PORTERVILLE, Calif., Jan. 26 /PRNewswire-FirstCall/ -- Sierra
Bancorp (NASDAQ:BSRR), parent of Bank of the Sierra, today
announced its financial results for the quarter and the year ended
December 31, 2008. Sierra Bancorp reported consolidated net income
of $13.4 million for the year, and a consolidated loss of $1.9
million for the fourth quarter of 2008. The net loss in the fourth
quarter was the result of a $13.6 million loan loss provision
necessitated by a high level of net charge-offs and loan impairment
charges, and an increase in non-performing assets. The loan loss
provision for the year totaled $19.5 million. The reversal of close
to $1.6 million in previously-recognized interest on loans placed
on non-accrual status in the fourth quarter also had a significant
negative impact on financial results. Having a positive impact was
the fourth quarter reversal of $1.6 million in accrued bonuses and
other benefits, due to lower anticipated discretionary payouts
coincidental to the Bank's lower earnings. Solid growth in core
non- interest income also helped counter the negative impact of the
large loan loss provision and interest reversals. Net income for
the year, while 36% lower than net income in 2007, still resulted
in a robust 12.86% return on average equity for 2008. Furthermore,
the consolidated Company's total risk based capital ratio at
December 31, 2008 was 13.6%, just a slight decline from the ratio
at September 30, 2008 and still very strong relative to the 10.0%
minimum required to remain classified as a well-capitalized
institution. Notable balance sheet changes during 2008 include the
following: Total deposits increased $211 million, or 25%, with most
of the increase coming in large time deposits, including a $60
million increase in wholesale-sourced brokered deposits and a $104
million increase in CDARS deposits; other borrowings were reduced
by $123 million, or 52%; investment balances are up by $64 million,
or 35%; and non-performing assets increased $27 million, due in
large part to several acquisition/development and land loans that
were placed on non-accrual status. "We are grateful for the strong
earnings momentum over the past several years that, combined with
our conservative culture, enabled us to build capital to current
levels and enhance stability and security for our customers in an
otherwise unsettled environment," remarked James C. Holly,
President and CEO. "While our capital and core earnings remain
strong, we are naturally disappointed at the fourth quarter
operating loss. However, we feel that the aggressive identification
and timely resolution of problem assets, including writing them
down to current appraised values or charging them off when merited,
is critical in helping us prepare for the opportunities that will
arise when the cycle starts to turn and the economy improves," he
added. Mr. Holly expressed confidence that the banking environment
will improve by early 2010, but suggested that non-performing
assets might increase and loan losses could continue at relatively
high levels in the near-term, and that the Company will likely
continue its focus on credit issues and core deposit generation
rather than on asset growth during 2009. "We can't overstate the
importance of loyal shareholders, customers and employees in
navigating our resilient institution through this temporary
turbulence, and we are truly appreciative of their support," he
also noted. Financial Highlights The most significant impact on the
Company's financial results in 2008 came from the provision for
loan and lease losses, which was up by $12.7 million for the fourth
quarter of 2008 relative to the fourth quarter of 2007, and
increased by $16.2 million for 2008 annual results in comparison to
2007. The increase resulted from significant growth in the balance
of non-performing assets, as discussed in greater detail below, and
from a higher level of loan losses. Net loans charged off in the
fourth quarter of 2008 totaled $9.8 million versus only $869,000 in
the fourth quarter of 2007, while net charge- offs for the year
were $16.6 million in 2008 and $2.6 million in 2007. About $6.9
million of fourth quarter 2008 charge-offs came from writing down
just six non-accruing acquisition/development and land loans, due
to updated appraisals that reflect steep declines in fair values.
Net interest income, while up slightly for the year due to a $72
million increase in average interest-earning assets, dropped for
the quarterly comparison due to the reversal of $1.6 million in
interest on loans placed on non-accrual status during the quarter.
The interest reversal appears relatively high because in addition
to reversing accrued but unpaid interest, we were also required to
reverse previously-recognized interest dating back to loan
inception for non-performing loans which had an interest reserve.
Interest reversals for the year were $2.0 million, net of interest
recoveries and the accelerated recognition of loan fees on a large
loan that paid off in the third quarter of 2008. Also having a
negative effect on our net interest margin for both the quarter and
the year were an increase in average non- performing assets, and a
decline in average non-interest bearing demand deposits. Our
tax-equivalent net interest margin thus declined to 4.57% for the
fourth quarter of 2008, relative to 5.11% in the fourth quarter of
2007. Our net interest margin for the year was 4.98% in 2008,
compared to 5.28% in 2007. When interest reversals and recoveries
are factored out, our net interest margin increases to 5.10% for
the fourth quarter and 5.14% for the year ended December 31, 2008.
Service charge income on deposits increased by 25% for the fourth
quarter and 44% for the comparative annual 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. Loan sale and servicing income shows a
negligible change for the quarter, but dropped by $1.6 million, or
97% for the year due to a $1.6 million pre-tax gain on the sale of
credit card loans in the second quarter of 2007. The Other
Non-Interest Income category was down by $682,000, or 50%, for the
quarter, and by $763,000, or 15%, for the year, relative to like
periods in the prior year, due mainly to fluctuations in Bank-Owned
Life Insurance (BOLI) income. BOLI income experienced a $447,000
drop for the quarter and was $826,000 lower for the year in 2008
because of losses on separate account BOLI. BOLI income for the
year would have dropped even more, but losses were partially offset
by a non-taxable non-recurring gain of approximately $350,000 in
the third quarter of 2008 resulting from our exchange of certain
separate account BOLI policies related to director and executive
deferred compensation plans. While the gain from the policy
exchange boosted net income for the year, normal fluctuations in
separate account BOLI income do not have a significant impact on
net income because they are offset by changes in associated expense
accruals for participant gains/losses on deferred compensation
plans (reflected in Salaries & Benefits and Directors expenses)
and the tax impact of deferred compensation deductions. Other
Non-Interest Income also includes credit card income, which fell by
$193,000 for the year since the credit card portfolio was sold in
mid-2007, and income from our strategic alliance with Investment
Centers of America, which declined by $85,000 for the quarter and
$170,000 for the year. Other non-recurring items contributing to
the change in non-interest income for 2008 relative to 2007 include
the following: A gain on investments 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
declined by $1.6 million, or 34%, for the fourth quarter and by
$1.2 million, or 7%, for the year in 2008 relative to 2007. Costs
associated with normal annual salary increases, staff additions for
new offices, and staffing enhancements to help manage problem
assets were offset by the fourth-quarter 2008 reversal of $1.6
million in accrued bonuses and other expenses accrued for
discretionary benefits. The reversals were made subsequent to our
determination that the Company would fall short of profit targets.
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 fourth-quarter loan
origination activity in 2008 relative to 2007 our FAS 91 deferral
declined by $206,000, thus increasing salaries expense by the same
amount, although the deferral was only $32,000 lower for the
comparative annual periods. Deferred compensation accruals are
reflected in employee benefits, and participant losses on deferred
compensation plans contributed to a decline in deferred
compensation expense totaling $276,000 for the fourth quarter and
$739,000 for the year. As noted above, this is also related to
separate account BOLI losses. Occupancy expense increased by
$76,000, or 5%, for the fourth quarter and by $33,000, or 1%, for
the year. Normal annual increases in rent and maintenance and
increases related to new offices were largely offset for the year
by lower furniture and equipment depreciation, resulting from
certain high-cost items becoming fully depreciated during 2007.
Also affecting comparative occupancy expense was an $87,000
increase in property taxes in 2008, resulting from non-recurring
property tax refunds received in the first quarter of 2007. Other
non-interest expenses increased by $492,000, or 18%, for the
quarter, and by $1 million, or 9%, for the year. Significant
increases in this category for the comparative 2008 and 2007
periods include the following: OREO properties were written down by
$101,000 in the fourth quarter and by $463,000 for the year in
2008; other lending-related costs, including appraisal costs,
inspection expenses, demand and foreclosure costs, and legal
expenses associated with collections, were up by $191,000 for the
quarter and by $893,000 for the year; and a legal settlement and
non-recurring operations- related loss added $191,000 to
non-interest expense for the year in 2008. Additional increases are
evident in marketing costs, supplies expense, FDIC assessments, and
costs associated with internet banking and remote deposit capture.
These increases were partially offset by expense reductions that
include 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 $596,000 for
the year; and a reduction in directors' deferred compensation
expense accruals totaling $280,000 for the quarter and $720,000 for
the year, due to participant losses on balances associated with
deferred directors' fees. Additional non-recurring items reflected
in 2008 annual 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. Another item having a relatively large impact on
net income for the year in 2008 was 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 we were able
to realize those tax benefits and release the reserve, which
reduced our tax provision for the third quarter of 2008 by
approximately $230,000. As noted above, balance sheet changes
during 2008 include sizeable increases in deposits and investment
securities. Total deposits increased by $211 million, or 25%. Most
of the deposit growth was in time deposits, including a $104
million increase in CDARS deposits, a $50 million increase in
collateralized balances from a governmental entity, and a $60
million increase in wholesale-sourced brokered deposits. Combined
NOW/savings balances were up by $18 million, or 13%, and money
market deposits increased by $21 million, or 16%. Non-interest
bearing demand deposits, however, show a decline for the year of
$12 million, or 5%, due primarily to migration into NOW and money
market accounts. We let $123 million in other borrowings (primarily
Federal Home Loan Bank borrowings and fed funds purchased) 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 $64 million, or 35%, because the investment
environment earlier in 2008 was conducive to increasing our
relative level of investment securities. Gross loan balances
increased by $22 million, or 2%, during 2008, including
approximately $10 million in mortgage loans purchased during the
third quarter. Loan growth by category is slightly distorted
because of the third quarter 2008 reclassification of $14 million
in mobile home loans from real estate loans to consumer loans.
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 rose by $27 million, or
285%, during 2008, ending the year at $37 million. Non-accruing
loans at December 31, 2008 include seven large
acquisition/development and land loans with a combined fair value
of $22 million, with five of those loans totaling $18 million being
placed on non-accrual in the fourth quarter. There was also a
material increase in non-performing residential construction loans
and foreclosed properties during 2008. About $4 million of the $7
million foreclosed asset balance at December 31, 2008 is comprised
of three relationships, each of which includes an acquisition and
development component. Of note, at December 31, 2008 there was
approximately $127 million in acquisition/development and builder
construction loans and $21 million in other residential
construction loans remaining on our books as performing loans.
Specific loss reserves are allocated to non-performing loans based
on loss expectations, which for real estate loans are based on
current appraised values less the expected costs of disposition.
Our detailed analysis indicates that as of December 31, 2008, our
$15.1 million allowance for loan and lease losses should be
sufficient to cover potential credit losses inherent in loans and
leases 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 1.59% of total loans at December 31,
2008, relative to 1.33% at year-end 2007. Certain amounts reported
for 2007 have been reclassified to be consistent with the reporting
for 2008, including certain late charges on loans totaling $72,000
for the fourth quarter of 2007 and $265,000 for the year ended
December 31, 2007 that were moved 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 32nd 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 23 branch offices, an
agricultural credit center, an SBA loan center, and an online
"virtual" branch. 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. CONSOLIDATED INCOME STATEMENT 3-Month Period
Ended: Year Ended: (in $000's, 12/31/ 12/31/ % 12/31/ 12/31/ %
unaudited) 2008 2007 Change 2008 2007 Change Interest Income
$17,923 $21,425 -16.3% $77,938 $87,816 -11.2% Interest Expense
4,547 7,560 -39.9% 21,329 31,435 -32.1% Net Interest Income 13,376
13,865 -3.5% 56,609 56,381 0.4% Provision for Loan & Lease
Losses 13,636 951 1333.9% 19,456 3,252 498.3% Net Int after
Provision (260) 12,914 -102.0% 37,153 53,129 -30.1% Service Charges
2,948 2,360 24.9% 11,203 7,794 43.7% Loan Sale & Servicing
Income 13 14 -7.1% 43 1,670 -97.4% Other Non-Interest Income 670
1,352 -50.4% 4,394 5,157 -14.8% Gain (Loss) on Investments - - 0.0%
347 14 2378.6% Total Non- Interest Income 3,631 3,726 -2.5% 15,987
14,635 9.2% Salaries & Benefits 3,113 4,718 -34.0% 16,666
17,861 -6.7% Occupancy Expense 1,743 1,667 4.6% 6,508 6,475 0.5%
Other Non-Interest Expenses 3,295 2,803 17.6% 12,685 11,645 8.9%
Total Non- Interest Expense 8,151 9,188 -11.3% 35,859 35,981 -0.3%
Income Before Taxes (4,780) 7,452 -164.1% 17,281 31,783 -45.6%
Provision for Income Taxes (2,897) 2,507 -215.6% 3,868 10,761
-64.1% Net (Loss) Income $(1,883) $4,945 -138.1% $13,413 $21,022
-36.2% TAX DATA Tax-Exempt Muni Income $591 $566 4.4% $2,368 $2,230
6.2% Tax-Exempt BOLI Income $(153) $294 -152.0% $408 $1,234 -66.9%
Interest Income - Fully Tax Equiv $18,241 $21,730 -16.1% $79,213
$89,017 -11.0% NET CHARGE-OFFS (RECOVERIES) $9,817 $869 $16,639
$2,554 PER SHARE DATA 3-Month Period Ended: Year Ended: (unaudited)
12/31/ 12/31/ % 12/31/ 12/31/ % 2008 2007 Change 2008 2007 Change
Basic Earnings per Share ($0.19) $0.51 -137.3% $1.40 $2.17 -35.5%
Diluted Earnings per Share ($0.19) $0.50 -138.0% $1.37 $2.09 -34.4%
Common Dividends $0.17 $0.16 6.3% $0.68 $0.62 9.7% Wtd. Avg. Shares
Outstanding 9,669,519 9,661,325 9,607,184 9,700,048 Wtd. Avg.
Diluted Shares 9,799,069 9,953,279 9,779,657 10,044,915 Book Value
per Basic Share (EOP) $11.04 $10.39 6.3% $11.04 $10.39 6.3%
Tangible Book Value per Share (EOP) $10.47 $9.81 6.7% $10.47 $9.81
6.7% Common Shares Outstanding (EOP) 9,673,291 9,576,388 9,673,291
9,576,388 KEY FINANCIAL RATIOS 3-Month Period Ended: Year Ended:
(unaudited) 12/31/2008 12/31/2007 12/31/2008 12/31/2007 Return on
Average Equity -6.90% 19.83% 12.86% 22.28% Return on Average Assets
-0.57% 1.61% 1.05% 1.74% Net Interest Margin (Tax-Equiv.) 4.57%
5.11% 4.98% 5.28% Efficiency Ratio (Tax-Equiv.) 47.57% 50.86%
48.73% 49.36% Net C/O's to Avg Loans (not annualized) 1.04% 0.10%
1.79% 0.28% AVERAGE BALANCES 3-Month Period Ended: Year Ended: (in
$000's, % % unaudited) 12/31/2008 12/31/2007 Change 12/31/2008
12/31/2007 Change Average Assets $1,313,869 $1,220,431 7.7%
$1,283,362 $1,211,102 6.0% Average Interest- Earning Assets
$1,190,939 $1,099,189 8.3% $1,163,405 $1,091,271 6.6% Average Gross
Loans & Leases $947,318 $913,201 3.7% $931,382 $903,046 3.1%
Average Deposits $1,011,929 $852,069 18.8% $944,891 $887,578 6.5%
Average Equity $108,590 $98,917 9.8% $104,269 $94,339 10.5%
STATEMENT OF CONDITION End of Period: (in $000's, unaudited)
12/31/2008 12/31/2007 Annual Chg ASSETS Cash and Due from Banks
$46,010 $44,022 4.5% Securities and Fed Funds Sold 248,913 184,917
34.6% Agricultural 13,542 13,103 3.4% Commercial & Industrial
142,739 140,323 1.7% Real Estate 705,141 696,110 1.3% SBA Loans
19,463 20,366 -4.4% Consumer Loans 65,755 54,731 20.1% Gross Loans
& Leases 946,640 924,633 2.4% Deferred Loan Fees (1,365)
(3,045) -55.2% Loans & Leases Net of Deferred Fees 945,275
921,588 2.6% Allowance for Loan & Lease Losses (15,094)
(12,276) 23.0% Net Loans & Leases 930,181 909,312 2.3% Bank
Premises & Equipment 19,280 18,255 5.6% Other Assets 81,517
77,229 5.6% Total Assets $1,325,901 $1,233,735 7.5% LIABILITIES
& CAPITAL Demand Deposits $232,168 $243,764 -4.8% NOW / Savings
Deposits 156,322 138,378 13.0% Money Market Deposits 146,896
126,347 16.3% Time Certificates of Deposit 526,112 341,658 54.0%
Total Deposits 1,061,498 850,147 24.9% Junior Subordinated
Debentures 30,928 30,928 0.0% Other Interest-Bearing Liabilities
113,919 237,082 -51.9% Total Deposits & Int.-Bearing Liab.
1,206,345 1,118,157 7.9% Other Liabilities 12,756 16,114 -20.8%
Total Capital 106,800 99,464 7.4% Total Liabilities & Capital
$1,325,901 $1,233,735 7.5% CREDIT QUALITY DATA End of Period: (in
$000's, unaudited) 12/31/2008 12/31/2007 Annual Chg Non-Accruing
Loans $29,786 $9,052 229.1% Over 90 Days PD and Still Accruing 71 -
100.0% Foreclosed Assets 7,127 556 1181.8% Total Non-Performing
Assets $36,984 $9,608 284.9% Non-Perf Loans to Total Loans 3.15%
0.98% Non-Perf Assets to Total Assets 2.79% 0.78% Allowance for Ln
Losses to Loans 1.59% 1.33% OTHER PERIOD-END STATISTICS End of
Period: (unaudited) 12/31/2008 12/31/2007 Shareholders Equity /
Total Assets 8.1% 8.1% Loans / Deposits 89.2% 108.8% Non-Int.
Bearing Dep. / Total Dep. 21.9% 28.7% DATASOURCE: Sierra Bancorp
CONTACT: Ken Taylor, EVP|CFO, or Kevin McPhaill, EVP|Chief Banking
Officer, both of Sierra Bancorp, +1-559-782-4900, 1-888-454-BANK
Web site: http://www.sierrabancorp.com/
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