Sierra Bancorp Reports First Quarter 2024 Results

Rhea-AI Summary

Sierra Bancorp (Nasdaq: BSRR) reported consolidated net income of $9.3 million for the first quarter of 2024, showing a 48% increase from the prior quarter. Return on average assets and return on average equity improved to 1.06% and 11.09%, respectively. Loan and deposit growth, strong asset quality, and capital liquidity were highlighted. The completion of balance sheet restructuring led to improved earnings and future earnings potential.

Positive

• Positive: Consolidated net income increased by 48% to $9.3 million in the first quarter of 2024 compared to the prior linked quarter. Return on average assets improved to 1.06% from 0.67% in the previous quarter. Return on average equity also increased to 11.09% from 8.03% in the prior linked quarter. Loan growth of $66.8 million, or 13% annualized, and deposit growth of $85.8 million, or 12% annualized, were reported. Total nonperforming assets were at 0.66% of total gross loans. Strong capital and liquidity positions were maintained, with tangible book value per share increasing by 3% to $21.61 per share.
• Negative: The total assets decreased by $176.7 million, or 5%, during the first quarter of 2024 due to a strategic sale of lower-yielding investment securities, leading to a decline in gross loans. Noninterest income decreased by $0.3 million due to lower service charges and fees on deposit accounts. The company recorded a provision for credit losses of $0.1 million, a reduction from $3.5 million in the prior linked quarter.

Negative

• Although the decrease in total assets was strategic, it led to a reduction in investment securities and a decline in gross loans.
• Lower service charges and fees on deposit accounts contributed to a decrease in noninterest income.
• The provision for credit losses decreased to $0.1 million in the first quarter of 2024, signaling improved credit quality but still a potential area of concern.

Insights

Financial Analyst

Sierra Bancorp's first quarter financials reflect a robust performance, with net income climbing to $9.3 million, an increase from the previous year. The growth is partially attributed to a $0.6 million uptick in net interest income, following strategic balance sheet adjustments that lowered borrowing costs. This maneuver seems to have successfully counteracted the higher deposit costs that banks are facing in the current rate environment. Observing the key profitability metrics, the return on average assets (ROAA) improved to 1.06%, paralleled by a solid return on average equity (ROAE) of 11.09%. These figures are indicative of efficient asset utilization and shareholder equity management, despite a slight dip in ROAE from last year's numbers. The 13% annualized loan growth and a similar rate for deposit expansion also stand out, showcasing the bank's assertive stance in expanding its core operations amidst competitive market conditions.

Market Research Analyst

The strategic decision to engage in balance sheet restructuring, characterized by the sale of $196.7 million in lower-yield investments early in the year, demonstrates Sierra Bancorp’s agility in responding to the dynamic interest rate landscape. This aggressive reshaping of assets, aimed at reducing costlier borrowings, may signal a forward-looking approach to more sustainable profitability in the face of margin compression. Their enhanced liquidity position, boasting robust primary and secondary liquidity sources totaling $2.5 billion, offers a cushion against market volatilities and positions the bank favorably for opportunistic growth moves. Furthermore, the bank's commitment to loan and deposit growth, with a 13% annualized increase in both domains, could be seen as a bullish indicator of their market penetration and customer acquisition strategies.

Banking Industry Expert

From an industry perspective, Sierra Bancorp's focus on maintaining solid asset quality is commendable. The reported total nonperforming assets at a modest 0.66% of total gross loans align with conservative banking practices, suggesting a well-managed credit portfolio. The provision for loan losses has notably decreased from the prior quarter, reflecting confidence in asset quality despite an uptick in nonperforming assets due to a specific dairy industry loan. This indicates a specific rather than systemic issue, which is less concerning from a risk standpoint. The bank's regulatory Commercial Real Estate concentration ratio of 248% and the strategic decline in commercial real estate over the past three years highlights a deliberate diversification strategy. In light of the competitive and regulatory pressures faced by community banks, Sierra Bancorp’s strong capital position, with a Community Bank Leverage Ratio of 11.6%, presents a robust defense against potential economic downturns. Their capital management strategy, including share repurchases and a steady dividend payout, suggests a balanced approach to delivering shareholder value while retaining sufficient capital for growth and stability.

PORTERVILLE, Calif.--(BUSINESS WIRE)-- Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the quarter ended March 31, 2024. Sierra Bancorp reported consolidated net income of $9.3 million, or $0.64 per diluted share, for the first quarter of 2024 compared to $8.8 million, or $0.58 per diluted share, in the first quarter of 2023. The favorable variance in net income came largely from a $0.6 million increase in net interest income due mostly to a $0.7 million decline in other borrowing costs as a result of the strategic balance sheet restructuring during the quarter. The Company's return on average assets and return on average equity was 1.06% and 11.09%, respectively, in the first quarter of 2024 as compared to 0.97% and 11.53%, respectively, in the first quarter of 2023.

Highlights for the first quarter of 2024:

• Improved Earnings
  • Net Income of $9.3 million, up 48% versus the fourth quarter of 2023 (the prior linked quarter).
  • Improved Return on Average Assets to 1.06% from 0.67% in the prior linked quarter.
  • Increased Return on Average Equity to 11.09% from 8.03% in the prior linked quarter.
  • Improved Net Interest Margin to 3.62% from 3.31% in the prior linked quarter.
• Solid Asset Quality
  • Total Nonperforming Assets at 0.66% of total gross loans.
  • Provision for loan loss of $0.1 million, a reduction of $3.5 million from the prior linked quarter.
  • Regulatory Commercial Real Estate concentration ratio of 248%, and a 13% decline in total commercial real estate the past three years.
• Loan and Deposit Growth
  • Loan growth of $66.8 million, or 13% annualized, during the first quarter of 2024.
  • Total deposits increased by $85.8 million, or 12% annualized, during the first quarter of 2024.
  • Noninterest-bearing deposits of $969.0 million at March 31, 2024, represent 34% of total deposits.
  • Uninsured deposits are approximately 28% of total deposit balances.
• Strong Capital and Liquidity
  • Increased Tangible Book Value (non-GAAP) per share by 3% to $21.61 per share during the quarter.
  • Strong regulatory Community Bank Leverage Ratio of 11.6% for our subsidiary bank.
  • Tangible Common Equity Ratio (non-GAAP) of 9.0% on a consolidated basis and 10.6% for our subsidiary bank.
  • Repurchased 178,937 shares of stock during the quarter.
  • Dividend declared of $0.23 per share, payable on May 13, 2024.
  • Overall primary and secondary liquidity sources of $2.5 billion at March 31, 2024.
• Completion of Balance Sheet Restructuring to Improve Future Earnings
  • Completed initial sale of $196.7 million in investments in early January 2024.
    • Bonds sold had a weighted average yield of 2.61%.
    • Proceeds from bond sale were used to pay down short-term borrowings.
  • Sold an additional $53.9 million in bonds in late March 2024.
    • Bonds sold had a weighted average yield of 3.02%.
    • Proceeds from bond sale will be used to fund anticipated loan growth.

“Each fresh peak ascended teaches something.” – Sir Martin Conway

“Our first quarter results demonstrate our strength and commitment to banking fundamentals coupled with strategic repositioning, especially in this challenging rate environment that continues to affect the banking industry,” stated Kevin McPhaill, CEO and President. “Following the completion of our balance sheet restructuring last quarter, our return on assets and net interest margin both showed strong improvement this quarter. In addition, both our capital and liquidity positions strengthened. We also grew outstanding loans by 3.2% during the quarter while maintaining strong total and low-cost deposits. This is a direct result of the efforts of our banking team! Our bankers continue to understand the importance of relationship-based community banking and we are grateful for our loyal customers and communities. We are excited for the opportunities ahead in 2024 and beyond!” McPhaill concluded.

Quarterly Changes (comparisons to the first quarter of 2023)

• Net income for the first quarter of 2024 increased $0.6 million, or 7%, to $9.3 million due primarily to an increase in net interest income of $0.6 million. Additionally, the favorable change in the credit loss expense on loans and improvements in noninterest income, was mostly offset by higher noninterest expenses.
• The $0.6 million increase in net interest income for the quarter was driven by a 15 basis point increase in the net interest margin due to higher yields on investments and lower costs of borrowings, partially offset by higher deposit costs.
• Noninterest income for the first quarter of 2024 as compared to the same period in 2023 increased $2.0 million or 31%. There was a favorable variance of $1.0 million in bank owned life insurance (BOLI), a gain on the sale/leaseback of two bank owned branch buildings for $3.8 million, increases in service charges and fees on deposit accounts for $0.3 million or 6%, offset by a loss on the sale of bonds from a balance sheet restructure for $3.0 million.

Linked Quarter Changes (comparisons to the three months ended December 31, 2023)

• Net income increased by $3.0 million, or 48%, driven mostly by a $3.4 million decline in the provision for credit losses. The higher provision for credit losses in the three months ended December 31, 2023, was due to a $2.3 million charge-off related to commercial real estate.
• Net interest income increased by $0.8 million, or 3%, during the quarter due mostly to higher yields on investments and lower costs of borrowing due to the strategic balance sheet restructuring, as well as growth in mortgage warehouse loan income. These favorable variances were partially offset by higher deposit costs.
• Other expenses were $0.4 million higher in the quarter due mostly to higher deferred directors fee expense of $0.8 million (which was offset by higher BOLI income).

Balance Sheet Quarterly Changes (comparisons to December 31, 2023)

• Total assets decreased $176.7 million, or 5% to $3.6 billion, during the first three months of 2024, due mostly to a strategic sale of lower yielding investment securities, with funds received used to paydown higher cost borrowings.
• Gross loans increased $66.8 million due to a $87.6 million increase in mortgage warehouse line utilization.
• Deposits increased by $85.8 million, or 3%. The growth in deposits came from brokered deposits, as overall customer deposits decreased $50.9 million.

Other financial highlights are reflected in the following table.

FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Data, Unaudited)
			As of or for the
			three months ended
			3/31/2024			12/31/2023			3/31/2023
Net income		$	9,330		$	6,290		$	8,751
Diluted earnings per share		$	0.64		$	0.43		$	0.58
Return on average assets			1.06%			0.67%			0.97%
Return on average equity			11.09%			8.03%			11.53%
Net interest margin (tax-equivalent) (1)			3.62%			3.31%			3.47%
Yield on average loans			4.89%			4.78%			4.50%
Yield on investments			5.59%			5.35%			4.73%
Cost of average total deposits			1.38%			1.24%			0.83%
Cost of funds			1.58%			1.73%			1.15%
Efficiency ratio (tax-equivalent) (1) (2)			65.97%			67.10%			64.87%
Total assets		$	3,553,072		$	3,729,799		$	3,693,984
Loans net of deferred fees		$	2,157,078		$	2,090,384		$	2,033,992
Noninterest demand deposits		$	968,996		$	1,020,772		$	1,041,748
Total deposits		$	2,847,004		$	2,761,223		$	2,948,988
Noninterest-bearing deposits over total deposits			34.0%			37.0%			35.3%
Shareholders' equity / total assets			9.7%			9.1%			8.3%
Tangible common equity ratio (2)			9.0%			8.4%			7.6%
Book value per share		$	23.56		$	22.85		$	20.40
Tangible book value per share (2)		$	21.61		$	20.91		$	18.44
Community bank leverage ratio			11.6%			11.3%			10.7%
Tangible common equity ratio (bank only) (2)			10.6%			10.3%			9.2%

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

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $28.7 million for the first quarter of 2024, an increase of $0.8 million, or 3%, as compared to the fourth quarter of 2023 and an increase of $0.6 million, or 2%, as compared to the first quarter of 2023. This increase in interest income was due primarily to a $2.3 million decrease in interest expense due to the reduction in borrowed funds facilitated by a balance sheet restructuring, partially offset by a related decline in interest income on investments of $1.5 million, or 3%, due to the sale of low yielding investments.

For the first quarter of 2024 as compared to the same quarter in 2023, the $3.5 million increase in interest income is due primarily to a $56.8 million increase in average loan balances, as well as a 39 basis point increase in yield. However, this was partially offset by a $3.0 million increase in interest expense due to the movement of deposits from lower cost transaction accounts to higher cost time deposits including wholesale brokered deposits. Deposit costs increased 82 basis points in the first quarter of 2024 as compared to the same quarter in 2023, while there was a 35 basis points decrease in the cost of borrowed funds.

At March 31, 2024, 54% (fair value) of the Investment portfolio are variable rate AA and AAA rated collateralized loan obligations (CLOs). These securities have a market yield of 7.22% with rates that adjust quarterly. At March 31, 2024, these CLOs have a net unrealized gain of $0.5 million. These securities account for 68% of the interest income on investments in the first quarter of 2024 and were mostly purchased in 2021 and 2022 when rates were at historical lows to complement our fixed-rate earning assets.

At March 31, 2024, approximately 22% of the Bank’s loan portfolio is scheduled to mature or reprice within twelve months and an additional 13% that could reprice within three years. In addition, approximately $563.6 million, or 53.3%, of the securities portfolio consists of floating rate bonds that will reprice in less than 90 days.

Interest expense was $12.2 million for the first quarter of 2024, a $2.3 million decrease, or 16%, from the linked quarter, and an increase of $3.0 million, or 32% from the same period in 2023. The decrease in the linked quarter comparison is attributable to the strategic balance sheet restructuring that resulted in a shift from being a net purchaser of Federal Funds at December 31, 2023, to maintaining excess funds at the Federal Reserve Bank at March 31, 2024. The increase in the quarterly comparison was primarily due to an increase in rates paid on customer variable rate Certificates of Deposits. The rate on the variable account is tied to a spread to the Wall Street Journal Prime Rate and varies from Prime minus 600 basis points to Prime minus 375 basis points. During the twelve-month period from March 31, 2023, to March 31, 2024, the Prime rate increased 50 basis points.

Our net interest margin was 3.62% for the first quarter of 2024, as compared to 3.31% for the linked quarter and 3.47% for the quarter ending March 31, 2023. While the yield of interest-earning assets increased 14 basis points for the first quarter of 2024 as compared to the linked quarter, the cost of interest-bearing liabilities decreased 20 basis points for the same period of comparison. The average balance of interest-earning assets decreased $175.4 million for the linked quarter while the decrease in interest-bearing liabilities was $168.8 million for the same period. The decrease in interest rates on a larger volume of interest-bearing liabilities (mostly higher cost borrowed funds) over the increase in yield on interest-earning assets improved the net interest margin in the linked quarter.

Provision for Credit Losses

The Company recorded a provision for credit losses of $0.1 million in the first quarter of 2024, as compared to $3.5 million in the fourth quarter of 2023, and $0.3 million in the first quarter of 2023. The lower provision for credit losses in the first quarter of 2024 over the linked quarter was primarily due to the impact of one $2.3 million commercial real estate credit charged off in the fourth quarter of 2023. The decrease in provision in the first quarter of 2024 as compared to the same quarter in 2023 was a result of reduced quantitative reserves from an improved economic forecast coupled with lower loan balances in most categories. Some of the calculated reserve reduction was offset by higher net loan charge-offs, however the overall reserve for credit losses was $0.05 million higher at March 31, 2024, as compared to March 31, 2023.

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

Noninterest Income

Noninterest income increased by $0.5 million, or 7%, to $8.6 million in the first quarter of 2024 as compared to the linked quarter. Noninterest income increased by $2.0 million, or 31%, in the first quarter of 2024 as compared to the same quarter in 2023. The first quarter 2024 increase of $0.5 million, compared to the fourth quarter of 2023, is primarily due to net gains on the sale of branch properties that were a part of our sale/leaseback transaction and related securities sales strategy along with favorable changes in bank owned life insurance associated with deferred compensation plans. Partially offsetting these favorable variances were $0.3 million in service charges and fees decreases and lower life insurance death benefits.

For the first quarter of 2024 compared to the same quarter in 2023, reasons for the increase were mostly the same although service charges and fees on deposit accounts increased by $0.3 million for the quarterly comparison instead of a decrease in the linked quarter comparison.

Service charges and fees on customer deposit accounts declined by $0.3 million, or 4%, to $5.7 million in the first quarter of 2024 as compared to the fourth quarter of 2023. Lower seasonal analysis fees and lower debit card interchange fees were the primary drivers of the unfavorable variance. Service charges and fees were $0.3 million higher in the first quarter of 2024 as compared to the first quarter of 2023 due to higher ATM fees and higher overdraft-related fees.

Noninterest Expense

Total noninterest expense increased $0.4 million, or 2%, in the first quarter of 2024 as compared to the fourth quarter of 2023 and increased $1.5 million, or 7%, compared to the first quarter of 2023. The primary driver of higher expense in the first quarter of 2024 is deferred directors’ fees as part of the Company’s deferred compensation plan. The higher deferred compensation expense was offset by higher bank-owned life insurance income, mostly due to fluctuations in underlying values of assets in the separate account BOLI policies that are designed to have similar assets to those in the deferred compensation plans.

Salaries and benefits were $0.2 million lower in the first quarter of 2024 as compared to the fourth quarter of 2023 and $0.4 million higher than the first quarter of 2023. The decrease in the linked quarter was due to a strategic reduction in force to drive operational efficiencies. The increase in the year-over-year quarterly comparison is due to several factors, including merit increases for employees due to annual performance evaluations during the first quarter of 2024, higher payroll taxes in the first quarter, and severance payments of $0.9 million for the reduction in force initiative previously mentioned. Overall full-time equivalent employees were 487 at March 31, 2024, as compared to 485 at December 31, 2023, and 500 at March 31, 2023.

Occupancy expense was up $0.1 million for the linked quarters and up $0.7 million for the first quarter of 2024 as compared to the same quarter last year. The reason for the increases in both comparisons is mostly due to increased rent expense from the sale/leaseback transaction in December 2023.

Other noninterest expense increased $0.5 million, or 6%, in the first quarter of 2024 as compared to both the fourth quarter of 2023 and the first quarter of 2023. The primary reason for the negative variance in the first quarter of 2024 over the same period in 2023 was increased FDIC assessment costs, and increased directors deferred compensation expense which is linked to the fluctuation in BOLI income, although lower advertising expenses and foreclosed asset costs mitigated some of this negative variance. In the first quarter of 2024 as compared to the fourth quarter of 2023, directors deferred compensation expense accounted for the increase, partially offset by lower advertising costs.

The Company's effective tax rate was 26.3% in the first quarter of 2024 relative to 23.8% in the fourth quarter of 2023 and 23.6% for the first quarter of 2023. The increase in the effective tax rate for the first quarter of 2024 over the linked quarter and as compared to the same period in 2023, is due to tax credits and tax-exempt income representing a smaller percentage of total taxable income.

Balance Sheet Summary

The $176.7 million, or 5%, decrease in total assets during the first quarter of 2024, is primarily a result of a $281.1 million decrease in investment securities, from the sale of bonds from the strategic securities transaction, partially offset by a $66.8 million increase in gross loans and a $40.6 million increase in cash on hand.

Gross loan balances increased $66.8 million, or 3%, during the first quarter of 2024. Although most loan categories declined modestly, mortgage warehouse line utilization increased $87.6 million or 75%. Larger loan category decreases include a $12.8 million decrease in other commercial loans.

Over the past several years, the Company has strategically focused on reducing concentrations in commercial real estate, especially amongst areas management deemed to be higher risk, such as construction, office real estate, and hospitality. At March 31, 2024, the total regulatory CRE concentration ratio of total CRE over Tier 1 Capital plus allowance was 248%. Further, the overall level of construction and land development lending had declined to 1% of regulatory capital plus allowance for credit losses at March 31, 2024. At March 31, 2024, our non-owner occupied commercial real estate includes $304 million of retail, $155 million of warehouse/industrial, $186 million of office, and $182 million of hospitality. Approximately 5% of the office real estate matures in less than two years.

As indicated in the loan rollforward below, new credit extended for the first quarter of 2024 decreased $17.6 million over the same period in 2023 but increased $8.3 million for the linked quarter comparisons. For the first three months ended 2024, we had $30.8 million in loan paydowns and maturities, along with a $24.9 million decrease in line of credit utilization, counterbalanced by an $87.6 million increase in mortgage warehouse utilization.

LOAN ROLLFORWARD
(Dollars in Thousands, Unaudited)
		For the three months ended:
			March 31, 2024				December 31, 2023				March 31, 2023
Gross loans beginning balance		$	2,090,075			$	2,100,810			$	2,052,940
New credit extended			34,966				26,704				52,609
Changes in line of credit utilization			(24,928	)			4,377				(25,790	)
Change in mortgage warehouse			87,561				8,415				3,033
Pay-downs, maturities, charge-offs and amortization			(30,810	)			(50,231	)			(48,824	)
Gross loans ending balance		$	2,156,864			$	2,090,075			$	2,033,968

Line utilization, unused commitments, excluding mortgage warehouse and overdraft lines, were $234.4 million at March 31, 2024, compared to $203.6 million at December 31, 2023. Total utilization excluding mortgage warehouse and overdraft lines was 58% at March 31, 2024, compared to 53% at December 31, 2023. Mortgage warehouse utilization was 50% at March 31, 2024, compared to 36% at December 31, 2023. The increase in mortgage warehouse utilization during the first quarter of 2024 was due to new customers in the mortgage warehouse product that ramped up their utilization.

Deposit balances grew by $85.8 million, or 3%, during the first quarter of 2024 to $2.8 billion at March 31, 2024. Core non-maturity deposits decreased $56.7 million, or 3%, for the first three months of 2024, while customer time deposits increased by $5.9 million. Brokered deposits increased $136.6 million during the quarter. Overall noninterest-bearing deposits as a percent of total deposits decreased to 34.0% at March 31, 2024, compared to 37.0% at December 31, 2023, and from 35.3% at March 31, 2023.

Overall uninsured deposits are estimated to be approximately $784.4 million, or 28% of total deposit balances, excluding public agency deposits that are subject to collateralization through a letter of credit issued by the FHLB. In addition, uninsured deposits of the bank’s customers are eligible for FDIC pass-through insurance if the customer opens an IntraFi Insured Cash Sweep account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (CDARS). IntraFi allows for up to $150 million of combined pass-through FDIC insurance which would more than cover each of the Bank’s deposit customers if such customer desired to have such pass-through insurance. The Bank maintains a diversified deposit base with no significant customer concentrations and does not bank any cryptocurrency companies. At March 31, 2024, the Company had approximately 121,000 accounts and the 25 largest deposit balance customers had balances of less than 13% of overall deposits.

Long-term debt at March 31, 2024, consisted of $49.3 million of subordinated debt. Subordinated debentures related to trust preferred securities were $35.7 million at both March 31, 2024, and December 31, 2023.

Customer repurchase agreements increased from $107.1 million at December 31, 2023, to $121.9 million at March 31, 2024. Customer repurchase agreements provide collateral for customers that sweep excess deposit balances each day into a separate repurchase agreement account where the Company effectively sells certain government bonds to customers daily and then repurchases the same bonds on the next business day. Although these accounts are not deposits and are not FDIC insured, they provide customers with larger account balances the ability to have their account secured with collateral.

Other borrowings declined $280.5 million to $80.0 million at March 31, 2024, from $360.5 million at December 31, 2023, and consist of term FHLB advances. The decline in other borrowings is due mostly to a balance sheet restructuring in which the Company sold bonds with an average book yield of 2.61% to paydown borrowed funds at an average rate of 5.52%.

The Company continues to have substantial liquidity. At March 31, 2024, and December 31, 2023, the Company had the following sources of primary and secondary liquidity (dollars in thousands):

Primary and secondary liquidity sources			March 31, 2024			December 31, 2023
Cash and cash equivalents		$	119,244		$	78,602
Unpledged investment securities			555,766			792,965
Excess pledged securities			316,889			382,965
FHLB borrowing availability			676,829			586,726
Unsecured lines of credit			504,785			374,785
Funds available through fed discount window			376,216			392,034
Totals		$	2,549,729		$	2,608,077

Total capital of $345.1 million at March 31, 2024, reflects an increase of $7.0 million, or 2%, compared to December 31, 2023. The increase in equity during the first quarter of 2024 is due to net income of $9.3 million, offset by a $3.4 million dividend paid to shareholders, $3.3 million in share repurchases, and a $4.1 million favorable swing in other comprehensive income/loss due principally to changes in investment securities’ fair value. The remaining difference is related to equity compensation recognized during the quarter.

Asset Quality

Total nonperforming assets, comprised of non-accrual loans and foreclosed assets, increased by $6.2 million, or 78%, during the first quarter of 2024. The increase resulted from an increase in non-accrual loans, primarily as a result of one dairy industry real estate secured loan. This loan was written down by $0.4 million and no further allowance for credit losses was deemed necessary on this loan. The Company's ratio of nonperforming assets to loans plus foreclosed assets increased to 0.66% at March 31, 2024, from 0.38% at December 31, 2023, due primarily to the one dairy loan previously mentioned. 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.

Overall delinquent loans increased from $1.9 million at March 31, 2023, to $15.6 million at March 31, 2024. This is primarily due to one agricultural production loan and one commercial real estate loan both currently written down to the current fair market value of the collateral.

The Company's allowance for credit losses on loans was $23.1 million at March 31, 2024, as compared to $23.5 million at December 31, 2023, and $23.1 million at March 31, 2023. The allowance was 1.07% of total loans at March 31, 2024, 1.12% of total loans at December 31, 2023, and 1.14% of total loans at March 31, 2023. Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses for the life of the loans outstanding as of March 31, 2024, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance for 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.

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			3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Cash and due from banks		$	119,244			$	78,602			$	88,542			$	103,483			$	83,506
Investment securities
Available-for-sale, at fair value			741,789				1,019,201				1,010,377				1,027,538				1,040,920
Held-to-maturity, at amortized cost, net of allowance for credit losses			316,406				320,057				323,544				328,478				332,728
Real estate loans
Residential real estate			406,443				412,063				418,782				426,608				433,185
Commercial real estate			1,327,482				1,328,224				1,334,663				1,317,945				1,318,627
Other construction/land			6,115				6,256				7,320				16,020				15,653
Farmland			66,133				67,276				90,993				92,728				92,906
Total real estate loans			1,806,173				1,813,819				1,851,758				1,853,301				1,860,371
Other commercial			143,448				156,272				137,407				126,360				101,118
Mortgage warehouse lines			203,561				116,000				107,584				110,617				68,472
Consumer loans			3,682				3,984				4,061				4,113				4,007
Gross loans			2,156,864				2,090,075				2,100,810				2,094,391				2,033,968
Deferred loan fees			214				309				163				73				24
Allowance for credit losses on loans			(23,140	)			(23,500	)			(23,060	)			(23,010	)			(23,090	)
Net loans			2,133,938				2,066,884				2,077,913				2,071,454				2,010,902
Bank premises and equipment			16,067				16,907				21,926				22,072				22,321
Other assets			225,628				228,148				216,578				209,436				203,607
Total assets		$	3,553,072			$	3,729,799			$	3,738,880			$	3,762,461			$	3,693,984
LIABILITIES AND CAPITAL
Noninterest demand deposits		$	968,996			$	1,020,772			$	1,059,878			$	1,066,498			$	1,041,748
Interest-bearing transaction accounts			532,791				533,947				561,257				584,263				637,549
Savings deposits			378,057				370,806				400,940				415,793				441,758
Money market deposits			134,533				145,591				130,914				124,834				123,162
Customer time deposits			560,979				555,107				551,731				552,371				519,771
Wholesale brokered deposits			271,648				135,000				165,000				175,000				185,000
Total deposits			2,847,004				2,761,223				2,869,720				2,918,759				2,948,988
Long-term debt			49,326				49,304				49,281				49,259				49,236
Subordinated debentures			35,704				35,660				35,615				35,570				35,526
Other interest-bearing liabilities			201,851				467,621				411,865				398,922				310,861
Total deposits and interest-bearing liabilities			3,133,885				3,313,808				3,366,481				3,402,510				3,344,611
Allowance for credit losses on unfunded loan commitments			540				510				600				750				850
Other liabilities			73,553				77,384				62,940				49,609				41,513
Total capital			345,094				338,097				308,859				309,592				307,010
Total liabilities and capital		$	3,553,072			$	3,729,799			$	3,738,880			$	3,762,461			$	3,693,984

GOODWILL AND INTANGIBLE ASSETS
(Dollars in Thousands, Unaudited)
			3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Goodwill		$	27,357			$	27,357			$	27,357			$	27,357			$	27,357
Core deposit intangible			1,180				1,399				1,618				1,837				2,056
Total intangible assets		$	28,537			$	28,756			$	28,975			$	29,194			$	29,413
CREDIT QUALITY
(Dollars in Thousands, Unaudited)
			3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Non-accruing loans		$	14,188			$	7,985			$	781			$	1,141			$	938
Foreclosed assets			—				—				—				—				—
Total nonperforming assets		$	14,188			$	7,985			$	781			$	1,141			$	938
Quarterly net charge offs		$	457			$	3,618			$	67			$	157			$	220
Past due and still accruing (30-89)		$	1,563			$	255			$	806			$	1,873			$	1,241
Classified loans		$	34,100			$	35,577			$	39,958			$	37,298			$	35,739
Non-performing loans to gross loans			0.66%				0.38%				0.04%				0.05%				0.05%
NPA's to loans plus foreclosed assets			0.66%				0.38%				0.04%				0.05%				0.05%
Allowance for credit losses on loans			1.07%				1.12%				1.10%				1.10%				1.14%
SELECT PERIOD-END STATISTICS
(Unaudited)
			3/31/2024				12/31/2023				9/30/2023				6/30/2023				3/31/2023
Shareholders' equity / total assets			9.7%				9.1%				8.3%				8.2%				8.3%
Gross loans / deposits			75.8%				75.7%				73.2%				71.8%				69.0%
Noninterest-bearing deposits / total deposits			34.0%				37.0%				36.9%				36.5%				35.3%

CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Unaudited)			For the three months ended:
			3/31/2024				12/31/2023				3/31/2023
Interest income		$	40,961			$	42,443			$	37,419
Interest expense			12,244				14,573				9,287
Net interest income			28,717				27,870				28,132
Credit loss expense - loans			97				3,615				250
Credit loss expense (benefit) - unfunded commitments			30				(90	)			10
Net interest income after provision			28,590				24,345				27,872
Service charges and fees on deposit accounts			5,726				5,977				5,380
(Loss) gain on sale of investments			(2,883	)			-				45
Gain on sale of fixed assets			3,799				15,255				14
BOLI income			1,215				379				172
Realized gain (loss) on available for sale securities			66				(14,500	)			-
Other noninterest income			666				934				968
Total noninterest income			8,589				8,045				6,579
Salaries and benefits			13,197				13,410				12,816
Occupancy expense			3,025				2,909				2,330
Other noninterest expenses			8,304				7,817				7,846
Total noninterest expense			24,526				24,136				22,992
Income before taxes			12,653				8,254				11,459
Provision for income taxes			3,323				1,964				2,708
Net income		$	9,330			$	6,290			$	8,751
TAX DATA
Tax-exempt muni income		$	1,989			$	2,675			$	2,813
Interest income - fully tax equivalent		$	41,490			$	43,154			$	38,167

PER SHARE DATA
(Unaudited)			For the three months ended:
			3/31/2024				12/31/2023				3/31/2023
Basic earnings per share		$	0.64			$	0.43			$	0.58
Diluted earnings per share		$	0.64			$	0.43			$	0.58
Common dividends		$	0.23			$	0.23			$	0.23
Weighted average shares outstanding			14,508,468				14,539,701				14,971,842
Weighted average diluted shares			14,553,627				14,588,027				15,002,366
Book value per basic share (EOP)		$	23.56			$	22.85			$	20.40
Tangible book value per share (EOP) (2)		$	21.61			$	20.91			$	18.44
Common shares outstanding (EOP)			14,647,872				14,793,832				15,050,740
KEY FINANCIAL RATIOS
(Unaudited)			For the three months ended:
			3/31/2024				12/31/2023				3/31/2023
Return on average equity			11.09%				8.03%				11.53%
Return on average assets			1.06%				0.67%				0.97%
Net interest margin (tax-equivalent) (1)			3.62%				3.31%				3.47%
Efficiency ratio (tax-equivalent) (1) (2)			65.97%				67.10%				64.87%
Net charge offs to average loans (not annualized)			0.02%				0.15%				0.01%

(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
(Dollars in Thousands, Unaudited)
			3/31/2024				12/31/2023				3/31/2023
Total stockholders' equity		$	345,094			$	338,097			$	307,010
Less: goodwill and other intangible assets			28,537				28,756				29,413
Tangible common equity		$	316,557			$	309,341			$	277,597
Total assets		$	3,553,072			$	3,729,799			$	3,693,984
Less: goodwill and other intangible assets			28,537				28,756				29,413
Tangible assets		$	3,524,535			$	3,701,043			$	3,664,571
Total stockholders' equity (bank only)		$	401,742			$	409,862			$	364,870
Less: goodwill and other intangible assets (bank only)			28,537				28,756				29,413
Tangible common equity (bank only)		$	373,205			$	381,106			$	335,457
Total assets (bank only)		$	3,550,459			$	3,724,733			$	3,694,796
Less: goodwill and other intangible assets (bank only)			28,537				28,756				29,413
Tangible assets (bank only)		$	3,521,922			$	3,695,977			$	3,665,383
Common shares outstanding			14,647,872				14,793,832				15,050,740
Book value per common share (total stockholders' equity / shares outstanding)		$	23.56			$	22.85			$	20.40
Tangible book value per common share (tangible common equity / shares outstanding)		$	21.61			$	20.91			$	18.44
Equity ratio - GAAP (total stockholders' equity / total assets			9.71	%			9.06	%			8.31%
Tangible common equity ratio (tangible common equity / tangible assets)			8.98	%			8.36	%			7.58%
Tangible common equity ratio (bank only) (tangible common equity / tangible assets)			10.60	%			10.31	%			9.15%
		For the three months ended:
Efficiency Ratio:			3/31/2024				12/31/2023				3/31/2023
Noninterest expense		$	24,526			$	24,136			$	22,992
Divided by:
Net interest income			28,717				27,870				28,132
Tax-equivalent interest income adjustments			529				711				748
Net interest income, adjusted			29,246				28,581				28,880
Noninterest income			8,589				8,045				6,579
Less (loss) gain on sale of securities			(2,883	)			-				45
Less gain on sale of fixed assets			3,799				15,255				14
Less realized gain (loss) on available-for-sale securities			66				(14,500	)			-
Tax-equivalent noninterest income adjustments			323				101				46
Noninterest income, adjusted			7,930				7,391				6,566
Net interest income plus noninterest income, adjusted		$	37,176			$	35,972			$	35,445
Efficiency Ratio (tax-equivalent)			65.97%				67.10%				64.87%

NONINTEREST INCOME/EXPENSE
(Dollars in Thousands, Unaudited)
		For the three months ended:
Noninterest income:		3/31/2024				12/31/2023				3/31/2023
Service charges and fees on deposit accounts		$	5,726			$	5,977			$	5,380
Net (loss) gain on sale of securities available-for-sale			(2,883	)			—				45
Gain on sale of fixed assets			3,799				15,255				14
Bank-owned life insurance			1,215				379				172
Realized loss on available for sale securities			66				(14,500	)			—
Other			666				934				968
Total noninterest income		$	8,589			$	8,045			$	6,579
As a % of average interest-earning assets (1)			1.06%				0.93%				0.79%
Noninterest expense:
Salaries and employee benefits		$	13,197			$	13,410			$	12,816
Occupancy and equipment costs			3,025				2,909				2,330
Advertising and marketing costs			343				569				513
Data processing costs			1,509				1,397				1,528
Deposit services costs			2,133				2,207				2,023
Loan services costs
Loan processing			151				144				127
Foreclosed assets			—				—				758
Other operating costs			926				1,118				989
Professional services costs
Legal & accounting services			715				615				646
Director's costs			1,254				504				275
Other professional service			809				708				515
Stationery & supply costs			148				117				141
Sundry & tellers			316				438				331
Total noninterest expense		$	24,526			$	24,136			$	22,992
As a % of average interest-earning assets (1)			3.04%				2.80%				2.76%
Efficiency ratio (tax-equivalent) (2)(3)			65.97%				67.10%				64.87%

(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
		March 31, 2024				December 31, 2023				March 31, 2023
		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		$ 16,996	$ 243	5.75%		$ 13,661	$ 193	5.61%		$ 5,312	$ 70	5.34%
Taxable		893,171	13,303	5.99%		994,814	14,520	5.79%		972,051	11,986	5.00%
Non-taxable		244,997	1,989	4.13%		334,836	2,675	4.01%		361,328	2,813	4.00%
Total investments		1,155,164	15,535	5.59%		1,343,311	17,388	5.35%		1,338,691	14,869	4.73%
Loans: (3)
Real estate		1,806,185	20,190	4.50%		1,835,890	20,684	4.47%		1,869,112	19,899	4.32%
Agricultural production		61,419	1,138	7.45%		49,052	859	6.95%		28,028	433	6.27%
Commercial		79,208	1,183	6.01%		97,962	1,533	6.21%		70,887	993	5.68%
Consumer		3,962	80	8.12%		4,218	85	7.99%		4,137	87	8.53%
Mortgage warehouse lines		137,421	2,821	8.26%		88,316	1,878	8.44%		59,122	1,118	7.67%
Other		2,333	14	2.41%		2,331	17	2.89%		2,464	20	3.29%
Total loans		2,090,528	25,426	4.89%		2,077,769	25,056	4.78%		2,033,750	22,550	4.50%
Total interest-earning assets (4)		3,245,692	40,961	5.14%		3,421,080	42,444	5.00%		3,372,441	37,419	4.59%
Other earning assets		17,345				25,738				15,714
Non-earning assets		270,786				267,451				272,496
Total assets		$ 3,533,823				$ 3,714,269				$ 3,660,651
Liabilities and shareholders' equity
Interest-bearing deposits:
Demand deposits		$ 137,961	$ 699	2.04%		$ 137,827	$ 698	2.01%		$ 150,139	$ 129	0.35%
NOW		398,639	84	0.08%		406,970	74	0.07%		483,645	71	0.06%
Savings accounts		376,335	73	0.08%		386,275	73	0.07%		457,593	65	0.06%
Money market		137,687	410	1.20%		144,296	419	1.15%		135,434	25	0.07%
Time deposits		561,941	6,190	4.43%		551,287	6,173	4.44%		461,214	4,505	3.96%
Wholesale brokered deposits		205,092	2,189	4.29%		150,326	1,407	3.71%		162,560	1,204	3.00%
Total interest-bearing deposits		1,817,655	9,645	2.13%		1,776,981	8,844	1.97%		1,850,585	5,999	1.31%
Borrowed funds:
Repurchase agreements		112,385	41	0.15%		95,005	46	0.19%		103,426	81	0.32%
Other borrowings		119,475	1,372	4.62%		346,437	4,489	5.14%		176,725	2,111	4.84%
Long-term debt		49,312	431	3.52%		49,290	429	3.45%		49,222	429	3.53%
Subordinated debentures		35,677	755	8.51%		35,632	766	8.53%		35,499	667	7.62%
Total borrowed funds		316,849	2,599	3.30%		526,364	5,730	4.32%		364,872	3,288	3.65%
Total interest-bearing liabilities		2,134,504	12,244	2.31%		2,303,345	14,574	2.51%		2,215,457	9,287	1.70%
Demand deposits - noninterest-bearing		990,377				1,041,989				1,070,775
Other liabilities		70,534				58,255				66,632
Shareholders' equity		338,408				310,680				307,787
Total liabilities and shareholders' equity		$ 3,533,823				$ 3,714,269				$ 3,660,651
Interest income/interest-earning assets				5.14%				5.00%				4.59%
Interest expense/interest-earning assets				1.52%				1.69%				1.12%
Net interest income and margin (5)			$ 28,717	3.62%			$ 27,870	3.31%			$ 28,132	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 utilizing a 21% effective federal tax rate.
(3)	Loans are gross of the allowance for expected credit losses. Loan fees have been included in the calculation of interest income. Net loan (costs) fees and loan acquisition FMV amortization were ($0.3) million and ($0.1) million for the quarters ended March 31, 2024, and 2023, respectively, and $(0.3) million for the quarter ended December 31, 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.

Category: Financial
Source: Sierra Bancorp

View source version on businesswire.com: https://www.businesswire.com/news/home/20240422362794/en/

Kevin McPhaill, President/CEO

(559) 782‑4900 or (888) 454‑BANK

www.sierrabancorp.com

Source: Sierra Bancorp

FAQ

What was Sierra Bancorp's (BSRR) net income for the first quarter of 2024?

Sierra Bancorp reported a consolidated net income of $9.3 million for the first quarter of 2024.

How did Sierra Bancorp's return on average assets and return on average equity change in the first quarter of 2024?

Return on average assets improved to 1.06% from 0.67%, and return on average equity increased to 11.09% from 8.03% in the first quarter of 2024.

What was the loan and deposit growth for Sierra Bancorp in the first quarter of 2024?

Sierra Bancorp reported loan growth of $66.8 million, or 13% annualized, and deposit growth of $85.8 million, or 12% annualized, during the first quarter of 2024.

What was the total nonperforming assets ratio for Sierra Bancorp in the first quarter of 2024?

The ratio of nonperforming assets to loans plus foreclosed assets increased to 0.66% at March 31, 2024, from 0.38% at December 31, 2023.

How did Sierra Bancorp's tangible book value per share change in the first quarter of 2024?

The tangible book value per share increased by 3% to $21.61 per share during the first quarter of 2024.