CMBC Community Bancorp

Community Bancorp Inc. (NASDAQ:CMBC): -- Net Income for the third quarter of 2005 totaled $3.4 million, up 67% over the third quarter of 2004 and 20% over the second quarter of 2005 -- Third Quarter Diluted EPS of $0.58 per share, up 35% over third quarter 2004 and up 14% over second quarter 2005 Community Bancorp Inc. (the "Company") (NASDAQ:CMBC), a Southern California based community bank holding company with $882.3 million in total assets, today announced third quarter 2005 record net income of $3.4 million, or $0.58 per diluted share, compared to third quarter 2004 net income of $2.0 million, or $0.43 per diluted share, and second quarter 2005 net income of $2.8 million, or $0.51 per diluted share. The increase in net income resulted primarily from increased net interest income due to loan growth, acquisitions and an expanded net interest margin. Net income increased 49% for the nine months ended September 30, 2005 to $8.8 million compared to $5.9 million for the same period last year. Earnings per share (EPS) increased 23% for the nine months ended September 30, 2005 to $1.54 per diluted share compared to $1.25 per diluted share for the same period in 2004. The comparability of financial information is affected by our acquisitions. Operating results include the operations of acquired entities from the dates of acquisition. We acquired Cuyamaca Bank on October 1, 2004 and Rancho Bernardo Community Bank on August 19, 2005. -0- *T THIRD QUARTER RESULTS (unaudited) (dollars in thousands, Third Third Second except per share data) Quarter Quarter Quarter 2005 2004 % Change 2005 % Change ------- ------- --------- ------- --------- Diluted EPS $0.58 $0.43 34.88% $0.51 13.73% Net Income $3,384 $2,030 66.70% $2,831 19.53% Return on Average Assets (ROA) 1.63% 1.57% 3.82% 1.54% 5.84% Return on Average Tangible Equity (ROTE) 22.12% 19.76% 11.94% 22.76% -2.81% Net Interest Margin 5.81% 5.27% 10.25% 5.61% 3.57% Efficiency Ratio 54.97% 58.59% -6.18% 57.23% -3.95% *T "The increase in net income resulted from several sources," stated Michael J. Perdue, President and CEO. "We are a much larger institution as a result of strong internal loan and deposit growth as well as the closing of two acquisitions in the last twelve months. We have also focused on controlling our interest expenses and improving our deposit mix which helped to boost our net interest margin from 5.27% in the third quarter of 2004 to 5.81% in the most recent quarter in 2005." "We experienced continued robust internal growth during the third quarter, which, combined with the acquisitions of Rancho Bernardo Community Bank and Cuyamaca Bank, produced a 63% increase in total assets to $882.3 million as of September 30, 2005 compared to $540.6 million as of September 30, 2004. If we exclude the effect of the acquisitions, assets grew internally 19% since September 30, 2004," continued Perdue. "Excluding acquisitions and wholesale deposits, retail deposits increased 24% since September 30, 2004 and gross loans increased 24% over the same period. Including the acquisitions, total loans increased 61% to $733.7 million as of September 30, 2005 compared to $455.2 million as of September 30, 2004. Total deposits also increased substantially, rising 61% to $736.0 million as of September 30, 2005 compared to the same date a year earlier. The continued improvement in our deposit mix has also contributed to our improved performance. Demand deposits increased significantly, rising 91% to $159.9 million as of quarter end compared to $83.7 million as of the same date in 2004. As a result of this strengthened deposit portfolio, the increase in market rates and the recovery of $362,000 of deferred interest on non-accrual loans, our net interest income increased 72% for the third quarter 2005 over 2004." Loan production was very strong, increasing 21% to $379.6 million for the nine months ended September 30, 2005 compared to $313.0 million for the same period in 2004. Of these totals, commercial and other loan originations were 67% of the total production, or $253.4 million, while SBA loan originations were 33% of the total production, or $126.2 million. INTEREST INCOME AND EXPENSE During the three months ended September 30, 2005, net interest income before loan loss provision increased 72% over the same period last year. Total interest income was $14.9 million, a 90% increase over the $7.8 million for the same period in 2004. The increase was primarily the result of the 56% increase in average interest earning assets and increases in the yield on those assets. Total interest expense for the three months ended September 30, 2005 was $3.8 million, a 173% increase over the $1.4 million for the same period in 2004. Interest expense increased due to the 52% increase in average interest bearing liabilities combined with an increase in the cost of those liabilities as a result of increases in market interest rates. For the third quarter 2005, average transaction accounts increased 63% to $348.1 million compared to $213.4 million for the same period last year. OTHER OPERATING INCOME Excluding the loss on REO in 2004, other operating income decreased 8.4% to $2.5 million for the three months ended September 30, 2005 compared to $2.7 million during the same period last year due to a decrease in the gain on sale of loans. SBA 504 loan sales totaled $18.2 million and SBA 7a loan sales totaled $9.6 million for the third quarter of 2005 compared to $2.6 million in SBA 504 loans and $16.1 million in SBA 7a for the same period in 2004. The change in mix of loans sold resulted in a decrease in gain on sale revenue during the third quarter of 2005 to $1.5 million compared to $2.0 million for the same period in 2004. The decrease in gain on sale was partially offset by increases in customer service charges and other fee income. OTHER OPERATING EXPENSES Other operating expenses increased 39% to $7.4 million for the three months ended September 30, 2005 compared to $5.3 million for the three months ended September 30, 2004. The increase in non-interest expense was due to significant growth and expansion, including the acquisitions of Cuyamaca Bank and Rancho Bernardo Community Bank, with five combined banking offices, and the addition of a new banking office in Murrieta, CA. As of September 30, 2005, the Company had 245 full time equivalent employees, compared to 149 as of September 30, 2004. The Company's efficiency ratio improved to 54.97% for the third quarter of 2005 compared to 58.59% for the same period in 2004. RESERVES AND ASSET QUALITY As of September 30, 2005, the reserve for loan losses increased to $10.1 million compared to $6.0 million as of September 30, 2004. The reserve for loan losses as a percentage of total gross loans was 1.37% as of September 30, 2005 compared to 1.32% as of September 30, 2004. The reserve for loan losses as a percentage of total gross loans net of government guarantees was 1.44% as of September 30, 2005 compared to 1.43% as of September 30, 2004. During the first nine months of 2005, the Company recorded a provision for loan losses of $1.2 million compared to $838,000 for the same period in 2004. The Company had net loan recoveries of $186,000, or (0.04)%, for the nine months ended September 30, 2005 compared to net loan charge offs of $19,000, or 0.01%, for the same period in 2004. Non-performing loans were $2.7 million as of September 30, 2005 compared to $4.7 million as of September 30, 2004. Net of government guarantees, non-performing loans as a percent of total loans were 0.17% as of September 30, 2005 compared to 0.62% as of September 30, 2004. CAPITAL RATIOS The Company's and Bank's capital ratios continue to be above the well-capitalized guidelines established by bank regulatory agencies. The Company's tangible equity to tangible assets declined to 5.81% as of September 30, 2005 compared to 7.92% as of September 30, 2004 due to the acquisitions of Rancho Bernardo Community Bank and Cuyamaca Bank combined with the significant growth in assets. In order to facilitate the acquisition of Rancho Bernardo Community Bank, the Company issued $20.0 million in trust preferred securities, of which $4.4 million was contributed to the Bank subsidiary as additional capital. RANCHO BERNARDO COMMUNITY BANK ACQUISITION Community Bancorp acquired Rancho Bernardo Community Bank (OTCBB:RBCB) by merging it into Community National Bank, as of the close of business on August 19, 2005. As a result, Community began consolidating the results of the combined entity beginning on August 20, 2005. As of the date of acquisition, Rancho Bernardo had total assets of $125.8 million, total gross loans of $80.6 million and total deposits of $114.2 million. GENERAL INFORMATION Community Bancorp is a bank holding company with $882.3 million in assets as of September 30, 2005, with a wholly owned banking subsidiary, Community National Bank, headquartered in Escondido, California. The bank's primary focus is community banking, providing commercial banking services including commercial, real estate and SBA loans to small and medium sized businesses. The bank serves San Diego County and southwest Riverside County with eleven community banking offices in Bonsall, El Cajon, Encinitas, Escondido, Fallbrook, La Mesa, Murrieta, Rancho Bernardo, Santee, Temecula and Vista, a commercial loan production office in Corona, CA, and has additional SBA loan production offices that originate loans in California, Arizona, Nevada and Oregon. FORWARD LOOKING STATEMENTS Statements concerning future performance, developments or events, expectations for growth and income forecasts, and any other guidance on future periods, constitute forward-looking statements that are subject to a number of risks and uncertainties. Actual results may differ materially from stated expectations. Specific factors include, but are not limited to, loan production, balance sheet management, expanded net interest margin, the ability to control costs and expenses, interest rate changes and financial policies of the United States government (including the Small Business Administration), and general economic conditions. Additional information on these and other factors that could affect financial results are included in its Securities and Exchange Commission filings. The Company disclaims any obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein to reflect future events or developments. -0- *T CONSOLIDATED BALANCE SHEETS --------------------------- Percentage (unaudited) (dollars in change September December September thousands) from 30, 31, 30, Sep 30, 2004 2005 2004 2004 ---------- --------- --------- ---------- ASSETS: Cash and cash equivalents $21,940 $24,407 $49,332 Investments and interest bearing deposits in financial institutions 55,590 35,973 20,471 Loans held for investment 67% 589,896 437,932 354,000 Less allowance for loan losses (10,124) (7,508) (6,029) --------- --------- ---------- Net loans held for investment 579,772 430,424 347,971 Loans held for sale 42% 143,767 101,588 101,247 Premises and equipment, net 6,976 6,737 3,951 Other real estate owned and repossessed assets 68 - 39 Accrued interest and other assets 15,901 13,402 8,588 Income tax receivable and deferred tax asset, net 7,364 5,928 3,859 Servicing assets, net 4,554 4,011 3,698 Interest-only strips, at fair value 2,196 1,749 1,454 Goodwill 44,167 17,387 - --------- --------- ---------- Total assets 63% $882,295 $641,606 $540,610 ========= ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits Interest bearing 55% $576,109 $438,995 $372,119 Non-interest bearing 91% 159,892 110,771 83,668 --------- --------- ---------- Total deposits 61% 736,001 549,766 455,787 Short term borrowing 3,000 1,000 20,000 Long term debt 38,655 17,640 14,862 Accrued expenses and other liabilities 11,797 10,082 7,118 --------- --------- ---------- Total liabilities 59% 789,453 578,488 497,767 --------- --------- ---------- Stockholders' equity Common stock, $0.625 par value; authorized 10,000,000 shares, issued and outstanding; 5,936,578 (including 11,670 of restricted stock awarded under the equity based compensation plan) at September 30, 2005, 5,162,725 at December 31, 2004 and 4,422,689 at September 30, 2004 3,703 3,227 2,764 Additional paid-in capital 61,635 38,994 21,351 Deferred compensation - restricted stock (256) - Accumulated other comprehensive gain (loss), net of income taxes (319) (73) (11) Retained earnings 28,079 20,970 18,739 --------- --------- ---------- Total stockholders' equity 117% 92,842 63,118 42,843 --------- --------- ---------- Total liabilities and stockholders' equity 63% $882,295 $641,606 $540,610 ========= ========= ========== CONSOLIDATED STATEMENT OF OPERATIONS ---------------------------------------------------------------------- (unaudited) (dollars in thousands, except per share data) Quarter Ended Nine Months Ended Qtly September 30, 9 mo. September 30, % % INTEREST INCOME Change 2005 2004 Change 2005 2004 ------ ------- ------- ------ ------- ------- Interest on loans $14,231 $7,522 $36,040 $21,585 Interest on fed funds sold 59 52 208 124 Interest-earning deposits with banks 5 1 21 3 Interest on other investments 568 232 1,357 726 ------- ------- ------- ------- Total Interest Income 90% 14,863 7,807 68% 37,626 22,438 INTEREST EXPENSE Deposits 3,141 1,126 7,011 3,166 Other borrowed money 661 267 1,653 794 ------- ------- ------- ------- Total Interest Expense 173% 3,802 1,393 119% 8,664 3,960 Net interest income 72% 11,061 6,414 57% 28,962 18,478 Provision for loan losses 430 325 1,161 838 ------- ------- ------- ------- Net Interest Income After Loan Loss Provision 75% 10,631 6,089 58% 27,801 17,640 OTHER OPERATING INCOME Net gain on sale of loans 1,533 1,952 5,240 4,938 Loan servicing fees, net 221 221 700 614 Customer service charges 295 185 793 569 Gain (Loss) on OREO and other repossessed assets - (160) 157 (160) Other fee income 418 335 881 956 ------- ------- ------- ------- Total Other Operating Income -3% 2,467 2,533 12% 7,771 6,917 OTHER OPERATING EXPENSES Salaries and employee benefits 4,393 2,916 11,981 8,134 Occupancy 574 340 1,695 1,033 Depreciation 326 190 957 566 Other 2,143 1,890 6,365 5,374 ------- ------- ------- ------- Total Other Operating Expenses 39% 7,436 5,336 39% 20,998 15,107 ------- ------- ------- ------- Income before income taxes 5,662 3,286 14,574 9,450 Income tax 2,278 1,256 5,820 3,573 ------- ------- ------- ------- NET INCOME 67% $3,384 $2,030 49% $8,754 $5,877 ======= ======= ======= ======= Per Share Data Basic earnings per share 33% $0.61 $0.46 22% $1.63 $1.34 ======= ======= ======= ======= Diluted earnings per share 35% $0.58 $0.43 23% $1.54 $1.25 ======= ======= ======= ======= Average shares for basic earnings per share 5,575,666 4,402,605 5,358,607 4,385,565 Average shares for diluted earnings per share 5,880,790 4,705,546 5,669,102 4,685,097 SUPPLEMENTAL DATA --------------------------------------------- (unaudited)(dollars in thousands, Quarter ended Year to date except per share data) September 30, ended September 30, ---------------- ---------------- 2005 2004 2005 2004 -------- ------- -------- ------- Annualized return on average assets 1.63% 1.57% 1.56% 1.56% Annualized return on average equity 17.05% 19.76% 16.48% 19.64% Annualized return on average tangible equity 22.12% 19.76% 22.07% 19.64% Efficiency ratio 54.97% 58.59% 57.41% 59.12% Annualized net interest margin 5.81% 5.27% 5.71% 5.29% Book value per share $15.64 $9.69 Tangible book value per share $8.20 $9.69 Dividends per share $0.10 $0.05 $0.30 $0.15 NON-PERFORMING ASSETS At September 30, At December 31, ----------------------------------------------------- ---------------- (unaudited)(dollars in thousands) 2005 2004 2004 -------- ------- -------- Non-accrual loans $2,721 $4,701 $4,027 Loans past due 90 days or more - - - Restructured loans - - - -------- ------- -------- Total non-performing loans 2,721 4,701 4,027 OREO & other repossessed assets 68 39 - -------- ------- -------- Total non-performing assets $2,789 $4,740 $4,027 ======== ======= ======== Total non-performing loans/gross loans 0.37% 1.03% 0.74% Total non-performing assets/total assets 0.32% 0.88% 0.63% Total non-performing loans net of guarantees/gross loans 0.17% 0.62% 0.39% Total non-performing assets net of guarantees/total assets 0.15% 0.53% 0.33% ALLOWANCE FOR LOAN LOSSES Quarter ended Year to date September 30, ended September 30, ----------------------------------------------------- ---------------- (unaudited)(dollars in thousands) 2005 2004 2005 2004 -------- ------- -------- ------- Balance at beginning of period $8,392 $5,715 $7,508 $5,210 Reserve acquired in merger 1,269 - 1,269 - Provision for loan losses 430 325 1,161 838 Recovery of (provision for) reserve for losses on commitments to extend credit - - - - Net recoveries (chargeoffs) 33 (11) 186 (19) -------- ------- -------- ------- Balance at end of period $10,124 $6,029 $10,124 $6,029 ======== ======= ======== ======= Loan loss allowance/gross loans 1.37% 1.32% Loan loss allowance/gross loans net of guarantees 1.44% 1.43% Loan loss allowance/loans held for investment 1.72% 1.70% Loan loss allowance/non-performing loans 372.07% 128.25% Loan loss allowance/non-performing assets 363.00% 127.19% Loan loss allowance/non-performing loans, net of guarantees 830.52% 215.24% Loan loss allowance/non-performing assets, net of guarantees 786.64% 212.29% Net Charge offs (recoveries) to average loans (annualized) -0.02% 0.01% -0.04% 0.01% CAPITAL RATIOS At September 30, At December 31, ----------------------------------------------------- ---------------- (unaudited) 2005 2004 2004 -------- ------- -------- Holding Company Ratios Total capital (to risk-weighted assets) 11.71% 13.08% 11.47% Tier 1 capital (to risk-weighted assets) 9.98% 11.68% 10.22% Tier 1 capital (to average assets) 10.00% 10.95% 9.48% Tangible equity to tangible assets 5.81% 7.92% 7.33% Bank only Ratios Total capital (to risk-weighted assets) 11.30% 11.22% 11.19% Tier 1 capital (to risk-weighted assets) 10.05% 9.97% 9.94% Tier 1 capital (to average assets) 10.08% 9.35% 9.30% (unaudited) (dollars in thousands) -------------------------------------------------------------- ------- For the three months ended September 30, 2005 2004 ------- ------- Average Interest Average Average InterestAverage Balance Earned/ Rate/ Balance Earned/ Rate/ Paid Yield Paid Yield ------------------------------------------------ Average assets: Securities and time deposits at other banks $57,055 $573 3.98% $22,157 $233 4.18% Fed funds sold 6,735 59 3.48% 14,477 52 1.43% Loans: Commercial 53,867 990 7.29% 21,990 291 5.26% Real Estate 585,905 12,297 8.33% 393,693 6,663 6.73% Aircraft 31,843 546 6.80% 29,108 508 6.94% Consumer 19,318 398 8.17% 3,040 60 7.85% ----------------- ----------------- Total loans 690,933 14,231 8.17% 447,831 7,522 6.68% ----------------- ----------------- Total earning assets 754,723 14,863 7.81% 484,465 7,807 6.41% Non earning assets 77,068 33,899 --------- --------- Total average assets $831,791 $518,364 ========= ========= Average liabilities and stockholders' equity: Interest bearing deposits: Savings and interest bearing accounts $202,055 $482 0.95% $134,908 $155 0.46% Time deposits 343,607 2,659 3.07% 233,611 971 1.65% ----------------- ----------------- Total interest bearing deposits 545,662 3,141 2.28% 368,519 1,126 1.22% Short term borrowing 21,610 189 3.47% 8,470 32 1.51% Long term debt 28,182 472 6.64% 14,676 235 6.37% ----------------- ----------------- Total interest bearing liabilities 595,454 3,802 2.53% 391,665 1,393 1.42% Demand deposits 146,080 78,491 Accrued expenses and other liabilities 10,885 7,105 Net stockholders' equity 79,372 41,103 --------- --------- Total average liabilities stockholders' equity $831,791 $11,061 $518,364 $6,414 ================= ================= Net interest spread 5.28% 4.99% ====== ======= Net interest margin 5.81% 5.27% ====== ======= ----------------------- ------------------------ For the nine months ended September 30, 2005 2004 ----------------------- ------------------------ Average assets: Securities and time deposits at other banks $46,027 $1,378 4.00% $24,635 $729 3.95% Fed funds sold 9,655 208 2.88% 14,831 124 1.12% Loans: Commercial 45,323 2,374 7.00% 21,473 871 5.42% Real Estate 529,232 31,046 7.84% 372,276 18,951 6.80% Aircraft 30,381 1,537 6.76% 29,893 1,569 7.01% Consumer 17,851 1,083 8.11% 3,415 194 7.59% ----------------- ----------------- Total loans 622,787 36,040 7.74% 427,057 21,585 6.75% ----------------- ----------------- Total earning assets 678,469 37,626 7.41% 466,523 22,438 6.42% Non earning assets 70,090 34,950 --------- --------- Total average assets $748,559 $501,473 ========= ========= Average liabilities and stockholders' equity: Interest bearing deposits: Savings and interest bearing accounts $191,558 $1,055 0.74% $124,103 $438 0.47% Time deposits 300,642 5,956 2.65% 225,467 2,728 1.62% ----------------- ----------------- Total interest bearing deposits 492,200 7,011 1.90% 349,570 3,166 1.21% Short term borrowing 25,290 576 3.05% 11,866 107 1.20% Long term debt 21,235 1,077 6.78% 14,683 687 6.25% ----------------- ----------------- Total interest bearing liabilities 538,725 8,664 2.15% 376,119 3,960 1.41% Demand deposits 129,072 78,627 Accrued expenses and other liabilities 9,917 6,834 Net stockholders' equity 70,845 39,893 --------- --------- Total average liabilities stockholders' equity $748,559 $28,962 $501,473 $18,478 ================= ================= Net interest spread 5.26% 5.01% ====== ======= Net interest margin 5.71% 5.29% ====== ======= *T