Sierra Bancorp(BSRR) - 2020 Q4 - Annual Report

Part I Item 1. Business Sierra Bancorp is a bank holding company providing retail and commercial banking services via its subsidiary, Bank of the Sierra, across 40 branches in California Company Overview (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Consolidated Assets | $3.2 billion | | Gross Loans | $2.5 billion | | Total Deposits | $2.6 billion | | Shareholders' Equity | $343.9 million | | Full-Service Branches | 40 | Loan Portfolio Composition (as of Dec 31, 2020) | Loan Type | Percentage of Portfolio | | :--- | :--- | | Loans Secured by Real Estate | 77.0% | | Mortgage Warehouse Loans | 12.5% | | Commercial & Industrial Loans (incl. PPP) | 8.5% | | Agricultural Production Loans | 1.8% | | Consumer Loans | 0.2% | - The Company's growth strategy combines organic expansion, such as opening a new loan production office in Rocklin, CA in 2020, with strategic whole-bank and branch acquisitions[9][10][19] - The Company faces intense competition from major banks like Wells Fargo and Bank of America, which hold significantly larger market shares; however, Sierra Bancorp ranks first in deposit market share in Tulare County, its original market[25][26] Workforce Demographics (as of Dec 31, 2020) | Category | Metric | Percentage | | :--- | :--- | :--- | | Gender | Women | 75% | | | Men | 25% | | Ethnicity | Hispanic or Latino | 45% | | | Other | 55% | - The Company and the Bank are heavily regulated by multiple agencies, including the Federal Reserve, FDIC, and California's DFPI, covering capital adequacy, lending, and consumer protection[40][41][48] Item 1A. Risk Factors The Company faces risks from the COVID-19 pandemic, economic volatility, its high concentration in real estate loans, competition, regulation, and cybersecurity threats - The COVID-19 pandemic poses significant risks, including potential declines in collateral value, reduced demand for products, net interest margin compression, and higher credit losses[96][100][102] - A heavy concentration in real estate loans, which constitute 77.0% of the total loan portfolio, exposes the Company to significant risk from a downturn in the real estate market[124] - The business is exposed to regional economic risks, particularly challenges in the agricultural industry from drought and trade disruptions, and the impact of oil price volatility in Kern County[113][117] - The Company operates in a highly regulated environment, and changes in laws or adverse examination findings could restrict activities and increase costs[144][150] - Cybersecurity threats, including data breaches and fraudulent activity, pose a severe risk to the Company's reputation, operations, and financial condition[168][170][172] Item 1B. Unresolved Staff Comments The Company reports that there are no unresolved staff comments - Not applicable; the company has no unresolved comments from SEC staff[179] Item 2. Properties The Company owns its headquarters and 18 branch offices, with the remaining facilities being leased from third parties - The Company owns its administrative headquarters in Porterville and the properties for 18 of its branch offices, with the remaining locations being leased[180] Item 3. Legal Proceedings Management believes that legal proceedings from the ordinary course of business will not materially impact the Company's financial condition - Management does not expect any legal proceedings arising from the ordinary course of business to have a material adverse effect on the Company's financial condition[181] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[182] Part II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The Company's stock (BSRR) trades on NASDAQ; this section details its 2020 price range, dividend payments, and the status of its stock buyback plan Common Stock Price and Volume (2020) | Quarter End | High Price | Low Price | | :--- | :--- | :--- | | Mar 31, 2020 | $29.37 | $13.05 | | Jun 30, 2020 | $21.87 | $14.86 | | Sep 30, 2020 | $20.13 | $15.84 | | Dec 31, 2020 | $24.72 | $16.47 | Annual Dividends Per Share | Year | Dividend Per Share | Payout Ratio | | :--- | :--- | :--- | | 2020 | $0.80 | 34% | | 2019 | $0.74 | 32% | - As of January 31, 2021, there were an estimated 6,292 shareholders of the Company's common stock[187] - The Company has a stock buyback plan but has currently suspended repurchases, with 344,862 shares remaining under the current authorization[197] Item 6. Selected Financial Data This section presents a five-year summary of key financial data, showing growth in assets and loans, with fluctuating but strong net income Selected Financial Data (2018-2020) | (in thousands, except per share data) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Income | $35,444 | $35,961 | $29,677 | | Net Income per Diluted Share | $2.32 | $2.33 | $1.92 | | Total Assets | $3,220,742 | $2,593,819 | $2,522,502 | | Total Loans and Leases, net | $2,442,226 | $1,755,538 | $1,724,780 | | Total Deposits | $2,624,606 | $2,168,374 | $2,116,340 | | Total Shareholders' Equity | $343,896 | $309,285 | $273,024 | Key Operating Ratios (2018-2020) | Ratio | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Return on Average Equity | 10.80% | 12.23% | 11.37% | | Return on Average Assets | 1.22% | 1.40% | 1.23% | | Net Interest Margin (tax-equivalent) | 3.95% | 4.19% | 4.24% | | Efficiency Ratio (tax-equivalent) | 57.18% | 57.46% | 60.79% | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2020 performance, highlighting asset growth from PPP loans, net interest margin compression, and a higher provision for loan losses Key Performance Metrics (2018-2020) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Income | $35.4M | $36.0M | $29.7M | | Diluted EPS | $2.32 | $2.33 | $1.92 | | Return on Average Assets (ROA) | 1.22% | 1.40% | 1.23% | | Return on Average Equity (ROE) | 10.80% | 12.23% | 11.37% | - Net interest income increased by 8% in 2020, driven by growth in earning assets; however, the net interest margin declined by 24 basis points to 3.95% due to the low-rate environment[208][210][255] - The provision for loan and lease losses significantly increased to $8.6 million in 2020, up from $2.6 million in 2019, due to strong loan growth and economic uncertainty[213][257] - Total assets grew by 24% ($626.9 million) in 2020, primarily fueled by a 39% ($694.5 million) increase in net loans, which included SBA PPP loans and strong organic growth[218][219][220] - The Company elected to defer the implementation of the Current Expected Credit Loss (CECL) accounting standard until January 1, 2022, as permitted by the CARES Act[233][257] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This section refers to the 'Liquidity and Market Risk Management' discussion within Item 7 for disclosures on the Company's primary market risk, interest rate risk - The required information regarding market risk is included in the "Liquidity and Market Risk Management" section of Item 7, Management's Discussion and Analysis[391] Item 8. Financial Statements and Supplementary Data This section contains the audited consolidated financial statements, notes, and the independent auditor's report, which gives an unqualified opinion - The independent auditor, Eide Bailly LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting[394] - The auditor identified the Allowance for Loan and Lease Losses as a critical audit matter, highlighting its materiality and the complex, subjective judgments required by management[399] Consolidated Balance Sheet Highlights (as of Dec 31) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total Assets | $3,220,742 | $2,593,819 | | Net Loans and Leases | $2,442,226 | $1,755,538 | | Goodwill | $27,357 | $27,357 | | Total Liabilities | $2,876,846 | $2,284,534 | | Total Deposits | $2,624,606 | $2,168,374 | | Total Shareholders' Equity | $343,896 | $309,285 | Consolidated Income Statement Highlights (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Interest Income | $104,835 | $97,369 | $92,394 | | Provision for Loan & Lease Losses | $8,550 | $2,550 | $4,350 | | Noninterest Income | $26,150 | $23,477 | $21,564 | | Noninterest Expense | $75,912 | $70,578 | $70,024 | | Net Income | $35,444 | $35,961 | $29,677 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This item is not applicable to the Company - Not applicable[711] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2020 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2020[712] - Management assessed its internal control over financial reporting as effective as of December 31, 2020, based on the COSO framework, an assessment audited by Eide Bailly[717][719][721] - There were no significant changes to the Company's internal control over financial reporting during the fourth quarter of 2020[722] Item 9B. Other Information There is no information to report under this item - None[723] Part III Item 10. Directors, Executive Officers and Corporate Governance Required information on directors, officers, and governance is incorporated by reference from the 2021 Annual Meeting Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the upcoming 2021 Proxy Statement[726][728] Item 11. Executive Compensation Required information on executive compensation is incorporated by reference from the 2021 Annual Meeting Proxy Statement - Information regarding executive compensation is incorporated by reference from the upcoming 2021 Proxy Statement[729] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information on security ownership is incorporated by reference from the 2021 Proxy Statement, with equity plan details available in Item 5 - Information regarding security ownership is incorporated by reference from the upcoming 2021 Proxy Statement; details on equity compensation plans are located in Item 5[730][731] Item 13. Certain Relationships and Related Transactions and Director Independence Required information on related party transactions and director independence is incorporated by reference from the 2021 Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the upcoming 2021 Proxy Statement[732] Item 14. Principal Accounting Fees and Services Required information on accountant fees and services is incorporated by reference from the 2021 Annual Meeting Proxy Statement - Information regarding accounting fees and services is incorporated by reference from the upcoming 2021 Proxy Statement[733] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, while financial statement schedules are omitted as they are not applicable - This section lists all exhibits filed with the report, such as articles of incorporation, bylaws, material contracts, and CEO/CFO certifications[738] - Financial statement schedules have been omitted because the required information is either not applicable or is already included in the financial statements or notes[741] Item 16. Form 10-K Summary This item is not applicable to the Company - Not Applicable[742]