Form 425 SIERRA BANCORP Filed by: SIERRA BANCORP

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Form 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported) April 25, 2016

 

SIERRA BANCORP

(Exact name of registrant as specified in its charter)

 

 

 

California	000-33063	33-0937517
(State or other jurisdiction of incorporation or organization)	(Commission File No.)	(I.R.S. Employee Identification No.)

 

 

86 North Main Street, Porterville, CA 93257
(Address of principal executive offices)
(Zip code)

 

(559) 782-4900
(Registrant’s telephone number including area code)

 

(Former name or former address, if changed since last report) Not applicable

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

þ

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

Item 2.02

Results of Operations and Financial Condition

 

On April 25, 2016, Sierra Bancorp issued a press release announcing its unaudited consolidated financial results for the quarter ended March 31, 2016. A copy of the press release is attached as Exhibit 99.1 to this Current Report.

 

The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

 

Item 8.01

OTHER EVENTS

 

The information set forth under the captions “Additional information about the Coast Bancorp Merger and Where to Find It” and “Participants in the Solicitation” in the press release furnished as Exhibit 99.1 is incorporated by reference in this Item 8.01.

 

ITEM 9.01

FINANCIAL STATEMENTS AND EXHIBITS

 

(d)

Exhibits

 

Exhibit Number	Description
99.1	Press Release dated April 25, 2016

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

	SIERRA BANCORP
Dated:  April 25, 2016	By:	/s/ Kenneth R. Taylor
		Kenneth R. Taylor
		Executive Vice President & Chief Financial Officer

 

 

 

 

 

Exhibit 99.1

 

 

 

FOR IMMEDIATE RELEASE

 

Date:	April 25, 2016
Contacts:	Kevin McPhaill, President/CEO
	Ken Taylor, EVP/CFO
Phone:	(559) 782-4900 or (888) 454-BANK
Website Address:	www.sierrabancorp.com

 

 

SIERRA BANCORP REPORTS EARNINGS

 

Porterville, CA – April 25, 2016 – Sierra Bancorp (Nasdaq: BSRR), parent of Bank of the Sierra, today announced its unaudited financial results for the quarter ended March 31, 2016. Sierra Bancorp recognized consolidated net income of $4.036 million for the quarter, an improvement of $298,000, or 8%, relative to net income in the first quarter of 2015. The increase over the prior year is primarily the result of higher net interest income driven by growth in interest-earning assets, and an increase in service charges stemming from a growing level of deposits and greater commercial deposit account activity. Those favorable variances were partially offset by a higher tax accrual rate. The Company’s return on average assets was 0.93% in the first quarter of 2016, the same as in the first quarter of 2015. The Company’s return on average equity increased to 8.41% in the first quarter of 2016 from 8.06% in the first quarter of 2015, and diluted earnings per share also increased to $0.30 from $0.27.

 

Total assets were down $32 million, or 2%, during the first three months of 2016. The drop in assets was due to a net decline of $39 million, or 3%, in gross loan balances and a reduction of $5 million, or 9%, in cash balances, partially offset by an increase of $15 million, or 3%, in investment securities. Loan growth was unfavorably impacted by a $27 million drop in outstanding balances on mortgage warehouse lines resulting from lower line utilization, and other loan categories also fell by a combined $12 million. Total nonperforming assets, including nonperforming loans and foreclosed assets, were reduced by $2 million, or 17%, during the first quarter. Total deposits were up $23 million, or 2%, due to a $29 million increase in core non-maturity deposits that was partially offset by a $5 million reduction in time deposits. Non-deposit borrowings were reduced by $55 million in the first quarter of 2016, due to deposit growth and loan runoff.

 

“Success is dependent on effort.” – Sophocles

 

“Throughout the Bank our efforts remain focused on quality growth, as this is how we will continue to realize strong net income,” stated Kevin McPhaill, President and CEO. “The first quarter of 2016 demonstrated this commitment, as we saw an increase in income over the first quarter of last year due to higher average balances of loans and deposits,” noted McPhaill. “Core deposits continued their favorable growth trend through the first three months of 2016, but we experienced a reduction in total loans subsequent to year-end due in large part to fluctuations in the mortgage warehouse portfolio and strong loan growth during the fourth quarter of last year. We are optimistic that we will see loans resume growing this year as a result of the marketing and business development efforts of our banking team,” concluded McPhaill.

 

 

Sierra Bancorp Financial Results

April 25, 2016

Page 2

 

Financial Highlights

 

Net income increased by $298,000, or 8%, in the first quarter of 2016 relative to the first quarter of 2015. Pre-tax income actually increased by 16% for the quarter, but the percentage change in net income was lower due to a higher tax accrual rate in 2016. Significant variances in the components of pre-tax income, including some items of a nonrecurring nature, are noted below.

 

Net interest income was up by $597,000, or 4%, for the first quarter of 2016 over the first quarter of 2015, due primarily to growth in average interest-earning assets totaling $106 million, or 7%. That growth was largely organic in nature, but includes the purchase of $28 million in residential mortgage loans in 2015. The positive impact of higher interest-earning assets was partially offset by a drop of 16 basis points in our net interest margin, which resulted in part from continued competitive pressures on commercial real estate loan yields. The first quarter comparison was also impacted by non-recurring interest income, which totaled only $42,000 in the first quarter of 2016 relative to $366,000 in the first quarter of 2015. Non-recurring interest income is comprised of interest recoveries on non-accrual loans (net of any interest reversals for loans placed on non-accrual status), as well as penalties and accelerated fee recognition on loan prepayments.

 

Total non-interest income rose by $287,000, or 7%, for the quarterly comparison. Service charges on deposit accounts, which represent the largest portion of non-interest income, were up $380,000, or 19%, for the quarter, due primarily to fees earned from increased activity on commercial accounts and higher overdraft income. Bank-owned life insurance (BOLI) income was down as the result of a $24,000 loss on BOLI associated with deferred compensation plans in the first quarter of 2016 relative to a gain of $124,000 in the first quarter of 2015, representing an absolute decline of $148,000. There was also a small loss on the sale of investments in the first quarter of 2016, as compared to a small gain in the first quarter of 2015. Other non-interest income increased by $93,000, or 6%, in the first quarter of 2016 due in part to higher debit card interchange income.

 

Total non-interest expense reflects an increase of only $19,000, or less than 1%, for the first quarter comparison. The largest component of non-interest expense, salaries and benefits, actually fell by $30,000, as increases in the normal course of business were offset by other factors. Direct salaries were up $118,000, or 2%, mainly in conjunction with regular annual increases, and equity incentive compensation costs were $48,000 higher due to stock options issued to Company officers during the first quarter of 2016. Personnel expense benefited in the first quarter of 2016, however, from a higher level of deferred salaries directly related to successful loan originations (which lowers current period expense), a reduction in deferred compensation expense associated with the aforementioned drop in BOLI income, lower group insurance costs, and a decline in the cost of certain other employee benefits.

 

Occupancy expense increased by $89,000, or 5%, for the quarter, due primarily to higher rent and depreciation expense. Other non-interest expense fell by $40,000, or 1%, for the first quarter, as significant increases within this category were more than offset by decreases. One of the larger increases within other non-interest expense came in non-recurring acquisition costs, which totaled $214,000 in the first quarter of 2016 relative to $112,000 in the first quarter of 2015. Other substantial expense increases include $101,000 in stock option expense for directors in the first quarter of 2016, a higher FDIC assessment resulting from asset growth, rising forms and supplies costs, higher debit card processing costs, and higher internet banking costs. Significant favorable variances within other non-interest expense include the following: a non-recurring expense reversal of $173,000 in director retirement plan accruals, subsequent to the death of a former director and the payment of split-dollar life insurance proceeds to his beneficiary; a $76,000 drop in deferred compensation costs for directors, related to the aforementioned drop in BOLI income; an $86,000 reduction in telecommunications costs; a $76,000 drop in marketing costs due to the timing of payments; and a $103,000 reduction in loan costs resulting mainly from declining collection and foreclosure costs. Also impacting other non-interest expense was a significant reduction in debit card losses pursuant to our rollout of chipped debit cards incorporating EMV technology, but that reduction was offset by an increase in operations-related losses within our branch system.

 

 

Sierra Bancorp Financial Results

April 25, 2016

Page 3

 

The Company’s provision for income taxes was 34% of pre-tax income in the first quarter of 2016 relative to 29% in the first quarter of 2015. The higher tax provisioning in 2016 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 the first three months of 2016 include a drop in total assets of $32 million, or 2%, due primarily to net runoff in loans that was partially offset by higher investment balances. Gross loans fell by $39 million, or 3%, as the result of a $27 million decline in balances outstanding on mortgage warehouse lines from lower utilization, and net runoff in other major loan categories. Utilization on mortgage warehouse lines has historically been difficult to predict, due to its dependency on residential real estate activity and the trend in mortgage rates among other factors. The net runoff in other loan categories during the first quarter can be explained, in part, by the surge in loan growth in the latter part of 2015 that depleted the Company’s loan pipeline, thereby reducing the source of new volume that would typically offset loan payoffs in the normal course of business. Payoffs during the first quarter of 2016 were also higher than we experienced in immediately preceding periods. The loan pipeline has been steadily increasing since year-end, which in the opinion of management should positively impact new volume as the year progresses, but loan payoffs remain at relatively high levels and no assurance can be provided with regard to net loan growth.

 

Total nonperforming assets, including non-accrual loans and foreclosed assets, were reduced by over $2 million, or 17%, during the first three months of 2016, including the return to accrual status of our single largest remaining nonperforming loan. The Company’s ratio of nonperforming assets to loans plus foreclosed assets was 0.97% at March 31, 2016 compared to 1.13% at December 31, 2015. 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 $13 million in loans classified as restructured troubled debt (TDRs) that were included with performing loans as of March 31, 2016, up by over $1 million compared to year-end 2015 due to the aforementioned upgrade of a non-performing restructured loan to performing status.

 

The Company’s allowance for loan and lease losses was $10.0 million at March 31, 2016, down slightly from the $10.4 million balance as of December 31, 2015 due to the charge-off of certain impaired loan balances against previously-established reserves. Net loans charged off against the allowance totaled $393,000 in the first three months of 2016 compared to $530,000 in the first three months of 2015. Despite the drop in the level of the allowance, it was 0.92% of total loans at both March 31, 2016 and December 31, 2015 due to the drop in aggregate loan balances during the first quarter. 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, 2016, 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 $23 million, or 2%, during the three months ended March 31, 2016, due to continued growth in core non-maturity deposits that was partially offset by a $5 million reduction in time deposits. Junior subordinated debentures remain the same, but other borrowings were reduced by $55 million, or 64%, during the first quarter of 2016, as facilitated by deposit growth and loan runoff.

 

 

Sierra Bancorp Financial Results

April 25, 2016

Page 4

 

Total capital of $194 million at March 31, 2016 reflects an increase of $4 million, or 2%, for the first three months of the year due to the rising level of retained earnings, the impact of stock options exercised, and an increase in accumulated other comprehensive income. There were no shares repurchased during the first quarter of 2016.

 

About Sierra Bancorp

 

Sierra Bancorp is the holding company for Bank of the Sierra (www.bankofthesierra.com), which is in its 39^th year of operations and at approximately $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. As announced on January 4, 2016 the Company has entered into a definitive agreement to acquire Coast Bancorp, which serves the communities of San Luis Obispo, Arroyo Grande, Paso Robles and Atascadero, California and had $147 million in assets as of year-end 2015. We expect the transaction to be completed in mid-2016, subject to customary conditions of closing including the receipt of required regulatory approvals and the consent of Coast Bancorp shareholders.

 

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 branch expansion, changes in interest rates, loan portfolio performance, the Company’s ability to secure buyers for foreclosed properties, 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.

 

Additional information about the Coast Bancorp Merger and Where to Find It

 

In connection with the proposed merger of Sierra Bancorp and Coast Bancorp, Sierra has filed with the United States Securities and Exchange Commission (“SEC”) a preliminary registration statement on Form S-4, dated March 25, 2016, to register the shares of Sierra Bancorp common stock to be issued to the shareholders of Coast, which contains Sierra’s prospectus and Coast’s proxy statement. After the registration statement has been declared effective by the SEC, the final proxy statement/prospectus will be mailed to the shareholders of Coast Bancorp in advance of a special meeting of shareholders that will be held to consider the proposed merger. Before making any voting or investment decision, investors and security holders of Coast Bancorp are urged to carefully read the entire registration statement and proxy statement/prospectus, as well as any amendments or supplements to these documents when they become available, because they contain important information about the proposed transaction. In addition, Sierra and Coast may file other relevant documents concerning the proposed merger with Coast with the SEC.

 

This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval.

 

 

Sierra Bancorp Financial Results

April 25, 2016

Page 5 

 

Investors and shareholders will be able to obtain a free copy of the registration statement and proxy statement/prospectus, as well as other filings containing information about the Company (including but not limited to the Company's Annual Reports on Form 10-K, proxy statements, Current Reports on Form 8-K and Quarterly Reports on Form 10-Q), at the SEC's website at www.sec.gov. Free copies of the final proxy statement/prospectus, when available, may also be obtained by directing a request by telephone or mail to Sierra Bancorp, 86 North Main Street, Porterville, California 93257, Attn: Corporate Secretary, telephone (559) 782-4900, or by accessing Sierra’s website at www.sierrabancorp.com under “Investor Relations.” The information on Sierra’s website is not, and shall not be deemed to be, a part of this filing or incorporated into other filings it makes with the SEC.

 

Participants in the solicitation

 

Sierra Bancorp and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the shareholders of Coast Bancorp in connection with the transaction. Coast and its directors and executive officers may also be deemed to be participants in the solicitation of proxies from the shareholders of Coast in connection with the Merger. Additional information regarding the interests of these participants and other persons who may be deemed participants in the Merger may be obtained by reading the proxy statement/prospectus regarding the Merger, including various documents filed by the Company with the SEC which are incorporated by reference into the proxy statement/prospectus.

 

 

 

Sierra Bancorp Financial Results

April 25, 2016

Page 6

 

CONSOLIDATED INCOME STATEMENT
(in $000's, unaudited)		3-Month Period Ended:
		3/31/2016				3/31/2015				% Change
Interest Income		$	16,033			$	15,351				4	%
Interest Expense			718				633				13	%
Net Interest Income			15,315				14,718				4	%
Provision for Loan & Lease Losses			-				-
Net Int after Provision			15,315				14,718				4	%
Service Charges			2,371				1,991				19	%
BOLI Income			210				356				-41	%
Gain (Loss) on Investments			(24	)			16				-250	%
Other Non-Interest Income			1,737				1,644				6	%
Total Non-Interest Income			4,294				4,007				7	%
Salaries & Benefits			6,865				6,895				0	%
Occupancy Expense			1,750				1,661				5	%
Other Non-Interest Expenses			4,864				4,904				-1	%
Total Non-Interest Expense			13,479				13,460				0	%
Income Before Taxes			6,130				5,265				16	%
Provision for Income Taxes			2,094				1,527				37	%
Net Income		$	4,036			$	3,738				8	%
TAX DATA
Tax-Exempt Muni Income		$	730			$	725				1	%
Interest Income - Fully Tax Equiv		$	16,426			$	15,741				4	%
NET CHARGE-OFFS		$	393			$	530				-26	%

 

PER SHARE DATA
(unaudited)		3-Month Period Ended:
		3/31/2016				3/31/2015				% Change
Basic Earnings per Share		$	0.30			$	0.27				11	%
Diluted Earnings per Share		$	0.30			$	0.27				11	%
Common Dividends		$	0.12			$	0.10				20	%
Wtd. Avg. Shares Outstanding			13,259,014				13,678,660
Wtd. Avg. Diluted Shares			13,380,295				13,804,672
Book Value per Basic Share (EOP)		$	14.64			$	13.83				6	%
Tangible Book Value per Share (EOP)		$	14.05			$	13.25				6	%
Common Shares Outstanding (EOP)			13,275,888				13,630,118

 

 

KEY FINANCIAL RATIOS
(unaudited)		3-Month Period Ended:
		3/31/2016				3/31/2015
Return on Average Equity			8.41	%			8.06	%
Return on Average Assets			0.93	%			0.93	%
Net Interest Margin (Tax-Equiv.)			3.96	%			4.12	%
Efficiency Ratio (Tax-Equiv.)			66.93	%			69.77	%
Net C/O's to Avg Loans (not annualized)			0.04	%			0.06	%

 

AVERAGE BALANCES
(in $000's, unaudited)		3-Month Period Ended:
		3/31/2016				3/31/2015				% Change
Average Assets		$	1,736,842			$	1,632,631				6	%
Average Interest-Earning Assets		$	1,594,657			$	1,488,202				7	%
Avg Loans & Leases (net of def fees)		$	1,062,516			$	958,490				11	%
Average Deposits		$	1,472,365			$	1,376,658				7	%
Average Equity		$	192,974			$	188,152				3	%

 

 

 

Sierra Bancorp Financial Results

April 25, 2016

Page 7

 

STATEMENT OF CONDITION
(in $000's, unaudited)
		End of Period:
ASSETS		3/31/2016				12/31/2015				3/31/2015				Annual Chg
Cash and Due from Banks		$	44,008			$	48,623			$	47,905				-8	%
Investment Securities			522,610				507,582				514,466				2	%
Loans Held for Sale			-				-				-				0	%
Real Estate Loans (non-Agricultural)			641,363				644,926				577,258				11	%
Agricultural Real Estate Loans			131,052				133,182				128,945				2	%
Agricultural Production Loans			45,651				46,237				28,501				60	%
Comm'l & Industrial Loans & Leases			107,895				113,207				109,463				-1	%
Mortgage Warehouse Lines			153,625				180,355				204,233				-25	%
Consumer Loans			14,284				14,949				17,444				-18	%
Gross Loans & Leases			1,093,870				1,132,856				1,065,844				3	%
Deferred Loan & Lease Fees			2,438				2,169				1,780				37	%
Loans & Leases Net of Deferred Fees			1,096,308				1,135,025				1,067,624				3	%
Allowance for Loan & Lease Losses			(10,030	)			(10,423	)			(10,718	)			-6	%
Net Loans & Leases			1,086,278				1,124,602				1,056,906				3	%
Bank Premises & Equipment			22,183				21,990				21,688				2	%
Other Assets			89,088				93,740				92,452				-4	%
Total Assets		$	1,764,167			$	1,796,537			$	1,733,417				2	%
LIABILITIES & CAPITAL
Non-Interest Demand Deposits		$	431,999			$	432,251			$	400,387				8	%
Int-Bearing Transaction Accounts			454,871				431,840				400,266				14	%
Savings Deposits			201,266				193,052				182,245				10	%
Money Market Deposits			99,294				101,562				116,574				-15	%
Customer Time Deposits			300,656				305,923				291,543				3	%
Wholesale Brokered Deposits			-				-				-				0	%
Total Deposits			1,488,086				1,464,628				1,391,015				7	%
Junior Subordinated Debentures			30,928				30,928				30,928				0	%
Other Interest-Bearing Liabilities			31,483				86,705				108,785				-71	%
Total Deposits & Int.-Bearing Liab.			1,550,497				1,582,261				1,530,728				1	%
Other Liabilities			19,323				23,936				14,205				36	%
Total Capital			194,347				190,340				188,484				3	%
Total Liabilities & Capital		$	1,764,167			$	1,796,537			$	1,733,417				2	%

 

CREDIT QUALITY DATA
(in $000's, unaudited)		End of Period:
		3/31/2016				12/31/2015				3/31/2015				Annual Chg
Non-Accruing Loans		$	7,493			$	9,634			$	19,766				-62	%
Foreclosed Assets			3,115				3,193				3,194				-2	%
Total Nonperforming Assets		$	10,608			$	12,827			$	22,960				-54	%
Performing TDR's (not incl. in NPA's)		$	13,455			$	12,431			$	11,136				21	%
Non-Perf Loans to Gross Loans			0.68	%			0.85	%			1.85	%
NPA's to Loans plus Foreclosed Assets			0.97	%			1.13	%			2.15	%
Allowance for Ln Losses to Loans			0.92	%			0.92	%			1.01	%

 

OTHER PERIOD-END STATISTICS
(unaudited)		End of Period:
		3/31/2016				12/31/2015				3/31/2015
Shareholders Equity / Total Assets			11.0	%			10.6	%			10.9	%
Loans / Deposits			73.5	%			77.3	%			76.6	%
Non-Int. Bearing Dep. / Total Dep.			29.0	%			29.5	%			28.8	%

 

 

 

 

#####################################

 

 

---

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

---

You May Also Be Interested In

• Janney Upgrades Sierra Bancorp (BSRR) to Buy
• Sierra Bancorp (BSRR) PT Lowered to $23 at Keefe, Bruyette & Woods
• Toll Brothers Announces Clubhouse Grand Opening Event on May 4 at Regency at Santa Rita Ranch 55+ Community in Liberty Hill, Texas