Table of Contents 0 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2025 Commission file number: 000-33063 SIERRA BANCORP (Exact name of Registrant as specified in its charter) California 33-0937517 (State of Incorporation) (IRS Employer Identification No) 86 North Main Street, Porterville, California 93257 (Address of principal executive off ...

Core Insights - Sierra Bancorp reported revenue of $40.03 million for Q3 2025, a year-over-year increase of 3.8% and a surprise of +2.11% compared to the Zacks Consensus Estimate of $39.2 million [1] - The company's EPS for the quarter was $0.72, down from $0.74 a year ago, with an EPS surprise of -8.86% against the consensus estimate of $0.79 [1] Financial Performance Metrics - Net Interest Margin was reported at 3.8%, slightly above the three-analyst average estimate of 3.7% [4] - The Efficiency Ratio (tax-equivalent) was 58.1%, compared to the estimated 58.2% by three analysts [4] - Net Charge-Offs as a percentage of Average Loans were 0%, better than the average estimate of 0.1% [4] - Average Interest-Earning Assets totaled $3.4 billion, below the average estimate of $3.51 billion [4] - Total Non-performing Loans were $14.01 million, compared to the average estimate of $15.74 million [4] - Total Nonperforming Assets were $15.85 million, slightly above the average estimate of $15.74 million [4] - Total Non-interest Income was $8.06 million, exceeding the average estimate of $7.41 million [4] - Net Interest Income was reported at $31.97 million, above the average estimate of $31.78 million [4] Stock Performance - Shares of Sierra Bancorp have returned -7.9% over the past month, while the Zacks S&P 500 composite has increased by +2.5% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Sierra Bancorp (BSRR) came out with quarterly earnings of $0.72 per share, missing the Zacks Consensus Estimate of $0.79 per share. This compares to earnings of $0.74 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -8.86%. A quarter ago, it was expected that this parent company of Bank of the Sierra would post earnings of $0.74 per share when it actually produced earnings of $0.78, delivering a surprise of +5.41%.Over the last ...

Financial Performance - Consolidated net income for Q3 2025 was $9.7 million, a decrease of $0.9 million, or 9%, compared to Q2 2025[2] - For the first nine months of 2025, consolidated net income was $29.4 million, down $0.8 million, or 3%, from the same period in 2024[2] - Diluted earnings per share for the first nine months of 2025 increased to $2.15, up 3% from $2.09 in the same period in 2024[2] - Net income for the nine months ended September 30, 2025, was $29,433,000, compared to $30,196,000 for the same period last year[60] - Net income for the three months ended September 30, 2025, is $9,699,000, a decrease from $10,633,000 for the previous quarter and $10,603,000 for the same quarter last year[65] Loan and Deposit Activity - Total gross loans increased by $57.2 million, or 9% annualized, to $2.5 billion during the quarter[5] - Customer deposits rose by $13.3 million, or 2% annualized, to $2.7 billion, despite a $41.7 million decline in total deposits due to a reduction in higher-cost brokered deposits[5] - Gross loans ending balance was $2,491.8 million as of September 30, 2025, reflecting an increase from $2,434.6 million at June 30, 2025[37] - Deposit balances grew by $41.1 million, or 1%, during the first nine months of 2025, with core non-maturity deposits increasing by $138.4 million, or 7%[39] - Total deposits decreased to $2,932,760 thousand as of September 30, 2025, from $2,974,469 thousand at June 30, 2025[56] Interest Income and Margin - Net interest income increased by $1.3 million, or 4%, in Q3 2025 compared to the prior linked quarter, driven by a net interest margin increase to 3.78%[5] - For Q3 2025, net interest income increased by $3.1 million, or 3%, primarily due to a decrease of 25 basis points in the cost of funds and an increase in average interest-earning assets by $43.5 million[20] - The company's net interest margin was 3.78% for Q3 2025, up from 3.66% in Q3 2024[23] - Total interest-earning assets for the quarter ended September 30, 2025, were $3,396,714 thousand, with a net interest income of $31,968 thousand, resulting in a net interest margin of 3.78%[70] - The net interest margin for the nine months ended September 30, 2025, was 3.73%, with a net interest income of $92,734 thousand[70] Credit Quality - Nonperforming loans to total gross loans ratio improved to 0.56%, down from 0.62% in the prior linked quarter[5] - The provision for credit losses was $7.0 million, an increase of $4.6 million compared to the prior year-to-date period[7] - The provision for credit losses on loans was $3.7 million for Q3 2025, compared to $1.2 million in Q3 2024, with a year-to-date provision of $6.9 million in 2025 versus $2.3 million in 2024[24] - Total nonperforming assets decreased by $3.8 million to $15.8 million for the first nine months of 2025, with a nonperforming loans to gross loans ratio of 0.56% as of September 30, 2025, down from 0.84% at December 31, 2024[44] - Nonperforming loans decreased to $14,006,000 from $14,981,000 in the previous quarter, indicating improved credit quality[58] Capital and Equity - Total capital increased by $2.8 million, or 1%, to $360.1 million at September 30, 2025, due to $29.4 million in net income[41] - Total stockholders' equity as of September 30, 2025, is $360,083,000, an increase from $355,707,000 as of June 30, 2025, and $358,698,000 as of September 30, 2024[64] - Tangible common equity increased to $332,594,000 as of September 30, 2025, compared to $328,056,000 as of June 30, 2025, and $330,561,000 as of September 30, 2024[64] Efficiency and Expenses - The efficiency ratio (tax-equivalent) improved to 58.05% for the three months ended September 30, 2025, compared to 59.43% in the previous quarter[62] - Total noninterest expense for the three months ended September 30, 2025, is $23,635,000, a slight decrease from $23,767,000 in the previous quarter and an increase from $22,810,000 in the same quarter last year[65] Other Financial Metrics - The effective tax rate decreased to 23.6% of pre-tax income in Q3 2025, down from 26.4% in Q3 2024[33] - The allowance for credit losses on loans and leases increased to $25.2 million at September 30, 2025, compared to $21.7 million at June 30, 2025, primarily due to a $3.5 million increase in specific reserves for an impaired agricultural production loan[46] - The allowance for credit losses as a percentage of gross loans, excluding mortgage warehouse lines, was 1.21% at September 30, 2025, compared to 1.04% at June 30, 2025[49] - Book value per common share increased to $26.70 as of September 30, 2025, from $26.00 as of June 30, 2025, and $24.88 as of September 30, 2024[64]

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Core Points - Sierra Bancorp has announced a new share repurchase program allowing the repurchase of up to 1,000,000 shares of its common stock, effective after the current program expires on October 31, 2025, and continuing until October 31, 2026 [1] - The company declared a quarterly cash dividend of $0.25 per share, marking its 107th consecutive quarterly cash dividend, to be paid on November 14, 2025 [2] Company Overview - Sierra Bancorp is the parent company of Bank of the Sierra, which has been operating for 48 years and is one of the largest independent banks in the South San Joaquin Valley [3] - Bank of the Sierra offers a wide range of retail and commercial banking services through full-service branches across several counties in California and maintains an online branch [3] - In 2025, Bank of the Sierra was recognized as one of the strongest community banks in the country, receiving a 5-star rating from Bauer Financial [3]

PART I - FINANCIAL INFORMATION Presents Sierra Bancorp's unaudited financial statements and management's analysis for the quarter ended June 30, 2025 [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents Sierra Bancorp's unaudited consolidated financial statements for Q2 2025, including balance sheets, income statements, and cash flow statements, with explanatory notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and equity at June 30, 2025, compared to December 31, 2024 **Consolidated Balance Sheet Highlights (June 30, 2025 vs. December 31, 2024):** | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------- | | Total assets | $3,770,302 | $3,614,271 | $156,031 | 4.32% | | Total deposits | $2,974,469 | $2,891,668 | $82,801 | 2.86% | | Gross loans | $2,434,605 | $2,331,341 | $103,264 | 4.43% | | Total liabilities | $3,414,595 | $3,256,969 | $157,626 | 4.84% | | Total shareholders' equity | $355,707 | $357,302 | $(1,595) | -0.45% | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Details the company's revenues, expenses, and net income for the three and six months ended June 30, 2025 and 2024 **Consolidated Statements of Income Highlights (Three Months Ended June 30, 2025 vs. 2024):** | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total interest income | $42,717 | $43,495 | $(778) | -1.79% | | Total interest expense | $12,064 | $13,325 | $(1,261) | -9.46% | | Net interest income | $30,653 | $30,170 | $483 | 1.60% | | Net income | $10,633 | $10,263 | $370 | 3.61% | | Earnings per share diluted | $0.78 | $0.71 | $0.07 | 9.86% | **Consolidated Statements of Income Highlights (Six Months Ended June 30, 2025 vs. 2024):** | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total interest income | $84,170 | $84,455 | $(285) | -0.34% | | Total interest expense | $23,405 | $25,568 | $(2,163) | -8.46% | | Net interest income | $60,765 | $58,887 | $1,878 | 3.19% | | Net income | $19,734 | $19,593 | $141 | 0.72% | | Earnings per share diluted | $1.43 | $1.35 | $0.08 | 5.93% | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Presents net income and other comprehensive income components for the three and six months ended June 30, 2025 and 2024 **Consolidated Statements of Comprehensive Income Highlights (Three Months Ended June 30, 2025 vs. 2024):** | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Net income | $10,633 | $10,263 | $370 | 3.61% | | Other comprehensive income, net of tax | $221 | $1,199 | $(978) | -81.57% | | Comprehensive income | $10,854 | $11,462 | $(608) | -5.30% | **Consolidated Statements of Comprehensive Income Highlights (Six Months Ended June 30, 2025 vs. 2024):** | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Net income | $19,734 | $19,593 | $141 | 0.72% | | Other comprehensive income, net of tax | $2,597 | $5,257 | $(2,660) | -50.60% | | Comprehensive income | $22,331 | $24,850 | $(2,519) | -10.14% | [Consolidated Statements of Changes In Shareholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20In%20Shareholders'%20Equity) Outlines changes in equity from net income, other comprehensive income, stock repurchases, and dividends for the six months ended June 30, 2025 and 2024 **Consolidated Statements of Changes in Shareholders' Equity (Six Months Ended June 30, 2025 vs. 2024):** | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Balance, December 31 | $357,302 | $338,097 | $19,205 | | Net income | $19,734 | $19,593 | $141 | | Other comprehensive income, net of tax | $2,597 | $5,257 | $(2,660) | | Stock repurchase | $(17,987) | $(7,016) | $(10,971) | | Cash dividends paid | $(6,963) | $(6,748) | $(215) | | Balance, June 30 | $355,707 | $350,020 | $5,687 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 **Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, 2025 vs. 2024):** | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | Change (in thousands) | | :----------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Net cash provided by operating activities | $4,765 | $7,601 | $(2,836) | | Net cash (used in) provided by investing activities | $(125,539) | $170,084 | $(295,623) | | Net cash provided by (used in) financing activities | $150,122 | $(72,297) | $222,419 | | Increase in cash and cash equivalents | $29,348 | $105,388 | $(73,240) | | Cash and cash equivalents, end of period | $130,012 | $183,990 | $(53,978) | [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Provides detailed explanations of accounting policies, financial instruments, and other disclosures supporting the unaudited financial statements [Note 1 – The Business of Sierra Bancorp](index=9&type=section&id=Note%201%20%E2%80%93%20The%20Business%20of%20Sierra%20Bancorp) Describes Sierra Bancorp's operations as a California-based bank holding company, including its branch network and key financial metrics - Sierra Bancorp operates 35 full-service branches across California, with **total assets of $3.8 billion** and **deposits of $3.0 billion** as of June 30, 2025[27](index=27&type=chunk)[28](index=28&type=chunk) [Note 2 – Basis of Presentation](index=9&type=section&id=Note%202%20%E2%80%93%20Basis%20of%20Presentation) Explains the preparation of interim unaudited financial statements under GAAP and the company's single-segment community banking operations - The interim unaudited consolidated financial statements are prepared in a condensed format under GAAP, reflecting management's necessary adjustments[29](index=29&type=chunk)[30](index=30&type=chunk) - The company operates as a single segment focused on community banking activities, offering loan and deposit products[31](index=31&type=chunk) [Note 3 – Current Accounting Developments](index=10&type=section&id=Note%203%20%E2%80%93%20Current%20Accounting%20Developments) Discusses the adoption and anticipated impact of recent accounting standards updates on the company's financial reporting - The company adopted ASU 2023-07 (Segment Reporting) on January 1, 2024, with **no significant impact**[35](index=35&type=chunk) - ASU 2023-06 (Disclosure Improvements) and ASU 2023-09 (Income Tax Disclosures) are expected to be applied prospectively and are not anticipated to have a significant impact on financial statements[36](index=36&type=chunk)[37](index=37&type=chunk) - ASU 2024-03 (Expense Disaggregation Disclosures) is effective for annual periods beginning after December 15, 2026, and is not expected to have a significant impact[38](index=38&type=chunk) [Note 4 – Share Based Compensation](index=11&type=section&id=Note%204%20%E2%80%93%20Share%20Based%20Compensation) Details the company's equity compensation plan, share availability, and share-based compensation expenses for stock options and restricted stock awards - The 2023 Equity Compensation Plan, approved May 24, 2023, replaced the 2017 Plan, reserving **360,000 shares** for various equity awards[39](index=39&type=chunk) - As of June 30, 2025, **251,739 shares** remained available for grant[40](index=40&type=chunk) - Share-based compensation expense for stock options and restricted stock awards was **$0.5 million** for Q2 2025 and Q2 2024, and **$1.0 million** for the first half of both 2025 and 2024[40](index=40&type=chunk) **Restricted Stock Award Activity (Six Months Ended June 30):** | Metric | 2025 Shares | 2025 Weighted Average Grant-Date Fair Value | 2024 Shares | 2024 Weighted Average Grant-Date Fair Value | | :------------------------ | :---------- | :------------------------------------------ | :---------- | :------------------------------------------ | | Unvested shares, January 1 | 173,970 | $20.75 | 238,179 | $20.30 | | Granted | 62,692 | $30.94 | 36,114 | $19.10 | | Vested | (23,273) | $20.77 | (11,224) | $22.57 | | Forfeited | (3,004) | $19.97 | (906) | $24.26 | | Unvested shares, June 30 | 210,385 | $24.07 | 262,163 | $20.00 | [Note 5 – Earnings per Share](index=12&type=section&id=Note%205%20%E2%80%93%20Earnings%20per%20Share) Provides basic and diluted earnings per share figures for the current and prior periods, including the components of diluted EPS calculation - Basic EPS for Q2 2025 was **$0.78** (vs. $0.72 in Q2 2024) and diluted EPS was **$0.78** (vs. $0.71 in Q2 2024)[13](index=13&type=chunk)[45](index=45&type=chunk) - For the first half of 2025, basic EPS was **$1.44** (vs. $1.36 in 2024) and diluted EPS was **$1.43** (vs. $1.35 in 2024)[46](index=46&type=chunk) - Diluted EPS calculations include in-the-money stock options and unvested restricted stock awards[47](index=47&type=chunk) [Note 6 – Comprehensive Income](index=13&type=section&id=Note%206%20%E2%80%93%20Comprehensive%20Income) Defines comprehensive income as net income combined with other comprehensive income, primarily from unrealized gains and losses on available-for-sale securities - Comprehensive income includes net income and other comprehensive income, with the latter primarily consisting of unrealized gains and losses on available-for-sale investment securities[48](index=48&type=chunk) [Note 7 – Commitments and Contingent Liabilities](index=13&type=section&id=Note%207%20%E2%80%93%20Commitments%20and%20Contingent%20Liabilities) Outlines the company's off-balance sheet credit risks, including commitments to extend credit and mortgage warehouse lines **Off-Balance Sheet Credit Risk (in thousands):** | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Commitments to extend credit | $666,179 | $636,447 | | Standby letters of credit | $5,200 | $5,046 | - Unused commitments on mortgage warehouse lines were **$334.6 million** at June 30, 2025, up from **$311.6 million** at December 31, 2024[49](index=49&type=chunk) - The allowance for credit losses on unfunded commitments is estimated using funding rates and historical data[50](index=50&type=chunk) [Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements](index=14&type=section&id=Note%208%20%E2%80%93%20Fair%20Value%20Disclosures%20and%20Reporting%20and%20Fair%20Value%20Measurements) Explains the categorization of financial instrument fair value measurements into a three-level hierarchy and provides a detailed breakdown of fair values - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant observable inputs), and Level 3 (significant unobservable inputs)[54](index=54&type=chunk) - The company has not elected the fair value option for financial instruments where it is optional[56](index=56&type=chunk) **Fair Value of Financial Instruments (June 30, 2025, in thousands):** | Financial Assets | Carrying Amount | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :-------------- | :------ | :-------- | :-------- | | Cash and cash equivalents | $130,012 | $130,012 | $— | $— | | Investment securities available-for-sale | $668,834 | $— | $588,724 | $80,110 | | Investment securities held-to-maturity | $298,484 | $— | $281,702 | $— | | Loans held for investment | $2,412,929 | $— | $— | $2,300,109 | **Fair Value of Financial Liabilities (June 30, 2025, in thousands):** | Financial Liabilities | Carrying Amount | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :-------------- | :------ | :-------- | :-------- | | Deposits | $2,974,469 | $1,065,742 | $1,907,758 | $— | | Repurchase agreements | $126,509 | $— | $102,537 | $— | | Other borrowings | $154,400 | $— | $153,660 | $— | | Long-term debt | $49,438 | $— | $47,588 | $— | | Subordinated debentures | $35,928 | $— | $35,371 | $— | - Corporate bonds with a fair value of **$2.9 million** were transferred from Level 2 to Level 3 during the first six months of 2025 due to a lack of observable market data[61](index=61&type=chunk) [Note 9 – Investments](index=19&type=section&id=Note%209%20%E2%80%93%20Investments) Details the company's investment portfolio, distinguishing between available-for-sale and held-to-maturity securities, and discusses related unrealized gains/losses and tax credit investments - Available-for-sale securities are carried at fair market value, while held-to-maturity securities are at amortized cost, net of allowance for credit losses[67](index=67&type=chunk) - An unrealized loss of **$25.2 million** on transferred securities remains in accumulated other comprehensive income (loss) as of June 30, 2025[69](index=69&type=chunk) **Investment Securities (June 30, 2025, in thousands):** | Category | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Losses | Estimated Fair Value | | :-------------------------- | :------------- | :--------------------- | :---------------------- | :-------------------------- | :------------------- | | **Available-for-sale** | | | | | | | U.S. government agencies | $50,763 | $3 | $(410) | $— | $50,356 | | Mortgage-backed securities | $179,930 | $933 | $(2,412) | $— | $178,451 | | State and political subdivisions | $47,975 | $3 | $(8,486) | $— | $39,492 | | Corporate bonds | $85,635 | $73 | $(5,598) | $— | $80,110 | | Collateralized loan obligations | $320,030 | $644 | $(249) | $— | $320,425 | | **Total available-for-sale** | **$684,333** | **$1,656** | **$(17,155)** | **$—** | **$668,834** | | **Held-to-maturity** | | | | | | | U.S. government agencies | $4,678 | $— | $(426) | $— | $4,252 | | Mortgage-backed securities | $122,149 | $2 | $(9,454) | $— | $112,697 | | State and political subdivisions | $171,672 | $73 | $(6,992) | $(15) | $164,753 | | **Total held-to-maturity** | **$298,499** | **$75** | **$(16,872)** | **$(15)** | **$281,702** | - The company recognized **$1.5 million** in tax credits and **$1.5 million** in amortization expense from Low-Income Housing Tax Credit (LIHTC) fund investments during the first six months of 2025[88](index=88&type=chunk) - The total LIHTC investment book balance was **$24.0 million** at June 30, 2025, with **$16.8 million** in remaining commitments[88](index=88&type=chunk) [Note 10 – Loans and Allowance for Credit Losses](index=25&type=section&id=Note%2010%20%E2%80%93%20Loans%20and%20Allowance%20for%20Credit%20Losses) Describes the allowance for credit losses on loans, provides a detailed loan distribution, and discusses nonaccrual loans and their impact on interest income - The Allowance for Credit Losses (ACL) on loans is a valuation allowance for expected uncollected principal[91](index=91&type=chunk) - Accrued interest receivable on loans, totaling **$7.3 million** at June 30, 2025, is excluded from the amortized cost basis[92](index=92&type=chunk) **Loan Distribution (in thousands):** | Loan Type | June 30, 2025 Amount | June 30, 2025 Percent | December 31, 2024 Amount | December 31, 2024 Percent | | :-------------------------- | :------------------- | :-------------------- | :----------------------- | :------------------------ | | Residential real estate | $370,348 | 15.21% | $381,438 | 16.36% | | Commercial real estate | $1,394,487 | 57.28% | $1,360,374 | 58.35% | | Other construction/land | $11,746 | 0.48% | $5,458 | 0.23% | | Farmland | $67,811 | 2.78% | $77,388 | 3.32% | | Other commercial | $185,404 | 7.62% | $177,013 | 7.59% | | Mortgage warehouse lines | $401,896 | 16.51% | $326,400 | 14.00% | | Consumer loans | $2,913 | 0.12% | $3,270 | 0.14% | | **Gross loans** | **$2,434,605** | **100.00%** | **$2,331,341** | **100.00%** | | Allowance for credit losses | $(21,680) | | $(24,830) | | | **Net Loans** | **$2,412,929** | | **$2,306,604** | | - Nonaccrual loans decreased to **$14.98 million** at June 30, 2025, from **$19.67 million** at December 31, 2024, primarily due to a **$5.3 million** charge-off on an agricultural production loan[95](index=95&type=chunk)[96](index=96&type=chunk) - The company would have recognized an additional **$0.6 million** in interest income for the first half of 2025 if these loans had been accruing[97](index=97&type=chunk) [Note 11 – Goodwill](index=35&type=section&id=Note%2011%20%E2%80%93%20Goodwill) Confirms the stable goodwill balance and the absence of impairment based on the latest annual test - Goodwill remained unchanged at **$27.4 million** as of June 30, 2025[121](index=121&type=chunk) - The annual impairment test was last performed on October 1, 2024, with no impairment found, and management continues to monitor for triggering events[122](index=122&type=chunk) [Note 12 – Borrowings and Other Arrangements](index=35&type=section&id=Note%2012%20%E2%80%93%20Borrowings%20and%20Other%20Arrangements) Details changes in repurchase agreements, long-term debt, and subordinated debentures, along with other borrowings and their weighted average rates - Repurchase agreements increased to **$126.5 million** at June 30, 2025, from **$108.9 million** at December 31, 2024[123](index=123&type=chunk) - Long-term debt remained stable at **$49.4 million**, and subordinated debentures increased slightly to **$35.9 million**[125](index=125&type=chunk)[126](index=126&type=chunk) **Other Borrowings (in thousands):** | Borrowing Type | June 30, 2025 Balance | June 30, 2025 Weighted Average Rate | December 31, 2024 Balance | December 31, 2024 Weighted Average Rate | | :-------------------------- | :-------------------- | :---------------------------------- | :------------------------ | :---------------------------------- | | Overnight Fed funds purchased | $40,000 | 4.49% | $— | 6.56% | | Short-term FHLB advance | $34,400 | 4.51% | $— | 5.46% | | Long-term FHLB advance | $80,000 | 3.91% | $80,000 | 3.91% | | **Total other borrowings** | **$154,400** | **4.10%** | **$80,000** | **3.97%** | [Note 13 – Revenue Recognition](index=36&type=section&id=Note%2013%20%E2%80%93%20Revenue%20Recognition) Explains the company's revenue recognition policies for customer contracts and financial instruments, providing a breakdown of noninterest income - Revenue from customer contracts (ASC 606), such as service charges and fees, is recognized as noninterest income[131](index=131&type=chunk) - Revenue from financial instruments like loans and investments is outside the scope of ASC 606[134](index=134&type=chunk) **Noninterest Income (Three Months Ended June 30, in thousands):** | Category | 2025 | 2024 | Change | | :----------------------------------- | :--- | :--- | :----- | | Service charges and fees on deposit accounts | $5,855 | $6,184 | $(329) | | Net gain (loss) on sale of securities available-for-sale | $1 | $— | $1 | | Bank-owned life insurance | $1,316 | $523 | $793 | | Other | $1,400 | $923 | $477 | | **Total noninterest income** | **$8,553** | **$7,630** | **$923** | **Noninterest Income (Six Months Ended June 30, in thousands):** | Category | 2025 | 2024 | Change | | :----------------------------------- | :--- | :--- | :----- | | Service charges and fees on deposit accounts | $11,436 | $11,909 | $(473) | | Net gain (loss) on sale of securities available-for-sale | $124 | $(2,883) | $3,007 | | Bank-owned life insurance | $1,051 | $1,738 | $(687) | | Other | $2,606 | $1,656 | $950 | | **Total noninterest income** | **$15,195** | **$16,219** | **$(1,024)** | [Item 2. Management's Discussion & Analysis of Financial Condition & Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20%26%20Analysis%20of%20Financial%20Condition%20%26%20Results%20of%20Operations) Provides management's perspective on Sierra Bancorp's financial performance, condition, and risk management, including forward-looking statements and critical accounting policies - Net income for Q2 2025 increased by **$0.4 million (4%) to $10.6 million**, driven by higher net interest and noninterest income[144](index=144&type=chunk) - Total assets increased by **$156.0 million (4.0%) to $3.8 billion** at June 30, 2025, primarily due to increases in gross loans (**$103.3 million**) and deposits (**$82.8 million**)[146](index=146&type=chunk) [Forward-Looking Statements](index=38&type=section&id=Forward-Looking%20Statements) Highlights the inherent risks and uncertainties associated with the company's forward-looking statements, including interest rate fluctuations and economic conditions - The report contains forward-looking statements subject to inherent risks and uncertainties, including fluctuations in interest rates, inflation, economic conditions, liquidity risks, credit losses, regulatory changes, operational risks, and the ability to diversify and grow the loan portfolio[137](index=137&type=chunk)[138](index=138&type=chunk)[139](index=139&type=chunk) [Critical Accounting Policies](index=39&type=section&id=Critical%20Accounting%20Policies) Focuses on the allowance for credit losses as a primary critical accounting policy, emphasizing its impact on financial statements - The company's critical accounting policies primarily involve the establishment of the allowance for credit losses, including the valuation of individually evaluated loans, which significantly impacts financial statements[142](index=142&type=chunk) [Overview of the Results of Operations and Financial Condition](index=39&type=section&id=Overview%20of%20the%20Results%20of%20Operations%20and%20Financial%20Condition) Provides a high-level summary of the company's financial performance and condition, setting the context for detailed analysis [Earnings Performance](index=39&type=section&id=Earnings%20Performance) Analyzes key earnings metrics, including net income, diluted EPS, and returns on equity and assets, for Q2 2025 versus Q2 2024 **Earnings Performance (Q2 2025 vs. Q2 2024):** | Metric | Q2 2025 | Q2 2024 | Change | | :----------------------------------- | :------ | :------ | :----- | | Net income (in millions) | $10.6 | $10.3 | $0.3 | | Diluted EPS | $0.78 | $0.71 | $0.07 | | Annualized return on average equity | 12.08% | 11.95% | 0.13% | | Annualized return on average assets | 1.16% | 1.14% | 0.02% | - The increase in noninterest income and noninterest expense includes an **$0.8 million** increase in bank-owned life insurance (BOLI) designed to offset changes to deferred compensation expense, which increased **$0.7 million** due to market conditions[146](index=146&type=chunk) [Net Interest Income and Net Interest Margin](index=41&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin) Examines the drivers of net interest income and net interest margin changes, including interest income, interest expense, and deposit mix shifts - Net interest income increased by **$0.5 million (2%) to $30.7 million** for Q2 2025 compared to Q2 2024, primarily due to a **23 basis point** decrease in interest expense on interest-bearing liabilities[149](index=149&type=chunk) **Net Interest Income and Margin (Q2 2025 vs. Q2 2024):** | Metric | Q2 2025 | Q2 2024 | Change | | :----------------------------------- | :------ | :------ | :----- | | Net interest income (in millions) | $30.7 | $30.2 | $0.5 | | Net interest margin | 3.68% | 3.69% | -0.01% | | Yield on interest-earning assets | 5.10% | 5.30% | -0.20% | | Cost of interest-bearing liabilities | 2.18% | 2.41% | -0.23% | - Interest expense decreased by **$1.3 million** in Q2 2025, driven by a **$49.8 million** average volume decrease in interest-bearing deposits and a **31 basis point** decrease in rates paid on them[152](index=152&type=chunk) - There was a favorable shift in deposit mix with transaction accounts increasing and higher-cost time and brokered deposits decreasing[152](index=152&type=chunk) [Provision for Credit Losses on Loans](index=49&type=section&id=Provision%20for%20Credit%20Losses%20on%20Loans) Discusses the provision for credit losses on loans, highlighting the increase in Q2 2025 due to a specific agricultural production loan - The company recorded a provision for credit losses of **$1.2 million** in Q2 2025, an increase from **$0.9 million** in Q2 2024[174](index=174&type=chunk) - This increase was mainly due to a **$5.3 million** prior allowance on an individually-evaluated agricultural production loan[174](index=174&type=chunk) [Noninterest Income and Noninterest Expense](index=50&type=section&id=Noninterest%20Income%20and%20Noninterest%20Expense) Analyzes the changes in noninterest income and expense, identifying key contributing factors such as BOLI, death benefits, and employee-related costs **Noninterest Income (Q2 2025 vs. Q2 2024, in thousands):** | Metric | Q2 2025 | Q2 2024 | Change | | :----------------------------------- | :------ | :------ | :----- | | Total noninterest income | $8,553 | $7,630 | $923 | | Service charges and fees on deposit accounts | $5,855 | $6,184 | $(329) | | Bank-owned life insurance | $1,316 | $523 | $793 | | Other noninterest income | $1,400 | $923 | $477 | **Noninterest Expense (Q2 2025 vs. Q2 2024, in thousands):** | Metric | Q2 2025 | Q2 2024 | Change | | :----------------------------------- | :------ | :------ | :----- | | Total noninterest expense | $23,767 | $22,692 | $1,075 | | Salaries and employee benefits | $12,544 | $12,029 | $515 | | Occupancy and equipment costs | $3,142 | $3,152 | $(10) | | Other noninterest expense | $8,081 | $7,511 | $570 | - Total noninterest income increased by **$0.9 million (12%)** in Q2 2025, driven by a **$0.7 million** positive variance in separate account corporate-owned life insurance assets and a **$0.5 million** increase in death benefits, partially offset by lower service charges on deposit accounts[179](index=179&type=chunk) - Total noninterest expense increased by **$1.1 million (5%)** in Q2 2025, mainly due to higher officer bonus and group health insurance costs within salaries and benefits, and increased deferred compensation expense for directors[183](index=183&type=chunk)[184](index=184&type=chunk)[186](index=186&type=chunk) [Provision for Income Taxes](index=52&type=section&id=Provision%20for%20Income%20Taxes) Explains the decrease in the effective tax rate due to the increasing proportion of tax credits and tax-exempt income - The provision for income taxes was **25.3%** of pre-tax income in Q2 2025, down from **27.8%** in Q2 2024[188](index=188&type=chunk) - For the first half of 2025, it was **25.5%**, down from **27.1%** in 2024, due to tax credits and tax-exempt income forming a larger percentage of total taxable income[189](index=189&type=chunk) [Balance Sheet Analysis](index=52&type=section&id=Balance%20Sheet%20Analysis) Provides a detailed analysis of the company's balance sheet components, including earning assets, investments, loan portfolio, and liabilities [Earning Assets](index=52&type=section&id=Earning%20Assets) Identifies loans and investments as primary earning assets, emphasizing their role in financial condition, growth, and credit quality - The company's interest-earning assets, comprising loans and investments, are key determinants of financial condition, with their composition, growth, and credit quality being significant factors[191](index=191&type=chunk) [Investments](index=52&type=section&id=Investments) Reviews the investment portfolio's size, composition, and changes in effective duration for available-for-sale and held-to-maturity securities - The investment portfolio totaled **$967.3 million (26% of total assets)** at June 30, 2025, a slight increase from **$961.5 million (27% of total assets)** at December 31, 2024[193](index=193&type=chunk) - This change was due to maturities and paydowns partially offsetting brokered deposit maturities[193](index=193&type=chunk) **Investment Portfolio by Type (in thousands):** | Investment Type | June 30, 2025 Amount | June 30, 2025 Percent | December 31, 2024 Amount | December 31, 2024 Percent | | :-------------------------------- | :------------------- | :-------------------- | :----------------------- | :------------------------ | | **Available for sale** | | | | | | U.S. government agencies | $50,356 | 5.21% | $50,153 | 5.22% | | Mortgage-backed securities | $178,451 | 18.45% | $93,503 | 9.72% | | State and political subdivisions | $39,492 | 4.08% | $40,803 | 4.24% | | Corporate bonds | $80,110 | 8.28% | $58,562 | 6.09% | | Collateralized loan obligations | $320,425 | 33.13% | $412,946 | 42.95% | | **Held to maturity** | | | | | | U.S. government agencies | $4,678 | 0.48% | $4,819 | 0.50% | | Mortgage-backed securities | $122,149 | 12.62% | $128,974 | 13.41% | | State and political subdivisions | $171,657 | 17.75% | $171,721 | 17.87% | | **Total securities** | **$967,318** | **100.00%** | **$961,481** | **100.00%** | - The expected effective duration for available-for-sale investments increased to **2.1 years** at June 30, 2025, from **1.5 years** at December 31, 2024[194](index=194&type=chunk) - For held-to-maturity investments, it increased to **6.1 years** from **6.0 years**[194](index=194&type=chunk) [Loan Portfolio](index=54&type=section&id=Loan%20Portfolio) Details the composition and growth of the loan portfolio, including increases in mortgage warehouse and commercial real estate loans, and regulatory concentration ratios **Loan Distribution (in thousands):** | Loan Type | June 30, 2025 Amount | June 30, 2025 Percent | December 31, 2024 Amount | December 31, 2024 Percent | | :-------------------------- | :------------------- | :-------------------- | :----------------------- | :------------------------ | | Residential real estate | $371,415 | 15.26% | $382,507 | 16.41% | | Commercial real estate | $1,392,075 | 57.18% | $1,357,833 | 58.25% | | Other construction/land | $11,662 | 0.48% | $5,472 | 0.23% | | Farmland | $67,967 | 2.79% | $77,547 | 3.33% | | Other commercial | $186,620 | 7.67% | $178,331 | 7.64% | | Mortgage warehouse lines | $401,896 | 16.50% | $326,400 | 14.00% | | Consumer loans | $2,974 | 0.12% | $3,344 | 0.14% | | **Total loans** | **$2,434,609** | **100.00%** | **$2,331,434** | **100.00%** | - Gross loan balances increased by **$103.3 million (4%)** during the first half of 2025, driven by increases in mortgage warehouse loans (**$75.5 million**), commercial real estate loans (**$34.1 million**), construction loans (**$6.3 million**), and other commercial loans (**$8.4 million**)[199](index=199&type=chunk) - New credit extended for the six months ended June 30, 2025, increased by **$39.2 million (52%)** over the same period in 2024[201](index=201&type=chunk) - The total regulatory CRE concentration ratio was **243.6%** at June 30, 2025, compared to **236.3%** at December 31, 2024[203](index=203&type=chunk) [Nonperforming Assets](index=57&type=section&id=Nonperforming%20Assets) Reports the decrease in nonperforming assets, primarily driven by a reduction in non-accrual loans due to a partial charge-off **Nonperforming Assets (in thousands):** | Metric | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :----------------------------------- | :-------------- | :---------------- | :-------------- | | Total nonperforming Loans | $14,981 | $19,668 | $6,473 | | Nonperforming loans as a % of total gross loans | 0.62% | 0.84% | 0.29% | | Nonperforming assets as a % of total gross loans and foreclosed assets | 0.62% | 0.84% | 0.29% | - Total nonperforming assets decreased by **$4.7 million to $15.0 million** for the first half of 2025, primarily due to a decrease in non-accrual loan balances from a partial charge-off of an agricultural production loan[207](index=207&type=chunk) [Allowance for Credit Losses on Loans](index=57&type=section&id=Allowance%20for%20Credit%20Losses%20on%20Loans) Explains the decrease in the allowance for credit losses on loans, mainly attributed to a reduction for individually evaluated loans following a partial charge-off - The allowance for credit losses on loans was **$21.7 million** at June 30, 2025, a decrease from **$24.8 million** at December 31, 2024[212](index=212&type=chunk) - This decrease is mainly due to a reduction in the allowance for individually evaluated loans, specifically related to a partial charge-off of an agricultural production loan[212](index=212&type=chunk) **Allowance for Credit Losses on Loans (in thousands):** | Metric | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :----------------------------------- | :-------------- | :---------------- | :-------------- | | Allowance for credit losses on loans | $21,680 | $24,830 | $21,640 | | Allowance as a percentage of gross loans | 0.89% | 1.07% | 0.97% | | Net loan charge-offs to average loans (annualized) | 1.10% | 0.59% | 0.44% | [Off-Balance Sheet Arrangements](index=58&type=section&id=Off-Balance%20Sheet%20Arrangements) Discusses the company's off-balance sheet commitments, including unused credit lines and mortgage warehouse line commitments, and FHLB letters of credit - Unused commitments to extend credit, including standby letters of credit, totaled **$671.4 million** at June 30, 2025, representing approximately **28%** of gross loans[214](index=214&type=chunk) - Mortgage warehouse line commitments increased by **$38.5 million** for the three months and **$98.5 million** for the six months ending June 30, 2025[216](index=216&type=chunk) - The company utilizes a **$125 million** letter of credit from the FHLB as security for certain local agency deposits, backed by pledged loans[218](index=218&type=chunk) [Other Assets](index=59&type=section&id=Other%20Assets) Reviews changes in non-earning cash, bank-owned life insurance, goodwill, and other miscellaneous assets - Non-earning cash and due from banks increased to **$112.9 million** at June 30, 2025, from **$79.6 million** at December 31, 2024[220](index=220&type=chunk) - Bank-owned life insurance (BOLI) increased by **$14.5 million to $67.7 million** due to additional policy purchases[223](index=223&type=chunk) - Goodwill remained at **$27.4 million**, with no impairment found in the last annual test[222](index=222&type=chunk) - Other assets include right-of-use assets, accrued interest receivable, deferred taxes, and investments in bank stocks and low-income housing credits[224](index=224&type=chunk)[225](index=225&type=chunk) [Deposits and Interest-Bearing Liabilities](index=60&type=section&id=Deposits%20and%20Interest-Bearing%20Liabilities) Analyzes the composition and changes in deposits and other interest-bearing liabilities, including repurchase agreements and FHLB borrowings [Deposits](index=60&type=section&id=Deposits) Details the growth and mix of deposit balances, including the increase in noninterest-bearing deposits and the proportion of uninsured deposits **Deposit Distribution (in thousands):** | Deposit Type | June 30, 2025 Amount | June 30, 2025 Percent | December 31, 2024 Amount | December 31, 2024 Percent | | :----------------------------------- | :------------------- | :-------------------- | :----------------------- | :------------------------ | | Noninterest-bearing demand deposits | $1,065,742 | 35.83% | $1,007,208 | 34.83% | | Interest-bearing demand deposits | $228,430 | 7.68% | $206,766 | 7.15% | | NOW | $374,864 | 12.60% | $380,987 | 13.18% | | Savings | $352,803 | 11.86% | $347,387 | 12.01% | | Money market | $148,084 | 4.98% | $140,793 | 4.87% | | Time | $514,596 | 17.30% | $533,577 | 18.45% | | Brokered deposits | $289,950 | 9.75% | $274,950 | 9.51% | | **Total deposits** | **$2,974,469** | **100.00%** | **$2,891,668** | **100.00%** | - Deposit balances increased by **$82.8 million (3%) to $3.0 billion** at June 30, 2025[229](index=229&type=chunk) - Noninterest-bearing deposits as a percentage of total deposits increased to **35.8%** from **34.8%** at December 31, 2024[229](index=229&type=chunk) - Uninsured deposits are estimated at **$751.1 million (26% of total deposits)**, excluding public agency deposits collateralized by FHLB letters of credit[229](index=229&type=chunk) - The bank maintains a diversified deposit base with no significant customer concentrations[229](index=229&type=chunk) [Other Interest-Bearing Liabilities](index=60&type=section&id=Other%20Interest-Bearing%20Liabilities) Reports on the changes in customer repurchase agreements, overnight borrowings, and term FHLB borrowings - Customer repurchase agreements increased to **$126.5 million** at June 30, 2025, from **$108.9 million** at December 31, 2024[230](index=230&type=chunk) - The company had **$74.4 million** in overnight borrowings and **$80.0 million** in term FHLB borrowings at June 30, 2025[233](index=233&type=chunk) - Long-term debt remained stable at **$49.4 million**, and subordinated debentures increased slightly to **$35.9 million** due to amortization of discount on junior subordinated debentures[234](index=234&type=chunk) [Noninterest-Bearing Liabilities](index=61&type=section&id=Noninterest-Bearing%20Liabilities) Discusses the decrease in other liabilities due to various settled transactions and reduced accrued interest - Other liabilities decreased by **$17.5 million (19%) to $73.0 million** at June 30, 2025, primarily due to settled investment security purchases, ICS transactions, funds advanced on low-income housing tax credit investments, and a decrease in accrued interest on time deposits[236](index=236&type=chunk) [Liquidity and Market Risk Management](index=61&type=section&id=Liquidity%20and%20Market%20Risk%20Management) Addresses the company's liquidity position, primary and secondary funding sources, and strategies for managing interest rate risk [Liquidity](index=61&type=section&id=Liquidity) Assesses the company's liquidity, including its loan-to-deposit ratio, available funding sources, and primary liquidity ratio - The company maintains substantial liquidity with a loan-to-deposit ratio of **82%** at June 30, 2025, below its internal policy guideline of **90%**[238](index=238&type=chunk) **Primary and Secondary Liquidity Sources (in thousands):** | Source | June 30, 2025 | December 31, 2024 | | :----------------------------------- | :-------------- | :---------------- | | Cash and cash equivalents | $130,012 | $100,664 | | Unpledged investment securities | $529,292 | $552,098 | | Excess pledged securities | $253,365 | $242,519 | | FHLB borrowing availability | $605,571 | $629,134 | | Unsecured lines of credit | $445,785 | $479,785 | | Secured lines of credit | $25,000 | $25,000 | | Funds available through fed discount window | $321,368 | $298,296 | | **Totals** | **$2,310,393** | **$2,327,496** | - Available funding sources totaled **$2.3 billion** at June 30, 2025, representing **77%** of total deposits and **307%** of estimated uninsured/uncollateralized deposits[242](index=242&type=chunk)[244](index=244&type=chunk) - The primary liquidity ratio was **21%**, exceeding the internal policy guideline of **15%**[244](index=244&type=chunk) [Interest Rate Risk Management](index=62&type=section&id=Interest%20Rate%20Risk%20Management) Describes the company's approach to managing interest rate risk through policies, earnings simulations, and sensitivity analysis - The company's primary market risk exposure is interest rate risk, managed through policies and procedures to limit earnings and balance sheet exposure[246](index=246&type=chunk) - Monthly earnings simulations are performed using dynamic balance sheets and various interest rate scenarios[247](index=247&type=chunk) **Estimated Net Interest Income Sensitivity (Over One Year, in thousands):** | Immediate change in Interest Rates (basis points) | June 30, 2025 % Change in Net Interest Income | June 30, 2025 $ Change in Net Interest Income | June 30, 2024 % Change in Net Interest Income | June 30, 2024 $ Change in Net Interest Income | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | +400 | 4.9% | $6,787 | 10.0% | $13,133 | | +300 | 3.8% | $5,239 | 7.5% | $9,865 | | +200 | 2.7% | $3,695 | 5.0% | $6,616 | | +100 | 1.5% | $2,020 | 2.5% | $3,349 | | Base | | | | | | -100 | (3.93)% | $(5,437) | (5.78)% | $(7,612) | | -200 | (8.07)% | $(11,156) | (11.78)% | $(15,512) | | -300 | (12.47)% | $(17,242) | (17.41)% | $(22,922) | | -400 | (16.94)% | $(23,424) | (21.87)% | $(28,798) | - The company is considered asset sensitive, though slightly less so than a year ago[249](index=249&type=chunk) - All interest rate shock scenarios are within internal policy guidelines, which limit projected decline in net interest income to no more than **10%** for a 100 basis point shock[250](index=250&type=chunk) [Capital Resources](index=64&type=section&id=Capital%20Resources) Reviews changes in shareholders' equity and regulatory capital ratios, confirming the bank's 'well capitalized' status under the community bank leverage ratio framework - Total shareholders' equity decreased by **$1.6 million (0.4%) to $355.7 million** at June 30, 2025, primarily due to **$18.0 million** in share repurchases and **$7.0 million** in dividends paid, partially offset by **$19.7 million** in net income and a **$2.6 million** favorable swing in AOCI[256](index=256&type=chunk)[257](index=257&type=chunk) **Regulatory Capital Ratios:** | Entity | Metric | June 30, 2025 | December 31, 2024 | Minimum Requirement to be Well Capitalized | Minimum Required Community Bank Leverage Ratio | | :----------------------------------- | :---------------------------------------------------- | :-------------- | :---------------- | :----------------------------------------- | :--------------------------------------------- | | Bank of the Sierra | Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") | 11.75% | 11.80% | 9.00% | 9.00% | | Sierra Bancorp | Tier 1 Capital to Adjusted Average Assets ("Leverage Ratio") | 10.69% | 10.93% | 9.00% | N/A | - The company's subsidiary bank has opted into the community bank leverage ratio framework, maintaining a leverage ratio above **9%**, thus meeting minimum capital requirements and being considered 'well capitalized'[262](index=262&type=chunk) [Item 3. Quantitative & Qualitative Disclosures about Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20%26%20Qualitative%20Disclosures%20about%20Market%20Risk) Refers to the detailed discussion on market risk, primarily interest rate risk, provided within Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and qualitative disclosures about market risk are incorporated by reference from the 'Liquidity and Market Risk Management' section within Item 2 of this report[264](index=264&type=chunk) [Item 4. Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of the company's disclosure controls and procedures and reports no significant changes in internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were adequate and effective as of June 30, 2025[265](index=265&type=chunk) - There were no significant changes in internal controls over financial reporting during the first six months of 2025 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[267](index=267&type=chunk) PART II - OTHER INFORMATION Contains additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits [Item 1. - Legal Proceedings](index=65&type=section&id=Item%201.%20-%20Legal%20Proceedings) States that ongoing legal actions are not expected to have a material adverse effect on the company's consolidated financial statements - Management believes that current legal actions will not result in an unfavorable outcome that has a material adverse effect on the company's consolidated financial statements[269](index=269&type=chunk) [Item 1A. - Risk Factors](index=65&type=section&id=Item%201A.%20-%20Risk%20Factors) Confirms no material changes to the risk factors previously disclosed in the company's Form 10-K for the fiscal year ended December 31, 2024 - No material changes were reported from the risk factors disclosed in the Company's Form 10-K for the fiscal year ended December 31, 2024[270](index=270&type=chunk) [Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20-%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the company's stock repurchase activity under the 2024 Share Repurchase Plan, including shares purchased and remaining authorization - The Board approved the 2024 Share Repurchase Plan in October 2024, authorizing **1,000,000 shares** for repurchase, expiring October 31, 2025[271](index=271&type=chunk) **Stock Repurchases (April 1 - June 30, 2025):** | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan | Maximum Number of Shares That May Yet Be Purchased Under the Plan at the End of the Period | | :-------------------------- | :----------------------------- | :--------------------------- | :------------------------------------------------------------------ | :--------------------------------------------------------------------------------------- | | April 1 - April 30, 2025 | — | — | — | 325,983 | | May 1 - May 31, 2025 | 72,585 | $27.95 | 72,585 | 253,398 | | June 1 - June 30, 2025 | 63,056 | $28.08 | 63,056 | 190,342 | | **Total** | **135,641** | | **135,641** | | [Item 3. - Defaults upon Senior Securities](index=66&type=section&id=Item%203.%20-%20Defaults%20upon%20Senior%20Securities) Indicates that this item is not applicable, signifying no defaults on senior securities - This item is not applicable[273](index=273&type=chunk) [Item 4. - Mine Safety Disclosures](index=66&type=section&id=Item%204.%20-%20Mine%20Safety%20Disclosures) Indicates that this item is not applicable, signifying no mine safety disclosures - This item is not applicable[273](index=273&type=chunk) [Item 5. - Other Information](index=66&type=section&id=Item%205.%20-%20Other%20Information) Indicates that this item is not applicable, signifying no other information to disclose - This item is not applicable[273](index=273&type=chunk) [Item 6. - Exhibits](index=67&type=section&id=Item%206.%20-%20Exhibits) Lists all exhibits filed with the Form 10-Q, including corporate documents, debt instruments, compensation plans, and certifications - The exhibits include Restated Articles of Incorporation, Amended and Restated By-laws, various debt indentures, salary continuation agreements, stock incentive plans, and employment agreements[274](index=274&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (Section 302 and 906 Certifications) are also included[274](index=274&type=chunk) [Signatures](index=69&type=section&id=Signatures) Contains the certifications and signatures of the company's principal executive, financial, and accounting officers - The report is signed by Kevin J. McPhaill (President & CEO), Christopher G. Treece (Chief Financial Officer), and Cindy L. Dabney (Principal Accounting Officer) on August 1, 2025[277](index=277&type=chunk)

Financial Performance - Sierra Bancorp reported revenue of $39.21 million for the quarter ended June 2025, a year-over-year increase of 3.7% [1] - The EPS for the same period was $0.78, compared to $0.71 a year ago, indicating a positive growth in earnings [1] - The reported revenue exceeded the Zacks Consensus Estimate of $38.35 million, resulting in a surprise of +2.23% [1] - The company delivered an EPS surprise of +5.41%, with the consensus EPS estimate being $0.74 [1] Key Metrics - Net Interest Margin was reported at 3.7%, slightly below the average estimate of 3.8% based on three analysts [4] - The Efficiency Ratio (tax-equivalent) was 59.4%, compared to the average estimate of 59.6% based on three analysts [4] - Net Charge-Offs as a percentage of Average Loans stood at 0.3%, higher than the average estimate of 0.1% [4] - Average Interest-Earning Assets were $3.39 billion, exceeding the average estimate of $3.36 billion from two analysts [4] - Total Non-performing Loans were reported at $14.98 million, lower than the estimated $16.35 million by two analysts [4] - Total Nonperforming Assets matched the Non-performing Loans figure at $14.98 million, also below the $16.35 million average estimate [4] - Total Non-interest Income was $8.55 million, surpassing the average estimate of $7.21 million from three analysts [4] - Net Interest Income was reported at $30.65 million, slightly below the average estimate of $31.03 million from three analysts [4] Stock Performance - Shares of Sierra Bancorp have returned +2.4% over the past month, compared to the Zacks S&P 500 composite's +4.9% change [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]

Core Insights - Sierra Bancorp reported quarterly earnings of $0.78 per share, exceeding the Zacks Consensus Estimate of $0.74 per share, and showing an increase from $0.71 per share a year ago, resulting in an earnings surprise of +5.41% [1] - The company achieved revenues of $39.21 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 2.23% and up from $37.8 million year-over-year [2] - The stock has gained approximately 5.5% since the beginning of the year, while the S&P 500 has increased by 8.6% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.75 on revenues of $39.1 million, and for the current fiscal year, it is $2.95 on revenues of $153.7 million [7] - The estimate revisions trend for Sierra Bancorp was favorable prior to the earnings release, leading to a Zacks Rank 2 (Buy) for the stock, indicating expected outperformance in the near future [6] Industry Context - The Banks - West industry, to which Sierra Bancorp belongs, is currently ranked in the top 36% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8]

[Financial Performance Summary](index=1&type=section&id=Financial%20Performance%20Summary) [Second Quarter and First Six Months 2025 Financial Highlights](index=1&type=section&id=Financial%20Highlights) Sierra Bancorp reported improved financial results for Q2 and the first half of 2025, driven by strong loan and deposit growth, an improved net interest margin, and a favorable efficiency ratio Quarterly and Year-to-Date Performance | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--- | :--- | :--- | :--- | :--- | | **Net Income** | $10.6 million | $10.3 million | $19.7 million | $19.6 million | | **Diluted EPS** | $0.78 | $0.71 | $1.43 | $1.35 | Q2 2025 vs. Linked Quarter (Q1 2025) Performance | Metric | Q2 2025 | Q1 2025 | Change | | :--- | :--- | :--- | :--- | | **Net Income** | $10.6 million | $9.1 million | +17% | | **Diluted EPS** | $0.78 | $0.65 | +19% | | **Return on Average Assets** | 1.16% | 1.02% | +14 bps | | **Return on Average Equity** | 12.08% | 10.44% | +164 bps | | **Efficiency Ratio** | 59.43% | 60.62% | Improved | - Overall loan growth was strong at **$127.9 million**, or **22% annualized**, during the second quarter[5](index=5&type=chunk) - The company declared a dividend of **$0.25 per share** and repurchased **135,641 shares** of stock during the quarter[5](index=5&type=chunk) [Detailed Financial Analysis](index=6&type=section&id=Detailed%20Financial%20Analysis) This section provides a detailed breakdown of the company's income statement, balance sheet, asset quality, and capital position, analyzing key changes and drivers of performance [Income Statement Analysis](index=6&type=section&id=Income%20Statement%20Analysis) Net interest income increased year-over-year for both the quarter and six-month period, primarily due to a decrease in the cost of interest-bearing liabilities which offset lower asset yields - Q2 2025 net interest income increased by **$0.5 million (2%)** year-over-year to **$30.7 million**, mainly due to a **23 basis point** decrease in interest expense on interest-bearing liabilities[18](index=18&type=chunk) - The provision for credit losses on loans for H1 2025 was **$3.2 million**, a significant increase from **$1.0 million** in H1 2024, primarily due to **$6.3 million** in net charge-offs, including a **$5.3 million** charge-off on a previously evaluated agricultural loan[24](index=24&type=chunk)[25](index=25&type=chunk) - Noninterest income and expense were impacted by market-driven changes in BOLI assets and deferred compensation, with BOLI income increasing by **$0.8 million** and deferred compensation expense rising by **$0.7 million** in Q2 2025 compared to Q2 2024[12](index=12&type=chunk) - The effective tax rate for Q2 2025 decreased to **25.3%** from **27.8%** in Q2 2024, as tax credits and tax-exempt income formed a larger portion of pre-tax income[33](index=33&type=chunk) [Balance Sheet Analysis](index=10&type=section&id=Balance%20Sheet%20Analysis) Total assets grew **4%** to **$3.8 billion** in the first half of 2025, fueled by a **$103.3 million** increase in gross loans, with deposits also increasing by **$82.8 million** and a favorable shift towards noninterest-bearing deposits Balance Sheet Changes (H1 2025) | Metric | Change in H1 2025 | Balance at 6/30/2025 | | :--- | :--- | :--- | | **Total Assets** | +$156.0 million (+4%) | $3.8 billion | | **Gross Loans** | +$103.3 million (+4%) | $2.43 billion | | **Total Deposits** | +$82.8 million (+3%) | $2.97 billion | - Key drivers of loan growth in H1 2025 were a **$75.5 million** increase in mortgage warehouse loans and a **$34.1 million** increase in commercial real estate loans[12](index=12&type=chunk)[36](index=36&type=chunk) - Noninterest-bearing deposits as a percentage of total deposits increased to **35.8%** at June 30, 2025, up from **34.8%** at year-end 2024[40](index=40&type=chunk) - Uninsured deposits, excluding collateralized public funds, were estimated to be approximately **26%** of total deposit balances[41](index=41&type=chunk) [Asset Quality and Credit Risk](index=12&type=section&id=Asset%20Quality%20and%20Credit%20Risk) Asset quality metrics improved in the first half of 2025, with nonperforming assets decreasing and the allowance for credit losses declining due to a specific agricultural loan charge-off Asset Quality Indicators | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Nonperforming Assets** | $15.0 million | $19.7 million | | **Nonperforming Loans / Gross Loans** | 0.62% | 0.84% | | **Allowance for Credit Losses / Gross Loans** | 0.89% | 1.07% | - The decrease in nonperforming assets was mainly due to the partial charge-off of one agricultural production loan[44](index=44&type=chunk) - The allowance for credit losses on loans decreased by **$3.2 million** in H1 2025, primarily due to the **$5.3 million** charge-off of the agricultural loan which had a corresponding specific allowance in the prior quarter[45](index=45&type=chunk) - Excluding mortgage warehouse loans, which have a low allowance, the allowance for credit losses as a percentage of gross loans was **1.04%** at June 30, 2025[48](index=48&type=chunk) [Liquidity and Capital](index=12&type=section&id=Liquidity%20and%20Capital) The company maintained robust liquidity and capital, with substantial primary and secondary liquidity sources, while regulatory capital ratios remained strong despite a slight capital decrease - Total primary and secondary liquidity sources stood at **$2.31 billion** as of June 30, 2025[43](index=43&type=chunk) Key Capital Ratios (June 30, 2025) | Ratio | Value | | :--- | :--- | | **Community Bank Leverage Ratio (Bank)** | 11.75% | | **Tangible Common Equity Ratio (Consolidated)** | 8.77% | - In H1 2025, total capital decreased by **$1.6 million**, as the **$19.7 million** in net income was offset by **$18.0 million** in share repurchases and **$7.0 million** in dividends[43](index=43&type=chunk) [Financial Statements and Supplementary Data](index=15&type=section&id=Financial%20Statements%20and%20Supplementary%20Data) [Consolidated Financial Statements](index=15&type=section&id=Consolidated%20Financial%20Statements) This section presents the unaudited Consolidated Statement of Condition (Balance Sheet) and Consolidated Income Statement, providing a detailed view of the company's financial position and performance Statement of Condition (Balance Sheet) Highlights (June 30, 2025) | Category | Amount (in thousands) | | :--- | :--- | | **Total Assets** | **$3,770,302** | | Net Loans | $2,412,929 | | Total Investment Securities | $967,318 | | **Total Liabilities** | **$3,414,595** | | Total Deposits | $2,974,469 | | **Total Capital** | **$355,707** | Consolidated Income Statement Highlights (Three Months Ended June 30, 2025) | Category | Amount (in thousands) | | :--- | :--- | | Net Interest Income | $30,653 | | Credit Loss Expense (Total) | $1,200 | | Noninterest Income | $8,553 | | Noninterest Expense | $23,767 | | **Net Income** | **$10,633** | [Supplementary Financial Data](index=10&type=section&id=Supplementary%20Financial%20Data) This section contains various supplementary tables that provide deeper insights into the company's financial health, including detailed breakdowns of credit quality, loan portfolio activity, allowance for credit losses by loan category, and average balance sheet data with corresponding yields and rates Credit Quality Data (June 30, 2025) | Metric | Amount (in thousands) | | :--- | :--- | | Nonperforming loans | $14,981 | | Total nonperforming assets | $14,981 | | Quarterly net charge offs | $6,580 | | Past due loans (30-89 days) | $3,033 | Loan Rollforward (Three Months Ended June 30, 2025) | Category | Amount (in thousands) | | :--- | :--- | | Beginning Balance | $2,306,762 | | New credit extended | $48,147 | | Change in mortgage warehouse | $118,665 | | Pay-downs, maturities, etc. | ($41,556) | | **Ending Balance** | **$2,434,605** | Allowance for Credit Losses by Loan Category (June 30, 2025) | Loan Category | Balance (in thousands) | Allowance (in thousands) | Coverage Ratio | | :--- | :--- | :--- | :--- | | Commercial Real Estate | $1,392,075 | $17,083 | 1.23% | | Residential Real Estate | $371,415 | $1,694 | 0.46% | | Mortgage Warehouse | $401,896 | $451 | 0.11% | | **Total Loans** | **$2,434,609** | **$21,680** | **0.89%** | [Non-GAAP Financial Measures](index=20&type=section&id=Non-GAAP%20Financial%20Measures) This section provides reconciliations for non-GAAP financial measures used in the report to their nearest GAAP equivalents, which management uses to assess the company's performance Reconciliation of Tangible Common Equity (June 30, 2025) | Metric | Amount (in thousands) | | :--- | :--- | | Total stockholders' equity (GAAP) | $355,707 | | Less: goodwill and other intangible assets | $27,651 | | **Tangible common equity (Non-GAAP)** | **$328,056** | Key Non-GAAP Ratios (June 30, 2025) | Ratio | Value | | :--- | :--- | | Tangible book value per common share | $23.98 | | Tangible common equity ratio | 8.77% | | Efficiency Ratio (tax-equivalent) | 59.43% |