PORTERVILLE, Calif. Oct. 20 /PRNewswire-FirstCall/ -- Sierra
Bancorp (NASDAQ:BSRR), parent of Bank of the Sierra, today
announced its financial results for the quarter and the nine months
ended September 30, 2008. Sierra Bancorp generated a 21.96% return
on average equity and a 1.77% return on average assets for the
quarter. Net income for the third quarter of 2008 was $5.8 million,
compared to $5.3 million in the same quarter a year ago. Diluted
earnings per share increased 11%, to $0.59 in the third quarter of
2008 from $0.53 per diluted share in the third quarter of 2007. Net
income was higher due in large part to solid growth in core
non-interest income and a respectable increase in net interest
income. Non-recurring items that had a favorable impact on net
income for the quarter include a gain on the exchange of certain
bank-owned life insurance (BOLI) policies, and the reversal of a
tax reserve. These favorable results were achieved despite interest
reversals necessitated by an increase in non-performing assets, a
higher loan loss provision, and higher overhead expenses. For the
first nine months of 2008 net income was $15.3 million, diluted
earnings per share were $1.56, return on average equity was 19.87%,
and return on average assets was 1.60%. Income was down relative to
the first nine months of 2007, because 2007 year-to-date results
include a $1.6 million pre-tax gain on the sale of credit card
loans recognized in the second quarter of that year. Notable
balance sheet changes from December 31, 2007 to September 30, 2008
include the following: Total deposits increased $111 million, or
13%, with most of the increase coming in time deposits; Federal
Home Loan Bank (FHLB) borrowings were reduced by $39 million, or
20%; investment balances are up by $61 million, or 33%; and
non-performing assets increased $15 million, due in part to a $6
million loan that is more than 90 days past due with regard to
principal but for which we are still accruing interest. "We are
delighted by Sierra Bancorp's strong financial performance and
stability in what has proven to be an extremely difficult economic
environment, particularly for financial institutions," commented
James C. Holly, President and CEO. "Like most other banks that have
been actively lending over the past few years, we have credit
issues to contend with," he noted, "but our balanced and
diversified approach to banking has built a strong base of capital
and liquidity, and has enhanced our net interest margin and
non-interest income to help compensate for current credit quality
issues." Financial Highlights The most significant impact on the
Company's net income for the third quarter of 2008 relative to the
third quarter of 2007 came from a $1 million increase in
non-interest income, which was driven by a $984,000 increase in
service charges on deposits. Service charge income on deposits
increased by 47% for the quarter and by 53% for the comparative
nine month periods, primarily due to returned item and overdraft
fees generated by new consumer checking accounts, mid-year fee
increases in both 2007 and 2008, and enhanced overdraft management
and collection capabilities for all transaction accounts. All other
non-interest revenue increased by $55,000, or 5%, for the quarter,
but fell by $1.4 million, or 26%, for the nine-month period. The
drop for the year-to-date period is primarily due to the $1.6
million pre-tax gain on the sale of credit card loans in the second
quarter of 2007. Another significant non-recurring item having an
impact on non-interest income in both the quarter and year-to-date
periods is a non-taxable gain of approximately $350,000, resulting
from our exchange of certain separate account BOLI policies related
to director and executive deferred compensation plans in the third
quarter of 2008. The gain effectively offset deferred-compensation
related losses on separate account BOLI for the third quarter of
2008, so the quarter-over-quarter comparison of total BOLI income
shows virtually no change. The gain wasn't large enough to offset
year-to-date losses on separate account BOLI, however, and total
BOLI income for the nine-month period thus shows a decline of
$379,000. Other non-recurring items contributing to the change in
non-interest income for the first nine months of 2008 relative to
2007 include the following: A gain of $289,000 in the first quarter
of 2008 resulting from the mandatory redemption of a portion of our
Visa shares, pursuant to Visa's initial public offering in March
2008; an $82,000 gain on the sale of property adjacent to one of
our branches in the first quarter of 2008; and a $75,000 contingent
final payment in the first quarter of 2008 related to the
outsourcing of our merchant services function in late 2006. Turning
to overhead expense, salaries and benefits increased by $601,000,
or 15%, for the third quarter of 2008 and by $409,000, or 3%, for
the first nine months of 2008, relative to like periods in 2007.
The increase is the result of normal annual salary increases, staff
additions for new offices, and staffing enhancements to help manage
problem assets. Also having an impact were fluctuations in salaries
that are associated with successful loan originations and thus
deferred pursuant to FAS 91. Because of lower loan origination
activity in the third quarter of 2008 relative to the third quarter
of 2007 our FAS 91 deferral declined by $247,000, thus increasing
salaries expense by the same amount. The deferral was $174,000
higher for the comparative year-to-date periods, however, due in
large part to a third quarter 2007 re-evaluation of, and subsequent
increase in, standardized per loan origination costs. Participant
losses on deferred compensation plans contributed to a decline in
deferred compensation expense totaling $183,000 for the third
quarter and $463,000 for the first nine months of 2008, partially
offsetting the aforementioned increases in salaries and benefits.
Occupancy expense increased by $37,000, or 2%, for the third
quarter but declined by $43,000, or 1%, for the nine-month period.
Normal annual increases in rent and maintenance and increases
related to new offices were partially offset for the quarter and
entirely offset for the year-to-date period by lower furniture and
equipment depreciation, resulting from certain high-cost items
becoming fully depreciated. The drop for the first nine months of
2008 would have been greater if not for an $80,000 increase in
property taxes resulting from property tax refunds received in the
first quarter of the previous year. Other non-interest expenses
increased by $833,000, or 27%, for the quarter, and by $550,000, or
6%, in the first nine months of 2008 relative to the first nine
months of 2007. Significant increases in this category for the
comparative 2008 and 2007 periods include the following: OREO
properties were written down by $362,000 in the third quarter of
2008, with the write-down reflected in other non-interest expense;
other lending-related costs, including appraisal costs, inspection
expenses, demand and foreclosure costs, and legal expenses
associated with collections, were up by $365,000 for the quarter
and by $703,000 for the year-to-date period; and a legal settlement
and non-recurring operations-related loss added $191,000 to
non-interest expense in the third quarter of 2008. Additional
increases are evident in marketing costs, supplies expense, and
FDIC assessments. These increases were partially offset by expense
reductions for the comparative periods, including the following:
the elimination of costs associated with credit cards due to the
sale of our credit card portfolio last year, resulting in a
comparative expense reduction of $249,000 for the quarter and
$589,000 for the nine-month period; and a reduction in directors'
deferred compensation expense accruals totaling $219,000 for the
quarter and $440,000 for the year-to-date period, due to
participant losses on balances associated with deferred directors'
fees. Additional non-recurring items that did not impact the
quarterly comparison but which are reflected in year-to-date 2008
results include a $104,000 EFT processing rebate received in the
second quarter of 2008, one-time EFT and ATM incentives totaling
$242,000 received in the first quarter of 2008, a $54,000 insurance
recovery on check fraud losses received in the second quarter of
2008, and $83,000 in initiation costs associated with our new
mortgage program that were incurred in the second quarter of 2008.
Relative to the same periods in 2007, net interest income increased
by $951,000, or 7%, for the quarter, and by $715,000, or 2%, for
the nine-month period. This is due primarily to an increase in
average interest-earning assets, which were $91 million higher for
the quarter and $66 million higher for the year-to-date period,
although the benefit created by higher earning assets was partially
offset by a lower net interest margin. The Company's net interest
margin was 5.19% in the third quarter of 2008 relative to 5.25% in
the third quarter of 2007, and 5.11% for the first nine months of
2008 relative to 5.33% for the first nine months of 2007.
Non-recurring events affecting our net interest margin in the third
quarter of 2008 include the reversal of $118,000 in accrued but
unpaid interest on loans placed on non-accrual during the quarter,
and the accelerated recognition of $211,000 in loan fees in
conjunction with the pay-off of a loan participation. In addition
to these items, year-to-date net interest income was adversely
impacted by $480,000 in interest reversals on loans placed on
non-accrual in the second quarter of 2008. Also having a negative
effect on our net interest margin for both the quarter and
year-to-date periods were an increase in average non-performing
assets, and a decline in average non-interest bearing demand
deposits. The unfavorable factors impacting our net interest margin
were partially offset by higher average balances for NOW accounts,
and a lower cost of overnight borrowings in the third quarter of
2008 due to large amounts of liquidity injected into the financial
system by the Federal Reserve. For the first nine months of 2008
versus the same period in 2007, the largest impact on net income
came from an increase of $3.5 million, or 153%, in the loan loss
provision. For the third quarter comparison, the loan loss
provision increased by $200,000, or 29%. The relatively large loan
loss provision in 2008 can be explained in part by net charge-offs,
which increased by $1.6 million for the quarter and by $5.1 million
for the year-to-date period. However, many of the charged-off loan
balances had specific reserves allocated to them as of the
beginning of the respective periods and charging them off did not
necessarily create the need for reserve replenishment. Much of the
2008 loan loss provision was necessitated by the enhancement of
specific reserves on acquisition and development loans and
residential construction loans, pursuant to deterioration in the
liquidity of some developers and based on recent appraisals.
Another item having a relatively large impact on net income for the
third quarter of 2008 is the release of a reserve held against our
deferred tax asset. The reserve was established last year, due to
the tentative nature of tax benefits resulting from long-term
capital losses on our investment in a title insurance holding
company. Upon finalization of 2007 tax returns, however, we were
able to realize those tax benefits and thus released the reserve,
which reduced our tax provision for the third quarter of 2008 by
approximately $230,000. As noted above, balance sheet changes
during the first nine months of 2008 include sizeable increases in
deposits and investment securities. Total deposits increased by
$111 million, or 13%. Most of the deposit growth was in time
deposits, including a $50 million increase in collateralized
balances from public entities and a $47 million increase in
wholesale-sourced brokered deposits. Combined NOW/savings balances
were up by $15 million, or 11%, and money market deposits increased
by $12 million, or 9%. Non-interest bearing demand deposits,
however, show a year-to-date decline of $22 million, or 9%, due in
part to a deposit customer that wired $11 million out of the Bank
just prior to quarter-end and re-deposited the money at the
beginning of October. We let $39 million in FHLB borrowings roll
off due to the aggregate deposit influx. Additionally, much of the
cash flow generated by the increase in deposits was utilized to
increase investment balances by $61 million, or 33%, because the
investment environment was conducive to increasing our relative
level of mortgage-backed securities. Gross loan balances increased
by $29 million, or 3%, during the first nine months of 2008,
including approximately $10 million in mortgage loans purchased
during the third quarter. Organic loan growth in most of our
branches is low relative to prior years, due in part to large
prepayments and heightened selectivity on the part of the Company
in a difficult credit environment. Total non-performing assets
increased by $15 million, or 156%, during the first nine months of
2008, ending the third quarter at $25 million. Much of the increase
in the third quarter came from a $6 million loan that became 90
days past due with regard to principal, but for which we are still
accruing interest based on the likelihood of a full recovery of all
principal and interest. The year-to-date increase also includes
non-performing acquisition and development and residential
construction loans, SBA loans placed on non-accrual status, and
additional foreclosed properties. Specific loss reserves are
allocated to non-performing loans based on loss expectations, which
for real estate loans are based on current appraisals and the
expected timing of resolution. Mr. Holly commented further on
credit quality with the following statement: "We have been
aggressive in identifying problem assets, and non-performing
balances have risen quite dramatically as a consequence, but we
feel that the expeditious identification and handling of these
assets can in many cases result in more favorable resolution.
Furthermore, we are comfortable that we have adequately reserved
for all known credit issues at this point in time, although we are
not entirely confident that systemic financial stability has been
achieved and a degree of uncertainty remains." Our detailed
analysis indicates that as of September 30, 2008, our $11.3 million
allowance for loan and lease losses should be sufficient to cover
potential credit losses inherent in loan and lease balances
outstanding as of that date. However, no assurance can be given
that the Company will not experience substantial future losses
relative to the size of the allowance. Our allowance for loan and
lease losses was 1.18% of total loans at September 30, 2008,
relative to 1.35% at June 30, 2008 and 1.33% at year-end 2007. The
decline in the ratio in the third quarter is primarily due to the
write-down against the allowance of real-estate secured loans prior
to their foreclosure and acquisition into OREO. Certain amounts
reported for 2007 have been reclassified to be consistent with the
reporting for 2008, including certain late charges on loans
totaling $59,000 for the third quarter of 2007 and $193,000 for the
nine-month period ended September 30, 2007 that were moved from
"Other Non-Interest Income" to "Interest Income." For the sake of
consistency, a similar adjustment was made to previously reported
numbers for 2008 (year-to-date through June 30th), reclassifying
$160,000 from "Other Non-Interest Income" to "Interest Income."
About Sierra Bancorp Sierra Bancorp is the holding company for Bank
of the Sierra (http://www.bankofthesierra.com/), which is in its
31st year of operations and is the largest independent bank
headquartered in the South San Joaquin Valley. The Company has over
$1.3 billion in total assets and currently maintains 22 branch
offices, an agricultural credit center, an SBA center, and an
online "virtual" branch. In May 2008, Sierra Bancorp was recognized
by U.S. Banker magazine as the best performing mid-tier bank in the
nation based on 2007 return on equity, and the 6th bank overall
based on 3-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. CONSOLIDATED INCOME
STATEMENT 3-Month 9-Month (in $000's, Period Ended: Period Ended:
unaudited) 9/30/ 9/30/ % 9/30/ 9/30/ % 2008 2007 Change 2008 2007
Change Interest Income $20,082 $22,250 -9.7% $60,014 $66,390 -9.6%
Interest Expense 5,009 8,128 -38.4% 16,782 23,873 -29.7% -----
----- ------ ------ Net Interest Income 15,073 14,122 6.7% 43,232
42,517 1.7% Provision for Loan & Lease Losses 900 700 28.6%
5,820 2,302 152.8% --- --- ----- ----- Net Int after Provision
14,173 13,422 5.6% 37,412 40,215 -7.0% Service Charges 3,089 2,105
46.7% 8,294 5,434 52.6% Loan Sale & Servicing Income 12 14
-14.3% 31 1,656 -98.1% Other Non-Interest Income 1,244 1,185 5.0%
3,974 3,805 4.4% Gain (Loss) on Investments - 2 -100.0% 58 14
314.3% --- --- --- --- Total Non- Interest Income 4,345 3,306 31.4%
12,357 10,909 13.3% Salaries & Benefits 4,646 4,045 14.9%
13,552 13,143 3.1% Occupancy Expense 1,738 1,701 2.2% 4,765 4,808
-0.9% Other Non-Interest Expenses 3,929 3,096 26.9% 9,391 8,841
6.2% ----- ----- ----- ----- Total Non- Interest Expense 10,313
8,842 16.6% 27,708 26,792 3.4% Income Before Taxes 8,205 7,886 4.0%
22,061 24,332 -9.3% Provision for Income Taxes 2,433 2,616 -7.0%
6,765 8,254 -18.0% ----- ----- ----- ----- Net Income $5,772 $5,270
9.5% $15,296 $16,078 -4.9% ====== ====== ======= ======= Tax Data
Tax-Exempt Muni Income $599 $559 7.2% $1,777 $1,664 6.8% Tax-Exempt
BOLI Income $322 $327 -1.5% $561 $940 -40.3% Interest Income -
Fully Tax Equiv $20,405 $22,551 -9.5% $60,971 $67,286 -9.4% Net
Charge-Offs (Recoveries) $2,247 $608 $6,822 $1,686 PER SHARE
3-Month 9-Month DATA Period Ended: Period Ended: (unaudited) 9/30/
9/30/ % 9/30/ 9/30/ % 2008 2007 Change 2008 2007 Change Basic
Earnings per Share $0.60 $0.54 11.1% $1.60 $1.66 -3.6% Diluted
Earnings per Share $0.59 $0.53 11.3% $1.56 $1.60 -2.5% Common
Dividends $0.17 $0.16 6.3% $0.51 $0.46 10.9% Wtd. Avg. Shares
Outstanding 9,623,683 9,672,247 9,586,589 9,713,097 Wtd. Avg.
Diluted Shares 9,765,122 10,008,463 9,777,633 10,076,118 Book Value
per Basic Share (EOP) $11.26 $10.15 10.9% $11.26 $10.15 10.9%
Tangible Book Value per Share (EOP) $10.69 $9.58 11.6% $10.69 $9.58
11.6% Common Shares Outstanding (EOP) 9,666,391 9,719,919 9,666,391
9,719,919 KEY FINANCIAL 3-Month 9-Month RATIOS Period Ended: Period
Ended: (unaudited) 9/30/2008 9/30/2007 9/30/2008 9/30/2007 Return
on Average Equity 21.96% 22.16% 19.87% 23.17% Return on Average
Assets 1.77% 1.73% 1.60% 1.78% Net Interest Margin (Tax- Equiv.)
5.19% 5.25% 5.11% 5.33% Efficiency Ratio (Tax-Equiv.) 51.83% 49.38%
49.08% 48.87% Net C/O's to Avg Loans (not annualized) 0.24% 0.07%
0.74% 0.19% AVERAGE 3-Month 9-Month BALANCES Period Ended: Period
Ended: (in $000's, unaudited) 9/30/ 9/30/ % 9/30/ 9/30/ % 2008 2007
Change 2008 2007 Change Average Assets $1,298,989 $1,206,325 7.7%
$1,273,119 $1,207,958 5.4% Average Interest- Earning Assets
$1,179,876 $1,089,233 8.3% $1,154,160 $1,088,602 6.0% Average Gross
Loans & Leases $934,978 $902,928 3.5% $926,031 $899,624 2.9%
Average Deposits $965,538 $914,180 5.6% $922,381 $899,545 2.5%
Average Equity $104,546 $94,362 10.8% $102,818 $92,796 10.8%
STATEMENT OF CONDITION (in $000's, End of Period: Annual unaudited)
9/30/2008 12/31/2007 9/30/2007 Chg ASSETS Cash and Due from Banks
$33,237 $44,022 $38,166 -12.9% Securities and Fed Funds Sold
245,916 184,917 184,557 33.2% Agricultural 11,918 13,103 12,296
-3.1% Commercial & Industrial 145,222 140,323 135,934 6.8% Real
Estate 707,425 696,110 683,352 3.5% SBA Loans 20,447 20,366 20,820
-1.8% Consumer Loans 68,461 54,731 54,163 26.4% ------ ------
------ Gross Loans & Leases 953,473 924,633 906,565 5.2%
Deferred Loan Fees (1,674) (3,045) (3,242) -48.4% ------ ------
------ Loans & Leases Net of Deferred Fees 951,799 921,588
903,323 5.4% Allowance for Loan & Lease Losses (11,275)
(12,276) (12,195) -7.5% ------- ------- ------- Net Loans &
Leases 940,524 909,312 891,128 5.5% Bank Premises & Equipment
19,024 18,255 18,612 2.2% Other Assets 78,206 77,229 75,614 3.4%
------ ------ ------ Total Assets $1,316,907 $1,233,735 $1,208,077
9.0% ========== ========== ========== LIABILITIES & CAPITAL
Demand Deposits $221,560 $243,764 $231,831 -4.4% NOW / Savings
Deposits 153,532 138,378 142,956 7.4% Money Market Deposits 138,181
126,347 144,303 -4.2% Time Certificates of Deposit 447,761 341,658
367,489 21.8% ------- ------- ------- Total Deposits 961,034
850,147 886,579 8.4% Subordinated Debentures 30,928 30,928 30,928
0.0% Other Interest-Bearing Liabilities 199,545 237,082 173,623
14.9% ------- ------- ------- Total Deposits & Int.-Bearing
Liab. 1,191,507 1,118,157 1,091,130 9.2% Other Liabilities 16,525
16,114 18,322 -9.8% Total Capital 108,875 99,464 98,625 10.4%
------- ------ ------ Total Liabilities & Capital $1,316,907
$1,233,735 $1,208,077 9.0% ========== ========== ========== CREDIT
QUALITY DATA (in $000's, End of Period: Annual unaudited) 9/30/2008
12/31/2007 9/30/2007 Chg Non-Accruing Loans $14,307 $9,052 $1,246
1048.2% Over 90 Days PD and Still Accruing 6,395 - - 100.0%
Foreclosed Assets 3,909 556 - 100.0% ----- --- --- Total
Non-Performing Assets $24,611 $9,608 $1,246 1875.2% ======= ======
====== Non-Perf Loans to Total Loans 2.17% 0.98% 0.14% Non-Perf
Assets to Total Assets 1.87% 0.78% 0.10% Allowance for Ln Losses to
Loans 1.18% 1.33% 1.35% OTHER PERIOD-END STATISTICS End of Period:
(unaudited) 9/30/2008 12/31/2007 9/30/2007 Shareholders Equity /
Total Assets 8.3% 8.1% 8.2% Loans / Deposits 99.2% 108.8% 102.3%
Non-Int. Bearing Dep. / Total Dep. 23.1% 28.7% 26.1% 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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