<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 30, 1999
Western Sierra Bancorp
(Exact Name of Registrant as Specified in Its Charter)
000-25979
Commission File Number
California 68-0390121
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer
Identification No.)
4011 Plaza Goldorado Circle, Cameron Park, California 95682
(Address of Principal Executive Offices) (Zip Code)
(530) 677-5600
(Registrant's Telephone Number, Including Area Code)
This Report includes a total of 68 pages.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired.
<TABLE>
<CAPTION>
Page
----
<S> <C>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
Financial Statements as of December 31, 1998 and 1997
and for each of the Three Years in the Period Ended
December 31, 1998 and Independent Auditors' Report 3
LAKE COMMUNITY BANK
Financial Statements as of December 31, 1998 and 1997
and for each of the Three Years in the Period Ended
December 31, 1998 and Independent Auditors' Report 34
</TABLE>
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Shareholders and
Board of Directors
Roseville 1st Community Bancorp
and Subsidiary
We have audited the accompanying consolidated balance sheet of
Roseville 1st Community Bancorp and subsidiary as of December 31, 1998 and 1997,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Roseville 1st Community Bancorp and subsidiary as of December 31, 1998 and 1997
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Perry-Smith & Co., LLP
Certified Public Accountants
Sacramento, California
March 24, 1999, except for
Note 14 as to which the
date is April 30, 1999
3
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,225,368 $ 1,830,279
Federal funds sold 7,150,000 6,720,000
Loans held for sale 673,500 227,150
Available-for-sale investment securities (Note 2) 8,240,900 4,010,300
Loans, less allowance for loan losses of $328,915 in
1998 and $723,880 in 1997 (Note 3) 34,103,256 34,125,423
Bank premises and equipment, net (Note 4) 1,483,519 1,720,231
Deferred tax assets, net (Note 5) 218,000 303,000
Accrued interest receivable and other assets (Note 11) 1,832,397 1,651,293
------------ ------------
$ 55,926,940 $ 50,587,676
------------ ------------
------------ ------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 10,629,822 $ 8,526,329
Interest bearing (Note 6) 39,965,349 37,823,066
------------ ------------
Total deposits 50,595,171 46,349,395
Accrued interest payable and other liabilities 722,058 273,782
------------ ------------
Total liabilities 51,317,229 46,623,177
------------ ------------
Commitments and contingencies (Note 7)
Shareholders' equity (Note 8):
Common stock - no par value; 5,000,000 shares
authorized; 370,805 shares issued and outstanding
in 1998. Par value $5.00 per share; 5,000,000
shares authorized; 319,972 shares issued and
outstanding in 1997 2,511,058 1,599,860
Additional paid-in capital 421,574
Retained earnings since December 31, 1990 when the deficit of $1,729,001 was
transferred to additional paid-in capital as part of a quasi-
reorganization 2,122,032 1,931,885
Accumulated other comprehensive (loss) income
(Notes 2 and 12) (23,379) 11,180
------------ ------------
Total shareholders' equity 4,609,711 3,964,499
------------ ------------
$ 55,926,940 $ 50,587,676
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 3,249,762 $ 3,264,163 $ 2,531,379
Interest on loans held for sale 78,095 22,446 13,759
Interest on Federal funds sold 268,038 341,603 251,169
Interest on deposits in banks 5,748
Interest on taxable investment securities 425,951 266,264 226,179
------------- ------------- -------------
Total interest income 4,021,846 3,894,476 3,028,234
Interest expense on deposits (Note 6) 1,758,369 1,663,920 1,331,181
------------- ------------- -------------
Net interest income 2,263,477 2,230,556 1,697,053
Provision for loan losses (Note 3) 145,500 564,000 89,200
------------- ------------- -------------
Net interest income after provision
for loan losses 2,117,977 1,666,556 1,607,853
------------- ------------- -------------
Non-interest income:
Service charges and fees 71,649 58,200 33,061
Gain on sale of loans 219,259 98,761 58,229
Gain on sale of available-for-sale
investment securities (Note 2) 7,930
Other income 243,950 184,039 137,149
------------- ------------- -------------
Total non-interest income 542,788 341,000 228,439
------------- ------------- -------------
Other expenses:
Salaries and employee benefits
(Notes 3 and 11) 971,824 817,541 701,482
Occupancy and equipment (Notes 4
and 7) 286,636 214,126 180,467
Merger related expenses (Note 14) 199,700
Other (Note 9) 886,458 661,170 448,537
------------- ------------- -------------
Total other expenses 2,344,618 1,692,837 1,330,486
------------- ------------- -------------
Income before income taxes 316,147 314,719 505,806
Income taxes (Note 5) 126,000 133,000 204,000
------------- ------------- -------------
Net income $ 190,147 $ 181,719 $ 301,806
------------- ------------- -------------
------------- ------------- -------------
Basic earnings per share (Note 8) $ .57 $ .57 $ .94
------- ------- -------
------- ------- -------
Diluted earnings per share (Note 8) $ .56 $ .56 $ .93
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY INCOME
---------- ------------ ----------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 319,572 $ 1,597,860 $ 420,574 $ 1,448,360 $ 3,466,794
Comprehensive income:
Net income 301,806 301,806 $ 301,806
Other comprehensive income, net
of tax:
Unrealized gains on available-for-
sale investment securities
(Note 12) $ 3,439 3,439 3,439
--------------
Total comprehensive income $ 305,245
--------------
--------------
Stock options exercised (Note 8) 400 2,000 1,000 3,000
---------- ------------ ----------- ------------ -------------- --------------
Balance, December 31, 1996 319,972 1,599,860 421,574 1,750,166 3,439 3,775,039
Comprehensive income:
Net income 181,719 181,719 $ 181,719
Other comprehensive income, net
of tax:
Unrealized gains on available-for-
sale investment securities
(Note 12) 7,741 7,741 7,741
--------------
Total comprehensive income $ 189,460
---------- ------------ ----------- ------------ -------------- -------------- --------------
--------------
Balance, December 31, 1997 319,972 1,599,860 421,574 1,931,885 11,180 3,964,499
---------- ------------ ----------- ------------ -------------- --------------
</TABLE>
(Continued)
6
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------------- PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY INCOME
---------- ------------ ----------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 319,972 $ 1,599,860 $ 421,574 $ 1,931,885 $ 11,180 $ 3,964,499
Comprehensive income:
Net income 190,147 190,147 $ 190,147
Other comprehensive loss, net
of tax:
Unrealized losses on available-for-
sale investment securities
(Note 12) (34,559) (34,559) (34,559)
--------------
Total comprehensive income $ 155,588
--------------
--------------
Shares exchanged to effect merger
with the Bank 421,574 (421,574)
Stock options exercised and related tax
benefit (Note 8) 50,833 489,624 489,624
---------- ------------ ----------- ------------ -------------- --------------
Balance, December 31, 1998 370,805 $ 2,511,058 $ - $ 2,122,032 $ (23,379) $ 4,609,711
---------- ------------ ----------- ------------ -------------- --------------
---------- ------------ ----------- ------------ -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Disclosure of reclassification amount, net of taxes:
Unrealized holding loss arising during 1998 $ (39,793)
Less: reclassification adjustment for gains included in net income 5,234
--------------
Net unrealized loss on available-for-sale investment securities $ (34,559)
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 190,147 $ 181,719 $ 301,806
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 145,500 564,000 89,200
Depreciation, accretion and
amortization, net 99,214 89,443 86,064
Gain on sale of available-for-sale
investment securities (7,930)
Loss on sale of other real estate 3,914
Provision for impairment of equipment 160,803
(Decrease) increase in deferred
loan origination fees and costs,
net (16,248) (49,116) 44,036
Net increase in cash surrender value
of life insurance policies (59,604)
(Increase) decrease in loans held
for sale (446,350) (117,150) 699,475
Increase in accrued interest
receivable and other assets (121,720) (118,223) (43,520)
Increase in accrued interest payable
and other liabilities 448,276 27,789 76,746
Deferred income taxes 103,000 (77,000) 111,000
----------- ----------- -----------
Net cash provided by operating
activities 495,088 505,376 1,364,807
----------- ----------- -----------
</TABLE>
(Continued)
8
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows from investing activities:
Purchase of available-for-sale investment
securities $ (8,970,851) $ (519,900) $ (3,807,507)
Proceeds from sale of available-for-sale
investment securities 507,930 37,400
Proceeds from matured and called
available-for-sale investment securities 4,210,000 500,000
Proceeds from matured and called held-to-
maturity investment securities 300,000 2,729,464
Net decrease in interest-bearing
deposits in banks 199,000
Net increase in loans (107,085) (7,667,307) (4,498,306)
Purchase of premises and equipment (45,393) (381,061) (45,286)
Proceeds from sale of other real estate 113,586
Purchase of life insurance policies (1,195,000)
-------------- ---------------- ---------------
Net cash used in investing
activities (4,405,399) (8,849,682) (5,385,235)
-------------- ---------------- ---------------
Cash flows from financing activities:
Net increase in demand, interest-
bearing and savings deposits 5,265,467 6,043,449 6,175,971
Net (decrease) increase in time deposits (1,019,691) 5,618,848 242,394
Proceeds from exercise of stock options 489,624 3,000
-------------- ---------------- ---------------
Net cash provided by financing
activities 4,735,400 11,662,297 6,421,365
-------------- ---------------- ---------------
Increase in cash and cash
equivalents 825,089 3,317,991 2,400,937
Cash and cash equivalents at
beginning of year 8,550,279 5,232,288 2,831,351
-------------- ---------------- ---------------
Cash and cash equivalents at
end of year $ 9,375,368 $ 8,550,279 $ 5,232,288
-------------- ---------------- ---------------
-------------- ---------------- ---------------
</TABLE>
(Continued)
9
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense $ 1,790,950 $ 1,648,035 $ 1,362,926
Income taxes $ 238,000 $ 162,500 $ 23,100
Non-cash investing activities:
Real estate acquired through
foreclosure $ 188,100
Net change in unrealized (loss) gain
on available-for-sale investment
securities $ (52,368) $ 11,706 $ 5,210
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Roseville 1st Community Bancorp (the "Company") was incorporated on
April 2, 1997, and subsequently obtained approval of the Board of
Governors of the Federal Reserve System to be a bank holding company.
On March 10, 1998, Roseville 1st National Bank (the "Bank") consummated
a merger with Roseville 1st Community Bancorp that was effected through
the exchange of one share of the Company's no par value common stock
for each share of the Bank's $5.00 per share par value common stock.
The merger was accounted for in a manner similar to that of a
pooling-of-interests method of accounting.
The accounting and reporting policies of the Company and its subsidiary
conform with generally accepted accounting principles and prevailing
practices within the banking industry.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' balances to
conform to classifications used in 1998.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank. All material
intercompany transactions and accounts have been eliminated in
consolidation.
CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and due from banks
and Federal funds sold are considered to be cash equivalents.
Generally, Federal funds are sold for one day periods.
LOAN SALES AND SERVICING
The Bank originates mortgage loans that are either held in the Bank's
loan portfolio or sold in the secondary market. Loans held for sale are
carried at the lower of cost or market value. Market value is
determined by the specific identification method as of the balance
sheet date or the date which the purchasers have committed to purchase
the loans. At the time the loan is sold, the related right to service
the loan is either retained, with the Bank earning future servicing
income, or released in exchange for a one-time servicing-released
premium. Mortgage loans subsequently transferred to the loan portfolio
are transferred at the lower of cost or market value at the date of
transfer. Any difference between the carrying amount of the loan and
its outstanding principal balance is recognized as an adjustment to
yield by the interest method. The Bank serviced loans for others
totaling approximately $3,081,000 and $4,314,000 as of December 31,
1998 and 1997, respectively.
11
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOAN SALES AND SERVICING (Continued)
Servicing rights acquired through 1) a purchase or 2) the origination
of loans which are sold or securitized with servicing rights retained
are recognized as separate assets or liabilities. Servicing assets or
liabilities are recorded at the difference between the contractual
servicing fees and adequate compensation for performing the servicing,
and are subsequently amortized in proportion to and over the period of
the related net servicing income or expense. Servicing assets are
periodically evaluated for impairment. Servicing rights were not
considered material for disclosure purposes.
INVESTMENT SECURITIES
Investments are classified into the following categories:
- Available-for-sale securities, reported at fair
value, with unrealized gains and losses excluded from
earnings and reported, net of taxes, as accumulated
other comprehensive (loss) income within
shareholders' equity.
- Held-to-maturity securities, which management has the
positive intent and ability to hold, reported at
amortized cost, adjusted for the accretion of
discounts and amortization of premiums.
Management determines the appropriate classification of its investments
at the time of purchase and may only change the classification in
certain limited circumstances. All transfers between categories are
accounted for at fair value.
Gains or losses on the sale of securities are computed using the
specific identification method. Interest earned on investment
securities is reported in interest income, net of applicable
adjustments for accretion of discounts and amortization of premiums. In
addition, unrealized losses that are other than temporary are
recognized in earnings for all investments.
LOANS
Loans are stated at principal balances outstanding, except for loans
held for sale which are carried at the lower of principal balance or
market value at the date of transfer, adjusted for accretion of
discounts. Interest is accrued daily based upon outstanding loan
balances. Discounts on retail contracts are deferred and amortized into
income over their respective lives using a method which approximates
the interest method. However, when, in the opinion of management, the
future collectibility of interest and principal is in serious doubt,
loans and retail contracts are placed on nonaccrual status and the
accrual of interest income is suspended. Any interest accrued but
unpaid is charged against income. Payments received are applied to
reduce principal to the extent necessary to ensure collection.
Subsequent payments on these loans, or payments received on nonaccrual
loans for which the ultimate collectibility of principal is not in
doubt, are applied first to earned but unpaid interest and then to
principal.
12
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS (Continued)
An impaired loan is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical matter, at the loan's observable market price or the
fair value of collateral if the loan is collateral dependent. A loan is
considered impaired when, based on current information and events, it
is probable that the Bank will be unable to collect all amounts due
(including both principal and interest) in accordance with the
contractual terms of the loan agreement.
Substantially all loan origination fees, commitment fees, direct loan
origination costs and purchase premiums and discounts on loans are
deferred and recognized as an adjustment of yield, to be amortized to
interest income over the contractual term of the loan. The unamortized
balance of deferred fees and costs is reported as a component of net
loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained to provide for losses
related to impaired loans and other losses that can be expected to
occur in the normal course of business. The determination of the
allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically
identified problem loans, potential losses inherent in the portfolio
taken as a whole and economic conditions in the Bank's service area.
These estimates are particularly susceptible to changes in the economic
environment and market conditions. The allowance is established through
a provision for loan losses which is charged to expense.
OTHER REAL ESTATE
Other real estate includes real estate acquired in full or partial
settlement of loan obligations. When property is acquired, any excess
of the Bank's recorded investment in the loan balance and accrued
interest income over the estimated fair market value of the property is
charged against the allowance for loan losses. A valuation allowance
for losses on other real estate is maintained to provide for temporary
declines in value. The allowance is established through a provision for
losses on other real estate which is included in other expenses.
Subsequent gains or losses on sales or writedowns resulting from
permanent impairments are recorded in other income or expense as
incurred.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost. Depreciation is
determined using the straight-line method over the estimated useful
lives of the related assets. The useful lives of bank premises are
estimated to be forty years. The useful lives of furniture and
equipment are estimated to be five to ten years. Leasehold improvements
are amortized over the life of related lease, or the life of the asset,
whichever is shorter. When assets are sold or otherwise disposed of,
the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in income for
the period. The cost of maintenance and repairs is charged to expense
as incurred.
13
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
Deferred tax assets and liabilities are recognized for the tax
consequences of temporary differences between the financial statement
and tax basis of existing assets and liabilities.
EARNINGS PER SHARE
Basic earnings per share (EPS), which excludes dilution, is computed by
dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock
options, result in the issuance of common stock which shares in the
earnings of the Company. The treasury stock method has been applied to
determine the dilutive effect of stock options in computing diluted
EPS.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
STOCK-BASED COMPENSATION
Stock options are accounted for under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price
of the Company's stock at the date of grant over the exercise price.
However, if the fair value of stock-based compensation computed under a
fair value based method, as prescribed in Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
is material to the financial statements, pro forma net income and
earnings per share are disclosed as if the fair value method had been
applied. Compensation cost related to options granted were considered
by management to be immaterial for disclosure purposes.
NEW FINANCIAL ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY, which is
effective for all fiscal quarters of fiscal years beginning after June
15, 1999. This Statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires
that entities recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value.
Management does not believe that the adoption of SFAS 133 will have a
significant impact on its financial position and results of operations
when implemented.
14
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES
The amortized cost and estimated market value of available-for-sale
investment securities at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 499,527 $ 573 $ 500,100
U.S. Government
agencies 6,999,705 $ (12,805) 6,986,900
Obligations of states
and political sub-
divisions 482,520 (23,220) 459,300
Federal Home Loan
Bank stock 158,900 158,900
Federal Reserve
Bank stock 60,700 60,700
Pacific Coast Bankers'
Bank stock 75,000 75,000
-------------- -------------- --------------- ----------------
$ 8,276,352 $ 573 $ (36,025) $ 8,240,900
-------------- -------------- --------------- ----------------
-------------- -------------- --------------- ----------------
<CAPTION>
1997
--------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------- -------------- --------------- ----------------
<S> <C> <C> <C> <C>
U.S. Treasury
securities $ 1,990,170 $ 9,730 $ 1,999,900
U.S. Government
agencies 1,747,814 7,186 1,755,000
Federal Home Loan
Bank stock 119,700 119,700
Federal Reserve
Bank stock 60,700 60,700
Pacific Coast Bankers'
Bank stock 75,000 75,000
-------------- -------------- --------------- ----------------
$ 3,993,384 $ 16,916 $ - $ 4,010,300
-------------- -------------- --------------- ----------------
-------------- -------------- --------------- ----------------
</TABLE>
15
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES (Continued)
Net unrealized (losses) gains on available-for-sale investment
securities totaling $(35,452) and $16,916 were recorded net of
$(12,073) and $5,736 in tax (benefits) liabilities as accumulated other
comprehensive (loss) income within shareholders' equity at December 31,
1998 and 1997, respectively. Proceeds and gross realized gains from the
sale of available-for-sale investment securities for the year ended
December 31, 1998 totaled $507,930 and $7,930, respectively. There were
no sales of available-for-sale investment securities in 1997. Proceeds
from the sale of available-for-sale investment securities totaled
$37,400 for the year ended December 31, 1996, with no gain or loss
recognized.
The amortized cost and estimated market value of available-for-sale
investment securities at December 31, 1998 by contractual maturity are
shown below. Expected maturities will differ from contractual
maturities because the issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
--------------- ---------------
<S> <C> <C>
Within one year $ 499,527 $ 500,100
After one year through five years 4,499,782 4,491,200
After five years through ten years 2,499,923 2,495,700
After ten years 482,520 459,300
--------------- ---------------
7,981,752 7,946,300
Federal Home Loan Bank stock 158,900 158,900
Federal Reserve Bank stock 60,700 60,700
Pacific Coast Bankers' Bank stock 75,000 75,000
--------------- ---------------
$ 8,276,352 $ 8,240,900
--------------- ---------------
--------------- ---------------
</TABLE>
Investment securities with amortized costs totaling $1,999,300 and
$1,490,500 and estimated market values totaling $1,998,600 and
$1,500,200 were pledged to secure public deposits at December 31, 1998
and 1997, respectively.
16
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. LOANS
Outstanding loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Real estate - mortgage $ 5,058,041 $ 5,498,940
Real estate - commercial 10,732,751 10,780,097
Real estate - construction 8,099,619 7,319,152
Commercial 8,218,712 8,714,911
Installment 2,393,563 2,622,966
--------------- ---------------
34,502,686 34,936,066
Deferred loan origination fees and costs, net (70,515) (86,763)
Allowance for loan losses (328,915) (723,880)
--------------- ---------------
$ 34,103,256 $ 34,125,423
--------------- ---------------
--------------- ---------------
</TABLE>
Changes in the allowance for loan losses for the years ended December
31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance, beginning of year $ 723,880 $ 253,560 $ 185,280
Provision charged to operations 145,500 564,000 89,200
Losses charged to allowance (553,228) (100,910) (30,360)
Recoveries 12,763 7,230 9,440
--------------- --------------- ---------------
Balance, end of year $ 328,915 $ 723,880 $ 253,560
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
The Bank had no loans that were considered to be impaired at December
31, 1998 and during the year ended December 31, 1996. The recorded
investment in loans that were considered to be impaired at December 31,
1997 totaled $550,000. The related allowance for loan losses at
December 31, 1997 was $400,000. The average recorded investment in
impaired loans for the year ended December 31, 1998 was $87,000. The
Bank recognized no interest income on impaired loans during this same
period.
The Bank had no loans on nonaccrual status at December 31, 1998 and
1997. Interest foregone on nonaccrual loans for the years ended
December 31, 1998, 1997 and 1996 was immaterial for disclosure
purposes.
Salaries and employee benefits totaling $254,677, $237,850 and $133,286
have been deferred as loan origination costs during 1998, 1997 and
1996, respectively.
17
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Land $ 425,000 $ 425,000
Building 906,199 903,775
Furniture and equipment 576,096 729,978
Leasehold improvements 33,128 33,128
--------------- ---------------
1,940,423 2,091,881
Less accumulated depreciation
and amortization (456,904) (371,650)
--------------- ---------------
$ 1,483,519 $ 1,720,231
--------------- ---------------
--------------- ---------------
</TABLE>
In December 1998, management determined that the carrying amount of
certain equipment and software were not recoverable. Accordingly, the
carrying value of the equipment and software was eliminated through a
charge to other expenses totaling $160,803 to reflect the impairment.
Depreciation and amortization included in occupancy and equipment
expense totaled $121,302, $104,433 and $95,101 for the years ended
December 31, 1998, 1997 and 1996, respectively.
5. INCOME TAXES
As a result of the capital restructuring in 1990, the Company is
limited in its application of tax benefits arising from net operating
losses which arose prior to its conversion to a National Bank.
Consequently, the maximum future utilization of the Federal net
operating loss carryovers, which arose prior to the capital
restructuring, was limited to approximately $469,000. At December 31,
1998, the remaining carryovers of $352,000 may be utilized at the rate
of approximately $59,000 per year. If not utilized, the carryovers will
expire in 2003 and 2004. At December 31, 1998, the Bank had state net
operating loss carryovers of approximately $171,000 that expire in
2003.
The provision for income taxes for the years ended December 31, 1998,
1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
Federal State Total
------------ ------------ ------------
1998
----
<S> <C> <C> <C>
Current $ 6,000 $ 17,000 $ 23,000
Deferred 85,000 18,000 103,000
------------ ------------ ------------
Income tax expense $ 91,000 $ 35,000 $ 126,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
18
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
Federal State Total
------------ ------------ ------------
1997
----
<S> <C> <C> <C>
Current $ 144,000 $ 66,000 $ 210,000
Deferred (45,000) (32,000) (77,000)
------------ ------------ ------------
Income tax expense $ 99,000 $ 34,000 $ 133,000
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
1996
----
<S> <C> <C> <C>
Current $ 25,000 $ 68,000 $ 93,000
Deferred 121,000 (10,000) 111,000
------------ ------------ ------------
Income tax expense $ 146,000 $ 58,000 $ 204,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryovers $ 159,000 $ 140,000
Allowance for loan losses 64,000 299,000
Future benefit of state tax deductions 1,000 1,000
Merger costs 37,000
Bank premises and equipment 47,000
Deferred compensation 38,000
Unrealized loss on available-for-sale
investment securities 12,000
------------------ ------------------
Total deferred tax assets 358,000 440,000
------------------ ------------------
Deferred tax liabilities:
Adjustment for change in tax accounting
method (120,000) (103,000)
Unrealized gain on available-for-sale
investment securities (6,000)
Future liability of state deferred tax asset (8,000) (15,000)
Other (12,000) (13,000)
------------------ ------------------
Total deferred tax liabilities (140,000) (137,000)
------------------ ------------------
Net deferred tax assets $ 218,000 $ 303,000
------------------ ------------------
------------------ ------------------
</TABLE>
19
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5. INCOME TAXES (Continued)
The provision for income taxes differs from amounts computed by
applying the statutory Federal income tax rates to operating income
before income taxes. The items comprising these differences are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------- ------------------------- --------------------------
Amount Rate % Amount Rate % Amount Rate %
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
expense, at statutory
rate $ 107,490 34.0 $ 107,004 34.0 $ 171,974 34.0
State franchise tax, net
of Federal tax effect 18,611 5.9 22,519 7.2 37,984 7.5
Interest on obligations of
states and political
subdivisions (4,635) (1.5)
Officer's life insurance (20,265) (6.4)
Limitation on California
NOL carryforward 12,234 3.9
Other 12,565 3.8 3,477 1.1 (5,958) (1.2)
--------- --------- --------- --------- --------- ---------
$ 126,000 39.7 $ 133,000 42.3 $ 204,000 40.3
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
6. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Money market $ 15,451,089 $ 13,313,222
Savings 1,148,923 924,218
NOW accounts 3,763,822 2,964,420
Time, $100,000 or more 6,284,973 7,525,188
Other time 13,316,542 13,096,018
-------------- ---------------
$ 39,965,349 $ 37,823,066
-------------- ---------------
-------------- ---------------
</TABLE>
Aggregate annual maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-----------------------
<S> <C>
1999 $ 17,054,325
2000 2,529,672
2001 16,526
2003 992
--------------
$ 19,601,515
--------------
--------------
</TABLE>
20
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. INTEREST-BEARING DEPOSITS (Continued)
Interest expense recognized on interest-bearing deposits consisted of
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Money Market $ 549,030 $ 579,200 $ 432,303
Savings 31,249 25,157 17,261
NOW accounts 61,773 55,842 58,911
Time, $100,000 or more 348,315 256,597 135,689
Other time 768,002 747,124 687,017
--------------- --------------- ---------------
$ 1,758,369 $ 1,663,920 $ 1,331,181
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit and letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amount recognized on the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by
the other party for commitments to extend credit and letters of credit
is represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and letters of
credit as it does for loans included on the balance sheet.
The following financial instruments represent off-balance-sheet credit
risk:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Commitments to extend credit $ 12,321,200 $ 10,986,300
Letters of credit $ 114,100 $ 108,500
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies,
but may include accounts receivable, inventory, deeds of trust on
commercial and residential real estate and bank accounts.
21
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. COMMITMENTS AND CONTINGENCIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
At December 31, 1998, real estate commitments represent approximately
78% of total commitments and are generally secured by property with a
loan-to-value ratio not to exceed 80%. Commercial commitments represent
approximately 20% of total commitments and are generally unsecured.
Revolving lines of credit represent the remaining 2% of total
commitments and are generally unsecured. The majority of these
commitments have variable interest rates.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Bank grants real estate mortgage, real estate construction,
commercial and consumer loans to customers throughout Placer and
Sacramento counties.
Although the Bank has a diversified loan portfolio, a substantial
portion of its portfolio is secured by commercial and residential real
estate. However, business and personal income represent the primary
source of repayment for a majority of these loans.
LEASES
The Bank leases certain Bank premises under a long-term noncancelable
lease. At December 31, 1998, future minimum lease payments are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
--------------------
<S> <C>
1999 $ 44,240
2000 7,420
------------
$ 51,660
------------
------------
</TABLE>
Rental expense included in occupancy and equipment expense for the
years ended December 31, 1998, 1997 and 1996 totaled $44,986, $27,711
and $20,964, respectively.
CONTINGENCIES
The Company and its subsidiary are subject to legal proceedings and
claims which arise in the ordinary course of business. In the opinion
of management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position or results of
operations of the Company or its subsidiary.
22
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS' EQUITY
DIVIDENDS
Upon declaration by the Board of Directors, all shareholders of record
will be entitled to receive dividends. Under applicable Federal laws,
the Comptroller of the Currency restricts the total dividend payment of
any national banking association in any calendar year to the net income
of the year, as defined, combined with the retained net income for the
two preceding years. At December 31, 1998, retained earnings of
$703,977 were free of such restrictions.
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of
Net Shares Per Share
For the Year Ended Income Outstanding Amount
--------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
DECEMBER 31, 1998
Basic earnings per share $ 190,147 332,785 $ .57
-----------
-----------
Effect of dilutive stock options 5,355
------------- ------------
Diluted earnings per share $ 190,147 338,140 $ .56
------------- ------------ -----------
------------- ------------ -----------
DECEMBER 31, 1997
Basic earnings per share $ 181,719 319,972 $ .57
-----------
-----------
Effect of dilutive stock options 4,676
------------- ------------
Diluted earnings per share $ 181,719 324,648 $ .56
------------- ------------ -----------
------------- ------------ -----------
DECEMBER 31, 1996
Basic earnings per share $ 301,806 319,872 $ .94
-----------
-----------
Effect of dilutive stock options 4,750
------------- ------------
Diluted earnings per share $ 301,806 324,622 $ .93
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
23
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL
The Bank is subject to certain regulatory capital requirements
administered by the Office of the Comptroller of the Currency (OCC).
Failure to meet these minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
The Company is subject to similar capital requirements administered by
the Board of Governors of the Federal Reserve System.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of total and Tier 1 capital to risk-weighted assets and of
Tier 1 capital to average assets. The average assets and risk-weighted
assets of the Company and the Bank are not materially different at
December 31, 1998. Each of these components is defined in the
regulations. Management believes that the Company and the Bank met all
their capital adequacy requirements as of December 31, 1998, 1997 and
1996.
In addition, the most recent notification from the OCC categorized the
Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth below. There are no conditions or events
since that notification that management believes have changed the
Bank's category.
The capital ratios and respective minimum regulatory requirements of
the Company and the Bank at December 31, 1998, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------- ----------- ------- ----------- -------
Leverage Ratio
--------------
<S> <C> <C> <C> <C> <C> <C>
Roseville 1st Community
Bancorp and subsidiary $ 4,483,570 8.9%
Roseville 1st National Bank $ 4,024,251 8.0% $ 3,832,319 8.6% $ 3,635,039 10.3%
Minimum requirement for "Well-
Capitalized" institution $ 2,526,900 5.0% $ 2,226,300 5.0% $ 1,758,100 5.0%
Minimum regulatory requirement $ 2,021,500 4.0% $ 1,781,000 4.0% $ 1,406,500 4.0%
</TABLE>
24
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS' EQUITY (Continued)
Regulatory Capital (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------- ----------- ------- ----------- -------
Tier 1 Risk-Based Capital Ratio
-------------------------------
<S> <C> <C> <C> <C> <C> <C>
Roseville 1st Community
Bancorp and subsidiary $ 4,483,570 10.8%
Roseville 1st National Bank $ 4,024,251 9.7% $ 3,832,319 9.3% $ 3,635,039 11.7%
Minimum requirement for "Well-
Capitalized" institution $ 2,494,700 6.0% $ 2,485,100 6.0% $ 1,879,100 6.0%
Minimum regulatory requirement $ 1,663,100 4.0% $ 1,656,700 4.0% $ 1,252,800 4.0%
Total Risk-Based Capital Ratio
------------------------------
Roseville 1st Community
Bancorp and subsidiary $ 4,812,485 11.6%
Roseville 1st National Bank $ 4,353,166 10.5% $ 4,352,588 10.5% $ 3,888,599 12.5%
Minimum requirement for "Well-
Capitalized" institution $ 4,157,800 10.0% $ 4,142,000 10.0% $ 3,131,900 10.0%
Minimum regulatory requirement $ 3,326,300 8.0% $ 3,313,000 8.0% $ 2,505,500 8.0%
</TABLE>
STOCK OPTIONS
During 1990, in conjunction with the capital restructuring, 200,000
shares of common stock were reserved for purchase at fair market value
by certain directors. Also in 1990, as part of his employment
agreement, the Bank's President was granted options to purchase 133,333
shares of common stock at fair market value. These shares were
proportionately reduced in 1992 to reflect the one-for-ten reverse
stock split. These options vested immediately and will expire ten years
from the date of grant.
In 1993, the Board of Directors adopted the 1993 Stock Option Plan to
reserve common stock for purchase, at fair market value, by directors,
officers, and certain full-time Bank employees, as determined by the
Board of Directors. The shares vest ratably over five years and will
expire ten years from the date of grant. In anticipation of the merger
discussed in Note 14, the Board of Directors adopted a resolution that
all options outstanding under the 1993 Stock Option Plan become fully
vested as of September 30, 1998.
25
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
8. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTIONS (Continued)
The activity within the plan is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
beginning of year 76,833 $ 7.51 74,833 $ 7.50 76,333 $ 7.50
Options granted 2,000 $ 8.00
Options exercised (50,833) $ 7.50 (400) $ 7.50
Options canceled (1,100) $ 7.50
--------- --------- ---------
Options outstanding,
end of year 26,000 $ 7.54 76,833 $ 7.51 74,833 $ 7.50
--------- --------- ---------
--------- --------- ---------
Options exercisable,
end of year 26,000 $ 7.54 58,033 $ 7.50 49,633 $ 7.50
--------- --------- ---------
--------- --------- ---------
</TABLE>
A summary of options outstanding at December 31, 1998 follows:
<TABLE>
<CAPTION>
Number of Weighted Number of
Options Average Options
Outstanding Remaining Exercisable
December 31, Contractual December 31,
Exercise Price 1998 Life 1998
-------------- ------------ ----------- ------------
<S> <C> <C> <C>
$ 7.50 24,000 4 years 24,000
$ 8.00 2,000 8 years 2,000
------------ ------------
26,000 26,000
------------ ------------
------------ ------------
</TABLE>
26
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. OTHER EXPENSES
Other expenses consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Professional fees $ 210,628 $ 153,204 $ 70,964
Director fees 81,700 31,900 17,175
Visa merchant expenses 71,144 44,534 43,008
Stationery and supplies 60,518 68,220 50,018
Auto, travel and entertainment 59,242 59,103 43,219
Loan expenses 58,858 55,754 86,002
Organization expenses 51,703
Telephone 45,251 45,817 24,983
Advertising and promotion 30,716 27,853 30,259
Other operating expenses 216,698 117,201 32,022
------------- ------------- -------------
$ 886,458 $ 661,170 $ 448,537
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
10. RELATED PARTY TRANSACTIONS
During the normal course of business, the Bank enters into transactions
with related parties, including directors and officers. These
transactions include borrowings from the Bank with substantially the
same terms, including rates and collateral, as loans to unrelated
parties. The following is a summary of activity involving related party
borrowers during 1998:
<TABLE>
<S> <C>
Balance, January 1, 1998 $ 1,572,902
Disbursements 664,293
Amounts repaid (1,043,167)
-------------
Balance, December 31, 1998 $ 1,194,028
-------------
-------------
Undisbursed commitments to related
parties, December 31, 1998 $ 348,423
-------------
-------------
</TABLE>
11. EMPLOYEE BENEFIT PLANS
SALARY DEFERRAL PLAN
The Bank adopted the Roseville 1st National Bank 401(k) Profit Sharing
Plan and Trust effective January 1, 1995. The plan is available to all
employees. Under the plan, the Bank will match 50% of each
participant's contribution up to a maximum of 6% of their annual
compensation. Employer contributions vest at a rate of 20% for each
completed year of employment and totaled $19,850, $19,188 and $15,381
for the years ended December 31, 1998, 1997 and 1996, respectively.
27
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. EMPLOYEE BENEFIT PLANS (Continued)
SALARY CONTINUATION PLANS
In December 1997, the Board of Directors approved salary continuation
plans for three key executives. Under these plans, the Bank is
obligated to provide the executives, or designated beneficiaries, with
annual benefits for fifteen years after retirement or death. These
benefits are substantially equivalent to those available under seven
insurance policies purchased in December 1997 by the Bank for
$1,195,000 on the lives of the executives. In addition, the estimated
present value of the future benefits are accrued over the period from
the effective dates of the plans until the employees' expected
retirement dates. The expense recognized under these plans totaled
$86,410 for the year ended December 31, 1998.
Under these plans, the Bank invested in single premium life insurance
policies with cash surrender values totaling $1,254,604 and $1,195,000
at December 31, 1998 and 1997, respectively. On the consolidated
balance sheet, the cash surrender value of life insurance policies is
included in accrued interest receivable and other assets.
12. COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board Statement No.
130 (SFAS 130), REPORTING COMPREHENSIVE INCOME, on January 1, 1998.
This Statement requires the reporting of comprehensive income in
addition to net income for all periods presented. Comprehensive income
is a more inclusive financial reporting methodology that includes
disclosure of other comprehensive income (loss) that historically has
not been recognized in the calculation of net income. SFAS 130 requires
the unrealized gains and losses on the Bank's available-for-sale
investment securities to be included in other comprehensive income
(loss). Total comprehensive income and the components of accumulated
other comprehensive income (loss) are presented in the Consolidated
Statement of Changes in Shareholders' Equity.
At December 31, 1998, 1997 and 1996, the Bank held securities
classified as available-for-sale which had unrealized losses or gains
as follows:
<TABLE>
<CAPTION>
Tax
Before (Expense) After
Tax Benefit Tax
------------ ----------- ------------
For the Year Ended December 31, 1998
------------------------------------
<S> <C> <C> <C>
Other comprehensive loss:
Unrealized holding losses $ (60,298) $ 20,505 $ (39,793)
Reclassification adjustment for gains
included in net income 7,930 (2,696) 5,234
------------ ----------- ------------
Total other comprehensive
loss $ (52,368) $ 17,809 $ (34,559)
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
28
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax
Before (Expense) After
Tax Benefit Tax
------------ ----------- ------------
For the Year Ended December 31, 1997
------------------------------------
<S> <C> <C> <C>
Other comprehensive income:
Unrealized holding gains $ 11,706 $ (3,965) $ 7,741
------------ ----------- ------------
------------ ----------- ------------
For the Year Ended December 31, 1996
------------------------------------
Other comprehensive income:
Unrealized holding gains $ 5,210 $ (1,771) $ 3,439
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
13. PARENT ONLY CONDENSED FINANCIAL STATEMENTS
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 376,787
Investment in subsidiary 4,150,392
Other assets 165,722
--------------
$ 4,692,901
--------------
--------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Due to subsidiary $ 77,745
Accounts payable 5,445
--------------
Total liabilities 83,190
--------------
Common stock 2,511,058
Retained earnings 2,122,032
Accumulated other comprehensive loss (23,379)
--------------
Total shareholders' equity 4,609,711
--------------
$ 4,692,901
--------------
--------------
</TABLE>
29
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF INCOME
FOR THE PERIOD FROM MARCH 10, 1998 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Income:
Dividends declared by subsidiary - eliminated in
consolidation $ 55,713
Interest income - eliminated in consolidation 86
------------
Total income 55,799
------------
Expenses:
Merger expenses 83,190
Organization expenses 51,703
Other expenses 8,211
------------
Total expenses 143,104
------------
Loss before equity in undistributed
income of subsidiary (87,305)
Equity in undistributed income of subsidiary 198,270
------------
Income before income tax benefit 110,965
Income tax benefit 57,000
------------
Net income $ 167,965
------------
------------
</TABLE>
30
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 10, 1998 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
---------------------------- RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT EARNINGS LOSS EQUITY INCOME
------------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued
to effect merger with
the Bank 319,972 $ 2,021,434 $ 1,954,067 $ 3,975,501
Comprehensive income:
Net income 167,965 167,965 $ 167,965
Other comprehensive
income, net of taxes:
Unrealized losses on
available-for-sale
investment securities $ (23,379) (23,379) (23,379)
-------------
Total comprehen-
sive income $ 144,586
-------------
-------------
Stock options exercised and
related tax benefit 50,833 489,624 489,624
------------- ------------ ------------ ------------- ------------
Balance, December 31,
1998 370,805 $ 2,511,058 $ 2,122,032 $ (23,379) $ 4,609,711
------------- ------------ ------------ ------------- ------------
------------- ------------ ------------ ------------- ------------
</TABLE>
31
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13. PARENT ONLY CONDENSED FINANCIAL STATEMENTS (Continued)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 10, 1998 (DATE OPERATIONS
COMMENCED) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 167,965
Adjustments to reconcile net income to net cash
used in operating activities:
Undistributed earnings of subsidiary (198,270)
Increase in other assets (165,722)
Increase in liabilities 83,190
-------------
Net cash used in operating activities (112,837)
-------------
Cash flows from financing activities:
Proceeds from exercise of stock options 489,624
Proceeds from issuance of note payable 250,000
Repayment of note payable (250,000)
-------------
Net cash provided by financing activities 489,624
-------------
Cash and cash equivalents at end of year $ 376,787
-------------
-------------
Supplemental disclosures of cash flow information:
Non-cash investing activities:
Unrealized loss on available-for-sale investment
securities $ 35,423
Non-cash financing activities:
Issuance of common stock in exchange for assets
and liabilities of the Bank $ 3,975,501
</TABLE>
32
<PAGE>
ROSEVILLE 1ST COMMUNITY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14. SUBSEQUENT EVENT
On March 22 and 23, 1999, respectively, the shareholders of Roseville
1st Community Bancorp, Lake Community Bank and Western Sierra Bancorp
(Bancorp) approved the merger of the three companies. The mergers were
consummated on April 30, 1999 and, as a result, the Bank will operate
as one of three wholly-owned bank subsidiaries under the Bancorp, a
bank holding company. Each share of the Bank's common stock was
converted into the right to receive 1.211 shares of Bancorp common
stock. The transaction will be accounted for under the pooling of
interests method of accounting.
The unaudited pro forma information set forth below assumes that the
merger of the three companies took place on January 1, 1996. This
information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would
have been achieved had the merger been consummated at that time. The
1998 financial information includes unaudited combined merger related
expenses of approximately $682,000, net of tax effect, or $.31 per
share of common stock and $.30 per share of common stock and common
stock equivalents.
<TABLE>
<CAPTION>
(Unaudited, Dollars in Thousands)
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net interest income $ 12,241 $ 11,608 $ 9,955
Net income $ 1,101 $ 1,951 $ 2,516
Basic earnings per common
share $ .50 $ .90 $ .76
Diluted earnings per common
share $ .48 $ .86 $ .73
</TABLE>
33
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Shareholders and
Board of Directors
Lake Community Bank
We have audited the accompanying balance sheet of Lake Community Bank
as of December 31, 1998 and 1997 and the related statements of income, changes
in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lake Community Bank
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Perry-Smith & Co., LLP
Certified Public Accountants
Sacramento, California
March 5, 1999, except for
Note 15, as to which the
date is March 23, 1999
34
<PAGE>
LAKE COMMUNITY BANK
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 4,634,947 $ 5,236,194
Federal funds sold 4,400,000 4,000,000
Interest-bearing deposits in banks 3,960,000 4,557,000
Loans held for sale 599,309 680,434
Available-for-sale investment securities (Note 2) 10,933,000 11,976,000
Loans, less allowance for loan losses of $1,046,989
in 1998 and $952,335 in 1997 (Note 3) 55,008,365 53,209,573
Bank premises and equipment, net (Note 4) 2,653,792 3,077,251
Other real estate (Note 5) 385,000 597,949
Accrued interest receivable and other assets
(Notes 7 and 12) 2,013,502 2,185,355
-------------- --------------
$ 84,587,915 $ 85,519,756
-------------- --------------
-------------- --------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 13,503,608 $ 12,926,652
Interest bearing (Note 6) 61,033,134 63,111,481
-------------- --------------
Total deposits 74,536,742 76,038,133
Accrued interest payable and other liabilities 934,310 821,295
-------------- --------------
Total liabilities 75,471,052 76,859,428
-------------- --------------
Commitments and contingencies (Note 9)
Shareholders' equity (Note 10):
Preferred stock, no par value; 10,000,000 shares
authorized; no shares issued -- --
Common stock - no par value; 20,000,000 shares
authorized; issued and outstanding - 1,298,296
shares in 1998 and 1,240,546 shares in 1997 3,538,537 3,178,121
Retained earnings 5,475,185 5,442,647
Accumulated other comprehensive income
(Notes 2 and 14) 103,141 39,560
-------------- --------------
Total shareholders' equity 9,116,863 8,660,328
-------------- --------------
$ 84,587,915 $ 85,519,756
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
35
<PAGE>
LAKE COMMUNITY BANK
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,302,867 $ 5,528,769 $ 5,704,033
Interest on Federal funds sold 248,689 203,474 167,901
Interest on deposits in banks 286,206 232,954 197,906
Interest on investment securities:
Taxable 577,787 510,919 608,705
Exempt from Federal income
taxes 94,447 84,094 168,841
-------------- -------------- --------------
Total interest income 6,509,996 6,560,210 6,847,386
Interest expense on deposits (Note 6) 2,540,354 2,561,713 2,844,956
-------------- -------------- --------------
Net interest income 3,969,642 3,998,497 4,002,430
Provision for loan losses (Note 3) 360,000 263,000 477,000
-------------- -------------- --------------
Net interest income after
provision for loan losses 3,609,642 3,735,497 3,525,430
-------------- -------------- --------------
Non-interest income:
Service charges and fees 454,916 442,248 414,689
Mortgage packaging fees 37,937 32,899 54,226
Gain on sale of loans 92,121
(Loss) gain on sale of investment
securities, net (Note 2) (7,998) 19,681
Increase in cash surrender value of
life insurance policies, net 117,586 112,204 72,708
Other 14,219 50,229 24,891
-------------- -------------- --------------
Total non-interest income 624,658 629,582 678,316
-------------- -------------- --------------
</TABLE>
(Continued)
36
<PAGE>
LAKE COMMUNITY BANK
STATEMENT OF INCOME
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Other expenses:
Salaries and employee benefits
(Notes 3 and 12) $ 1,854,032 $ 1,616,974 $ 1,682,501
Occupancy (Notes 4 and 9) 233,676 213,457 255,478
Equipment (Note 4) 412,012 343,146 341,735
Merger related expenses (Note 15) 539,467
Other (Notes 5 and 11) 1,190,575 1,048,232 1,244,747
-------------- -------------- --------------
Total other expenses 4,229,762 3,221,809 3,524,461
-------------- -------------- --------------
Income before income
taxes 4,538 1,143,270 679,285
Income tax benefit (expense) (Note 7) 28,000 (377,000) (203,000)
-------------- -------------- --------------
Net income $ 32,538 $ 766,270 $ 476,285
-------------- -------------- --------------
-------------- -------------- --------------
Basic earnings per share (Note 10) $ .03 $ .62 $ .38
----------- ----------- -----------
----------- ----------- -----------
Diluted earnings per share (Note 10) $ .02 $ .59 $ .36
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
37
<PAGE>
LAKE COMMUNITY BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------------------ RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY INCOME
------------ ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 1,240,046 $ 3,175,292 $ 4,783,148 $ 107,635 $ 8,066,075
Comprehensive income:
Net income 476,285 476,285 $ 476,285
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (Note 14) (148,152) (148,152) (148,152)
------------
Total comprehensive income $ 328,133
------------
------------
Cash dividend $.20 per share (248,109) (248,109)
Stock options exercised and related tax benefit
(Note 10) 500 2,829 2,829
------------ ----------- ----------- ------------- ------------
Balance, December 31, 1996 1,240,546 3,178,121 5,011,324 (40,517) 8,148,928
Comprehensive income:
Net income 766,270 766,270 $ 766,270
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities (Note 14) 80,077 80,077 80,077
------------
Total comprehensive income $ 846,347
------------
------------
Cash dividend $.27 per share (334,947) (334,947)
------------ ----------- ----------- ------------- ------------
Balance, December 31, 1997 1,240,546 3,178,121 5,442,647 39,560 8,660,328
------------ ----------- ----------- ------------- ------------
</TABLE>
(Continued)
38
<PAGE>
LAKE COMMUNITY BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
------------------------ RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) EQUITY INCOME
------------ ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,240,546 $ 3,178,121 $ 5,442,647 $ 39,560 $ 8,660,328
Comprehensive income:
Net income 32,538 32,538 $ 32,538
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities (Note 14) 63,581 63,581 63,581
-------------
Total comprehensive income $ 96,119
-------------
-------------
Stock options exercised and related tax benefit
(Note 10) 57,750 360,416 360,416
------------ ----------- ----------- ------------- ------------
Balance, December 31, 1998 1,298,296 $ 3,538,537 $ 5,475,185 $ 103,141 $ 9,116,863
------------ ----------- ----------- ------------- ------------
------------ ----------- ----------- ------------- ------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
39
<PAGE>
LAKE COMMUNITY BANK
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 32,538 $ 766,270 $ 476,285
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, accretion and amortiza-
tion, net 390,600 380,500 413,770
Provision for loan losses 360,000 263,000 477,000
Net loss (gain) on sale of available-for-
sale investment securities 7,998 (19,681)
Net gain on sale of other real estate (15,910) (12,202)
Provision for losses on other real estate 180,225 101,437 129,980
Provision for impairment of premises
and equipment 231,596
Net decrease (increase) in loans held
for sale 81,125 (391,368) 7,103
Deferred loan origination fees and costs,
net (1,723) (71,172) (109,109)
Increase in cash surrender value of life
insurance policies (117,586) (112,204) (72,708)
Decrease (increase) in accrued interest
receivable and other assets 105,556 (162,927) 83,472
Increase (decrease) in accrued
interest payable and other liabilities 447,962 (82,179) (469,141)
Deferred taxes (334,000) 62,000 103,000
----------- ----------- -----------
Net cash provided by operating
activities 1,376,293 745,445 1,007,769
----------- ----------- -----------
</TABLE>
(Continued)
40
<PAGE>
LAKE COMMUNITY BANK
STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from matured and called
available-for-sale investment securities $ 6,724,856 $ 1,000,000 $ 3,445,000
Proceeds from sale of available-for-sale
investment securities 2,003,719 7,910,477
Purchases of available-for-sale investment
securities (5,704,502) (3,857,150) (5,560,566)
Proceeds from principal repayments from
available-for-sale mortgage-backed
securities 121,411 63,123 61,551
Net decrease (increase) in interest-bearing
deposits in banks 597,000 (200,000) (991,000)
Net (increase) decrease in loans (2,222,069) (1,050,286) 195,219
Proceeds from sale of other real estate 841,170 265,965
Acquisition of other real estate (143,654)
Additions to premises and equipment (44,317) (55,673) (183,642)
Premiums paid on officer life insurance
policies (12,785) (50,000) (50,000)
Proceeds from surrendered officer life
insurance policies 503,892
----------- ----------- -----------
Net cash (used in) provided by
investing activities (36,514) (1,305,097) 4,949,350
----------- ----------- -----------
Cash flows from financing activities:
Net (decrease) increase in demand,
interest-bearing and savings deposits (1,139,617) (1,273,785) 1,620,069
Net (decrease) increase in time deposits (361,774) 3,775,325 (9,675,837)
Principal repayments on note payable (2,949)
Cash dividends paid (334,947) (248,109) (248,009)
Proceeds from exercise of stock options 295,312 2,188
----------- ----------- -----------
Net cash (used in) provided by
financing activities (1,541,026) 2,253,431 (8,304,538)
----------- ----------- -----------
(Decrease) increase in cash and
cash equivalents (201,247) 1,693,779 (2,347,419)
Cash and cash equivalents at beginning of year 9,236,194 7,542,415 9,889,834
----------- ----------- -----------
Cash and cash equivalents at end of year $ 9,034,947 $ 9,236,194 $ 7,542,415
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(Continued)
41
<PAGE>
LAKE COMMUNITY BANK
STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense $ 2,560,094 $ 2,692,072 $ 3,273,028
Income taxes $ 184,000 $ 369,000 $ 123,500
Non-cash investing activities:
Real estate acquired through foreclosure, net $ 65,000 $ 225,618 $ 588,757
Net change in unrealized gain (loss) on
available-for-sale investment securities $ 96,300 $ 121,352 $ (224,052)
Non-cash financing activities:
Dividends declared, $.27 per share in 1997
and $.20 per share in 1996 $ 334,947 $ 248,109
</TABLE>
The accompanying notes are an integral
part of these financial statements.
42
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The accounting and reporting policies of Lake Community Bank conform
with generally accepted accounting principles and prevailing practices
within the banking industry.
Certain reclassifications have been made to prior years' balances to
conform to classifications used in 1998.
INVESTMENT SECURITIES
Investments are classified into one of the following categories:
- Available-for-sale securities, reported at fair
value, with unrealized gains and losses excluded from
earnings and reported, net of taxes, as accumulated
other comprehensive income (loss) within
shareholders' equity.
- Held-to-maturity securities, which management has the
positive intent and ability to hold, reported at
amortized cost, adjusted for the accretion of
discounts and amortization of premiums.
Management determines the appropriate classification of its investments
at the time of purchase and may only change the classification in
certain limited circumstances. All transfers between categories are
accounted for at fair value.
Gains or losses on the sale of investment securities are computed on
the specific identification method. Interest earned on investment
securities is reported in interest income, net of applicable
adjustments for accretion of discounts and amortization of premiums. In
addition, unrealized losses that are other than temporary are
recognized in earnings for all investments.
LOANS
Loans are stated at principal balances outstanding, except for loans
transferred from loans held for sale which are carried at the lower of
principal balance or market value at the date of transfer, adjusted for
accretion of discounts. Interest is accrued daily based upon
outstanding loan balances. However, when, in the opinion of management,
loans are considered to be impaired and the future collectibility of
interest and principal is in serious doubt, loans are placed on
nonaccrual status and the accrual of interest income is suspended. Any
interest accrued but unpaid is charged against income. Payments
received are applied to reduce principal to the extent necessary to
ensure collection. Subsequent payments on these loans, or payments
received on nonaccrual loans for which the ultimate collectibility of
principal is not in doubt, are applied first to earned but unpaid
interest and then to principal.
43
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS (Continued)
An impaired loan is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or,
as a practical matter, at the loan's observable market price or the
fair value of collateral if the loan is collateral dependent. A loan is
considered impaired when, based on current information and events, it
is probable that the Bank will be unable to collect all amounts due
(including both principal and interest) in accordance with the
contractual terms of the loan agreement.
Loan origination fees, commitment fees, direct loan origination costs
and purchased premiums and discounts on loans are deferred and
recognized as an adjustment of yield, to be amortized to interest
income over the contractual term of the loan. The unamortized balance
of deferred fees and costs is reported as a component of net loans.
LOAN SALES AND SERVICING
Included in the portfolio are loans which are 75% to 90% guaranteed by
the Small Business Administration and Farmers Home Administration. The
guaranteed portion of these loans may be sold to a third party, with
the Bank retaining the unguaranteed portion. The Bank generally
receives a premium in excess of the adjusted carrying value of the loan
at the time of sale. The Bank may be required to refund a portion of
the sales premium if the borrower defaults or the loan prepays within
ninety days of the settlement date. However, there were no sales of
loans subject to these recourse provisions at December 31, 1998, 1997
and 1996.
The Bank serviced loans for others totaling $1,028,400 and $1,792,500
as of December 31, 1998 and 1997, respectively.
Sales of loans are recognized when the transferred loans are put beyond
the reach of the Bank and its creditors, even in receivership.
Servicing rights acquired through 1) a purchase or 2) the origination
of loans which are sold or securitized with servicing rights retained
are recognized as separate assets or liabilities. Servicing assets or
liabilities are recorded at the difference between the contractual
servicing fees and adequate compensation for performing the servicing,
and are subsequently amortized in proportion to and over the period of
the related net servicing income or expense. Servicing rights were not
considered material for disclosure purposes.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained to provide for losses
related to impaired loans and other losses that can be expected to
occur in the normal course of business. The determination of the
allowance is based on estimates made by management, to include
consideration of the character of the loan portfolio, specifically
identified problem loans, potential losses inherent in the portfolio
taken as a whole and economic conditions in the Bank's service area.
These estimates are particularly susceptible to changes in the economic
environment and market conditions. The allowance is established through
a provision for loan losses which is charged to expense.
44
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
OTHER REAL ESTATE
Other real estate includes real estate acquired in full or partial
settlement of loan obligations and former Bank premises. When property
is acquired in settlement of loan obligations, any excess of the Bank's
recorded investment in the loan balance and accrued interest income
over the estimated fair market value of the property is charged against
the allowance for loan losses. A valuation allowance for losses on
other real estate is maintained to provide for temporary declines in
value. The allowance is established through a provision for losses on
other real estate which is included in other expenses. Subsequent gains
or losses on sales or writedowns resulting from permanent impairments
are recorded in other income or expenses as incurred.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost. Depreciation is
determined using the straight-line method over the estimated useful
lives of the related assets. The useful lives of Bank premises are
estimated to be forty years. The useful lives of furniture, fixtures
and equipment are estimated to be two to ten years. Leasehold
improvements are amortized over the life of the asset or the life of
the related lease, whichever is shorter. When assets are sold or
otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or
loss is recognized in income for the period. The cost of maintenance
and repairs is charged to expense as incurred.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the tax
consequences of temporary differences between the financial statement
and tax basis of existing assets and liabilities. On the balance sheet,
net deferred tax assets are included in accrued interest receivable and
other assets.
CASH EQUIVALENTS
For the purpose of the statement of cash flows, cash and due from banks
and Federal funds sold are considered to be cash equivalents.
Generally, Federal funds are sold for one day periods.
EARNINGS PER SHARE
Basic earnings per share (EPS), which excludes dilution, is computed by
dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock
options, result in the issuance of common stock which shares in the
earnings of the Bank. The treasury stock method has been applied to
determine the dilutive effect of stock options in computing diluted
EPS.
45
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STOCK-BASED COMPENSATION
Stock options are accounted for under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market price
of the Bank's stock at the date of grant over the exercise price.
However, if the fair value of stock-based compensation computed under a
fair value based method, as prescribed in Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
is material to the financial statements, pro forma net income and
earnings per share are disclosed as if the fair value method had been
applied.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
NEW FINANCIAL ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITY, which is
effective for all fiscal quarters of fiscal years beginning after June
15, 1999. This Statement establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires
that entities recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value.
Management does not believe that the adoption of SFAS 133 will have a
significant impact on its financial position and results of operations
when implemented.
2. AVAILABLE-FOR-SALE INVESTMENT SECURITIES
The amortized cost and estimated market value of available-for-sale
investment securities at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government
corporations and
agencies $ 3,709,036 $ 13,964 $ 3,723,000
Obligations of states
and political sub-
divisions 3,770,711 131,400 $ (2,111) 3,900,000
Corporate debt
securities 3,296,703 23,600 (10,303) 3,310,000
------------ -------------- ------------ ------------
$ 10,776,450 $ 168,964 $ (12,414) $ 10,933,000
------------ -------------- ------------ ------------
------------ -------------- ------------ ------------
</TABLE>
46
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES (Continued)
Net unrealized gains on available-for-sale investment securities
totaling $156,550 were recorded net of $53,409 in tax liabilities as
accumulated other comprehensive income within shareholders' equity at
December 31, 1998. There were no sales of available-for-sale investment
securities for the year ended December 31, 1998.
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Government
corporations and
agencies $ 7,539,313 $ 3,728 $ (31,041) $ 7,512,000
Obligations of states
and political sub-
divisions 3,135,646 87,977 (623) 3,223,000
Corporate debt
securities 750,238 931 (1,169) 750,000
Bankers' Accept-
ances 490,553 447 491,000
------------ -------------- ------------ ------------
$ 11,915,750 $ 93,083 $ (32,833) $ 11,976,000
------------ -------------- ------------ ------------
------------ -------------- ------------ ------------
</TABLE>
Net unrealized gains on available-for-sale investment securities
totaling $60,250 were recorded net of $20,690 in tax liabilities as
accumulated other comprehensive income within shareholders' equity at
December 31, 1997. Proceeds and gross realized gains and losses from
the sale of available-for-sale investment securities for the year ended
December 31, 1997 totaled $2,003,719, $879 and $8,877, respectively.
Proceeds and gross realized gains and losses from the sale of
available-for-sale investment securities for the year ended December
31, 1996 totaled $7,910,477, $49,149 and $29,468, respectively.
The amortized cost and estimated market value of available-for-sale
investment securities at December 31, 1998 by contractual maturity are
shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to
call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
------------------ ------------------
<S> <C> <C>
Within one year $ 449,435 $ 453,000
After one year through five years 8,429,246 8,508,000
After five years through ten years 1,583,440 1,659,000
After ten years 314,329 313,000
------------------ ------------------
$ 10,776,450 $ 10,933,000
------------------ ------------------
------------------ ------------------
</TABLE>
47
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
2. INVESTMENT SECURITIES (Continued)
Investment securities with amortized costs totaling $1,007,000 and
$1,000,000 and estimated market values totaling $1,010,000 and $992,000
were pledged to secure treasury tax and loan accounts and public
deposits at December 31, 1998 and 1997, respectively.
3. LOANS
Outstanding loans are summarized below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Commercial $ 5,162,362 $ 5,044,819
Agricultural 16,267,719 13,941,616
Real estate - mortgage 30,597,082 32,002,981
Real estate - construction 1,944,076 434,888
Installment 2,264,685 2,919,897
------------------ ------------------
56,235,924 54,344,201
Deferred loan fees (180,570) (182,293)
Allowance for loan losses (1,046,989) (952,335)
------------------- ------------------
$ 55,008,365 $ 53,209,573
------------------- ------------------
------------------- ------------------
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance, beginning of year $ 952,335 $ 907,661 $ 1,127,587
Provision charged to operations 360,000 263,000 477,000
Losses charged to allowance (303,430) (256,712) (738,522)
Recoveries 38,084 38,386 41,596
------------------ ------------------ ------------------
Balance, end of year $ 1,046,989 $ 952,335 $ 907,661
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
The recorded investment in loans that were considered to be impaired
totaled $503,100 and $1,057,000 at December 31, 1998 and 1997,
respectively. The related allowance for loan losses on these loans at
December 31, 1998 and 1997 was $50,300 and $143,400, respectively. The
average recorded investment in impaired loans for the years ended
December 31, 1998, 1997 and 1996 was $873,300, $1,038,500 and
$1,345,800, respectively. The Bank recognized $17,500, $38,500 and
$52,700 in interest income on these loans during that same period, to
include $14,000, $38,500 and $44,800 recognized using a cash-basis
method.
48
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. LOANS (Continued)
At December 31, 1998 and 1997, nonaccrual loans totaled $780,000 and
$1,389,000, respectively. Interest foregone on nonaccrual loans totaled
$24,600, $75,900 and $103,300 for the years ended December 31, 1998,
1997 and 1996, respectively. There were no loans considered to be
nonperforming, defined as loans ninety days or more past due and still
accruing interest, for the years ended December 31, 1998 and 1997.
Salaries and employee benefits totaling $124,700, $130,622 and $43,101
have been deferred as loan origination costs during the years ended
December 31, 1998, 1997 and 1996, respectively.
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Land $ 278,840 $ 278,840
Bank premises 2,168,640 2,168,640
Furniture, fixtures and equipment 1,617,630 2,008,643
Leasehold improvements 58,754 90,974
------------------ ------------------
4,123,864 4,547,097
Less accumulated depreciation
and amortization (1,470,072) (1,469,846)
------------------- -------------------
$ 2,653,792 $ 3,077,251
------------------ ------------------
------------------ ------------------
</TABLE>
In December 1998, management determined that the carrying amount of
certain equipment and software were not recoverable. Accordingly, the
carrying value of the equipment and software was eliminated through a
charge to other expenses totaling $160,018 to reflect the impairment.
Depreciation included in occupancy and equipment expense totaled
$307,758, $282,452 and $283,044 for the years ended December 31, 1998,
1997 and 1996, respectively.
49
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. OTHER REAL ESTATE
Other real estate consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Other real estate acquired through foreclosure $ 603,684 $ 538,684
Former bank premises, net of accumulated
depreciation 97,724
------------------ ------------------
603,684 636,408
Valuation allowance (218,684) (38,459)
------------------ ------------------
$ 385,000 $ 597,949
------------------ ------------------
------------------ ------------------
</TABLE>
In October 1998, management determined that the carrying amount of the
former bank premises was not recoverable. Accordingly, the carrying
value of the building was eliminated through a charge to other expenses
totaling $71,578 to reflect the impairment.
Depreciation on former bank premises included in other expense totaled
$26,146, $31,282 and $7,820 for the years ended December 31, 1998, 1997
and 1996, respectively.
Changes in the valuation allowance for other real estate were as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Balance, beginning of year $ 38,459 $ 168,439 $ 38,459
Provision for losses on other
real estate 180,225 101,437 129,980
Losses charged to allowance (231,417)
------------------ ------------------ ------------------
Balance, end of year $ 218,684 $ 38,459 $ 168,439
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
50
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Savings $ 12,043,664 $ 12,027,671
Money market 4,096,736 4,143,444
Now accounts 7,954,189 9,640,047
Time, $100,000 or more 6,824,211 5,694,147
Other time 30,114,334 31,606,172
------------------- ------------------
$ 61,033,134 $ 63,111,481
------------------- ------------------
------------------- ------------------
</TABLE>
Aggregate annual maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-------------------------
<S> <C>
1999 $ 31,848,837
2000 2,533,929
2001 2,555,779
------------------
$ 36,938,545
------------------
------------------
</TABLE>
Interest expense recognized on interest-bearing deposits consisted of
the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Savings $ 277,550 $ 301,124 $ 309,130
Money market 108,800 142,423 185,976
Now accounts 199,140 175,619 142,234
Time, $100,000 or more 347,509 212,630 162,000
Other time 1,607,355 1,729,917 2,045,616
------------------ ------------------ ------------------
$ 2,540,354 $ 2,561,713 $ 2,844,956
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
51
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES
The provision for income tax (benefit) expense for the years ended
December 31, 1998, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
Federal State Total
------------------ ------------------ ------------------
1998
----
<S> <C> <C> <C>
Current $ 210,000 $ 96,000 $ 306,000
Deferred (247,000) (87,000) (334,000)
------------------ ------------------ ------------------
Income tax (benefit) expense $ (37,000) $ 9,000 $ (28,000)
------------------ ------------------ ------------------
------------------ ------------------ ------------------
1997
----
Current $ 208,000 $ 107,000 $ 315,000
Deferred 47,000 15,000 62,000
------------------ ------------------ ------------------
Income tax expense $ 255,000 $ 122,000 $ 377,000
------------------ ------------------ ------------------
------------------ ------------------ ------------------
1996
----
Current $ 51,000 $ 49,000 $ 100,000
Deferred 72,000 31,000 103,000
------------------ ------------------ ------------------
Income tax expense $ 123,000 $ 80,000 $ 203,000
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 326,000 $ 294,000
Deferred compensation 158,000 86,000
Future benefit of state tax deduction 27,000 34,000
Other real estate 98,000 17,000
Merger costs capitalized for tax purposes 58,000
Other 10,000 10,000
------------------ ------------------
Total deferred tax assets 677,000 441,000
------------------ ------------------
Deferred tax liabilities:
Bank premises and equipment (67,000) (195,000)
Future liability of state deferred tax assets (42,000) (12,000)
Unrealized gain on available-for-sale
investment securities (53,000) (21,000)
------------------ ------------------
Total deferred tax liabilities (162,000) (228,000)
------------------ ------------------
Net deferred tax assets $ 515,000 $ 213,000
------------------ ------------------
------------------ ------------------
</TABLE>
52
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
7. INCOME TAXES (Continued)
The provision for income tax (benefit) expense differs from amounts
computed by applying the statutory Federal income tax rates to
operating income before income taxes. The significant items comprising
these differences for the years ended December 31, 1998, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ -------------------------
Amount Rate % Amount Rate % Amount Rate %
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Federal income tax
expense, at statutory
rate $ 1,543 34.0 $ 388,712 34.0 $ 230,957 34.0
State franchise tax
(benefit) expense,
net of Federal tax
effect (5,054) (111.4) 74,484 6.5 45,886 6.8
Tax exempt income
from life insurance
policies (39,979) (881.0) (38,150) (3.3) (24,720) (3.6)
Taxable gain on surren-
dered life insurance
policies 64,223 1,415.2
Tax exempt interest on
obligations of states
and political sub-
divisions (49,424) (1,089.1) (45,781) (4.0) (70,861) (10.4)
Other 691 15.3 (2,265) (.2) 21,738 3.2
----------- ----------- ------------ ----------- ------------ -----------
Total income
tax (benefit)
expense $ (28,000) (617.0) $ 377,000 33.0 $ 203,000 30.0
----------- ----------- ------------ ----------- ------------ -----------
----------- ----------- ------------ ----------- ------------ -----------
</TABLE>
8. SHORT-TERM BORROWING ARRANGEMENT
The Bank is eligible to borrow up to $2,000,000 on an overnight basis
from its correspondent bank. There were no short-term borrowings
outstanding at December 31, 1998 or 1997.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Bank leases land and two former branch offices under noncancelable
operating leases. Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
----------------------
<S> <C>
1999 $ 52,000
2000 52,000
2001 18,667
2002 12,000
------------------
$ 134,667
------------------
------------------
</TABLE>
53
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
LEASES (Continued)
The Bank subleases former branch offices for approximately $4,600 per
month. The Bank anticipates that sublease income will exceed
substantially all rental expenses associated with these properties.
Rental expense included in occupancy expense totaled $49,489, $52,049
and $47,740 for the years ended December 31, 1998, 1997 and 1996,
respectively.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business in order to meet the financing
needs of its customers and to reduce its own exposure to fluctuations
in interest rates. These financial instruments include commitments to
extend credit and letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
the amount recognized on the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by
the other party for commitments to extend credit and letters of credit
is represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and letters of
credit as it does for loans included on the balance sheet.
The following financial instruments represent off-balance-sheet credit
risk:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Commitments to extend credit $ 19,353,000 $ 15,106,000
Letters of credit $ 100,000 $ 151,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies,
but may include deposits, real estate, accounts receivable and personal
property.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance or financial obligation of a customer to a
third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
54
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. COMMITMENTS AND CONTINGENCIES (Continued)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
Agricultural loan commitments represent approximately 45% of total
commitments and are unsecured or secured by agricultural products,
equipment and farm land. Commercial loan commitments represent
approximately 26% of total commitments and are generally unsecured or
secured by collateral other than real estate. Real estate loan
commitments represent 19% of total commitments and are generally
secured by property with a loan-to-value ratio not to exceed 80%.
Consumer loan commitments represent the remaining 10% of total
commitments and are generally unsecured. In addition, the majority of
the Bank's loan commitments have variable interest rates.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
The Bank's business activity is primarily with customers located within
Lake County. The Bank's operating policy since its inception has
emphasized serving the banking needs of individuals, business and
professional communities and agribusiness in Lakeport, California and
its surrounding area. The Bank grants real estate, commercial and
installment loans to these customers. Although the Bank has a
diversified loan portfolio, a significant portion of its customers'
ability to repay their loans is dependent upon commercial and
residential real estate development, agribusiness and the resort and
recreational economic sectors.
CORRESPONDENT BANKING AGREEMENTS
The Bank maintains funds on deposit with other federally insured
financial institutions under correspondent banking agreements.
Uninsured deposits totaled $3,815,500 at December 31, 1998.
CONTINGENCIES
The Bank is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount
of ultimate liability with respect to these actions will not materially
affect the financial position or results of operations of the Bank.
10. SHAREHOLDERS' EQUITY
DIVIDENDS
Upon declaration by the Board of Directors, all shareholders of record
will be entitled to receive dividends. The California Financial Code
restricts the total dividend payment of any bank in any calendar year
to the lesser of (1) the bank's retained earnings or (2) the bank's net
income for its last three fiscal years, less distributions made to
shareholders during the same three-year period. At December 31, 1998,
retained earnings of $692,037 were free of such restrictions.
55
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted earnings per share computations is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of
Net Shares Per Share
For the Year Ended Income Outstanding Amount
------------------------------------ ------------- ---------------- ----------
<S> <C> <C> <C>
DECEMBER 31, 1998
Basic earnings per share $ 32,538 1,273,192 $ .03
----------
----------
Effect of dilutive stock options 68,099
------------- ----------------
Diluted earnings per share $ 32,538 1,341,291 $ .02
------------- ---------------- ----------
------------- ---------------- ----------
DECEMBER 31, 1997
Basic earnings per share $ 766,270 1,240,546 $ .62
----------
----------
Effect of dilutive stock options 57,408
------------- ----------------
Diluted earnings per share $ 766,270 1,297,954 $ .59
------------- ---------------- ----------
------------- ---------------- ----------
DECEMBER 31, 1996
Basic earnings per share $ 476,285 1,240,491 $ .38
----------
----------
Effect of dilutive stock options 68,267
------------- ----------------
Diluted earnings per share $ 476,285 1,308,758 $ .36
------------- ---------------- ----------
------------- ---------------- ----------
</TABLE>
Options to purchase 25,350 shares of common stock at prices ranging
from $9.25 to $9.75 per share were outstanding during the first and
second quarters of 1998 and during all quarters of 1997 and 1996 but
were not included in the computation of earnings per share because the
exercise prices of the options was greater than the average market
prices of the common shares during the same periods.
56
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
STOCK OPTIONS
The Bank's 1984 Stock Option Plan was amended in 1989 to authorize the
grant of options to non-employee directors and again in 1990 to
increase the number of shares reserved under the plan to 340,062 shares
of authorized but unissued common stock. Of the shares reserved,
200,000 shares were available for grant to non-employee directors. The
plan requires that the option price may not be less than the fair
market value at the date the option is granted, and that the stock must
be paid in full at the time the option is exercised. The options expire
on dates determined by the Board of Directors, but not later than ten
years from the grant date. Options generally vest ratably over a four
to five year period.
The plan terminated in November 1994 and no additional options will be
granted. However, the vesting schedule and ability to exercise options
currently granted were not effected.
A summary of the activity within the plan follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 205,600 $ 5.58 220,850 $ 5.50 238,900 $ 5.41
Options exercised (57,750) $ 5.11 (500) $ 4.38
Options canceled (15,250) $ 4.38 (17,550) $ 4.38
---------- ---------- ----------
Options outstanding,
end of year 147,850 $ 5.76 205,600 $ 5.58 220,850 $ 5.50
---------- ---------- ----------
---------- ---------- ----------
Options exercisable,
end of year 147,850 $ 5.76 204,975 $ 5.57 215,138 $ 5.39
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
A summary of options outstanding at December 31, 1998 follows:
<TABLE>
<CAPTION>
Number of Weighted Number of
Options Average Options
Outstanding Remaining Exercisable
December 31, Contractual December 31,
Range of Exercise Prices 1998 Life 1998
------------------------ --------------- --------------- ----------------
<S> <C> <C> <C>
$ 4.38 85,000 .6 year 85,000
$ 6.25 37,500 1.2 years 37,500
$ 9.75 22,850 4.2 years 22,850
$ 9.25 2,500 5.3 years 2,500
--------------- ----------------
147,850 147,850
--------------- ----------------
--------------- ----------------
</TABLE>
57
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. SHAREHOLDERS' EQUITY (Continued)
REGULATORY CAPITAL
The Bank is subject to certain regulatory capital requirements
administered by the Federal Deposit Insurance Corporation (FDIC).
Failure to meet these minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital
to average assets. Each of these components is defined in the
regulations. Management believes that the Bank meets all its capital
adequacy requirements as of December 31, 1998.
In addition, the most recent notification from the FDIC as of December
31, 1998, 1997 and 1996 categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
below. There are no conditions or events since that notification that
management believes have changed the Bank's category.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Leverage Ratio
--------------
Lake Community Bank $9,013,700 10.7% $8,561,600 10.4% $ 8,067,200 9.3%
Minimum requirement for "Well-
Capitalized" institution $4,204,700 5.0% $4,124,100 5.0% $ 4,321,200 5.0%
Minimum regulatory requirement $3,363,800 4.0% $3,299,300 4.0% $ 3,457,000 4.0%
Tier 1 Risk-Based Capital Ratio
-------------------------------
Lake Community Bank $9,013,700 13.2% $8,561,600 14.5% $ 8,067,200 13.3%
Minimum requirement for "Well-
Capitalized" institution $4,090,600 6.0% $3,544,400 6.0% $ 3,645,700 6.0%
Minimum regulatory requirement $2,727,000 4.0% $2,362,900 4.0% $ 2,430,500 4.0%
Total Risk-Based Capital Ratio
------------------------------
Lake Community Bank $9,864,900 14.5% $9,298,700 15.8% $ 8,788,000 14.5%
Minimum requirement for "Well-
Capitalized" institution $6,798,200 10.0% $5,885,900 10.0% $ 6,061,400 10.0%
Minimum regulatory requirement $5,438,500 8.0% $4,708,700 8.0% $ 4,849,100 8.0%
</TABLE>
58
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
11. OTHER EXPENSES
Other expenses consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Other real estate expenses, net $ 322,162 $ 209,552 $ 222,956
Professional fees and legal expenses 159,370 146,420 219,652
Advertising and promotion 103,787 107,420 109,964
Stationery and supplies 59,688 67,771 98,270
Amortization of intangibles 59,162 63,100 92,277
Other 486,406 453,969 501,628
------------------ ------------------ ------------------
$ 1,190,575 $ 1,048,232 $ 1,244,747
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
12. EMPLOYEE BENEFIT PLANS
EMPLOYEE RETIREMENT PLAN
On December 19, 1991, the Board of Directors adopted a 401(k)
Retirement Plan, effective January 1, 1992. All employees 18 years of
age or older with one year of service and who worked at least 1,000
hours during the year are eligible to participate in the plan. Eligible
employees may elect to make tax deferred contributions of up to
twenty-five percent of their annual salary, to the maximum of $10,000.
The Bank may make additional nonelective contributions to the plan at
the discretion of the Board of Directors. The annual contribution from
all sources is limited on a participant-by-participant basis to the
lesser of $30,000 or twenty-five percent of the participant's
compensation for the plan year. Bank contributions vest after three
years of service. Bank contributions to the plan for the years ended
December 31, 1998, 1997 and 1996 totaled $47,088, $26,290 and $15,298,
respectively.
SEVERANCE AND RETIREMENT BENEFITS
During 1998 two executive officers of the Bank elected to retire prior
to their scheduled retirement dates and received severance payments
which totaled approximately $300,000.
In addition, salary continuation plans were in place for both
executives. Under these plans the Bank is obligated to provide the
executives, or their designated beneficiaries, with annual benefits for
fifteen years after retirement or death. These benefits are
substantially equivalent to those available under insurance policies
purchased by the Bank on the lives of the executives with cash
surrender values totaling $503,100 and $413,000 at December 31, 1998
and 1997, respectively. In addition, the estimated present value of
these future benefits was accrued over the period from the effective
date of the plans until the executive's retirement. As a result of the
early retirement dates noted above, benefit costs were accelerated
during 1998. The expense under these plans for the years ended December
31, 1998, 1997 and 1996 totaled $160,900, $58,700 and $34,400,
respectively.
Costs related to these retirement benefits are included in salaries and
employee benefits expense.
59
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
13. RELATED PARTY TRANSACTIONS
During the normal course of business, the Bank enters into transactions
with related parties, including directors and executive officers. These
transactions are on substantially the same terms and conditions as
those prevailing for comparable transactions with unrelated parties.
The following is a summary of the aggregate activity involving related
party borrowers during 1998:
<TABLE>
<S> <C>
Balance, January 1, 1998 $ 852,000
Disbursements 12,000
Amounts repaid (246,000)
------------------
Balance, December 31, 1998 $ 618,000
------------------
------------------
Undisbursed commitments to related
parties, December 31, 1998 $ 655,000
------------------
------------------
</TABLE>
14. COMPREHENSIVE INCOME
The Bank adopted Financial Accounting Standards Board Statement No. 130
(SFAS 130), REPORTING COMPREHENSIVE INCOME, on January 1, 1998. This
Statement requires the reporting of comprehensive income in addition to
net income for all periods presented. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of
other comprehensive income (loss) that historically has not been
recognized in the calculation of net income. SFAS 130 requires the
unrealized gains and losses on the Bank's available-for-sale investment
securities to be included in other comprehensive income (loss). Total
comprehensive income and the components of accumulated other
comprehensive income (loss) are presented in the Statement of Changes
in Shareholders' Equity.
The Bank held securities classified as available-for-sale which had
unrealized gains (losses) as follows:
<TABLE>
<CAPTION>
Tax
Before (Expense) After
Tax Benefit Tax
--------------- --------------- ----------------
For the Year Ended December 31, 1998
------------------------------------
<S> <C> <C> <C>
Other comprehensive income:
Unrealized holding gains $ 96,300 $ (32,719) $ 63,581
--------------- --------------- ----------------
--------------- --------------- ----------------
For the Year Ended December 31, 1997
------------------------------------
Other comprehensive income:
Unrealized holding gains $ 121,352 $ (41,275) $ 80,077
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
60
<PAGE>
LAKE COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
(Continued)
14. COMPREHENSIVE INCOME (Continued)
<TABLE>
<CAPTION>
Tax
Before (Expense) After
Tax Benefit Tax
--------------- --------------- ----------------
For the Year Ended December 31, 1996
------------------------------------
<S> <C> <C> <C>
Other comprehensive loss:
Unrealized holding losses $ (224,052) $ 75,900 $ (148,152)
--------------- --------------- ----------------
--------------- --------------- ----------------
</TABLE>
15. SUBSEQUENT EVENT
On March 22 and 23, 1999, respectively, the shareholders of Lake
Community Bank, Roseville First Community Bancorp and Western Sierra
Bancorp (Bancorp) approved the merger of the three companies. As a
result, the Bank will operate as one of three wholly-owned bank
subsidiaries under the Bancorp, a bank holding company. Each share of
the Bank's common stock will be converted into the right to receive
.6906 shares of Bancorp common stock. The transaction will be accounted
for under the pooling of interests method of accounting.
The unaudited pro forma information set forth below assumes that the
merger of the three companies took place on January 1, 1996. This
information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would
have been achieved had the merger been consummated at that time. The
1998 financial information includes unaudited combined merger related
expenses of approximately $682,000, net of tax effect, or $.31 per
share of common stock and $.30 per share of common stock and common
stock equivalents.
(Unaudited, Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Net interest income $ 12,241 $ 11,608 $ 9,955
Net income $ 1,101 $ 1,951 $ 2,516
Basic earnings per common
share $ .50 $ .90 $ .76
Diluted earnings per common
share $ .48 $ .86 $ .73
</TABLE>
61
<PAGE>
Item 7. Financial Statements and Exhibits (Continued)
(b) Pro Forma Financial Information.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Combined Balance Sheets as of December 31, 1998 and 1997 63
Combined Statements of Income For the Years Ended
December 31, 1998, 1997 and 1996 65
</TABLE>
Selected Historical and Pro Forma Financial Data
The following represents unaudited pro forma combined financial information
for Western Sierra Bancorp and subsidiary, Roseville 1st Community Bancorp
and subsidiary and Lake Community Bank. This information presents selected
financial information based upon historical financial statements of all three
parties. These unaudited statements present information under the
pooling-of-interests accounting method and reflect the mergers occurring at
the beginning of the period indicated or on December 31, 1998 and 1997. There
were no material pro forma adjustments. These statements are for illustrative
purposes only and do not indicate the results of operations, or financial
position that would have occurred if the merger had been in effect as of the
dates or for the periods indicated or that may occur in the future.
62
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(Amounts in Thousands)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
WESTERN ROSEVILLE 1ST LAKE
SIERRA COMMUNITY COMMUNITY PRO FORMA
BANCORP BANCORP BANK COMBINED
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,185 $ 2,225 $ 4,635 $ 12,045
Federal funds sold 22,670 7,150 4,400 34,220
Loans held for sale 3,208 674 599 4,481
Interest-bearing deposits in banks 3,960 3,960
Investment securities:
Available for sale 36,430 8,241 10,933 55,604
Held to maturity 1,888 1,888
---------------- ----------------- ----------------- -----------------
Total investments 38,318 8,241 10,933 57,492
---------------- ----------------- ----------------- -----------------
Loans and leases:
Commercial 17,199 8,219 5,162 30,580
Real estate 44,856 15,791 30,597 91,244
Real estate construction 9,338 8,100 1,944 19,382
Lease financing 1,383 1,383
Agricultural 16,268 16,268
Consumer 664 2,393 2,265 5,322
---------------- ----------------- ----------------- -----------------
Total loans 73,440 34,503 56,236 164,179
Deferred fees and costs, net (154) (71) (181) (406)
Allowance for loan and lease losses (1,055) (329) (1,047) (2,431)
---------------- ----------------- ----------------- -----------------
Net loans 72,231 34,103 55,008 161,342
---------------- ----------------- ----------------- -----------------
Other real estate 1,162 385 1,547
Bank premises and equipment, net 4,233 1,484 2,654 8,371
Accrued interest receivable and other assets 3,106 2,050 2,014 7,170
---------------- ----------------- ----------------- -----------------
$ 150,113 $ 55,927 $ 84,588 $ 290,628
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 47,758 $ 10,630 $ 13,504 $ 71,892
Interest bearing 90,830 39,965 61,033 191,828
---------------- ----------------- ----------------- -----------------
Total deposits 138,588 50,595 74,537 263,720
Accrued interest payable and other liabilities 1,322 722 934 2,978
---------------- ----------------- ----------------- -----------------
Total liabilities 139,910 51,317 75,471 266,698
---------------- ----------------- ----------------- -----------------
Shareholders' equity:
Common stock 7,381 2,511 3,539 13,431
Retained earnings 2,786 2,122 5,475 10,383
Accumulated other comprehensive
income (loss) 36 (23) 103 116
---------------- ----------------- ----------------- -----------------
Total shareholders' equity 10,203 4,610 9,117 23,930
---------------- ----------------- ----------------- -----------------
$ 150,113 $ 55,927 $ 84,588 $ 290,628
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
</TABLE>
63
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(Amounts in Thousands)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
WESTERN ROSEVILLE 1ST LAKE
SIERRA COMMUNITY COMMUNITY PRO FORMA
BANCORP BANCORP BANK COMBINED
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,296 $ 1,830 $ 5,236 $ 12,362
Federal funds sold 6,550 6,720 4,000 17,270
Loans held for sale 1,767 227 680 2,674
Interest-bearing deposits in banks 4,557 4,557
Investment securities:
Available for sale 15,799 4,010 11,976 31,785
Held to maturity 4,950 4,950
---------------- ----------------- ----------------- -----------------
Total investments 20,749 4,010 11,976 36,735
---------------- ----------------- ----------------- -----------------
Loans and leases:
Commercial 14,882 8,715 5,045 28,642
Real estate 40,052 16,279 32,003 88,334
Real estate construction 13,263 7,319 435 21,017
Lease financing 698 698
Agricultural 13,942 13,942
Consumer 615 2,623 2,919 6,157
---------------- ----------------- ----------------- -----------------
Total loans 69,510 34,936 54,344 158,790
Deferred fees and costs, net (371) (86) (182) (639)
Allowance for loan and lease losses (948) (724) (952) (2,624)
---------------- ----------------- ----------------- -----------------
Net loans 68,191 34,126 53,210 155,527
---------------- ----------------- ----------------- -----------------
Other real estate 967 598 1,565
Bank premises and equipment, net 3,027 1,721 3,077 7,825
Accrued interest receivable and other assets 2,313 1,954 2,186 6,453
---------------- ----------------- ----------------- -----------------
$ 108,860 $ 50,588 $ 85,520 $ 244,968
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 19,215 $ 8,527 $ 12,927 $ 40,669
Interest bearing 79,494 37,823 63,112 180,429
---------------- ----------------- ----------------- -----------------
Total deposits 98,709 46,350 76,039 221,098
Accrued interest payable and other liabilities 1,153 274 821 2,248
---------------- ----------------- ----------------- -----------------
Total liabilities 99,862 46,624 76,860 223,346
---------------- ----------------- ----------------- -----------------
Shareholders' equity:
Common stock 7,001 2,021 3,178 12,200
Retained earnings 1,908 1,932 5,442 9,282
Accumulated other comprehensive
income 89 11 40 140
---------------- ----------------- ----------------- -----------------
Total shareholders' equity 8,998 3,964 8,660 21,622
---------------- ----------------- ----------------- -----------------
$ 108,860 $ 50,588 $ 85,520 $ 244,968
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
</TABLE>
64
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(Amounts in Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------
WESTERN ROSEVILLE 1ST LAKE
SIERRA COMMUNITY COMMUNITY PRO FORMA
BANCORP BANCORP BANK COMBINED
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $ 7,313 $ 3,328 $ 5,303 $ 15,944
Interest on deposits in banks 286 286
Interest on investment securities 1,651 426 672 2,749
Interest on Federal funds sold 513 268 249 1,030
---------------- ----------------- ----------------- -----------------
Total interest income 9,477 4,022 6,510 20,009
Interest expense on deposits 3,572 1,759 2,540 7,871
---------------- ----------------- ----------------- -----------------
Net interest income 5,905 2,263 3,970 12,138
Provision for loan and lease losses 270 145 360 775
---------------- ----------------- ----------------- -----------------
Net interest income after provision
for loan and lease losses 5,635 2,118 3,610 11,363
---------------- ----------------- ----------------- -----------------
Non-interest income:
Service charges and fees 745 72 455 1,272
Gain on sale of loans 1,582 219 46 1,847
Gain on sale of investment securities 8 8
Other 266 244 124 634
---------------- ----------------- ----------------- -----------------
Total non-interest income 2,593 543 625 3,761
---------------- ----------------- ----------------- -----------------
Other expenses:
Salaries and employee benefits 3,598 972 1,854 6,424
Occupancy 439 140 234 813
Equipment 581 147 412 1,140
Merger related expenses 373 200 539
Other 1,938 886 1,191 4,015
---------------- ----------------- ----------------- -----------------
Total other expenses 6,929 2,345 4,230 12,392
---------------- ----------------- ----------------- -----------------
Income before income taxes 1,299 316 5 1,620
Income tax expense (benefit) 421 126 (28) 519
---------------- ----------------- ----------------- -----------------
Net income $ 878 $ 190 $ 33 $ 1,101
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Basic earnings per share $ 0.90 $ 0.57 $ 0.03 $ 0.49
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Weighted average shares of common stock
used to calculate basic earnings per share 973,491 332,785 1,273,192 2,255,633 (1)
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Diluted earnings per share $ 0.85 $ 0.56 $ 0.02 $ 0.46
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Weighted average shares of common stock
used to calculate diluted earnings per share 1,037,025 338,140 1,341,291 2,372,674 (1)
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
</TABLE>
(1) Pro forma combined weighted average shares and earnings per share were
calculated based on the exchange ratio of 1.2110 for Roseville 1st
Community Bancorp and .6905 for Lake Community Bank.
65
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(Amounts in Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
WESTERN ROSEVILLE 1ST LAKE
SIERRA COMMUNITY COMMUNITY PRO FORMA
BANCORP BANCORP BANK COMBINED
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $ 6,978 $ 3,287 $ 5,529 $ 15,794
Interest on deposits in banks 233 233
Interest on investment securities 1,242 266 595 2,103
Interest on Federal funds sold 210 342 203 755
---------------- ----------------- ----------------- -----------------
Total interest income 8,430 3,895 6,560 18,885
Interest expense on deposits 3,051 1,664 2,562 7,277
---------------- ----------------- ----------------- -----------------
Net interest income 5,379 2,231 3,998 11,608
Provision for loan and lease losses 243 564 263 1,070
---------------- ----------------- ----------------- -----------------
Net interest income after provision
for loan and lease losses 5,136 1,667 3,735 10,538
---------------- ----------------- ----------------- -----------------
Non-interest income:
Service charges and fees 765 58 442 1,265
Gain on sale of loans 972 99 49 1,120
Gain (loss) on sale of investment
securities 21 (8) 13
Other 279 184 147 610
---------------- ----------------- ----------------- -----------------
Total non-interest income 2,037 341 630 3,008
---------------- ----------------- ----------------- -----------------
Other expenses:
Salaries and employee benefits 2,988 818 1,617 5,423
Occupancy 400 148 214 762
Equipment 461 29 343 833
Other 1,682 698 1,048 3,428
---------------- ----------------- ----------------- -----------------
Total other expenses 5,531 1,693 3,222 10,446
---------------- ----------------- ----------------- -----------------
Income before income taxes 1,642 315 1,143 3,100
Income tax expense 639 133 377 1,149
---------------- ----------------- ----------------- -----------------
Net income $ 1,003 $ 182 $ 766 $ 1,951
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Basic earnings per share $ 1.08 $ 0.57 $ 0.62 $ 0.90
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Weighted average shares of common stock
used to calculate basic earnings per share 932,531 319,972 1,240,546 2,176,614 (1)
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Diluted earnings per share $ 1.02 $ 0.56 $ 0.59 $ 0.86
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Weighted average shares of common stock
used to calculate diluted earnings per share 986,706 324,648 1,297,954 2,276,092 (1)
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
</TABLE>
(1) Pro forma combined weighted average shares and earnings per share were
calculated based on the exchange ratio of 1.2110 for Roseville 1st
Community Bancorp and .6905 for Lake Community Bank.
66
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(Amounts in Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------
WESTERN ROSEVILLE 1ST LAKE
SIERRA COMMUNITY COMMUNITY PRO FORMA
BANCORP BANCORP BANK COMBINED
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans and leases $ 5,544 $ 2,545 $ 5,704 $ 13,793
Interest on deposits in banks 198 198
Interest on investment securities 751 232 777 1,760
Interest on Federal funds sold 146 251 168 565
---------------- ----------------- ----------------- -----------------
Total interest income 6,441 3,028 6,847 16,316
Interest expense on deposits 2,185 1,331 2,845 6,361
---------------- ----------------- ----------------- -----------------
Net interest income 4,256 1,697 4,002 9,955
Provision for loan and lease losses 458 89 477 1,024
---------------- ----------------- ----------------- -----------------
Net interest income after provision
for loan and lease losses 3,798 1,608 3,525 8,931
---------------- ----------------- ----------------- -----------------
Non-interest income:
Service charges and fees 688 33 415 1,136
Gain on sale of loans 684 58 146 888
Gain (loss) on sale of investment
securities 11 20 31
Other 309 137 97 543
---------------- ----------------- ----------------- -----------------
Total non-interest income 1,692 228 678 2,598
---------------- ----------------- ----------------- -----------------
Other expenses:
Salaries and employee benefits 2,355 701 1,683 4,739
Occupancy 352 53 255 660
Equipment 399 97 342 838
Other 1,176 479 1,244 2,899
---------------- ----------------- ----------------- -----------------
Total other expenses 4,282 1,330 3,524 9,136
---------------- ----------------- ----------------- -----------------
Income before income taxes 1,208 506 679 2,393
Income tax expense 470 204 203 877
---------------- ----------------- ----------------- -----------------
Net income $ 738 $ 302 $ 476 $ 1,516
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Basic earnings per share $ 0.97 $ 0.94 $ 0.38 $ 0.76
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Weighted average shares of common stock
used to calculate basic earnings per share 759,017 319,872 1,240,491 2,002,941 (1)
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Diluted earnings per share $ 0.94 $ 0.93 $ 0.36 $ 0.73
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
Weighted average shares of common stock
used to calculate diluted earnings per share 782,318 324,622 1,308,758 2,079,133 (1)
---------------- ----------------- ----------------- -----------------
---------------- ----------------- ----------------- -----------------
</TABLE>
(1) Pro forma combined weighted average shares and earnings per share were
calculated based on the exchange ratio of 1.2110 for Roseville 1st
Community Bancorp and .6905 for Lake Community Bank.
67
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly casued this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WESTERN SIERRA BANCORP
June 29, 1999 By: /s/ Gary D. Gall
---------------------------------------
Gary D. Gall
President & Principal Executive Officer
68
