=========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: October 16, 2002 REDWOOD EMPIRE BANCORP (Exact number of Registrant as specified in its charter) California File No. 0-19231 68-0166366 (State or other jurisdiction of (Commission File Number) (IRS Employer) Incorporated or organization) Identification No.) 111 Santa Rosa Avenue, Santa Rosa, California 95404-4905 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (707) 573-4800 =========================================================================== Item 5. Other Events Press release for the following (article attached): Redwood Empire Bancorp reports third quarter 2002 net income. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: 10-16-02 REDWOOD EMPIRE BANCORP -------- ---------------------- (Registrant) /s/ James E. Beckwith By: --------------------------- James E. Beckwith Executive Vice President and Chief Operating Officer FOR: REDWOOD EMPIRE BANCORP APPROVED BY: James Beckwith EVP/Chief Operating Officer (707) 522-5215 For Immediate Release REDWOOD EMPIRE BANCORP REPORTS THIRD QUARTER 2002 NET INCOME SANTA ROSA, Calif. (October 16, 2002) -- Redwood Empire Bancorp (NASDAQ: REBC) today reported net income of $1,958,000 or $.54 per diluted share for the quarter ended September 30, 2002. This compares with net income of $1,832,000 or $.50 per diluted share for the same quarter a year ago. Return on average total equity was 27.29% in the third quarter of 2002, as compared with 28.86% in the same quarter a year ago. Return on assets was 1.54% in the third quarter of 2002 as compared to 1.61% one year ago. For the nine months ended September 30, 2002, net income was $5,930,000 or $1.64 per diluted share. This compares with $5,387,000 or $1.39 per diluted share for the first nine months of 2001. During the third quarter of 2002, the Company's financial performance was impacted by a revenue and an expense item. In an effort to improve the risk profile of the Company's investment portfolio, management sold $4,000,000 of corporate debt securities, which resulted in a gain of $259,000. In addition, the Company incurred $331,000 in legal and consulting fees associated with certain corporate activities, including exploring strategic options for the Company and its Merchant Bankcard segment. The effect of these two items lowered net income by $45,000 or $0.01 per share. Total loans amounted to $368,528,000 at September 30, 2002 as compared to $342,911,000 at September 30, 2001, which amounts to an increase of $25,617,000, or 7%. Total deposits amounted to $452,014,000 as of September 30, 2002 as compared to $400,208,000 at September 30, 2001, or a 13% increase. Total assets amounted to $509,863,000 as of September 30, 2002 as compared to $449,263,000 one year ago, representing a 13% increase. Net interest income amounted to $5,271,000 in the third quarter of 2002, compared to $4,991,000 in the same period in 2001, which represents a $280,000 increase. The increase in net interest income is primarily attributable to an increase in average earning assets of $53,961,000 from $422,591,000 for the quarter ended September 30, 2001 to $476,552,000 for the quarter ended September 30, 2002. Net interest margin for the third quarter of 2002 declined to 4.39% from 4.69% one year ago primarily due to the lower interest rate environment and the Company carrying $36,806,000 in lower yielding average overnight investments for the quarter ended September 30, 2002, as compared to $19,149,000 in such investments for the quarter ended September 30, 2001. Average overnight investments have increased due to the success of the Company's deposit gathering activities. Net interest income amounted to $15,583,000 for the nine months ended September 30, 2002 as compared to $15,118,000 for the same period one year ago, representing an increase of $465,000. There was no loan loss provision for the three and nine months ended September 30, 2002 and September 30, 2001. Net charge-offs were $8,000 or .01% of average portfolio loans for the quarter ended September 30, 2002, on an annualized basis, as compared to $95,000 or .12% of average portfolio loans for the same quarter in 2001, on an annualized basis. This compares to net charge-offs of $2,000 of average portfolio loans for the nine months ended September 30, 2002, on an annualized basis, and $65,000 or .03% of average portfolio loans for the first nine months of 2001, on an annualized basis. Non-performing assets at September 30, 2002 were $1,419,000 or .3% of total assets, as compared to non-performing assets of $3,176,000, or .7% of total assets, as of December 31, 2001. The allowance for loan losses to nonperforming assets was 534% as of September 30, 2002 as compared to 239% as of December 31, 2001. Non-interest income amounted to $2,155,000 for the quarter ended September 30, 2002 as compared to $1,694,000 in the same period in 2001. Non-interest income amounted to $5,766,000 for the nine months ended September 30, 2002 as compared to $4,611,000 for the same period one year ago. Merchant draft processing revenues increased from $1,098,000 in the third quarter of 2001 to $1,322,000 in the third quarter of 2002 as a result of the unit's marketing efforts. In the third quarter of 2002, $4,000,000 of corporate debt securities were sold resulting in a gain of $259,000. Such securities were primarily sold to improve the risk profile of the Company's investment portfolio. For the nine month period ended September 30, 2002, merchant draft processing revenues amounted to $3,698,000, an increase of $768,000 from $2,930,000 for the nine months ended September 30, 2001. Non-interest expense amounted to $4,303,000 for the quarter ended September 30, 2002 as compared to $3,629,000 in the same period one year ago, which represents an increase of $674,000 or 19%. During the quarter of 2002, the Company incurred $331,000 in legal and consulting fees associated with certain corporate activities, including exploring strategic options for the Company and its Merchant Bankcard segment. Without the effect of these expenses, the increase in non-interest expense amounted to $343,000 or 9% when compared to the quarter ended September 30, 2001. Salaries and benefit expense increased $280,000 or 14% in the three months ended September 30, 2002 when compared to the same period one year ago. The increase in this expense is directly attributable to the growth of the Company. The Company's efficiency ratio for the third quarter of 2002 amounted to 57.95% as compared to 54.29% for the same period one year ago. Non-interest expense amounted to $11,945,000 for the nine months ended September 30, 2002 as compared to $10,711,000 in the same period one year ago. This represents an increase of $1,234,000 or 12%. Without the effect of the expenses referred to above, which were $386,000 for the nine months ended September 30, 2002, the increase in non-interest expense would have been $848,000 or 8% when compared to the same period one year ago. The efficiency ratio for the Company's subsidiary, National Bank of the Redwoods was 50.33% for the quarter ended September 30, 2002 as compared to 49.69% one year ago. For the nine months ended September 30, 2002, National Bank of the Redwood's efficiency ratio was 50.38% as compared to 50.49% for the same period one year ago. For the three and nine months ended September 30, 2002, the net income of the Company's community banking segment was $1,490,000 and $4,577,000 on revenues of $5,963,000 and $17,196,000. This compares to net income of $1,356,000 and $4,125,000 and revenues of $5,324,000 and $15,967,000 for the same periods one year ago. The net income of the Company's bankcard segment was $468,000 and $1,353,000 for the three and nine months ended September 30, 2002 versus $476,000 and $1,262,000 for the three and nine months ended September 30, 2001. The merchant bankcard segment's net income comprised 24% and 23% of the Company's consolidated net income for the three and nine months ended September 30, 2002, as compared to 26% and 23% for the three and nine months ended September 30, 2001. As previously disclosed in the Company's quarterly reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002, on January 15, 2002 National Bank of the Redwoods formed NBR Real Estate Investment Trust, a Maryland Real Estate Investment Trust. The entity was formed to hold the Bank's real estate secured loans and to better organize the Bank's marketing and origination of real estate secured loans. As a result of the formation and funding of this entity, the Company's effective tax rate was reduced to 37% for the quarter ended September 30, 2002 from 40% for the quarter ended September 30, 2001. Costs associated with the implementation of this entity amounted to $49,000 for the third quarter of 2002 and $101,000 on a year to date basis. In August 2001, the Company announced a common stock repurchase authorization to repurchase up to 355,500 shares, as adjusted for the three-for-two stock split announced September 20, 2001. To date, 138,636 shares have been repurchased, as adjusted for the three-for-two stock split announced September 20, 2001. Under the repurchase program, the Company plans to purchase shares from time to time on the open market and/or in privately negotiated transactions. Total assets were $509,863,000 at September 30, 2002. Common book value per share was $8.34. The Company's Tier 1 capital to average assets ratio was 7.17% as of September 30, 2002. Redwood Empire Bancorp, through its principal operating subsidiary, National Bank of the Redwoods, provides diverse financial products and services. The Company offers commercial banking services primarily to businesses and professionals in the North Coast counties of California. The Company's business strategy includes the development of fee-based products and services which will provide insulation to the Company's results from changes in interest rates. 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. (Tables to follow) REDWOOD EMPIRE BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands except for earnings per share and share data) Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 ---------------------------------------------------------------- Total interest income $7,806 $8,317 $22,949 $25,812 Total interest expense 2,535 3,326 7,366 10,694 ---------------------------------------------------------------- Net interest income 5,271 4,991 15,583 15,118 Provision for loan losses - - - - ---------------------------------------------------------------- Net interest income after provision for loan losses 5,271 4,991 15,583 15,118 ---------------------------------------------------------------- Service charges on deposit accounts 288 284 910 819 Merchant draft processing, net 1,322 1,098 3,698 2,930 Loan servicing income 66 69 201 226 Net realized gains on investment securities available for sale 259 22 294 22 Other income 220 221 663 614 ---------------------------------------------------------------- Total noninterest income 2,155 1,694 5,766 4,611 ---------------------------------------------------------------- Salaries and employee benefits 2,346 2,066 6,694 6,287 Occupancy and equipment expense 531 511 1,588 1,503 Other 1,426 1,052 3,663 2,921 ---------------------------------------------------------------- Total noninterest expense 4,303 3,629 11,945 10,711 ---------------------------------------------------------------- Income before income tax expense 3,123 3,056 9,404 9,018 Income tax expense 1,165 1,224 3,474 3,631 ---------------------------------------------------------------- Net income $1,958 $1,832 $5,930 $5,387 ================================================================ Basic earnings per share: Net income available for common stock shareholders $0.56 $0.51 $1.70 $1.43 Weighted average shares (1) 3,476,000 3,564,000 3,489,000 3,755,000 Diluted earnings per share: Net income available for common stock shareholders $0.54 $0.50 $1.64 $1.39 Weighted average shares (1) 3,600,000 3,697,000 3,616,000 3,877,000 Selected Ratios Annualized Return on Average Total Equity 27.29 % 28.86% 29.16 % 25.67% Annualized Return on Average Total Assets 1.54 % 1.61% 1.63 % 1.61% (1) Adjusted for three-for-two stock split announced September 20, 2001. Selected Balance Sheet Data (In Thousands) (Unaudited) September 30, December 31, September 30, 2002 2001 2001 ------------------------------------------------- Total Loans $368,528 $351,649 $342,911 Allowance for Loan Losses 7,578 7,580 7,609 Total Assets 509,863 448,742 449,263 Total Deposits 452,014 397,412 400,208 Trust Preferred Debt 10,000 10,000 10,000 Total Shareholders' Equity 28,811 26,687 25,846 Nonperforming Assets 1,419 3,176 3,475 REDWOOD EMPIRE BANCORP AND SUBSIDIARIES BUSINESS SEGMENTS (Unaudited) (Dollars in thousands) Three Months Ended Nine Months Ended September 30, 2002 September 30, 2002 -------------------------------------------------------- Community Community Banking Bankcard Banking Bankcard -------------------------------------------------------- Total interest income $7,806 $ --- $22,949 $ --- Total interest expense 2,529 6 7,342 24 Interest income (expense) allocation (147) 147 (479) 479 -------------------------------------------------------- Net interest income 5,130 141 15,128 455 -------------------------------------------------------- Provision for loan losses --- --- --- --- Service charges on deposit accounts 288 --- 910 --- Merchant draft processing, net --- 1,322 --- 3,698 Loan servicing income 66 --- 201 --- Net realized gains on investment securities available for sale 259 --- 294 --- Other income 220 --- 663 --- -------------------------------------------------------- Total noninterest income 833 1,322 2,068 3,698 -------------------------------------------------------- Salaries and employee benefits 1,885 461 5,397 1,297 Occupancy and equipment expense 485 46 1,451 137 Other 1,217 209 3,088 575 -------------------------------------------------------- Total noninterest expense 3,587 716 9,936 2,009 -------------------------------------------------------- Income before income tax expense 2,376 747 7,260 2,144 Income tax expense 886 279 2,683 791 -------------------------------------------------------- Net income $1,490 $468 $4,577 $1,353 ======================================================== Three Months Ended Nine Months Ended September 30, 2001 September 30, 2001 -------------------------------------------------------- Community Community Banking Bankcard Banking Bankcard -------------------------------------------------------- Total interest income $8,317 $ --- $25,812 $ --- Total interest expense 3,323 3 10,686 8 Interest income (expense) allocation (266) 266 (840) 840 -------------------------------------------------------- Net interest income 4,728 263 14,286 832 -------------------------------------------------------- Provision for loan losses --- --- --- --- Service charges on deposit accounts 284 --- 819 --- Merchant draft processing, net --- 1,098 --- 2,930 Loan servicing income 69 --- 226 --- Net realized gains on investment securities available for sale 22 --- 22 --- Other income 221 --- 614 --- -------------------------------------------------------- Total noninterest income 596 1,098 1,681 2,930 -------------------------------------------------------- Salaries and employee benefits 1,695 371 5,173 1,114 Occupancy and equipment expense 472 39 1,386 117 Other 895 157 2,502 419 -------------------------------------------------------- Total noninterest expense 3,062 567 9,061 1,650 -------------------------------------------------------- Income before income tax expense 2,262 794 6,906 2,112 Income tax expense 906 318 2,781 850 -------------------------------------------------------- Net income $1,356 $476 $4,125 $1,262 ========================================================