Sierra Bancorp(BSRR) - 2025 Q2 - Quarterly Report

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) 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 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 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 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 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 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) Provides detailed explanations of accounting policies, financial instruments, and other disclosures supporting the unaudited financial statements Note 1 – The Business of Sierra Bancorp 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][28] Note 2 – Basis of Presentation 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][30] - The company operates as a single segment focused on community banking activities, offering loan and deposit products[31] Note 3 – Current Accounting Developments 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] - 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][37] - 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] Note 4 – Share Based Compensation 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] - As of June 30, 2025, 251,739 shares remained available for grant[40] - 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] 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 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][45] - 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] - Diluted EPS calculations include in-the-money stock options and unvested restricted stock awards[47] Note 6 – Comprehensive Income 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] Note 7 – Commitments and Contingent Liabilities 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] - The allowance for credit losses on unfunded commitments is estimated using funding rates and historical data[50] Note 8 – Fair Value Disclosures and Reporting and Fair Value Measurements 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] - The company has not elected the fair value option for financial instruments where it is optional[56] 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] Note 9 – Investments 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] - An unrealized loss of $25.2 million on transferred securities remains in accumulated other comprehensive income (loss) as of June 30, 2025[69] 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] - The total LIHTC investment book balance was $24.0 million at June 30, 2025, with $16.8 million in remaining commitments[88] Note 10 – Loans and Allowance for Credit Losses 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] - Accrued interest receivable on loans, totaling $7.3 million at June 30, 2025, is excluded from the amortized cost basis[92] 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][96] - 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] Note 11 – Goodwill 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] - The annual impairment test was last performed on October 1, 2024, with no impairment found, and management continues to monitor for triggering events[122] Note 12 – Borrowings and Other Arrangements 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] - Long-term debt remained stable at $49.4 million, and subordinated debentures increased slightly to $35.9 million[125][126] 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 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] - Revenue from financial instruments like loans and investments is outside the scope of ASC 606[134] 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 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] - 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] Forward-Looking Statements 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][138][139] Critical Accounting Policies 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] Overview of the Results of Operations and Financial Condition Provides a high-level summary of the company's financial performance and condition, setting the context for detailed analysis Earnings Performance 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] Net Interest Income and Net Interest Margin 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] 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] - There was a favorable shift in deposit mix with transaction accounts increasing and higher-cost time and brokered deposits decreasing[152] Provision for Credit Losses on Loans 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] - This increase was mainly due to a $5.3 million prior allowance on an individually-evaluated agricultural production loan[174] Noninterest Income and Noninterest Expense 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] - 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][184][186] Provision for Income Taxes 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] - 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] Balance Sheet Analysis Provides a detailed analysis of the company's balance sheet components, including earning assets, investments, loan portfolio, and liabilities Earning Assets 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] 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] - This change was due to maturities and paydowns partially offsetting brokered deposit maturities[193] 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] - For held-to-maturity investments, it increased to 6.1 years from 6.0 years[194] Loan Portfolio 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] - New credit extended for the six months ended June 30, 2025, increased by $39.2 million (52%) over the same period in 2024[201] - The total regulatory CRE concentration ratio was 243.6% at June 30, 2025, compared to 236.3% at December 31, 2024[203] Nonperforming Assets 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] Allowance for Credit Losses on Loans 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] - 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] 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 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] - 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] - The company utilizes a $125 million letter of credit from the FHLB as security for certain local agency deposits, backed by pledged loans[218] Other Assets 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] - Bank-owned life insurance (BOLI) increased by $14.5 million to $67.7 million due to additional policy purchases[223] - Goodwill remained at $27.4 million, with no impairment found in the last annual test[222] - Other assets include right-of-use assets, accrued interest receivable, deferred taxes, and investments in bank stocks and low-income housing credits[224][225] Deposits and Interest-Bearing Liabilities Analyzes the composition and changes in deposits and other interest-bearing liabilities, including repurchase agreements and FHLB borrowings 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] - Noninterest-bearing deposits as a percentage of total deposits increased to 35.8% from 34.8% at December 31, 2024[229] - Uninsured deposits are estimated at $751.1 million (26% of total deposits), excluding public agency deposits collateralized by FHLB letters of credit[229] - The bank maintains a diversified deposit base with no significant customer concentrations[229] Other Interest-Bearing Liabilities 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] - The company had $74.4 million in overnight borrowings and $80.0 million in term FHLB borrowings at June 30, 2025[233] - 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] Noninterest-Bearing Liabilities 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] Liquidity and Market Risk Management Addresses the company's liquidity position, primary and secondary funding sources, and strategies for managing interest rate risk 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] 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][244] - The primary liquidity ratio was 21%, exceeding the internal policy guideline of 15%[244] Interest Rate Risk Management 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] - Monthly earnings simulations are performed using dynamic balance sheets and various interest rate scenarios[247] 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] - 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] Capital Resources 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][257] 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] Item 3. Quantitative & Qualitative Disclosures about Market Risk 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] Item 4. Controls and Procedures 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] - 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] 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 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] Item 1A. - Risk Factors 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] Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds 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] 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 Indicates that this item is not applicable, signifying no defaults on senior securities - This item is not applicable[273] Item 4. - Mine Safety Disclosures Indicates that this item is not applicable, signifying no mine safety disclosures - This item is not applicable[273] Item 5. - Other Information Indicates that this item is not applicable, signifying no other information to disclose - This item is not applicable[273] Item 6. - Exhibits 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] - Certifications from the Chief Executive Officer and Chief Financial Officer (Section 302 and 906 Certifications) are also included[274] 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]