Sierra Bancorp is the parent company of Bank of the Sierra, a leading community bank that has been serving the Central Valley of California for over four decades. Headquartered in Porterville, California, the bank operates 35 full-service branches and an online branch, providing a wide range of retail and commercial banking services to its customers.
History and Growth
The company's history dates back to 1977 when Bank of the Sierra was first incorporated and opened its doors with just $1.5 million in capital. Over the years, Sierra Bancorp has grown both organically and through strategic acquisitions, including the purchases of Sierra National Bank in 2000, Santa Clara Valley Bank in 2014, Coast National Bank in 2016, and Ojai Community Bank in 2017.
Today, Sierra Bancorp is a diversified financial institution with a strong presence in the South San Joaquin Valley, the Central Coast, Ventura County, the Sacramento area, and neighboring communities. The company's specialized lending units focus on agricultural borrowers, commercial real estate, and mortgage warehouse lending, further strengthening its position in the regional market.
Financials
Sierra Bancorp has consistently delivered strong financial results, showcasing its ability to navigate the ever-changing banking landscape. In the most recent fiscal year, the company reported annual net income of $34.8 million, annual revenue of $193.1 million, annual operating cash flow of $53.2 million, and annual free cash flow of $51.7 million.
On a quarterly basis, the company has also demonstrated impressive performance. In the first quarter of 2023, Sierra Bancorp reported net income of $9.3 million, a 7% increase compared to the same period in the previous year. This growth was driven by a $0.6 million increase in net interest income, which was primarily attributable to a 15 basis point expansion in the company's net interest margin.
Noninterest income also saw a significant boost, rising by $2.0 million, or 31%, in the first quarter of 2023 compared to the same period in 2022. This increase was largely due to a $3.8 million gain on the sale of branch properties, a $1.0 million increase in bank-owned life insurance (BOLI) income, and a $0.3 million increase in service charges and fees on deposit accounts.
Loan Portfolio and Risk Management
Sierra Bancorp's loan portfolio is well-diversified, with a focus on real estate, commercial, and agricultural lending. As of March 31, 2023, the company's gross loans stood at $2.2 billion, with the largest concentrations in commercial real estate (61.4%), residential real estate (18.9%), and mortgage warehouse lines (9.4%).
The company has strategically reduced its exposure to higher-risk commercial real estate segments, such as construction, office real estate, and hospitality, over the past several years. This proactive approach has helped Sierra Bancorp maintain a healthy loan portfolio, with nonperforming assets accounting for just 0.66% of total gross loans and foreclosed assets as of March 31, 2023.
The company's allowance for credit losses on loans was $23.1 million at the end of the first quarter of 2023, representing 1.07% of total loans. This level of reserves, coupled with the company's prudent risk management practices, provides a strong cushion against potential credit losses.
Liquidity
Sierra Bancorp maintains a robust liquidity position, with available funding sources totaling $2.6 billion as of March 31, 2023. This represents 90% of the company's total deposits and 325% of its estimated uninsured and/or uncollateralized deposits. The company's primary liquidity ratio and gross loans to deposits ratio were 24.09% and 75.8%, respectively, well within the company's internal policy guidelines.
In terms of capital, Sierra Bancorp's total shareholders' equity stood at $345.1 million as of March 31, 2023, reflecting a 2% increase compared to the end of 2022. The company's Tier 1 capital to adjusted average assets (leverage ratio) was 11.57% for the bank and 10.97% for the holding company, both well above the regulatory requirements for well-capitalized institutions.
Geographical Diversification and Revenue Streams
Sierra Bancorp's geographic footprint spans the South San Joaquin Valley, the Central Coast, Ventura County, the Sacramento area, and neighboring communities in California. This diversification across multiple regions helps the company mitigate concentration risks and capitalize on growth opportunities in different markets.
In terms of revenue breakdown, the company generates income from a balanced mix of interest-earning assets and noninterest income sources. As of the first quarter of 2023, interest income from loans, including fees, accounted for 62.1% of the company's total interest income, while income from taxable and tax-exempt securities contributed 37.9%.
Noninterest income, which represented 23.0% of the company's total revenue in the first quarter of 2023, was primarily derived from service charges and fees on deposit accounts, gains on the sale of fixed assets, and bank-owned life insurance. The company's diversified revenue streams help to provide stability and resilience to its overall financial performance.
Management and Shareholder Value
Sierra Bancorp is led by an experienced management team with a deep understanding of the local markets and a proven track record of delivering consistent financial results. The company's President and Chief Executive Officer, Kevin J. McPhaill, has been with the organization for over two decades, serving in various leadership roles before assuming his current position in 2018.
The management team's focus on prudent risk management, strategic growth, and shareholder value creation is evident in the company's performance. Sierra Bancorp has a history of returning capital to its shareholders through regular dividend payments and share repurchase programs. In the first quarter of 2023, the company paid a cash dividend of $0.23 per share and repurchased 178,937 shares of its common stock.
Regulatory Compliance and Risk Management
As a regulated financial institution, Sierra Bancorp operates under the oversight of various federal and state banking authorities, including the Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation. The company maintains a strong compliance culture and has implemented robust risk management practices to ensure the safety and soundness of its operations.
Sierra Bancorp's risk management framework encompasses credit risk, interest rate risk, liquidity risk, and operational risk, among others. The company regularly monitors its loan portfolio, investment securities, and other assets to identify and mitigate potential risks. Additionally, the company's internal controls and audit functions provide an additional layer of oversight to ensure compliance with applicable laws and regulations.
Outlook
Looking ahead, Sierra Bancorp remains well-positioned for continued growth and success. The company's diversified business model, prudent risk management practices, and strong liquidity and capital position provide a solid foundation for future expansion.
Sierra Bancorp's growth strategies include organic growth through the expansion of its lending activities, particularly in the agricultural, commercial real estate, and mortgage warehouse segments. The company also plans to explore strategic acquisitions that align with its geographic footprint and complement its existing product and service offerings.
Furthermore, the company is committed to enhancing its digital capabilities and improving the customer experience through investments in technology and innovation. This focus on digital transformation will enable Sierra Bancorp to better serve its customers and stay competitive in the evolving banking landscape.
Conclusion
Sierra Bancorp is a well-established and thriving community bank that has consistently delivered strong financial performance and shareholder value. The company's diversified business model, prudent risk management practices, and experienced management team position it for continued success in the years to come.
With a robust liquidity position, a healthy loan portfolio, and a commitment to growth and innovation, Sierra Bancorp is poised to capitalize on the opportunities in the Central Valley of California and beyond. Investors seeking exposure to a well-managed, community-focused bank with a track record of consistent financial results may find Sierra Bancorp an attractive addition to their portfolios.