(Source: PRNewswire-FirstCall)
PORTERVILLE, Calif., April 20 /PRNewswire-FirstCall/ -- Sierra Bancorp , parent of Bank of the Sierra, today announced its financial results for the quarter ended March 31, 2009. Net income for the quarter was $2.7 million, resulting in a 10.03% return on average equity and a 0.83% return on average assets, which management expects will compare favorably to peer financial institutions. Net income and diluted earnings per share improved substantially from the fourth quarter of 2008, but declined relative to the year-ago quarter mainly due to a higher loan loss provision and higher non-interest expenses. Notable balance sheet changes during the first quarter of 2009 include an increase of $58 million, or 6%, in branch deposit balances, a $24 million decline in wholesale-sourced brokered deposits, a $55 million drop in Federal Home Loan Bank (FHLB) borrowings, a $17 million drop in cash and due from banks, and an increase of $15 million in non-performing assets. The increase in non-performing assets was due primarily to an $11 million real estate loan that was placed on non-accrual during the quarter, although the loan is well-collateralized based on current appraisals.
"Despite continued market uncertainties, our financial performance was close to internal projections for the first quarter of 2009 and our capital ratios continue to strengthen, providing further validation of the Board's decision not to apply for bailout money from the U.S. Treasury," commented James C. Holly, President and CEO. "One pleasant surprise was an influx of deposit dollars in the first quarter, as our rock-solid capital position, higher FDIC insurance limits, and our participation in CDARS (which can provide individual depositors with FDIC insurance coverage of $50 million or more), have finally reacted together with the deposit initiatives we put in place over the past couple of years to attract money into the safety and security of deposits," he noted. "Moreover," Mr. Holly added, "we have seen other positive developments in the midst of the current economic turbulence: At the National level, in addition to a temporary increase in FDIC deposit insurance limits, there seems to be a recognition of the systemic risks created by 'too big to fail' institutions and a movement toward a more equitable deposit insurance assessment system; and, at the local level, the instability around us has created opportunities to selectively supplement our capable staff with additional experienced bankers, and we are actively investigating branch expansion opportunities in anticipation of an economic rebound within the next year or two."
Financial Highlights
While service charges on deposits were up, the Company's net income for the first quarter of 2009 was negatively impacted by a drop in other non-interest income, net interest margin compression, a higher provision for loan and lease losses, and higher non-interest expense relative to the first quarter of 2008.
Net interest income was slightly lower in the first quarter of 2009 than in the first quarter of 2008. While average interest-earning assets were $80 million higher, an increase of 7%, the lift created by higher earning assets was offset by a lower net interest margin. The Company's net interest margin dropped by 35 basis points, to 4.80% in the first quarter of 2009 from 5.15% in the first quarter of 2008, for the following reasons: We had $265,000 in net interest reversals on loans placed on non-accrual in the first quarter of 2009, and no interest reversals in the first quarter of 2008; most of the growth in average interest-earning assets during the past year has been in investments, which tend to be lower-yielding than loans; average non-performing assets, including non-accruing loans and OREO, were $38 million higher in the first quarter of 2009 than the first quarter of 2008; average non-interest bearing demand deposits were $6 million lower; and, since many of our non-maturity interest-bearing deposits, such as NOW, savings and money market accounts, had relatively low rates already, deposits did not re-price to the same extent as loans during the rapidly declining rate environment of the past year.
Some of the $1.3 million increase in the loan loss provision can be explained by the increase in net charge-offs, although many of the charged-off loan balances had specific reserves allocated to them as of the beginning of the quarter and charging them off did not necessarily create the need for reserve replenishment. Our first quarter net charge-offs include commercial loans (primarily unsecured business lines of credit) and the non-guaranteed portion of SBA loans totaling $1.4 million, real estate loan balances (including equity lines) of $1.3 million, unsecured personal lines of credit of $325,000, and other consumer loans and overdrafts adding up to $457,000. In addition to the increase in reserves related to charge-offs, we provided specific reserves as necessary for loans placed on non-accrual status during the quarter and adjusted general reserves for changes in historical loss rates and forward-looking risk factors. Our detailed analysis indicates that as of March 31, 2009, our 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 1.60% of total loans at March 31, 2009.
Service charges on deposits increased by $161,000, or 7%, in the first quarter of 2009 relative to the first quarter of 2008. Service charges show improvement due primarily to returned item and overdraft fees generated by new consumer checking accounts, and a fee increase that became effective mid-2008. The $66,000 gain on investments in 2009 consists entirely of a recovery on a previously charged-off investment in a title insurance holding company, and the $45,000 in 2008 represents gains received on called securities. Other non-interest income declined by $910,000, or 56%, due in part to non-recurring events that added $446,000 to income in 2008, including a $289,000 one-time gain resulting from the mandatory redemption of a portion of our Visa shares pursuant to Visa's initial public offering in March 2008. The drop also reflects the elimination of dividends on our FHLB equity investment, which contributed $127,000 to income in the first quarter of 2008 but none in the first quarter of 2009, and includes a $295,000 increase in pass-through operating costs associated with our investment in low-income housing tax credit funds.
