- Net income of $10.4 million in the third quarter of 2020, an
increase of $2.1 million, or 25% as compared to the second quarter
of 2020 and 16% higher than the same quarter in 2019
- Loans & Leases, Net of Fees grew $167.7 million in the
third quarter of 2020, or 8% on a linked-quarter basis
- Deposits increased by $85.0 million in the third quarter of
2020, or 3% on a linked-quarter basis
- A stable loan yield and lower cost of deposits led to an
improvement of net interest margin to 3.98% in the third quarter of
2020 as compared to 3.81% in the second quarter of 2020
Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra,
today announced third quarter of 2020 net income of $10.4 million,
or $0.67 per diluted share, compared to net income of $9.0 million,
or $0.58 per diluted share, in the third quarter of 2019. The
Company's return on average assets decreased slightly to 1.34% in
the third quarter of 2020, as compared to 1.36% in the third
quarter of 2019, however return on average equity increased to
12.34% from 11.78%, for the same comparative periods. The increase
in net income is driven primarily by higher net interest income on
higher loan balances and higher noninterest income, partially
offset by a higher provision for loan and lease losses and
noninterest expense.
For the first nine months of 2020, the Company recognized net
income of $26.5 million, or $1.72 per diluted share, as compared to
$26.7 million, or $1.73 per diluted share, for the same period in
2019.
“Our potential is one thing. What we do with it
is quite another.” – Dr. Angela Duckworth
“As we continue to navigate these challenging times, we are very
proud to serve our communities as demonstrated by our continued
strong loan growth,” stated Kevin McPhaill, President and CEO.
“This robust loan growth coupled with a continued focus on
efficiency resulted in record high earnings. During these unique
times, our foundation as a community bank drives our bankers to
find new ways to continue to meet our customers’ needs. The coming
months will bring further challenges, but we are determined to use
them as opportunities to help our communities, customers, and
employees succeed.” McPhaill concluded.
Financial Highlights
Quarterly Changes (comparisons to the third quarter of
2019)
- The $3.7 million increase in net interest income is due to a
$1.1 million increase in interest income due mostly to higher loan
volumes partially offset by lower rates and lower interest expense,
as well as a $2.6 million decrease in interest expense due to an
increase in noninterest bearing deposits and lower rates on the
remaining deposits.
- The provision for loan & lease losses was $1.0 million
higher due to the increase in core loan volume and relative
uncertainty in the economy.
- The $1.2 million favorable increase in noninterest income is
due to a $0.8 million gain from the disposal of a low-income
housing tax credit fund investment, and a $0.7 million increase in
bank-owned life insurance (BOLI) income. These increases were
partially offset by a $0.3 million decline in customer service
charges.
- Noninterest expense increased by $2.2 million, due mostly to a
$1.1 million increase in salaries, a $0.4 million increase in
foreclosed asset expenses, and a $0.5 million increase in
director’s deferred compensation.
Year to-Date Changes (comparisons to the first nine-months of
2019)
- Net income was relatively flat with a $0.2 million net decline,
or less than 1%. The most significant line item changes were a $4.3
million increase in the provision for loan and lease losses,
partially offset by a $3.5 million increase in net interest income
due to higher loan balances and a favorable deposit mix.
- Noninterest income increased by $2.5 million, or 14%, due in
part to the third quarter changes described above in the quarterly
comparison, but also because of a second quarter $0.7 million gain
from the disposal of a tax credit fund investment and a second
quarter $0.4 million gain from the sale of debt securities.
- Noninterest expense increased $2.6 million, or 5% due mostly to
the increases previously discussed in noninterest expense for the
quarterly comparison.
Balance Sheet Changes (comparisons to December 31,
2019)
- Total assets increased by $605.8 million, or 23%, to $3.2
billion, during the first nine months of the year.
- Year-to-date 2020 loan growth of $611.8 million, or 35%, was
highlighted by a $437.8 million increase in non-agricultural real
estate loans, as well as a $98.4 million increase in mortgage
warehouse lines, and $123.6 million of Paycheck Protection Program
(PPP) loans.
- Deposits increased by $423.3 million, or 20% during 2020. The
growth in deposits came primarily from noninterest bearing or
low-cost transaction and savings accounts, while higher-cost time
deposits decreased. Other interest bearing liabilities increased
$149.1 million as we utilized overnight FHLB borrowings to
partially fund loan growth in 2020, including PPP loans and
increased utilization of mortgage warehouse lines.
Other financial highlights are reflected in the following
table.
FINANCIAL HIGHLIGHTS
(Unaudited)
(Dollars in thousands, except per share
data)
At or For the
At or For the
At or For the
Three Months Ended
Three Months Ended
Nine Months Ended
9/30/2020
6/30/2020
9/30/2019
9/30/2020
9/30/2019
Net Income
$
10,356
$
8,303
$
8,952
$
26,465
$
26,676
Diluted Earnings per share
$
0.67
$
0.54
$
0.58
$
1.72
$
1.73
Return on Average Assets
1.34%
1.19%
1.36%
1.26%
1.40%
Return on Average Equity
12.34%
10.30%
11.78%
10.90%
12.33%
Net Interest Margin (Tax-Equivalent)
3.98%
3.81%
4.09%
3.97%
4.20%
Yield on Average Loans and Leases
4.56%
4.56%
5.39%
4.75%
5.51%
Cost of Average Total Deposits
0.10%
0.15%
0.54%
0.19%
0.54%
Efficiency Ratio (Tax-Equivalent)¹
53.74%
57.78%
55.64%
56.64%
57.51%
Total Assets
$
3,199,618
$
3,110,044
$
2,635,960
$
3,199,618
$
2,635,960
Loans & Leases Net of Deferred
Fees
$
2,377,222
$
2,209,480
$
1,800,606
$
2,377,222
$
1,800,606
Noninterest Demand Deposits
$
975,750
$
949,662
$
685,528
$
975,750
$
685,528
Total Deposits
$
2,591,713
$
2,506,754
$
2,196,207
$
2,591,713
$
2,196,207
Noninterest-bearing Deposits over Total
Deposits
37.6%
37.9%
31.2%
37.6%
31.2%
Shareholders Equity / Total Assets
10.5%
10.5%
11.5%
10.5%
11.5%
Tangible Common Equity Ratio
9.6%
9.6%
10.4%
9.6%
10.4%
Book Value per Share
$
21.92
$
21.55
$
19.85
$
21.92
$
19.85
Tangible Book Value per Share
$
19.84
$
19.43
$
17.69
$
19.84
$
17.69
(1) Noninterest expense as a percentage of the sum of net
interest income and noninterest income excluding net gains (losses)
from securities and bank owned life insurance income.
INCOME STATEMENT HIGHLIGHTS
Net Interest Income
Net interest income increased $3.7 million to $28.1 million, for
the third quarter of 2020 over the third quarter of 2019, and
increased $3.5 million to $76.0 million for the first nine months
of 2020 relative to the same period in 2019. For the third quarter
of 2020, growth in average interest-earning assets totaled $452.8
million, or 19%, as compared to the third quarter of 2019. Although
the yield on these balances was 56 basis points lower for the same
period, the decrease in our cost of interest-bearing liabilities
for the same period was 66 basis points resulting in an overall
decline in margin of 11 basis points. Net interest income for the
comparative year-to-date periods increased $3.5 million as the
increase in volume of interest earning assets and favorable change
in our deposit mix more than made up for the decrease in
margin.
Our 2020 net interest margin has been impacted primarily by the
following:
- Market conditions, including five interest rate cuts by the
Federal Open Market Committee totaling 225 bps over the past 12
months, negatively impacted our yield on existing adjustable and
variable rate portfolio loans and created a lower initial interest
rate for new loan volumes. In addition, given the low rate
environment loan demand for our mortgage warehouse lines increased,
resulting in a $92.8 million, or 55%, increase in average balances
during the third quarter 2020. The average yield on mortgage
warehouse lines declined to 3.16% from 3.85% for the comparative
quarters.
- Origination of SBA PPP loans, issuing 1,334 loans for $123.6
million to assist our customers impacted by the COVID 19 Pandemic.
We have collected $5.0 million in loan fees related to PPP loans
from the SBA which are accreted over the stated life of the
loan.
On September 30, 2020, our outstanding fixed-rate loans
represented 28% of our loan portfolio. Adjustable-rate loans
represent 61% of our loan portfolio and range in adjustment periods
from 30 days to 10 years with most of these subject to repricing
after 3-years. There are $68.8 million of these adjustable-rate
loans scheduled to adjust in the next quarter. Approximately 77% or
$1.1 billion of these loans will not begin repricing until after
three years, with $701.8 million repricing after five years. About
12% of our total portfolio, or $273.7 million, consists of variable
rate loans. Of these variable rate loans, approximately $93.9
million have floors, with $85.5 million at their floors, which
limited the overall reduction in rates.
Discount accretion on loans from whole-bank acquisitions
enhanced our net interest margin by two basis points in the third
quarter of 2020 as compared to three basis points in the third
quarter 2019, and two basis points for the first nine months of
2020 relative to four basis points in the first nine months of
2019. On September 30, 2020 the remaining balance of loan discount
available to be accreted was $3.3 million.
Interest expense was $1.0 million for the third quarter of 2020,
a favorable decline of $2.6 million, or 73%, relative to the third
quarter of 2019. For the first nine months of 2020, compared to the
first nine months of 2019, interest expense declined $6.1 million,
or 58%, to $4.5 million due to lower rates, higher low or no cost
deposits, and lower time deposits. The average balance of
higher-cost time deposits declined by $86.7 million, or 16%, in the
third quarter of 2020 as compared to the third quarter of 2019. The
average 2020 year-to-date balance of such time-deposits declined by
$60.9 million, or 11.4%, compared to the same period in 2019. The
average balance of lower or no cost transaction and savings
accounts increased $158.7 million, or 7.5%, for the third quarter
of 2020 compared to the same period in 2019 and increased by $91.6
million, or 10.9%, on a year-to-date basis in 2020 compared to the
same period in 2019.
Provision for Loan and Lease Losses
The Company recorded a loan and lease loss provision of $2.4
million in the third quarter of 2020 relative to a provision of
$1.4 million in the third quarter of 2019, and a year-to-date loan
loss provision of $6.4 million in 2020 as compared to $2.1 million
for the same period in 2019. The Company is subject to the adoption
of the Current Expected Credit Loss ("CECL") accounting method
under Financial Accounting Standards Board (FASB) Accounting
Standards Update 2016-03 and related amendments, Financial
Instruments – Credit Losses (Topic 326) in 2020. However, the
Company elected under Section 4014 of the Coronavirus Aid, Relief,
and Economic Security (CARES) Act to defer the implementation of
CECL until the earlier of when the national emergency related to
the outbreak of COVID-19 ends or December 31, 2020. Although this
deferral will still require CECL to be implemented as of January 1,
2020, the Company elected in the first quarter of 2020 to postpone
implementation in order to provide additional time to assess better
the impact of the COVID-19 pandemic on the expected lifetime credit
losses. At the time the decision was made, there was a significant
change in economic uncertainty on the local, regional, and national
levels as a result of local and state stay-at-home orders, as well
as relief measures provided at a national, state, and local level.
Further, the Company has taken actions to serve our communities
during the pandemic, including permitting short-term payment
deferrals to current customers, as well as originating bridge loans
and SBA PPP loans. It was determined that more time was needed to
assess the impact of the uncertainty and related actions on the
Company's allowance for loan and lease losses under the CECL
methodology.
The Company's $1.0 million, or 74%, increase in provision for
loan and lease losses in the third quarter of 2020 as compared to
the third quarter of 2019, and the $4.3 million, or 210% increase
in the first nine months of 2020 compared to the same period in
2019 is due to growth in organic non-owner occupied commercial real
estate loans, downgrades of certain loans deferred under section
4016 of the Cares Act and the continued uncertainty surrounding the
estimated impact that COVID-19 will have on the economy and our
loan customers. Management adjusted its qualitative risk factors
under our current incurred loss model for economic conditions,
changes in the mix of the portfolio due to loans subject to a
payment deferral, potential changes in collateral values due to
reduced cash flows, and external factors such as government
actions. In particular, the uncertainty regarding our customers'
ability to repay loans could be adversely impacted by COVID-19
given higher unemployment rates, requests for payment deferrals,
temporary business shut-downs, and reduced consumer and business
spending.
Noninterest Income
Total noninterest income reflects increases of $1.2 million, or
21%, for the quarter ended September 30, 2020 as compared to the
same period in 2019, and $2.5 million, or 14% for the year-to-date
period ended September 30, 2020 as compared to the same period in
2019. The third quarter 2020 comparison to the third quarter 2019
includes a $0.8 million non-recurring gain resulting from the
wrap-up of a low-income housing tax credit fund investment, as well
as a $0.7 million favorable fluctuation in income on Bank-Owned
Life Insurance (BOLI) associated with deferred compensation plans.
Those increases were partially offset by lower service charges on
deposits. In comparing the 2020 year-to-date period to the same
period in 2019, the variances in noninterest income came from a
$0.4 million increase in BOLI income, a $1.4 million gain from the
wrap up of low-income housing tax credit fund investments, a
decrease of $0.6 million in low-income housing tax credit fund
expenses, an increase of $0.2 million in the valuation gain of
restricted equity investments owned by the Company and a $0.4
million gain on the sale of debt securities from the restructuring
of the portfolio in the second quarter.
Service charges on customer deposit account income declined by
$0.3 million, or 10%, to $3.0 million in the third quarter of 2020
as compared to the third quarter of 2019. This service charge
income was $0.6 million lower, or 7%, in the first nine months of
2020, as compared to the same period in 2019. These declines are
primarily a result of decreases in overdraft income offset by
increases in interchange income and other deposit fees including
analysis.
Noninterest Expense
Total noninterest expense increased by $2.2 million, or 13%, in
the third quarter of 2020 relative to the third quarter of 2019,
and by $2.6 million, or 5%, in the first nine months of 2020 as
compared to the same period in 2019.
Salaries and Benefits were $0.9 million, or 10%, higher in the
third quarter of 2020 as compared to the third quarter of 2019 and
$2.1 million, or 8%, higher for the first nine months of 2020
compared to the same period in 2019. The reason for this increase
is due to several factors, including merit increases for employees
due to annual performance evaluations for 2019, new loan production
teams for the northern and southern California markets, and a focus
on hiring higher-level staff and management. Salary expense
deferrals related to loan originations were $0.1 million lower in
the third quarter of 2020 relative to the third quarter of 2019,
and $0.4 million higher for the first nine months of 2020 compared
to the same period in 2019. There have not been any permanent or
temporary reductions in employees as a result of COVID-19 although
total full-time equivalent employees have declined from 512 at
September 30, 2019 to 491 at September 30, 2020.
Occupancy expenses remained relatively flat for the respective
comparative periods. Other noninterest expense increased $1.2
million, or 21%, for the third quarter 2020 as compared to the
third quarter in 2019, but was only $0.4 million, or 2%, higher for
the first nine months of 2020 as compared to the same period in
2019. The variance for the third quarter of 2020 compared to the
same period in 2019 was primarily driven by a $0.6 million increase
in loan servicing expense, due mostly to write-downs of other real
estate owned assets; a $0.5 million increase in professional
services; partially offset by a $0.3 million decrease in
advertising costs. The $0.5 million change in professional services
includes a $0.2 million increase in FDIC assessments due to the
Small Bank Assessment credits applied against FDIC deposit
insurance costs in the comparative quarter for 2019, a $0.5 million
increase in deferred compensation expense for directors, which is
linked to the changes in BOLI income, and a $0.2 million reduction
in consulting costs. The Company continues to actively consider a
variety of operational efficiency opportunities. For the first nine
months of 2020, the $0.4 million increase in other noninterest
expense was driven by a $0.6 million increase in loan services
costs (mostly in foreclosed assets), a $0.3 million increase in
deposit services costs, a $0.2 million increase in sundry losses,
partially offset by a $0.5 million decrease in advertising costs
and a $0.2 million decrease in professional services expense.
The Company's provision for income taxes was 23.4% of pre-tax
income in the third quarter of 2020 relative to 24.2% in the third
quarter of 2019, and 23.5% of pre-tax income for the first nine
months of 2020 relative to 24.9% for the same period in 2019. The
decline in tax rate in the third quarter of 2020 is due mostly to a
higher percent of the income being tax-exempt income.
Balance Sheet Summary
Balance sheet changes during the first nine months of 2020
include an increase in total assets of $605.8 million, or 23%, due
mostly to a $617.7 million increase, or 35%, in the loan portfolio.
This significant increase in loan balances in 2020 is due to a
$437.8 million increase in non-agricultural real estate loans, a
$123.6 million increase in PPP loans, and a $98.4 million change in
mortgage warehouse line utilization. Non-agricultural real estate
loan balances increased due to deliberate and concentrated efforts
of our Northern and Southern market loan production teams. These
teams were added in the first quarter 2020 as part of a strategic
initiative that began in 2019 to expand our geographic footprint.
Our loan pipeline at September 30, 2020 remains robust but has
softened from the previous quarter due to a strategic shift to
focus on further diversifying our loan mix. Based on this pipeline,
we expect continued loan growth in the fourth quarter but not at
the same pace as the prior two quarters. Mortgage warehouse loan
balances increased due to market factors favorably impacting line
utilization due to both mortgage originations and refinancing
activity, as well as normal seasonal mortgage activity.
With regards to line utilization, excluding mortgage warehouse
and consumer overdraft lines, unused commitments were $304.8
million on September 30, 2020, as compared to $303.4 million on
December 31, 2019. Total utilization, excluding mortgage warehouse
and consumer overdraft lines was 55% at September 30, 2020, as
compared to 59% at December 31, 2019. Commercial line utilization
was 57% on September 30, 2020, as compared to 61% on December 31,
2019. Mortgage warehouse utilization was 61% at September 30, 2020,
as compared to 59% on December 31, 2019.
The Company’s core deposit intangible assets decreased $0.8
million to $4.6 million at September 30, 2020 from $5.4 million at
December 31, 2019. Goodwill remained at $27.4 million during the
first nine months of 2020 and was approximately 8% of total capital
at September 30, 2020. The Company performed a qualitative test for
impairment and determined that no goodwill impairment was probable
at September 30, 2020. The Company will continue to evaluate
qualitative factors to determine if a quantitative test for
goodwill impairment is necessary.
As of September 30, 2020, deposit balances reflected growth of
$423.3 million, or 20%, during the first nine months of 2020. Core
non-maturity deposits increased by $467.4 million, or 28%, during
this period while customer time deposits decreased by $44.1
million, or 9%. Wholesale brokered deposits of $50.0 million were
unchanged at September 30, 2020 as compared to December 31, 2019.
Overall noninterest-bearing deposits as a percent of total deposits
at September 30, 2020, increased to 37.7%, as compared to 31.9% at
December 31, 2019. Other interest-bearing liabilities of $229.7
million on September 30, 2020 is comprised of $36.7 million of
customer repurchase agreements, $148.0 million in overnight FHLB
borrowings, $5.0 million in short term borrowings, $5.0 million in
long term borrowings, and $35.1 million in subordinated debentures.
The increase in overnight FHLB borrowings was due mostly to support
organic growth in non-owner occupied commercial real estate loans,
PPP loans and changes in mortgage warehouse line utilization. It is
anticipated that normal seasonal volatility will reduce utilization
on mortgage warehouse lines and PPP loans will start to be forgiven
in 2021.
The Company continues to have substantial liquidity. At
September 30, 2020, and December 31, 2019, the Company had the
following sources of primary and secondary liquidity ($ in
thousands):
Primary and Secondary Liquidity
Sources
September 30, 2020
December
31, 2019
Cash and Due From Banks
$
88,933
$
80,077
Unpledged Investment Securities
339,125
366,012
Excess Pledged Securities
61,655
70,955
FHLB Borrowing Availability
380,600
443,200
Unsecured Lines of Credit
80,000
80,000
Funds Available through Fed Discount
Window
65,125
59,198
Totals
$
1,015,438
$
1,099,441
In addition to the primary and secondary sources of liquidity
listed above, the Company has also been approved to borrow $12
million from the Federal Reserve’s Paycheck Protection Program
Liquidity Facility (PPPLF). Should the Company wish to draw on the
PPPLF it would be required to pledge individual SBA PPP loans as
collateral. The loans are taken as collateral at their face value.
Due to the Company’s liquidity throughout the third quarter of 2020
and expected liquidity in the fourth quarter of 2020, it has
elected not to utilize the PPPLF at this time.
Total capital of $336.2 million at September 30, 2020 reflects
an increase of $27.0 million, or 9%, relative to year-end 2019. The
increase in equity during the first nine months of 2020 was due to
the addition of $26.5 million in net income, and a $11.6 million
favorable swing in accumulated other comprehensive income/loss, net
of $9.1 million in dividends paid, and $2.6 million in stock
repurchases prior to March 15, 2020. The remaining difference is
related to stock options exercised during the first nine
months.
Asset Quality
Total nonperforming assets, comprised of nonaccrual loans and
foreclosed assets, increased by $3.6 million to $10.2 million for
the first nine months of 2020 primarily due to the impact of one
commercial real estate credit that went into foreclosure and the
downgrade of certain loans deferred due to COVID 19 for which
repayment has become uncertain. The Company's ratio of
nonperforming loans to gross loans decreased to 0.30% at September
30, 2020 from 0.33% at December 31, 2019. All of the Company's
impaired assets are periodically reviewed and are either
well-reserved based on current loss expectations, carried at the
fair value of the underlying collateral, net of expected
disposition costs or are sufficiently collateralized such that no
specific reserve or impairment is necessary for the impaired asset
in question. The single loan which moved to other real estate owned
during the quarter has a pending contract and is expected to close
escrow towards the end of October. There was a $4.9 million
increase during the third quarter of 2020 in past due loans between
30-89 days and still accruing to $7.2 million at September 30,
2020. This increase was primarily attributable to 2 loans for $6.5
million that returned to current status shortly after September 30,
2020.
The Company's allowance for loan and lease losses was $15.6
million at September 30, 2020, as compared to a balance of $9.9
million at December 31, 2019, and $11.2 million at September 30,
2019. The $5.7 million increase during the first nine months of the
year resulted from the addition of a $6.4 million loan loss
provision in the first nine months of 2020, less $0.7 million in
net charge offs recorded during the period. The additional loan
loss provision in the first nine months of 2020 was precipitated
primarily by the increase in non-owner-occupied commercial real
estate loan balances as well as the impact of changes to
qualitative factors associated with economic uncertainty during
these unprecedented times. For further information regarding the
Company's decision to defer the implementation of CECL under
Section 4014 of the CARES Act, as well as further detail on the
increase in provision during the third quarter of 2020, please see
the discussion above under Provision for Loan and Lease Losses. The
allowance was 0.65% of total loans at September 30, 2020, 0.56% at
December 31, 2019 and 0.62% at September 30, 2019. 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 September 30,
2020, but no assurance can be given that the Company will not
experience substantial future losses relative to the size of the
allowance.
As discussed above under the Provision for Loan and Lease
Losses, the Company recorded $6.4 million in provision for loan and
lease losses in the first nine months of 2020 as compared to $2.1
million in the first nine months of 2019. This increase is
primarily due to organic growth of non-owner occupied commercial
real estate loans, certain downgrades to loans on deferral not
treated as TDR loan modifications, and the uncertainty of economic
risks associated with the COVID-19 pandemic. The Company provided
loan modifications not treated as TDRs to its customers of $386.2
million and $28.3 million, during the second and third quarters of
2020, respectively. The $28.3 million in new loan modifications in
the third quarter of 2020 were primarily 90-day deferrals and each
borrower was current at the time the loan was modified. The four
largest loans modified in the fourth quarter totaled $26.0 million
with a weighted-average LTV of 48.2%. The primary purpose of these
four loan deferrals was for cash management and each borrower has
indicated that they expect to resume payments at the end of the
deferral period.
Modifications in place prior to June 30, 2020 were typically
structured to provide deferrals of both principal and interest for
180 days. As these loan modifications were for six-months, the
Company believed that it was an effective use of resources to
create a continuous monitoring process with dedicated internal
personnel. These employees would have likely spent considerable
time working through deferral extensions had we initially offered
90-day deferrals. Instead, these dedicated personnel proactively
engaged with our borrowers who had temporary loan modifications to
assess the likelihood that each borrower will be able to resume
payments after the end of the modification period. Based on this
process, as of September 30, 2020, there were 26 loan deferrals
that were downgraded, out of 309 such deferrals at that date: four
loans for $1.9 million to impaired or nonaccrual status, five loans
for $6.5 million to substandard status, and 17 loans for $17.3
million to special mention status. In addition, other loans have
been identified as needing further review to determine if payments
will resume. Based on this approach of proactively working with our
customers during the second and third quarter 2020, the following
table summarizes management’s expectation as of September 30,
2020:
As of 9-30-20
Borrowers that have indicated
an intent to resume payments upon expiration of the deferral
period
(dollars in thousands)
Deferment Loans
Deferment Balance
Deferment Loans as % of Total
Loans in Category
Yes
No/Further Review
Required
CRE Non-owner Occupied
Office
14
$ 24,701
8.16%
$ 14,291
57.85%
$ 10,410
42.15%
Retail
24
46,378
15.10%
45,521
98.15%
857
1.85%
Industrial
7
6,150
7.85%
6,150
100.00%
-
0.00%
Hotel
24
106,787
62.04%
100,512
94.12%
6,275
5.88%
Special Purpose
9
7,640
11.53%
7,640
100.00%
-
0.00%
CRE Owner Occupied
72
71,332
21.69%
69,467
97.39%
1,865
2.61%
Commercial - Secured by SFR 1-4 Unit
14
9,982
17.26%
9,237
92.53%
745
7.47%
MultiFamily
4
6,337
7.73%
6,337
100.00%
-
0.00%
Commercial Construction
Hotel
5
40,045
93.23%
40,045
100.00%
-
0.00%
Lots/Land and Other
8
13,723
11.75%
13,723
100.00%
-
0.00%
Ag Farm Mortgage & Ag Production
25
52,345
30.13%
52,345
100.00%
-
0.00%
Consumer SFR 1-4 Unit Mortgage and
Consumer Other
45
11,011
7.43%
5,482
49.79%
5,529
50.21%
Commercial & Industrial
58
9,427
4.34%
8,918
94.60%
509
5.40%
Total Loan Deferments
309
$ 405,858
$ 379,668
93.55%
$ 26,190
6.45%
Based on borrower intent, it is expected that approximately
$352.1 million of modified loans will resume normal payments in
October 2020, another $14.2 million are expected to resume payments
in November 2020 and $1.6 million are expected to resume payments
in December 2020. With respect to the loans above that are not
expected to resume normal payments or if additional review is
required, approximately $25.6 million are secured by real estate
with a weighted-average loan to value of such loans of 50.4%. The
value is based on the last appraisal obtained for such
property.
About Sierra Bancorp
Sierra Bancorp is the holding company for Bank of the Sierra
(www.bankofthesierra.com), which is in its 43rd year of operations
and is the largest independent bank headquartered in the South San
Joaquin Valley. Bank of the Sierra is a community-centric regional
bank, which offers a broad 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, an SBA center, and a dedicated loan production
office in Rocklin, California. In 2020, Bank of the Sierra was
recognized as one of the strongest and top-performing community
banks in the country, with a 5-star rating from Bauer
Financial.
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 our
borrowers’ actual payment performance as loan deferrals related to
the COVID-19 pandemic expire, changes to statutes, regulations, or
regulatory policies or practices as a result of, or in response to
COVID-19, including the potential adverse impact of loan
modifications and payment deferrals implemented consistent with
recent regulatory guidance, 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.
STATEMENT OF CONDITION
(balances in $000's, unaudited)
ASSETS
9/30/2020
6/30/2020
3/31/2020
12/31/2019
9/30/2019
Cash and Due from Banks
$
88,933
$
156,611
$
106,992
$
80,077
$
80,689
Investment Securities
577,278
599,333
620,154
600,799
599,906
Real Estate Loans (Non-Agricultural)
1,695,918
1,463,235
1,259,448
1,258,081
1,263,136
Agricultural Real Estate Loans
127,963
134,454
141,740
144,033
144,618
Agricultural Production Loans
45,782
48,516
49,199
48,036
49,105
Commercial & Industrial Loans &
Leases
217,224
221,502
111,990
115,532
115,737
Mortgage Warehouse Lines
287,516
338,124
228,608
189,103
216,913
Consumer Loans
5,897
6,266
7,040
7,780
8,151
Gross Loans & Leases
2,380,300
2,212,097
1,798,025
1,762,565
1,797,660
Deferred Loan & Lease Fees
(3,078)
(2,617)
2,741
2,896
2,946
Allowance for Loan & Lease Losses
(15,586)
(13,560)
(11,453)
(9,923)
(11,200)
Net Loans & Leases
2,361,636
2,195,920
1,789,313
1,755,538
1,789,406
Bank Premises & Equipment
27,216
27,779
28,425
27,435
27,988
Other Assets
144,555
130,401
125,585
129,970
137,971
Total Assets
$
3,199,618
$
3,110,044
$
2,670,469
$
2,593,819
$
2,635,960
LIABILITIES & CAPITAL
Noninterest Demand Deposits
$
975,750
$
949,662
$
704,700
$
690,950
$
685,528
Interest-Bearing Transaction Accounts
656,922
641,815
576,014
549,812
545,100
Savings Deposits
361,857
346,262
304,894
294,317
287,774
Money Market Deposits
126,918
125,420
113,766
118,933
124,553
Customer Time Deposits
420,266
433,595
450,017
464,362
503,252
Wholesale Brokered Deposits
50,000
10,000
30,000
50,000
50,000
Total Deposits
2,591,713
2,506,754
2,179,391
2,168,374
2,196,207
Junior Subordinated Debentures
35,079
35,035
34,990
34,945
34,901
Other Interest-Bearing Liabilities
194,657
204,449
103,461
45,711
67,357
Total Deposits & Interest-Bearing
Liabilities
2,821,449
2,746,238
2,317,842
2,249,030
2,298,465
Other Liabilities
41,922
36,373
33,168
35,504
34,142
Total Capital
336,247
327,433
319,459
309,285
303,353
Total Liabilities & Capital
$
3,199,618
$
3,110,044
$
2,670,469
$
2,593,819
$
2,635,960
GOODWILL & INTANGIBLE
ASSETS
(balances in $000's, unaudited)
9/30/2020
6/30/2020
3/31/2020
12/31/2019
9/30/2019
Goodwill
$
27,357
$
27,357
$
27,357
$
27,357
$
27,357
Core Deposit Intangible
4,575
4,844
5,112
5,381
5,650
Total Intangible Assets
$
31,932
$
32,201
$
32,469
$
32,738
$
33,007
CREDIT QUALITY
(balances in $000's, unaudited)
9/30/2020
6/30/2020
3/31/2020
12/31/2019
9/30/2019
Nonaccrual Loans
$
7,186
$
5,808
$
7,351
$
5,737
$
6,719
Foreclosed Assets
2,970
2,893
766
800
762
Total Nonperforming Assets
$
10,156
$
8,701
$
8,117
$
6,537
$
7,481
Performing TDR's (not included in
NPA's)
$
7,708
$
9,192
$
8,188
$
8,415
$
9,067
Net Charge Offs
$
687
$
363
$
270
$
2,377
$
600
Past Due & Still Accruing (30-89)
$
7,201
$
2,333
$
4,071
$
2,875
$
1,311
Non-TDR Deferred Loans
$
405,858
$
386,243
$
-
$
-
$
-
Nonperforming Loans to Gross Loans
0.30%
0.26%
0.41%
0.33%
0.37%
NPA's to Loans plus Foreclosed Assets
0.43%
0.39%
0.45%
0.37%
0.42%
Allowance for Loan Losses to Loans
0.65%
0.61%
0.64%
0.56%
0.62%
SELECT PERIOD-END STATISTICS
(unaudited)
9/30/2020
6/30/2020
3/31/2020
12/31/2019
9/30/2019
Shareholders Equity / Total Assets
10.5%
10.5%
12.0%
11.9%
11.5%
Gross Loans / Deposits
91.8%
88.2%
82.5%
81.3%
81.9%
Noninterest Bearing Deposits / Total
Deposits
37.6%
37.9%
32.3%
31.9%
31.2%
CONSOLIDATED INCOME STATEMENT
(in $000's, unaudited)
Qtr Ended:
Qtr Ended:
Nine Months Ended:
9/30/2020
6/30/2020
9/30/2019
9/30/2020
9/30/2019
Interest Income
$
29,043
$
25,385
$
27,901
$
80,481
$
83,172
Interest Expense
969
1,243
3,526
4,478
10,625
Net Interest Income
28,074
24,142
24,375
76,003
72,547
Provision for Loan & Lease Losses
2,350
2,200
1,350
6,350
2,050
Net Interest after Provision
25,724
21,942
23,025
69,653
70,497
Service Charges
2,950
2,618
3,292
8,752
9,386
BOLI Income
1,310
649
590
1,997
1,617
Gain on Investments
-
390
-
390
29
Other Noninterest Income
2,845
3,243
1,987
8,973
6,599
Total Noninterest Income
7,105
6,900
5,869
20,112
17,631
Salaries & Benefits
9,698
9,266
8,784
29,136
27,021
Occupancy Expense
2,559
2,504
2,485
7,390
7,296
Other Noninterest Expenses
7,046
6,263
5,819
18,630
18,280
Total Noninterest Expense
19,303
18,033
17,088
55,156
52,597
Income Before Taxes
13,526
10,810
11,806
34,609
35,531
Provision for Income Taxes
3,170
2,506
2,854
8,144
8,855
Net Income
$
10,356
$
8,303
$
8,952
$
26,465
$
26,676
TAX DATA
Tax-Exempt Muni Income
$
1,467
$
1,440
$
1,160
$
4,246
$
3,276
Interest Income - Fully Tax Equivalent
$
29,433
$
25,769
$
28,209
$
81,610
$
84,043
PER SHARE DATA
(unaudited)
Qtr Ended:
Qtr Ended:
Nine Months Ended:
9/30/2020
6/30/2020
9/30/2019
9/30/2020
9/30/2019
Basic Earnings per Share
0.68
$0.55
0.58
$ 1.74
1.74
Diluted Earnings per Share
0.67
$0.54
0.58
$ 1.72
1.73
Common Dividends
0.20
$0.20
0.19
$ 0.60
0.55
Weighted Average Shares Outstanding
15,192,838
15,191,823
15,318,580
15,215,167
15,320,041
Weighted Average Diluted Shares
15,387,309
15,237,655
15,434,788
15,422,647
15,449,340
Book Value per Basic Share (EOP)
21.92
$21.55
19.85
21.92
19.85
Tangible Book Value per Share (EOP)
$ 19.84
$19.43
$17.69
$ 19.84
$17.69
Common Shares Outstanding (EOP)
15,341,723
15,192,838
15,284,491
15,341,723
15,284,491
KEY FINANCIAL RATIOS
(unaudited)
Qtr Ended:
Qtr Ended:
Nine Months Ended:
9/30/2020
6/30/2020
9/30/2019
9/30/2020
9/30/2019
Return on Average Equity
12.34%
10.30%
11.78%
10.90%
12.33%
Return on Average Assets
1.34%
1.19%
1.36%
1.26%
1.40%
Net Interest Margin (Tax-Equivalent)
3.98%
3.81%
4.09%
3.97%
4.20%
Efficiency Ratio (Tax-Equivalent)¹
53.74%
57.78%
55.64%
56.64%
57.51%
Net C/O's to Avg Loans (not
annualized)
0.01%
0.00%
0.00%
0.04%
0.03%
AVERAGE BALANCES AND RATES
(balances in $000's, unaudited)
For the quarter ended
For the quarter ended
For the quarter ended
September 30, 2020
June 30, 2020
September 30, 2019
Average Balance (1)
Income/ Expense
Yield/ Rate (2)
Average Balance (1)
Income/ Expense
Yield/ Rate (2)
Average Balance (1)
Income/ Expense
Yield/ Rate (2)
Assets
Investments:
Federal funds sold/interest-earning due
from's
$ 6,942
$ 2
0.11%
$ 53,209
$ 12
0.09%
$ 23,447
$ 139
2.35%
Taxable
366,046
1,832
1.99%
403,517
2,250
2.22%
426,523
2,484
2.31%
Non-taxable
227,283
1,467
3.25%
216,746
1,440
3.38%
169,109
1,160
3.44%
Total investments
600,271
3,301
2.45%
673,472
3,702
2.44%
619,079
3,783
2.62%
Loans and Leases: (3)
Real estate
1,700,241
20,467
4.79%
1,477,380
18,355
5.00%
1,425,093
19,858
5.53%
Agricultural Production
47,733
435
3.63%
47,806
452
3.80%
50,394
753
5.93%
Commercial
226,511
2,485
4.36%
170,876
1,080
2.54%
117,414
1,461
4.94%
Consumer
6,226
236
15.08%
6,667
225
13.57%
8,467
354
16.59%
Mortgage warehouse lines
262,593
2,087
3.16%
206,669
1,532
2.98%
169,786
1,646
3.85%
Other
1,868
32
6.82%
2,811
39
5.58%
2,458
46
7.42%
Total loans and leases
2,245,172
25,742
4.56%
1,912,209
21,683
4.56%
1,773,612
24,118
5.39%
Total interest earning assets (4)
2,845,443
$ 29,043
4.12%
2,585,681
$ 25,385
4.01%
2,392,691
$ 27,901
4.68%
Other earning assets
13,190
13,190
12,743
Non-earning assets
215,819
207,623
199,447
Total assets
$ 3,074,452
$ 2,806,494
$ 2,604,881
Liabilities and shareholders'
equity
Interest bearing deposits:
Demand deposits
$ 140,634
$ 75
0.21%
$ 134,159
$ 71
0.21%
$ 115,971
$ 87
0.30%
NOW
516,915
89
0.07%
481,679
83
0.07%
446,974
133
0.12%
Savings accounts
354,331
51
0.06%
327,833
46
0.06%
290,221
79
0.11%
Money market
126,567
28
0.09%
125,594
31
0.10%
120,196
53
0.17%
Time Deposits
428,171
383
0.35%
442,762
625
0.57%
499,572
2,367
1.88%
Wholesale Brokered Deposits
29,696
15
0.20%
19,890
37
0.75%
44,946
264
2.33%
Total interest bearing deposits
1,596,314
641
0.16%
1,531,917
893
0.23%
1,517,880
2,983
0.78%
Borrowed funds:
Junior Subordinated Debentures
35,052
258
2.93%
35,009
311
3.57%
34,876
453
5.15%
Other Interest-Bearing Liabilities
107,596
70
0.26%
45,936
39
0.34%
37,092
90
0.96%
Total borrowed funds
142,648
328
0.91%
80,945
350
1.74%
71,968
543
2.99%
Total interest bearing liabilities
1,738,962
969
0.22%
1,612,862
$ 1,243
0.31%
1,589,848
3,526
0.88%
Demand deposits - Noninterest bearing
958,233
830,333
668,139
Other liabilities
43,521
39,155
45,488
Shareholders' equity
333,736
324,144
301,406
Total liabilities and shareholders'
equity
$ 3,074,452
$ 2,806,494
$ 2,604,881
Interest income/interest earning
assets
4.12%
4.01%
4.68%
Interest expense/interest earning
assets
0.14%
0.20%
0.59%
Net interest income and margin
(5)
$ 28,074
3.98%
$ 24,142
3.81%
$ 24,375
4.09%
____________________
(1)
Average balances are obtained from the best available daily or
monthly data and are net of deferred fees and related direct
costs.
(2)
Yields and net interest margin have been
computed on a tax equivalent basis utilizing a 21% effective tax
rate.
(3)
Loans are gross of the allowance for
possible loan losses. Loan fees have been included in the
calculation of interest income. Net loan fees and loan acquisition
FMV amortization were $1,302 thousand and $(137) thousand for the
quarters ended September 30, 2020 and 2019, respectively, and
$(236) thousand for the quarter ended June 30, 2020.
(4)
Non-accrual loans have been included in
total loans for purposes of computing total earning assets.
(5)
Net interest margin represents net
interest income as a percentage of average interest-earning
assets.
AVERAGE BALANCES
AND RATES
(balances in $000’s, unaudited)
For the nine months
ended
For the nine months
ended
September 30, 2020
September 30, 2019
Assets
Average Balance (1)
Income/ Expense
Average Rate/Yield (2)
Average Balance (1)
Income/ Expense
Average Rate/Yield (2)
Investments:
Federal funds sold/due from time
$
32,332
$
155
0.64%
$
17,948
$
327
2.44%
Taxable
392,617
6,542
2.22%
423,668
7,692
2.43%
Non-taxable
213,294
4,246
3.36%
153,763
3,276
3.61%
Total investments
638,243
10,943
2.52%
595,379
11,295
2.73%
Loans and
leases:(3)
Real estate
1,524,821
57,544
5.04%
1,449,603
60,057
5.54%
Agricultural
48,022
1,470
4.09%
50,742
2,326
6.13%
Commercial
168,574
4,661
3.69%
120,011
4,575
5.10%
Consumer
6,822
831
16.27%
8,615
961
14.91%
Mortgage warehouse lines
204,839
4,884
3.18%
110,776
3,812
4.60%
Other
3,302
148
5.99%
2,995
146
6.52%
Total loans and leases
1,956,380
69,538
4.75%
1,742,742
71,877
5.51%
Total interest earning assets (4)
2,594,623
80,481
4.20%
2,338,121
83,172
4.81%
Other earning assets
13,074
12,312
Non-earning assets
206,816
204,480
Total assets
$
2,814,513
$
2,554,913
Liabilities and shareholders'
equity
Interest bearing
deposits:
Demand deposits
$
121,246
$
209
0.23%
$
111,808
$
248
0.30%
NOW
485,176
295
0.08%
440,443
393
0.12%
Savings accounts
326,730
170
0.07%
289,263
230
0.11%
Money market
123,149
101
0.11%
124,090
136
0.15%
Certificates of deposit, under
$100,000
78,239
270
0.46%
90,103
843
1.25%
Certificates of deposit, $100,000 or
more
365,532
2,104
0.77%
397,115
6,308
2.12%
Brokered deposits
30,135
219
0.97%
47,594
873
2.45%
Total interest bearing deposits
1,530,207
3,368
0.29%
1,500,416
9,031
0.80%
Borrowed
funds:
Federal funds purchased
511
1
0.26%
398
1
0.34%
Repurchase agreements
33,676
101
0.40%
21,389
64
0.40%
Short term borrowings
28,299
43
0.20%
6,972
123
2.36%
TRUPS
35,008
965
3.68%
34,830
1,406
5.40%
Total borrowed funds
97,494
1,110
1.52%
63,589
1,594
3.35%
Total interest bearing liabilities
1,627,701
4,478
0.37%
1,564,005
10,625
0.91%
Demand deposits - non-interest bearing
822,882
658,784
Other liabilities
39,646
42,752
Shareholders' equity
324,284
289,372
Total liabilities and shareholders'
equity
$
2,814,513
$
2,554,913
Interest income/interest earning
assets
4.20%
4.81%
Interest expense/interest earning
assets
0.23%
0.61%
Net interest income and
margin(5)
$
76,003
3.97%
$
72,547
4.20%
____________________
(1)
Average balances are obtained from the
best available daily or monthly data and are net of deferred fees
and related direct costs.
(2)
Yields and net interest margin have been computed on a tax
equivalent basis utilizing a 21% effective tax rate.
(3)
Loans are gross of the allowance for
possible loan losses. Loan fees have been included in the
calculation of interest income. Net loan fees and loan acquisition
FMV amortization were $924 thousand and $(314) thousand for the
nine months ended September 30, 2020 and 2019, respectively.
(4)
Non-accrual loans have been included in
total loans for purposes of computing total earning assets.
(5)
Net interest margin represents net interest income as a
percentage of average interest-earning assets.
Category: Financial
Source: Sierra Bancorp
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201019005143/en/
Kevin McPhaill, President/CEO (559) 782‑4900 or (888) 454‑BANK
www.sierrabancorp.com
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