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Western Sierra Bancorp Reports Record Profitability; Diluted Earnings per Share Increases to $2.23 For 2005 and $0.62 for the 4th Quarter

CAMERON PARK, Calif., Feb. 4 /PRNewswire-FirstCall/ -- Western Sierra Bancorp (Nasdaq: WSBA), a multi-bank holding company, headquartered in Cameron Park, California, announced results for the fourth quarter and year ended December 31, 2005.

    Financial Highlights from the year of 2005 vs. 2004:
    * An increase in GAAP net income of $2.71 million or 18.0% to
      $17.75 million
    * An increase in GAAP net income excluding terminated merger expenses of
      $232,000, net of tax, to $17.98 million or 19.6%
    * An increase in Diluted GAAP EPS to $2.23 from $1.91 or 16.8%
    * An increase in Diluted GAAP EPS excluding terminated merger expenses to
      $2.26 from $1.91 or 18.3%
    * GAAP ROA and ROE of 1.43% and 14.82%, as compared to 1.33% and 14.83%
    * ROA and ROE excluding terminated merger expenses of 1.45% and 15.02%, as
      compared to 1.33% and 14.83%
    * Return on tangible equity of 21.02% as compared to 22.96%
    * Total assets increased $94 million or 7.8% to $1.29 billion
    * Average loans increased $113 million or 12.8% to $993 million
    * Average deposits increased $79 million or 8.3% to $1.04 billion
    * Net interest margin (FTE) increased 21 basis points to 5.35% from 5.14%
    * Efficiency ratio increased to 55.8% from 55.2%
    * Nonperforming assets ended the year at 0.11% as compared to 0.12% at
      December 31, 2004

    Financial Highlights from the 4th quarter of 2005 vs. 2004:
    * An increase in GAAP net income of $881,000 or 21.8% to $4.92 million
    * An increase in Diluted GAAP EPS to $0.62 from $0.51 or 21.6%
    * GAAP ROA and ROE of 1.53% and 15.39%, as compared to 1.35% and 14.93%
    * Return on tangible equity of 21.28% as compared to 22.37%
    * Average loans increased $104 million or 11.3% to $1.03 billion
    * Average deposits increased $39 million or 3.8% to $1.06 billion
    * Net interest margin (FTE) increased 38 basis points to 5.50% versus
      5.12%
    * Efficiency Ratio increased to 55.0% from 54.9%

    Management Comments

Gary D. Gall, President and CEO of Western Sierra Bancorp, stated, "During 2005, we eclipsed $1 billion in loans and our record of strong asset quality and organic loan growth continued. Our net interest margin expanded by twenty-one basis points in 2005 which drove earnings growth. In 2006, we will continue to deliver the relationship banking experience that our clients have come to expect."

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 affect 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. Included in the Company's operating results for the quarter ending June 30, 2005 and the year ending December 31, 2005 are approximately $400,000 ($232,000 after tax) in legal, consulting, data processing, accounting and other merger costs that 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 assists investors in better understanding the comparative core operating performance of the Company.

Information regarding the Review of Accounting for Income Taxes

On January 31 2006, the Company issued a press release and announced it was conducting a comprehensive review of the historical accounting for income taxes. Based upon this review, it has been concluded that the aggregate potential adjustments are approximately $500,000 and relate to accounting periods prior to 2003. In the opinion of management, these amounts are immaterial to all accounting periods contained herein and to shareholder's equity; thus no adjustment or restatement of the financial statements is required.

Record Earnings and Returns

The Company reported record GAAP earnings of $4.92 million for the quarter or $0.62 per diluted share, an increase of $881,000 or 21.8% over the quarter ended December 31, 2004 in which earnings were $4.04 million or $0.51 per diluted share.

For the year ended December 31, 2005, the Company reported GAAP earnings of $17.75 million or $2.23 per diluted share, an increase of $2.71 million or 18.0% over the same period in 2004 in which earnings were $15.04 million or $1.91 per diluted share. Excluding terminated merger costs of $232,000 after tax, net income for the year ended December 31, 2005 was $17.98 million or $2.26 per diluted share, an increase of $2.94 million or 19.6% over the same period in 2004.

Return on average assets ("ROA") was 1.53% and 1.43% for the quarter and the year ended December 31, 2005 as compared to 1.35% and 1.33% for the fourth quarter and the year ended December 31, 2004, respectively. Excluding terminated merger expenses, ROA was 1.45% for the year ended December 31, 2005, as compared to 1.33% for the same period of 2004.

The Company's return on average equity ("ROE") was 15.39% for the fourth quarter and 14.82% for the year ended December 31, 2005 as compared to 14.93% and 14.83% for the fourth quarter and year ended December 31, 2004. Excluding terminated merger expenses, ROE was 15.02% for the year ended December 31, 2005 as compared to 14.83% for same period of 2004.

Strong Loan and Deposit Growth

Total assets ended the year at a record high of $1.29 billion. This represents a $94 million or 7.8% increase over December 31, 2004. The Company has continued its record of strong loan growth. Total gross loans grew to $1.05 billion, an increase of $111 million or 11.9% over a year ago. Total deposits grew to a record $1.05 billion, which represents a $26 million or 2.5% increase over December 31, 2004.

For the year ended December 31, 2005, average loans increased $113 million or 12.8% to $993 million over the same period of 2004. For the fourth quarter of 2005, average loans increased $17 million or 1.7% to $1.03 billion over the third quarter of 2005 and increased $104 million or 11.3% over the fourth quarter of 2004.

For the year ended December 31, 2005, average deposits increased $79 million or 8.3% to $1.04 billion over 2004. For the fourth quarter of 2005, average deposits increased $4 million or 0.4% to $1.06 billion over the third quarter of 2005 and increased $39 million or 3.8% over the fourth quarter of 2004.

Net Interest Income Reaches Record High

Net interest income increased by $2.17 million or 15.9% over the fourth quarter of 2004. The Company's reported net interest margin (on a fully tax equivalent basis "FTE") of 5.50% which represents an increase of 16 basis points over the third quarter of 2005 and 38 basis points over the fourth quarter 2004. For the year ended December 31, 2005, net interest income increased $7.68 million or 14.8% and the net interest margin (FTE) increased 21 basis points from the full year 2004.

The Company's cost of funds was 1.80% in the fourth quarter of 2005 as compared to 1.64% in the third quarter of 2005 and 1.17% in the fourth quarter of 2004. Yield on earning assets was 7.27% in the fourth quarter of 2005 as compared to 6.97% in the third quarter of 2005 and 6.29% in the fourth quarter of 2004.

For the full year 2005 the Company's cost of funds was 1.55%, yield on earning assets 6.89% and net interest margin 5.35%. In 2004, the Company's cost of funds was 1.11%, yield on earning assets 6.26% and net interest margin 5.14%.

Superior Asset Quality

Non-performing assets ("NPA's") as of December 31, 2005 totaled $1,412,000 or 0.11% of total assets, compared to $1,473,000 or 0.12% of total assets at December 31, 2004. Net of government guarantees of $500,000 and $584,000, NPA's totaled $912,000 (.07% of total assets) and $889,000 (0.07% of total assets) at December 31, 2005 and 2004, respectively.

The allowance for loan losses totaled $15.5 million, or 1.48% of loans outstanding at December 31, 2005, compared to $13.8 million or 1.47% a year ago. Total provision for loan losses were $2.05 million for the year ended December 31, 2005.

The Company recorded net charge-offs of $116,000 in the fourth quarter of 2005 as compared to $96,000 in the same period of 2004. For the year ended December 31, 2005, net charge-offs were $331,000 (0.04% of average loans) as compared to $453,000 (0.05% of average loans) for the same period of 2004.

Other Income / Expense and the Efficiency Ratio

Non-interest income grew $471,000 or 16.1% in the fourth quarter of 2005 as compared to the fourth quarter of 2004. This was primarily attributable to increased deposit service charges and fees of $472,000, an increase in premiums on the sale of mortgage loans of $110,000, a $158,000 gain on the sale of SBA loans, a $196,000 gain on the sale of a real estate property, and a $161,000 gain (net of selling expenses) on the sale of the Company's credit card portfolio. These increases were offset in part by a reduction in bank- owned life insurance income of $479,000 as a result of a $585,000 death benefit recorded in 2004.

For the year ended December 31, 2005, the Company grew non-interest income by $2.44 million or 22.7% primarily due to increased deposit service charges and fees of $901,000, a $555,000 gain on the sale of SBA loans, an increase in premiums on the sale of mortgage loans of $269,000 and a $275,000 contract settlement.

Total operating expenses increased $1.24 million or 12.6% in the fourth quarter of 2005 as compared to the same period in 2004. This increase was driven by an increase in salaries and benefits of $880,000 or 16.7% and an increase in occupancy expense of $264,000 or 17.7%. Total operating expenses grew at a faster rate (12.4%) in the fourth quarter than fully tax equivalent net revenue (12.3%) resulting in a negative impact on the efficiency ratio, which increased from 54.9% in the fourth quarter of 2004 to 55.0% in the fourth quarter of 2005.

Total operating expenses increased $6.38 million or 17.5% for the full year 2005 over 2004. This increase was driven by an increase in salaries and benefits of $3.5 million or 17.6% and an increase in occupancy expense of $1.0 million or 17.4%. Total operating expenses grew at a faster rate (16.3% for the twelve-month period) than fully tax equivalent net revenue (15.2%) resulting in a negative impact on the efficiency ratio, which increased from 55.2% in 2004 to 55.8% in 2005.

Conference Call

The Company will conduct an earnings conference call Monday, February 6, 2006 at 10:00 a.m. pacific standard time. Instructions to participate are as follows:

     Dial In #:  (877) 381-6419
     Conference Name:  (Western Sierra Bancorp)
     Leader Name:  (Gary Gall, President and CEO)
     Date of Call:  (February 6, 2006)
     Time of Call:  (10:00 a.m. PST) (1:00 p.m. EST)
     Expected duration of the call is forty-five minutes

    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 thirty-two 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 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.

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 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.


                   Western Sierra Bancorp and Subsidiaries
                      Consolidated Statements of Income
                (dollars in thousands, except per share data)

                         Three Months Ended            Twelve Months Ended
    (Unaudited)             December 31,                  December 31,
                     2005       2004   Growth %    2005        2004   Growth %
    Interest income:
     Interest and
      fees on loans $19,708    $15,680   25.7%    $71,761      $59,078   21.5%
     Interest on
      investment
      securities:
       Taxable          472        498              1,818        1,736
       Exempt from
        federal taxes   439        395              1,695        1,562
      Interest on
       Federal funds
       sold             438        310              1,455          707
        Total
         interest
         income      21,057     16,883   24.7%     76,729       63,083   21.6%

    Interest
     expense:
     Interest on
      deposits        4,007      2,539             13,375        9,049
     Interest on
      borrowed funds  1,161        629              3,926        2,287
        Total
         interest
         expense      5,168      3,168   63.1%     17,301       11,336   52.6%

        Net interest
         income      15,889     13,715   15.9%     59,428       51,747   14.8%

    Provision for
     loan losses
     (LLP)              370        800  -53.8%      2,050        2,710  -24.4%

        Net interest
         income after
         LLP         15,519     12,915   20.2%     57,378       49,037   17.0%

    Non-interest
     income:
     Service charges
      and fees        1,560      1,088              5,609        4,708
     Investment
      service fee
      income            160        104                792          621
     Net gain on
      sale and
      packaging of
      residential
      mortgage loans    870        760              4,062        3,793
     Gain on sale
      of government-
      guaranteed
      loans             158          0                713            0

     Loss on sale
      of investment
      securities         (2)         3                 (4)          (9)

     Other income       652        972              2,026        1,643
        Total non-
         interest
         income       3,398      2,927   16.1%     13,198       10,756   22.7%

    Other expenses:
     Salaries and
      benefits        6,135      5,255             23,412       19,915
     Occupancy and
      equipment       1,755      1,491              6,792        5,783
     Other expenses   2,994      2,900             11,434        9,961
     Merger expenses      0          0                400            0
     Amortization of
      core deposit
      intangibles       180        180                720          720

        Total other
         expenses    11,064      9,826   12.6%     42,758       36,379   17.5%

        Income before
         income tax   7,853      6,016   30.5%     27,818       23,414   18.8%

    Income taxes      2,931      1,975             10,072        8,378
        GAAP net
         income      $4,922     $4,041   21.8%    $17,746      $15,036   18.0%

    Merger expense
     after tax            0          0                232            0
        GAAP net
         income
         excluding
         merger
         expenses    $4,922     $4,041   21.8%    $17,978      $15,036   19.6%

    GAAP net income
      Basic earnings
       per share      $0.64      $0.53   20.8%      $2.30        $1.99   15.6%
      Diluted earnings
       per share      $0.62      $0.51   21.6%      $2.23        $1.91   16.8%

    GAAP net income
     excluding merger
     expenses
      Basic earnings
       per share      $0.64      $0.53   20.8%      $2.33        $1.99   17.1%
      Diluted earnings
       per share      $0.62      $0.51   21.6%      $2.26        $1.91   18.3%

    Shares used to
     compute Basic
     EPS              7,737      7,621              7,707        7,557
    Shares used to
     compute Fully
     Diluted EPS      7,955      7,948              7,951        7,892

    Average
     Loans       $1,030,384   $925,951   11.3%   $993,219     $880,156   12.8%

    Average
     Investments   $126,741   $153,191  -17.3%   $128,737     $139,037   -7.4%

    Average
     Earning
     Assets      $1,157,125 $1,079,142    7.2% $1,121,956   $1,019,193   10.1%

    Average
     Deposits    $1,058,102 $1,019,141    3.8% $1,036,740     $957,611    8.3%

    Average
     Non-interest
     Demand
     Deposits      $294,483   $270,456    8.9%   $284,455     $246,369   15.5%

    Average
     Interest-
     bearing
     Liabilities   $846,506   $806,681    4.9%   $830,888     $773,328    7.4%

    Average
     Assets      $1,277,990 $1,195,070    6.9% $1,242,509   $1,131,179    9.8%

    Average
     Equity        $126,904   $107,683   17.8%   $119,720     $101,405   18.1%

    Return on
     Average Assets
     (GAAP)           1.53%      1.35%              1.43%        1.33%

    Return on
     Average Equity
     (GAAP)          15.39%     14.93%             14.82%       14.83%

    Return on
     Tangible
     Equity          21.28%     22.37%             21.02%       22.96%

    Return on
     Tangible
     Equity
     excluding
     merger expense  21.28%     22.37%             21.26%       22.96%

    Net Interest
     Margin (FTE)     5.50%      5.12%              5.35%        5.14%

    Efficiency
     Ratio (FTE)      55.0%      54.9%              55.8%        55.2%


                   Western Sierra Bancorp and Subsidiaries
                          Consolidated Balance Sheet
                            (dollars in thousands)
                                 (Unaudited)

    ASSETS:                                  Dec. 31,    Dec. 31,   Growth %
                                              2005        2004
    Cash and due from banks                 $41,972     $29,975
    Federal funds sold                       39,535      74,630
        Cash and cash equivalents            81,507     104,605     -22.1%

    Interest-bearing deposits                             1,200
    Loans held for sale                       3,190       2,685
    Investment securities:
        Trading                                  41          42
        Available for sale (amortized
         cost $78,940 in 2005 and
         $81,106 in 2004)                    79,519      82,521
        Held to maturity (market value
         of $2,960 in 2005 and $3,202
         in 2004)                             2,888       3,067
            Total investments                82,448      85,630      -3.7%
    Portfolio loans:
        Real estate mortgage                681,717     600,108
        Real estate construction            244,872     199,140
        Commercial                           98,152     119,823
        Agricultural                         15,828      11,514
        Other Loans                           7,066       5,928
            Total gross loans             1,047,635     936,513      11.9%
        Deferred loan fees, net             (3,663)     (3,008)
        Allowance for loan losses          (15,505)    (13,786)
            Net portfolio loans           1,028,467     919,719      11.8%

    Premises and equipment, net              19,466      20,808
    Other real estate
    Goodwill and other intangible assets     33,177      33,913
    Other assets                             44,318      30,150
        Total Assets                     $1,292,573  $1,198,710       7.8%

    LIABILITIES AND SHAREHOLDERS' EQUITY:
    Non-interest bearing deposits          $276,667   $ 272,250       1.6%
    Interest bearing deposits:
        NOW, money market and savings       395,257     405,967
        Time, over $100,000                 222,496     185,935
        Other time                          154,275     158,814
            Total deposits                1,048,695   1,022,966       2.5%

    Borrowed funds                           66,000      21,500
    Subordinated debt                        37,116      37,116
    Other liabilities                        10,530       6,977
        Total liabilities                 1,162,341   1,088,559       6.7%

    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 - 7,782,223 shares in
         2005 and 7,629,762 shares in 2004   71,042      68,125
        Retained earnings                    58,855      41,109
        Accumulated other comprehensive
         income                                 335         917
            Total shareholders' equity      130,232     110,151      18.2%
            Total Liabilities and
             Shareholders' Equity        $1,292,573  $1,198,710       7.8%

    Allowance for loan losses to
     Gross Loans                              1.48%       1.47%

    Ending Delinquent Loans                      $5        $344

    Gross Non Performing Loans
     (non accrual and > 90 days)             $1,412      $1,473

    Government Guaranteed portion of
     Non Performing Loans                      $500        $584

    Non Performing Loans net of
     Government Guarantees                     $912        $889

    OREO                                        $--         $--

    YTD Net Charge-offs                        $331        $453

    YTD Net Charge-offs as a % of Avg Loans   0.04%       0.05%

    Gross Non Performing Assets as a
     % of Total Assets                        0.11%       0.12%

    Non Performing Assets net of
     Government Guarantees as a % of
     Total Assets                             0.07%       0.07%

    Book Value Per Share                     $16.73      $14.44

    Tangible Book Value Per Share            $12.47       $9.99

    Total Risk Based Capital
     To Risk Weighted Assets                 13.23%      12.58%

    Tier 1 Capital to Risk Weighted Assets   11.98%      11.33%

    Tier 1 Capital to Average Assets
     (Leverage Ratio)                        10.44%       9.48%

SOURCE Western Sierra Bancorp

For further information: Anthony J. Gould, CFO of Western Sierra Bancorp, +1-530-698-2234

© PR Newswire

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