(Source: PRNewswire-FirstCall)
PORTERVILLE, Calif., July 20 /PRNewswire-FirstCall/ -- Sierra Bancorp , parent of Bank of the Sierra, today announced its financial results for the quarter and the six months ended June 30, 2009. Net income for the quarter was $2.6 million, which is 43% lower than net income in the second quarter of 2008. Diluted earnings per share also fell 43%, to $0.27 in the second quarter of 2009 from $0.47 in the second quarter of 2008. A higher level of earning assets boosted net interest income, while strong growth in core deposits helped the Company's net interest margin and enhanced service charges on deposits. Net interest income was $384,000 higher, and non-interest income increased by $393,000. However, these favorable variances were more than offset by a loan loss provision that was up $1.3 million to cover credit charge-offs and provide loan loss reserve reinforcement, a $3.1 million increase in other non-interest expense due in part to higher FDIC insurance premiums, and a substantial increase in non-performing assets for the relative quarters that negatively impacted our net interest margin and contributed to the increase in non-interest expense. Sierra Bancorp generated a return on average equity of 9.4% and a return on average assets of 0.8% for the second quarter of 2009.
For the first half of 2009 net income was $5.3 million, diluted earnings per share were $0.54, return on average equity was 9.7%, and return on average assets was 0.8%. Notable balance sheet changes from December 31, 2008 to June 30, 2009 include the following: Core deposit balances, defined as all deposits except brokered deposits and time deposits of $100,000 or greater, increased $29 million, or 4%, with most of the increase occurring in the second quarter; wholesale-sourced brokered deposits declined by $68 million, or 58%, while CDARS deposits increased by $27 million, or 24%, and other customer time deposits of $100,000 or greater increased by $26 million, or 14%; and Federal Home Loan Bank (FHLB) borrowings were reduced by over $50 million, or 56%. During the first half of 2009 gross loan and lease balances dropped $11 million, or 1%, due to relatively weak loan demand, heightened selectivity on the part of the Company in a difficult credit environment, loan charge-offs and transfers to OREO.
"We're pleased to have kept pace with internal net income projections, despite outsized increases in FDIC costs and continued credit deterioration," commented James C. Holly, President and CEO. "Fortunately, the positive surprises offset the negative for the quarter: core deposits increased at a robust rate, wholesale funding was dramatically reduced, our net interest margin has been trending up, and capital ratios continue to strengthen," he added. Mr. Holly noted that another favorable development in the second quarter of 2009 was shareholder approval of Sierra Bancorp's ability to issue preferred stock, which gives the Company more flexibility with regard to potential future opportunities. "This is the most difficult economic environment we've encountered since the Bank was founded more than 30 years ago, and it doesn't appear that strong economic growth will resume anytime soon. We appreciate our loyal customers and shareholders for their continued support, and commend our employees for their dedication and hard work in ensuring that Bank of the Sierra remains one of the top-performing banks in the country," Mr. Holly concluded.
Financial Highlights
Net interest income was higher in 2009 than in 2008, reflecting increases of $384,000, or 3%, for the second quarter, and $242,000, or 1%, for the first half. These increases were largely due to growth in average interest-earning assets, which were $28 million higher for the quarter and $54 million higher for the half, although much of the growth during the past year has been in investments which tend to be lower-yielding than loans. The increase in net interest income for the half is lower than for the quarter because our net interest margin was about the same for the quarter, but was 17 basis points lower in the first half of 2009 relative to the first half of 2008. Our net interest margin was positively impacted by an increase in average core deposit balances, the easing of market pressures on deposit rates, and a lower level of interest reversals, but has been negatively impacted by an increase in average non-performing assets. Net interest reversals on loans placed on non-accrual for the second quarter and first half of 2009 were $92,000 and $357,000, respectively, relative to $480,000 for both the second quarter and first half of 2008. Our current interest rate risk profile indicates that net interest income is likely to decline over the next 12 months in either rising or declining interest rate scenarios, all else being equal.
The Company's loan loss provision was significantly higher in 2009, increasing by $1.3 million for the second quarter and by $2.6 million for the first half relative to like periods in 2008. This increase can be explained in part by net charge-offs, which increased by $219,000, or 9%, for the quarter and by $1.7 million, or 36%, for the half, due mainly to acquisition and development loans, mortgage loans, and equity lines that were either charged off or written down to current fair values. The percentage increase in net loan charge-offs was lower for the quarter, due to a significant drop in unsecured commercial loan charge-offs in the second quarter of 2009 relative to the second quarter of 2008. In addition to reserve replenishment related to charge-offs, much of the 2009 loan loss provision was used to enhance specific reserves on impaired commercial loans, consumer loans, mortgage loans, and equity lines. Our detailed analysis indicates that as of June 30, 2009, our $16.4 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 1.75% of total loans at June 30, 2009, up from 1.59% at year-end 2008 and 1.35% at June 30, 2008.
Service charge income on deposits increased by $186,000 in the second quarter of 2009 relative to the second quarter of 2008, and by $347,000 for the year-to-date period, a 7% increase for both comparative periods. 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 $28,000 gain on investments in the second quarter of 2009 represents a gain on an investment security called prior to maturity, and the year-to-date gain on investments in 2009 includes a $66,000 recovery on a previously charged-off investment in a title insurance holding company. Investment gains in 2008 consist entirely of gains on called securities.
Other non-interest income increased by $182,000, or 17%, for the quarter, but declined by $728,000, or 27%, for the half. Much of the drop in income for the year-to-date period in 2009 is due to non-recurring income in the first quarter of 2008.
