Sierra Bancorp Reports Quarterly Earnings
February 7, 2014
Porterville, CA – October 21, 2013 – Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the three-month and nine-month periods ended September 30, 2013. Sierra Bancorp recognized net income of $3.367 million for the third quarter of 2013, more than double the level of net income recognized in the third quarter of 2012. The increase is primarily the result of a reduced loan loss provision, partially offset by a drop in net interest income. The Company’s return on average assets was 0.97% in the third quarter of 2013, relative to 0.46% in the third quarter of 2012. The Company’s return on average equity also increased to 7.60% in the third quarter of 2013 from 3.74% in the third quarter of 2012, and diluted earnings per share increased to $0.23 in the third quarter of 2013 from $0.12 in the third quarter of 2012. For the first nine months of 2013 the Company recognized net income of $9.499 million, with an annualized return on average equity of 7.23% and return on average assets of 0.91%.
Total assets were down $55 million, or 4%, during the first nine months of 2013, due to net contraction of $69 million in gross loan balances and a reduction of $11 million in foreclosed assets, partially offset by growth in investment securities. Loan volume was primarily impacted by a $90 million drop in mortgage warehouse loans resulting from lower credit line utilization, although the Company did experience considerable growth in commercial real estate loans and agricultural loans. A $13 million reduction in nonperforming loans also contributed to the decline in gross loans, and total nonperforming assets, including nonperforming loans and foreclosed assets, were reduced by close to $24 million, or 33%, during the first nine months of 2013. Total deposits were down $23 million, or 2%, for the first nine months of 2013, due to the maturity of a $5 million brokered time deposit and a drop of $29 million in customer time deposits, partially offset by an increase in total non-maturity deposits. Non-deposit borrowings were reduced by $37 million during the first nine months of 2013.
“We were pleased to maintain our momentum in the recently-concluded quarter, where once again we recognized relatively strong net income and achieved credit quality improvement,” commented James C. Holly, President and CEO. “Mortgage warehouse loans declined by $24 million in the third quarter as a result of the slowdown in mortgage lending activity, but the good news is that our concentrated efforts produced strong loan growth in other areas which offset that decline,” he noted further. “While we can’t state with certainty that difficult times are behind us, we can say with assurance that it has been the loyalty and dedication of our customers, shareholders, and staff that have carried us through the downturn and positioned us to once again realize our potential as a top-performing bank,” Holly affirmed in conclusion.
As noted above, net income increased by $1.732 million, or 106%, for the third quarter of 2013 relative to the third quarter of 2012, and by $3.412 million, or 56%, for the first nine months of 2013 relative to the first nine months of 2012. Net interest income, however, fell by $1.128 million, or 9%, for the comparative quarters, and was down $2.047 million, or 5%, for the comparative year-to-date periods.
Sierra Bancorp Financial Results
October 21, 2013
The decline in net interest income in the third quarter is due to a 28 basis point drop in the Company’s net interest margin, combined with contraction in average interest-earning assets. For the comparative year-to-date periods, the reduced level of net interest income is due to a 29 basis point drop in our net interest margin, partially offset by the impact of a $22 million increase in average interest-earning
assets resulting from growth in the average balance of loans outstanding. Negative factors affecting the Company’s net interest margin in 2013 include a shift from higher yielding loan categories to loweryielding loan types, and lower loan yields across the board resulting from intense competition for quality loans. However, those negatives were partially mitigated by a relatively large increase in the average balance of non-interest bearing demand deposits, a shift in average interest-bearing liabilities from higher-cost borrowed money and time deposits into lower-cost deposit categories, and a slight drop in deposit rates. Also impacting the variance in the Company’s net interest margin were interest reversals on loans placed on non-accrual, and interest recoveries resulting from the favorable resolution of loans that had been on non-accrual status. The Company had net interest recoveries (recoveries less reversals) of $39,000 in the third quarter of 2013, relative to net interest recoveries of only $2,000 in the third quarter of 2012. For the first nine months, the Company had net interest recoveries of $161,000 in 2013 relative to net interest recoveries of $148,000 in 2012.
The single largest factor impacting the increase in net income in 2013 was a lower loan loss provision. The Company’s loan loss provision was reduced by $3.900 million, or 83%, in the third quarter of 2013 relative to the third quarter of 2012, and was down $7.760 million, or 73%, for the comparative ninemonth periods.
Total non-interest income fell by $61,000, or 1%, for the comparative quarters, and $147,000, or 1%, for the year-to-date comparison. The largest component of non-interest income, service charges on deposit accounts, declined by $171,000 for the quarter and $587,000 for the first nine months, due in large part to certain debit card interchange fees that were included with service charges on deposits in 2012 but are reflected in other non-interest income in 2013. Loan sale income did not change materially in 2013 relative to 2012 but non-recurring gains on the sale of investments were lower, and if not for the drop in investment gains total non-interest income would have been close to the same for the comparative periods. Net increases in other non-interest income totaling $223,000 for the quarter and $646,000 for the first nine months can be explained primarily by the addition of the aforementioned debit card interchange fees, since other significant variances in the accounts comprising this line item effectively offset one another.
Total non-interest expense was relatively flat for the comparative periods, although there were some significant swings within the subcategories comprising non-interest expense. The largest component, salaries and benefits, increased by $116,000, or 2%, for the quarter, and $862,000, or 5%, for the first nine months. The increases were due primarily to regular annual salary adjustments, and strategic staff additions that position the Company to take advantage of potential growth opportunities. Occupancy expense reflects a modest decline in 2013, due mainly to lower depreciation expense on furniture and equipment. Other non-interest expenses were about the same for the quarterly comparison, but fell by $833,000, or 6%, for the first nine months due in large part to lower net costs associated with foreclosed assets.
The Company’s provision for income taxes was 16% of pre-tax income in the third quarter of 2013 but was negative in the third quarter of 2012, and the provision was 19% of pre-tax income for the first nine months of 2013 relative to only 1% for the first nine months of 2012. The higher tax provisioning rate in 2013 is primarily the result of an increase in taxable income relative to the Company’s available tax credits. Tax credits include those associated with investments in low-income housing tax credit funds, as well as hiring tax credits.
Balance sheet changes during the nine months ended September 30, 2013 include a reduction in total assets of $55 million, or 4%, due in large part to lower loan balances. Loans secured by agricultural real estate actually increased by $42 million during the first nine months of 2013, agricultural production loans were up $4 million, and commercial real estate loans grew $7 million, but those increases were offset by contraction in other categories so aggregate loan balances ended the period $69 million lower. The most significant factor in the overall decline was a $90 million drop in balances outstanding on mortgage warehouse lines, and the drop in loan balances also includes a $13 million reduction in nonperforming loans. Other assets also reflect a drop of $11 million, or 10%, for the first nine months of 2013, due to a lower level of foreclosed assets. Decreases in loans and other assets were partiallyoffset by a $26 million increase in investment securities.
The Company’s ratio of nonperforming assets to loans plus foreclosed assets was 5.97% at September 30, 2013, compared to 8.10% at December 31, 2012. 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. In addition to nonperforming assets, the Company had $17 million in loans classified as restructured troubled debt (TDR’s) that were included with performing loans as of September 30, 2013, relative to $19 million at December 31, 2012.
The Company’s allowance for loan and lease losses was $11.8 million as of September 30, 2013. This represents a decline of $2.0 million, or 15%, relative to year-end 2012, due to a reduction in general reserves consistent with lower loan balances and improvement in asset quality, and lower specific reserves consistent with the reduction in impaired loans. Net loans charged off against the allowance totaled $1.156 million in the third quarter of 2013, a drop of 80% in comparison to net charge-offs of $5.757 million in the third quarter of 2012, while net charge-offs were $4.899 million during the first nine months of 2013 relative to net charge-offs of $15.087 million in the first nine months of 2012. The overall allowance declined slightly as a percentage of total loans, to 1.46% at September 30, 2013 from 1.58% at December 31, 2012. Management’s detailed analysis indicates that the Company’s allowance for loan and lease losses should be sufficient to cover credit losses inherent in loan and lease balances outstanding as of September 30, 2013, but no assurance can be given that the Company will not experience substantial future losses relative to the size of the allowance.
On the liability side of the balance sheet, total deposits declined by $23 million, or 2%, during the first nine months of 2013, due primarily to the maturity of a $5 million brokered time deposit and the runoff of $29 million in customer time deposits. That runoff was partially offset by a net increase of $12 million, or 1%, in core non-maturity deposits. There was no change in the balance of junior subordinated debentures (trust preferred securities), but other interest-bearing liabilities, comprised primarily of Federal Home Loan Bank borrowings, were reduced by $37 million, or 87%, during the first nine months of 2013. Total capital increased by $4 million, or 2%, to $178 million at September 30, 2013. Risk-based capital ratios increased, as well, due to a drop in risk-adjusted assets and the addition of net income to capital (net of dividends paid).
About Sierra Bancorp
Sierra Bancorp is the holding company for Bank of the Sierra (www.bankofthesierra.com), which is in its 36th year of operations and is the largest independent bank headquartered in the South San Joaquin Valley. The Company has over 400 employees and conducts business through 25 branch offices, an online branch, a real estate industries center, an agricultural credit center, and an SBA center.
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 California economies, 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 branch expansion, changes in interest rates, loan portfolio performance, the Company’s ability to secure buyers for foreclosed properties, 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.