SANTA ROSA, CA -- 04/21/2004 -- Redwood Empire Bancorp (NASDAQ: REBC) today reported net income of $1,688,000 or $.33 per diluted share for the quarter ended March 31, 2004. This compares to net income of $2,016,000 or $.38 per diluted share for the first quarter of 2003. On July 15, 2003, the Company's Board of Directors declared a three-for-two stock split of its outstanding shares of common stock. Earnings per share information for the prior period presented give effect to the split.
Annualized return on average equity was 24.62% in the first quarter of 2004 as compared to annualized return on average equity of 28.82% in the first quarter of 2003. Annualized return on average assets was 1.31% in the first quarter of 2004 as compared to 1.60% one year ago.
The Company experienced a decline in net income during the first quarter of 2004 when compared to the first quarter of 2003 primarily due to the combined impact of the additional interest expense incurred with the July 2003 completion of the Company's second $10,000,000 trust preferred securities financing, an increase of 6% in the Company's effective tax rate and higher operating expenses related to the implementation of strategies to position the Company for growth.
As previously disclosed, the Company formed its Real Estate Investment Trust (REIT) subsidiary on January 15, 2002. With the formation of the REIT, the Company then began to recognize state tax benefits in the first quarter of 2002. During the fourth quarter of 2003, the California Franchise Tax Board took the position that certain tax transactions related to REITs and regulated investment companies (RICs) will be disallowed. Therefore the Company has decided to terminate the REIT. As previously announced, during December 2003 the Company reversed previously recognized net state tax benefits related to the REIT and will not record any related state tax benefits in the future. Due to the absence of such state tax benefits, the Company's effective tax rate increased by 6% from 34% to 40% in 2004. This change in the effective tax rate had a negative impact on net income of $169,000, or $.03 per diluted share.
Net Interest Income
Interest income in the first quarter of 2004 was $7,168,000 as compared to $7,542,000 in the first quarter of 2003, a decrease of $374,000 or 5%. While the Company experienced modest average earning asset growth during the first quarter of 2004 as compared to the first quarter of 2003, the continued low interest rate environment has had a negative impact on interest income. Average earning assets totaled $488,549,000 for the first quarter of 2004 as compared to $485,170,000 for the same period one year ago, an increase of $3,379,000 or .7%.
Interest expense for the first quarter of 2004 was $1,641,000 down $371,000, or 18% from $2,012,000 in the first quarter of 2003. With the decline in the general interest rate environment discussed above, the Company has been successful in reducing costs associated with interest bearing deposits. For the quarter ended March 31, 2004 the cost of average interest bearing deposits was 1.39% down from 1.99% for the quarter ended March 31, 2003.
Net interest income was $5,527,000 for the first quarter of 2004, a decrease of $3,000, or .05% percent when compared to $5,530,000 for the first quarter of 2003. The net interest margin was 4.55% for the first quarter of 2004 as compared to 4.62% one year ago. The Company's net interest margin has been negatively impacted during 2004 due to the additional interest expense incurred with the completion of the Company's second $10,000,000 trust preferred securities financing in July 2003. Such financing, which has been used for stock repurchases and other corporate matters, bears an annual interest rate of 6.35% and at March 31, 2004, had a negative impact on net interest margin of 14 basis points. Total interest expense for both trust preferred securities financing was $414,000 during the first quarter of 2004 as compared to $236,000 during the first quarter of 2003.
Loan Activity
Total loans as of March 31, 2004, were $411,245,000, an increase of $13,731,000, or 3% when compared to total loans of $397,514,000 at March 31, 2003. The Company has recently hired additional loan personnel to assist with more rapid loan growth expected throughout the remainder of 2004.
Loan Losses
Nonperforming assets represented .3% of total assets at March 31, 2004 as compared to .6% at the end of the same quarter one year ago. The allowance for loan losses was 1.75% of total loans and 453% of nonperforming loans at March 31, 2004 as compared to 1.85% and 226% at March 31, 2003. The Company had net recoveries of $15,000 or .01% (annualized) of average portfolio loans for the first quarter of 2004 as compared to net charge-offs of $45,000 or .05% (annualized) for the first quarter of 2003.
Deposits
Total deposits as of March 31, 2004, were $453,707,000, a decrease of $28,654,000, or 6% when compared to one year ago. The decrease in total deposits during the first quarter of 2004 when compared to 2003 is due the temporary nature of a large customer deposit made in March 2003, which was the result of a large real estate transaction.
Noninterest Income
Noninterest income amounted to $1,708,000 for the quarter ended March 31, 2004 as compared to $1,629,000 for the same period in 2003 or a 5% increase. Merchant draft processing revenues increased $32,000 from $1,129,000 in the first quarter of 2003 to $1,161,000 in the first quarter of 2004 due to an increase in processing volume. Excluding net revenue from merchant bankcard processing, noninterest income amounted to $547,000 for the three months ended March 31, 2004 as compared to $500,000 for the same period one year ago. The increase in other income for the first quarter of 2004 as compared to 2003 is primarily due to an increase in other income of $77,000 partially offset by a decrease in service charge income of $22,000. The increase in other income of $77,000 is primarily due to income associated with the Company's recent implementation of a program to sell investment products.
Noninterest Expense
Noninterest expense amounted to $4,422,000 for the quarter ended March 31, 2004 as compared to $4,086,000 in the same period one year ago, which represents an increase of $336,000 or 8%. The increase in noninterest expense is primarily attributable to an increase in salaries and employee benefits expense of $449,000. The increase during 2004 is partially due to an increase of 4 full time equivalent employees employed by the Company, the continued impact of increased costs associated with health care and workers compensation insurance and normal annual salary increases. The Company's efficiency ratio for the first quarter of 2004 was 61% as compared to 57% one year ago. The efficiency ratio for the Company's subsidiary, National Bank of the Redwoods was 56% for the quarter ended March 31, 2004 as compared to 54% one year ago.
Segments
For the three months ended March 31, 2004, the net income of the Company's community banking segment was $1,351,000 on revenues of $5,967,000. This compares to net income of $1,620,000 and revenues of $5,865,000 for the same period one year ago. The segment's decrease in net income, as compared to the first quarter of 2003, is primarily attributable to an increase in noninterest expense, which is partially offset by an increase in net interest income and an increase in noninterest income. The net income of the Company's bankcard segment was $337,000 for the quarter ended March 31, 2004 versus $396,000 in 2003. The decrease in the segment's net income for the quarter ended March 31, 2004 is primarily due to an increase in noninterest expense, a decrease in net interest income, all partially offset by an increase in merchant draft processing revenues. The bankcard segment's net interest income is partially determined by the Company's internal funds transfer pricing systems, which assigns a cost of funds or credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. The decrease in net interest income for the bankcard segment is due to a decline in the general interest rate environment and a decrease in the segment's customer deposit base and thus, a decrease in the credit for funds given to the segment. The merchant bankcard segment's net income comprised 20% of the Company's consolidated net income for the three months ended March 31, 2004 and 2003.
Capital Structure
During the first quarter of 2004, the Company raised its quarterly cash dividend to $0.21 per common share from $0.17. "Our consistent dividend payment history illustrates our commitment to shareholders, as well as our focus on long-term financial performance," said Patrick W. Kilkenny, President and Chief Executive Officer.
In August 2001, the Company announced an authorization to repurchase 533,250 shares, as adjusted for the three-for-two stock splits declared September 20, 2001 and July 15, 2003. In August 2003, the Company announced an authorization to repurchase an additional 496,500 shares, for a total authorization of 1,029,750. To date, 557,987 shares have been repurchased under the current authorization, as adjusted for the three-for-two stock splits. Under the repurchase program, the Company plans to purchase shares from time to time on the open market and/or in privately negotiated transactions. The company continues to believe this represents a prudent use of shareholder capital and an investment in the company's future.
Redwood Empire Bancorp, a $516 million in total assets financial services company, with 4,939,045 common shares outstanding, provides diverse financial products and services which are marketed through full-service offices in the North Coast counties of California. Redwood Empire Bancorp stock is traded on The Nasdaq Stock MarketĀ® under the symbol REBC.
Except for historical information contained herein, the statements contained in this press release, including statements concerning future increases in the value of Redwood Empire Bancorp stock, are forward-looking statements within the meaning of the "safe harbor" provisions of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act or 1934, as amended. These forward-looking statements are subject to risks and uncertainties. Actual results may differ materially from those set forth in or implied by forward-looking statements. These risks are described from time to time in Redwood Empire Bancorp's Securities and Exchange Commission filings, including its Annual Reports on Form 10-K and quarterly reports on Form 10-Q. Redwood Empire Bancorp disclaims any intent or obligation to update these forward-looking statements.
REDWOOD EMPIRE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands except for earnings per share and share data) Three Months Ended March 31, 2004 2003 Interest income: ---------- ---------- Interest and fees on loans $ 6,414 $ 6,406 Interest on investment securities 726 1,123 Interest on federal funds sold 28 13 ---------- ---------- Total interest income 7,168 7,542 Interest expense: Interest on deposits 1,202 1,744 Interest on other borrowings 439 268 ---------- ---------- Total interest expense 1,641 2,012 ---------- ---------- Net interest income 5,527 5,530 Provision for loan losses - - ---------- ---------- Net interest income after provision for loan losses 5,527 5,530 Noninterest income: Service charges on deposit accounts 246 268 Merchant draft processing, net 1,161 1,129 Loan servicing income 27 35 Other income 274 197 ---------- ---------- Total noninterest income 1,708 1,629 Noninterest expense: Salaries and employee benefits 2,733 2,284 Occupancy and equipment expense 535 614 Other 1,154 1,188 ---------- ---------- Total noninterest expense 4,422 4,086 ---------- ---------- Income before income taxes 2,813 3,073 Provision for income taxes 1,125 1,057 ---------- ---------- Net income $ 1,688 $ 2,016 ========== ========== Basic earnings per share: Net income available for common stock shareholders $ 0.34 $ 0.40 Weighted average shares (1) 4,949,000 5,078,000 Diluted earnings per share: Net income available for common stock shareholders $ 0.33 $ 0.38 Weighted average shares (1) 5,107,000 5,261,000 Selected Ratios Annualized Return on Average Total Equity 24.62% 28.82% Annualized Return on Average Total Assets 1.31% 1.60% (1) Adjusted for three-for-two stock split announced July 15, 2003. REDWOOD EMPIRE BANCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands) March 31, December 31, March 31, 2004 2003 2003 --------- --------- --------- (Unaudited) (Unaudited) Assets: Cash and due from banks $ 20,767 $ 19,259 $ 22,286 Federal funds sold 11,800 8,600 19,221 --------- --------- --------- Cash and cash equivalents 32,567 27,859 41,507 Investment securities: Held to maturity 17,931 17,566 15,648 Available for sale, at fair value 42,151 58,229 76,910 --------- --------- --------- Total investment securities 60,082 75,795 92,558 Mortgage loans held for sale 130 192 322 Loans: Residential real estate mortgage 106,275 108,851 109,210 Commercial real estate mortgage 185,257 186,185 166,378 Commercial 59,389 55,473 60,443 Real estate construction 48,446 51,154 49,307 Installment and other 11,994 13,025 12,538 Less net deferred loan fees (116) (167) (362) --------- --------- --------- Total portfolio loans 411,245 414,521 397,514 Less allowance for loan losses (7,177) (7,162) (7,355) --------- --------- --------- Net loans 404,068 407,359 390,159 Premises and equipment, net 2,354 2,489 2,765 Cash surrender value of life insurance 7,909 3,782 3,662 Other assets and interest receivable 9,279 11,424 9,643 --------- --------- --------- Total assets $ 516,389 $ 528,900 $ 540,616 ========= ========= ========= Liabilities and Shareholders' equity: Deposits: Noninterest bearing demand deposits $ 103,697 $ 107,359 $ 109,502 Interest-bearing transaction accounts 163,303 154,640 160,351 Time deposits one hundred thousand and over 72,784 73,262 68,385 Other time deposits 113,923 119,521 144,123 --------- --------- --------- Total deposits 453,707 454,782 482,361 Short-term borrowings 3,915 16,265 4,621 Subordinated debentures 20,000 20,000 10,000 Other liabilities and interest payable 10,788 10,173 14,928 --------- --------- --------- Total liabilities 488,410 501,220 511,910 Shareholders' equity: Common stock 10,520 10,577 10,751 Retained earnings 16,611 16,344 16,763 Accumulated other comprehensive income, net of tax 848 759 1,192 --------- --------- --------- Total shareholders' equity 27,979 27,680 28,706 --------- --------- --------- Total liabilities and shareholders' equity $ 516,389 $ 528,900 $ 540,616 ========= ========= ========= REDWOOD EMPIRE BANCORP AND SUBSIDIARIES BUSINESS SEGMENTS (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2004 ----------------------------- Community Banking Bankcard ---------- ---------- Total interest income $ 7,168 $ - Total interest expense 1,639 2 Interest income (expense) allocation (109) 109 ---------- ---------- Net interest income 5,420 107 ---------- ---------- Provision for loan losses - - Service charges on deposit accounts 246 - Merchant draft processing, net - 1,161 Loan servicing income 27 - Other income 274 - ---------- ---------- Total noninterest income 547 1,161 ---------- ---------- Salaries and employee benefits 2,241 492 Occupancy and equipment expense 488 47 Other 986 168 ---------- ---------- Total noninterest expense 3,715 707 ---------- ---------- Income before income tax expense 2,252 561 Income tax expense 901 224 ---------- ---------- Net income $ 1,351 $ 337 ========== ========== Three Months Ended March 31, 2004 ----------------------------- Community Banking Bankcard ---------- ---------- Total interest income $ 7,542 $ - Total interest expense 2,007 5 Interest income (expense) allocation (170) 170 ---------- ---------- Net interest income 5,365 165 ---------- ---------- Provision for loan losses - - Service charges on deposit accounts 268 - Merchant draft processing, net - 1,129 Loan servicing income 35 - Other income 197 - ---------- ---------- Total noninterest income 500 1,129 ---------- ---------- Salaries and employee benefits 1,830 454 Occupancy and equipment expense 565 49 Other 1,000 188 ---------- ---------- Total noninterest expense 3,395 691 ---------- ---------- Income before income tax expense 2,470 603 Income tax expense 850 207 ---------- ---------- Net income $ 1,620 $ 396 ========== ==========
Contact: Redwood Empire Bancorp Patrick Kilkenny President and CEO (707) 573-4911