Business
Sierra Bancorp Announces Record Quarterly Earnings
Net income of $10.4 million in the third quarter of 2020, an increase of $2.1 million, or 25% as compared to the second quarter of 2020 and 16% higher than
About this update from Sierra Bancorp
Net income of $10.4 million in the third quarter of 2020, an increase of $2.1 million , or 25% as compared to the second quarter of 2020 and 16% higher than the same quarter in 2019 Loans & Leases, Net of Fees grew $167.7 million in the third quarter of 2020, or 8% on a linked-quarter basis Deposits increased by $85.0 million in the third quarter of 2020, or 3% on a linked-quarter basis A stable loan yield and lower cost of deposits led to an improvement of net interest margin to 3.98% in the third quarter of 2020 as compared to 3.81% in the second quarter of 2020 PORTERVILLE, Calif. --(BUSINESS WIRE)-- Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra , today announced third quarter of 2020 net income of $10.4 million , or $0.67 per diluted share, compared to net income of $9.0 million , or $0.58 per diluted share, in the third quarter of 2019. The Company's return on average assets decreased slightly to 1.34% in the third quarter of 2020, as compared to 1.36% in the third quarter of 2019, however return on average equity increased to 12.34% from 11.78%, for the same comparative periods. The increase in net income is driven primarily by higher net interest income on higher loan balances and higher noninterest income, partially offset by a higher provision for loan and lease losses and noninterest expense. For the first nine months of 2020, the Company recognized net income of $26.5 million , or $1.72 per diluted share, as compared to $26.7 million , or $1.73 per diluted share, for the same period in 2019. “Our potential is one thing. What we do with it is quite another.” – Dr. Angela Duckworth “As we continue to navigate these challenging times, we are very proud to serve our communities as demonstrated by our continued strong loan growth,” stated Kevin McPhaill , President and CEO. “This robust loan growth coupled with a continued focus on efficiency resulted in record high earnings. During these unique times, our foundation as a community bank drives our bankers to find new ways to continue to meet our customers’ needs. The coming months will bring further challenges, but we are determined to use them as opportunities to help our communities, customers, and employees succeed.” McPhaill concluded. Financial Highlights Quarterly Changes (comparisons to the third quarter of 2019) The $3.7 million increase in net interest income is due to a $1.1 million increase in interest income due mostly to higher loan volumes partially offset by lower rates and lower interest expense, as well as a $2.6 million decrease in interest expense due to an increase in noninterest bearing deposits and lower rates on the remaining deposits. The provision for loan & lease losses was $1.0 million higher due to the increase in core loan volume and relative uncertainty in the economy. The $1.2 million favorable increase in noninterest income is due to a $0.8 million gain from the disposal of a low-income housing tax credit fund investment, and a $0.7 million increase in bank-owned life insurance (BOLI) income. These increases were partially offset by a $0.3 million decline in customer service charges. Noninterest expense increased by $2.2 million , due mostly to a $1.1 million increase in salaries, a $0.4 million increase in foreclosed asset expenses, and a $0.5 million increase in director’s deferred compensation. Year to-Date Changes (comparisons to the first nine-months of 2019) Net income was relatively flat with a $0.2 million net decline, or less than 1%. The most significant line item changes were a $4.3 million increase in the provision for loan and lease losses, partially offset by a $3.5 million increase in net interest income due to higher loan balances and a favorable deposit mix. Noninterest income increased by $2.5 million , or 14%, due in part to the third quarter changes described above in the quarterly comparison, but also because of a second quarter $0.7 million gain from the disposal of a tax credit fund investment and a second quarter $0.4 million gain from the sale of debt securities. Noninterest expense increased $2.6 million , or 5% due mostly to the increases previously discussed in noninterest expense for the quarterly comparison. Balance Sheet Changes (comparisons to December 31, 2019 ) Total assets increased by $605.8 million , or 23%, to $3.2 billion , during the first nine months of the year. Year-to-date 2020 loan growth of $611.8 million , or 35%, was highlighted by a $437.8 million increase in non-agricultural real estate loans, as well as a $98.4 million increase in mortgage warehouse lines, and $123.6 million of Paycheck Protection Program (PPP) loans. Deposits increased by $423.3 million , or 20% during 2020. The growth in deposits came primarily from noninterest bearing or low-cost transaction and savings accounts, while higher-cost time deposits decreased. Other interest bearing liabilities increased $149.1 million as we utilized overnight FHLB borrowings to partially fund loan growth in 2020, including PPP loans and increased utilization of mortgage warehouse lines. Other financial highlights are reflected in the following table. FINANCIAL HIGHLIGHTS (Unaudited) (Dollars in thousands, except per share data) At or For the At or For the At or For the Three Months Ended Three Months Ended Nine Months Ended 9/30/2020 6/30/2020 9/30/2019 9/30/2020 9/30/2019 Net Income $ 10,356 $ 8,303 $ 8,952 $ 26,465 $ 26,676 Diluted Earnings per share $ 0.67 $ 0.54 $ 0.58 $ 1.72 $ 1.73 Return on Average Assets 1.34% 1.19% 1.36% 1.26% 1.40% Return on Average Equity 12.34% 10.30% 11.78% 10.90% 12.33% Net Interest Margin (Tax-Equivalent) 3.98% 3.81% 4.09% 3.97% 4.20% Yield on Average Loans and Leases 4.56% 4.56% 5.39% 4.75% 5.51% Cost of Average Total Deposits 0.10% 0.15% 0.54% 0.19% 0.54% Efficiency Ratio (Tax-Equivalent)¹ 53.74% 57.78% 55.64% 56.64% 57.51% Total Assets $ 3,199,618 $ 3,110,044 $ 2,635,960 $ 3,199,618 $ 2,635,960 Loans & Leases Net of Deferred Fees $ 2,377,222 $ 2,209,480 $ 1,800,606 $ 2,377,222 $ 1,800,606 Noninterest Demand Deposits $ 975,750 $ 949,662 $ 685,528 $ 975,750 $ 685,528 Total Deposits $ 2,591,713 $ 2,506,754 $ 2,196,207 $ 2,591,713 $ 2,196,207 Noninterest-bearing Deposits over Total Deposits 37.6% 37.9% 31.2% 37.6% 31.2% Shareholders Equity / Total Assets 10.5% 10.5% 11.5% 10.5% 11.5% Tangible Common Equity Ratio 9.6% 9.6% 10.4% 9.6% 10.4% Book Value per Share $ 21.92 $ 21.55 $ 19.85 $ 21.92 $ 19.85 Tangible Book Value per Share $ 19.84 $ 19.43 $ 17.69 $ 19.84 $ 17.69 (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. INCOME STATEMENT HIGHLIGHTS Net Interest Income Net interest income increased $3.7 million to $28.1 million , for the third quarter of 2020 over the third quarter of 2019, and increased $3.5 million to $76.0 million for the first nine months of 2020 relative to the same period in 2019. For the third quarter of 2020, growth in average interest-earning assets totaled $452.8 million , or 19%, as compared to the third quarter of 2019. Although the yield on these balances was 56 basis points lower for the same period, the decrease in our cost of interest-bearing liabilities for the same period was 66 basis points resulting in an overall decline in margin of 11 basis points. Net interest income for the comparative year-to-date periods increased $3.5 million as the increase in volume of interest earning assets and favorable change in our deposit mix more than made up for the decrease in margin. Our 2020 net interest margin has been impacted primarily by the following: Market conditions, including five interest rate cuts by the Federal Open Market Committee totaling 225 bps over the past 12 months, negatively impacted our yield on existing adjustable and variable rate portfolio loans and created a lower initial interest rate for new loan volumes. In addition, given the low rate environment loan demand for our mortgage warehouse lines increased, resulting in a $92.8 million , or 55%, increase in average balances during the third quarter 2020. The average yield on mortgage warehouse lines declined to 3.16% from 3.85% for the comparative quarters. Origination of SBA PPP loans, issuing 1,334 loans for $123.6 million to assist our customers impacted by the COVID 19 Pandemic. We have collected $5.0 million in loan fees related to PPP loans from the SBA which are accreted over the stated life of the loan. On September 30, 2020 , our outstanding fixed-rate loans represented 28% of our loan portfolio. Adjustable-rate loans represent 61% of our loan portfolio and range in adjustment periods from 30 days to 10 years with most of these subject to repricing after 3-years. There are $68.8 million of these adjustable-rate loans scheduled to adjust in the next quarter. Approximately 77% or $1.1 billion of these loans will not begin repricing until after three years, with $701.8 million repricing after five years. About 12% of our total portfolio, or $273.7 million , consists of variable rate loans. Of these variable rate loans, approximately $93.9 million have floors, with $85.5 million at their floors, which limited the overall reduction in rates. Discount accretion on loans from whole-bank acquisitions enhanced our net interest margin by two basis points in the third quarter of 2020 as compared to three basis points in the third quarter 2019, and two basis points for the first nine months of 2020 relative to four basis points in the first nine months of 2019. On September 30, 2020 the remaining balance of loan discount available to be accreted was $3.3 million . Interest expense was $1.0 million for the third quarter of 2020, a favorable decline of $2.6 million , or 73%, relative to the third quarter of 2019. For the first nine months of 2020, compared to the first nine months of 2019, interest expense declined $6.1 million , or 58%, to $4.5 million due to lower rates, higher low or no cost deposits, and lower time deposits. The average balance of higher-cost time deposits declined by $86.7 million , or 16%, in the third quarter of 2020 as compared to the third quarter of 2019. The average 2020 year-to-date balance of such time-deposits declined by $60.9 million , or 11.4%, compared to the same period in 2019. The average balance of lower or no cost transaction and savings accounts increased $158.7 million , or 7.5%, for the third quarter of 2020 compared to the same period in 2019 and increased by $91.6 million , or 10.9%, on a year-to-date basis in 2020 compared to the same period in 2019. Provision for Loan and Lease Losses The Company recorded a loan and lease loss provision of $2.4 million in the third quarter of 2020 relative to a provision of $1.4 million in the third quarter of 2019, and a year-to-date loan loss provision of $6.4 million in 2020 as compared to $2.1 million for the same period in 2019. The Company is subject to the adoption of the Current Expected Credit Loss ("CECL") accounting method under Financial Accounting Standards Board (FASB) Accounting Standards Update 2016-03 and related amendments, Financial Instruments – Credit Losses (Topic 326) in 2020. However, the Company elected under Section 4014 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to defer the implementation of CECL until the earlier of when the national emergency related to the outbreak of COVID-19 ends or December 31, 2020 . Although this deferral will still require CECL to be implemented as of January 1, 2020 , the Company elected in the first quarter of 2020 to postpone implementation in order to provide additional time to assess better the impact of the COVID-19 pandemic on the expected lifetime credit losses. At the time the decision was made, there was a significant change in economic uncertainty on the local, regional, and national levels as a result of local and state stay-at-home orders, as well as relief measures provided at a national, state, and local level. Further, the Company has taken actions to serve our communities during the pandemic, including permitting short-term payment deferrals to current customers, as well as originating bridge loans and SBA PPP loans. It was determined that more time was needed to assess the impact of the uncertainty and related actions on the Company's allowance for loan and lease losses under the CECL methodology. The Company's $1.0 million , or 74%, increase in provision for loan and lease losses in the third quarter of 2020 as compared to the third quarter of 2019, and the $4.3 million , or 210% increase in the first nine months of 2020 compared to the same period in 2019 is due to growth in organic non-owner occupied commercial real estate loans, downgrades of certain loans deferred under section 4016 of the Cares Act and the continued uncertainty surrounding the estimated impact that COVID-19 will have on the economy and our loan customers. Management adjusted its qualitative risk factors under our current incurred loss model for economic conditions, changes in the mix of the portfolio due to loans subject to a payment deferral, potential changes in collateral values due to reduced cash flows, and external factors such as government actions. In particular, the uncertainty regarding our customers' ability to repay loans could be adversely impacted by COVID-19 given higher unemployment rates, requests for payment deferrals, temporary business shut-downs, and reduced consumer and business spending. Noninterest Income Total noninterest income reflects increases of $1.2 million , or 21%, for the quarter ended September 30, 2020 as compared to the same period in 2019, and $2.5 million , or 14% for the year-to-date period ended September 30, 2020 as compared to the same period in 2019. The third quarter 2020 comparison to the third quarter 2019 includes a $0.8 million non-recurring gain resulting from the wrap-up of a low-income housing tax credit fund investment, as well as a $0.7 million favorable fluctuation in income on Bank-Owned Life Insurance (BOLI) associated with deferred compensation plans. Those increases were partially offset by lower service charges on deposits. In comparing the 2020 year-to-date period to the same period in 2019, the variances in noninterest income came from a $0.4 million increase in BOLI income, a $1.4 million gain from the wrap up of low-income housing tax credit fund investments, a decrease of $0.6 million in low-income housing tax credit fund expenses, an increase of $0.2 million in the valuation gain of restricted equity investments owned by the Company and a $0.4 million gain on the sale of debt securities from the restructuring of the portfolio in the second quarter. Service charges on customer deposit account income declined by $0.3 million , or 10%, to $3.0 million in the third quarter of 2020 as compared to the third quarter of 2019. This service charge income was $0.6 million lower, or 7%, in the first nine months of 2020, as compared to the same period in 2019. These declines are primarily a result of decreases in overdraft income offset by increases in interchange income and other deposit fees including analysis. Noninterest Expense Total noninterest expense increased by $2.2 million , or 13%, in the third quarter of 2020 relative to the third quarter of 2019, and by $2.6 million , or 5%, in the first nine months of 2020 as compared to the same period in 2019. Salaries and Benefits were $0.9 million , or 10%, higher in the third quarter of 2020 as compared to the third quarter of 2019 and $2.1 million , or 8%, higher for the first nine months of 2020 compared to the same period in 2019. The reason for this increase is due to several factors, including merit increases for employees due to annual performance evaluations for 2019, new loan production teams for the northern and southern California markets, and a focus on hiring higher-level staff and management. Salary expense deferrals related to loan originations were $0.1 million lower in the third quarter of 2020 relative to the third quarter of 2019, and $0.4 million higher for the first nine months of 2020 compared to the same period in 2019. There have not been any permanent or temporary reductions in employees as a result of COVID-19 although total full-time equivalent employees have declined from 512 at September 30, 2019 to 491 at September 30, 2020 . Occupancy expenses remained relatively flat for the respective comparative periods. Other noninterest expense increased $1.2 million , or 21%, for the third quarter 2020 as compared to the third quarter in 2019, but was only $0.4 million , or 2%, higher for the first nine months of 2020 as compared to the same period in 2019. The variance for the third quarter of 2020 compared to the same period in 2019 was primarily driven by a $0.6 million increase in loan servicing expense, due mostly to write-downs of other real estate owned assets; a $0.5 million increase in professional services; partially offset by a $0.3 million decrease in advertising costs. The $0.5 million change in professional services includes a $0.2 million increase in FDIC assessments due to the Small Bank Assessment credits applied against FDIC deposit insurance costs in the comparative quarter for 2019, a $0.5 million increase in deferred compensation expense for directors, which is linked to the changes in BOLI income, and a $0.2 million reduction in consulting costs. The Company continues to actively consider a variety of operational efficiency opportunities. For the first nine months of 2020, the $0.4 million increase in other noninterest expense was driven by a $0.6 million increase in loan services costs (mostly in foreclosed assets), a $0.3 million increase in deposit services costs, a $0.2 million increase in sundry losses, partially offset by a $0.5 million decrease in advertising costs and a $0.2 million decrease in professional services expense. The Company's provision for income taxes was 23.4% of pre-tax income in the third quarter of 2020 relative to 24.2% in the third quarter of 2019, and 23.5% of pre-tax income for the first nine months of 2020 relative to 24.9% for the same period in 2019. The decline in tax rate in the third quarter of 2020 is due mostly to a higher percent of the income being tax-exempt income. Balance Sheet Summary Balance sheet changes during the first nine months of 2020 include an increase in total assets of $605.8 million , or 23%, due mostly to a $617.7 million increase, or 35%, in the loan portfolio. This significant increase in loan balances in 2020 is due to a $437.8 million increase in non-agricultural real estate loans, a $123.6 million increase in PPP loans, and a $98.4 million change in mortgage warehouse line utilization. Non-agricultural real estate loan balances increased due to deliberate and concentrated efforts of our Northern and Southern market loan production teams. These teams were added in the first quarter 2020 as part of a strategic initiative that began in 2019 to expand our geographic footprint. Our loan pipeline at September 30, 2020 remains robust but has softened from the previous quarter due to a strategic shift to focus on further diversifying our loan mix. Based on this pipeline, we expect continued loan growth in the fourth quarter but not at the same pace as the prior two quarters. Mortgage warehouse loan balances increased due to market factors favorably impacting line utilization due to both mortgage originations and refinancing activity, as well as normal seasonal mortgage activity. With regards to line utilization, excluding mortgage warehouse and consumer overdraft lines, unused commitments were $304.8 million on September 30, 2020 , as compared to $303.4 million on December 31, 2019 . Total utilization, excluding mortgage warehouse and consumer overdraft lines was 55% at September 30, 2020 , as compared to 59% at December 31, 2019 . Commercial line utilization was 57% on September 30, 2020 , as compared to 61% on December 31, 2019 . Mortgage warehouse utilization was 61% at September 30, 2020 , as compared to 59% on December 31, 2019 . The Company’s core deposit intangible assets decreased $0.8 million to $4.6 million at September 30, 2020 from $5.4 million at December 31, 2019 . Goodwill remained at $27.4 million during the first nine months of 2020 and was approximately 8% of total capital at September 30, 2020 . The Company performed a qualitative test for impairment and determined that no goodwill impairment was probable at September 30, 2020 . The Company will continue to evaluate qualitative factors to determine if a quantitative test for goodwill impairment is necessary. As of September 30, 2020 , deposit balances reflected growth of $423.3 million , or 20%, during the first nine months of 2020. Core non-maturity deposits increased by $467.4 million , or 28%, during this period while customer time deposits decreased by $44.1 million , or 9%. Wholesale brokered deposits of $50.0 million were unchanged at September 30, 2020 as compared to December 31, 2019 . Overall noninterest-bearing deposits as a percent of total deposits at September 30, 2020 , increased to 37.7%, as compared to 31.9% at December 31, 2019 . Other interest-bearing liabilities of $229.7 million on September 30, 2020 is comprised of $36.7 million of customer repurchase agreements, $148.0 million in overnight FHLB borrowings, $5.0 million in short term borrowings, $5.0 million in long term borrowings, and $35.1 million in subordinated debentures. The increase in overnight FHLB borrowings was due mostly to support organic growth in non-owner occupied commercial real estate loans, PPP loans and changes in mortgage warehouse line utilization. It is anticipated that normal seasonal volatility will reduce utilization on mortgage warehouse lines and PPP loans will start to be forgiven in 2021. The Company continues to have substantial liquidity. At September 30, 2020 , and December 31, 2019 , the Company had the following sources of primary and secondary liquidity ($ in thousands): Primary and Secondary Liquidity Sources September 30, 2020 December 31, 2019 Cash and Due From Banks $ 88,933 $ 80,077 Unpledged Investment Securities 339,125 366,012 Excess Pledged Securities 61,655 70,955 FHLB Borrowing Availability 380,600 443,200 Unsecured Lines of Credit 80,000 80,000 Funds Available through Fed Discount Window 65,125 59,198 Totals $ 1,015,438 $ 1,099,441 In addition to the primary and secondary sources of liquidity listed above, the Company has also been approved to borrow $12 million from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (PPPLF). Should the Company wish to draw on the PPPLF it would be required to pledge individual SBA PPP loans as collateral. The loans are taken as collateral at their face value. Due to the Company’s liquidity throughout the third quarter of 2020 and expected liquidity in the fourth quarter of 2020, it has elected not to utilize the PPPLF at this time. Total capital of $336.2 million at September 30, 2020 reflects an increase of $27.0 million , or 9%, relative to year-end 2019. The increase in equity during the first nine months of 2020 was due to the addition of $26.5 million in net income, and a $11.6 million favorable swing in accumulated other comprehensive income/loss, net of $9.1 million in dividends paid, and $2.6 million in stock repurchases prior to March 15, 2020 . The remaining difference is related to stock options exercised during the first nine months. Asset Quality Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, increased by $3.6 million to $10.2 million for the first nine months of 2020 primarily due to the impact of one commercial real estate credit that went into foreclosure and the downgrade of certain loans deferred due to COVID 19 for which repayment has become uncertain. The Company's ratio of nonperforming loans to gross loans decreased to 0.30% at September 30, 2020 from 0.33% at December 31, 2019 . All of the Company's impaired assets are periodically reviewed and are either well-reserved based on current loss expectations, carried at the fair value of the underlying collateral, net of expected disposition costs or are sufficiently collateralized such that no specific reserve or impairment is necessary for the impaired asset in question. The single loan which moved to other real estate owned during the quarter has a pending contract and is expected to close escrow towards the end of October. There was a $4.9 million increase during the third quarter of 2020 in past due loans between 30-89 days and still accruing to $7.2 million at September 30, 2020 . This increase was primarily attributable to 2 loans for $6.5 million that returned to current status shortly after September 30, 2020 . The Company's allowance for loan and lease losses was $15.6 million at September 30, 2020 , as compared to a balance of $9.9 million at December 31, 2019 , and $11.2 million at September 30, 2019 . The $5.7 million increase during the first nine months of the year resulted from the addition of a $6.4 million loan loss provision in the first nine months of 2020, less $0.7 million in net charge offs recorded during the period. The additional loan loss provision in the first nine months of 2020 was precipitated primarily by the increase in non-owner-occupied commercial real estate loan balances as well as the impact of changes to qualitative factors associated with economic uncertainty during these unprecedented times. For further information regarding the Company's decision to defer the implementation of CECL under Section 4014 of the CARES Act, as well as further detail on the increase in provision during the third quarter of 2020, please see the discussion above under Provision for Loan and Lease Losses. The allowance was 0.65% of total loans at September 30, 2020 , 0.56% at December 31, 2019 and 0.62% at September 30, 2019 . Management's detailed analysis indicates that the Company's allowance for loan and lease losses should be sufficient to cover credit losses inherent in loan and lease balances outstanding as of September 30, 2020 , but no assurance can be given that the Company will not experience substantial future losses relative to the size of the allowance. As discussed above under the Provision for Loan and Lease Losses, the Company recorded $6.4 million in provision for loan and lease losses in the first nine months of 2020 as compared to $2.1 million in the first nine months of 2019. This increase is primarily due to organic growth of non-owner occupied commercial real estate loans, certain downgrades to loans on deferral not treated as TDR loan modifications, and the uncertainty of economic risks associated with the COVID-19 pandemic. The Company provided loan modifications not treated as TDRs to its customers of $386.2 million and $28.3 million , during the second and third quarters of 2020, respectively. The $28.3 million in new loan modifications in the third quarter of 2020 were primarily 90-day deferrals and each borrower was current at the time the loan was modified. The four largest loans modified in the fourth quarter totaled $26.0 million with a weighted-average LTV of 48.2%. The primary purpose of these four loan deferrals was for cash management and each borrower has indicated that they expect to resume payments at the end of the deferral period. Modifications in place prior to June 30, 2020 were typically structured to provide deferrals of both principal and interest for 180 days. As these loan modifications were for six-months, the Company believed that it was an effective use of resources to create a continuous monitoring process with dedicated internal personnel. These employees would have likely spent considerable time working through deferral extensions had we initially offered 90-day deferrals. Instead, these dedicated personnel proactively engaged with our borrowers who had temporary loan modifications to assess the likelihood that each borrower will be able to resume payments after the end of the modification period. Based on this process, as of September 30, 2020 , there were 26 loan deferrals that were downgraded, out of 309 such deferrals at that date: four loans for $1.9 million to impaired or nonaccrual status, five loans for $6.5 million to substandard status, and 17 loans for $17.3 million to special mention status. In addition, other loans have been identified as needing further review to determine if payments will resume. Based on this approach of proactively working with our customers during the second and third quarter 2020, the following table summarizes management’s expectation as of September 30, 2020 : As of 9-30-20 Borrowers that have indicated an intent to resume payments upon expiration of the deferral period (dollars in thousands) Deferment Loans Deferment Balance Deferment Loans as % of Total Loans in Category Yes No/Further Review Required CRE Non-owner Occupied Office 14 $ 24,701 8.16% $ 14,291 57.85% $ 10,410 42.15% Retail 24 46,378 15.10% 45,521 98.15% 857 1.85% Industrial 7 6,150 7.85% 6,150 100.00% - 0.00% Hotel 24 106,787 62.04% 100,512 94.12% 6,275 5.88% Special Purpose 9 7,640 11.53% 7,640 100.00% - 0.00% CRE Owner Occupied 72 71,332 21.69% 69,467 97.39% 1,865 2.61% Commercial - Secured by SFR 1-4 Unit 14 9,982 17.26% 9,237 92.53% 745 7.47% MultiFamily 4 6,337 7.73% 6,337 100.00% - 0.00% Commercial Construction Hotel 5 40,045 93.23% 40,045 100.00% - 0.00% Lots/Land and Other 8 13,723 11.75% 13,723 100.00% - 0.00% Ag Farm Mortgage & Ag Production 25 52,345 30.13% 52,345 100.00% - 0.00% Consumer SFR 1-4 Unit Mortgage and Consumer Other 45 11,011 7.43% 5,482 49.79% 5,529 50.21% Commercial & Industrial 58 9,427 4.34% 8,918 94.60% 509 5.40% Total Loan Deferments 309 $ 405,858 $ 379,668 93.55% $ 26,190 6.45% Based on borrower intent, it is expected that approximately $352.1 million of modified loans will resume normal payments in October 2020 , another $14.2 million are expected to resume payments in November 2020 and $1.6 million are expected to resume payments in December 2020 . With respect to the loans above that are not expected to resume normal payments or if additional review is required, approximately $25.6 million are secured by real estate with a weighted-average loan to value of such loans of 50.4%. The value is based on the last appraisal obtained for such property. About Sierra Bancorp Sierra Bancorp is the holding company for Bank of the Sierra ( www.bankofthesierra.com ), which is in its 43rd 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 , Los Angeles , Ventura , San Luis Obispo , and Santa Barbara . The Bank also maintains an online branch and provides specialized lending services through an agricultural credit center, an SBA center, and a dedicated loan production office in Rocklin, California . In 2020, 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 our borrowers’ actual payment performance as loan deferrals related to the COVID-19 pandemic expire, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, including the potential adverse impact of loan modifications and payment deferrals implemented consistent with recent regulatory guidance, 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 (balances in $000 's, unaudited) ASSETS 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 Cash and Due from Banks $ 88,933 $ 156,611 $ 106,992 $ 80,077 $ 80,689 Investment Securities 577,278 599,333 620,154 600,799 599,906 Real Estate Loans (Non-Agricultural) 1,695,918 1,463,235 1,259,448 1,258,081 1,263,136 Agricultural Real Estate Loans 127,963 134,454 141,740 144,033 144,618 Agricultural Production Loans 45,782 48,516 49,199 48,036 49,105 Commercial & Industrial Loans & Leases 217,224 221,502 111,990 115,532 115,737 Mortgage Warehouse Lines 287,516 338,124 228,608 189,103 216,913 Consumer Loans 5,897 6,266 7,040 7,780 8,151 Gross Loans & Leases 2,380,300 2,212,097 1,798,025 1,762,565 1,797,660 Deferred Loan & Lease Fees (3,078) (2,617) 2,741 2,896 2,946 Allowance for Loan & Lease Losses (15,586) (13,560) (11,453) (9,923) (11,200) Net Loans & Leases 2,361,636 2,195,920 1,789,313 1,755,538 1,789,406 Bank Premises & Equipment 27,216 27,779 28,425 27,435 27,988 Other Assets 144,555 130,401 125,585 129,970 137,971 Total Assets $ 3,199,618 $ 3,110,044 $ 2,670,469 $ 2,593,819 $ 2,635,960 LIABILITIES & CAPITAL Noninterest Demand Deposits $ 975,750 $ 949,662 $ 704,700 $ 690,950 $ 685,528 Interest-Bearing Transaction Accounts 656,922 641,815 576,014 549,812 545,100 Savings Deposits 361,857 346,262 304,894 294,317 287,774 Money Market Deposits 126,918 125,420 113,766 118,933 124,553 Customer Time Deposits 420,266 433,595 450,017 464,362 503,252 Wholesale Brokered Deposits 50,000 10,000 30,000 50,000 50,000 Total Deposits 2,591,713 2,506,754 2,179,391 2,168,374 2,196,207 Junior Subordinated Debentures 35,079 35,035 34,990 34,945 34,901 Other Interest-Bearing Liabilities 194,657 204,449 103,461 45,711 67,357 Total Deposits & Interest-Bearing Liabilities 2,821,449 2,746,238 2,317,842 2,249,030 2,298,465 Other Liabilities 41,922 36,373 33,168 35,504 34,142 Total Capital 336,247 327,433 319,459 309,285 303,353 Total Liabilities & Capital $ 3,199,618 $ 3,110,044 $ 2,670,469 $ 2,593,819 $ 2,635,960 GOODWILL & INTANGIBLE ASSETS (balances in $000 's, unaudited) 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 Goodwill $ 27,357 $ 27,357 $ 27,357 $ 27,357 $ 27,357 Core Deposit Intangible 4,575 4,844 5,112 5,381 5,650 Total Intangible Assets $ 31,932 $ 32,201 $ 32,469 $ 32,738 $ 33,007 CREDIT QUALITY (balances in $000 's, unaudited) 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 Nonaccrual Loans $ 7,186 $ 5,808 $ 7,351 $ 5,737 $ 6,719 Foreclosed Assets 2,970 2,893 766 800 762 Total Nonperforming Assets $ 10,156 $ 8,701 $ 8,117 $ 6,537 $ 7,481 Performing TDR's (not included in NPA's) $ 7,708 $ 9,192 $ 8,188 $ 8,415 $ 9,067 Net Charge Offs $ 687 $ 363 $ 270 $ 2,377 $ 600 Past Due & Still Accruing (30-89) $ 7,201 $ 2,333 $ 4,071 $ 2,875 $ 1,311 Non-TDR Deferred Loans $ 405,858 $ 386,243 $ - $ - $ - Nonperforming Loans to Gross Loans 0.30% 0.26% 0.41% 0.33% 0.37% NPA's to Loans plus Foreclosed Assets 0.43% 0.39% 0.45% 0.37% 0.42% Allowance for Loan Losses to Loans 0.65% 0.61% 0.64% 0.56% 0.62% SELECT PERIOD-END STATISTICS (unaudited) 9/30/2020 6/30/2020 3/31/2020 12/31/2019 9/30/2019 Shareholders Equity / Total Assets 10.5% 10.5% 12.0% 11.9% 11.5% Gross Loans / Deposits 91.8% 88.2% 82.5% 81.3% 81.9% Noninterest Bearing Deposits / Total Deposits 37.6% 37.9% 32.3% 31.9% 31.2% CONSOLIDATED INCOME STATEMENT (in $000 's, unaudited) Qtr Ended: Qtr Ended: Nine Months Ended: 9/30/2020 6/30/2020 9/30/2019 9/30/2020 9/30/2019 Interest Income $ 29,043 $ 25,385 $ 27,901 $ 80,481 $ 83,172 Interest Expense 969 1,243 3,526 4,478 10,625 Net Interest Income 28,074 24,142 24,375 76,003 72,547 Provision for Loan & Lease Losses 2,350 2,200 1,350 6,350 2,050 Net Interest after Provision 25,724 21,942 23,025 69,653 70,497 Service Charges 2,950 2,618 3,292 8,752 9,386 BOLI Income 1,310 649 590 1,997 1,617 Gain on Investments - 390 - 390 29 Other Noninterest Income 2,845 3,243 1,987 8,973 6,599 Total Noninterest Income 7,105 6,900 5,869 20,112 17,631 Salaries & Benefits 9,698 9,266 8,784 29,136 27,021 Occupancy Expense 2,559 2,504 2,485 7,390 7,296 Other Noninterest Expenses 7,046 6,263 5,819 18,630 18,280 Total Noninterest Expense 19,303 18,033 17,088 55,156 52,597 Income Before Taxes 13,526 10,810 11,806 34,609 35,531 Provision for Income Taxes 3,170 2,506 2,854 8,144 8,855 Net Income $ 10,356 $ 8,303 $ 8,952 $ 26,465 $ 26,676 TAX DATA Tax-Exempt Muni Income $ 1,467 $ 1,440 $ 1,160 $ 4,246 $ 3,276 Interest Income - Fully Tax Equivalent $ 29,433 $ 25,769 $ 28,209 $ 81,610 $ 84,043 PER SHARE DATA (unaudited) Qtr Ended: Qtr Ended: Nine Months Ended: 9/30/2020 6/30/2020 9/30/2019 9/30/2020 9/30/2019 Basic Earnings per Share 0.68 $0.55 0.58 $ 1.74 1.74 Diluted Earnings per Share 0.67 $0.54 0.58 $ 1.72 1.73 Common Dividends 0.20 $0.20 0.19 $ 0.60 0.55 Weighted Average Shares Outstanding 15,192,838 15,191,823 15,318,580 15,215,167 15,320,041 Weighted Average Diluted Shares 15,387,309 15,237,655 15,434,788 15,422,647 15,449,340 Book Value per Basic Share (EOP) 21.92 $21.55 19.85 21.92 19.85 Tangible Book Value per Share (EOP) $ 19.84 $19.43 $17.69 $ 19.84 $17.69 Common Shares Outstanding (EOP) 15,341,723 15,192,838 15,284,491 15,341,723 15,284,491 KEY FINANCIAL RATIOS (unaudited) Qtr Ended: Qtr Ended: Nine Months Ended: 9/30/2020 6/30/2020 9/30/2019 9/30/2020 9/30/2019 Return on Average Equity 12.34% 10.30% 11.78% 10.90% 12.33% Return on Average Assets 1.34% 1.19% 1.36% 1.26% 1.40% Net Interest Margin (Tax-Equivalent) 3.98% 3.81% 4.09% 3.97% 4.20% Efficiency Ratio (Tax-Equivalent)¹ 53.74% 57.78% 55.64% 56.64% 57.51% Net C/O's to Avg Loans (not annualized) 0.01% 0.00% 0.00% 0.04% 0.03% AVERAGE BALANCES AND RATES (balances in $000 's, unaudited) For the quarter ended For the quarter ended For the quarter ended September 30, 2020 June 30, 2020 September 30, 2019 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 $ 6,942 $ 2 0.11% $ 53,209 $ 12 0.09% $ 23,447 $ 139 2.35% Taxable 366,046 1,832 1.99% 403,517 2,250 2.22% 426,523 2,484 2.31% Non-taxable 227,283 1,467 3.25% 216,746 1,440 3.38% 169,109 1,160 3.44% Total investments 600,271 3,301 2.45% 673,472 3,702 2.44% 619,079 3,783 2.62% Loans and Leases: (3) Real estate 1,700,241 20,467 4.79% 1,477,380 18,355 5.00% 1,425,093 19,858 5.53% Agricultural Production 47,733 435 3.63% 47,806 452 3.80% 50,394 753 5.93% Commercial 226,511 2,485 4.36% 170,876 1,080 2.54% 117,414 1,461 4.94% Consumer 6,226 236 15.08% 6,667 225 13.57% 8,467 354 16.59% Mortgage warehouse lines 262,593 2,087 3.16% 206,669 1,532 2.98% 169,786 1,646 3.85% Other 1,868 32 6.82% 2,811 39 5.58% 2,458 46 7.42% Total loans and leases 2,245,172 25,742 4.56% 1,912,209 21,683 4.56% 1,773,612 24,118 5.39% Total interest earning assets (4) 2,845,443 $ 29,043 4.12% 2,585,681 $ 25,385 4.01% 2,392,691 $ 27,901 4.68% Other earning assets 13,190 13,190 12,743 Non-earning assets 215,819 207,623 199,447 Total assets $ 3,074,452 $ 2,806,494 $ 2,604,881 Liabilities and shareholders' equity Interest bearing deposits: Demand deposits $ 140,634 $ 75 0.21% $ 134,159 $ 71 0.21% $ 115,971 $ 87 0.30% NOW 516,915 89 0.07% 481,679 83 0.07% 446,974 133 0.12% Savings accounts 354,331 51 0.06% 327,833 46 0.06% 290,221 79 0.11% Money market 126,567 28 0.09% 125,594 31 0.10% 120,196 53 0.17% Time Deposits 428,171 383 0.35% 442,762 625 0.57% 499,572 2,367 1.88% Wholesale Brokered Deposits 29,696 15 0.20% 19,890 37 0.75% 44,946 264 2.33% Total interest bearing deposits 1,596,314 641 0.16% 1,531,917 893 0.23% 1,517,880 2,983 0.78% Borrowed funds: Junior Subordinated Debentures 35,052 258 2.93% 35,009 311 3.57% 34,876 453 5.15% Other Interest-Bearing Liabilities 107,596 70 0.26% 45,936 39 0.34% 37,092 90 0.96% Total borrowed funds 142,648 328 0.91% 80,945 350 1.74% 71,968 543 2.99% Total interest bearing liabilities 1,738,962 969 0.22% 1,612,862 $ 1,243 0.31% 1,589,848 3,526 0.88% Demand deposits - Noninterest bearing 958,233 830,333 668,139 Other liabilities 43,521 39,155 45,488 Shareholders' equity 333,736 324,144 301,406 Total liabilities and shareholders' equity $ 3,074,452 $ 2,806,494 $ 2,604,881 Interest income/interest earning assets 4.12% 4.01% 4.68% Interest expense/interest earning assets 0.14% 0.20% 0.59% Net interest income and margin (5) $ 28,074 3.98% $ 24,142 3.81% $ 24,375 4.09% ____________________ (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 $1,302 thousand and $(137) thousand for the quarters ended September 30, 2020 and 2019, respectively, and $(236) thousand for the quarter ended June 30, 2020 . (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 (balances in $000’s, unaudited) For the nine months ended For the nine months ended September 30, 2020 September 30, 2019 Assets Average Balance (1) Income/ Expense Average Rate/Yield (2) Average Balance (1) Income/ Expense Average Rate/Yield (2) Investments: Federal funds sold/due from time $ 32,332 $ 155 0.64% $ 17,948 $ 327 2.44% Taxable 392,617 6,542 2.22% 423,668 7,692 2.43% Non-taxable 213,294 4,246 3.36% 153,763 3,276 3.61% Total investments 638,243 10,943 2.52% 595,379 11,295 2.73% Loans and leases: (3) Real estate 1,524,821 57,544 5.04% 1,449,603 60,057 5.54% Agricultural 48,022 1,470 4.09% 50,742 2,326 6.13% Commercial 168,574 4,661 3.69% 120,011 4,575 5.10% Consumer 6,822 831 16.27% 8,615 961 14.91% Mortgage warehouse lines 204,839 4,884 3.18% 110,776 3,812 4.60% Other 3,302 148 5.99% 2,995 146 6.52% Total loans and leases 1,956,380 69,538 4.75% 1,742,742 71,877 5.51% Total interest earning assets (4) 2,594,623 80,481 4.20% 2,338,121 83,172 4.81% Other earning assets 13,074 12,312 Non-earning assets 206,816 204,480 Total assets $ 2,814,513 $ 2,554,913 Liabilities and shareholders' equity Interest bearing deposits: Demand deposits $ 121,246 $ 209 0.23% $ 111,808 $ 248 0.30% NOW 485,176 295 0.08% 440,443 393 0.12% Savings accounts 326,730 170 0.07% 289,263 230 0.11% Money market 123,149 101 0.11% 124,090 136 0.15% Certificates of deposit, under $100,000 78,239 270 0.46% 90,103 843 1.25% Certificates of deposit, $100,000 or more 365,532 2,104 0.77% 397,115 6,308 2.12% Brokered deposits 30,135 219 0.97% 47,594 873 2.45% Total interest bearing deposits 1,530,207 3,368 0.29% 1,500,416 9,031 0.80% Borrowed funds: Federal funds purchased 511 1 0.26% 398 1 0.34% Repurchase agreements 33,676 101 0.40% 21,389 64 0.40% Short term borrowings 28,299 43 0.20% 6,972 123 2.36% TRUPS 35,008 965 3.68% 34,830 1,406 5.40% Total borrowed funds 97,494 1,110 1.52% 63,589 1,594 3.35% Total interest bearing liabilities 1,627,701 4,478 0.37% 1,564,005 10,625 0.91% Demand deposits - non-interest bearing 822,882 658,784 Other liabilities 39,646 42,752 Shareholders' equity 324,284 289,372 Total liabilities and shareholders' equity $ 2,814,513 $ 2,554,913 Interest income/interest earning assets 4.20% 4.81% Interest expense/interest earning assets 0.23% 0.61% Net interest income and margin(5) $ 76,003 3.97% $ 72,547 4.20% ____________________ (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 $924 thousand and $(314) thousand for the nine months ended September 30, 2020 and 2019, 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/20201019005143/en/ Kevin McPhaill , President/CEO (559) 782‑4900 or (888) 454‑BANK www.sierrabancorp.com Source: Sierra Bancorp