Sierra Bancorp Reports Strategic Securities Transaction as Well as Fourth Quarter and Year End 2023 Results

Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra, today announced a strategic securities transaction (“securities strategy”) and unaudited financial results for the three-and twelve-month periods ended December 31, 2023. Sierra Bancorp reported consolidated net income in the fourth quarter of 2023 of $6.3 million, or $0.43 per diluted share, compared to net income of $7.1 million, or $0.47 per diluted share, in the fourth quarter of 2022.

For the year ended 2023, the Company recognized net income of $34.8 million, or $2.36 per diluted share, as compared to $33.7 million, or $2.24 per diluted share, for the same period in 2022. The Company’s return on average assets and return on average equity for the year ended 2023 was 0.94% and 11.30%, respectively, as compared to 0.97% and 10.66%, respectively, for the same comparative period in 2022.

Highlights for the fourth quarter of 2023 (unless otherwise stated):

• Strategic Branch Sale/Leaseback followed by a Securities Strategy to Improve Future Earnings
  • Entered into contract to sell 13 branches in two tranches on December 21, 2023.
    • First tranche closed in December 2023 at a gain of $15.3 million.
    • Second tranche expected to close in the first quarter of 2024.
  • In early January 2024, sold $196.7 million of bonds in a securities strategy at a $14.5 million loss.
    • Bonds sold had a weighted average book yield of 2.61%.
    • The $14.5 million securities loss was recognized in 2023 due to management’s intention at year end to sell such bonds in January 2024.
  • Proceeds from bond sale were used to pay down short-term borrowings at an average rate of 5.52%.

• Steady Earnings
  • 2023 Net Income of $34.8 million, up 4% from 2022.
  • 2023 Diluted EPS of $2.36 as compared to $2.24 in 2022, an increase of 6%.
  • 2023 ROAE of 11.30% as compared to 10.66% in 2022.

• Solid Asset Quality
  • Total Nonperforming Loans at $8.0 million, or 0.38% of total gross loans.
  • Past due loans declined to $0.3 million, the lowest level for the past two years.
  • No foreclosed assets at December 31, 2023.

• Stable Deposits & Liquidity
  • Overall primary and secondary liquidity sources increased to $2.6 billion at December 31, 2023.
  • Noninterest-bearing deposits stable at 37% of total deposits.

• Strong Capital and Solid Asset Growth
  • Maintained a diversified investment portfolio designed for interest rate risk management and liquidity.
  • Tangible Book Value per share increased 10% during the quarter to $20.91 per share at year end.
  • Strong regulatory Community Bank Leverage Ratio of 11.29% for our subsidiary Bank.
  • Tangible Common Equity Ratio, a non-GAAP financial measure, of 8.4% on a consolidated basis and 10.3% for our subsidiary bank.
  • Dividend declared of $0.23 per share, payable on February 12, 2024, our 100^th consecutive quarterly dividend.

“You have to participate relentlessly in the manifestation of your own blessings.” – Elizabeth Gilbert

“We are proud to share our fourth quarter results as we wrap up 2023,” stated Kevin McPhaill, CEO and President. “Although last year presented a number of challenges, we also uncovered several positive opportunities. As a result, our banking team maintained a high percentage of noninterest bearing deposits, enhanced our lending capabilities, and expanded our treasury efforts. In addition to those ongoing projects, we completed a sale-leaseback agreement covering several of our branch properties. The $15.3 million gain on this sale-leaseback offset the cost of a $196.7 million securities strategy. Together, these strategies enhanced capital, and we expect to improve our financial metrics, including margin, liquidity, and return on average assets and equity. Accordingly, I believe that our Bank is stronger and better positioned to take advantage of expansion possibilities, whether organic or otherwise. We have many reasons to be excited about our prospects and look forward to the new year and beyond!” concluded Mr. McPhaill.

Financial Highlights

Quarterly Changes (comparisons to the fourth quarter of 2022)

• Net income for the fourth quarter of 2023 decreased $0.8 million or 12%, to $6.3 million. Net interest income was negatively impacted by compression in the net interest margin. There was a favorable change in the credit loss expense on loans and improvements made in noninterest income, primarily offset by a realized loss on a securities strategy which identified available-for-sale securities for sale in January 2024, and higher noninterest expenses.
• The $1.5 million decrease to net interest income for the fourth quarter of 2023 was driven by a 32 basis point decrease in net interest margin. There was a $130.0 million increase in average interest earning assets with an increased yield of 62 basis points; however, this was more than offset by a $198.8 million increase in interest bearing liabilities at 133 bps higher cost.
• Noninterest income for the fourth quarter of 2023 increased $0.4 million or 5%. This is primarily due to a $15.3 million gain on the sale of Bank owned branch buildings (subsequently leased back) partially offset by a $14.5 million realized loss on a securities strategy which identified bonds for sale in January 2024.
• Noninterest expense for the fourth quarter of 2023 increased by $2.6 million, or 12%. There was a $1.4 million increase in salaries and benefits from the hiring of new lending teams and one new executive officer; additionally, we had severance payments of $0.9 million due a strategic reduction in force on 14 positions eliminated through efficiencies gained from operational reorganization and the deployment of new technologies partially offset by a $0.5 million reduction in bonuses accrued. There was a $0.4 million increase in occupancy expense for normal contractual rent increases and one-time stipends paid to employees for home office expenses, and a $0.8 million increase in other noninterest expense most notably in FDIC assessments, compliance and legal costs, and higher fraud losses primarily due to our debit card conversion from Mastercard to VISA earlier in the year.

Year to-Date Changes (comparisons to the year ended 2022)

• Net income for 2023 increased by $1.2 million, or 4%. There was an increase of $2.8 million or 3% 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.
• We experienced a $6.8 million decrease in credit loss expense on loans, net of taxes due to lower net loan charge-offs in 2023 as compared to 2022.
• Noninterest income for 2023 decreased by $0.4 million, or 1%. The same large variances discussed in the quarterly comparison apply to the year-to-date comparisons along with a $2.8 million favorable variance in bank-owned life insurance income, $0.4 million positive variance in life insurance proceeds, offset by a $3.2 million negative variance mostly from the sale of VISA stock in 2022 with no like sales in 2023.
• Noninterest expense increased $7.9 million, or 9%, due mostly to a $3.9 million increase in salary and benefits expense for new lending teams and management staff along with reduction in force severance payments as discussed in the quarterly comparison, an unfavorable variance in director’s deferred compensation expense which is linked to the favorable changes in bank-owned life insurance income, mentioned above in the discussion of noninterest income, a $0.8 million increase in FDIC assessment costs and $0.5 million increase in fraud losses primarily due to our debit card conversion from Mastercard to VISA earlier in the year.

Balance Sheet Changes (comparisons to December 31, 2022)

• Total assets increased by $121.2 million, or 3%, to $3.7 billion, during 2023, due mostly to a $68.2 million increase in investment securities, a $37.1 million increase in gross loans, and a $19.0 million increase in operating lease right-of-use assets from the sale and leaseback of 11 bank-owned branch buildings.
• Investment securities increased $67.5 million, or 5%, to $1.3 billion primarily due to strategic purchases of high-quality AAA, collateralized loan obligations and government agency securities during 2023.
• Gross loans increased $37.1 million due to a $50.6 million increase in mortgage warehouse line utilization, along with a $51.6 million increase in other commercial loans, and an $18.8 million increase in commercial real estate loans. Organic loan production for the year ending 2023 was $185.3 million, as compared to $292.2 million for the comparative period in 2022. Loan production was negatively impacted by $161.4 million in loan maturities, charge-offs and payoffs, and a decline in credit line utilization of $37.3 million. Counterbalancing these negative variances, we had a $50.6 million increase in mortgage warehouse line utilization as our customers ramped up utilization towards year-end.
• Deposits totaled $2.8 billion at December 31, 2023, representing a year-to-date decrease of $84.9 million, or 3%. The decline in deposits came primarily from a $175.1 million decrease in transaction accounts, an $80.4 million decrease in savings and money market accounts offset by an increase in customer time deposit balances of $155.5 million as customers moved their funds to higher interest-bearing type accounts and a $15.0 million increase in wholesale brokered deposits.
• Short-term debt increased by $59.5 million during 2023 to $387.6 million at December 31, 2023. Overnight fed funds increased by $5.0 million, and short term FHLB advances increased $125.0 million while repurchase agreements decreased $2.0 million and FHLB overnight borrowings decreased by $68.5 million.
• Long term debt in the form of term FHLB advances increased $80.0 million while subordinated debentures were relatively unchanged.

Other financial highlights are reflected in the following table.

FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except per Share Data, Unaudited)
			At or For the												At or For the
			Three Months Ended											Twelve Months Ended
			12/31/2023			9/30/2023				12/31/2022				12/31/2023				12/31/2022
Net income		$	6,290			$	9,885			$	7,113			$	34,844			$	33,659
Diluted earnings per share		$	0.43			$	0.68			$	0.47			$	2.36			$	2.24
Return on average assets			0.67	%			1.04	%			0.79	%			0.94	%			0.97	%
Return on average equity			8.03	%			12.62	%			9.62	%			11.30	%			10.66	%
Net interest margin (tax-equivalent) (1)			3.31	%			3.30	%			3.63	%			3.37	%			3.47	%
Yield on average loans and leases			4.78	%			4.73	%			4.38	%			4.69	%			4.32	%
Yield on investments			5.35	%			5.25	%			4.40	%			5.09	%			3.07	%
Cost of average total deposits			1.24	%			1.20	%			0.51	%			1.09	%			0.24	%
Efficiency ratio (tax-equivalent) (1)(2)			67.10	%			61.46	%			57.55	%			63.90	%			60.15	%
Total assets		$	3,729,799			$	3,738,880			$	3,608,590			$	3,729,799			$	3,608,590
Loans & leases net of deferred fees		$	2,090,384			$	2,100,973			$	2,052,817			$	2,090,384			$	2,052,817
Noninterest demand deposits		$	1,020,772			$	1,059,878			$	1,088,199			$	1,020,772			$	1,088,199
Total deposits		$	2,761,223			$	2,869,720			$	2,846,164			$	2,761,223			$	2,846,164
Noninterest-bearing deposits over total deposits			37.0	%			36.9	%			38.2	%			37.0	%			38.2	%
Shareholders' equity / total assets			9.1	%			8.3	%			8.4	%			9.1	%			8.4	%
Tangible Common equity ratio (2)			8.4	%			7.5	%			7.7	%			8.4	%			7.7	%
Book value per share		$	22.85			$	21.01			$	20.01			$	22.85			$	20.01
Tangible book value per share (2)		$	20.91			$	19.04			$	18.06			$	20.91			$	18.06

(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 $27.9 million for the fourth quarter of 2023, a $1.5 million decrease, or 5% over the fourth quarter of 2022, and increased $2.8 million, or 3%, to $112.4 million for the year ended 2023 relative to the same period in 2022.

For the fourth quarter of 2023, average interest-earning assets totaled $130.0 million, an increase of 4%, as compared to the fourth quarter of 2022. The yield on these balances was 62 basis points higher for the same period due mostly to an increase in yield of investment securities, as well as loan growth at higher yields. This increase in yield was offset by a 133 basis point increase in the cost of our interest-bearing liabilities for the same period. Although most transaction and savings deposit rates have not changed, the change in mix of liabilities caused the costs to increase. This was primarily affected due to average balances of time deposits and borrowed funds, including overnight purchases.

Net interest income for the comparative year-to-date periods increased $2.8 million, or 3%, due to a change in mix of average interest-earning assets. Investment balances, with an average yield of 5.09%, increased $140.4 million, while gross average loan balances yielding 4.69% increased $57.7 million. The overall yield on the average balances of earning assets was 100 basis points higher for the comparative periods, offset by a 161 basis point increase in interest paid on liabilities. The net impact was a 10 basis point decrease in our net interest margin for the year ended December 31, 2023, as compared to the same period in 2022.

Interest expense was $14.6 million for the fourth quarter of 2023, an increase of $8.3 million, relative to the fourth quarter of 2022. For the year ended 2023, compared to the same period in 2022, interest expense increased $38.5 million, to $50.7 million. The increase in interest expense for the quarterly comparison is attributable to a $198.8 million increase in average interest-bearing liabilities with a 133 bps increase in cost. The increase was primarily in higher cost customer time deposits, wholesale brokered deposits and borrowed funds. Lower or no cost average transaction and savings accounts decreased $283.0 million for the quarterly comparison. 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 year ended 2023, higher cost customer time deposits increased $210.2 million, wholesale brokered deposits increased $88.5 million and borrowed funds increased $216.3 million, while lower cost or no cost deposits decreased $279.6 million.

In early 2024, the Company initiated a strategic securities transaction by selling $196.7 million of bonds. These securities were identified as an intent to be sold at December 31, 2023. This transaction realized a $14.5 million loss in the fourth quarter of 2023, as discussed previously. The average yield on these bonds was 2.61% and the proceeds were used to paydown short-term borrowings at an average rate of 5.52%. This transaction is expected to increase our earnings stream beginning in 2024 by increasing net interest income as interest expense on borrowed funds will be reduced by more than the reduction in interest income on the securities sold.

The Company had $1.3 billion in adjustable and variable rate loans, $570.7 million in floating rate CLOs and $35.7 million in floating rate trust preferred securities at December 31, 2023, as compared to $1.3 billion in adjustable and variable rate loans, $498.4 million in floating rate CLOs and $35.5 million in floating rate trust preferred securities at December 31, 2022. The next rate adjustment date on the adjustable-rate loans vary and can be up to ten years. It is expected that $388.7 million of the Company’s adjustable and variable rate loans will reprice in the next twelve months.

Our net interest margin was 3.31% for the fourth quarter of 2023, as compared to 3.30% for the linked quarter and 3.63% for the fourth quarter of 2022.

Credit Loss Expense

The Company recorded expenses related to credit losses on loans of $3.6 million in the fourth quarter of 2023 relative to an expense of $6.5 million in the fourth quarter of 2022, and a year-to-date credit loss expense on loans of $4.1 million in 2023 as compared to a $10.9 million for the same period in 2022. The Company's $2.9 million favorable decrease in credit loss expense on loans in the fourth quarter of 2023 as compared to the fourth quarter of 2022, and the $6.8 million favorable decrease for the year ending 2023 compared to the same period in 2022 are primarily due to the impact of lower net charge-offs during the year ending 2023. The elevated net charge-offs in 2022 were mostly due to two loan relationships; one dairy loan relationship with total charge-offs of $8.7 million and 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. In the fourth quarter of 2023, there was a $2.3 million charge-off related to commercial real estate.

All debt securities in an unrealized loss position 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 reflects increases of $0.4 million or 5%, for the quarter ended December 31, 2023 as compared to the same quarter in 2022, and decreased of $0.4 million or 1%, for the year ended December 31, 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 and year-to-date comparisons were also favorably impacted by a $15.3 million gain on the sale of Bank owned branch buildings (subsequently leased back), partially offset by realizing a $14.5 million loss on a securities strategy which identified $196.7 million in available-for-sale securities to be sold in January 2024. The year-to-date decrease was also unfavorably impacted by 2022 events that did not recur in 2023, including $3.6 million from gains on the sale of other assets, and the recovery of prior period legal expenses.

Service charges on customer deposit account income increased $0.3 million, or 6%, to $6.0 million in the fourth quarter of 2023 as compared to the fourth quarter of 2022. This increase is primarily due to higher overdraft income, ATM fees, and analysis income during the comparable periods. This service charge income was relatively unchanged at $23.1 million for the year ending December 31, 2023, as compared to the same period in 2022.

Noninterest Expense

Total noninterest expense increased by $2.6 million, or 12%, in the fourth quarter of 2023 relative to the fourth quarter of 2022, and increased by $7.9 million, or 9%, for the year ended 2023 as compared to the same period in 2022.

Salaries and Benefits were $1.4 million, or 12%, higher in the fourth quarter of 2023 as compared to the fourth quarter of 2022 and $3.9 million, or 8%, higher for the year ended 2023 compared to the same period in 2022. We had severance payments of $0.9 million due to a strategic reduction in force on 14 positions eliminated through efficiencies gained from operational reorganization and the deployment of new technologies, partially offset by a $0.5 million reduction in the bonus accrual. Overall full-time equivalent employees were 485 at December 31, 2023 as compared to 491 at December 31, 2022. The decrease in FTE was due to the reduction in force during the fourth quarter of 2023, as several management positions were eliminated due to operational efficiencies.

Occupancy expenses were $0.4 million higher for both the fourth quarter of 2023 and year-to-date as compared to the same periods in 2022. The primary reason for increase in the quarterly and year-to-date comparisons was a one-time payment of $0.2 million for home office stipends for staff that work remotely and regular rent escalations.

Other noninterest expense increased $0.8 million, or 12%, for the fourth quarter 2023 as compared to the fourth quarter in 2022, and increased $3.5 million, or 12%, for the year ended 2023 as compared to the same period in 2022. The variance for the fourth quarter of 2023 compared to the same period in 2022 was primarily driven by higher FDIC assessment costs, increased marketing costs associated with a deposit acquisition campaign, higher travel costs due to our expanded remote work force, and elevated debit card losses. These increased expenses were partially offset by lower costs in core processing and internet banking costs. For the year-over-year comparison, the categories of increase were the same as with the quarterly comparison, along with a $2.0 million unfavorable variance in directors deferred compensation expense, linked to the changes in BOLI income, a $0.6 million increase in foreclosed asset costs related to the foreclosure and subsequent sale of one large loan relationship in the first quarter of 2023. Positive variances for the year-over-year comparison included a $0.2 million decrease in deposit statement costs and a $0.3 million decrease in miscellaneous losses due to restitution payments made to customers in 2022 who were charged nonsufficient funds fees on representments.

The Company's provision for income taxes was 23.8% of pre-tax income in the fourth quarter of 2023 relative to 21.1% in the fourth quarter of 2022, and 25.0% of pre-tax income for the years ended December 31, 2023 and 2022. The increase in effective tax rate in the fourth quarter is due to tax credits and tax-exempt income representing a smaller percentage of total taxable income. The decline in tax-exempt income is due mostly to tax exempt municipal securities representing a smaller portion of total taxable securities.

Balance Sheet Summary

Balance sheet changes for the year ended December 31, 2023 include an increase in total assets of $121.2 million, or 3%, primarily as a result of a $67.5 million increase in investment securities, a $37.1 million increase in gross loans, a $19.8 million increase in other assets, net of a $5.6 million decrease in Bank owned premises and equipment.

The increase in investment securities of $68.2 million in 2023 consisted primarily of increases in AAA tranches of collateralized loan obligations of $72.3 million and in callable government agency securities for $51.6 million, partially offset by decreases in mortgage-backed securities, corporate bonds and state and municipal bonds.

Gross loan balances increased $37.1 million during the year ended December 31, 2023. The increase was primarily a result of a $50.6 million increase in mortgage warehouse utilization, $18.8 million increase in commercial real estate, and a $51.6 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 $46.1 million decrease in farmland, $12.2 million decrease in other construction and $25.4 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 fourth quarter of 2023 decreased $40.5 million over the same period in 2022 and decreased $106.9 million for the year-to-date comparisons. This decline in organic loan growth is attributable to extensive competition for quality new loans coupled with reduced demand in the current elevated rate environment. Contributing to this negative variance, we did not purchase any loans during 2023, had $161.4 million in loan paydowns and maturities, and a $37.3 million decrease in line of credit utilization. Offsetting a portion of these negative variances we experienced a $50.6 million increase in mortgage warehouse line utilization.

LOAN ROLLFORWARD
(Dollars in Thousands, Unaudited)
		For the three months ended:												For the twelve months ended:
		December 31, 2023				September 30, 2023				December 31, 2022				December 31, 2023				December 31, 2022
Gross loans beginning balance		$	2,100,810			$	2,094,391			$	2,020,364			$	2,052,940			$	1,989,726
New credit extended			26,704				68,980				67,170				185,323				292,224
Loan purchases			—				—				—				—				173,082
Changes in line of credit utilization			4,377				(22,517	)			(3,361	)			(37,308	)			(48,562	)
Change in mortgage warehouse			8,415				(3,032	)			18,885				50,561				(35,745	)
Pay-downs, maturities, charge-offs and amortization (1)			(50,231	)			(37,012	)			(50,118	)			(161,441	)			(317,785	)
Gross loans ending balance		$	2,090,075			$	2,100,810			$	2,052,940			$	2,090,075			$	2,052,940

(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 $203.6 million at December 31, 2023, compared to $219.7 million at December 31, 2022. Total line utilization, excluding mortgage warehouse and overdraft lines, was 62% at December 31, 2023 and 59% at December 31, 2022 and was 53% at December 31, 2023 and 32% at December 31, 2022, including mortgage warehouse lines. Mortgage warehouse utilization increased to 36% at December 31, 2023, as compared to 10% at December 31, 2022. Total mortgage warehouse availability declined to $204.5 million at December 31, 2023 as compared to $594.6 million at December 31, 2022. With current industry volumes down due to decreased purchase and refinance activity we experienced some lenders leaving the Bank and others decreasing their lines of credit to match their current volumes.

Deposit balances declined $84.9 million, or 3%, during the year ended December 31, 2023. Core non-maturity deposits decreased by $255.4 million, or 11%, while customer time deposits increased by $155.5 million, or 39%. Although there has been some attrition, our customers are becoming more rate sensitive in the current higher rate environment and have moved funds from lower or no cost transaction accounts into higher cost time deposits. Wholesale brokered deposits increased by $15.0 million to $135.0 million. Overall noninterest-bearing deposits as a percent of total deposits at December 31, 2023, decreased to 37.0%, as compared to 38.2% at December 31, 2022.

Other interest-bearing liabilities of $467.6 million on December 31, 2023 consisted of $80.0 million in FHLB long term advances, $107.1 million in customer repurchase agreements, $130.0 million in overnight fed funds purchased, and $150.5 million in short term and overnight FHLB advances. Proceeds from the securities strategy, which involved selling $196.7 million in available-for-sale securities yielding 2.61% in January 2024 went to paydown a portion of these borrowed funds with an average rate of 5.52%. Other interest-bearing liabilities at December 31, 2022 consisted of $109.2 million in customer repurchase agreements, $125.0 million in overnight fed funds purchased, and $94.0 million in overnight FHLB advances.

The Company continues to have substantial liquidity. At December 31, 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			December 31, 2023			December 31, 2022
Cash and due from banks		$	78,602		$	77,131
Unpledged investment securities			792,965			1,097,164
Excess pledged securities			382,965			43,096
FHLB borrowing availability			586,726			718,842
Unsecured lines of credit			374,785			237,000
Funds available through fed discount window			392,034			42,278
Totals		$	2,608,077		$	2,215,511

Total capital of $338.1 million at December 31, 2023 reflects an increase of $34.5 million, or 11%, relative to year-end 2022. The increase in equity during the year ended December 31, 2023 was primarily due $34.8 million in net income and a $20.6 million favorable swing in accumulated other comprehensive income (loss) partially offset by $13.7 million in dividends paid, and $8.5 million in share repurchases. The remaining difference is related to stock options exercised and restricted stock activity during the year.

Asset Quality

Total nonperforming assets, comprised of nonaccrual loans, decreased by $11.6 million to $8.0 million for the year ended December 31, 2023. The Company's ratio of nonperforming loans to gross loans decreased to 0.38% at December 31, 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. At December 31, 2023, nonaccrual loans totaled $8.0 million compared to $19.6 million at December 31, 2022. 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 nonaccrual loans at December 31, 2023, are mostly due to a single commercial real estate relationship of $7.4 million.

The Company's allowance for credit losses on loans was $23.5 million at December 31, 2023, as compared to a balance of $23.1 million at December 31, 2022. The allowance was 1.12% of total loans at both December 31, 2023 and December 31, 2022. Although the Company experienced fewer net charge offs during the year, a specific allowance on one single commercial real estate relationship was the primary reason for the increase.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses inherent in loan portfolio balances outstanding as of December 31, 2023, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance on loans.

About Sierra Bancorp

Sierra Bancorp is the holding Company for Bank of the Sierra (www.bankofthesierra.com), which is in its 47^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, loan portfolio performance, the Company's ability to attract and retain skilled employees, customers' service expectations, the Company's ability to successfully deploy new technology, the success of acquisitions and branch expansion, changes in interest rates, 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			12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Cash and due from banks		$	78,602			$	88,542			$	103,483			$	83,506			$	77,131
Investment securities
Available-for-sale, at fair value			1,019,201				1,010,377				1,027,538				1,040,920				934,923
Held-to-maturity, at amortized cost, net of allowance for credit losses			320,057				323,544				328,478				332,728				336,881
Real estate loans
Residential real estate			412,063				418,782				426,608				433,185				437,446
Commercial real estate			1,328,224				1,334,663				1,317,945				1,318,627				1,311,158
Other construction/land			6,256				7,320				16,020				15,653				18,412
Farmland			67,276				90,993				92,728				92,906				113,394
Total real estate loans			1,813,819				1,851,758				1,853,301				1,860,371				1,880,410
Other commercial			156,272				137,407				126,360				101,118				102,967
Mortgage warehouse lines			116,000				107,584				110,617				68,472				65,439
Consumer loans			3,984				4,061				4,113				4,007				4,124
Gross loans			2,090,075				2,100,810				2,094,391				2,033,968				2,052,940
Deferred loan fees			309				163				73				24				(123	)
Allowance for credit losses on loans			(23,500	)			(23,060	)			(23,010	)			(23,090	)			(23,060	)
Net loans			2,066,884				2,077,913				2,071,454				2,010,902				2,029,757
Bank premises & equipment			16,907				21,926				22,072				22,321				22,478
Other assets			228,148				216,578				209,436				203,607				207,420
Total assets		$	3,729,799			$	3,738,880			$	3,762,461			$	3,693,984			$	3,608,590
LIABILITIES & CAPITAL
Noninterest demand deposits		$	1,020,772			$	1,059,878			$	1,066,498			$	1,041,748			$	1,088,199
Interest-bearing transaction accounts			533,947				561,257				584,263				637,549				641,581
Savings deposits			370,806				400,940				415,793				441,758				456,981
Money market deposits			145,591				130,914				124,834				123,162				139,795
Customer time deposits			555,107				551,731				552,371				519,771				399,608
Wholesale brokered deposits			135,000				165,000				175,000				185,000				120,000
Total deposits			2,761,223				2,869,720				2,918,759				2,948,988				2,846,164
Long-term debt			49,304				49,281				49,259				49,236				49,214
Junior subordinated debentures			35,660				35,615				35,570				35,526				35,481
Other interest-bearing liabilities			467,621				411,865				398,922				310,861				328,169
Total deposits & interest-bearing liabilities			3,313,808				3,366,481				3,402,510				3,344,611				3,259,028
Allowance for credit losses on unfunded loan commitments			510				600				750				850				840
Other liabilities			77,384				62,940				49,609				41,513				45,140
Total capital			338,097				308,859				309,592				307,010				303,582
Total liabilities & capital		$	3,729,799			$	3,738,880			$	3,762,461			$	3,693,984			$	3,608,590

GOODWILL & INTANGIBLE ASSETS
(Dollars in Thousands, Unaudited)
			12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Goodwill		$	27,357			$	27,357			$	27,357			$	27,357			$	27,357
Core deposit intangible			1,399				1,618				1,837				2,056				2,275
Total intangible assets		$	28,756			$	28,975			$	29,194			$	29,413			$	29,632
CREDIT QUALITY
(Dollars in Thousands, Unaudited)
			12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Non-accruing loans		$	7,985			$	781			$	1,141			$	938			$	19,579
Foreclosed assets			-				-				-				-				-
Total nonperforming assets		$	7,985			$	781			$	1,141			$	938			$	19,579
Net charge offs (recoveries)		$	3,619			$	67			$	157			$	220			$	7,268
Past due & still accruing (30-89)		$	255			$	806			$	1,873			$	1,241			$	1,203
Non-performing loans to gross loans			0.38	%			0.04	%			0.05	%			0.05	%			0.95	%
NPA's to loans plus foreclosed assets			0.38	%			0.04	%			0.05	%			0.05	%			0.95	%
Allowance for credit losses on loans to gross loans			1.12	%			1.10	%			1.10	%			1.14	%			1.12	%
SELECT PERIOD-END STATISTICS
(Unaudited)
			12/31/2023				9/30/2023				6/30/2023				3/31/2023				12/31/2022
Shareholders equity / total assets			9.1	%			8.3	%			8.2	%			8.3	%			8.4	%
Gross loans / deposits			75.7	%			73.2	%			71.8	%			69.0	%			72.1	%
Noninterest-bearing deposits / total deposits			37.0	%			36.9	%			36.5	%			35.3	%			38.2	%

CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Unaudited)			For the three months ended:												For the year ended:
			12/31/2023				9/30/2023				12/31/2022				12/31/2023				12/31/2022
Interest income		$	42,443			$	42,384			$	35,603			$	163,121			$	121,819
Interest expense			14,573				14,297				6,240				50,716				12,204
Net interest income			27,870				28,087				29,363				112,405				109,615
Credit loss expense - loans			3,615				117				6,538				4,058				10,898
Credit loss benefit - unfunded commitments			(90	)			(150	)			(100	)			(330	)			(294	)
Credit loss expense (benefit) - debt securities held-to-maturity			-				-				45				(47	)			63
Net interest income after credit loss expense			24,345				28,120				22,880				108,724				98,948
Service charges			5,977				6,055				5,635				23,103				23,100
Gain on sale of investments			-				-				456				396				1,487
Gain (loss) on sale of fixed assets			15,255				1				(2	)			15,270				(8	)
BOLI income (loss)			379				558				255				1,767				(996	)
Realized loss on available for sale securities			(14,500	)			-				-				(14,500	)			-
Other noninterest income			934				1,148				1,312				4,364				7,187
Total noninterest income			8,045				7,762				7,656				30,400				30,770
Salaries & benefits			13,410				12,623				11,983				50,977				47,053
Occupancy expense			2,909				2,482				2,549				10,160				9,718
Other noninterest expenses			7,817				7,457				6,990				31,523				28,032
Total noninterest expense			24,136				22,562				21,522				92,660				84,803
Income before taxes			8,254				13,320				9,014				46,464				44,915
Provision for income taxes			1,964				3,435				1,901				11,620				11,256
Net income		$	6,290			$	9,885			$	7,113			$	34,844			$	33,659
TAX DATA
Tax-exempt municipal income		$	2,675			$	2,679			$	2,879			$	10,909			$	8,805
Interest income - fully tax equivalent		$	43,154			$	43,096			$	36,368			$	166,021			$	124,160

PER SHARE DATA
(Unaudited)			For the three months ended:												For the year ended:
			12/31/2023				9/30/2023				12/31/2022				12/31/2023				12/31/2022
Basic earnings per share		$	0.43			$	0.68			$	0.47			$	2.37			$	2.25
Diluted earnings per share		$	0.43			$	0.68			$	0.47			$	2.36			$	2.24
Common dividends		$	0.23			$	0.23			$	0.23			$	0.92			$	0.92
Weighted average shares outstanding			14,539,701				14,583,132				14,998,567				14,706,141				14,955,756
Weighted average diluted shares			14,588,027				14,636,477				15,039,973				14,737,870				15,022,755
Book value per basic share (EOP)		$	22.85			$	21.01			$	20.01			$	22.85			$	20.01
Tangible book value per share (EOP)		$	20.91			$	19.04			$	18.06			$	20.91			$	18.06
Common shares outstanding (EOP)			14,793,832				14,702,079				15,170,372				14,793,832				15,170,372
KEY FINANCIAL RATIOS
(Unaudited)			For the three months ended:												For the year ended:
			12/31/2023				9/30/2023				12/31/2022				12/31/2023				12/31/2022
Return on average equity			8.03	%			12.62	%			9.62	%			11.30	%			10.66	%
Return on average assets			0.67	%			1.04	%			0.79	%			0.94	%			0.97	%
Net interest margin (tax-equivalent) (1)			3.31	%			3.30	%			3.63	%			3.37	%			3.47	%
Efficiency ratio (tax-equivalent) (1)(2)			67.10	%			61.46	%			57.55	%			63.90	%			60.15	%
Net charge-offs to avg loans (not annualized)			0.15	%			0.00	%			0.36	%			0.18	%			0.58	%

(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".

NON-GAAP FINANCIAL MEASURES
(Unaudited)
			12/31/2023				9/30/2023				12/31/2022
Total stockholders' equity		$	338,097			$	308,859			$	303,582
Less: goodwill and other intangible assets			28,756				28,975				29,632
Tangible common equity		$	309,341			$	279,884			$	273,950
Total assets		$	3,729,799			$	3,738,880			$	3,608,590
Less: goodwill and other intangible assets			28,756				28,975				29,632
Tangible assets		$	3,701,043			$	3,709,905			$	3,578,958
Common shares outstanding			14,793,832				14,702,079				15,085,675
Book value per common share		$	22.85			$	21.01			$	20.12
Tangible book value per common share		$	20.91			$	19.04			$	18.16
Equity ratio - GAAP (total stockholders' equity / total assets)			9.06	%			8.26	%			8.41	%
Tangible common equity ratio (tangible common equity / tangible assets)			8.36	%			7.54	%			7.65	%

		For the three months ended:													For the year ended:
Efficiency Ratio:			12/31/2023				9/30/2023				12/31/2022				12/31/2023				12/31/2022
Noninterest expense		$	24,136			$	22,562			$	21,522			$	92,660			$	84,803
Divided by:
Net interest income			27,870				28,087				29,363				112,405				109,615
Tax-equivalent interest income adjustments			711				712				765				2,900				2,341
Net interest income, adjusted			28,581				28,799				30,128				115,305				111,956
Noninterest income			8,045				7,762				7,656				30,400				30,770
Less gain on sale of securities			-				-				456				396				1,487
Less gain (loss) on sale of fixed assets			15,255				1				(2	)			15,270				(8	)
Less realized loss on available-for-sale securities			(14,500	)											(14,500	)
Tax-equivalent noninterest income adjustments			101				148				68				470				(265	)
Noninterest income, adjusted			7,391				7,909				7,270				29,704				29,026
Net interest income plus noninterest income, adjusted		$	35,972			$	36,708			$	37,398			$	145,009			$	140,982
Efficiency Ratio (tax-equivalent)			67.10	%			61.46	%			57.55	%			63.90	%			60.15	%

NONINTEREST INCOME/EXPENSE
(Dollars in Thousands, Unaudited)
			For three months ended:												For twelve months ended:
Noninterest income:			12/31/2023				9/30/2023				12/31/2022				12/31/2023			12/31/2022
Service charges on deposit accounts		$	5,977				6,055				5,635			$	23,103				23,100
Gain on sale of securities			—				—				456				396				1,487
Gain (loss) on sale of fixed assets			15,255				1				(2	)			15,270				(8	)
Bank-owned life insurance			379				558				255				1,767				(996	)
Realized loss on available for sale securities			(14,500	)			—				—				(14,500	)			—
Other			934				1,148				1,312				4,364				7,187
Total noninterest income		$	8,045			$	7,762			$	7,656			$	30,400			$	30,770
As a % of average interest earning assets (1)			0.93	%			0.89	%			0.92	%			0.89	%			0.95	%
Noninterest expense:
Salaries and employee benefits		$	13,410			$	12,623			$	11,983			$	50,977			$	47,053
Occupancy costs			2,909				2,482				2,549				10,160				9,718
Advertising and marketing costs			569				723				407				2,215				1,729
Data processing costs			1,397				1,369				1,627				5,831				6,202
Deposit services costs			2,207				2,048				2,380				8,775				9,492
Loan services costs
Loan processing			144				174				124				597				550
Foreclosed assets			—				(60	)			—				665				84
Other operating costs			1,118				765				781				4,362				4,661
Professional services costs
Legal & accounting			615				493				380				2,238				2,133
Director's costs			504				732				416				2,237				113
Other professional service			708				707				476				2,760				1,892
Stationery & supply costs			117				148				172				531				486
Sundry & tellers			438				358				227				1,312				690
Total noninterest expense		$	24,136			$	22,562			$	21,522			$	92,660			$	84,803
As a % of average interest earning assets (1)			2.80	%			2.58	%			2.59	%			2.71	%			2.63	%
Efficiency ratio (2)(3)			67.10	%			61.46	%			57.55	%			63.90	%			60.15	%

(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
		December 31, 2023									September 30, 2023									December 31, 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:
Interest-earning due from banks		$	13,661		$	193		5.61	%		$	23,760		$	415		6.93	%		$	5,548		$	52		3.72	%
Taxable			994,814			14,520		5.79	%			1,005,372			14,375		5.67	%			884,020			10,176		4.57	%
Non-taxable			334,836			2,675		4.01	%			345,645			2,679		3.89	%			362,621			2,879		3.99	%
Total investments			1,343,311			17,388		5.35	%			1,374,777			17,469		5.25	%			1,252,189			13,107		4.40	%
Loans and Leases: (3)
Real estate			1,835,890			20,683		4.47	%			1,854,055			20,764		4.44	%			1,865,426			19,916		4.24	%
Agricultural Production			49,052			859		6.95	%			37,096			649		6.94	%			32,125			368		4.54	%
Commercial			97,962			1,533		6.21	%			90,348			1,392		6.11	%			74,370			1,032		5.51	%
Consumer			4,218			85		7.99	%			4,303			87		8.02	%			4,267			92		8.55	%
Mortgage warehouse lines			88,316			1,878		8.44	%			100,549			2,004		7.91	%			60,408			1,069		7.02	%
Other			2,331			17		2.89	%			2,381			19		3.17	%			2,356			19		3.20	%
Total loans and leases			2,077,769			25,055		4.78	%			2,088,732			24,915		4.73	%			2,038,952			22,496		4.38	%
Total interest earning assets (4)			3,421,080			42,443		5.00	%			3,463,509			42,384		4.94	%			3,291,141			35,603		4.38	%
Other earning assets			25,738									17,355									22,411
Non-earning assets			267,451									275,883									259,860
Total assets		$	3,714,269								$	3,756,747								$	3,573,412
Liabilities and shareholders' equity
Interest bearing deposits:
Demand deposits		$	137,827		$	698		2.01	%		$	141,745		$	413		1.16	%		$	159,206		$	128		0.32	%
NOW			406,970			74		0.07	%			427,278			68		0.06	%			510,776			78		0.06	%
Savings accounts			386,275			73		0.07	%			408,158			69		0.07	%			470,858			69		0.06	%
Money market			144,296			419		1.15	%			127,649			194		0.60	%			142,861			25		0.07	%
Time Deposits			551,287			6,172		4.44	%			557,504			6,514		4.64	%			367,164			2,859		3.09	%
Wholesale Brokered Deposits			150,326			1,407		3.71	%			162,065			1,509		3.69	%			115,652			554		1.90	%
Total interest bearing deposits			1,776,981			8,843		1.97	%			1,824,399			8,767		1.91	%			1,766,517			3,713		0.83	%
Borrowed funds:
Other Interest-Bearing Liabilities			441,442			4,535		4.08	%			413,443			4,339		4.16	%			253,384			1,519		2.38	%
Long-Term Debt			49,290			429		3.45	%			49,268			429		3.45	%			49,201			429		3.46	%
Subordinated Debentures			35,632			766		8.53	%			35,590			762		8.49	%			35,454			579		6.48	%
Total borrowed funds			526,364			5,730		4.32	%			498,301			5,530		4.40	%			338,039			2,527		2.97	%
Total interest bearing liabilities			2,303,345			14,573		2.51	%			2,322,700			14,297		2.44	%			2,104,556			6,240		1.18	%
Demand deposits - Noninterest bearing			1,041,989									1,064,962									1,116,622
Other liabilities			58,255									58,340									58,959
Shareholders' equity			310,680									310,745									293,275
Total liabilities and shareholders' equity		$	3,714,269								$	3,756,747								$	3,573,412
Interest income/interest earning assets								5.00	%								4.94	%								4.38	%
Interest expense/interest earning assets								1.69	%								1.64	%								0.75	%
Net interest income and margin (5)					$	27,870		3.31	%					$	28,087		3.30	%					$	29,363		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 credit 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 $(0.005) million for the quarters ended December 31, 2023 and 2022, respectively, and $0.3 million for the quarter ended September 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 twelve months ended										For the twelve months ended
		December 31, 2023										December 31, 2022
		Average Balance (1)			Income/ Expense			Yield/ Rate (2)			Average Balance (1)			Income/ Expense			Yield/ Rate (2)
Assets
Investments:
Interest-earning due from banks		$	19,527		$	1,054		5.40	%		$	91,420		$	519		0.57	%
Taxable			992,187			54,367		5.48	%			808,750			25,789		3.19	%
Non-taxable			348,551			10,909		3.96	%			319,682			8,805		3.49	%
Total investments			1,360,265			66,330		5.09	%			1,219,852			35,113		3.07	%
Loans and leases:(3)
Real estate		$	1,854,300		$	82,174		4.43	%		$	1,831,874		$	77,708		4.24	%
Agricultural			35,724			2,438		6.82	%			31,565			1,176		3.73	%
Commercial			85,572			5,096		5.96	%			81,798			4,383		5.36	%
Consumer			4,249			348		8.19	%			4,301			638		14.83	%
Mortgage warehouse lines			81,675			6,658		8.15	%			54,606			2,695		4.94	%
Other			2,415			77		3.19	%			2,139			106		4.96	%
Total loans and leases			2,063,935			96,791		4.69	%			2,006,283			86,706		4.32	%
Total interest earning assets (4)			3,424,200			163,121		4.85	%			3,226,135			121,819		3.85	%
Other earning assets			16,850									15,685
Non-earning assets			272,930									243,340
Total assets		$	3,713,980								$	3,485,160
Liabilities and shareholders' equity
Interest bearing deposits:
Demand deposits		$	143,428		$	1,429		1.00	%		$	195,192		$	485		0.25	%
NOW			442,819			289		0.07	%			532,692			322		0.06	%
Savings accounts			419,834			269		0.06	%			476,128			278		0.06	%
Money market			132,748			710		0.53	%			150,378			95		0.06	%
Time deposits			527,965			23,214		4.40	%			317,806			4,914		0.00	%
Brokered deposits			163,382			5,643		3.45	%			74,917			725		1.55	%
Total interest bearing deposits			1,830,176			31,554		1.72	%			1,747,113			6,819		0.97	%
Borrowed funds:
Other interest-bearing liabilities			374,142			14,561		3.89	%			158,095			2,069		1.31	%
Long-term debt			49,257			1,715		3.49	%			49,172			1,713		3.49	%
Subordinated debentures			35,567			2,886		3.87	%			35,387			1,603		3.87	%
Total borrowed funds			458,966			19,162		4.18	%			242,654			5,385		2.22	%
Total interest bearing liabilities			2,289,142			50,716		2.22	%			1,989,767			12,204		0.61	%
Demand deposits - noninterest bearing			1,057,041									1,121,060
Other liabilities			59,317									58,538
Shareholders' equity			308,480									315,795
Total liabilities and shareholders' equity		$	3,713,980								$	3,485,160
Interest income/interest earning assets								4.85	%								3.85	%
Interest expense/interest earning assets								1.48	%								0.38	%
Net interest income and margin(5)					$	112,405		3.37	%					$	109,615		3.47	%

(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.
(3)		Loans are gross of the allowance for possible credit losses. Net loan fees have been included in the calculation of interest income. Net loan fees and loan acquisition FMV amortization were $(1.0) million and $0.9 million for the years ended December 31, 2023 and 2022, respectively.
(4)		Non-accrual loans are slotted by loan type and have been included in total loans for purposes of total interest earning assets.
(5)		Net interest margin represents net interest income as a percentage of average interest-earning assets (tax-equivalent).

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240129007539/en/

The Sierra Bancorp Stock at the time of publication of the news with a raise of +0,37 % to 21,90USD on Nasdaq stock exchange (27. Januar 2024, 02:00 Uhr).