Sierra Bancorp (Nasdaq:BSRR), parent of Bank of the Sierra, today
announced record net income of $4.8 million for the quarter ended
September 30, 2005, an increase of 23% relative to net income in
the third quarter of the previous year. Two significant factors
impacting the increase were an interest recovery and a substantial
reduction in the loan loss provision, both enabled by the sale of a
sizeable non-accruing note. Other major items affecting the
Company's financial results for the quarter include strong core
deposit and loan growth, net interest margin expansion, and the
write-down of an OREO property. "The positive net impact of
non-recurring items in the third quarter provided a boost that
offset the effect of some first quarter events," commented James C.
Holly, President and CEO. "Continued growth in loans and low-cost
deposits, a strong net interest margin, and greatly improved credit
quality indicate that our core performance is solid, as well," he
added. The Company's return on assets was 1.9% for the third
quarter of 2005, and return on equity was 25.0%. On a year-to-date
basis net income was $11.9 million, an increase of 18% over net
income for the first nine months of 2004. Year-to-date return on
assets and return on equity were 1.6% and 21.3%, respectively.
Financial Highlights (fiscal quarter and nine months ended 9/30/05,
compared to quarter and nine months ended 9/30/04) -- The
aforementioned note sale resulted in the pay-off of the $823,000
book balance of the note, as well as the recovery of $536,000 in
interest and fees (credited to income), and the recovery of
$525,000 in previously charged-off principal (added back to the
allowance for loan and lease losses) -- The Company's net interest
margin was 5.87% for the quarter versus 5.33% in the year-ago
quarter, and would have been 5.64% without the interest recovery --
The provision for loan and lease losses was down by 55% for the
quarter and 12% year-to-date -- Despite declining service charges
and lower loan sale income, non-interest income was up 1% for the
quarter due to strong growth in other areas -- Salaries and
Benefits increased by 21% for the quarter and 14% year-to-date due
in large part to regular annual increases of about 5%, a lower
credit against current period expenses for deferred loan
origination costs, and increased staffing -- Other non-interest
expense was up by 23% for the quarter and 29% year-to-date,
primarily because of OREO write-downs, higher internal and external
audit costs, higher pass-through expenses on our partnership
investments in low-income housing tax credit funds, and, for
year-to-date only, higher advertising and promotion costs -- A $2.5
million credit was placed on non-accrual during the second quarter,
yet total non-performing assets have dropped by a net $1.4 million
since the end of 2004 due to the resolution of other problem loans,
the sale of a non-accruing note, and the sale of OREO -- In
addition to the recovery of $525,000 in previously charged-off
principal in the third quarter of 2005, the Company collected
amounts totaling $564,000 during the second quarter and thus
experienced net recoveries rather than net loan losses for both the
quarter and year-to-date -- Aggregate loan and lease balances grew
by 3.5% during the quarter, an annualized growth rate of 14% --
Demand deposits increased 11% and low-cost NOW/savings deposits
increased 10% from the end of 2004 through September 30, 2005 --
During the first nine months of 2005 money market deposits declined
$32 million, or 23%, with much of the money moving into time
certificates of deposit, which increased $45 million, or 19%
Operating Results (third quarter and first nine months of 2005) The
Company's leverage strategy was implemented in April 2004, and
quarterly results from both years now include the full impact of
that strategy. The leverage strategy involved the purchase of
mortgage-backed securities, funded with matched-duration
collateralized borrowings from the Federal Home Loan Bank. Net
interest income earned from the leverage strategy for the third
quarter of 2005 was about $226,000 on an average outstanding
balance of $83 million, relative to about $458,000 on an average
balance of $102 million during the third quarter of 2004. For the
first nine months of 2005 the leverage strategy generated $840,000
in net interest income, while for the first nine months of 2004 the
number was about $809,000. For the quarter, about $1.4 million of
the $2.3 million increase in net interest income is the result of
growth in average earning assets, while the remainder is from rate
or combined rate/volume variances, including the $536,000 interest
recovery. For the first nine months, $4.5 million of the total $5.7
million increase in net interest income is due to growth in average
earning assets, while favorable rate variances and combined
rate/volume variances added about $1.2 million. The first nine
months of 2005 had one less accrual day because 2004 was a leap
year, which had a negative $100,000 impact on the variance in net
interest income. The Company's tax-equivalent net interest margin
was 5.9% for the third quarter of 2005 and 5.6% for the first nine
months of 2005, relative to 5.3% and 5.5% for the third quarter and
first nine months of 2004, respectively. Despite a rate environment
where the yield curve has flattened significantly, margins have
been higher than anticipated in 2005 because yields on
variable-rate loans have been rising but deposit costs have not
increased as much as expected. The Company's loan loss provision
was $550,000 lower in the third quarter of 2005 than in the third
quarter of 2004. Net loan recoveries of over $200,000 for the
quarter and the release of specific reserves on non-accruing loans
that paid off or were otherwise resolved partially alleviated the
need to add to the allowance for loan and lease losses. Likewise,
the provision for the first nine months was $323,000 lower than in
the previous year. Service charges on deposits declined 4% for the
quarter and 10% year-to-date, despite increases in average demand
deposits of 20% for the quarter and 23% year-to-date relative to
like periods in the previous year. The drop in service charges was
due in part to growth in free consumer demand deposit accounts, and
returned item and overdraft charges have been trending down. The
same is true for hard-dollar charges on analysis accounts, which
have declined as the earnings credit rate for those accounts has
increased. Loan sale and servicing income was down $117,000 for the
third quarter since the Company has been holding for investment
most mortgages that it originates. However, on a year-to-date basis
loan sale and servicing income is $176,000 higher due to the first
quarter gain on the bulk sale of $21 million in mortgage loans. The
small gain on investments for the third quarter of 2005 represents
gains on municipal investments that were called prior to maturity,
while the year-to-date loss on investments includes a $330,000
charge in the first quarter of 2005 to write down the Company's
investment in Diversified Holdings, Inc., a title insurance holding
company. Other non-interest income, which increased by 21% for the
quarter and 14% year-to-date, was higher primarily because of
higher credit card and check card interchange fees, and higher
credit card annual fees. Salaries and benefits increased 21% for
the quarter and 14% year-to-date. About a third of the quarterly
increase resulted from a smaller credit against current period
expenses to defer salaries and benefits associated with successful
loan originations. The remainder of the quarterly increase and most
of the annual increase can be explained by staff additions and a 5%
average increase in annual salaries. Occupancy expense was down by
1% for the quarter and up by 4% year-to-date. One reason for the
minimal change in this area is that third quarter 2004 expenses
were inflated by a $70,000 charge to write off obsolete equipment.
Furthermore, annual rent increases, costs related to enhanced
physical and information security, and depreciation on new
telecommunications equipment appear to have been partially offset
by lower maintenance and repair costs and lower charges for
telecommunications equipment rentals. Other non-interest expenses
increased $565,000, or 23%, for the quarter and $2.0 million, or
27%, year-to-date. The quarterly increase includes a $350,000
charge to write down the book value of an OREO property, while
year-to-date expenses include an additional $200,000 in OREO
write-downs. Other components contributing to the increase include
the following: marketing expenses, which were relatively flat for
the quarter but show a $374,000 year-to-date increase; audit and
review costs, which were up by $142,000 for the quarter and almost
$500,000 year-to-date due to costs incurred in order to comply with
Section 404 of the Sarbanes-Oxley Act; a $56,000 quarterly and
$166,000 year-to-date increase in legal costs related to
collections; and a $72,000 quarterly and $285,000 year-to-date
increase in partnership expenses related to low-income housing tax
credit investments, due in part to our increased investment in
those funds. Telecommunications expense was up $90,000
year-to-date, but shows a decrease of $80,000 for the quarter due
to credits received for earlier over-billings. Our tax accrual rate
was higher for the quarter since the increase in pre-tax income was
taxable at our marginal tax rate. When comparing year-to-date
results, the tax accrual rate was lower in 2005 due primarily to
additional low-income housing tax credits, an adjustment in the
second quarter of 2005 to reflect the proper amount of enterprise
zone interest deductions, and a $400,000 charge in the second
quarter of 2004 related to the Company's REIT. Balance Sheet Growth
(at September 30, 2005) Total assets increased 9% to $1.04 billion
from $948 million a year ago. Gross loan and lease balances grew by
$73 million, or 11%, to $725 million at September 30, 2005 from
$652 million at September 30, 2004. Commercial, real-estate
secured, and SBA guaranteed loans grew by 14%, 13%, and 12%,
respectively, while agricultural balances fell by 35% as some less
desirable credits were managed out of the Company. The aggregate
balance of loans outstanding fell by $13 million during the first
quarter of 2005 due to the sale of $21 million in mortgage loans in
March, but has increased by $42 million since then for a net
increase at the end of September of $29 million relative to
year-end 2004. Securities and fed funds sold grew by a combined $4
million, or 2%, over the past twelve months, while the balance of
non-earning cash and due from banks increased by $11 million, or
33%, during the same time period. The increase in cash is related
to the timing of collection of cash items. Relative to their
year-end 2004 balance, non-performing assets have declined by $1.4
million, or 27%, despite the addition of the aforementioned $2.5
million credit. The decline relative to September 30, 2004 is about
26%. Non-performing assets have fallen to 0.35% of total assets,
compared to 0.52% of total assets a year ago. The sale of a
non-accruing note accounts for $823,000 of the decline, and several
repossessed properties have also been sold for a net reduction in
OREO of $1.5 million since September 30, 2004. At September 30,
2005, the allowance for loan losses stood at $11.4 million, or
1.58% of gross loans, compared to $8.5 million, or 1.30% of total
loans a year ago. The percent of net loan charge-offs to average
loans was -0.03% in the third quarter and -0.04% in the first nine
months of 2005, compared to net charge-offs of 0.03% of average
loans in the third quarter and 0.14% in the first nine months of
2004. Over the past year, deposit balances have grown 10% to $795
million at September 30, 2005, with demand deposits up 20%, NOW and
savings balances up 15%, money market deposits down 23%, and time
deposits up by 18%. Non-interest bearing deposits improved to 33%
of total deposits from 30% a year ago. As noted above, much of the
decrease in money market deposits and increase in time deposits can
be explained by the migration of money market to time. Subordinated
debentures remained at $31 million, as no additional
trust-preferred securities have been issued since March 2004. Other
interest-bearing liabilities were also at about the same level at
September 30, 2005 that they were at September 30, 2004, however
they have declined by $24 million relative to year-end 2004. A
total of $29 million in longer-term Federal Home Loan Bank
borrowings related to the leverage strategy rolled off during the
first nine months of 2005. Overnight borrowings also declined by $8
million during the same time period, while short-term FHLB advances
increased $9 million and customer repos grew by $4 million. Total
capital increased 12% to $77.4 million at September 30, 2005
compared to $69.1 million a year ago, due to an increase in
retained earnings and capital contributed through the exercise of
stock options, net of the impact of stock repurchases. About Sierra
Bancorp Sierra Bancorp is the holding company for Bank of the
Sierra (www.bankofthesierra.com), which is in its 28th year of
operations and is the largest independent bank headquartered in the
South San Joaquin Valley. The Company has over $1 billion in total
assets and currently maintains eighteen branch offices, two
agricultural credit centers, and one SBA center. In June 2005,
Sierra Bancorp was added to the Russell 2000 index based on
relative growth in market capitalization. In its July 2005 edition,
US Banker magazine ranked Sierra Bancorp as the nation's 8th best
performing publicly-traded community bank based on three-year
average return on equity. 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 and gain efficiencies
there from, 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. -0- *T
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CONSOLIDATED INCOME STATEMENT 3-Month Period Ended: Nine Month
Period Ended: (in $000's, % % unaudited) 9/30/2005 9/30/2004 Change
9/30/2005 9/30/2004 Change Interest Income $16,976 $13,476 26.0%
$46,990 $37,845 24.2% Interest Expense 3,499 2,274 53.9% 9,408
5,986 57.2% --------- ---------- --------- ---------- Net Interest
Income 13,477 11,202 20.3% 37,582 31,859 18.0% Provision for Loan
& Lease Losses 450 1,000 -55.0% 2,350 2,673 -12.1% ---------
---------- --------- ---------- Net Int after Provision 13,027
10,202 27.7% 35,232 29,186 20.7% Service Charges 1,512 1,576 -4.1%
4,180 4,655 -10.2% Loan Sale & Servicing Income 38 155 -75.5%
605 429 41.0% Other Non- Interest Income 1,192 987 20.8% 3,367
2,957 13.9% Gain (Loss) on Investments 9 14 -35.7% (255) 19
-1442.1% --------- ---------- --------- ---------- Total Non-
Interest Income 2,751 2,732 0.7% 7,897 8,060 -2.0% Salaries &
Benefits 3,630 2,990 21.4% 11,449 10,038 14.1% Occupancy Expense
1,544 1,566 -1.4% 4,540 4,388 3.5% Other Non- Interest Expenses
3,004 2,439 23.2% 9,432 7,450 26.6% --------- ---------- ---------
---------- Total Non- Interest Expense 8,178 6,995 16.9% 25,421
21,876 16.2% Income Before Taxes 7,600 5,939 28.0% 17,708 15,370
15.2% Provision for Income Taxes 2,754 1,996 38.0% 5,850 5,355 9.2%
--------- ---------- --------- ---------- Net Income $4,846 $3,943
22.9% $11,858 $10,015 18.4% ========= ========== =========
========== TAX DATA Tax-Exempt Muni Income $398 $317 25.6% $1,095
$988 10.8% Tax-Exempt BOLI Income $198 $176 12.5% $559 $622 -10.1%
Interest Income -- Fully Tax Equiv $17,181 $13,639 26.0% $47,554
$38,354 24.0% NET CHARGE- OFFS (RECOVERIES) $(213) $204 -204.4%
$(254) $898 -128.3%
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PER SHARE DATA 3-Month Period Ended: Nine Month Period Ended:
(unaudited) % % 9/30/2005 9/30/2004 Change 9/30/2005 9/30/2004
Change Basic Earnings per Share $0.50 $0.41 22.0% $1.21 $1.06 14.2%
Diluted Earnings per Share $0.47 $0.39 20.5% $1.14 $0.99 15.2%
Common Dividends $0.11 $0.09 22.2% $0.33 $0.27 22.2% Wtd. Avg.
Shares Outstanding 9,786,469 9,532,498 9,774,672 9,433,255 Wtd.
Avg. Diluted Shares 10,366,161 10,133,300 10,385,287 10,095,704
Book Value per Basic Share (EOP) $7.96 $7.21 10.4% $7.96 $7.21
10.4% Tangible Book Value per Share (EOP) $7.39 $6.64 11.3% $7.39
$6.64 11.3% Common Shares Outstanding (EOP) 9,733,305 9,582,308
9,733,305 9,582,308
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KEY FINANCIAL RATIOS 3-Month Period Ended: Nine Month Period Ended:
(unaudited) 9/30/2005 9/30/2004 9/30/2005 9/30/2004 Return on
Average Equity 25.03% 23.68% 21.35% 21.08% Return on Average Assets
1.88% 1.66% 1.58% 1.51% Net Interest Margin (Tax- Equiv.) 5.87%
5.33% 5.61% 5.49% Efficiency Ratio (Tax- Equiv.) 49.52% 49.30%
54.65% 53.69% Net C/O's to Avg Loans (not annualized) -0.03% 0.03%
-0.04% 0.14%
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AVERAGE 3-Month Period Ended: Nine Month Period Ended: BALANCES (in
$000's, % % unaudited) 9/30/2005 9/30/2004 Change 9/30/2005
9/30/2004 Change Average Assets $1,022,206 $942,873 8.4% $1,004,628
$883,517 13.7% Average Earning Assets $924,119 $847,825 9.0%
$908,461 $788,272 15.2% Average Gross Loans & Leases $712,345
$636,492 11.9% $696,449 $624,011 11.6% Average Deposits $786,848
$722,465 8.9% $769,969 $700,436 9.9% Average Equity $76,812 $66,256
15.9% $74,267 $63,462 17.0%
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STATEMENT OF CONDITION End of Period: (in $000's, unaudited)
9/30/2005 12/31/2004 9/30/2004 Annual Chg ASSETS Cash and Due from
Banks $43,508 $36,735 $32,609 33.4% Securities and Fed Funds Sold
202,428 198,024 197,969 2.3% Agricultural 9,639 13,146 14,811
-34.9% Commercial & Industrial 109,187 101,300 95,984 13.8%
Real Estate 523,077 500,394 463,088 13.0% SBA Loans 23,629 21,547
21,148 11.7% Consumer Loans 49,357 48,992 46,592 5.9% Credit Card
Balances 10,561 10,897 10,473 0.8% ----------- -----------
----------- Gross Loans & Leases 725,450 696,276 652,096 11.2%
Deferred Loan Fees (1,598) (1,277) (1,062) 50.5% -----------
----------- ----------- Loans & Leases Net of Deferred Fees
723,852 694,999 651,034 11.2% Allowance for Loan & Lease Losses
(11,446) (8,842) (8,476) 35.0% ----------- ----------- -----------
Net Loans & Leases 712,406 686,157 642,558 10.9% Bank Premises
& Equipment 17,469 17,731 17,678 -1.2% Other Assets 60,814
58,836 56,834 7.0% ----------- ----------- ----------- Total Assets
$1,036,625 $997,483 $947,648 9.4% =========== ===========
=========== LIABILITIES & CAPITAL Demand Deposits $262,004
$235,732 $217,951 20.2% NOW / Savings Deposits 143,724 131,079
124,548 15.4% Money Market Deposits 105,341 137,545 136,795 -23.0%
Time Certificates of Deposit 283,618 238,347 240,061 18.1%
----------- ----------- ----------- Total Deposits 794,687 742,703
719,355 10.5% Subordinated Debentures 30,928 30,928 30,928 0.0%
Other Interest-Bearing Liabilities 119,133 142,987 118,342 0.7%
----------- ----------- ----------- Total Deposits & Int.-
Bearing Liab. 944,748 916,618 868,625 8.8% Other Liabilities 14,436
9,730 9,888 46.0% Total Capital 77,441 71,135 69,135 12.0%
----------- ----------- ----------- Total Liabilities & Capital
$1,036,625 $997,483 $947,648 9.4% =========== ===========
===========
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CREDIT QUALITY DATA End of Period: (in $000's, unaudited) 9/30/2005
12/31/2004 9/30/2004 Annual Chg Non-Accruing Loans $2,932 $2,148
$2,343 25.1% Over 90 Days PD and Still Accruing 143 300 509 -71.9%
Other Real Estate Owned 545 2,524 2,039 -73.3% -----------
----------- ----------- Total Non-Performing Assets $3,620 $4,972
$4,891 -26.0% =========== =========== =========== Non-Perf Loans to
Total Loans 0.42% 0.35% 0.44% Non-Perf Assets to Total Assets 0.35%
0.50% 0.52% Allowance for Ln Losses to Loans 1.58% 1.27% 1.30%
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OTHER PERIOD-END End of Period: STATISTICS (unaudited) 9/30/2005
12/31/2004 9/30/2004 Shareholders Equity / Total Assets 7.5% 7.1%
7.3% Loans / Deposits 91.3% 93.7% 90.7% Non-Int. Bearing Dep. /
Total Dep. 33.0% 31.7% 30.3%
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*T
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