UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

Commission file number: 000-33063

SIERRA BANCORP

(Exact name of Registrant as specified in its charter)

California	33-0937517
(State of Incorporation)	(IRS Employer Identification No)

86 North Main Street, Porterville, California 93257

(Address of principal executive offices)                  (Zip Code)

(559) 782-4900

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	BSRR	The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer:	☒
Non-accelerated Filer:	☐	Smaller Reporting Company:	☐
Emerging Growth Company:	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 1, 2020, the registrant had 15,192,838 shares of common stock outstanding.

FORM 10-Q

Table of Contents

					Page
Part I - Financial Information					1
	Item 1. Financial Statements (Unaudited)				1
		Consolidated Balance Sheets			1
		Consolidated Statements of Income			2
		Consolidated Statements of Comprehensive Income			3
		Consolidated Statements of Changes In Stockholder’s Equity			4
		Consolidated Statements of Cash Flows			6
		Notes to Consolidated Financial Statements (Unaudited)			7
	Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations				35
		Forward-Looking Statements			35
		Critical Accounting Policies			35
		Overview of the Results of Operations and Financial Condition			36
		Earnings Performance			40
			Net Interest Income and Net Interest Margin		40
			Provision for Loan and Lease Losses		45
			Noninterest Income and Noninterest Expense		46
			Provision for Income Taxes		47
		Balance Sheet Analysis			48
			Earning Assets		48
				Investments	48
				Loan and Lease Portfolio	49
				Nonperforming Assets	51
				Allowance for Loan and Lease Losses	52
				Off-Balance Sheet Arrangements	55
			Other Assets		55
			Deposits and Interest-Bearing Liabilities		55
				Deposits	55
				Other Interest-Bearing Liabilities	56
			Noninterest Bearing Liabilities		57
		Liquidity and Market Risk Management			57
		Capital Resources			60
	Item 3. Qualitative & Quantitative Disclosures about Market Risk				61
	Item 4. Controls and Procedures				62
Part II - Other Information					63
	Item 1. - Legal Proceedings				63
	Item 1A. - Risk Factors				63
	Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds				64
	Item 3. - Defaults upon Senior Securities				64
	Item 4. - Mine Safety Disclosures				64
	Item 5. - Other Information				64
	Item 6. - Exhibits				65
Signatures					66

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

SIERRA BANCORP

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

	June 30, 2020		December 31, 2019
ASSETS	(unaudited)		(audited)
Cash and due from banks	$	88,705	$	65,556
Interest-bearing deposits in banks		67,906		14,521
Total cash & cash equivalents		156,611		80,077
Securities available-for-sale		599,333		600,799
Loans and leases:
Gross loans and leases		2,212,097		1,762,565
Allowance for loan and lease losses		(13,560)		(9,923)
Deferred loan and lease (fees) costs, net		(2,617)		2,896
Net loans and leases		2,195,920		1,755,538
Foreclosed assets		2,893		800
Premises and equipment, net		27,779		27,435
Goodwill		27,357		27,357
Other intangible assets, net		4,844		5,381
Bank-owned life insurance		51,347		50,517
Other assets		43,960		45,915
Total assets	$	3,110,044	$	2,593,819
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing	$	949,662	$	690,950
Interest bearing		1,557,092		1,477,424
Total deposits		2,506,754		2,168,374
Repurchase agreements		41,449		25,711
Short-term borrowings		163,000		20,000
Subordinated debentures, net		35,035		34,945
Other liabilities		36,373		35,504
Total liabilities		2,782,611		2,284,534
Commitments and contingent liabilities (Note 7)
Shareholders' equity
Common stock, no par value; 24,000,000 shares authorized; 15,192,838 and 15,284,538 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively		112,645		113,179
Additional paid-in capital		3,462		3,307
Retained earnings		195,147		186,867
Accumulated other comprehensive income (loss), net		16,179		5,932
Total shareholders' equity		327,433		309,285
Total liabilities and shareholders’ equity	$	3,110,044	$	2,593,819

The accompanying notes are an integral part of these consolidated financial statements

1

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(dollars in thousands, except per share data, unaudited)

	Three months ended June 30,					Six months ended June 30,
	2020		2019		2020		2019
Interest and dividend income
Loans and leases, including fees	$	21,683	$	24,010	$	43,796	$	47,759
Taxable securities		2,250		2,591		4,710		5,207
Tax-exempt securities		1,440		1,072		2,778		2,117
Federal funds sold and other		12		115		153		188
Total interest income		25,385		27,788		51,437		55,271
Interest expense
Deposits		893		3,093		2,727		6,048
Short-term borrowings		39		26		75		97
Subordinated debentures		311		470		706		954
Total interest expense		1,243		3,589		3,508		7,099
Net interest income		24,142		24,199		47,929		48,172
Provision for loan and lease losses		2,200		400		4,000		700
Net interest income after provision for loan losses		21,942		23,799		43,929		47,472
Non-interest income
Service charges on deposits		2,618		3,151		5,802		6,094
Other income		4,282		2,704		7,205		5,668
Total non-interest income		6,900		5,855		13,007		11,762
Other operating expense
Salaries and employee benefits		9,266		8,994		19,438		18,237
Occupancy and equipment		2,504		2,450		4,832		4,811
Other		6,263		6,212		11,581		12,461
Total other operating expense		18,033		17,656		35,851		35,509
Income before taxes		10,809		11,998		21,085		23,725
Provision for income taxes		2,506		3,169		4,975		6,001
Net income	$	8,303	$	8,829	$	16,110	$	17,724
PER SHARE DATA
Book value	$	21.55	$	19.36	$	21.55	$	19.36
Cash dividends	$	0.20	$	0.18	$	0.40	$	0.36
Earnings per share basic	$	0.55	$	0.58	$	1.06	$	1.16
Earnings per share diluted	$	0.54	$	0.57	$	1.05	$	1.15
Average shares outstanding, basic		15,191,823		15,329,907		15,226,748		15,320,784
Average shares outstanding, diluted		15,237,655		15,458,320		15,288,009		15,453,212
Total shareholder equity (in thousands)	$	327,433	$	296,852	$	327,433	$	296,852
Shares outstanding		15,192,838		15,332,550		15,192,838		15,332,550
Dividends paid (in thousands)	$	3,038	$	2,759	$	6,097	$	5,513

The accompanying notes are an integral part of these consolidated financial statements.

2

SIERRA BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(dollars in thousands, unaudited)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net income	$	8,303	$	8,829	$	16,110	$	17,724
Other comprehensive income, before tax:
Unrealized gains on securities:
Unrealized holding gain arising during period		4,037		9,324		14,939		15,491
Less: reclassification adjustment for (gains) losses included in net income (1)		(390)		(22)		(390)		(28)
Other comprehensive income, before tax		3,647		9,302