Sierra Bancorp Reports Financial Results For Third Quarter And First Nine Months Of 2023

October 23, 2023

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, 2023. Sierra Bancorp reported consolidated net income of $9.9 million, or $0.68 per diluted share, for the third quarter of 2023, and $28.5 million, or $1.93 per diluted shares, for the first nine months of 2023.

Highlights for the third quarter of 2023:

  • Steady Earnings
    • Net Income of $9.9 million, consistent with the second quarter of 2023 (the prior linked quarter), and up 8% year-to-date compared to the same period last year
    • Return on Average Assets of 1.04%
    • Return on Average Equity of 12.62%
  • Solid Asset Quality
    • Total Nonperforming Loans declined to $0.8 million, or 0.04% of total gross loans
    • Past due loans declined to $0.8 million, the lowest level for the past two years
    • No foreclosed assets at September 30, 2023
    • Net Charge-offs remained very low at just under $0.1 million
    • Stable Allowance for Credit Losses on loans of $23.1 million
  • Stable Deposits & Liquidity
    • Overall primary and secondary liquidity sources increased to $2.67 billion at September 30, 2023
    • Total deposits declined by 1.6% during the quarter due mostly to declines in brokered deposits and interest-bearing transaction accounts
    • Total deposits have increased by $23.6 million, or 0.8% year-to-date
    • Noninterest-bearing deposits stable at 37% of total deposits
  • Strong Capital and Solid Asset Growth
    • Total Assets at $3.74 billion, down 1% from prior linked quarter, but up 4% year-to-date
    • Maintained a diversified investment portfolio designed for interest rate risk management and liquidity
    • Repurchased 99,528 shares of stock during the quarter
    • Tangible Book Value per share increased by 1% to $19.04 per share at September 30, 2023 compared to the prior linked quarter
    • Strong regulatory Community Bank Leverage Ratio of 11.00% for our subsidiary Bank
    • Tangible Common Equity Ratio of 7.5% on a consolidated basis and 9.4% for our subsidiary bank
    • Dividend declared of $0.23 per share, payable on November 14, 2023, our 99th consecutive quarterly dividend

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

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

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

Financial Highlights

Quarterly Changes (comparisons to the third quarter of 2022)

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

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

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

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

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