Sierra Bancorp Reports Record Quarterly Income

PORTERVILLE, Calif.--(BUSINESS WIRE)--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, 2026. Sierra Bancorp reported consolidated net income of $15.3 million, or $1.18 per diluted share, for the third quarter of 2026, compared to $9.7 million, or $0.72 per diluted share, in the third quarter of 2025. Return on average assets was 1.66% and return on average equity was 16.49% for the third quarter of 2026, compared to 1.04% and 10.81%, respectively, for the same period in 2025.

For the first nine months of 2026, the Company recognized net income of $37.7 million, or $2.90 per diluted share, as compared to $29.4 million, or $2.15 per diluted share, for the same period in 2025. The Company's improved financial performance metrics for the first nine months of 2026 include a net interest margin of 3.80% and an efficiency ratio of 56.73%, as compared to a net interest margin of 3.73% and efficiency ratio of 59.32% for the same period in 2025.

Highlights for the third quarter and first nine months of 2026:

• Strong Quarterly Earnings and Profitability (third quarter 2026 compared to same period last year)
  • Diluted earnings per share increased 64% to $1.18 per share.
  • Return on average assets rose to 1.66%, as compared to 1.04%.
  • Return on average equity expanded to 16.49%, as compared to 10.81%.
  • Net interest margin remained strong at 3.91%, increasing 13 basis points from 3.78%.
  • Efficiency ratio⁽¹⁾ improved to 54.86%, as compared to 58.05%.
  • Noninterest income over average assets remains high at 0.84% annualized, as compared to 0.86%.
• Deposit Franchise Strength and Low Cost of Funds
  • Total deposits increased $108.3 million, or 4%, from December 31, 2025.
  • Noninterest-bearing deposits of $1.06 billion at September 30, 2026, represent 35.4% of total deposits.
  • Cost of total deposits declined to 1.19% for the third quarter of 2026 compared to 1.30% in the third quarter of 2025, while cost of funds decreased to 1.30% from 1.45% for the same comparative period.
  • Core non-maturity deposits increased $122.5 million, or 6%, from December 31, 2025.
  • Uninsured deposits, exclusive of public funds, are approximately 26% of total deposit balances.
• Solid Capital Position
  • Tangible book value⁽¹⁾ per share increased to $25.79 at September 30, 2026, compared to $25.42 at December 31, 2025.
  • Declared dividend of $0.27 per share, payable on November 9, 2026.
  • Strong regulatory Community Bank Leverage Ratio of 12.43%, at September 30, 2026, for our subsidiary Bank.
  • Tangible common equity ratio⁽¹⁾ of 9.17%, at September 30, 2026, on a consolidated basis.
  • Overall primary and secondary liquidity sources of $2.0 billion at September 30, 2026.
• Improved Asset Quality
  • Nonperforming loans / gross loans declined to 0.38% at September 30, 2026, as compared to 0.52% at December 31, 2025.
  • Past due loans declined to $2.5 million as compared to $6.8 million at December 31, 2025.
  • Classified loans reduced to $27.0 million as compared to $31.4 million at December 31, 2025.

“You were born to win, but to be a winner, you must plan to win, prepare to win, and expect to win.” – Zig Ziglar

“It was an incredible quarter for our Bank as we earned record-breaking results!” exclaimed Kevin McPhaill, CEO and President. “In a highly competitive environment coupled with economic uncertainty, we achieved record profits, solid core deposit growth, and our highest quarterly gross loan production since 2020. This is a testament to our team’s consistent and disciplined execution of our strategy, which focuses on people and improved processes in order to achieve strong profitability growth. When that strategy is combined with outstanding relationships in our communities, you get the superb outcomes we see today! While the thrill of announcing excellent results is wonderful, I remain even more optimistic about our future opportunities as we ‘plan to win, prepare to win, and expect to win.’” concluded Mr. McPhaill.

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

• Net income increased $5.6 million, or 58%, to $15.3 million for the third quarter of 2026 due primarily to a favorable change in provision (benefit) for credit losses, as well as higher net interest income, a reduction in noninterest expense, and a lower effective tax rate. The change in provision (benefit) for credit losses was caused by a release of allowance in the third quarter of 2026 due mostly to the $2.5 million payoff of a lumber related loan which had been previously fully reserved as an individually evaluated loan.
• Net interest income increased $0.4 million, or 1%, to $32.4 million. Included in net interest income was a $1.1 million recovery of interest on a separate agricultural nonperforming loan that was paid in full. Net interest margin expanded to 3.91% from 3.78% in the third quarter of 2025.
• Noninterest income and noninterest expense changes included a $0.5 million decrease in earnings from separate-account life insurance and a $0.3 million decrease in deferred compensation expense. Separate-account life insurance income and deferred compensation expense are designed to offset each other.
• Overall noninterest expense decreased by $1.3 million primarily due to lower salaries and employee benefits expense and reduced deposit service costs. Salaries and employee benefits, excluding deferred compensation, declined $0.6 million, primarily due to a reduction of full-time equivalent staffing levels.
• Pre-tax pre-provision income⁽¹⁾ increased to $17.8 million compared to $16.4 million in the third quarter of 2025. The effective tax rate during the quarter was 22.7% as compared to 23.6% for the same period in 2025. The decline in the effective tax rate is due mostly to the purchase of a tax equity investment in the third quarter of 2026.

Linked Quarter Income Changes (comparisons to the second quarter of 2026)

• Net income increased $5.4 million, or 54%, for the third quarter of 2026. The increase was driven primarily by a $4.3 million favorable change in credit loss (benefit) expense on loans, a $2.0 million increase in net interest income, and a $1.2 million decrease in noninterest expense. These favorable changes were partially offset by a $0.9 million decrease in noninterest income. The favorable change in credit loss (benefit) expense is related to the full payment of the lumber related loan in the third quarter of 2026 which had been previously fully reserved.
• Net interest income increased $2.0 million, or 6%, from the linked quarter. Included in this change was a $1.1 million recovery of interest on a separate nonperforming agricultural loan. The remainder of the increase was primarily attributable to higher earning asset yields and balances, while overall funding costs remained relatively flat. Net interest margin expanded to 3.91% from 3.74% in the linked quarter. Overall loan production activity continued to increase throughout the quarter and the pipeline at September 30, 2026, remains elevated similar to the prior quarter end.
• Noninterest income changes included a $1.3 million decrease in earnings from separate-account life insurance associated with deferred compensation arrangements, offset by a $1.0 million decrease in related deferred compensation expense, recorded in noninterest expense. Deferred compensation expense decreased primarily due to smaller increases in participant account values resulting from declining market performance during the quarter.
• Other changes to noninterest income outside of the above-mentioned items included a $0.2 million increase in FHLB dividends and a $0.1 million increase in service charge income, primarily driven by higher business analysis fees.
• Pre-tax pre-provision income⁽¹⁾ increased $2.3 million, or 15%, to $17.8 million.

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

• Net income increased $8.3 million, or 28%, to $37.7 million for the first nine months of 2026. The increase was driven primarily by a $6.8 million reduction in credit loss (benefit) expense, a $2.2 million decline in noninterest expense, a $1.0 million increase in noninterest income, and a $0.7 million improvement in net interest income. Diluted earnings per share increased 35% to $2.90 compared to $2.15 for the same period in 2025.
• Net interest income increased $0.7 million, or 1%, compared to the first nine months of 2025. Included in the increase was a $1.1 million recovery of interest as described above in the quarterly comparison. Tax-equivalent net interest margin increased seven basis points to 3.80% from 3.73%, driven by lower funding costs. Cost of funds declined to 1.32% from 1.47%, while the cost of deposits decreased to 1.16% from 1.31%.
• Noninterest income increased $1.0 million, or 4%, compared to the first nine months of 2025. The increase was primarily attributable to a $0.4 million gain on the sale of fixed assets, a $0.3 million increase in cash surrender value income from bank-owned life insurance, and higher service charges and fee income.
• Noninterest expense decreased $2.2 million, or 3%, compared to the first nine months of 2025. The reduction was driven primarily by lower salaries and employee benefits expense, lower deposit service costs, and reduced other operating expenses.
• Pre-tax pre-provision income⁽¹⁾ increased $3.8 million, or 8%, to $50.0 million for the first nine months of 2026. The effective tax rate during the first nine months of 2026 was 24.2% as compared to 24.9% for the same period in 2025. The decline is due mostly to the purchase of a tax equity investment in the third quarter of 2026.

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

• Total assets decreased $154.1 million, or 4%, to $3.68 billion at September 30, 2026. The decrease was primarily attributable to a $158.0 million reduction in mortgage warehouse loan balances and a $53.7 million decline in investment securities, partially offset by growth in commercial real estate loans as detailed below.
• Gross loans decreased $118.3 million, or 5%, to $2.43 billion. The decline was primarily driven by a $158.0 million decrease in mortgage warehouse facilities, a $12.9 million decrease in other commercial loans, a $17.5 million decrease in residential real estate loans, and a $5.2 million decrease in farmland loans. These decreases were partially offset by a $74.1 million increase in commercial real estate loans and a $1.5 million increase in other construction and land development loans.
• New credit extended, excluding changes in line of credit and mortgage warehouse utilization, totaled $123.7 million during the third quarter of 2026, representing the Company's highest quarterly level of loan production since the fourth quarter of 2020 and reflecting continued strength in commercial lending activity.
• Commercial real estate lending activity strengthened during the third quarter of 2026. Commercial real estate balances increased $75.3 million during the quarter, while mortgage warehouse balances declined $97.1 million. Average commercial and industrial loan balances increased 15% from the linked quarter, reflecting continued success in originating relationship-based commercial lending.
• Mortgage warehouse balances declined $158.0 million, or 30%, from December 31, 2025, as the Company temporarily paused growth in mortgage warehouse to allow our focus to be on enhanced controls amid elevated interest rate volatility and increased market uncertainty. The focus reflects a disciplined approach to managing risk while preserving profitability, as average third quarter mortgage warehouse balances declined only $20.8 million from the linked quarter and associated mortgage warehouse interest income only declined by $0.2 million.
• Total deposits increased $108.3 million, or 4%, to $2.98 billion. Growth was concentrated in core deposit categories, including a $59.5 million increase in noninterest-bearing demand deposits, a $35.0 million increase in interest-bearing transaction accounts, and a $28.9 million increase in money market deposits. Customer deposits increased $106.3 million, while brokered deposits increased $2.1 million during the period.
• Other interest-bearing liabilities declined $250.7 million, or 83%, to $52.0 million at September 30, 2026, from $302.7 million at December 31, 2025. The decline primarily reflects a significant reduction in overnight borrowings as mortgage warehouse balances decreased and deposit growth strengthened.
• Asset quality metrics continued to improve during the first nine months of 2026. Nonperforming assets declined to $9.3 million, or 0.38% of loans plus foreclosed assets, compared to $14.8 million, or 0.58%, at December 31, 2025. Classified loans declined to $27.0 million from $31.4 million at year-end 2025.

Other financial highlights are reflected in the following table.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $32.4 million for the third quarter of 2026, an increase of $0.4 million, or 1%, compared to the third quarter of 2025. The increase was primarily attributable to lower funding costs, higher loan yields, and the recovery of approximately $1.1 million of previously unrecognized interest income associated with an agricultural production nonaccrual loan that paid in full during the quarter. This credit relationship is unrelated to the agricultural production credit discussed in the Credit Loss Expense section. The favorable interest recovery was partially offset by lower average investment securities balances and yields. Interest expense declined $1.4 million, or 12%, from the prior-year quarter, reflecting lower rates on deposits and borrowed funds and a decrease in the average balance of borrowed funds.

For the third quarter of 2026, average interest-earning assets decreased $67.4 million, or 2%, from the same period in 2025, while the yield on those assets remained relatively stable at 5.17%, compared to 5.18% in the prior-year quarter. The decline in average earning assets was primarily attributable to lower investment securities balances, partially offset by growth in average commercial real estate and mortgage warehouse loan balances.

Average interest-bearing liabilities decreased $45.6 million, or 2%, compared to the third quarter of 2025, while the cost of those liabilities declined 21 basis points to 1.92%. The decrease in funding costs was primarily attributable to lower costs on interest-bearing deposits and borrowed funds. Average customer time deposits declined $42.2 million from the prior-year quarter and brokered deposit costs decreased 33 basis points, contributing to the improvement in overall funding costs.

The reduction in funding costs and improvement in loan yields more than offset modest pressure on earning asset balances, resulting in a 13 basis point increase in tax-equivalent net interest margin to 3.91%, compared to 3.78% in the third quarter of 2025.

Compared to the linked quarter, net interest income increased $2.0 million, or 6%, driven by higher earning asset yields and a favorable funding mix. The increase in loan yields was partially due to the recovery of approximately $1.1 million of previously unrecognized interest income associated with an agricultural production nonaccrual loan that paid in full during the third quarter. While deposit and borrowing costs increased modestly during the quarter, the overall cost of interest-bearing liabilities remained unchanged at 1.92% as average balances of higher-cost overnight and short-term borrowings declined $89.0 million. Average interest-earning assets increased $19.4 million, while the yield on those assets increased 15 basis points to 5.17%. Net interest margin expanded 17 basis points to 3.91% in the third quarter of 2026 from 3.74% in the second quarter of 2026.

The Company temporarily paused growth within its mortgage warehouse portfolio during the quarter in response to elevated interest rate volatility and changing conditions in the residential mortgage market. Enhanced reviews of our customer's credit risk profiles, including hedging positions and pipelines, resulted in a more selective approach to extending mortgage warehouse credit at the end of the third quarter 2026. Despite a decline of $97.1 million in period-end mortgage warehouse balances during the quarter, average mortgage warehouse balances decreased by only $20.8 million compared to the linked quarter, while related interest income declined slightly by $0.2 million, reflecting the continued profitability of the portfolio.

Net interest income for the first nine months of 2026 increased $0.7 million, or 1%, to $93.4 million, compared to the same period in 2025. The increase was primarily attributable to lower funding costs and the recovery of approximately $1.1 million of previously unrecognized interest income associated with a nonaccrual loan that paid in full during the third quarter, partially offset by lower average investment securities balances. Average interest-earning assets decreased $35.7 million, or 1%, while the tax-equivalent yield on earning assets declined seven basis points to 5.07%.

For the first nine months of 2026, interest expense decreased $3.7 million, or 10%, to $31.7 million. The decrease was driven by a 22 basis point reduction in the cost of interest-bearing liabilities to 1.93%, reflecting favorable repricing of deposits and wholesale funding balances. As a result, tax-equivalent net interest margin increased seven basis points to 3.80%, compared to 3.73% for the same period in 2025.

The Company had $1.8 billion in adjustable and variable rate loans and $196.9 million in floating rate bonds, as compared to $201.6 million in floating rate CDs and $36.1 million in floating rate trust preferred securities at September 30, 2026. Included in the $1.8 billion of adjustable and variable rate loans was approximately $360.3 million of mortgage warehouse facilities, or 15% of the Company's loan portfolio. Although these loans do not generally reprice while outstanding, their short duration and rapid turnover result in yields that adjust quickly to changes in market interest rates. Additionally, approximately $158.5 million of collateralized loan obligations within the available-for-sale investment security portfolio continue to provide asset sensitivity through periodic rate resets. In addition, there were $647.7 million of fixed-term deposits that reprice or mature within twelve months.

Credit Loss Expense

Credit loss expense on loans was a benefit of $2.0 million for the third quarter of 2026, compared to expense of $3.7 million for the third quarter of 2025, and expense of $2.2 million in the prior linked quarter. For the first nine months of 2026, credit loss expense on loans was $0.3 million, compared to $6.9 million for the same period in 2025.

The third quarter provision reversal was primarily attributable to the resolution of a previously identified agricultural production lending relationship in the lumber industry. During the second quarter of 2026, the Company established a $2.5 million specific reserve on the credit due to elevated repayment risk. During the third quarter, the credit relationship was resolved through the sale of the note to another creditor. As a result, the Company recovered substantially all principal, accrued interest, and fees associated with the relationship, resulting in a $0.1 million charge-off and the reversal of the previously established specific reserve. The resolution of this relationship contributed to a reduction in the allowance for credit losses on loans from $23.6 million at June 30, 2026, to $21.7 million at September 30, 2026. The nonaccrual agricultural production credit discussed in the Net Interest Income section is unrelated to the previously reserved agricultural production relationship in the lumber industry discussed in the Credit Loss Expense and Asset Quality sections. Excluding the impact of this previously reserved credit relationship, credit quality trends across the remainder of the loan portfolio were stable to improved during the quarter. Nonperforming assets declined to $9.3 million at September 30, 2026, from $14.8 million at December 31, 2025, classified loans declined to $27.0 million from $31.4 million, and loans past due 30 to 89 days improved to $2.5 million from $6.8 million at year-end 2025.

The Company recorded credit loss expense on unfunded commitments of $10,000 during the third quarter of 2026 and a benefit of $130,000 for the first nine months of 2026, compared to a benefit of $20,000 and expense of $80,000, respectively, during the comparable 2025 periods.

The Company also recorded an immaterial benefit related to credit losses on held-to-maturity debt securities during the first nine months of 2026. No provision for credit losses was recorded on available-for-sale debt securities during the periods presented.

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