[Porterville] – Sierra Bancorp, parent of Bank of the Sierra, which operates a Santa Clarita branch on Citrus Street, announced its unaudited financial results for the quarter and the year ended Dec. 31.
Sierra Bancorp recognized net income of $18.067 million for the year in 2015, an improvement of $2.827 million, or 19 percent, relative to net income in 2014. The increase over the prior year is the result of substantially higher net interest income driven by higher interest-earning assets and an increase in non-recurring interest income, a growing level of non-interest income, and a reduced loan loss provision, partially offset by a higher tax accrual and, for the annual comparison, higher overhead expense. The Company’s return on average assets was 1.07 percent in 2015, up from 1.03 percent in 2014. The Company’s return on average equity also increased to 9.59 percent in 2015 from 8.18 percent in 2014, and diluted earnings per share increased to $1.33 in 2015 from $1.08 in 2014. For the fourth quarter of 2015 Sierra Bancorp had net income of $5.363 million, an annualized return on average equity of 11.25 percent, and a return on average assets of 1.24 percent.
Total assets were up $159 million, or 10 percent, during 2015 due to net growth of $162 million, or 17 percent, in gross loan balances that was partially offset by slightly lower levels of cash and investments. Loan growth was favorably impacted by increased utilization on mortgage warehouse lines, the purchase of $28 million in residential mortgage loans in March, and strong organic growth. Total nonperforming assets, including nonperforming loans and foreclosed assets, were reduced by almost $12 million, or 48 percent, during 2015. Total deposits were up $98 million, or 7 percent, for the year due primarily to a $96 million organic increase in core non-maturity deposits. Non-deposit borrowings were increased by $55 million in 2015 in order to meet the funding requirements created by strong loan demand.
“Hemingway gives us this important reminder – just doing something is not the same as achieving results,” observed Kevin McPhaill, President and CEO. “We have worked diligently this past year to direct our attention and the actions of our bankers, some of the best in the industry, to reinforcing quality banking relationships with existing customers and obtaining new business,” he added. “This persistence resulted in strong loan and deposit growth throughout our markets during 2015, leading to improved profitability. We’re excited about our prospects for 2016 and anticipate that this will be another year of action, cultivating customer relationships and generating quality loan and deposit growth,” concluded McPhaill.
Net income increased by $1.710 million, or 47 percent, in the fourth quarter of 2015 relative to the fourth quarter of 2014, and was up $2.827 million, or 19 percent, for the year in 2015 relative to 2014. Pre-tax income actually increased by 53 percent and 27 percent for the quarter and year, respectively, but the percentage change in net income was lower due to a higher tax accrual rate in 2015. There were also significant variances in the components of pre-tax income, including some items of a nonrecurring nature, as noted below.
Net interest income was up by $1.645 million, or 12 percent, for the fourth quarter and $7.801 million, or 15 percent, for the year due primarily to growth in average interest-earning assets totaling $164 million, or 12 percent, in the fourth quarter of 2015 over the fourth quarter of 2014 and $203 million, or 15 percent, for the year in 2015 over 2014. The growth in average interest-earning assets was due to a combination of our acquisition of Santa Clara Valley Bank in the latter part of 2014, organic growth, and the purchase of residential mortgage loans in 2015. While our net interest margin was unchanged for the quarterly comparison, the positive impact of higher interest-earning assets was partially offset by a drop of two basis points in our net interest margin for the year-to-date comparison. Our lower net interest margin for the year resulted in part from relatively strong growth in lower-yielding mortgage warehouse loans and continued competitive pressures on loan yields. The comparative results for the fourth quarter and the year were both favorably impacted by non-recurring interest income, which is comprised primarily of penalties and accelerated fee recognition on loan prepayments as well as interest recoveries on non-accrual loans (net of interest reversals for loans placed on non-accrual status). Net non-recurring interest income totaled $312,000 in the fourth quarter of 2015 relative to $82,000 in the fourth quarter of 2014, and added $825,000 to interest income for the year in 2015 relative to $505,000 in 2014. Another factor in the Company’s year-to-date results of operations was our loan loss provision, which was zero in 2015 relative to $350,000 for 2014.
Total non-interest income rose by $472,000, or 11 percent, for the quarterly comparison and $1.884 million, or 12 percent, for the annual comparison. Service charges on deposit accounts, which represent the largest portion of non-interest income, were up $382,000, or 18 percent, for the quarter and $1.124 million, or 14 percent, for the year, due primarily to fees earned from increased activity on commercial accounts and higher overdraft income. A decline in bank-owned life insurance (BOLI) income was due primarily to fluctuations in income on BOLI associated with deferred compensation plans, which was down by $37,000 for the quarter and $380,000 for the year. Investment gains dropped quarter over quarter but were about the same year over year, as we realized income from the sale of investments in 2015 totaling $235,000 in the fourth quarter and $666,000 for the entire year relative to investment gains in 2014 of $381,000 in the fourth quarter and $667,000 for the year. Other non-interest income increased by $258,000, or 19 percent, in the fourth quarter of 2015 and $1.132 million, or 20 percent, for the year, primarily from the following: dividends on restricted stock, which were up $53,000 for the quarter and $481,000 for the year due in part to a non-recurring special dividend from the Federal Home Loan Bank in the second quarter of 2015; higher debit card interchange income; increases in other activity-based fees; and lower pass-through costs on our low-income housing tax credit investments.
Total non-interest expense reflects a drop of $682,000, or 5 percent, for the fourth quarter, but was up by $4.328 million, or 9 percent, on a year-over-year basis. The largest component of non-interest expense, salaries and benefits, fell by $207,000, or 3 percent, for the quarter and increased $1.945 million, or 8 percent, for the year. Personnel expense for both the fourth quarter and the entire year in 2015 benefitted from a higher level of deferred salaries directly related to successful loan originations (which lowers current period expense), a fourth quarter 2015 accrual adjustment for lower expected payouts pursuant to the Company’s incentive compensation plan, a drop in equity incentive plan expense accruals since no new stock options were granted in 2015, and a reduction in deferred compensation expense associated with the aforementioned drop in BOLI income. The year-to-date comparison also includes a drop in temporary help and overtime costs, which were higher in the first quarter of 2014 because of our core banking system conversion. Working against the reductions in personnel costs were recurring costs from our 2014 acquisition including salaries and associated payroll taxes, bonuses, and benefits such as the Company’s contribution to the employee retirement plan and group health insurance premiums. Those costs are reflected in the entire year for 2015 but for only half of the fourth quarter in 2014, since the acquisition occurred on November 14, 2014. Regular annual salary increases also impacted personnel costs for the fourth quarter and the year in 2015.
Occupancy expense increased by $93,000, or 6 percent, for the quarter, and $555,000, or 9 percent, for the year-to-date period due primarily to ongoing costs for the branch offices associated with our 2014 acquisition and the loan production office opened during 2015. Other non-interest expense fell by $568,000, or 11 percent, for the fourth quarter but increased by $1.828 million, or 11 percent, for the year in 2015. The largest increases in this category came in the following areas: OREO expense, with substantial OREO gains in 2014 contributing to increases in net OREO costs in 2015 totaling $1.066 million for the fourth quarter and $1.573 million for the year; data processing expense, which was up by $159,000 for the fourth quarter and $710,000 for the year due in large part to core processing costs related to our additional offices, as well as recurring costs from our core banking system conversion which weren’t fully reflected in the first quarter of 2014; telecommunications expense, which was down slightly for the fourth quarter but increased by $574,000 for the year due to recurring costs from additional branch offices and billing credits received in 2014; operational costs such as ATM network fees, internet banking costs, electronic interchange costs, etc., which increased due to higher levels of activity; internal audit and review costs; core deposit intangible amortization resulting from our acquisition, which totaled $34,000 for the fourth quarter and $134,000 for the year in 2015; marketing expense; postage expense; training costs; and debit card losses, which are lower for the fourth quarter but higher for the entire year in 2015 due to an increase in fraudulent activity. Significant favorable variances within other non-interest expense include a reduction in non-recurring acquisition costs totaling $1.803 million for the fourth quarter and $1.969 million for the year in 2015, a reduction in stock option expense for directors totaling $80,000 for both the fourth quarter and the entire year since no stock options were issued in 2015, lower legal expense, and, primarily affecting the year-over-year comparison, a drop in non-recurring loan sale costs, lower directors’ deferred compensation expense related to the drop in BOLI income, and lower regulatory expense.
The Company’s provision for income taxes was 34 percent of pre-tax income in the fourth quarter of 2015 relative to 31 percent in the fourth quarter of 2014, and 33 percent for the year in 2015 as compared to 29 percent in 2014. The higher tax provisioning in 2015 is primarily the result of higher taxable income and a declining level of available tax credits, including those generated by our investments in low-income housing tax credit funds as well as certain hiring tax credits.
Balance sheet changes during 2015 include an increase in total assets of $159 million, or 10 percent, due to growth in loans that was partially offset by slightly lower cash balances and investments. Gross loans increased by $162 million, or 17 percent, as a result of a $74 million upsurge in balances outstanding on mortgage warehouse lines from increased line utilization, the first quarter purchase of $28 million in residential mortgage loans, strong organic growth in other non-farm real estate loans, and an $18 million increase in agricultural production loans. Increases in the aforementioned loan categories were partially offset by a $12 million drop in the balance of agricultural real estate loans, due in part to the first quarter prepayment of a large dairy loan subsequent to the sale of the business by the borrower, as well as smaller declines in commercial and consumer loans.
Total nonperforming assets, including non-accrual loans and foreclosed assets, were reduced by $12 million, or 48 percent, during 2015, including a significant reduction in the fourth quarter pursuant to the sale of our single largest remaining nonperforming loan. The sale of that loan also resulted in the recovery of interest, which boosted interest income for the period as noted above. The Company’s ratio of nonperforming assets to loans plus foreclosed assets was 1.13 percent at December 31, 2015 compared to 2.53 percent at December 31, 2014, with the lower ratio reflective of the reduction in nonperforming assets and higher total loan balances. 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 $12 million in loans classified as restructured troubled debt (TDRs) that were included with performing loans as of December 31, 2015, approximately the same as at December 31, 2014.
The Company’s allowance for loan and lease losses was $10.4 million as of December 31, 2015, down from $11.2 million at December 31, 2014 due to the charge-off of certain impaired loan balances against previously-established reserves. Net loans charged off against the allowance totaled $825,000 in 2015 compared to $779,000 in 2014. Due to loan growth in portfolio segments with low historical loss rates and credit quality improvement in the remainder of the loan portfolio, the overall allowance declined to 0.92 percent of total loans at December 31, 2015 from 1.16 percent at December 31, 2014. 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 December 31, 2015, 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 $98 million, or 7 percent, during the year ended December 31, 2015, due primarily to an increase of $96 million, or 9 percent, in core non-maturity deposits. Junior subordinated debentures remain the same, but other short-term borrowings were increased by $55 million, or 176 percent, during 2015 to support our strong loan growth.
Total capital of $190 million at December 31, 2015 was up only $3 million, or 2 percent, for the year, since the addition of net income to retained earnings and the impact of stock options exercised during 2015 were largely offset by the Company’s repurchase of shares, the payment of cash dividends, and a drop in accumulated other comprehensive income. There were no shares repurchased during the fourth quarter of 2015. The Company’s risk-based capital ratios dropped during 2015 due mainly to the increase in risk-adjusted assets, but they remain at robust levels.
Bank of the Sierra Announces Agreement to Acquire Porterville Branch
Bank of the Sierra, the banking subsidiary of Sierra Bancorp, announced that it has entered into an agreement with Citizens Business Bank, the banking subsidiary of CVB Financial Corp. (CVBF), to acquire the deposits and certain loan assets of a branch of Citizens Business Bank located in Porterville, California. Pending regulatory approval, Sierra’s assumption of approximately $22 million in deposits and approximately $1 million in loans is scheduled to be completed in the second quarter of 2016.
Bank of the Sierra President and CEO Kevin McPhaill welcomed the acquisition, stating, “We are happy to welcome the Porterville customers of Citizens Business Bank into the Bank of the Sierra family, and we are committed to ensuring that the transition goes smoothly for them. We are confident that they will enjoy access to Bank of the Sierra’s broad range of financial products and personalized customer service.” Sierra plans to retain the current employees working at the Porterville Branch, which will be absorbed into Sierra’s Porterville Branch located at 90 North Main Street in Porterville.
About Sierra Bancorp
Sierra Bancorp is the holding company for Bank of the Sierra (www.bankofthesierra.com), which is in its 39th year of operations and at almost $1.8 billion in total assets is the largest independent bank headquartered in the South San Joaquin Valley. The Company has over 400 employees and conducts business through 28 full-service branches, a loan production office, an online branch, a real estate industries center, an agricultural credit center, and an SBA center. On January 4, 2016, Sierra Bancorp entered into a definitive agreement to acquire Coast Bancorp, the holding company for Coast National Bank, which has approximately $150 million in assets and maintains offices in San Luis Obispo, Paso Robles, Arroyo Grande, and Atascadero, California. We expect the transaction to be completed in the second quarter of 2016, subject to customary conditions of closing including the receipt of required regulatory approvals and the consent of Coast Bancorp shareholders.
About CVB Financial Corp.
CVB Financial Corp. is the holding company for Citizens Business Bank. The Bank is the largest financial institution headquartered in the Inland Empire region of Southern California with assets of approximately $7.7 billion. CVBF recently earned the ranking of “Best Bank in America” according to Forbes’ America’s Best Banks 2016. Citizens Business Bank serves 44 cities with 40 Business Financial Centers, eight Commercial Banking Centers, and three trust office locations serving the Inland Empire, Los Angeles County, Orange County, San Diego County, Ventura County, Santa Barbara County, and the Central Valley area of California.
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