Sierra Bancorp Reports Financial Results for Third Quarter and First Nine Months of 2022

Rhea-AI Summary

Sierra Bancorp (BSRR) reported a Q3 2022 net income of $9.9 million ($0.66/share), down from $10.6 million ($0.69/share) in Q3 2021. Year-to-date net income reached $26.5 million ($1.76/share), a decrease from $33.4 million ($2.17/share) in 2021, primarily due to a $4.4 million provision for credit losses. The net interest income rose to $28.9 million, driven by a higher interest margin. Total assets increased by 5% to $3.5 billion, with loans up by $30.6 million due to investment in high-quality mortgage pools. Deposits grew by 4% to $2.9 billion, indicating solid community banking performance.

Positive

• Net income increased by $0.7 million or 8% quarter-over-quarter.
• Net interest income rose by $2.2 million or 8% year-over-year.
• Total assets increased by $161.3 million, or 5%, to $3.5 billion.
• Deposits totaled $2.9 billion, a year-to-date increase of $103.9 million, or 4%.

Negative

• Net income decreased by $6.8 million, or 20%, year-over-year.
• Provisions for credit losses increased by $6.6 million year-over-year.
• Noninterest income decreased by $0.9 million, or 12%, year-over-year.

PORTERVILLE, Calif.--(BUSINESS WIRE)-- 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, 2022. Sierra Bancorp reported consolidated net income of $9.9 million, or $0.66 per diluted share, for the third quarter of 2022, compared to $10.6 million, or $0.69 per diluted share in the third quarter of 2021. On a linked-quarter basis, the Company increased net income by $0.7 million, or 8%.

For the first nine months of 2022, the Company recognized net income of $26.5 million, or $1.76 per diluted share, as compared to $33.4 million, or $2.17 per diluted share, for the same period in 2021. The year-over-year change is due primarily to a $4.4 million provision for credit losses in 2022 as compared to a net release of allowance in 2021. The Company’s financial performance metrics for the first nine months of 2022 include an annualized return on average assets and a return on average equity of 1.03% and 10.98%, respectively, compared to 1.36% and 12.60%, respectively, for the same period in 2021.

“If people like you, they’ll listen to you, but if they trust you, they’ll do business with you.” – Zig Ziglar

“Banking is a critical part of our economy, locally and globally,” stated Kevin McPhaill, President and CEO. “At Bank of the Sierra, we understand this importance and are committed to providing financial services and solutions to individuals, businesses and other organizations in our communities throughout the entire economic cycle. With the dedication and drive from our legacy market and new lending teams, we are seeing great traction in obtaining new lending relationships throughout our markets. We are also experiencing solid deposit growth – a hallmark of our bank’s success – while maintaining nearly 39% of our deposit base in non-interest bearing accounts. The bank remains focused on this important part of community banking as our treasury management services and team expand. Looking to the fourth quarter and beyond, we have worked to position the bank for additional growth opportunities – it is an exciting time indeed!” McPhaill concluded.

Financial Highlights

Quarterly Changes (comparisons to the third quarter of 2021)

• Net income decreased $0.7 million to $9.9 million. Net interest income was $2.2 million higher due to an increase in margin and growth in earning assets. This positive net interest income variance was offset by the net negative impact of the Company’s deferred compensation plan and related on-balance sheet funding through bank-owned life insurance of $0.6 million, as well as an unfavorable change in provision for credit losses on loans of $1.8 million.
• Net interest income increased $2.2 million. We had a 17 basis point increase in net interest margin coupled with a $120 million increase in average earning assets.
• Noninterest income decreased $0.9 million or 12% primarily due to a $1.1 million decrease in bank-owned life insurance as previously mentioned.
• The provision for credit losses on loans and leases was $1.2 million under the new current expected credit losses (“CECL”) methodology, as compared to a benefit of $0.6 million under the incurred loss model in the same quarter of 2021.
• All capital ratios remain well above the regulatory requirements for a well-capitalized institution. The Community Bank Leverage ratio was 11.54% for Bank of the Sierra. The Sierra Bancorp Tier I leverage ratio was 10.45%.

Linked Quarter Changes (comparisons to the three months ended June 30, 2022)

• Net income improved by $0.7 million, or 8%. Factors impacting this improvement include a $1.1 million decrease in noninterest expense, and a $3.4 million increase in net interest income after the provision for credit losses, offset by a $3.8 million decrease in noninterest income as further described below. The increase in net interest income was driven by higher average earning assets and a 40 basis point increase in the yield on earning assets, partially offset by a 27 basis point increase in the cost of interest-bearing liabilities.
• Noninterest income decreased by $3.8 million, or 37%, due primarily to the sale of other assets in the second quarter of 2022 with no like sales in the third quarter of 2022.
• The provision for credit losses on loans and leases decreased $1.3 million to $1.2 million due mostly to charge-offs in the second quarter as the overall quantitative and qualitative components of the allowance for credit losses remained relatively consistent with the prior quarter, although there were mostly offsetting adjustments within the qualitative components of the calculation.
• Noninterest expense decreased $1.1 million, or 5%, mostly in other operating expense, due to a $0.7 million increase in other expense due to a proactive approach taken in the second quarter of 2022, due to FDIC supervisory guidance addressing certain consumer compliance risks associated with the treatment of non-sufficient fund charges on representments.

Year to-Date Changes (comparisons to the first nine-months of 2021)

• Net income decreased $6.8 million, or 20%. The most significant line-item change was a $6.6 million increase in the provision for credit losses, under the “CECL” methodology. There was also a decrease of $2.2 million or 3% in net interest income, due mostly to an overall 25 basis point decline in net interest margin. The decline in margin was due primarily to lower yields and balances on loans, as well as higher overall funding costs partially offset by higher investment yields and balances.
• Noninterest income increased by $2.1 million, or 10%, due to a $1.0 million recovery of prior year legal expenses, a $1.0 million gain on the sale of investment securities, a $3.2 million gain on the sale of other assets, partially offset by negative variances in BOLI income, and the fair market value adjustment of equity securities.
• Noninterest expense increased $1.9 million, or 3%, due mostly to the increases in salary expense for new loan production teams and restitution payments to customers charged nonsufficient fund fees on representments in the past five years, partially offset by lower legal costs and a positive variance in director’s deferred compensation expense which is linked to the unfavorable changes in bank-owned life insurance income described above.

Statement of Condition Changes (comparisons to December 31, 2021)

• Total assets increased by $161.3 million, or 5%, to $3.5 billion, during the first nine months of the year due mostly to an increase in deposits and borrowed funds which facilitated the purchase of investment securities in 2022.
• Cash and due from banks decreased $170.8 million to $86.7 million during the first nine months of the year due mostly to an increase in earning assets.
• Investment securities increased by $252.3 million, or 26%, to $1.2 billion primarily due to strategic purchases of $181 million of collateralized loan obligations, as well as other investment securities.
• Gross loans increased $30.6 million due predominantly to the purchase of $173.1 million in high quality jumbo single family mortgage loan pools earlier in the year. These mortgage loan pool purchases were offset by $267.7 million in loan maturities, charge-offs and payoffs. Organic loan production for the first nine months of 2022 was $225.1 million, as compared to $93.0 million for the comparative period in 2021. Negatively impacting loan growth was a $45.2 million decline in credit line utilization and a $54.6 million decline in mortgage warehouse line utilization. PPP loan forgiveness during the first nine months was $27.6 million.
• Deposits totaled $2.9 billion at September 30, 2022, representing a year-to-date increase of $103.9 million, or 4%. The growth in deposits came from a $45.5 million increase in core transaction and savings accounts, coupled with a $58.4 million increase in time and wholesale brokered deposits.
• Short-term debt totaled $215.1 million due to increases of $103.1 million in overnight FHLB borrowings and $5.1 million in customer repurchase agreements.

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
			9/30/2022			6/30/2022			9/30/2021			9/30/2022			9/30/2021
Net income		$	9,935		$	9,204		$	10,605		$	26,546		$	33,391
Diluted earnings per share		$	0.66		$	0.61		$	0.69		$	1.76		$	2.17
Return on average assets			1.13%			1.07%			1.26%			1.03%			1.36%
Return on average equity			12.84%			11.68%			11.62%			10.98%			12.60%
Net interest margin (tax-equivalent)			3.63%			3.40%			3.46%			3.41%			3.66%
Yield on average loans and leases			4.28%			4.31%			4.61%			4.30%			4.57%
Yield on investments			3.51%			2.40%			1.47%			2.61%			1.71%
Cost of average total deposits			0.24%			0.11%			0.08%			0.15%			0.09%
Efficiency ratio (tax-equivalent) (1)			58.10%			59.19%			59.75%			61.10%			58.29%
Total assets		$	3,532,289		$	3,396,635		$	3,442,739		$	3,532,289		$	3,442,739
Loans & leases net of deferred fees		$	2,020,016		$	2,021,581		$	2,137,214		$	2,020,016		$	2,137,214
Noninterest demand deposits		$	1,118,245		$	1,120,413		$	1,111,411		$	1,118,245		$	1,111,411
Total deposits		$	2,885,468		$	2,850,999		$	2,820,646		$	2,885,468		$	2,820,646
Noninterest-bearing deposits over total deposits			38.8%			39.3%			39.4%			38.8%			39.4%
Shareholders' equity / total assets			8.4%			8.8%			10.6%			8.4%			10.6%
Tangible common equity ratio (2)			7.6%			8.0%			9.8%			7.6%			9.8%
Book value per share		$	19.56		$	19.82		$	23.70		$	19.56		$	23.70
Tangible book value per share (2)		$	17.58		$	17.82		$	21.69		$	17.58		$	21.69

(1)		Noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities and bank owned life insurance income
(2)		See reconciliation of non-GAAP financial measures to the corresponding GAAP measurement in "Non-GAAP Financial Measures" later in this document

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $28.9 million, for the third quarter of 2022, a $2.2 million increase, or 8% over the third quarter of 2021, but decreased $2.2 million, or 3%, to $80.3 million for the first nine months of 2022 relative to the same period in 2021.

For the third quarter of 2022, growth in average interest-earning assets totaled $119.1 million, or 4%, as compared to the third quarter of 2021. The yield on these balances was 42 basis points higher for the same period due mostly to a shift in the mix of earning assets and the result of recent interest rate increases by the Federal Open Market Committee. This increase in yield was offset by a 40 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 decreased $2.2 million, or 3%, due to a change in mix of average interest-earning assets. Investment balances, including overnight funds, with an average yield of 2.61% increased $360.0 million, while gross average loan balances yielding 4.30% decreased $215.4 million. The overall yield on the average balances of earning assets was 11 basis points lower for the comparative periods, exacerbated by a 21 basis point increase in interest paid on liabilities. The net impact was a 25 basis point decrease in our net interest margin for the nine-months ending September 30, 2022, as compared to the same period in 2021.

The increase in investments includes a net increase of $181.9 million of exclusively AAA and AA tranches of collateralized loan obligations, for a total cost basis of $514.7 million at September 30, 2022. The average yield on such CLOs for September 2022 was 4.6% as compared to an average yield in December 2021 of 1.5%.

Interest expense was $3.0 million for the third quarter of 2022, an increase of $2.1 million, relative to the third quarter of 2021. For the first nine months of 2022, compared to the same period in 2021, interest expense increased $3.2 million to $6.0 million. The significant increase in interest expense is attributable to an unfavorable shift in deposit mix and the impact of recent interest rate increases, as the average balance of higher cost time deposits, including variable rate time deposits and borrowed funds increased by $20.4 million and $125.9 million respectively in the third quarter of 2022 as compared to the third quarter of 2021. For the year-to-date comparisons the increase is attributable to a $106.1 million increase in borrowed funds combined with the impact of recent interest rate increases.

The Company had $1.3 billion in adjustable and variable rate loans and $499.4 million in floating rate collateralized loan obligations, as compared to $279.5 million in floating rate CDs and $35.4 million in floating rate trust preferred securities at September 30, 2022. $236.0 million of the Company’s adjustable and variable rate loans have the ability to reprice in the next twelve months.

The Company continues to offer floating rate CDs which are indexed to prime. These floating rate CDs increased $40.6 million, or 17%, to $279.5 million at September 30, 2022, as compared to $238.9 million at December 31, 2021. Due to the increase in the prime rate during 2022, interest expense on floating rate CDs has increased $1.1 million for the third quarter of 2022 over the third quarter of 2021, and increased $1.3 million for the first nine months of 2022 as compared to the same period in 2021. These CDs require a minimum balance and pay a rate that is 325 – 400 basis points below the Wall Street Journal Prime rate, with a 20 basis point minimum rate.

Our net interest margin was 3.63% for the third quarter of 2022, as compared to 3.40% for the linked quarter and 3.46% for the third quarter of 2021.

Provision for Loan and Lease Losses

The Company recorded a provision for credit losses on loans and leases of $1.2 million in the third quarter of 2022 relative to a benefit of $0.6 million in the third quarter of 2021, and a year-to-date provision for credit losses on loans and leases of $4.4 million in 2022 as compared to a benefit of $2.5 million for the same period in 2021. The Company's $1.8 million increase in the provision for credit losses on loans and leases in the third quarter of 2022 as compared to the third quarter of 2021, and the $6.8 million year to date increase in the provision for credit losses on loans and leases, compared to the same period in 2021 was primarily due to the impact of $4.3 million in net charge-offs in the first nine months of 2022. The increase in the provision for credit losses on loans and leases for the third quarter of 2022 was principally from an $1.2 million increase to the specific reserve on a single dairy relationship while the increase in the provision for credit losses on loans and leases year-to-date also included a charge off on the same loan relationship combined with 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.

Noninterest Income

Total noninterest income decreased $0.9 million, or 12%, for the quarter ended September 30, 2022, as compared to the same quarter in 2021, and increased $2.1 million, or 10% for the year-to-date period ended September 30, 2022 as compared to the same period in 2021. The quarterly and year-to-date comparisons were primarily impacted by unfavorable fluctuations in income on bank-owned life insurance (BOLI) with underlying investments mapped directly to the Company’s deferred compensation plan. The year-to-date increases were favorably impacted by a $1.0 million gain on the sale of debt securities and $3.6 million from gains on the sale of other assets.

Service charges on customer deposit account income were relatively unchanged in the third quarter of 2022 as compared to the third quarter of 2021, however for the year-to-date comparison there was a $0.8 million increase primarily due to increases in overdraft and analysis fee income.

Noninterest Expense

Total noninterest expense increased by $0.1 million, or 1%, in the third quarter of 2022 relative to the third quarter of 2021, and by $1.9 million, or 3%, in the first nine months of 2022 as compared to the same period in 2021.

Salaries and Benefits were $0.9 million, or 9%, higher in the third quarter of 2022 as compared to the third quarter of 2021 and $2.9 million, or 9%, higher for the first nine months of 2022 compared to the same period in 2021. The reason for this increase is primarily due to increased salary expense due to the strategic hiring of lending and management staff for both the quarterly and year-to-date comparisons. There were 500 full-time equivalent employees at September 30, 2022 as compared to 482 at September 30, 2021.

Occupancy expenses were $0.1 million higher for the third quarter of 2022 as compared to the same quarter in 2021 and $0.3 million lower for the first nine months of 2022 as compared to the same period in 2021. The primary reason for increase in the quarterly comparisons was from increases in utility rate and usage. For the year-to-date comparison the decreases came from the closure of five branch facilities in 2021.

Other noninterest expense decreased $0.9 million, or 11%, for the third quarter 2022 as compared to the third quarter in 2021, and decreased $0.7 million, or 3% for the first nine months of 2022 as compared to the same period in 2021. The variances for the third quarter of 2022 compared to the same period in 2021 was primarily driven by a decrease of $0.5 million in legal costs, a $0.7 million favorable variance in directors deferred compensation expense, linked to the changes in BOLI income, and lower telecommunications costs. For the year-over-year comparison, the categories of increase were the same as with the quarterly comparison, along with a $0.3 million decrease in consultant expenses partially offset by increases in hiring and recruiting costs, and a $0.7 million restitution payment to customers charged nonsufficient fund fees in the past five years for representments.

The Company's provision for income taxes was 25.1% of pre-tax income in the third quarter of 2022 relative to 24.1% in the third quarter of 2021, and 26.1% of pre-tax income for the first nine months of 2022 relative to 25.0% for the same period in 2021. The increase in effective tax rate in the third quarter of 2022 and year-to-date comparisons 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 unfavorable changes in bank-owned life insurance with investments linked to the Company’s deferred compensation plan.

Balance Sheet Summary

Balance sheet changes during the first nine months of 2022 include an increase in total assets of $161.3 million, or 5%, primarily a result of a $252.3 million increase in investments securities, partially offset by a $170.8 million decrease in cash and due from banks.

The increase in investment securities of $252.3 million for the year-to-date period consisted primarily of increases in municipal bonds of $65.8 million, corporate securities of $25.8 million, and AAA and AA tranches of collateralized loan obligations of $167.2 million, partially offset by decreases in government and agency securities, including mortgage-backed securities and collateralized mortgage obligations of $6.4 million.

Gross loan balances increased $30.6 million during the first nine months of 2022, as compared to December 31, 2021. The increase was primarily a result of an increase in 1-4 family residential real estate loans, mostly from the purchase of $173.1 million in high quality jumbo mortgage loans. Other positive variances from organic growth included a $10.7 million increase in ag real estate, a $16.2 million increase in multi-family real estate, and an increase of $4.3 million in commercial real estate. 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 $28.4 million net decrease in construction loans, a $40.5 million decrease in commercial and industrial loans, and a $54.6 million unfavorable variance in mortgage warehouse loans. Further, SBA PPP loan forgiveness resulted in a $27.6 million decline in loan balances, included in the commercial and industrial variance noted above.

As indicated in the loan roll forward below, new credit extended for the third quarter of 2022 increased $78.3 million over the same period in 2021, and increased $132.1 million for the year-to-date comparisons. This organic loan growth is attributable to the new agricultural and commercial real estate lending teams added earlier this year. Contributing to our organic growth, loans purchased during the first nine months of 2022 totaled $173.1 million, however we had $267.7 million in loan paydowns and maturities, along with a $54.6 million decrease in mortgage warehouse line utilization and a $45.2 million decrease in line of credit utilization.

LOAN ROLLFORWARD
(Dollars in Thousands, Unaudited)
		For the three months ended:												For the nine months ended:
			September 30, 2022				June 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
Gross loans beginning balance		$	2,022,662			$	1,983,331			$	2,144,796			$	1,989,726			$	2,463,111
New credit extended			82,958				119,553				4,656				225,054				92,950
Loan purchases			—				46,364				122,291				173,082				122,291
Changes in line of credit utilization			(7,811	)			(17,837	)			(15,852	)			(45,201	)			(55,509	)
Change in mortgage warehouse			(11,581	)			956				(23,865	)			(54,630	)			(181,192	)
Pay-downs, maturities, charge-offs and amortization (1)			(65,864	)			(109,705	)			(92,200	)			(267,667	)			(301,825	)
Gross loans ending balance			2,020,364				2,022,662				2,139,826				2,020,364				2,139,826
Deferred costs and (fees), net			(348	)			(1,081	)			(2,612	)			(348	)			(2,612	)
Loans, net of deferred costs and (fees)		$	2,020,016			$	2,021,581			$	2,137,214			$	2,020,016			$	2,137,214

(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 $228.4 million at September 30, 2022, compared to $219.6 million at December 31, 2021. Total line utilization, excluding mortgage warehouse and overdraft lines, was 58% at September 30, 2022 and 61% at December 31, 2021 and was 33% at September 30, 2022 and 52% at December 31, 2021, including mortgage warehouse lines. Mortgage warehouse utilization declined significantly to 9% at September 30, 2022, as compared to 28% at December 31, 2021.

PPP loans continue to decline as borrowers receive forgiveness on these loans. There were 43 loans for $3.6 million outstanding at September 30, 2022, compared to 440 loans for $31.8 million at December 31, 2021.

Deposit balances reflect growth of $103.9 million, or 4%, during the first nine months of 2022. Core non-maturity deposits increased by $45.5 million, or 2%, while customer time deposits increased by $38.4 million, or 13%. Wholesale brokered deposits increased by $20.0 million, or 33%. Overall noninterest-bearing deposits as a percent of total deposits at September 30, 2022, were 38.8%, as compared to 39.0% at December 31, 2021.

Other interest-bearing liabilities of $215.1 million on September 30, 2022, consists of $112.0 million in customer repurchase agreements and $103.1 million of overnight FHLB borrowings. Other interest-bearing liabilities at December 31, 2021 consisted exclusively of $106.9 million in customer repurchase agreements.

The Company continues to have substantial liquidity. At September 30, 2022, and December 31, 2021, the Company had the following sources of primary and secondary liquidity (Dollars in Thousands, Unaudited):

Primary and secondary liquidity sources			September 30, 2022			December 31, 2021
Cash and cash equivalents		$	86,683		$	257,528
Unpledged investment securities			1,041,115			806,132
Excess pledged securities			34,606			47,024
FHLB borrowing availability			724,047			787,519
Unsecured lines of credit			305,000			305,000
Funds available through fed discount window			34,235			50,608
Totals		$	2,225,686		$	2,253,811

Total capital of $295.1 million at September 30, 2022 reflects a decrease of $67.4 million, or 19%, relative to year-end 2021. The decrease in equity during the first nine months of 2022 was due to the addition of $26.5 million in net income, offset by a $72.2 million unfavorable swing in accumulated other comprehensive income/loss, due principally to changes in investment securities’ fair value, a one-time adjustment from the implementation of CECL on January 1, 2022, for $7.3 million, $4.9 million in share repurchases, net of $10.4 million in dividends paid. The remaining difference is related to stock options exercised and restricted stock granted during the first nine months.

Asset Quality

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, increased by $22.2 million to $26.8 million for the first nine months of 2022. The Company's ratio of nonperforming loans to gross loans increased to 1.33% at September 30, 2022 from 0.23% at December 31, 2021. The increase resulted from an increase in non-accrual loan balances, primarily as a result of a downgrade in the first quarter of 2022 of one loan relationship in the dairy industry consisting of four separate loans. All of 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 based primarily on recent independent appraisals.

The Company's allowance for credit losses on loans and leases was $23.8 million at September 30, 2022, as compared to $14.3 million at December 31, 2021. The $9.5 million increase in the allowance for credit losses on loans and leases during the first nine months of 2022 is due to a $9.5 million one-time adjustment from the implementation of CECL on January 1, 2022, a $4.4 million provision for credit losses on loans and leases, and net loan charge-offs of $4.3 million.

The allowance for credit losses on loans and leases was 1.18% of gross loans at September 30, 2022, and 0.72% of gross loans at December 31, 2021. 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, 2022, 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 45^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, an SBA center, and a dedicated loan production office in Roseville, California. In 2022, 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.

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, 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, loan portfolio performance, 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			9/30/2022				6/30/2022				3/31/2022				12/31/2021				9/30/2021
Cash and due from banks		$	86,683			$	161,875			$	253,534			$	257,528			$	422,350
Investment securities
Available-for-sale, at fair value			1,069,434				864,178				1,025,032				973,314				732,312
Held-to-maturity, at amortized cost, net of allowance for credit losses			156,211				161,399				-				-				-
Real estate loans
1-4 family residential construction			-				5,542				8,800				21,369				34,720
Other construction/land			18,315				20,816				24,633				25,299				25,512
1-4 family - closed-end			420,136				429,109				398,871				289,457				220,240
Equity lines			21,126				25,260				23,389				26,588				31,341
Multi-family residential			69,665				66,367				59,711				53,458				55,628
Commercial real estate - owner occupied			324,696				312,060				331,764				334,446				345,116
Commercial real estate - non-owner occupied			896,954				898,159				857,051				882,888				995,921
Farmland			117,385				101,675				98,865				106,706				124,446
Total real estate loans			1,868,277				1,858,988				1,803,084				1,740,211				1,832,924
Agricultural production loans			31,290				28,660				31,663				33,990				43,296
Commercial and industrial			70,147				72,616				87,173				109,791				132,292
Mortgage warehouse lines			46,553				58,134				57,178				101,184				126,486
Consumer loans			4,097				4,264				4,233				4,550				4,828
Gross loans and leases			2,020,364				2,022,662				1,983,331				1,989,726				2,139,826
Deferred loan and lease fees			(348	)			(1,081	)			(1,200	)			(1,865	)			(2,612	)
Allowance for credit losses on loans and leases			(23,790	)			(22,802	)			(22,530	)			(14,256	)			(15,617	)
Net loans and leases			1,996,226				1,998,779				1,959,601				1,973,605				2,121,597
Bank premises and equipment			22,688				22,937				23,239				23,571				24,490
Other assets			201,047				187,467				157,448				142,996				141,990
Total assets		$	3,532,289			$	3,396,635			$	3,418,854			$	3,371,014			$	3,442,739
LIABILITIES AND CAPITAL
Noninterest demand deposits		$	1,118,245			$	1,120,413			$	1,104,691			$	1,084,544			$	1,111,411
Interest-bearing transaction accounts			732,468				736,034				776,457				744,553				765,823
Savings deposits			481,882				482,140				480,178				450,785				451,248
Money market deposits			140,620				152,596				149,918				147,793				141,348
Customer time deposits			332,253				299,816				293,699				293,897				290,816
Wholesale brokered deposits			80,000				60,000				60,000				60,000				60,000
Total deposits			2,885,468				2,850,999				2,864,943				2,781,572				2,820,646
Long-term debt			49,196				49,173				49,151				49,141				49,221
Subordinated debentures			35,436				35,392				35,347				35,302				35,258
Other interest-bearing liabilities			215,112				118,014				107,760				106,937				92,553
Total deposits and interest-bearing liabilities			3,185,212				3,053,578				3,057,201				2,972,952				2,997,678
Allowance for credit losses on unfunded loan commitments			940				893				1,040				203				203
Other liabilities			51,065				43,117				34,922				35,365				80,351
Total capital			295,072				299,047				325,691				362,494				364,507
Total liabilities and capital		$	3,532,289			$	3,396,635			$	3,418,854			$	3,371,014			$	3,442,739

GOODWILL AND INTANGIBLE ASSETS
(Dollars in Thousands, Unaudited)
			9/30/2022				6/30/2022				3/31/2022				12/31/2021				9/30/2021
Goodwill		$	27,357			$	27,357			$	27,357			$	27,357			$	27,357
Core deposit intangible			2,517				2,769				3,022				3,275				3,527
Total intangible assets		$	29,874			$	30,126			$	30,379			$	30,632			$	30,884
CREDIT QUALITY
(Dollars in Thousands, Unaudited)
			9/30/2022				6/30/2022				3/31/2022				12/31/2021				9/30/2021
Non-accruing loans		$	26,772			$	29,745			$	30,446			$	4,522			$	6,788
Foreclosed assets			-				2				93				93				93
Total nonperforming assets		$	26,772			$	29,747			$	30,539			$	4,615			$	6,881
Performing TDR's (not included in NPA's)		$	4,639			$	4,714			$	4,568			$	4,910			$	5,509
Net (recoveries) / charge offs		$	4,280			$	4,056			$	1,778			$	(168	)		$	(329	)
Past due & still accruing (30-89)		$	1,242			$	1,037			$	2,809			$	2,013			$	380
Non-performing loans to gross loans			1.33	%			1.47	%			1.54	%			0.23	%			0.32	%
NPA's to loans plus foreclosed assets			1.33	%			1.47	%			1.54	%			0.23	%			0.32	%
Allowance for credit losses on loans and leases to loans			1.18	%			1.13	%			1.14	%			0.72	%			0.73	%
SELECT PERIOD-END STATISTICS
(Unaudited)
			9/30/2022				6/30/2022				3/31/2022				12/31/2021				9/30/2021
Shareholders' equity / total assets			8.4	%			8.8	%			9.5	%			10.8	%			10.6	%
Gross loans / deposits			70.0	%			70.9	%			69.2	%			71.5	%			75.9	%
Non-interest bearing deposits / total deposits			38.8	%			39.3	%			38.6	%			39.0	%			39.4	%

CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Unaudited)			For the three months ended:												For the nine months ended:
			9/30/2022				6/30/2022				9/30/2021				9/30/2022				9/30/2021
Interest income		$	31,928			$	28,206			$	27,629			$	86,216			$	85,179
Interest expense			3,017				1,621				913				5,963				2,719
Net interest income			28,911				26,585				26,716				80,253				82,460
Provision / (benefit) for credit losses on loans and leases			1,212				2,548				(600	)			4,360				(2,450	)
Provision / (benefit) for credit losses on unfunded loan commitments			47				(147	)			-				(194	)			-
Provision for credit losses on held-to-maturity securities			-				18				-				18				-
Net interest income after provision			27,652				24,166				27,316				76,069				84,910
Service charges			3,216				3,204				3,186				9,460				8,677
BOLI (expense) income			(23	)			(582	)			1,048				(1,251	)			2,445
Gain on sale of investments			-				-				11				1,032				11
Other noninterest income			3,419				7,817				3,290				13,873				9,844
Total noninterest income			6,612				10,439				7,535				23,114				20,977
Salaries and benefits			11,521				11,745				10,618				35,070				32,194
Occupancy expense			2,470				2,406				2,359				7,170				7,472
Other noninterest expenses			7,005				7,962				7,898				21,042				21,715
Total noninterest expense			20,996				22,113				20,875				63,282				61,381
Income before taxes			13,268				12,492				13,976				35,901				44,506
Provision for income taxes			3,333				3,288				3,371				9,355				11,115
Net income		$	9,935			$	9,204			$	10,605			$	26,546			$	33,391
TAX DATA
Tax-exempt muni income		$	2,346			$	1,854			$	1,578			$	5,926			$	4,539
Interest income - fully tax equivalent		$	32,552			$	28,699			$	28,048			$	87,791			$	86,386

PER SHARE DATA
(Unaudited)			For the three months ended:									For the nine months ended:
			9/30/2022			6/30/2022			9/30/2021			9/30/2022			9/30/2021
Basic earnings per share		$	0.66		$	0.62		$	0.70		$	1.77		$	2.19
Diluted earnings per share		$	0.66		$	0.61		$	0.69		$	1.76		$	2.17
Common dividends		$	0.23		$	0.23		$	0.22		$	0.69		$	0.65
Weighted average shares outstanding			14,954,503			14,931,701			15,257,367			14,968,242			15,247,477
Weighted average diluted shares			15,014,048			15,004,017			15,343,543			15,046,883			15,369,249
Book value per basic share (EOP)		$	19.56		$	19.82		$	23.70		$	19.56		$	23.70
Tangible book value per share (EOP)		$	17.58		$	17.82		$	21.69		$	17.58		$	21.69
Common shares outstanding (EOP)			15,085,675			15,090,792			15,382,518			15,085,675			15,382,518
KEY FINANCIAL RATIOS
(Unaudited)			For the three months ended:									For the nine months ended:
			9/30/2022			6/30/2022			9/30/2021			9/30/2022			9/30/2021
Return on average equity			12.84%			11.68%			11.62%			10.98%			12.60%
Return on average assets			1.13%			1.07%			1.26%			1.03%			1.36%
Net interest margin (tax-equivalent)			3.63%			3.40%			3.46%			3.41%			3.66%
Efficiency ratio (tax-equivalent)¹			58.10%			59.19%			59.78%			61.10%			58.29%
Net charge offs (recoveries) to avg loans (not annualized)			0.01%			0.11%			0.01%			0.21%			(0.01)%

(1)		Noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities and bank owned life insurance income.

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
(Unaudited)
			9/30/2022			6/30/2022			9/30/2021
Total stockholders' equity		$	295,072		$	299,047		$	364,507
Less: goodwill and other intangible assets			29,874			30,126			30,884
Tangible common equity		$	265,198		$	268,921		$	333,623
Total assets		$	3,532,289		$	3,396,635		$	3,442,739
Less: goodwill and other intangible assets			29,874			30,126			30,884
Tangible assets		$	3,502,415		$	3,366,509		$	3,411,855
Common shares outstanding			15,085,675			15,090,792			15,382,518
Book value per common share		$	19.56		$	19.82		$	23.70
Tangible book value per common share		$	17.58		$	17.82		$	21.69
Equity ratio - GAAP (total stockholders' equity / total assets			8.35%			8.80%			10.59%
Tangible common equity ratio (tangible common equity / tangible assets)			7.57%			7.99%			9.78%

NONINTEREST INCOME/EXPENSE
(Dollars in Thousands, Unaudited)
			For the three months ended:												For the nine months ended:
Noninterest income:			9/30/2022				6/30/2022				9/30/2021				9/30/2022			9/30/2021
Service charges on deposit accounts		$	3,216			$	3,204			$	3,186			$	9,460			$	8,677
Debit card fees			2,241				2,161				2,192				6,458				6,321
Bank-owned life insurance			(23	)			(582	)			1,048				(1,251	)			2,445
Other service charges and fees			741				732				708				2,205				2,190
Gain on sale of securities			—				—				11				1,032				11
Loss on tax credit investment			64				(113	)			(144	)			(162	)			(390	)
Other			373				5,037				534				5,372				1,723
Total noninterest income		$	6,612			$	10,439			$	7,535			$	23,114			$	20,977
As a % of average interest earning assets (1)			0.81	%			1.31	%			0.96	%			0.96	%			0.91	%
Noninterest expense:
Salaries and employee benefits		$	11,521			$	11,745			$	10,618			$	35,070			$	32,194
Occupancy costs
Furniture & equipment			399				511				406				1,363				1,312
Premises			2,071				1,895				1,953				5,807				6,160
Advertising and marketing costs			466				449				370				1,322				982
Data processing costs			1,564				1,525				1,470				4,574				4,409
Deposit services costs			2,450				2,417				2,402				7,112				6,752
Loan services costs
Loan processing			128				186				109				426				343
Foreclosed assets			(3	)			92				(19	)			84				78
Other operating costs
Telephone & data communications			358				377				534				1,179				1,582
Postage & mail			47				223				60				326				253
Other			507				1,447				470				2,374				1,269
Professional services costs
Legal & accounting services			535				673				966				1,753				2,091
Director's deferred compensation			(143	)			(504	)			531				(1,192	)			1,133
Other professional service			855				763				789				2,306				2,086
Stationery & supply costs			114				116				107				315				259
Sundry & tellers			127				198				109				463				478
Total noninterest expense		$	20,996			$	22,113			$	20,875			$	63,282			$	61,381
As a % of average interest earning assets (1)			2.58	%			2.78	%			2.66	%			2.64	%			2.67	%
Efficiency ratio (2)(3)			58.10	%			59.19	%			59.75	%			61.10	%			58.30	%

(1)		Annualized
(2)		Tax equivalent
(3)		Noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities and bank owned life insurance income.

AVERAGE BALANCES AND RATES
(Dollars in Thousands, Unaudited)
		For the quarter ended				For the quarter ended				For the quarter ended
		September 30, 2022				June 30, 2022				September 30, 2021
		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		$ 21,845	$ 103	1.87%		$ 146,287	$ 270	0.74%		$ 379,597	$ 146	0.15%
Taxable		851,683	7,646	3.56%		752,693	4,477	2.39%		389,524	1,679	1.71%
Non-taxable		336,567	2,346	3.50%		284,198	1,854	3.31%		259,996	1,578	3.05%
Total investments		1,210,095	10,095	3.51%		1,183,178	6,601	2.40%		1,029,117	3,403	1.47%
Loans and leases: (3)
Real estate		1,862,738	19,808	4.22%		1,844,367	19,659	4.28%		1,775,611	20,805	4.65%
Agricultural production		29,724	274	3.66%		30,466	232	3.05%		43,243	410	3.76%
Commercial		75,482	973	5.11%		80,533	980	4.88%		140,105	1,796	5.09%
Consumer		4,228	132	12.39%		4,264	207	19.47%		4,862	205	16.73%
Mortgage warehouse lines		46,969	623	5.26%		49,884	493	3.96%		118,036	982	3.30%
Other		2,349	23	3.88%		2,354	34	5.79%		1,463	28	7.59%
Total loans and leases		2,021,490	21,833	4.28%		2,011,868	21,605	4.31%		2,083,320	24,226	4.61%
Total interest earning assets (4)		3,231,585	$ 31,928	4.00%		3,195,046	$ 28,206	3.60%		3,112,437	$ 27,629	3.58%
Other earning assets		15,717				15,628				15,713
Non-earning assets		255,529				239,803				212,116
Total assets		$ 3,502,831				$ 3,450,477				$ 3,340,266
Liabilities and shareholders' equity
Interest bearing deposits:
Demand deposits		$ 197,731	$ 131	0.26%		$ 221,322	$ 120	0.22%		$ 148,175	$ 86	0.23%
NOW		531,205	80	0.06%		542,915	82	0.06%		605,620	115	0.08%
Savings accounts		485,167	73	0.06%		480,654	70	0.06%		443,406	63	0.06%
Money market		151,816	25	0.07%		155,574	23	0.06%		139,433	26	0.07%
Time deposits		313,764	1,377	1.74%		295,850	441	0.60%		293,379	248	0.31%
Wholesale brokered deposits		63,529	75	0.47%		60,000	48	0.32%		72,283	53	0.29%
Total interest bearing deposits		1,743,212	1,761	0.40%		1,756,315	784	0.18%		1,702,296	591	0.14%
Borrowed funds:
Other interest-bearing liabilities		159,530	390	0.98%		112,586	77	0.27%		79,132	41	0.21%
Long-term debt		49,182	427	3.44%		49,160	430	3.51%		3,812	38	3.95%
Subordinated debentures		35,409	439	4.92%		35,365	330	3.74%		35,229	243	2.74%
Total borrowed funds		244,121	1,256	2.04%		197,111	837	1.70%		118,173	322	1.08%
Total interest bearing liabilities		1,987,333	3,017	0.60%		1,953,426	1,621	0.33%		1,820,469	913	0.20%
Demand deposits - noninterest bearing		1,140,840				1,132,601				1,104,506
Other liabilities		67,603				48,458				53,134
Shareholders' equity		307,055				315,992				362,157
Total liabilities and shareholders' equity		$ 3,502,831				$ 3,450,477				$ 3,340,266
Interest income/interest earning assets				4.00%				3.60%				3.58%
Interest expense/interest earning assets				0.37%				0.20%				0.12%
Net interest income and margin (5)			$ 28,911	3.63%			$ 26,585	3.40%			$ 26,716	3.46%

(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 $0.1 million and $1.0 million for the quarters ended September 30, 2022 and 2021, respectively, and $0.4 million for the quarter ended June 30, 2022.
(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, 2022									September 30, 2021
		Average Balance (1)			Income/ Expense			Yield/ Rate (2)		Average Balance (1)			Income/ Expense			Yield/ Rate (2)
Assets
Investments:
Interest-earning due from banks		$	120,359		$	466		0.52%		$	255,962		$	250		0.13%
Taxable			783,384			15,613		2.66%			351,109			4,835		1.84%
Non-taxable			305,212			5,926		3.29%			241,866			4,539		3.18%
Total investments			1,208,955			22,005		2.61%			848,937			9,624		1.71%
Loans and leases:(3)
Real estate		$	1,820,568		$	57,792		4.24%		$	1,826,476		$	63,211		4.63%
Agricultural			31,376			809		3.45%			44,441			1,237		3.72%
Commercial			84,301			3,351		5.31%			165,916			6,371		5.13%
Consumer			4,313			545		16.89%			5,085			594		15.62%
Mortgage warehouse lines			52,650			1,626		4.13%			167,293			4,061		3.25%
Other			2,066			88		5.69%			1,503			81		7.21%
Total loans and leases			1,995,274			64,211		4.30%			2,210,714			75,555		4.57%
Total interest earning assets (4)			3,204,229			86,216		3.66%			3,059,651			85,179		3.77%
Other earning assets			15,675								14,817
Non-earning assets			235,516								207,523
Total assets		$	3,455,420							$	3,281,991
Liabilities and shareholders' equity
Interest bearing deposits:
Demand deposits		$	207,319		$	357		0.23%		$	147,000		$	251		0.23%
NOW			540,078			243		0.06%			592,177			332		0.07%
Savings accounts			477,904			210		0.06%			419,861			175		0.06%
Money market			152,912			71		0.06%			138,408			86		0.08%
Time deposits			301,173			2,053		0.91%			347,253			798		0.59%
Brokered deposits			61,189			172		0.38%			88,132			176		0.27%
Total interest bearing deposits			1,740,575			3,106		0.24%			1,732,831			1,818		0.14%
Borrowed funds:
Other interest-bearing liabilities			125,985			549		0.58%			67,981			127		0.39%
Long-term debt			49,162			1,284		3.49%			1,285			38		3.95%
Subordinated debentures			35,365			1,024		3.87%			35,186			736		2.80%
Total borrowed funds			210,512			2,857		1.81%			104,452			901		1.15%
Total interest bearing liabilities			1,951,087			5,963		0.41%			1,800,812			2,719		0.20%
Demand deposits - noninterest bearing			1,122,556								1,045,179
Other liabilities			58,393								45,191
Shareholders' equity			323,384								354,338
Total liabilities and shareholders' equity		$	3,455,420							$	3,281,991
Interest income/interest earning assets								3.66%								3.77%
Interest expense/interest earning assets								0.25%								0.11%
Net interest income and margin(5)					$	80,253		3.41%					$	82,460		3.66%

(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 $0.9 million and $3.4 million for the nine months ended September 30, 2022 and 2021, 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/20221024005123/en/

Kevin McPhaill, President/CEO

(559) 782‑4900 or (888) 454‑BANK

www.sierrabancorp.com

Source: Sierra Bancorp

FAQ

What are Sierra Bancorp's earnings for Q3 2022?

Sierra Bancorp reported Q3 2022 net income of $9.9 million, or $0.66 per diluted share.

How does Sierra Bancorp's net income for the first nine months of 2022 compare to 2021?

For the first nine months of 2022, Sierra Bancorp's net income was $26.5 million, down from $33.4 million in 2021.

What was the provision for credit losses for Sierra Bancorp in Q3 2022?

Sierra Bancorp recorded a provision for credit losses of $1.2 million in Q3 2022.

How much did Sierra Bancorp's deposits grow in 2022?

Sierra Bancorp's deposits increased by $103.9 million, or 4%, to $2.9 billion in 2022.

What is the current asset size of Sierra Bancorp?

As of September 30, 2022, Sierra Bancorp's total assets were $3.5 billion.