,732		24,915	4.73%			2,054,736		24,270	4.74%			2,021,490		21,833	4.28%
Total interest earning assets (4)			3,463,509		42,384	4.94%			3,438,807		40,875	4.85%			3,231,585		31,928	4.00%
Other earning assets			17,355						16,952						15,717
Non-earning assets			275,883						267,433						255,529
Total assets		$	3,756,747					$	3,723,192					$	3,502,831
Liabilities and shareholders' equity
Interest-bearing deposits:
Demand deposits		$	141,745	$	413	1.16%		$	144,156	$	190	0.53%		$	197,731	$	131	0.26%
NOW			427,278		68	0.06%			454,395		76	0.07%			531,205		80	0.06%
Savings accounts			408,158		69	0.07%			428,222		62	0.06%			485,167		73	0.06%
Money market			127,649		194	0.60%			123,571		72	0.23%			151,816		25	0.07%
Time deposits			557,504		6,514	4.64%			540,540		6,022	4.47%			313,764		1,377	1.74%
Wholesale brokered deposits			162,065		1,509	3.69%			178,728		1,521	3.41%			63,529		75	0.47%
Total interest-bearing deposits			1,824,399		8,767	1.91%			1,869,612		7,943	1.70%			1,743,212		1,761	0.40%
Borrowed funds:
Repurchase agreements			83,222		53	0.25%			79,694		65	0.33%			113,933		70	0.24%
Other borrowings			330,221		4,286	5.15%			279,633		3,430	4.92%			45,597		320	2.78%
Long-term debt			49,268		429	3.45%			49,247		429	3.49%			49,182		427	3.44%
Subordinated debentures			35,590		762	8.49%			35,547		691	7.80%			35,409		439	4.92%
Total borrowed funds			498,301		5,530	4.40%			444,121		4,615	4.17%			244,121		1,256	2.04%
Total interest-bearing liabilities			2,322,700		14,297	2.44%			2,313,733		12,558	2.18%			1,987,333		3,017	0.60%
Demand deposits - noninterest-bearing			1,064,962						1,050,668						1,140,840
Other liabilities			58,340						54,139						67,603
Shareholders' equity			310,745						304,652						307,055
Total liabilities and shareholders' equity		$	3,756,747					$	3,723,192					$	3,502,831
Interest income/interest earning assets						4.94%						4.85%						4.00%
Interest expense/interest earning assets						1.64%						1.46%						0.37%
Net interest income and margin (5)				$	28,087	3.30%				$	28,317	3.39%				$	28,911	3.63%

(1)		Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs.
(2)		Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective tax rate.
(3)		Loans are gross of the allowance for possible loan losses. Loan fees have been included in the calculation of interest income. Net loan fees and loan acquisition FMV amortization were $(0.3) million and $0.1 million for the quarters ended September 30, 2023 and 2022, respectively, and $(0.3) million for the quarter ended June 30, 2023.
(4)		Non-accrual loans have been included in total loans for purposes of computing total earning assets.
(5)		Net interest margin represents net interest income as a percentage of average interest-earning assets.

AVERAGE BALANCES AND RATES
(Dollars in Thousands, Unaudited)
		For the nine months ended									For the nine months ended
		September 30, 2023									September 30, 2022
		Average Balance(1)			Income/ Expense			Yield/ Rate(2)		Average Balance(1)			Income/ Expense			Yield/ Rate(2)
Assets
Investments:
Interest-earning due from banks		$	21,504		$	861		5.35%		$	120,359		$	466		0.52%
Taxable			991,302			39,848		5.37%			783,384			15,613		2.66%
Non-taxable			353,173			8,233		3.95%			305,212			5,926		3.29%
Total investments			1,365,979			48,942		5.00%			1,208,955			22,005		2.61%
Loans:(3)
Real estate		$	1,860,504		$	61,491		4.42%		$	1,820,568		$	57,792		4.24%
Agricultural			31,232			1,578		6.76%			31,376			809		3.45%
Commercial			81,397			3,564		5.85%			84,301			3,351		5.31%
Consumer			4,260			263		8.25%			4,313			545		16.89%
Mortgage warehouse lines			79,438			4,779		8.04%			52,650			1,626		4.13%
Other			2,443			61		3.34%			2,066			88		5.69%
Total loans			2,059,274			71,736		4.66%			1,995,274			64,211		4.30%
Total interest earning assets (4)			3,425,253			120,678		4.80%			3,204,229			86,216		3.66%
Other earning assets			16,680								15,675
Non-earning assets			271,949								235,516
Total assets		$	3,713,882							$	3,455,420
Liabilities and shareholders' equity
Interest bearing deposits:
Demand deposits		$	145,316		$	731		0.67%		$	207,319		$	357		0.23%
NOW			454,900			214		0.06%			540,078			243		0.06%
Savings accounts			431,143			196		0.06%			477,904			210		0.06%
Money market			128,856			291		0.30%			152,912			71		0.06%
Time deposits			520,105			17,043		4.38%			301,173			2,052		0.91%
Brokered deposits			167,782			4,235		3.37%			61,189			172		0.38%
Total interest bearing deposits			1,848,102			22,710		1.64%			1,740,575			3,105		0.24%
Borrowed funds:
Repurchase agreements			88,707			199		0.30%			110,505			228		0.28%
Other borrowings			262,755			9,828		5.00%			15,480			322		2.78%
Long-term debt			49,246			1,286		3.49%			49,162			1,284		3.49%
Subordinated debentures			35,545			2,120		7.97%			35,365			1,024		3.87%
Total borrowed funds			436,253			13,433		4.12%			210,512			2,858		1.81%
Total interest bearing liabilities			2,284,355			36,143		2.12%			1,951,087			5,963		0.41%
Demand deposits - noninterest bearing			1,062,114								1,122,556
Other liabilities			59,674								58,393
Shareholders' equity			307,739								323,384
Total liabilities and shareholders' equity		$	3,713,882							$	3,455,420
Interest income/interest earning assets								4.80%								3.66%
Interest expense/interest earning assets								1.41%								0.25%
Net interest income and margin(5)					$	84,535		3.39%					$	80,253		3.41%

(1)		Average balances are obtained from the best available daily or monthly data and are net of deferred fees and related direct costs.
(2)		Yields and net interest margin have been computed on a tax equivalent basis utilizing a 21% effective tax rate.
(3)		Loans are gross of the allowance for possible loan losses. Loan fees have been included in the calculation of interest income. Net loan fees and loan acquisition FMV amortization were $(0.7) million and $0.9 million for the nine months ended September 30, 2023 and 2022, respectively.
(4)		Non-accrual loans have been included in total loans for purposes of computing total earning assets.
(5)		Net interest margin represents net interest income as a percentage of average interest-earning assets.

Category: Financial

Source: Sierra Bancorp

View source version on businesswire.com: https://www.businesswire.com/news/home/20231023734422/en/

The Sierra Bancorp Stock at the time of publication of the news with a fall of -1,67 % to 18,22USD on Nasdaq stock exchange (21. Oktober 2023, 02:00 Uhr).