SOURCE: Desert Community Bank

March 19, 2007 17:15 ET

Desert Community Bank Provides Supplemental Information for Earnings for 2006; Results of Operation for the Year Ended December 31, 2006

VICTORVILLE, CA -- (MARKET WIRE) -- March 19, 2007 -- Desert Community Bank (the "Bank") (NASDAQ: DCBK) today provided supplemental information relating to previously reported earnings for the quarter and year ended December 31, 2006. The supplemental information consists of financial statements and analysis of certain operating measurements. This information is intended to supplement summary information on the 2006 operating results that was released on January 30, 2007. The following restates and supplements the prior information.

Earnings for the quarter and year ended December 31, 2006 were $1,447,000 and $6,815,000 as compared to $1,967,000 and $6,808,000, respectively for the same periods in 2005. Diluted earnings per share for the quarter and year ended December 31, 2006 were $0.24 and $1.14, respectively, as compared to $0.33 and $1.15, respectively, for the same periods in 2005. Diluted earnings per share declined $.09 for the fourth quarter of 2006, as compared to the fourth quarter of 2005, and declined $0.01 on a full year basis.

The decline in net income for the fourth quarter of 2006, as compared to the fourth quarter of 2005 is primarily attributable to recognition of $353,000 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 $1,800,000, as compared to $1,967,000 in the fourth quarter of 2005.

Net income for 2006 included the recognition of $1,132,000 in non-cash 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 $7,947,000, as compared to $6,808,000 reported for 2005.

During 2006, total assets of the Bank declined by $8.0 million, from $540.0 million at year-end 2005 to $532.0 million at year-end 2006. Federal funds sold declined by $73.0 million and loans increased by $66.0 million during this period. The balances of all other assets remained essentially unchanged.

During 2006, total deposits of the Bank decreased by $26.1 million, attributable primarily to interest-bearing transaction accounts, which declined by $35.0 million and non-interest bearing balances, which declined by $9.7 million. Time deposits increased by $18.5 million.

Total average assets for 2006 were $553.5 million, as compared to $504.8 million for 2005. The largest growth in average assets in 2006 occurred in loans (increase of approximately $49 million) and investment securities (increase of approximately $33.5 million), while the average balance of federal funds sold declined from $73.4 million to $44.9 million.

Asset quality improved significantly, as loan recoveries exceeded loan charge-offs by $8,000. The provision for loan losses increased from $410,000 in 2005 to $630,000 in 2006, which increased the reserve for loan losses to $4.2 million as compared to $3.7 million at year-end 2005. The increase in reserves is reflective of the significantly higher loan balances.

Although the cost of deposits and funding increased in 2006, the net interest margin (tax-equivalent) increased in 2006, to 5.73% from 5.70% in 2005. The primary reason for the increase was the significant growth in average loans, which increased 15.2% to $353.2 million from $306.6 million in 2005. In addition, both the average balances and yields were higher on investment securities.

The return on average assets declined to 1.23%, as compared to 1.35% in 2005. The return on average shareholders' equity declined to 12.99% from 15.14% in 2005. These declines are attributable to the non-cash options expense recognized in 2006 under the new accounting rules. Excluding this change in accounting method, the return on average assets and average shareholders' equity would have been approximately 1.44% and 15.23%, respectively.

Mr. Wilson stated that, "While we were not able to report a significant increase in net income as we did for 2005, we are nevertheless satisfied with the results for 2006, after taking into consideration the $1.1 million non-cash accounting charge related to the stock options. In 2006, we were able to accomplish a number of significant achievements, including the development of a new branch facility in Phelan and most notably, the 20%+ increase in year-over-year loan balances. At the same time, however, our bank, like most other community banks, is faced with challenges in maintaining profit margins caused by the interest rate environment." Mr. Wilson 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
             CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                       December 31, 2006 and 2005
            (Amounts in thousands, except for per share data)


                                                       2006        2005
                                                    ----------  ----------
ASSETS
Cash and due from banks                             $   22,797  $   23,122
Federal funds sold                                      13,639      86,727
                                                    ----------  ----------
Total cash and cash equivalents                         36,436     109,849
Investment securities available-for-sale                64,360      74,465
Investment securities held-to-maturity                  11,761       4,233
Securities, restricted equities                          2,230       2,027
Loans held for sale                                      2,509       1,523
Loans, net of allowance of $4,224 and $3,705           378,563     313,801
Foreclosed real estate                                       -       1,829
Premises and equipment, net                             16,751      15,775
Cash surrender value of life insurance                  11,145       8,628
Accrued interest receivable and other assets             8,229       7,840
                                                    ----------  ----------

TOTAL ASSETS                                        $  531,984  $  539,970
                                                    ==========  ==========

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
  Deposits
     Noninterest-bearing                            $  156,450  $  166,153
     Interest-bearing                                  305,299     321,669
                                                    ----------  ----------
  TOTAL DEPOSITS                                       461,749     487,822
Repurchase agreements                                    1,328           -
Borrowings                                              10,700         700
Accrued interest payable and other liabilities           2,190       3,567
                                                    ----------  ----------
  TOTAL LIABILITIES                                    475,967     492,089

Commitments and contingent liabilities

SHAREHOLDERS’ EQUITY
Common stock, no par value:  18,750,000 shares
 authorized, 5,938,444 shares issued at
 December 31, 2006 and 5,888,544 at
 December 31, 2005                                      16,785      14,896
Retained earnings                                       39,737      33,631
Accumulated other comprehensive income (loss)             (505)       (646)
                                                    ----------  ----------
TOTAL SHAREHOLDERS’ EQUITY                              56,017      47,881
                                                    ----------  ----------
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY          $  531,984  $  539,970
                                                    ==========  ==========




                         DESERT COMMUNITY BANK
                   CONSOLIDATED STATEMENTS OF INCOME
           For the Years Ended December 31, 2006, 2005 and 2004
            (Amounts in thousands, except for per share data)


                                               2006      2005      2004
                                             --------  --------  --------
Interest Income
  Loans, including fees                      $ 29,924  $ 24,782  $ 21,594
  Investment securities                         4,169     2,371     2,165
  Direct lease financing                           72       169       391
  Federal funds sold and other                  2,332     2,489       689
                                             --------  --------  --------
                                               36,497    29,811    24,839
                                             --------  --------  --------
Interest expense
  Deposits                                      7,585     4,545     3,120
  Other borrowings                                498        11         5
                                             --------  --------  --------
                                                8,083     4,556     3,125
                                             --------  --------  --------

Net interest income                            28,414    25,255    21,714
Provision for loan losses                         630       410     2,375
                                             --------  --------  --------

Net interest income after provision for
 loan losses                                   27,784    24,845    19,339
                                             --------  --------  --------

Noninterest income
  Service charges and fees                      1,638     1,597     1,657
  Voucher control fees                            616       997       954
  Earnings on cash values in life
   insurance contracts                            448       379       358
  Net gains on sales of loans held for sale       817     1,120     1,469
  Net gains on sales of loans                     425         -       538
  Gains on sales of securities                     61         -         -
  Net gains (losses) on sales of equipment
   and premises                                   (15)        -        (8)
  Net gains (losses) on sales of
   repossessed and foreclosed assets              186        67         -
  Other                                         2,006     2,052     2,483
                                             --------  --------  --------
                                                6,182     6,212     7,451
                                             --------  --------  --------
Noninterest expense
  Salaries and employee benefits               12,803    10,982     9,650
  Occupancy and equipment                       2,858     2,443     2,234
  Professional fees                               786       540       574
  Business development                            909       747       694
  Armored car and security                        845       839       706
  Loan commissions, fees and processing           665       596     1,167
  Data processing fees                          1,490     1,398     1,322
  Other                                         2,248     3,120     2,649
                                             --------  --------  --------
                                               22,604    20,665    18,996
                                             --------  --------  --------
Income before income taxes                     11,362    10,392     7,794
Income tax expense                              4,547     3,584     2,852
                                             --------  --------  --------
Net income                                   $  6,815  $  6,808  $  4,942
                                             ========  ========  ========

Weighted average common shares outstanding
 (shares in thousands):
  Basic                                         5,909     5,884     5,882
  Diluted                                       5,984     5,928     5,882

Earnings per share
  Basic                                      $   1.15  $   1.16  $   0.84
  Diluted                                    $   1.14  $   1.15  $   0.84

Dividends per share                          $   0.12  $   0.10  $   0.12




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


                                           2006        2005        2004
                                        ----------  ----------  ----------
Profitability Ratios:
  Return on average assets                    1.23%       1.35%       1.08%
  Return on average equity                   12.99%      15.14%      12.05%
  Net interest margin (tax-equivalent)        5.73%       5.70%       5.44%
  Efficiency ratio                           65.34%      65.67%      65.13%

Other Information:
  Average total assets                  $  553,538  $  504,852  $  458,087
  Average interest-earning assets       $  501,967  $  446,011  $  402,574
  Average equity                        $   52,462  $   44,953  $   41,004

Book value per share at end of period
  Shares outstanding at end of period    5,938,444   5,888,544   5,882,544
  Share prices and quotes:
     Closing price per share at end
      of period                         $    18.09  $    16.25  $    18.09
     Average price per share during
      period                            $    18.22  $    14.27  $    18.22
     Highest share price during the
      period                            $    18.75  $    16.58  $    18.75
     Lowest share price during the
      period                            $    17.88  $    12.75  $    17.88
     Closing share price as multiple
      of book value                           1.89        2.04        1.80

  Asset Quality Information at end of
   period:
     Nonperforming loans                $    2,857  $    1,608  $      991
     Repossessed and foreclosed assets  $        -  $    1,829  $    6,015
     Allowance for loan losses          $    4,224  $    3,705  $    3,779
     Net loan charge-offs – amount      $       (8) $      484  $    2,005

     Nonperforming loans/total loans          0.75%       0.51%       0.33%
     Nonperforming assets/total assets        0.54%       0.64%       1.49%
     Allowance for loan losses/loans
      outstanding                             1.10%       1.17%       1.26%



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

                                    2006                     2005
                         -----------------------  ------------------------
                          Average         Yields/  Average          Yields/
                         Balances Interest Rates  Balances Interest  Rates
                         -------- -------- -----  -------- --------  -----
Interest-earning assets:
 Loans, including fees   $353,199 $ 29,996 8.49%  $306,569 $ 24,951  8.14%
 Investments:
  Taxable                  80,364    3,374 4.20%    58,243    2,052  3.52%
  Tax exempt (1)           16,156      975 6.04%     7,936      532  6.70%
 Federal funds sold and
  other                    52,248    2,482 4.75%    73,263    2,457  3.35%
                         -------- -------- -----  -------- --------  -----
 Total interest-earning
  assets                  501,967   36,827 7.34%   446,011   29,992  6.72%
                                  -------- -----           --------  -----
 Nonearning assets         51,571                   58,841
                         --------                 --------
 Total assets            $553,538                 $504,852
                         ========                 ========

Interest-bearing
 liabilities:
 Interest-bearing
  deposits:
  Money market &
   NOW (2)               $224,472    5,250 2.34%  $215,067    3,303  1.54%
  Savings                  40,137      324 0.81%    41,446      327  0.79%
  Certificates of deposit  53,854    2,012 3.74%    40,288      915  2.27%
                         -------- -------- -----  -------- --------  -----
  Total interest-bearing
   deposits               318,463    7,585 2.38%   296,801    4,545  1.53%
  Repurchase agreements       290       14 4.83%         -        -     -
  Advances from FHLB        8,575      459 5.35%         -        -     -
  U.S. Treasury Note
   Option                     614       25 4.07%       861       11  1.28%
                         -------- -------- -----  -------- --------  -----
  Total interest-bearing
   liabilities            327,942    8,083 2.46%   297,662    4,556  1.53%
                                  -------- -----           --------  -----
 Noninterest-bearing
  liabilities:
   Demand deposits        169,518                  159,192
   Other liabilities      501,076                  459,899
 Stockholders' equity      52,462                   44,953
                         --------                 --------
 Total liabilities and
  stockholders' equity   $553,538                 $504,852
                         ========                 ========
Net interest income               $ 28,744                 $ 25,436
                                  ========                 ========

Tax-equivalent:
Net interest spread (3)               4.87%                    5.19%
Net interest margin (4)               5.73%                    5.70%

Reconciliation to financial
 statements

  Net interest income
  (tax-equivalent)                $ 28,744                 $ 25,436
  Adjustment for
   tax-equivalent income              (330)                    (181)
                                  --------                 --------
  Net interest income as
   reported                       $ 28,414                 $ 25,255
                                  ========                 ========


                                                  2004
                                    ------------------------------
                                     Average                Yields/
                                    Balances    Interest     Rates
                                    --------    --------    -------
Interest-earning assets:
 Loans, including fees              $289,272    $ 21,985      7.60%
 Investments:
  Taxable                             50,464       1,721      3.41%
  Tax exempt (1)                       7,650         515      6.73%
 Federal funds sold and other         55,188         790      1.43%
                                    --------    --------    -------
 Total interest-earning assets       402,574      25,011      6.21%
                                                --------    -------
 Nonearning assets                    55,513
                                    --------
 Total assets                       $458,087
                                    ========

Interest-bearing liabilities:
 Interest-bearing deposits:
  Money market & NOW (2)            $198,738       2,180      1.10%
  Savings                             34,092         192      0.56%
  Certificates of deposit             41,803         748      1.79%
                                    --------    --------    -------
  Total interest-bearing deposits    274,633       3,120      1.13%
  Repurchase agreements                    -           -         -
  Advances from FHLB                       -           -         -
  U.S. Treasury Note Option              584           5      0.86%
                                    --------    --------    -------
  Total interest-bearing 
   liabilities                       275,217       3,125      1.13%
                                                --------    -------
 Noninterest-bearing liabilities:
   Demand deposits                   135,749
   Other liabilities                 417,083
 Stockholders’ equity                 41,004
                                    --------
 Total liabilities and
  stockholders' equity              $458,087
                                    ========
 Net interest income                            $ 21,886
                                                ========

 Tax-equivalent:
 Net interest spread (3)                            5.08%
 Net interest margin (4)                            5.44%

 Reconciliation to financial
  statements

  Net interest income (tax-equivalent)          $ 21,886
  Adjustment for tax-equivalent income              (172)
  Net interest income as reported               $ 21,714
                                                ========

Average balances for nonperforming loans are included in the above amounts.

(1) We computed yields based on the carrying value of tax exempt
    instruments on a fully tax equivalent basis.
(2) Includes all Desert Gold accounts, which are a form of money market
    accounts.
(3) Net interest spread is calculated as the mathematical difference
    between the yield on total interest-earning assets and the cost of
    total interest-bearing liabilities.
(4) Net interest margin is calculated as the net interest income
    (tax-equivalent) divided into the total interest-earning assets.

Contact Information

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