Sierra Bancorp Reports Financial Results for Second Quarter and First Six Months of 2022

July 25, 2022

Porterville, Calif. – (Business Wire) – Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the three-and six-month periods ended June 30, 2022. Sierra Bancorp reported consolidated net income of $9.2 million, or $0.61 per diluted share, for the second quarter of 2022, compared to $11.7 million, or $0.76 per diluted share, in the second quarter of 2021. On a linked-quarter basis, the Company increased net income by $1.8 million, or 24%.

For the first six months of 2022, the Company recognized net income of $16.6 million as compared to $22.8 million for the same period in 2021. The Company’s financial performance metrics for the first half of 2022 include an annualized return on average equity of 10.10%, a return on average assets of 0.98%, and diluted earnings per share of $1.10.

“In this uncertain time of volatile interest rates and higher inflation, the strength of our loyal customer base provides us with a foundation of core deposits that position us to prudently increase loan production. I believe that these fundamentals remain a critical part of our success,” stated Kevin McPhaill, President and CEO. “It is through our entire banking team’s efforts that we continue to post solid financial results, and this last quarter is no exception with a 24% increase in net income on a linked quarter basis. Thanks to our strong capital position, recently expanded lending teams, and our low-cost core deposit base, we are excited about our prospects in the second half of 2022!” McPhaill concluded.

Financial Highlights

Quarterly Changes (comparisons to the second quarter of 2021)

  • Net interest income decreased $0.6 million, or 2%, due primarily to a $0.4 million increase in interest expense from the issuance of subordinated debt during the third quarter of 2021 and higher cost of funds on interest-bearing liabilities due to the recent increases in the prime interest rate.
  • Noninterest income increased $3.8 million, primarily due to a $3.2 million gain on sale of other assets, $0.4 million in life insurance proceeds, a $0.2 million recovery on an acquired loan, and a $1.0 million recovery of prior year legal expenses, partially offset by a $1.4 million negative variance in corporate owned life insurance with income linked to the Company’s nonqualified deferred compensation plan.
  • The provision for credit losses on loans and leases was $2.5 million under the new current expected credit losses (“CECL”) methodology, as compared to a $2.1 million benefit under the incurred loss model in the same quarter of 2021, for a net increase of $4.6 million. This is driven primarily from the replacement of allowance due to $2.3 million in net loan charge offs during the second quarter of 2022.
  • All capital ratios remain well above the regulatory requirements for a well-capitalized institution. The Community Bank Leverage ratio was 11.72% for Bank of the Sierra. The Sierra Bancorp leverage ratio was 10.45%.
  • Our Board of Directors declared a cash dividend of $0.23 per share on July 21, 2022. This is the 94th consecutive quarterly dividend paid by Sierra Bancorp. The cash dividend is payable on August 15, 2022 to shareholders of record at the close of business on August 1, 2022.

Linked Quarter Changes (comparisons to the three months ended March 31, 2022)

  • Net income improved by $1.8 million, or 24%, driven mostly by a $1.8 million increase in net interest income, and higher noninterest income, offset by unfavorable changes in the provision for credit losses and noninterest expense. The increase in net interest income was driven by higher average earning assets and a 22 basis point increase in the yield on earning assets, partially offset by a 5 basis point increase in the cost of interest-bearing liabilities.
  • Noninterest income increased by $4.4 million, or 72%, for same reasons as outlined in the quarterly comparison above.
  • The provision for credit losses on loans and leases increased $1.9 million to $2.5 million due mostly to charge-offs in the second quarter as the quantitative and qualitative components of the allowance for credit losses remained consistent with the prior quarter.
  • Noninterest expense increased $1.9 million, or 10%, mostly in other operating expense, due to a $0.7 million increase in other expense due to a proactive approach to a regulatory change in the treatment of non-sufficient fund charges on representments, a $0.4 million increase in recruitment costs for our new lending teams, and a $0.3 million increase in postage and supplies due to mailing of new account agreements to customers.

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

  • Net income decreased by $6.2 million due mostly to a $5.0 million increase in the provision for credit losses, as well as lower net interest income on a change in mix of average earning assets, partially offset by higher noninterest income.
  • The provision for credit losses on loans and leases was $3.1 million, an increase of $5.0 million, due to a change from the incurred loss method to the current expected credit loss method, coupled with higher charge-offs in 2022 on two loan relationships.
  • Net interest income decreased by $4.4 million, or 8%, due mostly to the change in mix of interest earning assets with average loan balances increasing and investments increasing. In addition, the cost of interest-bearing liabilities was higher due to increases in index rates on certain floating rate liabilities.
  • Noninterest income increased $3.1 million, or 23%, for the same reasons as noted above in the quarterly comparison, combined with a $1.0 million gain on the sale of investment securities, and a $2.6 million negative variance in BOLI income tied to our nonqualified deferred compensation plan.

Balance Sheet Changes (comparisons to December 31, 2021)

  • Total assets were relatively unchanged at $3.4 billion with increases in loans and investments partially offset by lower cash balances.
  • Deposits increased by $69.4 million, or 2%. The growth in deposits came primarily from noninterest-bearing or low-cost transaction and savings accounts, while higher-cost time deposits increased $5.9 million.
  • Gross loans increased $32.9 million due predominantly to the purchase of $173.1 million in high quality jumbo single family mortgage loan pool purchases. These mortgage loan pool purchases were offset by $201.8 million in loan maturities, charge-offs and payoffs. Organic loan production for the first half of 2022 was $142.1 million, a 61% increase, as compared to $88.3 million for the comparative period in 2021, as the new lending teams hired earlier in the year have been gaining traction in our market.
  • Investment securities increased $52.3 million, or 5%. On April 1, 2022, the Company transferred $162.1 million of “available-for-sale” investment securities to “held-to-maturity”. The securities were transferred at fair market value on the date of transfer. The transfer was initiated to partially insulate other comprehensive income and equity from changes in interest rates. This transfer had no impact on net income, and future price changes on these securities due to changes in interest rates will not affect capital.