Sierra Bancorp (NASDAQ:BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the three-and twelve-month periods ended December 31, 2022. Sierra Bancorp reported consolidated net income in the fourth quarter of 2022 of $7.1 million, or $0.47 per diluted share, compared to net income of $9.6 million, or $0.63 per diluted share, in the fourth quarter of 2021. The Company's fourth quarter 2022 return on average assets and return on average equity was 0.79% and 9.62%, respectively, as compared to 1.10% and 10.47%, respectively, for the same comparative period in 2021.

For the year ended 2022, the Company recognized net income of $33.7 million, or $2.25 per diluted share, as compared to $43.0 million, or $2.80 per diluted share, for the same period in 2021. The Company's financial performance metrics for the year ended 2022 include a return on average assets and a return on average equity of 0.97% and 10.66%, respectively, compared to 1.29% and 12.05%, respectively, for the same period in 2021. The primary reason for the change in earnings in 2022 as compared to 2021 is due to an $14.5 million increase in the provision for credit losses on loans and leases, net of taxes.

"As we exit 2022, we are very proud of the accomplishments made by our banking team," stated Kevin McPhaill, President and CEO. "We successfully grew both loans and deposits while navigating a challenging rate environment – not an easy task for most financial institutions. As a community bank, we demonstrate our commitment to all our markets every day and are grateful for the positive response from our loyal customers. We look forward to opportunities in the coming year and will continue to work closely with our communities and customers to help us all thrive in 2023 and beyond!" McPhaill concluded.

Financial Highlights

Quarterly Changes (comparisons to the fourth quarter of 2021)

Net income for the fourth quarter of 2022 decreased $2.5 million or 26%, to $7.1 million. There was a $7.7 million increase in the provision for credit losses on loan and leases. The increase in the provision for credit losses is mostly due to a fourth quarter 2022 charge-off of $6.8 million related to one dairy loan relationship. This increase in provision for credit losses was partially offset by a $2.8 million positive net interest income variance along with a $0.5 million gain on a low-income housing tax credit fund partnership investment, $0.5 million gain on the sale of investment securities, and $0.4 million increase in miscellaneous income.
The $2.8 million increase to net interest income for the fourth quarter of 2022 was driven by an $8.9 million expansion in investment interest income, $6.7 million of which was from collateralized loan obligations ("CLOs"), partially offset by a $4.9 million increase in interest expense and a $1.2 million decline in loan and lease interest income. The increase in interest expense is largely due to a $3.1 million increase in expense related to time deposit accounts and a $1.8 million increase in the cost of borrowed funds. These increases to interest expense are due to shift from being a net seller of Federal Funds at December 31, 2021 to a net purchaser of funds at December 31, 2022 coupled with a 368 bp increase to the rate on the Prime Index Certificate of Deposit account offered by the bank. The rate on the Prime Index account is tied to a spread to the Wall Street Journal Prime Rate and varies from Prime minus 400 bps to Prime minus 325 bps. During 2022, the Prime rate increased by 425 basis points. The yield on interest earning assets increased 91 bps for the fourth quarter of 2022 while the cost of interest-bearing liabilities increased 90 bps resulting in a 32 bp increase in net interest margin.
Noninterest income for the fourth quarter of 2022 increased $0.6 million, or 8% due to a $0.3 million increase in other service charge income, a $0.5 million gain on the sale of securities, and a $0.5 million gain on a low-income tax credit fund partnership investment. These favorable variances were partially offset by an unfavorable change in income related to our investment in a Small Business Investment Company.
Noninterest expense for the fourth quarter of 2022 decreased by $0.7 million. There was a $1.7 million increase in salaries and benefits from the strategic hiring of lending and management staff, offset by a positive $2.2 million variance in professional services costs mostly due to legal expenses.

Year to-Date Changes (comparisons to the year ended 2021)

Net income for 2022 decreased by $9.4 million, or 22% primarily due to an $14.5 million increase in the provision for credit losses on loans and leases, net of taxes.
Noninterest income for 2022 increased by $2.7 million, or 10%, due to increased service charge income of $0.7 million, a $1.5 million increase in the nonrecurring gains from the sales of investment securities, an $0.8 million increase in the gain on low-income tax credit fund investments and a $3.0 million increase in gains from the sale of other assets. These increases were partially offset by a $3.6 million unfavorable variance in the fluctuation in income on bank-owned life insurance (BOLI) designed to invest in funds to offset the Company's deferred compensation plan described in the next paragraph.
Noninterest expense increased $1.2 million, or 1%, due mostly to a $4.6 million increase in salary and benefits expense for new loan production teams and a $0.7 million restitution payment to customers charged nonsufficient fund fees on representments in the past five years, partially offset by lower legal costs, telecommunications, and a positive variance in director's deferred compensation expense which is linked to the unfavorable changes in bank-owned life insurance income described in the above paragraph.

Balance Sheet Changes (comparisons to December 31, 2021)

Total assets increased by $237.6 million, or 7%, to $3.6 billion, during 2022, due mostly to an increase in deposits and borrowed funds which facilitated loan growth and the purchase of investment securities in 2022.
Cash and due from banks decreased $180.4 million to $77.1 million for the year due mostly to an increase in investment securities.
Investment securities increased $298.5 million, or 31%, to $1.3 billion primarily due to $181.5 million in strategic purchases of CLOs, as well as other investment securities.
Gross loans increased $63.2 million due predominantly to the purchase of $173.1 million in high quality jumbo single family mortgage loan pools earlier in the year. Organic loan production for the year ending 2022 was $292.2 million, as compared to $128.4 million for the comparative period in 2021. These loan increases were offset by $317.8 million in loan maturities, charge-offs and payoffs, a $29.7 million decline in PPP balances due to loan forgiveness by the SBA, and a decline in credit line utilization of $84.3 million. The decrease in line utilization includes a $35.7 million decline in mortgage warehouse line utilization due to higher interest rates reducing the demand for mortgages.
Deposits totaled $2.8 billion at December 31, 2022, representing a year-to-date increase of $64.6 million, or 2%. The growth in deposits came primarily from an increase in time deposits of $165.7 million offset by a decrease in other deposit balances of $101.1 million.
Short-term debt increased by $221.3 million during 2022 to $328.2 million at December 31, 2022. Overnight repurchase agreements increased $2.3 million to $109.2 million, FHLB borrowings and overnight fed funds increased by $219.0 million.

Other financial highlights are reflected in the following table.


FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except per Share Data, Unaudited)

		At or For the									At or For the
		Three Months Ended									Twelve Months Ended
		12/31/2022			9/30/2022			12/31/2021			12/31/2022			12/31/2021
Net income	$	7,113		$	9,935		$	9,621		$	33,659		$	43,012
Diluted earnings per share	$	0.47		$	0.66		$	0.63		$	2.25		$	2.80
Return on average assets		0.79	%		1.13	%		1.10	%		0.97	%		1.29	%
Return on average equity		9.62	%		12.84	%		10.47	%		10.66	%		12.05	%

Net interest margin (tax-equivalent)		3.63	%		3.63	%		3.31	%		3.47	%		3.56	%
Yield on average loans and leases		4.38	%		4.28	%		4.59	%		4.32	%		4.57	%
Yield on investments		4.40	%		3.51	%		1.55	%		3.07	%		1.66	%
Cost of average total deposits		0.51	%		0.24	%		0.08	%		0.24	%		0.09	%
Efficiency ratio (tax-equivalent)¹		57.55	%		58.10	%		64.86	%		60.16	%		59.92	%

Total assets	$	3,608,590		$	3,532,289		$	3,371,014		$	3,608,590		$	3,371,014
Loans & leases net of deferred fees	$	2,052,817		$	2,020,016		$	1,987,861		$	2,052,817		$	1,987,861
Noninterest demand deposits	$	1,088,199		$	1,118,245		$	1,084,544		$	1,088,199		$	1,084,544
Total deposits	$	2,846,164		$	2,885,468		$	2,781,572		$	2,846,164		$	2,781,572
Noninterest-bearing deposits over total deposits		38.2	%		38.8	%		39.0	%		38.2	%		39.0	%

Shareholders' equity / total assets		8.4	%		8.4	%		10.8	%		8.4	%		10.8	%
Tangible Common equity ratio		7.7	%		7.6	%		9.9	%		7.7	%		9.9	%
Book value per share	$	20.01		$	19.56		$	23.74		$	20.01		$	23.74
Tangible book value per share	$	18.06		$	17.58		$	21.73		$	18.06		$	21.73

(1)	Noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income was $29.4 million for the fourth quarter of 2022, a $2.8 million increase, or 11% over the fourth quarter of 2021, and increased $0.6 million, or 1%, to $109.6 million for the year ended 2022 relative to the same period in 2021.

For the fourth quarter of 2022, growth in average interest-earning assets totaled $52.5 million, or 2%, as compared to the fourth quarter of 2021. The yield on these balances was 91 basis points higher for the same period due mostly to a shift in the mix of earning assets and the result of recent interest rate increases by the Federal Open Market Committee. This increase in yield was offset by a 90 basis point increase in the cost of our interest-bearing liabilities for the same period. Although transaction and savings deposit rates have not changed, higher costs of time deposits and borrowed funds including overnight purchases are the primary reasons for the increase in interest expense.

The Company continues to offer floating rate CDs which are indexed to prime. These floating rate CDs increased $90.4 million, or 38%, to $329.3 million at December 31, 2022, as compared to $238.9 million at December 31, 2021. Due to the increase in the prime rate during 2022, interest expense on floating rate CDs has increased $2.5 million for the fourth quarter of 2022 over the fourth quarter of 2021, and increased $3.8 million for the year ending 2022 as compared to the same period in 2021. These CDs require a minimum balance and pay a rate that is 325 – 400 basis points below the Wall Street Journal Prime rate, with a 20 basis point minimum rate. Any future increases in the Wall Street Journal Prime rate will cause this interest expense to increase on the entire balance of such accounts while a decline in the Prime rate will result in an immediate reduction of interest expense on the entire balance of such accounts.

Net interest income for the comparative year-to-date periods increased $0.6 million, or 1%, due to a change in mix of average interest-earning assets. Investment balances, with an average yield of 3.07% increased $284.7 million, while gross average loan balances yielding 4.32% decreased $163.3 million. The overall yield on the average balances of earning assets was 15 basis points higher for the comparative periods, partially offset by a 39 basis point increase in interest paid on liabilities. The net impact was a 9 basis point decrease in our net interest margin for the year ending December 31, 2022, as compared to the same period in 2021.

The increase in investments includes a net increase of $166.2 million of exclusively AAA and AA tranches of floating rate CLOs, for a total cost basis of $515.0 million at December 31, 2022. The average yield on such CLOs for December 2022 was 6.11% as compared to an average yield in December 2021 of 1.51%. These CLOs have extensive prepurchase analyses performed with respect to the individual issuances, as well as various internal concentration limits. Although AAA and AA tranches of CLOs have historically not had charge-offs, management monitors this portfolio quarterly.

Interest expense was $6.2 million for the fourth quarter of 2022, an increase of $4.9 million, relative to the fourth quarter of 2021. For the year ended 2022, compared to the same period in 2021, interest expense increased $8.2 million, to $12.2 million. The increase in interest expense for the quarterly comparison is attributable to a $225.7 million increase in average interest-bearing liabilities with a 90 bps increase in cost. The increase was primarily in higher cost customer time deposits, wholesale brokered deposits and short-term borrowings. Lower or no cost average transaction and savings accounts decreased $64.6 million for the quarterly comparison. For the year-to-date comparisons the increase is primarily impacted by a $118.5 million increase in the average balance of borrowed funds combined with the impact of recent interest rate increases, although some favorable deposit mix changes did positively impact interest expense with higher cost time deposits falling by $21.5 million or 5%, while lower or no cost transaction and savings accounts increased $102.0 or 10%.

The Company had $1.3 billion in adjustable and variable rate loans and $498.4 million in floating rate CLOs, as compared to $329.3 million in floating rate CDs and $35.5 million in floating rate trust preferred securities at December 31, 2022. The next rate adjustment date on the adjustable rate loans vary and can be up to ten years. It is expected that $255.7 million of the Company's adjustable and variable rate loans will reprice in the next twelve months.

Our net interest margin was 3.63% for the fourth quarter of 2022, as compared to 3.63% for the linked quarter and 3.31% for the fourth quarter of 2021.

Provision for Credit Losses on Loans and Leases

The Company recorded a provision related to credit losses on loans and leases of $6.5 million in the fourth quarter of 2022 relative to a net benefit of $1.2 million in the fourth quarter of 2021, and a year-to-date provision for credit losses on loans and leases of $10.9 million in 2022 as compared to a $3.7 million loan and lease loss provision net benefit for the same period in 2021. The Company's $7.7 million unfavorable increase in provision for credit losses on loans and leases in the fourth quarter of 2022 as compared to the fourth quarter of 2021, and the $14.5 million unfavorable increase for the year ending 2022 compared to the same period in 2021 are primarily due to the impact of $11.5 million in net charge-offs during the year ending 2022. The elevated net charge-offs were mostly due to two loan relationships; one dairy loan relationship with total charge-offs of $8.7 million and a single office building loan relationship that was sold at a $1.9 million discount due to an increased risk of default that would have likely led to a prolonged collection period.

Noninterest Income

Total noninterest income reflects increases of $0.6 million, or 8%, for the quarter ended December 31, 2022 as compared to the same quarter in 2021, and $2.7 million, or 10% for the year ended December 31, 2022 as compared to the same period in 2021. The quarterly comparison was primarily impacted by the sale of investment securities for a gain of $0.5 million. For the year-to-date comparison there was $0.7 million in higher service charge income, $1.5 million in gains on the sale of investment securities, a $0.8 million favorable change in other small business partnership expenses, and $3.2 million in gains on the sale of other assets partially offset by a $3.7 million unfavorable fluctuation in income on Bank-Owned Life Insurance (BOLI) associated with deferred compensation plans.

Service charges on customer deposit account income decreased $0.1 million, or 3%, to $3.1 million in the fourth quarter of 2022 as compared to the fourth quarter of 2021. This decrease is primarily due to lower overdraft income during the comparable periods. This service charge income was $0.7 million higher, or 6%, for the year ending December 31, 2022, as compared to the same period in 2021. The increase for the year-to-date comparison is primarily a result of increases in analysis fee and overdraft income.

Noninterest Expense

Total noninterest expense decreased by $0.7 million, or 3%, in the fourth quarter of 2022 relative to the fourth quarter of 2021, and increased by $1.2 million, or 1%, for the year ended 2022 as compared to the same period in 2021.

Salaries and Benefits were $1.7 million, or 17%, higher in the fourth quarter of 2022 as compared to the fourth quarter of 2021 and $4.6 million, or 11%, higher for the year ended 2022 compared to the same period in 2021. Overall full-time equivalent employees were 491 at December 31, 2022 as compared to 480 at December 31, 2021. This increase accounted for the unfavorable quarterly and year-to-date variances. The increase in FTE was due to the strategic hiring of lending and management staff during 2022.

Occupancy expenses were $0.2 million higher for the fourth quarter of 2022 as compared to the same quarter in 2021 and $0.1 million lower for the year ended 2022 as compared to the same period in 2021. The primary reason for increase in the quarterly comparison was an increase in furniture and equipment expense to outfit our new agricultural loan production offices while the decrease in the year-to-date comparison was from the consolidation of five branch facilities in 2021.

Other noninterest expense decreased $2.6 million, or 27%, for the fourth quarter 2022 as compared to the fourth quarter in 2021, and decreased $3.3 million, or 10%, for the year ended 2022 as compared to the same period in 2021. The variance for the fourth quarter of 2022 compared to the same period in 2021 was primarily driven by a decrease of $2.3 million in legal and audit review costs due mostly to decreases in legal costs, related legal reserves, decreased costs related to certain audit functions which were previously outsourced, and lower hiring/recruiting costs. For the year-over-year comparison the categories of decrease were legal costs for $2.5 million, certain audit costs for $0.6 million, director's deferred compensation expense for $2.2 million which is linked to the fluctuation in BOLI income, $0.6 million in reduced ATM network costs, $0.4 million in lower consultant costs and $0.5 million in reduced telecommunication costs, partially offset by $0.7 million in restitution payments to customers charged nonsufficient fund fees in the past five years for representments, $0.9 million in increased debit card processing costs and $0.4 million in increased core processing costs. In late 2022, the Company renegotiated its core processing contract and expects annual savings from this renegotiation of approximately $1.0 million. In addition, the Company is expecting to convert its debit card processing to a new provider in the second quarter of 2023 which will result in lower processing costs.

The Company's provision for income taxes was 21.1% of pre-tax income in the fourth quarter of 2022 relative to 24.2% in the fourth quarter of 2021, and 25.1% of pre-tax income for the year ended December 31, 2022 relative to 24.8% for the same period in 2021. The decrease in effective tax rate in the fourth quarter is due to tax credits and tax-exempt income representing a larger percentage of total taxable income, while the year-to-date increase is the opposite with tax credits and tax-exempt income representing a smaller percentage of total taxable income. The decline in tax-exempt income is due mostly to unfavorable changes in bank-owned life insurance with investments linked to the Company's deferred compensation plan.

Balance Sheet Summary

Balance sheet changes for the year ended December 31, 2022 include an increase in total assets of $237.6 million, or 7%, primarily as a result of a $298.5 million increase in investment securities, a $63.2 million increase in gross loans and leases, a $63.4 million increase in other assets, net of a $180.4 million decrease in cash and due from banks.

The increase in investment securities of $298.5 million in 2022 consisted primarily of purchases of $60.8 million of U.S. government agency securities, municipal bonds of $175.6 million, corporate securities of $36.7 million, AAA and AA tranches of floating rate CLOs of $181.5 million, and mortgage-backed securities of $71.9 million, offset by principal paydowns and maturities. The purchases of AAA and AA tranches of CLOs in 2021 and 2022 were primarily a balance sheet diversification strategy. In addition to providing asset class diversification given the high level of real estate backed earning assets on the balance sheet, these floating rate CLOs are more asset sensitive which complements the longer-term fixed-rate earning assets.

Gross loan balances increased $63.2 million during the year ended December 31, 2022. The increase was primarily a result of an increase in 1-4 family residential real estate loans, mostly from the purchase of $173.1 million in high quality jumbo mortgage loans. Other positive variances from organic growth included a $6.7 million increase in agricultural real estate, and a $38.2 million increase in multi-family real estate. Negatively impacting these positive variances were loan paydowns and maturities resulting in net declines in many categories even with solid loan production. In particular, there was a $28.3 million net decrease in construction loans, a $33.0 million decrease in commercial and industrial loans, a $6.1 million decrease in agricultural production loans and a $35.7 million unfavorable variance in mortgage warehouse loans. Further, SBA PPP loan forgiveness resulted in a $29.7 million decline in loan balances, included in the commercial and industrial variance noted above.

As indicated in the loan roll forward below, new credit extended for the fourth quarter of 2022 increased $31.8 million over the same period in 2021 and increased $163.9 million for the year-to-date comparisons. This organic loan growth is attributable to the new agricultural and commercial real estate lending teams added earlier this year. Contributing to our organic growth, loans purchased during the year ending 2022 totaled $173.1 million, however, we had $317.8 million in loan paydowns and maturities, along with a $35.7 million decrease in mortgage warehouse line utilization and a $48.6 million decrease in line of credit utilization.


LOAN ROLLFORWARD
(Dollars in Thousands, Unaudited)
	For the three months ended:									For the twelve months ended:
		December 31, 2022			September 30, 2022			December 31, 2021			December 31, 2022			December 31, 2021
Gross loans beginning balance	$	2,020,364		$	2,022,662		$	2,139,826		$	1,989,726		$	2,463,111
New credit extended		67,170			82,958			35,415			292,224			128,365
Loan purchases		—			—			85,700			173,082			207,991
Changes in line of credit utilization		(3,361	)		(7,811	)		(53,910	)		(48,562	)		(109,419	)
Change in mortgage warehouse		18,885			(11,581	)		(25,302	)		(35,745	)		(206,494	)
Pay-downs, maturities, charge-offs and amortization ⁽¹⁾		(50,118	)		(65,864	)		(192,003	)		(317,785	)		(493,828	)
Gross loans ending balance		2,052,940			2,020,364			1,989,726			2,052,940			1,989,726

(1)	Includes $1.6 million from the sale of a performing loan during the second quarter of 2022.

Unused commitments, excluding mortgage warehouse and overdraft lines, were $219.7 million at December 31, 2022, compared to $219.6 million at December 31, 2021. Total line utilization, excluding mortgage warehouse and overdraft lines, was 59% at December 31, 2022 and 61% at December 31, 2021 and was 32% at December 31, 2022 and 48% at December 31, 2021, including mortgage warehouse lines. Mortgage warehouse utilization declined to 10% at December 31, 2022, as compared to 27% at December 31, 2021. Total mortgage warehouse availability increased to $594.6 million at December 31, 2022 as compared to $276.8 million at December 31, 2021.

PPP loans continue to decline as borrowers receive forgiveness on these loans. There were 14 loans for $1.8 million outstanding at December 31, 2022, compared to 440 loans for $31.8 million at December 31, 2021.

Deposit balances reflect growth of $64.6 million, or 2%, during the year ended December 31, 2022. Core non-maturity deposits decreased by $101.1 million, or 4%, while customer time deposits increased by $105.7 million, or 36%. Wholesale brokered deposits increased by $60.0 million to $120.0 million. Overall noninterest-bearing deposits as a percent of total deposits at December 31, 2022, decreased to 38.2%, as compared to 39.0% at December 31, 2021.

Long term debt, which consisted of $35.5 million in trust preferred securities and $49.2 million in subordinated debt was $84.7 million for the year ended December 31, 2022 and remained relatively unchanged during 2022.

Other interest-bearing liabilities of $328.2 million on December 31, 2022 consisted of $109.2 million in customer repurchase agreements, $125.0 million in overnight fed funds purchased, and $94.0 million in overnight FHLB advances. Other interest-bearing liabilities at December 31, 2021 consisted exclusively of $106.9 million in customer repurchase agreements.

The Company continues to have substantial liquidity. At December 31, 2022, and December 31, 2021, the Company had the following sources of primary and secondary liquidity (Dollars in Thousands, Unaudited):


Primary and Secondary Liquidity Sources		December 31, 2022		December 31, 2021
Cash and due from banks	$	77,131	$	257,528
Unpledged investment securities		1,097,164		806,132
Excess pledged securities		43,096		47,024
FHLB borrowing availability		718,842		787,519
Unsecured lines of credit		237,000		305,000
Funds available through fed discount window		42,278		50,608
Totals	$	2,215,511	$	2,253,811

Total capital of $303.6 million at December 31, 2022 reflects a decrease of $58.9 million, or 16%, relative to year-end 2021. The decrease in equity during the year ended December 31, 2022 was primarily due to a $67.7 million unfavorable swing in accumulated other comprehensive income (loss), a one-time adjustment from the implementation of CECL on January 1, 2022, for $7.3 million, $13.9 million in dividends paid, and $4.9 million in share repurchases. The declines were partially offset by $33.7 million in net income. The remaining difference is related to stock options exercised and restricted stock granted during the year.

Asset Quality

Total nonperforming assets, comprised of nonaccrual loans, increased by $15.0 million to $19.6 million for the year ended December 31, 2022. The Company's ratio of nonperforming loans to gross loans increased to 0.96% at December 31, 2022 from 0.23% at December 31, 2021. The increase resulted from an increase in non-accrual loan balances, primarily as a result of a downgrade in the first quarter of 2022 of one loan relationship in the dairy industry consisting of four separate loans. At December 31, 2022, nonaccrual loans totaled $19.6 million compared to $4.5 million at December 31, 2021. All of the Company's impaired assets are periodically reviewed and are either well-reserved based on current loss expectations or are carried at the fair value of the underlying collateral, net of expected disposition costs.

Subsequent to year end, $18.1 million of nonaccrual loans within the aforementioned dairy relationship were foreclosed upon and were moved to other real estate owned or other foreclosed assets at net realizable value. The Company sold a portion of such assets for $2.4 million, which constituted book value, and continues to actively work with interested buyers to sell the remaining assets of the dairy.

The Company's allowance for credit losses on loans and leases was $23.1 million at December 31, 2022, as compared to a balance of $14.3 million at December 31, 2021. The allowance was 1.12% of total loans at December 31, 2022 and was 0.72% of total loans at December 31, 2021.

The $8.8 million increase in the allowance for credit losses on loans and leases during the year ended December 31, 2022, resulted from a $9.5 million one-time adjustment from the implementation of CECL on January 1, 2022, a $10.9 million provision for credit losses on loans and leases, offset by net loan charge-offs of $11.5 million.

Management's detailed analysis indicates that the Company's allowance for credit losses on loans and leases should be sufficient to cover credit losses inherent in loan and lease balances outstanding as of December 31, 2022, 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.

About Sierra Bancorp

Sierra Bancorp is the holding Company for Bank of the Sierra (www.bankofthesierra.com), which is in its 46^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 agricultural credit centers in Templeton, California, an SBA center, and a loan production office in Roseville, California. In 2022, 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.


STATEMENT OF CONDITION
(Dollars in Thousands, Unaudited)

ASSETS		12/31/2022			9/30/2022			6/30/2022			3/31/2022			12/31/2021
Cash and due from banks	$	77,131		$	86,683		$	161,875		$	253,534		$	257,528
Investment securities
Available-for-sale, at fair value		934,923			1,069,434			864,178			1,025,032			973,314
Held-to-maturity, at amortized cost, net of allowance for credit losses		336,881			156,211			161,399			-			-
Real estate loans
1-4 family residential construction		-			-			5,542			8,800			21,369
Other construction/land		18,412			18,315			20,816			24,633			25,299
1-4 family - closed-end		416,116			420,136			429,109			398,871			289,457
Equity lines		21,330			21,126			25,260			23,389			26,588
Multi-family residential		91,691			69,665			66,367			59,711			53,458
Commercial real estate - owner occupied		323,873			324,696			312,060			331,764			334,446
Commercial real estate - non-owner occupied		893,846			896,954			898,159			857,051			882,888
Farmland		113,394			117,385			101,675			98,865			106,706
Total real estate loans		1,878,662			1,868,277			1,858,988			1,803,084			1,740,211
Agricultural production loans		27,936			31,290			28,660			31,663			33,990
Commercial & industrial		76,779			70,147			72,616			87,173			109,791
Mortgage warehouse lines		65,439			46,553			58,134			57,178			101,184
Consumer loans		4,124			4,097			4,264			4,233			4,550
Gross loans & leases		2,052,940			2,020,364			2,022,662			1,983,331			1,989,726
Deferred loan & lease fees		(123	)		(348	)		(1,081	)		(1,200	)		(1,865	)
Allowance for credit losses on loans and leases		(23,060	)		(23,790	)		(22,802	)		(22,530	)		(14,256	)
Net loans & leases		2,029,757			1,996,226			1,998,779			1,959,601			1,973,605

Bank premises & equipment		22,478			22,688			22,937			23,239			23,571
Other assets		207,420			201,047			187,467			157,448			142,996
Total assets	$	3,608,590		$	3,532,289		$	3,396,635		$	3,418,854		$	3,371,014

LIABILITIES & CAPITAL
Noninterest demand deposits	$	1,088,199		$	1,118,245		$	1,120,413		$	1,104,691		$	1,084,544
Interest-bearing transaction accounts		641,581			732,468			736,034			776,457			744,553
Savings deposits		456,981			481,882			482,140			480,178			450,785
Money market deposits		139,795			140,620			152,596			149,918			147,793
Customer time deposits		399,608			332,253			299,816			293,699			293,897
Wholesale brokered deposits		120,000			80,000			60,000			60,000			60,000
Total deposits		2,846,164			2,885,468			2,850,999			2,864,943			2,781,572

Long-term debt		49,214			49,196			49,173			49,151			49,141
Junior subordinated debentures		35,481			35,436			35,392			35,347			35,302
Other interest-bearing liabilities		328,169			215,112			118,014			107,760			106,937
Total deposits & interest-bearing liabilities		3,259,028			3,185,212			3,053,578			3,057,201			2,972,952

Allowance for credit losses on unfunded loan commitments		840			940			893			1,040			203
Other liabilities		45,140			51,065			43,117			34,922			35,365
Total capital		303,582			295,072			299,047			325,691			362,494
Total liabilities & capital	$	3,608,590		$	3,532,289		$	3,396,635		$	3,418,854		$	3,371,014


GOODWILL & INTANGIBLE ASSETS
(Dollars in Thousands, Unaudited)
		12/31/2022			9/30/2022			6/30/2022			3/31/2022			12/31/2021
Goodwill	$	27,357		$	27,357		$	27,357		$	27,357		$	27,357
Core deposit intangible		2,275			2,517			2,769			3,022			3,275
Total intangible assets	$	29,632		$	29,874		$	30,126		$	30,379		$	30,632

CREDIT QUALITY
(Dollars in Thousands, Unaudited)
		12/31/2022			9/30/2022			6/30/2022			3/31/2022			12/31/2021
Non-accruing loans	$	19,579		$	26,772		$	29,745		$	30,446		$	4,522
Foreclosed assets		-			-			2			93			93
Total nonperforming assets	$	19,579		$	26,772		$	29,747		$	30,539		$	4,615

Performing TDR's (not included in NPA's)	$	4,522		$	4,639		$	4,714		$	4,568		$	4,910
Net charge offs (recoveries)	$	11,549		$	4,280		$	4,056		$	1,778		$	(168	)

Past due & still accruing (30-89)	$	1,203		$	1,242		$	1,037		$	2,809		$	2,013

Non-performing loans to gross loans		0.95	%		1.33	%		1.47	%		1.54	%		0.23	%
NPA's to loans plus foreclosed assets		0.95	%		1.33	%		1.47	%		1.54	%		0.23	%
Allowance for loan losses to loans		1.12	%		1.18	%		1.13	%		1.14	%		0.72	%

SELECT PERIOD-END STATISTICS
(Unaudited)
		12/31/2022			9/30/2022			6/30/2022			3/31/2022			12/31/2021
Shareholders equity / total assets		8.4	%		8.4	%		8.8	%		9.5	%		10.8	%
Gross loans / deposits		72.1	%		70.0	%		70.9	%		69.2	%		71.5	%
Non-interest bearing deposits / total deposits		38.2	%		38.8	%		39.3	%		38.6	%		39.0	%


CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, Unaudited)		For the three months ended:									For the year ended:
		12/31/2022			9/30/2022			12/31/2021			12/31/2022			12/31/2021
Interest income	$	35,603		$	31,928		$	27,897		$	121,819		$	113,076
Interest expense		6,240			3,017			1,331			12,204			4,050
Net interest income		29,363			28,911			26,566			109,615			109,026

Provision (benefit) for loan and lease losses		6,538			1,212			(1,200	)		10,898			(3,650	)
Provision (benefit) for credit losses on loans and leases		(100	)		47			-			(294	)		-
(Benefit) provision for credit losses on unfunded loan commitments		45			-			-			63			-
Net interest income after provision		22,880			27,652			27,766			98,948			112,676

Service charges		3,074			3,216			3,169			12,535			11,846
BOLI income		255			(23	)		203			(996	)		2,648
Gain on investments		456			-			-			1,487			11
Other noninterest income		3,871			3,419			3,730			17,744			13,574
Total noninterest income		7,656			6,612			7,102			30,770			28,079

Salaries & benefits		11,983			11,521			10,237			47,053			42,431
Occupancy expense		2,549			2,470			2,366			9,718			9,837
Other noninterest expenses		6,990			7,005			9,572			28,032			31,288
Total noninterest expense		21,522			20,996			22,175			84,803			83,556

Income before taxes		9,014			13,268			12,693			44,915			57,199
Provision for income taxes		1,901			3,333			3,072			11,256			14,187
Net income	$	7,113		$	9,935		$	9,621		$	33,659		$	43,012

*TAX DATA*
Tax-exempt municipal income	$	2,879		$	2,346		$	1,761		$	8,805		$	6,218
Interest income - fully tax equivalent	$	36,368		$	32,552		$	28,365		$	124,160		$	114,729


PER SHARE DATA
(Unaudited)		For the three months ended:									For the year ended:
		12/31/2022			9/30/2022			12/31/2021			12/31/2022			12/31/2021
Basic earnings per share	$	0.47		$	0.66		$	0.63		$	2.25		$	2.82
Diluted earnings per share	$	0.47		$	0.66		$	0.63		$	2.25		$	2.80
Common dividends	$	0.23		$	0.23		$	0.22		$	0.92		$	0.87

Weighted average shares outstanding		14,998,567			14,954,503			15,226,834			14,955,756			15,241,957
Weighted average diluted shares		14,994,653			15,014,048			15,297,414			14,989,810			15,353,445

Book value per basic share (EOP)	$	20.01		$	19.56		$	23.74		$	20.01		$	23.74
Tangible book value per share (EOP)	$	18.06		$	17.58		$	21.73		$	18.06		$	21.73

Common shares outstanding (EOP)		15,170,372			15,085,675			15,270,010			15,170,372			15,270,010

KEY FINANCIAL RATIOS
(Unaudited)		For the three months ended:									For the year ended:
		12/31/2022			9/30/2022			12/31/2021			12/31/2022			12/31/2021
Return on average equity		9.62	%		12.84	%		10.47	%		10.66	%		12.05	%
Return on average assets		0.79	%		1.13	%		1.10	%		0.97	%		1.29	%
Net interest margin (tax-equivalent)		3.63	%		3.63	%		3.31	%		3.47	%		3.56	%
Efficiency ratio (tax-equivalent)¹		57.55	%		58.10	%		64.86	%		60.16	%		59.92	%
Net charge-offs (recoveries) to avg loans (not annualized)		0.36	%		0.01	%		0.01	%		0.58	%		(0.01	)%

(1)	Noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities.


NON-GAAP FINANCIAL MEASURES
(Unaudited)
		12/31/2022			9/30/2022			12/31/2021
Total stockholders' equity	$	303,582		$	295,072		$	362,494
Less: goodwill and other intangible assets		29,632			29,874			30,632
Tangible common equity	$	273,950		$	265,198		$	331,862

Total assets	$	3,608,590		$	3,532,289		$	3,371,014
Less: goodwill and other intangible assets		29,632			29,874			30,632
Tangible assets	$	3,578,958		$	3,502,415		$	3,340,382

Common shares outstanding		15,170,372			15,085,675			15,270,010

Book value per common share	$	20.01		$	19.56		$	23.74
Tangible book value per common share	$	18.06		$	17.58		$	21.73
Equity ratio - GAAP (total stockholders' equity / total assets)		8.41	%		8.35	%		10.75	%
Tangible common equity ratio (tangible common equity / tangible assets)		7.65	%		7.57	%		9.93	%


NONINTEREST INCOME/EXPENSE
(Dollars in Thousands, Unaudited)
		For three months ended:									For twelve months ended:
Noninterest income:		12/31/2022			9/30/2022			12/31/2021			12/31/2022		12/31/2021
Service charges on deposit accounts	$	3,074		$	3,216		$	3,169		$	12,535		$	11,846
Debit card fees		2,075			2,241			2,165			8,533			8,485
Bank-owned life insurance		255			(23	)		203			(996	)		2,648
Other service charges and fees		667			741			992			2,872			2,939
Gain on sale of securities		456			—			—			1,487			11
Gain (loss) on partnership investments		415			64			(133	)		253			(524	)
Other		714			373			706			6,086			2,674
Total noninterest income	$	7,656		$	6,612		$	7,102		$	30,770		$	28,079
As a % of average interest earning assets⁽¹⁾		0.92	%		0.81	%		0.87	%		0.95	%		0.90	%

Noninterest expense:
Salaries and employee benefits	$	11,983		$	11,521		$	10,237		$	47,053		$	42,431
Occupancy costs
Furniture & equipment		484			399			409			1,847			1,720
Premises		2,064			2,071			1,957			7,871			8,117
Advertising and marketing costs		407			466			539			1,729			1,521
Data processing costs		1,627			1,564			1,481			6,202			5,890
Deposit services costs		2,380			2,450			2,298			9,492			9,049
Loan services costs
Loan processing		124			128			158			550			501
Foreclosed assets		—			(3	)		(6	)		84			72
Other operating costs
Telephone & data communications		384			358			431			1,563			2,013
Postage & mail		47			47			56			373			308
Other		351			507			906			2,725			2,176
Professional services costs
Legal & accounting		380			535			2,703			2,133			4,794
Director's deferred compensation		86			(143	)		4			(1,106	)		1,137
Other professional service		806			855			796			3,111			2,878
Stationery & supply costs		172			114			85			486			345
Sundry & tellers		227			127			125			690			604
Total noninterest expense	$	21,522		$	20,996		$	22,179		$	84,803		$	83,556
As a % of average interest earning assets⁽¹⁾		2.59	%		2.58	%		2.72	%		2.63	%		2.69	%
Efficiency ratio ⁽²⁾⁽³⁾		57.55	%		58.10	%		64.86	%		60.16	%		59.92	%

(1)	Annualized.
(2)	Tax equivalent.
(3)	Noninterest expense as a percentage of the sum of net interest income and noninterest income excluding net gains (losses) from securities and bank owned life insurance income.


AVERAGE BALANCES AND RATES
(Dollars in Thousands, Unaudited)	For the quarter ended				For the quarter ended				For the quarter ended
	December 31, 2022				September 30, 2022				December 31, 2021
	Average Balance⁽¹⁾	Income/ Expense	Yield/ Rate⁽²⁾		Average Balance⁽¹⁾	Income/ Expense	Yield/ Rate⁽²⁾		Average Balance⁽¹⁾	Income/ Expense	Yield/ Rate⁽²⁾
Assets
Investments:
Federal funds sold/interest-earning due from's	$ 5,548	$ 52	3.72	%	$ 21,845	$ 103	1.87	%	$ 311,386	$ 120	0.15	%
Taxable	884,020	10,176	4.57	%	851,683	7,646	3.56	%	593,959	2,403	1.61	%
Non-taxable	362,621	2,879	3.99	%	336,567	2,346	3.50	%	285,811	1,679	2.95	%
Total investments	1,252,189	13,107	4.40	%	1,210,095	10,095	3.51	%	1,191,156	4,202	1.55	%

Sierra Bancorp Reports Financial Results for Fourth Quarter and the Year Ending 2022