Sierra Bancorp Reports Financial Results for Second Quarter and First Six Months of 2026

PORTERVILLE, Calif.--(BUSINESS WIRE)--Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the three- and six-month periods ended June 30, 2026. Sierra Bancorp reported consolidated net income of $9.9 million, or $0.77 per diluted share, for the second quarter of 2026, compared to $10.6 million, or $0.78 per diluted share, in the second quarter of 2025. Return on average assets was 1.09% and return on average equity was 10.90% for the second quarter of 2026.

For the first six months of 2026, the Company recognized net income of $22.4 million, or $1.72 per diluted share, as compared to $19.7 million, or $1.43 per diluted share, for the same period in 2025. The Company's improved financial performance metrics for the first half of 2026 include a net interest margin of 3.75% and an efficiency ratio of 57.70%, as compared to a net interest margin of 3.71% and efficiency ratio of 60.00% for the same period in 2025.

Highlights for the second quarter and first half of 2026:

• Strong YTD Earnings and Profitability (first half compared to same period last year)
  • Diluted earnings per share increased by $0.29, or 20%, to $1.72 per diluted share.
  • Return on average assets rose to 1.24%, as compared to 1.09%.
  • Return on average equity expanded to 12.38%, as compared to 11.26%.
  • Net interest margin remained strong at 3.75%, increasing four basis points from 3.71%.
  • Efficiency ratio⁽¹⁾ improved to 57.70%, as compared to 60.00%.
• Deposit Franchise Strength and Low Cost of Funds
  • Total deposits increased $54.6 million, or 2%, from December 31, 2025.
  • Noninterest-bearing deposits of $1.03 billion at June 30, 2026, represent 35.0% of total deposits.
  • Cost of total deposits declined to 1.11% compared to 1.30% in the second quarter of 2025, while cost of funds decreased to 1.31% from 1.49%.
  • Core non-maturity deposits increased $67.8 million, or 3%, from December 31, 2025.
  • Uninsured deposits, exclusive of public funds, are approximately 25% of total deposit balances.
• Solid Capital and Liquidity
  • Tangible book value⁽¹⁾ per share increased to $26.19 at June 30, 2026, compared to $23.42 at December 31, 2025.
  • Repurchased 396,429 shares of stock during the first half of 2026.
  • Declared dividend of $0.27 per share, payable on August 10, 2026.
  • Strong regulatory Community Bank Leverage Ratio of 12.25%, at June 30, 2026, for our subsidiary Bank.
  • Tangible common equity ratio⁽¹⁾ of 9.19%, at June 30, 2026, on a consolidated basis.
  • Overall primary and secondary liquidity sources of $1.9 billion at June 30, 2026.

“Coming together is the beginning. Keeping together is progress. Working together is success.” – Henry Ford

“We are proud to serve the Central Valley and Central Coast of California. Our strong commitment to these communities is reflected in our continued solid deposit growth during 2026,” stated Kevin McPhaill, CEO and President. “I am particularly proud of our ability to pivot, as demonstrated by the surge in loan growth in the last couple of months. This shift reflects the team’s laser focus on both loan and deposit growth. In particular, our loan pipeline increased significantly, and we expect this momentum to result in net loan growth in the second half of 2026. Our expense management strategies resulted in a nearly 2% cost reduction in year-to-date expenses compared to the same period last year. We closed the quarter with contagious optimism throughout our Bank, boosting my confidence in what we can accomplish in the next six months and beyond!” concluded Mr. McPhaill.

Quarterly Income Changes (comparisons to the second quarter of 2025)

• Net income for the second quarter of 2026 decreased $0.7 million, or 7%, to $9.9 million. Net interest income remained stable, decreasing $0.2 million, while noninterest income increased slightly and noninterest expense decreased by $0.3 million. Noninterest expense in the second quarter of 2026 included approximately $0.5 million of severance and recruitment related charges resulting from a restructuring of the executive team. These changes were offset by a $1.1 million increase in credit loss expense on loans, resulting primarily from a $2.5 million specific reserve on a single agricultural production loan to a borrower in the lumber industry.
• Noninterest income and noninterest expense changes included a $0.4 million increase in earnings from separate account life insurance and a $0.1 million increase in deferred compensation expense. Separate account life insurance income and deferred compensation expense are designed to offset each other.
• Pre-tax pre-provision income⁽¹⁾ was $15.5 million, a slight increase over the second quarter of 2025.

Linked Quarter Income Changes (comparisons to the three months ended March 31, 2026)

• Net income decreased $2.6 million, or 21%, from the prior linked quarter. The decrease was driven primarily by a $2.2 million increase in credit loss expense, due to the $2.5 million specific reserve mentioned above, and a $1.7 million increase in noninterest expense. The large increase in noninterest expense was related to deferred compensation market changes that are offset by similar changes to separate account life insurance, recorded in noninterest income. The changes in deferred compensation, including deferred directors’ fees, were $1.7 million. In addition, we had $0.5 million in severance and recruiting costs related to an executive leadership restructuring during the quarter. These unfavorable changes were partially offset by a $0.6 million increase in noninterest income.
• Net interest income remained stable, decreasing $0.2 million from the linked quarter. Average interest-earning assets declined $43.0 million, or 1%, primarily due to lower loan and investment securities balances, while net interest margin remained stable at 3.74% compared to 3.75% in the linked quarter. Overall loan production activity increased throughout the quarter and the pipeline at June 30, 2026, is significantly elevated relative to the prior quarter end.
• Noninterest income changes included a $1.8 million increase in earnings from separate account life insurance associated with deferred compensation arrangements, offset by a $1.7 million increase in related deferred compensation expense, recorded in noninterest expense. Deferred compensation expense increased primarily due to increases in participant account values resulting from favorable market performance during the quarter.
• Other changes to noninterest income outside of the above mentioned included a $0.3 million increase in service charge income, primarily driven by higher deposit account fees, partially offset by several nonrecurring transactions in the first quarter of 2026, including a $0.4 million gain on the sale of fixed assets, a $0.4 million special FHLB dividend, and a $0.6 million increase in the fair value of bank stocks.

Year-to-Date Income Changes (comparisons to the first six months of 2025)

• Net income increased $2.7 million, or 14%, to $22.4 million for the first six months of 2026. The increase was driven primarily by a $1.3 million increase in noninterest income, a $1.1 million decrease in provision for credit losses, and a $0.9 million decrease in noninterest expense. Diluted earnings per share increased 20% to $1.72 compared to $1.43 in the comparative period.
• Net interest income increased $0.3 million due primarily to a four basis point increase in net interest margin to 3.75%, partially offset by slightly lower average earning assets. Funding costs declined meaningfully during the period, with cost of funds decreasing to 1.32% from 1.48% and cost of deposits declining to 1.14% from 1.31%.
• Noninterest income increased $1.3 million, or 9%, compared to the first six months of 2025. The increase was driven primarily by a $0.5 million increase in earnings on separate account life insurance, a $0.3 million increase in cash surrender value income from life insurance, a $0.2 million increase in service charges and fees, and a $0.4 million gain on sale of fixed assets. These favorable variances were partially offset by lower securities gains.
• Noninterest expense decreased $0.9 million, or 2%, compared to the first six months of 2025. The reduction was driven primarily by lower other operating expenses and deposit service costs, partially offset by increased occupancy expenses and higher professional service costs.
• Pre-tax pre-provision income⁽¹⁾ was $32.2 million for the first half of 2026, an increase of $2.4 million, or 8%.

Balance Sheet Changes (comparisons to December 31, 2025, unless otherwise noted)

• Total assets decreased $108.7 million, or 3%, to $3.72 billion during the first six months of 2026. The decline was primarily attributable to reductions in mortgage warehouse balances of $60.9 million and investment securities of $21.4 million.
• Gross loans decreased $90.8 million, or 4%, due to a $60.9 million decrease in mortgage warehouse balances, a $13.9 million decrease in residential real estate loans, a $13.4 million decrease in other commercial loans, a $1.2 million decrease in commercial real estate, and a $2.5 million decrease in farmland loans. These decreases were partially offset by an increase of $1.4 million in construction loans.
• Mortgage warehouse average balances increased $8.0 million during the second quarter of 2026 compared to the linked quarter, while ending balances declined by $21.0 million. Average balances of commercial real estate and commercial and industrial loans decreased during the quarter, and period-end balances remained relatively flat. However, loan production strengthened significantly as the quarter progressed, reflecting a shift in momentum entering the third quarter of 2026 and supporting an increased pipeline of commercial real estate and commercial and industrial lending opportunities.
• Total deposits increased $54.6 million, or 2%. Growth was concentrated in noninterest-bearing demand deposits and non-maturing interest-bearing deposits. Customer deposits increased $57.5 million, while brokered deposits decreased $2.9 million during the period.
• Other interest-bearing liabilities declined to $155.0 million at June 30, 2026, from $302.7 million at December 31, 2025. The $147.7 million decline was primarily due to a reduction in overnight borrowings used to fund mortgage warehouse lending activity.

Other financial highlights are reflected in the following table.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $30.4 million for the second quarter of 2026, a decrease of $0.2 million, or 1%, compared to the second quarter of 2025. The decrease was primarily attributable to lower average interest-earning asset balances and yields, substantially offset by lower funding costs. Interest expense declined $1.5 million, or 13%, from the prior-year quarter, reflecting the benefits of lower deposit and wholesale funding costs.

For the second quarter of 2026, average interest-earning assets decreased $81.2 million, or 2%, from the same period in 2025, while the yield on those assets declined eight basis points to 5.02%. The decline in average earning assets was driven primarily by lower investment securities balances and decreases in real estate loans and agricultural production loans.

Average interest-bearing liabilities decreased $23.7 million in the second quarter of 2026 compared to the same period in 2025, while the cost of those liabilities declined 26 basis points to 1.92%. The quarterly decrease in cost was primarily attributable to a 28 basis point reduction in the cost of interest-bearing deposits and a 23 basis point reduction in the cost of borrowed funds. Average interest-bearing deposit balances declined $42.8 million from the prior-year quarter, comprised primarily of a decline in higher-cost customer time deposits which decreased $62.7 million and brokered deposits which declined $16.2 million. These changes were partially offset by higher average balances of federal funds purchased, which increased to fund mortgage warehouse lending activity.

The reduction in funding costs more than offset the modest decline in earning asset yields, resulting in a six basis point increase in the net interest margin to 3.74% from 3.68% in the second quarter of 2025.

Compared to the linked first quarter of 2026, net interest income decreased $0.2 million. Average interest-earning assets declined $43.0 million, or 1%, while yields on earning assets decreased two basis points. Average interest-bearing liabilities declined $16.0 million and the cost of those liabilities decreased two basis points to 1.92%. As a result, interest margin was essentially stable at 3.74% for the second quarter of 2026, compared to 3.75% for the first quarter of 2026.

Net interest income for the first six months of 2026 increased $0.3 million to $61.0 million, compared to the same period in 2025. The increase resulted primarily from an improved net interest margin, driven by lower funding costs and partially offset by a modest decline in average earning assets. Average interest-earning assets decreased $19.6 million, or 1%, and the yield on those assets decreased nine basis points to 5.03%.

For the first six months of 2026, interest expense decreased $2.3 million to $21.1 million, compared to $23.4 million during the same period in 2025. The decrease was driven by a 23 basis point reduction in the cost of interest-bearing liabilities to 1.93%, partially offset by a $25.1 million increase in average interest-bearing liabilities. The reduction in funding costs contributed to a four basis point increase in net interest margin to 3.75% for the first six months of 2026, compared to 3.71% for the same period in 2025.

At June 30, 2026, approximately $457.5 million, or 19%, of the Company's loan portfolio consisted of mortgage warehouse facilities, which generally reprice immediately as interest rates change. In addition, approximately $214.4 million of collateralized loan obligations and other floating-rate securities within the available-for-sale portfolio continue to provide asset sensitivity through periodic rate resets.

Credit Loss Expense

The credit loss expense on loans was $2.3 million for the second quarter of 2026, compared to $1.2 million for the second quarter of 2025. For the first six months of 2026, the provision for credit losses on loans was $2.4 million, compared to $3.2 million for the same period in 2025. A $2.5 million specific reserve established on an agricultural production loan during the second quarter of 2026 was the primary driver of the increase in credit loss expense for the quarterly comparison. Despite this reserve build, year-to-date credit loss expense benefited from a $6.1 million reduction in net charge-offs compared to the first six months of 2025.

The Company recorded a benefit for credit losses on unfunded commitments of $0.1 million during the second quarter of 2026 and a benefit of $0.1 million for the first six months of 2026, compared to a benefit of less than $0.1 million for the second quarter of 2025 and a provision of $0.1 million for the first six months of 2025.

The Company also recorded an immaterial benefit related to credit losses on held-to-maturity debt securities during the first six months of 2026. No provision for credit losses was recorded on available-for-sale debt securities during the periods presented. Although certain debt securities remained in an unrealized loss position, the declines in fair value were primarily attributable to changes in market interest rates and not to expected credit losses.

Noninterest Income

Total noninterest income increased $0.6 million, or 8%, to $8.6 million in the second quarter of 2026 from $8.0 million in the linked quarter. The increase was driven primarily by a $1.8 million favorable change in earnings on separate account life insurance and an increase of $0.3 million in service charges and fees on deposits. This increase was partially offset by the absence of several non-recurring income items recognized during the first quarter of 2026, including a $0.4 million gain on the sale of fixed assets, a $0.4 million special FHLB dividend, and a $0.6 million increase in the fair value of bank stocks.

Compared to the second quarter of 2025, total noninterest income was unchanged at $8.6 million. Favorable variances included a $0.4 million increase in earnings on separate account BOLI, a $0.1 million increase in service charges and fees on deposit accounts, and a modest increase in cash surrender value income from life insurance. These improvements were largely offset by a $0.6 million decrease in other income, mainly due to a decrease in gain on life insurance proceeds.

For the first six months of 2026, noninterest income increased $1.3 million, or 9%, to $16.5 million compared to $15.2 million for the same period in 2025. The increase was driven primarily by a $0.5 million increase in earnings on separate account life insurance, a $0.3 million increase in cash surrender value income from life insurance, a $0.2 million increase in service charges and fees on deposit accounts, and a $0.4 million favorable variance from gains on sales of fixed assets. These favorable changes were partially offset by lower gains on sale of investment securities.

The Company’s non‑qualified deferred compensation plan for officers and directors allows participants to defer a portion of their earnings and select from various hypothetical investment alternatives to determine their individual returns. The Company economically offsets this liability with separate account life insurance policies that are invested in similar underlying fund types within the life insurance policy. Because the deferred compensation liability and the separate account life insurance asset are not contractually linked, differences in balances, fund performance, and insurance costs can result in temporary timing mismatches between changes in separate account life insurance income and the related deferred compensation expense.

Earnings on separate account life insurance were $1.4 million for the second quarter of 2026, compared to a loss of $0.4 million in the linked quarter and earnings of $1.0 million in the second quarter of 2025. For the first six months of 2026, earnings on separate account life insurance totaled $1.0 million, compared to $0.5 million for the same period in 2025. These changes reflect market-driven fluctuations in the value of the underlying investment alternatives and do not represent changes in the operating performance or credit quality of the Company.

The majority of the related deferred compensation expense or benefit is reported within professional services expense under deferred directors' fees, as it primarily relates to directors' deferred compensation elections. Deferred directors' fee expense was $1.0 million during the second quarter of 2026, compared to a benefit of $0.6 million in the linked quarter and expense of $0.9 million in the second quarter of 2025. For the first six months of 2026, deferred directors' fee expense totaled $0.5 million, compared to $0.5 million during the same period in 2025.

Noninterest Expense

Total noninterest expense increased $1.7 million, or 8%, to $23.5 million during the second quarter of 2026 from $21.8 million in the linked first quarter of 2026 primarily due to deferred compensation expense described above.

Compared to the second quarter of 2025, total noninterest expense decreased $0.3 million, or 1%. Salaries and benefits expense remained essentially unchanged from the prior year quarter. Other noninterest expense decreased $0.3 million, primarily due to lower deposit service costs and other operating expenses. These favorable variances were partially offset by higher deferred compensation expense, legal and accounting costs, and directors' fees.

For the first six months of 2026, noninterest expense decreased $0.9 million, or 2%, to $45.3 million from $46.2 million for the same period in 2025. Salaries and benefits decreased $0.3 million, while other noninterest expense declined $0.7 million. The improvement was primarily attributable to lower deposit service costs, lower operating expenses, and reduced sundry and teller expenses, partially offset by higher occupancy costs, legal and accounting expenses, and director-related costs. These results reflect management's continued focus on maintaining a relatively flat expense base while selectively investing in strategic growth initiatives, technology enhancements, regulatory compliance, and customer service capabilities.

Overall full-time equivalent employees were 452 at June 30, 2026, as compared to 465 at December 31, 2025, and 494 at June 30, 2025.

The Company's effective tax rate was 25.3% for the second quarter of 2026, unchanged from the second quarter of 2025 and as compared to 25.2% in the linked first quarter of 2026. For the first six months of 2026, the effective tax rate was 25.

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