WSBA Western Sierra Bancorp (MM)

Western Sierra Bancorp Reports Record Profitability CAMERON PARK, Calif., July 18 /PRNewswire-FirstCall/ -- Western Sierra Bancorp (NASDAQ:WSBA), a multi-bank holding company, headquartered in Cameron Park, Calif., announced results for the second quarter ended June 30, 2005. Financial Highlights from the second quarter of 2005 vs. 2004: -- An increase in GAAP net income of $410,000 or 11.1% to $4.09 million -- An increase in GAAP net income excluding terminated merger expenses of $233,000, net of tax, to $4.32 million or 17.5% -- An increase in Diluted GAAP EPS to $0.51 from $0.47 or 8.5% -- An increase in Diluted GAAP EPS excluding terminated merger expenses to $0.54 from $0.47 or 14.9% -- ROA and ROE of 1.35% and 14.12%, as compared to 1.32% and 14.94% -- ROA and ROE excluding terminated merger expenses of 1.42% and 14.93%, as compared to 1.32% and 14.94% -- Return on Tangible Equity of 19.87% as compared to 22.90% -- Return on Tangible Equity excluding terminated merger expenses of 21.14% as compared to 22.90% -- Total assets increased $84 million or 7% to $1.26 billion -- Total loans increased $124 million or 14% to $997 million -- Net interest margin increased 22 basis points to 5.33% versus 5.11% (increase of 5 bps from Q1 2005) -- Efficiency Ratio increased to 56.9% from 55.6% -- Continued asset quality with nonperforming assets at just 0.13% of ending assets Financial Highlights from the six-month period ended June 30, 2005 vs. 2004: -- An increase in GAAP net income of $968,000 or 13.5% to $8.11 million -- An increase in GAAP net income excluding terminated merger expenses of $233,000, net of tax, to $8.35 million or 16.8% -- An increase in Diluted GAAP EPS to $1.02 from $0.91 or 12.1% -- An increase in Diluted GAAP EPS excluding terminated merger expenses to $1.05 from $0.91 or 15.4% -- ROA and ROE of 1.35% and 14.38%, as compared to 1.32% and 14.84% -- ROA and ROE excluding terminated merger expenses of 1.39% and 14.80%, as compared to 1.32% and 14.84% -- Return on Tangible Equity of 20.44% as compared to 23.02% -- Return on Tangible Equity excluding terminated merger expenses of 21.10% as compared to 23.02% -- Net interest margin increased 10 basis points to 5.31% versus 5.21% -- Efficiency Ratio increased to 56.8 % from 55.8% Management Comments Gary D. Gall, President and CEO of Western Sierra Bancorp, stated, "Diluted EPS, excluding terminated merger costs, has grown 14.9% for the quarter and 15.4% year to date. Our performance continues to be driven by solid loan growth and excellent credit quality." Discussion of Non-GAAP Financial Measures In order to assist investors in comparing what management believes to be the Company's core operating results from one period to another, included herein are financial measures that exclude the effect of "terminated merger expenses". In November 2004, the Company entered into a definitive agreement to acquire Gold Country Financial Services Inc. This agreement was terminated by the mutual consent of both parties in June of 2005. Approximately $400,000 ($233,000 after tax) in legal, consulting, data processing, accounting and other merger costs were incurred and capitalized while the transaction was pending. Management does not expect a similar charge to be incurred in the foreseeable future. In management's view, net income excluding terminated merger expenses assist investors in better understanding the comparative core operating performance of the Company. Record Earnings and Returns The Company reported record GAAP net income of $4,091,000 for the quarter or $0.51 per diluted share, an increase of $410,000 or 11.1% over the quarter ended June 30, 2004.. Excluding terminated merger costs of $233,000 after tax, net income for the quarter ended June 30, 2005 was $4,324,000 or $0.54 per diluted share, an increase of $643,000 or 17.5% over the same period in 2004. For the six-month period ended June 30, 2005, the Company reported GAAP Net income of $8,114,000 or $1.02 per diluted share, an increase of $968,000 or 13.5% over the same period in 2004. Excluding terminated merger costs of $233,000 after tax, net income for the six-month period ended June 30, 2005 was $8,347,000 or $1.05 per diluted share, an increase of $1,201,000 or 16.8% over the same period in 2004. For the twelve month period ended June 30, 2005 (trailing twelve months) GAAP net income was $16,004,000 or $2.01 per diluted share, an increase of $3,660,000 or 30% over the $12,344,000 or $1.63 per diluted share reported for the trailing twelve months ended June 30, 2004. Return on average assets ("ROA") was 1.35% for both the quarter and six- month period ended June 30, 2005 as compared to 1.35% and 1.32% for the second quarter and six-month period ended June 30, 2004, respectively. Excluding terminated merger expenses, ROA was 1.42% and 1.39% for the quarter and six- month period ended June 30, 2005, respectively, as compared to 1.39% and 1.32% for the second quarter and six-month period ended June 30, 2004, respectively. The Company's return on average equity ("ROE") was 14.12% for the second quarter and 14.38% for the six-month period ended June 30, 2005 as compared to 14.94% and 14.84% for the second quarter and six-month period ended June 30, 2004. Excluding terminated merger expenses, ROE was 14.93% for the second quarter and 14.80% for the six-month period ended June 30, 2005 as compared to 14.94% and 14.84% for the second quarter and six-month period ended June 30, 2004. Return on tangible equity (which excludes average goodwill and other intangible assets from average equity) was 19.87% for the second quarter and 20.44% for the six-month period ended June 30, 2005, as compared to 22.90% and 23.02% for the second quarter and six-month period ended June 30, 2004. Excluding terminated merger expenses, return on tangible equity was 21.14% for the second quarter and 21.10% for the six-month period ended June 30, 2005 as compared to 22.90% and 23.02% for the second quarter and six-month period ended June 30, 2004. Loan and Deposit Growth Total assets ended the second quarter 2005 at a record high of $1.26 billion. This represents an $84 million, or 7%, increase over June 30, 2004. The Company has continued its record of strong loan growth. Total gross loans grew to $997 million, an increase of $124 million, or 14%, over a year ago. Total deposits grew to a record $1.04 billion, which represents a $43 million, or 4%, increase over June 30, 2004. In comparing the quarter ended June 30, 2005 to the previous quarter ended March 31, 2005, average loans grew at an annualized rate of 15.6%, while deposits were essentially unchanged. As a result the Company's overnight investment in Fed Funds, which averaged $51.7 million in the first quarter of 2005, fell to $31.7 million on average in the second quarter of 2005. The Company has deployed a series of strategies designed to increase deposit gathering which management expects will result in improved deposit growth in the coming periods. The Company also currently has over $100 million available in term liquid resources primarily through the Federal Home Loan Bank. Net Interest Income Reaches Record High Net interest income increased by $1.77 million, or 14%, over the second quarter of 2004. The Company's reported net interest margin (on a fully tax equivalent basis) of 5.33% was up 22 basis points ("bps") from the second quarter 2004. For the six-month period ended June 30, 2005, net interest income increased $3.33 million, or 13%, and the net interest margin (on a fully tax equivalent basis) of 5.31% was up 10 basis points from the same period in 2004. Recent increases in market interest rates have reduced the balance of loans at rate floors to approximately 19% at June 30, 2005 from a high of 46% at December 31, 2003. Essentially all of loans currently at floors will reprice as time elapses and are not dependent on future increases in market interest rates. As a result, the yield on loans rose 35 bps as compared to the second quarter of 2004 to 7.03%. During this period cost of funds rose 39 bps to 1.47%. The average loan to deposit ratio increased from 91.9% in the second quarter of 2004 to 96.7% in the second quarter of 2005. A portion of net interest margin expansion is due to the higher loan top deposit ratio and the resulting effect on the mix of earning assets. Federal funds averaged $32 million in the second quarter of 2005 as compared to $52 million and $58 million in the first quarter of 2005 and the second quarter of 2004 respectively. This decrease in overnight federal funds as a percentage of earning assets increased the margin by approximately 10 bps in the second quarter as compared to the second quarter of 2004 and 8 bps as compared to the first quarter of 2005. The net interest margin expanded in the second quarter of 2005 as compared to the first quarter of 2005 by 5 bps as a result of a higher loan to deposit ratio and increase in the prevailing market rates. The yield on earning assets increased 25 bps in the second quarter as compared to the first quarter of 2005 while the cost of funds increased 20 bps to 1.47%. Asset Quality Credit quality remains strong with $531,000 or 0.05% loan delinquencies between 30 and 89 days as of June 30, 2005 compared to $86,000 or 0.01% loan delinquencies as of June 30, 2004. Non-performing assets (delinquent loans 90 days and over and REO) as of June 30, 2005 totaled $1,583,000 or 0.13% of total assets, compared to $1,272,000 or 0.11% of total assets at June 30, 2004. The allowance for loan losses totaled $14.8 million, or 1.48% of loans outstanding at June 30, 2005, compared to $12.7 million, or 1.45%, a year ago. The Company recorded net recoveries of $31,000 in the second quarter of 2005 as compared to net charge-offs of $148,000 in the same period of 2004. For the six-month period ended June 30, 2005, the Company recorded net recoveries of $83,000 as compared to net charge-offs of $178,000 for the same period of 2004. Other Income / Expense and the Efficiency Ratio The growth in net interest income of 14% for the quarter was complemented by an increase in non-interest income of 30%, which was principally attributable to a $291,000 gain on the sale of SBA loans, a settlement of $275,000 from a historical contract dispute, increased investment service fee income of $162,000 and increased service charges and fees of $112,000, which were offset by a decrease in gains on mortgage loans of $93,000. Total operating expenses increased $2.2 million or 24.2% in the second quarter of 2005 as compared to the same period in 2004. Included in the results of the second quarter of 2005 was approximately $107, 000 in operating losses incurred by the three denovo branches opened in the fourth quarter of 2004 (as compared to $160,000 in the first quarter of 2005), a reserve for a check fraud loss of $100,000, terminated merger expenses of $400,000 related to the terminated Gold Country Financial Services transaction and approximately $370,000 in compensation expense related to the retirement of the Company's former Chief Operating Officer. As a result of these costs, total operating expenses, excluding amortization of core deposit intangibles and terminated merger expenses, grew at a faster rate (19.7%) in the second quarter than fully tax equivalent net revenue (16.9%) resulting in a negative impact on the efficiency ratio, which increased from 55.6% in the second quarter of 2004 to 56.9% in the second quarter of 2005. In addition to growth in net interest income of 13.4% for the six-month period ended June 30, 2005, the Company grew non-interest income by 16% primarily due to the SBA gains, the contract settlement outlined above and increased deposit service charges and fees of $103,000. Total operating expenses increased $3.2 million or 18.4% in the first six months of 2005 as compared to the same period of 2004. Total operating expenses, excluding amortization of core deposit intangibles and terminated merger expenses, grew at a faster rate (16.0% for the six-month period) than fully tax equivalent net revenue (13.9%) resulting in a negative impact on the efficiency ratio, which increased from 55.8% in the first six months of 2004 to 56.8% in the same period of 2005. Other Information and Disclaimers Western Sierra Bancorp is comprised of Western Sierra National Bank, Lake Community Bank, Central California Bank and Auburn Community Bank. The Company operates twenty-nine branches and four loan production facilities in the counties of El Dorado, Placer, Sacramento, Lake, Stanislaus, San Joaquin, Calaveras, Amador, Contra Costa, Tuolumne and Butte. This press release contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risk and uncertainties. Actual results (including but not limited to programs that have been deployed to improve deposit growth) may differ materially from the results in these forward-looking statements. Factors that might cause such a difference include, among other things, fluctuations in interest rates, changes in economic conditions or governmental regulation, credit quality and other factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2004. The Company is not obligated to update these forward looking statement sat any time. Western Sierra Bancorp and Subsidiaries Consolidated Statements of Income (dollars in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 2005 2004 Growth % 2005 2004 Growth % Interest income: Interest and fees on loans $17,225 $14,392 19.7% $33,338 $28,427 17.3% Interest on investment securities: Taxable 505 386 903 755 Exempt from federal taxes 418 390 827 776 Interest on Federal funds sold 224 141 536 194 Total interest income 18,372 15,308 20.0% 35,604 30,152 18.1% Interest expense: Interest on deposits 3,084 2,170 5,755 4,174 Interest on borrowed funds 933 552 1,649 1,109 Total interest expense 4,017 2,721 47.6% 7,404 5,283 40.1% Net interest income 14,355 12,587 14.0% 28,200 24,869 13.4% Provision for loan losses (LLP) 460 600 -23.3% 910 1,310 -30.5% Net interest income after LLP 13,895 11,987 15.9% 27,290 23,559 15.8% Non-interest income: Service charges and fees 1,332 1,220 2,518 2,415 Investment service fee income 248 86 378 377 Net gain on sale and packaging of residential mortgage loans 1,099 1,192 2,032 2,047 Gain on sale of government- guaranteed loans 291 -- 403 -- Loss on sale of investment securities -- (11) (3) (11) Other income 561 227 812 453 Total non-interest income 3,531 2,713 30.2% 6,140 5,281 16.3% Other expenses: Salaries and benefits 5,902 4,881 11,305 9,768 Occupancy and equipment 1,669 1,435 3,280 2,787 Other expenses 2,915 2,414 5,536 4,723 Terminated merger expenses 400 -- 400 -- Amortization of core deposit intangibles 180 180 360 360 Total other expenses 11,066 8,910 24.2% 20,881 17,638 18.4% Income before income tax 6,360 5,790 9.8% 12,549 11,202 12.0% Income taxes 2,269 2,109 4,435 4,056 GAAP net income $4,091 $3,681 11.1% $8,114 $7,146 13.5% Terminated merger expense after tax 233 -- 233 -- GAAP net income excluding terminated merger expenses $4,324 $3,681 17.5% $8,347 $7,146 16.8% GAAP net income Basic earnings per share $0.53 $0.49 8.2% $1.06 $0.95 11.6% Diluted earnings per share $0.51 $0.47 8.5% $1.02 $0.91 12.1% GAAP net income excluding terminated merger expenses Basic earnings per share $0.56 $0.49 14.3% $1.09 $0.95 14.7% Diluted earnings per share $0.54 $0.47 14.9% $1.05 $0.91 15.4% Shares used to compute Basic EPS 7,713 7,554 7,679 7,507 Shares used to compute Fully Diluted EPS 7,955 7,870 7,956 7,856 Average Loans $982,444 $866,378 13.4% $964,102 $852,007 13.2% Average Investments $114,798 $141,545 -18.9% $125,362 $124,222 0.9% Average Earning Assets $1,097,242 $1,007,923 8.9% $1,089,464 $976,229 11.6% Average Deposits $1,016,229 $943,206 7.7% $1,016,839 $911,211 11.6% Average Non-interest Demand Deposits $279,283 $241,998 15.4% $273,595 $228,424 19.8% Average Interest- bearing Liabilities $816,956 $769,487 6.2% $814,389 $750,344 8.5% Average Assets $1,219,660 $1,119,879 8.9% $1,209,288 $1,085,941 11.4% Average Equity $116,187 $99,103 17.2% $113,765 $96,843 17.5% Return on Average Assets (GAAP) 1.35% 1.32% 1.35% 1.32% Return on Average Equity (GAAP) 14.12% 14.94% 14.38% 14.84% Return on Tangible Equity 19.87% 22.90% 20.44% 23.02% Net Interest Margin (FTE) 5.33% 5.11% 5.31% 5.21% Efficiency Ratio (FTE) 56.9% 55.6% 56.8% 55.8% Western Sierra Bancorp and Subsidiaries Consolidated Balance Sheet (dollars in thousands) (Unaudited) June 30, June 30, ASSETS: 2005 2004 Growth % Cash and due from banks $45,146 $38,382 Federal funds sold 58,075 98,245 Cash and cash equivalents 103,221 136,627 -24.5% Interest-bearing deposits -- 4,000 Loans held for sale 1,551 1,909 Investment securities: Trading 37 31 Available for sale (amortized cost $78,662 in 2005 and $86,076 in 2004) 80,216 86,213 Held to maturity (market value of $3,065 in 2005 and $3,839 in 2004) 2,955 3,741 Total investments 83,208 89,985 -7.5% Portfolio loans: Real estate mortgage 649,314 548,629 Real estate construction 216,645 186,380 Commercial 113,598 119,035 Agricultural 11,688 12,702 Other Loans 5,394 6,120 Total gross loans 996,639 872,866 14.2% Deferred loan fees, net (2,821) (2,587) Allowance for loan losses (14,780) (12,661) Net portfolio loans 979,038 857,618 14.2% Premises and equipment, net 21,366 19,637 Other real estate -- -- Goodwill and other intangible assets 33,537 34,371 Other assets 37,189 30,497 Total Assets $1,259,110 $1,174,644 7.2% LIABILITIES AND SHAREHOLDERS' EQUITY: Non-interest bearing deposits $289,426 $ 267,453 8.2% Interest bearing deposits: NOW, money market and savings 341,836 363,031 Time, over $100,000 241,185 198,633 Other time 168,098 168,504 Total deposits 1,040,545 997,621 4.3% Borrowed funds 57,500 31,150 Subordinated debt 37,116 36,496 Other liabilities 3,932 8,700 Total liabilities 1,139,093 1,073,967 6.1% Shareholders' equity: Preferred stock- no par value; 15,000,000 shares authorized; none issued -- -- Common stock- no par value; 15,000,000 shares authorized; issued - 7,726,983 shares in 2005 and 7,584,638 shares in 2004 69,793 67,348 Retained earnings 49,223 33,244 Accumulated other comprehensive income 1,007 85 Total shareholders' equity 120,023 100,677 19.2% Total Liabilities and Shareholders' Equity $1,259,110 $1,174,644 7.2% Allowance for loan losses to Gross Loans 1.48% 1.45% Ending Delinquent Loans $531 $86 Ending Non Performing Loans (non accrual and > 90 days) $1,583 $1,272 Total Non Performing Loans and REO - Non Performing Assets $1,583 $1,272 YTD Net (Recoveries) Charge-offs $(83) $ 178 YTD Net (Recoveries) Charge-offs as a % of Avg Loans -0.02% 0.04% Non Performing Assets as a % of Total Assets 0.13% 0.11% Total Risk Based Capital To Risk Weighted Assets 13.05% 12.18% Tier 1 Capital to Risk Weighted Assets 11.80% 10.68% Tier 1 Capital to Average Assets (Leverage Ratio) 9.82% 8.70% DATASOURCE: Western Sierra Bancorp CONTACT: Gary D. Gall, or Anthony J. Gould, both for Western Sierra Bancorp, +1-530-677-5600 Web site: http://www.westernsierrabancorp.com/

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