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"We are proud to announce strong net income growth of over 16% in 2024, accompanied by solid improvements in net interest margin, efficiency ratio, return on average assets, and tangible book value per share!" expressed Kevin McPhaill, CEO and President. "We overcame a number of obstacles, including a challenging interest rate environment, to cap off one of our best years. Loans continued to grow and deposit relationships were strengthened as our bankers worked hard to focus on retaining and attracting customers. We are very excited about 2025 and will continue to find opportunities to improve our bank and provide consistently strong results," concluded Mr. McPhaill.

Financial Highlights

Quarterly Changes (comparisons to the fourth quarter of 2023)

• Quarterly net income at $10.4 million, a 65% increase, primarily attributable to $2.5 million in higher net interest income, a $1.1 million decrease in the provision for credit losses, and a $1.3 million decline in noninterest expenses.

• The $2.5 million net interest income increase was primarily driven by a 34 basis point increase in net interest margin partially offset by lower earning assets due to a strategic balance sheet restructuring in early 2024. Although average assets were down during 2024, the mix shifted favorably with a $237 million increase in loan balances during 2024 due primarily to mortgage warehouse loan growth. The favorable increase in interest income was enhanced by a $1.8 million decline in overall interest expense in the fourth quarter of compared to the same quarter in 2023, due to the reduction in other borrowings facilitated by the balance sheet restructuring in the fourth quarter of 2023.

• Noninterest income for the fourth quarter of 2024 declined by $0.5 million or 7%. This was primarily due to a net $0.8 million increase from the combination of a nonrecurring fourth quarter 2023 gain on a sale/leaseback on Bank-owned branch buildings, and a realized loss on a securities restructuring strategy.

• Noninterest expense experienced a $1.3 million positive variance in the fourth quarter over the same quarter in 2023. While salary and benefit costs decreased due to a strategic internal reorganization in the fourth quarter of 2023, this favorable variance was offset by an increase in occupancy costs, due to the sale/leaseback of certain branches, also in the fourth quarter of 2023. Improved expenses in nearly every category of noninterest expense were due to operational efficiencies gained from various initiatives implemented in 2024.

Year to-Date Changes (comparisons to the year ended 2023)

• Net income increased $5.7 million, or 16%, to $40.6 million. This robust net income growth was primarily driven by an increase of $7.6 million, or 7% in net interest income, due mostly to an overall increase in interest rates on earning assets partially offset by a $1.1 million increase in the provision for credit losses and higher interest expense. In addition, there were positive variances related to an increase in service charge income, partially offset by a rise in occupancy expenses from the sale/leaseback of branch buildings in late 2023.

• The provision for credit losses was $4.8 million, an increase of $1.1 million, primarily due to an increase in individual reserves, partially offset by a decrease in net charge-offs for the year ending 2024.

• Noninterest income increased by $1.1 million, or 4%. In addition to the net gain from the sale/leaseback mostly offset by a loss on securities sale as described above, service charge income on deposit accounts was $1.1 million higher, due to increases in the following categories: ATM Visa income, analysis fees, and other transaction-based fees.

• Noninterest expense increased 0.2%, or $0.2 million during 2024. The $2.2 million increase in occupancy costs, due to higher rent and property tax payments following the sale/leaseback transaction of Bank owned branch buildings in late 2023, was partially offset by efficiencies elsewhere. Among the expense declines was $0.6 million in salaries and benefits, mostly from an operational reorganization in 2023. Other noninterest expense improved favorably by $1.3 million overall due mostly to lower costs for most categories.

Balance Sheet Changes (comparisons to December 31, 2023)

• Total assets decreased by $115.5 million, or 3%, to $3.6 billion during 2024, due primarily to the strategic restructuring of our lower-yielding bond portfolio in the first quarter of 2024, partially offset by increases in loan balances.

• Gross loans increased $241.3 million, or 12%, due to a $210.4 million increase in mortgage warehouse line utilization, a $32.2 million increase in commercial real estate loans, a $10.1 million increase in farmland loans, and a $20.7 million increase in other commercial loans. This favorable growth was partially offset by a $30.6 million decrease in residential real estate loans, and smaller declines in construction and consumer loans.

• Deposits totaled $2.9 billion at December 31, 2024, representing a year-to-date increase of $130.4 million, or 5%. The growth in deposits came mostly from a $140.0 million increase in brokered deposits to fund growth in mortgage warehouse lines, and a $40.2 million increase in transaction accounts offset by smaller declines in customer non-transaction accounts.

• Other interest-bearing liabilities decreased $278.8 million from a reduction in overnight borrowings facilitated by the strategic balance sheet restructuring in the first quarter of 2024, and a drop in FHLB advances, as we utilized brokered deposits not only to fund mortgage warehouse lines, but to pay down more costly FHLB lines of credit.

Other financial highlights are reflected in the following table.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $30.4 million for the fourth quarter of 2024, a $2.5 million increase, or 9% over the fourth quarter of 2023, and increased $7.6 million, or 7%, to $120.0 million for the year ended 2024, relative to the same period in 2023.

For the fourth quarter of 2024, the yield on earning assets was 16 basis points higher as compared to the same period in 2023, which more than offset the lower average interest-earning assets of $66.6 million. The increase in yield was mostly due to an increase in real estate loan yields, combined with an increase in higher-yielding mortgage warehouse loans overall and as a percentage of loans. Further, there was a favorable 22 basis point decrease in the cost of our interest-bearing liabilities for the same period. The favorable decline in funding costs was due to a significant reduction in short-term borrowings as a result of the strategic balance sheet restructuring in late 2023, and early 2024.

Net interest income for the comparative year-to-date periods increased $7.6 million, or 7%, due to the sale of lower-yielding investments in the first quarter of 2024, as part of the overall strategic balance sheet restructuring. This sale allowed the Company to also reduce higher cost funding. There was a $161.5 million, or 8%, increase in average loan and lease balances with yields 44 basis points higher for the same period, while average investment balances decreased $254.9 million, or 19%, with yields 31 basis points higher for the same period. Average interest-bearing liabilities decreased $86.7 million, or 4%, mostly in borrowed funds. The cost of interest-bearing liabilities was 72 basis points higher for the comparative periods, due to an increase in higher cost brokered deposits used to fund the growth in mortgage warehouse utilization. The favorable net impact of the mix and rate change was a 29 basis point increase in our net interest margin for the year ended December 31, 2024, as compared to the same period in 2023.

Our net interest margin was 3.65% for the fourth quarter of 2024, one basis point lower than the linked quarter, and 34 basis points higher than the fourth quarter of 2023. The yield of interest-earning assets increased 16 basis points for the fourth quarter of 2024, as compared to the same quarter for 2023, and the cost of interest-bearing liabilities decreased 22 basis points compared to the same period in 2023. Favorable shifts in both yields and costs led to an overall 34 basis point increase in net interest margin in the fourth quarter of 2024, compared to the same period in 2023. Compared to the prior linked quarter, the yield on taxable investments declined as a portion of these investments are floating rate and the index rate declined during the quarter. This unfavorable decline in yield on investments was mostly offset by a 23 basis point decline in deposit costs as certificates of deposits rolled into lower rates throughout the quarter.

Credit Loss Expense

The Company recorded a $2.3 million and $4.6 million credit loss expense related to loans in the fourth quarter and year-to-date 2024, as compared to $3.6 million and $4.1 million, respectively, for the same periods in 2023. For the prior linked quarter, the credit loss expense related to loans increased $1.1 million. The impact of net lower charge-offs, along with a favorable improvement in underlying economic forecasts used as part of our allowance for credit losses model, and offset by an unfavorable increase in the allowance for credit losses on loans individually evaluated, accounts for the changes in all periods presented.

Credit loss expense on unfunded commitments was $0.1 million in the fourth quarter of 2024, as compared to a benefit of $0.1 million in the same quarter in 2023. For the full year 2024, the Company recorded $0.2 million in credit loss expense on unfunded commitments compared to a $0.3 million benefit for 2023. The reason for the increase in both the quarterly and year-to-date comparisons is due to an increase in the balance of unfunded commitments combined with an increase in the reserve rate utilized in the calculation of the reserves.

All debt securities in an unrealized loss position were primarily attributable to changes in interest rates and volatility in the financial markets and not a result of an expected credit loss.

Noninterest Income

Total noninterest income reflects a $0.5 million decline, or 7%, for the quarter ended December 31, 2024, as compared to the same quarter in 2023. Such decline is mostly due to a net benefit recorded in the fourth quarter of 2023 related to the combination of the sale/leaseback of Bank owned buildings, mostly offset by a realized loss related to securities for a net favorable benefit recorded of $0.8 million. Having the favorable net gain in 2023, with no similar transaction in 2024, resulted in a $0.8 million decline for the comparable periods. This was partially offset by favorable increases in service charges and other areas of noninterest income. For the full year 2024, noninterest income increased $1.1 million, or 4%, compared to 2023. Similar to the change in fourth quarter noninterest income described above, there was a $0.8 million net favorable difference between sale/leaseback gain net of investment portfolio realized losses in 2023 as compared to a $1.1 million net favorable difference for a second sale/leaseback transaction in early 2024. This resulted in a $0.3 million increase overall year-over-year for these two combined items. This was supplemented by a $1.1 million increase in service charges and a $0.9 million increase in bank-owned life income. These two favorable improvements were partially offset by a $0.8 million decline in other noninterest income items.

The favorable year-to-date change in Bank Owned Life Insurance (BOLI) income is offset by similar increases to the Company’s deferred compensation plan.

Service charge income increases are due mostly to favorable improvements in analysis fee income, greater ATM fees, an increase in overdraft income and higher income related to money-service business customers.

Noninterest Expense

There was a favorable variance of total noninterest expense of $1.3 million, or 5%, in the fourth quarter of 2024, relative to the fourth quarter of 2023. For the full year of 2024, noninterest expense increased by $0.2 million, or 0.2%, for the year ended 2024, as compared to the same period in 2023.

Salaries and Benefits were $0.7 million, or 5%, lower in the fourth quarter of 2024, as compared to the fourth quarter of 2023, and $0.6 million, or 1%, lower for the year ended 2024, compared to the same period in 2023. The Company made strategic decisions in 2023 that created operational efficiencies and reduced noninterest expenses. Full-time equivalent employees decreased by four to 485 full-time equivalent employees at December 31, 2024, as compared to 489 at December 31, 2023.

Occupancy expenses were $0.3 million higher for the fourth quarter of 2024, and $2.2 million higher year-to-date as compared to the same periods in 2023. The reason for the increases in both comparisons was due to increased rent expense from the sale/leaseback transactions in the fourth quarter of 2023 and first quarter of 2024.

Other noninterest expense decreased $0.9 million for the fourth quarter 2024, and $1.3 million for the year ended 2024, as compared to the same periods in 2023. The positive variances for the fourth quarter of 2024, compared to the same period in 2023, were in marketing costs, due to a change in the Company marketing strategy, and in travel and legal expenses. For the year-over-year comparison, the categories of variance were the same as with the quarterly comparison, except for an unfavorable variance in directors’ deferred compensation expense and loan origination software, to better serve our customers and create operational efficiencies in the near term. This was partially offset by favorable variances in debit card processing and ATM network costs, from a branding change to VISA from Mastercard last year, and the subsequent costs in 2023 related to that change.

The Company's provision for income taxes was 17.7% of pre-tax income in the fourth quarter of 2024, relative to 23.8% in the fourth quarter of 2023, and 24.7% of pre-tax income for the year ended December 31, 2024, as compared to 25.0% for the year ended 2023. The decrease in effective tax rate in the fourth quarter was due to an increase in the net benefit from low-income housing tax credit investments.

Balance Sheet Summary

The $115.5 million, or 3%, decrease in total assets during the year ended 2024, was mostly a result of the strategic balance sheet restructuring, mostly offset by loan growth in 2024. Investment securities declined $377.8 million, primarily from the sale of bonds from the strategic securities transaction, as well as other maturities and calls of investment securities. The decreases in investment securities were partially offset by a $241.3 million increase in gross loans, and a $22.1 million increase in cash on hand.

The $241.3 million increase in gross loan balances, as compared to December 31, 2023, was a result of organic growth led by $210.4 million of growth of mortgage warehouse outstandings. The remaining growth came from a $32.2 million increase in commercial real estate loans, a $20.7 million increase in other commercial loans, and a $10.1 million increase in farmland loans, partially offset by a $30.6 million decline in residential real estate loans. Despite the uncertainty in the direction of market interest rates during 2025, the Company plans to expand its customer base in the mortgage warehouse sector to facilitate growth in 2025.

As indicated in the loan roll forward below, new credit extended (excluding mortgage warehouse) for the fourth quarter of 2024 of $79.9 million represented an $18.7 million increase compared to the prior linked quarter, and $53.2 million relative to the same period in 2023. New credit extended (excluding mortgage warehouse) increased $31.1 million in 2024 as compared to 2023. This increase in organic loan growth was attributable to new loan teams hired in recent years that are now gaining momentum.

Unused commitments, excluding mortgage warehouse and overdraft lines, were $256.9 million at December 31, 2024, compared to $203.6 million at December 31, 2023. Total line utilization, excluding mortgage warehouse and overdraft lines, was 57% at December 31, 2024, and 62% at December 31, 2023. Including mortgage warehouse utilization, overall utilization was 51% at December 31, 2024, as compared to 53% at December 31, 2023. Mortgage warehouse utilization increased to 51% at December 31, 2024, as compared to 36% at December 31, 2023. Due to new customer growth, total mortgage warehouse availability increased to $311.6 million at December 31, 2024, as compared to $204.5 million at December 31, 2023. The Bank increased the number of mortgage warehouse customers by 60% in 2024. This has facilitated an increase in outstanding balances in 2024 by $210.4 million, or 181%, to $324.6 million at December 31, 2024.

Deposit balances reflect growth of $130.4 million, or 5%, during the year ended 2024. Core non-maturity deposits increased by $12.0 million, or 1%, while customer time deposits decreased by $21.5 million, or 4%. Wholesale brokered deposits increased by $140.0 million, or 104%. As stated previously, the increase in brokered deposits was primarily to fund increases in mortgage warehouse lines. Overall noninterest-bearing deposits as a percent of total deposits at December 31, 2024, decreased to 34.8%, as compared to 37.0% at December 31, 2023. Other interest-bearing liabilities of $188.9 million on December 31, 2024, consist of $108.9 million in customer repurchase agreements and $80.0 million of term FHLB borrowings, as compared to $107.1 million in customer repurchase agreements, and $205.0 million of term FHLB borrowings on December 31, 2023.

Overall uninsured deposits are estimated to be approximately $815.5 million, or 28% 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 $265 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 December 31, 2024, the Company had approximately 119,000 accounts, and the 25 largest deposit balance customers had balances of approximately 10% of overall deposits. During the fourth quarter of 2024, except for seasonality 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 December 31, 2024, and December 31, 2023, the Company had the following sources of primary and secondary liquidity (dollars in thousands, unaudited):

Total capital of $357.3 million at December 31, 2024, reflects an increase of $19.2 million, or 6%, relative to year-end 2023. The increase in equity during the year ended December 31, 2024, was primarily due $40.6 million in net income and a $4.7 million favorable swing in accumulated other comprehensive income (loss) partially offset by $13.6 million in dividends paid, and $15.0 million in share repurchases. The remaining difference was related to stock options exercised and restricted stock activity during the year.

Asset Quality

Total nonperforming assets, comprised of nonaccrual loans, increased by $11.7 million to $19.7 million for the year ended December 31, 2024. The Company's ratio of nonperforming loans to gross loans increased to 0.84% at December 31, 2024, from 0.38% at December 31, 2023. This unfavorable change in asset quality resulted from an increase in non-accrual loan balances, primarily as a result of one agricultural loan relationship. 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 was appropriate. The nonaccrual loans at December 31, 2024, are mostly due to an operating line of credit collateralized with receivables from wine grape production and other assets with a balance of $16.3 million at December 31, 2024, and a current balance of $14.1 million, due to principal paydowns made by the customer during the month of January 2025.

The Company's allowance for credit losses on loans was $24.8 million at December 31, 2024, as compared to a balance of $23.5 million at December 31, 2023. The allowance was 1.07% of total loans at December 31, 2024, and 1.12% of total loans at December 31, 2023. The Company experienced fewer net charge offs during the year, offset by a specific allowance on a single agricultural credit relationship.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans should be sufficient to cover credit losses inherent in loan portfolio balances outstanding as of December 31, 2024, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the credit loss allowance on loans. Based upon the Company’s preliminary analysis we have identified approximately five residential real estate secured loans in the Los Angeles wildfire area and are unaware of any property damage at the date of this release. The total allowance for credit losses on loans of $24.8 million at December 31, 2024, included $0.4 million of allowance related to $326.4 million of mortgage warehouse lines.

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 and is the largest independent bank headquartered in the South San Joaquin Valley. Bank of the Sierra is a community-centric regional bank, which offers a broad range of retail and commercial banking services through full-service branches located within the counties of Tulare, Kern, Kings, Fresno, Ventura, San Luis Obispo, and Santa Barbara. The Bank also maintains an online branch and provides specialized lending services through an agricultural credit center in Templeton, California. In 2024, 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, loan portfolio performance, the Company's ability to attract and retain skilled employees, customers' service expectations, the Company's ability to successfully deploy new technology, the success of acquisitions and branch expansion, changes in interest rates, 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.

Category: Financial
Source: Sierra Bancorp

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Contacts

Kevin McPhaill, President/CEO
(559) 782‑4900 or (888) 454‑BANK
www.sierrabancorp.com