KBRA Affirms Ratings for Sierra Bancorp

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Porterville, California-based Sierra Bancorp (NASDAQ: BSRR) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the lead subsidiary, Bank of the Sierra. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by the company’s consistent earnings performance with ROA outperforming peers in recent years (averaging ~1.00% since 2022), underpinned by the company’s low-cost deposit base with total cost of deposits for 1H25 at 1.29% (~90 bps below rated peers), enhanced by 36% in noninterest-bearing deposits. The favorable deposit mix has supported the margin amid the higher rate environment, which, paired with management’s proactive balance sheet repositioning – including the sale of lower yielding securities in late 2023 and 2024 – has supported nearly 40 bps of NIM expansion since YE23, to 3.66% for 1H25, tracking ~25 bps above peer averages. Going forward, management’s focus on remixing earning assets towards loans should further support the margin alongside modest repricing opportunities within the loan portfolio. Earnings performance has also been supported by stable fee income contributions representing ~20% of total revenue, combined with relatively efficient operations (5-year average efficiency ratio: 60%). Credit quality performance has been impacted by episodic challenges, including charge-offs tied to an agricultural real estate loan and a non-owner occupied CRE retail loan, driving quarterly NCOs to 1.09% for 2Q25. That said, NPAs remain in line with peer averages at 0.62% and loan loss reserves appear adequate, covering NPLs by 145%. While CRE concentration is comparatively elevated (244% of Tier 1 capital plus ALLL), portfolio underwriting metrics appear sound (weighted average CRE LTV <60%) and criticized/classified balances are well contained at 3.65% of total loans. KBRA believes the company is well positioned to absorb a reasonable level of potential credit stress given earnings capacity, loan loss reserves, and capital support. KBRA expects the company to maintain current capital levels represented by leverage (CBLR) and TCE ratios of 10.7% and 8.8%, respectively, in 2Q25, which are commensurate with the company's overall risk profile. The ratings also recognize the staffing enhancements among several key positions that have boosted the depth of management, providing prior experience from larger regional banks and/or adding local market knowledge of similarly sized markets. Most recently, the company added a Chief Operations Officer in July 2025 and a Chief Risk Officer in September 2023, which had been previously a dual role combined with the Chief Credit Officer.

Rating Sensitivities

A rating upgrade is not likely over the medium term, though continued growth and geographic expansion, maintenance of better than peer earnings and capital, and asset quality outperformance, may have positive rating implications over time. The ratings are similarly unlikely to be downgraded in the near term; however, a more aggressive approach to capital management or deterioration in asset quality that materially impedes the company’s earnings performance could negatively impact ratings.

To access ratings and relevant documents, click here.

Methodologies