BSRR Sierra Bancorp

PORTERVILLE, Calif., Oct. 22 /PRNewswire-FirstCall/ -- Sierra Bancorp (NASDAQ:BSRR), parent of Bank of the Sierra, today announced net income for the quarter and nine months ended September 30, 2007. Net income for the third quarter of 2007 was $5.3 million, which represents an increase of $368,000, or 8%, relative to net income of $4.9 million in the same quarter a year ago. Diluted earnings per share were $0.53 in the third quarter of 2007, compared to $0.48 per diluted share in the third quarter of 2006. Net income for the first nine months of 2007 was a record $16.1 million, an increase of $1.6 million, or 11%, compared to the prior year. Some of the year-to-date increase is due to a gain recognized on the sale of the Company's credit card portfolio in June 2007, which totaled $1.6 million pre-tax and approximately $930,000 after taxes. The provision for loan losses was also $848,000 lower in the first nine months of 2007 than for the same period in 2006. Diluted earnings per share for the first nine months of 2007 were $1.60, which is a 13% increase relative to the first nine months of 2006. Sierra Bancorp generated a third quarter return on average equity of 22.16% in 2007 versus 22.73% in 2006, while return on average assets was 1.73% for the third quarter of 2007 as compared to 1.68% in the third quarter of 2006. The Company's return on average equity was 23.17% for the nine months ended September 30, 2007 compared to 23.31% in the same period last year, and its return on average assets was 1.78% for the first nine months of 2007 and 1.74% for the same period in 2006. During the third quarter of 2007, gross loans and leases outstanding declined by $3 million due to runoff that slightly exceeded new volume in most loan categories. Total deposits declined by $37 million during the quarter, with $25 million of the drop caused by the runoff of wholesale-sourced brokered deposits and about $8 million being the result of the temporary transfer of a single customer deposit at quarter-end. Impacting capital was the Company's repurchase of 61,600 shares of its own stock during the third quarter, at a weighted average price of $28.12 per share. For the first nine months of 2007, gross loans and leases increased by $19 million, or 2%. Year-to-date growth was impeded by the sale of $11 million in consumer and business credit card balances in the second quarter, as well as the aforementioned net run-off in the third quarter. Non-performing assets increased to $1.2 million at September 30, 2007 from only $689,000 at year-end 2006, but almost all of the current balance is secured by real estate and our allowance for loan and lease losses is still nearly 10 times the balance of non-performing loans. Total deposits increased by $18 million, or 2%, during the nine months ended September 30, 2007. As with the quarter, the change in wholesale-sourced brokered deposits had a significant impact on year-to-date deposit growth, declining by $20 million during the first nine months of 2007. "Over the past several months we've experienced some of the trends that seem to be prevalent industry-wide, including net interest margin compression and a lack of growth in earning assets and non-interest bearing deposits. That being said, our focus on managing potential problem areas, and on enhancing non-interest income and controlling non-interest expense, has helped offset the negative impact and allowed us to maintain strong financial performance," remarked James C. Holly, President and CEO. "A highlight of our recent performance is exceptional growth in the number of consumer deposit accounts, which has provided a significant contribution to fee income," Holly added. Financial Highlights Net interest income increased slightly for both the quarter and nine months ended September 30, 2007 relative to the same periods in 2006, due to growth in average earning assets. Average interest-earning assets were $52 million higher in the third quarter of 2007 than in the third quarter of 2006, and $89 million higher during the first nine months of 2007 than in the same period in 2006. The contribution of additional earning assets to net interest income was diluted by compression in the Company's net interest margin, which fell to 5.23% in the third quarter of 2007 from 5.44% in the third quarter of 2006, and to 5.31% in the first nine months of 2007 from 5.66% in the first nine months of 2006. Our net interest margin is lower mainly because of a shift from non-interest bearing demand and relatively low-cost savings deposits into more expensive money market and time deposits. Furthermore, the Company's balance sheet has been asset-sensitive for most of the last two years, which has contributed to compression in our net interest margin since short-term interest rates stopped increasing more than a year ago. Strong growth in aggregate average customer deposits in 2007 has allowed us to retire some of the more costly wholesale funding obtained in 2006, however, which has helped offset some of the negative impact created by the deposit shift and stagnant/declining short-term interest rates. Our loan loss provision was $351,000 lower for the third quarter and $848,000 lower for the year-to-date period in 2007 relative to 2006, primarily because of a lower rate of growth in loan balances. Net charge-offs in 2007 remain at levels similar to those experienced in 2006 due a relatively high level of recoveries in 2007, but are expected to increase in future periods based on unfavorable delinquency trends in unsecured lines and equity lines. Our current allowance for loan and lease losses factors in these unfavorable credit trends, and it is management's opinion that our reserve is adequate for specifically identified problems as well as any other losses inherent in our loan and lease portfolio. For the quarter, service charges on deposits increased by $607,000, or 41%, relative to the third quarter of 2006. Service charges are up $941,000, or 21%, for the year-to-date period. Service charges show improvement due primarily to an increase in returned item and overdraft fees generated by checking accounts. The number of accounts has increased, and our fee structure, while still lower than competitor banks in many categories, has been adjusted to be closer to average. At September 30, 2007, the Company had over 68,000 deposit accounts, a 14% increase relative to the number of accounts at September 30, 2006. As noted above, the Company's year-to-date non-interest income was also impacted by the gain on sale of credit card loans. Other non-interest income declined slightly for the quarter, but increased by $322,000, or 9%, for the first nine months of 2007. For the quarter, higher income from bank-owned life insurance (BOLI) was more than offset by higher costs on an increased investment in tax credit funds, lower bill-pay income, and lower fees related to credit cards. The year-to-date increase is due primarily to a higher level of income from BOLI, debit card interchange fees, and dividends on FHLB stock, although these increases were partially offset by declining bill-pay income and higher tax credit investment costs. On the expense side, salaries and benefits were slightly lower for the quarter but increased by $949,000, or 8%, for the year-to-date period. For the quarter, a slight increase in actual wages and benefits was offset by an increase in salaries expense deferred for future recognition pursuant to FAS 91. The deferred amount was actually lower on a year-to-date basis, and thus had the opposite impact of contributing to higher year-to-date salaries expense. The deferral, which reduces current-period expense, increased by $149,000 for the third quarter but declined by $411,000 for the first nine months of 2007 relative to 2006. Adding to the increase in year-to-date salaries were regular annual salary increases and the addition of employees for our newest branch in Delano. Occupancy expense was virtually the same in the third quarter of 2007 as in the third quarter of 2006, and fell by $104,000, or 2%, for the first nine months of 2007. Despite normal inflationary increases and increased occupancy costs associated with the Delano Branch which opened in March of 2007, occupancy expense didn't change for the third quarter because of a $110,000 drop in depreciation expense on certain fixtures and equipment which became fully depreciated during the quarter. Year-to-date, occupancy expense declined because increased rent and premises depreciation were more than offset by a drop in furniture and equipment depreciation as well as first quarter 2007 property tax refunds resulting from re-assessments. Other non-interest expenses increased by $591,000, or 24%, for the third quarter, and by $1.1 million, or 14%, for the first nine months of 2007 relative to the same periods in 2006. This was caused in part by an increase in marketing expenses, which were up by $125,000 for the quarter and $528,000 year-to-date. Marketing expenses increased because of costs associated with our current deposit-oriented marketing initiatives, as projected. Also contributing to both the quarterly and year-to-date increase in other expenses was a conversion-related increase in credit card expenses, although these expenses should be completely eliminated going forward. Other significant expense increases for 2007 relative to 2006 include postage, which is higher due to mailing costs associated with our direct-mail marketing initiatives, consulting costs related to our review of EFT contracts, legal costs, and directors' expenses. Total assets declined by $7 million, or 1%, from December 31, 2006 to September 30, 2007. Significant balance sheet changes during the first nine months of 2007 include a drop of $15 million, or 28%, in cash and due from banks, a decline of over $6 million in fed funds sold, which fell to zero, an increase of $19 million, or 2%, in gross loans and leases, an increase of $18 million, or 2%, in total deposits, and a drop of $36 million, or 15%, in other borrowings. The lower balance of cash and due from banks is the result of a reduction in cash items in process of collection. Most of the loan growth for the nine months ended September 30, 2007 was centered in commercial real estate loans, which grew by $23 million, or 6%. SBA loans, on the other hand, fell by $5 million, or 20%, and as noted previously, credit card balances were sold in June 2007. Prior to the sale, we had close to $3 million in business credit card balances that were included in commercial loans and over $8 million in consumer credit card balances. As noted previously, the lack of significant growth in total deposits during the first nine months of 2007 was primarily due to the runoff of $20 million in wholesale-sourced brokered deposits and the temporary loss of a single $8 million deposit over quarter-end. Adding back that $8 million deposit and factoring out the decline in brokered deposits, customer deposits generated by our branch system have effectively increased by $46 million year-to-date. However, there has been a shift from savings and non-interest bearing demand deposits into interest bearing demand (NOW) accounts, money market accounts, and time deposits. Non-interest bearing demand deposits declined by $49 million, or 18%, including the single $8 million account referenced earlier. Savings deposits fell by $9 million, or 15%. NOW account balances increased by $25 million, or 38%, money market accounts increased by $29 million, or 25%, and time deposits increased by $23 million, or 7%. Because deposits grew yet assets declined, we were able to reduce our reliance on other borrowings by $36 million. 2006 Reclassifications To provide consistency with 2007 financial reporting there were minor reclassifications of income statement amounts originally reported for the third quarter and first nine months of 2006, including but not necessarily limited to the following: Property insurance premiums totaling $31,000 for the third quarter of 2006 and $90,000 for the first nine months of 2006 were moved from other non-interest expenses to occupancy expense. About Sierra Bancorp Sierra Bancorp is the holding company for Bank of the Sierra (http://www.bankofthesierra.com/), which is in its 30th year of operations and is the largest independent bank headquartered in the South San Joaquin Valley. The Company has $1.2 billion in total assets and maintains 21 branch offices, an agricultural credit center, an SBA center, and an online "virtual" branch. In its April 2007 edition, US Banker magazine ranked Sierra Bancorp as the 10th best performing publicly-traded mid-tier bank in the nation based on three-year average return on equity, placing us in the top 5% for banks in that category. 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 de ploy 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. SIERRA BANCORP CONSOLIDATED INCOME STATEMENT 3-Month Period Ended: 9-Month Period Ended: (in $000's, unaudited) 9/30/2007 9/30/2006 % Change 9/30/2007 9/30/2006 % Change Interest Income $22,190 $21,131 5.0% $66,197 $59,015 12.2% Interest Expense 8,128 7,183 13.2% 23,873 17,467 36.7% Net Interest Income 14,062 13,948 0.8% 42,324 41,548 1.9% Provision for Loan & Lease Losses 700 1,051 -33.4% 2,302 3,150 -26.9% Net Int after Provision 13,362 12,897 3.6% 40,022 38,398 4.2% Service Charges 2,105 1,498 40.5% 5,434 4,493 20.9% Loan Sale & Servicing Income 14 25 -44.0% 1,656 45 3580.0% Other Non-Interest Income 1,245 1,276 -2.4% 3,998 3,676 8.8% Gain (Loss) on Investments 2 9 -77.8% 14 9 55.6% Total Non- Interest Income 3,366 2,808 19.9% 11,102 8,223 35.0% Salaries & Benefits 4,045 4,083 -0.9% 13,143 12,194 7.8% Occupancy Expense 1,701 1,703 -0.1% 4,808 4,912 -2.1% Other Non-Interest Expenses 3,096 2,505 23.6% 8,841 7,745 14.2% Total Non- Interest Expense 8,842 8,291 6.6% 26,792 24,851 7.8% Income Before Taxes 7,886 7,414 6.4% 24,332 21,770 11.8% Provision for Income Taxes 2,616 2,512 4.1% 8,254 7,319 12.8% Net Income $5,270 $4,902 7.5% $16,078 $14,451 11.3% Tax Data Tax-Exempt Muni Income $559 $519 7.7% $1,664 $1,509 10.3% Tax-Exempt BOLI Income $327 $142 130.3% $940 $578 62.6% Interest Income - Fully Tax Equiv $22,491 $21,410 5.0% $67,093 $59,828 12.1% Net Charge-Offs (Recoveries) $608 $729 -16.6% $1,686 $1,632 3.3% PER SHARE DATA 3-Month Period Ended: 9-Month Period Ended: (unaudited) 9/30/2007 9/30/2006 % Change 9/30/2007 9/30/2006 % Change Basic Earnings per Share $0.54 $0.50 8.0% $1.66 $1.48 12.2% Diluted Earnings per Share $0.53 $0.48 10.4% $1.60 $1.41 13.5% Common Dividends $0.16 $0.14 14.3% $0.46 $0.40 15.0% Wtd. Avg. Shares Outstanding 9,672,247 9,773,097 9,713,097 9,763,707 Wtd. Avg. Diluted Shares 10,008,463 10,288,817 10,076,118 10,276,581 Book Value per Basic Share (EOP) $10.15 $9.08 11.8% $10.15 $9.08 11.8% Tangible Book Value per Share (EOP) $9.58 $8.51 12.6% $9.58 $8.51 12.6% Common Shares Outstanding (EOP) 9,719,919 9,786,755 9,719,919 9,786,755 KEY FINANCIAL 3-Month Period Ended: 9-Month Period Ended: RATIOS (unaudited) 9/30/2007 9/30/2006 9/30/2007 9/30/2006 Return on Average Equity 22.16% 22.73% 23.17% 23.31% Return on Average Assets 1.73% 1.68% 1.78% 1.74% Net Interest Margin (Tax-Equiv.) 5.23% 5.44% 5.31% 5.66% Efficiency Ratio (Tax-Equiv.) 49.38% 48.53% 48.87% 48.84% Net C/O's to Avg Loans (not annualized) 0.07% 0.09% 0.19% 0.20% AVERAGE BALANCES 3-Month Period Ended: 9-Month Period Ended: (in $000's, unaudited) 9/30/2007 9/30/2006 % Change 9/30/2007 9/30/2006 % Change Average Assets $1,206,325 $1,155,046 4.4% $1,207,958 $1,112,817 8.5% Average Interest- Earning Assets $1,089,233 $1,037,541 5.0% $1,088,602 $1,000,102 8.8% Average Gross Loans & Leases $902,928 $846,987 6.6% $899,624 $805,430 11.7% Average Deposits $914,180 $827,117 10.5% $899,545 $821,628 9.5% Average Equity $94,362 $85,564 10.3% $92,796 $82,879 12.0% STATEMENT OF CONDITION End of Period: (in $000's, unaudited) 9/30/2007 12/31/2006 9/30/2006 Annual Chg ASSETS Cash and Due from Banks $38,166 $52,725 $41,870 -8.8% Securities and Fed Funds Sold 184,557 196,562 190,194 -3.0% Agricultural 12,296 13,193 12,373 -0.6% Commercial & Industrial 135,934 133,794 138,093 -1.6% Real Estate 683,352 652,089 628,528 8.7% SBA Loans 20,820 25,946 25,637 -18.8% Consumer Loans 54,163 54,568 55,693 -2.7% Consumer Credit Card Balances - 8,418 8,169 -100.0% Gross Loans & Leases 906,565 888,008 868,493 4.4% Deferred Loan Fees (3,242) (3,618) (3,250) -0.2% Loans & Leases Net of Deferred Fees 903,323 884,390 865,243 4.4% Allowance for Loan & Lease Losses (12,195) (11,579) (10,848) 12.4% Net Loans & Leases 891,128 872,811 854,395 4.3% Bank Premises & Equipment 18,612 17,978 18,343 1.5% Other Assets 75,614 74,998 68,427 10.5% Total Assets $1,208,077 $1,215,074 $1,173,229 3.0% LIABILITIES & CAPITAL Demand Deposits $231,831 $281,024 $253,926 -8.7% NOW / Savings Deposits 142,956 127,521 124,322 15.0% Money Market Deposits 144,303 115,266 127,948 12.8% Time Certificates of Deposit 367,489 344,634 324,798 13.1% Total Deposits 886,579 868,445 830,994 6.7% Subordinated Debentures 30,928 30,928 46,392 -33.3% Other Interest-Bearing Liabilities 173,623 209,403 190,571 -8.9% Total Deposits & Int.- Bearing Liab. 1,091,130 1,108,776 1,067,957 2.2% Other Liabilities 18,322 15,927 16,396 11.7% Total Capital 98,625 90,371 88,876 11.0% Total Liabilities & Capital $1,208,077 $1,215,074 $1,173,229 3.0% CREDIT QUALITY DATA End of Period: (in $000's, unaudited) 9/30/2007 12/31/2006 9/30/2006 Annual Chg Non-Accruing Loans $1,246 $689 $565 120.5% Over 90 Days PD and Still Accruing - - - 0.0% Foreclosed Assets - - - 0.0% Total Non-Performing Assets $1,246 $689 $565 120.5% Non-Perf Loans to Total Loans 0.14% 0.08% 0.07% Non-Perf Assets to Total Assets 0.10% 0.06% 0.05% Allowance for Ln Losses to Loans 1.35% 1.30% 1.25% OTHER PERIOD-END STATISTICS End of Period: (unaudited) 9/30/2007 12/31/2006 9/30/2006 Shareholders Equity / Total Assets 8.2% 7.4% 7.6% Loans / Deposits 102.3% 102.3% 104.5% Non-Int. Bearing Dep. / Total Dep. 26.1% 32.4% 30.6% DATASOURCE: Sierra Bancorp CONTACT: Ken Taylor, EVP-CFO, or Kevin McPhaill, EVP-Chief Banking Officer, both of Sierra Bancorp, +1-559-782-4900 or 1-888-454-BANK Web site: http://www.bankofthesierra.com/ http://www.sierrabancorp.com/

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