Sierra Bancorp Reports Financial Results for Third Quarter and First Nine Months of 2025

Sierra Bancorp (NASDAQ:BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the three- and nine-month periods ended September 30, 2025. Sierra Bancorp reported consolidated net income of $9.7 million, or $0.72 per diluted share, for the third quarter of 2025, a decrease of $0.9 million, or 9%, as compared to the second quarter of 2025. In addition, the Company reported consolidated net income of $29.4 million for the first nine months of 2025, a decrease of $0.8 million, or 3%, as compared to the same period in 2024. Diluted earnings per share for the nine-month period ended September 30, 2025, increased to $2.15 from $2.09 for the same period in 2024, an increase of 3%, due mostly to continued stock repurchases through 2025.

Highlights for the third quarter of 2025:

• Improved Net Interest Income and Efficiency
  • Net interest margin increased to 3.78%, as compared to 3.68% in the prior linked quarter.
  • Net interest income grew by $1.3 million, or 4%, as compared to the prior linked quarter.
  • Loan yield improved to 5.36%, as compared to 5.27% in the prior linked quarter.
  • Maintained low cost of funds at 1.45%, a decrease of four basis points from the prior linked quarter.
  • Improved efficiency ratio to 58.0%, as compared to 59.4% in the prior linked quarter.

• Solid Asset Quality
  • Total nonperforming loans to total gross loans ratio improved to 0.56%, as compared to 0.62% in the prior linked quarter.
  • Loans past due 30-89 days and still accruing fell to $0.2 million, or one basis point of total loans, an improvement of $2.8 million, or 94.8%, as compared to the prior linked quarter.
  • Total Classified Loans declined $3.6 million, or 10%, during the quarter.
  • Regulatory Commercial Real Estate Concentration Ratio declined slightly to 242.7% during the quarter.

• Balance Sheet Growth
  • Gross loans increased $57.2 million, or 9% annualized, to $2.5 billion.
  • Customer deposits increased by $13.3 million, or 2% annualized, to $2.7 billion.
  • Total deposits declined during the quarter by $41.7 million primarily due to a proactive $55 million reduction in higher-cost brokered deposits.
  • Overall deposits have increased $41.1 million, or 2%, annualized, despite a $40 million decline in higher-cost brokered deposits over the same period.
  • Noninterest-bearing deposits increased slightly to $1.1 billion at September 30, 2025, and represents 37% of total deposits.

• Strong Capital and Liquidity
  • Increased tangible book value (non-GAAP) per share by 3% during the quarter, to $24.66 per share.
  • Repurchased 190,342 shares of common stock during the quarter at an average price of $30.55.
  • Declared dividend of $0.25 per share, payable on November 14, 2025, our 107^th consecutive quarterly dividend.
  • Regulatory Leverage Ratio of 11.73% at September 30, 2025, for our subsidiary Bank.
  • Consolidated Tangible Common Equity Ratio (non-GAAP) increased to 9.03%, at September 30, 2025.
  • Overall primary and secondary liquidity sources of $2.2 billion, at September 30, 2025.

"Success is the sum of small efforts, repeated day in and day out." – Robert Collier

"Through the first three quarters of 2025, we have taken advantage of several opportunities and risen to meet many challenges," noted Kevin McPhaill, President and Chief Executive Officer. "Our loan portfolio and strong customer base have continued to grow, despite a difficult interest rate environment, certain episodic credit issues, persisting inflation concerns, and an uncertain employment outlook. For the first nine months of 2025, we increased earnings per share over the same period in 2024 while improving both margin and efficiency. We also continue to have a high level of noninterest income relative to peers. I am immensely proud of our team and their commitment to consistent and strong earnings. As we move into the final quarter of 2025, we are excited about the remainder of the year and believe our team and our balance sheet give us reasons to look forward to 2026 and beyond!"

For the first nine months of 2025, the Company recorded net income of $29.4 million, or $2.15 earnings per diluted share, as compared to $30.2 million, or $2.09 earnings per diluted share, for the same period in 2024. The increase in diluted earnings per share is due mostly to the repurchase of 802,753 shares during the past nine months. The year-over-year decrease in net income was due primarily to a provision for credit losses of $7.0 million, an increase of $4.6 million compared to the prior year-to-date period, and a $0.8 million decrease in noninterest income. These unfavorable variances were partially offset by an increase of $3.1 million in net interest income and a $0.2 million decrease in noninterest expense. The Company's financial performance metrics for the first nine months of 2025 include an annualized return on average assets and a return on average equity of 1.07% and 11.11%, respectively, compared to 1.11% and 11.67%, respectively, for the same period in 2024.

Financial Highlights

Quarterly Changes (comparisons to the third quarter of 2024)

• Net income decreased 9%, or $0.9 million, to $9.7 million due to higher provision for credit losses on loans, partially offset by a $1.2 million increase in net interest income.
• Pre-tax pre-provision for credit losses income (see non-GAAP financial measures table) increased $0.6 million, or 4%, to $16.4 million.
• The $1.2 million increase in net interest income was driven by a 12 basis point increase in net interest margin that was caused by a 27 basis point decrease in cost of funds.
• Noninterest income was $0.3 million higher than the comparative period, with increases in Bank-Owned Life Insurance (BOLI) income, partially offset by decreases in service charges on deposit accounts.
• Noninterest expense was $0.8 million higher in the third quarter over the same quarter last year due to an increase in salaries and benefits and occupancy costs.
• Included in the line-item changes from the third quarter of 2024 was the increase of $0.3 million in income from corporate-owned life insurance income invested to offset the $0.3 million increase in deferred compensation costs.

Linked Quarter Income Changes (comparisons to the three months ended June 30, 2025)

• Net income decreased by $0.9 million, or 9%, driven mostly by a $2.5 million increase in provision for credit losses on loans, partially offset by a $1.3 million increase in net interest income.
• Net interest income increased by $1.3 million, due to an 8 basis point increase in the yield of interest-earning assets combined with an increase in the average balance of interest-earning assets. There was a 5 basis point favorable decrease in cost of funds but the impact of that was mostly offset by a decrease in the average balance of interest-bearing liabilities.
• Included in the line-item changes from the second quarter of 2025 was the decrease of $0.4 million in income from corporate-owned life insurance income invested to offset the $0.5 million decrease in deferred compensation costs.

Year-to-Date Income Changes (comparisons to the first nine months of 2024)

• Net income decreased $0.8 million, or 3%. The decrease was primarily driven by an increase of $4.6 million in provision for credit losses. This decline was partially offset by an increase of $3.1 million in net interest income, due mostly to a 25 basis point decrease in the cost of interest-bearing liabilities. A favorable decrease in the cost of interest-bearing deposits of 29 basis points and decreases in the average balances of those deposits had the biggest impact on the increase in net interest income. While the Company experienced lower yields and balances on investments, this was mostly offset by increases in yields and balances on loans. Noninterest income decreased by $0.8 million and noninterest expense decreased by $0.2 million.
• Pre-tax pre-provision for credit losses income (see non-GAAP financial measures table) increased $2.5 million, or 6%, to $46.2 million.
• The provision for credit losses was $7.0 million, an increase of $4.6 million, primarily due to an increase in individual reserves during the third quarter of 2025, due to a single agricultural production property.
• Noninterest income decreased by $0.8 million, or 3%, driven by the net $0.6 million gain from the balance sheet restructuring at the beginning of 2024, with no similar transaction in 2025, and a $0.6 million decrease in service charges and fees on deposit accounts. Partially offsetting these unfavorable variances was a $0.8 million gain on life insurance during the first nine months of 2025.
• Noninterest expense decreased $0.2 million, due mostly to decreases in professional services and lower fraud and debit card losses, partially offset by increases in salaries and benefits and occupancy costs.
• Included in the line-item changes from the same period in 2024 was the decrease of $0.5 million in income from corporate-owned life insurance income invested to offset the $0.5 million decrease in deferred compensation costs.

Statement of Condition Changes (comparisons to December 31, 2024)

• Total assets increased by $95.1 million, or 3%, to $3.7 billion, during the first nine months of the year due primarily to increases in loan balances, partially offset by decreases in investment securities.
• Gross loans held at amortized cost increased $160.4 million, due mostly to a $126.3 million increase in mortgage warehouse line utilization, as well as $46.8 million of growth in commercial real estate loans, a $7.9 million increase in other construction loans, and a $7.6 million increase in other commercial loans. This favorable growth was partially offset by decreases of $18.2 million in residential real estate loans, $9.7 million in farmland, and $0.4 million in consumer loans.
• Deposits totaled $2.9 billion at September 30, 2025, representing a year-to-date increase of $41.1 million, or 1%. The growth in deposits came mostly from a $65.7 million increase in noninterest-bearing deposits and a $60.6 million increase in interest-bearing demand deposits. The increases were partially offset by decreases in customer time deposits and brokered deposits of $57.3 million and $40.0 million, respectively.
• Other borrowings increased $71.9 million, from an increase in overnight borrowings of $55.0 million and customer repurchase agreements of $16.9 million.
  
  

Other financial highlights are reflected in the following table.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $32.0 million for the third quarter of 2025, a $1.2 million increase, or 4%, over the third quarter of 2024, and increased $3.1 million, or 3%, to $92.7 million for the first nine months of 2025 relative to the same period in 2024.

For the third quarter of 2025, there was a 35 basis point decrease in the cost of our interest-bearing liabilities combined with a $17.9 million decrease in the average balance of interest-bearing liabilities. Although the balance of average interest-earning assets was $7.2 million higher, the yield was 13 basis points lower as compared to the same period in 2024, which partially offset the favorable variances on the liability side.

Net interest income for the comparative year-to-date periods increased $3.1 million, or 3%, due primarily to a decrease of 25 basis points in the cost of funds of average interest-bearing liabilities combined with an increase in the average balance of interest-earnings assets of $43.5 million. There was a $193.8 million, or 9%, increase in average loan balances, yielding 19 basis points higher for the same period, while average investment balances decreased $150.3 million, yielding 78 basis points lower for the same period. The decline in average investment balances was mostly due to calls of collateralized loan obligations in 2025. Average interest-bearing liabilities decreased $4.9 million, mostly in higher cost customer time deposits and brokered deposits, offset by an increase in interest-bearing demand deposits and borrowed funds. The cost of interest-bearing liabilities was 25 basis points lower for the comparative periods. The favorable net impact of the mix and rate change was a 7 basis point increase in our net interest margin for the nine months ending September 30, 2025, as compared to the same period in 2024.

Interest expense was $12.0 million for the third quarter of 2025, a decrease of $2.0 million, relative to the third quarter of 2024. For the first nine months of 2025, compared to the same period in 2024, interest expense decreased $4.2 million to $35.4 million. The decrease in interest expense for the first nine months of 2025, as compared to the same period in 2024, was attributable to a decrease in higher cost customer time deposits and brokered deposits, along with a net overall interest rate decrease in customer deposit account balances. These decreases were partially offset by increases in other borrowed funds. For the first nine months of 2025, compared to the same period in 2024, the average balance of higher cost customer time deposits and brokered deposits decreased $78.6 million, while low to no cost transaction account balances increased $93.6 million and borrowed funds increased $16.3 million.

Net interest margin was 3.78% for the third quarter of 2025, as compared to 3.68% for the linked quarter, and 3.66% for the third quarter of 2024. While the yield of interest-earning assets increased eight basis points for the third quarter of 2025 as compared to the linked quarter, the cost of interest-bearing liabilities decreased five basis points for the same comparative period. The average balance of interest-earning assets increased $5.6 million for the linked quarter, while the increase in interest-bearing liabilities was $2.1 million for the same period.

Provision for Credit Losses

The provision for credit losses on loans was $3.7 million for the third quarter of 2025, as compared to $1.2 million in the third quarter of 2024. The year-to-date provision for credit losses on loans was $6.9 million in 2025, as compared to $2.3 million for the same period in 2024. The $2.5 million increase in the provision for credit losses on loans in the third quarter of 2025, as compared to the third quarter of 2024, and the $4.6 million year-to-date increase in the provision for credit losses on loans, compared to the same period in 2024, was primarily due to the third quarter of 2025 addition of $3.5 million in individual reserves, mostly related to a single agricultural production loan. At September 30, 2025, this agricultural production loan had a remaining book balance of $3.5 million with an associated individual reserve of $3.5 million fully offsetting such loan.

There was a benefit for credit losses on unfunded commitments of $20,000 in the third quarter of 2025, and a provision for credit losses on unfunded commitments of $0.1 million for the first nine months of 2025, as compared to a provision for credit losses of $0.1 million in both the third quarter and first nine months of 2024, respectively.

Noninterest Income

Total noninterest income increased $0.3 million, or 3%, for the quarter ended September 30, 2025, as compared to the same quarter in 2024, and decreased $0.8 million, or 3%, for the year-to-date period ended September 30, 2025, as compared to the same period in 2024. The year-to-date decline was impacted by a decrease in service charge income on deposit accounts, unfavorable fluctuations in income on Bank-Owned Life Insurance (BOLI) with underlying investments mapped directly to the Company's deferred compensation plan, and a net gain on the balance sheet restructure in early 2024 with no similar transaction in 2025. Offsetting these unfavorable variances was an increase in other income which was related to life insurance proceeds received in 2025 with no like proceeds in 2024.

The Company maintains a non-qualified deferred compensation plan for officers and directors, which allows the participant to defer a portion of their earnings tax-free. Participants are allowed to choose different hypothetical investment alternatives to determine their individualized return on their deferred compensation. The Company has chosen to offset the cost of this liability with a BOLI Policy, which is funded based on deferral elections from the participants. Although the BOLI is not directly tied to the deferred compensation plan, the BOLI is invested in similar fund types as those selected by the participants. There is some inefficiency in net earnings of the BOLI asset as compared to the deferred compensation liability created by the cost of insurance, differences in balances, and differences in individual fund performance. During the third quarter, and first nine months of 2025, earnings from the BOLI were $0.6 million, and $1.1 million, respectively, while additional expense from the related deferred compensation liability was $0.5 million, and $1.2 million, respectively. The majority of this expense is reported as professional fees under directors' fees as it is related to deferral of past directors' fees. Specifically, $0.4 million for the quarterly comparison, and $0.9 million for the year-to-date comparison, respectively, is reflected as directors' fees as part of the overall professional fees expense line item. The tax benefit of having tax-free earnings with tax-deductible expense was $0.3 million during the third quarter of 2025, and $0.7 million for the first nine months of 2025.

Noninterest Expense

Total noninterest expense increased by $0.8 million, or 4%, in the third quarter of 2025, relative to the third quarter of 2024, and decreased by $0.2 million for the first nine months of 2025, as compared to the same period in 2024.

Salaries and Benefits were $0.5 million, or 4%, higher in the third quarter of 2025 as compared to the third quarter of 2024, and $0.8 million higher for the first nine months of 2025, as compared to the same period in 2024. The Company implemented a strategic reorganization at the end of the third quarter of 2025, which resulted in a reduction in force, accompanied by $0.2 million in severance payments. The remaining increase for both the quarter and year-over-year periods was mostly due to a change in composition in the workforce. There were 476 full-time equivalent employees at September 30, 2025, as compared to 494 at June 30, 2025, and 485 at December 31, 2024.

Occupancy expenses increased by $0.2 million for the third quarter and the first nine months of 2025 as compared to the same periods in 2024. The increases in both comparisons were primarily due to increased property taxes related to the updated assessed values of the properties involved in the sale/leaseback transaction in early 2024.

Other noninterest expense was relatively unchanged for the third quarter of 2025, as compared to the third quarter in 2024, and decreased $1.2 million, or 5%, for the first nine months of 2025, as compared to the same period in 2024. For the year-over-year comparison the decrease was primarily driven by decreases in directors' deferred compensation expense and legal and accounting services of $0.5 million and $0.3 million, respectively. The remaining decrease was related to lower data processing costs and reduced debit card losses.

The Company's provision for income taxes was 23.6% of pre-tax income in the third quarter of 2025, relative to 26.4% in the third quarter of 2024, and 24.9% of pre-tax income for the first nine months of 2024, relative to 26.8% for the same period in 2024. The decrease in effective tax rate for both the quarterly and year-to-date comparisons is due to the tax credits, and tax-exempt income representing a larger percentage of total taxable income.

Balance Sheet Summary

The $95.1 million, or 3%, increase in total assets during the first nine months of 2025, was primarily a result of a $160.4 million increase in gross loans, partially offset by a $70.0 million decrease in investment securities.

The increase in gross loan balances, as compared to December 31, 2024, was mostly a result of organic growth; a $46.8 million increase in commercial real estate loans, a $7.9 million increase in other construction loans, a $7.6 million increase in other commercial loans, and a favorable change of $126.3 million in mortgage warehouse balances. Counterbalancing these positive loan variances were loan paydowns and maturities resulting in net declines in residential real estate loans, farmland loans, and consumer loans.

As indicated in the loan rollforward table below, new credit extended for the third quarter of 2025 remained flat on a linked-quarter basis, decreased $13.2 million over the same period in 2024, and increased $26.1 million for the year-to-date comparisons. The Company had $121.5 million in loan paydowns and maturities; however, an increase in mortgage warehouse lines of $126.3 million had a positive impact in the first nine months of 2025.

Unused commitments, excluding mortgage warehouse and overdraft lines, were $263.1 million at September 30, 2025, compared to $256.9 million at December 31, 2024. Total line utilization, excluding mortgage warehouse and overdraft lines, was 57.9% at September 30, 2025, and 57.0% at December 31, 2024. Mortgage warehouse utilization increased to 59.4% at September 30, 2025, as compared to 51.2% at December 31, 2024.

Deposit balances reflect growth of $41.1 million, or 1%, during the first nine months of 2025. Core non-maturity deposits increased by $138.4 million, or 7%, while customer time deposits decreased by $57.3 million, or 11%. Wholesale brokered deposits decreased by $40.0 million, or 15%. Overall noninterest-bearing deposits as a percentage of total deposits at September 30, 2025, increased to 36.6%, as compared to 34.8% at December 31, 2024. Other interest-bearing liabilities of $260.7 million on September 30, 2025, consist of $125.7 million in customer repurchase agreements, $25.0 million in overnight fed funds purchased, and $110.0 million of FHLB borrowings.

Overall uninsured deposits are estimated to be approximately $748.1 million, or 26% of total deposit balances, excluding public agency deposits that are subject to collateralization through a letter of credit issued by the FHLB. In addition, uninsured deposits of the Bank's customers are eligible for FDIC pass-through insurance if the customer opens an IntraFi Insured Cash Sweep (ICS) account or a reciprocal time deposit through the Certificate of Deposit Account Registry System (CDARS). IntraFi allows for up to $285 million per customer of pass-through FDIC insurance, which would more than cover each of the Bank's deposit customers if such customer desired to have such pass-through insurance. The Bank maintains a diversified deposit base with no significant customer concentrations and does not bank any cryptocurrency companies. At September 30, 2025, the Company had approximately 117,000 accounts, and the 25 largest deposit balance customers had balances of approximately 11% of overall deposits. During the third quarter of 2025, except for seasonal fluctuations in the normal course of business, there has been no material change in the composition of our 25 largest deposit balance customers.

The Company continues to have substantial liquidity. At September 30, 2025, and December 31, 2024, the Company had the following sources of primary and secondary liquidity (Dollars in Thousands, Unaudited):

Total capital of $360.1 million at September 30, 2025, reflects an increase of $2.8 million, or 1%, relative to year-end 2024. The increase in equity during the first nine months of 2025 was due to the addition of $29.4 million in net income, a $6.1 million favorable swing in accumulated other comprehensive income, due principally to changes in investment securities' fair value, partially offset by $24.3 million in share repurchases, and $10.3 million in dividends paid. The remaining difference is related to the impact of equity compensation.

Asset Quality

Total nonperforming assets, comprised of nonaccrual loans and foreclosed assets, improved with a decline of $3.8 million to $15.8 million for the first nine months of 2025. The Company's ratio of nonperforming loans to gross loans decreased to 0.56% at September 30, 2025, from 0.84% at December 31, 2024. This favorable year-to-date decline resulted from a decrease in non-accrual loan balances, due mostly to the partial charge-off of one agricultural production loan in the second quarter of 2025. All the Company's nonperforming assets are individually evaluated for credit loss quarterly, and management believes the established allowance for credit loss on such loans is appropriate.

During the third quarter of 2025, the Company transferred one commercial real estate loan to other real estate owned (OREO), resulting in a foreclosed asset totaling $1.8 million. While the Company had no OREO assets on its balance sheet prior to this transfer, it has experience managing such assets and maintains established procedures for their resolution.

The Company's allowance for credit losses on loans and leases was $25.2 million at September 30, 2025, as compared to $21.7 million at June 30, 2025, and $24.8 million at December 31, 2024. The increase in the third quarter of 2025 as compared to June 30, 2025, resulted from a $3.5 million increase in specific individual reserves on impaired loans related to a single agricultural production loan. Such agricultural production loan was in the wine grape industry and had a remaining book balance of $3.5 million at September 30, 2025, with a full individual reserve of $3.5 million offsetting such remaining balance. In addition to this loan, the Bank had $19.2 million in outstanding agricultural production loans in the winery and grape industry at September 30, 2025, of which $1.7 million were grapes. Although consumer demand for wine produced in the Central Valley of California has declined, none of the remaining $19.2 million in wine and grape production loans were classified as special mention or substandard.

The allowance for credit losses on loans and leases was 1.01% of gross loans at September 30, 2025, and 1.07% of gross loans at December 31, 2024. The largest increase in loan balances was from mortgage warehouse lines, which has the lowest reserve rate in the allowance for credit losses at 0.11%. Mortgage warehouse lines historically have incurred nominal losses and, therefore, have a significantly lower reserve than the other categories of loans. As a result, at September 30, 2025, approximately $0.5 million of the allowance for credit losses was attributable to mortgage warehouse lines. The allowance as a percentage of gross loans exclusive of mortgage warehouse lines was 1.21% at September 30, 2025, as compared to 1.04% at June 30, 2025, and 1.22% at December 31, 2024.

The largest loan segment of commercial real estate continues to maintain a coverage ratio at or above 1.18%. As described above, the significant increase in the coverage ratio for other commercial loans was due to an individual reserve on a $3.5 million agricultural production loan.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans and leases should be sufficient to cover credit losses for the life of the loans and leases outstanding as of September 30, 2025, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the loan and lease loss allowance. The Company calculates the allowance for credit losses using a combination of quantitative and qualitative factors applied to loans segmented by call report category.

About Sierra Bancorp

Sierra Bancorp is the holding Company for Bank of the Sierra (www.bankofthesierra.com), which is in its 48^th year of operations.

Bank of the Sierra offers a broad range of retail and commercial banking services through its 35 full-service branches located within the counties of Tulare, Kern, Kings, Fresno, Ventura, San Luis Obispo, and Santa Barbara. The Bank also maintains an online branch and provides specialized lending services through its mortgage warehouse division. In 2025, Bank of the Sierra was recognized as one of the strongest and top-performing community banks in the country, with a 5-star rating from Bauer Financial.

Forward-Looking Statements

The statements contained in this release that are not historical facts are forward-looking statements based on management's current expectations and beliefs concerning future developments and their potential effects on the Company. Readers are cautioned not to unduly rely on forward looking statements. Actual results may differ from those projected. These forward-looking statements involve risks and uncertainties including but not limited to, the health of the national and local economies, including the impact to the Company and its customers resulting from changes to, and the level of tariffs, inflation, and interest rates; effects of government shutdowns; changes in laws, rules, regulations, or interpretations to which the Company is subject; the Company's ability to maintain and grow its deposit base; loan demand and continued portfolio performance; the Company's ability to attract and retain skilled employees; customers' service expectations; cyber security risks; the Company's ability to successfully deploy new technology; the success of acquisitions and branch expansion; operational risks including the ability to detect and prevent errors and fraud; the effectiveness of the Company's enterprise risk management framework; the impact of adverse developments at other banks, including bank failures, that impact general sentiment regarding the stability and liquidity of banks that could affect stock price; changes to valuations of the Company's assets and liabilities, including the allowance for credit losses, earning assets, and intangible assets; changes to the availability of liquidity sources including borrowing lines and the ability to pledge or sell certain assets; costs related to litigation; the effects of severe weather events, pandemics, other public health crises, acts of war or terrorism, and other external events on our business; and other factors detailed in the Company's SEC filings, including the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's most recent Form 10‑K and Form 10‑Q.