SOURCE: Desert Community Bank

August 08, 2005 14:08 ET

Desert Community Bank Announces Record Earnings for the Second Quarter and Year-to-Date Periods Ended June 30, 2005

Earnings Increase 61.4% for the Second Quarter and 30.1% Year-to-Date; Desert Community Bank Also Announces Restatement of Prior Period Results and Declaration of Dividend on Common Stock; Results of Operation for the Quarter Ended June 30, 2005

VICTORVILLE, CA -- (MARKET WIRE) -- August 8, 2005 -- Desert Community Bank (the "Bank") (NASDAQ: DCBK) today reported earnings for the quarter and six-month period ended June 30, 2005 of $1,564,000 and $2,844,000, respectively, as compared to $969,000 and $2,187,000, respectively for the same periods in 2004. The growth in earnings of $595,000 for the second quarter represents a 61.4% increase over the earnings in the second quarter of 2004. For the six-month period, the increase amounted to $657,000, which represents a 30.1% increase over the comparable 2004 period. Diluted earnings per share for the quarter and the six-month period ended June 30, 2005 totaled $0.53 and $0.96, as compared to $0.33 and $0.74 in 2004.

The increase in net income is attributable to higher net interest income resulting from increases in the interest rate environment, growth of earning assets and deposits and lower provisions for loan losses. These factors were partially offset by higher operating costs.

Total assets of the Bank increased to an all-time high of $507.0 million at June 30, 2005, up $23.0 million (4.8%) since March 31, 2005 and up $37.2 million (7.9%) since January 1, 2005. Total assets increased by $55.2 million (12.2%) since June 30, 2004.

Average earning assets increased 9.0% to $428.8 million for the second quarter of 2005, as compared to $393.4 million for the second quarter of 2004. During the second quarter of 2005, average earning assets increased $6.6 million (1.6%) from the $422.2 million level of the first quarter of 2005.

Highlights for the quarter ended June 30, 2005 include:

--  federal funds sold increased by $12.6 million (18.6%) to $80.4 million
--  total loans remained essentially unchanged
--  total deposits increased by $22.2 million (5.1%) to $459.1 million
--  shareholders' equity increased by $1.7 million (3.9%)
--  repossessed and foreclosed assets declined from $7.7 million to $3.4
    million
    
Highlights for the six-month period ended June 30, 2005 include:
--  federal funds sold increased by $27.4 million (51.9%)
--  total loans remained essentially unchanged
--  total deposits increased by $35.4 million (8.4%)
--  shareholders' equity increased by $2.6 million (6.1%)
--  repossessed and foreclosed assets declined from $6.4 million to $3.4
    million
    
During the quarter and six-month periods ended June 30, 2005 the majority of the growth in total assets has been in federal funds sold, resulting from strong growth in deposits. This growth reflects the growth in the Bank's market, which has been accelerating in the past two years.

Asset quality has improved steadily throughout 2005, which has resulted in significantly lower credit losses and provisions. The provision for loan losses declined in the second quarter of 2005 to $200,000, as compared to $300,000 in the first quarter of 2005 and $750,000 in each of the last two quarters of 2004. On a comparative basis, the provision for loan losses for the current quarter was $200,000, as compared to $650,000 in 2004, and the year-to-date provision for loan losses in 2005 was $500,000 as compared to $875,000 in 2004.

The Bank's net interest income before its provision for loan losses increased by $695,000, or 12.4%, to $6.3 million as compared to $5.6 million for the second quarter of 2004. For the six-month period, net interest income increased by $1.5 million, or 13.3% to $12.3 million, as compared to $10.9 million in 2004. These increases are the result of growth of the total earning asset base and deposit base, and the increases in the interest rate environment occurring since June 30, 2004.

Other operating income was essentially unchanged for the quarter and the six-month periods ended June 30, 2005, as compared to levels of the prior year. Total operating expenses amounted to $4.9 million for the quarter as compared to $4.6 for the second quarter of 2004. For the six-month periods, total operating expenses amounted to $9.7 million as compared to $9.1 million for the 2004 period. These increases are largely attributable to the opening of a new retail branch in December 2004, coupled with general increases in costs.

The Bank's efficiency ratio, which measures the proportion of total operating income that is used to cover operating expenses, fell to 64.2% for the quarter and 65.3% for the six-month period in 2005, as compared to 67.7% and 67.4% for the quarter and six-month periods ended in June 2004.

"We are pleased with the quarter's results," said Ron L. Wilson, Chairman and CEO of the Bank. "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 year, as we seek to invest in new branch facilities, products and services to better serve our customers and our communities."

Restatement of Prior Period Results

On August 4, 2005, pursuant to a recommendation of its Audit Committee, and after consultation with its independent auditors, the Bank concluded that it will be required to restate its previously issued financial statements for the years ended December 31, 2002, 2003 and 2004, and the interim financial statements for the quarter ended March 31, 2005. In light of the restatement, the Bank's prior financial statements for those periods should no longer be relied upon.

The nature of the restatement relates to the misapplication or misappropriation of approximately $560,000 occurring in or prior to 1998 that was discovered in June 2005 as the Bank began the process of reviewing records in preparation for the release of its quarterly results. The Bank believes that certain accounting records were falsified between 1998 and June 2005, thus preventing the discovery of the misapplication or misappropriation of funds until June 2005, when new internal controls were implemented. The net impact of the restatement to the financial statements is generally a reduction in cash and investments of $560,000, an increase in deferred income tax benefits of $231,000 and a reduction in shareholders' equity of $329,000. In addition, the Bank determined that its unrealized loss in securities, net of tax, was erroneously understated at December 31, 2004 by $86,000.

The restatements and the correction of the error referred to above have no effect on net income as reported in the financial statements for the periods ended December 31, 2002, 2003 and 2004 and the period ended March 31, 2005.

Declaration of Dividend on Common Stock

The Board of Directors of the Bank, at their meeting of July 26, 2005, declared a dividend of $0.12 per share on the Bank's common stock, payable on September 30, 2005 to shareholders of record as of August 31, 2005.

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 "DBCK." To obtain a copy of any of the Bank's public filings, or to obtain additional information, please contact Mr. Ronald L. Wilson 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
            CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                            (Unaudited)
         (Amounts in thousands, except for per share data)


                                     June 30,    December 31,  June 30,
                                      2005          2004         2004
                                    ---------    ---------     ---------
ASSETS
Cash and due from banks             $  30,723    $  17,014     $  29,652
Federal funds sold                     80,368       52,920        30,848
                                    ---------    ---------     ---------
        Total cash and
         cash equivalents             111,091       69,934        60,500
Securities available-for-sale          59,151       64,243        63,434
Securities, restricted equities         2,011        1,794         1,728
Loans held for sale                     1,577        3,015         5,299
Loans, net of allowance of
 $3,976, $3,779, and $2,935           296,733      294,820       290,512
Foreclosed assets                       3,447        6,392         3,152
Premises and equipment, net            16,183       15,585        12,372
Cash surrender value of
 life insurance                         8,465        8,343         7,231
Accrued interest receivable and
 other assets                           8,313        5,707         7,578
                                    ---------    ---------     ---------

         TOTAL ASSETS               $ 506,971    $ 469,833     $ 451,806
                                    =========    =========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
 Deposits
        Noninterest-bearing         $ 161,508    $ 137,644     $ 130,325
        Interest-bearing              297,635      286,066       277,449
                                    ---------    ---------     ---------
              TOTAL DEPOSITS          459,143      423,710       407,774
Borrowings                                700          700           700
Accrued interest payable and
 other liabilities                      2,380        3,257         3,076
                                    ---------    ---------     ---------
              TOTAL LIABILITIES       462,223      427,667       411,550

Commitments and contingent liabilities

SHAREHOLDERS' EQUITY
Common stock, no par value:
 9,375,000 shares authorized,
 no par value; 2,941,272 shares
 issued at June 30, 2005,
 December 31, 2004 and
 June 30, 2004                         14,810       14,810        14,810
Retained earnings                      30,226       27,382        25,333
Accumulated other
 comprehensive income (loss)             (288)         (26)          113
                                    ---------    ---------     ---------
              TOTAL SHAREHOLDERS'
               EQUITY                  44,748       42,166        40,256
                                    ---------    ---------     ---------
         TOTAL LIABILITIES AND
          SHAREHOLDERS' EQUITY      $ 506,971    $ 469,833     $ 451,806
                                    =========    =========     =========


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


                                     Three Months Ended  Six Months Ended
                                       June 30,               June 30,
                                      2005       2004     2005      2004
                                     -------   -------  --------  --------
Interest Income
        Loans, including fees        $ 6,144   $ 5,562  $ 12,194  $ 10,908
        Investment securities            537       546     1,071       981
        Direct lease financing            45       107       102       236
        Federal funds sold and other     522       105       849       237
                                     -------   -------  --------  --------
                                       7,248     6,320    14,216    12,362
                                     -------   -------  --------  --------
Interest expense
        Deposits                         967       735     1,870     1,469
        Other borrowings                   2         1         4         2
                                     -------   -------  --------  --------
                                         969       736     1,874     1,471
                                     -------   -------  --------  --------

Net interest income                    6,279     5,584    12,342    10,891

Provision for loan losses                200       650       500       875
                                     -------   -------  --------  --------

Net interest income after provision
 for loan losses                       6,079     4,934    11,842    10,016
                                     -------   -------  --------  --------

Noninterest income
        Service charges and fees         737       707     1,433     1,436
        Voucher control fees             251       213       471       452
        Net gains (losses) on sales
         of repossessed and
         foreclosed assets                75         -        75         -
        Other                            284       356       597       745
                                     -------   -------  --------  --------
                                       1,347     1,276     2,576     2,633
                                     -------   -------  --------  --------
Noninterest expense
        Salaries and employee
         benefits                      2,624     2,393     5,279     4,801
        Occupancy and equipment          659       570     1,277     1,139
        Loan processing                  153       225       362       447
        Data processing                  321       299       635       607
        Other                          1,136     1,159     2,193     2,126
                                     -------   -------  --------  --------
                                       4,893     4,646     9,746     9,120
                                     -------   -------  --------  --------
Income before income taxes             2,533     1,564     4,672     3,529
Income tax expense                       969       595     1,828     1,342
                                     -------   -------  --------  --------

Net income                           $ 1,564   $   969  $  2,844  $  2,187
                                     =======   =======  ========  ========


Weighted average common
 shares outstanding
    (shares in thousands):
     Basic                             2,941     2,941     2,941     2,941
     Diluted                           2,947     2,941     2,948     2,941

Earnings per share
     Basic                           $   .53   $   .33  $    .97   $   .74
     Diluted                         $   .53   $   .33  $    .96   $   .74



                         DESERT COMMUNITY BANK
                         SUPPLEMENTAL ANALYSES
                              (Unaudited)
    As of or for the Three-Month and Six-Month Periods Ended June 30
           (Amounts in thousands, except for per share data)


                               Three Months Ended       Six Months Ended
                                    June 30,                June 30,
                                2005        2004        2005        2004
                              --------    --------    --------    --------
Profitability Ratios:
  Return on average assets        1.27%       0.87%       1.17%       1.01%
  Return on average equity       14.95%       9.56%      13.38%      10.87%
  Net interest margin
   (tax-equivalent)               5.89%       5.72%       5.84%       5.67%
  Efficiency ratio               64.16%      67.73%      65.33%      67.44%

Other Information:
  Average total assets        $492,796    $443,442    $485,314    $435,039
  Average interest-earning
   assets                      428,793     393,435     425,506     387,185
  Average equity                41,845      40,553      42,525      40,235
  Average basic shares
   outstanding                   2,941       2,941       2,941       2,941
  Average diluted shares
   outstanding                   2,947       2,941       2,948       2,941
  Basic earnings per share         .53         .33         .97         .74
  Diluted earnings per share       .53         .33         .96         .74

Share Information:
  Book value per share at
   end of period                 15.21       13.69       15.21       13.69
  Shares outstanding at end
   of period                     2,941       2,941       2,941       2,941
  Share prices and quotes:
      Closing price per share
       at end of period          26.05       25.35       26.05       25.35
      Average price per share
       during period             27.09       25.11       27.46       23.72
      Highest daily closing
       price                     29.00       26.33       30.00       26.33
      Lowest daily closing
       price                     25.55       23.61       25.55       21.17
      Closing share price as
       multiple of book value     1.71        1.85        1.71        1.85
      Closing share price as
       multiple of basic
       earnings:
        Current period
         annualized              12.25       19.24       13.47       17.05
        Trailing twelve
         months                  13.68       17.02       13.68       17.02

Asset Quality Information
 at end of period:
    Nonperforming loans          1,454       1,092
    Repossessed and foreclosed
     assets                      3,447       3,152
    Allowance for loan losses    3,976       2,935
    Nonperforming loans/total
     loans                         .48%        .37%
    Nonperforming assets/total
     assets                        .97%        .94%
    Allowance for loan
     losses/loans outstanding     1.32%        .98%
    Allowance for loan
     losses/nonaccrual loans     273.5%      320.8%
Where appropriate, some items in the prior financial statements have been reclassified to conform to the current presentation.

Contact Information

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