Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra,
today announced its unaudited financial results for the quarter
ended March 31, 2018. Sierra Bancorp recognized consolidated net
income of $6.710 million for the first quarter of 2018, reflecting
an increase of $2.159 million, or 47%, relative to the first
quarter of 2017. The lift in net income is primarily the result of
improvement in net interest income, partially offset by higher
non-interest expense and a $200,000 loan loss provision recorded in
2018. A lower tax accrual rate also had a favorable impact on first
quarter 2018 results. For the first quarter of 2018 the Company’s
return on average assets was 1.16%, return on average equity was
10.61%, and diluted earnings per share were $0.44.
Total assets, loans and deposits again increased to record
levels during the recently-concluded quarter. Assets totaled $2.374
billion at March 31, 2018, representing an increase of $33 million,
or 1%, for the quarter. The increase in assets resulted primarily
from strong organic growth in real estate loans and agricultural
loans, partially offset by a $29 million drop in balances
outstanding on mortgage warehouse lines. Gross loans totaled $1.592
billion at March 31, 2018. Total nonperforming assets were reduced
by $984,000, or 10%, during the first quarter due primarily to a
drop in nonperforming loans. Deposits totaled $2.037 billion at
March 31, 2018, representing an increase for the quarter of $48
million, or 2%. Non-deposit borrowings were reduced by $11
million.
“The secret of success is to do the common
things uncommonly well.” – John D. Rockefeller
“Banking may be mundane to many, but we are passionate about
banking and serving our customers exceptionally well, and our
entire team continually strives to differentiate Bank of the Sierra
with our ability to execute efficiently,” exclaimed Kevin McPhaill,
President and CEO. “This determination drives quality growth, which
was particularly evident in the first quarter of 2018 as we
achieved record levels in loans, deposits and total assets. Balance
sheet growth, along with the reduction in our corporate tax rate,
also resulted in a record level of quarterly net income for the
Company,” he observed. McPhaill concluded by proclaiming, “our
commitment to community banking excellence remains unwavering and
we look forward to additional opportunities throughout the
remainder of 2018!”
Financial Highlights
As noted above, net income increased by $2.159 million, or 47%,
in the first quarter of 2018 relative to the first quarter of 2017.
Significant variances in the components of pre-tax income and in
our provision for income taxes, including some items of a
nonrecurring nature, are noted below.
Net interest income increased by $4.877 million, or 29%, due to
growth in average interest-earning assets totaling $327 million, or
18%, for the first quarter of 2018 over the first quarter of 2017.
Organic growth was a factor in the increase in average earning
assets, but the comparative results were also materially affected
by our recent acquisition, namely Ojai Community Bank in the fourth
quarter of 2017. The favorable impact of higher interest-earning
assets was enhanced by an increase of 30 basis points in our net
interest margin for the comparative quarters. The net interest
margin improvement reflects the fact that loan yields have
increased more rapidly than deposit rates as market interest rates
have gone up, as well as the fact that our acquisition resulted in
stronger growth in loans relative to lower-yielding investment
balances. Non-recurring interest items have also had an impact on
net interest income in recent periods, with net interest recoveries
totaling $102,000 in the first quarter of 2018 and $136,000 in the
first quarter of 2017. Moreover, approximately six basis points of
our first quarter 2018 and 2017 net interest margins can be
attributed to discount accretion on loans from whole-bank
acquisitions.
As noted above, we recorded a $200,000 loan loss provision in
the first quarter of 2018 relative to no provision in the first
quarter of 2017. The 2018 provision was deemed necessary subsequent
to our determination of the appropriate level for our allowance for
loan and lease losses, taking into consideration overall credit
quality, growth in outstanding loan balances and reserves required
for specifically identified impaired loan balances.
Total non-interest income was the same in the first quarter of
2018 as in the first quarter of 2017, since an increase in core
service charges on deposits was offset by lower income on
bank-owned life insurance (BOLI) and a drop in other non-interest
income. BOLI income declined primarily due to a loss of $40,000 on
BOLI associated with deferred compensation plans in the first
quarter of 2018, relative to a gain of $205,000 for the first
quarter of 2017. Other non-interest income was lower mainly because
of pass-through expenses associated with additional investments in
low-income housing tax credit funds and other limited partnerships.
Those expenses are netted out of revenue.
Total non-interest expense was up by $2.186 million, or 14%, for
the first quarter of 2018 relative to the first quarter of 2017,
with the increase including $286,000 in nonrecurring acquisition
costs. Half of the acquisition costs are residual expenses
attributable to Ojai Community Bank and the Woodlake branch, and
half are associated with our pending purchase of a branch in
Lompoc, California. Salaries and benefits increased by $1.298
million, or 16%, due in large part to expenses for employees
retained subsequent to our acquisitions, staffing costs for de novo
branch offices that commenced operations in 2017, salary
adjustments in the normal course of business, costs for
non-acquisition related staff additions, and a relatively large
increase in group health insurance costs. Deferred compensation
expense, a component of salaries and benefits which is associated
with BOLI income as noted above, declined by $100,000 for the
comparative quarters. Salaries directly related to successful loan
originations, which are deferred and amortized as loan costs and
thus reduce current period compensation expense, increased by
$197,000 for the fourth quarter comparison and thus also had a
favorable impact on the variance in salaries and benefits.
Total occupancy expense did not change materially in the first
quarter of 2018 relative to the first quarter of 2017, since
increases resulting from ongoing occupancy costs associated with a
higher number of branches were largely offset by reductions in
non-recurring expenses associated with a de novo branch opening in
the first quarter of 2017. Other non-interest expense was up by
$860,000, or 16%, for the quarter. This line item includes $286,000
in nonrecurring acquisition costs in the first quarter of 2018, as
noted above, as well as approximately $100,000 in non-recurring
adjustments which added to lending costs in the first quarter of
2017. Other non-interest expense also reflects increases in the
normal course of business, higher operating costs stemming from
more branches, an increase in amortization expense associated with
core deposit intangibles created pursuant to our acquisitions in
2017, and an increase of $87,000 in net OREO expense. The increases
were partially offset by a drop of $131,000 in deferred fee expense
for our directors related to the decline in BOLI income, and a
reduction of $242,000 in directors’ stock option expense, since
stock options issued to directors in 2018 have a one-year vesting
period over which expenses are amortized, as opposed to immediate
vesting for stock options issued in prior years.
The Company’s provision for income taxes was 24% of pre-tax
income in the first quarter of 2018 relative to 28% in the first
quarter of 2017, consistent with our lower Federal income tax rate.
Our tax accrual rate for 2017 would have been higher and the
quarter over quarter variance would have been larger if not for a
relatively high level of disqualifying dispositions of Company
shares issued pursuant to the exercise of incentive stock options
in the first quarter of 2017. The favorable tax impact of
disqualifying dispositions is reflected in the income statement as
an adjustment to our income tax provision.
Balance sheet changes during the first quarter of 2018 include
an increase in total assets of $33 million, or 1%, due to higher
loan balances. Gross loans increased by $34 million, or 2%, due to
strong organic growth in real estate loans and agricultural loans.
Non-agricultural real estate loans were up $61 million, or 6%,
while agricultural real estate loans increased by $2 million, or
2%, and agricultural production loans were up $7 million, or 16%.
Those increases were partially offset by a drop of $6 million, or
4%, in commercial loans, and a reduction of $29 million, or 21%, in
mortgage warehouse loans, which declined as the utilization rate on
mortgage warehouse lines dropped to 28% at March 31, 2018 from 34%
at December 31, 2017 and we exited a couple of relationships.
Consumer loans were also down by over $1 million, or 11%. While we
have experienced a higher level of real-estate secured and
agricultural lending activity in recent periods and our pipeline of
loans in process of approval remains relatively robust, no
assurance can be provided with regard to future loan growth as
payoffs remain at relatively high levels and mortgage warehouse
loan volumes are difficult to predict.
Total nonperforming assets, namely non-accrual loans and
foreclosed assets, were down by $984,000, or 10%, during the first
quarter of 2018, primarily due to a reduction in non-accruing loans
resulting from payoffs and upgrades. The Company’s ratio of
nonperforming assets to loans plus foreclosed assets also dropped
slightly, to 0.53% at March 31, 2018 from 0.60% at December 31,
2017. 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 $11 million in loans
classified as restructured troubled debt (TDRs) that were included
with performing loans as of March 31, 2018.
The Company’s allowance for loan and lease losses was $9.0
million at March 31, 2018, a 1% reduction relative to December 31,
2017. The slight decline for the period came despite the addition
of $200,000 via a loan loss provision, and was due primarily to the
charge-off of previously-established reserves against the allowance
for loan and lease losses and continued improvement in the credit
quality of the loan portfolio. Net charge-offs totaled $252,000 in
the first quarter of 2018, compared to net charge-offs against the
allowance of $113,000 in the first quarter of 2017. Because of the
slight drop in the level of the allowance relative to growth in our
loan portfolio, the allowance fell to 0.56% of total loans at March
31, 2018 from 0.58% at December 31, 2017. It should be noted that
our reserve level has been favorably impacted by acquired loans,
which were booked at their fair value on the acquisition date and
thus did not initially require a loan loss allowance. Furthermore,
loss reserves allocated to mortgage warehouse loans are relatively
low because we have not experienced any losses in that portfolio
segment. 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 March 31, 2018, but no assurance can be given
that the Company will not experience substantial future losses
relative to the size of the allowance.
Deposit balances reflect net growth of $48 million, or 2%,
during the first quarter of 2018, due to seasonal increases in
balances and continued growth in the number of accounts. Junior
subordinated debentures increased slightly from the accretion of
the discount on trust-preferred securities that were part of the
Coast Bancorp acquisition, but other non-deposit borrowings were
reduced by $11 million, or 38%, during the quarter.
Total capital of $255 million at March 31, 2018 reflects an
slight decline relative to year-end 2017, due to an increase in our
accumulated other comprehensive loss which was partially offset by
capital from stock options exercised and the addition of income,
net of dividends paid. There were no share repurchases executed by
the Company during the recently concluded quarter.
About Sierra Bancorp
Sierra Bancorp is the holding company for Bank of the Sierra
(www.bankofthesierra.com), which is in its 41st year of operations
and is the largest independent bank headquartered in California's
South San Joaquin Valley. Bank of the Sierra is a community-centric
regional bank, which offers a full range of retail and commercial
banking services through full-service branches located within the
counties of Tulare, Kern, Kings, Fresno, Los Angeles, Ventura, San
Luis Obispo, and Santa Barbara. The Bank also maintains an online
branch, and provides specialized lending services through an
agricultural credit center, a real estate industries center, and an
SBA center. Bank of the Sierra holds a Bauer Financial 5-star
rating, an honor only awarded to the strongest financial
institutions in the country.
Forward-Looking
Statements
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 local 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 acquisitions and branch expansion,
changes in interest rates, loan portfolio performance, 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.
CONSOLIDATED INCOME STATEMENT
(in $000's, unaudited) Qtr Ended:
1Q18 vs Qtr Ended: 1Q18 vs 3/31/2018
12/31/2017 4Q17 3/31/2017
1Q17 Interest Income $ 23,476 $ 24,134 -3 % $
17,902 +31 % Interest Expense
1,716
1,592 +8 %
1,019 +68 % Net
Interest Income 21,760 22,542 -3 % 16,883 +29 % Provision
for Loan & Lease Losses
200
(1,440 ) NM
- NM Net
Int after Provision 21,560 23,982 -10 % 16,883 +28 % Service
Charges 2,946 2,967 -1 % 2,571 +15 % BOLI Income 204 453 -55 % 453
-55 % Gain (Loss) on Investments - (484 ) -100 % 8 -100 % Other
Non-Interest Income
1,983
2,435 -19 %
2,101 -6 %
Total Non-Interest Income 5,133 5,371 -4 % 5,133 0 %
Salaries & Benefits 9,183 8,889 +3 % 7,885 +16 % Occupancy
Expense 2,348 2,667 -12 % 2,320 +1 % Other Non-Interest Expenses
6,356 7,647 -17 %
5,496 +16 % Total Non-Interest Expense 17,887
19,203 -7 % 15,701 +14 % Income Before Taxes 8,806 10,150
-13 % 6,315 +39 % Provision for Income Taxes
2,096 6,106 -66 %
1,764 +19 %
Net Income $
6,710 $
4,044 +66 %
$
4,551 +47 %
TAX DATA Tax-Exempt
Muni Income $ 1,016 $ 1,008 +1 % $ 805 +26 % Interest Income -
Fully Tax Equiv $ 23,746 $ 24,677 -4 % $ 18,335 +30 %
NET
CHARGE-OFFS $ 252 $ (1,699 ) NM
$ 113 +123 % Note: An "NM" designation indicates that
the percentage change is "Not Meaningful", likely due to the fact
that numbers for the comparative periods are of opposite signs or
because the denominator is zero
PER SHARE DATA
(unaudited) Qtr
Ended: 1Q18 vs Qtr Ended: 1Q18 vs
3/31/2018 12/31/2017 4Q17
3/31/2017 1Q17 Basic Earnings per Share $0.44
$0.27 +63 % $0.33 +33 % Diluted Earnings per Share $0.44
$0.26 +69 % $0.32 +38 % Common Dividends $0.16 $0.14 +14 % $0.14
+14 % Wtd. Avg. Shares Outstanding 15,232,696 15,204,905 0 %
13,801,635 +10 % Wtd. Avg. Diluted Shares 15,412,168 15,387,218 0 %
14,009,496 +10 % Book Value per Basic Share (EOP) $16.75
$16.81 0 % $15.21 +10 % Tangible Book Value per Share (EOP) $14.56
$14.61 0 % $14.42 +1 % Common Shares Outstanding (EOP)
15,246,780 15,223,360 0 %
13,829,649 +10 %
KEY FINANCIAL RATIOS
(unaudited) Qtr Ended: Qtr
Ended: 3/31/2018 12/31/2017
3/31/2017 Return on Average Equity 10.61 % 6.53 % 8.85 %
Return on Average Assets 1.16 % 0.68 % 0.94 % Net Interest Margin
(Tax-Equiv.) 4.20 % 4.30 % 3.90 % Efficiency Ratio (Tax-Equiv.)
65.72 % 65.80 % 69.21 % Net C/O's to Avg Loans (not annualized)
0.02 % -0.11 % 0.01 %
STATEMENT OF CONDITION
(balances in $000's, unaudited) Mar '18
vs Mar '18 vs ASSETS 3/31/2018
12/31/2017 Dec '17 3/31/2017
Mar '17 Cash and Due from Banks $ 63,509 $ 70,137 -9
% $ 92,768 -32 % Investment Securities 563,582 558,329 +1 % 551,256
+2 % Real Estate Loans (non-Agricultural) 1,147,234
1,086,200 +6 % 812,607 +41 % Agricultural Real Estate Loans 142,929
140,516 +2 % 145,375 -2 % Agricultural Production Loans 54,270
46,796 +16 % 49,607 +9 % Comm'l & Industrial Loans & Leases
129,771 135,662 -4 % 120,108 +8 % Mortgage Warehouse Lines 108,573
138,020 -21 % 96,974 +12 % Consumer Loans
9,439
10,626 -11 %
11,226 -16 % Gross Loans & Leases 1,592,216
1,557,820 +2 % 1,235,897 +29 % Deferred Loan & Lease Fees
2,953 2,774
+6 %
2,869 +3 % Loans & Leases Net
of Deferred Fees 1,595,169 1,560,594 +2 % 1,238,766 +29 % Allowance
for Loan & Lease Losses
(8,991
) (9,043 ) -1 %
(9,588 ) -6 % Net Loans &
Leases 1,586,178 1,551,551 +2 % 1,229,178 +29 % Bank
Premises & Equipment 29,060 29,388 -1 % 29,018 0 % Other Assets
131,195 130,893
0 %
97,505 +35 %
Total
Assets $ 2,373,524
$ 2,340,298
+1 %
$ 1,999,725 +19
%
LIABILITIES & CAPITAL Non-Interest Demand
Deposits $ 642,363 $ 635,434 +1 % $ 504,247 +27 % Int-Bearing
Transaction Accounts 559,084 523,590 +7 % 522,873 +7 % Savings
Deposits 301,888 283,126 +7 % 229,300 +32 % Money Market Deposits
157,006 171,611 -9 % 120,956 +30 % Customer Time Deposits 376,289
374,625 0 % 343,045 +10 % Wholesale Brokered Deposits
- - 0 %
- 0 % Total Deposits 2,036,630 1,988,386 +2 %
1,720,421 +18 % Junior Subordinated Debentures 34,633 34,588
0 % 34,454 +1 % Other Interest-Bearing Liabilities
18,629 30,050 -38 %
9,431 +98 % Total Deposits &
Int.-Bearing Liab. 2,089,892 2,053,024 +2 % 1,764,306 +18 %
Other Liabilities 28,312 31,332 -10 % 25,002 +13 % Total Capital
255,320 255,942
0 %
210,417 +21 %
Total
Liabilities & Capital $
2,373,524 $
2,340,298 +1 %
$ 1,999,725
+19 % GOODWILL & INTANGIBLE
ASSETS (balances in
$000's, unaudited) Mar '18 vs Mar '18 vs
3/31/2018 12/31/2017 Dec '17
3/31/2017 Mar '17 Goodwill 27,357
27,357 0 % 8,268 +231 % Core Deposit Intangible
6,004 6,234 -4 %
2,696 +123 %
Total Intangible
Assets 33,361
33,591 -1 %
10,964 +204 %
CREDIT
QUALITY (balances in $000's, unaudited) Mar '18
vs Mar '18 vs 3/31/2018 12/31/2017
Dec '17 3/31/2017 Mar '17
Non-Accruing Loans $ 3,089 $ 3,963 -22 % $ 5,925 -48 % Foreclosed
Assets
5,371 5,481
-2 %
2,168 +148 %
Total
Nonperforming Assets $
8,460 $
9,444 -10 %
$
8,093 +5 % Performing TDR's (not
incl. in NPA's) $ 11,185 $ 12,030 -7 % $ 13,814 -19 %
Non-Perf Loans to Gross Loans 0.19 % 0.25 % 0.48 % NPA's to Loans
plus Foreclosed Assets 0.53 % 0.60 % 0.65 % Allowance for Ln Losses
to Loans 0.56 % 0.58 %
0.78 %
SELECT
PERIOD-END STATISTICS (unaudited) 3/31/2018
12/31/2017 3/31/2017 Shareholders Equity /
Total Assets 10.8 % 10.9 % 10.5 % Gross Loans / Deposits 78.2 %
78.3 % 71.8 % Non-Int. Bearing Dep. / Total Dep. 31.5
% 32.0 % 29.3 %
AVG BAL SHEET, INTEREST INC/EXP, & YIELD/RATE
(balances in $000's, unaudited) For the quarter endedMarch
31, 2018 For the quarter endedDecember 31, 2017 For the quarter
endedMarch 31, 2017 Average Balance Income/ Expense
Yield/ Rate Average Balance Income/ Expense Yield/
Rate Average Balance Income/ Expense Yield/ Rate
Assets Investments: Federal funds sold/due from time $
30,476 $ 118 1.55 % $ 10,646 $ 39 1.43 % $ 56,658 $ 114 0.80 %
Taxable 425,075 2,338 2.20 % 442,798 2,210 1.95 % 426,368 2,013
1.89 % Non-taxable 141,579 1,016 3.63 %
143,066 1,008 4.24 % 116,049 805
4.27 % Total investments 597,130 3,472 2.51 % 596,510 3,257 2.49 %
599,075 2,932 2.25 % Loans and Leases: Real estate 1,254,596
16,644 5.38 % 1,216,894 16,742 5.46 % 927,531 11,608 5.08 %
Agricultural Production 50,131 658 5.32 % 47,802 622 5.16 % 47,508
556 4.75 % Commercial 127,316 1,379 4.39 % 131,227 1,693 5.12 %
120,075 1,499 5.06 % Consumer 10,493 293 11.32 % 11,180 347 12.31 %
12,095 347 11.64 % Mortgage warehouse lines 83,348 978 4.76 %
124,220 1,437 4.59 % 90,030 917 4.13 % Other 3,013
52 7.00 % 3,196 36 4.47 % 2,979
43 5.85 % Total loans and leases 1,528,897
20,004 5.31 % 1,534,519 20,877
5.40 % 1,200,218 14,970 5.06 % Total interest
earning assets 2,126,027 $ 23,476 4.53 %
2,131,029 $ 24,134 4.59 % 1,799,293 $ 17,902
4.13 % Other earning assets 10,195 10,121 8,506 Non-earning assets
201,397 205,010 155,246
Total assets $
2,337,619 $ 2,346,160 $ 1,963,045
Liabilities and
shareholders' equity Interest bearing deposits: Demand deposits
$ 116,829 $ 88 0.31 % $ 114,564 $ 89 0.31 % $ 134,717 $ 101 0.30 %
NOW 409,198 117 0.12 % 403,192 115 0.11 % 368,612 102 0.11 %
Savings accounts 293,716 76 0.10 % 277,271 72 0.10 % 221,449 63
0.12 % Money market 164,824 42 0.10 % 188,470 88 0.19 % 120,367 23
0.08 % Time Deposits 375,718 995 1.07 %
368,759 810 0.87 % 342,717 400
0.47 % Total interest bearing deposits 1,360,285 1,318 0.39 %
1,352,256 1,174 0.34 % 1,187,862 689 0.24 % Borrowed funds: Junior
Subordinated Debentures 34,606 385 4.51 % 34,562 359 4.12 % 34,428
320 3.77 % Other Interest-Bearing Liabilities 10,759
13 0.49 % 32,924 59 0.71 % 9,808
10 0.41 % Total borrowed funds 45,365
398 3.56 % 67,486 418 2.46 %
44,236 330 3.03 % Total interest bearing liabilities
1,405,650 $ 1,716 0.50 % 1,419,742 $ 1,592 0.44 % 1,232,098 $ 1,019
0.34 % Demand deposits - non-interest bearing 643,524 639,850
495,656 Other liabilities 31,936 40,851 26,817 Shareholders' equity
256,509 245,717 208,474
Total liabilities
and shareholders' equity $ 2,337,619 $ 2,346,160 $ 1,963,045
Interest income/interest earning assets 4.53 % 4.59 % 4.13 %
Interest expense/interest earning assets 0.33 %
0.29 % 0.23 % Net interest income and
margin $ 21,760 4.20 % $ 22,542 4.30 % $ 16,883 3.90 % NOTE:
Where impacted by non-taxable income, yields and net interest
margins have been computed on a tax equivalent basis utilizing a
21% tax rate for periods ending after December 31, 2017, and a 35%
tax rate for periods ending on or before December 31, 2017
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180423005196/en/
Sierra BancorpKevin McPhaill, President/CEO559-782-4900 or
888-454-BANKwww.sierrabancorp.com
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