<PAGE> 1
OFFICE OF THE COMPTROLLER OF THE CURRENCY
Washington, D.C. 20219
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPT. 30, 1999
---------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ---------------
For Quarter Ended SEPT. 30, 1999 Commission file number 18029
--------------------- ----------
WESTERN SIERRA BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 680390121
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4011 PLAZA GOLDORADO CIRCLE, CAMERON PARK, CALIFORNIA 95682
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 530-677-5600
------------
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes___. No___.
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK - ISSUED AND OUTSTANDING 2,408,750 SHARES AT SEPT. 30, 1999.
<PAGE> 2
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
PART 1- FINANCIAL INFORMATION
- ------------------------------------------
Item 1 Consolidated Financial Statements
Following are the consolidated financial statements of Western Sierra Bancorp
and Subsidiaries as of and for the period ended September 30, 1999. The
consolidated financial statements are unaudited. However, in the opinion of
management, all the adjustments have been made for a fair presentation of the
consolidated financial condition and results of operations of Western Sierra
Bancorp and Subsidiaries. All such adjustments were of a normal recurring
nature.
Effective April 30, 1999, Lake Community Bank and Roseville 1st Community
Bancorp were merged into the Company in stock-for-stock transactions which were
accounted for under the pooling-of-interest method of accounting. Accordingly,
the Company's consolidated financial statements have been restated for all
periods prior to the business combinations.
Certain information and footnote disclosures normally presented in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These interim consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Registrant's 1998 Annual Report to Shareholders.
In preparing such consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant changes in
the near term relate to the determination of the allowance for loan and lease
losses and the carrying value of other real estate.
<PAGE> 3
WESTERN SIERRA BANCORP and SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31
ASSETS 1999 1998
------------- -------------
<S> <C> <C>
1 Cash and due from banks $ 14,034 $ 12,046
2 Interest-bearing deposits in other banks 1,093 3,960
3 Federal funds sold 18,150 34,220
6 Investment securities (Note 1) 49,381 57,491
7 Loans
Total loans (Note 2) 209,181 168,661
Allowance for loan losses (2,762) (2,431)
Unearned income (533) (406)
8 Premises and equipment, net 8,872 8,370
10 Other assets 10,494 8,717
------------- -------------
11 Total assets $ 307,910 $ 290,628
============= =============
LIABILITIES
12 Deposits $ 273,978 $ 263,720
13 Short-term borrowing 6,000
15 Other liabilities 3,030 2,978
STOCKHOLDERS EQUITY
21 Common stock 14,175 13,431
22 Other stockholders equity (Note 3) 10,727 10,499
------------- -------------
23 Total liabilities and stockholders equity $ 307,910 $ 290,628
============= =============
</TABLE>
<PAGE> 4
WESTERN SIERRA BANCORP and SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1 Interest and fees on loans $ 4,574 $ 4,087 $ 12,658 $ 12,009
2 Interest and dividends on
investment securities
Taxable Interest 574 635 1,852 1,793
Non taxable interest 186 93 545 235
4 Other interest 191 407 620 796
------------------------ ------------------------
5 Total interest income 5,525 5,222 15,675 14,833
------------------------ ------------------------
6 Interest on deposits 1,888 2,044 5,559 5,820
7 Interest on short term borrowing 60 60
------------------------ ------------------------
9 Total interest expense 1,948 2,044 5,619 5,820
------------------------ ------------------------
10 Net interest income 3,577 3,178 10,056 9,013
11 Provision for loan losses 115 235 430 625
------------------------ ------------------------
12 Net interest income after
provision for loan losses 3,462 2,943 9,626 8,388
------------------------ ------------------------
13 Other income
Service charges and fees 280 333 855 1,079
Other income 479 609 1,506 1,682
14 Other expenses
Salaries and benefits 1,710 1,474 4,509 4,742
Net occupancy expense 485 272 1,473 790
Other expenses 893 1,256 2,993 3,407
------------------------ ------------------------
15 Income before income tax 1,133 883 3,012 2,210
16 Income taxes 378 308 1,009 780
------------------------------------------------------
20 Net income $ 755 $ 575 $ 2,003 $ 1,430
======================================================
21 Earnings per share
Basic 0.31 0.25 0.84 0.64
Fully diluted 0.29 0.24 0.78 0.61
</TABLE>
<PAGE> 5
WESTERN SIERRA BANCORP and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,003 $ 1,430
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Provision for loan and lease losses 430 625
Depreciation and amortization 860 678
Deferred loan origination costs and fees, net 127 (150)
Amortization of investment security premiums, net 57
Amortization of intangible assets 46
Provision for losses on other real estate 18 100
(Gain) loss on sale of equipment 11
(Gain) loss on sale of other real estate 39 (19)
Decrease (increase) in loans held for sale 2,689 (1,037)
Increase in accrued interest receivable and other assets 1,304 (623)
Decrease in accrued interest payable and other liabilities (109) 174
Deferred taxes (89)
-------- --------
Net cash provided by (used in) operating
activities 7,361 1,203
-------- --------
Cash flow from investing activities
Net decrease (increase) in interest bearing deposits in bank 2,867 3
Proceeds from sale or call of available for sale investment securities 5,000 7,798
Proceeds from matured available for sale investment securities 1,600 3,500
Proceeds from call of held to maturity investment securities 2,000
Proceeds from maturity of held to maturity investment securities 50 25
Principal payments received from available for sale SBA pools
and mortgage backed securities 2,879 2,034
Principal payments received from held to maturity
and mortgage backed securities 10 36
Purchase of available for sale investment securities (3,591) (27,923)
Purchase of held to maturity investment securities (274)
Net (increase) decrease in loans and leases (45,244) (4,104)
Purchase of life insurance (419)
Purchase of premises and equipment (1,260) (869)
Acquisition of other real estate (75)
Capitalized additions to other real estate (81)
Capitalized costs of former bank premises (6)
Proceeds from sale of other real estate 197
-------- --------
Net cash (used in) provided by investing
activities (38,382) (17,465)
-------- --------
</TABLE>
<PAGE> 6
WESTERN SIERRA BANCORP and SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
SEPTEMBER 30,
1999 1998
-------- --------
<S> <C> <C>
Cash flow from financing activities
Net increase in demand, interest-bearing and savings deposits 6,961 12,277
Net increase in time deposits 3,297 13,703
Net increase in short term borrowing 6,161
Proceeds from ESOP loan
Proceeds from exercise of stock options 520 885
Payment of cash dividends (335)
Reacquisition of common stock
-------- --------
Net cash (used in) provided by financing
activities 16,939 26,530
-------- --------
Increase (decrease) in cash and cash
equivalents (14,082) 10,268
Cash and cash equivalents at beginning of period 46,266 29,632
-------- --------
Cash and cash equivalents at end of period $ 32,184 $ 39,900
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest expense $ 6,323 $ 3,978
Income taxes $ 1,090 $ 685
Non cash investing activities
Real estate acquired through foreclosure $ 53 $ 758
Net change in unrealized gain (loss) on available
for sale securities $ (2,336) $ 287
- -
</TABLE>
<PAGE> 7
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Item 1 CONSOLIDATED FINANCIAL STATEMENTS
Note 1 INVESTMENT SECURITIES
(in thousands)
The amortized cost and estimated market value of investment
securities at September 30, 1999 and December 31, 1998 consisted of
the following:
AVAILABLE FOR SALE
<TABLE>
<CAPTION>
September 30, 1999
------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasuries
US Government agencies 24,782 2 (742) 24,042
Obligations of states and
political subdivisions 16,146 30 (1,048) 15,128
Government guaranteed mortgage
backed securities 3,260 2 (183) 3,079
Corporate debt 3,808 (63) 3,745
Federal Reserve Bank Stock 212 212
Federal Home Loan Bank Stock 720 720
Pacific Coast Builders Bank Stock 225 225
Minority interests in other banks 129 129
-----------------------------------------------------------------
49,282 34 (2,036) 47,280
=================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasuries $ 499 $ 1 $ $ 500
US Government agencies 26,256 155 (35) 26,376
Obligations of states and
political subdivisions 15,306 232 (172) 15,366
Government guaranteed mortgage
backed securities 8,452 27 (44) 8,435
Corporate debt 4,052 23 (11) 4,064
Federal Reserve Bank Stock 212 212
Federal Home Loan Bank Stock 576 576
Pacific Coast Builders Bank Stock 75 75
-------------------------------------------------------------------
$55,428 $ 438 $ (262) $55,604
===================================================================
</TABLE>
<PAGE> 8
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
HELD TO MATURITY:
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Government agencies 1,000 (18) 982
Obligations of states and
political subdivisions 1,060 (30) 1,030
Government guaranteed mortgage
backed securities 42 1 43
--------------------------------------------------------------------
2,102 1 (48) 2,055
====================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
US Government agencies 1,000 13 1,013
Obligations of states and
political subdivisions 835 20 856
Government guaranteed mortgage
backed securities 53 2 55
--------------------------------------------------------
1,888 35 0 1,923
========================================================
</TABLE>
There were no sales or transfers of held to maturity investment
securities for the nine months ended September 30, 1999 and 1998,
respectively.
<PAGE> 9
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 2 LOANS AND LEASES
Outstanding loans and leases are summarized below:
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Commercial $ 29,214 $ 30,580
Real estate-mortgage 111,314 91,244
Real estate-construction 44,156 19,382
Lease financing 1,795 1,383
Installment 3,215 5,323
Agricultural 17,695 16,268
------------- -------------
207,389 164,180
Loans held for sale 1,792 4,481
------------- -------------
Total loans 209,181 168,661
Deferred loans and lease origination
fees and costs, net (533) (406)
Allowance for loan and lease losses (2,762) (2,431)
------------- -------------
Total $ 205,886 $ 165,824
============= =============
</TABLE>
Changes in the allowance for loan and lease losses were as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998 1998
--------- --------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 2,431 $ 2,624 $ 2,624
Provision charged to operations 430 625 776
Losses charged to allowance (196) (812) (1,045)
Recoveries 97 44 76
---------------------------------------------------
Balance, period end $ 2,762 $ 2,481 $ 2,431
===================================================
</TABLE>
The recorded investment in loans that were considered to be impaired
totaled $954,761 and $1,128,900 at September 30, 1999 and December
31, 1998, respectively. The allowance for loan losses for these
loans at September 30, 1999 and December 31, 1998 was $293,700 and
$293,700, respectively. The average investment in impaired loans for
the nine month period ended September 30, 1999 and the year ended
December 31, 1998 was $1,085,600 and $1,666,300 respectively. The
Company recognized $35,000 in interest income on impaired loans
during the nine months ended September 30, 1999. Interest income of
$11,059 on the impaired loans was recognized during the prior year.
At September 30, 1999 and December 31, 1998, nonaccrual loans
totaled $954,761 and $1,405,800, respectively. Interest foregone on
nonaccrual loans totaled $70,986 and $63,283 for the nine months
ended September 30, 1999 and 1998 respectively.
Salaries and employee benefits totaling $570,222 and $530,272 have
been deferred as loan and lease origination costs during the nine
month periods ended September 30, 1999 and 1998, respectively.
<PAGE> 10
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 3 SHAREHOLDER'S EQUITY
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
FOR THE THREE MONTH NET SHARES PER
PERIODS ENDED INCOME OUTSTANDING SHARE
(in thousands)
--------------------------------------- ----------------------------------------------------
<S> <C> <C> <C>
September 30, 1999
Basic earnings per share $ 755 2,405,982 $ 0.31
Effect of dilutive stock options 178,774
-----------------------------------------------------
Diluted earnings per share $ 755 2,584,756 $ 0.29
=====================================================
September 30, 1998
Basic earnings per share $ 575 2,291,677 $ 0.25
Effect of dilutive stock options 109,940
-----------------------------------------------------
Diluted earnings per share $ 575 2,401,617 $ 0.24
=====================================================
FOR THE NINE MONTH
PERIODS ENDED
--------------------------------------- -----------------------------------------------------
September 30, 1999
Basic earnings per share $ 2,003 2,372,733 $ 0.84
Effect of dilutive stock options 183,523
-----------------------------------------------------
Diluted earnings per share $ 2,003 2,556,256 $ 0.78
=====================================================
September 30, 1998
Basic earnings per share $ 1,430 2,232,271 $ 0.52
Effect of dilutive stock options 128,048
-----------------------------------------------------
Diluted earnings per share $ 1,430 2,360,319 $ 0.51
=====================================================
</TABLE>
<TABLE>
<CAPTION>
OTHER SHAREHOLDER'S EQUITY September 30, December 31,
Other shareholder's equity is composed of: 1999 1998
---- ----
<S> <C> <C>
Retained earnings $ 12,347 $ 10,384
Unearned ESOP shares $ (311)
Accumulated other comprehensive income (loss) $ (1,309) 115
------------------------------
Total $ 10,727 $ 10,499
==============================
</TABLE>
<PAGE> 11
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
Note 4 COMPREHENSIVE INCOME
Effective January 1, 1998, the company adopted Statement of
Financial Accounting Standard No.130 (SFAS 130), REPORTING
COMPREHENSIVE INCOME. SFAS 130 establishes new rules for reporting
and display of comprehensive income and its components. For example,
SFAS 130, requires unrealized gains and losses on the Company's
available for sale investment securities to be included in other
comprehensive income. An analysis of comprehensive income follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Net income $ 2,003 $ 1,430
Other comprehensive loss, net of tax:
Unrealized loss on available for sale investment securities $(1,426) 312
----------------------------
Total comprehensive income $ 577 $ 1,742
============================
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Net income 769 575
Other comprehensive loss, net of tax:
Unrealized loss on available for sale investment securities (486) 364
---------------------
Total comprehensive income $283 $939
=====================
</TABLE>
Note 5 NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 (SFAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES. In July 1999, Statement No. 137 was issued
which delayed the effective date of SFAS 133 one year to fiscal
quarters of fiscal years beginning after June 15, 2000. Management
does not believe that the adoption of SFAS 133 will have a
significant impact on its financial position and results of
operation when implemented.
<PAGE> 12
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain matters discussed or incorporated by reference in the
Quarterly Report on Form 10Q are forward looking statements that are
subject to risks and uncertainties that could cause actual results
to differ materially from those projected. Such risks and
uncertainties include, but are not limited to, matters described
herein. Therefore, the information set forth herein should be
carefully considered when evaluating the business prospects of the
Company.
FINANCIAL CONDITION
TOTAL ASSETS-Total assets increased by 5.96% to $307.9 million at
September 30, 1999 from $290.6 million at December 31, 1998. This is
the first quarter of asset growth after two quarters of decline. The
major decline in the first quarter was due primarily to two title
company customers with unusually large year end deposits and the
subsequent draw downs in the first quarter. The Bank, knowing these
deposits to be temporary in nature, invested in Federal Funds Sold
and was therefore able to fund the draw down without effecting its
overall investment program. The second quarter decline was a minimal
0.20%. The third quarter growth was due to an increase in overall
deposits that is a reflection of growing economy in the area
serviced. In addition, the company used short term borrowing to
finance loan growth.
NET LOANS-Net loans totaled $205.9 million at September 30,1999,
representing a 75.15% loan to deposit ratio, compared to net loans
of $161.3 million at December 31,1998, representing a $61.2% loan to
deposit ratio. Management anticipates continued loan growth
throughout the remainder of the year.
ALLOWANCE FOR LOAN LOSSES-The provision for loan losses corresponds
directly to the level of allowance that management deems adequate to
offset potential loan losses. Among the factors used in determining
the adequacy of the allowance are current economic conditions, the
mix of the loan portfolio, past loan experience and such other micro
and macro economic factors as deserve recognition in estimating
potential loan losses. The allowance represents 1.33% of loans
outstanding at the end of the third quarter.
RESULTS OF OPERATION FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INTEREST INCOME-Interest income continued to increase on a quarterly
basis this year and exceeds that earned in the same quarter of the
prior year. Quarterly interest this year was $5.53 million third
quarter, $5.12 million second quarter and $5.03 million first
quarter. Although the earning asset base continues to expand, market
forces are keeping interest rates low. Interest this quarter
exceeded the same quarter prior year by $0.30 million or 5.81%. The
primary reason for the continued growth is the shift of earning
assets from lower yielding investments into higher yielding loans.
INTEREST EXPENSE-Interest expense has decreased this year because of
these same market forces. Interest expense decreased 4.70% to $1.95
million for the quarter from $2.04 million for same quarter prior
year. This decrease occurred in spite of an increase in deposits of
$26.9 million from $247.08 million one year ago. Interest rate paid
is the primary factor.
NON-INTEREST INCOME-Non-interest income decreased 19.4% to $759
thousand for the quarter ended September 30, 1999 from $942 thousand
for the same quarter prior year. The decrease was primarily due to a
decrease in the gains on the sale and packaging of loans by the
mortgage department. This decrease is due to an increase in interest
rate and a decrease in the number of loans refinanced.
LIQUIDITY-The companies bank subsidiaries have an asset and
liability management program allowing them to monitor and maintain
interest margins during times of both rising and falling interest
rates and to maintain sufficient liquidity. Liquidity at each bank
subsidiary consists of cash and due from banks, investments not
pledged, federal funds sold and loans available-for-sale. In
addition, the banks subsidiaries maintain lines of credit with
several correspondent banks and a line at the Federal Reserve. At
December 31, 1998 the bank subsidiaries had no outstanding balances
on these credit lines. At September 30, 1999 one subsidiary had
borrowed $6 million against the Federal Home Loan Bank line of
credit.
<PAGE> 13
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
ALLOWANCE FOR LOAN LOSSES-The allocation to the Allowance for Loan
Losses was $115 thousand compared to $235 thousand for the same
period the prior year. It is the opinion of management that the
allocation is adequate because of a 71% drop in the number and
amount of problem loans.
OTHER EXPENSES-Other expenses increased from $3.002 million in the
third quarter of 1998 to $3.088 million this quarter, an increase of
2.86%. This increase is well within the anticipations of management
and appears to be mostly timing when examined within the confines of
year to date which has only increased 0.4% over the same period the
prior year.
NET INCOME-Net income for the current quarter was $755 thousand
compared to $575 thousand for the same quarter prior year.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999.
INTEREST INCOME-Interest income increased 5.68% to $15.68 million
for the nine months ended September 30, 1999 from $14.83 million for
the same period the prior year. The increase was due to an overall
increase in earning assets and a movement away from lower yielding
to higher yielding investments and an overall increase in loan
volume.
INTEREST EXPENSE-Interest expense decreased 3.46% to $5.6 million
for the year to date from $5.8 million for the same period the prior
year. This decrease is a reflection of the overall market
conditions. The deposit base has grown from $247.1 million at
September 30, 1998 to $274.0 million at the statement date. The
overall mix of deposits has changed however from 77.7% to 73.2%
interest bearing verses non-interest bearing.
OTHER INCOME-Other income has decreased 14.5% overall from $2.76
million for the first nine months of 1998 to $2.36 million the
current year. This decrease was a result of the previously mentioned
mortgage loan activity decrease, other service charges and fees have
netted an overall decease of $35 thousand.
ALLOWANCE FOR LOAN LOSSES-The allocation to the allowance for loan
losses for the nine months just ended was $430 thousand compared to
$625 thousand for the same period in 1998. Net loss for the nine
months just ended was $99 compared to a net loss of $786 the prior
nine month period. See previous comment on improved quality of loan
portfolio.
OTHER EXPENSES-Other expenses showed a minimal net increase of
0.41%.
NET INCOME-Net income for nine months totaled $2.00 million compared
to prior year to date total of $1.43 million.
LIQUIDITY
The Company's bank subsidiaries have a combined asset and liability
management program allowing them to monitor and maintain interest
margins during times of both raising and falling interest rates and
to maintain sufficient liquidity. Liquidity at each bank subsidiary
consists of cash and due from banks, investments not pledged,
federal funds sold and loans available-for sale. In addition the
bank subsidiaries maintain lines of credit with several
correspondent banks and lines of credit with the Federal Reserve
Bank. At September 30, 1999 total borrowing against the Federal Home
Loan Bank line of credit was $6 million compared no borrowing at
prior year end.
CAPITAL RESOURCES
Total shareholder's equity accounts of the Company increased to
$24.9 million from $23.9 million at prior year end, December 31,
1998. The change was due to retaining the $2.00 million in earnings
from the nine month period, a change in the effect of the unrealized
gain (loss) on available-for-sale securities of ($1.31) million,
additional paid in capital of $744 thousand, unearned ESOP shares of
($311) thousand.
The Bank Subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Under
capital adequacy guidelines and the regulatory framework for prompt
and corrective action, the Bank Subsidiaries must meet specific
capital guidelines that involve quantitative measures of the assets,
liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital amounts and
classifications are also subject to qualitative judgements by the
regulators about components, risk weighting and other factors.
<PAGE> 14
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) established the following to determine that a bank meets
the highest capital standards and is a "well capitalized"
institution:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Total Risk-Based Capital Ratio
Regulatory Requirement 10.0% 10.0%
Bank Ratio 11.8% 12.0%
Tier 1 Risk based Capital Ratio
Regulatory Requirement 6.0% 6.0%
Bank Ratio 10.7% 10.8%
Leverage Ratio
Regulatory Requirement 5.0% 5.0%
Bank Ratio 8.1% 8.1%
</TABLE>
As noted in the above schedule, the Company and its bank
subsidiaries meet all the regulatory capital requirements of a "well
capitalized" institution.
YEAR 2000 READINESS DISCLOSURE-The "year 2000 issue" (Y2K) relates
to the fact that many computer programs use only two digits to
represent a year, which means that in the year 2000 such programs
could incorrectly treat that year as the year 1900. This issue has
grown in importance as the use of computers and microchips has
become more pervasive throughout the economy. The issue is a
business problem, not simply a computer problem, because its effects
could ripple through the economy. The Bank could be materially and
adversely affected either directly or indirectly by the Y2K issue.
This could happen if any of its critical computer systems or
equipment containing preprogrammed computer chips fail, if the local
infrastructure fails, if its significant vendors are adversely
impacted, or if its borrowers or depositors are adversely impacted
by their internal systems or those of their customers or suppliers.
Failure to complete testing and renovation of critical systems on a
timely basis could have a material adverse effect on the Bank, as
could Y2K problems faced by the Bank's customers.
Federal banking regulators have the responsibility of determining if
each institution has an effective plan for identifying, renovating,
testing and implementing solutions for their Y2K processing and
coordinating these capabilities with its customers, vendors and
payment system partners. These same regulators are also required to
assess the soundness of a bank's internal controls and to identify
if further corrective action may be necessary to assure an
appropriate level of attention to Y2K processing capabilities.
The Bank has a written plan to address the risk's associated with
the impact of Y2K. The plan directs the compliance efforts under the
framework of a five step program mandated by the Federal Financial
Institutions Examination Council (FFIEC). The program consists of
five phases; awareness, assessment, renovation, validation and
implementation. The awareness, assessment, validation and
implementation phases are 100% complete as to mission critical
systems. The "Business Resumption Contingency Plan" is complete
through the simulation phase and operational training is scheduled
before November 30, 1999. Overall project status is 82% complete as
of September 30,1999.
The Bank is utilizing both internal and external resources to
identify, correct, and test its systems for Y2K compliance. It has
identified 57 vendors and 52 software applications that management
has determined are material to operations. Based on test results and
information received from vendors, it is believed that 94% of such
vendors are now Y2K compliant. Testing of the critical system
applications for the core banking product provided by the primary
vendor are complete. It was successfully retested in January, 1999
and completely verified by February 5, 1999.
The Bank has identified 13 vendors that apparently will not be Y2K
compliant by November 1, 1999. Of these vendors, six have been
identified as 90% compliant. All remaining vendors are not material
to bank operations and have been included in the contingency plan
for possible replacement.
<PAGE> 15
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The Bank is making efforts to ensure that its customers, and in
particular its significant customers, are aware of the Y2K problem.
The Bank has sent Y2K correspondence to its significant deposit and
loan customers.
A customer is deemed significant if they have:
* Total deposits of $250,000 or more.
* Total indebtedness to the bank of $250,000 or more.
A significant customer is deemed to have potential Y2K problems if
they:
* Have a business that is dependent on the use of high technology
and/or the electronic exchange of information.
* Have a business dependent on third party providers of data
processing services or products.
* Have their loans secured by collateral which could become
impaired by Y2K problems.
* Have unsecured lines of credit that can be drawn at will.
The Bank has modified its credit authorization documentation to
include of the Y2K problem. Significant customers are evaluated for
Y2K readiness and assigned an overall assessment of "high",
"medium" or "low" risk. Risk evaluation was completed December
31,1998 and revised during the second and third quarter of 1999. Any
significant customer deemed to have a high or medium risk is
scheduled for reevaluation every ninety days until they reduce their
risk level to low. Six loan customers with loans totaling $1.3
million are considered high risk and closely monitored for progress.
All significant customers are deemed low risk with the exception of
the aforementioned six.
Because of the multiplicity of potential Y2K related problems it is
impossible to determine the total potential costs in a worst-case
scenario. In order to deal with the uncertainty associated with Y2K
related problems the bank has developed a contingency plan. The
contingency plan includes manual processing of information for
critical information technology systems and increased cash on hand.
The contingency plans were completed prior to June 30, 1999 and the
appropriate implementation training took place prior to September
30, 1999.
As of September 30, 1999, the Bank has incurred approximately
$115,000 in Y2K related costs. Total Y2K costs are estimated to be
$259,000. This estimate does not include the cost of internal staff
time to test program changes. Testing is not expected to add
significant costs to the program.
<PAGE> 16
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company 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 company.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) The Company filed no reports on Form 8-K during the quarter
ended September 30, 1999
<PAGE> 17
WESTERN SIERRA BANCORP and SUBSIDIARIES
FORM 10-Q
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on the
behalf by the undersigned thereunto duly authorized.
WESTERN SIERRA BANCORP
/s/ Gary Gall
-------------------------------------
Dated, November 11, 1999 Gary Gall
President and
Chief Executive Officer
/s/ Lesa Fynes
-------------------------------------
Lesa Fynes
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,035,525
<INT-BEARING-DEPOSITS> 200,407,409
<FED-FUNDS-SOLD> 18,150,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,280,000
<INVESTMENTS-CARRYING> 49,280,000
<INVESTMENTS-MARKET> 47,280,000
<LOANS> 208,647,453
<ALLOWANCE> 2,761,809
<TOTAL-ASSETS> 307,909,916
<DEPOSITS> 273,978,395
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,718,764
<LONG-TERM> 0
0
0
<COMMON> 14,175,131
<OTHER-SE> 10,726,866
<TOTAL-LIABILITIES-AND-EQUITY> 307,909,916
<INTEREST-LOAN> 12,657,786
<INTEREST-INVEST> 3,017,439
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,675,225
<INTEREST-DEPOSIT> 5,558,590
<INTEREST-EXPENSE> 5,619,464
<INTEREST-INCOME-NET> 10,055,761
<LOAN-LOSSES> 430,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,974,621
<INCOME-PRETAX> 3,011,960
<INCOME-PRE-EXTRAORDINARY> 3,011,960
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,002,568
<EPS-BASIC> .31
<EPS-DILUTED> .29
<YIELD-ACTUAL> 8.11
<LOANS-NON> 955,000
<LOANS-PAST> 312,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,761,809
<CHARGE-OFFS> 196,000
<RECOVERIES> 97,000
<ALLOWANCE-CLOSE> 2,761,809
<ALLOWANCE-DOMESTIC> 2,761,809
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
