SOURCE: Desert Community Bank

November 13, 2006 09:30 ET

Desert Community Bank Announces Earnings for the Third Quarter and Year-to-Date for 2006

Third Quarter Earnings Lower Than in 2005, but Increase From Second Quarter, 2006; Year-to-Date Earnings Increase 10.9% Over Year-to-Date Earnings for 2005; Results of Operation for the Quarter and Year-to-Date Periods Ended September 30, 2006

VICTORVILLE, CA -- (MARKET WIRE) -- November 13, 2006 -- Desert Community Bank (the "Bank") (NASDAQ: DCBK) today reported earnings for the quarter and year-to-date periods ended September 30, 2006 of $1,769,000 and $5,368,000, respectively for 2006, as compared to $1,997,000 and $4,841,000, respectively for the same periods in 2005.

Diluted earnings per share for the quarter and year-to-date periods in 2006 were $0.30 and $0.91, respectively, as compared to $0.34 and $0.82, respectively, for the same periods in 2005. Diluted earnings per share declined $.04 (11.8%) for the third quarter of 2006, as compared to the third quarter of 2005, but increased $0.09 (11.0%) on a year-to-date basis.

The decline in net income for the third quarter of 2006, as compared to the third quarter of 2005, is primarily attributable to an expense recognition of $344,000 in stock options expense, pursuant to a new accounting rule adopted as of January 1, 2006. Excluding this change in accounting method, net income would have been approximately $2,100,000, as compared to $1,997,000 in the third quarter of 2005.

The increase in net income for the nine-month period ended September 30, 2006, as compared to the same period in 2005, was $527,000, attributable to higher net interest income resulting from increases in income from loans and investments, partially offset by higher interest expense on deposits, higher noninterest expense and stock options expense of $779,000. Excluding this change in accounting method, net income would have been approximately $6,100,000, as compared to $4,841,000 for the same period in 2005.

Total assets of the Bank increased to $559.3 million at September 30, 2006. This represents an increase in total assets of $3.8 million since June 30, 2006, and an increase of $28.5 million since September 30, 2005.

Total average assets were $549.3 million for the quarter, as compared to $518.0 million for the third quarter of 2005, and $552.7 million for the nine-month period ended September 30, 2006 as compared to $496.4 million for the same period in 2005.

Highlights as of or for the quarter ended September 30, 2006, as compared to information as of or for the quarter ended June 30, 2006, include: -

    
--  Total loans, excluding loans held for sale and net of unearned income,
    increased by $20.2 million (23.0% annualized) to $372.1 million.
    
--  Total deposits decreased by $22.6 million to $471.6 million, with the
    decline primarily in interest-bearing transaction accounts.
    
    
--  Shareholders' equity increased by $2.8 million.
    
--  The return on average shareholders' equity was 13.02%, as compared to
    13.82% in the second quarter.
    
    
--  The return on average assets was 1.28%, as compared to 1.27% for the
    second quarter.
    
--  Net income increased slightly from $1,747,000 in the second quarter of
    2006 to $1,769,000 for the third quarter of 2006.
    
    
--  Noninterest expenses increased $45,000 from $5,810,000 for the second
    quarter of 2006 to $5,855,000 for the second quarter of 2006.
    
--  The net interest margin increased from 5.97% in the second quarter of
    2006 to 6.02% in the third quarter of 2006, largely as a result of
    increases in the levels of loans and investment securities and lower levels
    of federal funds sold.  The yield on average earning assets increased from
    7.35% to 7.70%, reflecting the changes in the earning asset base, while the
    cost of all interest-bearing liabilities increased from 2.11% in the second
    quarter to 2.59% in the third quarter.
    
    
--  The closing price of the Bank's shares decreased $0.36 (1.95%) from
    $18.45 at June 30, 2006 to $18.09 at September 30, 2006.
    

Highlights as of or for the three-month and nine-month periods ended September 30, 2006, as compared to the same periods in 2005, include:

--  Total gross loans, excluding loans held for sale and net of unearned
    income, increased by $62.0 million (20.0%) from $310.1 million to $372.1
    million.
    
--  Total deposits declined by $9.5 million (2.0%) from $481.1 million to
    $471.6 million.
    
    
--  Shareholders' equity increased by $7.8 million from $46.2 million to
    $54.1 million.
    
--  The return on average shareholders' equity was 13.92%, as compared to
    14.67%.
    
    
--  Return on average assets was unchanged, at 1.30% for both 2006 and
    2005.
    
--  Net income increased by $527,000 (11.0%), from $4,841,000 to
    $5,368,000.
    
    
--  Net interest margin increased from 5.70% to 5.84%.
    
--  The closing price of the Bank's shares increased $1.84 (11.3%) from
    $16.25 to $18.09.
    
    
Asset quality continues to improve, as evidenced by the lower provision for loan losses recorded on a year-to-date basis and lower levels of nonperforming assets.

The Bank's net interest income before its provision for loan losses was $7,414,000 for the quarter and $21,507,000 for the nine-month period in 2006, as compared to $6,718,000 and $18,440,000 for the same periods in 2005. These increases represent increases of $696,000 (10.4%) and $3,067,000 (16.6%) for the same periods in 2005. These increases are the result of increases in the total earning asset base, a shift in the composition of earning assets from federal funds sold and investments into higher yielding loans, as well as increases in the interest rate environment occurring continually between September 30, 2005 and June 30, 2006.

Other operating income was slightly lower for both the quarter and the nine-month periods ended September 30, 2006 as compared to the same periods in 2005. Total noninterest income was $1,540,000 and $4,229,000 for the quarter and year-to-date periods as compared to $1,578,000 and $4,776,000 for the same periods in 2005. The decline for the nine-month period is attributable to lower gains on sales of loans into the secondary market and lower voucher control income.

Total noninterest expenses were $5,855,000 for the quarter, as compared to $5,034,000 for the third quarter of 2005. The increase in the quarterly expense of $821,000 related primarily to increases in compensation and employee benefits, totaling $484,000, which change was composed primarily of the stock-based compensation expense of $334,000, pursuant to new accounting guidelines which were adopted in 2006. No comparable expense was recorded in 2005. The majority of the change in the other noninterest expenses for the quarter was related to increased expenses for facilities and equipment and increased data processing fees.

Total noninterest expense for the nine-month period ended September 30, 2006 was $16,639,000, as compared to $14,782,000 for the same period in 2005, for an increase of $1,857,000. Compensation and employee benefits expenses increased by $1,555,000, with the largest change in this category relating to an increase of $779,000 related to the stock-based compensation expense which was recorded pursuant to new accounting guidelines which were adopted in 2006. No comparable expense was recorded in 2005. The majority of the change in other noninterest expenses was $302,000, but was offset by a nonrecurring recovery of $400,000 in the first quarter of 2006.

The Bank's efficiency ratio, which measures the proportion of total noninterest expense to total operating income, was 65.4% and 64.7% for the quarter and nine-month periods of 2006, respectively, as compared to 60.7% and 63.7% for the same periods in 2005.

"We are pleased with the quarter's results," said Ron L. Wilson, Chairman, President and CEO of the Bank, noting that this was a continuation of the very strong quarterly performance that began in the third quarter of 2005 and is continuing. He noted that loan growth for the quarter was especially gratifying and representative of the strong efforts put forth by management in the lending areas of the Bank, and that he looks forward to seeing further solid growth in loans as the year progresses. He added that, "These results reflect our continuing efforts to provide excellence in financial services to our customers in this, one of the fastest growing markets in the United States. Our focus on serving our customers will not diminish, but rather will be enhanced over the next several months as we complete our new Phelan branch facility, and expand our financial products and services throughout our market."

About Desert Community Bank

From its inception in March 1980, Desert Community Bank has been a leader in serving the needs of the communities in which it operates. That leadership is reflected by the involvement of the Bank and its employees in the many civic and non-profit organizations that act as its partner in enhancing the quality of life for all. The success of the Bank's efforts in partnership with many community leaders is reflected in the growth of the Bank to become the largest financial institution headquartered in the High Desert.

Desert Community Bank is based in Victorville, California, and operates eight full-service branches in San Bernardino County in the cities of Victorville, Apple Valley, Hesperia, Wrightwood, Adelanto and Barstow. Shares of the Bank's common stock are traded on the NASDAQ Small Cap Market System under the symbol "DCBK." To obtain a copy of any of the Bank's public filings, or to obtain additional information, please visit our web site at www.dcbk.org or contact Mr. Ronald L. Wilson, President and CEO, or John G. Sullivan, Chief Financial Officer at (760) 243-2140.

This news release may contain forward-looking statements with respect to the financial condition, results of operation and business of Desert Community Bank. These may include, but are not limited to statements that relate to or are dependent upon estimates or assumptions relating to the prospects of loan growth, deposit growth, credit quality, and certain operating efficiencies resulting from the operations of the Bank. These statements are subject to various risks and uncertainties. Such forward-looking statements are made based upon management's belief as well as assumptions made by, and information currently available to, management pursuant to "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The Bank's actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors. Such factors are described below and include, without limitation, (i) unanticipated deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) increased competition with other financial institutions, (iii) lack of sustained growth in the economy in the Victorville, California area, (iv) rapid fluctuations or unanticipated changes in interest rates, (v) the inability of the Bank to satisfy regulatory requirements for its expansion plans, and (vi) changes in the legislative and regulatory environment. Many of such factors are beyond the Bank's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. The Bank does not intend to update or reissue any forward-looking statements contained in this report as a result of new information or other circumstances that may become known to the Bank.


                         DESERT COMMUNITY BANK
                   STATEMENTS OF FINANCIAL CONDITION
                               (Unaudited)
           (Amounts in thousands, except for per share data)


                                          September   December   September
                                             30,         31,        30,
                                            2006        2005       2005
                                          ---------   ---------  ---------
ASSETS
Cash and due from banks                   $  27,044   $  23,122  $  27,041
Federal funds sold                           23,094      86,727     96,107
                                          ---------   ---------  ---------
   Total cash and cash equivalents           50,138     109,849    123,148
Investment securities available-for-sale     88,363      74,465     61,835
Investment securities held-to-maturity       11,770       4,233          -
Securities, restricted equities               2,208       2,027      2,011
Loans held for sale                           2,389       1,523      2,594
Loans, net of allowance of $4,269,
 $3,705, and $4,054                         367,860     313,801    306,118
Foreclosed real estate                            -       1,829      3,248
Premises and equipment, net                  16,357      15,775     16,046
Cash surrender value of life insurance       11,036       8,628      8,546
Accrued interest receivable and
 other assets                                 9,195       7,840      7,269
                                          ---------   ---------  ---------
    TOTAL ASSETS                          $ 559,316   $ 539,970  $ 530,815
                                          =========   =========  =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
 Deposits
    Noninterest-bearing                   $ 167,517   $ 166,153  $ 172,034
    Interest-bearing                        304,039     321,669    309,069
                                          ---------   ---------  ---------
        TOTAL DEPOSITS                      471,556     487,822    481,103
Borrowings - U.S. Treasury                      700         700        700
Repurchase agreements                           338           -          -
Advances from the Federal Home Loan Bank     30,000           -          -
Accrued interest payable and
 other liabilities                            2,654       3,567      2,779
                                          ---------   ---------  ---------
        TOTAL LIABILITIES                   505,248     492,089    484,582


SHAREHOLDERS' EQUITY
Common stock, no par value:  18,750,000
 shares authorized, 5,923,844 shares
 issued and outstanding at September 30,
 2006, 5,885,544 at December 31, 2005
 and 5,884,744 at September 30, 2005         16,214      14,896     14,838
Retained earnings                            38,527      33,631     31,870
Additional paid in capital                        -           -          -
Accumulated other comprehensive (loss)         (673)       (646)      (475)
                                          ---------   ---------  ---------
        TOTAL SHAREHOLDERS' EQUITY           54,068      47,881     46,233
                                          ---------   ---------  ---------
    TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                               $ 559,316   $ 539,970  $ 530,815
                                          =========   =========  =========



Where appropriate, some items in the prior financial statements have been
           reclassified to conform to the current presentation.



                          DESERT COMMUNITY BANK
                           STATEMENTS OF INCOME
                                (Unaudited)
      For the Three-Month and Nine-Month Periods Ended September 30
            (Amounts in thousands, except for per share data)


                                     Three Months Ended   Nine Months Ended
                                        September 30,       September 30,
                                        2006     2005      2006      2005
                                      -------   -------   -------   -------
Interest Income
  Loans and leases, including fees    $ 7,995   $ 6,632   $21,875   $18,307
  Investment securities                 1,130       566     3,081     1,638
  Federal funds sold and other            389       775     2,053     1,624
                                      -------   -------   -------   -------
                                        9,514     7,973    27,009    21,569
                                      -------   -------   -------   -------
Interest expense
  Deposits                              1,948     1,253     5,339     3,124
  Other borrowings                        152         2       163         5
                                      -------   -------   -------   -------
                                        2,100     1,255     5,502     3,129
                                      -------   -------   -------   -------

Net interest income                     7,414     6,718    21,507    18,440

Provision for loan losses                 250       125       554       625
                                      -------   -------   -------   -------

Net interest income after provision
 for loan losses                        7,164     6,593    20,953    17,815
                                      -------   -------   -------   -------

Noninterest income
  Deposit service charges and fees        435       414     1,202     1,194
  Voucher control fees                    135       316       540        87
  Earnings on cash values in life
   insurance contracts                    114        95       321       283
  Net gains on the sales of loans
   held for sale                          182       295       520       916
  Net losses on sales of securities         -         -       (78)        -
  Net gains on sales of repossessed
   and foreclosed assets                  170         -       170        75
  Other                                   504       458     1,554     1,521
                                      -------   -------   -------   -------
                                        1,540     1,578     4,229     4,776
                                      -------   -------   -------   -------
Noninterest expense
  Salaries and employee benefits        3,276     2,792     9,578     8,023
  Occupancy and equipment                 687       535     1,793     1,503
  Professional fees                       156       125       495       366
  Business development                    225       158       671       520
  EFT, operational and sundry losses       76        68      (215)      119
  Security                                 83        75       253       250
  Data processing                         488       434     1,435     1,365
  Loan expenses                           155       133       516       494
  Other                                   709       714     2,113     2,142
                                      -------   -------   -------   -------
                                        5,855     5,034    16,639    14,782
                                      -------   -------   -------   -------
Income before income taxes              2,849     3,137     8,543     7,809
Income tax expense                      1,080     1,140     3,176     2,968
                                      -------   -------   -------   -------

Net income                            $ 1,769   $ 1,967   $ 5,368   $ 4,841
                                      =======   =======   =======   =======

Weighted average common shares
 outstanding (shares in thousands):
  Basic                                 5,912     5,882     5,894     5,882
  Diluted                               5,976     5,920     5,903     5,902

Earnings per share of common stock
  Basic                               $  0.30   $  0.34   $  0.91   $  0.83
  Diluted                             $  0.30   $  0.34   $  0.91   $  0.82


Where appropriate, some items in the prior financial statements have been
         reclassified to conform to the current presentation.





                           DESERT COMMUNITY BANK
                           SUPPLEMENTAL ANALYSES
                                (Unaudited)
            (Amounts in thousands, except for per share data)


                               Three Months Ended      Nine Months Ended
                                  September 30,           September 30,
                                 2006       2005        2006       2005
                              ---------- ----------  ---------- ----------
Profitability Ratios:
  Return on average assets          1.28%      1.53%       1.30%      1.30%
  Return on average equity         13.02%     17.18%      13.92%     14.67%
  Net interest margin
   (tax-equivalent)                 6.02%      5.82%       5.84%      5.70%
  Efficiency ratio                 65.39%     60.68%      64.65%     63.67%

Other Information:
  Average total assets        $  549,285 $  517,995  $  552,736 $  496,354
  Average interest-earning
   assets                     $  494,433 $  460,909  $  497,758 $  435,953
  Average equity              $   53,896 $   46,112  $   51,553 $   44,123

Book value per share at
 end of period
  Shares outstanding at
   end of period               5,923,844  5,884,744
  Share prices and quotes:
      Closing price per share
       at end of period       $    18.09  $   16.25  $    18.09 $    16.25
      Average price per share
       during period          $    18.22  $   14.27  $    18.22 $    13.91
      Highest share price
       during the period      $    18.75  $   16.58  $    18.75 $    16.58
      Lowest share price
       during the period      $    17.88  $   12.75  $    17.88 $    12.75
      Closing share price as
       multiple of book value        1.98       2.07

  Asset Quality Information at
   end of period:
    Nonperforming loans       $    2,124  $   2,126
    Repossessed and foreclosed
     assets                   $        -  $   3,177
    Allowance for loan losses $    4,269  $   4,054
    Nonperforming loans/total
     loans                          0.57%      0.69%
    Nonperforming assets/total
     assets                         0.38%      1.00%
    Allowance for loan
     losses/loans outstanding       1.15%      1.31%


Where appropriate, some items in the prior financial statements have been
         reclassified to conform to the current presentation.



                              DESERT COMMUNITY BANK
                              SUPPLEMENTAL ANALYSES
                                   (Unaudited)
                              (Amounts in thousands)


                           Three Months Ended         Three Months Ended
                           September 30, 2006         September 30, 2005
                        ------------------------   ------------------------
                                          Average                   Average
                                Interest  Yield or        Interest Yield or
                       Average  Earned or  Rate   Average  Earned or  Rate
                       Balances   Paid(1)  Paid   Balances   Paid(1)  Paid
                       --------  --------  ----   --------  --------  ----
Assets
Interest-earning assets:
  Loans and leases     $365,225 $   7,995  8.68%  $306,521  $  6,631  8.65%
  Investment securities
   - taxable             88,398       960  4.31%    57,099       440  3.08%
  Investment securities
   - nontaxable          17,363       258  5.89%     7,869       133  6.78%
  Federal funds sold
   and other             23,447       389  6.58%    89,420       814  3.64%
                       --------  --------  ----   --------  --------  ----
  Total interest-
   earning assets       494,433     9,602  7.70%   460,909     8,018  6.96%
                                 --------  ====             --------  ====
Noninterest-earning
 assets                  54,853                     57,086
                       --------                   --------
Total assets           $549,285                   $517,995
                       ========                   ========

Liabilities
Interest-bearing
 liabilities:
  Money Market and
   Desert Gold         $214,655     1,319  2.44%  $221,218       941  1.82%
  Savings                39,656        80  0.80%    42,658        85  0.80%
  Certificates of
   deposit               56,022       548  3.88%    39,202       226  2.31%
  Repurchase agreements     220         3  5.40%         -         -     -
  Advances from Federal
   Home Loan Bank        10,869       143  5.22%         -         -     -
  Other borrowed funds      645         7  4.30%     1,797         2  0.45%
                       --------  --------  ----   --------  --------  ----
  Total interest-bearing
   liabilities          322,068     2,100  2.59%   304,874     1,254  1.65%
                       --------  --------  ====   --------  --------  ====
Noninterest-bearing
 liabilities:
  Demand deposits       169,913                    164,821
  Other liabilities       3,408                      2,189
                       --------                   --------
Total liabilities       495,389                    471,883
Stockholders' equity     53,896                     46,112
                       --------                   --------
Total liabilities and
 stockholders' equity  $549,285                   $517,995
                       ========                   ========

Net interest income              $  7,502                   $  6,764
                                 ========                   ========

Net interest spread                        5.12%                      5.31%
Net interest margin                        6.02%                      5.82%

(1) Yields and rates have been annualized.

Interest income presented above is stated on a tax-equivalent basis using
the statutory income tax rate of 34%.  The reconciliation of interest
income as presented in the basic financial statements to the above amounts
is as follows:

   Interest income as reported in
    the financial statements     $  9,514         $  7,973

   Adjustment to reported income
    to convert to tax-equivalent
    amount                             88               45
                                 --------         --------

   Tax-equivalent to income      $  9,602         $  8,018
                                 ========         ========



                              DESERT COMMUNITY BANK
                              SUPPLEMENTAL ANALYSES
                                   (Unaudited)
                              (Amounts in thousands)


                          Nine Months Ended          Nine Months Ended
                          September 30, 2006         September 30, 2005
                       ------------------------   ------------------------
                                          Average                   Average
                                Interest  Yield or        Interest Yield or
                       Average  Earned or  Rate   Average  Earned or  Rate
                       Balances   Paid(1)  Paid   Balances   Paid(1)  Paid
                       --------  --------  ----   --------  --------  ----
Assets
Interest-earning assets:
  Loans and leases     $344,645  $ 21,876  8.49%  $303,335  $ 18,307  8.07%
  Investment securities
   - taxable             80,265     2,534  4.22%    55,721     1,290  3.10%
  Investment securities
   - nontaxable          15,819       720  6.08%     7,541       381  6.76%
  Federal funds sold
   and other             57,029     2,124  4.98%    69,357     1,720  3.32%
                       --------  --------  ----   --------  --------  ----
  Total interest-
   earning assets       497,758    27,254  7.32%   435,953    21,698  6.65%
                                 --------  ====             --------  ====
Noninterest-earning
 assets                  54,978                     60,401
                       --------                   --------
Total assets           $552,736                   $496,354
                       ========                   ========

Liabilities
Interest-bearing
 liabilities:
  Money Market and
   Desert Gold         $229,175     3,743  2.18%  $213,510     2,302  1.44%
  Savings                40,851       246  0.81%    40,717       240  0.79%
  Certificates of
   deposit               51,551     1,349  3.50%    38,216       582  2.04%
  Repurchase agreements      74         3  5.42%         -         -     -
  Advances from Federal
   Home Loan Bank         3,663       143  5.22%         -         -     -
  Other borrowed funds      611        18  3.94%       947         5  0.71%
                       --------  --------  ----   --------  --------  ----
  Total interest-bearing
   liabilities          325,925     5,502  2.26%   293,390     3,129  1.43%
                                 --------  ====             --------  ====
Noninterest-bearing
 liabilities:
  Demand deposits       171,578                    155,920
  Other liabilities       3,680                      2,921
                       --------                   --------
Total liabilities       501,183                    452,231
Stockholders' equity     51,553                     44,123
                       --------                   --------
Total liabilities and
 stockholders' equity  $552,736                   $496,354
                       ========                   ========

Net interest income              $ 21,752                   $ 18,569
                                 ========                   ========

Net interest spread                        5.06%                      5.23%
Net interest margin                        5.84%                      5.70%

(1) Yields and rates have been annualized.

Interest income presented above is stated on a tax-equivalent basis using
the statutory income tax rate of 34%.  The reconciliation of interest
income as presented in the basic financial statements to the above amounts
is as follows:

   Interest income as reported in
    the financial statements     $ 27,009         $ 21,569

   Adjustment to reported income
    to convert to tax-equivalent
    amount                            245              129
                                 --------         --------

   Tax-equivalent to income      $ 27,254         $ 21,698
                                 ========         ========

Contact Information

  • Contact:
    Ronald L. Wilson
    Chairman/CEO
    (760) 243-2140